As filed with the Securities and Exchange Commission on April 12, 2011
FILE NO. 333-158183
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 3 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(Exact Name of Registrant)
NEW YORK 36-2608394
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
6300
(Primary Standard Industrial Classification Code Number)
100 MOTOR PARKWAY
SUITE 132
HAUPPAUGE, NEW YORK 11788
631/357-8920
(Address and Phone Number of Principal Executive Office)
SUSAN L. LEES
DIRECTOR, SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-5000
(Name, Complete Address and Telephone Number of Agent for Service)
COPIES TO:
JOCELYN LIU, ESQUIRE
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
3100 SANDERS ROAD SUITE J5B
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. [X]
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 checkmark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
CALCULATION OF REGISTRATION FEE
Proposed maximum Proposed maximum
Title of securities Amount to be offering price aggregate offering Amount of
to be registered registered (1) per unit price (1) registration fee (2)
------------------- -------------- ---------------- ------------------ ----------------
Deferred annuity N/A (1) N/A N/A
interests and
participating
interests therein
(1) The Contract does not provide for a predetermined amount or number of units.
(2) By filing dated March 24, 2009, Allstate Life Insurance Company of New York
registered $20,000,000 ($20 million) in market value adjusted annuity contract
securities and paid a filing fee of $1,116.00 therefor. In this Registration
Statement, Registrant continues that offering.
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.
Contingent on regulatory approval, ALFS, Inc ("ALFS") is expected to merge into
Allstate Distributors, LLC ("ADLLC"), effective April 29, 2011. At that time,
ALFS will assign its rights and delegate its duties as principal underwriter to
ADLLC. This change will have no effect on Allstate Life Insurance Company of New
York's obligations to you under your Contract.
Contingent on regulatory approval, 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.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
Supplement Dated May 1, 2011
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
The following information supplements the prospectus for your variable
annuity contract issued by Allstate Life Insurance Company of New York.
SUPPLEMENTAL INFORMATION ABOUT
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
INDEX
PAGE
----
Item 3(c) Risk Factors.......................................................................... 1
Item 11(a) Description of Business............................................................... 9
Item 11(b) Description of Property............................................................... 11
Item 11(c) Legal Proceedings..................................................................... 11
Item 11(e) Financial Statements and Notes to Financial Statements................................ 12
Item 11(f) Selected Financial Data............................................................... 71
Item 11(h) Management's Discussion and Analysis of Financial Condition and Results of Operations. 71
Item 11(i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 106
Item 11(j) Quantitative and Qualitative Disclosures About Market Risk............................ 106
Item 11(k) Directors, Executive Officers, Promoters and Control Persons.......................... 106
Item 11(l) Executive Compensation................................................................ 110
Item 11(m) Security Ownership of Certain Beneficial Owners and Management........................ 133
Item 11(n) Transactions with Related Persons, Promoters and Certain Control Persons.............. 134
Other Information................................................................................. 136
ITEM 3(C). RISK FACTORS
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. We assume no obligation to update any
forward-looking statements as a result of new information or future events or
developments.
These 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. However,
if the estimates, assumptions or plans underlying the forward-looking
statements prove inaccurate or if other risks or uncertainties arise, actual
results could differ materially from those communicated in these
forward-looking statements.
In addition to the normal risks of business, we are subject to significant
risks and uncertainties, including those listed below, which apply to us as an
insurer and a provider of other financial services. These risks
1
constitute our cautionary statements under the Private Securities Litigation
Reform Act of 1995 and readers should carefully review such cautionary
statements as they identify certain important factors that could cause actual
results to differ materially from those in the forward-looking statements and
historical trends. These cautionary statements are not exclusive and are in
addition to other factors discussed elsewhere in this document, in our filings
with the Securities and Exchange Commission ("SEC") or in materials
incorporated therein by reference.
CHANGES IN UNDERWRITING AND ACTUAL EXPERIENCE COULD MATERIALLY AFFECT
PROFITABILITY AND FINANCIAL CONDITION
Our product pricing includes long-term assumptions regarding investment
returns, mortality, morbidity, persistency and operating costs and expenses of
the business. We establish target returns for each product based upon these
factors and the average amount of capital that we must hold to support in-force
contracts taking into account rating agencies and regulatory requirements. We
monitor and manage our pricing and overall sales mix to achieve target new
business returns on a portfolio basis, which could result in the
discontinuation or de-emphasis of products or distribution relationships and a
decline in sales. Profitability from new business emerges over a period of
years depending on the nature and life of the product and is subject to
variability as actual results may differ from pricing assumptions.
Additionally, many of our products have fixed or guaranteed terms that limit
our ability to increase revenues or reduce benefits, including credited
interest, once the product has been issued.
Our profitability depends on the adequacy of investment spreads, the
management of market and credit risks associated with investments, the
sufficiency of premiums and contract charges to cover mortality and morbidity
benefits, the persistency of policies to ensure recovery of acquisition
expenses, and the management of operating costs and expenses within anticipated
pricing allowances. Legislation and regulation of the insurance marketplace and
products could also affect our profitability and financial condition.
CHANGES IN RESERVE ESTIMATES MAY ADVERSELY AFFECT OUR OPERATING RESULTS
The reserve for life-contingent contract benefits is computed on the basis
of long-term actuarial assumptions of future investment yields, mortality,
morbidity, persistency and expenses. We periodically review the adequacy of
these reserves on an aggregate basis and if future experience differs
significantly from assumptions, adjustments to reserves and amortization of
deferred policy acquisition costs ("DAC") may be required which could have a
material adverse effect on our operating results.
CHANGES IN MARKET INTEREST RATES MAY LEAD TO A SIGNIFICANT DECREASE IN THE
SALES AND PROFITABILITY OF SPREAD-BASED PRODUCTS
Our ability to manage our spread-based products, such as fixed annuities, is
dependent upon maintaining profitable spreads between investment yields and
interest crediting rates. When market interest rates decrease or remain at
relatively low levels, proceeds from investments that have matured or have been
prepaid or sold may be reinvested at lower yields, reducing investment spread.
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 market conditions, regulatory minimum rates or contractual minimum
rate guarantees on many contracts and may not match the timing or magnitude of
changes in investment yields. Decreases in the interest crediting rates offered
on products could make those products less attractive, leading to lower sales
and/or changes in the level of policy loans, surrenders and withdrawals.
Non-parallel shifts in interest rates, such as increases in short-term rates
without accompanying increases in medium- and long-term rates, can influence
customer demand for fixed annuities, which could impact the level and
profitability of new customer deposits. Increases in market interest rates can
also have negative effects, for example by increasing the attractiveness of
other investments to our customers, which can lead to higher surrenders at a
time when our fixed income investment asset values are lower as a result of the
increase in interest rates. This could lead to the sale of fixed income
securities at a loss.
2
For certain products, principally fixed annuity and interest-sensitive life
products, the earned rate on assets could lag behind rising market yields. We
may react to market conditions by increasing crediting rates, which could
narrow spreads and reduce profitability. Unanticipated surrenders could result
in accelerated amortization of DAC or affect the recoverability of DAC and
thereby increase expenses and reduce profitability.
CHANGES IN ESTIMATES OF PROFITABILITY ON INTEREST-SENSITIVE LIFE, FIXED
ANNUITIES AND OTHER INVESTMENT PRODUCTS MAY ADVERSELY AFFECT OUR PROFITABILITY
AND FINANCIAL CONDITION THROUGH THE AMORTIZATION OF DAC
DAC related to interest-sensitive life, fixed annuities and other investment
contracts is amortized in proportion to actual historical gross profits and
estimated future gross profits ("EGP") over the estimated lives of the
contracts. The principal assumptions for determining the amount of EGP are
investment returns, including capital gains and losses on assets supporting
contract liabilities, interest crediting rates to contractholders, and the
effects of persistency, mortality, expenses, and hedges if applicable. Updates
to these assumptions (commonly referred to as "DAC unlocking") could adversely
affect our profitability and financial condition.
REDUCING OUR CONCENTRATION IN FIXED ANNUITIES MAY ADVERSELY AFFECT REPORTED
RESULTS
We have been pursuing strategies to reduce our concentration in fixed
annuities. Lower new sales of these products, as well as our ongoing risk
mitigation and return optimization programs, could negatively impact investment
portfolio levels, complicate settlement of expiring contracts including forced
sales of assets with unrealized capital losses, and affect insurance reserves
deficiency testing.
A LOSS OF KEY PRODUCT DISTRIBUTION RELATIONSHIPS COULD MATERIALLY AFFECT SALES,
RESULTS OF OPERATIONS OR CASH FLOWS
Certain products are distributed under agreements with other members of the
financial services industry that are not affiliated with us. Termination of one
or more of these agreements due to, for example, a change in control of one of
these distributors or market conditions that make it difficult to achieve our
target return on certain products, resulting in relatively uncompetitive
pricing, or a decision by us to discontinue selling products through a
distribution channel, could have a detrimental effect on the sales, results of
operations or cash flows if it were to result in an elevated level of
surrenders of in-force contracts sold through terminated distribution
relationships.
CHANGES IN TAX LAWS MAY DECREASE SALES AND PROFITABILITY OF PRODUCTS AND
ADVERSELY AFFECT OUR FINANCIAL CONDITION
Under current federal and state income tax law, certain products we offer,
primarily life insurance and annuities, receive favorable tax treatment. This
favorable treatment may give certain of our products a competitive advantage
over noninsurance products. Congress from time to time considers legislation
that would reduce or eliminate the favorable policyholder tax treatment
currently applicable to life insurance and annuities. Congress also considers
proposals to reduce the taxation of certain products or investments that may
compete with life insurance or annuities. Legislation that increases the
taxation on insurance products or reduces the taxation on competing products
could lessen the advantage or create a disadvantage for certain of our products
making them less competitive. Such proposals, if adopted, could have a material
adverse effect on our profitability and financial condition or ability to sell
such products and could result in the surrender of some existing contracts and
policies. In addition, changes in the federal estate tax laws could negatively
affect the demand for the types of life insurance used in estate planning.
RISKS RELATING TO INVESTMENTS
WE ARE SUBJECT TO MARKET RISK AND DECLINES IN CREDIT QUALITY WHICH MAY
ADVERSELY IMPACT INVESTMENT INCOME, CAUSE ADDITIONAL REALIZED LOSSES, AND CAUSE
INCREASED UNREALIZED LOSSES
Although we continually reevaluate our risk mitigation and return
optimization programs, we remain subject to the risk that we will incur losses
due to adverse changes in interest rates, credit spreads and equity prices.
3
Adverse changes to these rates, spreads and prices may occur due to changes in
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 and/or risk tolerance.
We are subject to risks associated with potential declines in credit quality
related to specific issuers or specific industries and a general weakening in
the economy, which are typically reflected through credit spreads. Credit
spread is the additional yield on fixed income securities above the risk-free
rate (typically defined as the yield on U.S. Treasury securities) that market
participants require to compensate them for assuming credit, liquidity and/or
prepayment risks. Credit spreads vary (i.e. increase or decrease) in response
to the market's perception of risk and liquidity in a specific issuer or
specific sector and are influenced by the credit ratings, and the reliability
of those ratings, published by external rating agencies. Although we use
derivative financial instruments to manage certain of these risks, the
effectiveness of such instruments is subject to the same risks.
A decline in market interest rates or credit spreads could have an adverse
effect on our investment income as we invest cash in new investments that may
earn less than the portfolio's average yield. In a declining interest rate
environment, borrowers may prepay or redeem securities more quickly than
expected as they seek to refinance at lower rates. A decline could also lead us
to purchase longer-term or riskier assets in order to obtain adequate
investment yields resulting in a duration gap when compared to the duration of
liabilities. An increase in market interest rates or credit spreads could have
an adverse effect on the value of our investment portfolio by decreasing the
fair values of the fixed income securities that comprise a substantial majority
of our investment portfolio. A decline in the quality of our investment
portfolio as a result of adverse economic conditions or otherwise could cause
additional realized losses on securities.
DETERIORATING FINANCIAL PERFORMANCE IMPACTING SECURITIES COLLATERALIZED BY
RESIDENTIAL AND COMMERCIAL MORTGAGE LOANS, COLLATERALIZED CORPORATE LOANS, AND
COMMERCIAL MORTGAGE LOANS MAY LEAD TO WRITE-DOWNS AND IMPACT OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Changes in residential or commercial mortgage delinquencies, loss severities
or recovery rates, declining residential or commercial real estate prices,
corporate loan delinquencies or recovery rates, changes in credit or bond
insurer strength ratings and the quality of service provided by service
providers on securities in our portfolio could lead us to determine that
write-downs are necessary in the future.
CONCENTRATION OF OUR INVESTMENT PORTFOLIO IN ANY PARTICULAR SEGMENT OF THE
ECONOMY MAY HAVE ADVERSE EFFECTS ON OUR OPERATING RESULTS AND FINANCIAL
CONDITION
The concentration of our investment portfolio in any particular industry,
collateral type, group of related industries or geographic sector could have an
adverse effect on our investment portfolio and consequently on our results of
operations and financial condition. Events or developments that have a negative
impact on any particular industry, group of related industries or geographic
region may have a greater adverse effect on the investment portfolio to the
extent that the portfolio is concentrated rather than diversified.
THE DETERMINATION OF THE AMOUNT OF REALIZED CAPITAL LOSSES RECORDED FOR
IMPAIRMENTS OF OUR INVESTMENTS IS HIGHLY SUBJECTIVE AND COULD MATERIALLY IMPACT
OUR OPERATING RESULTS AND FINANCIAL CONDITION
The determination of the amount of realized capital losses recorded for
impairments vary by investment type and is based upon our periodic evaluation
and assessment of known and inherent risks associated with the respective asset
class. Such evaluations and assessments are revised as conditions change and
new information becomes available. We update our evaluations regularly and
reflect changes in other-than-temporary impairments in our results of
operations. The assessment of whether other-than-temporary impairments have
occurred is based on our case-by-case evaluation of the underlying reasons for
the decline in fair value. There can be no assurance that we have accurately
assessed the level of or amounts recorded for other-than-temporary impairments
taken in
4
our financial statements. Furthermore, historical trends may not be indicative
of future impairments and additional impairments may need to be recorded in the
future.
THE DETERMINATION OF THE FAIR VALUE OF OUR FIXED INCOME AND EQUITY SECURITIES
IS HIGHLY SUBJECTIVE AND COULD MATERIALLY IMPACT OUR OPERATING RESULTS AND
FINANCIAL CONDITION
In determining fair values we generally utilize market transaction data for
the same or similar instruments. The degree of management judgment involved in
determining fair values is inversely related to the availability of market
observable information. The fair value of assets may differ from the actual
amount received upon sale of 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 assets' fair values. The
difference between amortized cost or cost and fair value, net of deferred
income taxes, certain DAC, certain deferred sales inducement costs ("DSI"), and
certain reserves for life-contingent contract benefits, is reflected as a
component of accumulated other comprehensive income in shareholder's equity.
Changing market conditions could materially effect the determination of the
fair value of securities and unrealized net capital gains and losses could vary
significantly. Determining fair value is highly subjective and could materially
impact our operating results and financial condition.
RISKS RELATING TO THE INSURANCE INDUSTRY
OUR FUTURE RESULTS ARE DEPENDENT IN PART ON OUR ABILITY TO SUCCESSFULLY OPERATE
IN AN INSURANCE INDUSTRY THAT IS HIGHLY COMPETITIVE
The insurance industry is highly competitive. Our competitors include other
insurers and, because some of our products include a savings or investment
component, securities firms, investment advisers, mutual funds, banks and other
financial institutions. Many of our competitors have well-established national
reputations and market similar products. Because of the competitive nature of
the insurance industry, including competition for producers such as exclusive
and independent agents, there can be no assurance that we will continue to
effectively compete with our industry rivals, or that competitive pressures
will not have a material adverse effect on our business, operating results or
financial condition. Furthermore, certain competitors operate using a mutual
insurance company structure and therefore may have dissimilar profitability and
return targets. Our ability to successfully operate may also be impaired if we
are not effective in filling critical leadership positions, in developing the
talent and skills of our human resources, in assimilating new executive talent
into our organization, or in deploying human resource talent consistently with
our business goals.
DIFFICULT CONDITIONS IN THE ECONOMY GENERALLY COULD ADVERSELY AFFECT OUR
BUSINESS AND OPERATING RESULTS
As with most businesses, we believe difficult conditions in the economy,
such as significant negative macroeconomic trends, including relatively high
and sustained unemployment, reduced consumer spending, lower home prices, and
substantial increases in delinquencies on consumer debt, including defaults on
home mortgages, and the relatively low availability of credit could have an
adverse effect on our business and operating results.
General economic conditions could adversely affect us in the form of
consumer behavior and pressure investment results. Consumer behavior changes
could include decreased demand for our products. In addition, holders of some
of our interest-sensitive life insurance and annuity products may engage in an
elevated level of discretionary withdrawals of contractholder funds. Our
investment results could be adversely affected as deteriorating financial and
business conditions affect the issuers of the securities in our investment
portfolio.
THERE CAN BE NO ASSURANCE THAT ACTIONS OF THE U.S. FEDERAL GOVERNMENT, FEDERAL
RESERVE AND OTHER GOVERNMENTAL AND REGULATORY BODIES FOR THE PURPOSE OF
STABILIZING THE FINANCIAL MARKETS AND STIMULATING THE ECONOMY WILL ACHIEVE THE
INTENDED EFFECT
In response to the financial crises affecting the banking system, the
financial markets and the broader economy in recent years, the U.S. federal
government, the Federal Reserve and other governmental and
5
regulatory bodies have taken actions such as purchasing mortgage-backed and
other securities from financial institutions, investing directly in banks,
thrifts and bank and savings and loan holding companies and increasing federal
spending to stimulate the economy. There can be no assurance as to the long
term impact such actions will have on the financial markets or on economic
conditions, including potential inflationary affects. Continued volatility and
any further economic deterioration could materially and adversely affect our
business, financial
condition and results of operations.
LOSSES FROM LITIGATION MAY BE MATERIAL TO OUR OPERATING RESULTS OR CASH FLOWS
AND FINANCIAL CONDITION
As is typical for a large company, we are involved in various legal actions,
including class action litigation challenging a range of company practices and
coverage provided by our insurance products. In the event of an unfavorable
outcome in one or more of these matters, the ultimate liability may be in
excess of amounts currently reserved and may be material to our operating
results or cash flows for a particular quarter or annual period and to our
financial condition.
WE ARE SUBJECT TO EXTENSIVE REGULATION AND POTENTIAL FURTHER RESTRICTIVE
REGULATION MAY INCREASE OUR OPERATING COSTS AND LIMIT OUR GROWTH
As an insurance company, we are subject to extensive laws and regulations.
These laws and regulations are complex and subject to change. Moreover, they
are administered and enforced by a number of different governmental
authorities, including state insurance regulators, state securities
administrators, the SEC, Financial Industry Regulatory Authority, the U.S.
Department of Justice, and state attorneys general, each of which exercises a
degree of interpretive latitude. Consequently, we are subject to the risk that
compliance with any particular regulator's or enforcement authority's
interpretation of a legal issue may not result in compliance with another's
interpretation of the same issue, particularly when compliance is judged in
hindsight. In addition, there is risk that any particular regulator's or
enforcement authority's interpretation of a legal issue may change over time to
our detriment, or that changes in the overall legal environment may, even
absent any particular regulator's or enforcement authority's interpretation of
a legal issue changing, cause us to change our views regarding the actions we
need to take from a legal risk management perspective, thus necessitating
changes to our practices that may, in some cases, limit our ability to grow and
improve the profitability of our business. Furthermore, in some cases, these
laws and regulations are designed to protect or benefit the interests of a
specific constituency rather than a range of constituencies. For example, state
insurance laws and regulations are generally intended to protect or benefit
purchasers or users of insurance products. In many respects, these laws and
regulations limit our ability to grow and improve the profitability of our
business.
In recent years, the state insurance regulatory framework has come under
public scrutiny and members of Congress have discussed proposals to provide for
federal chartering of insurance companies. We can make no assurances regarding
the potential impact of state or federal measures that may change the nature or
scope of insurance regulation.
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, including the establishment of a Federal Insurance
Office within the Department of Treasury.
These regulatory reforms and any additional legislation or regulatory
requirements imposed upon us in connection with the federal government's
regulatory reform of the financial services industry, and any more stringent
enforcement of existing regulations by federal authorities, may make it more
expensive for us to conduct our business.
6
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. No assurances can be made that reinsurance will remain
continuously available to us to the same extent and on the same terms and rates
as is currently available. If we were unable to maintain our current level of
reinsurance or purchase new reinsurance protection in amounts that we consider
sufficient and at prices that we consider acceptable, we would have to either
accept an increase in our exposure risk, reduce our insurance writings, or
develop or seek other alternatives.
REINSURANCE SUBJECTS US TO THE CREDIT RISK OF OUR REINSURERS AND MAY NOT BE
ADEQUATE TO PROTECT US AGAINST LOSSES ARISING FROM CEDED INSURANCE, WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION
The collectability of reinsurance recoverables is subject to uncertainty
arising from a number of factors, including changes in market conditions,
whether insured losses meet the qualifying conditions of the reinsurance
contract and 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 collect a material recovery from a
reinsurer could have a material adverse effect on our operating results and
financial condition.
A LARGE SCALE PANDEMIC, THE CONTINUED THREAT OF TERRORISM OR ONGOING MILITARY
ACTIONS MAY HAVE AN ADVERSE EFFECT ON THE LEVEL OF CLAIM LOSSES WE INCUR, THE
VALUE OF OUR INVESTMENT PORTFOLIO, OUR COMPETITIVE POSITION, MARKETABILITY OF
PRODUCT OFFERINGS, LIQUIDITY AND OPERATING RESULTS
A large scale pandemic, the continued threat of terrorism, within the United
States and abroad, or ongoing military and other actions and heightened
security measures in response to these types of threats, may cause significant
volatility and losses in our investment portfolio from declines in the equity
markets and from interest rate changes in the United States, Europe and
elsewhere, and result in loss of life, property damage, 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 and reduced
economic activity caused by a large scale pandemic or the continued threat of
terrorism. Additionally, a large scale pandemic or terrorist act could have a
material adverse effect on the sales, profitability, competitiveness,
marketability of product offerings, liquidity, and operating results.
A DOWNGRADE IN OUR FINANCIAL STRENGTH RATINGS MAY HAVE AN ADVERSE EFFECT ON OUR
COMPETITIVE POSITION, THE MARKETABILITY OF OUR PRODUCT OFFERINGS, AND OUR
LIQUIDITY, OPERATING RESULTS AND FINANCIAL CONDITION
Financial strength ratings are important factors in establishing the
competitive position of insurance companies and generally have an effect on an
insurance company's business. On an ongoing basis, rating agencies review the
financial performance and condition of insurers and could downgrade or change
the outlook on an insurer's ratings due to, for example, a change in an
insurer's statutory capital; a change in a rating agency's determination of the
amount of risk-adjusted capital required to maintain a particular rating; an
increase in the perceived risk of an insurer's investment portfolio; a reduced
confidence in management or a host of other considerations that may or may not
be under the insurer's control. Our insurance financial strength ratings from
A.M. Best, Standard & Poor's and Moody's are, subject to continuous review, and
the retention of current ratings cannot be assured. A downgrade in any of these
ratings could have a material adverse effect on our sales, our competitiveness,
the marketability of our product offerings, and our liquidity, operating
results and financial condition.
ADVERSE CAPITAL AND CREDIT MARKET CONDITIONS MAY SIGNIFICANTLY AFFECT OUR
ABILITY TO MEET LIQUIDITY NEEDS OR OUR ABILITY TO 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. In such
circumstances, our ability to obtain capital to fund operating expenses may be
7
limited, and the cost of any such capital may be significant. Our access to
additional financing will depend 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. Similarly,
our access to funds may be impaired if regulatory authorities or rating
agencies take negative actions against us. If a combination of these factors
were to occur, our internal sources of liquidity may prove to be insufficient
and in such case, we may not be able to successfully obtain additional
financing on favorable terms.
CHANGES IN ACCOUNTING STANDARDS ISSUED BY THE FINANCIAL ACCOUNTING STANDARDS
BOARD ("FASB") OR OTHER STANDARD-SETTING BODIES MAY ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our financial statements are subject to the application of generally
accepted accounting principles, which are periodically revised, interpreted
and/or expanded. Accordingly, we are required to adopt new guidance or
interpretations, or could be subject to existing guidance as we enter into new
transactions, which may have a material adverse effect on our results of
operations and financial condition that is either unexpected or has a greater
impact than expected. For a description of changes in accounting standards that
are currently pending and, if known, our estimates of their expected impact,
see Note 2 of the financial statements.
THE CHANGE IN OUR UNRECOGNIZED TAX BENEFIT DURING THE NEXT 12 MONTHS IS SUBJECT
TO UNCERTAINTY
We have disclosed our estimate of net unrecognized tax benefits and the
reasonably possible increase or decrease in its balance during the next 12
months in Note 12 of the financial statements. However, actual results may
differ from our estimate for reasons such as changes in our position on
specific issues, developments with respect to the governments' interpretations
of income tax laws or changes in judgment resulting from new information
obtained in audits or the appeals process.
THE OCCURRENCE OF EVENTS UNANTICIPATED IN OUR DISASTER RECOVERY SYSTEMS AND
MANAGEMENT CONTINUITY PLANNING OR A SUPPORT FAILURE FROM EXTERNAL PROVIDERS
DURING A DISASTER COULD IMPAIR OUR ABILITY TO CONDUCT BUSINESS EFFECTIVELY
The occurrence of a disaster such as a natural catastrophe, an industrial
accident, a terrorist attack or war, events unanticipated in our disaster
recovery systems, 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.
In the event that a significant number of our managers could be unavailable in
the event of a disaster, our ability to effectively conduct our business could
be severely compromised.
LOSS OF KEY VENDOR RELATIONSHIPS OR FAILURE OF A VENDOR TO PROTECT PERSONAL
INFORMATION OF OUR CUSTOMERS, CLAIMANTS OR EMPLOYEES COULD AFFECT OUR OPERATIONS
We rely on services and products provided by many vendors in the United
States and abroad. These include, for example, vendors of computer hardware and
software. In the event that one or more of our vendors suffers a bankruptcy or
otherwise becomes unable to continue to provide products or services, or fails
to protect personal information of our customers, claimants or employees, we
may suffer operational impairments and financial losses.
8
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 capital stock of AIC is owned by Allstate Insurance Holdings, LLC,
which is wholly owned by The Allstate Corporation (the "Corporation" or
"Allstate"), a publicly owned holding company incorporated under the laws of
the State of Delaware. The Allstate Corporation is the largest publicly held
personal lines insurer in the United States. Widely known through the "You're
In Good Hands With Allstate(R)" slogan, Allstate is reinventing protection and
retirement to help individuals in approximately 16 million households protect
what they have today and better prepare for tomorrow. Customers can access
Allstate products and services such as auto insurance and homeowners insurance
through more than 13,000 exclusive Allstate agencies and financial
representatives in the United States and Canada. Allstate is the 2/nd/ largest
personal property and casualty insurer in the United States on the basis of
2009 statutory direct premiums earned. In addition, according to A.M. Best, it
is the nation's 16/th/ largest issuer of life insurance business on the basis
of 2009 ordinary life insurance in force and 21/st/ largest on the basis of
2009 statutory admitted assets.
9
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 subject to the requirement to prepare financial statements in
conformity with accounting principles generally accepted in the United States
of America ("GAAP"). We frequently use industry publications containing
statutory financial information to assess our competitive position.
We provide life insurance, retirement and investment products, and voluntary
accident and health insurance products. Our principal products are
interest-sensitive, traditional and variable life insurance; fixed annuities,
including deferred and immediate; and voluntary accident and health insurance.
We sell products through multiple intermediary distribution channels,
including Allstate exclusive agencies and exclusive financial specialists,
independent agents (including workplace enrolling agents) and specialized
structured settlement brokers. Through March 31, 2010, we also sold products
through banks and broker-dealers. Although we continue to service in force
contracts sold through these distribution channels, we no longer solicit new
sales through direct relationships with banks or broker-dealers.
We compete on a wide variety of factors, including the scope of our
distribution systems, the types of our product offerings, the recognition of
our brand, our financial strength and ratings, our differentiated product
features and prices, and the level of customer service that we provide.
The market for life insurance, retirement and investment products continues
to be highly fragmented and competitive. As of December 31, 2010, there were
approximately 470 groups of life insurance companies in the United States, most
of which offered one or more similar products. In addition, because many of
these products include a savings or investment component, our competition
includes domestic and foreign securities firms, investment advisors, mutual
funds, banks and other financial institutions. Competitive pressure continues
to grow due to several factors, including cross marketing alliances between
unaffiliated businesses, as well as consolidation activity in the financial
services industry.
Allstate Life of New York is subject to extensive regulation, primarily, but
not exclusively, from the New York State Insurance Department. 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 New York State
Insurance Department. In general, such regulation is intended for the
protection of those who purchase or use insurance products. These rules have a
substantial effect on our business and relate to a wide variety of matters,
including insurance company licensing and examination, agent licensing, price
setting, trade practices, policy forms, statutory accounting methods, corporate
governance, the nature and amount of investments, claims practices,
participation in guaranty funds, reserve adequacy, insurer solvency,
transactions with affiliates, the payment of dividends, and underwriting
standards. For a discussion of statutory financial information, see Note 13 of
the financial statements. For a discussion of regulatory contingencies, see
Note 11 of the financial statements. Notes 11 and 13 are incorporated in this,
Item 11(a) by reference.
In recent years, the state insurance regulatory framework has come under
increased federal scrutiny. Legislation that would provide for increased
federal regulation of insurance, including the federal chartering of insurance
companies, has been proposed. Moreover, as part of an effort to strengthen the
regulation of the financial services market, the Dodd-Frank Wall Street Reform
and Consumer Protection Act was enacted. Hundreds of regulations must be
promulgated and implemented pursuant to this new law, and we cannot predict
what the final regulations will require, but do not expect a material impact on
Allstate Life of New York's operations. The new law also creates the Federal
Office of Insurance ("FIO") within the Treasury Department. The FIO will
monitor the insurance industry, provide advice to the new Financial Stability
Oversight Council, represent the U.S. on international insurance matters and
study the current regulatory system and submit a report to Congress in 2012. In
addition, state legislators and insurance regulators continue to examine the
appropriate nature and scope of state insurance regulation. We cannot predict
whether any specific state or federal measures
10
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 on both a direct
and indirect basis, depending on the nature and use. We believe that these
facilities are suitable and adequate for our 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" and under the heading
"Legal and regulatory proceedings and inquiries" in Note 11 of the financial
statements.
11
ITEM 11(E).FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31,
($ IN THOUSANDS) -----------------------------
2010 2009 2008
-------- -------- ---------
REVENUES
Premiums (net of reinsurance ceded of $30,578, $29,907 and $18,215)............ $ 45,087 $ 47,659 $ 59,248
Contract charges (net of reinsurance ceded of $29,092, $25,999 and
$18,780)..................................................................... 52,063 51,834 61,108
Net investment income.......................................................... 368,695 372,395 402,931
Realized capital gains and losses:
Total other-than-temporary impairment losses................................ (45,075) (52,207) (117,790)
Portion of loss recognized in other comprehensive income.................... 2,479 1,131 --
-------- -------- ---------
Net other-than-temporary impairment losses recognized in
earnings.............................................................. (42,596) (51,076) (117,790)
Sales and other realized capital gains and losses........................... (3,253) 196,544 40,585
-------- -------- ---------
Total realized capital gains and losses................................. (45,849) 145,468 (77,205)
-------- -------- ---------
419,996 617,356 446,082
COSTS AND EXPENSES
Contract benefits (net of reinsurance ceded of $25,524, $5,510 and
$40,307)..................................................................... 182,786 170,075 184,192
Interest credited to contractholder funds (net of reinsurance ceded of $8,457,
$8,757 and $10,485).......................................................... 168,085 201,549 191,208
Amortization of deferred policy acquisition costs.............................. 16,437 148,450 17,778
Operating costs and expenses................................................... 36,540 41,183 40,869
-------- -------- ---------
403,848 561,257 434,047
Loss on disposition of operations.............................................. -- -- (358)
-------- -------- ---------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE............................... 16,148 56,099 11,677
Income tax expense............................................................. 5,851 19,729 4,005
-------- -------- ---------
NET INCOME..................................................................... 10,297 36,370 7,672
-------- -------- ---------
OTHER COMPREHENSIVE INCOME (LOSS), AFTER-TAX
Change in unrealized net capital gains and losses.............................. 109,160 153,340 (174,102)
-------- -------- ---------
COMPREHENSIVE INCOME (LOSS).................................................... $119,457 $189,710 $(166,430)
======== ======== =========
See notes to financial statements.
12
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF FINANCIAL POSITION
DECEMBER 31,
($ IN THOUSANDS, EXCEPT PAR VALUE DATA) ----------------------
2010 2009
---------- ----------
ASSETS
Investments
Fixed income securities, at fair value (amortized cost $6,000,293 and
$6,073,235).................................................................... $6,300,109 $6,073,765
Mortgage loans................................................................... 501,476 543,007
Equity securities, at fair value (cost $99,348 and $100,168)..................... 124,559 123,311
Limited partnership interests.................................................... 4,814 --
Short-term, at fair value (amortized cost $198,601 and $348,456)................. 198,601 348,453
Policy loans..................................................................... 41,862 40,569
Other............................................................................ 18,776 10,292
---------- ----------
Total investments............................................................ 7,190,197 7,139,397
Cash................................................................................ 6,534 8,977
Deferred policy acquisition costs................................................... 169,937 213,325
Reinsurance recoverables............................................................ 309,498 327,173
Accrued investment income........................................................... 69,673 69,557
Current income taxes receivable..................................................... 14,387 18,032
Other assets........................................................................ 15,873 24,686
Separate Accounts................................................................... 577,756 587,044
---------- ----------
TOTAL ASSETS................................................................. $8,353,855 $8,388,191
========== ==========
LIABILITIES
Contractholder funds................................................................ $4,688,791 $4,990,879
Reserve for life-contingent contract benefits....................................... 1,990,214 1,875,579
Deferred income taxes............................................................... 102,308 37,887
Other liabilities and accrued expenses.............................................. 158,069 180,061
Payable to affiliates, net.......................................................... 6,709 6,591
Reinsurance payable to parent....................................................... 3,667 3,266
Separate Accounts................................................................... 577,756 587,044
---------- ----------
TOTAL LIABILITIES............................................................ 7,527,514 7,681,307
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11)
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..................................................................... 550,102 539,805
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with
OTTI....................................................................... 1,488 (2,452)
Other unrealized net capital gains and losses................................ 209,780 18,038
Unrealized adjustment to DAC, DSI and insurance reserves..................... (78,058) 8,464
---------- ----------
Total unrealized net capital gains and losses............................. 133,210 24,050
---------- ----------
Total accumulated other comprehensive income.......................... 133,210 24,050
---------- ----------
TOTAL SHAREHOLDER'S EQUITY............................................ 826,341 706,884
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................ $8,353,855 $8,388,191
========== ==========
See notes to financial statements.
13
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31,
($ IN THOUSANDS) -----------------------------
2010 2009 2008
-------- --------- ---------
COMMON STOCK............................................. $ 2,500 $ 2,500 $ 2,500
-------- --------- ---------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year............................... 140,529 140,000 140,000
Forgiveness of payable due to an affiliate (see Note 4).. -- 529 --
-------- --------- ---------
Balance, end of year..................................... 140,529 140,529 140,000
-------- --------- ---------
RETAINED INCOME
Balance, beginning of year............................... 539,805 482,982 473,184
Net income............................................... 10,297 36,370 7,672
Cumulative effect of change in accounting principle...... -- 20,376 --
Forgiveness of payable due to an affiliate (see Note 4).. -- 77 --
Gain on purchase of investments from parent (see Note 4). -- -- 2,126
-------- --------- ---------
Balance, end of year..................................... 550,102 539,805 482,982
-------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year............................... 24,050 (108,914) 65,188
Cumulative effect of change in accounting principle...... -- (20,376) --
Change in unrealized net capital gains and losses........ 109,160 153,340 (174,102)
-------- --------- ---------
Balance, end of year..................................... 133,210 24,050 (108,914)
-------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY............................... $826,341 $ 706,884 $ 516,568
======== ========= =========
See notes to financial statements.
14
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
($ IN THOUSANDS) -----------------------------------
2010 2009 2008
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 10,297 $ 36,370 $ 7,672
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and other non-cash items.............................. (35,349) (50,399) (80,807)
Realized capital gains and losses.................................. 45,849 (145,468) 77,205
Loss on disposition of operations.................................. -- -- 358
Interest credited to contractholder funds.......................... 168,085 201,549 191,208
Changes in:
Policy benefit and other insurance reserves.................... (18,993) (20,919) (7,034)
Deferred policy acquisition costs.............................. (8,267) 115,890 (33,612)
Income taxes................................................... 9,288 (10,125) 383
Other operating assets and liabilities......................... (3,523) (21,232) (16,998)
----------- ----------- ---------
Net cash provided by operating activities................... 167,387 105,666 138,375
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities............................................ 1,032,677 1,850,519 640,634
Equity securities.................................................. 69,836 204 --
Limited partnership interests...................................... 6 -- --
Mortgage loans..................................................... 7,480 12,580 12,175
Investment collections
Fixed income securities............................................ 327,791 309,185 162,268
Mortgage loans..................................................... 57,603 141,726 52,030
Investment purchases
Fixed income securities............................................ (1,272,428) (2,250,840) (668,526)
Equity securities.................................................. (50,006) (100,215) --
Limited partnership interests...................................... (4,965) -- --
Mortgage loans..................................................... (45,491) (10,000) (41,141)
Change in short-term investments, net................................. 129,007 95,366 (421,483)
Change in policy loans and other investments, net..................... (33,138) 21,425 7,585
Disposition of operations............................................. -- -- (2,500)
----------- ----------- ---------
Net cash provided by (used in) investing activities......... 218,372 69,950 (258,958)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits.......................................... 158,042 296,991 615,564
Contractholder fund withdrawals....................................... (546,244) (468,595) (497,372)
----------- ----------- ---------
Net cash (used in) provided by financing activities......... (388,202) (171,604) 118,192
----------- ----------- ---------
NET (DECREASE) INCREASE IN CASH....................................... (2,443) 4,012 (2,391)
CASH AT BEGINNING OF YEAR............................................. 8,977 4,965 7,356
----------- ----------- ---------
CASH AT END OF YEAR................................................... $ 6,534 $ 8,977 $ 4,965
=========== =========== =========
See notes to financial statements
15
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"). All of the outstanding common stock of AIC is 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.
NATURE OF OPERATIONS
The Company sells life insurance, retirement and investment products and
voluntary accident and health insurance to customers in the State of New York.
The principal products are interest-sensitive, traditional and variable life
insurance; fixed annuities including deferred and immediate; and voluntary
accident and health insurance. The following table summarizes premiums and
contract charges by product.
2010 2009 2008
($ IN THOUSANDS) ------- ------- --------
PREMIUMS
Traditional life insurance..................... $20,215 $20,159 $ 29,597
Immediate annuities with life contingencies.... 14,610 17,934 21,451
Accident and health insurance.................. 10,262 9,566 8,200
------- ------- --------
TOTAL PREMIUMS.............................. 45,087 47,659 59,248
CONTRACT CHARGES
Interest-sensitive life insurance.............. 48,453 47,071 54,972
Fixed annuities................................ 3,610 4,763 6,136
------- ------- --------
TOTAL CONTRACT CHARGES...................... 52,063 51,834 61,108
------- ------- --------
TOTAL PREMIUMS AND CONTRACT CHARGES..... $97,150 $99,493 $120,356
======= ======= ========
The Company distributes its products to individuals through multiple
distribution channels, including Allstate exclusive agencies, which include
exclusive financial specialists, independent agents (including workplace
enrolling agents) and specialized structured settlement brokers.
The Company has exposure to market risk as a result of its investment
portfolio. Market risk is the risk that the Company will incur realized and
unrealized net capital losses due to adverse changes in interest rates, credit
spreads or equity prices. Interest rate risk is the risk that the Company will
incur a loss due to adverse changes in interest rates relative to the interest
rate characteristics of its interest bearing assets and liabilities. This risk
arises from many of the Company's primary activities, as it invests substantial
funds in interest-sensitive assets and issues interest-sensitive liabilities.
Interest rate risk includes risks related to changes in U.S. Treasury yields
and other key risk-free reference yields. Credit spread risk is the risk that
the Company will incur a loss due to adverse changes in credit spreads. This
risk arises from many of the Company's primary activities, as the Company
invests substantial funds in spread-sensitive fixed income assets. Equity price
risk is the risk that the Company will incur losses due to adverse changes in
the general levels of the equity markets.
16
The Company monitors economic and regulatory developments that have the
potential to impact its business. The ability of banks to affiliate with
insurers may have a material adverse effect on all of the Company's product
lines by substantially increasing the number, size and financial strength of
potential competitors. Furthermore, federal and state laws and regulations
affect the taxation of insurance companies and life insurance and annuity
products. Congress from time to time considers legislation that would reduce or
eliminate the favorable policyholder tax treatment currently applicable to life
insurance and annuities. Congress also considers proposals to reduce the
taxation of certain products or investments that may compete with life
insurance or annuities. Legislation that increases the taxation on insurance
products or reduces the taxation on competing products could lessen the
advantage or create a disadvantage for certain of the Company's products making
them less competitive. Such proposals, if adopted, could have an adverse effect
on the Company's financial position or ability to sell such products and could
result in the surrender of some existing contracts and policies. In addition,
changes in the federal estate tax laws could negatively affect the demand for
the types of life insurance used in estate planning.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds, residential mortgage-backed
securities ("RMBS"), commercial mortgage-backed securities ("CMBS"),
asset-backed securities ("ABS") and redeemable preferred stocks. Fixed income
securities, which may be sold prior to their contractual maturity, are
designated as available for sale and are carried at fair value. The difference
between amortized cost and fair value, net of deferred income taxes, certain
deferred policy acquisition costs ("DAC"), certain deferred sales inducement
costs ("DSI") and certain reserves for life-contingent contract benefits, is
reflected as a component of accumulated other comprehensive income. Cash
received from calls, principal payments 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.
Equity securities include exchange traded funds. Equity securities are
designated as available for sale and are carried at fair value. The difference
between cost and fair value, net of deferred income taxes, is reflected as a
component of accumulated other comprehensive income.
Mortgage loans are carried at outstanding principal balances, net of
unamortized premium or discount and valuation allowances. Valuation allowances
are established for impaired loans when it is probable that contractual
principal and interest will not be collected. Valuation allowances for impaired
loans reduce the carrying value to the fair value of the collateral less costs
to sell or the present value of the loan's expected future repayment cash flows
discounted at the loan's original effective interest rate.
Investments in limited partnership interests, including interests in private
equity/debt funds, where the Company's interest is so minor that it exercises
virtually no influence over operating and financial policies, are accounted for
in accordance with the cost method of accounting; otherwise, investments in
limited partnership interests are accounted for in accordance with the equity
method of accounting.
Short-term investments, including money market funds, commercial paper and
other short-term investments, are carried at fair value. Policy loans are
carried at the respective unpaid principle balances. Other investments consist
of notes due from related party and derivatives. Notes due from related party
are carried at outstanding principal balances. Derivatives are carried at fair
value.
Investment income consists primarily of interest, dividends, income from
certain 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 certain RMBS, CMBS and ABS is determined considering estimated
principal repayments obtained from third party data sources
17
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 beneficial interests in securitized financial assets
not of high credit quality, the effective yield is recalculated on a
prospective basis. For all other RMBS, CMBS and ABS, the effective yield is
recalculated on a retrospective basis. For other-than-temporarily impaired
fixed income securities, the effective yield method utilizes the difference
between the amortized cost basis at impairment and the cash flows expected to
be collected. Accrual of income is suspended for other-than-temporarily
impaired 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. Cash receipts on
investments on nonaccrual status are generally recorded as a reduction of
carrying value. Income from investments in limited partnership interests
accounted for utilizing the cost method of accounting is recognized upon
receipt of amounts distributed by the partnerships as investment income.
Realized capital gains and losses include gains and losses on investment
sales, write-downs in value due to other-than-temporary declines in fair value,
adjustments to valuation allowances on mortgage loans, periodic changes in the
fair value and settlements of certain derivatives including hedge
ineffectiveness, and income from limited partnership interests accounted for
utilizing the equity method of accounting ("EMA limited partnerships").
Realized capital gains and losses on investment sales include calls and
prepayments and are determined on a specific identification basis. Income from
EMA limited partnerships is recognized based on the financial results of the
partnership and the Company's proportionate investment interest, and is
recognized on a delay due to the availability of the related financial
statements. Income recognition on private equity/debt funds is generally on a
three month delay.
The Company recognizes other-than-temporary impairment losses on fixed
income securities in earnings when a security's fair value is less than its
amortized cost and the Company has made the decision to sell or it is more
likely than not the Company will be required to sell the fixed income security
before recovery of its amortized cost basis. Additionally, if the Company does
not expect to receive cash flows sufficient to recover the entire amortized
cost basis of a fixed income security, the credit loss component of the
impairment is recorded in earnings, with the remaining amount of the unrealized
loss related to other factors recognized in other comprehensive income ("OCI").
The Company recognizes other-than-temporary impairment losses on equity
securities in earnings when the decline in fair value is considered other than
temporary including when the Company does not have the intent and ability to
hold the equity security for a period of time sufficient to recover its cost
basis.
DERIVATIVE AND EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments include interest rate swaps and caps,
foreign currency swaps, 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 certain fixed income securities and reinsured variable annuity
contracts (see Note 7).
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. 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 certain
fixed income securities and subject to bifurcation is reported in realized
capital gains and losses. The change in fair value of derivatives embedded in
annuity product contracts and subject to bifurcation is reported in contract
benefits. Cash flows from embedded derivatives requiring bifurcation and
derivatives receiving hedge accounting are reported consistently with the host
contracts and hedged risks, respectively, 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.
18
When derivatives meet specific criteria, they may be designated as
accounting hedges and accounted for as fair value, cash flow, foreign currency
fair value or foreign currency cash flow hedges. The hedged item may be either
all or a specific portion of a recognized asset, liability or an unrecognized
firm commitment attributable to a particular risk for fair value hedges. At the
inception of the hedge, the Company formally documents the hedging relationship
and risk management objective and strategy. The documentation identifies the
hedging instrument, the hedged item, the nature of the risk being hedged and
the methodology used to assess the effectiveness of the hedging instrument in
offsetting the exposure to changes in the hedged item's fair value attributable
to the hedged risk. For a cash flow hedge, this documentation includes the
exposure to changes in the variability in cash flows attributable to the hedged
risk. The Company does not exclude any component of the change in fair value of
the hedging instrument from the effectiveness assessment. At each reporting
date, the Company confirms that the hedging instrument continues to be highly
effective in offsetting the hedged risk. Ineffectiveness in fair value hedges
and cash flow hedges, if any, is reported in realized capital gains and losses.
CASH FLOW HEDGES For hedging instruments used in cash flow hedges, the
changes in fair value of the derivatives representing the effective portion of
the hedge are reported in accumulated other comprehensive income. Amounts are
reclassified to net investment income or realized capital gains and losses as
the hedged or forecasted transaction affects net income. Accrued periodic
settlements on derivatives used in cash flow hedges are reported in net
investment income. The amount reported in accumulated other comprehensive
income for a hedged transaction is limited to the lesser of the cumulative gain
or loss on the derivative less the amount reclassified to net income, or the
cumulative gain or loss on the derivative needed to offset the cumulative
change in the expected future cash flows on the hedged transaction from
inception of the hedge less the derivative gain or loss previously reclassified
from accumulated other comprehensive income to net income. If the Company
expects at any time that the loss reported in accumulated other comprehensive
income would lead to a net loss on the combination of the hedging instrument
and the hedged transaction which may not be recoverable, a loss is recognized
immediately in realized capital gains and losses. If an impairment loss is
recognized on an asset or an additional obligation is incurred on a liability
involved in a hedge transaction, any offsetting gain in accumulated other
comprehensive income is reclassified and reported together with the impairment
loss or recognition of the obligation.
TERMINATION OF HEDGE ACCOUNTING If, subsequent to entering into a hedge
transaction, the derivative becomes ineffective (including if the hedged item
is sold or otherwise extinguished, the occurrence of a hedged forecasted
transaction is no longer probable or the hedged asset becomes
other-than-temporarily impaired), the Company may terminate the derivative
position. The Company may also terminate derivative instruments or redesignate
them as non-hedge as a result of other events or circumstances.
When a derivative instrument used in a cash flow hedge of an existing asset
or liability is no longer effective or is terminated, the gain or loss
recognized on the derivative is reclassified from accumulated other
comprehensive income to net income as the hedged risk impacts net income. If
the derivative instrument is not terminated when a cash flow hedge is no longer
effective, the future gains and losses recognized on the derivative are
reported in realized capital gains and losses. When a derivative instrument
used in a cash flow hedge of a forecasted transaction is terminated because it
is probable the forecasted transaction will not occur, the gain or loss
recognized on the derivative is immediately reclassified from accumulated other
comprehensive income to realized capital gains and losses in the period that
hedge accounting is no longer applied.
NON-HEDGE DERIVATIVE FINANCIAL INSTRUMENTS The Company has certain
derivatives for which hedge accounting is not applied. The income statement
effects, including fair value gains and losses and accrued periodic
settlements, of these derivatives are reported on the Statements of Operations
and Comprehensive Income 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.
19
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 are 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% of the fair value of securities 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 redeem the securities
loaned on short notice. Substantially all of the Company's securities loaned
are placed with large banks.
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. Premiums from these products are recognized as revenue when
due from policyholders. Benefits are reflected in contract benefits and
recognized in relation to premiums, so that profits are recognized over the
life of the policy.
Immediate annuities with life contingencies, including certain structured
settlement annuities, provide insurance protection 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 and expenses are recognized in relation to premiums. Profits
from these policies come 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
revenues 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 contracts 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. 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
20
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.
DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS
Costs that vary with and are primarily related to acquiring life insurance
and investment contracts are deferred and recorded as DAC. These costs are
principally agents' and brokers' remuneration and certain underwriting
expenses. DSI costs, which are deferred and recorded as other assets, relate to
sales inducements offered on sales to new customers, principally on annuity and
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 on the Statements of Operations and Comprehensive Income.
Amortization of DAC is included in amortization of deferred policy acquisition
costs on the Statements of Operations and Comprehensive Income 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 on the Statements of Operations and Comprehensive Income. DAC and DSI are
periodically reviewed for recoverability and adjusted if necessary.
For traditional life 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 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.
