<PAGE>
1933 ACT REGISTRATION NO. 333-
1940 ACT REGISTRATION NO 811-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
--------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. [ ]
SEPARATE ACCOUNT VA-1 OF
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
(Exact Name of Registrant)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
(Name of Depositor)
#1 Franklin Square, Springfield, Illinois 62713
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (217) 528-2011
---------
ELIZABETH E. ARTHUR, ESQ.
Assistant Secretary
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
#1 Franklin Square, Springfield, Illinois 62713
(Name and Address of Agent for Service)
Copy to:
PETER K. INGERMAN, ESQ.
CHADBOURNE & PARKE LLP
30 Rockefeller Plaza
New York, New York 10112
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
on (date) pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
Proposed Proposed
Maximum Maximum
Title of Securities Amount Offering Aggregate Amount of
Being Registered Being Price per Offering Registration
Registered Unit Price Fee
- --------------------------------------------------------------------------------
Units of Interests in * $500
Separate Account VA-1
================================================================================
* Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant elects to register an indefinite number of units of interest in
Separate Account VA-1 of The American Franklin Life Insurance Company under
the Securities Act of 1933.
The Registrant will file the Rule 24f-2 Notice for the fiscal year ended
December 31, 1996 on or before June 30, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495 (a)
PART A
FORM N-4 ITEM NO. PROSPECTUS CAPTION
- --------------------------------------------------------------------------------
1. Cover Page Cover Page
2. Definitions Glossary
3. Synopsis Synopsis
4. Condensed Financial Information Synopsis - Financial and Performance
Information; Cover Page; Financial
Information
5. General Description of American Franklin; Separate Account
Registrant, Depositor, and VA-1; The Portfolios; Cover Page
Portfolio Companies
6. Deductions and Expenses Charges Under the Contracts;
Long-Term Care and Terminal Illness
7. General Description of Variable Synopsis - Communications to American
Annuity Contracts Franklin; Account Value; Transfer,
Surrender and Partial Withdrawal of
Account Value; Owners, Annuitants and
Beneficiaries; Assignments;
Modification
8. Annuity Period Annuity Period and Annuity Payment
Options
9. Death Benefit Death Benefit
10. Purchases and Contract Value Contract Issuance and Purchase
Payments; Variable Account Value;
Distribution Arrangements
11. Redemptions Transfer, Surrender and Partial
Withdrawal of Account Value; Annuity
Payment Options; Contract Issuance
and Purchase Payments; Synopsis -
Surrenders, Withdrawals and
Cancellations; Payment and Deferment
12. Taxes Federal Income Tax Matters; Synopsis -
Limitations Imposed by Retirement
Plans and Employers
13. Legal Proceedings Not Applicable
14. Table of Contents of the Table of Contents of Statement of
Statement of Additional Additional Information
Information
i
<PAGE>
PART B
CAPTION IN STATEMENT OF ADDITIONAL
FORM N-4 ITEM NO. INFORMATION
- --------------------------------------------------------------------------
15 Cover Page Cover Page
16. Table of Contents Cover Page
17. General Information and History General Information; Regulation and
Reserves
18. Services Independent Auditors and Accountants
19. Purchase of Securities Being Not Applicable*
Offered
20. Underwriters Principal Underwriters
21. Calculation of Performance Data Performance Data for the Divisions
22. Annuity Payments Not Applicable*
23. Financial Statements Financial Statements
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
- -----------------------
* All required information is included in Prospectus.
ii
<PAGE>
THE CHAIRMAN-TM-
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
OFFERED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
VARIABLE ANNUITY DEPARTMENT
#1 FRANKLIN SQUARE, SPRINGFIELD, ILLINOIS 62713
217/528-2011
The American Franklin Life Insurance Company ("American Franklin") is offering
The Chairman flexible payment deferred individual annuity contracts (the
"Contracts") described in this Prospectus.
Contracts funded by Separate Account VA-1 of American Franklin may be used for a
variable investment return based on one or more of the following mutual fund
portfolios: the Money Market, High Income, Equity-Income, Growth and Overseas
Portfolios of the Variable Insurance Products Fund; the Investment Grade Bond,
Asset Manager, Index 500 and Contrafund Portfolios of the Variable Insurance
Products Fund II; and the MFS Emerging Growth, MFS Research, MFS Growth With
Income, MFS Total Return, MFS Utilities and MFS Value Portfolios of the MFS
Variable Insurance Trust.
American Franklin's guaranteed interest accumulation option is also available
through the Contracts. This option has three different guarantee periods, each
with its own guaranteed interest rate.
This Prospectus is designed to provide information about the Contracts that a
prospective owner should know before investing. This Prospectus should be read
carefully and kept for future reference. Information about certain aspects of
the Contracts, in addition to that found in this Prospectus, has been filed with
the Securities and Exchange Commission in the Statement of Additional
Information (the "Statement of Additional Information"). The Statement of
Additional Information, dated [_________, 1996], is incorporated by reference
into this Prospectus. The "Table of Contents" of the Statement of Additional
Information appears at page _______ of this Prospectus. A free copy of the
Statement of Additional Information may be obtained upon written or oral request
to American Franklin's Variable Annuity Department. The mailing address and
telephone number are set forth above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT OF ADDITIONAL INFORMATION (OR ANY SALES LITERATURE APPROVED BY
AMERICAN FRANKLIN) IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES
AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY
PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY
1
<PAGE>
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES OF
THE VARIABLE INSURANCE PRODUCTS FUND AND THE VARIABLE INSURANCE PRODUCTS FUND II
AND MFS VARIABLE INSURANCE TRUST.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY; THEY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
THE PRINCIPAL AMOUNT INVESTED.
Prospectus dated [____________, 1996]
The Chairman is a trademark of The American Franklin Life Insurance Company.
2
<PAGE>
CONTENTS
PAGE
----
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
American Franklin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Separate Account VA-1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Voting Privileges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Contract Issuance and Purchase Payments. . . . . . . . . . . . . . . . . . . 22
Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Variable Account Value . . . . . . . . . . . . . . . . . . . . . . . . . 24
Fixed Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Transfer, Variable Account Asset Rebalancing, Surrender and
Partial Withdrawal of Account Value. . . . . . . . . . . . . . . . . . . 25
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Variable Account Asset Rebalancing . . . . . . . . . . . . . . . . . . . 27
Surrenders and Partial Withdrawals . . . . . . . . . . . . . . . . . . . 27
Annuity Period and Annuity Payment Options . . . . . . . . . . . . . . . . . 28
Annuity Commencement Date. . . . . . . . . . . . . . . . . . . . . . . . 28
Application of Account Value . . . . . . . . . . . . . . . . . . . . . . 29
Fixed and Variable Annuity Payments. . . . . . . . . . . . . . . . . . . 29
Annuity Payment Options. . . . . . . . . . . . . . . . . . . . . . . . . 30
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Use of Gender Based Annuity Tables . . . . . . . . . . . . . . . . . . . 32
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Charges Under the Contracts. . . . . . . . . . . . . . . . . . . . . . . . . 34
Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Transfer Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Annual Contract Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Charge to Separate Account VA-1. . . . . . . . . . . . . . . . . . . . . 37
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . . . 38
Reduction in Surrender Charges or Administrative Charges . . . . . . . . 38
Long-Term Care and Terminal Illness. . . . . . . . . . . . . . . . . . . . . 38
Long-Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Terminal Illness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Other Aspects of the Contracts . . . . . . . . . . . . . . . . . . . . . . . 39
Owners, Annuitants and Beneficiaries; Assignments. . . . . . . . . . . . 39
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Payment and Deferment. . . . . . . . . . . . . . . . . . . . . . . . . . 40
Federal Income Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 41
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
American Franklin. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
The Contracts: Non-Qualified Contracts. . . . . . . . . . . . . . . . . 42
A. Distribution Requirements. . . . . . . . . . . . . . . . . . . . . 43
B. Diversification. . . . . . . . . . . . . . . . . . . . . . . . . . 44
3
<PAGE>
C. Aggregation of Contracts . . . . . . . . . . . . . . . . . . . . . 44
D. Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . 45
The Contracts: Section 457 Contracts. . . . . . . . . . . . . . . . . . 45
The Contracts: Qualified Contracts. . . . . . . . . . . . . . . . . . . 47
A. Qualified Pension, Profit-Sharing and Annuity Plans. . . . . . . . 47
B. H.R. 10 Plans (Self-Employed Individuals). . . . . . . . . . . . . 48
C. Section 403(b) Annuities . . . . . . . . . . . . . . . . . . . . . 48
D. Individual Retirement Annuities. . . . . . . . . . . . . . . . . . 49
E. Income Tax Withholding . . . . . . . . . . . . . . . . . . . . . . 51
F. Excess Distributions - 15% Tax . . . . . . . . . . . . . . . . . . 52
Distribution Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Other Information on File. . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table of Contents of Statement of Additional Information . . . . . . . . . . 54
4
<PAGE>
GLOSSARY
ACCOUNT VALUE - the sum of an Owner's Fixed Account Value and Variable Account
Value.
ACCUMULATION UNIT - a measuring unit used in calculating an Owner's interest in
a Division of Separate Account VA-1 prior to the Annuity Commencement Date.
AMERICAN FRANKLIN - The American Franklin Life Insurance Company.
ANNUITANT - the person named as such in the application for a Contract and on
whose life annuity payments may be based.
ANNUITY - a series of payments for life, or for life with a minimum number of
payments or a determinable sum guaranteed, or for a joint lifetime and
thereafter during the lifetime of the survivor, or for a designated period.
ANNUITY COMMENCEMENT DATE - the date on which American Franklin begins making
payments under an Annuity Payment Option, unless a lump-sum distribution is
elected instead.
ANNUITY PAYMENT OPTION - one of the several forms in which an Owner can request
American Franklin to make annuity payments.
ANNUITY PERIOD - the period during which American Franklin makes annuity
payments under an Annuity Payment Option.
ANNUITY UNIT - a measuring unit used in calculating the amount of Variable
Annuity Payments.
BENEFICIARY - the person that an Owner designates to receive any proceeds due
under a Contract following the death of an Owner or an Annuitant.
CODE - the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT - the person so designated by the Owner of a Non-Qualified
Contract who, upon the Annuitant's death prior to the Annuity Commencement Date,
becomes the Annuitant.
CONTINGENT BENEFICIARY - the person so designated by the Owner who, upon the
death of the Beneficiary, becomes the Beneficiary.
CONTRACT - an individual annuity contract offered by this Prospectus.
CONTRACT ANNIVERSARY - each anniversary of the date of issue of the Contract.
CONTRACT YEAR - each year beginning with the date of issue of the Contract and
on each Contract Anniversary thereafter.
DIVISION - one of the different investment options into which Separate Account
VA-1 is divided.
5
<PAGE>
FIXED ACCOUNT - the name of the investment alternative under which purchase
payments are allocated to American Franklin's General Account.
FIXED ACCOUNT VALUE - the amount of an Owner's Account Value which is in the
Fixed Account.
FIXED ANNUITY PAYMENTS - annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of Separate Account VA-1.
FUNDS - Variable Insurance Products Fund, Variable Insurance Products Fund II
and MFS Variable Insurance Trust.
GENERAL ACCOUNT - all assets of American Franklin other than those in Separate
Account VA-1 or any other legally segregated separate account established by
American Franklin.
GUARANTEED INTEREST RATE - the rate of interest American Franklin credits during
any Guarantee Period, on an effective annual basis.
GUARANTEE PERIOD - the period for which a Guaranteed Interest Rate is credited.
HOME OFFICE - American Franklin's office at the following address and phone
number: The American Franklin Life Insurance Company, Variable Annuity
Department, #1 Franklin Square, Springfield, Illinois 62713, (217) 528-2011.
INDIVIDUAL RETIREMENT ANNUITY - an annuity contract described in Section 408(b)
of the Code. Individual Retirement Annuities may also qualify as Simplified
Employee Pensions.
1940 ACT - the Investment Company Act of 1940, as amended, a federal law
governing the operations of investment companies such as the Funds and Separate
Account VA-1.
NON-QUALIFIED CONTRACT- a Contract that is not eligible for the special federal
income tax treatment applicable in connection with retirement plans or deferred
compensation plans pursuant to Sections 401, 403, 408 or 457 of the Code.
NON-QUALIFIED PLANS - retirement or deferred compensation plans or arrangements
which do not receive favorable tax treatment under the Code and which are not
Qualified Plans or Section 457 Plans.
OWNER - the holder of record of a Contract, except that the employer or trustee
may be the Owner of a Contract in connection with a retirement plan.
PORTFOLIO - an individual fund or series available for investment under the
Contracts through one of the Divisions. Currently, each Portfolio is a part of
the Funds.
QUALIFIED CONTRACT - a Contract that is eligible for the special federal income
tax treatment applicable in connection with retirement plans pursuant to
Sections 401, 403, or 408 of the Code.
6
<PAGE>
QUALIFIED PLANS - retirement plans of the following types which receive
favorable tax treatment under the Code: a retirement plan qualified under
Section 401(a) or 403(a) of the Code; an annuity purchase plan adopted by a
public school system or certain tax-exempt organizations according to Section
403(b) of the Code; and an Individual Retirement Annuity adopted according to
Section 408 of the Code.
ROLLOVER CONTRIBUTION - a reinvestment of funds pursuant to Sections 402(c)(1),
402(c)(9), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code.
SECTION 457 CONTRACT - a Contract that is issued in connection with a Section
457 Plan.
SECTION 457 PLAN - a deferred compensation plan established under Section 457 of
the Code for employees and certain independent contractors by a state, a
political subdivision of a state, an agency or instrumentality of either a state
or political subdivision or certain tax-exempt organizations.
SEPARATE ACCOUNT VA-1 - the segregated asset account referred to as Separate
Account VA-1 of The American Franklin Life Insurance Company established to
receive and invest purchase payments under the Contracts allocated for
investment in one or more of the Divisions.
SIMPLIFIED EMPLOYEE PENSION - an Individual Retirement Annuity which meets the
additional requirements of Section 408(k) of the Code.
SURRENDER CHARGE - a charge for sales expenses that may be assessed upon
surrenders of and payments of certain other amounts from a Contract.
VALUATION DATE - every day the New York Stock Exchange is open for trading. The
value of Separate Account VA-1 is determined at the close of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD - the period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the close of regular
trading on the exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT VALUE - the amount of an Owner's Account Value that is in
Separate Account VA-1.
VARIABLE ANNUITY PAYMENTS - annuity payments that vary in amount based on the
investment experience of one or more of the Divisions of Separate Account VA-1.
7
<PAGE>
FEE TABLE
The purpose of this Fee Table is to assist an Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly
pursuant to a Contract and in connection with the Portfolios. The table
reflects expenses of Separate Account VA-1 as well as the Portfolios. Amounts
for state premium taxes or similar assessments may also be deducted, where
applicable.
PARTICIPANT TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases 0%
Maximum Surrender Charge (1) 6%
(computed as a percentage of purchase payments surrendered)
Transfer Fee $ 0 (2)
ANNUAL CONTRACT FEE (3) $30
SEPARATE ACCOUNT VA-1 ANNUAL EXPENSES (as a percentage of
average daily net asset value)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----
-----
Total Separate Account VA-1 Annual Expenses 1.40%
- ---------------------------------
(1) This charge does not apply or is reduced under certain circumstances. See
"Surrender Charge."
(2) This charge is $25 for each transfer after the twelfth transfer during each
Contract Year prior to the Annuity Commencement Date.
(3) This charge is not imposed during the Annuity Period and currently is not
imposed if cumulative purchase payments are at least $75,000. See "Annual
Contract Fee."
The Portfolios' Annual Expenses For 1995 Fiscal Year (1)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
OTHER
MANAGEMENT EXPENSES AFTER TOTAL PORTFOLIO
FEES AFTER EXPENSE EXPENSE OPERATING
REIMBURSEMENT REIMBURSEMENT EXPENSES
------------------ ---------------- ---------------------
<S> <C> <C> <C>
Money Market. . . . . . . . . 0.24% 0.09% 0.33%
High Income . . . . . . . . . 0.60% 0.11% 0.71%
Investment Grade Bond . . . . 0.45% 0.14% 0.59%
Equity-Income . . . . . . . . 0.51% 0.10% 0.61%
Growth. . . . . . . . . . . . 0.61% 0.09% 0.70%
Overseas. . . . . . . . . . . 0.76% 0.15% 0.91%
Asset Manager . . . . . . . . 0.71% 0.08% 0.79%
Index 500 . . . . . . . . . . 0.00% 0.28% 0.28%
Contrafund. . . . . . . . . . 0.61% 0.11% 0.72%
MFS Emerging Growth . . . . . 0.75% 0.25% (2) 1.00% (2)
MFS Research. . . . . . . . . 0.75% 0.25% (2) 1.00% (2)
MFS Growth With Income. . . . 0.75% 0.25% (2) 1.00% (2)
MFS Total Return. . . . . . . 0.75% 0.25% (2) 1.00% (2)
MFS Utilities . . . . . . . . 0.75% 0.25% (2) 1.00% (2)
MFS Value . . . . . . . . . . 0.75% 0.25% (2) 1.00% (2)
</TABLE>
- -------------------------------------------
(1) If certain voluntary expense reimbursements from the investment advisers
were terminated, management fees and other expenses would have been:
8
<PAGE>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
---------- -------- --------
Money Market. . . . . . . . . 0.24% 0.09% 0.33%
High Income . . . . . . . . . 0.60% 0.11% 0.71%
Investment Grade Bond . . . . 0.45% 0.14% 0.59%
Equity-Income . . . . . . . . 0.51% 0.10% 0.61%
Growth. . . . . . . . . . . . 0.61% 0.09% 0.70%
Overseas. . . . . . . . . . . 0.76% 0.15% 0.91%
Asset Manager . . . . . . . . 0.71% 0.10% 0.81%
Index 500 . . . . . . . . . . 0.28% 0.19% 0.47%
Contrafund. . . . . . . . . . 0.61% 0.12% 0.73%
MFS Emerging Growth . . . . . 0.75% 2.16% 2.91%
MFS Research. . . . . . . . . 0.75% 3.15% 3.90%
MFS Growth With Income. . . . 0.75% 20.69% 21.44%
MFS Total Return. . . . . . . 0.75% 2.02% 2.77%
MFS Utilities . . . . . . . . 0.75% 2.33% 3.08%
MFS Value . . . . . . . . . . 0.75% 1.00% 1.75%
- ---------------------------------------
(2) The investment adviser to the MFS Emerging Growth, MFS Research, MFS
Growth With Income, MFS Total Return, MFS Utilities and MFS Value
Portfolios has agreed to bear, subject to reimbursement, expenses for each
of such Portfolios such that each Portfolio's aggregate operating expenses
shall not exceed, on an annualized basis, 1.00% of the average daily net
assets of the Portfolio from November 2, 1994 through December 31, 1996,
1.25% of the average daily net assets of the Portfolio from January 1, 1997
through December 31, 1998, and 1.50% of the average daily net assets of the
Portfolio from January 1, 1999 through December 31, 2004; provided,
however, that this obligation may be terminated or revised at any time.
EXAMPLE
If an Owner surrenders a Contract or annuitizes under circumstances requiring
the payment of a Surrender Charge at the end of the applicable time period, the
Owner would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets and assuming that Portfolio operating expenses will be
constant at their fiscal 1995 levels:
If all amounts are invested
in one of the following -------- --------
Portfolios: 1 YEAR 3 YEARS
- ---------------------------- -------- --------
Money Market . . . . . . . . . . $73 $104
High Income. . . . . . . . . . . 77 116
Investment Grade Bond. . . . . . 76 112
Equity-Income. . . . . . . . . . 76 113
Growth . . . . . . . . . . . . . 77 115
Overseas . . . . . . . . . . . . 79 122
Asset Manager. . . . . . . . . . 78 118
Index 500. . . . . . . . . . . . 73 103
Contrafund . . . . . . . . . . . 77 116
MFS Emerging Growth. . . . . . . 80 125
MFS Research . . . . . . . . . . 80 125
MFS Growth with Income . . . . . 80 125
9
<PAGE>
MFS Total Return . . . . . . . . 80 125
MFS Utilities. . . . . . . . . . 80 125
MFS Value. . . . . . . . . . . . 80 125
EXAMPLE
If an Owner does not surrender a Contract and does not annuitize under
circumstances requiring the payment of a Surrender Charge, a $1,000 investment
would be subject to the following expenses, assuming a 5% annual return on
assets and assuming that Portfolio operating expenses will be constant at their
fiscal 1995 levels:
If all amounts are invested
in one of the following -------- --------
Portfolios: 1 YEAR 3 YEARS
- ---------------------------- -------- --------
Money Market . . . . . . . . . . $19 $59
High Income. . . . . . . . . . . 23 71
Investment Grade Bond. . . . . . 22 67
Equity-Income. . . . . . . . . . 22 68
Growth . . . . . . . . . . . . . 23 70
Overseas . . . . . . . . . . . . 25 77
Asset Manager. . . . . . . . . . 24 73
Index 500. . . . . . . . . . . . 19 58
Contrafund . . . . . . . . . . . 23 71
MFS Emerging Growth. . . . . . . 26 80
MFS Research . . . . . . . . . . 26 80
MFS Growth with Income . . . . . 26 80
MFS Total Return . . . . . . . . 26 80
MFS Utilities. . . . . . . . . . 26 80
MFS Value. . . . . . . . . . . . 26 80
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THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Similarly,
the assumed 5% annual rate of return is not an estimate or a guarantee of future
investment performance.
SYNOPSIS
This synopsis should be read together with the other information set forth
in this Prospectus. Variations due to requirements of a particular state are
described in supplements which are attached to this Prospectus, or in
endorsements to a Contract, as appropriate. The Contracts are designed to
provide retirement benefits through the accumulation of purchase payments on a
fixed or variable basis, and by the application of such accumulations to provide
Fixed or Variable Annuity Payments.
FLEXIBLE PREMIUM PAYMENTS
This Prospectus describes The Chairman combination fixed and variable
annuity contract. After payment of an initial purchase payment of at least
$10,000, the frequency and the amount of purchase payments are determined by the
Contract Owner, subject to certain limits. See "Contract Issuance and Purchase
Payments."
MINIMUM INVESTMENT REQUIREMENTS
The initial purchase payment must be at least $10,000. The amount of any
subsequent purchase payment must be at least $100. If the Account Value for a
Contract falls below $500, American Franklin may cancel the Owner's interest in
the Contract and treat it as a full surrender. American Franklin also may
transfer funds from a Division (other than the VIP Money Market Division) or
Guarantee Period under a Contract without charge to the VIP Money Market
Division if the Account Value of that Division or Guarantee Period falls below
$500. See "Contract Issuance and Purchase Payments."
PURCHASE PAYMENT ACCUMULATION
Purchase payments will be accumulated on a variable or fixed basis until
the Annuity Commencement Date. For variable accumulation, part or all of the
Account Value may be allocated to one or more of the 15 available Divisions of
Separate Account VA-1. Each such Division invests solely in shares of one of 15
corresponding Portfolios. See "The Portfolios." As the value of the
investments in a Portfolio's shares increases or decreases, the value of
accumulated purchase payments allocated to the corresponding Division increases
or decreases, subject to applicable charges and deductions. See "Variable
Account Value."
For fixed accumulation, part or all of the Account Value may be allocated
to one or more of the three Guarantee Periods currently available in the Fixed
Account. Each Guarantee Period is for a different period of time and has a
different Guaranteed Interest Rate. While allocated to a Guarantee Period, the
value of accumulated purchase payments increases at the Guaranteed Interest Rate
applicable to that Guarantee Period. See "The Fixed Account."
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FIXED AND VARIABLE ANNUITY PAYMENTS
An Owner may elect to receive Fixed or Variable Annuity Payments, or a
combination thereof, commencing on the Annuity Commencement Date. Fixed Annuity
Payments are periodic payments from American Franklin, the amount of which is
fixed and guaranteed by American Franklin. The amount of the payments will
depend on the Annuity Payment Option chosen, the age and, in some cases, sex of
the Annuitant, and the total amount of Account Value applied to the fixed
Annuity Payment Option.
Variable Annuity Payments are similar to Fixed Annuity Payments, except
that the amount of each periodic payment from American Franklin will vary
reflecting the net investment return of the Division or Divisions chosen in
connection with a variable Annuity Payment Option. If the net investment return
for a given month exceeds the assumed interest rate used in the Contract's
annuity tables, the monthly payment will be greater than the previous payment.
If the net investment return for a month is less than the assumed interest rate,
the monthly payment will be less than the previous payment. The assumed
interest rate used in the Contract's annuity tables is 3.5%. American Franklin
may in the future offer other forms of Contract with a lower assumed interest
rate, and reserves the right to discontinue the offering of the higher interest
rate form of Contract. See "Annuity Period and Annuity Payment Options." Under
current federal income tax law, Variable Annuity Payments may not be available
in connection with Section 457 Plans.
CHANGES IN ALLOCATIONS AMONG DIVISIONS AND GUARANTEE PERIODS
Prior to the Annuity Commencement Date, an election with respect to the
allocation of future purchase payments to each of the various Divisions and
Guarantee Periods may be modified by the Owner, without charge.
In addition, the Account Value may be reallocated by the Owner among the
Divisions and Guarantee Periods prior to the Annuity Commencement Date.
Transfers out of a Guarantee Period, however, are subject to limitations as to
amount. For these and other terms and conditions of transfer, see "Transfer,
Surrender and Partial Withdrawal of Account Value - Transfers."
After the Annuity Commencement Date, transfers may be made among the
Divisions or to a fixed Annuity Payment Option, but transfers from a fixed
Annuity Payment Option may not be made. See "Annuity Period and Annuity Payment
Options - Transfers."
SURRENDERS, WITHDRAWALS AND CANCELLATIONS
A total surrender of or partial withdrawal from a Contract may be made at
any time prior to the Annuity Commencement Date, by written request to American
Franklin. A Surrender Charge may be assessed and some surrenders and
withdrawals may be subject to tax penalties. See "Surrenders and Partial
Withdrawals."
A Contract may be canceled by the Owner by delivering it or mailing it with
a written cancellation request to American Franklin's Home Office before the
close of business on the tenth day after the Contract is received. (In some
cases, the Contract may provide for a 20 or 30-day,
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rather than a ten-day period.) If the foregoing items are sent by mail,
properly addressed and postage prepaid, they will be deemed to be received by
American Franklin on the date of the postmark. If a Contract is canceled during
this period, American Franklin will refund the Account Value plus any premium
taxes and Annual Contract Fee that have been deducted. In states where the law
so requires, however, American Franklin will refund the greater of that amount
or the amount of purchase payments, or, if the law permits, the amount of
purchase payments.
DEATH BENEFIT
In the event that the Annuitant (where there is no surviving Contingent
Annuitant) or Owner dies prior to the Annuity Commencement Date, a benefit is
payable to the Beneficiary. See "Death Benefit."
LIMITATIONS IMPOSED BY EMPLOYEE BENEFIT OR DEFERRED COMPENSATION PLANS
Certain rights the Owner would otherwise have under a Contract may be
limited by the terms of any applicable employee benefit or deferred compensation
plan. These limitations may restrict such things as total and partial
surrenders, the amount or timing of purchase payments that may be made, when
annuity payments must start and the type of annuity options that may be
selected. This Prospectus contains no information concerning any such employee
benefit or deferred compensation plans. Accordingly, the Owner should become
familiar with these and all other aspects of any retirement or deferred
compensation plan in connection with which a Contract is used. Further
information relating to some employee benefit plans may be obtained from the
disclosure documents required to be distributed to employees under the Employee
Retirement Income Security Act of 1974. American Franklin is not responsible
for monitoring or assuring compliance with the provisions of any retirement or
deferred compensation plan.
COMMUNICATIONS TO AMERICAN FRANKLIN
All communications to American Franklin should include the Contract number,
the Owner's name and, if different, the Annuitant's name. Communications may be
directed to the address and phone number on the cover of this Prospectus.
Except as otherwise specified in this Prospectus, purchase payments or
other communications are deemed received at American Franklin's Home Office on
the actual date of receipt there in proper form unless received (1) after the
close of regular trading on the New York Stock Exchange or (2) on a date that is
not a Valuation Date. In either of these two cases, the date of receipt will be
deemed to be the next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
Financial statements of American Franklin are included in the Statement of
Additional Information. See "Table of Contents of Statement of Additional
Information." No financial information is available for Separate Account VA-1
because none of the Divisions available under the Contracts had commenced
operations as of the date of this Prospectus.
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From time to time, Separate Account VA-1 may include in advertisements and
other sales materials several types of performance information for the
Divisions, including "average annual total return," "total return," and
"cumulative total return." The VIP II Investment Grade Bond Division and the
VIP High Income Division may also advertise "yield." The VIP Money Market
Division may advertise "yield" and "effective yield."
Each of these figures is based upon historical information and is not
necessarily representative of the future performance of a Division. Moreover,
these performance figures do not represent the actual experience of amounts
invested by a particular Owner. The investment experience for each Division
reflects the investment performance of the separate investment Portfolio
currently funding such Division for the periods stated, except that for periods
prior to the time when the Contract became available, the results were
calculated by applying all applicable charges and fees at the separate account
level for the Contract, as noted below, to the historical Portfolio performance
results for such periods.
Average annual total return, total return, and cumulative total return
calculations measure the net income of a Division plus the effect of any
realized or unrealized appreciation or depreciation of the underlying
investments in the Division for the period in question. Average annual total
return figures are annualized and, therefore, represent the average annual
percentage change in the value of an investment in a Division over the
applicable period. Total return figures are also annualized, but do not, as
described below, include the effect of any applicable Surrender Charge or Annual
Contract Fee. Cumulative total return figures represent the cumulative change
in value of an investment in a Division for various periods.
Yield is a measure of the net dividend and interest income earned over a
specific one month or 30-day period (seven-day period for the VIP Money Market
Division) expressed as a percentage of the value of the Division's Accumulation
Units. Yield is an annualized figure, which means that it is assumed that the
Division generates the same level of net income over a one year period which is
compounded on a semi-annual basis. The effective yield for the VIP Money Market
Division is calculated similarly but includes the effect of assumed compounding.
The VIP Money Market Division's effective yield will be slightly higher than its
yield due to this compounding effect.
Average annual total return figures include the deduction of all recurring
charges and fees applicable under the Contract to all Owner accounts, including
the mortality and expense risk charge, the administrative expense charge, the
applicable Surrender Charge that may be imposed at the end of the period in
question, and a pro-rated portion of the Annual Contract Fee. Yield, effective
yield, total return, and cumulative total return figures do not include the
effect of any Surrender Charge that may be imposed upon the redemption of
Accumulation Units, and thus may be higher than if such charge were deducted.
Total return and cumulative total return figures also do not include the effect
of the Annual Contract Fee. American Franklin may waive or reimburse certain
fees or charges applicable to the Contract and such waivers or reimbursements
will affect each Division's performance results. Additional information
concerning a Division's performance appears in the Statement of Additional
Information.
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American Franklin may also advertise its ratings by independent financial
rating services, such as A.M. Best Company, Standard & Poor's, and Duff &
Phelps. The ratings from these three nationally recognized rating organizations
reflect the claims paying ability and financial strength of American Franklin
and are not a rating of investment performance that purchasers of insurance
products have experienced or are likely to experience in the future.
In addition, American Franklin may include in certain advertisements
endorsements in the form of a list of organizations, individuals or other
parties that recommend American Franklin or the Contracts. American Franklin
may occasionally include in advertisements comparisons of currently taxable and
tax-deferred investment programs, based on selected tax brackets, or discussions
of alternative investment vehicles and general economic conditions.
FINANCIAL INFORMATION
The financial statements of American Franklin are located in the Statement
of Additional Information. See the cover page of the Prospectus for information
on how to obtain a copy of the Statement of Additional Information. The
financial statements of American Franklin should be considered only as bearing
on the ability of American Franklin to meet its contractual obligations under
the Contracts; they do not bear on the investment performance of Separate
Account VA-1.
No financial information is available for Separate Account VA-1 because
none of the Divisions available under the Contracts had commenced operations as
of the date of this Prospectus.
AMERICAN FRANKLIN
American Franklin is a legal reserve stock life, accident and health
insurance company organized under the laws of the State of Illinois in 1981. It
is engaged in the writing of term insurance, universal and variable universal
life insurance and single premium whole life insurance and the sale of
disability insurance. American Franklin currently has other separate accounts
which issue interests in variable insurance policies. American Franklin is
presently authorized to write insurance in forty-six states, the District of
Columbia and Puerto Rico. American Franklin's Home Office is located at #1
Franklin Square, Springfield, Illinois 62713.
American Franklin is a wholly-owned subsidiary of The Franklin Life
Insurance Company ("The Franklin"). The Franklin is a legal reserve stock life
insurance company organized under the laws of the State of Illinois in 1884.
The Franklin issues individual life insurance, annuity and accident and health
insurance policies, group annuities and group life and health insurance and
offers a variety of whole life, life, retirement income and level and decreasing
term insurance plans. The Franklin's home office is located at #1 Franklin
Square, Springfield, Illinois 62713.
The Franklin is a wholly-owned subsidiary of AGC Life Insurance Company
("AGC"). American General Corporation ("American General") owns all of the
outstanding shares of common stock of AGC. The address of AGC is American
General Center, Nashville, Tennessee 37250-0001. The address of American
General is 2929 Allen Parkway, Houston, Texas 77019-
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2155. American General is the parent company of one of the nation's largest
diversified financial services organizations. American General's operating
subsidiaries are leading providers of retirement annuities, consumer loans and
life insurance. American General was incorporated as a general business
corporation in Texas in 1980 and is the successor to American General Insurance
Company, an insurance company incorporated in Texas in 1926.
SEPARATE ACCOUNT VA-1
Separate Account VA-1 was established on May 22, 1996 and currently
consists of 15 Divisions, all of which are available under the Contracts offered
by this Prospectus. Separate Account VA-1 is registered with the Securities and
Exchange Commission as a unit investment trust under the 1940 Act. This
registration does not involve any supervision by the Securities and Exchange
Commission of the management or investment policies of Separate Account VA-1. A
unit investment trust is a type of investment company. Separate Account VA-1
meets the definition of a "separate account" under federal securities laws.
The operations of each Division of Separate Account VA-1 are part of
American Franklin's general operations and the assets of Separate Account VA-1
belong to American Franklin. Under Illinois law and the terms of the Contracts,
the assets of Separate Account VA-1 will not be chargeable with liabilities
arising out of any other business which American Franklin may conduct, but will
be held exclusively to meet American Franklin's obligations under variable
annuity contracts. Furthermore, the income, gains, and losses, whether or not
realized, from assets allocated to Separate Account VA-1, are, in accordance
with the Contracts, credited to or charged against Separate Account VA-1 without
regard to other income, gains, or losses of American Franklin.
THE PORTFOLIOS
The variable benefits under the Contracts are funded by 15 Divisions of
Separate Account VA-1. These Divisions invest in shares of 15 separate
investment Portfolios of three mutual funds that are sold, without sales
charges, exclusively to insurance company separate accounts and that are not
sold directly to the public. Each of these mutual funds also offers its shares
to variable annuity and variable life insurance separate accounts of insurers
that are not affiliated with American Franklin. American Franklin does not see
any conflict between Owners of Contracts and owners of variable life insurance
policies or variable annuity contracts issued by insurance companies not
affiliated with American Franklin. Nevertheless, the Boards of Trustees of each
of these mutual funds will monitor to identify any material irreconcilable
conflicts that may develop and determine what, if any, action should be taken in
response. If it becomes necessary for any separate account to replace shares of
any Portfolio with another investment, the Portfolio may have to liquidate
securities on a disadvantageous basis.
Any dividends or capital gain distributions attributable to Contracts are
automatically reinvested in shares of the Portfolio from which they are received
at the Portfolio's net asset value on the date of payment. Such dividends and
distributions will have the effect of reducing the net asset value of each share
of the corresponding Portfolio and increasing, by an equivalent value, the
number of shares outstanding of the Portfolio. However, the value of an Owner's
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interest in the corresponding Division will not change as a result of any such
dividends and distributions.
Each Portfolio of the Funds has a different investment objective which it
tries to achieve by following separate investment policies. The objectives and
policies of each Portfolio will affect its return and its risks. The investment
objectives, policies, restrictions and risks of the Portfolios of the Funds are
described in detail in the Prospectuses for the Funds, which are attached to
this Prospectus, and in the Funds' Statements of Additional Information. The
policies and objectives of the Portfolios of the Variable Insurance Products
Fund corresponding to the Divisions currently available for investment under the
Contracts may be summarized as follows:
Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The
Portfolio will invest only in high-quality U.S. dollar denominated money
market securities of domestic and foreign issuers.
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high yielding, lower rated fixed-income securities,
while also considering growth of capital. The Portfolio may purchase
lower-quality bonds which provide poor protection for payment of principal
and interest (commonly referred to as "junk bonds"). For a discussion of
the risks of investment in these securities, please see the Prospectus for
the Variable Insurance Products Fund, which is attached to this Prospectus.
Equity-Income Portfolio seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on
the securities comprising the Standard & Poor's 500 Composite Stock Price
Index.
Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be
found in other types of securities including bonds and preferred stocks.
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
The policies and objectives of the Portfolios of the Variable Insurance
Products Fund II corresponding to the Divisions currently available for
investment under the Contracts may be summarized as follows:
Investment Grade Bond Portfolio seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The Portfolio will
maintain a dollar-weighted average portfolio maturity of ten years or less.
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Asset Manager Portfolio seeks a high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed-income instruments.
Index 500 Portfolio seeks investment results that correspond to the total
return (I.E., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by Standard &
Poor's 500 Composite Stock Price Index, while keeping transaction costs and
other expenses low.
Contrafund Portfolio seeks to increase the value of investments over the
long term by investing in securities of companies that are undervalued or
out-of-favor.
The policies and objectives of the Portfolios of the MFS Variable Insurance
Trust corresponding to the Divisions currently available for investment under
the Contracts may be summarized as follows:
MFS Emerging Growth Portfolio seeks to provide long-term growth of capital.
MFS Research Portfolio seeks to provide long-term growth of capital and
future income.
MFS Growth With Income Portfolio seeks to provide reasonable current income
and long-term growth of capital and income.
MFS Total Return Portfolio seeks primarily to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent
with the prudent employment of capital and secondarily to provide a
reasonable opportunity for growth of capital and income.
MFS Utilities Portfolio seeks capital growth and current income (income
above that available from a portfolio invested entirely in equity
securities).
MFS Value Portfolio seeks capital appreciation.
Except for the Money Market, Investment Grade Bond, Index 500 and MFS
Growth With Income Portfolios, the Portfolios may purchase lower-quality bonds
which provide poor protection for payment of principal and interest (commonly
referred to as "junk bonds"). These securities are often in default or are
highly speculative. Lower-quality bonds involve greater risk of default or
price changes than securities assigned a higher quality rating due to changes in
the issuer's creditworthiness. This is an aggressive approach to income
investing. For a discussion of the risks of investment in these securities,
please see the Prospectuses for the Funds, which are attached to this
Prospectus.
There is no guarantee that any Portfolio will achieve its objective. In
addition, the Funds' Prospectuses advise that no single Portfolio constitutes a
balanced investment plan.
Subject to the approval and supervision of the Funds' Boards of Trustees,
Fidelity Management & Research Company ("Fidelity Management") manages the
day-to-day
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investment operations of the Variable Insurance Products Fund and the Variable
Insurance Products Fund II and exercises overall responsibility for the
investment and reinvestment of their assets. See the Prospectus of the Variable
Insurance Products Fund and the Variable Insurance Products Fund II for a
description of the experience and qualifications of Fidelity Management. For
managing each portfolio's investments and business affairs, each Portfolio of
the Variable Insurance Products Fund and the Variable Insurance Products Fund II
pays Fidelity Management a monthly fee. See the Prospectus and Statement of
Additional Information of the Variable Insurance Products Fund and the Variable
Insurance Products Fund II for a description of the way in which this fee is
calculated.
Massachusetts Financial Services Company ("MFS") provides the Portfolios of
the MFS Variable Insurance Trust with overall investment advisory and
administrative services, as well as general office facilities. Subject to such
policies as the Board of Trustees may determine, MFS makes investment decisions
for each Portfolio of the MFS Variable Insurance Trust. See the Prospectus of
the MFS Variable Insurance Trust for a description of the experience and
qualifications of MFS. For its services and facilities, MFS receives a monthly
management fee. See the Prospectus and Statement of Additional Information of
the MFS Variable Insurance Trust for a description of the way in which this fee
is calculated.
Before selecting any Division, the Owner should carefully read the
Prospectuses for the Funds, which includes more complete information about each
Portfolio, including investment objectives and policies, charges and expenses.
An Owner may obtain additional copies of the Prospectuses of the Funds by
contacting American Franklin's Variable Annuity Department at the address and
phone number set forth on the cover page of this Prospectus.
American Franklin may enter into agreements with the investment advisers of
the Funds that provide for the investment adviser to reimburse American Franklin
for certain costs incurred in connection with administering the Funds as
variable funding options for the Contracts. Currently, American Franklin and
MFS have entered into an arrangement whereby MFS or its affiliates will pay a
fee to American Franklin equal, on an annualized basis, to 0.15% of the
aggregate net assets of each of the Portfolios of the MFS Variable Insurance
Trust attributable to the Contracts. This fee will not be paid by the
Portfolios, their shareholders or the Owners.
VOTING PRIVILEGES
The Owner prior to the Annuity Commencement Date and the Annuitant or other
payee during the Annuity Period (or in the case of a Section 457 Contract, the
Owner during the Annuity Period) will be entitled to give American Franklin
instructions as to how Portfolio shares held in the Divisions of Separate
Account VA-1 attributable to his or her Contract should be voted at meetings of
shareholders of the Portfolio. Those persons entitled to give voting
instructions and the number of votes for which they may give directions will be
determined as of the record date for a meeting. Separate Account VA-1 will vote
all shares of each Portfolio that it holds of record in accordance with
instructions received with respect to all American Franklin annuity contracts
participating in that Portfolio.
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Separate Account VA-1 will also vote all shares of each Portfolio for which
no instructions have been received for or against any proposition in the same
proportion as the shares for which voting instructions were received.
Prior to the Annuity Commencement Date, the number of votes each Owner is
entitled to direct with respect to a particular Portfolio is equal to (a) the
Owner's Variable Account Value attributable to that Portfolio divided by (b) the
net asset value of one share of that Portfolio. In determining the number of
votes, fractional votes will be recognized. While a variable Annuity Payment
Option is in effect, the number of votes an Annuitant or payee (or in the case
of a Section 457 Contract, the Owner) is entitled to direct with respect to a
particular Portfolio will be computed in a comparable manner, based on American
Franklin's liability for future Variable Annuity Payments with respect to the
Annuitant or payee as of the record date. Such liability for future payments
will be calculated on the basis of the mortality assumptions and the assumed
interest rate used in determining the number of Annuity Units under a Contract
and the applicable value of an Annuity Unit on the record date.
Portfolio shares held by insurance company separate accounts other than
Separate Account VA-1 will generally be voted in accordance with instructions of
participants in such other separate accounts.
American Franklin believes that its voting instruction procedures comply
with current federal securities law requirements and interpretations thereof.
However, American Franklin reserves the right to modify these procedures in any
manner consistent with applicable legal requirements and interpretations as in
effect from time to time.
THE FIXED ACCOUNT
AMOUNTS IN THE FIXED ACCOUNT OR SUPPORTING FIXED ANNUITY PAYMENTS BECOME
PART OF AMERICAN FRANKLIN'S GENERAL ACCOUNT. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR IS THE GENERAL ACCOUNT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. AMERICAN FRANKLIN HAS
BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURES IN THIS PROSPECTUS THAT RELATE TO THE FIXED ACCOUNT OR
FIXED ANNUITY PAYMENTS. DISCLOSURES REGARDING THESE MATTERS, HOWEVER, MAY BE
SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS IN PROSPECTUSES.
Obligations with respect to the Fixed Account are legal obligations of
American Franklin and are supported by its General Account assets, which also
support obligations incurred by American Franklin under other insurance and
annuity contracts. Investments purchased with amounts allocated to the Fixed
Account are the property of American Franklin, and Owners have no legal rights
in such investments.
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Account Value that is allocated by the Owner to the Fixed Account earns a
Guaranteed Interest Rate commencing with the date of such allocation. This
Guaranteed Interest Rate continues for a number of years selected by the Owner
from among the Guarantee Periods that American Franklin then offers. American
Franklin currently makes available Guarantee Periods of one, three and five
years. Each Guarantee Period has its own Guaranteed Interest Rate, which may
differ from those for other Guarantee Periods. At the end of a Guarantee
Period, the Owner's Account Value in that Guarantee Period, including interest
accrued thereon, will be allocated to a new Guarantee Period of the same length
unless American Franklin has received a written request from the Owner to
allocate this amount to a different Guarantee Period or periods or to one or
more of the Divisions of Separate Account VA-1. American Franklin must receive
this written request at least three Valuation Dates prior to the end of the
Guarantee Period. If the Owner has not provided such written request and the
renewed Guarantee Period extends beyond the scheduled Annuity Commencement Date,
American Franklin will nevertheless contact the Owner regarding the scheduled
Annuity Commencement Date. If the Owner elects to annuitize in this
circumstance, the Surrender Charge may be waived. See "Annuity Payment Options"
and "Surrender Charge." The first day of the new Guarantee Period (or other
reallocation) will be the day after the end of the prior Guarantee Period.
American Franklin will notify the Owner at least 30 days and not more than 60
days prior to the end of any Guarantee Period. If the Owner's Account Value in
a Guarantee Period is less than $500, American Franklin reserves the right,
without charge, automatically to transfer the balance to the VIP Money Market
Division at the end of that Guarantee Period, unless American Franklin has
received in good order written instructions to transfer such balance to a
Division or to allocate such balance to a new Guarantee Period.
American Franklin declares the Guaranteed Interest Rates from time to time
as market conditions dictate. American Franklin advises an Owner of the
Guaranteed Interest Rate for a chosen Guarantee Period at the time a purchase
payment is received, a transfer is effected or a Guarantee Period is renewed. A
different rate of interest may be credited to one Guarantee Period than to
another Guarantee Period because the other Guarantee Period begins on a
different date or is of a different length. Also, different rates of interest
may be credited to a renewed Guarantee Period and a Guarantee Period in respect
of a new Contract, an additional purchase payment or a transfer from the
Variable Account that begin on the same date and are of the same length. The
minimum Guaranteed Interest Rate is an effective annual rate of 3%.
From time to time American Franklin will, at its discretion, change the
Guaranteed Interest Rate for future Guarantee Periods of various lengths. These
changes will not affect the Guaranteed Interest Rates being paid on Guarantee
Periods that have already commenced. Each allocation or transfer of an amount
to a Guarantee Period commences the running of a new Guarantee Period with
respect to that amount, which will earn a Guaranteed Interest Rate that will
continue unchanged until the end of that period. The Guaranteed Interest Rate
will never be less than the minimum Guaranteed Interest Rate stated in each
Contract. American Franklin reserves the right to change the Guarantee Periods
available at any time.
AMERICAN FRANKLIN'S MANAGEMENT MAKES THE FINAL DETERMINATION OF THE
GUARANTEED INTEREST RATES TO BE DECLARED.
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AMERICAN FRANKLIN CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE GUARANTEED
INTEREST RATES IN EXCESS OF THE MINIMUM GUARANTEED INTEREST RATE STATED IN A
CONTRACT.
Information concerning the Guaranteed Interest Rates applicable to the
various Guarantee Periods at any time may be obtained from an American Franklin
sales representative or from the address or phone number set forth on the cover
page of this Prospectus.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
The minimum initial purchase payment is $10,000. The amount of any
subsequent purchase payment allocated to any Division or Guarantee Period must
be at least $100. American Franklin reserves the right to modify these
minimums, in its discretion. American Franklin may waive the minimum initial
purchase payment for Contracts where the average purchase payment for a block of
applicants meets the minimum purchase payment requirement but certain individual
Contracts within the block may not meet this requirement. American Franklin
also may waive this requirement in the event of an exchange offer described
under "Exchange of Other Variable Annuity Contracts."
An application to purchase a Contract must be made by a signed written
application form provided by American Franklin or by such other medium or format
as may be agreed to by American Franklin. When a purchase payment accompanies
an application to purchase a Contract and the application is properly completed,
American Franklin will, within two business days after receipt of the
application at its Home Office, either process the application, credit the
purchase payment, and issue the Contract or reject the application and return
the purchase payment.
If the application or other information is incomplete when received,
American Franklin will attempt to contact the applicant to complete the
application or other information. If American Franklin cannot complete that
process within five business days of receipt of the initial purchase payment,
the entire initial purchase payment will be immediately returned unless the
applicant has been informed of the delay and requests that the initial purchase
payment not be returned. American Franklin will credit the balance of the
initial purchase payment, after deduction of any charges and any applicable
premium tax, to the Divisions and/or the Fixed Account selected by the applicant
when the application or other information is complete. Subsequent purchase
payments are credited as of the end of the Valuation Period in which they and
any required written identifying information, are received at American
Franklin's Home Office. American Franklin reserves the right to reject any
application or purchase payment for any reason.
If the Owner's Account Value in any Division falls below $500 because of a
partial withdrawal from the Contract, American Franklin reserves the right to
transfer, without charge, the remaining balance to the VIP Money Market
Division. If the Owner's Account Value in any Division falls below $500 because
of a transfer to another Division, Divisions or to the Fixed Account, American
Franklin reserves the right to transfer the remaining balance in that Division,
without charge and pro rata, to the Division, Divisions or Fixed Account to
which the transfer was made. These minimum requirements are waived for
transfers under the Variable Account Asset Rebalancing program. See "Variable
Account Asset Rebalancing." If the Owner's total Account
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Value falls below $500, American Franklin may cancel the Contract. Such a
cancellation would be considered a full surrender of the Contract. American
Franklin will provide an Owner with 60 days' advance notice of any such
cancellation.
So long as the Account Value does not fall below $500, an Owner is not
required to make any further purchase payments. Subsequent purchase payments,
however, may be made at any time prior to the Annuity Commencement Date and
while the Owner and Annuitant are still living. Checks for subsequent purchase
payments should be made payable to The American Franklin Life Insurance Company
and forwarded directly to American Franklin's Home Office. American Franklin
also accepts purchase payments by wire or by exchange from another insurance
company. An Owner may obtain further information about how to make purchase
payments by either of these methods from a sales representative or from American
Franklin at the address and telephone number on the cover page of this
Prospectus. Purchase payments pursuant to salary reduction plans may be made
only with American Franklin's agreement. In the case of a Qualified Contract
issued for use as an Individual Retirement Annuity, annual purchase payments may
not, in general, exceed $2,000. However, if the Individual Retirement Annuity
is a Simplified Employee Pension, annual purchase payments may not exceed
$24,500. In the case of a Section 457 Contract, annual purchase payments may
not, in general, exceed $7,500. Since the minimum initial purchase payment is
$10,000, a Contract intended for use as an Individual Retirement Annuity may be
purchased only through a Rollover Contribution or as a Simplified Employee
Pension. Also, it may not be possible to purchase a Contact intended for use as
a Section 457 Contract with a participant's contributions to a Section 457 Plan
for a single year.
Purchase payments begin to earn a return in the Divisions of Separate
Account VA-1 or the Guarantee Periods of the Fixed Account as of the date they
are credited to a Contract. The amount of each purchase payment that is to be
allocated to each Division and each Guarantee Period is selected (in whole
percentages) in the application form. These allocation percentages may be
changed at any time by written notice to American Franklin.
EXCHANGE OF OTHER VARIABLE ANNUITY CONTRACTS
American Franklin expects in the future to permit Contracts to be purchased
in exchange for a variable annuity contract issued by Franklin Life Variable
Annuity Fund A ("Franklin Life Fund A"), Franklin Life Variable Annuity Fund B
("Franklin Life Fund B") or Franklin Life Money Market Variable Annuity Fund C
("Franklin Life Fund C" and collectively with Franklin Life Fund A and Franklin
Life Fund B, the "Franklin Life Funds"), separate accounts of The Franklin which
are registered investment companies issuing interests in variable annuity
contracts. In connection with any such exchange, American Franklin may waive
the minimum initial purchase payment limitations of the Contracts. The contract
value on the date of exchange of a contract issued by one of the Franklin Life
Funds would be applied to acquire Accumulation Units or Annuity Units, depending
on whether annuity payments have commenced on the surrendered contract, with an
equal aggregate value, without the imposition of any charge or deduction. For
exchanges of Franklin Life Fund A and Franklin Life Fund B contracts, the
Surrender Charge of the Contract issued in exchange may be waived with respect
to funds so transferred to the Contract and amounts representing the appreciated
value thereof. For
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exchanges of a Franklin Life Fund C contract, the contingent deferred surrender
charge that applies to the withdrawal of amounts from a Franklin Life Fund C
contract may be waived to the extent that an exchange might be considered a
withdrawal, and all premium payments made on the Franklin Life Fund C contract
would be treated as though they were purchase payments made on the Contract
issued in exchange on the dates actually made for purposes of determining the
Surrender Charge applicable to the Contract. Upon redemption of a Contract
issued in exchange for a contract issued by one of the Franklin Life Funds,
however, a Surrender Charge would be applied as described below with respect to
any new purchase payments made on the Contract after such exchange is made. The
foregoing exchange privilege would be designed to comply with a regulation of
the Securities and Exchange Commission which permits exchange offers to the
holders of variable annuity contracts issued by an insurance company within the
same group of insurance companies as the company making the offer without prior
approval of the Securities and Exchange Commission.
Code Section 1035 provides generally that no gain or loss is recognized
when an annuity contract is received in exchange for another annuity contract
provided that no cash or other property is received in the exchange transaction
and that the same person or persons are the Owner or Annuitant under the
contract received in the exchange as under the original contract surrendered in
the exchange. An annuity contract issued after January 18, 1985 in exchange for
another annuity contract is treated as a new contract for purposes of the
application of certain rules including the federal income tax penalty and
required distribution rules discussed in "Federal Income Tax Matters-Non-
Qualified Contracts." Special rules apply to an exchange of a contract issued
prior to August 14, 1982. Also, there are additional considerations involved
when the contracts are issued in connection with Qualified Plans. Special rules
and procedures apply in order for an exchange to meet the requirements of
Section 1035. Failure to satisfy these rules and procedures could result in the
recognition of gain or loss for federal income tax purposes and the imposition
of federal tax penalties upon the exchange of a contract issued by a Franklin
Life Fund. Since the income and withholding tax consequences of such redemption
and purchase depend on many factors, any person contemplating exchange of a
contract issued by a Franklin Life Fund for a Contract, if and when permitted by
American Franklin, is advised to consult a qualified tax advisor prior to the
exchange.