For interest-sensitive life, fixed annuities and other investment contracts,
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 and 5-10 years for fixed annuities. The cumulative
DAC and DSI amortization is reestimated and adjusted by a cumulative charge or
credit to results of operations 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 consist primarily 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 investment returns, including
capital gains and losses on assets supporting contract liabilities, interest
crediting rates to contractholders, and the effects of persistency, mortality,
expenses, and hedges if applicable. For products whose supporting investments
are exposed to capital losses in excess of the
21
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, fixed annuities and other investment contracts in the
aggregate using current assumptions. If a change in the amount of EGP is
significant, it could result in the unamortized DAC and 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
accumulated other comprehensive income. DAC, DSI and deferred income taxes
detemined on unrealized capital gains and losses and reported in accumulated
other comprehensive income 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 insurance and investment
contracts, the EGP of the replacement contracts are treated as a revision to
the EGP of the replaced contract 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. 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 (see Note
9). The Company has also used reinsurance to effect the disposition of certain
blocks of business. The amounts reported in the Statements of Financial
Position 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 liabilities 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 liabilities 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 regularly evaluates the
financial condition of its reinsurers and establishes allowances for
uncollectible reinsurance recoverables as appropriate.
The Company has a reinsurance treaty with ALIC through which it primarily
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 and premiums paid to ALIC
are recognized in realized capital gains and losses (see Note 4).
22
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates. The principal assets and liabilities giving rise to such differences are
unrealized capital gains and losses on certain investments, DAC, differences in
tax bases of invested assets and insurance reserves. A deferred tax asset
valuation allowance is established when there is uncertainty that such assets
will be realized.
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 products, is computed on the basis
of long-term actuarial assumptions of future investment yields, mortality,
morbidity, policy terminations and expenses (see Note 8). 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. To
the extent that unrealized gains on fixed income securities would result in a
premium deficiency if those gains were realized, the related 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
accumulated other comprehensive income.
CONTRACTHOLDER FUNDS
Contractholder funds represent interest-bearing liabilities arising from the
sale of products such as interest-sensitive life and fixed annuities.
Contractholder funds are comprised primarily of deposits received and interest
credited to the benefit of the contractholder less surrenders and withdrawals,
mortality charges and administrative expenses (see Note 8). Contractholder
funds also include reserves for secondary guarantees on interest-sensitive life
insurance and 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
account 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.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Commitments to invest 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).
ADOPTED ACCOUNTING STANDARDS
DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS
In January 2010, the Financial Accounting Standards Board ("FASB") issued
new accounting guidance which expands disclosure requirements relating to fair
value measurements. The guidance adds requirements for
23
disclosing amounts of and reasons for significant transfers into and out of
Levels 1 and 2 and requires gross rather than net disclosures about purchases,
sales, issuances and settlements relating to Level 3 measurements. The guidance
also provides clarification that fair value measurement disclosures are
required for each class of assets and liabilities. Disclosures about the
valuation techniques and inputs used to measure fair value for measurements
that fall in either Level 2 or Level 3 are also required. The Company adopted
the provisions of the new guidance as of December 31, 2010, except for
disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements, which are required for
fiscal years beginning after December 15, 2010. Disclosures are not required
for earlier periods presented for comparative purposes. The new guidance
affects disclosures only; and therefore, the adoption had no impact on the
Company's results of operations or financial position.
DISCLOSURES ABOUT THE CREDIT QUALITY OF FINANCING RECEIVABLES AND THE ALLOWANCE
FOR CREDIT LOSSES
In July 2010, the FASB issued guidance requiring expanded disclosures
relating to the credit quality of financing receivables and the related
allowances for credit losses. The new guidance requires a greater level of
disaggregated information, as well as additional disclosures about credit
quality indicators, past due information and modifications of its financing
receivables. The new guidance is effective for reporting periods ending after
December 15, 2010, except for disclosures related to troubled debt
restructurings which have been deferred until reporting periods ending after
December 15, 2011. The new guidance affects disclosures only; and therefore,
the adoption as of December 31, 2010 had no impact on the Company's results of
operations or financial position.
PENDING ACCOUNTING STANDARDS
CONSOLIDATION ANALYSIS CONSIDERING INVESTMENTS HELD THROUGH SEPARATE ACCOUNTS
In April 2010, the FASB issued guidance clarifying that an insurer is not
required to combine interests in investments held in a qualifying separate
account with its interests in the same investments held in the general account
when performing a consolidation evaluation. The guidance is effective for
fiscal years beginning after December 15, 2010 with early adoption permitted.
The adoption of this guidance is not expected to have a material impact on the
Company's results of operations or financial position.
ACCOUNTING FOR COSTS ASSOCIATED WITH ACQUIRING OR RENEWING INSURANCE CONTRACTS
In October 2010, the FASB issued guidance modifying the definition of the
types of costs incurred by insurance entities that can be capitalized in the
acquisition of new and renewal contracts. The guidance specifies that the costs
must be based on successful efforts. The guidance also specifies that
advertising costs only should be included as deferred acquisition costs if the
direct-response advertising accounting criteria are met. The new guidance is
effective for reporting periods beginning after December 15, 2011 and should be
applied prospectively, with retrospective application permitted. The Company is
in process of evaluating the impact of adoption on the Company's results of
operations and financial position.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investment exchanges, including modifications of certain fixed
income securities, totaled $41.6 million and $53.6 million for the years ended
December 31, 2010 and 2009, respectively. There were no non-cash investment
exchanges or modifications in 2008.
Liabilities for collateral received in conjunction with the Company's
securities lending activities were $128.0 million, $149.4 million and $117.3
million as of December 31, 2010, 2009 and 2008, respectively, and are reported
in other liabilities and accrued expenses in the Statements of Financial
Position. The accompanying
24
cash flows are included in cash flows from operating activities in the
Statements of Cash Flows along with the activities resulting from management of
the proceeds, which for the years ended December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) --------- --------- ---------
NET CHANGE IN PROCEEDS MANAGED
Net change in fixed income securities......... $ -- $ -- $ 36,778
Net change in short-term investments.......... 21,379 (32,065) 44,063
--------- --------- ---------
Operating cash flow provided (used)........ $ 21,379 $ (32,065) $ 80,841
========= ========= =========
NET CHANGE IN LIABILITIES
Liabilities for collateral, beginning of year. $(149,362) $(117,297) $(198,138)
Liabilities for collateral, end of year....... (127,983) (149,362) (117,297)
--------- --------- ---------
Operating cash flow (used) provided........ $ (21,379) $ 32,065 $ (80,841)
========= ========= =========
In 2010 and 2009, the Company sold mortgage loans with carrying values of
$19.9 million and $8.3 million, respectively, to an affiliate in exchange for
notes receivable with a principal sum equal to the mortgage loans (see Note 4).
In addition, in 2009, a payable associated with postretirement benefit
obligations due to AIC totaling $606 thousand was forgiven. The forgiveness of
the payable reflects a non-cash financing activity.
4. RELATED PARTY TRANSACTIONS
BUSINESS OPERATIONS
The Company uses services performed by its affiliates, AIC, ALIC and
Allstate Investments LLC, 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 $45.6 million,
$50.4 million and $54.3 million in 2010, 2009 and 2008, 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 issued $8.6 million, $9.1 million and $12.9 million of
structured settlement annuities, a type of immediate annuity, in 2010, 2009 and
2008, respectively, at prices determined using interest rates in effect at the
time of purchase, to fund structured settlements in matters involving AIC. Of
these amounts, $989 thousand, $806 thousand and $866 thousand relate to
structured settlement annuities with life contingencies and are included in
premium income for 2010, 2009 and 2008, respectively.
In most cases, these annuities were issued under a "qualified assignment"
whereby prior to July 1, 2001 Allstate Settlement Corporation ("ASC"), and on
and subsequent to July 1, 2001 Allstate Assignment Corporation ("AAC"), both
wholly owned subsidiaries of ALIC, purchased annuities from the Company and
assumed AIC's obligation to make future payments.
Reserves recorded by the Company for annuities issued to ASC and AAC,
including annuities to fund structured settlements in matters involving AIC,
were $2.04 billion and $1.99 billion at December 31, 2010 and 2009,
respectively.
BROKER-DEALER AGREEMENTS
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
25
these services, the Company recorded expense of $1.2 million, $2.5 million and
$4.1 million in 2010, 2009 and 2008, respectively.
The Company receives distribution services from Allstate Financial Services,
LLC ("AFS"), an affiliated broker-dealer company, for certain variable life
insurance contracts sold by Allstate exclusive agencies. For these services,
the Company incurred commission and other distribution expenses of $306
thousand, $358 thousand and $838 thousand in 2010, 2009 and 2008, respectively.
REINSURANCE TRANSACTIONS
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).
In 2008, additional expenses were recorded relating to a rescission of
reinsurance coverage due to the nonpayment of premium for certain traditional
and interest-sensitive life insurance policies reinsured to ALIC in accordance
with an agreement between the Company and ALIC (the "rescission"). The
rescission resulted in a reduction to 2008 net income of $4.1 million, which
included contract benefits of $7.1 million, accretion of DAC of $876 thousand
and an income tax benefit of $2.2 million. The Company paid $8.7 million to
ALIC in order to return amounts previously received from ALIC for ceded
contract benefits on policies subject to the rescission of coverage.
The Company has a reinsurance treaty through which it primarily 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 $3.5 million, $3.4
million and $3.3 million for the years ended December 31, 2010, 2009 and 2008,
respectively. At December 31, 2010 and 2009, the carrying value of the
structured settlement reinsurance treaty was $(4.9) million and $(5.1) 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 on the Statements of Operations and
Comprehensive Income as the treaty is recorded as a derivative instrument.
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 billion. The Corporation may use commercial paper borrowings,
bank lines of credit and repurchase agreements to fund intercompany borrowings.
The Company had no amounts outstanding under the intercompany loan agreement as
of December 31, 2010 and 2009.
NOTES RECEIVABLE-INVESTMENT SALES
In 2009, the Company entered into an asset purchase agreement with Road Bay
Investments, LLC ("RBI"), a subsidiary of ALIC, which allows RBI to purchase
from the Company mortgage loans or participations in mortgage loans with an
aggregate fair value of up to $50 million. As consideration for the sale of the
assets, RBI issues notes to the Company. As security for the performance of
RBI's obligations under the agreement and
26
notes, RBI granted a pledge of and security interest in RBI's right, title and
interest in the mortgage loans and their proceeds. The notes due from RBI are
classified as other investments in the Statements of Financial Position.
In March 2010, the Company sold to RBI mortgage loans with a carrying value
of $13.7 million on the date of sale, and RBI issued the Company a 7.00% note
due March 26, 2017 for the same amount. The Company subsequently received $9.8
million cash payments from RBI on this note. In November 2010, the Company sold
to RBI mortgage loans with a carrying value of $2.7 million on the date of
sale, and RBI issued the Company a 7.50% note due November 18, 2017 for the
same amount. In December 2010, the Company sold to RBI mortgage loans with a
carrying value of $3.5 million on the date of sale, and RBI issued the Company
a 6.50% note due December 14, 2017 for the same amount.
In September 2009, the Company sold to RBI mortgage loans with a carrying
value of $8.3 million on the date of sale, and RBI issued the Company a 7.00%
note due September 25, 2016 for the same amount.
In 2010 and 2009, the Company recorded net investment income on the notes
due from RBI of $1.1 million and $154 thousand, respectively.
INVESTMENT PURCHASE
In September 2008, the Company purchased investments from its parent ALIC.
The Company paid $199.1 million in cash for the investments, which included
fixed income securities with a fair value on the date of sale of $197.5 million
and $1.6 million of accrued investment income. Since the transaction was
between affiliates under common control, the fixed income securities were
recorded at the amortized cost basis on the date of sale of $200.8 million. The
difference between the fair value and the amortized cost basis of these
investments on the date of sale, was recorded as an increase to retained income
of $2.1 million after-tax ($3.3 million pre-tax).
POSTRETIREMENT BENEFIT PLANS
Effective September 30, 2009, the Corporation became the sponsor of a group
medical plan and a group life insurance plan to provide covered benefits to
certain retired employees ("postretirement benefits"). Prior to September 30,
2009, AIC was the sponsor of these plans. In connection with the change in the
sponsorship, amounts payable by the Company to the previous plan sponsor, AIC,
totaling $606 thousand were forgiven. The forgiveness of this liability was
recorded as an increase in additional capital paid-in of $529 thousand and an
increase to retained income of $77 thousand.
27
5. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for
fixed income securities are as follows:
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
($ IN THOUSANDS) ---------- -------- --------- ----------
DECEMBER 31, 2010
U.S. government and agencies..... $ 288,835 $ 69,934 $ (201) $ 358,568
Municipal........................ 874,967 16,539 (37,772) 853,734
Corporate........................ 3,545,565 235,383 (27,856) 3,753,092
Foreign government............... 268,603 61,683 (683) 329,603
RMBS............................. 579,801 20,859 (10,362) 590,298
CMBS............................. 294,494 5,832 (33,282) 267,044
ABS.............................. 138,832 2,917 (3,185) 138,564
Redeemable preferred stock....... 9,196 10 -- 9,206
---------- -------- --------- ----------
Total fixed income securities. $6,000,293 $413,157 $(113,341) $6,300,109
========== ======== ========= ==========
DECEMBER 31, 2009
U.S. government and agencies..... $ 534,590 $ 51,977 $ (365) $ 586,202
Municipal........................ 929,688 12,502 (63,780) 878,410
Corporate........................ 3,173,030 158,579 (60,407) 3,271,202
Foreign government............... 241,141 50,715 (1,000) 290,856
RMBS............................. 666,118 11,539 (25,985) 651,672
CMBS............................. 472,835 1,884 (127,978) 346,741
ABS.............................. 46,588 5 (6,549) 40,044
Redeemable preferred stock....... 9,245 -- (607) 8,638
---------- -------- --------- ----------
Total fixed income securities. $6,073,235 $287,201 $(286,671) $6,073,765
========== ======== ========= ==========
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows as of
December 31, 2010:
AMORTIZED FAIR
COST VALUE
($ IN THOUSANDS) ---------- ----------
Due in one year or less................ $ 171,840 $ 174,578
Due after one year through five years.. 1,466,444 1,556,583
Due after five years through ten years. 1,568,007 1,726,852
Due after ten years.................... 2,075,369 2,113,234
---------- ----------
5,281,660 5,571,247
RMBS and ABS........................... 718,633 728,862
---------- ----------
Total............................... $6,000,293 $6,300,109
========== ==========
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers. Because of the potential for prepayment on RMBS and ABS, they
are not categorized by contractual maturity. CMBS are categorized by
contractual maturity because they generally are not subject to prepayment risk.
28
NET INVESTMENT INCOME
Net investment income for the years ended December 31 is as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
Fixed income securities.............. $341,612 $338,563 $362,671
Mortgage loans....................... 30,374 36,658 41,949
Equity securities.................... 2,626 1,751 --
Short-term and other................. 4,452 5,038 12,949
-------- -------- --------
Investment income, before expense. 379,064 382,010 417,569
Investment expense................ (10,369) (9,615) (14,638)
-------- -------- --------
Net investment income......... $368,695 $372,395 $402,931
======== ======== ========
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses by asset type for the years ended
December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
Fixed income securities.............. $(19,445) $114,122 $(55,775)
Mortgage loans....................... (2,534) (5,327) (2,049)
Equity securities.................... 19,009 110 --
Limited partnership interests........ (146) -- --
Derivatives.......................... (42,733) 36,526 (19,381)
Other................................ -- 37 --
-------- -------- --------
Realized capital gains and losses. $(45,849) $145,468 $(77,205)
======== ======== ========
Realized capital gains and losses by transaction type for the years ended
December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- ---------
Impairment write-downs................... $(31,370) $(30,255) $ (38,528)
Change in intent write-downs............. (11,226) (20,821) (79,262)
-------- -------- ---------
Net other-than-temporary impairment
("OTTI") losses recognized in earnings. (42,596) (51,076) (117,790)
Sales.................................... 39,937 160,294 59,966
Valuation of derivative instruments...... (37,932) 29,831 (29,525)
Settlement of derivative instruments..... (5,112) 6,419 10,144
EMA limited partnership income........... (146) -- --
-------- -------- ---------
Realized capital gains and losses..... $(45,849) $145,468 $ (77,205)
======== ======== =========
Gross gains of $32.7 million, $180.8 million and $62.4 million and gross
losses of $17.2 million, $23.1 million and $8.8 million were realized on sales
of fixed income securities during 2010, 2009 and 2008, respectively.
29
Other-than-temporary impairment losses by asset type for the year ended
December 31 are as follows:
2010 2009
--------------------------- ---------------------------
INCLUDED INCLUDED
GROSS IN OCI NET GROSS IN OCI NET
($ IN THOUSANDS) -------- -------- -------- -------- -------- --------
Fixed income securities:
Municipal................................ $ (8,328) $ -- $ (8,328) $ (2,298) $ -- $ (2,298)
Corporate................................ (7,500) 141 (7,359) (17,993) (938) (18,931)
RMBS..................................... (3,146) (1,882) (5,028) (6,494) 3,895 (2,599)
CMBS..................................... (23,179) 4,220 (18,959) (19,458) (1,826) (21,284)
-------- ------- -------- -------- ------- --------
Total fixed income securities........ (42,153) 2,479 (39,674) (46,243) 1,131 (45,112)
Mortgage loans.............................. (2,922) -- (2,922) (5,950) -- (5,950)
Equity securities........................... -- -- -- (14) -- (14)
-------- ------- -------- -------- ------- --------
Other-than-temporary impairment
losses............................. $(45,075) $ 2,479 $(42,596) $(52,207) $ 1,131 $(51,076)
======== ======= ======== ======== ======= ========
The total amount of other-than-temporary impairment losses included in
accumulated other comprehensive income at the time of impairment for fixed
income securities as of December 31, which were not included in earnings, are
presented in the following table. The amount excludes $14.6 million and $8.7
million as of December 31, 2010 and 2009, respectively, of net unrealized gains
related to changes in valuation of the fixed income securities subsequent to
the impairment measurement date.
2010 2009
($ IN THOUSANDS) -------- --------
Corporate..... $ (300) $ (1,197)
RMBS.......... (7,791) (11,296)
CMBS.......... (4,220) --
-------- --------
Total....... $(12,311) $(12,493)
======== ========
Rollforwards of the cumulative credit losses recognized in earnings for
fixed income securities held as of December 31 are as follows:
2010 2009
($ IN THOUSANDS) -------- --------
Beginning balance......................................................................... $(25,493) $ --
Beginning balance of cumulative credit loss for securities held as of April 1, 2009....... -- (33,493)
Additional credit loss for securities previously other-than-temporarily impaired.......... (2,050) (3,328)
Additional credit loss for securities not previously other-than-temporarily impaired...... (26,398) (17,665)
Reduction in credit loss for securities disposed or collected............................. 28,071 28,993
Reduction in credit loss for securities the Company has made the decision to sell or more
likely than not will be required to sell................................................ 1,698 --
Change in credit loss due to accretion of increase in cash flows.......................... -- --
-------- --------
Ending balance............................................................................ $(24,172) $(25,493)
======== ========
The Company uses its best estimate of future cash flows expected to be
collected from the fixed income security, discounted at the security's original
or current effective rate, as appropriate, to calculate a recovery value and
determine whether a credit loss exists. 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, including past
events, current conditions, and reasonable and supportable assumptions and
forecasts, are considered when developing the estimate of cash flows expected
to be collected. That information generally includes, but is not limited to, the
30
remaining payment terms of the security, prepayment speeds, foreign exchange
rates, the financial condition and future earnings potential of the issue or
issuer, expected defaults, expected recoveries, the value of underlying
collateral, vintage, geographic concentration, 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 the Company
determines that the security is dependent on the liquidation of collateral for
ultimate settlement. If the estimated recovery value is less than the amortized
cost of the security, a credit loss exists and an other-than-temporary
impairment for the difference between the estimated recovery value and
amortized cost is recorded in earnings. The portion of the unrealized loss
related to factors other than credit remains classified in accumulated other
comprehensive income. 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.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses included in accumulated other
comprehensive income are as follows:
GROSS UNREALIZED
FAIR ------------------ UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
($ IN THOUSANDS) ---------- -------- --------- --------------
DECEMBER 31, 2010
Fixed income securities/(1)/.......................... $6,300,109 $413,157 $(113,341) $ 299,816
Equity securities..................................... 124,559 25,211 -- 25,211
Short-term investments................................ 198,601 1 (1) --
---------
Unrealized net capital gains and losses, pre-tax... 325,027
Amounts recognized for:
Insurance reserves/(2)/............................ (115,141)
DAC and DSI/(3)/................................... (4,947)
---------
Amounts recognized................................. (120,088)
Deferred income taxes.............................. (71,729)
---------
Unrealized net capital gains and losses, after-tax. $ 133,210
=========
--------
/(1)/Unrealized net capital gains and losses for fixed income securities as of
December 31, 2010 comprises $2.3 million related to unrealized net capital
gains on fixed income securities with OTTI and $297.5 million related to
other unrealized net capital gains and losses.
/(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 current
lower interest rates, resulting in a premium deficiency. Although the
Company evaluates premium deficiencies on the combined performance of life
insurance and immediate annuities with life contingencies, the adjustment
primarily relates to structured settlement annuities with life
contingencies, in addition to certain payout annuities 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.
31
GROSS UNREALIZED
FAIR ------------------ UNREALIZED NET
VALUE GAINS LOSSES GAINS (LOSSES)
- ---------- -------- --------- --------------
DECEMBER 31, 2009
Fixed income securities/(1)/.......................... $6,073,765 $287,201 $(286,671) $ 530
Equity securities..................................... 123,311 23,143 -- 23,143
Short-term investments................................ 348,453 1 (4) (3)
Derivative instruments................................ -- 309 -- 309
--------
Unrealized net capital gains and losses, pre-tax... 23,979
Amounts recognized for:
Insurance reserves................................. (40,551)
DAC and DSI........................................ 53,572
--------
Amounts recognized................................. 13,021
Deferred income taxes.............................. (12,950)
--------
Unrealized net capital gains and losses, after-tax. $ 24,050
========
--------
/(1)/Unrealized net capital gains and losses for fixed income securities as of
December 31, 2009 comprises $(3.8) million related to unrealized net
capital losses on fixed income securities with OTTI and $4.3 million
related to other unrealized net capital gains and losses.
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
The change in unrealized net capital gains and losses for the years ended
December 31 is as follows:
2010 2009 2008
($ IN THOUSANDS) --------- --------- ---------
Fixed income securities........................................... $ 299,286 $ 280,616 $(622,315)
Equity securities................................................. 2,068 23,143 --
Short-term investments............................................ 3 (68) 65
Derivative instruments............................................ (309) (1,440) 2,515
--------- --------- ---------
Total.......................................................... 301,048 302,251 (619,735)
Amounts recognized for:
Insurance reserves............................................. (74,590) 115,384 105,911
DAC and DSI.................................................... (58,519) (213,075) 245,975
--------- --------- ---------
(Decrease) increase in amounts recognized...................... (133,109) (97,691) 351,886
Deferred income taxes.......................................... (58,779) (71,596) 93,747
--------- --------- ---------
Increase (decrease) in unrealized net capital gains and losses. $ 109,160 $ 132,964 $(174,102)
========= ========= =========
PORTFOLIO MONITORING
The Company has a comprehensive portfolio monitoring process to identify and
evaluate each fixed income and equity security whose carrying value may be
other-than-temporarily impaired.
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, the security's decline in fair value is
considered other than temporary and is 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
32
of the security. The Company calculates the estimated recovery value by
discounting the best estimate of future cash flows at the security's original
or current effective rate, as appropriate, and compares this to the amortized
cost of the security. If the Company does not expect to receive cash flows
sufficient to recover the entire amortized cost basis of the fixed income
security, the credit loss component of the impairment is recorded in earnings,
with the remaining amount of the unrealized loss related to other factors
recognized in other comprehensive income.
For equity securities, the Company considers various factors, including
whether it has the intent and ability to hold the equity security for a period
of time sufficient to recover its cost basis. Where the Company lacks the
intent and ability to hold to recovery, or believes the recovery period is
extended, the equity security's decline in fair value is considered other than
temporary and is recorded in earnings. For equity securities managed by a third
party, the Company has contractually retained its decision making authority as
it pertains to selling equity securities that are in an unrealized loss
position.
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 (for fixed income securities) or cost (for
equity securities) is below established thresholds. The process also includes
the monitoring of other impairment 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 other-than-temporary impairment using all reasonably available
information relevant to the collectability or recovery of the security.
Inherent in the Company's evaluation of other-than-temporary impairment for
these fixed income and equity securities are assumptions and estimates about
the financial condition and future earnings potential of the issue or issuer.
Some of the factors considered in evaluating whether a decline in fair value is
other than temporary 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 length of time and extent to which the fair value
has been less than amortized cost or cost.
33
The following table summarizes the gross unrealized losses and fair value of
fixed income securities by the length of time that individual securities have
been in a continuous unrealized loss position. There are no equity securities
with gross unrealized losses as of December 31, 2010.
LESS THAN 12 MONTHS 12 MONTHS OR MORE
------------------------------ ---------------------------- TOTAL
NUMBER UNREALIZED NUMBER FAIR UNREALIZED UNREALIZED
($ IN THOUSANDS) OF ISSUES FAIR VALUE LOSSES OF ISSUES VALUE LOSSES LOSSES
---------------- --------- ---------- ---------- --------- -------- ---------- ----------
DECEMBER 31, 2010
Fixed income securities
U.S. government and agencies........... 1 $ 4,182 $ (201) -- $ -- $ -- $ (201)
Municipal.............................. 39 227,428 (6,528) 31 171,400 (31,244) (37,772)
Corporate.............................. 79 383,290 (17,054) 20 97,202 (10,802) (27,856)
Foreign government..................... 2 43,918 (683) -- -- -- (683)
RMBS................................... 35 8,883 (110) 35 45,913 (10,252) (10,362)
CMBS................................... 1 9,968 (57) 15 117,978 (33,225) (33,282)
ABS.................................... 5 9,937 (39) 3 18,914 (3,146) (3,185)
--- ---------- -------- --- -------- --------- ---------
Total fixed income securities/(1)/.... 162 $ 687,606 $(24,672) 104 $451,407 $ (88,669) $(113,341)
=== ========== ======== === ======== ========= =========
Investment grade fixed income securities. 138 $ 635,094 $(22,220) 70 $367,032 $ (60,013) $ (82,233)
Below investment grade fixed income
securities.............................. 24 52,512 (2,452) 34 84,375 (28,656) (31,108)
--- ---------- -------- --- -------- --------- ---------
Total fixed income securities.......... 162 $ 687,606 $(24,672) 104 $451,407 $ (88,669) $(113,341)
=== ========== ======== === ======== ========= =========
DECEMBER 31, 2009
Fixed income securities
U.S. government and agencies........... 9 $ 209,201 $ (365) -- $ -- $ -- $ (365)
Municipal.............................. 31 258,153 (8,197) 46 244,537 (55,583) (63,780)
Corporate.............................. 83 401,910 (11,534) 77 343,942 (48,873) (60,407)
Foreign government..................... 3 36,618 (1,000) -- -- -- (1,000)
RMBS................................... 24 68,199 (1,158) 41 81,536 (24,827) (25,985)
CMBS................................... 3 20,648 (339) 34 239,448 (127,639) (127,978)
ABS.................................... 6 20,200 (105) 3 17,776 (6,444) (6,549)
Redeemable preferred stock............. -- -- -- 1 8,639 (607) (607)
--- ---------- -------- --- -------- --------- ---------
Total fixed income securities/(1)/.... 159 $1,014,929 $(22,698) 202 $935,878 $(263,973) $(286,671)
=== ========== ======== === ======== ========= =========
Investment grade fixed income securities. 151 $ 995,984 $(19,518) 150 $837,804 $(227,091) $(246,609)
Below investment grade fixed income
securities.............................. 8 18,945 (3,180) 52 98,074 (36,882) (40,062)
--- ---------- -------- --- -------- --------- ---------
Total fixed income securities.......... 159 $1,014,929 $(22,698) 202 $935,878 $(263,973) $(286,671)
=== ========== ======== === ======== ========= =========
--------
/(1)/Gross unrealized losses resulting from factors other than credit on fixed
income securities with other-than-temporary impairments for which the
Company has recorded a credit loss in earnings total zero for the less
than 12 month category and $7.0 million for the 12 months or greater
category as of December 31, 2010 and $464 thousand for the less than 12
month category and $6.1 million for the 12 months or greater category as
of December 31, 2009.
As of December 31, 2010, $55.4 million of unrealized losses are related to
securities with an unrealized loss position less than 20% of amortized cost,
the degree of which suggests that these securities do not pose a high risk of
being other-than-temporarily impaired. Of the $55.4 million, $49.3 million are
related to unrealized losses on investment grade fixed income securities.
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 Standard & Poor's ("S&P"),
Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or
a comparable internal rating if an externally provided rating is not available.
Unrealized losses on investment grade securities are principally related to
widening credit spreads or rising interest rates since the time of initial
purchase.
As of December 31, 2010, the remaining $57.9 million of unrealized losses
are related to securities in unrealized loss positions greater than or equal to
20% of amortized cost. Investment grade fixed income securities comprising
$32.9 million of these unrealized losses were evaluated based on factors such
as expected cash flows and the financial condition and near-term and long-term
prospects of the issue or issuer and were
34
determined to have adequate resources to fulfill contractual obligations. Of
the $57.9 million, $25.0 million are related to below investment grade fixed
income securities and had been in an unrealized loss position for a period of
twelve or more consecutive months as of December 31, 2010. Unrealized losses on
below investment grade securities are principally related to CMBS and RMBS and
were the result of wider credit spreads resulting from higher risk premiums
since the time of initial purchase, largely due to macroeconomic conditions and
credit market deterioration, including the impact of lower real estate
valuations.
RMBS, CMBS and ABS 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, (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, and (iii) for RMBS and ABS in an unrealized loss position,
credit enhancements from reliable bond insurers, where applicable. Municipal
bonds in an unrealized loss position were evaluated based on the quality of the
underlying securities, taking into consideration credit enhancements from
reliable bond insurers, where applicable.
As of December 31, 2010, 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.
LIMITED PARTNERSHIPS
As of December 31, 2010, the carrying value of equity method limited
partnership interests totaled $2.4 million. The Company recognizes an
impairment loss for equity method investments 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. The Company
had no write-downs related to equity method limited partnership interests in
2010.
As of December 31, 2010, the carrying value for cost method limited
partnership interests was $2.4 million. To determine if an other-than-temporary
impairment has occurred, the Company evaluates whether an impairment indicator
has occurred in the period that may have a significant adverse effect on the
carrying value of the investment. Impairment indicators may include:
significantly reduced valuations of the investments held by the limited
partnerships; actual recent cash flows received being significantly less than
expected cash flows; reduced valuations based on financing completed at a lower
value; completed sale of a material underlying investment at a price
significantly lower than expected; or any other adverse events since the last
financial statements received that might affect the fair value of the
investee's capital. Additionally, the Company's portfolio monitoring process
includes a quarterly review of all cost method limited partnerships to identify
instances where the net asset value is below established thresholds for certain
periods of time, as well as investments that are performing below expectations,
for further impairment consideration. If a cost method limited partnership is
other-than-temporarily impaired, the carrying value is written down to fair
value, generally estimated to be equivalent to the reported net asset value of
the underlying funds. The Company had no write-downs related to cost method
investments in 2010.
MORTGAGE LOANS
The Company's mortgage loans are commercial mortgage loans collateralized by
a variety of commercial real estate property types located throughout the
United States and totaled, net of valuation allowance, $501 million and $543
million as of December 31, 2010 and 2009, respectively. Substantially all of
the commercial mortgage loans are non-recourse to the borrower. The following
table shows the principal geographic distribution
35
of commercial real estate represented in the Company's mortgage portfolio. No
other state represented more than 5% of the portfolio as of December 31.
2010 2009
(% OF MORTGAGE PORTFOLIO CARRYING VALUE) ---- ----
California.................. 24.2% 24.8%
Illinois.................... 14.6 13.9
Texas....................... 9.5 2.8
Arizona..................... 7.4 7.0
Pennsylvania................ 5.3 7.0
The types of properties collateralizing the mortgage loans as of December 31
are as follows:
2010 2009
(% OF MORTGAGE PORTFOLIO CARRYING VALUE) ----- -----
Warehouse..................... 35.1% 39.8%
Office buildings.............. 29.4 31.4
Retail........................ 19.4 15.7
Apartment complex............. 11.9 10.0
Other......................... 4.2 3.1
----- -----
Total...................... 100.0% 100.0%
===== =====
The contractual maturities of the mortgage loan portfolio as of December 31,
2010 are as follows:
NUMBER CARRYING
OF LOANS VALUE PERCENT
($ IN THOUSANDS) -------- -------- -------
2011........... 8 $ 32,489 6.5%
2012........... 6 22,784 4.5
2013........... 15 70,030 14.0
2014........... 13 62,616 12.5
Thereafter..... 60 313,557 62.5
--- -------- -----
Total....... 102 $501,476 100.0%
=== ======== =====
Mortgage loans are evaluated for impairment on a specific loan basis through
a quarterly credit monitoring process and review of key credit quality
indicators. Mortgage loans are considered impaired when it is probable that the
Company will not collect the contractual principal and interest. Valuation
allowances are established for impaired loans to reduce the carrying value to
the fair value of the collateral less costs to sell or the present value of the
loan's expected future repayment cash flows discounted at the loan's original
effective interest rate. Impaired mortgage loans may not have a valuation
allowance when the fair value of the collateral less costs to sell is higher
than the carrying value. Mortgage loan valuation allowances are charged off
when there is no reasonable expectation of recovery.
Accrual of income is suspended for mortgage loans that are in default or
when full and timely collection of principal and interest payments is not
probable. Cash receipts on mortgage loans on nonaccrual status are generally
recorded as a reduction of carrying value.
Debt service coverage ratio is considered a key credit quality indicator
when mortgage loans are evaluated for impairment. Debt service coverage ratio
represents the amount of estimated cash flows from the property available to
the borrower to meet principal and interest payment obligations. Debt service
coverage ratio estimates are updated annually or more frequently if conditions
are warranted based on the Company's credit
36
monitoring process. The following table reflects the carrying value of
non-impaired fixed rate and variable rate mortgage loans as of December 31,
2010, summarized by debt service coverage ratio distribution:
FIXED RATE VARIABLE RATE
MORTGAGE LOANS MORTGAGE LOANS TOTAL
($ IN THOUSANDS) -------------- -------------- --------
DEBT SERVICE COVERAGE RATIO DISTRIBUTION
Below 1.0................................ $ 13,361 $ -- $ 13,361
1.0 - 1.25............................... 140,835 -- 140,835
1.26 - 1.50.............................. 128,978 -- 128,978
Above 1.50............................... 206,694 4,485 211,179
-------- ------ --------
Total non-impaired mortgage loans..... $489,868 $4,485 $494,353
======== ====== ========
Mortgage loans with a debt service coverage ratio below 1.0 that are not
considered impaired primarily relate to instances where the borrower has the
financial capacity to fund the revenue shortfalls from the properties for the
foreseeable term, the decrease in cash flows from the properties is considered
temporary, or there are other risk mitigating circumstances such as additional
collateral, escrow balances or borrower guarantees.
The net carrying value of impaired mortgage loans as of December 31 is as
follows:
2010 2009
($ IN THOUSANDS) ------ -------
Impaired mortgage loans with a valuation allowance.... $7,123 $23,956
Impaired mortgage loans without a valuation allowance. -- --
------ -------
Total impaired mortgage loans......................... $7,123 $23,956
====== =======
Valuation allowance on impaired mortgage loans........ $1,670 $ 4,250
The average balance of impaired loans was $11.1 million, $17.0 million and
$1.9 million during 2010, 2009 and 2008, respectively.
The rollforward of the valuation allowance on impaired mortgage loans for
the years ended December 31 is as follows:
2010 2009 2008
($ IN THOUSANDS) ------- ------- ----
Beginning balance................... $ 4,250 $ 449 $ --
Net increase in valuation allowance. 2,922 5,264 449
Charge offs......................... (5,502) (1,463) --
------- ------- ----
Ending balance...................... $ 1,670 $ 4,250 $449
======= ======= ====
The carrying value of past due mortgage loans as of December 31, 2010 is
$3.6 million, all of which are less than 90 days past due. There are no
mortgage loans in the process of foreclosure.
MUNICIPAL BONDS
The Company maintains a diversified portfolio of municipal bonds. 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.
2010 2009
(% OF MUNICIPAL BOND PORTFOLIO CARRYING VALUE) ---- ----
California.................... 21.6% 21.7%
Texas......................... 12.1 10.8
Illinois...................... 5.1 8.7
37
CONCENTRATION OF CREDIT RISK
As of December 31, 2010, 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.
SECURITIES LOANED
The Company's business activities include securities lending programs with
third parties, mostly large banks. As of December 31, 2010 and 2009, fixed
income securities with a carrying value of $124.5 million and $145.0 million,
respectively, were on loan under these agreements. In return, the Company
receives cash that it invests and includes in short-term investments and fixed
income securities, with an offsetting liability recorded in other liabilities
and accrued expenses to account for the Company's obligation to return the
collateral. Interest income on collateral, net of fees, was $487 thousand, $681
thousand and $5.1 million in 2010, 2009 and 2008, respectively.
OTHER INVESTMENT INFORMATION
Included in fixed income securities are below investment grade assets
totaling $388.3 million and $227.4 million as of December 31, 2010 and 2009,
respectively.
As of December 31, 2010, fixed income securities and short-term investments
with a carrying value of $2.7 million were on deposit with regulatory
authorities as required by law.
There were no fixed income securities that were non-income producing as of
December 31, 2010.
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
38
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 has two types of situations where investments are classified as
Level 3 in the fair value hierarchy. The first is where 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 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.
The second situation where the Company classifies securities in Level 3 is
where specific inputs significant to the fair value estimation models are not
market observable. This occurs in two primary instances. The first relates to
the Company's use of broker quotes. The second relates to auction rate
securities ("ARS") backed by student loans for which a key input, the
anticipated date liquidity will return to this market, is not market observable.
Certain assets are not carried at fair value on a recurring basis, including
investments such as mortgage loans, limited partnership interests and policy
loans. Accordingly, such investments are only included in the fair value
hierarchy disclosure when the investment is subject to remeasurement at fair
value after initial recognition and the resulting remeasurement is reflected in
the financial statements. In addition, derivatives embedded in fixed income
securities are not disclosed in the hierarchy as free-standing derivatives
since they are presented with the host contracts in fixed income securities.
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 VALUATION TECHNIQUES FOR ASSETS AND LIABILITIES MEASURED
AT FAIR VALUE ON A RECURRING BASIS
Level 1 measurements
. Fixed income securities: Comprise U.S. Treasuries. Valuation is based on
unadjusted quoted prices for identical assets in active markets that the
Company can access.
. Equity securities: Comprise actively traded, exchange-listed U.S. equity
securities. Valuation is based on unadjusted quoted prices for identical
assets in active markets that the Company can access.
. Short-term: Comprise actively traded money market funds that have daily
quoted net asset values for identical assets that the Company can access.
. Separate account assets: Comprise actively traded mutual funds that have
daily quoted net asset values for identical assets that the Company can
access. Net asset values for the actively traded mutual funds in which
the separate account assets are invested are obtained daily from the
fund managers.
39
Level 2 measurements
. Fixed income securities:
U.S. GOVERNMENT AND AGENCIES: 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.
MUNICIPAL: 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, INCLUDING PRIVATELY PLACED: 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. Also included are privately placed securities 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.
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.
RMBS--U.S. GOVERNMENT SPONSORED ENTITIES ("U.S. AGENCY"), PRIME
RESIDENTIAL MORTGAGE-BACKED SECURITIES ("PRIME") AND ALT-A RESIDENTIAL
MORTGAGE-BACKED SECURITIES ("ALT-A"); ABS--AUTO AND OTHER: 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, prepayment speeds, collateral performance and credit spreads.
CMBS: 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.
REDEEMABLE PREFERRED STOCK: 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, underlying stock
prices and credit spreads.
. 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. For certain
short-term investments, amortized cost is used as the best estimate of
fair value.
. 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 interest rate swaps and
foreign currency swaps, are valued using models that rely on inputs such
as interest rate yield curves, currency rates, and counterparty credit
spreads 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: ARS backed by student loans that have become illiquid due to
failures in the auction market are valued using a discounted cash flow
model that is widely accepted in the financial services industry and
uses significant non-market observable inputs, including estimates of
future coupon rates if auction failures continue, the anticipated date
liquidity will return to the market and illiquidity
40
premium. Also included are municipal bonds that are not rated by third
party credit rating agencies but are rated by the National Association
of Insurance Commissioners ("NAIC"), and other high-yield municipal
bonds. 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.
CORPORATE, INCLUDING PRIVATELY PLACED: Valued based on non-binding
broker quotes.
RMBS--SUBPRIME RESIDENTIAL MORTGAGE-BACKED SECURITIES ("SUBPRIME"),
ALT-A AND PRIME: The primary inputs to the valuation included 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, prepayment
speeds, collateral performance and credit spreads. Also included are
Subprime, Prime and Alt-A securities that are valued based on
non-binding broker quotes. Due to the reduced availability of actual
market prices or relevant observable inputs as a result of the decrease
in liquidity that has been experienced in the market for these
securities, Subprime and certain Alt-A securities are categorized as
Level 3.
CMBS: The primary inputs to the valuation 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, collateral performance and
credit spreads. Also included are CMBS that are valued based on
non-binding broker quotes. Due to the reduced availability of actual
market prices or relevant observable inputs as a result of the decrease
in liquidity that has been experienced in the market for these
securities, certain CMBS are categorized as Level 3.
ABS--COLLATERALIZED DEBT OBLIGATIONS ("CDO"): Valued based on
non-binding broker quotes received from brokers who are familiar with
the investments. Due to the reduced availability of actual market prices
or relevant observable inputs as a result of the decrease in liquidity
that has been experienced in the market for these securities, all CDO
are categorized as Level 3.
ABS--AUTO AND OTHER: The primary inputs to the valuation 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, prepayment
speeds, collateral performance and credit spreads. Also included are ABS
that are valued based on non-binding broker quotes. Due to the reduced
availability of actual market prices or relevant observable inputs as a
result of the decrease in liquidity that has been experienced in the
market for these securities, certain ABS are categorized as Level 3.
. 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. Valued internally
utilizing a model that uses interest rate and volatility assumptions to
generate stochastically determined cash flows. 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 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.
41
ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS
Mortgage loans written-down to fair value in connection with recognizing
impairments are valued based on the fair value of the underlying collateral
less costs to sell. Limited partnership interests written-down to fair value in
connection with recognizing other-than-temporary impairments are valued using
net asset values.
The following table summarizes the Company's assets and liabilities measured
at fair value on a recurring and non-recurring basis as of December 31, 2010:
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT COUNTERPARTY BALANCE
IDENTICAL OBSERVABLE UNOBSERVABLE AND CASH AS OF
ASSETS INPUTS INPUTS COLLATERAL DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) NETTING 2010
($ IN THOUSANDS) ------------- ----------- ------------ ------------ ------------
ASSETS
Fixed income securities:
U.S. government and agencies........ $ 79,679 $ 278,889 $ -- $ 358,568
Municipal........................... -- 750,365 103,369 853,734
Corporate........................... -- 3,527,885 225,207 3,753,092
Foreign government.................. -- 329,603 -- 329,603
RMBS................................ -- 510,235 80,063 590,298
CMBS................................ -- 125,175 141,869 267,044
ABS................................. -- 97,713 40,851 138,564
Redeemable preferred stock.......... -- 9,206 -- 9,206
-------- ---------- -------- ----------
Total fixed income securities... 79,679 5,629,071 591,359 6,300,109
Equity securities.................... 124,559 -- -- 124,559
Short-term investments............... 5,731 192,870 -- 198,601
Other investments:
Free-standing derivatives......... -- -- 469 $ (58) 411
Separate account assets.............. 577,756 -- -- 577,756
Other assets......................... -- -- (4,870) (4,870)
-------- ---------- -------- ----- ----------
TOTAL RECURRING BASIS ASSETS.... 787,725 5,821,941 586,958 (58) 7,196,566
Non-recurring basis/(1)/............. -- -- 7,123 7,123
-------- ---------- -------- ----- ----------
TOTAL ASSETS AT FAIR VALUE........... $787,725 $5,821,941 $594,081 $ (58) $7,203,689
======== ========== ======== ===== ==========
% of total assets at fair value...... 10.9% 80.8% 8.3% --% 100.0%
LIABILITIES
Contractholder funds:
Derivatives embedded in annuity
contracts......................... $ -- $ -- $(17,544) $ (17,544)
Other liabilities:
Free-standing derivatives........... -- -- (3,480) $ 58 (3,422)
-------- ---------- -------- ----- ----------
TOTAL LIABILITIES AT FAIR VALUE...... $ -- $ -- $(21,024) $ 58 $ (20,966)
======== ========== ======== ===== ==========
% of total liabilities at fair value. --% --% 100.3% (0.3)% 100.0%
--------
/(1)/Includes mortgage loans written-down to fair value in connection with
recognizing other-than-temporary impairments.
42
The following table summarizes the Company's assets and liabilities measured
at fair value on a recurring and non-recurring basis as of December 31, 2009:
QUOTED PRICES
IN ACTIVE SIGNIFICANT
MARKETS FOR OTHER SIGNIFICANT COUNTERPARTY BALANCE
IDENTICAL OBSERVABLE UNOBSERVABLE AND CASH AS OF
ASSETS INPUTS INPUTS COLLATERAL DECEMBER 31,
(LEVEL 1) (LEVEL 2) (LEVEL 3) NETTING 2009
($ IN THOUSANDS) ------------- ----------- ------------ ------------ ------------
ASSETS
Fixed income securities:
U.S. government and agencies........ $ 335,264 $ 250,938 $ -- $ 586,202
Municipal........................... -- 754,667 123,743 878,410
Corporate........................... -- 3,069,927 201,275 3,271,202
Foreign government.................. -- 290,856 -- 290,856
RMBS................................ -- 612,548 39,124 651,672
CMBS................................ -- 173,647 173,094 346,741
ABS................................. -- 22,268 17,776 40,044
Redeemable preferred stock.......... -- 8,638 -- 8,638
---------- ---------- -------- ----------
Total fixed income securities... 335,264 5,183,489 555,012 6,073,765
Equity securities.................... 123,311 -- -- 123,311
Short-term investments............... 11,247 337,206 -- 348,453
Other investments:
Free-standing derivatives......... -- 368 2,013 $(344) 2,037
Separate account assets.............. 587,044 -- -- 587,044
Other assets......................... -- -- (5,059) (5,059)
---------- ---------- -------- ----- ----------
TOTAL RECURRING BASIS ASSETS.... 1,056,866 5,521,063 551,966 (344) 7,129,551
Non-recurring basis/(1)/............. -- -- 13,861 13,861
---------- ---------- -------- ----- ----------
TOTAL ASSETS AT FAIR VALUE........... $1,056,866 $5,521,063 $565,827 $(344) $7,143,412
========== ========== ======== ===== ==========
% of total assets at fair value...... 14.8% 77.3% 7.9% --% 100.0%
LIABILITIES
Contractholder funds:
Derivatives embedded in annuity
contracts......................... $ -- $ -- $(13,211) $ (13,211)
Other liabilities:
Free-standing derivatives........... -- (3,917) (2,885) $ 344 (6,458)
---------- ---------- -------- ----- ----------
TOTAL LIABILITIES AT FAIR VALUE...... $ -- $ (3,917) $(16,096) $ 344 $ (19,669)
========== ========== ======== ===== ==========
% of total liabilities at fair value. --% 19.9% 81.8% (1.7)% 100.0%
--------
/(1)/Includes mortgage loans written-down to fair value in connection with
recognizing other-than-temporary impairments.
43
The following table presents the rollforward of Level 3 assets and
liabilities held at fair value on a recurring basis during the year ended
December 31, 2010.
TOTAL REALIZED AND
UNREALIZED GAINS (LOSSES)
INCLUDED IN:
------------------------
OCI ON
BALANCE AS OF STATEMENT OF PURCHASES, SALES, TRANSFERS TRANSFERS BALANCE AS
DECEMBER 31, NET FINANCIAL ISSUANCES AND INTO OUT OF OF DECEMBER 31,
2009 INCOME/(1)/ POSITION SETTLEMENTS, NET LEVEL 3 LEVEL 3 2010
($ IN THOUSANDS) ------------- ---------- ------------ ----------------- --------- --------- ---------------
ASSETS
Fixed income securities:
Municipal................. $123,743 $ (408) $ (245) $(11,242) $ 804 $ (9,283) $103,369
Corporate................. 201,275 (817) 6,957 7,708 58,519 (48,435) 225,207
RMBS...................... 39,124 (5,817) 12,277 38,659 -- (4,180) 80,063
CMBS...................... 173,094 (22,210) 78,944 (16,859) 9,647 (80,747) 141,869
ABS....................... 17,776 (6) 4,869 48,555 -- (30,343) 40,851
-------- -------- -------- -------- ------- --------- --------
Total fixed income
securities.............. 555,012 (29,258) 102,802 66,821 68,970 (172,988) 591,359
Other investments:
Free-standing
derivatives, net......... (872) (3,997) -- 1,858 -- -- (3,011)/(2)/
Other assets.............. (5,059) 189 -- -- -- -- (4,870)
-------- -------- -------- -------- ------- --------- --------
TOTAL RECURRING
LEVEL 3 ASSETS.......... $549,081 $(33,066) $102,802 $ 68,679 $68,970 $(172,988) $583,478
======== ======== ======== ======== ======= ========= ========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........ $(13,211) $ (4,333) $ -- $ -- $ -- $ -- $(17,544)
-------- -------- -------- -------- ------- --------- --------
TOTAL RECURRING
LEVEL 3 LIABILITIES..... $(13,211) $ (4,333) $ -- $ -- $ -- $ -- $(17,544)
======== ======== ======== ======== ======= ========= ========
--------
/(1)/The effect to net income totals $(37.4) million and is reported in the
Statements of Operations and Comprehensive Income as follows: $(41.2)
million in realized capital gains and losses, $8.1 million in net
investment income and $4.3 million in contract benefits.
/(2)/Comprises $469 thousand of assets and $3.5 million of liabilities.
Transfers between level categorizations may occur due to changes in the
availability of market observable inputs, which generally are caused by changes
in market conditions such as liquidity, trading volume or bid-ask spreads.