ACCOUNT VALUE
Prior to the Annuity Commencement Date, the Account Value under a Contract
is the sum of the Variable Account Value and Fixed Account Value, as discussed
below.
VARIABLE ACCOUNT VALUE
The Variable Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of the Variable Account Values in each Division of
Separate Account VA-1 as of that date. The Variable Account Value in any such
Division is the product of the number of Accumulation Units in that Division
multiplied by the value of one such Accumulation Unit as of that Valuation Date.
There is no guaranteed minimum Variable
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Account Value. To the extent that the Account Value is allocated to Separate
Account VA-1, the Owner bears the entire risk of investment losses.
Accumulation Units in a Division are credited when purchase payments are
allocated or amounts are transferred to that Division. Similarly, such
Accumulation Units are canceled to the extent amounts are transferred or
withdrawn from a Division or to the extent necessary to pay certain charges
under the Contract. The crediting or cancellation of Accumulation Units is
based on the value of such Accumulation Units at the end of the Valuation Date
as of which the related amounts are being credited to or charged against the
Variable Account Value.
The value of an Accumulation Unit for a Division on any Valuation Date is
equal to the previous value of that Division's Accumulation Unit multiplied by
that Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the
net asset value per share of the Portfolio shares held by the Division,
determined at the end of the current Valuation Period, plus the per share amount
of any dividend or capital gains distribution made with respect to the Portfolio
shares held by the Division during the current Valuation Period, by (2) the net
asset value per share of the Portfolio shares held in the Division as determined
at the end of the previous Valuation Period, and subtracting from that result a
factor representing the mortality risk, expense risk and administrative expense
charge.
FIXED ACCOUNT VALUE
The Fixed Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of the Fixed Account Value in each Guarantee Period
as of that date. The Fixed Account Value in any Guarantee Period is equal to
the following amounts, in each case increased by accrued interest at the
applicable Guaranteed Interest Rate: (1) the amount of net purchase payments,
renewals and transferred amounts allocated to the Guarantee Period less (2) the
amount of any transfers or withdrawals out of the Guarantee Period, including
withdrawals to pay applicable charges.
Fixed Account Value is guaranteed by American Franklin. Therefore,
American Franklin bears the investment risk with respect to amounts allocated to
the Fixed Account, except to the extent that American Franklin may vary the
Guaranteed Interest Rate for future Guarantee Periods (subject to the minimum
Guaranteed Interest Rate stated in a Contract).
TRANSFER, VARIABLE ACCOUNT ASSET REBALANCING, SURRENDER AND
PARTIAL WITHDRAWAL OF ACCOUNT VALUE
TRANSFERS
Commencing 30 days after the Contract's date of issue and prior to the
Annuity Commencement Date, Account Value may be transferred at any time among
the available Divisions of Separate Account VA-1 and Guarantee Periods, subject
to the conditions described
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below. Such transfers will be effective at the end of the Valuation Period in
which American Franklin receives a written or telephone transfer request.
If a transfer would cause the Account Value in any Division or Guarantee
Period to fall below $500, American Franklin reserves the right also to transfer
the remaining balance in that Division or Guarantee Period in the same
proportions as the transfer request.
Prior to the Annuity Commencement Date and after the first 30 days
following the date of issue of the Contract, an Owner may make up to 12
transfers each Contact Year without charge, but each additional transfer will be
subject to a $25 charge. Also, no more than 25% of the Account Value allocated
to a Guarantee Period at its inception may be transferred during any Contract
Year. This 25% limitation does not apply to transfers within 15 days before or
after the end of the Guarantee Period in which the transferred amounts were
being held to the same or another Guarantee Period, or to a renewal at the end
of the Guarantee Period to a Guarantee Period of the same length.
Subject to the above general rules concerning transfers, an automatic
transfer plan may be established, whereby amounts are automatically transferred
by American Franklin from the VIP Money Market Division to one or more other
Divisions on a monthly, quarterly or semi-annual basis. Transfers under such
automatic transfer plan will not count towards the 12 free transfers each
Contract Year, and will not incur a $25 charge. Additional information about
how to establish an automatic transfer program may be obtained from a sales
representative or from American Franklin's Variable Annuity Department at the
telephone number and address on the front cover of this Prospectus.
If the person or persons that are entitled to make transfers have provided
a properly completed Telephone Transfer Privilege form that is on file with
American Franklin, transfers may be made pursuant to telephone instructions,
subject to the terms of the Telephone Transfer Privilege authorization.
American Franklin will honor telephone transfer instructions from any person who
provides the correct information, so there is a risk of possible loss if
unauthorized persons use this service in the Owner's name. Under the Telephone
Transfer Privilege, American Franklin is not liable for any acts or omissions
based upon instructions that it reasonably believes to be genuine, including
losses arising from errors in the communication of transfer instructions.
American Franklin has established procedures for accepting telephone transfer
instructions, which include verification of the Contract number, the identity of
the caller, both the Annuitant's and Owner's names, and a form of personal
identification from the caller. American Franklin will mail to the Owner a
written confirmation of the transaction. If several persons seek to effect
telephone transfers at or about the same time, or if the recording equipment
malfunctions, it may be impossible to make a telephone transfer at the time
desired. If this occurs, the Owner should submit a written transfer request.
Also, if, due to equipment malfunction or other circumstances, the recording of
a telephone request is incomplete or not fully comprehensible, American Franklin
will not process the transaction. The phone number for telephone exchanges is
shown on the cover page of this Prospectus.
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The Contracts are not designed for professional market timing organizations
or other entities utilizing programmed and frequent transfers. American
Franklin reserves the right at any time and without prior notice to any party to
terminate, suspend, or modify its policy regarding transfers.
VARIABLE ACCOUNT ASSET REBALANCING
Variable Account Asset Rebalancing permits an Owner to authorize American
Franklin to transfer automatically funds among the Divisions of Separate Account
VA-1 on a quarterly, semi-annual or annual basis, measured from the Contract
Anniversary date, so that the values in each Division on such date correspond to
a percentage allocation of the total Variable Account Value designated by the
Owner. Variable Account Asset Rebalancing may not be used to transfer amounts
to or from any Guarantee Period.
Variable Account Asset Rebalancing is designed to permit the exchange of
Variable Account Value from those Divisions that have increased in value to
those Divisions that have declined in value. Over time, this method of
investing may aid an Owner in purchasing at lower prices and selling at higher
prices, although there can be no assurance of this and this method does not
guarantee that the Owner will experience profits or that the Owner will not
experience losses.
This option is available for Contracts having an Account Value of at least
$25,000 at the time the application to enroll in the Variable Account Asset
Rebalancing Program is received by American Franklin. An Owner may submit an
application to enroll in the program at any time, and once enrolled, an Owner
may discontinue his or her participation in the program at any time effective
after a written notice to such effect is received by American Franklin.
Transfers under the Variable Account Asset Rebalancing Program will not count
towards the twelve free transfers each Contract Year, and will not incur a $25
charge. See "Transfers," immediately above.
SURRENDERS AND PARTIAL WITHDRAWALS
At any time prior to the Annuity Commencement Date and while the Annuitant
is still living, the Owner may make a full surrender of or partial withdrawal
from his or her Contract.
The amount payable to the Owner upon full surrender is the Owner's Account
Value at the end of the Valuation Period in which American Franklin receives a
written surrender request in good order, minus any applicable Surrender Charge,
minus the amount of any uncollected Annual Contract Fee (see "Annual Contract
Fee") and minus any applicable premium tax. American Franklin's current
practice is to require that the Owner return the Contract with any request for a
full surrender. After a full surrender, or if the Owner's Account Value falls
to zero, all rights of the Owner, Annuitant or any other person with respect to
the Contract will terminate. All collateral assignees of record must consent to
any full surrender or partial withdrawal.
A written request for a partial withdrawal should specify the Divisions of
Separate Account VA-1, or the Guarantee Periods of the Fixed Account, from which
the Owner wishes the partial withdrawal to be made. If not specified, or if the
withdrawal cannot be made in accordance with the Owner's specification, to the
extent necessary the withdrawal will be taken pro-rata from the
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Divisions and Guarantee Periods, based on the Account Value in each. Partial
withdrawal requests must be for at least $100 or, if less, all of the Account
Value. If the remaining Account Value in a Division or Guarantee Period would
be less than $500 as a result of the withdrawal (except for the VIP Money Market
Division), American Franklin reserves the right to transfer, without charge, the
remaining balance to the VIP Money Market Division. Unless the Owner requests
otherwise, upon a partial withdrawal, the Accumulation Units and Fixed Account
interests that are cancelled will have a total value equal to the amount of the
withdrawal request, and the amount payable to the Owner will be the amount of
the withdrawal request less any Surrender Charge, uncollected Annual Contract
Fee and premium tax if applicable, payable upon the partial withdrawal.
American Franklin also makes available a systematic withdrawal plan under
which automatic partial withdrawals may be made at periodic intervals in a
specified amount, subject to the terms and conditions applicable to other
partial withdrawals. Additional information about how to establish such a
systematic withdrawal program may be obtained from a sales representative or
from American Franklin at the address and phone number set forth on the cover
page of this Prospectus. American Franklin reserves the right to modify or
terminate the procedures for systematic withdrawals at any time.
There are certain restrictions on Section 403(b) tax sheltered annuities.
Contributions to the Contract and any increases in cash value may not be
distributed unless the Owner/employee has (a) attained age 59 1/2,
(b) terminated employment, (c) died, (d) become disabled or (e) experienced
financial hardship. Distributions due to financial hardship or separation from
service may still be subject to a penalty tax of 10%. A payment by American
Franklin pursuant to a full surrender or partial withdrawal may be subject to
federal income tax withholding and federal tax penalties. See "Federal Income
Tax Matters."
Contracts issued to participants in the Texas Optional Retirement Program,
as codified in Chapter 830 of Title 8 of the Government Code of the State of
Texas, may not be redeemed prior to the participant's termination of employment
in the Texas public institutions of higher education or the participant's
retirement, death or attainment of age 70 1/2.
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
Subject to any limitations in a Qualified Plan or Section 457 Plan, the
Owner may select the Annuity Commencement Date when applying to purchase a
Contract and may change a previously selected date at any time prior to the
beginning of an Annuity Payment Option by submitting a written request, subject
to approval by American Franklin. The Annuity Commencement Date may be any day
of any month up to and including the Annuitant's 99th birthday. See "Federal
Income Tax Matters" for a description of the penalties that may attach to
distributions that are made prior to the Annuitant's attaining age 59 1/2 under
any Contract or that begin later than April 1 of the year following the calendar
year in which the Annuitant attains age 70 1/2 under Qualified Contracts or
Section 457 Contracts.
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APPLICATION OF ACCOUNT VALUE
American Franklin will, except in the case of a Section 457 Contract,
automatically apply the Variable Account Value in any Division to provide
Variable Annuity Payments based on that Division and the Fixed Account Value to
provide Fixed Annuity Payments. However, if the Owner gives other written
instructions at least 30 days prior to the Annuity Commencement Date, American
Franklin will apply the Owner's Account Value in different proportions. In the
case of a Section 457 Contract, under current federal income tax rules both the
Variable Account Value in any Division and the Fixed Account Value may be
required to be applied to provide Fixed Annuity Payments.
American Franklin deducts any applicable state and local premium taxes from
the amount of Account Value being applied to an Annuity Payment Option. In some
cases, American Franklin may deduct a Surrender Charge from the amount being
applied. See "Surrender Charge." Subject to any such adjustments, the Owner's
Variable and Fixed Account Value are applied to an Annuity Payment Option, as
discussed below, as of the end of the Valuation Period that contains the tenth
day prior to the Annuity Commencement Date.
FIXED AND VARIABLE ANNUITY PAYMENTS
The amount of the first monthly Fixed or Variable Annuity Payment will be
at least as great as the amount determined from the annuity tables set forth in
the Contract, based on the amount of the Owner's Account Value that is applied
to provide the Fixed or Variable Annuity Payments. Thereafter, the amount of
each monthly Fixed Annuity Payment is fixed and specified by the terms of the
Annuity Payment Option selected.
The Account Value that is applied to provide Variable Annuity Payments is
converted to a number of Annuity Units by dividing the amount of the first
Variable Annuity Payment by the value of an Annuity Unit of the relevant
Division as of the end of the Valuation Period that includes the tenth day prior
to the Annuity Commencement Date. This number of Annuity Units thereafter
remains constant with respect to any Annuitant, and the amount of each
subsequent Variable Annuity Payment is determined by multiplying this number by
the value of an Annuity Unit as of the end of the Valuation Period that contains
the tenth day prior to the date of each payment. If the Variable Annuity
Payments are based on more than one Division, these calculations are performed
separately for each Division. The value of an Annuity Unit at the end of a
Valuation Period is the value of the Annuity Unit at the end of the previous
Valuation Period, multiplied by the net investment factor (see "Variable Account
Value") for the Valuation Period, with an offset for the 3.5% assumed interest
rate used in the Contract's annuity tables.
As a result of the foregoing computations, if the net investment return for
a Division for any month is at an annual rate of more than the assumed interest
rate used in the Contract's annuity tables, any Variable Annuity Payment based
on that Division will be greater than the Variable Annuity Payment based on that
Division for the previous month. If the net investment return for a Division
for any month is at an annual rate of less than the assumed interest rate used
in the Contract's annuity tables, any Variable Annuity Payment based on that
Division will be less than the Variable Annuity Payment based on that Division
for the previous month.
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ANNUITY PAYMENT OPTIONS
The Owner may elect to have annuity payments made beginning on the Annuity
Commencement Date under any one of the Annuity Payment Options described below.
American Franklin will notify the Owner 60 to 90 days prior to the scheduled
Annuity Commencement Date that the Contract is scheduled to mature, and request
that an Annuity Payment Option be selected. If the Owner has not selected an
Annuity Payment Option ten days prior to the Annuity Commencement Date, American
Franklin will proceed as follows: (1) if the scheduled Annuity Commencement Date
is any date prior to the Annuitant's 99th birthday, American Franklin will
extend the Annuity Commencement Date to the Annuitant's 99th birthday, subject
to various state limitations; or (2) if the scheduled Annuity Commencement Date
is the Annuitant's 99th birthday, the Account Value less any applicable
Surrender Charge, Annual Contract Fee and premium taxes will be paid in one sum
to the Owner.
The Code imposes minimum distribution requirements that have a bearing on
the Annuity Payment Option and the Annuity Commencement Date that should be
chosen in connection with Non-Qualified Contracts, Qualified Contracts and
Section 457 Contracts and may make certain Annuity Payment Options unavailable.
See "Federal Income Tax Matters," below, and "Limitations on Annuity Payment
Options" in the Statement of Additional Information. American Franklin is not
responsible for monitoring or advising Owners as to whether the minimum
distribution requirements are being met, unless American Franklin has received a
specific written request to do so.
No election of any Annuity Payment Option may be made unless an initial
annuity payment of at least $100 would be provided, where only Fixed or only
Variable Annuity Payments are elected, and $50 on each basis when a combination
of Variable and Fixed Annuity Payments is elected. If these minimums are not
met, American Franklin will first reduce the frequency of annuity payments, and
if the minimums are still not met, American Franklin will make a lump-sum
payment to the Annuitant or other properly designated payee in the amount of the
Owner's Account Value, less any applicable Surrender Charge, any uncollected
Annual Contract Fee, any applicable premium tax and any applicable federal
income tax withholding.
The Owner, or if the Owner has not done so, the Beneficiary may, within 60
days after the death of the Owner or Annuitant, elect that any amount due to the
Beneficiary be applied under any option described below, subject to certain tax
law requirements and the requirements of Qualified Plans and Section 457 Plans.
See "Death Benefit." Thereafter, the Beneficiary will have all the remaining
rights and powers under the Contract and be subject to all the terms and
conditions thereof, except that in the case of Qualified Contracts and Section
457 Contracts, the Owner will retain those rights and powers. The first annuity
payment will be made at the beginning of the second month following the month in
which American Franklin approves the settlement request. Annuity Units will be
credited based on Annuity Unit Values at the end of the Valuation Period that
contains the tenth day prior to the beginning of said second month.
When an Annuity Payment Option becomes effective, the Contract must be
delivered to American Franklin's Home Office, in exchange for a payment contract
providing for the option
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elected. An Annuity Payment Option may not be terminated once annuity payments
have commenced.
Information about the relationship between the Annuitant's sex and the
amount of annuity payments, including requirements for "uni-sex" annuity rates
in certain states and in connection with certain "employer-related" plans is set
forth under "Use of Gender Based Annuity Tables," below and under "Gender of
Annuitant" in the Statement of Additional Information. See "Table of Contents
of Statement of Additional Information."
FIRST OPTION - LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant, ceasing with the last annuity payment due prior to the death of
the Annuitant. This Option offers the maximum level of monthly annuity payments
since there is no guarantee of a minimum number of annuity payments or provision
for any continued payments to a Beneficiary upon the death of the Annuitant. It
would be possible under this Option for the Annuitant to receive only one
annuity payment if he or she dies before the second annuity payment, or to
receive only two annuity payments if he or she died after the second annuity
payment but before the third annuity payment, and so forth.
SECOND OPTION - LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS CERTAIN. An
annuity payable monthly during the lifetime of the Annuitant including the
commitment that if, at the death of the Annuitant, annuity payments have been
made for less than 120 months, 180 months, or 240 months (as selected by the
Owner in electing this Option), annuity payments shall be continued during the
remainder of the selected period to the Beneficiary.
THIRD OPTION - JOINT AND LAST SURVIVOR LIFE ANNUITY. An annuity payable monthly
during the joint lifetime of the Annuitant and another payee, and thereafter
during the remaining lifetime of the survivor, ceasing with the last annuity
payment due prior to the death of the survivor. Since there is no minimum
number of guaranteed payments under this Option, it would be possible under this
Option to receive only one annuity payment if both the Annuitant and the other
payee died before the second annuity payment date, or to receive only two
annuity payments if both the Annuitant and the other payee died after the second
annuity payment but before the third annuity payment, and so forth.
FOURTH OPTION - PAYMENTS FOR A DESIGNATED PERIOD. An amount payable monthly to
the Annuitant or other properly-designated payee, for a number of years which
may be from five to 40 (as selected by the Owner in electing this Option). At
the death of the Annuitant or other payee, payments will be continued to the
Beneficiary for the remaining period. If Variable Annuity Payments are selected
under this Option, the designated period may not exceed the life expectancy of
the Annuitant or other properly-designated payee.
FIFTH OPTION - PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. This Option is available
only as a Fixed Annuity. The amount due will be paid to the Annuitant in equal
monthly annuity payments of a designated dollar amount (not less than $125 nor
more than $200 per annum per $1,000 of the original amount due) until the
remaining balance is less than the amount of one annuity payment, at which time
such balance will be paid and will be the final annuity payment under this
Option. Upon the death of the Annuitant, payments will be continued to the
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Beneficiary until such remaining balance is paid. The remaining balance at the
end of any month is determined by decreasing the balance at the end of the
previous month by the amount of any installment paid during the month and by
adding to the result interest at a rate not less than 3.5% compounded annually.
Under the fourth option there is no mortality guarantee by American
Franklin, even though the value of Accumulation Units and Annuity Units applied
to this option will be reduced as a result of a charge to Separate Account VA-1
which is partially for mortality risks. See "Charge to Separate Account VA-1."
Under federal tax regulations, the election of the fourth or fifth options
may be treated in the same manner as a surrender of the total Account Value.
For tax consequences of such treatment, see "Federal Income Tax Matters." Also,
in such a case, tax-deferred treatment of subsequent earnings may not be
available.
ALTERNATIVE AMOUNT UNDER FIXED LIFE ANNUITY OPTIONS - Each Contract
provides that when Fixed Annuity Payments are to be made under one of the first
three Annuity Payment Options described above, the Owner (or if the Owner has
not elected a payment option, the Beneficiary) may elect monthly payments to the
Annuitant or other properly designated payee equal to the monthly payment
available under similar circumstances based on single payment immediate fixed
annuity rates then in use by American Franklin. The purpose of this provision
is to assure the Annuitant that, at retirement, if the fixed annuity purchase
rate then offered by American Franklin for new single payment immediate annuity
contracts is more favorable than the annuity rates guaranteed by the Contract,
the Annuitant or other properly designated payee will be given the benefit of
the new annuity rates.
In lieu of monthly payments, payments may be elected on a quarterly,
semi-annual or annual basis, in which case the amount of each annuity payment
will be determined on a basis consistent with that described above for monthly
payments.
TRANSFERS
After the Annuity Commencement Date, the Annuitant or other properly
designated payee may make one transfer every 180 days among the available
Divisions of Separate Account VA-1 or from the Divisions to a fixed Annuity
Payment Option. No charge will be assessed for such transfer. No transfers
from a fixed to a variable Annuity Payment Option are permitted. If a transfer
would cause the value that is attributable to a Contract in any Division to fall
below $500, American Franklin reserves the right to transfer the remaining
balance in that Division in the same proportion as the transfer request.
Transfers will be effected at the end of the Valuation Period in which American
Franklin receives a written transfer request at American Franklin's Home Office.
American Franklin reserves the right to terminate or restrict transfers at any
time.
USE OF GENDER BASED ANNUITY TABLES
Court decisions, particularly ARIZONA GOVERNING COMMITTEE v. NORRIS, have
held that the use of gender based mortality tables to determine benefits under
"employer-related" plans may
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violate Title VII of the Civil Rights Act of 1964 ("Title VII"). These cases
indicate that plans sponsored by employers subject to Title VII generally may
not provide different benefits for similarly-situated men and women.
The Contracts described in this Prospectus incorporate annuity rate tables
which reflect the age and sex of the Annuitant and the Annuity Option selected.
Such sex-distinct tables continue to be appropriate for use, for example, under
Contracts which are not purchased in connection with an "employer-related" plan
subject to NORRIS (such as Individual Retirement Annuities not sponsored by an
employer). However, in order to enable subject employers to comply with NORRIS,
American Franklin will provide Contracts incorporating "unisex" annuity rate
tables for use in connection with "employer-related" plans. Persons
contemplating purchase of a Contract, as well as current Owners, should consult
a legal advisor regarding the applicability and implications of NORRIS in
connection with their purchase and ownership of a Contract.
DEATH BENEFIT
The Contracts provide that in the event the Annuitant dies before the
Annuity Commencement Date, the Contingent Annuitant, if one was named in the
application for the Contract, will become the Annuitant. If the Annuitant dies
before the Annuity Commencement Date and either (a) there is no designated
Contingent Annuitant or (b) the Contingent Annuitant predeceases the Annuitant,
the Beneficiary will receive the Death Benefit as determined on the date of
receipt of due proof of death by American Franklin at its Home Office. The
Contracts also provide for payment of a Death Benefit to the Beneficiary if the
Owner (including the first to die in the case of joint Owners) of a Non-
Qualified Contract dies. However, if the Beneficiary is the Owner's surviving
spouse, the Beneficiary may elect to continue the Contract as described below.
The Death Benefit, prior to the deduction of any applicable premium taxes, will
equal the greater of the Account Value or the sum of all net purchase payments
minus amounts surrendered or withdrawn.
Death Benefit proceeds will remain invested in the Fixed Account and
Separate Account VA-1 in accordance with the purchase payment allocation
instructions given by the Owner until the proceeds are paid or American Franklin
receives new instructions from the Beneficiary. The death benefit may be taken
in one sum, to be paid within 7 days after the date due proof of death and a
written request in good order from the Beneficiary as to the manner of payment
are received (except when American Franklin is permitted to defer such payment
under the 1940 Act, or under any of the Annuity Payment Options then being
offered by American Franklin). The proceeds due on the death may be applied to
provide Variable Annuity Payments, Fixed Annuity Payments, or a combination of
Variable and Fixed Annuity Payments.
If the Owner has not already done so, the Beneficiary may, within 60 days
after the date the Death Benefit becomes payable, elect to receive the Death
Benefit in one sum or under any of the available Annuity Payment Options. If
American Franklin receives no request as to the manner of payment, payment will
be made in one sum, based on values determined at that time. If an Annuity
Payment Option is selected, unless directed otherwise at least 30 days prior to
the Annuity
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Commencement Date, American Franklin will apply the Fixed Account Value to
provide Fixed Annuity Payments and the Variable Account Value to provide
Variable Annuity Payments, except that in the case of a Section 457 Contract,
all Account Value will be applied to provide Fixed Annuity Payments.
If the Owner is not an individual, the Death Benefit payable upon the death
of the Annuitant prior to the Annuity Commencement Date will be payable only as
one sum or under the same Annuity Options and in the same manner as if an
individual Owner died on the date of the Annuitant's death.
The payment of the Death Benefit may be delayed for any period during which
(a) the New York Stock Exchange is closed other than customary holiday or
weekend closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission; (b) the Securities and
Exchange Commission determines that an emergency exists making valuation or
disposal of securities not reasonably practicable; or (c) the Securities and
Exchange Commission by order permits the delay for the protection of Owners.
If the Owner under a Non-Qualified Contract dies prior to the Annuity
Commencement Date, the Code requires that all amounts payable under the Contract
be distributed (a) within five years of the date of death or (b) as annuity
payments beginning within one year of the date of death and continuing over a
period not extending beyond the life expectancy of the Beneficiary. If the
Beneficiary is the Owner's surviving spouse, the spouse may elect to continue
the Contract as the new Owner and, if the original Owner was the Annuitant, as
the new Annuitant. If the Owner is not a natural person, these requirements
apply upon the death of the primary Annuitant within the meaning of the Code.
Failure to satisfy these Code distribution requirements may result in serious
adverse tax consequences. Under parallel provisions of the Code, similar
requirements apply to retirement and deferred compensation plans in connection
with which Qualified Contracts and Section 457 Contracts are issued.
Once American Franklin has paid the Death Benefit, the Contract terminates
and American Franklin has no further obligations thereunder.
CHARGES UNDER THE CONTRACTS
PREMIUM TAXES
When applicable, American Franklin will deduct an amount to cover premium
taxes. Such deduction will be made, in accordance with applicable state law:
(1) from purchase payment(s) when received; or
(2) from the Owner's Account Value at the time annuity payments begin; or
(3) from the amount of any partial withdrawal; or
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(4) from proceeds payable upon termination of the Contract for any other
reason, including death of the Annuitant or Owner, or surrender of the
Contract.
If premium tax is paid, American Franklin may reimburse itself for such tax
when deduction is being made under paragraphs 2, 3, or 4 above calculated by
multiplying the sum of purchase payments being withdrawn by the applicable
premium tax percentage.
Applicable premium tax rates depend upon the Owner's then current place of
residence. Applicable rates currently range from 0% to 3.5% and are subject to
change. American Franklin will not make a profit on this charge.
SURRENDER CHARGE
The Surrender Charge reimburses American Franklin for part of its expenses
related to distributing the Contracts. American Franklin believes, however,
that the amount of such expenses will exceed the amount of revenues generated by
the Surrender Charge. American Franklin will pay such excess out of its general
surplus, which might include profits from the charge for the assumption of
mortality and expense risks and the Annual Contract Fee.
Unless a withdrawal is exempt from the Surrender Charge (as discussed
below), the Surrender Charge is a percentage of the amount of each purchase
payment that is withdrawn during the first seven years after it was received.
The percentage declines depending on how many years have passed since the
withdrawn purchase payment was originally credited to Account Value, as follows:
Year of
Purchase Surrender Charge as a
Payment Percentage of Purchase
Withdrawal Payment Withdrawn
---------- ----------------
1st 6%
2nd 6%
3rd 5%
4th 5%
5th 4%
6th 4%
7th 2%
Thereafter 0%
Only for the purpose of computing the Surrender Charge, the earliest
purchase payments are deemed to be withdrawn first, and purchase payments are
deemed to be withdrawn before any amounts in excess of purchase payments are
withdrawn from Account Value. The following transactions will be considered as
withdrawals, for purposes of assessing the Surrender Charge: total surrender,
partial withdrawal, commencement of an Annuity Payment Option, and termination
due to insufficient Account Value.
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Nevertheless, the Surrender Charge will not apply to withdrawals in the
following circumstances:
- The amount of withdrawals that exceeds the cumulative amount of purchase
payments;
- Death of the Annuitant, at any age, after the Annuity Commencement Date;
- Death of the Annuitant, at any age, prior to the Annuity Commencement
Date, provided no Contingent Annuitant survives;
- Death of the Owner, including the first to die in the case of joint
Owners, of a Non-Qualified Contract, unless the Contract is being continued
under the special rule for a surviving spouse (see "Death Benefit");
- Annuitization under an Annuity Payment Option involving payments for at
least 10 years, or annuitization under an Annuity Payment Option involving a
life contingency if the life expectancy is at least 10 years;
- If the Owner or Annuitant has been confined to a long-term care facility
or is subject to a terminal illness (to the extent that the riders for these
matters are available in the applicable state), after the first Contract Year as
set forth under "Long-Term Care and Terminal Illness."
The Surrender Charge also may be waived with respect to the surrender of a
Contract, or to the withdrawal of Account Value (limited to the Variable Account
Value and the one year Guarantee Period) of a Contract, issued to Owners who are
bona-fide full-time employees of American Franklin, The Franklin or Franklin
Financial Services Corporation, the principal underwriter of the Contracts.
These waivers of Surrender Charge would be based upon the Contract Owner's
status at the time the Contract was purchased.
In addition, the Surrender Charge does not apply to the portion of a first
withdrawal or total surrender in any Contract Year that does not exceed 10% of
the amount of purchase payments that (a) have not previously been withdrawn and
(b) have been credited to the Contract for at least one year, but not more than
seven years. If multiple withdrawals are made during a Contract Year, the
amount eligible for the free withdrawal will be recalculated at the time of each
withdrawal. After the first Contract Year, non-automatic and automatic
withdrawals may be made in the same Contract Year subject to the 10% limitation.
For withdrawals under a systematic withdrawal plan, purchase payments credited
for 30 days or more are eligible for the 10% free withdrawal privilege.
The Surrender Charge will not apply to any amounts withdrawn which are in
excess of the amount permitted by the 10% free withdrawal privilege, described
above, if such amounts are required to be withdrawn to obtain or retain
favorable tax treatment. This exception is subject to American Franklin's
approval.
A free withdrawal pursuant to any of the foregoing Surrender Charge
exceptions is not deemed to be a withdrawal of purchase payments, except for
purposes of computing the 10% free withdrawal described in the preceding
paragraphs. A federal tax penalty may be imposed on
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distributions if the recipient is under age 59 1/2. In addition, distributions
may be subject to federal income tax withholding. See "Federal Income Tax
Matters."
TRANSFER CHARGES
The charges to defray the expense of effecting transfers are described
under "Transfer, Variable Account Asset Rebalancing, Surrender and Partial
Withdrawal of Account Value - Transfers" and "Annuity Period and Annuity Payment
Options - Transfers." These charges are designed not to yield a profit to
American Franklin.
ANNUAL CONTRACT FEE
An Annual Contract Fee of $30 will be deducted from each Owner's Account
Value on each Contract Anniversary prior to the Annuity Commencement Date. This
fee is for administrative expenses (which do not include expenses of
distributing the Contracts), and American Franklin does not expect that the
revenues derived from this fee will exceed such expenses. The fee will be
allocated among the Guarantee Periods and Divisions in proportion to the Account
Value in each. If a full surrender of a Contract occurs on a date other than a
Contract Anniversary, the entire fee for the Contract Year during which the
surrender occurs will be deducted from the proceeds. This Annual Contract Fee
is currently waived if cumulative purchase payments are at least $75,000.
American Franklin reserves the right to waive the Annual Contract Fee under
other circumstances.
CHARGE TO SEPARATE ACCOUNT VA-1
To offset other administrative expenses not covered by the Annual Contract
Fee discussed above, and to compensate American Franklin for assuming mortality
and expense risks under the Contracts, Separate Account VA-1 will incur a daily
charge at an annualized rate of 1.40% of the average daily net asset value of
Separate Account VA-1 attributable to the Contracts. Of this amount, .15% on an
annual basis is for administrative expenses and 1.25% on an annual basis is for
the assumption of mortality and expense risks. American Franklin does not
expect to earn a profit on that portion of the charge which is for
administrative expenses, but does expect to derive a profit from the portion
which is for the assumption of mortality and expense risks. There is no
necessary relationship between the amount of administrative charges imposed on a
given Contract and the amount of expenses actually attributable to that
Contract.
In assuming the mortality risk, American Franklin is subject to the risk
that its actuarial estimate of mortality rates may prove erroneous and that
Annuitants will live longer than expected, or that more Owners or Annuitants
than expected will die at a time when the death benefit guaranteed by American
Franklin is higher than the net surrender value of their interests in the
Contracts. In assuming the expense risk, American Franklin is subject to the
risk that the revenues from the expense charges under the Contracts (which
charges are guaranteed not to be increased) will not cover its expense of
administering the Contracts.
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MISCELLANEOUS
Charges and expenses are paid out of the assets of each Portfolio, as
described in the prospectus relating to that Portfolio. American Franklin
reserves the right to impose charges or establish reserves for any federal,
state or local taxes incurred or that may be incurred by American Franklin, and
that may be deemed attributable to the Contracts.
SYSTEMATIC WITHDRAWAL PLAN
Automatic partial withdrawals, with minimum payments of $100, may be made
at periodic intervals through a systematic withdrawal program. The Owner may
choose monthly, quarterly, semi-annual or annual payment schedules and may
start, stop, increase or decrease payments, subject to the minimum payment
limit. Withdrawals may start as early as 30 days after the issue date of the
Contract and may be taken from the Fixed Account or any Division, as specified
by the Owner. Systematic withdrawals are subject to the terms and conditions
applicable to other partial withdrawals, including Surrender Charges and
exceptions to Surrender Charges and may be subject to federal tax penalties and
federal income tax withholding.
REDUCTION IN SURRENDER CHARGES OR ADMINISTRATIVE CHARGES
American Franklin may reduce the Surrender Charges or administrative
charges imposed under certain Qualified Contracts and Section 457 Contracts in
connection with employer-sponsored plans. Any such reductions will reflect
differences in costs or services (due to such factors as reduced sales expenses
or administrative efficiencies relating to serving a large number of employees
of a single employer and functions assumed by the employer that American
Franklin otherwise would have to perform) and will not be unfairly
discriminatory as to any person.
LONG-TERM CARE AND TERMINAL ILLNESS
THE RIDERS DESCRIBED BELOW ARE NOT AVAILABLE IN ALL STATES, AND AN OWNER SHOULD
THEREFORE CONSULT A SALES REPRESENTATIVE OR AMERICAN FRANKLIN'S HOME OFFICE TO
DETERMINE WHETHER THEY WILL APPLY. THERE IS NO SEPARATE CHARGE FOR THESE
RIDERS.
LONG-TERM CARE
Pursuant to a special Contract rider, after the first Contract Year, no
Surrender Charge will apply during any period of time that the Annuitant or
Owner is confined for 30 days or more (or within 30 days after discharge) in a
hospital or state licensed in-patient nursing facility. American Franklin must
receive satisfactory written proof of such confinement.
TERMINAL ILLNESS
This rider provides that, after the first Contract Year, no Surrender
Charge will apply if American Franklin has received a physician's written
certification that the Owner or Annuitant is terminally ill and not expected to
live more than twelve months and American Franklin has waived
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its right to a second physician's opinion or obtained a confirmatory opinion
from a second physician.
OTHER ASPECTS OF THE CONTRACTS
Only an officer of American Franklin can agree to change or waive the
provisions of any Contract. The Contracts are non-participating and are not
entitled to share in any dividends, profits or surplus of American Franklin.
OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
The Owner of a Contract is the Annuitant, unless an Owner other than the
Annuitant is designated in the application for the Contract. In the case of
joint ownership, both Owners must join in the exercise of any rights or
privileges under the Contract. The Annuitant and any Contingent Annuitant are
designated in the application for a Contract and may not thereafter be changed.
The Beneficiary and any Contingent Beneficiary are designated by the Owner
in the application for a Contract. Subject to applicable limitations under the
Code and any governing Qualified Plan, a Beneficiary or Contingent Beneficiary
may be changed by the Owner prior to the Annuity Commencement Date, while the
Annuitant is still alive, and, except in the case of a Section 457 Contract, by
the payee following the Annuity Commencement Date. Any designation of a new
Beneficiary or Contingent Beneficiary is effective as of the date it is signed
but will not affect any payments American Franklin makes or action American
Franklin takes before receiving the written request. American Franklin also
needs the written consent of any irrevocably-named Beneficiary or Contingent
Beneficiary before making a change. Under certain retirement programs, spousal
consent may be required to name a Beneficiary other than the spouse or to change
a Beneficiary to a person other than the spouse. American Franklin is not
responsible for the validity of any designation of a Beneficiary or Contingent
Beneficiary.
If no named Beneficiary or Contingent Beneficiary is living at the time any
payment is to be made, the Owner will be the Beneficiary, or if the Owner is not
then living, the Owner's estate will be the Beneficiary.
Rights under a Qualified Contract may be assigned only in certain narrow
circumstances referred to therein. Owners and other payees may assign their
rights under Non-Qualified Contracts, including their ownership rights. Rights
under a Section 457 Contract may only be assigned by the Owner thereof and not
by the Annuitant or other payee. American Franklin takes no responsibility for
the validity of any assignment. A change in ownership rights must be made in
writing and a copy must be sent to American Franklin's Home Office. The change
will be effective on the date it was made, although American Franklin is not
bound by a change until the date American Franklin records it. The rights under
a Contract are subject to any assignment of record at American Franklin's Home
Office. An assignment or pledge of a Contract may have adverse tax
consequences. See "Federal Income Tax Matters."
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REPORTS
American Franklin will mail to Owners (or persons receiving payments
following the Annuity Commencement Date), at their last known address of record,
any reports and communications required by applicable law or regulation.
Therefore, prompt written notice of any address change should be given to
American Franklin.
MODIFICATION
American Franklin reserves the right to modify the Contract, but only if
such modification: (i) is necessary to make the Contract or Separate Account
VA-1 comply with any law or regulation issued by a governmental agency to which
American Franklin is subject; or (ii) is necessary to assure continued
qualification of the Contract under the Code or other federal or state laws
relating to retirement annuities or Annuity contracts; or (iii) is necessary to
reflect a change in the operation of Separate Account VA-1 or the Division(s) or
(iv) provides additional Separate Account options or (v) withdraws Separate
Account options. In the event of any such modification, American Franklin will
provide notice to the Owner or to the payee(s) during the Annuity Period.
American Franklin may also make appropriate endorsements in the Contract to
reflect such modification.
PAYMENT AND DEFERMENT
Amounts surrendered or withdrawn from a Contract will normally be paid
within seven calendar days after the end of the Valuation Period in which
American Franklin receives the written surrender or withdrawal request in good
order. In the case of payment of a Death Benefit, if American Franklin does not
receive a written request as to the manner of payment within 60 days after the
Death Benefit becomes payable, any death benefit proceeds will be paid as a lump
sum, normally within seven calendar days after the end of the Valuation Period
that contains the last day of said 60 day period. American Franklin reserves
the right, however, to defer payment or transfers of amounts out of the Fixed
Account for up to six months. Also, American Franklin reserves the right to
defer payment of that portion of Account Value that is attributable to a
purchase payment made by check for a reasonable period of time (not to exceed 15
days) to allow the check to clear the banking system.
Finally, American Franklin reserves the right to delay payment of any
surrender and annuity payment amounts or Death Benefit amounts of any portion of
the Variable Account Value for any period during which (a) the New York Stock
Exchange is closed other than customary weekend and holiday closings, or trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission; (b) the Securities and Exchange Commission determines that
an emergency exists making valuation or disposal of securities not reasonably
practicable; or (c) the Securities and Exchange Commission by order permits the
delay for the protection of Owners. Transfers and allocations of Account Value
among the Divisions and the Fixed Account may also be postponed under these
circumstances.
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FEDERAL INCOME TAX MATTERS
INTRODUCTION
The federal income tax treatment of the Contracts and payments received
thereunder depends on various factors, including, among other factors, the tax
status of American Franklin, whether the Contracts have been issued in
connection with a retirement or deferred compensation plan or program, and if
so, the type of such retirement or deferred compensation plan or program and the
form in which payments are received. The discussion of federal income taxes
contained in this Prospectus, which focuses on rules applicable to Contracts
purchased under this Prospectus, is general in nature and is based on existing
federal income tax law, which is subject to change. The tax discussion is not
intended as tax advice. The applicable federal income tax law is complex and
contains many special rules and exceptions in addition to the general rules
summarized herein. For these reasons, various questions about the applicable
rules exist. American Franklin does not guarantee the tax status of the
Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. Accordingly, each
person contemplating the purchase of a Contract is advised to consult with a
qualified tax advisor concerning federal income taxes and any other federal,
state or local taxes that may be applicable.
AMERICAN FRANKLIN
American Franklin is taxed as a "life insurance company" under the Code.
Since the operations of Separate Account VA-1 are part of the overall operations
of American Franklin, Separate Account VA-1 is subject to tax as part of
American Franklin for federal income tax purposes. Thus, Separate Account VA-1
is not taxed separately as a "regulated investment company" under the Code.
Under the Code a life insurance company like American Franklin is generally
taxed at regular corporate rates, under a single-phase system, on its specially-
computed life insurance company taxable income. Some special rules continue to
apply, however, in the case of segregated asset accounts like Separate Account
VA-1.
Investment income and realized capital gains on the assets of Separate
Account VA-1 are reinvested by American Franklin for the benefit of Separate
Account VA-1 and are taken into account in determining the value of Accumulation
Units and Annuity Units. As a result, such income and gains are applied to
increase reserves applicable to Separate Account VA-1. Under the Code, no
federal income tax is payable by American Franklin on such investment income or
on realized capital gains of Separate Account VA-1 on assets held in Separate
Account VA-1.
Certain Portfolios may elect to pass through to American Franklin any taxes
withheld by foreign taxing jurisdictions on foreign source income. Such an
election will result in additional taxable income and income tax to American
Franklin. The amount of additional income tax, however, may be more than offset
by credits for the foreign taxes withheld which are also passed through. These
credits may provide a benefit to American Franklin.
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THE CONTRACTS: NON-QUALIFIED CONTRACTS
In the case of a Non-Qualified Contract issued in connection with a
Non-Qualified Plan, the provisions of the Non-Qualified Plan determine the tax
treatment of participants. For example, contributions to, or deferred
compensation in connection with, Non-Qualified Plans may or may not be currently
taxable to participants.
Payments received under a Non-Qualified Contract are subject to tax under
Section 72 of the Code. Under the Code, an increase in the value of an Owner's
Contract ordinarily is not taxable to the Owner until such amount is received as
annuity payments, a lump sum or a partial redemption. A special rule, however,
applies to certain annuity contracts held by a person (such as a corporation,
partnership, trust or estate) which is not a natural person. With respect to a
Contract held by a non-natural person, the Contract is not treated as an
"annuity contract" for certain federal income tax purposes and the income on the
Contract for any taxable year is treated as ordinary income taxable to the Owner
during such year. This special rule, however, does not apply to any Contract
which, among other exceptions: (1) is an immediate Annuity that is purchased
with a single premium or Annuity consideration that has an Annuity starting date
commencing no later than one year from the date of the purchase of the Contract
and which provides for a series of substantially equal periodic payments (to be
made not less frequently than annually) during the Annuity period; (2) is
acquired by the estate of a decedent by reason of the decedent's death; or
(3) is held by a trust or other entity as an agent for a natural person. Non-
natural persons contemplating the purchase of a Contract are advised to consult
a qualified tax advisor concerning the tax consequences of such holding and
purchase.
If payments under a Contract are received in the form of an Annuity, then,
in general, each payment is taxable as ordinary income to the extent that such
payment exceeds the portion of the cost basis of the Contract that is allocable
to that payment. If the Annuitant's life span exceeds his or her life
expectancy, the cost basis in the Contract will eventually be recovered, and any
payments made after that point will be fully taxable. If, however, the Annuity
payments cease after the Annuity Commencement Date by reason of the death of the
Annuitant, the amount of any unrecovered cost basis in the Contract will
generally be allowed as a deduction to the Annuitant for his or her last taxable
year.
Payment of the proceeds of a Contract in a lump sum either before or at the
Annuity Commencement Date is taxable as ordinary income to the extent the lump
sum exceeds the cost basis of the Contract. A payment received on account of a
partial withdrawal from a Contract generally is taxable as ordinary income in
whole or in part. Also, if prior to the Annuity Commencement Date, (i) a
Contract is assigned or pledged, or (ii) a Contract issued after April 22, 1987
is transferred without adequate consideration, then the amount assigned, pledged
or transferred may similarly be taxable. Special rules may apply with respect
to investments in a Contract obtained by a tax-free exchange of an annuity
contract purchased prior to August 14, 1982. Because the applicable tax
treatment is complex, a qualified tax advisor should be consulted prior to a
partial withdrawal, assignment, pledge or Contract transfer.
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Further, in general, a penalty may be imposed equal to 10% of the taxable
portion of any payment received under a Non-Qualified Contract. However, the
10% penalty does not apply in various circumstances. For example, the penalty
is generally inapplicable to payments that are: (i) made on or after age 59 1/2
of the Owner; (ii) made on or after the death of the Owner (or when the Owner is
not an individual, the death of the Annuitant); (iii) made incident to
disability; (iv) part of a series of substantially equal periodic payments made
(not less frequently than annually) for the life (or the life expectancy) of the
Annuitant or the joint lives (or joint life expectancies) of the Annuitant and
his or her beneficiary; (v) allocable to investments in the Contract before
August 14, 1982; or (vi) made under a Contract purchased with a single premium
and which has an Annuity Commencement Date no later than one year from the
purchase date of the Contract and which provides for a series of substantially
equal periodic payments (to be made not less frequently than annually) during
the Annuity payment period.
A. DISTRIBUTION REQUIREMENTS
In general, certain distribution requirements are imposed by the Code in
the case of annuity contracts issued after January 18, 1985 in order for the
contracts to qualify as "annuity contracts" under the Code. Certain questions
exist about the application of these rules to distributions from the Contracts
and their effect on Annuity Payment Option availability thereunder.
Under these distribution requirements, if the Owner of a Non-Qualified
Contract issued after January 18, 1985 dies on or after the Annuity Commencement
Date but before the entire interest in the Contract has been distributed, then
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 his or her
death. Also, if the Owner of such a Contract dies before the Annuity
Commencement Date, then the entire interest in the Contract must be distributed
within five years after the date of death. Under a special exception, this
five-year distribution rule is deemed satisfied if (i) any portion of the
Owner's interest is payable to a designated Beneficiary, (ii) that portion is
distributed to the designated Beneficiary over the life of such Beneficiary (or
over a period not extending beyond the Beneficiary's life expectancy) and
(iii) such distributions begin not later than one year after the death of the
Owner. If the designated Beneficiary is the surviving spouse of the Owner, the
surviving spouse will be treated as the Owner for purposes of these distribution
rules. Also, if the Owner is not an individual, a change in the Annuitant shall
be treated as the death of the Owner for purposes of these distribution rules.
The effect of the distribution requirements described above is that, in the
case of Non-Qualified Contracts issued after January 18, 1985, Annuity Payment
Option availability will be limited as necessary to comply with the applicable
distribution rules. For example, under these rules, it appears that the first
option (Life Annuity) would not be available to a designated Beneficiary under
such a Contract unless distributions to the Beneficiary begin not later than one
year after the date of the Owner's death. Other Annuity Payment Options may be
restricted or unavailable as well under the distribution rules. All Annuity
Options under the Contracts are offered subject to the limitations of the
distribution rules. Persons contemplating the purchase of
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a Contract should consult a qualified tax advisor concerning the effect of the
distribution rules on the Annuity Payment Option or Options he or she is
contemplating.
B. DIVERSIFICATION
A Non-Qualified Contract will not be treated as an "annuity contract" for
purposes of certain Code sections, including Section 72, for any period (and any
subsequent period) for which the investments made by Separate Account VA-1
attributable to such Non-Qualified Contract are not adequately diversified in
accordance with Treasury Department regulations. Although American Franklin
does not control the Funds, the investment advisers to the Funds have undertaken
to use their best efforts to operate the Funds in compliance with these
diversification requirements. If a Contract is not treated as an annuity
contract, the Owner would be required to treat the income on the Contract during
the period of nondiversification and any subsequent periods as ordinary income
received or accrued during those periods and to include such income in gross
income for federal income tax purposes. For this purpose, the income on the
Contract is defined as the difference between (1) the increase in the net
surrender value of the Contract during the period of nondiversification and
subsequent periods and (2) the purchase payments made during such periods. The
Owner would also be required to treat the previously untaxed income on the
Contract for all taxable years prior to the first year of nondiversification as
ordinary income received or accrued in the first year of nondiversification and
to include such income in gross income for federal income tax purposes for such
first year of nondiversification.
Prior to the issuance of the final Treasury Department regulations
regarding the diversification requirements, the Treasury Department stated that
it anticipated issuing regulations or rulings prescribing the circumstances
under which the ability of an Owner to direct his or her investments to
particular Funds may cause the Owner, rather than American Franklin to be
treated as the owner of the assets in Separate Account VA-1. If an Owner were
treated as the owner of assets of Separate Account VA-1, the income and gains
from Separate Account VA-1 would be included in the Owner's income for federal
income tax purposes, prior to receipt of payments under the Contract. Due to
the uncertainty in this area, American Franklin reserves the right to modify the
Contracts in an attempt to maintain favorable tax treatment.
C. AGGREGATION OF CONTRACTS
Under a provision of the federal tax law effective for annuity contracts
entered into after October 21, 1988, all annuity contracts (including Section
457 Contracts but excluding Qualified Contracts) issued by the same company (or
affiliates) to the same contract owner during any calendar year will generally
be treated as one annuity contract for the purpose of determining the amount of
any distribution, not in the form of an annuity, that is includable in gross
income. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new contract for this
purpose. This rule may have the effect of causing more rapid taxation of the
distributed amounts from such combination of contracts. It is not certain how
this rule will be applied or interpreted by the Internal Revenue Service. In
particular, it is not clear if or how this rule applies to immediate variable
annuity contracts or "split" annuity arrangements. Accordingly, a qualified tax
advisor should be consulted about the application and effect of this rule.
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D. INCOME TAX WITHHOLDING
Withholding of federal income tax is generally required from distributions
from the Non-Qualified Contracts to the extent the distributions are taxable and
are not otherwise subject to withholding as wages ("Distributions"). See "The
Contracts: Non-Qualified Contracts" above, regarding the taxation of such
Distributions. However, except in the case of certain payments delivered
outside the United States or any possession of the United States, no withholding
is required from any Distribution if the payee properly elects, in accordance
with prescribed procedures, not to have withholding apply.
In the absence of a proper election not to have withholding apply, the
amount to be withheld from a Distribution depends on the type of payment being
made. Generally, in the case of periodic payments, the amount to be withheld
from each payment is the amount that would be withheld therefrom under specified
wage withholding tables as if the taxable portion of the payment were a payment
of wages for the appropriate payroll period. In the case of most other
Distributions, including partial redemptions and lump sum payments, the amount
to be withheld is equal to 10% of the taxable portion of the Distribution.
THE CONTRACTS: SECTION 457 CONTRACTS
Section 457 of the Code permits a State (for this purpose, "State" means a
State, political subdivision of a State, agency or instrumentality of a State or
a political subdivision of a State) and certain tax-exempt organizations to
maintain deferred compensation plans for their individual employees and certain
of their individual independent contractors.
If the requirements of Section 457 and the employer's plan are satisfied,
amounts contributed to such a plan by eligible employees and independent
contractors, and any gains thereon, are not, subject to certain limitations,
taxable to the participants until distributed to the participants. If payments
under a Section 457 Contract are received in the form of an annuity pursuant to
the terms of a qualified Section 457 Plan, such payments are taxable to the
recipient as ordinary income in the year in which received or made available.
Section 457 limits the annual amount of contributions a participant may
make to a Section 457 Plan to 33-1/3% of the participant's includable
compensation for the year or $7,500, whichever is less. In addition, if the
participant did not contribute the maximum amount permitted under the plan and
Section 457 in prior years, the plan may also provide, under certain
circumstances, for additional contributions by the participant during the last
three taxable years ending before the normal retirement age of the participant,
up to a total per year for such three years not to exceed the lesser of $15,000
or the participant's compensation for that year. The foregoing contribution
limitations may be reduced under certain circumstances if the participant
contributes to more than one deferred compensation plan or tax qualified
retirement plan (whether or not such plans are maintained by the same employer).
Generally, distributions under a Section 457 Contract must commence no
later than April 1 following the calendar year in which the Annuitant attains
age 70-1/2. Distributions under a Section 457 Plan maintained by a State may be
further deferred if the Annuitant remains
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employed. The entire interest of an Annuitant in a Section 457 Plan must be
distributed either (a) no later than the required beginning date described above
or (b) beginning by such date, over the life of the Annuitant, the lives of the
Annuitant and a designated Beneficiary, or a period certain not extending beyond
the life expectancy of the Annuitant or the joint life expectancies of the
Annuitant and a designated Beneficiary. The distributions must also satisfy
certain minimum distribution rules which are similar to minimum incidental
benefit requirements set forth in proposed regulations. Further, any
distribution payable over a period of more than one year may only be made in
substantially non-increasing amounts no less frequently than annually. If the
amount distributed for a calendar year is less than the minimum required to be
distributed for the year, a penalty tax equal to 50% of the amount which should
have been distributed will be imposed.
If the Annuitant dies on or after the Annuity Commencement Date but before
the entire interest in the Contract has been distributed, then 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 Annuitant's death.
Also, if the Annuitant dies before the Annuity Commencement Date, then the
entire interest in the Contract must be distributed within five years after the
date of death. Under a special exception, this five-year distribution rule is
deemed satisfied if (i) any portion of the Annuitant's interest is payable to a
designated Beneficiary, (ii) that interest is distributed beginning no later
than one year after the death of the Annuitant and (iii) such distributions to
the designated Beneficiary are made over the life of such Beneficiary (or over a
period not extending beyond the Beneficiary's life expectancy) so long as the
period does not exceed fifteen years unless the designated Beneficiary is the
surviving spouse of the Annuitant. If the designated Beneficiary is the
surviving spouse of the Annuitant, payments are not required to begin until the
date on which the Annuitant would have attained age 70-1/2 and must be payable
over a period not to exceed the life expectancy of the surviving spouse. In
addition, if the designated Beneficiary is the surviving spouse of the Annuitant
and such surviving spouse dies before Annuity payments to the surviving spouse
commence, the surviving spouse will be treated as the Annuitant under the
foregoing rules.
Various questions exist about the application of the distribution rules to
distributions from the Contracts and their effect on Annuity Option availability
thereunder. The effect of the distribution requirements described above is that
Annuity Option availability will be limited as necessary to comply with the
applicable distribution rules. All Annuity Options under the Contracts are
offered subject to the limitations of the distribution rules. Persons
contemplating the purchase of a Contract should consult a qualified tax advisor
concerning the effect of the distribution rules on the Annuity Payment Option or
Options he or she is contemplating.