Transfers between level categorizations may also occur due to changes in the
valuation source. For example, in situations where a fair value quote is not
provided by the Company's independent third-party valuation service provider
and as a result the price is stale or has been replaced with a broker quote,
the security is transferred into Level 3. Transfers in and out of level
categorizations are reported as having occurred at the beginning of the quarter
in which the transfer occurred. Therefore, for all transfers into Level 3, all
realized and changes in unrealized gains and losses in the quarter of transfer
are reflected in the Level 3 rollforward table.
There were no transfers between Level 1 and Level 2 during 2010.
During 2010, certain CMBS and ABS were transferred into Level 2 from Level 3
as a result of increased liquidity in the market and the availability of market
observable quoted prices for similar assets. When transferring these securities
into Level 2, the Company did not change the source of fair value estimates or
modify the estimates received from independent third-party valuation service
providers or the internal valuation approach. Accordingly, for securities
included within this group, there was no change in fair value in conjunction
with the transfer resulting in a realized or unrealized gain or loss.
Transfers into Level 3 during 2010, including those related to Corporate
fixed income securities, included situations where a fair value quote was not
provided by the Company's independent third-party valuation service
44
provider and as a result the price was stale or had been replaced with a broker
quote resulting in the security being classified as Level 3. Transfers out of
Level 3 during 2010, including those related to Corporate fixed income
securities, included situations where a broker quote was used in the prior
period and a fair value 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.
The following table provides the total gains and (losses) included in net
income during 2010 for Level 3 assets and liabilities still held as of
December 31, 2010.
($ IN THOUSANDS)
ASSETS
Fixed income securities:
Municipal................................... $ 169
Corporate................................... 11,553
RMBS........................................ (4,483)
CMBS........................................ (7,784)
-------
Total fixed income securities........... (545)
Other investments:
Free-standing derivatives, net.............. (2,868)
Other assets................................ 189
-------
TOTAL RECURRING LEVEL 3 ASSETS.......... $(3,224)
=======
LIABILITIES
Contractholder funds:
Derivatives embedded in annuity contracts... $(4,333)
-------
TOTAL RECURRING LEVEL 3 LIABILITIES..... $(4,333)
=======
The amounts in the table above represent gains and losses included in net
income during 2010 for the period of time that the asset or liability was
determined to be in Level 3. These gains and losses total $(7.6) million in
2010 and are reported in the Statements of Operations and Comprehensive Income
as follows: $(15.6) million in realized capital gains and losses, $12.3 million
in net investment income and $4.3 million in contract benefits.
45
The following table presents the rollforward of Level 3 assets and
liabilities held at fair value on a recurring basis during the year ended
December 31, 2009.
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
-----------------------
OCI ON PURCHASES, NET
BALANCE AS OF STATEMENT OF SALES, ISSUANCES TRANSFERS IN BALANCE AS OF
DECEMBER 31, NET FINANCIAL AND AND/OR (OUT) DECEMBER 31,
2008 INCOME/(1)/ POSITION SETTLEMENTS, NET OF LEVEL 3 2009
($ IN THOUSANDS) ------------- ---------- ------------ ---------------- ------------ -------------
ASSETS
Fixed income securities:
Municipal.................... $ 97,784 $ (150) $ 6,371 $ (3,932) $ 23,670 $ 123,743
Corporate.................... 1,092,115 11,445 121,540 (111,828) (911,997) 201,275
Foreign government........... -- -- 42 4,974 (5,016) --
RMBS......................... 78,202 (1,877) 4,014 (17,839) (23,376) 39,124
CMBS......................... 46,236 (27,157) 82,059 (10,148) 82,104 173,094
ABS.......................... 20,202 13 2,142 (4,581) -- 17,776
---------- -------- -------- --------- --------- ---------
Total fixed income
securities................. 1,334,539 (17,726) 216,168 (143,354) (834,615) 555,012
Other investments:
Free-standing derivatives,
net......................... (4,736) 2,045 -- 1,819 -- (872)/(2)/
Other assets................. (1,829) (3,230) -- -- -- (5,059)
---------- -------- -------- --------- --------- ---------
TOTAL RECURRING
LEVEL 3 ASSETS............. $1,327,974 $(18,911) $216,168 $(141,535) $(834,615) $(549,081)
========== ======== ======== ========= ========= =========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........... $ (30,051) $ 15,975 $ -- $ 865 $ -- $ (13,211)
---------- -------- -------- --------- --------- ---------
TOTAL RECURRING
LEVEL 3 LIABILITIES........ $ (30,051) $ 15,975 $ -- $ 865 $ -- $ (13,211)
========== ======== ======== ========= ========= =========
TOTAL
GAINS (LOSSES)
INCLUDED IN NET
INCOME FOR
FINANCIAL
INSTRUMENTS
STILL HELD AS OF
DECEMBER 31,
2009/(3)/
($ IN THOUSANDS) ----------------
ASSETS
Fixed income securities:
Municipal.................... $ (160)
Corporate.................... 4,091
Foreign government........... --
RMBS......................... (1,846)
CMBS......................... (17,109)
ABS.......................... --
--------
Total fixed income
securities................. (15,024)
Other investments:
Free-standing derivatives,
net......................... 4,280
Other assets................. (3,230)
--------
TOTAL RECURRING
LEVEL 3 ASSETS............. $(13,974)
========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........... $ 15,975
--------
TOTAL RECURRING
LEVEL 3 LIABILITIES........ $ 15,975
========
--------
/(1)/The effect to net income totals $(2.9) million and is reported in the
Statements of Operations and Comprehensive Income as follows:
$(27.5) million in realized capital gains and losses, $8.6 million in net
investment income and $(16.0) million in contract benefits.
/(2)/Comprises $2.0 million of assets and $2.9 million of liabilities.
/(3)/The amounts represent gains and losses included in net income for the
period of time that the asset or liability was determined to be in Level
3. These gains and losses total $2.0 million and are reported in the
Statements of Operations and Comprehensive Income as follows:
$(22.2) million in realized capital gains and losses, $8.2 million in net
investment income and $(16.0) million in contract benefits.
46
The following table presents the rollforward of Level 3 assets and
liabilities held at fair value on a recurring basis during the year ended
December 31, 2008.
TOTAL REALIZED AND
UNREALIZED GAINS
(LOSSES) INCLUDED IN:
----------------------
OCI ON PURCHASES, NET
BALANCE AS OF STATEMENT OF SALES, ISSUANCES TRANSFERS IN BALANCE AS OF
JANUARY 1, NET FINANCIAL AND AND/OR (OUT) DECEMBER 31,
2008 INCOME/(1)/ POSITION SETTLEMENTS, NET OF LEVEL 3 2008
($ IN THOUSANDS) ------------- ---------- ------------ ---------------- ------------ -------------
ASSETS
Fixed income securities:
Municipal.................... $ 33,200 $ -- $ (11,066) $ (22,250) $ 97,900 $ 97,784
Corporate.................... 1,249,898 5,947 (115,386) (76,075) 27,731 1,092,115
RMBS......................... 119,238 (7,847) (12,879) (20,310) -- 78,202
CMBS......................... 36,794 (29,092) (57,164) (23,105) 118,803 46,236
ABS.......................... 30,768 269 (7,549) (3,286) -- 20,202
---------- -------- --------- --------- -------- ----------
Total fixed income
securities................. 1,469,898 (30,723) (204,044) (145,026) 244,434 1,334,539
Other investments:
Free-standing derivatives,
net......................... (980) (7,124) -- 3,368 -- (4,736)/(2)/
Other assets................. (1,733) (96) -- -- -- (1,829)
---------- -------- --------- --------- -------- ----------
TOTAL RECURRING
LEVEL 3 ASSETS............. $1,467,185 $(37,943) $(204,044) $(141,658) $244,434 $1,327,974
========== ======== ========= ========= ======== ==========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........... $ 174 $(30,389) $ -- $ 164 $ -- $ (30,051)
---------- -------- --------- --------- -------- ----------
TOTAL RECURRING
LEVEL 3 LIABILITIES........ $ 174 $(30,389) $ -- $ 164 $ -- $ (30,051)
========== ======== ========= ========= ======== ==========
TOTAL
GAINS (LOSSES)
INCLUDED IN NET
INCOME FOR
FINANCIAL
INSTRUMENTS
STILL HELD AS OF
DECEMBER 31,
2008/(3)/
($ IN THOUSANDS) ----------------
ASSETS
Fixed income securities:
Municipal.................... $ --
Corporate.................... (7,065)
RMBS......................... (7,655)
CMBS......................... (22,438)
ABS.......................... --
--------
Total fixed income
securities................. (37,158)
Other investments:
Free-standing derivatives,
net......................... (1,424)
Other assets................. (96)
--------
TOTAL RECURRING
LEVEL 3 ASSETS............. $(38,678)
========
LIABILITIES
Contractholder funds:
Derivatives embedded in
annuity contracts........... $(30,389)
--------
TOTAL RECURRING
LEVEL 3 LIABILITIES........ $(30,389)
========
--------
/(1)/The effect to net income totals $(68.3) million and is reported in the
Statements of Operations and Comprehensive Income as follows:
$(45.9) million in realized capital gains and losses, $8.0 million in net
investment income and $30.4 million in contract benefits.
/(2)/Comprises $0.7 million of assets and $5.4 million of liabilities.
/(3)/The amounts represent gains and losses included in net income for the
period of time that the asset or liability was determined to be in Level
3. These gains and losses total $(69.1) million and are reported in the
Statements of Operations and Comprehensive Income as follows:
$(46.5) million in realized capital gains and losses, $7.8 million in net
investment income and $30.4 million in contract benefits.
Presented below are the carrying values and fair value estimates of
financial instruments not carried at fair value.
FINANCIAL ASSETS
DECEMBER 31, 2010 DECEMBER 31, 2009
------------------- -------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
($ IN THOUSANDS) -------- ---------- -------- ----------
MORTGAGE LOANS.............................. $501,476 $488,248 $543,007 $431,116
LIMITED PARTNERSHIP INTERESTS -- COST BASIS. 2,355 2,347 -- --
NOTES DUE FROM RELATED PARTY................ 18,365 18,365 8,255 8,243
The fair value of mortgage loans is based on discounted contractual cash
flows or if the loans are impaired due to credit reasons, the fair value of
collateral less costs to sell. Risk adjusted discount rates are selected using
47
current rates at which similar loans would be made to borrowers with similar
characteristics, using similar types of properties as collateral. The fair
value of limited partnership interests accounted for on the cost basis is
determined using reported net asset values of the underlying funds. The fair
value of notes due from related party, which are reported in other investments,
is based on discounted cash flow calculations using current interest rates for
instruments with comparable terms.
FINANCIAL LIABILITIES
DECEMBER 31, 2010 DECEMBER 31, 2009
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
($ IN THOUSANDS) ---------- ---------- ---------- ----------
CONTRACTHOLDER FUNDS ON INVESTMENT CONTRACTS. $3,770,279 $3,748,501 $4,082,995 $3,974,490
LIABILITY FOR COLLATERAL..................... 127,983 127,983 149,362 149,362
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts utilizing prevailing market rates for
similar contracts adjusted for the Company's own credit risk. Deferred
annuities included in contractholder funds are valued using discounted cash
flow models which incorporate market value margins, which are based on the cost
of holding economic capital, and the Company's own credit risk. Immediate
annuities without life contingencies are valued at the present value of future
benefits using market implied interest rates which include the Company's own
credit risk. The liability for collateral is valued at carrying value due to
its short-term nature.
7. DERIVATIVE FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Company primarily uses derivatives for risk management. In addition, the
Company 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 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 Company does not use derivatives for trading purposes.
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.
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 swaps and
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.
The Company uses foreign currency swaps primarily to reduce 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.
When derivatives meet specific criteria, they may be designated as
accounting hedges and accounted for as fair value, cash flow, foreign currency
fair value or foreign currency cash flow hedges. The Company designates certain
of its foreign currency swap contracts as cash flow hedges when the hedging
instrument is highly effective in offsetting the exposure of variations in cash
flows for the hedged risk that could affect net income. Amounts are
reclassified to net investment income or realized capital gains and losses as
the hedged item affects net income.
The Company's primary embedded derivatives are guaranteed minimum
accumulation and withdrawal benefits in reinsured variable annuity contracts,
and conversion options in fixed income securities, which provide the Company
with the right to convert the instrument into a predetermined number of shares
of common stock.
48
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 legally enforceable master netting
agreements and are presented on a net basis, by counterparty agreement, in the
Statements of Financial Position.
For cash flow hedges, gains and losses are amortized from accumulated other
comprehensive income and are reported in net income in the same period the
forecasted transactions being hedged impact net income. For embedded
derivatives in fixed income securities, net income includes the change in fair
value of the embedded derivative and accretion income related to the host
instrument. For non-hedge derivatives, net income includes changes in fair
value and accrued periodic settlements, when applicable.
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, 2010. None of these
derivatives are designated as accounting hedging instruments.
ASSET DERIVATIVES
-----------------------------------------------------------------
VOLUME- FAIR
NOTIONAL VALUE, GROSS GROSS
BALANCE SHEET LOCATION AMOUNT NET ASSET LIABILITY
($ IN THOUSANDS) ---------------------------- -------- -------- ------- ---------
INTEREST RATE CONTRACTS
Interest rate cap
agreements............... Other investments $ 57,600 $ 411 $ 444 $ (33)
EMBEDDED DERIVATIVE FINANCIAL
INSTRUMENTS
Conversion options......... Fixed income securities 2,000 124 124 --
OTHER CONTRACTS
Structured settlement
annuity reinsurance
agreement................ Other assets -- (4,870) (4,870) --
-------- -------- ------- --------
TOTAL ASSET DERIVATIVES....... $ 59,600 $ (4,335) $(4,302) $ (33)
======== ======== ======= ========
LIABILITY DERIVATIVES
-----------------------------------------------------------------
VOLUME- FAIR
NOTIONAL VALUE, GROSS GROSS
BALANCE SHEET LOCATION AMOUNT NET ASSET LIABILITY
---------------------------- -------- -------- ------- ---------
INTEREST RATE CONTRACTS
Interest rate cap Other liabilities & accrued
agreements............... expenses $247,500 $ (3,422) $ 25 $ (3,447)
EMBEDDED DERIVATIVE FINANCIAL
INSTRUMENTS
Guaranteed accumulation
benefits................. Contractholder funds 184,186 (15,128) -- (15,128)
Guaranteed withdrawal
benefits................. Contractholder funds 37,736 (2,416) -- (2,416)
-------- -------- ------- --------
TOTAL LIABILITY DERIVATIVES... $469,422 $(20,966) $ 25 $(20,991)
======== ======== ======= ========
TOTAL DERIVATIVES............. $529,022 $(25,301)
======== ========
49
The following table provides a summary of the volume and fair value
positions of derivative instruments as well as their reporting location in the
Statement of Financial Position as of December 31, 2009. None of these
derivatives are designated as accounting hedging instruments.
ASSET DERIVATIVES
- -----------------------------------------------------------------
VOLUME- FAIR
NOTIONAL VALUE, GROSS GROSS
BALANCE SHEET LOCATION AMOUNT NET ASSET LIABILITY
($ IN THOUSANDS) ---------------------------- -------- -------- ------- ---------
INTEREST RATE CONTRACTS
Interest rate cap
agreements............... Other investments $ 52,000 $ 1,670 $ 1,670 $ --
FOREIGN CURRENCY CONTRACTS
Foreign currency swap
agreements............... Other investments 3,103 367 367 --
OTHER CONTRACTS
Structured settlement
annuity reinsurance
agreement................ Other assets -- (5,059) (5,059) --
-------- -------- ------- --------
TOTAL ASSET DERIVATIVES....... $ 55,103 $ (3,022) $(3,022) $ --
======== ======== ======= ========
LIABILITY DERIVATIVES
-----------------------------------------------------------------
VOLUME- FAIR
NOTIONAL VALUE, GROSS GROSS
BALANCE SHEET LOCATION AMOUNT NET ASSET LIABILITY
---------------------------- -------- -------- ------- ---------
INTEREST RATE CONTRACTS
Interest rate swap Other liabilities & accrued
agreements............... expenses $400,000 $ (3,917) $ -- $ (3,917)
Interest rate cap Other liabilities & accrued
agreements............... expenses 275,500 (2,541) 344 (2,885)
EMBEDDED DERIVATIVE FINANCIAL
INSTRUMENTS
Guaranteed accumulation
benefits................. Contractholder funds 186,459 (11,024) -- (11,024)
Guaranteed withdrawal
benefits................. Contractholder funds 43,469 (2,187) -- (2,187)
-------- -------- ------- --------
TOTAL LIABILITY DERIVATIVES... $905,428 $(19,669) $ 344 $(20,013)
======== ======== ======= ========
TOTAL DERIVATIVES............. $960,531 $(22,691)
======== ========
The following table provides a summary of the impacts of the Company's
foreign currency contracts in cash flow hedging relationships in the Statements
of Operations and Comprehensive Income and the Statements of Financial Position
for the years ended December 31. Amortization of net losses from accumulated
other comprehensive income related to cash flow hedges is expected to be zero
during the next twelve months.
2010 2009
($ IN THOUSANDS) ---- -------
EFFECTIVE PORTION
Loss recognized in OCI on derivatives during the period...................... $ -- $(1,107)
Gain recognized in OCI on derivatives during the term of the hedging
relationship............................................................... -- 309
(Loss) gain reclassified from AOCI into income (net investment income)....... (2) 57
Gain reclassified from AOCI into income (realized capital gains and losses).. 311 276
INEFFECTIVE PORTION AND AMOUNT EXCLUDED FROM EFFECTIVENESS TESTING
Gain recognized in income on derivatives (realized capital gains and losses). -- --
50
For cash flow hedges, unrealized net pre-tax gains and losses included in
accumulated other comprehensive income were zero and $309 thousand as of
December 31, 2010 and 2009, respectively. The net pre-tax changes in
accumulated other comprehensive income due to cash flow hedges were $(309)
thousand, $(1.4) million and $2.5 million in 2010, 2009 and 2008, respectively.
The following table presents gains and losses from valuation and settlements
reported on derivatives not designated as accounting hedging instruments in the
Statements of Operations and Comprehensive Income for the years ended
December 31. There was no hedge ineffectiveness in 2010, 2009 or 2008.
TOTAL GAIN (LOSS)
REALIZED CAPITAL GAINS RECOGNIZED IN NET
AND LOSSES CONTRACT BENEFITS INCOME ON DERIVATIVES
--------------------- ---------------- --------------------
2010 2009 2010 2009 2010 2009
($ IN THOUSANDS) -------- ------- ------- ------- -------- -------
Interest rate contracts....................... $(40,261) $42,886 $ -- $ -- $(40,261) $42,886
Embedded derivative financial instruments..... 494 -- (4,334) 16,841 (3,840) 16,841
Other contracts-structured settlement annuity
reinsurance agreement....................... (3,277) (6,636) -- -- (3,277) (6,636)
-------- ------- ------- ------- -------- -------
Total...................................... $(43,044) $36,250 $(4,334) $16,841 $(47,378) $53,091
======== ======= ======= ======= ======== =======
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, including interest rate
swap, foreign currency swap and interest rate cap agreements. These agreements
permit either party to net payments due for transactions covered by the
agreements. Under the provisions of the agreements, collateral is either
pledged or obtained when certain predetermined exposure limits are exceeded. As
of December 31, 2010, the Company pledged $3.7 million in securities to
counterparties, all of which was collateral posted under MNAs for contracts
without credit-risk-contingent liabilities. The Company has not incurred any
losses on derivative financial instruments due to counterparty nonperformance.
Counterparty credit exposure represents the Company's potential loss if all
of the counterparties concurrently fail to perform under the contractual terms
of the contracts and all collateral, if any, becomes worthless. This exposure
is measured by the fair value of OTC derivative contracts with a positive fair
value at the reporting date reduced by the effect, if any, of legally
enforceable master netting agreements.
The following table summarizes the counterparty credit exposure as of
December 31 by counterparty credit rating as it relates to interest rate swap,
foreign currency swap and interest rate cap agreements.
2010 2009
($ IN THOUSANDS) ---------------------------------------------- ----------------------------------------------
NUMBER OF EXPOSURE, NUMBER OF EXPOSURE,
COUNTER- NOTIONAL CREDIT NET OF COUNTER- NOTIONAL CREDIT NET OF
RATING/(1)/ PARTIES AMOUNT EXPOSURE/(2)/ COLLATERAL/(2)/ PARTIES AMOUNT EXPOSURE/(2)/ COLLATERAL/(2)/
---------- --------- -------- ------------ -------------- --------- -------- ------------ --------------
A+.......... 1 $ 1,600 $ 10 $ 10 -- $ -- $ -- $ --
A........... 2 56,000 401 401 1 55,103 2,037 2,037
---- ------- ---- ---- -- ------- ------ ------
Total....... 3 $57,600 $411 $411 1 $55,103 $2,037 $2,037
==== ======= ==== ==== == ======= ====== ======
--------
/(1)/Rating is the lower of S&P or Moody's ratings.
/(2)/Only OTC derivatives with a net positive fair value are included for each
counterparty.
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
51
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 termination events, cross-default provisions and credit
support annex agreements. Credit-risk-contingent termination events allow the
counterparties to terminate the derivative on certain dates if the Company's
financial strength credit ratings by Moody's or S&P fall below a certain level
or in the event the Company is no longer rated by both Moody's and S&P.
Credit-risk-contingent cross-default provisions allow the counterparties to
terminate the derivative instruments if the Company defaults by pre-determined
threshold amounts on certain debt instruments. Credit-risk-contingent credit
support annex agreements specify the amount of collateral the Company must post
to counterparties based on the Company's financial strength credit ratings by
Moody's or S&P, or in the event the Company is no longer rated by both Moody's
and S&P.
The following summarizes the fair value of derivative instruments with
termination, cross-default or collateral credit-risk-contingent features that
are in a 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.
2010 2009
($ IN THOUSANDS) ---- -------
Gross liability fair value of contracts containing credit-risk-contingent features.............. $ 34 $ 3,327
Gross asset fair value of contracts containing credit-risk-contingent features and subject to
MNAs.......................................................................................... (34) (12)
Collateral posted under MNAs for contracts containing credit-risk-contingent features........... -- (2,999)
---- -------
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all
features were triggered concurrently.......................................................... $ -- $ 316
==== =======
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The contractual amounts of off-balance-sheet financial instruments relating
to commitments to invest in limited partnership interests totaled $98.1 million
as of December 31, 2010. The contractual amounts represent the amount at risk
if the contract is fully drawn upon, the counterparty defaults and the value of
any underlying security becomes worthless. Unless noted otherwise, the Company
does not require collateral or other security to support off-balance-sheet
financial instruments with credit risk.
Commitments to invest generally represent commitments to acquire financial
interests or instruments. The Company enters into these agreements to allow for
additional participation in certain limited partnership investments. Because
the equity investments in the limited partnerships are not actively traded, it
is not practical to estimate the fair value of these commitments.
There were no off-balance-sheet financial instruments as of December 31,
2009.
52
8. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
As of December 31, the reserve for life-contingent contract benefits
consists of the following:
2010 2009
($ IN THOUSANDS) ---------- ----------
Immediate fixed annuities:
Structured settlement annuities..................... $1,800,217 $1,701,522
Other immediate fixed annuities..................... 18,663 14,913
Traditional life insurance............................. 162,678 150,400
Accident and health insurance.......................... 6,616 6,286
Other.................................................. 2,040 2,458
---------- ----------
Total reserve for life-contingent contract benefits. $1,990,214 $1,875,579
========== ==========
The following table highlights the key assumptions generally used in
calculating the reserve for life-contingent contract benefits:
PRODUCT MORTALITY INTEREST RATE
------- -------------------------------------- ------------------
Structured settlement annuities U.S. population with projected Interest rate
calendar year improvements; mortality assumptions range
rates adjusted for each impaired life from 3.3% to 9.2%
based on reduction in life expectancy
Other immediate fixed annuities Interest rate
1983 individual annuity mortality assumptions range
table; Annuity 2000 mortality table from 1.1% to 11.5%
with internal modifications;
Traditional life insurance Actual company experience plus loading Interest rate
assumptions range
from 4.0% to 8.0%
Accident and health insurance Actual company experience plus loading
Other:
Variable annuity guaranteed minimum death 100% of Annuity 2000 mortality table Interest rate
benefits/(1)/ assumptions range
from 4.2% to 5.2%
PRODUCT MORTALITY ESTIMATION METHOD
------- -------------------------------------- -----------------------
Structured settlement annuities U.S. population with projected Present value of
calendar year improvements; mortality contractually specified
rates adjusted for each impaired life future benefits
based on reduction in life expectancy
Other immediate fixed annuities Present value of
1983 individual annuity mortality expected future
table; Annuity 2000 mortality table benefits based on
with internal modifications; historical experience
Traditional life insurance Actual company experience plus loading Net level premium
reserve method using
the Company's
withdrawal experience
rates
Accident and health insurance Actual company experience plus loading Unearned premium;
additional contract
reserves for mortality
risk
Other:
Variable annuity guaranteed minimum death 100% of Annuity 2000 mortality table Projected benefit ratio
benefits/(1)/ 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").
To the extent that unrealized gains on fixed income securities would result
in a premium deficiency had those gains actually been realized, a premium
deficiency reserve is recorded for certain immediate annuities with life
contingencies. A liability of $115.1 million and $40.6 million is included in
the reserve for life-contingent contract benefits with respect to this
deficiency as of December 31, 2010 and 2009, respectively. The offset to this
liability is recorded as a reduction of the unrealized net capital gains
included in accumulated other comprehensive income.
53
As of December 31, contractholder funds consist of the following:
2010 2009
($ IN THOUSANDS) ---------- ----------
Interest-sensitive life insurance..... $ 660,731 $ 627,362
Investment contracts:
Fixed annuities.................... 4,005,939 4,345,165
Other investment contracts......... 22,121 18,352
---------- ----------
Total contractholder funds..... $4,688,791 $4,990,879
========== ==========
The following table highlights the key contract provisions relating to
contractholder funds:
PRODUCT INTEREST RATE WITHDRAWAL/SURRENDER CHARGES
------- ------------------------------------- ---------------------------------
Interest-sensitive life insurance Interest rates credited range from Either a percentage of account
2.7% to 5.0% balance or dollar amount
grading off generally over 20
years
Fixed annuities Interest rates credited range from Either a declining or a level
0.2% to 9.2% for immediate annuities percentage charge generally
and 1.1% to 6.5% for other fixed over nine years or less.
annuities Additionally, approximately
11.5% of fixed annuities are
subject to a market value
adjustment for discretionary
withdrawals
Other investment contracts:
Guaranteed minimum income, Interest rates used in establishing Withdrawal and surrender
accumulation and withdrawal reserves range from 1.8% to 10.3% charges are based on the terms
benefits on variable of the related interest-sensitive
annuities/(1) /and secondary life insurance or variable
guarantees on interest- annuity contract
sensitive life insurance
--------
/(1)/In 2006, the Company disposed its variable annuity business through a
reinsurance agreement with Prudential.
Contractholder funds activity for the years ended December 31 is as follows:
2010 2009
($ IN THOUSANDS) ---------- ----------
Balance, beginning of year......... $4,990,879 $5,086,965
Deposits........................... 159,490 296,990
Interest credited.................. 165,758 182,665
Benefits........................... (160,376) (160,351)
Surrenders and partial withdrawals. (385,801) (308,244)
Contract charges................... (61,370) (57,157)
Net transfers to separate accounts. (67) --
Other adjustments.................. (19,722) (49,989)
---------- ----------
Balance, end of year............... $4,688,791 $4,990,879
========== ==========
The Company offered various guarantees to variable annuity contractholders.
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 in
54
the Statements of Financial Position. 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 annuities contracts' separate accounts with guarantees included $494.7
million and $547.3 million of equity, fixed income and balanced mutual funds
and $82.6 million and $41.0 million of money market mutual funds as of
December 31, 2010 and 2009, respectively.
The table below presents information regarding the Company's variable
annuity contracts with guarantees. The Company's variable annuity contracts may
offer more than one type of guarantee in each contract; therefore, the sum of
amounts listed exceeds the total account balances of variable annuity
contracts' separate accounts with guarantees.
DECEMBER 31,
- -------------------
2010 2009
($ IN MILLIONS) --------- ---------
IN THE EVENT OF DEATH
Separate account value................................................ $ 577.3 $ 588.3
Net amount at risk/(1)/............................................... $ 56.4 $ 105.5
Average attained age of contractholders............................... 63 years 62 years
AT ANNUITIZATION (INCLUDES INCOME BENEFIT GUARANTEES)
Separate account value................................................ $ 41.9 $ 41.2
Net amount at risk/(2)/............................................... $ 6.2 $ 11.1
Weighted average waiting period until annuitization options available. 3 years 4 years
FOR CUMULATIVE PERIODIC WITHDRAWALS
Separate account value................................................ $ 38.3 $ 42.9
Net amount at risk/(3)/............................................... $ 0.6 $ 1.7
ACCUMULATION AT SPECIFIED DATES
Separate account value................................................ $ 190.5 $ 186.5
Net amount at risk/(4)/............................................... $ 6.5 $ 12.1
Weighted average waiting period until guarantee date.................. 6 years 7 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 benefit payments. The benefit ratio is calculated as the
estimated present value of all expected contract benefits divided by the
present value of all expected contract charges. The establishment of reserves
for these guarantees requires the projection of future separate account fund
performance, mortality, persistency and customer benefit utilization rates.
These assumptions are periodically reviewed and updated. For guarantees related
to death benefits, benefits represent the current guaranteed minimum death
benefit payments in excess of the current account balance. For guarantees
related to income benefits, benefits represent the present value of the minimum
guaranteed annuitization benefits in excess of the current account balance.
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.
55
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.
The following table summarizes the liabilities for guarantees:
LIABILITY FOR
LIABILITY FOR GUARANTEES
GUARANTEES LIABILITY FOR RELATED TO
RELATED TO DEATH GUARANTEES ACCUMULATION
BENEFITS AND RELATED TO AND
INTEREST-SENSITIVE INCOME WITHDRAWAL
LIFE PRODUCTS BENEFITS BENEFITS TOTAL
($ IN THOUSANDS) ------------------ ------------- ------------- -------
Balance, December 31, 2009/(1)/..... $2,332 $5,142 $13,211 $20,685
Less reinsurance recoverables...... 2,332 5,142 13,211 20,685
------ ------ ------- -------
Net balance as of December 31, 2009. -- -- -- --
Incurred guaranteed benefits........ 1,392 -- -- 1,392
Paid guarantee benefits............. -- -- -- --
------ ------ ------- -------
Net change......................... 1,392 -- -- 1,392
Net balance as of December 31, 2010. 1,392 -- -- 1,392
Plus reinsurance recoverables...... 1,862 4,578 17,544 23,984
------ ------ ------- -------
Balance, December 31, 2010/(2)/..... $3,254 $4,578 $17,544 $25,376
====== ====== ======= =======
Balance, December 31, 2008/(3)/..... $2,028 $3,469 $30,051 $35,548
Less reinsurance recoverables...... 2,028 3,469 30,051 35,548
------ ------ ------- -------
Net balance as of December 31, 2008. -- -- -- --
Incurred guaranteed benefits........ -- -- -- --
Paid guarantee benefits............. -- -- -- --
------ ------ ------- -------
Net change......................... -- -- -- --
Net balance as of December 31, 2009. -- -- -- --
Plus reinsurance recoverables...... 2,332 5,142 13,211 20,685
------ ------ ------- -------
Balance, December 31, 2009/(1)/..... $2,332 $5,142 $13,211 $20,685
====== ====== ======= =======
--------
/(1)/Included in the total liability balance as of December 31, 2009 are
reserves for variable annuity death benefits of $2.3 million, variable
annuity income benefits of $5.2 million, variable annuity accumulation
benefits of $11.0 million and variable annuity withdrawal benefits of $2.2
million.
/(2)/Included in the total liability balance as of December 31, 2010 are
reserves for variable annuity death benefits of $1.9 million, variable
annuity income benefits of $4.6 million, variable annuity accumulation
benefits of $15.1 million, variable annuity withdrawal benefits of $2.4
million and other guarantees of $1.4 million.
/(3)/Included in the total liability balance as of December 31, 2008 are
reserves for variable annuity death benefits of $2.0 million, variable
annuity income benefits of $3.5 million, variable annuity accumulation
benefits of $24.0 million and variable annuity withdrawal benefits of $6.0
million.
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
56
companies. As of December 31, 2010 and 2009, for certain term life insurance
policies, we ceded up to 90% of the mortality risk depending on the year of
policy issuance. Further, we cede the mortality risk associated with coverage
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 $265.0
million and $287.5 million as of December 31, 2010 and 2009, respectively, due
from Prudential related to the disposal of its variable annuity business that
was effected through reinsurance agreements. In 2010, premiums and contract
charges of $12.4 million, contract benefits of $5.7 million, interest credited
to contractholder funds of $8.5 million, and operating costs and expenses of
$1.7 million were ceded to Prudential. In 2009, premiums and contract charges
of $11.7 million, contract benefits of $(11.6) million, interest credited to
contractholder funds of $8.8 million, and operating costs and expenses of $1.2
million were ceded to Prudential. In 2008, premiums and contract charges of
$16.3 million, contract benefits of $35.5 million, interest credited to
contractholder funds of $10.5 million, and operating costs and expenses of $2.5
million were ceded to Prudential. In addition, as of December 31, 2010 and
2009, the Company had reinsurance recoverables of $738 thousand and $429
thousand, respectively, due from a subsidiary of Citigroup (Triton Insurance
Company) in connection with the disposition of the direct response distribution
business in 2003.
As of December 31, 2010, the gross life insurance in force was $35.26
billion of which $4.66 billion and $11.14 billion was ceded to affiliated and
unaffiliated reinsurers, respectively.
The effects of reinsurance on premiums and contract charges for the years
ended December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
PREMIUMS AND CONTRACT CHARGES
Direct............................................... $155,865 $154,440 $156,187
Assumed -- non-affiliate............................. 955 959 1,164
Ceded
Affiliate........................................... (30,797) (26,250) (4,470)
Non-affiliate....................................... (28,873) (29,656) (32,525)
-------- -------- --------
Premiums and contract charges, net of reinsurance. $ 97,150 $ 99,493 $120,356
======== ======== ========
The effects of reinsurance on contract benefits for the years ended
December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
CONTRACT BENEFITS
Direct................................... $207,433 $174,909 $223,859
Assumed -- non-affiliate................. 877 676 640
Ceded
Affiliate/(1)/.......................... (6,079) (6,225) 7,022
Non-affiliate........................... (19,445) 715 (47,329)
-------- -------- --------
Contract benefits, net of reinsurance. $182,786 $170,075 $184,192
======== ======== ========
--------
/(1)/The Company recorded additional expenses for contract benefits in 2008
relating to a rescission of reinsurance coverage for certain traditional
and interest-sensitive life insurance policies provided in accordance with
an agreement between the Company and ALIC. These contract benefits are
reflected as a component of contract benefits ceded to affiliate for 2008
and totaled $7.1 million. See Note 4 for further details.
57
The effects of reinsurance on interest credited to contractholder funds for
the years ended December 31 are as follows:
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
INTEREST CREDITED TO CONTRACTHOLDER FUNDS
Direct........................................................... $176,523 $210,289 $201,661
Assumed -- non-affiliate......................................... 19 17 32
Ceded
Non-affiliate................................................... (8,457) (8,757) (10,485)
-------- -------- --------
Interest credited to contractholder funds, net of reinsurance. $168,085 $201,549 $191,208
======== ======== ========
In addition to amounts included in the table above are reinsurance premiums
ceded to ALIC of $3.5 million, $3.4 million and $3.3 million during 2010, 2009
and 2008, respectively, under the terms of the structured settlement annuity
reinsurance agreement (see Note 4).
10. DEFERRED POLICY ACQUISITION AND SALES INDUCEMENT COSTS
Deferred policy acquisitions costs for the years ended December 31 are as
follows:
2010 2009 2008
($ IN THOUSANDS) -------- --------- --------
Balance, beginning of year................................... $213,325 $ 538,248 $278,664
Impact of adoption of new OTTI accounting guidance before
unrealized impact/(1)/..................................... -- (11,825) --
Impact of adoption of new OTTI accounting guidance effect of
unrealized capital gains and losses/(2)/................... -- 11,825 --
Acquisition costs deferred................................... 24,704 32,560 51,390
Amortization charged to income............................... (16,437) (148,450) (17,778)
Effect of unrealized gains and losses........................ (51,655) (209,033) 225,972
-------- --------- --------
Balance, end of year......................................... $169,937 $ 213,325 $538,248
======== ========= ========
-----
/(1)/The adoption of new OTTI accounting guidance on April 1, 2009 resulted in
an adjustment to DAC to reverse previously recorded DAC accretion related
to realized capital losses that were reclassified to other comprehensive
income upon adoption.
/(2)/The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC due to the change in unrealized capital gains and losses that
occurred upon adoption on April 1, 2009 when previously recorded realized
capital losses were reclassified to other comprehensive income. The
adjustment was recorded as an increase of the DAC balance and unrealized
capital gains and losses.
58
DSI activity, which primarily relates to fixed annuities and interest
sensitive life contracts, for the years ended December 31 was as follows:
2010 2009 2008
($ IN THOUSANDS) ------- -------- -------
Balance, beginning of year................................ $11,091 $ 47,319 $27,991
Impact of adopting new OTTI accounting guidance before
unrealized impact/(1)/.................................. -- (1,732) --
Impact of adopting new OTTI accounting guidance effect of
unrealized capital gains and losses/(2)/................ -- 1,732 --
Sales inducements deferred................................ 1,048 3,454 7,579
Amortization charged to income............................ (3,375) (22,337) (7,843)
Effect of unrealized gains and losses..................... (6,740) (17,345) 19,592
------- -------- -------
Balance, end of year...................................... $ 2,024 $ 11,091 $47,319
======= ======== =======
-----
/(1)/The adoption of new OTTI accounting guidance on April 1, 2009 resulted in
an adjustment to DSI to reverse previously recorded DSI accretion related
to realized capital losses that were reclassified to other comprehensive
income upon adoption.
/(2)/The adoption of new OTTI accounting guidance resulted in an adjustment to
DSI due to the change in unrealized capital gains and losses that
occurred upon adoption on April 1, 2009 when previously recorded realized
capital losses were reclassified to other comprehensive income. The
adjustment was recorded as an increase of the DSI balance and unrealized
capital gains and losses.
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. As of December 31, 2010 and 2009, the liability balance included
in other liabilities and accrued expenses was $787 thousand and $790 thousand,
respectively. The related premium tax offsets included in other assets were
$736 thousand and $739 thousand as of December 31, 2010 and 2009, respectively.
The New York Liquidation Bureau (the "Bureau") has publicly reported that
Executive Life Insurance Company of New York ("Executive Life") is currently
under its jurisdiction as part of a 1992 court-ordered rehabilitation plan. At
this time, Executive Life continues to fully pay claims when due. An Order to
Show Cause dated December 17, 2010 from the New York Supreme Court mandates
that the Bureau, Life Insurance Corporation of New York ("LICNY") and other
interested parties provide a proposed plan of liquidation by July 1, 2011;
otherwise, the Superintendent of the New York State Insurance Department will
be required to do so by August 1, 2011. A public hearing on the proposed plan
of liquidation is now scheduled for January 4, 2010. The current publicly
available estimated shortfall from the Bureau is $1.27 billion.
If Executive Life were to be declared insolvent in the future, it is
reasonably possible that the Company will have exposure to future guaranty fund
assessments. The Company's exposure will ultimately depend on the level of
guaranty fund system participation. New York law currently contains an
aggregate limit on guaranty funds under the LICNY of $500 million, of which
approximately $40 million has been used. Under current law, the Company may be
allowed to recoup a portion of the amount of any additional guaranty fund
assessment in periods subsequent to the recognition of the assessment by
offsetting future premium taxes. The Company's three-year average market share
for New York as of December 31, 2009, based on assessable premiums, was
approximately 2.2%.
59
GUARANTEES
Related to the disposal through reinsurance of our variable annuity business
to Prudential in 2006, the Company, ALIC and the Corporation have agreed to
indemnify Prudential for certain pre-closing contingent liabilities (including
extra-contractual liabilities of the Company and liabilities specifically
excluded from the transaction) that the Company and ALIC have agreed to retain.
In addition, the Company, ALIC and the Corporation will each indemnify
Prudential for certain post-closing liabilities that may arise from the acts of
the Company and ALIC and their agents, including in connection with the
Company's and ALIC's provision of transition services. The reinsurance
agreements contain no limitations or indemnifications with regard to insurance
risk transfer, and transferred all of the future risks and responsibilities for
performance on the underlying variable annuity contracts to Prudential,
including those related to benefit guarantees. Management does not believe this
agreement will have a material adverse effect on results of operations, cash
flows or financial position of the Company.
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, 2010.
REGULATION AND COMPLIANCE
The Company is subject to changing social, economic and regulatory
conditions. 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, and otherwise expand overall
regulation of insurance products and the insurance industry. 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.
LEGAL AND REGULATORY PROCEEDINGS AND INQUIRIES
BACKGROUND
The Company and certain affiliates are involved in a number of lawsuits,
regulatory inquiries, and other legal proceedings arising out of various
aspects of its business. As background to the "Proceedings" subsection below,
please note the following:
. These matters raise difficult and complicated factual and legal issues
and are subject to many uncertainties and complexities, including the
underlying facts of each matter; novel legal issues; variations between
jurisdictions in which matters are being litigated, heard, or
investigated; differences in applicable laws and judicial
interpretations; the length of time before many of these matters might
be resolved by settlement, through litigation or otherwise; the fact
that some of the lawsuits are putative
60
class actions in which a class has not been certified and in which the
purported class may not be clearly defined; the fact that some of the
lawsuits involve multi-state class actions in which the applicable
law(s) for the claims at issue is in dispute and therefore unclear; and
the current challenging legal environment faced by large corporations
and insurance companies.
. The outcome of these matters may be affected by decisions, verdicts, and
settlements, and the timing of such decisions, verdicts, and
settlements, in other individual and class action lawsuits that involve
the Company, other insurers, or other entities and by other legal,
governmental, and regulatory actions that involve the Company, other
insurers, or other entities. The outcome may also be affected by future
state or federal legislation, the timing or substance of which cannot be
predicted.
. In the lawsuits, plaintiffs seek a variety of remedies which may include
equitable relief in the form of injunctive and other remedies and
monetary relief in the form of contractual and extra-contractual
damages. In some cases, the monetary damages sought include punitive
damages. Often specific information about the relief sought, such as the
amount of damages, is not available because plaintiffs have not
requested specific relief in their pleadings. When specific monetary
demands are made, they are often set just below a state court
jurisdictional limit in order to seek the maximum amount available in
state court, regardless of the specifics of the case, while still
avoiding the risk of removal to federal court. In the Company's
experience, monetary demands in pleadings bear little relation to the
ultimate loss, if any, to the Company.
. In connection with regulatory examinations and proceedings, government
authorities may seek various forms of relief, including penalties,
restitution and changes in business practices. The Company may not be
advised of the nature and extent of relief sought until the final stages
of the examination or proceeding.
. For the reasons specified above, it is not possible to make meaningful
estimates of the amount or range of loss that could result from the
matters described below in the "Proceedings" subsection. The Company
reviews these matters on an ongoing basis and follows appropriate
accounting guidance when making accrual and disclosure decisions. When
assessing reasonably possible and probable outcomes, the Company bases
its decisions on its assessment of the ultimate outcome following all
appeals.
. Due to the complexity and scope of the matters disclosed in the
"Proceedings" subsection below and the many uncertainties that exist,
the ultimate outcome of these matters cannot be reasonably predicted. In
the event of an unfavorable outcome in one or more of these matters, the
ultimate liability may be in excess of amounts currently reserved, if
any, and may be material to the Company's operating results or cash
flows for a particular quarterly or annual period. However, based on
information currently known to it, management believes that the ultimate
outcome of all matters described below, as they are resolved over time,
is not likely to have a material adverse effect on the financial
position of the Company.
PROCEEDINGS
Legal proceedings involving Allstate agencies and AIC may impact the
Company, even when the Company is not directly involved, because the Company
sells its products through a variety of distribution channels including
Allstate agencies. Consequently, information about the more significant of
these proceedings is provided in the following paragraph.
AIC is defending certain matters relating to its agency program
reorganization announced in 1999. These matters are in various stages of
development.
. These matters include a lawsuit filed in 2001 by the U.S. Equal
Employment Opportunity Commission ("EEOC") alleging retaliation under
federal civil rights laws (the "EEOC I" suit) and a class action filed
in 2001 by former employee agents alleging retaliation and age
discrimination under the Age
61
Discrimination in Employment Act ("ADEA"), breach of contract and ERISA
violations (the "Romero I" suit). In 2004, in the consolidated EEOC I
and Romero I litigation, the trial court issued a memorandum and order
that, among other things, certified classes of agents, including a
mandatory class of agents who had signed a release, for purposes of
effecting the court's declaratory judgment that the release is voidable
at the option of the release signer. The court also ordered that an
agent who voids the release must return to AIC "any and all benefits
received by the [agent] in exchange for signing the release." The court
also stated that, "on the undisputed facts of record, there is no basis
for claims of age discrimination." The EEOC and plaintiffs asked the
court to clarify and/or reconsider its memorandum and order and in
January 2007, the judge denied their request. In June 2007, the court
granted AIC's motions for summary judgment. Following plaintiffs' filing
of a notice of appeal, the U.S. Court of Appeals for the Third Circuit
("Third Circuit") issued an order in December 2007 stating that the
notice of appeal was not taken from a final order within the meaning of
the federal law and thus not appealable at this time. In March 2008, the
Third Circuit decided that the appeal should not summarily be dismissed
and that the question of whether the matter is appealable at this time
will be addressed by the Third Circuit along with the merits of the
appeal. In July 2009, the Third Circuit vacated the decision which
granted AIC's summary judgment motions, remanded the cases to the trial
court for additional discovery, and directed that the cases be
reassigned to another trial court judge. In January 2010, the cases were
assigned to a new judge for further proceedings in the trail court.
. A putative nationwide class action has also been filed by former
employee agents alleging various violations of ERISA, including a worker
classification issue. These plaintiffs are challenging certain
amendments to the Agents Pension Plan and are seeking to have exclusive
agent independent contractors treated as employees for benefit purposes.
This matter was dismissed with prejudice by the trial court, was the
subject of further proceedings on appeal, and was reversed and remanded
to the trial court in 2005. In June 2007, the court granted AIC's motion
to dismiss the case. Following plaintiffs' filing of a notice of appeal,
the Third Circuit issued an order in December 2007 stating that the
notice of appeal was not taken from a final order within the meaning of
the federal law and thus not appealable at this time. In March 2008, the
Third Circuit decided that the appeal should not summarily be dismissed
and that the question of whether the matter is appealable at this time
will be addressed by the Third Circuit along with the merits of the
appeal. In July 2009, the Third Circuit vacated the decision which
granted AIC's motion to dismiss the case, remanded the case to the trial
court for additional discovery, and directed that the case be reassigned
to another trial court judge. In January 2010, the case was assigned to
a new judge for further proceedings in the trial court.
In these agency program reorganization matters, plaintiffs seek compensatory
and punitive damages, and equitable relief. AIC has been vigorously defending
these lawsuits and other matters related to its agency program reorganization.
OTHER MATTERS
Various other legal, governmental, and regulatory actions, including state
market conduct exams, and other governmental and regulatory inquiries are
pending from time to time that involve the Company and specific aspects of its
conduct of business. Like other members of the insurance industry, the Company
is the target of a number of lawsuits and other types of proceedings, some of
which involve claims for substantial or indeterminate amounts. These actions
are based on a variety of issues and target a range of the Company's practices.
The outcome of these disputes is currently unpredictable.
One or more of these matters could have an adverse effect on the Company's
operating results or cash flows for a particular quarterly or annual period.
However, based on information currently known to it, management believes that
the ultimate outcome of all matters described in this "Other Matters"
subsection, in excess of amounts currently reserved, if any, as they are
resolved over time, is not likely to have a material effect on the operating
results, cash flows or financial position of the Company.
62
12. INCOME TAXES
The Company joins with the Corporation and its other domestic 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.
The Internal Revenue Service ("IRS") is currently examining the Allstate
Group's 2007 and 2008 federal income tax returns. The IRS has completed its
examination of the Allstate Group's federal income tax returns through 2006 and
the statute of limitations has expired on years prior to 2005. Any adjustments
that may result from IRS examinations of tax returns are not expected to have a
material effect on the results of operations, cash flows or financial position
of the Company.
The Company had no liability for unrecognized tax benefits as of
December 31, 2010 or 2009, and believes it is reasonably possible that the
liability balance will not significantly increase within the next twelve
months. No amounts have been accrued for interest or penalties.
The components of the deferred income tax assets and liabilities at
December 31 are as follows:
2010 2009
($ IN THOUSANDS) --------- --------
DEFERRED ASSETS
Life and annuity reserves.............. $ 9,264 $ 17,820
Other assets........................... 546 701
--------- --------
Total deferred assets............... 9,810 18,521
--------- --------
DEFERRED LIABILITIES
Unrealized net capital gains........... (71,729) (12,950)
DAC.................................... (28,695) (23,825)
Difference in tax bases of investments. (10,717) (18,594)
Other liabilities...................... (977) (1,039)
--------- --------
Total deferred liabilities.......... (112,118) (56,408)
--------- --------
Net deferred liability.......... $(102,308) $(37,887)
========= ========
Although realization is not assured, management believes it is more likely
than not that the deferred tax assets will be realized based on the Company's
assessment that the deductions ultimately recognized for tax purposes will be
fully utilized.
The components of income tax expense for the years ended December 31 are as
follows:
2010 2009 2008
($ IN THOUSANDS) ------ ------- --------
Current..................... $ 209 $ (946) $ 16,537
Deferred.................... 5,642 20,675 (12,532)
------ ------- --------
Total income tax expense. $5,851 $19,729 $ 4,005
====== ======= ========
The Company received a refund of $3.5 million in 2010, and paid income taxes
of $29.9 million and $3.6 million in 2009 and 2008, respectively.
63
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:
2010 2009 2008
---- ---- ----
Statutory federal income tax rate......... 35.0% 35.0% 35.0%
State income tax expense.................. 9.6 2.8 13.1
Dividends received deduction.............. (4.4) (1.1) (6.0)
Tax credits............................... (3.2) (1.0) (4.6)
Adjustment for prior year tax liabilities. (1.0) (0.5) (3.4)
Other..................................... 0.2 -- 0.2
---- ---- ----
Effective income tax rate.............. 36.2% 35.2% 34.3%
==== ==== ====
13. STATUTORY FINANCIAL INFORMATION
The Company prepares its statutory-basis financial statements in conformity
with accounting practices prescribed or permitted by the State of New York. 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 State of New York Insurance Superintendent.
Prescribed statutory accounting practices include a variety of publications of
the NAIC, as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed.
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 for 2010, 2009 and 2008 was $(17.3) million, $(8.6)
million and $(18.9) million, respectively. Statutory capital and surplus was
$497.0 million and $506.3 million as of December 31, 2010 and 2009,
respectively.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant
factors. The payment of shareholder dividends by the Company without the prior
approval of the state insurance regulator is limited to formula amounts based
on net income and capital and surplus, determined in conformity with statutory
accounting practices, as well as the timing and amount of dividends paid in the
preceding twelve months. During 2011, the Company will not be able to pay
dividends without prior New York State Insurance Department approval. The
Company paid no dividends in 2010.
14. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
Defined benefit pension plans, sponsored by AIC, cover most full-time
employees and certain part-time employees. Benefits under the pension plans are
based upon the employee's length of service and eligible annual compensation.
The allocated cost to the Company for the pension plans was $3.3 million, $1.4
million and $1.8 million in 2010, 2009 and 2008, respectively.
The Corporation provides certain health care subsidies for eligible
employees hired before January 1, 2003 when they retire and their eligible
dependents and certain life insurance benefits for eligible employees hired
before January 1, 2003 when they retire ("postretirement benefits"). Qualified
employees may become eligible
64
for these benefits if they retire in accordance with the Corporation's
established retirement policy and are continuously insured under Corporation's
group plans or other approved plans in accordance with the plan's participation
requirements. The Corporation shares the cost of the retiree medical benefits
with non Medicare-eligible retirees based on years of service, with the
Corporation's share being subject to a 5% limit on annual medical cost
inflation after retirement. During 2009, the Corporation decided to change its
approach for delivering benefits to Medicare-eligible retirees. The Corporation
no longer offers medical benefits for Medicare-eligible retirees but instead
provides a fixed company contribution (based on years of service and other
factors), which is not subject to adjustments for inflation. The allocated cost
to the Company was $47 thousand, $206 thousand and $339 thousand for
postretirement benefits other than pension plans in 2010, 2009 and 2008,
respectively.
AIC and the Corporation have reserved the right to modify or terminate their
benefit plans at any time or 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 and certain performance measures. The
allocated cost to the Company for the Allstate Plan was $492 thousand, $912
thousand and $667 thousand in 2010, 2009 and 2008, respectively.
15. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income (loss) on a pre-tax and
after-tax basis for the years ended December 31 are as follows:
2010
-----------------------------
PRE-TAX TAX AFTER-TAX
($ IN THOUSANDS) -------- --------- ---------
Unrealized net holding gains arising during the period, net of
related offsets............................................... $165,578 $ (57,953) $107,625
Less: reclassification adjustment of realized capital gains and
losses........................................................ (2,361) 826 (1,535)
-------- --------- --------
Unrealized net capital gains and losses......................... 167,939 (58,779) 109,160
-------- --------- --------
Other comprehensive income...................................... $167,939 $ (58,779) $109,160
======== ========= ========
2009
-----------------------------
PRE-TAX TAX AFTER-TAX
-------- --------- ---------
Unrealized net holding gains arising during the period, net of
related offsets............................................... $337,657 $(118,180) $219,477
Less: reclassification adjustment of realized capital gains and
losses........................................................ 101,749 (35,612) 66,137
-------- --------- --------
Unrealized net capital gains and losses......................... 235,908 (82,568) 153,340
-------- --------- --------
Other comprehensive income...................................... $235,908 $ (82,568) $153,340
======== ========= ========
65
2008
-----------------------------
PRE-TAX TAX AFTER-TAX
--------- -------- ---------
Unrealized net holding losses arising during the period, net of
related offsets............................................... $(323,776) $113,321 $(210,455)
Less: reclassification adjustment of realized capital gains and
losses........................................................ (55,927) 19,574 (36,353)
--------- -------- ---------
Unrealized net capital gains and losses......................... (267,849) 93,747 (174,102)
--------- -------- ---------
Other comprehensive loss........................................ $(267,849) $ 93,747 $(174,102)
========= ======== =========
66
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2010
AMOUNTS AT
WHICH
COST/ SHOWN IN
AMORTIZED FAIR THE BALANCE
COST VALUE SHEET
($ IN THOUSANDS) ---------- ---------- -----------
Type of investment
Fixed Maturities:
Bonds:
United States government, government agencies and authorities. $ 288,835 $ 358,568 $ 358,568
States, municipalities and political subdivisions............. 874,967 853,734 853,734
Foreign governments........................................... 268,603 329,603 329,603
Public utilities.............................................. 780,536 838,112 838,112
Convertibles and bonds with warrants attached................. 88,560 89,426 89,426
All other corporate bonds..................................... 2,676,469 2,825,554 2,825,554
Asset-backed securities.......................................... 138,832 138,564 138,564
Residential mortgage-backed securities........................... 579,801 590,298 590,298
Commercial mortgage-backed securities............................ 294,494 267,044 267,044
Redeemable preferred stocks...................................... 9,196 9,206 9,206
---------- ---------- ----------
Total fixed maturities...................................... 6,000,293 $6,300,109 6,300,109
---------- ========== ----------
Equity securities:
Common stocks:
Industrial, miscellaneous and all other....................... 99,348 $ 124,559 124,559
==========
Mortgage loans on real estate.................................... 501,476 $ 488,248 501,476
==========
Policy loans..................................................... 41,862 41,862
Derivative instruments........................................... 411 $ 411 411
==========
Limited partnership interests.................................... 4,814 4,814
Other long-term investments...................................... 18,365 18,365
Short-term investments........................................... 198,601 $ 198,601 198,601
---------- ========== ----------
Total investments........................................... $6,865,170 $7,190,197
========== ==========
67
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE IV--REINSURANCE
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES/(1)/ COMPANIES AMOUNT TO NET
($ IN THOUSANDS) ----------- ------------- ---------- ----------- ----------
YEAR ENDED DECEMBER 31, 2010
----------------------------
Life insurance in force......... $34,597,944 $15,803,458 $663,707 $19,458,193 3.4%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 143,571 $ 57,638 $ 955 $ 86,888 1.1%
Accident and health.......... 12,294 2,032 -- 10,262 --%
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 155,865 $ 59,670 $ 955 $ 97,150 1.0%
=========== =========== ======== ===========
YEAR ENDED DECEMBER 31, 2009
----------------------------
Life insurance in force......... $33,925,356 $12,115,820 $695,124 $22,504,660 3.1%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 142,563 $ 53,595 $ 959 $ 89,927 1.1%
Accident and health.......... 11,877 2,311 -- 9,566 --%
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 154,440 $ 55,906 $ 959 $ 99,493 1.0%
=========== =========== ======== ===========
YEAR ENDED DECEMBER 31, 2008
----------------------------
Life insurance in force......... $32,704,176 $11,655,410 $737,572 $21,786,338 3.4%
=========== =========== ======== ===========
Premiums and contract charges:
Life and annuities........... $ 145,521 $ 34,529 $ 1,164 $ 112,156 1.0%
Accident and health.......... 10,666 2,466 -- 8,200 --%
----------- ----------- -------- -----------
Total premiums and contract
charges.................... $ 156,187 $ 36,995 $ 1,164 $ 120,356 1.0%
=========== =========== ======== ===========
--------
/(1)/No reinsurance or coinsurance income was netted against premium ceded in
2010, 2009 or 2008.
68
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
SCHEDULE V--VALUATION ALLOWANCES AND QUALIFYING ACCOUNTS
ADDITIONS
($ IN THOUSANDS) --------------------
BALANCE AS OF CHARGED TO BALANCE AS OF
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ADDITIONS DEDUCTIONS PERIOD
----------- ------------- ---------- --------- ---------- -------------
YEAR ENDED DECEMBER 31, 2010
----------------------------
Allowance for estimated losses on mortgage
loans.................................... $4,250 $2,922 $ -- $5,502 $1,670
YEAR ENDED DECEMBER 31, 2009
----------------------------
Allowance for estimated losses on mortgage
loans.................................... $ 449 $5,264 $ -- $1,463 $4,250
YEAR ENDED DECEMBER 31, 2008
Allowance for estimated losses on mortgage
loans.................................... $ -- $ 449 $ -- $ -- $ 449
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
Allstate Life Insurance Company of New York
Hauppauge, NY
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, 2010 and 2009, 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, 2010.
Our audits also included Schedule I-Summary of Investments-Other Than
Investments in Related Parties, Schedule IV-Reinsurance, and Schedule
V-Valuation Allowances and Qualifying Accounts. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Allstate Life Insurance Company of New York
as of December 31, 2010 and 2009, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2010,
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.
In 2009, the Company changed its recognition and presentation for
other-than-temporary impairments of debt securities.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 11, 2011
70
ITEM 11(F).SELECTED FINANCIAL DATA
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
2010 2009 2008 2007 2006
($ IN THOUSANDS) ---------- ---------- ---------- ---------- ----------
OPERATING RESULTS
Premiums...................................... $ 45,087 $ 47,659 $ 59,248 $ 69,124 $ 84,313
Contract charges.............................. 52,063 51,834 61,108 59,530 63,426
Net investment income......................... 368,695 372,395 402,931 386,738 373,064
Realized capital gains and losses............. (45,849) 145,468 (77,205) (831) (22,085)
Total revenues................................ 419,996 617,356 446,082 514,561 498,718
Net income.................................... 10,297 36,370 7,672 41,909 34,342
FINANCIAL POSITION
Investments................................... $7,190,197 $7,139,397 $6,648,585 $7,057,629 $6,779,874
Total assets.................................. 8,353,855 8,388,191 8,284,933 8,785,177 8,619,988
Reserve for life-contingent contract benefits
and contractholder funds.................... 6,679,005 6,866,458 7,040,122 6,865,432 6,634,920
Shareholder's equity.......................... 826,341 706,884 516,568 680,872 652,996
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", "ALNY", "our", "us" or the
"Company"). 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, amortization of deferred
policy acquisition costs ("DAC"), expenses, net income, invested assets,
and premiums and contract charges;
. For investments: credit quality/experience, realized capital gains and
losses, investment income, unrealized capital gains and losses,
stability of long-term returns, total returns, cash flows, and asset and
liability duration; and
. For financial condition: liquidity, financial strength ratings,
operating leverage, and return on equity.
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 include those used in determining:
. Fair value of financial assets
. Impairment of fixed income and equity securities
. Deferred policy acquisition costs amortization
. Reserve for life-contingent contract benefits estimation
71
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
businesses 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 brief 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 complete summary of our
significant accounting policies, see Note 2 of the financial statements.
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 categorize
our financial assets measured at fair value into a three-level hierarchy based
on the observability of inputs to the valuation techniques as follows:
LEVEL 1:Financial asset values are based on unadjusted quoted prices for
identical assets in an active market that we can access.
LEVEL 2:Financial assets values are based on the following:
(a)Quoted prices for similar assets in active markets;
(b)Quoted prices for identical or similar assets 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.
LEVEL 3:Financial assets 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 our
estimates of the assumptions that market participants would use in
valuing the financial assets.
Observable inputs are inputs that reflect the assumptions market
participants would use in valuing financial assets that are developed based on
market data obtained from independent sources. In the absence of sufficient
observable inputs, unobservable inputs reflect our estimates of the assumptions
market participants would use in valuing financial assets and are developed
based on the best information available in the circumstances. The degree of
management judgment involved in determining fair values is inversely related to
the availability of market observable information.
We are responsible for the determination of fair value of financial assets
and the supporting assumptions and methodologies. We gain assurance on the
overall reasonableness and consistent application of valuation input
assumptions, valuation methodologies and compliance with accounting standards
for fair value determination through the execution of various processes and
controls designed to ensure that our financial assets are appropriately valued.
We monitor fair values received from third parties and those derived internally
on an ongoing basis.
We employ 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 securities for which a fair value has been requested
under the terms of our agreements. For certain equity securities, valuation
service providers provide market quotations for completed
72
transactions on the measurement date. For other security types, fair values are
derived from the valuation service providers' proprietary valuation models. 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. 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 leading 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, auction rate securities ("ARS") backed by
student loans, and certain free-standing derivatives, for which our valuation
service providers or brokers do not provide fair value determinations, is
determined using valuation methods and models widely accepted in the financial
services industry. Internally developed valuation models, which include inputs
that may not be market observable and as such involve some degree of judgment,
are considered appropriate for each class of security to which they are applied.
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, published credit spreads, and other applicable market data.
Additional inputs that are used include internally-derived assumptions such as
liquidity premium and credit ratings, as well as instrument-specific
characteristics that include, but are not limited to, coupon rate, expected
cash flows, sector of the issuer, and call provisions. Our internally assigned
credit ratings are developed at a more detailed level than externally published
ratings and allow for a more precise match of these ratings to other market
observable valuation inputs, such as credit and sector spreads, when performing
these valuations. Due to the existence of non-market observable inputs, such as
liquidity premiums, judgment is required in developing these fair values. As a
result, the fair value of these financial assets 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.
For the majority of our financial assets measured at fair value, all
significant inputs are based on 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 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.
There is one primary situation where a discounted cash flow model utilizes a
significant input that is not market observable, and it relates to the
determination of fair value for our ARS backed by student loans. The
73
significant input utilized is the anticipated date liquidity will return to
this market (that is, when auction failures will cease). Determination of this
assumption allows for matching to market observable inputs when performing
these valuations.
The following table displays the sensitivity of reasonably likely changes in
the anticipated date liquidity will return to the student loan ARS market as of
December 31, 2010. The selection of these hypothetical scenarios represents an
illustration of the estimated potential proportional effect of alternate
assumptions and should not be construed as either a prediction of future events
or an indication that it would be reasonably likely that all securities would
be similarly affected.
($ IN THOUSANDS)
ARS backed by student loans at fair value........................................ $82,229
Percentage change in fair value resulting from:
Decrease in the anticipated date liquidity will return to this market by six
months...................................................................... 1.1%
Increase in the anticipated date liquidity will return to this market by six
months...................................................................... (1.1)%
We believe our most significant exposure to changes in fair value is due to
market risk. Our exposure to changes in market conditions is discussed fully in
the Market Risk section of the MD&A.
We employ specific control processes to determine the reasonableness of the
fair values of our financial assets. Our processes are designed to ensure that
the values received or internally estimated are accurately recorded and that
the data inputs and the valuation techniques utilized are appropriate,
consistently applied, and that the assumptions are reasonable and consistent
with the objective of determining fair value. For example, on a continuing
basis, we assess the reasonableness of individual security values received from
valuation service providers and those derived from internal models that exceed
certain thresholds as compared to previous values received from those valuation
service providers or derived from internal models. In addition, we may validate
the reasonableness of fair value by comparing information obtained from our
valuation service providers 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 pricing
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 pricing model. As of December 31, 2010 and 2009, we did
not alter fair values provided by our valuation service providers or brokers or
substitute them with an internal pricing model.
74
The following table identifies fixed income and equity securities and
short-term investments as of December 31, 2010 by source of value determination:
FAIR PERCENT
VALUE TO TOTAL
($ IN THOUSANDS) ---------- --------
Fair value based on internal sources...... $ 978,644 14.8%
Fair value based on external sources/(1)/. 5,644,625 85.2
---------- -----
Total..................................... $6,623,269 100.0%
========== =====
-
/(1)/Includes $325.6 million that are valued using broker quotes.
For more detailed information on our accounting policy for the fair value of
financial assets and the financial assets by level in the fair value hierarchy,
see Notes 2 and 6 of the financial statements.
IMPAIRMENT OF FIXED INCOME AND EQUITY SECURITIES For investments classified
as available for sale, the difference between fair value and amortized cost for
fixed income securities and cost for equity securities, net of certain other
items and deferred income taxes (as disclosed in Note 5), is reported as a
component of accumulated other comprehensive income 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 write-down is recorded due to an
other-than-temporary decline in fair value. We have a comprehensive portfolio
monitoring process to identify and evaluate each fixed income and equity
security whose carrying value may be other-than-temporarily impaired.
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, the security's decline in fair value is considered other than
temporary and is 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 use our best estimate of future cash flows expected to be
collected from the fixed income security discounted at the security's original
or current effective rate, as appropriate, to calculate a recovery value and
determine whether a credit loss exists. 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, including past
events, current conditions, and reasonable and supportable assumptions and
forecasts, 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, foreign
exchange rates, the financial condition and future earnings potential of the
issue or issuer, expected defaults, expected recoveries, the value of
underlying collateral, vintage, geographic concentration, 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 the estimated recovery value is less than the amortized
cost of the security, a credit loss exists and an other-than-temporary
impairment for the difference between the estimated recovery value and
amortized cost is recorded in earnings. The portion of the unrealized loss
related to factors other than credit remains classified in accumulated other
comprehensive income. 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.
75
There are a number of assumptions and estimates inherent in evaluating
impairments of equity securities and determining if they are other than
temporary, including: 1) our ability and intent to hold the investment for a
period of time sufficient to allow for an anticipated recovery in value; 2) the
length of time and extent to which the fair value has been less than cost; 3)
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; and 4) the specific reasons that a security is in an unrealized loss
position, including overall market conditions which could affect liquidity.
Once assumptions and estimates are made, any number of changes in facts and
circumstances could cause us to subsequently determine that a fixed income or
equity security is other-than-temporarily impaired, including: 1) general
economic conditions that are worse than previously forecasted or that have a
greater adverse effect on a particular issuer or industry sector than
originally estimated; 2) changes in the facts and circumstances related to a
particular issue or issuer's ability to meet all of its contractual
obligations; and 3) changes in facts and circumstances that result in changes
to management's intent to sell or result in our assessment that it is more
likely than not we will be required to sell before recovery of the amortized
cost basis of a fixed income security or causes a change in our ability or
intent to hold an equity security until it recovers in value. Changes in
assumptions, facts and circumstances could result in additional charges to
earnings in future periods to the extent that losses are realized. The charge
to earnings, while potentially significant to net income, would not have a
significant effect on shareholder's equity, since our securities are designated
as available for sale and carried at fair value and as a result, any related
unrealized loss, net of deferred income taxes and related DAC, deferred sales
inducement costs ("DSI") and reserves for life-contingent contract benefits,
would already be reflected as a component of accumulated other comprehensive
income in shareholder's equity.
The determination of the amount of other-than-temporary impairment is an
inherently subjective process based on periodic evaluation of the factors
described above. Such evaluations and assessments are revised as conditions
change and new information becomes available. We update our evaluations
regularly and reflect changes in other-than-temporary impairments in results of
operations as such evaluations are revised. The use of different methodologies
and assumptions in the determination of the amount of other-than-temporary
impairments may have a material effect on the amounts presented within the
financial statements.
For additional detail on investment impairments, see Note 5 of the financial
statements.
DEFERRED POLICY ACQUISITION COSTS AMORTIZATION We incur significant costs in
connection with acquiring insurance policies and investment contracts. In
accordance with GAAP, costs that vary with and are primarily related to
acquiring insurance policies and investment contracts are deferred and recorded
as an asset on the Statements of Financial Position.
DAC related to traditional life 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
approximates 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 for these policies on an
aggregate basis using actual experience. We aggregate all traditional life
insurance products and immediate annuities with life contingencies in the
analysis. In the event actual experience is significantly 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
76
deficiency reserve may be required if the remaining DAC balance is insufficient
to absorb the deficiency. In 2010, 2009 and 2008, our reviews concluded that no
premium deficiency adjustments were necessary.
DAC related to interest-sensitive life, fixed annuities and other investment
contracts 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 and 5-10 years for fixed annuities. The cumulative
DAC amortization is reestimated and adjusted by a cumulative charge or credit
to results of operations 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 consist primarily 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 investment returns, including capital gains
and losses on assets supporting contract liabilities, interest crediting rates
to contractholders, and the effects of persistency, mortality, expenses, and
hedges if applicable, and 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.
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. Negative amortization was not recorded for
certain fixed annuities during 2010, 2009 and 2008 periods in which significant
capital losses were realized on their related investment portfolio. 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 credit losses.
Annually, we review and update all assumptions underlying the projections of
EGP, including investment returns, comprising investment income and realized
capital gains and losses, interest crediting rates, persistency, mortality,
expenses and the effect of any hedges. 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 commonly 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.
77
Over the past three years, our most significant DAC assumption updates that
resulted in a change to EGP and the amortization of DAC have been revisions to
expected future investment returns, primarily realized capital losses,
mortality, expenses and the number of contracts in force or persistency. 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.
2010 2009 2008
($ IN THOUSANDS) ------- -------- -------
Investment margin. $ 408 $(50,219) $(9,358)
Benefit margin.... (4,127) 7,483 4,029
Expense margin.... 1,599 812 (3,762)
------- -------- -------
Net acceleration.. $(2,120) $(41,924) $(9,091)
======= ======== =======
In 2010, DAC amortization deceleration related to changes in the investment
margin component of EGP primarily related to interest-sensitive life insurance
and was due to higher than previously projected investment income and lower
interest credited, partially offset by higher projected realized capital
losses. The acceleration related to benefit margin was primarily due to lower
projected renewal premium (which is also expected to reduce persistency) on
interest-sensitive life insurance, partially offset by higher than previously
projected revenues associated with variable life insurance due to appreciation
in the underlying separate account valuations. The deceleration related to
expense margin resulted from current and expected expense levels lower than
previously projected. DAC amortization acceleration related to changes in the
investment margin component of EGP in the first quarter of 2009 was primarily
due to an increase in the level of expected realized capital losses in 2009 and
2010. The deceleration related to benefit margin was due to more favorable
projected life insurance mortality. DAC amortization acceleration related to
changes in the investment margin component of EGP in 2008 was primarily due to
the level of realized capital losses impacting actual gross profits in 2008 and
the impact of realized capital losses on expected gross profits in 2009. The
deceleration related to benefit margin was due to more favorable projected life
insurance mortality. The acceleration related to expense margin resulted from
current and expected expense levels higher than previously expected.
The following table displays the sensitivity of reasonably likely changes in
assumptions included in the gross profit components of investment margin or
benefit margin to amortization of the DAC balance as of December 31, 2010.
DECEMBER 31, 2010
INCREASE/(REDUCTION) IN DAC
($ IN THOUSANDS) ---------------------------
Increase in future investment margins of 25 basis points. $ 3,021
Decrease in future investment margins of 25 basis points. $(3,237)
Decrease in future life mortality by 1%.................. $ 863
Increase in future life mortality by 1%.................. $ (863)
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 health 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
78
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. 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 adverse effect on our operating results and financial
condition. We periodically review the adequacy of reserves and recoverability
of DAC for these policies on an aggregate basis using actual experience. In the
event actual experience is significantly 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. In 2010, 2009
and 2008, our reviews concluded that no premium deficiency adjustments were
necessary. We anticipate that mortality, investment and reinvestment yields,
and policy terminations are the factors that would be most likely to require
premium deficiency adjustment to these reserves or related DAC.
For further detail on the reserve for life-contingent contract benefits, see
Note 8 of the financial statements.
OPERATIONS
OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate
Insurance Company ("AIC"), a wholly owned subsidiary of Allstate Insurance
Holdings, LLC, which is wholly owned by The Allstate Corporation. We provide
life insurance, retirement and investment products, and voluntary accident and
health insurance. We serve our customers through Allstate exclusive agencies
and non-proprietary distribution channels. Our strategic vision is to reinvent
protection and retirement for the consumer and our purpose is to create
financial value on a standalone basis and to add strategic value to the
Allstate organization.
To fulfill our purpose, our primary objectives are to deepen relationships
with Allstate customers by adding financial services to their suite of products
with Allstate and improve profitability by decreasing earnings volatility,
increasing our returns, and improving our capital position. We bring value to
our ultimate parent, The Allstate Corporation (the "Corporation"), in three
principal ways: through profitable growth, improving the economics of the
Corporation's property-liability insurance business through increased customer
loyalty and renewal rates by cross selling our products to their customers, and
by bringing new customers to Allstate. We continue to shift our mix of products
in force by decreasing spread based products, principally fixed annuities, and
through growth of underwritten products having mortality or morbidity risk,
principally life insurance and voluntary accident and health products. In
addition to focusing on higher return markets, products, and distribution
channels, we continue to emphasize capital efficiency and enterprise risk and
return management strategies and actions.
Our strategy provides a platform to profitably grow our business. Based upon
Allstate's strong financial position and brand, we have a unique opportunity to
cross-sell to our customers. Through Allstate exclusive agencies we will
leverage the trusted customer relationships to serve those who are looking for
assistance in meeting their protection and retirement needs by providing them
with the information, products and services that they need.
Our products include interest-sensitive, traditional and variable life
insurance; fixed annuities such as deferred and immediate annuities; and
voluntary accident and health insurance. Our products are sold through multiple
distribution channels including Allstate exclusive agencies, which include
exclusive financial specialists, independent agents (including workplace
enrolling agents) and specialized structured settlement brokers.
79
SUMMARY ANALYSIS Summarized financial data for the years ended December 31
is presented in the following table.
2010 2009 2008
($ IN THOUSANDS) ---------- ---------- ----------
REVENUES
Premiums.................................. $ 45,087 $ 47,659 $ 59,248
Contract charges.......................... 52,063 51,834 61,108
Net investment income..................... 368,695 372,395 402,931
Realized capital gains and losses......... (45,849) 145,468 (77,205)
---------- ---------- ----------
Total revenues............................ 419,996 617,356 446,082
COSTS AND EXPENSES
Contract benefits......................... (182,786) (170,075) (184,192)
Interest credited to contractholder funds. (168,085) (201,549) (191,208)
Amortization of DAC....................... (16,437) (148,450) (17,778)
Operating costs and expenses.............. (36,540) (41,183) (40,869)
---------- ---------- ----------
Total costs and expenses.................. (403,848) (561,257) (434,047)
Loss on disposition of operations......... -- -- (358)
Income tax expense........................ (5,851) (19,729) (4,005)
---------- ---------- ----------
Net income................................ $ 10,297 $ 36,370 $ 7,672
========== ========== ==========
Investments as of December 31............. $7,190,197 $7,139,397 $6,648,585
========== ========== ==========
NET INCOME was $10.3 million in 2010 compared to $36.4 million in 2009. The
decrease of $26.1 million was primarily the result of net realized capital
losses in 2010 compared to net realized capital gains in 2009, partially offset
by lower amortization of DAC and lower interest credited to contractholder
funds.
Net income was $36.4 million in 2009 compared to $7.7 million in 2008. The
increase of $28.7 million was primarily the result of net realized capital
gains in 2009 compared to net realized capital losses in 2008, partially offset
by higher amortization of DAC and decreased net investment income.
Net income in 2008 included additional expenses for contract benefits
relating to a rescission of reinsurance coverage for certain traditional and
interest-sensitive life insurance policies in accordance with an agreement
between the Company and ALIC (the "rescission"). The rescission reduced net
income by $4.1 million in 2008. For further detail on the rescission, see Note
4 of the financial statements.
ANALYSIS OF REVENUES Total revenues decreased 32.0% or $197.4 million in
2010 compared to 2009 primarily due to net realized capital losses and lower
net investment income. Total revenues increased 38.4% or $171.3 million in 2009
compared to 2008 primarily due to a $222.7 million improvement in realized
capital gains and losses, partially offset by a $30.5 million decline in net
investment income and a $20.9 million decrease in premiums and contract charges.
PREMIUMS represent revenues generated from traditional life insurance,
immediate annuities with life contingencies, and accident and health insurance
products that have significant mortality or morbidity risk.
CONTRACT CHARGES are revenues generated from interest-sensitive and variable
life insurance and fixed annuities for which deposits are classified as
contractholder funds or separate account liabilities. Contract charges are
assessed against the contractholder account values for maintenance,
administration, cost of insurance and surrender prior to contractually
specified dates.
80
The following table summarizes premiums and contract charges by product for
the years ended December 31.
2010 2009 2008
($ IN THOUSANDS) ------- ------- --------
UNDERWRITTEN PRODUCTS
Traditional life insurance premiums.................. $20,215 $20,159 $ 29,597
Accident and health insurance premiums............... 10,262 9,566 8,200
Interest-sensitive life insurance contract charges... 48,453 47,071 54,972
------- ------- --------
Subtotal............................................ 78,930 76,796 92,769
ANNUITIES
Immediate annuities with life contingencies premiums. 14,610 17,934 21,451
Other fixed annuities contract charges............... 3,610 4,763 6,136
------- ------- --------
Subtotal............................................ 18,220 22,697 27,587
------- ------- --------
PREMIUMS AND CONTRACT CHARGES/(1)/................... $97,150 $99,493 $120,356
======= ======= ========
-----
/(1)/Total contract charges include contract charges related to the cost of
insurance totaling $26.8 million, $26.7 million and $36.8 million in
2010, 2009 and 2008, respectively.
Total premiums and contract charges decreased 2.4% in 2010 compared to 2009
primarily due to lower sales of immediate annuities with life contingencies and
decreased surrender charges on fixed annuities, partially offset by higher
contract charges on interest-sensitive life insurance products resulting from a
shift in the mix of policies in force to contracts with higher policy
administration fees.
Total premiums and contract charges decreased 17.3% in 2009 compared to 2008
due to lower premiums on traditional life insurance and lower contract charges
on interest-sensitive life insurance policies. The decline in premiums on
traditional life insurance was primarily the result of higher premiums ceded to
ALIC due to a greater utilization of reinsurance. The decline in contract
charges on interest-sensitive life insurance was the result of higher cost of
insurance contract charges ceded to ALIC due to a greater utilization of
reinsurance, partially offset by increased contract charge rates and growth in
business in force.
81
CONTRACTHOLDER FUNDS represent interest-bearing liabilities arising from the
sale of interest-sensitive life insurance and fixed annuities. The balance of
contractholder funds is equal to the cumulative deposits received and interest
credited to the contractholder less cumulative contract benefits, surrenders,
withdrawals and contract charges for mortality or administrative expenses. The
following table shows the changes in contractholder funds for the years ended
December 31.
2010 2009 2008
($ IN THOUSANDS) ---------- ---------- ----------
CONTRACTHOLDER FUNDS, BEGINNING BALANCE........... $4,990,879 $5,086,965 $4,848,461
DEPOSITS
Fixed annuities................................... 64,115 180,327 509,146
Interest-sensitive life insurance................. 95,375 116,663 102,858
---------- ---------- ----------
Total deposits.................................... 159,490 296,990 612,004
INTEREST CREDITED................................. 165,758 182,665 190,945
BENEFITS, WITHDRAWALS AND OTHER ADJUSTMENTS
Benefits.......................................... (160,376) (160,351) (161,813)
Surrenders and partial withdrawals................ (385,801) (308,244) (335,521)
Contract charges.................................. (61,370) (57,157) (54,138)
Net transfers to separate accounts................ (67) -- (38)
Other adjustments /(1)/........................... (19,722) (49,989) (12,935)
---------- ---------- ----------
Total benefits, withdrawals and other adjustments. (627,336) (575,741) (564,445)
---------- ---------- ----------
CONTRACTHOLDER FUNDS, ENDING BALANCE.............. $4,688,791 $4,990,879 $5,086,965
========== ========== ==========
--------
/(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 to third
parties is reflected as a component of the other adjustments line.
Contractholder funds decreased 6.1% and 1.9% in 2010 and 2009, respectively,
and increased 4.9% in 2008. Average contractholder funds decreased 4.0% in 2010
compared to 2009 and increased 1.4% in 2009 compared to 2008.
Contractholder deposits decreased 46.3% in 2010 compared to 2009 primarily
due to lower deposits on fixed annuities. Deposits on fixed annuities decreased
64.4% in 2010 compared to 2009 due to our strategic decision to discontinue
distributing fixed annuities through banks and broker-dealers and our goal to
reduce our concentration in spread based products and improve returns on new
business.
Contractholder deposits decreased 51.5% in 2009 compared to 2008 primarily
due to lower deposits on fixed annuities. Deposits on fixed annuities decreased
64.6% in 2009 compared to 2008 due to pricing actions to improve returns on new
business and reduce our concentration in spread based products.
Surrenders and partial withdrawals increased 25.2% in 2010 compared to 2009,
and decreased 8.1% in 2009 compared to 2008. In 2010, the increase was due to
higher surrenders and partial withdrawals on fixed annuities. In 2009, the
decrease was due to lower surrenders and partial withdrawals on traditional
fixed annuities, partially offset by higher surrenders and partial withdrawals
on market value adjusted annuities and interest-sensitive life insurance. The
surrender and partial withdrawal rate, based on the beginning of period
contractholder funds, was 9.4% in 2010 compared to 7.4% in 2009 and 8.6% in
2008.
ANALYSIS OF COSTS AND EXPENSES Total costs and expenses decreased 28.0% or
$157.4 million in 2010 compared to 2009 primarily due to lower amortization of
DAC and interest credited to contractholder funds, partially offset by higher
contract benefits. Total costs and expenses increased 29.3% or $127.2 million
in 2009
82
compared to 2008 primarily due to higher amortization of DAC and, to a much
lesser extent, higher interest credited to contractholder funds, partially
offset by lower contract benefits.
CONTRACT BENEFITS increased 7.5% or $12.7 million in 2010 compared to 2009
primarily due to higher mortality experience on interest-sensitive and
traditional life insurance products resulting from an increase in average claim
size and higher incidence of claims.
Contract benefits decreased 7.7% or $14.1 million in 2009 compared to 2008
due primarily to the rescission. Excluding the impact of the rescission, which
increased contract benefits by $7.1 million in 2008, total contract benefits
decreased 3.9% or $7.0 million in 2009 compared to 2008 due to lower contract
benefits on annuities and traditional life insurance. The decline in contract
benefits on annuities reflects improved mortality experience and the impact of
lower sales of immediate annuities with life contingencies. The decline in
contract benefits on traditional life insurance was due to improved mortality
experience resulting primarily from a reduction in large claim counts and
higher contract benefits ceded to ALIC due to a greater utilization of
reinsurance.
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 $111.3 million in both 2010 and 2009 and $108.1 million in 2008.
The benefit spread by product group is disclosed in the following table for
the years ended December 31.
2010 2009 2008
($ IN THOUSANDS) ------- ------- -------
Life insurance................ $ 1,395 $12,627 $18,858
Accident and health insurance. 5,255 4,355 3,875
Annuities..................... (6,205) (1,334) (2,826)
------- ------- -------
Total benefit spread.......... $ 445 $15,648 $19,907
======= ======= =======
Benefit spread decreased 97.2% or $15.2 million in 2010 compared to 2009.
The decrease was primarily due to higher mortality experience on
interest-sensitive and traditional life insurance products. Benefit spread
decreased 21.4% or $4.3 million in 2009 compared to 2008.
INTEREST CREDITED TO CONTRACTHOLDER FUNDS decreased 16.6% or $33.5 million
in 2010 compared to 2009 primarily due to lower amortization of DSI, management
actions to reduce interest crediting rates on deferred fixed annuities and
interest-sensitive life insurance, and lower average contractholder funds.
Amortization of DSI in 2010 was $3.4 million compared to $22.3 million in 2009.
The decline in amortization of DSI in 2010 was primarily due to a $8.8 million
decrease in amortization relating to realized capital gains and losses and a
$6.9 million reduction in amortization acceleration for changes in assumptions.
Interest credited to contractholder funds increased 5.4% or $10.3 million in
2009 compared to 2008 due primarily to higher amortization of DSI, partially
offset by lower weighted average interest crediting rates on deferred fixed
annuities. Amortization of DSI in 2009 and 2008 was $22.3 million and $7.8
million, respectively. The increase primarily related to an unfavorable change
in amortization relating to realized capital gains and losses of $14.6 million.
In order to analyze the impact of net investment income and interest
credited to contractholders on net income, we monitor the difference between
net investment income and the sum of interest credited to contractholder funds
and the implied interest on immediate annuities with life contingencies, which
is included as a component of contract benefits on the Statements of Operations
and Comprehensive Income ("investment spread").
83
The investment spread by product group is shown in the following table for
the years ended December 31.
2010 2009 2008
($ IN THOUSANDS) ------- ------- --------
Annuities............................................... $53,406 $28,775 $ 56,314
Life insurance.......................................... 2,565 1,090 2,767
Accident and health insurance........................... 1 (17) (11)
Net investment income on investments supporting capital. 33,301 29,670 44,555
------- ------- --------
Total investment spread................................. $89,273 $59,518 $103,625
======= ======= ========
Investment spread increased 50.0% or $29.8 million in 2010 compared to 2009
as lower net investment income was more than offset by decreased interest
credited to contractholder funds, which includes lower amortization of DSI.
Excluding amortization of DSI, investment spread increased 13.2% or $10.8
million in 2010 compared to 2009.
Investment spread declined 42.6% or $44.1 million in 2009 compared to 2008.
This decline reflects lower net investment income and, to a lesser extent,
higher amortization of DSI.
To further analyze investment spreads, the following table summarizes the
weighted average investment yield on assets supporting product liabilities and
capital, interest crediting rates and investment spreads for 2010, 2009 and
2008.
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
INVESTMENT YIELD INTEREST CREDITING RATE INVESTMENT SPREADS
------------- ---------------------- -----------------
2010 2009 2008 2010 2009 2008 2010 2009 2008
---- ---- ---- ---- ---- ---- ---- ---- ----
Interest-sensitive life insurance.................... 5.2% 5.1% 5.7% 4.4% 4.6% 4.6% 0.8% 0.5% 1.1%
Deferred fixed annuities............................. 5.0 5.1 5.6 3.0 3.3 3.5 2.0 1.8 2.1
Immediate fixed annuities with and without life
contingencies...................................... 6.6 6.6 7.1 6.4 6.5 6.5 0.2 0.1 0.6
Investments supporting capital, traditional life and
other products..................................... 3.3 4.2 6.5 n/a n/a n/a n/a n/a n/a
The following table summarizes our product liabilities as of December 31 and
indicates the account value of those contracts and policies for which an
investment spread is generated.
2010 2009 2008
($ IN THOUSANDS) ---------- ---------- ----------
Immediate fixed annuities with life contingencies.... $1,703,738 $1,675,884 $1,649,426
Other life contingent contracts and other............ 286,476 199,695 303,731
---------- ---------- ----------
Reserve for life-contingent contract benefits..... $1,990,214 $1,875,579 $1,953,157
========== ========== ==========
Interest-sensitive life insurance.................... $ 660,731 $ 627,362 $ 576,167
Deferred fixed annuities............................. 3,443,034 3,771,584 3,918,609
Immediate fixed annuities without life contingencies. 585,026 591,933 592,189
---------- ---------- ----------
Contractholder funds.............................. $4,688,791 $4,990,879 $5,086,965
========== ========== ==========
84
AMORTIZATION OF DAC decreased $132.0 million in 2010 compared to 2009 and
increased $130.7 million in 2009 compared to 2008. The components of
amortization of DAC are summarized in the following table for the years ended
December 31.
2010 2009 2008
($ IN THOUSANDS) -------- --------- --------
Amortization of DAC before amortization relating to realized
capital gains and losses and changes in assumptions........... $(14,620) $ (52,307) $(41,471)
Accretion (amortization) relating to realized capital gains and
losses........................................................ 303 (54,219) 32,784
Amortization acceleration for changes in assumptions ("DAC
unlocking")................................................... (2,120) (41,924) (9,091)
-------- --------- --------
Total amortization of DAC.................................... $(16,437) $(148,450) $(17,778)
======== ========= ========
The decrease of $132.0 million in 2010 was primarily due to a favorable
change in amortization relating to realized capital gains and losses, lower
amortization acceleration for changes in assumptions and a decreased
amortization rate on fixed annuities. The increase of $130.7 million in 2009
compared to 2008 was due primarily to an unfavorable change in amortization
relating to realized capital gains and losses, and to a lesser extent, higher
amortization acceleration for changes in assumptions.
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. In 2010, DAC accretion relating to realized capital
gains and losses resulted primarily from other-than-temporary impairment losses
on investments supporting interest-sensitive life products. In 2009, DAC
amortization relating to realized capital gains and losses resulted primarily
from realized capital gains on derivatives. Additionally, DAC amortization in
2010 and 2009 reflects our decision in the second half of 2009 not to
recapitalize DAC for credit or derivative losses on investments supporting
certain fixed annuities following concerns that an increase in the level of
expected realized capital losses may reduce EGP and adversely impact the
product DAC recoverability. In 2008, DAC accretion resulted primarily from
realized capital losses on derivatives and other-than-temporary impairment
losses.
Our annual comprehensive review of the profitability of our products to
determine DAC balances for our interest-sensitive life, fixed annuities and
other investment contracts covers assumptions for investment returns, including
capital gains and losses, interest crediting rates to policyholders, the effect
of any hedges, persistency, mortality and expenses in all product lines. In the
first quarter of 2010, the review resulted in an acceleration of DAC
amortization (charge to income) of $2.1 million, including amortization
acceleration of $2.2 million related to interest-sensitive life insurance,
partially offset by amortization deceleration (credit to income) of $78
thousand for fixed annuities. Amortization acceleration related to
interest-sensitive life insurance was primarily due to an increase in projected
realized capital losses and lower projected renewal premium (which is also
expected to reduce persistency), partially offset by lower expenses.
In 2009, our annual comprehensive review resulted in the acceleration of DAC
amortization of $41.9 million, including amortization acceleration of $45.2
million related to fixed annuities, partially offset by amortization
deceleration of $3.3 million for interest-sensitive life insurance. The
principal assumption impacting EGP and the related DAC amortization for fixed
annuities was an increase in the level of expected realized capital losses in
2009 and 2010 and, to a lesser extent, reduced investment spread. Reduced EGP
for fixed annuities resulted in accelerated DAC amortization. For our
interest-sensitive life insurance products, the amortization deceleration was
due to higher EGP due to a favorable change in our mortality assumptions,
partially offset by increased expected capital losses and, to a lesser extent,
reduced investment spread.
85
In 2008, DAC amortization acceleration for changes in assumptions, recorded
in connection with comprehensive reviews of the DAC balances resulted in an
increase to amortization of DAC of $9.1 million. The principle assumption
impacting the amortization acceleration in 2008 was the level of realized
capital losses impacting actual gross profits in 2008 and the impact of
realized capital losses on EGP in 2009. During the fourth quarter of 2008, our
assumptions for EGP were impacted by a view of higher impairments in our
investment portfolio.
The changes in the DAC asset are detailed in the following table.
TRADITIONAL LIFE
AND ACCIDENT INTEREST-SENSITIVE FIXED
AND HEALTH LIFE INSURANCE ANNUITIES TOTAL
---------------- ------------------ ------------------- -------------------
2010 2009 2010 2009 2010 2009 2010 2009
($ IN THOUSANDS) ------- ------- -------- -------- -------- --------- -------- ---------
Beginning balance........................ $47,868 $45,332 $119,974 $153,106 $ 45,483 $ 339,810 $213,325 $ 538,248
Acquisition costs deferred............... 7,575 7,844 15,781 15,483 1,348 9,233 24,704 32,560
Impact of adoption of new OTTI
accounting before unrealized
impact/(1)/............................. -- -- -- (832) -- (10,993) -- (11,825)
Impact of adoption of new OTTI
accounting effect of unrealized capital
gains and losses/(2)/................... -- -- -- 832 -- 10,993 -- 11,825
Amortization of DAC before amortization
relating to realized capital gains and
losses and changes in assumptions/(3)/.. (5,587) (5,308) (1,277) (3,902) (7,756) (43,097) (14,620) (52,307)
Accretion (amortization) relating to
realized capital gains and losses/(3)/.. -- -- 401 (935) (98) (53,284) 303 (54,219)
Amortization (acceleration) deceleration
for changes in assumptions ("DAC
unlocking")/(3)/........................ -- -- (2,198) 3,281 78 (45,205) (2,120) (41,924)
Effect of unrealized capital gains and
losses/(4)/............................. -- -- (14,404) (47,059) (37,251) (161,974) (51,655) (209,033)
------- ------- -------- -------- -------- --------- -------- ---------
Ending balance........................... $49,856 $47,868 $118,277 $119,974 $ 1,804 $ 45,483 $169,937 $ 213,325
======= ======= ======== ======== ======== ========= ======== =========
--------
/(1)/The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC to reverse previously recorded DAC accretion related to realized
capital losses that were reclassified to other comprehensive income upon
adoption on April 1, 2009. The adjustment was recorded as a reduction of
the DAC balance and retained income.
/(2)/The adoption of new OTTI accounting guidance resulted in an adjustment to
DAC due to the change in unrealized capital gains and losses that occurred
upon adoption on April 1, 2009 when previously recorded realized capital
losses were reclassified to other comprehensive income. The adjustment was
recorded as an increase of the DAC balance and unrealized capital gains
and losses.
/(3)/Included as a component of amortization of DAC on the Statements of
Operations and Comprehensive Income.
/(4)/Represents the change in the DAC adjustment for unrealized capital gains
and losses. The DAC adjustment balance was $(4.9) million and $46.8
million as of December 31, 2010 and 2009, respectively, and 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. Recapitalization of DAC is limited to the originally deferred
policy acquisition costs plus interest.
OPERATING COSTS AND EXPENSES decreased 11.3% or $4.6 million in 2010
compared to 2009 primarily due to lower insurance department assessments and
restructuring and related charges.
Operating costs and expenses increased 0.8% in 2009 compared to 2008 due
primarily to higher insurance department assessments and restructuring and
related charges, partially offset by lower non-deferrable commissions and
decreased employee and professional services expenses. During 2009,
restructuring and related charges of $2.2 million were recorded in connection
with our previously announced plan to improve efficiency and narrow our focus
of product offerings.
INCOME TAX EXPENSE decreased by $13.9 million in 2010 compared to 2009 and
increased by $15.7 million in 2009 compared to 2008. These changes were
proportionate with the changes in pre-tax income.
86
Our effective tax rate is impacted by tax favored investment income such as
dividends qualifying for the dividends received deduction ("DRD"). In 2007, the
Internal Revenue Service announced its intention to issue regulations dealing
with certain computational aspects of the DRD related to separate account
assets ("separate accounts DRD"). The ultimate timing and substance of any such
regulations are unknown at this time, but may result in the elimination of some
or all of the separate accounts DRD tax benefit reflected as a component of
income tax expense. We recognized a tax benefit from the separate accounts DRD
of $856 thousand, $846 thousand and $1.0 million in 2010, 2009 and 2008,
respectively.
REINSURANCE CEDED We enter into reinsurance agreements with ALIC and
unaffiliated reinsurers to limit our risk of mortality and morbidity losses and
reinvestment risk. In addition, we have used reinsurance to effect the
disposition of certain blocks of business. We retain primary liability as a
direct insurer for all risks ceded to reinsurers. As of December 31, 2010 and
2009, 44.8% and 35.0%, respectively, of our face amount of life insurance in
force was reinsured. Additionally, we ceded all of the risk associated with our
variable annuity business.
Our reinsurance recoverables, summarized by reinsurer as of December 31, are
shown in the following table.
STANDARD & POOR'S REINSURANCE
FINANCIAL STRENGTH RECOVERABLE ON PAID
RATING/(1)/ AND UNPAID BENEFITS
------------------ -------------------
2010 2009
($ IN THOUSANDS) -------- --------
Prudential Insurance Company of America. AA- $265,021 $287,545
Transamerica Life Group................. AA- 26,174 22,146
RGA Reinsurance Company................. AA- 6,586 5,975
Swiss Re Life and Health America, Inc... A+ 3,851 3,032
Allstate Life Insurance Company......... A+ 2,221 3,449
Canada Life............................. AA 1,380 1,149
Security Life of Denver................. A 995 977
Generali USA............................ A+ 946 902
American United Life.................... AA- 804 767
Triton Insurance Company................ N/A 738 429
Scottish Re Life Corporation............ N/A 471 423
Cologne Re.............................. AA+ 95 121
Minnesota Mutual........................ AA- 90 87
Metropolitan Life....................... AA- 83 99
Mutual of Omaha......................... AA- 43 72
-------- --------
Total................................ $309,498 $327,173
======== ========
--------
/(1)/N/A reflects no rating available.
Three of our reinsurers, Allstate Life Insurance Company, Security Life of
Denver and Cologne Re, experienced rating downgrades in 2010 by Standard &
Poor's ("S&P"). We continuously monitor the creditworthiness of reinsurers in
order to determine our risk of recoverability on an individual and aggregate
basis, and a provision for uncollectible reinsurance is recorded if needed. No
amounts have been deemed unrecoverable in the three-years ended December 31,
2010.
INVESTMENTS
OVERVIEW AND STRATEGY The return on our investment portfolio is an important
component of our financial results. Our investment strategy focuses on the
total return of assets needed to support the underlying liabilities,
asset-liability management and achieving an appropriate return on capital.
87
We employ a strategic asset allocation approach which uses models that
consider the nature of the liabilities and risk tolerances, as well as the risk
and return parameters of the various asset classes in which we invest. This
asset allocation is informed by our global economic and market outlook, as well
as other inputs and constraints, including diversification effects, duration,
liquidity and capital considerations. Within the ranges set by the strategic
asset allocation model, tactical investment decisions are made in consideration
of prevailing market conditions.
We continue to focus our strategic risk mitigation efforts towards managing
interest rate, credit and credit spreads and real estate investment risks,
while our return optimization efforts focus on investing in new opportunities
to generate income and capital appreciation. As a result, during 2010 we
reduced our commercial real estate exposure by 20.6% or $214.4 million of
amortized cost primarily through targeted dispositions and principal repayments
from borrowers.
PORTFOLIO COMPOSITION The composition of the investment portfolio as of
December 31, 2010 is presented in the table below. Also see Notes 2 and 5 of
the financial statements for investment accounting policies and additional
information.
PERCENT TO
TOTAL
($ IN THOUSANDS) ----------
Fixed income securities/(1)/....... $6,300,109 87.6%
Mortgage loans..................... 501,476 7.0
Equity securities/(2)/............. 124,559 1.7
Limited partnership interests/(3)/. 4,814 0.1
Short-term/(4)/.................... 198,601 2.8
Policy loans....................... 41,862 0.6
Other.............................. 18,776 0.2
---------- -----
Total........................... $7,190,197 100.0%
========== =====
-
/(1)/Fixed income securities are carried at fair value. Amortized cost
basis for these securities was $6.00 billion.
/(2)/Equity securities are carried at fair value. Cost basis for these
securities was $99.3 million.
/(3)/We have commitments to invest in additional limited partnership
interests totaling $98.1 million.
/(4)/Short-term investments are carried at fair value. Amortized cost
basis for these investments was $198.6 million.
Total investments increased to $7.19 billion as of December 31, 2010, from
$7.14 billion as of December 31, 2009, primarily due to higher valuations for
fixed income securities partially offset by reductions in short-term
investments and mortgage loans. Valuations of fixed income securities are
typically driven by a combination of changes in relevant risk-free interest
rates and credit spreads over the period. Risk-free interest rates are
typically defined as the yield on U.S. Treasury securities, whereas credit
spread is the additional yield on fixed income securities above the risk-free
rate that market participants require to compensate them for assuming credit,
liquidity and/or prepayment risks. The increase in valuation of fixed income
securities during 2010 was mainly due to declining risk-free interest rates and
tightening of credit spreads in certain sectors.