A participant in a qualified Section 457 deferred compensation plan should
understand that his or her rights and benefits are governed strictly by the
terms of the plan, that he or she is in fact a general creditor of the employer
under the terms of the plan, that the employer is the legal owner of any
Contract issued with respect to the plan and that the employer as Owner of the
Contract retains all voting and redemption rights which may accrue to the
Contract issued with respect to the plan. The participant should look to the
terms of his or her plan for any charges in regard to participating therein
other than those disclosed in this Prospectus.
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Since the Owner of a Section 457 Contract will be the employer State or
tax-exempt organization, the Section 457 Contract will not be treated as an
"annuity contract" for certain federal income tax purposes and the income on the
Contract for any taxable year will be treated as ordinary income of the Owner
during such year. Employers contemplating the purchase of a Section 457
Contract are advised to consult a qualified tax advisor concerning the tax
consequences of such holding and purchase.
The 10% penalty tax on early withdrawals described under "Non-Qualified
Contracts" also applies to payments made to participants under Section 457
Contracts. In addition, the rules on aggregation of annuity contracts and
federal income tax withholding described under "Non-Qualified Contracts" also
apply to Section 457 Contracts.
THE CONTRACTS: QUALIFIED CONTRACTS
The manner in which payments received under a Qualified Contract are taxed
for federal income tax purposes depends on the form of payment. If payments are
received in the form of an annuity, then, in general, under Section 72 of the
Code, such payment is taxable to the recipient as ordinary income to the extent
that such payment exceeds the portion, if any, of the cost basis of the Contract
that is allocable to that payment. If the Annuitant's life span exceeds his or
her life expectancy, the Annuitant's cost basis will eventually be recovered,
and any payments made after that point will be fully taxable. For Individual
Retirement Annuities, however, the recovery of the cost basis generally extends
over the entire payment period, even if the life expectancy is exceeded. If,
however, the Annuity payments cease after the Annuity Commencement Date by
reason of the death of the Annuitant, the amount of any unrecovered cost basis
in the Qualified Contract will generally be allowed as a deduction to the
Annuitant for his or her last taxable year. A payment received on account of
partial redemption of an annuity contract generally is taxable in whole or part.
The taxation of a partial redemption is governed by complex rules and a
qualified tax advisor should be consulted prior to a proposed partial
redemption.
Generally, payment of the proceeds of a Qualified Contract in a lump sum
instead of in the form of an annuity, either at or before maturity, also is
taxable as ordinary income to the extent the lump sum exceeds the cost basis of
the Qualified Contract. Taxation may be deferred, however, to the extent, if
any, that "rollover" treatment is available and elected for a particular
distribution.
The Qualified Contracts are designed for use in connection with several
types of Qualified Plans, as described generally below.
A. QUALIFIED PENSION, PROFIT-SHARING AND ANNUITY PLANS
Under pension and profit-sharing plans that qualify under Section 401(a) of
the Code and annuity purchase plans that qualify under Section 403(a) of the
Code (collectively "Corporate Qualified Plans"), amounts contributed by an
employer to the Corporate Qualified Plan on behalf of an employee and any gains
thereon are not, in general, taxable to the employee until distribution.
Generally, the cost basis of an employee under a Corporate Qualified Plan will
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equal the amount of non-deductible contributions, if any, that the employee made
to the Corporate Qualified Plan.
The Code imposes an additional tax of 10% on the taxable portion of any
early withdrawal from a Corporate Qualified Plan made by an Annuitant before age
59 1/2, death, or disability. The additional income tax on early withdrawals
will not apply, however, to certain distributions including (a) distributions
beginning after separation from service that are part of a series of
substantially equal periodic payments made at least annually for the life or
life expectancy of the Annuitant or the joint lives or joint life expectancies
of the Annuitant and his or her Beneficiary, and (b) distributions made to
Annuitants after separating from service after attaining age 55. Further,
additional penalties may apply to distributions made on behalf of a "5-percent
owner" (as defined by Section 416(i)(1)(B) of the Code).
If a lump sum payment of the proceeds of a Contract qualifies as a "lump
sum distribution" under the Code, special tax rules (including limited capital
gain and income averaging treatment in some circumstances) may apply.
B. H.R. 10 PLANS (SELF-EMPLOYED INDIVIDUALS)
Self-employed persons (including members of partnerships) are permitted to
establish and participate in Corporate Qualified Plans under Sections 401(a) and
403(a) of the Code. Corporate Qualified Plans in which self-employed persons
participate are commonly referred to as "H.R. 10 Plans."
The tax treatment of annuity payments and lump sum payments received in
connection with an H.R. 10 Plan is, in general, subject to the same rules
described in "Qualified Pension, Profit-Sharing and Annuity Plans," immediately
above. Some special rules apply, however, in the case of self-employed persons
which, for example, affect certain "lump sum distribution" rules.
C. SECTION 403(b) ANNUITIES
Section 403(b) of the Code permits public schools and other tax-exempt
organizations described in Section 501(c)(3) of the Code to purchase annuity
contracts for their employees subject to special tax rules.
Subject to certain conditions and limitations set forth in the Code,
amounts contributed by an employer to purchase a Section 403(b) annuity contract
and any gains thereon are excludable from the gross income of the employee in
the year in which contributed and are not taxable to the employee until
distributed to the employee. In general, the amount of employer contributions
excludable from the gross income of the employee is limited to an "exclusion
allowance" for such year. The amount of the "exclusion allowance" generally is
20% of the employee's includible compensation from the employer multiplied by
such employee's years of service and reduced by amounts contributed on behalf of
such employee by the employer in prior plan years. Certain exceptions apply in
calculating the "exclusion allowance", for example there are alternate methods
of calculating the "exclusion allowance" and a minimum exclusion allowance
applies to
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certain church employees. In addition to the "exclusion allowance", employer
contributions to purchase a Section 403(b) annuity contract are subject to other
limitations set forth in the Code, including for example the limitations under
Code Section 401(a)(17) and 415(c). In addition, elective deferrals in a year
made pursuant to a salary reduction agreement to purchase a Section 403(b)
annuity contract are subject to a $7,000 limitation, adjusted for inflation
($9,500 in 1996). Eligible employees of certain organizations who have
completed at least 15 years of service may make elective deferrals in excess of
the $7,000 limitation, adjusted for inflation, of up to $3,000. Amounts of
employer contributions in excess of the excludable amounts generally are
includable in the gross income of the employee in the year in which such amounts
are substantially vested. In addition, in certain cases, employees may make
non-deductible contributions to purchase Section 403(b) annuity contracts.
Generally, the cost basis of an employee under a Section 403(b) annuity contract
will equal the amount of any non-deductible contributions the employee made
toward the contract plus any employer contributions that were taxable to the
employee because they exceeded excludable amounts.
Federal tax law imposes limitations on distributions from Section 403(b)
annuity contracts. Withdrawals of amounts attributable to contributions made
pursuant to a salary reduction agreement in connection with a Section 403(b)
annuity contract will be permitted only (1) when an employee attains age 59 1/2,
separates from service, dies or becomes totally and permanently disabled or
(2) in the case of hardship. A withdrawal made in the case of hardship may not
include income attributable to the contributions. However, these limitations
generally do not apply to distributions which are attributable to assets held as
of December 31, 1988. In general, therefore, contributions made prior to
January 1, 1989, and earnings on such contributions through December 31, 1988,
are not subject to these limitations. In addition, these limitations do not
apply to contributions made other than by a salary reduction agreement. A
number of questions exist concerning the application of these rules. Anyone
considering a withdrawal from a Contract issued in connection with a Section
403(b) annuity plan should consult a qualified tax advisor.
The 10% penalty tax on early withdrawals described under "Qualified
Pension, Profit-Sharing and Annuity Plans," also applies to Section 403(b)
annuity contracts.
D. INDIVIDUAL RETIREMENT ANNUITIES
1. Section 408(b) Individual Retirement Annuities
Under Sections 408(b) and 219 of the Code, special tax rules apply to
Individual Retirement Annuities. As described below, certain contributions to
such annuities (other than Rollover Contributions) are deductible within certain
limits and the gains on contributions (including Rollover Contributions) are not
taxable until distributed. Generally, the cost basis of an Individual
Retirement Annuity will equal the amount of non-deductible contributions, if
any, made to the Individual Retirement Annuity. Under special rules, all
individual retirement plans will be treated as one plan for purposes of these
rules.
Section 408(b) sets forth various requirements that an annuity contract
must satisfy before it will be treated as an Individual Retirement Annuity.
Although final regulations that interpret
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some of these requirements have been adopted, other regulations have been
proposed that interpret the additional requirement that, under a Section 408(b)
Individual Retirement Annuity, the premiums may not be fixed. These proposed
regulations, which contain certain ambiguities, may, of course, be changed
before they are issued in final form. Accordingly, while American Franklin
believes that the Contracts offered by this Prospectus meet the requirements of
Section 408(b), the final regulations and the currently proposed regulations
thereunder, there can be no assurance that the Contracts qualify as Individual
Retirement Annuities under Section 408(b) pending the issuance of complete final
regulations under that Code section.
Individuals who are not "active participants" in an employer-related
retirement plan described in Section 219(g) of the Code will, in general, be
allowed to contribute to an Individual Retirement Annuity and to deduct a
maximum of $2,000 annually (or 100% of the individual's compensation if less).
In addition, this deduction will be allowed for unmarried individuals (and
married individuals filing separate returns) who are active participants in
Qualified Plans and who have annual adjusted gross income that is not above
$25,000 ($40,000 for married individuals filing a joint return). This deduction
will be phased out for unmarried individuals (and married individuals filing
separate returns) who are active participants in Qualified Plans with annual
adjusted gross income between $25,000 and $35,000 ($40,000 and $50,000 for
married individuals filing a joint return), and will not be allowed for such
unmarried individuals (and married individuals filing separate returns) with
annual adjusted gross income above $35,000 ($50,000 for married individuals
filing a joint return). For married individuals filing a joint return, the
active participant status of both spouses is taken into account in determining
the deductible limit. An individual will not be considered married for a year
in which the individual and the individual's spouse (1) file separate returns
and (2) did not live together at any time during the year. Individuals who may
not make deductible contributions to an Individual Retirement Annuity may,
instead, make non-deductible contributions (up to the applicable maximums
described above) on which earnings will accumulate on a tax-deferred basis. If
the Individual Retirement Annuity includes non-deductible contributions,
distributions will be divided on a pro rata basis between taxable and non-
taxable amounts. Special rules apply if, for example, an individual contributes
to an Individual Retirement Annuity for his or her own benefit and to another
Individual Retirement Annuity for the benefit of his or her spouse.
The 10% penalty tax on early withdrawals described under "Qualified
Pension, Profit-Sharing and Annuity Plans," above, also applies to Individual
Retirement Annuities, except that the circumstances in which the penalty tax
will not apply are different in certain respects. Further, for any year in
which an Owner borrows any money under or by use of the Individual Retirement
Annuity, the Contract ceases to qualify under Section 408(b), and an amount
equal to the fair market value of the Contract as of the first day of such year
is includable in the Owner's gross income for such year.
2. Section 408(k) Simplified Employee Pensions
An Individual Retirement Annuity described in Section 408(b) of the Code
that also meets the special requirements of Section 408(k) qualifies as a
Simplified Employee Pension. Under a Simplified Employee Pension, employers may
contribute to the Individual Retirement
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Annuities of their employees. An employee may exclude from gross income,
subject to certain limitations, the employer's contribution on his or her behalf
to a Simplified Employee Pension. Elective deferrals under a Simplified
Employee Pension are subject to a $7,000 limitation, adjusted for inflation
($9,500 for 1996). In general, the employee may also contribute and possibly
deduct an additional amount not in excess of the lesser of (a) $2,000 or (b)
100% of compensation if the employee meets the qualifications for an Individual
Retirement Annuity. However, annual purchase payments from all sources may not
exceed $24,500.
In general, except as stated in this section, the rules discussed in
"Section 408(b) Individual Retirement Annuities," immediately above, also apply
to a Simplified Employee Pension.
E. INCOME TAX WITHHOLDING
Withholding of federal income tax is generally required from distributions
from Qualified Plans and Contracts issued in connection therewith, to the extent
the distributions are taxable and are not otherwise subject to withholding as
wages ("Distributions"). See "The Contracts: Qualified Contracts," above,
regarding the taxation of Distributions.
Federal income tax is generally required to be withheld from all or any
portion of a Distribution that constitutes an "eligible rollover distribution."
An "eligible rollover distribution" generally includes the taxable portion of
any distribution from a qualified trust described in Section 401(a) of the Code,
a qualified annuity plan described in Section 403(a) of the Code or a qualified
annuity contract described in Section 403(b) of the Code, except for (i) a
distribution which is one of a series of substantially equal periodic
installments payable at least annually for the life (or the life expectancy) of
the Annuitant or for the joint lives (or the joint life expectancies) of the
Annuitant and his or her Beneficiary, or for a specified period of 10 years or
more or (ii) a minimum distribution required by Section 401(a)(9) of the Code.
Any eligible rollover distribution which is not rolled over directly from a
Section 401(a) qualified trust, a Section 403(a) qualified annuity plan or a
Section 403(b) qualified annuity contract to an "eligible retirement plan" is
subject to mandatory federal income tax withholding in an amount equal to 20% of
the eligible rollover distribution. An "eligible retirement plan" generally
includes a qualified trust described in Section 401(a) of the Code, a qualified
annuity plan described in Section 403(a) of the Code, an individual retirement
account described in Section 408(a) of the Code or an Individual Retirement
Annuity described in Section 408(b) of the Code. Mandatory federal income tax
withholding is required even if the Annuitant receives an eligible rollover
distribution and rolls it over within 60 days to an eligible retirement plan.
Federal income tax is not required to be withheld from any eligible rollover
distribution that is rolled over directly from a qualified trust described in
Section 401(a) of the Code, a qualified annuity plan described in Section 403(a)
of the Code or a qualified annuity contract described in Section 403(b) of the
Code to an eligible retirement plan.
Except with respect to certain payments delivered outside the United States
or any possession of the United States, federal income tax is not required to be
withheld from any Distribution which does not constitute an eligible rollover
distribution, if the Annuitant or Beneficiary properly elects in accordance with
the prescribed procedures not to have withholding
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apply. In the absence of a proper election not to have withholding apply, the
amount to be withheld from a Distribution which is not an eligible rollover
distribution depends upon the type of payment being made. Generally, in the
case of a periodic payment which is not an eligible rollover distribution, the
amount to be withheld from such payment is the amount that would be withheld
therefrom under specified wage withholding tables if the taxable portion of the
payment were a payment of wages for the appropriate payroll period. In the case
of a nonperiodic payment which is not an eligible rollover distribution, the
amount to be withheld is generally equal to 10% of the amount of the taxable
portion of the Distribution.
The applicable federal law pertaining to income tax withholding from
Distributions is complex and contains many special rules and exceptions in
addition to the general rules summarized above. Special rules apply, for
example, if the Distribution is made to the surviving spouse of an Annuitant or
if the Distribution is an eligible rollover distribution from a qualified
annuity contract under Section 403(b) of the Code. Any Annuitant or Beneficiary
considering a Distribution should consult a qualified tax advisor.
F. EXCESS DISTRIBUTIONS - 15% TAX
Certain persons, particularly those who participate in more than one
tax-qualified retirement plan, may be subject to an additional tax of 15% on
certain excess aggregate distributions from those plans. In general, excess
distributions are taxable distributions for all tax qualified plans in excess of
a specified annual limit for payments ($155,000 in 1996, as adjusted for
inflation) or five times the annual limit for lump-sum distributions (if special
averaging is elected).
DISTRIBUTION ARRANGEMENT
Franklin Financial Services Corporation ("Franklin Financial"), a Delaware
corporation and a wholly-owned subsidiary of The Franklin, is the principal
underwriter, as defined by the 1940 Act, of the Contracts under a Sales
Agreement between Franklin Financial and Separate Account VA-1. Franklin
Financial's principal executive office is at #1 Franklin Square, Springfield,
Illinois 62713. Pursuant to the Sales Agreement, Franklin Financial has agreed
to pay certain sales expenses in connection with the distribution of the
Contracts, such as sales literature preparation and related costs. Amounts
collected pursuant to the Surrender Charge will be paid to Franklin Financial as
a means to recover sales expenses. Such amounts collected pursuant to the
Surrender Charge are not necessarily related to Franklin Financial's actual
sales expenses in any particular year. To the extent sales expenses are not
covered by amounts collected pursuant to the Surrender Charge, Franklin
Financial will cover them from other assets.
Commissions earned by registered representatives of Franklin Financial on
the sale of the Contracts range up to 5% of purchase payments. Pursuant to an
Agreement between American Franklin and Franklin Financial, American Franklin
has agreed to pay such commissions and Franklin Financial has agreed to remit to
American Franklin the excess of all surrender charges paid to Franklin Financial
over the sales and promotional expenses incurred by Franklin Financial to the
extent necessary to reimburse American Franklin for commissions or other
remuneration paid in connection with sales of the Contracts. Such Agreement
also provides that the amount of such commissions and other remuneration not so
reimbursed shall be deemed to
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have been contributed by American Franklin to the capital of Franklin Financial.
Commissions and other remuneration will be paid by American Franklin from other
sources, including the mortality and expense risk charge or other charges in
connection with the Contracts, or from its general account to the extent it does
not receive reimbursement from Franklin Financial.
Franklin Financial is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc. Franklin
Financial also acts as principal underwriter for Franklin Life Variable Annuity
Funds A and B and Franklin Life Money Market Variable Annuity Fund C, separate
accounts of The Franklin which are registered investment companies issuing
interests in variable annuity contracts. Franklin Financial also acts as
principal underwriter for Separate Account VUL and Separate Account VUL-2 of The
American Franklin Life Insurance Company, separate accounts of American Franklin
which are registered investment companies issuing interests in variable life
insurance contracts.
From time to time, American Franklin may pay or permit other promotional
incentives, in cash or credit or other compensations.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed
upon by Elizabeth E. Arthur, Esq., Assistant Secretary of American Franklin.
Chadbourne & Parke LLP, New York, New York, has advised American Franklin on
certain federal securities law matters.
OTHER INFORMATION ON FILE
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to the Contracts
discussed in this Prospectus. Not all of the information set forth in the
Registration Statement and exhibits thereto has been included in this
Prospectus. Statements contained in this Prospectus concerning the Contracts
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available from us on request. Its
contents are as follows:
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulation and Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Auditors and Accountants . . . . . . . . . . . . . . . . . . . 3
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Limitations on Annuity Payment Options . . . . . . . . . . . . . . . . . . 4
A. Limitations on Choice of Annuity Payment Option. . . . . . . . . . 4
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Gender of Annuitant. . . . . . . . . . . . . . . . . . . . . . . . 6
B. Misstatement of Age or Sex and Other Errors. . . . . . . . . . . . 7
Change of Investment Adviser or Investment Policy. . . . . . . . . . . . . 7
Performance Data for the Divisions . . . . . . . . . . . . . . . . . . . . 7
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-1
54
<PAGE>
THE CHAIRMAN-TM-
INDIVIDUAL RETIREMENT ANNUITY (IRA)
DISCLOSURE STATEMENT
INTRODUCTION
THIS DISCLOSURE STATEMENT IS DESIGNED FOR PRESENT OWNERS OF IRAs ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY.
This Disclosure Statement is not part of a contract but contains general
and standardized information which must be furnished to each person who is
issued an Individual Retirement Annuity. Please refer to the contract to
determine specific rights and obligations thereunder.
REVOCATION
If you are purchasing a new or rollover IRA, then if for any reason you, as
a recipient of this Disclosure Statement, decide within 20 days from the date
your policy is delivered to you that you do not desire to retain your IRA,
written notification to the Company must be mailed, together with your policy,
within that period. If such notice is mailed within 20 days, all contributions,
without adjustments for any applicable sales commissions or administrative
expenses, will be refunded.
MAIL NOTIFICATION OF REVOCATION AND YOUR CONTRACT TO:
The American Franklin Life Insurance Company
Variable Annuity Department
#1 Franklin Square
Springfield, Illinois 62713
(Phone No. (217) 528-2011).
ELIGIBILITY
Under Internal Revenue Code ("Code") Section 219, if neither you, nor your
spouse, is an active participant (see A. below), you may make a contribution of
up to the lesser of $2,000 (or $2,250 in the case of a Spousal IRA) or 100% of
compensation and take a deduction for the entire amount contributed. If you are
an active participant, but have an adjusted gross income (AGI) below a certain
level (see B. below), you may still make a deductible contribution. If,
however, you or your spouse is an active participant and your combined AGI is
above the specified level, the amount of the deductible contribution you may
make to an IRA will be phased down and eventually eliminated.
A. ACTIVE PARTICIPANT
You are an "active participant" for a year if you are covered by a
retirement plan. You are covered by a "retirement plan" for a year if your
employer or union has a retirement plan under which money is added to your
account or you are eligible to earn retirement credits. For
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example, if you are covered under a profit-sharing plan, certain government
plans, a salary reduction arrangement (such as a tax sheltered annuity
arrangement or a 401(k) plan), a Simplified Employee Pension program (SEP) or a
plan which promises you a retirement benefit which is based upon the number of
years of service you have with the employer, you are likely to be an active
participant. Your Form W-2 for the year should indicate your participation
status.
You are an active participant for a year even if you are not yet vested in
your retirement benefit. Also, if you make required contributions or voluntary
employee contributions to a retirement plan, you are an active participant. In
certain plans, you may be an active participant even if you were only with the
employer for part of the year.
You are not considered an active participant if you are covered in a plan
only because of your service as 1) an Armed Forces Reservist for less than 90
days of active service, or 2) a volunteer firefighter covered for firefighting
service by a government plan. Of course, if you are covered in any other plan,
these exceptions do not apply.
If you are married, filed a separate tax return, and did not live with your
spouse at any time during the year, your spouse's active participation will not
affect your ability to make deductible contributions.
B. ADJUSTED GROSS INCOME (AGI)
If you are an active participant, you must look at your Adjusted Gross
Income for the year (if you and your spouse file a joint tax return, you use
your combined AGI) to determine whether you can make a deductible IRA
contribution. Your tax return will show you how to calculate your AGI for this
purpose. If you are at or below a certain AGI level, called the Threshold
Level, you are treated as if you were not an active participant and can make a
deductible contribution under the same rules as a person who is not an active
participant.
If you are single, your Threshold AGI Level is $25,000. The Threshold
Level if you are married and file a joint tax return is $40,000, and if you are
married but file a separate tax return, the Threshold Level is $0.
If your AGI is less than $10,000 above your Threshold Level, you will still
be able to make a deductible contribution, but it will be limited in amount.
The amount by which your AGI exceeds your Threshold Level (AGI - Threshold
Level) is called your Excess AGI. The Maximum Allowable Deduction is $2,000 (or
$2,250 for a Spousal IRA). You can estimate your Deduction Limit as follows:
(Your Deduction Limit may be slightly higher if you use this formula rather
than the table provided by the IRS.)
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$10,000 - Excess AGI
-------------------------- x Maximum Allowable Deduction = Deduction
Limit
$10,000
You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must
round it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed 100%
of your compensation.
Example 1: Ms. Smith, a single person, is an active participant and has an
AGI of $31,619. She calculates her deductible IRA contribution
as follows:
Her AGI is $31,619
Her Threshold Level is $25,000
Her Excess AGI is (AGI - Threshold Level) or ($31,619-$25,000) = $6,619
Her Maximum Allowable Deduction is $2,000
So, her IRA deduction limit is:
$10,000 - $6,619
--------------------- x $2,000 = $676 (rounded to $680)
$10,000
Example 2: Mr. and Mrs. Young file a joint tax return. Each spouse earns
more than $2,000 and one is an active participant. They have a
combined AGI of $44,255. They may each contribute to an IRA and
calculate their deductible contributions to each IRA as follows:
Their AGI is $44,255
Their Threshold Level is $40,000
Their Excess AGI is (AGI - Threshold Level) or ($44,255 - $40,000) = $4,255
The Maximum Allowable Deduction for each spouse is $2,000
So, each spouse may compute his or her IRA deduction limit as follows:
$10,000 - 4,255
----------------- x $2,000 = $1,149 (rounded to $1,150)
$10,000
Example 3: If, in Example 2, Mr. Young did not earn any compensation, or
elected to be treated as earning no compensation, Mrs. Young
could establish a Spousal IRA (consisting of an account for
herself and one for her husband). The amount of deductible
contributions which could be made to the two IRAs is calculated
using a Maximum Allowable Deduction of $2,250 rather than $2,000.
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$10,000 - $4,255
------------------ x $2,250 = $1,293 (rounded to $1,300)
$10,000
The $1,300 can be divided between the two accounts, but neither IRA may receive
a deductible contribution of more than $1,150.
Example 4: Mr. Jones, a married person, files a separate tax return and is
an active participant. He has $1,500 of compensation and wishes
to make a deductible contribution to an IRA.
His AGI is $1,500
His Threshold Level is $0
His Excess AGI is ((AGI - Threshold Level) or $1,500-$0) = $1,500
His Maximum Allowable Deduction is $2,000
So, his IRA deduction limit is:
$10,000 - $1,500
------------------ x $2,000 = $1,700
$10,000
Even though his IRA deduction limit under the formula is $1,700, Mr. Jones may
not deduct an amount in excess of his compensation, so, his actual deduction is
limited to $1,500.
SPOUSAL IRAs
As noted in Example 3 above, under the Act you may contribute to a Spousal
IRA even if your spouse has earned some compensation during the year. Provided
your spouse does not make a contribution to an IRA, you may set up a Spousal IRA
consisting of an annuity for your spouse as well as an annuity for yourself.
The total maximum deductible amount to your IRA and a Spousal IRA is the lesser
of $2,250 or 100% of compensation.
NON-DEDUCTIBLE CONTRIBUTIONS TO IRAs
Even if you are above the Threshold Level and thus may not make a
deductible contribution of $2,000 ($2,250 if a spousal IRA is involved), you may
still contribute up to the lesser of 100% of compensation or $2,000 to an IRA
($2,250 for a Spousal IRA). The amount of your contribution which is not
deductible will be a non-deductible contribution to the IRA. You may also
choose to make a contribution non-deductible even if you could have deducted
part or all of the contribution. Interest or other earnings on your IRA
contribution, whether from deductible or non-deductible contributions, will not
be taxed until taken out of your IRA and distributed to you.
If you make a non-deductible contribution to an IRA, you must report the
amount of the non-deductible contribution to the IRS on Form 8606 as a part of
your tax return for the year.
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You may make a $2,000 contribution at any time during the year, if your
compensation for the year will be at least $2,000, without having to know how
much will be deductible. When you fill out your return, you may then figure out
how much is deductible.
You may withdraw an IRA contribution made for a year any time before April
15 of the following year. If you do so, you must also withdraw the earnings
attributable to that portion and report the earnings as income for the year for
which the contribution was made. If some portion of your contribution is not
deductible, you may decide either to withdraw the non-deductible amount, or to
leave it in the IRA and designate that portion as a non-deductible contribution
on your tax return.
IRA DISTRIBUTIONS
Generally, IRA distributions which are not rolled over (see "Rollover IRA
Rules," below) are included in your gross income in the year they are received.
Non-deductible IRA contributions, however, are made using income which has
already been taxed (that is, they are not deductible contributions). Thus, the
portion of the IRA distributions consisting of non-deductible contributions will
not be taxed again when received by you. If you make any non-deductible IRA
contributions, each distribution from your IRA(s) will consist of a non-taxable
portion (return of non-deductible contributions) and a taxable portion (return
of deductible contributions, if any, and account earnings). Special tax rules
applicable to lump sum distributions from tax qualified retirement plans are not
applicable to IRA distributions.
Thus, you may not take a distribution which is entirely tax-free. The
following formula is used to determine the non-taxable portion of your
distributions for a taxable year:
Remaining Non-Deductible Contributions
-------------------------------------- x Total Distributions = Nontaxable
Year-End Total IRA Balances (for the year) Distributions
(for the year)
To figure the year-end total IRA balance, you treat all of your IRAs as a
single IRA. This includes all regular IRAs (whether accounts or annuities), as
well as Simplified Employee Pension (SEP) IRAs, and Rollover IRAs. You also add
back the distributions taken during the year.
Example: An individual makes the following contributions to his or her IRA(s).
Year Deductible Non-Deductible
---- ---------- --------------
1986 $2,000 0
1987 1,800 0
1990 1,000 $1,000
1992 600 1,400
------ ------
$5,400 $2,400
Deductible Contributions: $5,400
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Non-Deductible Contributions: 2,400
Earnings on IRAs: 1,200
------
Total Account Balance of IRA(s) as of 12/31/95
(including distributions in 1995): $9,000
In 1995, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/95 plus 1995 distributions is $9,000. The non-
taxable portion of the distributions for 1995 is figured as follows:
Total non-deductible contributions $2,400
-------- x $3,000 = $810
Total account balance in the IRAs, plus distributions $9,000
Thus, $810 of the $3,000 distribution in 1995 will not be included in the
individual's taxable income. The remaining $2,190 will be taxable for 1995.
ROLLOVER IRA RULES
1. IRA TO IRA
You may withdraw, tax-free, all or part of the assets from an IRA and
reinvest or rollover such assets in one or more IRAs. The rollover must be
completed within 60 days of the withdrawal. No IRA deduction is allowed for the
rollover. If you make such a rollover, you may not make another rollover from
an IRA to another IRA for at least one year after the original rollover is made.
Amounts required to be distributed because the individual has reached age 70 1/2
may not be rolled over.
2. EMPLOYER PLAN DISTRIBUTIONS TO IRA
All taxable distributions (known as "eligible rollover distributions") from
qualified pension, profit-sharing, stock bonus and tax sheltered annuity plans
may be rolled over to an IRA, with the exception of (1) annuities paid over a
life or life expectancy, (2) installments for a period of ten years or more, and
(3) required minimum distributions under Code Section 401(a)(9).
Rollovers may be accomplished in two ways. First, you may elect to have an
eligible rollover distribution paid directly to an IRA (a "direct rollover").
Second, you may receive the distribution directly and then, within 60 days of
receipt, roll the amount over to an IRA. However, any amount that you elect not
to have distributed as a direct rollover will be subject to 20 percent income
tax withholding, and, if you are younger than age 59 1/2, may result in a 10%
excise tax on any amount of the distribution that is included in income.
Questions regarding distribution options should be directed to your Plan Trustee
or Plan Administrator, or may be answered by consulting IRS Regulations Sections
1.401(a)(31)-1, 1.402(c)-2 and 31.3405(c)-1.
PENALTIES FOR PREMATURE DISTRIBUTIONS
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If you receive a distribution from your IRA before you reach age 59 1/2, an
additional tax of 10 percent will be imposed under Code Section 72(t), unless
the distribution (a) occurs because of your death or disability, (b) is received
as a part of a series of substantially equal payments over your life or life
expectancy, (c) is received as a part of a series of substantially equal
payments over the lives or life expectancy of you and your beneficiary, or (d)
is contributed to a rollover IRA or a qualified plan.
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<PAGE>
MINIMUM DISTRIBUTIONS
Under the rules set forth in Code Section 408(b)(3) and Section 401(a)(9),
you may not leave the funds in your contract indefinitely. Certain minimum
distributions are required. These required distributions may be taken in one of
two ways: (a) by withdrawing the balance of your contract by a "required
beginning date," usually April 1 of the year following the date at which you
reach age 70 1/2; or (b) by withdrawing periodic distributions of the balance in
your contract by the required beginning date. These periodic distributions may
be taken over (a) your life; (b) the lives of you and your named beneficiary;
(c) a period not extending beyond your life expectancy; or (d) a period not
extending beyond the joint life expectancy of you and your named beneficiary.
If you do not satisfy the minimum distribution requirements, then, pursuant
to Code Section 4974, you may have to pay a 50% excise tax on the amount not
distributed as required that year.
The foregoing minimum distribution rules are discussed in detail in IRS
Publication 590, "Individual Retirement Arrangements."
REPORTING
You are required to report penalty taxes due on excess contributions,
excess accumulations, excess distributions, premature distributions, and
prohibited transactions. Currently, IRS Form 5329 is used to report such
information to the Internal Revenue Service.
PROHIBITED TRANSACTIONS
Neither you nor your beneficiary may engage in a prohibited transaction, as
that term is defined in Code Section 4975. If you or your beneficiary engage in
a prohibited transaction with respect to your IRA, the account will lose its tax
exemption and you will be required to include the fair market value of your IRA
in gross income for the taxable year in which you or your beneficiary engage in
such a prohibited transaction.
Borrowing any money from (or by use of) this IRA would, under Code Section
408(e)(3), cause the contract to cease to be an Individual Retirement Annuity
and would result in the fair market value of the annuity being included in the
owner's gross income in the taxable year in which such loan is made.
Use of this contract as security for a loan, if such loan were otherwise
permitted, would, under Code Section 408(e)(4), cause the portion so used to be
treated as a taxable distribution includable in your gross income for the year
during which the contract is so used.
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<PAGE>
EXCESS CONTRIBUTIONS
Code Section 4973 imposes a six percent excise tax as a penalty for an
excess contribution to an IRA. An excess contribution is the excess of the
deductible and nondeductible amounts contributed by the Owner to an IRA for that
year over the lesser of his or her taxable compensation or $2,000. (Different
limits apply in the case of a spousal IRA arrangement.) If the excess
contribution plus any net income attributable thereto is not withdrawn by the
due date of your tax return (including extensions) you will be subject to the
penalty.
IRS APPROVAL
Your contract and IRA endorsement have been approved by the Internal
Revenue Service as a tax qualified Individual Retirement Annuity. Such approval
by the Internal Revenue Service is a determination only as to the form of the
annuity and does not represent a determination of the merits of such annuity.
This disclosure statement is intended to provide an overview of the
applicable tax laws relating to Individual Retirement Annuities. It is not
intended to constitute a comprehensive explanation as to the tax consequences of
your IRA. As with all significant transactions such as the establishment or
maintenance of, or withdrawal from an IRA, appropriate tax and legal counsel
should be consulted. Further information may also be acquired by contacting
your IRS District Office or consulting IRS Publication 590.
FINANCIAL DISCLOSURE (THE CHAIRMAN COMBINATION FIXED AND VARIABLE
ANNUITY)
This Financial Disclosure is applicable to IRAs using The Chairman
combination fixed and variable annuity purchased from The American Franklin Life
Insurance Company ("American Franklin") on or after [December 1, 1996].
Earnings under the variable investment options are not guaranteed, and
depend on the performance of the underlying mutual funds that you select. The
value of the underlying mutual funds is determined each day that the New York
Stock Exchange is open for trading. You bear the risk of investment losses with
respect to the variable investment options. As such, earnings cannot be
projected. You may also allocate purchase payments to fixed investment options,
which earn interest for one-year, three-year or five-year periods, as you
select, at guaranteed rates established by American Franklin from time to time.
Set forth below are the charges associated with such annuities.
CHARGES:
(a) Annual contract fee of $30 deducted at the end of each contract year.
(b) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value among divisions of the Separate Account
and the Guarantee Periods.
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<PAGE>
(c) To compensate for mortality and expense risks assumed by American
Franklin under the contract, variable divisions only will incur a daily charge
at an annualized rate of 1.25% of the average Separate Account Value of the
contract during both the Accumulation and the Payout Phase.
(d) Premium taxes, if applicable, may be charged against Accumulation
Value at time of annuitization, a full or partial surrender or upon the death of
the Annuitant. If a jurisdiction imposes premium taxes at the time purchase
payments are made, the Company may deduct a charge at that time.
(e) If the contract is surrendered, or if a withdrawal is made, there may
be a Surrender Charge. The Surrender Charge equals the sum of the following:
6% of purchase payments for surrenders and withdrawals made during the
first and second contract years following receipt of the purchase
payments surrendered;
5% of purchase payments for surrenders and withdrawals made during the
third and fourth contract years following receipt of the purchase
payments surrendered;
4% of purchase payments for surrenders and withdrawals made during the
fifth and sixth contract years following receipt of the purchase
payments surrendered; and
2% of purchase payments for surrenders and withdrawals made during the
seventh contract year following receipt of the purchase payments
surrendered.
There will be no charge imposed for surrenders and withdrawals made
after the seventh contract year following receipt of the purchase
payments surrendered.
Under certain circumstances described in the contract, portions of a
partial withdrawal may be exempt from the Surrender Charge.
(f) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .15% of the average Separate Account Value of
the contract during the Accumulation and the Payout Phase.
(g) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. For funds managed by Fidelity Management &
Research Company, the fee will range between 0.28% and 0.91%. For funds managed
by Massachusetts Financial Services Company, the fee will range between 1.00%
and 1.50%.
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<PAGE>
PROSPECTUS
THE CHAIRMAN-TM-
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
OFFERED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
#1 FRANKLIN SQUARE
SPRINGFIELD, ILLINOIS 62713
Complete and return this form to:
Supply Department
The American Franklin Life Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
(217) 528-2011
Please send me the Statement of Additional Information dated _____, 199_ for
Separate Account VA-1.
----------------------------------------------------------
(Name)
----------------------------------------------------------
(Street)
----------------------------------------------------------
(City) (State) (Zip Code)
<PAGE>
SEPARATE ACCOUNT VA-1 OF
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
THE CHAIRMAN-TM-
Combination Fixed And Variable Annuity Contracts
Offered by
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
Variable Annuity Department
#1 Franklin Square, Springfield, Illinois 62713
(217) 528-2011
STATEMENT OF ADDITIONAL INFORMATION
Dated [________, 1996]
This Statement of Additional Information is not a prospectus. It should be
read with the Prospectus for Separate Account VA-1 of The American Franklin Life
Insurance Company ("Separate Account VA-1") concerning The Chairman flexible
payment deferred individual annuity Contracts investing in certain mutual fund
portfolios of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II and MFS Variable Insurance Trust, dated [________, 1996]. A
copy of the Prospectus for the Contracts, and any supplements thereto, may be
obtained by contacting The American Franklin Life Insurance Company ("American
Franklin") at the address or telephone number given above. An Owner has the
option of receiving benefits on a fixed basis through American Franklin's Fixed
Account or through American Franklin's Separate Account VA-1. Terms used in
this Statement of Additional Information have the same meanings as are defined
in the Prospectus under the heading "Glossary."
TABLE OF CONTENTS
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regulation and Reserves. . . . . . . . . . . . . . . . . . . . . . . . . 2
Independent Auditors and Accountants . . . . . . . . . . . . . . . . . . 3
Principal Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Limitations on Annuity Payment Options . . . . . . . . . . . . . . . . . 4
A. Limitations on Choice of Annuity Payment Option. . . . . . . . . 4
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Gender of Annuitant. . . . . . . . . . . . . . . . . . . . . . . 6
B. Misstatement of Age or Sex and Other Errors. . . . . . . . . . . 7
Change of Investment Adviser or Investment Policy. . . . . . . . . . . . 7
Performance Data for the Divisions . . . . . . . . . . . . . . . . . . . 7
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE>
GENERAL INFORMATION
American Franklin is a legal reserve stock life, accident and health
insurance company organized under the laws of the State of Illinois in 1981.
American Franklin is a wholly-owned subsidiary of The Franklin Life Insurance
Company ("The Franklin"). The Franklin is a legal reserve stock life insurance
company organized under the laws of the State of Illinois in 1884. The Franklin
issues individual life insurance, annuity and accident and health insurance
policies, group annuities and group life and health insurance and offers a
variety of whole life, life, retirement income and level and decreasing term
insurance plans. Its home office is located at #1 Franklin Square, Springfield,
Illinois 62713.
REGULATION AND RESERVES
American Franklin is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. American
Franklin's operations and accounts are subject to periodic examination by
insurance regulatory authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of American Franklin under these laws cannot be reasonably
estimated. Most of these laws do provide, however, that an assessment may be
excused or deferred if it would threaten an insurer's own financial strength.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include employee benefit regulation, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.
Also, both the executive and legislative branches of the federal government have
under consideration various insurance regulatory matters, which could ultimately
result in direct federal regulation of some aspects of the insurance business.
It is not possible to predict whether this will occur or, if so, what the effect
on American Franklin would be.
Pursuant to state insurance laws and regulations, American Franklin is
obligated to carry on its books, as liabilities, reserves to meet its
obligations under outstanding insurance contracts. These reserves are based on
assumptions about, among other things, future claims experience and investment
returns. Neither the reserve requirements nor the other aspects of state
insurance regulation provide absolute protection to holders of insurance
contracts, including the Contracts, if American Franklin were to incur claims or
expenses at rates significantly higher than expected, for example, due to
acquired immune deficiency syndrome or other infectious diseases or
catastrophes, or significant unexpected losses on its investments.
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INDEPENDENT AUDITORS AND ACCOUNTANTS
Ernst & Young LLP, independent auditors, will perform an annual audit of
Separate Account VA-1. The balance sheet as of December 31, 1995, and the
related statement of income, shareholder's equity and cash flows for the eleven
months ended December 31, 1995 and for the one month ended January 31, 1995, of
American Franklin included in this Statement of Additional Information have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein. The balance sheet as of December 31, 1994,
and the related statement of income, shareholder's equity and cash flows for
each of the two years in the period then ended, of American Franklin included in
this Statement of Additional Information have been audited by Coopers & Lybrand
L.L.P., independent accountants, as set forth in their report thereon appearing
elsewhere herein. Such financial statements referred to above are included in
this Statement of Additional Information in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing. Ernst &
Young LLP is located at 233 South Wacker Drive, Chicago, Illinois 60606, and
Coopers & Lybrand L.L.P. is located at 203 North LaSalle Street, Chicago,
Illinois 60601.
During the audit of American Franklin's financial statements for the year
ended December 31, 1994, there was no disagreement between American Franklin and
Coopers & Lybrand L.L.P. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which
disagreement, if not resolved to the satisfaction of Coopers & Lybrand L.L.P.,
would have caused Coopers & Lybrand L.L.P. to make reference in connection with
its report to the subject matter of the disagreement.
The report of Coopers & Lybrand L.L.P. on the financial statements of
American Franklin for the year ended December 31, 1994 did not contain an
adverse opinion or a disclaimer of opinion nor was such report qualified as to
uncertainty, audit scope, or accounting principles.
PRINCIPAL UNDERWRITER
Franklin Financial Services Corporation ("FFSC") is the principal
underwriter with respect to the Contracts. FFSC also serves as principal
underwriter to Franklin Life Variable Annuity Fund A, Franklin Life Variable
Annuity Fund B, Franklin Life Money Market Variable Annuity Fund C, which offer
interests in variable annuities, and Separate Account VUL and Separate Account
VUL-2 of The American Franklin Life Insurance Company, which offer interests in
flexible premium variable life insurance policies, each of which is an
investment company registered under the Investment Company Act of 1940. FFSC, a
Delaware corporation, is a wholly-owned subsidiary of The Franklin and a member
of the National Association of Securities Dealers, Inc.
The securities offered pursuant to the Contracts are offered on a
continuous basis.
3
<PAGE>
LIMITATIONS ON ANNUITY PAYMENT OPTIONS
A. LIMITATIONS ON CHOICE OF ANNUITY PAYMENT OPTION
Described below are certain limitations on Annuity Payment Options based on
American Franklin's current understating of the distribution rules generally
applicable to Non-Qualified Contracts, Section 457 Contracts and to Qualified
Contracts. Various questions exist, however, about the application of the
distribution rules to distributions from the Contracts and their effect on
Annuity Payment Option availability thereunder.
The Internal Revenue Service has proposed regulations relating to required
distributions from Section 457 Plans and Qualified Plans. These proposed
regulations may limit the availability of the Annuity Payment Options for
Contracts issued in connection with such plans. The proposed regulations are
generally effective for calendar years after 1984; persons contemplating the
purchase of a Contract should consult a qualified tax advisor concerning the
effect of the proposed regulations on the Annuity Payment Option or Options he
or she is contemplating.
FIRST OPTION--LIFE ANNUITY. Under Qualified Contracts, if the Annuitant
dies before Annuity payments have commenced, this Annuity Payment Option is
available to the Beneficiary only if distributions to the Beneficiary begin not
later than one year after the date of the Annuitant's death (except that
distributions to a Beneficiary who is the surviving spouse of the Annuitant need
not commence earlier than the date on which the Annuitant would have attained
age 70 1/2). If the surviving spouse of the Annuitant is the Beneficiary and
such surviving spouse dies before Annuity payments to such spouse have
commenced, the surviving spouse generally will be treated as the Annuitant for
purposes of the distribution requirements.
Under Non-Qualified Contracts, if any Owner dies before Annuity payments
have commenced, this Annuity Payment Option is available to a non-spouse
Beneficiary only if distributions to the Beneficiary begin not later than one
year after the date of the Owner's death (or the substituted surviving spouse's
death, as the case may be). If the surviving spouse of the Owner is the
Beneficiary, the distribution requirements are applied as if the surviving
spouse was the Owner.
Under Section 457 Contracts, if the Annuitant dies before Annuity payments
have commenced, this Annuity Payment Option is not available to the Beneficiary
unless the Beneficiary is the surviving spouse of the Annuitant and
distributions to the Beneficiary begin not later than the later of (i) one year
after the date of the Annuitant's death or (ii) the date on which the Annuitant
would have attained age 70 1/2.
SECOND OPTION--LIFE ANNUITY WITH PAYMENT FOR A FIXED TERM OF YEARS.
Under Qualified Contracts, this Annuity Payment Option is available only if the
selected period does not extend beyond the life expectancy of the Annuitant (or
the joint life expectancies of the Annuitant and his or her Beneficiary).
Further, if the Annuitant dies before Annuity payments have commenced, this
Annuity Payment Option is not available to a Beneficiary unless (i) the selected
period does not extend beyond the life expectancy of the Beneficiary and
(ii) the
4
<PAGE>
distribution to the Beneficiary commences not later than one year after the date
of the Annuitant's death (except that distributions to a Beneficiary who is the
surviving spouse of the Annuitant need not commence earlier than the date on
which the Annuitant would have attained age 70 1/2). If the surviving spouse of
the Annuitant is the Beneficiary and the surviving spouse dies before Annuity
payments to such spouse have commenced, the surviving spouse generally will be
treated as the Annuitant for purposes of the distribution requirements. This
Annuity Payment Option is available in connection with Individual Retirement
Annuities or in connection with Section 403(b) annuity purchase plans only if
certain minimum distribution incidental benefit requirements of the proposed
regulations are met.
Under Non-Qualified Contracts, if any Owner dies before Annuity payments
have commenced, this Annuity Payment Option is available to a non-spouse
Beneficiary only if distributions to the Beneficiary begin not later than one
year after the date of the Owner's death (or the substituted surviving spouse's
death, as the case may be), and the selected period does not extend beyond the
life expectancy of the Beneficiary. If the surviving spouse of the deceased
Owner is the Beneficiary, the distribution requirements are applied as if the
surviving spouse was the Owner.
Under Section 457 Contracts, this Annuity Payment Option is not available
unless the selected period does not extend beyond the life expectancy of the
Annuitant (or the joint life expectancy of the Annuitant and his or her
Beneficiary). Further, if the Annuitant dies before Annuity payments have
commenced, this Annuity Payment Option is not available to the Beneficiary
unless (a) the Beneficiary is the surviving spouse of the Annuitant, (b) the
selected period does not extend beyond the life expectancy of the Beneficiary
and (c) distributions to the Beneficiary begin not later than the later of (i)
one year after the date of the Annuitant's death or (ii) the date on which the
Annuitant would have attained age 70 1/2. This Annuity Payment Option is also
not available under Section 457 Contracts unless certain minimum distribution
rules similar to the minimum distribution incidental benefit requirements of
proposed regulations are met.
THIRD OPTION--JOINT AND LAST SURVIVOR LIFE ANNUITY. Under Section 457
Contracts and Qualified Contracts, this Annuity Payment Option is available only
if the secondary annuitant is the spouse of the Annuitant or if certain minimum
distribution incidental benefit requirements of the proposed regulations are
met. Further, if the Annuitant dies before Annuity payments have commenced,
this Annuity Payment Option is not available to a Beneficiary. Under Non-
Qualified Contracts, if any Owner dies before Annuity payments have commenced,
this Annuity Payment Option is available only if the Beneficiary is the
surviving spouse of the deceased Owner.
FOURTH OPTION--INCOME PAYMENTS FOR A FIXED TERM OF YEARS. Under
Qualified Contracts, this Annuity Payment Option is available only if the
limitations described in the Second Option, above, applicable to such Qualified
Contracts, are satisfied, except that this Annuity Payment Option is otherwise
available to a Beneficiary where the Annuitant dies before Annuity payments have
commenced if the designated period does not exceed a period that terminates five
years after the death of the Annuitant or the substituted surviving spouse, as
the
5
<PAGE>
case may be. In addition, this Annuity Payment Option is not available if the
number of years in the selected period over which Annuity payments would
otherwise be paid plus the attained age of the Annuitant at the Annuity
Commencement Date would exceed 95.
Under Non-Qualified Contracts this Annuity Payment Option is not available
to a Beneficiary where the Annuitant dies before Annuity payments have
commenced, unless either the limitations described in the Second Option, above,
applicable to such Non-Qualified Contracts are satisfied, or the selected period
does not exceed a period that terminates five years after the death of the
Annuitant or the substituted surviving spouse, as the case may be.
Under Section 457 Contracts this Annuity Payment Option is not available
unless the limitations described in the Second Option, above, applicable to
Section 457 Contracts, are satisfied. This Annuity Payment Option is also
available to a Beneficiary where the Annuitant dies before Annuity payments have
commenced if the designated period does not exceed a period that terminates five
years after the death of the Annuitant. If the surviving spouse of the
Annuitant is the Beneficiary and the surviving spouse dies before Annuity
payments to such spouse have commenced, the surviving spouse will be treated as
the Annuitant for purposes of the preceding sentence. In addition, this Annuity
Payment Option is not available if the number of years in the selected period
over which Annuity payments would otherwise be paid plus the attained age of the
Annuitant at the Annuity Commencement Date would exceed 95.
FIFTH OPTION -- PAYMENTS OF A SPECIFIED DOLLAR AMOUNT. This Annuity Payment
Option is not available to a Beneficiary under a Non-Qualified Contract where
the Annuitant dies before Annuity payments have commenced, unless the amount
selected results in a distribution period which either satisfies the limitations
described in the Second Option, above, applicable to Non-Qualified Contracts, or
which terminates not more than five years after the death of the Annuitant or
the substitute surviving spouse, as the case may be.
ANNUITY PAYMENTS
A. GENDER OF ANNUITANT
When annuity payments are based on life expectancy, the amount of each
annuity payment ordinarily will be higher if the Annuitant or other measuring
life is a male, as compared with a female under an otherwise identical Contract.
This is because, statistically, females tend to have longer life expectancies
than males.
However, there will be no differences between males and females in any
jurisdiction, including Montana, where such differences are not permitted.
American Franklin will also make available Contracts with no such differences in
connection with certain employer-sponsored benefit plans. Employers should be
aware that, under most such plans, Contracts that make distinctions based on
gender are prohibited by law.
6
<PAGE>
B. MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of an Annuitant has been misstated to American Franklin,
the benefits payable will be those which the purchase payments paid would have
purchased at the correct age and sex. If American Franklin made any
overpayments because of incorrect information about age or sex, or any error or
miscalculation, American Franklin will deduct the overpayment from the next
payment or payments due. American Franklin will add any underpayments to the
next payment. The amount of any adjustment will be credited or charged with
interest at the assumed interest rate used in the Contract's annuity tables.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, neither the investment
adviser to any Fund nor any investment policy may be changed without the consent
of American Franklin. If required, approval of or change of any investment
objective will be filed with the insurance department of each state where a
Contract has been delivered. The Owner (or, after annuity payments start, the
payee) will be notified of any material investment policy change that has been
approved. Owners will be notified of any investment policy change prior to its
implementation by Separate Account VA-1 if such Owners' consent or vote is
required for such change.
PERFORMANCE DATA FOR THE DIVISIONS
American Franklin may provide investment results for each of the available
Divisions of Separate Account VA-1. Such results are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Owner. The investment experience
for each Division will reflect the investment performance of the separate
investment Fund then funding such Division for the periods stated.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Each Division's average annual total return quotation will be computed in
accordance with a standard method prescribed by the Securities and Exchange
Commission. The average annual total return for a Division for a specific
period is found by first taking a hypothetical $1,000 investment in the
Division's Accumulation Units on the first day of the period at the maximum
offering price, which is the Accumulation Unit value per unit ("initial
investment"), and computing the ending redeemable value ("redeemable value") of
that investment at the end of the period. The redeemable value reflects the
effect of the applicable Surrender Charge that may be imposed at the end of the
period as well as all other recurring charges and fees applicable under the
Contract to all Owner accounts. Such other charges and fees include the
mortality and expense risk charge, the administrative expense charge, and a pro
rata portion of the Annual Contract Fee for the relevant period. Any premium
taxes will not be reflected. The redeemable value is then divided by the
initial investment and this quotient is taken to the Nth root (N represents the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage.
7
<PAGE>
TOTAL RETURN CALCULATIONS (WITHOUT SURRENDER CHARGE)
Each Division may also advertise its non-standardized total return, which
will be calculated in the same manner and for the same time periods as the
standardized average annual total returns described immediately above, except
that the redeemable value will not reflect the deduction of any applicable
Surrender Charge that may be imposed at the end of the period, since it is
assumed that the Contract will continue through the end of each period, or the
deduction of the Annual Contract Fee. If reflected, these charges would reduce
the performance results presented.
CUMULATIVE TOTAL RETURN CALCULATIONS
No standardized formula has been prescribed by the Securities and Exchange
Commission for calculating cumulative total return performance. Cumulative
total return performance is the compound rate of return on a hypothetical
initial investment of $1,000 in each Division's Accumulation Units on the first
day of the period at the maximum offering price, which is the Accumulation Unit
value per unit ("initial investment"). Cumulative total return figures (and the
related "Growth of a $1,000 Investment" figures) will not include the effect of
any premium taxes or any applicable Surrender Charge or the Annual Contract Fee.
Cumulative total return quotations will reflect changes in Accumulation Unit
value and will be calculated by finding the cumulative rates of return of the
hypothetical initial investment over various periods, according to the following
formula, and then expressing that as a percentage:
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value is the value at the end of the applicable
period of a hypothetical $1,000 investment made at the beginning of
the applicable period.