88
FIXED INCOME SECURITIES by type are listed in the table below.
FAIR VALUE AS OF PERCENT TO FAIR VALUE AS OF PERCENT TO
DECEMBER 31, TOTAL DECEMBER 31, TOTAL
2010 INVESTMENTS 2009 INVESTMENTS
($ IN THOUSANDS) ---------------- ----------- ---------------- -----------
U.S. government and agencies.................... $ 358,568 5.0% $ 586,202 8.2%
Municipal....................................... 853,734 11.9 878,410 12.3
Corporate....................................... 3,753,092 52.2 3,271,202 45.8
Foreign government.............................. 329,603 4.6 290,856 4.1
Residential mortgage-backed securities ("RMBS"). 590,298 8.2 651,672 9.1
Commercial mortgage-backed securities ("CMBS").. 267,044 3.7 346,741 4.9
Asset-backed securities ("ABS")................. 138,564 1.9 40,044 0.6
Redeemable preferred stock...................... 9,206 0.1 8,638 0.1
---------- ---- ---------- ----
Total fixed income securities................... $6,300,109 87.6% $6,073,765 85.1%
========== ==== ========== ====
As of December 31, 2010, 93.8% of the fixed income securities portfolio was
rated investment grade, which is defined as a security having a rating of Aaa,
Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch,
Dominion, or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a
comparable internal rating if an externally provided rating is not available.
The following table summarizes the fair value and unrealized net capital
gains and losses for fixed income securities by credit rating as of
December 31, 2010.
AAA AA A
--------------------- --------------------- ---------------------
UNREALIZED UNREALIZED UNREALIZED
FAIR VALUE GAIN/(LOSS) FAIR VALUE GAIN/(LOSS) FAIR VALUE GAIN/(LOSS)
($ IN THOUSANDS) ---------- ----------- ---------- ----------- ---------- -----------
U.S. government and agencies........ $ 358,568 $ 69,733 $ -- $ -- $ -- $ --
Municipal
Tax exempt......................... -- -- 3,057 72 -- --
Taxable............................ 19,224 (151) 459,623 3,055 212,420 (2,185)
ARS................................ 74,448 (4,962) -- -- 7,781 (944)
Corporate
Public............................. 39,942 295 250,662 15,981 849,812 60,313
Privately placed................... 79,133 2,012 197,698 3,337 452,355 28,274
Foreign government.................. 304,425 58,268 10,180 184 14,998 2,548
RMBS
U.S. government sponsored entities
("U.S. Agency").................. 448,532 17,997 -- -- -- --
Prime residential mortgage-backed
securities ("Prime")............. 66,261 1,731 3,548 90 22,499 720
Alt-A residential mortgage-backed
securities ("Alt-A")............. -- -- 7,767 (1,154) 12,401 (370)
Subprime residential mortgage-
backed securities ("Subprime")... 3,398 (111) 729 (1) 1,872 (95)
CMBS................................ 125,175 4,758 31,042 (130) 28,700 (5,216)
ABS
Collateralized debt obligations
("CDO").......................... -- -- 4,390 (199) 7,024 (448)
Consumer and other asset-backed
securities ("Consumer and other
ABS")............................ 47,399 1,914 22,398 484 38,659 390
Redeemable preferred stock.......... -- -- -- -- -- --
---------- -------- -------- ------- ---------- -------
Total fixed income securities....... $1,566,505 $151,484 $991,094 $21,719 $1,648,521 $82,987
========== ======== ======== ======= ========== =======
89
BAA BA OR LOWER TOTAL
--------------------- --------------------- ---------------------
UNREALIZED UNREALIZED UNREALIZED
FAIR VALUE GAIN/(LOSS) FAIR VALUE GAIN/(LOSS) FAIR VALUE GAIN/(LOSS)
---------- ----------- ---------- ----------- ---------- -----------
U.S. government and agencies.. $ -- $ -- $ -- $ -- $ 358,568 $ 69,733
Municipal
Tax exempt................... 5,005 512 -- -- 8,062 584
Taxable...................... 70,286 (16,466) 1,890 (164) 763,443 (15,911)
ARS.......................... -- -- -- -- 82,229 (5,906)
Corporate
Public....................... 911,062 48,842 159,639 9,296 2,211,117 134,727
Privately placed............. 632,081 33,187 180,708 5,990 1,541,975 72,800
Foreign government............ -- -- -- -- 329,603 61,000
RMBS
U.S. Agency.................. -- -- -- -- 448,532 17,997
Prime........................ -- -- -- -- 92,308 2,541
Alt-A........................ 8,095 (1,534) -- -- 28,263 (3,058)
Subprime..................... 1,130 (58) 14,066 (6,718) 21,195 (6,983)
CMBS.......................... 57,595 (11,934) 24,532 (14,928) 267,044 (27,450)
ABS
CDO........................ -- -- 7,500 (2,500) 18,914 (3,147)
Consumer and other ABS..... 11,194 91 -- -- 119,650 2,879
Redeemable preferred stock.... 9,206 10 -- -- 9,206 10
---------- -------- -------- -------- ---------- --------
Total fixed income securities. $1,705,654 $ 52,650 $388,335 $ (9,024) $6,300,109 $299,816
========== ======== ======== ======== ========== ========
MUNICIPAL BONDS, including tax exempt, taxable and ARS securities, totaled
$853.7 million as of December 31, 2010 with an unrealized net capital loss of
$21.2 million.
As of December 31, 2010, 26.2% or $223.8 million of our municipal bond
portfolio is insured by five bond insurers and 37.9% of these securities have a
credit rating of Aa. 58.0% of our insured municipal bond portfolio was insured
by National Public Finance Guarantee Corporation, Inc., 17.6% by Ambac
Assurance Corporation, 15.9% by Assured Guarantee Municipal Corporation and
4.4% by Syncora Holdings. Given the effects of the economic crisis on bond
insurers, the value inherent in this insurance has declined. We believe the
fair value of our insured municipal bond portfolio substantially reflects the
decline in the value of the insurance, and further related valuation declines,
if any, are not expected to be material. Our practice for acquiring and
monitoring municipal bonds is predominantly based on the underlying credit
quality of the primary obligor. We currently expect to receive all contractual
cash flows from the primary obligor and are not relying on bond insurers for
payments.
ARS totaled $82.2 million with an unrealized net capital loss of $5.9
million as of December 31, 2010. Our holdings primarily have a credit rating of
Aaa. All of our holdings are collateralized by pools of student loans for which
at least 85% of the collateral was insured by the U.S. Department of Education
at the time we purchased the security. As of December 31, 2010, $60.5 million
of our ARS backed by student loans was 100% insured by the U.S. Department of
Education and $21.7 million was 90% to 99% insured. All of our student loan ARS
holdings are experiencing failed auctions and we receive the failed auction
rate or, for those which contain maximum reset rate formulas, we receive the
contractual maximum rate. We anticipate that failed auctions may persist and
most of our holdings will continue to pay the failed auction rate or, for those
that contain maximum rate reset formulas, the maximum rate. Auctions continue
to be conducted as scheduled for each of the securities.
CORPORATE BONDS, including publicly traded and privately placed, totaled
$3.75 billion as of December 31, 2010 with an unrealized net capital gain of
$207.5 million. Privately placed securities primarily consist of corporate
issued senior debt securities that are in unregistered form or are directly
negotiated with the borrower.
90
41.7% of the privately placed corporate securities in our portfolio are rated
by an independent rating agency and substantially all are rated by the National
Association of Insurance Commissioners ("NAIC").
Our portfolio of privately placed securities is broadly diversified by
issuer, industry sector and country. The portfolio is made up of 236 issuers.
Privately placed corporate obligations 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
extensive due diligence of the issuer, typically including direct discussions
with senior management and on-site visits to company facilities. Ongoing
monitoring includes direct periodic dialog 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.
FOREIGN GOVERNMENT securities totaled $329.6 million, with 100% rated
investment grade, as of December 31, 2010. Of these securities, 92.4% are
backed by the U.S. government and the remaining 7.6% are in Canadian government
securities.
RMBS, CMBS AND ABS are structured securities that are primarily
collateralized by residential and commercial real estate loans and other
consumer or corporate borrowings. 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 can have fixed interest rates, variable interest rates (such as
adjustable rate mortgages ("ARM")) or may contain features of both fixed and
variable rate mortgages.
RMBS, including U.S. Agency, Prime, Alt-A and Subprime, totaled $590.3
million, with 97.6% rated investment grade, as of December 31, 2010. The RMBS
portfolio is subject to interest rate risk, but unlike other fixed income
securities, is additionally subject to significant prepayment risk from the
underlying residential mortgage loans. The credit risk associated with our RMBS
portfolio is mitigated due to the fact that 76.0% of the portfolio consists of
securities that were issued by or have underlying collateral guaranteed by U.S.
government agencies. The unrealized net capital loss of $10.0 million as of
December 31, 2010 on our Alt-A and Subprime RMBS was the result of wider credit
spreads than at initial purchase, largely due to higher risk premiums caused by
macroeconomic conditions and credit market deterioration, including the impact
of lower real estate valuations, which began to show signs of stabilization in
certain geographic areas in 2010. The following table shows our RMBS portfolio
as of December 31, 2010 based upon vintage year of the issuance of the
securities.
91
U.S. AGENCY PRIME ALT-A SUBPRIME TOTAL RMBS
-------------------- ------------------- ------------------ ------------------ -------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
($ IN VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS)
THOUSANDS) -------- ----------- ------- ----------- ------- ----------- ------- ----------- -------- -----------
2010....... $ -- $ -- $35,415 $1,127 $ 3,394 $ 120 $ -- $ -- $ 38,809 $ 1,247
2009....... 34,013 993 20,240 163 -- -- -- -- 54,253 1,156
2008....... 61,077 894 -- -- -- -- -- -- 61,077 894
2007....... 17,680 275 -- -- -- -- 8,482 (3,768) 26,162 (3,493)
2006....... 28,353 1,088 -- -- -- -- 8,721 (2,879) 37,074 (1,791)
2005....... 66,909 2,608 -- -- -- -- 79 (26) 66,988 2,582
Pre-2005... 240,500 12,139 36,653 1,251 24,869 (3,178) 3,913 (310) 305,935 9,902
-------- ------- ------- ------ ------- ------- ------- ------- -------- -------
Total.... $448,532 $17,997 $92,308 $2,541 $28,263 $(3,058) $21,195 $(6,983) $590,298 $10,497
======== ======= ======= ====== ======= ======= ======= ======= ======== =======
Prime are collateralized by residential mortgage loans issued to prime
borrowers. As of December 31, 2010, all of the Prime had fixed rate underlying
collateral.
Alt-A includes securities collateralized by residential mortgage loans
issued to borrowers who do not qualify for prime financing terms due to high
loan-to-value ratios or limited supporting documentation, but have stronger
credit profiles than subprime borrowers. As of December 31, 2010, all of the
Alt-A had fixed rate underlying collateral.
Subprime includes securities collateralized by residential mortgage loans
issued to borrowers that cannot qualify for Prime or Alt-A financing terms due
in part to weak or limited credit history. It also includes securities that are
collateralized by certain second lien mortgages regardless of the borrower's
credit history. The Subprime portfolio consisted of $12.2 million and $9.0
million of first lien and second lien securities, respectively. As of
December 31, 2010, $11.7 million of the Subprime had fixed rate underlying
collateral and $9.5 million had variable rate underlying collateral.
CMBS totaled $267.0 million, with 90.8% rated investment grade, as of
December 31, 2010. The CMBS portfolio is subject to credit risk, but unlike
certain other structured securities, is generally not subject to prepayment
risk due to protections within the underlying commercial mortgage loans. All of
the CMBS investments are traditional conduit transactions collateralized by
commercial mortgage loans, broadly diversified across property types and
geographical area. The remainder consists of non-traditional CMBS such as small
balance transactions, large loan pools and single borrower transactions.
The following table shows our CMBS portfolio as of December 31, 2010 based
upon vintage year of the underlying collateral.
FAIR UNREALIZED
VALUE GAIN/(LOSS)
($ IN THOUSANDS) -------- -----------
2006............ $152,838 $(23,852)
2005............ 44,579 (5,558)
Pre-2005........ 69,627 1,960
-------- --------
Total CMBS.... $267,044 $(27,450)
======== ========
The unrealized net capital loss of $27.5 million as of December 31, 2010 on
our CMBS portfolio was the result of wider credit spreads than at initial
purchase, largely due to the macroeconomic conditions and credit market
deterioration, including the impact of lower real estate valuations, which
began to show signs of stabilization in certain geographic areas in 2010. While
CMBS spreads tightened during 2009 and 2010, credit spreads in most rating
classes remain wider than at initial purchase, which is particularly evident in
our 2005-2006 vintage year CMBS.
92
ABS, including CDO and Consumer and other ABS, totaled $138.6 million, with
94.6% rated investment grade, as of December 31, 2010. Credit risk is managed
by monitoring the performance of the underlying collateral. Many of the
securities in the ABS portfolio have credit enhancement with features such as
overcollateralization, subordinated structures, reserve funds, guarantees
and/or insurance. The unrealized net capital loss of $268 thousand as of
December 31, 2010 on our ABS portfolio was the result of wider credit spreads
than at initial purchase.
CDO totaled $18.9 million, with 60.3% rated investment grade, as of
December 31, 2010. CDO consist primarily of obligations collateralized by high
yield and investment grade corporate credits including $7.5 million of project
finance CDO with unrealized losses of $2.5 million. The remaining $11.4 million
of securities consisted of trust preferred CDO and cash flow collateralized
loan obligations with unrealized losses of $647 thousand.
Consumer and other ABS totaled $119.6 million, with 100% rated investment
grade, as of December 31, 2010. Consumer and other ABS consists of $82.8
million of auto and $36.8 million of other ABS with unrealized gains of $1.1
million and $1.8 million, respectively.
MORTGAGE LOANS Our mortgage loan portfolio totaled $501.5 million as of
December 31, 2010, compared to $543.0 million as of December 31, 2009, and
primarily comprises loans secured by first mortgages on developed commercial
real estate. Key considerations used to manage our exposure include property
type and geographic diversification by state and metropolitan area.
We recognized $2.9 million of realized capital losses related to net
increases in the valuation allowance on impaired mortgage loans in 2010,
primarily due to deteriorating debt service coverage resulting from a decrease
in occupancy and the risk associated with refinancing near-term maturities due
to declining underlying collateral valuations. We recognized $5.3 million of
realized capital losses related to net increases in the valuation allowance on
impaired loans in 2009.
For further detail on our mortgage loan portfolio, see Note 5 of the
financial statements.
EQUITY SECURITIES Equity securities include exchange traded funds. The
equity securities portfolio was $124.6 million as of December 31, 2010 compared
to $123.3 million as of December 31, 2009. Net unrealized gains totaled $25.2
million as of December 31, 2010 compared to $23.1 million as of December 31,
2009.
LIMITED PARTNERSHIP INTERESTS consist of investments in private equity/debt
funds. The limited partnership interests portfolio is well diversified across a
number of characteristics including fund sponsors, strategies, geography
(including international), and company types. The following table presents
information about our limited partnership interests as of December 31, 2010.
($ IN THOUSANDS)
Cost method of accounting ("Cost").. $2,355
Equity method of accounting ("EMA"). 2,459
------
Total............................ $4,814
======
Number of sponsors.................. 14
Number of individual funds.......... 14
Largest exposure to single fund..... $1,068
Our aggregate limited partnership exposure represented 0.1% of total
invested assets as of December 31, 2010. We did not hold any limited
partnership interests as of December 31, 2009.
93
Limited partnership interests, excluding impairment write-downs, produced
losses of $146 thousand in 2010, all of which related to EMA limited
partnerships. Income on EMA limited partnerships is recognized on a delay due
to the availability of the related financial statements. The recognition of
income on private equity/debt funds are generally on a three-month delay.
Income on Cost limited partnerships is recognized only upon receipt of amounts
distributed by the partnerships. There were no impairment write-downs related
to limited partnerships for the year ended December 31, 2010.
SHORT-TERM INVESTMENTS Our short-term investment portfolio was $198.6
million and $348.5 million as of December 31, 2010 and 2009, respectively.
POLICY LOANS Our policy loan balance was $41.9 million and $40.6 million as
of December 31, 2010 and 2009, respectively. Policy loans are carried at the
unpaid principal balances.
OTHER INVESTMENTS Our other investments as of December 31, 2010 are
comprised of $18.4 million of notes due from a related party and $411 thousand
of certain derivatives. For further detail on the notes due from related party,
see Note 4 of the financial statements. For further detail on our use of
derivatives, see Note 7 of the financial statements
UNREALIZED NET CAPITAL GAINS totaled $325.0 million as of December 31, 2010,
compared to $24.0 million as of December 31, 2009. The improvement since
December 31, 2009 was primarily a result of declining risk-free interest rates
and tightening of credit spreads in certain sectors. The following table
presents unrealized net capital gains and losses, pre-tax and after-tax as of
December 31.
2010 2009
($ IN THOUSANDS) --------- ---------
U.S. government and agencies....................... $ 69,733 $ 51,612
Municipal.......................................... (21,233) (51,278)
Corporate.......................................... 207,527 98,172
Foreign government................................. 61,000 49,715
RMBS............................................... 10,497 (14,446)
CMBS............................................... (27,450) (126,094)
ABS................................................ (268) (6,544)
Redeemable preferred stock......................... 10 (607)
--------- ---------
Fixed income securities/(1)/....................... 299,816 530
Equity securities.................................. 25,211 23,143
Short-term investments............................. -- (3)
Derivatives........................................ -- 309
--------- ---------
Unrealized net capital gains and losses, pre-tax... 325,027 23,979
Amounts recognized for:
Insurance reserves/(2)/......................... (115,141) (40,551)
DAC and DSI/(3)/................................ (4,947) 53,572
--------- ---------
Amounts recognized.......................... (120,088) 13,021
Deferred income taxes.............................. (71,729) (12,950)
--------- ---------
Unrealized net capital gains and losses, after-tax. $ 133,210 $ 24,050
========= =========
--------
/(1)/Unrealized net capital gains and losses for fixed income
securities as of December 31, 2010 and 2009 comprise $2.3 million
and $(3.8) million, respectively, related to unrealized net
capital gains and losses on fixed income securities with
other-than-temporary impairment and $297.5 million and $4.3
million, respectively, related to other unrealized net capital
gains and losses.
/(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
current lower interest rates, resulting in a premium deficiency.
Although we evaluate premium
94
deficiencies on the combined performance of our life insurance and
immediate annuities with life contingencies, the adjustment
primarily relates to structured settlement annuities with life
contingencies, in addition to certain payout annuities 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. Only the unrealized net capital gains and losses on
the fixed annuity and interest-sensitive life product portfolios
are used in this calculation. The DAC and DSI adjustment balance,
subject to limitations, is determined by applying the DAC and DSI
amortization rate to unrealized net capital gains or losses.
Recapitalization of the DAC and DSI balances is limited to the
originally deferred costs plus interest.
The unrealized net capital gains for the fixed income portfolio totaled
$299.8 million and comprised $413.1 million of gross unrealized gains and
$113.3 million of gross unrealized losses as of December 31, 2010. This is
compared to unrealized net capital gains for the fixed income portfolio
totaling $530 thousand, comprised of $287.2 million of gross unrealized gains
and $286.7 million of gross unrealized losses as of December 31, 2009. The
unrealized net capital gain for the equity portfolio totaled $25.2 million,
comprised entirely of unrealized gains as of December 31, 2010. This is
compared to an unrealized net capital gain for the equity portfolio totaling
$23.1 million, comprised entirely of unrealized gains as of December 31, 2009.
Gross unrealized gains and losses as of December 31, 2010 on fixed income
securities by type and sector are provided in the table below.
AMORTIZED FAIR VALUE
GROSS UNREALIZED COST AS A AS A PERCENT
PAR AMORTIZED ------------------ FAIR PERCENT OF OF
VALUE/(1)/ COST GAINS LOSSES VALUE PAR VALUE/(2)/ PAR VALUE/(2)/
($ IN THOUSANDS) ---------- ---------- -------- --------- ---------- ------------- -------------
Corporate:
Banking............................. $ 336,333 $ 325,035 $ 15,293 $ (7,888) $ 332,440 96.6% 98.8%
Utilities........................... 794,002 786,363 65,192 (7,776) 843,779 99.0 106.3
Consumer goods (cyclical and
non-cyclical)...................... 597,201 603,548 39,922 (2,783) 640,687 101.1 107.3
Capital goods....................... 407,657 407,695 31,420 (2,677) 436,438 100.0 107.1
Transportation...................... 207,795 210,303 11,960 (2,160) 220,103 101.2 105.9
Financial services.................. 279,831 281,457 12,621 (1,384) 292,694 100.6 104.6
Technology.......................... 160,067 162,075 8,859 (1,115) 169,819 101.3 106.1
Communications...................... 213,947 215,907 13,720 (1,010) 228,617 100.9 106.9
Basic industry...................... 112,895 113,444 7,842 (580) 120,706 100.5 106.9
Energy.............................. 265,017 266,974 18,007 (334) 284,647 100.7 107.4
Other............................... 244,393 172,764 10,547 (149) 183,162 70.7 74.9
---------- ---------- -------- --------- ----------
Total corporate fixed income portfolio. 3,619,138 3,545,565 235,383 (27,856) 3,753,092 98.0 103.7
---------- ---------- -------- --------- ----------
U.S. government and agencies........... 419,028 288,835 69,934 (201) 358,568 68.9 85.6
Municipal.............................. 1,079,711 874,967 16,539 (37,772) 853,734 81.0 79.1
Foreign government..................... 409,878 268,603 61,683 (683) 329,603 65.5 80.4
RMBS................................... 579,137 579,801 20,859 (10,362) 590,298 100.1 101.9
CMBS................................... 306,484 294,494 5,832 (33,282) 267,044 96.1 87.1
ABS.................................... 137,328 138,832 2,917 (3,185) 138,564 101.1 100.9
Redeemable preferred stock............. 8,500 9,196 10 -- 9,206 108.2 108.3
---------- ---------- -------- --------- ----------
Total fixed income securities.......... $6,559,204 $6,000,293 $413,157 $(113,341) $6,300,109 91.5 96.0
========== ========== ======== ========= ==========
--------
/(1)/Included in par value are zero-coupon securities that are generally
purchased at a deep discount to the par value that is received at
maturity. These primarily included corporate, U.S. government and
agencies, municipal and foreign government zero-coupon securities with par
value of $170.7 million, $331.3 million, $323.7 million and $362.9
million, respectively.
/(2)/Excluding the impact of zero-coupon securities, the percentage of
amortized cost to par value would be 100.0% for corporates, 101.4% for
U.S. government and agencies, 99.6% for municipals and 106.3% for foreign
governments. Similarly, excluding the impact of zero-coupon securities,
the percentage of fair value to par value would be 105.8% for corporates,
110.2% for U.S. government and agencies, 99.0% for municipals and 114.3%
for foreign governments.
95
The banking, utilities, consumer goods, capital goods and transportation
sectors had the highest concentration of gross unrealized losses in our
corporate fixed income securities portfolio as of December 31, 2010. In
general, credit spreads remain wider than at initial purchase for most of the
securities with gross unrealized losses in these categories.
We have a comprehensive portfolio monitoring process to identify and
evaluate each fixed income and equity security that may be
other-than-temporarily impaired. The process includes a quarterly review of all
securities to identify instances where the fair value of a security compared to
its amortized cost (for fixed income securities) or cost (for equity
securities) is below established thresholds. The process also includes the
monitoring of other impairment indicators such as ratings, ratings downgrades
and payment defaults. The securities identified, in addition to other
securities for which we may have a concern, are evaluated based on facts and
circumstances for inclusion on our watch-list. All investments in an unrealized
loss position as of December 31, 2010 were included in our portfolio monitoring
process for determining whether declines in value were other than temporary.
The extent and duration of a decline in fair value for fixed income
securities have become less indicative of actual credit deterioration with
respect to an issue or issuer. While we continue to use declines in fair value
and the length of time a security is in an unrealized loss position as
indicators of potential credit deterioration, our determination of whether a
security's decline in fair value is other than temporary has placed greater
emphasis on our analysis of the underlying credit and collateral and related
estimates of future cash flows.
The following table summarizes the fair value and gross unrealized losses of
fixed income securities by type and investment grade classification as of
December 31, 2010.
INVESTMENT GRADE BELOW INVESTMENT GRADE TOTAL
-------------------- --------------------- --------------------
FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSSES VALUE LOSSES VALUE LOSSES
($ IN THOUSANDS) ---------- ---------- -------- ---------- ---------- ----------
U.S. government and agencies. $ 4,182 $ (201) $ -- $ -- $ 4,182 $ (201)
Municipal.................... 396,938 (37,608) 1,890 (164) 398,828 (37,772)
Corporate.................... 391,226 (21,085) 89,266 (6,771) 480,492 (27,856)
Foreign government........... 43,918 (683) -- -- 43,918 (683)
RMBS......................... 41,097 (3,617) 13,699 (6,745) 54,796 (10,362)
CMBS......................... 103,414 (18,354) 24,532 (14,928) 127,946 (33,282)
ABS.......................... 21,351 (685) 7,500 (2,500) 28,851 (3,185)
---------- -------- -------- -------- ---------- ---------
Total........................ $1,002,126 $(82,233) $136,887 $(31,108) $1,139,013 $(113,341)
========== ======== ======== ======== ========== =========
We have experienced declines in the fair values of fixed income securities
primarily due to wider credit spreads resulting from higher risk premiums since
the time of initial purchase, largely due to macroeconomic conditions and
credit market deterioration, including the impact of lower real estate
valuations, which began to show signs of stabilization in certain geographic
areas in 2010. Consistent with their ratings, our portfolio monitoring process
indicates that investment grade securities have a low risk of default.
Securities rated below investment grade, comprising securities with a rating of
Ba, B and Caa or lower, have a higher risk of default.
As of December 31, 2010, 70% of our below investment grade gross unrealized
losses were concentrated in CMBS and RMBS. As of December 31, 2010, the fair
value of our below investment grade CMBS with gross unrealized losses totaled
$24.5 million compared to $2.3 million as of December 31, 2009. As of
December 31, 2010, gross unrealized losses for our below investment grade CMBS
portfolio totaled $14.9 million, an increase of 21.9% compared to $12.2 million
as of December 31, 2009. The increase over prior year was primarily due to
downgrades of certain CMBS to below investment grade during 2010, partially
offset by improved valuations, impairment write-downs and sales during 2010 in
anticipation of negative capital treatment by certain regulatory and rating
agencies. As of December 31, 2010, the fair value of our below investment grade
RMBS with gross unrealized losses totaled $13.7 million compared to $12.8
million as of December 31, 2009. As of December 31,
96
2010, gross unrealized losses for our below investment grade RMBS portfolio
totaled $6.7 million, a decrease of 49.2% compared to $13.3 million as of
December 31, 2009. The improvement over prior year was primarily due to
improved valuations resulting from lower risk premiums, sales and principal
collections, and impairment write-downs, partially offset by downgrades of
certain RMBS securities to below investment grade during 2010.
Fair values for our structured securities are obtained from third-party
valuation service providers and are subject to review as disclosed in our
Application of Critical Accounting Estimates. In accordance with GAAP, when
fair value is less than the amortized cost of a security and we have not made
the decision to sell the security and it is not more likely than not we will be
required to sell the security before recovery of its amortized cost basis, we
evaluate if we expect to receive cash flows sufficient to recover the entire
amortized cost basis of the security. We calculate the estimated recovery value
by discounting our best estimate of future cash flows at the security's
original or current effective rate, as appropriate, and compare this to the
amortized cost of the security. If we do not expect to receive cash flows
sufficient to recover the entire amortized cost basis of the security, the
credit loss component of the impairment is recorded in earnings, with the
remaining amount of the unrealized loss related to other factors
("non-credit-related") recognized in OCI.
The non-credit-related unrealized losses for our structured securities,
including our below investment grade RMBS and CMBS, are heavily influenced by
risk factors other than those related to our best estimate of future cash
flows. The difference between these securities' original or current effective
rates and the yields implied by their fair value indicates that a higher risk
premium is included in the valuation of these securities than existed at
initial issue or purchase. This risk premium represents the return that a
market participant requires as compensation to assume the risk associated with
the uncertainties regarding the future performance of the underlying
collateral. The risk premium is comprised of: default risk, which reflects the
probability of default and the uncertainty related to collection of contractual
principal and interest; liquidity risk, which reflects the risk associated with
exiting the investment in an illiquid market, both in terms of timeliness and
cost; and volatility risk, which reflects the potential valuation volatility
during an investor's holding period. Other factors reflected in the risk
premium include the costs associated with underwriting, monitoring and holding
these types of complex securities. Certain aspects of the default risk are
included in the development of our best estimate of future cash flows, as
appropriate. Other aspects of the risk premium are considered to be temporary
in nature and are expected to reverse over the remaining lives of the
securities as future cash flows are received.
We believe the unrealized losses on our RMBS and CMBS securities result from
the current risk premium on these securities, which should continue to reverse
over the securities' remaining lives, as demonstrated by improved valuations in
2010. We expect to receive our estimated share of contractual principal and
interest collections used to determine the securities' recovery value. As of
December 31, 2010, we do not have the intent to sell and it is not more likely
than not we will be required to sell these securities before the recovery of
their amortized cost basis. We believe that our valuation and impairment
processes are comprehensive, employ the most current views about collateral and
securitization trust financial positions, and demonstrate our recorded
impairments and that the remaining unrealized losses on these positions are
temporary.
PROBLEM, RESTRUCTURED, OR POTENTIAL PROBLEM SECURITIES
We also monitor the quality of our fixed income portfolio by categorizing
certain investments as "problem," "restructured," or "potential problem."
Problem fixed income securities are in default with respect to principal or
interest and/or are investments issued by companies that have gone into
bankruptcy subsequent to our acquisition. Fixed income securities are
categorized as restructured when the debtor is experiencing financial
difficulty and we grant a concession. Potential problem fixed income securities
are current with respect to contractual principal and/or interest, but because
of other facts and circumstances, we have concerns regarding the borrower's
ability to pay future principal and interest according to the original terms,
which causes us to believe these investments may be classified as problem or
restructured in the future.
97
The following table summarizes problem, restructured and potential problem
fixed income securities as of December 31.
2010
--------------------------------------------------------------
AMORTIZED FAIR VALUE PERCENT OF
COST AS A AS A PERCENT TOTAL FIXED
PAR AMORTIZED PERCENT OF FAIR OF PAR INCOME
VALUE/(1)/ COST/(1)/ PAR VALUE VALUE VALUE PORTFOLIO
($ IN THOUSANDS) --------- --------- ---------- ------- ------------ -----------
Problem................................. $ 285 $ 276 96.8% $ 268 94.0% --%
Potential problem....................... 42,836 25,312 59.1 22,826 53.3 0.4
------- ------- ------- ---
Total net carrying value................ $43,121 $25,588 59.3 $23,094 53.6 0.4%
======= ======= ======= ===
Cumulative write-downs recognized/(2)/.. $13,571
=======
2009
--------------------------------------------------------------
AMORTIZED FAIR VALUE PERCENT OF
COST AS A AS A PERCENT TOTAL FIXED
PAR AMORTIZED PERCENT OF FAIR OF PAR INCOME
VALUE/(1)/ COST/(1)/ PAR VALUE VALUE VALUE PORTFOLIO
--------- --------- ---------- ------- ------------ -----------
Problem................................. $15,052 $10,118 67.2% $10,176 67.6% 0.2%
Potential problem....................... 80,594 47,484 58.9 38,348 47.6 0.6
------- ------- ------- ---
Total net carrying value................ $95,646 $57,602 60.2 $48,524 50.7 0.8%
======= ======= ======= ===
Cumulative write-downs recognized /(2)/. $25,493
=======
--------
/(1)/The difference between par value and amortized cost of $17.5 million as of
December 31, 2010 and $38.0 million as of December 31, 2009 is primarily
attributable to write-downs. Par value has been reduced by principal
payments.
/(2)/Cumulative write-downs recognized only reflects impairment write-downs
related to investments within the problem, potential problem and
restructured categories.
As of December 31, 2010, amortized cost for the problem category was $276
thousand of Subprime. As of December 31, 2010, amortized cost for the potential
problem category was $25.3 million and comprised $14.6 million of CMBS, $6.9
million of Subprime and $3.8 million of corporates (primarily privately placed).
NET INVESTMENT INCOME The following table presents net investment income for
the years ended December 31.
2010 2009 2008
($ IN THOUSANDS) -------- -------- --------
Fixed income securities........... $341,612 $338,563 $362,671
Mortgage loans.................... 30,374 36,658 41,949
Equity securities................. 2,626 1,751 --
Short-term and other.............. 4,452 5,038 12,949
-------- -------- --------
Investment income, before expense. 379,064 382,010 417,569
Investment expense................ (10,369) (9,615) (14,638)
-------- -------- --------
Net investment income............. $368,695 $372,395 $402,931
======== ======== ========
Net investment income decreased 1.0% or $3.7 million in 2010 compared to
2009, after decreasing 7.6% or $30.5 million in 2009 compared to 2008. The 2010
and 2009 decreases were primarily due to lower yields and reduced average
investment balances.
98
REALIZED CAPITAL GAINS AND LOSSES The following table presents the
components of realized capital gains and losses and the related tax effect for
the years ended December 31.
($ IN THOUSANDS) 2010 2009 2008
---------------- -------- -------- ---------
Impairment write-downs....................................... $(31,370) $(30,255) $ (38,528)
Change in intent write-downs................................. (11,226) (20,821) (79,262)
-------- -------- ---------
Net other-than-temporary impairment losses recognized in
earnings................................................ (42,596) (51,076) (117,790)
Sales........................................................ 39,937 160,294 59,966
Valuation of derivative instruments.......................... (37,932) 29,831 (29,525)
Settlements of derivative instruments........................ (5,112) 6,419 10,144
EMA limited partnership income............................... (146) -- --
-------- -------- ---------
Realized capital gains and losses, pre-tax................... (45,849) 145,468 (77,205)
Income tax benefit (expense)................................. 14,495 (52,474) 25,708
-------- -------- ---------
Realized capital gains and losses, after-tax.............. $(31,354) $ 92,994 $ (51,497)
======== ======== =========
IMPAIRMENT WRITE-DOWNS totaled $31.4 million in 2010 and included
write-downs on fixed income securities and mortgage loans of $28.5 million and
$2.9 million, respectively. In 2009, impairment write-downs totaled $30.3
million and included write-downs on fixed income securities and mortgage loans
of $25.0 million and $5.3 million, respectively. In 2008, impairment
write-downs totaled $38.5 million and included write-downs on fixed income
securities and mortgage loans of $38.1 million and $449 thousand, respectively.
Impairment write-downs in 2010 were primarily driven by investments with
commercial real estate exposure, including CMBS and mortgage loans, which were
impacted by lower real estate valuations or experienced deterioration in
expected cash flows; privately placed corporate bonds impacted by issuer
specific circumstances; and RMBS, which experienced deterioration in expected
cash flows.
CHANGE IN INTENT WRITE-DOWNS totaling $11.2 million in 2010 were all related
to fixed income securities. In 2009, change in intent write-downs totaled $20.8
million and included $20.1 million for fixed income securities, $686 thousand
for mortgage loans and $14 thousand for equity securities. The change in intent
write-downs in 2010 and 2009 were a result of ongoing comprehensive reviews of
our portfolio resulting in write-downs of individually identified investments,
primarily municipal bonds and RMBS.
SALES generated $39.9 million of net realized gains in 2010 primarily due to
$19.6 million of gains on sales of corporate fixed income securities and $19.0
million of gains on sales of equity securities, partially offset by $3.6
million of net losses on municipal bonds. Net realized gains from sales in 2009
of $160.3 million were primarily due to $150.3 million of gains on sales of
U.S. and foreign government fixed income securities
VALUATION AND SETTLEMENT OF DERIVATIVE INSTRUMENTS net realized capital
losses totaling $43.0 million in 2010 included $37.9 million of losses on the
valuation of derivative instruments and $5.1 million of losses on the
settlement of derivative instruments. In 2009, net realized capital gains on
the valuation and settlement of derivative instruments totaled $36.2 million.
Net realized capital gains and losses from our risk management derivative
programs are primarily driven by changes in risk-free interest rates and
volatility during a given period.
MARKET RISK
Market risk is the risk that we will incur losses due to adverse changes in
interest rates, credit spreads or equity prices. Adverse changes to these rates
and prices may occur due to changes in 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 and/or risk tolerance.
99
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 character 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. For a more detailed discussion of our use of derivative financial
instruments, see Note 7 of the financial statements.
OVERVIEW In formulating and implementing guidelines for investing funds, we
seek to earn returns that enhance our ability to offer competitive rates and
prices to customers while contributing to attractive and stable profits and
long-term capital growth. Accordingly, our investment decisions and objectives
are a function of 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 policies, which have been approved by
our board of directors, specify the investment limits and strategies that are
appropriate given our 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. ALM focuses on strategies
to enhance yields, mitigate market risks and optimize capital to improve
profitability and returns. ALM activities follow asset-liability policies that
have been approved by our board of directors. These ALM policies specify
limits, ranges and/or targets for investments that best meet our business
objectives in light of our product liabilities.
We manage our exposure to market risk through the use of asset allocation,
duration, simulation, and as appropriate, through the use of stress tests. We
have asset allocation limits that place restrictions on the total funds that
may be invested within an asset class. We have duration limits on our
investment portfolio and, as appropriate, on individual components of the
portfolio. These duration limits place restrictions on the amount of interest
rate risk that may be taken. 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. This day-to-day management is integrated
with and informed by the activities of the ALM organization. This integration
is intended to result in a prudent, methodical and effective adjudication of
market risk and return, conditioned by the unique demands and dynamics of our
product liabilities and supported by the continuous application of advanced
risk technology and analytics.
INTEREST RATE RISK is the risk that we will incur loss due to adverse
changes in interest rates relative to the interest rate characteristics of our
interest bearing assets and liabilities. This risk arises from many of our
primary activities, as we invest substantial funds in interest-sensitive assets
and issue interest-sensitive liabilities. Interest rate risk includes risks
related to changes in U.S. Treasury yields and other key risk-free reference
yields.
We manage the interest rate risk in our assets relative to the interest rate
risk in our liabilities. One of the measures used to quantify this exposure is
duration. Duration measures the price sensitivity of the 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%. As of December 31, 2010, the difference between our asset and
liability duration was a (1.17) gap, compared to a (0.36) gap as of
December 31, 2009. 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.
We seek to invest premiums, contract charges and deposits to generate future
cash flows that will fund future claims, benefits and expenses, and that will
earn stable spreads across a wide variety of interest rate and economic
scenarios. To achieve this objective and limit interest rate risk, we adhere to
a philosophy of managing the duration of assets and related liabilities within
predetermined tolerance levels. This philosophy is executed
100
using duration targets for fixed income investments in addition to interest
rate swaps and caps to reduce the interest rate risk resulting from mismatches
between existing assets and liabilities.
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
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 mortgage-backed
securities, municipal housing bonds, callable municipal and corporate
obligations, and fixed rate single and flexible premium deferred annuities.
Based upon the information and assumptions used in the duration calculation,
and interest rates in effect as of December 31, 2010, 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 $36.8 million,
compared to $172 thousand as of December 31, 2009, reflecting year to year
changes in duration. In calculating the impact of a 100 basis point increase on
the value of the derivatives, we have assumed interest rate volatility remains
constant. The selection of a 100 basis point immediate parallel change in
interest rates should not be construed as our prediction of future market
events, but only as an illustration of the potential effect of such an event.
There are $596.2 million of assets supporting life insurance products such as
traditional and interest-sensitive life that are not financial instruments.
These assets and the associated liabilities have not been included in the above
estimate. The $596.2 million of assets excluded from the calculation has
increased from $471.9 million as of December 31, 2009, due to an increase in
interest-sensitive life contractholder funds and improved fixed income
valuations as a result of declining risk-free interest rates and tightening of
credit spreads in certain sectors. Based on assumptions described above, in the
event of a 100 basis point immediate increase in interest rates, the assets
supporting life insurance products would decrease in value by $37.4 million,
compared to a decrease of $28.6 million as of December 31, 2009.
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 that 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 and/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"). 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, 2010, the spread duration of assets was 5.65, compared to 5.24 as
of December 31, 2009. Based upon the information and assumptions we use in this
spread duration calculation, and spreads in effect as of December 31, 2010, we
estimate that a 100 basis point immediate, parallel increase in spreads across
all asset classes, industry sectors and credit ratings ("spread shock") would
decrease the net fair value of the assets by $352.3 million, compared to $343.5
million as of December 31, 2009. The selection of a 100 basis point immediate
parallel change in spreads should not be construed as our prediction of future
market events, but only as an illustration of the potential effect of such an
event.
101
EQUITY PRICE RISK is the risk that we will incur losses due to adverse
changes in general levels of the equity markets. As of December 31, 2010, we
held $129.4 million in securities with equity risk (including equity securities
and limited partnership interests), compared to $123.3 million as of
December 31, 2009.
As of December 31, 2010, our portfolio of securities with equity risk had a
cash market portfolio beta of 0.99, compared to a beta of 1.00 as of
December 31, 2009. 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 on the beta analysis, we estimate that if the S&P 500 increases or
decreases by 10%, the fair value of our securities with equity risk will
increase or decrease by 10%, respectively. Based upon the information and
assumptions we used to calculate beta as of December 31, 2010, we estimate that
an immediate decrease in the S&P 500 of 10% would decrease the net fair value
of our securities with equity risk by $12.9 million, compared to $12.3 million
as of December 31, 2009, and an immediate increase in the S&P 500 of 10% would
increase the net fair value by $12.9 million compared to $12.3 million as of
December 31, 2009. The selection of a 10% immediate decrease or increase in the
S&P 500 should not be construed as our prediction of future market events, but
only as an illustration of the potential effect of such an event.
The beta of our securities with equity risk was determined by calculating
the change in the fair value of the portfolio resulting from stressing the
equity market up and down 10%. 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, 2010 and 2009, we had separate accounts assets related to
variable annuity and variable life contracts with account values totaling
$577.8 million and $587.0 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 a reinsurance agreement with
The Prudential Insurance Company of America, a subsidiary of Prudential
Financial Inc. and therefore mitigated this aspect of our risk. Equity risk of
our variable life business relates to contract charges and policyholder
benefits. Total variable life contract charges for 2010 and 2009 were $1.0
million and $860 thousand, respectively. Separate account liabilities related
to variable life contracts were $7.4 million and $5.8 million in December 31,
2010 and 2009, respectively.
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES consist of shareholder's equity. The following table
summarizes our capital resources as of December 31.
2010 2009 2008
($ IN THOUSANDS) -------- -------- ---------
Common stock, retained income and additional capital
paid-in............................................ $693,131 $682,834 $ 625,482
Accumulated other comprehensive income (loss)........ 133,210 24,050 (108,914)
-------- -------- ---------
Total shareholder's equity........................ $826,341 $706,884 $ 516,568
======== ======== =========
SHAREHOLDER'S EQUITY increased in 2010, primarily due to increased
unrealized net capital gains on investments and net income. Shareholder's
equity increased in 2009, primarily due to unrealized net capital gains as of
December 31, 2009 compared to unrealized net capital losses as of December 31,
2008 and net income.
102
FINANCIAL RATINGS AND STRENGTH The following table summarizes our financial
strength ratings as of December 31, 2010.
RATING AGENCY RATING
------------- ----------------
A.M. Best Company, Inc............. A+ ("Superior")
Standard & Poor's Ratings Services. A+ ("Strong")
Moody's Investors Service, Inc..... A1 ("Good")
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 AIC's ratings.
On January 24, 2011, Moody's affirmed our financial strength rating of A1.
The outlook for the Moody's rating remained stable. On December 15, 2010, A.M.
Best affirmed our A+ financial strength rating. The outlook remained negative.
On November 17, 2010, S&P downgraded our financial strength rating to A+ from
AA-. The outlook for the S&P rating was revised to stable from negative.
State laws specify regulatory actions if an insurer's risk-based capital
("RBC"), a measure of an insurer's solvency, falls below certain levels. The
NAIC has a standard formula for annually assessing RBC. The formula for
calculating RBC for life insurance companies takes into account factors
relating to insurance, business, asset and interest rate risks. As of
December 31, 2010, our RBC was within the range that we target.
The NAIC has also developed a set of financial relationships or tests known
as the Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or actions by insurance regulatory
authorities. The NAIC analyzes financial data provided by insurance companies
using prescribed ratios, each with defined "usual ranges." Generally,
regulators will begin to monitor an insurance company if its ratios fall
outside the usual ranges for four or more of the ratios. If an insurance
company has insufficient capital, regulators may act to reduce the amount of
insurance it can issue. Our ratios are within these ranges.
LIQUIDITY SOURCES AND USES Our potential sources of funds principally
include the activities as follows.
. Receipt of insurance premiums
. Contractholder fund deposits
. Reinsurance recoveries
. Receipts of principal, interest and dividends on investments
. Sales of investments
. Funds from securities lending
. Intercompany loans
. Capital contributions from parent
Our potential uses of funds principally include the activities as follows.
. Payment of contract benefits, surrenders and withdrawals
. Reinsurance cessions and payments
. Operating costs and expenses
. Purchase of investments
. Repayment of securities lending
. Payment or repayment of intercompany loans
. Dividends to parent
. Tax payments/settlements
103
We have an intercompany loan agreement with the Corporation. The amount of
intercompany loans available to us 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 and bank lines of credit to
fund intercompany borrowings. We had no amounts outstanding under the
intercompany loan agreement as of December 31, 2010 or 2009.
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
long-term debt rating of A3, A- and a- (from Moody's, S&P and A.M. Best,
respectively) to non-investment grade status of below Baa3/BBB-/bb, a downgrade
in AIC's financial strength rating from Aa3, AA- and A+ (from Moody's, S&P and
A.M. Best, respectively) to below Baa2/BBB/A-, or a downgrade in our financial
strength ratings from A1, A+ and A+ (from Moody's, S&P and A.M. Best,
respectively) to below A3/A-/A-. 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, increased operating
cash flows in 2010 compared to 2009 were primarily due to income tax refunds
compared to payments in 2009 and lower expenses, partially offset by higher
contract benefits. Lower operating cash flows in 2009 compared to 2008 were due
primarily to higher income tax payments, lower premiums and decreased net
investment income, partially offset by lower expenses.
Cash flows provided by investing activities increased in 2010 compared 2009
primarily due to lower purchases of fixed income securities. Cash flows
provided by investing activities in 2009 compared to cash flows used in
investing activities in 2008 were primarily due to net reductions in
investments to fund reductions in contractholder fund liabilities.
Increased cash flows used in financing activities in 2010 compared 2009 were
due to lower contractholder fund deposits and increased contractholder fund
withdrawals. Cash flows used in financing activities in 2009 compared to cash
flows provided by financing activities in 2008 were due to lower contractholder
fund deposits, partially offset by lower contractholder fund withdrawals. For
quantification of the changes in contractholder funds, see the Operations
section of MD&A.
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. As of December 31, 2010, contractholder
funds totaling $594.2 million were not subject to discretionary withdrawal,
$2.70 billion were subject to discretionary withdrawal with adjustments, and
$1.40 billion were subject to discretionary withdrawal without adjustment. Of
the contractholder funds subject to discretionary withdrawal with adjustments,
$1.36 billion had a contractual surrender charge of less than 5% of the account
balance.
104
CONTRACTUAL OBLIGATIONS AND COMMITMENTS Our contractual obligations as of
December 31, 2010 and the payments due by period are shown in the following
table.
LESS THAN OVER 5
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS YEARS
($ IN THOUSANDS) ----------- ---------- ---------- ---------- ----------
Securities lending/(1)/.............. $ 127,983 $ 127,983 $ -- $ -- $ --
Contractholder funds/(2) /........... 5,398,102 785,914 1,421,910 1,028,584 2,161,694
Reserve for life-contingent contract
benefits/(2) /..................... 7,559,063 139,884 288,917 293,391 6,836,871
Reinsurance payable to parent........ 3,667 3,667 -- -- --
Payable to affiliates, net........... 6,709 6,709 -- -- --
Other liabilities and accrued
expenses/(3)(4)/................... 30,260 25,672 2,705 1,027 856
----------- ---------- ---------- ---------- ----------
Total contractual cash obligations... $13,125,784 $1,089,829 $1,713,532 $1,323,002 $8,999,421
=========== ========== ========== ========== ==========
--------
/(1)/Liabilities for securities lending are typically fully secured with cash
or short-term investments. 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 as disclosed
previously.
/(2)/Contractholder funds represent interest-bearing liabilities arising from
the sale of products such as interest-sensitive life and fixed annuities,
including immediate annuities without life contingencies. The reserve for
life-contingent contract benefits relates primarily to traditional life
insurance immediate annuities with life contingencies and voluntary
accident and health insurance. These amounts reflect the present value of
estimated cash payments to be made to contractholders and policyholders.
Certain of these contracts, such as immediate annuities without life
contingencies, involve payment obligations where the amount and timing of
the payment is essentially fixed and determinable. These amounts relate to
(i) policies or contracts where we are currently making payments and will
continue to do so and (ii) contracts where the timing of a portion or all
of the payments has been determined by the contract. Other contracts, such
as interest-sensitive life, fixed deferred annuities, traditional life
insurance, immediate annuities with life contingencies 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 these
contracts, we are not currently making payments and will not make payments
until (i) the occurrence of an insurable event such as death or illness or
(ii) the occurrence of a payment triggering event such as the surrender or
partial withdrawal on a policy or deposit contract, which is outside of
our control. 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. Such cash outflows reflect
adjustments for the estimated timing of mortality, retirement, and other
appropriate factors, but are undiscounted with respect to interest. As a
result, the sum of the cash outflows shown for all years in the table
exceeds the corresponding liabilities of $4.69 billion for contractholder
funds and $1.99 billion for reserve for life-contingent contract benefits
as included in the Statements of Financial Position as of December 31,
2010. The liability amount in the Statements of Financial Position
reflects the discounting for interest as well as adjustments for the
timing of other factors as described above.
/(3)/Other liabilities primarily include accrued expenses, claim payments and
other checks outstanding.
/(4)/Balance sheet liabilities not included in the table above include unearned
and advanced premiums of $946 thousand and gross deferred tax liabilities
of $112.1 million. These items were excluded as they do not meet the
definition of a contractual liability as we are not contractually
obligated to pay these amounts to third parties. Rather, they represent an
accounting mechanism that allows us to present our financial statements on
an accrual basis. In addition, other liabilities of $1.1 million were not
included in the table above because they did not represent a contractual
obligation or the amount and timing of their eventual payment was
sufficiently uncertain.