YIELD CALCULATIONS
The yields for the VIP High Income Division and the VIP II Investment Grade
Bond Division will each be computed in accordance with a standard method
prescribed by the Securities and Exchange Commission. The yield quotation will
be computed by dividing the net investment income per Accumulation Unit earned
during the specified one month or 30-day period by the Accumulation Unit values
on the last day of the period, according to the following formula that assumes a
semi-annual reinvestment of income:
a - b
YIELD = 2[(------- +1) 6 - 1]
cd
a = net dividends and interest earned during the period by the Fund
attributable to the Division
8
<PAGE>
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Accumulation Units outstanding during the
period
d = the Accumulation Unit value per unit on the last day of the period
The yield of each Division will reflect the deduction of all recurring
fees and charges applicable to each Division, such as the mortality and expense
risk charge, the administrative expense charge, and a pro rata portion of the
Annual Contract Fee for the relevant period, but will not reflect the deduction
of Surrender Charges or premium taxes.
VIP MONEY MARKET DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
The VIP Money Market Division's yield will be computed in accordance with a
standard method prescribed by the Securities and Exchange Commission. Under
that method, the current yield quotation is based on a seven-day period and
computed as follows: the net change in the Accumulation Unit value during the
period is divided by the Accumulation Unit value at the beginning of the period
to obtain the base period return; the base period return is then multiplied by
the fraction 365/7 to obtain the current yield figure, which is carried to the
nearest one-hundredth of one percent. Realized capital gains or losses and
unrealized appreciation or depreciation of the Division's Fund are not included
in the calculation.
The VIP Money Market Division's effective yield will be determined by
taking the base period return (computed as described above) and calculating the
effect of assumed compounding. The formula for the effective yield is:
(base period return + 1) 365/7-1.
Yield and effective yield will not reflect the deduction of Surrender
Charges or premium taxes that may be imposed upon the redemption of Accumulation
Units.
PERFORMANCE COMPARISONS
The performance of each or all of the available Divisions of Separate
Account VA-1 may be compared in advertisements and sales literature to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or series
of mutual funds, with investment objectives similar to each of the Divisions of
Separate Account VA-1. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research and Data Service ("VARDS(R)") are independent services
which monitor and rank the performance of variable annuity issuers in each of
the major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS(R) rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS(R) rank such issuers on the
basis of total return, assuming reinvestment of dividends and distributions, but
do not take sales charges, redemption fees or certain expense deductions at the
separate account level into consideration. In addition, VARDS(R) prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance.
9
<PAGE>
In addition, each Division's performance may be compared in advertisements
and sales literature to the following benchmarks: (1) the Standard & Poor's 500
Composite Stock Price Index, an unmanaged weighted index of 500 leading domestic
companies that represent approximately 80% of the market capitalization of the
United States equity market; (2) the Dow Jones Industrial Average, an unmanaged
unweighted average of thirty blue chip industrial corporations listed on the New
York Stock Exchange that is generally considered to be representative of the
United States stock market; (3) the Consumer Price Index, published by the U.S.
Bureau of Labor Statistics, a statistical measure of change, over time, in the
prices of goods and services in major expenditure groups that is generally
considered to be a measure of inflation; (4) the Lehman Brothers Government and
Domestic Income Index, the Salomon Brothers High Grade Domestic Income Index,
and the Merrill Lynch Government/Corporate Master Index, unmanaged indices that
are generally considered to be representative of the performance of intermediate
and long term bonds during various market cycles; and (5) the Morgan Stanley
Capital International Europe Australia Far East Index, an unmanaged index that
is generally considered to be representative of major non-United States stock
markets.
FINANCIAL STATEMENTS
The financial statements of American Franklin that are included in this
Statement of Additional Information should be considered only as bearing on the
ability of American Franklin to meet its obligations under the Contracts.
10
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
Page No.
--------
I. SEPARATE ACCOUNT VA-1 FINANCIAL STATEMENTS
This Statement of Additional Information contains no financial
statements of Separate Account VA-1 because Separate Account
VA-1 has not yet commenced operations, has no assets or liabilities
and has received no income, nor incurred any expenses as of the
date of this Statement of Additional Information. The financial
statements of Separate Account VA-1 will be prepared on a calendar
year basis.
II. AMERICAN FRANKLIN FINANCIAL STATEMENTS
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . .F-2
Report of Independent Accountants . . . . . . . . . . . . . . . . . . .F-3
Audited Financial Statements:
Balance Sheet, December 31, 1995 and 1994. . . . . . . . . .F-4 - F-5
Statement of Operations for the eleven months ended
December 31, 1995, one month ended January 31, 1995 and
years ended December 31, 1994 and 1993 . . . . . . . . . . . . .F-6
Statement of Shareholder's Equity for the eleven months
ended December 31, 1995, one month ended January 31, 1995
and years ended December 31, 1994 and 1993 . . . . . . . . . . .F-7
Statement of Cash Flows for the eleven months ended
December 31, 1995, one month ended January 31, 1995 and
years ended December 31, 1994 and 1993 . . . . . . . . . . . . .F-8
Notes to Financial Statements. . . . . . . . . . . . . . . F-9 - F-27
Unaudited Financial Statements:
Balance Sheet, _______________, 1996 and __________, 1995. . . . .F-_
Statement of Operations for the _______ months
ended _______, 1996, and 1995. . . . . . . . . . . . . . . . . .F-_
Statement of Cash Flows for the _______ months ended _____,
1996, and 1995 . . . . . . . . . . . . . . . . . . . . . . . . .F-_
Notes to Financial Statements. . . . . . . . . . . . . . . . . . .F-_
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
______________________________
Board of Directors
and Shareholder
The American Franklin Life Insurance Company
We have audited the accompanying balance sheet of The American Franklin Life
Insurance Company (a wholly-owned subsidiary of The Franklin Life Insurance
Company, which is a wholly-owned subsidiary of American Franklin Company) as of
December 31, 1995, and the related statements of operations, shareholder's
equity and cash flows for the eleven months ended December 31, 1995 and the one
month ended January 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The American Franklin Life
Insurance Company at December 31, 1995, and the results of its operations and
its cash flows for the eleven months ended December 31, 1995 and the one month
ended January 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 15, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
__________________________________
To the Board of Directors
and Shareholder of
The American Franklin Life Insurance Company
We have audited the accompanying balance sheet of The American Franklin Life
Insurance Company (a wholly-owned subsidiary of The Franklin Life Insurance
Company) as of December 31, 1994, and the related statements of operations,
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The American Franklin Life
Insurance Company as of December 31, 1994, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1994
in conformity with generally accepted accounting principles.
As discussed in the Notes to Financial Statements, in 1993 the Company changed
its methods of accounting for reinsurance contracts and certain investments in
debt and equity securities.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
203 North LaSalle Street
Chicago, Illinois 60601
February 1, 1995
F-3
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
Predecessor
Basis
-------------
December 31
-----------------------------
ASSETS 1995 1994
-----------------------------
<S> <C> <C>
Investments
Fixed maturity securities
Fair value
(amortized cost: $24,333; $2,214) $ 26,578 $ 2,200
Amortized cost (fair value: $20,979) - 22,093
Policy loans 2,427 1,308
-----------------------------
29,005 25,601
Cash and cash equivalents 1,865 2,403
Accrued investment income 493 544
Amounts recoverable from reinsurers 5,308 3395
Deferred policy acquisition costs 4,101 16,540
Cost of insurance purchased 13,621 -
Insurance premiums in course of settlement 505 722
Other assets 1,331 624
Assets held in separate accounts 72,202 40,923
-----------------------------
Total assets $ 128,431 $ 90,752
-----------------------------
-----------------------------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
Predecessor
Basis
-------------
December 31
-----------------------------
LIABILITIES 1995 1994
-----------------------------
<S> <C> <C>
Insurance liabilities
Policy reserves, contract claims and
other policyholders' funds $ 6,604 $ 2,729
Universal life contracts 27,842 24,122
Unearned revenue 1,913 2,787
Income taxes
Current (461) 20
Deferred (1,172) (517)
Accrued expenses and other liabilities 3,855 2,821
Liabilities related to separate accounts 72,202 40,923
-----------------------------
Total liabilities 110,783 72,885
-----------------------------
SHAREHOLDER'S EQUITY
Common stock ($5 par value; 500,000
shares authorized, issued and outstanding) 2,500 2,500
Paid-in capital 15,373 12,500
Net unrealized gains (losses)
on securities 727 (9)
Retained earnings (deficit) (952) 2,876
-----------------------------
Total shareholder's equity 17,648 17,867
-----------------------------
Total liabilities and shareholder's equity $ 128,431 $ 90,752
-----------------------------
-----------------------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Basis
-------------------------------------------
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------
1995 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations $ 9,472 $ 676 $ 8,074 $ 5,215
Net investment income 2,129 160 2,142 2,181
Realized investment (losses) gains (6) - (4) 229
Other income (expense) 465 842 (26) 642
-----------------------------------------------------------
Total revenues 12,060 1,678 10,186 8,267
-----------------------------------------------------------
Benefits and expenses
Benefits paid or provided 2,597 330 1,415 1,869
Change in policy reserves 458 1,027 (194) (772)
Commissions and allowances 9,323 706 9,246 5,861
Change in deferred policy
acquisition costs and cost
of insurance purchased (4,558) (298) (5,161) (3,729)
Taxes, licenses and fees 988 96 974 605
General insurance expenses 4,713 312 3,676 3,112
-----------------------------------------------------------
Total benefits and expenses 13,521 2,173 9,956 6,946
-----------------------------------------------------------
Income (loss) before income taxes (1,461) (495) 230 1,321
-----------------------------------------------------------
Income tax expense (benefit)
Current 452 34 604 636
Deferred (961) (217) (534) (139)
-----------------------------------------------------------
Total income tax
expense (benefit) (509) (183) 70 497
-----------------------------------------------------------
Net income (loss) $ (952) $ (312) $ 160 $ 824
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Predecessor Basis
-------------------------------------------
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------
1995 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock $ 2,500 $ 2,500 $ 2,500 $ 2,500
Paid-in capital
Balance at beginning of period 15,373 12,500 12,500 12,500
Adjustment for the acquisition - 2,873 - -
-----------------------------------------------------------
Balance at end of period 15,373 15,373 12,500 12,500
-----------------------------------------------------------
Net unrealized gains (losses) on
Securities
Balance at beginning of period - (9) 164 -
Change during the period 1,118 (3) (270) 256
Amounts applicable to deferred
federal income taxes (391) 1 97 (92)
Adjustment for the acquisition - 11 - -
-----------------------------------------------------------
Balance at end of period 727 - (9) 164
-----------------------------------------------------------
Retained earnings (deficit)
Balance at beginning of period - 2,876 2,716 1,892
Net income (loss) (952) (312) 160 824
Adjustment for the acquisition - (2,564) - -
-----------------------------------------------------------
Balance at end of period (952) - 2,876 2,716
-----------------------------------------------------------
Total shareholder's equity
at end of period $ 17,648 $ 17,873 $ 17,867 $ 17,880
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Predecessor Basis
-------------------------------------------
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------
1995 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $ (952) $ (312) $ 160 $ 824
Reconciling adjustments to net
cash provided by (used for)
operating activities
Policy reserves, claims and
other policyholders' funds 10,786 1,439 6,017 6,774
Realized investment (gains)
losses (6) - 4 (229)
Deferred policy acquisition
costs and cost of insurance
purchased (4,558) (298) (5,161) (3,729)
Charges on universal life
contracts, net of interest
credited (8,166) (1,248) (5,930) (3,417)
Change in other assets and
liabilities (2,238) (471) (443) (3,338)
-----------------------------------------------------------
Net cash provided by
(used for) operating
activities (5,134) (890) (5,353) (3,115)
-----------------------------------------------------------
Investing activities
Investment purchases
Held-to-maturity - - (968) (7,823)
Available-for-sale (5,859) (41) (532) -
Investment calls, maturities and
sales
Held-to-maturity - 12 2,293 5,694
Available-for-sale 4,426 - - -
Other investments - - - 436
-----------------------------------------------------------
Net cash provided by (used
for) investing activities (1,433) (29) 793 (1,693)
-----------------------------------------------------------
Financing activities
Proceeds from intercompany
borrowings (1,425) - - -
Repayments of intercompany
borrowings (1,335) - - -
Universal life contract deposits 27,956 1,957 25,014 16,537
Universal life contract
withdrawals (21,750) (1,305) (19,933) (11,867)
-----------------------------------------------------------
Net cash provided by
financing activities 6,296 652 5,081 4,670
-----------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (271) (267) 521 (138)
Cash and cash equivalents at
beginning of period 2,136 2,403 1,882 2,020
-----------------------------------------------------------
Cash and cash equivalents at end of
period $ 1,865 $ 2,136 $ 2,403 1,882
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
1.1 NATURE OF OPERATIONS
The American Franklin Life Insurance Company (AMFLIC or the Company),
which is headquartered in Springfield, Illinois, sells and services
variable universal life and universal life insurance products to the
middle income market, primarily in the Midwest.
1.2 PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the
accounts of AMFLIC, a wholly-owned subsidiary of The Franklin Life
Insurance Company (FLIC), which is a wholly-owned subsidiary of
American Franklin Company (AFC). To conform with the 1995
presentation, certain items in the prior years financial statements
and notes have been reclassified.
The preparation of financial statements requires management to make
estimates and assumptions that affect (1) the reported amounts of assets
and liabilities, (2) disclosures of contingent assets and liabilities,
and (3) the reported amounts of revenues and expenses during the
reporting periods. Ultimate results could differ from those estimates.
1.3 ACQUISITION
Prior to January 31, 1995, AFC was a wholly-owned subsidiary of
American Brands, Inc. (American Brands). On January 31, 1995,
American Brands completed the sale of AFC to AGC Life Insurance
Company (AGCL), a subsidiary of American General Corporation
(AGC), for a purchase price of $1.17 billion. The purchase price
consisted of $920 million in cash paid at closing and a $250 million
extraordinary cash dividend paid by AFC to its former parent prior
to closing. The portion of the purchase price allocated to AMFLIC
was $17.9 million. These transactions received the required
regulatory approval from the Illinois and New York Insurance
Departments.
F-9
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.3 ACQUISITION (CONTINUED)
The sale was accounted for using the purchase method of accounting in
accordance with the provisions of Accounting Principles Board Opinion
16, "Business Combinations", and other existing accounting literature
pertaining to purchase accounting. Under purchase accounting, the total
purchase cost was allocated to the assets and liabilities acquired based
on a determination of their fair value. AMFLIC'S balance sheet at
December 31, 1995, and its statements of operations, shareholder's
equity and cash flows for the eleven months then ended, are reported
under the purchase method of accounting and, accordingly, are not
consistent with the basis of presentation of the previous periods'
financial statements (Predecessor Basis).
The fair values of AMFLIC's assets and liabilities at January 31, 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fixed maturities $ 24,022
Policy loans 1,342
Short-term investments 1,358
Separate account assets 40,970
Other assets 6,187
Cost of insurance purchased 14,279
Federal income taxes 478
Insurance liabilities (27,530)
Separate account liabilities (40,970)
Other liabilities (2,263)
-----------
Net assets $ 17,873
-----------
-----------
</TABLE>
F-10
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.4 ACCOUNTING CHANGES
Effective December 31, 1993, AMFLIC adopted Statement of
Financial Accounting Standards (SFAS) 115, "Accounting for
Certain Investments in Debt and Equity Securities." This
standard requires that fixed maturity securities be classified
into one of three categories: (1) held-to-maturity, (2)
available-for-sale, or (3) trading. Securities classified as
held-to-maturity are carried at amortized cost, while those
classified as available-for-sale or trading are carried at fair value.
The unrealized gain (loss) on those securities classified as
available-for-sale is recorded as an adjustment to shareholder's
equity, while the unrealized gain (loss) on those securities
classified as trading is recorded as an adjustment to income.
At December 31, 1994 and 1993, AMFLIC classified the
majority of fixed maturity securities as held-to-maturity and a
portion as available-for-sale. The effect of the adoption of SFAS 115
was immaterial.
Effective January 1, 1993, Franklin adopted SFAS 113 "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts". The adoption of this statement did not have a material
impact on Franklin's consolidated financial statements.
1.5 INVESTMENTS
FIXED MATURITY SECURITIES. Concurrent with the sale of AMFLIC, and
in conjunction with purchase accounting, effective January 31, 1995,
AMFLIC classified all fixed maturity securities as available-for-sale
and recorded them at fair value. After adjusting related balance sheet
accounts as if the unrealized gains (losses) had been realized, the net
fair value adjustment is recorded in net unrealized gains (losses) on
securities within shareholder's equity. If the fair value of a
security classified as available-for-sale declines below its cost and
this decline is considered to be other than temporary, the security is
reduced to its fair value, and the reduction is recorded as a
realized loss.
POLICY LOANS. Policy loans are reported at unpaid principal
balance and are adjusted periodically for any differences between
face value and unpaid principal balance, and for possible
uncollectible amounts.
INVESTMENT INCOME. Interest on fixed maturity securities is recorded
as income when earned and is adjusted for any amortization of
premium or discount.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses)
are recognized using the specific identification method and include
declines in the fair value of investments below cost that are
considered other than temporary.
1.6 CASH AND CASH EQUIVALENTS
Highly liquid investments with an original maturity of three months
or less are included in cash and cash equivalents. The carrying
amount approximates fair value.
F-11
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.7 DEFERRED POLICY ACQUISITION COSTS (DPAC)
The costs of writing an insurance policy, including agents' commissions
and underwriting and marketing expenses, are deferred and included in
the DPAC asset.
DPAC associated with interest-sensitive life insurance contracts is
charged to expense in relation to the estimated gross profits of
those contracts. DPAC associated with all other insurance contracts
is charged to expense over the premium-paying period or as the premiums
are earned over the life of the contract.
Gross profits include realized investment gains (losses). In addition,
DPAC is adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the
balance sheet date. The impact of this adjustment is included in net
unrealized gains (losses) on securities within shareholder's equity.
AMFLIC reviews the carrying amount of DPAC on at least an annual basis.
In determining whether the carrying amount is appropriate, AMFLIC
considers estimated future gross profits, or future premiums, as
applicable for the type of contract. In all cases, AMFLIC considers
expected mortality, interest earned and credited rates, persistency,
and expenses.
1.8 COST OF INSURANCE PURCHASED (CIP)
The cost assigned to insurance contracts in force at the acquisition
date is referred to as CIP. CIP is charged to expense using the same
assumptions as DPAC. Interest is accreted on the unamortized balance
of CIP at rates of 6 to 8.5%. CIP is also adjusted for the impact of
net unrealized gains (losses) on securities in the same manner as DPAC.
AMFLIC reviews the carrying amount of CIP on at least an annual basis
using the same methods used to evaluate DPAC.
1.9 SEPARATE ACCOUNTS
Separate accounts are assets and liabilities associated with certain
contracts for which the investment risk lies solely with the holder
of the contract rather than AMFLIC. Consequently, the insurer's
liability for these accounts equals the value of the account assets.
Investment income, realized investment gains (losses), and
policyholder account deposits and withdrawals related to Separate
accounts are excluded from the statements of operations and cash flows.
Assets held in separate accounts are carried at fair value.
F-12
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1.10 INSURANCE LIABILITIES
Substantially all of AMFLIC's insurance liabilities relate to
long-duration contracts, which generally require performance
over a period of more than one year. The contract provisions
normally cannot be changed or canceled by AMFLIC during the
contract period.
For interest-sensitive life insurance policies, reserves include the
policy account balance and deferred revenue charges. Reserves
for other types of long-duration contracts are based on estimates
of the cost of future policy benefits to be paid as a result of
present and future claims due to death, disability, surrender of a
policy, or payment of an endowment. Reserves are determined using
the net level premium method. Interest assumptions used to compute
reserves ranged from 4.0% to 9.0% at December 31, 1995.
1.11 PREMIUM RECOGNITION
Receipts for interest-sensitive life insurance policies are
classified as deposits instead of revenues. Revenues for these
contracts consist of the mortality, expense, and surrender
charges assessed against the account balance. Policy changes
that are designed to compensate AMFLIC for future services are
deferred and recognized in income over the period earned,
using the same assumptions used to amortize DPAC. For all other
long-duration contracts, premiums are recognized when due.
1.12 INCOME TAXES
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of
assets and liabilities, at the enacted tax rates expected to be in
effect when the temporary differences reverse. The effect of a tax
rate change is recognized in income in the period of enactment.
State income taxes are included in income tax expense.
A change in deferred taxes related to fluctuations in fair value of
available-for-sale securities is included in net unrealized gains
(losses) on securities in shareholder's equity.
F-13
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Investments
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------------------
In thousands 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities $ 2,097 $ 168 $ 2,166 $ 2,166
Policy loans 68 8 44 30
Other investments - - 1 47
-----------------------------------------------------------------------
Gross investment income 2,165 176 2,211 2,243
Investment expense 36 16 69 62
-----------------------------------------------------------------------
Net investment income $ 2,129 $ 160 $ 2,142 $ 2,181
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) (all related to fixed maturity
securities) and related DPAC and CIP amortization were as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
-----------------------------------------------------------------------
In thousands 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities
Gross gains $ 153 $ - $ 30 $ 231
Gross losses 171 - 34 2
-----------------------------------------------------------------------
Total (18) - (4) 229
-----------------------------------------------------------------------
Adjustment to DPAC and CIP 12 - - -
-----------------------------------------------------------------------
Realized investment gains (losses) $ (6) $ - $ (4) $ 229
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
Voluntary sales of investments resulted in:
<TABLE>
<CAPTION>
Realized
--------------------------------
In thousands Proceeds Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ELEVEN MONTHS ENDED AVAILABLE-FOR-SALE $ 1,517 $ - $ 72
DECEMBER 31, 1995
</TABLE>
F-14
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.3 FIXED MATURITY SECURITIES
VALUATION. Amortized cost and fair value of available-for-sale and
held-to-maturity fixed maturity securities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
In thousands COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Fixed maturity securities
Corporate bonds
Investment grade $ 10,026 $ 1,106 $ - $ 11,132
Below investment grade 798 66 - 864
Public utilities 4,317 542 - 4,859
Mortgage-backed 1,850 190 - 2,040
U.S. Government 7,138 327 - 7,465
States/political subdivisions 204 14 - 218
--------------------------------------------------------
Total available-for-sale
securities $ 24,333 $ 2,245 $ - $ 26,578
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
F-15
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.3 FIXED MATURITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
Fixed maturity securities
Corporate bonds
Investment grade $ 11,702 $ 281 $ (552) $ 11,431
Below investment grade 2,589 13 (24) 2,578
Public utilities 4,953 32 (486) 4,499
Mortgage-backed 1,963 - (341) 1,622
Foreign governments 399 - (23) 376
U.S. Government 277 - (8) 269
States/political subdivisions 210 - (6) 204
---------------------------------------------------------
Total held-to-maturity
securities $ 22,093 $ 326 $ (1,440) $ 20,979
--------------------------------------------------------
</TABLE>
F-16
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.3 FIXED MATURITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
In thousands Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Fixed maturity securities
U.S. Government $ 2,214 $ 43 $ (57) $ 2,200
-------------------------------------------------------
Total available-for-sale 2,214 43 (57) 2,200
-------------------------------------------------------
Total fixed maturity
securities $ 24,307 $ 369 $ (1,497) $ 23,179
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
MATURITIES. The contractual maturities of fixed maturity securities, at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
AMORTIZED FAIR
In thousands COST VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 306 $ 311
Due after one year through five years 4,131 4,430
Due after five years through ten years 15,885 17,328
Due after ten years 2,161 2,469
Mortgage-backed securities 1,850 2,040
------------------------------
Totals $ 24,333 $ 26,578
------------------------------
------------------------------
</TABLE>
Actual maturities may differ from contractual maturities since
borrowers may have the right to call or prepay obligations. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
F-17
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2.4 NET UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity securities included in
shareholder's equity at December 31 were as follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
--------------------------------------------------------------------
<S> <C> <C>
Gross unrealized gains $ 2,245 $ 43
Gross unrealized losses - (57)
DPAC fair value adjustment (228)
CIP fair value adjustment (899) -
Deferred federal income taxes (391) 5
------------------------------
Net unrealized gains (losses)
on securities $ 727 $ (9)
------------------------------
------------------------------
</TABLE>
2.5 INVESTMENTS ON DEPOSIT
As of December 31, 1995 and 1994, fixed maturity securities carried at
$6,873,000 and $4,039,000, respectively, were on deposit with
regulatory authorities to comply with state insurance laws.
2.6 INVESTMENT RESTRICTIONS
AMFLIC is restricted by the insurance laws of its domiciliary state
as to the amount which it can invest in any entity. At
December 31, 1995 and 1994, AMFLIC's largest investment in any
one entity other than U.S. Government obligations was $450,000.
F-18
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Fair Value of Financial Instruments
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised
in drawing conclusions based on fair value, since (1) the fair values
presented do not include the value associated with all of the Company's
assets and liabilities, and (2) the reporting of investments at fair value
without a corresponding revaluation of related policyholder liabilities can
be misinterpreted.
<TABLE>
<CAPTION>
DECEMBER 31 December 31
1995 1994
---------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
In thousands AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Available-for-sale fixed maturity
securities $ 26,578 $ 26,578 $ 2,200 $ 2,200
Held-to-maturity fixed maturity
securities - - 22,093 20,979
</TABLE>
The methods and assumptions used to estimate fair value were as follows:
FIXED MATURITY SECURITIES. Fair values of fixed maturity securities were
based on quoted market prices, where available. For investments not
actively traded, fair values were estimated using values obtained from
independent pricing services or in the case of some private placements, by
discounting expected future cash flows using a current market rate
applicable to yield, credit quality, and the average life of the
investments.
POLICY LOANS. Policy loans have no stated maturity dates and are an
integral part of the related insurance contract. Accordingly, it is not
practicable to estimate a fair value. The weighted average interest rate
charged on policy loan balances during 1995 and 1994 was 7.82%.
F-19
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Deferred Policy Acquisition Costs (DPAC)
An analysis of the changes in the DPAC asset is as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
---------------------------------------------------
In thousands 1995 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of period balance $ - $ 16,540 $ 11,379 $ 7,650
Capitalization 4,328 445 6,349 4,467
Amortization - (147) (1,188) (738)
Effect of unrealized gains
on securities (228) - - -
Effect of realized investment
losses 1 - - -
Adjustment for the
acquisition (a) - (16,838) - -
---------------------------------------------------
End of period balance $ 4,101 $ - $ 16,540 $ 11,379
---------------------------------------------------
---------------------------------------------------
</TABLE>
(a) Represents the necessary elimination of the historical DPAC asset
required by purchase accounting.
F-20
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Cost of Insurance Purchased (CIP)
An analysis of the changes in the CIP asset is as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH
ENDED ENDED
----------------------------------
DECEMBER 31 JANUARY 31
In thousands 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Beginning of period balance $ 14,279 $ -
Interest accretion 1,073 -
Additions 1,844 -
Amortization (2,687) -
Effect of unrealized gains on securities (899) -
Effect of realized investment losses 11 -
Adjustment for the acquisition (a) - 14,279
----------------------------------
End of period balance $ 13,621 $14,279
----------------------------------
----------------------------------
</TABLE>
(a) Represents the amount necessary to recognize the new CIP asset attributable
to the January 31, 1995 acquisition.
CIP amortization, net of accretion, expected to be recorded in each of the next
five years is $2,995,000, $2,616,000, $2,285,000, $2,008,000 and $1,762,000.
F-21
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Separate Account
AMFLIC administers two separate accounts in connection with the issue of
its Variable Universal Life products.