Our contractual commitments as of December 31, 2010 and the periods in which
the commitments expire are shown in the following table.
LESS THAN OVER 5
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS YEARS
($ IN THOUSANDS) ------- --------- --------- --------- ------
Other commitments -- unconditional. $98,114 $ -- $1,972 $92,841 $3,301
Contractual commitments represent investment commitments such as limited
partnership interests.
For a more detailed discussion of our off-balance sheet arrangements, see
Note 7 of the financial statements.
105
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.
PENDING ACCOUNTING STANDARDS
There are several pending accounting standards that we have not implemented
either because the standard has not been finalized or the implementation date
has not yet occurred. For a discussion of these pending standards, see Note 2
of the financial statements.
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 report.
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 below contains information
regarding the person's service as a director, business experience, director
positions held currently or at any time during the last five years, and the
experiences, qualifications, attributes or skills that caused the company
management to determine that a director should serve as such for Allstate New
York.
MARCIA D. ALAZRAKI, 69, has been a director since December 1993. She is a
partner at the law firm Manatt, Phelps & Phillips, LLP and co-chair of the
firm's insurance practice group. Prior to joining this firm in 2003,
Ms. Alazraki headed the insurance regulatory practices at Shea & Gould and then
at Simpson Thacher & Bartlett. For each of the last four years, Ms. Alazraki
has been selected for inclusion in THE BEST LAWYERS IN AMERICA. She also
currently holds director positions with Protective Life Insurance Company of
New York and First Great-West Life & Annuity Insurance Company. Ms. Alazraki
possesses a thorough understanding of insurance laws and regulations, including
those governing the financing, acquisition and licensing of insurance
companies, insurance product design, reinsurance transactions and market
conduct and financial examination.
ROBERT K. BECKER, 55, became director and Senior Vice President on March 16,
2010. Mr. Becker is also the Chairman of the Board, Chief Executive Officer and
Manager of Allstate Financial Services, LLC ("AFS, LLC") and Vice President of
Allstate Life Insurance Company. Mr. Becker is responsible for Allstate's
broker dealer operations as well as recruiting, training and product strategy
for registered representatives of AFS, LLC and third party relationships. At
Allstate since 2000, Mr. Becker has progressed through various roles, including
Regional Financial Services Manager, Regional Distribution Leader and Assistant
Field Vice President. Prior to
106
joining Allstate, Mr. Becker spent over 20 years with MetLife Insurance
Company, where he held various leadership positions. Mr. Becker's professional
designations include LUTCF, CLU, ChFC, CFP, and CLTC. Currently, Mr. Becker
also serves as a director with Allstate Life Insurance Company, which is
affiliated with Allstate New York. Mr. Becker has proven leadership experience
with using excellent customer service to grow business in a competitive
environment.
MICHAEL B. BOYLE, 52, has been a director since March 2007 and a Senior Vice
President since April 2004. Mr. Boyle also is a Senior Vice President with
Allstate Life Insurance Company. Mr. Boyle is responsible for Customer Service
and Technology within the Allstate Financial group of companies. Prior to
joining Allstate, Mr. Boyle was employed at Robertson Stephens, Inc., an
investment bank, where he served as Chief Information Officer and head of back
office operations, technology and electronic trading platforms on a global
basis. Prior to Robertson Stephens, he spent 15 years with Merrill Lynch in New
York and London, including several years as Director of Technology for
Europe/Africa/Middle East. Currently, Mr. Boyle serves as a director for MIB,
Inc, a fraud protection services corporation. In addition, he holds a director
position with Allstate Life Insurance Company, which is affiliated with
Allstate New York. Mr. Boyle has in-depth knowledge of operations personnel
management and many aspects of technology, including infrastructure,
applications, and e-commerce.
ANURAG CHANDRA, 33, has been a director and Executive Vice President since
March 2011. Mr. Chandra is also a Senior Vice President of Allstate Life
Insurance Company. Mr. Chandra has broad responsibilities for driving long-term
strategy and for improving the operational base for the Allstate Financial
group of companies. More specifically, Mr. Chandra has direct accountability
for product development, underwriting, wholesaling and asset liability
management. Prior to joining Allstate in January 2011, Mr. Chandra was an
executive vice president and chief operating officer for HealthMarkets, Inc.
Under his leadership, the company transformed from a niche individual health
insurance manufacturer to one of the largest independent distributors in the
United States. Prior to that role, Mr. Chandra was a principal at Aquiline
Capital Partners, a global private equity firm that took advantage of market
conditions to launch successful new insurance and financial services companies.
Mr. Chandra has also held senior operating and strategic development roles at
Nationwide Financial Services and Conseco/Bankers Life and Casualty. Currently,
Mr. Chandra also serves as a director for Allstate Life Insurance Company,
which is affiliated with Allstate New York. Mr. Chandra has extensive
experience with the day-to-day management of company operations.
MATTHEW S. EASLEY, 55, has been a director since March 2009 and Senior Vice
President since December 2005. Mr. Easley is also a Vice President for Allstate
Life Insurance Company. Mr. Easley is responsible for Product Management,
Underwriting, and Asset Liability Management within the Allstate Financial
group of companies. Prior to joining Allstate, Mr. Easley spent 23 years at
Nationwide Financial including 11 years as the head of Annuity and Pension
Actuarial, where he started a 401(k) business with a new-to-the-world business
model, created a synthetic asset segmentation method, co-invented a patented
retirement planning software and led a team to create a new strategic plan as
part of the initial public offering of Nationwide Financial Services stock.
Currently, Mr. Easley also serves as a director for Allstate Life Insurance
Company, which is affiliated with Allstate New York. Mr. Easley possesses
extensive insurance business, product and liability management experience.
MARK A. GREEN, 43, became director and Senior Vice President on March 16, 2010.
Mr. Green is also the Vice President of National Sales for Allstate Life
Insurance Company. Prior to his current role, Mr. Green was the Assistant Field
Vice President for Allstate Insurance Company in the Capital Region, where he
had geographic responsibility for West Virginia, Delaware and Washington D.C.
Before joining Allstate, Mr. Green was a founding equity partner and chief risk
officer for AIX Group in Connecticut, where he was responsible for corporate
development and overall risk and investment management. He has worked for Wells
Fargo, Chubb Group and Swiss Reinsurance. Currently, Mr. Green also serves as a
director for Allstate Life Insurance Company, which is affiliated with Allstate
New York. Mr. Green has experience in optimizing insurance company operations
to drive profitable growth.
107
JUDITH P. GREFFIN, 50, has been an Executive Vice President of Allstate New
York since April 2004. Ms. Greffin is also a Senior Vice President and the
Chief Investment Officer of Allstate Insurance Company, where she oversees
Allstate's $100 billion-plus investment portfolio. Since joining Allstate in
1990, Ms. Greffin has served in a series of key investment positions, including
responsibility for Allstate's fixed-income portfolio and the Portfolio
Management Group. She began her financial career as an analyst with the
Huntington National Bank, and served as a senior portfolio manager with
Flagship Financial before joining Allstate. Ms. Greffin has also served on the
Allstate Foundation Grant Committee.
CLEVELAND JOHNSON, JR., 76, has been a director since December 1983.
Mr. Johnson has worked in public service for thirty-five years, including
positions of responsibility in city, town, county, state and federal
government. He has also owned and operated a number of successful businesses.
Mr. Johnson is currently the President of Johnson Consulting Associates, a
business development firm. In addition, he serves as Executive Vice President
of ValuCare, Inc, a home health care company, and Executive Vice President of
Strategic Fundraising, Inc., a consulting firm. Mr. Johnson has strong business
administration skills and experience in crafting multi-disciplinary approaches
to the development of social policy.
SUSAN L. LEES, 53, has been director and Senior Vice President, General Counsel
and Secretary since August 2008. Ms. Lees is also Senior Vice President,
General Counsel and Secretary of Allstate Life Insurance Company. At Allstate
for over 20 years, Ms. Lees progressed through various counsel positions
throughout Allstate before become an assistant vice president in 1999. As the
leader of the Corporate Law division of Allstate Law and Regulation, Ms. Lees
gained extensive experience working with a number of the business areas
throughout the enterprise, including Allstate Life Insurance Company.
Currently, Ms. Lees serves as a director for Life Insurance Council of New
York. She also serves as a director for Allstate Life Insurance Company, which
is affiliated with Allstate New York. Ms. Lees has a deep understanding of
insurance business generally, as well as applicable laws and regulations,
including corporate and securities laws and corporate governance matters. In
addition, Ms. Lees has extensive knowledge regarding Allstate New York's
business, including its employees, products, agencies and customers.
KENNETH R. O'BRIEN, 73, has served as director since July 1998. Mr. O'Brien was
the President and Chief Executive Officer of O'Brien Asset Management, an
investment advisory firm, from 1996 until his retirement in 2006. Prior to that
role, Mr. O'Brien was Chief Executive Officer for Aurora National Life
Insurance Company and Executive Vice President for New York Life Insurance
Company. Mr. O'Brien has significant knowledge of insurance company operations
and executive experience in the life insurance and financial services
industries.
SAMUEL H. PILCH, 64, became a director in December 2010. Mr. Pilch is also a
Senior Group Vice President and Controller of Allstate New York. In addition,
Mr. Pilch is a Senior Group Vice President and Controller of Allstate Life
Insurance Company, Allstate Insurance Company, and The Allstate Corporation,
each a parent company of Allstate New York. In his roles, Mr. Pilch is
responsible for all statutory and GAAP reporting, Property-Liability reserving
and accounting standards and research. He is also responsible for the Specialty
Operations division for Allstate, which includes discontinued Property
Liability operations and Property Liability catastrophe reinsurance, guaranty
funds and residual markets administration. Before joining Allstate in 1995, Mr.
Pilch was Chief Operating Officer, Managed Care at the Travelers Insurance
Company in Hartford, Connecticut, where he also held the positions of Financial
Officer of Insurance Operations and Corporate Treasurer. Prior to Travelers,
Mr. Pilch was an officer in Aetna Life & Casualty's life insurance business,
also in Hartford. Currently, Mr. Pilch serves as a director for Allstate Life
Insurance Company. He is also a member of the Connecticut Society of CPAs. Mr.
Pilch has a deep knowledge of the insurance industry as well as extensive
experience with insurance company accounting.
JOHN C. PINTOZZI, 45, has been director since September 2004 and Senior Vice
President and Chief Financial Officer since March 2005. Mr. Pintozzi also is
Senior Vice President and Chief Financial Officer for Allstate Life Insurance
Company. In these positions, Mr. Pintozzi is responsible for the planning and
analysis, capital allocation, valuation and compliance functions as well as
Allstate Federal Savings Bank. Prior to Allstate,
108
Mr. Pintozzi was an audit partner with Deloitte & Touche, specializing in the
insurance and financial services industries. He is a Certified Public
Accountant and holds memberships with the American Institute of Certified
Public Accountants and the Illinois CPA Society. In addition, Mr. Pintozzi
currently serves as a director for Allstate Life Insurance Company, which is
affiliated with Allstate New York. Mr. Pintozzi has extensive experience in
corporate and insurance company finance and accounting.
JOHN R. RABEN, JR., 65, has served as director since 1988. Mr. Raben was a
Managing Director of JP Morgan Chase from 2004 until his retirement in 2008,
where he worked with the commercial and investment banking groups. Prior to
that, he was also a Manager Director of Banc One Securities. Mr. Raben is
active in his local organizations as Chairman of the Greenwich Republican Town
Committee, Vice Chairman of the Greenwich Emergency Medical Service (GEMS)
Board of Directors, and a member of the Coastal Resources Advisory Committee.
In addition, Mr. Raben is a Treasurer and Board Member of both the Yellowstone
Park Foundation and the Cornelia Rossi Foundation, each of which are charitable
organizations. Mr. Raben has extensive experience in the financial services
industry.
LARRY SEDILLO, 53, has been a director, Vice President and Chief Operating
Officer since December 2010. Mr. Sedillo is also a Field Vice President for
Allstate Insurance Company. In this role, he assists in the operation and
management of the New York Market Operating Committee. Mr. Sedillo has been
with Allstate for over 24 years and has served in numerous roles for the
organization. He first began his career with Allstate in 1987 as a neighborhood
office agent in the Texas Region. He then progressed through several sales
management roles to become a Territorial Sales Leader, where he was responsible
for distribution in the western section of Texas. After staying in this role
for over 7 years, Mr. Sedillo then became a director in Allstate's home office
and worked to manage incentive compensation for sales leaders across the
Allstate enterprise. Finally, prior to his current role in the New York Region,
Mr. Sedillo was a Regional Sales Leader, where his responsibilities included
management of the Sales Department for the California Region. Over the course
of his career with Allstate, Mr. Sedillo has established himself as a strong
and effective leader and has gained deep knowledge of the insurance industry,
as well as extensive experience with sales management.
PHYLLIS HILL SLATER, 66, has been a director since 2002. Ms. Slater is the
founder and president of Hill Slater, Inc, a successful engineering and
architectural support firm. Hill Slater Inc. specializes in construction
management, inspection services, design drafting, and CAD services. Ms. Slater
served as national president of the National Association of Women Business
Owners from 1997 to 1998, and presently serves on many corporate and non-profit
boards. Ms. Slater has deep knowledge of general business operations and
corporate governance.
MATTHEW E. WINTER, 54, has been a director since December 2009, and President,
Chief Executive Officer and Chairman of the Board since March 2010. Mr. Winter
is also the President and Chief Executive Officer of Allstate Life Insurance
Company and Senior Vice President of Allstate Insurance Company, each a parent
organization of Allstate New York. Prior to Allstate, Mr. Winter was the Vice
Chairman of American International Group, President and Chief Executive Officer
of American General Life Companies, and Executive Vice President for MassMutual
Financial Group. For a brief period in 2009, Mr. Winter served as a director of
EP Global Communications, a magazine publication and distribution company.
Currently, Mr. Winter also serves as a director for Allstate Insurance Company
and Allstate Life Insurance Company, each of which is affiliated with Allstate
New York. Mr. Winter was also a former Chairman of the Houston Food Bank Board
of Directors. Mr. Winter has extensive experience leading major life insurance
and financial services providers, working with financial and estate planning
products and overseeing the operations of insurance companies.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No directors or executive officers have been involved in any legal
proceedings that are material to an evaluation of the ability or integrity of
any director or executive officer of Allstate New York.
109
ITEM 11(L).EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS ("CD&A")
OVERVIEW
Executive officers of Allstate New York also serve as officers of other
subsidiaries of The Allstate Corporation ("Allstate") and receive no
compensation directly from Allstate New York. They are employees of an Allstate
subsidiary. Allocations have been made for each named executive based on the
amount of the named executive's compensation allocated to Allstate New York
under the Amended and Restated Service and Expense Agreement among Allstate
Insurance Company, Allstate and certain affiliates, as amended effective
January 1, 2009, to which Allstate New York is a party (the "Service and
Expense Agreement"). Those allocations are reflected in the Summary
Compensation Table set forth below and in this disclosure, except where noted.
The named executives may have received additional compensation for services
rendered to other Allstate subsidiaries, and those amounts are not reported.
Each year the Compensation and Succession Committee (the "Committee") of the
Allstate Board of Directors and members of Allstate management review the
overall design of Allstate's executive compensation program to ensure
compensation is aligned with both annual and long-term performance. At target
levels of performance, annual and long-term incentive awards are designed to
constitute a significant percentage of an executive's total core compensation
and provide a strong link to Allstate's performance. Additionally, the delivery
of the largest portion of incentive compensation through stock options provides
even greater alignment with stockholder interests because the stock price must
appreciate from the date of grant for any value to be delivered to executives.
Allstate has made changes to its executive compensation program for 2011.
Allstate has eliminated any excise tax gross-ups in new change-in-control
agreements. Allstate has also made changes to the annual incentive program for
2011 to continue to better align executive compensation with enterprise
performance. The key program change, which will apply to all bonus eligible
employees across the enterprise, will be to reduce the number of measures and
provide for greater use of enterprise-wide corporate goals. Allstate believes
this action will focus employees on those goals which will more effectively
drive sustainable long-term growth for stockholders.
COMPENSATION PHILOSOPHY
Allstate's compensation philosophy is based on these central beliefs:
. Executive compensation should be aligned with performance and
stockholder value. Accordingly, a significant amount of executive
compensation should be in the form of equity.
. The compensation of our executives should vary both with appreciation in
the price of Allstate stock and with Allstate's performance in achieving
strategic short and long-term business goals designed to drive stock
price appreciation.
. Allstate's compensation program should inspire our executives to
strive for performance that is better than the industry average.
. A greater percentage of compensation should be at risk for executives
who bear higher levels of responsibility for Allstate's performance.
. Allstate should provide competitive levels of compensation for
competitive levels of performance and superior levels of compensation
for superior levels of performance.
Allstate's executive compensation program has been designed around these
beliefs and includes programs and practices that ensure alignment between the
interests of its stockholders and executives and delivery of
110
compensation consistent with the corresponding level of performance. These
objectives are balanced with the goal of attracting, motivating, and retaining
highly talented executives to compete in our complex and highly regulated
industry.
Some of Allstate's key practices we believe support this approach include:
. Providing a significant portion of executive pay through stock options,
creating direct alignment with stockholder interests.
. Establishment of stock ownership guidelines for senior executives that
drive further alignment with stockholder interests. Each named executive
officer is required to hold four times salary.
. Stock option repricing is not permitted.
. A robust governance process for the design, approval, administration,
and review of our overall compensation program.
. Utilization of annual incentive plan caps to limit maximum award
opportunities and support enterprise risk management strategies.
. Inclusion of a clawback feature in the Annual Executive Incentive Plan
and the 2009 Equity Incentive Plan that provides the ability to recover
compensation from Allstate executive officers in the event of certain
financial restatements.
. Incorporation of discretion in the annual executive incentive plan to
allow for the adjustment of awards to reflect individual performance.
Allstate's philosophy and practices have provided us with the tools to create
an effective executive compensation program as detailed below.
NAMED EXECUTIVES
This CD&A describes the executive compensation program at Allstate and
specifically describes total 2010 compensation for the following named
executives of Allstate New York*:
. Matthew E. Winter--Chairman of the Board, Chief Executive Officer, and
President,
. John C. Pintozzi--Vice President and Chief Financial Officer
--------
*Reflects titles in effect as of December 31, 2010.
COMPENSATION PRACTICES
Allstate reviews the design of its executive compensation program and
executive pay levels on an annual basis and performance and goal attainment
within this design throughout the year. As part of that review, Allstate
considers available data regarding compensation paid to similarly-situated
executives at companies against which it competes for executive talent. With
respect to the compensation program for 2010, the Committee considered
compensation data for the peer companies listed below for Mr. Winter, as well
as proxy information from select S&P 100 companies with fiscal 2009 revenue of
between $15 and $60 billion with which Allstate competes for executive talent.
Towers Watson, an independent compensation consultant, recommended
modifications to the peer insurance companies that Allstate uses in
benchmarking compensation for certain executives for 2010. The Committee
approved removing from the peer insurance companies Cincinnati Financial
Corporation due to its relative size and CNA Financial Corporation because it
is closely held. ACE Ltd, AFLAC Inc., and Manulife Financial Corporation were
added to augment the peer insurance companies with similarly sized insurers.
With respect to Mr. Pintozzi, Allstate management considered compensation
surveys that provided information on companies of broadly similar size and
business mix as Allstate, as well as companies with a
111
broader market context. The compensation surveys considered include the Mercer
Property & Casualty Insurance Company Survey, the 2009 Towers Perrin
Diversified Insurance Survey, and the Towers Perrin Compensation Data Bank. The
Diversified Insurance Survey includes 18 insurance organizations with assets
ranging from $848 million to $108 billion. The Towers Perrin Compensation Data
Bank provides compensation data on 90 of the Fortune 100 companies. The Mercer
Property & Casualty Insurance Company Survey includes compensation data for 27
property and casualty insurance companies with at least $2 billion in annual
premiums. In addition, in its executive pay and performance discussions,
Allstate management considered information regarding other companies in the
financial services industries.
PEER INSURANCE COMPANIES
ACE Ltd.* Manulife Financial Corporation*
AFLAC Inc.* MetLife Inc.
The Chubb Corporation The Progressive Corporation
The Hartford Financial Services
Group, Inc. Prudential Financial, Inc.
Lincoln National Corporation The Travelers Companies, Inc.
--------
*Added in 2010
CORE ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM
Allstate's executive compensation program design balances fixed and variable
compensation elements and provides alignment with both short and long term
business goals through annual and long-term incentives. Allstate's incentives
are designed to balance overall corporate, business unit, and individual
performance with respect to measures Allstate believes correlate to the
creation of stockholder value and align with Allstate's strategic vision and
operating priorities. The following table lists the core elements of Allstate's
executive compensation program.
POTENTIAL FOR VARIABILITY
CORE ELEMENT PURPOSE WITH PERFORMANCE
------------ ------------------------------------------------------------- -------------------------
Annual salary Provides a base level of competitive cash compensation for Low
executive talent
Annual cash incentive Reward performance on key strategic, operational, and High
awards financial measures over the year
Long-term equity Align the interests of executives with long-term shareholder Moderate to High
incentive awards value and retain executive talent
SALARY
Mr. Winter's salary was set by the Allstate Board of Directors based on the
Committee's recommendation. Mr. Pintozzi's salary was set by Allstate
management. In recommending executive base salary levels, Allstate uses the
50/th/ percentile of its peer insurance companies for Mr. Winter and the 50/th/
percentile of insurance and general industry data for Mr. Pintozzi as a
guideline to align with Allstate's pay philosophy for competitive positioning
in the market for executive talent.
. The average enterprise-wide merit and promotional increases are based
on a combination of U.S. general and insurance industry market data
and are set at levels intended to be competitive.
. Annual merit increases for the named executives are based on
evaluations of their performance using the average enterprise-wide
merit increase as a guideline.
. The base salaries for each named executive were reviewed in
February of 2010. Allstate established a new base salary for Mr.
Pintozzi, based on his performance and in line with the
enterprise-wide merit increase.
. Allstate did not adjust the base salary for Mr. Winter, which had
just been established in the last quarter of 2009 when he joined
the corporation.
112
INCENTIVE COMPENSATION
The Committee approves performance measures and goals for cash incentive
awards during the first quarter of the year. The performance measures and goals
are aligned with Allstate's objectives and tied to its strategic vision and its
operating priorities. They are designed to reward Allstate executives for
actual performance, to reflect objectives that will require significant effort
and skill to achieve, and to drive Allstate stockholder value.
After the end of the year for annual cash incentive awards and after the end
of the three-year cycle for long-term cash incentive awards, the Committee
reviews the extent to which Allstate has achieved the various performance
measures and approves the actual amount of all cash incentive awards for
Allstate executive officers. The Committee may adjust the amount of an annual
cash incentive award but has no authority to increase the amount of an award
payable to Mr. Winter above the described plan limits. Allstate management
approves the actual amount of cash incentive awards to Mr. Pintozzi. Allstate
pays the cash incentive awards in March, after the end of the year for the
annual cash incentive awards and after the end of the three-year cycle for the
long-term cash incentive awards. Long-term cash incentives have been
discontinued, and the last three year cycle ended in 2010.
Typically the Committee also approves grants of equity awards on an annual
basis during a meeting in the first quarter. By making these awards and
approving performance measures and goals for the annual cash incentive awards
during the first quarter, Allstate is able to balance these elements of core
compensation to align with its business goals.
ANNUAL CASH INCENTIVE AWARDS
In 2010 Allstate executives had the opportunity to earn an annual cash
incentive award based on the achievement of performance measures over a
one-year period. The annual incentive plans are designed to provide all of the
named executives with cash awards based on a combination of corporate and
business unit performance measures for each of Allstate's main business units:
Allstate Protection, Allstate Financial, and Allstate Investments. Allstate New
York is part of Allstate Financial.
The maximum amount of Mr. Winter's award was the lesser of a stockholder
approved maximum under the Annual Executive Incentive Plan of $8.5 million or
25% of the 1.0% of Operating Income pool. Operating Income is defined under the
"Performance Measures" caption on page 122. Although these limits established
the maximum annual cash incentive awards that could be paid to Mr. Winter, the
Committee retained complete discretion to pay any lesser amount. Mr. Winter's
actual award was based on the achievement of certain performance measures as
detailed below, including assessments of his individual performance and overall
corporate and Allstate Financial business unit performance. Mr. Pintozzi does
not participate in the Operating Income pool.
For 2010, the Committee adopted corporate and Allstate Financial business
unit level annual performance measures and weighted them as applied to
Mr. Winter in accordance with his responsibility for Allstate's overall
corporate performance and the performance of the Allstate Financial business
unit. Allstate management utilized the same performance measures and weighting
with respect to Mr. Pintozzi. Each measure is assigned a weight expressed as a
percentage of the total annual cash incentive award opportunity, with all
weights adding to 100%.
The following table lists the performance measures and related target goals
for 2010 as well as the weighting factors and the actual results applicable to
the named executives. The performance measures were designed to focus executive
attention on key strategic, operational, and financial measures including top
line growth and profitability. For each performance measure, the Committee
approved a threshold, target, and maximum goal. The target goals for the
performance measures were based on evaluations of our historical performance
and plans to drive projected performance. A description of each performance
measure is provided under the "Performance Measures" caption on page 121.
113
ANNUAL CASH INCENTIVE AWARD PERFORMANCE MEASURES, TARGET, AND WEIGHTING/(1)/
ACHIEVEMENT
RELATIVE TO
THRESHOLD, TARGET,
PERFORMANCE MEASURE WEIGHTING TARGET ACTUAL/(2)/ MAXIMUM GOALS
------------------- --------- ------------- ------------- -------------------
CORPORATE-LEVEL PERFORMANCE MEASURE 20%
Adjusted Operating Income Per Diluted $4.30 $3.00 Between threshold
Share and target
ALLSTATE FINANCIAL PERFORMANCE MEASURES 80%
Adjusted Operating Income $425 million $474 million Exceeded
maximum
Adjusted Operating Return on Equity 6.6% 7.7% Exceeded
maximum
Allstate Exclusive Agency Proprietary and $256 million $262 million Between target and
AWD Weighted Sales maximum
Allstate Financial Portfolio Excess Total 55 63 Between target and
Return (in basis points) maximum
--------
/(1)/Information regarding Allstate's performance measures is disclosed in the
limited context of its annual cash incentive awards and should not be
understood to be statements of Allstate management's expectations or
estimates of results or other guidance. Allstate specifically cautions
investors not to apply these statements to other contexts.
/(2)/Stated as a percentage of target goals with a range from 0% to 250%, the
actual performance comprises 54% for Adjusted Operating Income Per Diluted
Share performance, and 189% for Allstate Financial performance. The
weighted results stated as a percentage of the target goals for the named
executives was 162%.
Target award opportunities approved by Allstate are stated as a percentage
of annual base salary. Annual cash incentive awards are calculated using base
salary, as adjusted by any merit and promotional increases granted during the
year on a prorated basis. In setting target incentive levels for named
executives, Allstate gives the most consideration to market data primarily
focusing on pay levels at peer group companies with which it directly competes
for executive talent and stockholder investment. As a result of leveraging
external market data, Mr. Winter had a target award opportunity of 125% and
Mr. Pintozzi had a target award opportunity of 60%.
In calculating the annual cash incentive awards, Allstate achievement with
respect to each performance measure is expressed as a percentage of the target
goal, with interpolation applied between the threshold and target goals and
between the target and maximum goals. Unless otherwise adjusted by Allstate,
the amount of each named executive's annual cash incentive award is the sum of
the amounts calculated using the calculation below for all of the performance
measures.
Actual performance interpolated X Weighting X Target award opportunity as a X Salary**
relative to threshold and target on a percentage of salary**
range of 50% to 100% and relative
to target and maximum on a range
of 100% to 250%*
--------
* Actual performance below threshold results in 0%
** Base salary, as adjusted by any merit and promotional increases granted
during the year on a prorated basis.
Following the end of the performance year, the performance of each named
executive was evaluated. Based on a subjective evaluation of each executive's
contributions and performance individual adjustments were made to the formula
driven annual incentive amounts. The recommendations were considered and
approved by the Committee for Mr. Winter and by Allstate management for
Mr. Pintozzi.
114
LONG-TERM INCENTIVE AWARDS--CASH AND EQUITY
As part of total core compensation, Allstate historically has provided three
forms of long-term incentive awards: stock options, restricted stock units, and
long-term cash incentive awards. In 2009, Allstate discontinued future cycles
of the long-term cash incentive plan. The relative mix of various forms of
these awards is driven by Allstate's objectives in providing the specific form
of award, as described below.
LONG-TERM INCENTIVE AWARDS--EQUITY
Allstate grants larger equity awards to executives with the broadest scope
of responsibility, consistent with Allstate's philosophy that a significant
amount of executive compensation should be in the form of equity and that a
greater percentage of compensation should be at risk for executives who bear
higher levels of responsibility for Allstate's performance. However, from time
to time, larger equity awards are granted to attract new executives. Allstate
annually reviews the mix of equity incentives provided to the named executives.
The mix consisted of 65% stock options and 35% restricted stock units for
Mr. Winter. Other employees eligible for equity incentive awards, including Mr.
Pintozzi, had the choice of receiving the value of their equity incentive
awards in the following proportions between stock options and restricted stock
units:
. 25% stock options and 75% restricted stock units;
. 65% stock options and 35% restricted stock units;
. 50% stock options and 50% restricted stock units; or
. 75% stock options and 25% restricted stock units
Mr. Pintozzi's elections are reflected in the Grants of Plan-Based Awards at
Fiscal Year-End 2010 table. Stock options, which are performance-based, require
growth in the Allstate stock price to deliver any value to an executive. The
restricted stock units provide alignment with Allstate stockholder interests
along with providing an effective retention tool.
STOCK OPTIONS
Stock options represent the opportunity to buy shares of Allstate's stock at
a fixed exercise price at a future date. Allstate uses them to align the
interests of Allstate's executives with long-term stockholder value, as the
stock price must appreciate from the date of grant for any value to be
delivered to executives.
Key elements:
. Under Allstate's stockholder-approved equity incentive plan, the
exercise price cannot be less than the fair market value of a share on
the date of grant.
. Stock option repricing is not permitted. In other words, absent an event
such as a stock split, if the Committee cancels an award and substitutes
a new award, the exercise price of the new award cannot be less than the
exercise price of the cancelled award.
. All stock option awards have been made in the form of nonqualified stock
options.
. The options granted to the named executives in 2010 become exercisable
in three installments, 50% on the second anniversary of the grant date
and 25% on each of the third and fourth anniversary dates, and expire in
ten years, except in certain change-in-control situations or under other
special circumstances approved by the Committee.
RESTRICTED STOCK UNITS
Each restricted stock unit represents Allstate's promise to transfer one
fully vested share of stock in the future if and when the restrictions expire
(when the unit "vests"). Because restricted stock units are based on and
115
payable in stock, they serve to reinforce the alignment of interests of
Allstate's executives and Allstate's stockholders. In addition, because
restricted stock units have a real, current value that is forfeited, except in
some circumstances, if an executive terminates employment before the restricted
stock units vest, they provide a retention incentive. Under the terms of the
restricted stock unit awards, the executives have only the rights of general
unsecured creditors of Allstate and no rights as stockholders until delivery of
the underlying shares.
Key elements:
. The restricted stock units granted to the named executives in 2010 vest
in three installments, 50% on the second anniversary of the grant date
and 25% on each of the third and fourth anniversary dates, except in
certain change-in-control situations or under other special
circumstances approved by Allstate.
. The restricted stock units granted to the named executives in 2010
include the right to receive previously accrued dividend equivalents
when the underlying restricted stock unit vests.
TIMING OF EQUITY AWARDS AND GRANT PRACTICES
The Committee grants equity incentive awards to current employees on an
annual basis normally during a meeting in the first fiscal quarter, after the
issuance of Allstate's prior fiscal year-end earnings release. Throughout the
year, the Committee grants equity incentive awards in connection with new hires
and promotions and in recognition of achievements. Equity incentive awards to
employees other than Allstate executive officers also may be granted by an
equity award committee which currently consists of Allstate's chief executive
officer. The equity award committee may grant restricted stock units and stock
options in connection with new hires and promotions and in recognition of
achievements. The grant date for awards other than annual awards is fixed as
the first business day of a month following the committee action.
STOCK OWNERSHIP GUIDELINES
Because Allstate believes management's interests must be linked with those
of Allstate's stockholders, Allstate instituted stock ownership guidelines in
1996 that require each of the named executives to own common stock, including
restricted stock units, worth a multiple of base salary, as of March 1
following the fifth year after assuming a senior management position.
Unexercised stock options do not count towards meeting the stock ownership
guidelines. For the named executives, the goal is four times salary. Mr. Winter
has until March 2015 to meet his goal. Mr. Pintozzi has met his goal. After a
named executive meets the guideline for the position, if the value of his or
her shares does not equal the specified multiple of base salary solely due to
the fact that the value of the shares has declined, the executive is still
deemed to be in compliance with the guideline. However, an executive in that
situation may not sell shares acquired upon the exercise of an option or
conversion of an equity award except to satisfy tax withholding obligations,
until the value of his or her shares again equals the specified multiple of
base salary. In accordance with Allstate's policy on insider trading, all
officers, directors, and employees are prohibited from engaging in transactions
with respect to any securities issued by Allstate or any of its subsidiaries
that might be considered speculative or regarded as hedging, such as selling
short or buying or selling options.
LONG-TERM INCENTIVE AWARDS--CASH
There were no pay-outs on any long-term cash incentive awards for the
2008-2010 cycle, the final cycle under the Long-Term Executive Incentive
Compensation Plan. Long-term cash incentive awards were originally designed to
reward executives for collective results attained over a three-year performance
cycle. Only Mr. Pintozzi was eligible for these awards. There were three
performance measures for the 2008-2010 cycle: average adjusted return on equity
relative to peers, which was weighted at 50% of the potential award, Allstate
Protection growth in policies in force, and Allstate Financial return on total
capital, both weighted at 25% of the potential award. The Allstate Protection
growth in policies in force measure had target set at 5.0%, with actual
116
performance of -5.9%. The Allstate Financial return on total capital measure
had target set at 9.5%, with actual performance of -12.6%. The selection and
weighting of these measures was intended to focus executive attention on the
collective achievement of Allstate's long-term financial goals across its
various product lines. A description of each performance measure is provided
under the "Performance Measures" caption on page 121.
The average adjusted return on equity relative to peers measure compared
Allstate's performance to a group of other insurance companies. If the average
adjusted return on equity had exceeded the average risk free rate of return on
three-year Treasury notes over the three-year cycle, plus 200 basis points,
Allstate's ranked position relative to the peer group would have determined the
percentage of the total target award for this performance measure to be paid.
However, the average adjusted return on equity did not exceed the average risk
free rate of return, plus 200 basis points, resulting in no payout.
OTHER ELEMENTS OF COMPENSATION
To remain competitive with other employers and to attract, retain, and
motivate highly talented executives and other employees, we provide the
benefits listed in the following table.
ALL FULL-TIME
OTHER OFFICERS AND REGULAR
BENEFIT OR NAMED AND CERTAIN PART-TIME
PERQUISITE EXECUTIVES MANAGERS EMPLOYEES
---------- ------------ --------------- -------------
401(k)/(1)/ and defined benefit pension................................ (check mark) (check mark) (check mark)
Supplemental retirement benefit........................................ (check mark) (check mark)
Health and welfare benefits/(2)/....................................... (check mark) (check mark) (check mark)
Supplemental long-term disability and executive physical program....... (check mark) (check mark)/(3)/
Deferred compensation.................................................. (check mark) (check mark)
Tax preparation and financial planning services........................ (check mark) (check mark)/(4)/
Mobile phones, ground transportation and personal use of aircraft/(5)/. (check mark) (check mark)
--------
/(1)/Allstate contributed $.50 for every dollar of basic pre-tax deposits made
in 2010 on the first 3 percent of eligible pay and $.25 for every dollar
of basic pre-tax deposits made in 2010 on the next 2 percent of eligible
pay for eligible participants, including the named executives.
/(2)/Including medical, dental, vision, life, accidental death and
dismemberment, long-term disability, and group legal insurance.
/(3)/An executive physical program is available to all officers.
/(4)/All officers are eligible for tax preparation services. Financial planning
services were provided to Mr. Winter.
/(5)/Ground transportation is available to Mr. Winter. In limited circumstances
approved by Allstate's CEO, Mr. Winter is permitted to use Allstate's
corporate aircraft for personal purposes. Mr. Winter did not use the
corporate aircraft for personal purposes in 2010. Mobile phones are
available to members of Allstate's senior management team, other officers,
and certain managers, and certain employees depending on their job
responsibilities.
RETIREMENT BENEFITS
Each named executive participates in two different defined benefit pension
plans. The Allstate Retirement Plan (ARP) is a tax qualified defined benefit
pension plan available to all of Allstate's regular full-time and regular
part-time employees who meet certain age and service requirements. The ARP
provides an assured retirement income related to an employee's level of
compensation and length of service at no cost to the employee. As the ARP is a
tax qualified plan, federal tax law places limits on (1) the amount of an
individual's compensation that can be used to calculate plan benefits and
(2) the total amount of benefits payable to a participant under the plan on an
annual basis. These limits may result in a lower benefit under the ARP than
would have been payable if the limits did not exist for certain of our
employees. Therefore, the Allstate Insurance Company Supplemental Retirement
Income Plan (SRIP) was created for the purpose of providing ARP-eligible
employees whose compensation or benefit amount exceeds the federal limits with
an additional defined benefit in an amount equal to what would have been
payable under the ARP if the federal limits described above did not exist.
117
CHANGE-IN-CONTROL AND POST-TERMINATION BENEFITS
Since a change-in-control or other triggering event may never occur,
Allstate does not view change-in-control benefits or post-termination benefits
as compensation. Consistent with Allstate compensation objectives, Allstate
offers these benefits to attract, motivate, and retain certain highly talented
executives. A change-in-control of Allstate could have a disruptive impact on
both Allstate and its executives. Allstate's change-in-control benefits and
post-termination benefits are designed to mitigate that impact and to maintain
the connection between the interests of Allstate's executives and Allstate
stockholders. Allstate's change-in-control agreements entered into prior to
January 1, 2011, provide an excise tax gross-up to mitigate the possible
disparate tax treatment for similarly situated employees. However, starting in
2011, new change-in-control agreements will not include an excise tax gross-up
provision. Each of the named executives is subject to change-in-control
agreements.
As part of the change-in-control benefits, the named executives receive
previously deferred compensation and equity awards that might otherwise be
eliminated by new directors elected in connection with a change-in- control,
and receive certain protections for cash incentive awards and benefits if an
executive's employment is terminated within a two-year period after a
change-in-control. The change-in-control and post-termination arrangements
which are described in the "Potential Payments as a Result of Termination or
Change-in-Control" section are not provided exclusively to the named
executives. A larger group of management employees is eligible to receive many
of the post-termination benefits described in that section.
EXECUTIVE COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the named executives for all services rendered to Allstate New York in 2009 and
2010, allocated to Allstate New York in a manner consistent with the allocation
of compensation expenses under the Service and Expense Agreement.
CHANGE IN
PENSION VALUE
NON-EQUITY AND
INCENTIVE NONQUALIFIED
STOCK OPTION PLAN DEFERRED ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
NAME/(1)/ YEAR ($)/(2)/ ($) ($)/(3)/ ($)/(4)/ ($)/(5)/ EARNINGS ($)/(6)/ ($)/(7)/ ($)
-------- ---- ------- ----- ------- ------- ------------ ---------------- ------------ -------
Matthew E. Winter............ 2010 33,600 0 41,160 76,440 67,889 215/(8)/ 1,967 221,271
(CHAIRMAN OF THE BOARD,
PRESIDENT, AND
CHIEF EXECUTIVE OFFICER)
John C. Pintozzi............. 2010 25,514 0 18,509 18,509 30,738 1,704/(9)/ 1,469 96,443
(VICE PRESIDENT 2009 25,193 1,558 11,650 22,304 15,812 2,237 1,897 80,651
AND CHIEF FINANCIAL OFFICER)
--------
/(1)/Mr. Winter was not a named executive for fiscal year 2009.
/(2)/Reflects amounts for 2009 that were paid in 2009 which, due to the timing
of Allstate's payroll cycle, included amounts earned in 2008.
/(3)/The aggregate grant date fair value of restricted stock unit awards
computed in accordance with Financial Accounting Standards Board ("FASB")
Accounting Standards Codification Topic 718 ("ASC 718"). The number of
restricted stock units granted in 2010 to each named executive is provided
in the Grants of Plan-Based Awards table on page 112. The fair value of
restricted stock unit awards is based on the final closing price of
Allstate's stock as of the date of grant. The final closing price in part
reflects the payment of future dividends expected.
118
/(4)/The aggregate grant date fair value of option awards computed in
accordance with FASB ASC 718. The fair value of each option award is
estimated on the date of grant using a binomial lattice model. The fair
value of each option award is estimated on the date of grant using the
assumptions as set forth in the following table:
2010 2009
------------ ------------
Weighted average expected term...... 7.8 years 8.1 years
Expected volatility................. 23.7 - 52.3% 26.3 - 79.2%
Weighted average volatility......... 35.1% 38.3%
Expected dividends.................. 2.4 - 2.8% 2.6%
Weighted average expected dividends. 2.6% 2.6%
Risk-free rate...................... 0.1 - 3.9% 0.0 - 3.7%
The number of options granted in 2010 to each named executive is provided in
the Grants of Plan-Based Awards table on page 112.
/(5)/Amounts earned under the annual incentive plan are paid in the year
following performance. Amounts earned under the Long-Term Executive
Incentive Compensation Plan are paid in the year following the performance
cycle. The amounts shown in the table above include amounts earned in 2010
and 2009, and payable under these plans in 2011 and 2010, respectively.
The break-down for each component is as follows:
ANNUAL CASH LONG-TERM
INCENTIVE CASH INCENTIVE
NAME YEAR AWARD AMOUNT CYCLE AWARD AMOUNT
---- ---- ------------ --------- --------------
Mr. Winter... 2010 $67,889 2008-2010 $ 0
Mr. Pintozzi. 2010 $30,738 2008-2010 $ 0
2009 $11,519 2007-2009 $4,293
/(6)/Amounts reflect the aggregate increase in actuarial value of the pension
benefits as set forth in the Pension Benefits table, accrued during 2010
and 2009. These are benefits under the Allstate Retirement Plan (ARP) and
the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP).
Non-qualified deferred compensation earnings are not reflected since our
Deferred Compensation Plan does not provide above-market earnings. The
pension plan measurement date is December 31. (See note 16 to Allstate's
audited financial statements for 2010.)
/(7)/The "All Other Compensation for 2010--Supplemental Table" provides details
regarding the amounts for 2010 for this column.
/(8)/Reflects increases in the actuarial value of the benefits provided to
Mr. Winter pursuant to the SRIP of $215.
/(9)/Reflects increases in the actuarial value of the benefits provided to
Mr. Pintozzi pursuant to the ARP and SRIP of $858 and $846, respectively.
ALL OTHER COMPENSATION FOR 2010--SUPPLEMENTAL TABLE
(In dollars)
The following table describes the incremental cost of other benefits
provided in 2010 that are included in the "All Other Compensation" column.
TOTAL
401(K) ALL OTHER
NAME MATCH/(1)/ OTHER/(2)/ COMPENSATION
---- --------- --------- ------------
Mr. Winter... 2010 273 1,694 1,967
Mr. Pintozzi. 2010 392 1,077 1,469
--------
/(1)/Each of the named executives participated in our 401(k) plan
during 2010. The amount shown is the amount allocated to their
accounts as employer matching contributions. Mr. Winter will not
be vested in the employer matching contribution until he has
completed three years of vesting service.
/(2)/"Other" consists of premiums for group life insurance and personal
benefits and perquisites consisting of cell phones, tax
preparation services, financial planning, executive physicals,
ground transportation, and supplemental long-term disability
coverage. There was no incremental cost for the use of mobile
phones. Allstate provides supplemental long-term disability
coverage to regular full-time and regular part-time employees
whose annual earnings exceed the level which produces the maximum
monthly benefit provided by the Group Long Term Disability
Insurance Plan. This coverage is self-insured (funded and paid for
by Allstate when obligations are incurred). No obligations for the
named executives were incurred in 2010 and so no incremental cost
is reflected in the table. None of the personal benefits and
perquisites individually exceeded the greater of $25,000 or 10% of
the total amount of these benefits for the named executives.
119
GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2010/(1)/
The following table provides information about non-equity incentive plan
awards and equity awards granted to our named executives during the fiscal year
2010 to the extent the expense for such awards was allocated to Allstate New
York under the Service and Expense Agreement.
ALL OTHER
STOCK ALL OTHER
AWARDS: OPTION
ESTIMATED FUTURE PAYOUTS NUMBER AWARDS: EXERCISE
UNDER NON-EQUITY INCENTIVE OF NUMBER OF OR BASE
PLAN AWARDS/(2)/ SHARES SECURITIES PRICE OF
------------------------ OF STOCK UNDERLYING OPTION
THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS
NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/
---- -------------- ----------------------- --------- ------ ------- --------- ---------- -----------
Mr. Winter... -- Annual cash incentive 21,000 42,000 215,460
Feb. 22, 2010 Restricted stock units 1,310
Feb. 22, 2010 Stock options 7,721 $31.41
Mr. Pintozzi. -- Annual cash incentive 7,653 15,305 38,263
Feb. 22, 2010 Restricted stock units 589
Feb. 22, 2010 Stock options 1,870 $31.41
GRANT DATE
FAIR VALUE ($)/(4)/
-------------------
STOCK OPTION
NAME AWARDS AWARDS
---- ------- -------
Mr. Winter...
$41,160
$76,440
Mr. Pintozzi.
$18,590
$18,509
--------
/(1)/Awards under the annual executive incentive plans and the 2009 Equity
Incentive Plan.
/(2)/The amounts in these columns consist of the threshold, target, and maximum
annual cash incentive awards for the named executives. The threshold
amount for each named executive is fifty percent of target, as the minimum
amount payable if threshold performance is achieved. If threshold is not
achieved the payment to named executives would be zero. The target amount
is based upon achievement of certain performance measures set forth in the
"Annual Cash Incentive Awards" section. The maximum amount payable to
Mr. Winter is the lesser of a stockholder approved maximum under the
Annual Executive Incentive Plan of $8.5 million or 25% of the award pool.
The award pool is equal to 1.0% of Operating Income. Mr. Pintozzi does not
participate in the operating income pool. A description of the Operating
Income performance measure is provided under the "Performance Measures"
caption on page 122.
/(3)/The exercise price of each option is equal to the fair market value of
Allstate's common stock on the date of grant. Fair market value is equal
to the closing sale price on the date of grant or, if there was no such
sale on the date of grant, then on the last previous day on which there
was a sale.
/(4)/The aggregate grant date fair value of restricted stock units was $31.41
and for stock option awards was $9.90 for 2010, computed in accordance
with FASB ASC 718. The assumptions used in the valuation are discussed in
footnotes 3 and 4 to the Summary Compensation Table on pages 110 and 111.
120
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2010
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2010
The following table summarizes the outstanding equity awards of the named
executives as of December 31, 2010, allocated in a manner consistent with the
allocation of compensation expenses to Allstate New York under the Service and
Expense Agreement for 2010. The percentage of each equity award actually
allocated to Allstate New York has varied over the years during which these
awards were granted depending on the extent of services rendered by such
executive to Allstate New York and the arrangements in place at the time of
such equity awards between Allstate New York and the executive's
Allstate-affiliated employer. Because the aggregate amount of such equity
awards attributable to services rendered to Allstate New York by each named
executive cannot be calculated without unreasonable effort, the allocated
amount of each equity award provided for each named executive in the following
table is the amount determined by multiplying each named executive's equity
award for services rendered to Allstate and all of its affiliates by the
percentage used for allocating such named executive's compensation to Allstate
New York in 2010 under the Service and Expense Agreement.
OPTION AWARDS/(1)/ STOCK AWARDS
------------------------------------------------------------------------ -----------------------------
NUMBER OF NUMBER OF NUMBER OF
SECURITIES SECURITIES SHARES OR
UNDERLYING UNDERLYING UNITS OF
UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT
OPTION GRANT OPTIONS (#) OPTIONS(#) EXERCISE EXPIRATION STOCK AWARD HAVE NOT
NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED(#)/(4)/
---- -------------- --------------- ----------------- -------- -------------- -------------- -------------
Mr. Winter... Nov. 2, 2009 470 1,409 $29.64 Nov. 2, 2019 Nov. 2, 2009 331
Feb. 22, 2010 0 7,721 $31.41 Feb. 22, 2020 Feb. 22, 2010 1,310
Mr. Pintozzi. Sep. 30, 2002 100 0 $35.17 Sep. 30, 2012
Feb. 7, 2003 280 0 $31.78 Feb. 7, 2013
Feb. 6, 2004 398 0 $45.96 Feb. 6, 2014
Feb. 22, 2005 1,096 0 $52.57 Feb. 22, 2015
Feb. 21, 2006 1,085 0 $53.84 Feb. 21, 2016
Feb. 21, 2006 720 0 $53.84 Feb. 21, 2016
Feb. 20, 2007 799 266 $62.24 Feb. 20, 2017 Feb. 20, 2007 147
Feb. 26, 2008 951 951 $48.82 Feb. 26, 2018 Feb. 26, 2008 206
Feb. 27, 2009 496 2,988 $16.83 Feb. 27, 2019 Feb. 27, 2009 701
Feb. 22, 2010 0 1,870 $31.41 Feb. 22, 2020 Feb. 22, 2010 589
------------
MARKET VALUE
OF SHARES OR
UNITS OF
STOCK
THAT HAVE
NOT
NAME VESTED/(5)/
---- ------------
Mr. Winter... $10,540
$41,776
AGGREGATE
MARKET VALUE
------------
$52,316
-------
Mr. Pintozzi.
$ 4,683
$ 6,577
$22,347
$18,786
AGGREGATE
MARKET VALUE
------------
$52,393
-------
--------
/(1)/The options granted in 2010 vest in three installments of 50% on the
second anniversary date and 25% on each of the third and fourth
anniversaries dates. The other options vest in four installments on the
first four anniversaries of the grant date. The exercise price of each
option is equal to the fair market value of Allstate's common stock on the
date of grant. For options granted prior to 2007, fair market value is
equal to the average of high and low sale prices on the date of grant, and
for options granted in 2007 and thereafter, fair market value is equal to
the closing sale price on the date of grant or in each case, if there was
no sale on the date of grant, then on the last previous day on which there
was a sale.
/(2)/The aggregate value and aggregate number of exercisable in-the-money
options as of December 31, 2010, for each of the named executives is as
follows: Mr. Winter $1,052 (470 aggregate number exercisable) and
Mr. Pintozzi $7,493 (776 aggregate number exercisable).
/(3)/The aggregate value and aggregate number of unexercisable in-the-money
options as of December 31, 2010, for each of the named executives is as
follows: Mr. Winter $6,784 (9,130 aggregate number unexercisable) and
Mr. Pintozzi $45,843 (4,857 aggregate number unexercisable).
/(4)/The restricted stock unit awards granted in 2010 vest in three
installments of 50% on the second anniversary of the grant date and 25% on
each of the third and fourth anniversary dates. The other restricted stock
unit awards vest in one installment on the fourth anniversary of the grant
date, unless otherwise noted.
/(5)/Amount is based on the closing price of Allstate common stock of $31.88 on
December 31, 2010.
121
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2010
The following table summarizes the options exercised by the named executives
during 2010 and the restricted stock and restricted stock unit awards that
vested during 2010, allocated in a manner consistent with the allocation of
compensation expenses to Allstate New York under the Service and Expense
Agreement for 2010.
OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2010
OPTION AWARDS
(AS OF 12/31/10) STOCK AWARDS
-------------------------------- -------------------------------
NUMBER OF SHARES NUMBER OF SHARES
ACQUIRED ON VALUE REALIZED ACQUIRED ON VALUE REALIZED
NAME EXERCISE (#) ON EXERCISE ($) VESTING (#) ON VESTING ($)
---- ---------------- --------------- ---------------- --------------
Mr. Winter... 0 $ 0 0 $ 0
Mr. Pintozzi. 500 $7,027 212 $6,619
RETIREMENT BENEFITS
Each named executive participates in two different defined benefit pension
plans. Pension expense for each named executive under these plans has been
accrued annually over the course of the executive's career with Allstate. The
aggregate amount of the annual accrual specifically allocated to Allstate New
York over that period of time has varied depending on the extent of services
rendered by such executive to Allstate New York and the arrangements in place
at the time of accrual between Allstate New York and the executive's
Allstate-affiliated employer. Because the aggregate amount of such annual
accruals earned prior to 2010 attributable to services rendered to Allstate New
York by each named executive cannot be calculated without unreasonable effort,
the present value of accumulated benefit provided for each named executive in
the following table is the amount determined by multiplying the present value
of such named executive's accumulated pension benefit for services rendered to
Allstate and all of its affiliates over the course of such named executive's
career with Allstate by the percentage used for allocating such named
executive's compensation to Allstate New York under the Service and Expense
Agreement in 2010.
PENSION BENEFITS
NUMBER OF PRESENT
YEARS VALUE OF PAYMENTS
CREDITED ACCUMULATED DURING LAST
NAME PLAN NAME SERVICE (#) BENEFIT/(1)(2)/ ($) FISCAL YEAR ($)
---- ------------------------------------ ----------- ----------------- ---------------
Mr. Winter/(3)/. Allstate Retirement Plan 1.2 0 0
Supplemental Retirement Income Plan 1.2 215 0
Mr. Pintozzi.... Allstate Retirement Plan 8.3 3,891 0
Supplemental Retirement Income Plan 8.3 4,010 0
--------
/(1)/These amounts are estimates and do not necessarily reflect the actual
amounts that will be paid to the named executives, which will only be
known at the time they become eligible for payment. Accrued benefits were
calculated as of December 31, 2010, and used to calculate the Present
Value of Accumulated Benefits at December 31, 2010. December 31 is our
pension plan measurement date used for financial statement reporting
purposes.
The amounts listed in this column are based on the following assumptions:
. Discount rate of 6%, payment form assuming 80% paid as a lump sum and 20%
paid as an annuity, lump-sum/annuity conversion segmented interest rates
of 5.0% for the first five years, 6.5% for the next 15 years, and 7% for
all years after 20 and the 2011 combined static Pension Protection Act
funding mortality table with a blend of 50% males and 50% females (as
required under the Internal Revenue Code), and post-retirement mortality
for annuitants using the 2011 Internal Revenue Service mandated annuitant
table; these are the same as those used for financial reporting year-end
disclosure as described in the notes to Allstate's consolidated financial
statements. (See note 16 to Allstate's audited financial statements for
2010.)
. Based on guidance provided by the Securities and Exchange Commission, we
have assumed normal retirement age which is age 65 under both the ARP and
SRIP, regardless of any announced or anticipated retirements.
. No assumption for early termination, disability, or pre-retirement
mortality.
122
/(2)/The figures shown in the table above reflect the present value of the
current accrued pension benefits calculated using the assumptions
described in the preceding footnote. If the named executives' employment
terminated on December 31, 2010, the present value of the non-qualified
pension benefits for each named executive earned through December 31,
2010, is shown in the following table:
LUMP SUM
NAME PLAN NAME AMOUNT ($)
---- ------------------------------------ ----------
Mr. Winter... Supplemental Retirement Income Plan 226
Mr. Pintozzi. Supplemental Retirement Income Plan 4,396
The amount shown is based on the lump sum methodology (i.e., interest rate
and mortality table) used by the Allstate pension plans in 2011, as required
under the Pension Protection Act. Specifically, the interest rate for 2011
is based on 20% of the average August 30-year Treasury Bond rate from the
prior year and 80% of the average corporate bond segmented yield curve from
August of the prior year. The mortality table for 2011 is the 2011 combined
static Pension Protection Act funding mortality table with a blend of 50%
males and 50% females, as required under the Internal Revenue Code.
/(3)/Mr. Winter is not currently vested in the Allstate Retirement Plan or the
Supplemental Retirement Income Plan.
The benefits and value of benefits shown in the Pension Benefits table are
based on the following material factors:
ALLSTATE RETIREMENT PLAN ("ARP")
The ARP has two different types of benefit formulas (final average pay and
cash balance) which apply to participants based on their date of hire or
individual choice made prior to the January 1, 2003 introduction of a cash
balance design. Messrs. Winter and Pintozzi are only eligible to earn cash
balance benefits. Neither of the named executives is eligible to earn benefits
under the final average pay formula, under which benefits are earned and stated
in the form of a straight life annuity payable at the normal retirement date
(age 65).
For participants eligible to earn cash balance benefits, pay credits are
added to the cash balance account on a quarterly basis as a percent of
compensation and based on the participant's years of vesting service as follows:
CASH BALANCE PLAN PAY CREDITS
VESTING SERVICE PAY CREDIT %
--------------- ------------
Less than 1 year................. 0%
1 year, but less than 5 years.... 2.5%
5 years, but less than 10 years.. 3%
10 years, but less than 15 years. 4%
15 years, but less than 20 years. 5%
20 years, but less than 25 years. 6%
25 years or more................. 7%
SUPPLEMENTAL RETIREMENT INCOME PLAN ("SRIP")
SRIP benefits are generally determined using a two-step process:
(1) determine the amount that would be payable under the ARP formula specified
above if the federal limits described above did not apply, then (2) reduce the
amount described in (1) by the amount actually payable under the ARP formula.
The normal retirement date under the SRIP is age 65. If eligible for early
retirement under the ARP, an eligible employee is also eligible for early
retirement under the SRIP.
OTHER ASPECTS OF THE PENSION PLANS
For the ARP and SRIP, eligible compensation consists of salary, annual cash
incentive awards, pre-tax employee deposits made to Allstate's 401(k) plan and
Allstate's cafeteria plan, holiday pay, and vacation pay. Eligible compensation
also includes overtime pay, payment for temporary military service, and
payments for short term disability, but does not include long-term cash
incentive awards or income related to the exercise of stock options and the
vesting of restricted stock and restricted stock units. Compensation used to
determine benefits under the ARP is limited in accordance with the Internal
Revenue Code. For final average pay benefits,
123
average annual compensation is the average compensation of the five highest
consecutive calendar years within the last ten consecutive calendar years
preceding the actual retirement or termination date.
Payment options under the ARP include a lump sum, straight life annuity, and
various survivor annuity options. The lump sum under the final average pay
benefit is calculated in accordance with the applicable interest rate and
mortality as required under the Internal Revenue Code. The lump sum payment
under the cash balance benefit is generally equal to a participant's cash
balance account balance. Payments from the SRIP are paid in the form of a lump
sum using the same interest rate and mortality assumptions used under the ARP.
TIMING OF PAYMENTS
The earliest retirement age that a named executive may retire with unreduced
retirement benefits under the ARP and SRIP is age 65. A participant earning
cash balance benefits who terminates employment with at least three years of
vesting service is entitled to a lump sum benefit equal to his or her cash
balance account balance.
SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits) are
generally payable at age 65, the normal retirement date under the ARP. Pre 409A
SRIP Benefits may be payable earlier upon reaching age 50 if disabled,
following early retirement at age 55 or older with 20 years of service, or
following death in accordance with the terms of the SRIP. SRIP benefits earned
after December 31, 2004 (Post 409A SRIP Benefits) are paid on the January 1
following termination of employment after reaching age 55 (a minimum six month
deferral period applies), or following death in accordance with the terms of
the SRIP.
Eligible employees are vested in the normal retirement benefit under the ARP
and the SRIP on the earlier of the completion of five years of service or upon
reaching age 65 for participants with final average pay benefits or the
completion of three years of service or upon reaching age 65 for participants
whose benefits are calculated under the cash balance formula.
. Mr. Winter's SRIP benefit is not currently vested but would become
payable following death. Mr. Winter will turn 65 on January 22, 2022.
. Mr. Pintozzi's Pre 409A SRIP benefit would become payable as early as
January 1, 2011, but is immediately payable upon death. Mr. Pintozzi's
Post 409A Benefit would be paid on January 1, 2021, or immediately upon
death. Mr. Pintozzi will turn 65 on May 18, 2030.
EXTRA SERVICE AND PENSION BENEFIT ENHANCEMENT
No additional service is granted under the ARP or the SRIP. Generally,
Allstate has not granted additional service credit outside of the actual
service used to calculate ARP and SRIP benefits.
NON-QUALIFIED DEFERRED COMPENSATION
The aggregate amount of the annual accrual specifically allocated to
Allstate New York over each named executive's career with Allstate has varied
depending on the extent of services rendered by such executive to Allstate New
York and the arrangements in place at the time of accrual between Allstate New
York and the executive's Allstate-affiliated employer. Because the aggregate
earnings and balance attributable to services rendered to Allstate New York by
each named executive cannot be calculated without unreasonable effort, the
aggregate earnings and aggregate balance provided for each named executive in
the following table is the amount determined by multiplying the value of such
named executive's non-qualified deferred compensation benefit for services
rendered to Allstate and all of its affiliates over the course of such named
executive's career with Allstate by the percentage used for allocating such
named executive's compensation to Allstate New York under the Service and
Expense Agreement in 2010.
124
NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2010
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE
IN LAST FY IN LAST FY IN LAST FY DISTRIBUTIONS AT LAST FYE
NAME ($) ($) ($)/(1)/ ($) ($)/(2)/
---- ------------- ------------- ---------- ------------- -----------
Mr. Winter... 0 0 0 0 0
Mr. Pintozzi. 0 0 0 0 0
--------
/(1)/Aggregate earnings were not included in the named executive's prior year
compensation.
/(2)/There are no amounts reported in the Aggregate Balance at Last FYE column
that were reported in the 2010 or 2009 Summary Compensation Tables.
In order to remain competitive with other employers, Allstate allows
employees, including the named executives, whose annual compensation exceeds
the amount specified in the Internal Revenue Code (e.g., $245,000 in 2010), to
defer up to 80% of their salary and/or up to 100% of their annual cash
incentive award that exceeds that amount under the Deferred Compensation Plan.
Allstate does not match participant deferrals and does not guarantee a stated
rate of return.
Deferrals under the Deferred Compensation Plan are credited with earnings,
or are subject to losses, based on the results of the investment option or
options selected by the participants. The investment options available in 2010
under the Deferred Compensation Plan are Stable Value, S&P 500, International
Equity, Russell 2000, and Bond Funds--options available in 2010 under our
401(k) plan. Under the Deferred Compensation Plan, deferrals are not actually
invested in these funds, but instead are credited with earnings or losses based
on the funds' investment experience, which are net of administration and
investment expenses. Because the rate of return is based on actual investment
measures in our 401(k) plan, no above-market earnings are paid. Similar to
participants in our 401(k) plan, participants can change their investment
elections daily. Investment changes are effective the next business day. The
Deferred Compensation Plan is unfunded; participants have only the rights of
general unsecured creditors.
Deferrals under the Deferred Compensation Plan are segregated into Pre 409A
balances and Post 409A balances. A named executive may elect to begin receiving
a distribution of a Pre 409A balance upon separation from service or in one of
the first through fifth years after separation from service. In either event,
the named executive may elect to receive payment of a Pre 409A balance in a
lump sum or in annual cash installment payments over a period of two to ten
years. An irrevocable distribution election is required before making any Post
409A deferrals into the plan. The distribution options available to the Post
409A balances are similar to those available to the Pre 409A balances, except
the earliest distribution date is six months following separation from service.
Upon a showing of unforeseeable emergency, a plan participant may be allowed to
access certain funds in a deferred compensation account earlier than the dates
specified above.
125
POTENTIAL PAYMENTS AS A RESULT OF TERMINATION OR CHANGE-IN-CONTROL
The following table lists the compensation and benefits that Allstate would
pay or provide to the named executives in various scenarios involving a
termination of employment, other than compensation and benefits generally
available to all salaried employees.
COMPENSATION ELEMENTS
----------------------------------------------------------------------------------------------
NON-QUALIFIED
TERMINATION ANNUAL RESTRICTED PENSION
SCENARIOS BASE SALARY SEVERANCE PAY INCENTIVE STOCK OPTIONS STOCK UNITS BENEFITS/(1)/
----------- ------------ ----------------- -------------- ------------------- ------------- --------------
Voluntary Termination Ceases None Forfeited Unvested are Forfeited Distributions
immediately unless forfeited, vested commence
terminated expire at the per plan
on last day earlier of three
of fiscal months or normal
year expiration
Involuntary Ceases None Forfeited Unvested are Forfeited Distributions
Termination/(3)/ immediately unless forfeited, vested commence
terminated expire at the per plan
on last day earlier of three
of fiscal months or normal
year expiration
Retirement/(4)/ Ceases None Pro rated for Continue to vest RSUs Distributions
Immediately the year upon normal or continue to commence
based on health retirement; vest upon per plan
actual unvested normal
performance forfeited upon retirement.
for the year early retirement. Forfeited in
All expire at early
earlier of five retirement.
years or normal
expiration
Termination due to Ceases Lump sum Pro rated at Vest immediately Vest Immediately
Change in Control/(5)/ Immediately equal to a target upon a change in immediately payable upon
multiple of (reduced by control upon a a change in
salary, a any actually change in control
multiple of paid) control
annual
incentive at
target and
pension
enhancement/(6)/
Death One month None Pro rated for Vest immediately Vest Distributions
salary paid year based and expire at immediately commence
upon death on actual earlier of two per plan
performance years or normal
for the year expiration
Disability Ceases None Pro rated for Vest immediately Forfeited Participant
Immediately year based and expire at may request
on actual earlier of two payment if
performance years or normal age 50 or
for the year expiration older
----------------------------------
HEALTH,
WELFARE AND
TERMINATION DEFERRED OTHER
SCENARIOS COMPENSATION/(2)/ BENEFITS
----------- ---------------- ----------------
Voluntary Termination Distributions None
commence per
participant
election
Involuntary Distributions None
Termination/(3)/ commence per
participant
election
Retirement/(4)/ Distributions None
commence per
participant
election
Termination due to Immediately Outplacement
Change in Control/(5)/ payable upon a services
change in provided;
control continuation
coverage
subsidized/(7)/
Death Payable within None
90 days
Disability Distributions Supplemental
commence per Long Term
participant Disability
election benefits
--------
/(1)/See the section titled Pension Benefits for further detail on
non-qualified pension benefits and timing of payments.
/(2)/See the Non-Qualified Deferred Compensation section for additional
information on the Deferred Compensation Plan and distribution options
available.
/(3)/Examples of "Involuntary Termination" independent of a change-in-control
include performance-related terminations; terminations for employee
dishonesty and violation of Allstate rules, regulations, or policies; and
terminations resulting from lack of work, rearrangement of work, and
reduction in force.
126
/(4)/Retirement for purposes of the annual cash incentive plans is defined as
voluntary termination on or after the date the named executive attains age
55 with at least 20 years of service. The "normal retirement date" under
the equity awards is the date on or after the date the named executive
attains age 60 with at least one year of service. The "health retirement
date" is the date on which the named executive terminates for health
reasons after attaining age 50, but before attaining age 60, with at least
ten years of continuous service. The "early retirement date" is the date
the named executive attains age 55 with 20 years of service.
/(5)/In general, a change-in-control is one or more of the following events:
(1) any person acquires 30% or more of the combined voting power of
Allstate common stock within a 12-month period; (2) any person acquires
more than 50% of the combined voting power of Allstate common stock;
(3) certain changes are made to the composition of the Board; or (4) the
consummation of a merger, reorganization, or similar transaction. These
triggers were selected because, in a widely held company the size of
Allstate, they could each result in a substantial change in management.
Effective upon a change-in-control, the named executives become subject to
covenants prohibiting competition and solicitation of employees,
customers, and suppliers at any time until one year after termination of
employment. During the two-year period following a change-in-control, the
change-in-control agreements provide for a minimum salary, annual cash
incentive awards, and other benefits. In addition, they provide that the
named executives' positions, authority, duties, and responsibilities will
be at least commensurate in all material respects with those held prior to
the change-in-control. If a named executive incurs legal fees or other
expenses in an effort to enforce the change-in-control agreement, Allstate
will reimburse the named executive for these expenses unless it is
established by a court that the named executive had no reasonable basis
for the claim or acted in bad faith.
/(6)/For those named executives subject to change-in-control agreements,
severance benefits would be payable if the named executive's employment is
terminated either by Allstate without "cause" or by the executive for
"good reason" as defined in the agreements during the two-year period
following the change-in-control. Cause means the named executive has been
convicted of a felony or other crime involving fraud or dishonesty, has
willfully or intentionally breached the change-in-control agreement, has
habitually neglected his or her duties, or has engaged in willful or
reckless material misconduct in the performance of his or her duties. Good
reason includes a material diminution in a named executive's base
compensation, authority, duties, or responsibilities, a material change in
the geographic location where the named executive performs services, or a
material breach of the change-in-control agreement by Allstate.
Mr. Winter's cash severance payment would be three times his salary and
three times his annual incentive at target. Mr. Pintozzi's cash severance
payment would be two times his salary and two times his annual incentive
at target.
Under the change-in-control agreements, the pension enhancement is a lump
sum payment equal to the positive difference, if any, between: (a) the sum
of the lump-sum values of each maximum annuity that would be payable to the
named executive under any defined benefit plan (whether or not qualified
under Section 401(a) of the Internal Revenue Code) if the named executive
had: (i) become fully vested in all such benefits, (ii) attained as of the
named executive's termination date an age that is three years (two years for
Mr. Pintozzi) greater than the named executive's actual age, (iii) accrued a
number of years of service that is three years (two years for Mr. Pintozzi)
greater than the number of years of service actually accrued by the named
executive as of the named executive's termination date, and (iv) received a
lump-sum severance benefit consisting of three times base salary (two for
Mr.Pintozzi), three times annual incentive cash compensation calculated at
target (two for Mr. Pintozzi), plus the 2010 annual incentive cash award as
covered compensation in equal monthly installments during the three-year
period following the named executive's termination date (a two-year period
applies to Mr. Pintozzi); and (b) the lump-sum values of the maximum annuity
benefits vested and payable to named executive under each defined benefit
plan that is qualified under Section 401(a) of the Internal Revenue Code
plus the aggregate amounts simultaneously or previously paid to the named
executive under the defined benefit plans (whether or not qualified under
Section 401(a)). The calculation of the lump sum amounts payable under this
formula does not impact the benefits payable under the ARP, or the SRIP.
/(7)/If a named executive's employment is terminated by reason of death during
the two-year period commencing on the date of a change-in-control, the
named executive's estate or beneficiary will be entitled to survivor and
other benefits, including retiree medical coverage, if eligible, that are
not less favorable than the most favorable benefits available to the
estates or surviving families of peer executives at Allstate. In the event
of termination by reason of disability, Allstate will pay disability and
other benefits, including supplemental long-term disability benefits and
retiree medical coverage, if eligible, that are not less favorable than
the most favorable benefits available to disabled peer executives. In
addition, such survivor or disability benefits shall not be materially
less favorable, in the aggregate, than the most favorable benefits in
effect during the 90-day period preceding the change-in-control.
127
ESTIMATE OF POTENTIAL PAYMENTS UPON TERMINATION/(1)/
The table below describes the amount of compensation payable to each named
executive or the value of benefits provided to the named executives, calculated
in a manner consistent with the allocation of compensation expenses to Allstate
New York under the Service and Expense Agreement for 2010, that exceed the
compensation or benefits generally available to all salaried employees in each
termination scenario. The "Total" column in the following table does not
reflect compensation or benefits previously accrued or earned by the named
executives such as deferred compensation and non-qualified pension benefits.
The payment of the 2010 annual cash incentive award and any 2010 salary earned
but not paid in 2010 due to Allstate's payroll cycle are not included in these
tables because these amounts are payable to the named executives regardless of
termination, death, or disability. Benefits and payments are calculated
assuming a December 31, 2010, employment termination date.
RESTRICTED
STOCK STOCK
OPTIONS-- UNITS-- WELFARE EXCISE TAX
UNVESTED UNVESTED BENEFITS AND REIMBURSEMENT
AND AND OUTPLACEMENT AND TAX
SEVERANCE ACCELERATED ACCELERATED SERVICES GROSS-UP/(2)/ TOTAL
NAME ($) ($) ($) ($) ($) ($)
---- --------- ----------- ----------- ------------ ------------- -------
MR. WINTER
Voluntary Termination/Retirement/(3)/..... 0 0 0 0 0 0
Involuntary Termination................... 0 0 0 0 0
Termination due to Change-in-Control/(4)/. 234,586 6,784 52,316 2,003/(5)/ 87,454 383,143
Death..................................... 0 6,784 52,316 0 0 59,100
Disability................................ 0 6,784 0 124,346/(6)/ 0 131,131
MR. PINTOZZI
Voluntary Termination/Retirement/(3)/..... 0 0 0 0 0 0
Involuntary Termination................... 0 0 0 0 0
Termination due to Change-in-Control/(4)/. 86,300 45,843 52,393 2,652/(5)/ 0 187,188
Death..................................... 0 45,843 52,393 0 0 98,236
Disability................................ 0 45,843 0 138,041/(6)/ 0 183,884
--------
/(1)/A "0" indicates that either there is no amount payable to the named
executive or no amount payable to the named executive that is not also
made available to all salaried employees.
/(2)/Certain payments made as a result of a change in control are subject to a
20% excise tax imposed on the named executive by Section 4999 of the Code.
The Excise Tax Reimbursement and Tax Gross-up is the amount Allstate would
pay to the named executive as reimbursement for the 20% excise tax plus a
tax gross-up for any taxes incurred by the named executive resulting from
the reimbursement of such excise tax. The estimated amounts of
reimbursement of any resulting excise taxes were determined without regard
to the effect that restrictive covenants and any other facts and
circumstances may have on the amount of excise taxes, if any, that
ultimately might be payable in the event these payments were made to a
named executive which is not subject to reliable advance prediction or a
reasonable estimate. Allstate believes providing an excise tax gross-up
mitigates the possible disparate tax treatment for similarly situated
employees and is appropriate in this limited circumstance to prevent the
intended value of a benefit from being significantly and arbitrarily
reduced. However, starting in 2011, new change-in-control agreements will
not include an excise tax gross-up provision.
/(3)/As of December 31, 2010, neither of the named executives was eligible to
retire in accordance with Allstate's policy or the terms of any of the
Allstate compensation and benefit plans including the equity incentive
plans.
/(4)/The values in this change-in-control row represent amounts paid if both
the change-in-control and termination occur on December 31, 2010. If there
was a change-in-control that did not result in a termination, the amounts
payable to each named executive would be as follows:
STOCK OPTIONS-- TOTAL--
UNVESTED AND RESTRICTED STOCK UNITS-- UNVESTED AND
ACCELERATED UNVESTED AND ACCELERATED ACCELERATED
NAME ($) ($) ($)
---- --------------- ------------------------ ------------
Mr. Winter... 6,784 52,316 59,100
Mr. Pintozzi. 45,843 52,393 98,236
A change-in-control also would accelerate the distribution of each named
executive's non-qualified deferred compensation and SRIP benefits. Within
five business days after the effective date of a change-in-control, each
named executive would receive any deferred compensation account balances and
a lump sum payment equal to the present value of the named executive's SRIP
benefit. Please see the Non-Qualified Deferred Compensation at Fiscal Year
End 2010 table and footnote 2 to the Pension Benefits table in the
Retirement Benefits section for details regarding the applicable amounts for
each named executive.
128
/(5)/The Welfare Benefits and Outplacement Services amount includes the cost to
provide certain welfare benefits to the named executive and family during
the period which the named executive is eligible for continuation coverage
under applicable law. The amount shown reflects Allstate's costs for these
benefits or programs assuming an 18-month continuation period. The value
of outplacement services for Mr. Winter is $20,000 and $15,000 for
Mr. Pintozzi.
/(6)/The named executives are eligible to participate in Allstate's
supplemental long-term disability plan for employees whose annual earnings
exceed the level which produces the maximum monthly benefit provided by
the Allstate Long Term Disability Plan (Basic Plan). The benefit is equal
to 50% of the named executive's qualified annual earnings divided by
twelve and rounded to the nearest one hundred dollars, reduced by $7,500,
which is the maximum monthly benefit payment that can be received under
the Basic Plan. The amount reflected assumes the named executive remains
totally disabled until age 65 and represents the full present value of the
monthly benefit payable until age 65.
RISK MANAGEMENT AND COMPENSATION
Allstate management has reviewed its compensation policies and practices and
believes that they are appropriately structured, that they are consistent with
its key operating priority of keeping Allstate financially strong, and that
they avoid providing incentives for employees to engage in unnecessary and
excessive risk taking. Allstate believes that executive compensation has to be
examined in the larger context of an effective risk management framework and
strong internal controls. The Allstate Board and its Audit Committee both play
an important role in risk management oversight, including reviewing how
management measures, evaluates, and manages the corporation's exposure to risks
posed by a wide variety of events and conditions. In addition, the Compensation
and Succession Committee of Allstate employs an independent executive
compensation consultant each year to assess Allstate's executive pay levels,
practices, and overall program design.
A review and assessment of potential compensation-related risks was
conducted by Allstate management and reviewed by the Chief Risk Officer.
Performance related incentive plans were analyzed using a process developed in
conjunction with our independent executive compensation consultant.
The 2010 risk assessment specifically noted that our compensation programs:
. provide a balanced mix of cash and equity through annual and long-term
incentives to align with short-term and long-term business goals.
. utilize a full range of performance measures that Allstate believes
correlate to long-term Allstate shareholder value creation.
. incorporate strong governance practices, including paying cash incentive
awards only after a review of executive and corporate performance.
. enable the use of negative discretion to adjust annual incentive
compensation payments when formulaic payouts are not warranted due to
other circumstances.
Furthermore, to ensure Allstate's compensation programs do not motivate
imprudent risk taking, awards to Allstate executive officers, including
Mr. Winter, made after May 19, 2009, under the 2009 Equity Incentive Plan and
awards made under the Annual Executive Incentive Plan are subject to clawback
in the event of certain financial restatements.
PERFORMANCE MEASURES
Information regarding our performance measures is disclosed in the limited
context of Allstate's annual and long-term cash incentive awards and should not
be understood to be statements of management's expectations or estimates of
results or other guidance. We specifically caution investors not to apply these
statements to other contexts.
The following are descriptions of the performance measures used for
Allstate's annual cash incentive awards for 2010 and its long-term cash
incentive awards for the 2008-2010 cycle which may be applied to
129
compensation of Allstate New York's named executives. These measures are not
GAAP measures. They were developed uniquely for incentive compensation purposes
and are not reported items in our financial statements. Some of these measures
use non-GAAP measures and operating measures. The Committee has approved the
use of non-GAAP and operating measures when appropriate to drive executive
focus on particular strategic, operational, or financial factors or to exclude
factors over which our executives have little influence or control, such as
capital market conditions.
ANNUAL CASH INCENTIVE AWARDS FOR 2010
OPERATING INCOME: This measure is used to assess financial performance. This
measure is equal to net income adjusted to exclude the after tax effects of the
items listed below:
. Realized capital gains and losses (which includes the related effect on
the amortization of deferred acquisition and deferred sales inducement
costs) except for periodic settlements and accruals on certain non-hedge
derivative instruments.
. Gains and losses on disposed operations.
. Adjustments for other significant non-recurring, infrequent, or unusual
items, when (a) the nature of the charge or gain is such that it is
reasonably unlikely to recur within two years or (b) there has been no
similar charge or gain within the prior two years.
CORPORATE MEASURE
ADJUSTED OPERATING INCOME PER DILUTED SHARE: This measure is used to assess
financial performance. The measure is equal to net income adjusted to exclude
the after-tax effects of the items listed below, divided by the weighted
average shares outstanding on a diluted basis:
. Realized capital gains and losses (which includes the related effect on
the amortization of deferred acquisition and deferred sales inducement
costs) except for periodic settlements and accruals on certain non-hedge
derivative instruments.
. Gains and losses on disposed operations.
. Adjustments for other significant non-recurring, infrequent, or unusual
items, when (a) the nature of the charge or gain is such that it is
reasonably unlikely to recur within two years or (b) there has been no
similar charge or gain within the prior two years.
. Restructuring and related charges.
. Effects of acquiring businesses.
. Negative operating results of sold businesses.
. Underwriting results of the Discontinued Lines and Coverages segment.
. Any settlement, awards, or claims paid as a result of lawsuits and other
proceedings brought against Allstate subsidiaries regarding the scope
and nature of coverage provided under insurance policies issued by such
companies.
ALLSTATE FINANCIAL MEASURES
ADJUSTED OPERATING INCOME: This is a measure Allstate management uses to
assess the profitability of the business. The Allstate Financial segment
measure, operating income, is adjusted to exclude the after tax effects of
restructuring and related charges and the potential amount by which 2010
guaranty fund assessments related to insured solvencies exceed $6 million. For
disclosure of the Allstate Financial segment measure see footnote 18 to
Allstate's audited financial statements.
130
ADJUSTED OPERATING RETURN ON EQUITY: This is a measure Allstate management
uses to assess profitability and capital efficiency. This measure is calculated
using adjusted operating income, as defined above, as the numerator, and
Allstate Financial's adjusted average subsidiary shareholder's equity as the
denominator. Adjusted subsidiary shareholder's equity is the sum of
subsidiaries' shareholder's equity for Allstate Life Insurance Company,
Allstate Bank, a proportionate share of American Heritage Life Investment
Corporation and certain other minor entities and excludes the effect of
unrealized net capital gains and losses, net of tax and deferred acquisition
costs. The average adjusted shareholder's equity is calculated by dividing the
sum of Allstate Financial's adjusted shareholder's equity at year-end 2009 and
at the end of each quarter of 2010 by five.
ALLSTATE EXCLUSIVE AGENCY PROPRIETARY AND AWD WEIGHTED SALES: This operating
measure is used to quantify the current year sales of financial products
through Allstate's Exclusive Agency proprietary distribution channel, including
agencies and direct, and the Allstate Workplace Division. The measure is
calculated by applying a percentage or factor against the premium or deposits
of life insurance, annuities and Allstate Workplace Division products that vary
based on the relative expected profitability of the specific product. For
non-Allstate Workplace Division proprietary products sold through Allstate
Financial Services channel, the percentage or factors are consistent with those
used for production credits by Allstate Protection.
ALLSTATE FINANCIAL PORTFOLIO RELATIVE TOTAL RETURN:
PORTFOLIO RELATIVE TOTAL RETURN: Management uses the three following
measures to assess the value of active portfolio management relative to the
total return of a market based benchmark. The measure is calculated as the
difference, in basis points, of the specific portfolio total return over a
designated benchmark. Total return is principally determined using industry
standards and the same sources used in preparing the financial statements to
determine fair value. (See footnotes to our audited financial statements for
our methodologies for estimating the fair value of our investments.) In
general, total return represents the annualized increase or decrease, expressed
as a percentage, in the value of the portfolio. Time weighted returns are
utilized. The designated benchmark is a composite of pre-determined, customized
indices which reflect the investment risk parameters established in investment
policies by the boards of the relevant subsidiaries, weighted in proportion to
our investment plan, in accordance with our investment policy. The specific
measures and investments included are listed below:
. PROPERTY LIABILITY PORTFOLIO RELATIVE TOTAL RETURN: Total return for
Property-liability investments and Kennett investments.
. ALLSTATE FINANCIAL PORTFOLIO RELATIVE TOTAL RETURN: Total return for
Allstate Financial investments.
. ALLSTATE PENSION PLANS PORTFOLIO RELATIVE TOTAL RETURN: Total return for
the Allstate Retirement Plan and Agents Pension Plan investments.
LONG-TERM CASH INCENTIVE AWARDS
AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE TO PEERS: This measure is used to
assess Allstate's financial performance against its peers. It is calculated as
Allstate's ranked position relative to the insurance company peer group based
upon three-year average adjusted return on equity, calculated on the same basis
for Allstate and each of the peer insurance companies. Three-year average
adjusted return on equity is the sum of the annual adjusted return on equity
for each of the three years in the cycle divided by three. The annual adjusted
return on equity is calculated as the ratio of net income divided by the
average of shareholders' equity at the beginning and at the end of the year
after excluding the component of accumulated other comprehensive income for
unrealized net capital gains and losses.
ALLSTATE FINANCIAL RETURN ON TOTAL CAPITAL: This is a measure management
uses to measure the efficiency of capital utilized in the business. Three-year
Allstate Financial return on total capital is the sum of the annual adjusted
return on subsidiaries' shareholder's equity for each of the three years
divided by three. The annual
131
adjusted return on subsidiaries' shareholder's equity is the Allstate Financial
measure, net income, divided by the average subsidiaries' shareholder's equity
at the beginning and at the end of the year. The subsidiaries' shareholder's
equity is the sum of the subsidiaries' shareholder's equity for Allstate Life
Insurance Company, Allstate Bank, American Heritage Life Investment
Corporation, and certain other minor entities, adjusted to exclude the loan
protection business and excluding the component of accumulated other
comprehensive income for unrealized net capital gains. (See note 18 to
Allstate's audited financial statements for Allstate Financial net income.)
ALLSTATE PROTECTION GROWTH IN POLICIES IN FORCE OVER THREE-YEAR CYCLE: This
is a measure used by management to assess growth in the number of policies in
force, which is a driver of premiums written. The measure is calculated as the
sum of the percent increase in each of the three years in the total number of
policies in force at the end of the year over the beginning of the year. The
measure excludes property insurance, Allstate Motor Club, and the loan
protection business and includes Allstate Canada.
DIRECTOR COMPENSATION
The following table summarizes the compensation of each of Allstate New
York's non-employee directors during 2010 for his or her services as a member
of the Allstate New York Board and its committees. Our non-employee directors
each received an annual retainer of $13,500 and the chair of the Operations
Review Committee received an additional annual retainer of $1,500.
Additionally, they each received a fee of $1,500 for each Board meeting
attended throughout the year and a fee of $750 for each meeting they attended
as members of the Board's Operations Review Committee, Investment Committee, or
Audit Committee.
All other Allstate New York directors are employees of Allstate or its
subsidiaries. These directors receive no compensation for their service as
directors in addition to their compensation as employees of Allstate New York,
Allstate, or their subsidiaries.
FEES EARNED
OR PAID IN CASH
NAME OF NON-EMPLOYEE DIRECTOR/(1)/ ($) TOTAL ($)
--------------------------------- --------------- ---------
Ms. Alazraki................ 22,500 22,500
Mr. Johnson/(2)/............ 24,000 24,000
Mr. O'Brien/(3) /........... 25,500 25,500
Mr. Raben/(4)/.............. 25,500 25,500
Ms. Slater.................. 22,500 22,500
-
/(1)/Each of these directors is a member of the Operations Review
Committee.
/(2)/Chair of the Operations Review Committee
/(3)/Audit Committee member
/(4)/Investment Committee member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of Allstate New York does not have a compensation
committee. All compensation decisions are made by The Allstate Corporation, as
the ultimate parent company of Allstate New York. No executive officer of
Allstate New York served as a member of the compensation committee of another
entity for which any executive officer served as a director for Allstate New
York.
132
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 New York shares owned by
any beneficial owner who owns more than five percent of any class of Allstate
New York's voting securities.
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
(A) (B) (C) (D)
---------------------------------------------------------------------------------------------------
Capital Stock Allstate Life Insurance Company
3100 Sanders Road, Northbrook, IL 60062 100,000 100%
---------------------------------------------------------------------------------------------------
N/A Allstate Insurance Company Indirect voting and investment N/A
2775 Sanders Road, Northbrook, IL 60062 power of shares owned by
Allstate Life Insurance
Company
---------------------------------------------------------------------------------------------------
N/A The Allstate Corporation Indirect voting and investment N/A
2775 Sanders Road, Northbrook, IL 60062 power of shares owned by
Allstate Life Insurance
Company
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table shows the number of shares of Allstate common stock
beneficially owned by each director and named executive officer of Allstate New
York individually, and by all executive officers and directors of Allstate 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, as well as shares subject to stock options exercisable on or prior
to May 9, 2011 and restricted stock units for which restrictions expire on or
prior to May 9, 2011. The percentage of Allstate shares of common stock
beneficially owned by any Allstate New York director, named executive officer
or by all directors and executive officers of Allstate New York as a group does
not exceed 1%. The following share amounts are as of March 10, 2011. As of
March 10, 2011, none of these shares were pledged as security.
COMMON STOCK SUBJECT
TO OPTIONS EXERCISABLE
AND RESTRICTED STOCK
UNITS FOR WHICH
AMOUNT AND NATURE OF RESTRICTIONS EXPIRE ON OR
BENEFICIAL OWNERSHIP OF PRIOR TO APRIL 16, 2010 --
ALLSTATE COMMON STOCK INCLUDED IN COLUMN (A)
NAME OF BENEFICIAL OWNER (A) (B)
---------------------------------------------------------------------------------------------------
Marcia D. Alazraki 200 0
---------------------------------------------------------------------------------------------------
Robert K. Becker 17,535 12,162
---------------------------------------------------------------------------------------------------
Michael B. Boyle 117,802 102,095
---------------------------------------------------------------------------------------------------
Anurag Chandra 0 0
---------------------------------------------------------------------------------------------------
Cleveland Johnson, Jr. 2,048 0
---------------------------------------------------------------------------------------------------
Susan L. Lees 39,344 27,732
---------------------------------------------------------------------------------------------------
Kenneth R. O'Brien 900 0
---------------------------------------------------------------------------------------------------
Samuel H. Pilch 170,306 144,020
---------------------------------------------------------------------------------------------------
John C. Pintozzi 102,679 97,514
---------------------------------------------------------------------------------------------------
John R. Raben, Jr. 1,850 0
---------------------------------------------------------------------------------------------------
Larry M. Sedillo 8,676 4,977
---------------------------------------------------------------------------------------------------
Phyllis Hill Slater 0 0
---------------------------------------------------------------------------------------------------
Matthew E. Winter 8,539 8,385
---------------------------------------------------------------------------------------------------
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP 858,076 770,338
133
ITEM 11(N).TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL
PERSONS.
TRANSACTIONS WITH RELATED PERSONS.
This table describes certain intercompany agreements involving 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; and
. The Allstate Corporation ("AllCorp"), the ultimate indirect parent of
Allstate Life of New York.
APPROXIMATE DOLLAR
VALUE OF THE AMOUNT
INVOLVED IN THE
TRANSACTION,
TRANSACTION DESCRIPTION PER FISCAL YEAR
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Tax Sharing Agreement among The Allstate Corporation 2008 465,439,826/(2)/
and certain affiliates dated as of November 12, 1996. 2009 (1,173,212,154)/(2)/
2010 (113,770,599)/(2)/
-----------------------------------------------------------------------------------------
Cash Management Services Master Agreement between 2008 1,338,376/(3)/
Allstate Insurance Company, Allstate Bank (aka Allstate 2009 1,527,072/(3)/
Federal Savings Bank), and certain affiliates dated 2010 967,620/(3)/
March 16, 1999, as amended by Amendment No. 1
effective January 5, 2001, and Amendment No. 2 entered
into November 8, 2002, between Allstate Insurance
Company, Allstate Bank and Allstate Motor Club, Inc., and
as supplemented by the Premium Depository Service
Supplement dated as of September 30, 2005, the Variable
Annuity Service Supplement dated November 10, 2005,
and the Sweep Agreement Service Supplement dated as of
October 11, 2006.
-----------------------------------------------------------------------------------------
Amended and Restated Service and Expense Agreement 2008 3,295,180,640
between Allstate Insurance Company, The Allstate 2009 3,451,765,246
Corporation and certain affiliates effective January 1, 2004, 2010 3,619,106,706
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.
-----------------------------------------------------------------------------------------
Intercompany Loan Agreement among The Allstate 2008 400,040,660
Corporation, Allstate Life Insurance Company, Lincoln 2009 86,111,674
Benefit Life Company and other certain subsidiaries of The 2010 149,971,764
Allstate Corporation dated February 1, 1996.
-----------------------------------------------------------------------------------------
Agreement for the Settlement of State and Local Tax 2008 2,089,067
Credits among Allstate Insurance Company and certain 2009 941,379
affiliates effective January 1, 2007. 2010 835,435
-----------------------------------------------------------------------------------------
RELATED PERSON(S) INVOLVED IN THE
TRANSACTION/(1)/ AND THE APPROXIMATE
DOLLAR VALUE OF THE AMOUNT OF THE
TRANSACTION DESCRIPTION RELATED PERSON'S INTEREST IN THE TRANSACTION
-----------------------------------------------------------------------------------------------------------------
ALIC AIC ALLCORP
-----------------------------------------------------------------------------------------------------------------
Tax Sharing Agreement among The Allstate Corporation (109,322,083) 633,316,282 (121,960,368)
and certain affiliates dated as of November 12, 1996. (534,572,879) (467,570,173) (121,813,486)
(621,234,096) 647,559,256 (146,676,325)
-----------------------------------------------------------------------------------------------------------------
Cash Management Services Master Agreement between 198,098/(4)/ 816,143/(4)/ N/A
Allstate Insurance Company, Allstate Bank (aka Allstate 158,312/(4)/ 1,052,781/(4)/
Federal Savings Bank), and certain affiliates dated 76,166/(4)/ 694,117/(4)/
March 16, 1999, as amended by Amendment No. 1
effective January 5, 2001, and Amendment No. 2 entered
into November 8, 2002, between Allstate Insurance
Company, Allstate Bank and Allstate Motor Club, Inc., and
as supplemented by the Premium Depository Service
Supplement dated as of September 30, 2005, the Variable
Annuity Service Supplement dated November 10, 2005,
and the Sweep Agreement Service Supplement dated as of
October 11, 2006.
-----------------------------------------------------------------------------------------------------------------
Amended and Restated Service and Expense Agreement 215,640,945/(5)/ 2,186,281,461/(5)/ 5,351,262/(5)/
between Allstate Insurance Company, The Allstate 180,154,068/(5)/ 1,937,571,496/(5)/ 2,510,800/(5)/
Corporation and certain affiliates effective January 1, 2004, 175,950,701/(5)/ 1,823,391,816/(5)/ 4,191,150/(5)/
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.
-----------------------------------------------------------------------------------------------------------------
Intercompany Loan Agreement among The Allstate 50,014,792/(6)/ 1,732,736/(6)/ 400,040,660
Corporation, Allstate Life Insurance Company, Lincoln 0/(7)/ 86,111,674/(6)/ 86,111,674
Benefit Life Company and other certain subsidiaries of The 149,971,764/(6)/ 149,971,764/(6)/ 149,971,764
Allstate Corporation dated February 1, 1996.
-----------------------------------------------------------------------------------------------------------------
Agreement for the Settlement of State and Local Tax 356,331/(8)/ 1,732,736/(8)/ N/A
Credits among Allstate Insurance Company and certain 193,504/(8)/ 441,024/(8)/
affiliates effective January 1, 2007. 236,540/(8)/ 474,132/(8)/
-----------------------------------------------------------------------------------------------------------------
--------
/(1)/Each identified Related Person is a Party to the transaction.
/(2)/Total amounts paid to Internal Revenue Service.
/(3)/Total fees collected for all bank accounts covered under the transaction.
/(4)/Fees paid under the transaction.
/(5)/Gross amount of expense received under the transaction.
/(6)/Amounts loaned and repaid.
/(7)/No loans outstanding at year end.
/(8)/Value of transfer transactions.
134
APPROXIMATE DOLLAR
VALUE OF THE AMOUNT RELATED PERSON(S) INVOLVED IN THE
INVOLVED IN THE TRANSACTION/(1)/ AND THE APPROXIMATE
TRANSACTION, DOLLAR VALUE OF THE AMOUNT OF THE
TRANSACTION DESCRIPTION PER FISCAL YEAR RELATED PERSON'S INTEREST IN THE TRANSACTION
------------------------------------------------------------------------------------------------------------------------------
ALIC AIC ALLCORP
------------------------------------------------------------------------------------------------------------------------------
Reinsurance Agreements between Allstate Life Insurance 2008 (14,905,073)/(9)/ (14,905,073)/(9)/ N/A N/A
Company and Allstate Life Insurance Company of New 2009 (26,652,961)/(9)/ (26,652,961)/(9)/
York: Reinsurance Agreement effective January 1, 1984, as 2010 (27,988,981)/(9)/ (27,988,981)/(9)/
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, and Amendment No. 7; 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, 1986, as amended by Amendment
No. 1 effective December 31, 1995 and Amendment No. 2
effective December 1, 1995; Reinsurance Agreement
effective January 1, 1991, as amended by Amendment
No. 1 effective December 31, 1995; Stop Loss Reinsurance
Agreement effective December 31.
--------
/(9)/Net reinsurance expense.
POLICIES AND PROCEDURES FOR REVIEW AND APPROVAL OF RELATED PERSON TRANSACTIONS:
All intercompany agreements to which Allstate New York is a party are
approved by Allstate New York's Board of Directors 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 New York's domestic regulator
pursuant to the applicable state's insurance holding company systems act. This
process is documented in an internal procedure that captures the review and
approval process of all intercompany agreements. All approvals are maintained
in Allstate 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 New
York, all directors and executive officers of Allstate New York are subject to
the Allstate Code of Ethics ("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 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 Code of Ethics certification annually.
INDEPENDENCE STANDARDS FOR DIRECTORS
Outside directors of Allstate 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 New York or any other affiliate of
The Allstate Corporation. Applying these independence standards, Ms. Alazraki,
Mr. Johnson, Mr. O'Brien, Mr. Raben, and Ms. Slater are independent.
Although not subject to the independence standards of the New York Stock
Exchange, for purposes of this S-1 registration statement, Allstate New York
has applied the independence standards required for listed companies of the New
York Stock Exchange to the Board of Directors. Applying these standards,
Allstate New York has been determined that Ms. Alazraki, Mr. Johnson,
Mr. O'Brien, Mr. Raben, and Ms. Slater are considered to be independent.
135
OTHER INFORMATION
A section entitled "Experts" is added to your prospectus as follows:
EXPERTS
The financial statements and the related financial statement schedules
included herein have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report appearing herein.
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.
PRINCIPAL UNDERWRITER
Contingent on regulatory approval, ALFS, Inc ("ALFS") is expected to merge
into Allstate Distributors, LLC ("ADLLC"), effective April 29, 2011. At that
time, ALFS will assign its rights and delegate its duties as principal
underwriter to ADLLC. This change will have no effect on Allstate Life
Insurance Company of New York's obligations to you under your Contract. The
section of your prospectus concerning the principal underwriter is amended
accordingly.
Contingent on regulatory approval, 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.
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 se/2/, inc., of 5801 SW 6th Avenue, Topeka, Kansas 66636,
whereby se/2/, inc. provides certain business process outsourcing services with
respect to the Contracts. se/2/, inc. may engage other service providers to
provide certain administrative functions. These service providers may change
over time, and as of December 31, 2010, consisted of the following: Keane BPO,
LLC (administrative services) located at 625 North Michigan Avenue, Suite 1100,
Chicago, IL 60611; RR Donnelly Global Investment Markets (compliance printing
and mailing) located at 111 South Wacker Drive, Chicago, IL 60606; Jayhawk File
Express, LLC (file storage and document destruction) located at 601 E. 5th
Street, Topeka, KS 66601-2596; Co-Sentry.net, LLC (back-up printing and
disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114;
Convey Compliance Systems, Inc. (withholding calculations and tax statement
mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447;
Spangler Graphics, LLC (compliance mailings) located at 29305 44th Street,
Kansas City, KS 66106; Veritas Document Solutions, LLC (compliance mailings)
located at 913 Commerce Ct, Buffalo Grove, IL 60089; 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; EquiSearch Services, Inc.
(lost shareholder search) located at 11 Martime Avenue, Suite 665, White
Plains, NY 10606; ZixCorp Systems, Inc. (email encryption) located at 2711 N.
Haskell Ave., Suite 2300, Dallas, TX 75204; DST Systems, Inc. (FAN mail,
positions, prices) located at 333 West 11 Street, 5th Floor, Kansas City, MO
64105.
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.
136
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
STI Classic Prospectus, dated May 1, 2003
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
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 -
AIM V.I. BALANCED FUND - SERIES I* SERIES I
AIM V.I. BASIC VALUE FUND - SERIES I AIM V.I. GROWTH FUND - SERIES I
AIM V.I. BLUE CHIP FUND - SERIES I AIM V.I. HIGH YIELD FUND - SERIES I
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I AIM V.I. INTERNATIONAL GROWTH FUND -
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I SERIES I
AIM V.I. CORE EQUITY FUND - SERIES I AIM V.I. MID CAP CORE EQUITY FUND -
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - SERIES I** SERIES I
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I AIM V.I. MONEY MARKET FUND - SERIES I
AIM V.I. PREMIER EQUITY FUND - SERIES I
AIM V.I. TECHNOLOGY 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 7
Financial Information 9
CONTRACT FEATURES
The Contract 9
Purchases 10
Contract Value 11
Investment Alternatives 12
The Variable Sub-Accounts 12
The Fixed Account 13
Transfers 15
Expenses 17
Other Expenses 19
Access To Your Money 19
PAGE
----
Income Payments 20
Death Benefits 22
OTHER INFORMATION
More Information: 24
Allstate New York 24
The Variable Account 24
The Funds 24
The Contract 25
Non-Qualified Annuities Held Within a Qualified Plan 25
Legal Matters 26
Taxes 27
Annual Reports and Other Documents 34
APPENDIX A-ACCUMULATION UNIT VALUES AND NUMBER OF ACCUMULATION
UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE
CONTRACTS WERE FIRST OFFERED 35
APPENDIX B-MARKET VALUE ADJUSTMENT 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" 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
ALTERNATIVES including:
. 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 Payout Start
Date Accumulation Phase Date Payout Phase
---------------------------------------------------------------------------------------------------
You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment
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.
11 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 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 Long-term growth of capital
Growth Fund - Series
I**
-------------------------------------------------------------------------------
AIM V.I. Balanced Fund As high a total return as
- Series I*** possible, consistent with
preservation of capital
-------------------------------------------------------------------------------
AIM V.I. Basic Value Long-term growth of capital
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Blue Chip Long-term growth of capital
Fund - Series I with a secondary objective of
current income
-------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital
Appreciation Fund -
Series I
-------------------------------------------------------------------------------
AIM V.I. Capital Long-term growth of capital
Development Fund -
Series I
-------------------------------------------------------------------------------
AIM V.I. Core Equity Growth of capital
Fund - Series I A I M ADVISORS, INC..
-------------------------------------------------------------------------------
AIM V.I. Dent Long-term growth of capital
Demographic Trends
Fund - Series I****
-------------------------------------------------------------------------------
AIM V.I. Diversified High level of current income
Income Fund - Series
I
-------------------------------------------------------------------------------
AIM V.I. Government High level of current income
Securities Fund - consistent with reasonable
Series I concern for safety of
principal
-------------------------------------------------------------------------------
AIM V.I. Growth Fund - Growth of capital
Series I
-------------------------------------------------------------------------------
AIM V.I. High Yield High level of current income
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. International Long-term growth of capital
Growth Fund - Series
I
-------------------------------------------------------------------------------
AIM V.I. Mid Cap Core Long-term growth of capital
Equity Fund - Series
I
-------------------------------------------------------------------------------
AIM V.I. Money Market As high a level of current
Fund - Series I income as is consistent with
the preservation of capital
and liquidity
-------------------------------------------------------------------------------
AIM V.I. Premier Long-term growth of capital
Equity Fund - Series with income as a secondary
I objective
-------------------------------------------------------------------------------
AIM V.I. Technology Capital growth
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Utilities Capital growth and current
Fund - Series I 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
12 PROSPECTUS
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.
13 PROSPECTUS
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
14 PROSPECTUS
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
15 PROSPECTUS
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
16 PROSPECTUS
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
17 PROSPECTUS
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
18 PROSPECTUS
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.
19 PROSPECTUS
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,
20 PROSPECTUS
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.
21 PROSPECTUS
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
22 PROSPECTUS
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
23 PROSPECTUS
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.
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.
24 PROSPECTUS
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.
25 PROSPECTUS
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.
26 PROSPECTUS
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
27 PROSPECTUS
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
28 PROSPECTUS
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
29 PROSPECTUS
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.
30 PROSPECTUS
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
31 PROSPECTUS
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
32 PROSPECTUS
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).
33 PROSPECTUS
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).
34 PROSPECTUS
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
35 PROSPECTUS
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
36 PROSPECTUS
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.
37 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.
38 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 $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 $11,411.66 - $452.81 + $56.22 = $11,015.07
amount received by a
Contract owner as a result
of full withdrawal at the
end of Contract Year 3:
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES)
EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at End $10,000.00 X (1.045)/3/ = $11,411.66
of Contract Year 3:
Step 2. Calculate the Preferred .10 X $10,000.00 = $1,000.00
Withdrawal Amount:
Step 3. Calculate the Market Value I = 4.50%
Adjustment: 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
3: $11,411.66 - $447.19 - $56.22 = $10,908.25
39 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.
40 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
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 -
AIM V.I. BALANCED FUND - SERIES I* SERIES I
AIM V.I. BASIC VALUE FUND - SERIES I AIM V.I. GROWTH FUND - SERIES I
AIM V.I. BLUE CHIP FUND - SERIES I AIM V.I. HIGH YIELD FUND - SERIES I
AIM V.I. CAPITAL APPRECIATION FUND - SERIES I AIM V.I. INTERNATIONAL GROWTH FUND -
AIM V.I. CAPITAL DEVELOPMENT FUND - SERIES I SERIES I
AIM V.I. CORE EQUITY FUND - SERIES I AIM V.I. MID CAP CORE EQUITY FUND -
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND - SERIES I** SERIES I
AIM V.I. DIVERSIFIED INCOME FUND - SERIES I AIM V.I. MONEY MARKET FUND - SERIES I
AIM V.I. PREMIER EQUITY FUND - SERIES I
AIM V.I. TECHNOLOGY 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 7
Financial Information 9
CONTRACT FEATURES
The Contract 9
Purchases 10
Contract Value 11
Investment Alternatives 12
The Variable Sub-Accounts 12
The Fixed Account Options 13
Transfers 15
Expenses 18
Other Expenses 19
Access To Your Money 19
PAGE
----
Income Payments 20
Death Benefits 22
OTHER INFORMATION
More Information:
Allstate New York 25
The Variable Account 25
The Funds 25
The Contract 26
Non-Qualified Annuities Held Within a Qualified Plan 26
Legal Matters 26
Taxes 27
Annual Reports and Other Documents 34
APPENDIX A-ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST
OFFERED 35
APPENDIX B-MARKET VALUE ADJUSTMENT 39
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 41
--------------------------------------------------------------------------------
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
* 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.
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 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
ALTERNATIVES including:
. 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)
-------------------------------------------------------------------------------
4 PROSPECTUS
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.
-------------------------------------------------------------------------------
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 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 Payout Start
Date Accumulation Phase Date Payout Phase
--------------------------------------------------------------------------------------------------->
You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment
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 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 0 1 2 3 4 5 6 7+
Payment 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 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 1.00%
Mortality and Expense Risk Charge
--------------------------------------------------------------------------------
Administrative Expense Charge 0.10%
--------------------------------------------------------------------------------
Total Variable Account Annual Expense 1.10%
--------------------------------------------------------------------------------
WITH ENHANCED DEATH BENEFIT OPTION 1.20%
Mortality and Expense Risk Charge
--------------------------------------------------------------------------------
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.
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,
and
.. 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.
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) 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.
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
9 PROSPECTUS
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.
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
10 PROSPECTUS
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.
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.
11 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 Long-term growth of capital
Growth Fund - Series
I**
-------------------------------------------------------------------------------
AIM V.I. Balanced Fund As high a total return as
- Series I*** possible, consistent with
preservation of capital
-------------------------------------------------------------------------------
AIM V.I. Basic Value Long-term growth of capital
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Blue Chip Long-term growth of capital
Fund - Series I with a secondary objective of
current income
-------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital
Appreciation Fund -
Series I
-------------------------------------------------------------------------------
AIM V.I. Capital Long-term growth of capital
Development Fund -
Series I
-------------------------------------------------------------------------------
AIM V.I. Core Equity Growth of capital A I M ADVISORS, INC..
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Dent Long-term growth of capital
Demographic Trends
Fund - Series I****
-------------------------------------------------------------------------------
AIM V.I. Diversified High level of current income
Income Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Government High level of current income
Securities Fund - consistent with reasonable
Series I concern for safety of
principal
-------------------------------------------------------------------------------
AIM V.I. Growth Fund - Growth of capital
Series I
-------------------------------------------------------------------------------
AIM V.I. High Yield High level of current income
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. International Long-term growth of capital
Growth Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Mid Cap Core Long-term growth of capital
Equity Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Money Market As high a level of current
Fund - Series I income as is consistent with
the preservation of capital
and liquidity
-------------------------------------------------------------------------------
AIM V.I. Premier Long-term growth of capital
Equity Fund - Series with income as a secondary
I objective
-------------------------------------------------------------------------------
AIM V.I. Technology Capital growth
Fund - Series I
-------------------------------------------------------------------------------
AIM V.I. Utilities Capital growth and current
Fund - Series I 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 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
12 PROSPECTUS
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.
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.
13 PROSPECTUS
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%
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.
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:
14 PROSPECTUS
.. 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.
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.
15 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. 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.
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.
16 PROSPECTUS
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.
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.
17 PROSPECTUS
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.
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
18 PROSPECTUS
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.
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.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
19 PROSPECTUS
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
.. 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
20 PROSPECTUS
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
.. 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.
21 PROSPECTUS
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.
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
(c) 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,
22 PROSPECTUS
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.
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
23 PROSPECTUS
.. 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.
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.
24 PROSPECTUS
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 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.
25 PROSPECTUS
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, 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.
26 PROSPECTUS
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
27 PROSPECTUS
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
28 PROSPECTUS
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
29 PROSPECTUS
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.
30 PROSPECTUS
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
31 PROSPECTUS
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
32 PROSPECTUS
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).
33 PROSPECTUS
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).
34 PROSPECTUS
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
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
35 PROSPECTUS
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.
36 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
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
37 PROSPECTUS
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.
38 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.
39 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 $10,000.00 X (1.045)/3/ = $11,411.66
End of Contract Year 3:
Step 2. Calculate the Free Withdrawal 15% X $10,000.00 X (1.045)/2/ = $1,638.04
Amount:
Step 3. Calculate the Market Value I = 4.50%
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
(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 .05 X ($10,000.00 - $1,638.04 +
Charge: $52.78) = $420.74
Step 5. Calculate the amount received $11,411.66 - $420.74 + $52.78 =
by a Contract owner as a result of $11,043.70
full withdrawal at the end of
Contract Year 3:
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 .15 X $10,000.00 X (1.045)/2/ = $1,638.04
Withdrawal Amount:
Step 3. Calculate the Market Value I = 4.5%
Adjustment: 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
Step 4. Calculate the Withdrawal .05 X ($10,000.00 - $1,638.04 -
Charge: $52.78) = $415.46
Step 5. Calculate the amount received $11,411.66 - $415.46 - $52.78 =
by a Contract owner as a result of $10,943.42
full withdrawal at the end of
Contract Year 3:
40 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.
41 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 Franklin Templeton Variable Insurance
The Dreyfus Socially Responsible Growth Products Trust (VIP)
Products Trust Fund, Inc. Goldman Sachs Variable Insurance Trust
Dreyfus Stock Index Fund (VIT)
Dreyfus Variable Investment Fund (VIF) MFS Variable Insurance Trust
Fidelity Variable Insurance Products The Universal Institutional Funds, Inc.
Fund (VIP)
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.
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE
RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY
IMPORTANT EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR
NOTICES 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 13
CONTRACT FEATURES
The Contract 13
Purchases 14
Contract Value 15
Investment Alternatives 16
The Variable Sub-Accounts 16
The Fixed Account 19
Transfers 22
Expenses 23
Access To Your Money 25
Income Payments 26
Death Benefits 27
OTHER INFORMATION
More Information: 29
ALLSTATE NEW YORK 29
The Variable Account 29
The Portfolios 30
The Contract 29
Tax Qualified Plans 30
Legal Matters 30
Taxes 31
Annual Reports and Other Documents 36
Performance Information 36
Experts 36
APPENDIX A - MARKET VALUE ADJUSTMENT 37
APPENDIX B - WITHDRAWAL ADJUSTMENT EXAMPLES 39
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 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.
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 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 The Contract offers 42 investment alternatives including:
ALTERNATIVES
. 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.
4 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.
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 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 Payout Start
Date Accumulation Phase Date Payout Phase
---------- ----------------------- -------------------- ----------------
You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment
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 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%
7 PROSPECTUS
PORTFOLIO ANNUAL EXPENSES (as a percentage of Portfolio average daily net
assets)/1/ (After contractual Reductions and Reimbursements)
(1)
Total
Management 12b-1 Other Portfolio
Portfolio Fees Fees Expenses 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).
(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
8 PROSPECTUS
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.
(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:
Total
Management 12b-1 Other Portfolio
Portfolio Fees Fees Expenses 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
9 PROSPECTUS
management fee and the reimbursement by the Portfolios' adviser to the
extent "Total Portfolio Annual Expenses" exceed the following percentages:
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:
Total
Management 12b-1 Other Portfolio
Portfolio Fees Fees Expenses 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.
10 PROSPECTUS
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.
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
11 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 REFLECT THE CONTRACT MAINTENANCE
CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON
AN ASSUMED AVERAGE CONTRACT SIZE OF $45,000.
12 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.
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
13 PROSPECTUS
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.
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
14 PROSPECTUS
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.
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.
15 PROSPECTUS
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 Achieve as high a total
Fund* return as possible,
consistent with preservation
of capital.
AIM V.I. Core Equity Growth of capital with a
Fund*** secondary objective of
current income
AIM ADVISORS, INC.
AIM V.I. Diversified A high level of current
Income Fund* income
AIM V.I. Government A high level of current
Securities Fund* income consistent with a
reasonable concern for safety
of principal
AIM V.I. Growth Fund* Growth of capital
AIM V.I. International Long-term growth of capital
Growth Fund****
AIM V.I. Premier Long-term growth of capital.
Equity Fund***** Income is a secondary
objective.
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 Capital growth and,
Responsible Growth secondarily, current income
Fund, Inc.
Dreyfus Stock Index To match the total return
Fund Stock Price Index of the
Standard & Poor's(C) 500
Composite THE DREYFUS CORPORATION
Dreyfus VIF Growth & Long-term capital growth,
Income Portfolio income current and growth of
income, consistent with
reasonable investment risk
Dreyfus VIF Money A high level of current
Market Portfolio income as is consistent with
the preservation of capital
and the maintenance of
liquidity
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Reasonable income
Equity-Income
Portfolio
FIDELITY MANAGEMENT &
Fidelity VIP Growth Capital appreciation RESEARCH COMPANY
Portfolio
Fidelity VIP High High level of current income
Income Portfolio while also considering growth
of capital
Fidelity VIP Portfolio Long-term capital
Contrafund(R) appreciation
16 PROSPECTUS
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (VIP) -- CLASS 2
Franklin Small Cap Long-term capital growth FRANKLIN ADVISERS, INC.
Fund
Mutual Shares Capital appreciation. FRANKLIN MUTUAL
Securities Fund Secondary goal is income. ADVISORS, LLC.
Templeton Developing Long-term capital TEMPLETON ASSET
Markets Securities Appreciation MANAGEMENT LTD.
Fund
Templeton Growth Long-term capital growth TEMPLETON GLOBAL
Securities Fund ADVISORS LIMITED
Templeton Long-term capital growth TEMPLETON INVESTMENT
International COUNSEL, LLC.
Securities Fund
GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT)
Goldman Sachs VIT Long-term growth of capital
Capital Growth Fund
GOLDMAN SACHS ASSET
Goldman Sachs VIT Long-term growth of capital MANAGEMENT
Core(SM)Small Cap
Equity Fund
Goldman Sachs VIT Long-term growth of capital
Core(SM)U.S. Equity and dividend income
Fund
Goldman Sachs VIT Long-term capital GOLDMAN SACHS ASSET
International Equity appreciation MANAGEMENT INTERNATIONAL
Fund
MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS Emerging Growth Long-term growth of capital
Series
MFS Investors Trust Long-term growth of capital MFS INVESTMENT
Series** with a secondary objective to MANAGEMENT(R)
seek reasonable current
income
MFS New Discovery Capital appreciation
Series
MFS Research Series Long-term growth of capital
and future income
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Van Kampen UIF Equity Long-term capital
Growth****** appreciation
Van Kampen UIF Core Above-average total return MORGAN STANLEY ASSET
Plus Fixed over a market cycle of three MANAGEMENT
Income****** to five years
Van Kampen UIF Global Long-term capital
Equity****** appreciation
Van Kampen UIF Mid Cap Above-average total return
Value****** over a market cycle of three
to five years
Van Kampen UIF Above-average total return MILLER ANDERSON &
Value****** over a market cycle of three SHERRERD, LLP
to five years
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Aggressive Capital appreciation
Growth Fund/VA
Oppenheimer Capital Capital appreciation
Appreciation Fund/VA
OPPENHEIMER FUNDS, INC.
Oppenheimer Global Long-term capital
Securities Fund/VA appreciation
Oppenheimer Main High total return, which
Street Growth & Income includes growth in the value
Fund/VA of its shares as well as
current income, from equity
and debt securities
Oppenheimer Strategic High level of current income
Bond Fund/VA
17 PROSPECTUS
* 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.
18 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.
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
19 PROSPECTUS
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
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.
20 PROSPECTUS
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.
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
21 PROSPECTUS
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.
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.
22 PROSPECTUS
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.
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
23 PROSPECTUS
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. 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.
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
24 PROSPECTUS
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.
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.
25 PROSPECTUS
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 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
26 PROSPECTUS
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.
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
27 PROSPECTUS
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.
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.
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.
28 PROSPECTUS
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.
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
29 PROSPECTUS
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.
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.
30 PROSPECTUS
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 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 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
31 PROSPECTUS
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 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.
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,
32 PROSPECTUS
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.
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
33 PROSPECTUS
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,
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
34 PROSPECTUS
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.
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
35 PROSPECTUS
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 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.
36 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)
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 I = 4.5%
Market 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
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
38 PROSPECTUS
APPENDIX B
WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2002
Initial Purchase Payment: $50,000
Death Benefit Amount
Death Benefit
Contract Value
Contract Value Transaction After Greatest
Date Type of Occurence Before Occurrence Amount Occurence Anniversary Value 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
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.
39 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 DREYFUS STOCK INDEX FUND
FIDELITY(R) VARIABLE INSURANCE PRODUCTS DREYFUS VARIABLE INVESTMENT FUND
(VIF)
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST WELLS FARGO VARIABLE TRUST FUNDS
OPPENHEIMER VARIABLE ACCOUNT FUNDS DELAWARE VIP TRUST
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
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.
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
IMPORTANT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS
OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT
NOTICES 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 The Contract offers 29 investment alternatives
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 Payout Start
Date Accumulation Phase Date Payout Phase
-------------------------------------------------------------------------------------------------->
You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment
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.
6 PROSPECTUS
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)*
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.
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.
7 PROSPECTUS
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.
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.
1 Year 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.
1 Year 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.
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 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
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
9 PROSPECTUS
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.
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.
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 receive the purchase payment at our
service
10 PROSPECTUS
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.
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.
11 PROSPECTUS
PORTFOLIO: EACH PORTFOLIO SEEKS INVESTMENT ADVISER:
-------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS - SERIES I SHARES: (*)
-------------------------------------------------------------------------------
AIM V.I. Balanced Fund - As high a total return as
Series I /1/ possible, consistent with
preservation of capital
-------------------------------------------------------------------------------
AIM V.I. Capital Growth of capital
Appreciation Fund -
Series I
-------------------------------------------------------------------------------
AIM V.I. Government High level of current A I M ADVISORS, INC.
Securities Fund - Series income consistent with
I reasonable concern for
safety of principal
-------------------------------------------------------------------------------
AIM V.I. Growth Fund - Growth of capital
Series I
-------------------------------------------------------------------------------
AIM V.I. High Yield Fund High level of current
- Series I income
-------------------------------------------------------------------------------
AIM V.I. International Long-term growth of
Growth Fund - Series I capital
-------------------------------------------------------------------------------
AIM V.I. Premier Equity Long-term growth of
Fund - Series I capital with income as a
secondary objective
-------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
-------------------------------------------------------------------------------
Fidelity VIP Long-term capital
Contrafund(R) Portfolio appreciation.
- Initial Class
-------------------------------------------------------------------------------
Fidelity VIP Reasonable income by
Equity-Income Portfolio investing primarily in
- Initial Class income-producing equity
securities. In
choosing these
securities, the
fund will also
consider the
potential for
capital
appreciation. The FIDELITY MANAGEMENT
fund's & goal RESEARCH COMPANY
is to achieve a
yield which
exceeds the
composite yield on
the securities
comprising the S&P
500.
-------------------------------------------------------------------------------
Fidelity VIP Growth To achieve capital
Portfolio - Initial appreciation.
Class
-------------------------------------------------------------------------------
Fidelity VIP Growth To provide capital growth
Opportunities Portfolio
- Initial Class
-------------------------------------------------------------------------------
Fidelity VIP Overseas Long-term growth of
Portfolio - Initial capital.
Class
-------------------------------------------------------------------------------
DELAWARE VIP TRUST
-------------------------------------------------------------------------------
Delaware VIP Small Cap Capital appreciation
Value Series - Standard DELAWARE MANAGEMENT
Class COMPANY
-------------------------------------------------------------------------------
Delaware VIP Trend Series Long-term capital
- Standard Class appreciation
-------------------------------------------------------------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS STOCK INDEX FUND;
AND DREYFUS VARIABLE INVESTMENT FUND (VIF)
-------------------------------------------------------------------------------
The Dreyfus Socially Capital growth and,
Responsible Growth Fund, secondarily, current
Inc.: Initial Shares income
-------------------------------------------------------------------------------
Dreyfus Stock Index Fund, To match the total return
Inc.: Initial Shares of the Standard & Poor's THE DREYFUS CORPORATION
500 Composite Stock Price
Index
-------------------------------------------------------------------------------
Dreyfus VIF - Long-term capital growth
Appreciation Portfolio: consistent with the
Initial Shares /(2)/ preservation of capital.
Its secondary goal is
current income.
-------------------------------------------------------------------------------
Dreyfus VIF - Money A high level of current
Market Portfolio income as is consistent
with the preservation of
capital and the
maintenance of liquidity
-------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
-------------------------------------------------------------------------------
FTVIP Templeton Global High total return
Asset Allocation Fund - TEMPLETON INVESTMENT
Class 2 COUNSEL, LLC
-------------------------------------------------------------------------------
FTVIP Templeton Foreign Long-term capital growth.
Securities Fund - Class
2
-------------------------------------------------------------------------------
12 PROSPECTUS
OPPENHEIMER VARIABLE ACCOUNT FUNDS
-------------------------------------------------------------------------------
Oppenheimer Aggressive Capital appreciation by
Growth Fund/VA investing in "growth
type" companies.
-------------------------------------------------------------------------------
Oppenheimer Main Street High total return (which
Fund/VA includes growth in the OPPENHEIMERFUNDS, INC.
value of its shares as
well as current income)
from equity and debt
securities.
-------------------------------------------------------------------------------
Oppenheimer Strategic A high level of current
Bond Fund/VA income principally
derived from interest on
debt securities.
-------------------------------------------------------------------------------
WELLS FARGO VARIABLE TRUST FUNDS
-------------------------------------------------------------------------------
Wells Fargo Advantage Long-term total return,
Asset Allocation Fund consistent with
/(3)/ reasonable risk
-------------------------------------------------------------------------------
Wells Fargo Advantage Long-term capital WELLS FARGO FUNDS
Equity Income Fund/(4)/ appreciation and MANAGEMENT, LLC
above-average dividend
income
-------------------------------------------------------------------------------
Wells Fargo Advantage Total return comprised of
Large Company Core Fund long-term capital
/(5)/ 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
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
13 PROSPECTUS
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.
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
14 PROSPECTUS
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%
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
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
15 PROSPECTUS
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.
16 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.
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
17 PROSPECTUS
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.
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
18 PROSPECTUS
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.
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.
19 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.
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.
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.
20 PROSPECTUS
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.
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
21 PROSPECTUS
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.
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
22 PROSPECTUS
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, 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.
23 PROSPECTUS
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.
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
24 PROSPECTUS
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.
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.
25 PROSPECTUS
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 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
26 PROSPECTUS
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.
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
27 PROSPECTUS
.. 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. 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.
28 PROSPECTUS
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
29 PROSPECTUS
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
30 PROSPECTUS
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
31 PROSPECTUS
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.
32 PROSPECTUS
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
33 PROSPECTUS
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
34 PROSPECTUS
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).
35 PROSPECTUS
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
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
36 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
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
37 PROSPECTUS
* 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.
38 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.
39 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%
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 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%
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 - $1,500.00) = -$53.52
40 PROSPECTUS
APPENDIX C
WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2005
Initial Purchase Payment: $50,000
Death Benefit Amount
Contract Contract Death Benefit Greatest
Value Before Transaction Value After Anniversary Anniversary
Date Type of Occurrence Occurrence Amount Occurrence Value 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.
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.
41 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.
42 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 - MFS Research Bond Series - Initial
Series I Class*
AIM V.I. Core Equity Fund - Series I MFS High Income Series - Initial Class
AIM V.I. Diversified Income Fund - MFS Investors Trust Series - Initial
Series I Class
AIM V.I. International Growth Fund - MFS New Discovery Series - Initial
Series I Class
AIM V.I. Premier Equity Fund - Series I
FIDELITY(R) VARIABLE INSURANCE PRODUCTS: OPPENHEIMER VARIABLE ACCOUNT FUNDS:
---------------------------------------- -----------------------------------
Fidelity VIP Contrafund(R) Portfolio - Oppenheimer Core Bond Fund/VA **
Initial Class Oppenheimer Capital Appreciation
Fidelity VIP Growth Portfolio - Initial Fund/VA
Class Oppenheimer Global Securities Fund/VA
Fidelity VIP High Income Portfolio - Oppenheimer High Income Fund/VA
Initial Class Oppenheimer Main Street Small Cap
Fidelity VIP Index 500 Portfolio - Fund/VA
Initial Class
Fidelity VIP Investment Grade Bond VAN KAMPEN LIFE INVESTMENT TRUST:
Portfolio - Initial Class ---------------------------------
Fidelity VIP Overseas Portfolio - Van Kampen LIT Comstock Portfolio,
Initial Class 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.
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
INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE
NOTICES 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 12
The Variable Sub-Accounts 12
The Fixed Account 14
Transfers 17
Expenses 19
Access To Your Money 21
Income Payments 22
PAGE
----
Death Benefits 24
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
Federal Tax Matters 29
Annual Reports and Other Documents 35
APPENDIX A-ACCUMULATION UNIT VALUES AND NUMBER OF ACCUMULATION
UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS
WERE FIRST OFFERED 38
APPENDIX B -MARKET VALUE ADJUSTMENT 38
APPENDIX C - WITHDRAWAL ADJUSTMENT EXAMPLE 40
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 41
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 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.
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. 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 The Contract offers 27 investment alternatives
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)
-------------------------------------------------------------------------------
4 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.
--------------------------------------------------------------------------------
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 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 Payout Start
Date Accumulation Phase Date Payout Phase
------------------------------------------------------------------------------------------------->
You buy You save for retirement You elect to receive You can receive Or you can receive
a Contract income payments or income payments income payments
receive a lump sum for a set period for life
payment
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.
6 PROSPECTUS
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)*
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.
7 PROSPECTUS
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 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 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 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 $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.
1Year 3Years 5Years 10Years
------------------------------------------------------------------------
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.
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 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
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
9 PROSPECTUS
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.
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.
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 receive the purchase payment at our
service
10 PROSPECTUS
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.
11 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 Growth of capital
Appreciation Fund -
Series I*
-------------------------------------------------------------------------------
AIM V.I. Core Equity Growth of capital
Fund - Series I* A I M ADVISORS, INC.
-------------------------------------------------------------------------------
AIM V.I. Diversified High level of current income
Income Fund - Series
I*
-------------------------------------------------------------------------------
AIM V.I. International Long-term growth of capital
Growth Fund - Series
I*
-------------------------------------------------------------------------------
AIM V.I. Premier Equity Long-term growth of capital
Fund - Series I* with income as a secondary
objective
-------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
-------------------------------------------------------------------------------
Fidelity VIP Long-term capital
Contrafund(R) appreciation.
Portfolio - Initial
Class
-------------------------------------------------------------------------------
Fidelity VIP Growth To achieve capital
Portfolio - Initial appreciation.
Class
-------------------------------------------------------------------------------
Fidelity VIP High High level of current
Income Portfolio - income, while also
Initial Class considering growth of FIDELITY MANAGEMENT &
capital. RESEARCH COMPANY
-------------------------------------------------------------------------------
Fidelity VIP Index 500 Investment results that
Portfolio - Initial correspond to the total
Class 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
-------------------------------------------------------------------------------
MFS(R) VARIABLE INSURANCE TRUST(SM)
-------------------------------------------------------------------------------
MFS Research Bond To provide total return
Series - Initial (high current income and
Class** long-term growth of
capital)
-------------------------------------------------------------------------------
MFS High Income Series High current income by
- Initial Class investing primarily in a
professionally managed MFS(TM) INVESTMENT
diversified portfolio of MANAGEMENT
fixed income securities,
some of which may involve
equity features
-------------------------------------------------------------------------------
MFS Investors Trust To provide long-term growth
Series - Initial Class of capital and secondarily
to provide reasonable
current income
-------------------------------------------------------------------------------
MFS New Discovery Capital appreciation.
Series - Initial Class
-------------------------------------------------------------------------------
12 PROSPECTUS
OPPENHEIMER VARIABLE ACCOUNT FUNDS
-------------------------------------------------------------------------------
Oppenheimer Core Bond High level of current
Fund/VA*** income. As a secondary
objective, the
Portfolio seeks
capital appreciation
when consistent with
its primary
objective.
-------------------------------------------------------------------------------
Oppenheimer Capital Capital appreciation by
Appreciation Fund/VA investing in securities of
well-known, established
companies.
-------------------------------------------------------------------------------
Oppenheimer Global Long-term capital OPPENHEIMERFUNDS, INC.
Securities Fund/VA 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.
-------------------------------------------------------------------------------
Oppenheimer High Income A high level of current
Fund/VA income from investment in
high-yield fixed-income
securities.
-------------------------------------------------------------------------------
Oppenheimer Main Street Capital appreciation.
Small Cap Fund/VA
-------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
-------------------------------------------------------------------------------
Van Kampen LIT Comstock Capital growth and income VAN KAMPEN ASSET
Portfolio, Class I through investments in MANAGEMENT
equity securities,
including common stocks,
preferred stocks and
securities convertible into
common and preferred
stocks.
-------------------------------------------------------------------------------
Van Kampen LIT Emerging Capital appreciation.
Growth Portfolio,
Class I
-------------------------------------------------------------------------------
Van Kampen LIT High current return
Government Portfolio, consistent with
Class I preservation of capital
-------------------------------------------------------------------------------
Van Kampen LIT Money Protection of capital and
Market Portfolio, high current income through
Class I 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.
*** 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.
13 PROSPECTUS
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 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.
14 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 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
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
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.
15 PROSPECTUS
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 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
16 PROSPECTUS
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. 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.
17 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.
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
18 PROSPECTUS
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.
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.
19 PROSPECTUS
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.
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.
20 PROSPECTUS
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.
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.
21 PROSPECTUS
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
.. 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
22 PROSPECTUS
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.
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.
23 PROSPECTUS
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.
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.
DEATH BENEFIT PAYMENTS
DEATH OF OWNER
24 PROSPECTUS
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
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.
25 PROSPECTUS
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.
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
26 PROSPECTUS
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 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
27 PROSPECTUS
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.
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.
28 PROSPECTUS
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.
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
29 PROSPECTUS
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
30 PROSPECTUS
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
31 PROSPECTUS
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.
32 PROSPECTUS
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
33 PROSPECTUS
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
34 PROSPECTUS
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.
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).
35 PROSPECTUS
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. 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
36 PROSPECTUS
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
* 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.
37 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.
38 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%
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 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%
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 - $1,500.00) = -$53.52
39 PROSPECTUS
APPENDIX C WITHDRAWAL ADJUSTMENT EXAMPLE
Issue Date: January 1, 2005
Initial Purchase Payment: $50,000
Death Benefit Amount
-----------------------------------------------------------------------------------------------
Contract Contract Greatest
Type Value Before Transaction Value After Death Benefit Anniversary
Date of Occurrence Occurrence Amount Occurrence Anniversary Value
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 (d) $55,000
Withdrawal
--------------------------------------------------------------------------------------------------------------
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.
40 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.
41 PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN THE 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... $4,000
Legal fees....................... $ 0
Accounting fees.................. $3,000
Mailing fees..................... $6,500
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 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 this 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
During the period beginning on December 1, 2008 and ending on April 3, 2009, the
Registrant inadvertently sold deferred annuity contracts or participating
interests therein pursuant to two registration statements on Form S-3 that were
not in compliance with Rule 415(a)(5) under the Securities Act of 1933. The
aggregate amount of securities sold was $2,908,070. Purchasers, however, did
receive all material information relating to the security prior to sale,
including the prospectus from the existing registration statement. When the
technical violation was discovered, the Registrant filed new registration
statements on Form S-3 with the Commission to comply with the requirements of
Rule 415(a)(5) for continuous offering. These registration statements were
declared effective on March 27, 2009 (SEC File No. 333-158183) and April 27,
2009 (SEC File No. 333-158655). Although the legal effect of a violation of
Rule 415(a)(5) is not entirely clear, the Registrant may have been deemed to
have inadvertently sold unregistered securities during the time period noted
above. New procedures have been implemented to ensure timely submission of
future registration statement filings.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
16(a)
Exhibit No. Description
(1) Form of Underwriting Agreement (Incorporated herein by reference to
Pre-Effective Amendment No. 1 to Registrant's Form N-4 Registration Statement
(File No. 033-65381) dated September 23, 1996.)
(2) None
3(i) Restated Certificate of Incorporation of Allstate Life Insurance Company
of New York dated December 2, 2003. Incorporated herein by reference to Exhibit
3(i) to Allstate Life Insurance Company of New York's Annual Report on Form 10-K
for 2003, SEC File No. 333-100029.
3(ii) Amended By-Laws of Allstate Life Insurance Company of New York dated
December 16, 1998. Incorporated herein by reference to Exhibit 3(ii) to
Allstate Life Insurance Company of New York's Annual Report on Form 10-K for
1998, SEC File No. 333-100029.
(4)(a) Form of AIM Lifetime Plus(SM) Variable Annuity Contract (Incorporated
herein by reference to Pre-Effective Amendment No. 1 to Form N-4 Registration
Statement of Allstate Life of New York Separate Account A (File No. 033-65381)
dated September 23, 1996.)
(b) Form of AIM Lifetime Plus(SM) II Variable Annuity Contract (Incorporated
herein by reference to Post-Effective Amendment No. 4 to Form N-4 Registration
Statement of Allstate Life of New York Separate Account A (File No. 033-65381)
dated November 12, 1999.)
(c) Form of "Allstate Custom Portfolio," "Allstate Provider" or
"SelectDirections(SM)" Variable Annuity Contract (Incorporated herein by
reference to Form N-4 Registration Statement of Allstate Life of New York
Separate Account A (File No. 333-94785) dated January 14, 2000.)
(d) Form of Amendatory Endorsement to Add Dollar Cost Averaging Fixed Accounts
to the "Allstate Custom Portfolio", "Allstate Provider", or "SelectDirections"
Variable Annuity (Incorporated herein by reference to Post-Effective Amendment
No. 23 to Form N-4 Registration Statement of Allstate Life of New York Separate
Account A (File No. 333-94785) dated April 20, 2001.)
(e) Form of Amendatory Endorsement for Transfer Limitations under the "Allstate
Custom Portfolio", "Allstate Provider", or "SelectDirections" Variable Annuity
(Incorporated herein by reference to Post-Effective Amendment No. 23 to Form N-4
Registration Statement of Allstate Life of New York Separate Account A (File No.
333-94785) dated April 20, 2001.)
(f) Form of Death Benefit Endorsement (Previously filed in Post-Effective
Amendment No. 1 to this Registration Statement (File No. 333-100029) dated April
11, 2003.)
(5)(a) Opinion and Consent of General Counsel re: Legality (Incorporated herein
by reference to Pre-Effective Amendment No. 1 to Form S-3 Registration Statement
of Allstate Life Insurance Company of New York (File No. 033-65355) dated
September 23, 1996.)
(5)(b) Opinion and Consent of General Counsel re: Legality (Incorporated herein
by reference to Post-Effective Amendment No. 4 to Form S-3 Registration
Statement of Allstate Life Insurance Company of New York (File No. 033-65355)
dated November 12, 1999.)
(5)(c) Opinion and Consent of General Counsel re: Legality (Incorporated herein
by reference to Post-Effective Amendment No. 1 to the Form S-3 Registration
Statement (File No.333-95703) dated February 14, 2000.)
(5)(d) Opinion of General Counsel Re: Legality (Incorporated herein by reference
to Post-Effective Amendment No. 3 to the Form S-3 Registration Statement (File
No.333-95703) dated July 21, 2000.)
(5)(e) Opinion of General Counsel Re: Legality (Incorporated herein by reference
to Post-Effective Amendment No. 4 to the Registration Statement on Form S-3
(File No. 333-95703) dated August 21, 2000.)
(5)(f) Opinion of General Counsel Re: Legality (Incorporated herein by reference
to Registrant's Form S-3 Initial Registration Statement (File No. 333-61846)
dated May 30, 2001.)
(5)(g) Opinion of General Counsel Re: Securities registered (Previously filed in
Registrant's Form S-3 Initial Registration Statement (File No. 333-100029) dated
September 24, 2002.)
(5)(h) Opinion of General Counsel Re: Legality (Incorporated by reference to
Registrant's Form S-3 Registration Statement (File No. 333-158183) dated March
24, 2009)
(8) None
(9) None
(10) Material Contracts
10.1 Form of Amended and Restated Service and Expense Agreement between
Allstate Insurance Company, The Allstate Corporation and certain
affiliates effective January 1, 2004. Incorporated herein by reference to
Exhibit 10.1 to Allstate Life Insurance Company's Annual Report on Form
10-K for 2007. (SEC File No.000-31248)
10.2 Form of Amendment No. 1 to Amended and Restated Service and Expense
Agreement between Allstate Insurance Company, The Allstate Corporation and
certain affiliates effective January 1, 2009. Incorporated herein by
reference to Exhibit 10.1 to Allstate Life Insurance Company's Current
Report on Form 8-K filed February 17, 2010. (SEC File No. 000-31248)
10.3 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. Incorporated herein by reference to
Exhibit 10.2 to Allstate Life Insurance Company's Quarterly Report on Form
10-Q for quarter ended June 30, 2005. (SEC File No. 000-31248)
10.4 Investment Advisory Agreement and Amendment to Service Agreement as of
January 1, 2002 between Allstate Insurance Company, Allstate Investments,
LLC and Allstate Life Insurance Company of New York. Incorporated herein
by reference to Exhibit 10.2 to Allstate Life Insurance Company of New
York's Quarterly Report on Form 10-Q for quarter ended March 31, 2002.
(SEC File No. 333-61846)
10.5 Underwriting Agreement between Allstate Life Insurance Company of New York
and ALFS, Inc., effective October 1, 1996. Incorporated herein by
reference to Exhibit 10.1 to Allstate Life Insurance Company of New York's
Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File
No. 333-61846)
10.6 Principal Underwriting Agreement between Allstate Life Insurance Company
of New York and Allstate Distributors, L.L.C., effective May 1, 2000.
Incorporated herein by reference to Exhibit 10.2 to Allstate Life
Insurance Company of New York's Quarterly Report on Form 10-Q for quarter
ended June 30, 2002. (SEC File No. 333-61846)
10.7 Amendment Number One to the Principal Underwriting Agreement between
Allstate Life Insurance Company of New York and Allstate Distributors,
L.L.C. effective October 1, 2002. Incorporated herein by reference to
Exhibit 10.1 to Allstate Life Insurance Company of New York's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006. (SEC File No.
333-100029)
10.8 Selling Agreement between Allstate Life Insurance Company of New York,
ALFS, Inc. and Allstate Financial Services, LLC effective May 1, 2005.
Incorporated herein by reference to Exhibit 10.7 to Allstate Life
Insurance Company's Annual Report on Form 10-K for 2003. (SEC File No.
000-31248)
10.9 Reinsurance Agreement between Allstate Life Insurance Company and Allstate
Life Insurance Company of New York 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 and Amendment No.5 effective December 31, 1995.
Incorporated herein by reference to Exhibit 10.6 to Allstate Life
Insurance Company of New York's Quarterly Report on Form 10-Q for quarter
ended June 30, 2002. (SEC File No. 333-61846)
10.10 Amendment No. 6 to Reinsurance Agreement between Allstate Life Insurance
Company and Allstate Life Insurance Company of New York effective
December 1, 2007. Incorporated herein by reference to Exhibit 10.11 to the
Registration Statement on Form S-1 for Allstate Life Insurance Company of
New York (File No. 333-158183) filed on April 8, 2010.
10.11 Amendment No. 7 to Reinsurance Agreement between Allstate Life Insurance
Company and Allstate Life Insurance Company of New York effective
November 1, 2009. Incorporated herein by reference to Exhibit 10.12 to
the Registration Statement on Form S-1 for Allstate Life Insurance Company
of New York (File No. 333-158183) filed on April 8, 2010.
10.12 Assumption Reinsurance Agreement between Allstate Life Insurance Company
and Allstate Life Insurance Company of New York effective July 1, 1984.
Incorporated herein by reference to Exhibit 10.7 to Allstate Life
Insurance Company of New York's Quarterly Report on Form 10-Q for quarter
ended June 30, 2002. (SEC File No. 333-61846)
10.13 Reinsurance Agreement between Allstate Life Insurance Company and Allstate
Life Insurance Company of New York, effective January 1, 1986, as amended
by Amendment No.1 effective December 31, 1995 and Amendment No. 2
effective December 1, 1995. Incorporated herein by reference to Exhibit
10.8 to Allstate Life Insurance Company of New York's Quarterly Report on
Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-61846)
10.14 Reinsurance Agreement between Allstate Life Insurance Company and Allstate
Life Insurance Company of New York, effective January 1, 1991, as amended
by Amendment No.1 effective December 31, 1995. Incorporated herein by
reference to Exhibit 10.9 to Allstate Life Insurance Company of New York's
Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File
No. 333-61846)
10.15 Stop Loss Reinsurance Agreement between Allstate Life Insurance Company
and Allstate Life Insurance Company of New York effective December 31,
2001. Incorporated herein by reference to Exhibit 10.16 to Allstate Life
Insurance Company of New York's Annual Report on Form 10-K for 2003. (SEC
File No. 333- 100029)
10.16 Cash Management Services Master Agreement between Allstate Insurance
Company and Allstate Bank (f/k/a Allstate Federal Savings Bank) dated
March 16, 1999. Incorporated herein by reference to Exhibit 10.32 to
Allstate Life Insurance Company's Form 10 filed on April 24, 2002. (SEC
File No. 000-31248)
10.17 Amendment No. 1 effective January 5, 2001 to Cash Management Services
Master Agreement between Allstate Insurance Company and Allstate Bank
dated March 16, 1999. Incorporated herein by reference to Exhibit 10.33 to
Allstate Life Insurance Company's Form 10 filed on April 24, 2002. (SEC
File No. 000- 31248)
10.18 Amendment No. 2 entered into November 8, 2002 to the Cash Management
Services Master Agreement between Allstate Insurance Company, Allstate
Bank and Allstate Motor Club, Inc. dated March 16, 1999. Incorporated
herein by reference to Exhibit 10.19 to Allstate Life Insurance Company's
Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248)
10.19 Premium Depository Service Supplement dated as of September 30, 2005 to
Cash Management Services Master Agreement between Allstate Insurance
Company, Allstate Bank, Allstate Motor Club, Inc. and certain other
parties. Incorporated herein by reference to Exhibit 10.20 to Allstate
Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC
File No. 000-31248)
10.20 Variable Annuity Service Supplement dated November 10, 2005 to Cash
Management Services Agreement between Allstate Bank, Allstate Life
Insurance Company of New York and certain other parties. Incorporated
herein by reference to Exhibit 10.21 to Allstate Life Insurance Company's
Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248)
10.21 Sweep Agreement Service Supplement dated as of October 11, 2006 to Cash
Management Services Master Agreement between Allstate Life Insurance
Company, Allstate Bank, Allstate Motor Club, Inc. and certain other
companies. Incorporated herein by reference to Exhibit 10.22 to Allstate
Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC
File No. 000-31248)
10.22 Intercompany Loan Agreement among The Allstate Corporation, Allstate Life
Insurance Company, Lincoln Benefit Life Company and other certain
subsidiaries of The Allstate Corporation dated February 1, 1996.
Incorporated herein by reference to Exhibit 10.24 of Allstate Life
Insurance Company's Annual Report on Form 10-K for 2006. (SEC File No.
000-31248)
10.23 Form of Pledge and Security Agreement between Road Bay Investments, LLC
and Allstate Life Insurance Company of New York dated as of September 25,
2009. Filed herewith.
10.24 Form of Asset Purchase Agreement between Allstate Life Insurance Company
of New York and Road Bay Investments, LLC dated as of September 25, 2009.
Filed herewith.
10.25 Form of Amendment No. 1 to Asset Purchase Agreement between Allstate
Life Insurance Company of New York and Road Bay Investments, LLC dated as
of September 25, 2009. Filed herewith.
10.26 Form of Pledge and Security Agreement between Road Bay Investments, LLC
and Allstate Life Insurance Company of New York dated as of March 11,
2011. Filed herewith.
10.27 Form of Asset Purchase Agreement between Allstate Life Insurance Company
of New York and Road Bay Investments, LLC dated as of March 11, 2011.
Filed herewith.
10.28 Form of Tax Sharing Agreement among The Allstate Corporation and certain
affiliates dated as of November 12, 1996. Incorporated herein by reference
to Exhibit 10.24 to Allstate Life Insurance Company's Annual Report Form
10-K for 2007. (SEC File No.000-31248)
10.29 Agreement for the Settlement of State and Local Tax Credits among Allstate
Insurance Company and certain affiliates effective January 1, 2007.
Incorporated herein by reference to Exhibit 10.1 to Allstate Life
Insurance Company of New York's Current Report on Form 8-K filed February
21, 2008. (SEC File No. 333-100029)
10.30 Administrative Agreement between Allstate Life Insurance Company, ALFS,
Inc., and Allstate Life Insurance Company of New York effective June 1,
1993. Incorporated herein by reference to Exhibit 10.22 to Allstate Life
Insurance Company of New York's Annual Report on Form 10-K for 2008. (SEC
File No. 333- 100029)
10.31 Administrative Services Agreement between Allstate Life Insurance Company
of New York and ALFS, Inc. effective January 1, 2002. Incorporated herein
by reference to Exhibit 10.23 to Allstate Life Insurance Company of New
York's Annual Report on Form 10-K for 2008. (SEC File No. 333-100029)
10.32 Form of Assignment & Delegation of Administrative Services Agreements,
Underwriting Agreements, and Selling Agreements between ALFS, Inc. and
Allstate Life Insurance Company, Allstate Life Insurance Company of
New York, Charter National Life Insurance Company, Intramerica Life
Insurance Company, Allstate Distributors, LLC & Lincoln Benefit Life
Company. Filed herewith.
(24)(a) Powers of Attorney for Marcia D. Alazraki, Robert K. Becker, Michael
B. Boyle, Cleveland Johnson, Jr., Kenneth R. O'Brien, Samuel H. Pilch, John C.
Pintozzi, John Raben, Jr., Phyllis Hill Slater, Matthew E. Winter. Incorporated
herein by reference to Exhibit 24 to the Registration Statement on Form S-1 for
Allstate Life Insurance Company of New York (File No. 333-158183) filed on April
8, 2010.
(24)(b) Powers of Attorney for Anurag Chandra, Larry M. Sedillo and
Samuel H. Pilch. Filed herewith.
16(b) 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% 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
bonafide 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, Allstate Life Insurance Company of New York, 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, 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 12th day of April, 2011.
ALLSTATE LIFE INSURANCE COMPANY OF NEW YORK
(REGISTRANT)
By: /s/ SUSAN L. LEES
----------------------------------------
Susan L. Lees, 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 and on the
12th day of April, 2011.
*/MARCIA D. ALAZRAKI Director
------------------------------
Marcia D. Alazraki
*/ROBERT K. BECKER Director and Senior Vice President
------------------------------
Robert K. Becker
*/MICHAEL B. BOYLE Director and Senior Vice President
------------------------------
Michael B. Boyle
*/ANURAG CHANDRA Director and Executive Vice President
------------------------------
Anurag Chandra
*/CLEVELAND JOHNSON, JR. Director
------------------------------
Cleveland Johnson, Jr.
/s/ SUSAN L. LEES Director, Senior Vice President, General
------------------------------ Counsel and Secretary
Susan L. Lees
*/KENNETH R. O'BRIEN Director
------------------------------
Kenneth R. O'Brien
*/SAMUEL H. PILCH Director, Senior Group Vice President and
------------------------------ Controller (Principal Accounting Officer)
Samuel H. Pilch
*/JOHN C. PINTOZZI Director, Senior Vice President and Chief
------------------------------ Financial Officer (Principal Financial
John C. Pintozzi Officer)
*/JOHN R. RABEN, JR. Director
------------------------------
John R. Raben, Jr.
*/LARRY M. SEDILLO Director, Vice President and Chief
------------------------------ Operations Officer
Larry M. Sedillo
*/PHYLLIS H. SLATER Director
------------------------------
Phyllis H. Slater
*/MATTHEW E. WINTER Director, Chairman, President and
------------------------------ Chief Executive Officer
Matthew E. Winter (Principal Executive Officer)
*/ By Susan L. Lees, pursuant to Power of Attorney previously filed or filed
herewith.
EXHIBIT LIST
The following exhibits are filed herewith:
Exhibit No. Description
10.23 Form of Pledge and Security Agreement between Road Bay Investments, LLC
and Allstate Life Insurance Company of New York dated as of September 25,
2009. Filed herewith.
10.24 Form of Asset Purchase Agreement between Allstate Life Insurance Company
of New York and Road Bay Investments, LLC dated as of September 25, 2009.
Filed herewith.
10.25 Form of Amendment No. 1 to Asset Purchase Agreement between Allstate Life
Insurance Company of New York and Road Bay Investments, LLC dated as of
September 25, 2009. Filed herewith.
10.26 Form of Pledge and Security Agreement between Road Bay Investments, LLC
and Allstate Life Insurance Company of New York dated as of March 11,
2011. Filed herewith.
10.27 Form of Asset Purchase Agreement between Allstate Life Insurance Company
of New York and Road Bay Investments, LLC dated as of March 11, 2011.
Filed herewith.
10.32 Form of Assignment & Delegation of Administrative Services Agreements,
Underwriting Agreements, and Selling Agreements between ALFS, Inc. and
Allstate Life Insurance Company, Allstate Life Insurance Company of
New York, Charter National Life Insurance Company, Intramerica Life
Insurance Company, Allstate Distributors, LLC & Lincoln Benefit Life
Company
(23) Consent of Independent Registered Public Accounting Firm
(24)(b)Powers of Attorney for Anurag Chandra, Larry M. Sedillo and
Samuel H. Pilch