7. Income Taxes
AMFLIC is subject to the life insurance company provisions of the federal
tax law. Prior to January 31, 1995, AMFLIC was part of a consolidated
federal income tax return with its former parent company. The method of
allocation of tax expense was based upon separate return calculations with
current credit for net losses and tax credits. Consolidated Alternative
Minimum Tax, if any, was allocated separately. Intercompany tax balances
were to be settled no later than thirty (30) days after the date of filing
the consolidated return.
After January 31, 1995, AMFLIC will be part of a life/life consolidated
return which also includes FLIC. The tax allocation agreement is in the
process of being drafted, executed and approved by the Board of Directors.
7.1 DEFERRED TAXES
Components of deferred tax liabilities and assets at December 31, were as
follows:
<TABLE>
<CAPTION>
In thousands 1995 1994
-----------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities, applicable to:
Basis differential of investments $ 605 $ -
DPAC and CIP 3,773 4,121
Other 383 134
----------------------------
Total deferred tax liabilities 4,761 4,255
----------------------------
Deferred tax assets, applicable to:
Policy reserves (5,592) (4484)
Basis differential of investments - (46)
Other (341) (242)
----------------------------
Total deferred tax assets (5,933) (4772)
----------------------------
Net deferred tax assets $ (1,172) $ (517)
----------------------------
----------------------------
</TABLE>
AMFLIC expects adequate future taxable income to realize the net deferred
tax assets. Accordingly, no valuation allowance is considered necessary.
F-22
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7.2 TAX EXPENSE
A reconciliation between the federal income tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
----------------------------------------------------
1995 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
State taxes, net (0.4) 0.4 (6.5) 2.2
Invested asset items 0.2 - (1.7) (0.3)
Other - 1.6 3.6 0.7
---------------------------------------------------
Effective tax rate 34.8 % 37.0 % 30.4 % 37.6 %
----------------------------------------------------
----------------------------------------------------
</TABLE>
7.3 TAXES PAID
Federal income taxes paid during the eleven months ended December 31, 1995,
and for the years ended December 31, 1994 and 1993 were $1,031,000,
$745,000, and $551,000, respectively. State income taxes paid (received)
during the eleven months ended December 31, 1995, and for the years ended
December 31,1994, and 1993 were $1,000, $(14,000) and $34,000,
respectively. There were no federal or state income taxes paid during
January 1995.
7.4 TAX RETURN EXAMINATIONS
The Internal Revenue Service (IRS) has completed examinations of AMFLIC's
returns through 1989. All resolved issues have been settled within the
amounts previously provided in the financial statements. Adequate
provision has been made for unresolved issues.
F-23
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Statutory Accounting
State insurance laws prescribe accounting practices for calculating
statutory net income and equity. In addition, state regulators may allow
permitted statutory accounting practices that differ from prescribed
practices.
No significant permitted practices are used to prepare AMFLIC's statutory
financial statements.
At December 31, 1995 and 1994, AMFLIC had statutory stockholder's equity of
$9,912,000 and $11,192,000, respectively. AMFLIC's statutory net loss was
$4,704,000, $4,576,000, and $2,933,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
Generally, AMFLIC is restricted by the insurance laws of its domiciliary
state as to amounts that can be transferred in the form of dividends, loans
or advances without the approval of the Illinois Insurance Department.
Currently, under these restrictions, no dividends may be paid out and,
loans and advances in excess of $2,478,000 may not be transferred without
the approval of the Illinois Insurance Department.
F-24
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Statement of cash flows
In addition to the cash activities shown in the statements of cash flows,
the following transactions, in thousands of dollars, occurred:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C>
Interest added to universal life
contracts $ 1,126 $ 111 $ 1,216 $ 1,120
--------------------------------------------------
--------------------------------------------------
</TABLE>
10. Related Party Transaction
AMFLIC has no full-time employees or office facilities. General and
administrative expenses are allocated to AMFLIC from FLIC, based upon hours
worked by administrative personnel. Allocated expenses for the eleven
months ended December 31, 1995, the one month ended January 1995, and the
years ended December 31, 1994 and 1993 amounted to approximately
$3,277,000, $204,000, $1,655,000, and $1,750,000, respectively.
AMFLIC participates in a program of short-term borrowing with AGC to
maintain its long-term investment commitments. During 1995, AMFLIC
borrowed $1,425,000 and repaid $1,335,000. The remaining balance was
repaid in January 1996. Interest is paid on the outstanding balance based
on the Federal Reserve Board's monthly average H.15 rate for 30-day
commercial paper.
11. Reinsurance
AMFLIC is routinely involved in reinsurance transactions. Ceded
reinsurance becomes a liability of the reinsurer that assumes the risk. If
the reinsurer could not meet its obligations, AMFLIC would reassume the
liability. The likelihood of a material reinsurance liability being
reassumed by AMFLIC is considered to be remote. AMFLIC diversifies the
risk of exposure to reinsurance loss by using a number of life reinsurers
that have strong claims-paying ability ratings. The maximum retention on
one life for individual life insurance is $50,000.
Amounts paid or deemed to have been paid in connection with ceded
reinsurance contracts are recorded as reinsurance receivables. The cost of
reinsurance related to long-duration contracts is recognized over the life
of the underlying reinsured policies using assumptions consistent with
those used to account for the underlying policies.
F-25
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Reinsurance (continued)
Under the provisions of an assumed reinsurance agreement, AMFLIC
recognized, in thousands of dollars, the following:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 361 $ 43 $ 523 $ 581
Other income 972 8 152 234
Benefits 1,166 145 303 660
Commission expense 54 6 72 84
Premium taxes 6 6 30 37
</TABLE>
Under the provisions of a modified coinsurance agreement covering their
Variable Universal Life product, AMFLIC ceded, in thousands of dollars, the
following:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 2,648 $ 125 $ 1,834 $ 938
Expense allowances 2,463 186 2,246 1,536
Other 579 (6) (134) (50)
</TABLE>
AMFLIC also carries reinsurance for policy risks that exceed the Company's
retention limit of $50,000. AMFLIC ceded, in thousands of dollars, the
following amounts:
<TABLE>
<CAPTION>
ELEVEN MONTHS ONE MONTH Years
ENDED ENDED Ended
DECEMBER 31 JANUARY 31 December 31
--------------------------------------------------------
1995 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 4,129 $ 258 $ 3,051 $ 2,127
Change in policy
reserves 4,155 3,347 3,228 2,010
</TABLE>
F-26
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. State Guaranty Associations
State guaranty fund expense included in operating costs and expenses was
$37,000, $18,000, $57,000 and $28,000 for the eleven months ended December
31, 1995, one month ended January 31, 1995, and the years ended December
31, 1994 and 1993, respectively. Amounts assessed AMFLIC by state life and
health insurance guaranty funds resulting from paid industry insolvencies
were $37,000, $18,000, $57,000 and $28,000 for the eleven months ended
December 31, 1995, one month ended January 31, 1995, and the two years
ended December 31, 1994 and 1993. These assessments are expected to be
partially recovered against the payment of future premium taxes.
There was no liability accrued at December 31, 1995, or prior periods as
these amounts were determined to be immaterial.
F-27
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B:
(1) Financial Statements of The American Franklin Life Insurance
Company:
Report of Independent Auditors
Report of Independent Accountants
Audited Financial Statements:
Balance Sheet, December 31, 1995 and 1994
Statement of Operations for the eleven months ended
December 31, 1995, one month ended January 31, 1995 and
years ended December 31, 1994 and 1993
Statement of Shareholder's Equity for the eleven months
ended December 31, 1995, one month ended January 31, 1995
and years ended December 31, 1994 and 1993
Statement of Cash Flows for the eleven months ended
December 31, 1995, one month ended January 31, 1995 and
years ended December 31, 1994 and 1993
Notes to Financial Statements
Unaudited Financial Statements:
Balance Sheet, ___________, 1996 and ________,
1995
Statement of Operations for the _______ months
ended _____________, 1996, and 1995
Statement of Cash Flows for the ________ months
ended ____________, 1996, and 1995
Notes to Financial Statements
C-1
<PAGE>
PART C: None
(b) Exhibits
1 Certified resolutions regarding organization of Separate Account
VA-1 of The American Franklin Life Insurance Company (the
"Separate Account").
2 Not applicable. The American Franklin Life Insurance Company
("American Franklin") maintains custody of all assets.
3(a) Sales Agreement between Franklin Financial Services Corporation
("Franklin Financial") and the Separate Account, dated as of July
30, 1996.
3(b) Specimen Registered Representative Agreement between Franklin
Financial and registered representatives of Franklin Financial
distributing the Contracts.
3(c) Schedule of Sales Commissions.
3(d) Agreement between American Franklin and Franklin Financial, dated
July 30, regarding supervision of agents.
4(a)(1) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. T1575).
4(a)(2) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. T1575Z) ("unisex" version).
4(b)(1) Specimen form of Terminal Illness Waiver of Surrender Charges
Rider.
4(b)(2) Specimen form of Long Term Care Waiver of Surrender Charges
Rider.
4(c) Specimen form of Qualified Contract Endorsement.
4(d) Specimen form of Individual Retirement Annuity Endorsement.
4(e) Specimen form of Section 457 Contract Endorsement.
4(f) Specimen form of Section 403(b) Annuity Contract Endorsement.
5(a) Specimen form of Application for Contract Form Nos. T1575 and
T1575Z.
6(a) Certificate of Incorporation of American Franklin is hereby
incorporated herein by reference to Exhibit 1-A (6)(a) to Post-
Effective Amendment No. 2 to the Registration Statement on Form
S-6 (Reg. No. 33-77470) of
C-2
<PAGE>
Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed April 30, 1996.
6(b) By-Laws of American Franklin are hereby incorporated herein by
reference to Exhibit 1-A (6)(b) to Post-Effective Amendment No. 2
to the Registration Statement on Form S-6 (Reg. No. 33-77470) of
Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed April 30, 1996.
7 Not applicable.
8(a)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund ("VIPF") and Fidelity Distributors
Corporation ("FDC"), dated July 18, 1991, is hereby incorporated
herein by reference to Exhibit 1-A (8)(a)(1) to the Registration
Statement on Form S-6 (Reg. No. 33-41838) of Separate Account
VUL-2 of The American Franklin Life Insurance Company, filed July
24, 1991.
8(a)(2) Amendment No. 1 dated November 1, 1991 to Participation Agreement
among American Franklin, VIPF and FDC.
8(a)(3) Amendment No. 2 dated January 18, 1995 to Participation Agreement
among American Franklin, VIPF and FDC.
8(a)(4) Amendment No. 3 dated July 1, 1996 to Participation Agreement
among American Franklin, VIPF and FDC.
8(b)(1) Participation Agreement among American Franklin, Variable
Insurance Products Fund II ("VIPF II") and FDC, dated July 18,
1991, is hereby incorporated herein by reference to Exhibit 1-A
(8)(a)(2) to the Registration Statement on Form S-6 (Reg. No. 33-
41838) of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed July 24, 1991.
8(b)(2) Amendment No. 1 dated November 1, 1991 to Participation Agreement
among American Franklin, VIPF II and FDC.
8(b)(3) Amendment No. 2 dated January 18, 1995 to Participation Agreement
among American Franklin, VIPF II and FDC.
8(b)(4) Amendment No. 3 dated July 1, 1996 to Participation Agreement
among American Franklin, VIPF II and FDC.
8(c) Sub-License Agreement between FDC and American Franklin, dated
July 18, 1991, is hereby incorporated herein by reference to
Exhibit 1-A(8)(a)(3) to the Registration Statement on Form S-6
(Reg. No. 33-41838)
C-3
<PAGE>
of Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed July 24, 1991.
8(d)(1) Participation Agreement among MFS Variable Insurance Trust,
American Franklin and Massachusetts Financial Services Company
("MFS"), dated July 30, 1996.
8(d)(2) Indemnification Agreement between American Franklin and MFS dated
July 30, 1996.
9 Opinion and consent of Elizabeth E. Arthur, Esq., Assistant
Secretary of American Franklin.
10(a) List of Consents.
10(b) Consent of Ernst & Young LLP.
10(c) Consent of Coopers & Lybrand L.L.P.
10(d) Consent of Chadbourne & Parke LLP.
10(e) Consent of Elizabeth E. Arthur, Esq. (contained in Exhibit 9).
11 Not applicable.
12 Not applicable.
13 Not applicable.
14 A Financial Data Schedule meeting the requirements of Rule 483(e)
of the Securities Act of 1933 is filed as Exhibit 27 hereof.
15 Power of Attorney with respect to the Registration Statement.
27 Financial Data Schedule.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors, executive officers, and, to the extent responsible for variable
annuity operations, other officers of the depositor are listed below.
C-4
<PAGE>
(1) (2)
Name and Principal Business Positions and Offices with Depositor
Address
- --------------------------- ---------------------------------------
Robert M. Beuerlein Director, Executive Vice President and
Actuary
Robert M. Devlin Director and Chairman of the Board
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Barbara Fossum Vice President
Robert J. Gibbons Director and President
Harold S. Hook Director and Senior Chairman
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Thomas K. McCracken Vice President - Special Markets
Jon P. Newton Director and Vice Chairman
Jeffrey D. Pirmann Vice President and Treasurer
Gary D. Reddick Director and Executive Vice President -
Administration
Peter V. Tuters Director, Vice President and Chief
American General Corporation Investment Officer
2929 Allen Parkway
Houston, Texas 77019
J. Alan Vala Vice President and Agency Secretary
Diane S. Workman Vice President - Administration
Unless otherwise indicated, the principal business address of each of the above
individuals is in care of The American Franklin Life Insurance Company, #1
Franklin Square, Springfield, Illinois 62713.
C-5
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
There is no person controlled by or under common control with Registrant.
American Franklin is an indirect wholly-owned subsidiary of American
General Corporation ("American General").
SUBSIDIARIES OF AMERICAN GENERAL CORPORATION(1)
The following is a list of American General Corporation's subsidiaries as
of June 30, 1996. All subsidiaries listed are corporations, unless otherwise
indicated. Subsidiaries of subsidiaries are indicated by indentations and
unless otherwise indicated, all subsidiaries are wholly owned. Inactive
subsidiaries are denoted by an asterisk (*).
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Insurer
--------------- -------
<S> <C> <C>
AGC Life Insurance Company (2) MO Yes
The Franklin Life Insurance Company IL Yes
The American Franklin Life Insurance Company IL Yes
Franklin Financial Services Corporation DE No
American General Life and Accident Insurance Company TN Yes
American General Exchange, Inc. TN No
American General Life Insurance Company TX Yes
American General Annuity Service Corporation TX No
American General Life Insurance Company of New York NY Yes
The Winchester Agency Ltd. NY No
American General Securities Incorporated (3) TX No
American General Insurance Agency, Inc. MO No
American General Insurance Agency of Hawaii, Inc. HI No
American General Insurance Agency of Massachusetts, Inc. MA No
The Variable Annuity Life Insurance Company TX Yes
The Variable Annuity Marketing Company TX No
Independent Investment Advisory Services, Inc. FL No
The Independent Life and Accident Insurance Company FL Yes
Independent Fire Insurance Company FL Yes
Herald Underwriters, Inc. FL No
Independent Fire Insurance Company of Florida FL Yes
Independent Service Company FL No
Old Faithful General Agency, Inc. TX No
Thomas Jefferson Insurance Company FL Yes
Independent Property & Casualty Insurance Company FL Yes
Independent Real Estate Management Corporation FL No
Allen Property Company DE No
Florida Westchase Corporation DE No
Greatwood Development, Inc. DE No
Greatwood Golf Club, Inc. TX No
Highland Creek Golf Club, Inc. NC No
Hunter's Creek Communications Corporation FL No
Pebble Creek Corporation DE No
C-6
<PAGE>
Pebble Creek Development Corporation FL No
Westchase Development Corporation DE No
Westchase Golf Corporation FL No
American General Capital Services, Inc. DE No
American General Delaware Management Corporation (1) ("AGDMC") DE No
American General Finance, Inc. IN No
AGF Investment Corp. IN No
American General Auto Finance, Inc. DE No
American General Finance Corporation (4) IN No
American General Finance Group, Inc. DE No
American General Financial Services, Inc. (5) DE No
The National Life and Accident Insurance Company TX Yes
Merit Life Insurance Co. IN Yes
Yosemite Insurance Company CA Yes
American General Finance, Inc. AL No
American General Financial Center UT No
American General Financial Center, Inc.* IN No
American General Financial Center, Incorporated* IN No
American General Financial Center Thrift Company* CA No
Thrift, Incorporated* IN No
American General Investment Corporation DE No
American General Mortgage Company TX No
American General Realty Investment Corporation TX No
American Athletic Club, Inc. TX No
Hope Valley Farms Recreation Association, Inc. NC No
Ontario Vineyard Corporation DE No
Pebble Creek Country Club Corporation FL No
Pebble Creek Service Corporation FL No
SR/HP/CM Corporation TX No
American General Mortgage and Land Development, Inc. DE No
American General Land Development, Inc. DE No
American General Realty Advisors, Inc. DE No
American General Property Insurance Company TN Yes
Bayou Property Company DE No
AGLL Corporation (6) ("AGLL") DE No
American General Land Holding Company DE No
AG Land Associates, LLC (6) CA No
Hunter's Creek Realty, Inc.* FL No
Summit Reality Company, Inc. SC No
Financial Life Assurance Company of Canada Canada Yes
Florida GL Corporation DE No
GPC Property Company DE No
Cinco Ranch Development Corporation TX No
Cinco Ranch East Development, Inc. DE No
Cinco Ranch West Development, Inc. DE No
The Colonies Development, Inc. DE No
Fieldstone Farms Development, Inc. DE No
Hickory Downs Development, Inc. DE No
Lake Houston Development, Inc. DE No
South Padre Development, Inc. DE No
Green Hills Corporation DE No
INFL Corporation DE No
Knickerbocker Corporation TX No
Lincoln American Corporation DE No
C-7
<PAGE>
Pavilions Corporation DE No
</TABLE>
American General Finance Foundation, Inc. is not included on this list. It
is a non-profit corporation.
(1) The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of
each are jointly owned by American General Corporation and AGDMC and
the business and affairs of each are managed by AGDMC: American
General Capital, L.L.C. and American General Delaware, L.L.C.
(2) The following companies became approximately 40% owned by AGC Life
Insurance Company ("AGCL") on December 23, 1994: Western National
Corporation ("WNC") and its subsidiaries WNL Holding Corporation,
Western National Life Insurance Company, WesternSave (401K Plan),
Independent Advantage Financial & Insurance Services, Inc., WNL
Investment Advisory Services, Inc., Conseco Annuity Guarantee Corp., WNL
Brokerage Services, Inc., and WNL Insurance Services, Inc.
Accordingly, these companies became AGCL affiliates under insurance holding
company laws. However, the WNC stock is held for investment purposes by
AGCL and there are no plans for AGCL to direct the operations of any of
these companies.
(3) The following companies are indirectly controlled by, or related to,
American General Securities Incorporated: American General Insurance
Agency of Ohio, Inc., American General Insurance Agency of Texas, Inc.,
American General Insurance Agency of Oklahoma, Inc., and Insurance Masters
Agency, Inc.
(4) American General Finance Corporation is the parent of an additional 41
wholly-owned subsidiaries incorporated in 26 states for the purpose of
conducting its consumer finance operations.
(5) American General Financial Services, Inc. is the parent of an additional 7
wholly-owned subsidiaries incorporated in 4 states and Puerto Rico for the
purpose of conducting its consumer finance operations.
(6) AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of the date of this registration statement, 1996, no Contracts had been
offered or sold and there were no owners of Contracts of the class covered by
this registration statement.
C-8
<PAGE>
ITEM 28. INDEMNIFICATION
American Franklin's By-Laws provide, in Article X, as follows:
"Section 1. The Company shall indemnify and hold harmless each person
who shall serve at any time hereafter as a director, officer or
employee of the Company, or who shall serve any other company or
organization in any capacity at the request of the Company, from and
against any and all claims and liabilities to which such person shall
become subject by reason of having heretofore or hereafter been a
director, officer, or employee of the Company, or by reason of any
action alleged to have been heretofore or hereafter taken or omitted
by such person as a director, officer or employee, and shall reimburse
each such person for all legal and other expenses reasonably incurred
in connection with any such claim or liability; provided, however,
that no such person shall be indemnified against, or be reimbursed,
for, any expense incurred in connection with any claim or liability
arising out of such person's own wilful misconduct."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Franklin Financial Services
Corporation, also acts as principal underwriter for Franklin Life Variable
Annuity Fund A, Franklin Life Variable Annuity Fund B, Franklin Life Money
Market Variable Annuity Fund C, which offer interests in variable annuities, and
Separate Account VUL and Separate Account VUL-2 of The American Franklin Life
Insurance Company, which offer interests in flexible premium variable life
insurance policies.
(b) The directors and principal officers of the principal underwriter are:
(1) (2)
Positions and Offices
Name with Underwriter
---- ---------------------
Robert M. Beuerlein Director and Senior Vice
President
C-9
<PAGE>
Tony M. Carter Vice President
Robert J. Gibbons Chairman of the Board, President
and Chief Executive Officer
Deanna Osmonson Vice President - Administration and
Assistant Secretary
Gary D. Osmonson Director and Senior Vice
President - Sales and
Compliance Officer
Jeffrey D. Pirmann Vice President and Treasurer
Gary D. Reddick Director and Executive Vice
President
James C. Rundblom Chief Financial Officer
J. Alan Vala Vice President and Assistant
Secretary
Raymond P. Weber Director
The principal business address of each individual except Tony M. Carter is c/o
Franklin Financial Services Corporation, #1 Franklin Square, Springfield,
Illinois 62713. The principal business address of Tony M. Carter is 2900
Greenbrier Drive, Springfield, Illinois 62704.
(c) Not Applicable.
ITEM 30. LOCATION OF RECORDS
All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-1
through 31a-3 thereunder, are maintained and in the custody of The American
Franklin Life Insurance Company at its principal executive office located at #1
Franklin Square, Springfield, Illinois 62713.
ITEM 31. MANAGEMENT SERVICES
All management services agreements relating to Separate Account VA-1 and
the Contracts are described in the Prospectus or Statement of Additional
Information forming a part of this Registration Statement.
ITEM 32. UNDERTAKINGS
The Registrant undertakes:
C-10
<PAGE>
(a) to file a post-effective amendment to this Registration Statement as
frequently as is necessary to ensure that the audited financial statements in
the Registration Statement are never more than 16 months old for so long as
payments under the Contracts may be accepted;
(b) to include either (1) as part of any application to purchase a Contract
offered by the Prospectus constituting part of this Registration Statement, a
space that an applicant can check to request a Statement of Additional
Information, or (2) a toll-free number or a post card or similar written
communication affixed to or included in the Prospectus that the applicant can
remove to send for a Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under Form N-4 promptly upon written or
oral request;
(d) that the Registrant is relying upon the "no-action" letter of the
Securities and Exchange Commission dated November 28, 1988 in response to the
American Council of Life Insurance with respect to restrictions on withdrawal of
amounts from Contracts used in connection with annuity purchase plans meeting
the requirements of Internal Revenue Code Section 403(b), which amounts are
attributable to contributions made on or after January 1, 1989 pursuant to a
salary reduction agreement or to income earned on or after January 1, 1989 with
respect to contributions made pursuant to a salary reduction agreement and that
the Registrant will comply with the requirement of numbered paragraphs (1)
through (4) of such "no-action" letter; and
(e) that the Registrant is relying upon Rule 6c-7 under the 1940 Act with
respect to the offer and sale of Contracts to participants in the Texas Optional
Retirement Program and that the Registrant will comply with the provisions of
paragraphs (a) - (d) of Rule 6c-7.
C-11
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Separate Account VA-1 of The American Franklin Life
Insurance Company, has duly caused this Registration Statement to be signed on
its behalf, in the City of Springfield, and State of Illinois on this 19th
day of August, 1996.
SEPARATE ACCOUNT VA-1 OF THE
AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By: THE AMERICAN FRANKLIN LIFE INSURANCE
COMPANY, Depositor
[SEAL] By: Robert J. Gibbons*
--------------------------------------
Robert J. Gibbons
President
Attest:
Elizabeth E. Arthur
- -----------------------------
Elizabeth E. Arthur
Assistant Secretary
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By: Robert J. Gibbons*
--------------------------------------
Robert J. Gibbons
President
[SEAL]
Attest:
Elizabeth E. Arthur
- -----------------------------
Elizabeth E. Arthur
Assistant Secretary
- -----------------------------
* By Elizabeth E. Arthur,
Attorney-in-Fact
C-12
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
R.M. Beuerlein*
- -----------------------------
(R.M. Beuerlein) Director August 19, 1996
- -----------------------------
(R.M. Devlin) Director August , 1996
R.J. Gibbons*
- ----------------------------- Director and President August 19, 1996
(R.J. Gibbons) (principal executive officer)
- ----------------------------- Director August , 1996
(H.S. Hook)
J.P. Newton*
- ---------------------------- Director August 19, 1996
(J.P. Newton)
J.D. Pirmann*
- ---------------------------- Vice President and Treasurer August 19, 1996
(J.D. Pirmann) (principal financial officer
and principal accounting officer)
G.D. Reddick*
- ---------------------------- Director August 19, 1996
(G.D. Reddick)
- ---------------------------- Director August , 1996
(P.V. Tuters)
- ----------------------------
* By Elizabeth E. Arthur,
Attorney-in-Fact
C-13
<PAGE>
EXHIBIT INDEX
1 Certified resolutions regarding organization of Separate Account VA-1
of The American Franklin Life Insurance Company (the "Separate
Account").
2 Not applicable. The American Franklin Life Insurance Company
("American Franklin") maintains custody of all assets.
3(a) Sales Agreement between Franklin Financial Services Corporation
("Franklin Financial") and the Separate Account, dated as of July 30,
1996.
3(b) Specimen Registered Representative Agreement between Franklin
Financial and registered representatives of Franklin Financial
distributing the Contracts.
3(c) Schedule of Sales Commissions.
3(d) Agreement between American Franklin and Franklin Financial, dated
July 30 regarding supervision of agents.
4(a)(1) Specimen form of Combination Fixed and Variable Annuity Contract (Form
No. T1575).
4(a)(2) Specimen form of Combination Fixed and Variable Annuity Contract (Form
No. T1575Z) ("unisex" version).
4(b)(1) Specimen form of Terminal Illness Waiver of Surrender Charges Rider.
4(b)(2) Specimen form of Long Term Care Waiver of Surrender Charges Rider.
4(c) Specimen form of Qualified Contract Endorsement.
4(d) Specimen form of Individual Retirement Annuity Endorsement.
4(e) Specimen form of Section 457 Contract Endorsement.
4(f) Speciment form of Section 403(b) Annuity Contract Endorsement.
5(a) Specimen form of Application for Contract Form Nos. T1575 and T1575Z.
6(a) Certificate of Incorporation of American Franklin is hereby
incorporated herein by reference to Exhibit 1-A (6)(a) to Post-
Effective Amendment No. 2 to the Registration Statement on Form S-6
(Reg. No. 33-77470) of
i
<PAGE>
Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed April 30, 1996.
6(b) By-Laws of American Franklin are hereby incorporated herein by
reference to Exhibit 1-A (6)(b) to Post-Effective Amendment No. 2 to
the Registration Statement on Form S-6 (Reg. No. 33-77470) of Separate
Account VUL-2 of The American Franklin Life Insurance Company, filed
April 30, 1996.
7 Not applicable.
8(a)(1) Participation Agreement among American Franklin, Variable Insurance
Products Fund ("VIPF") and Fidelity Distributors Corporation ("FDC"),
dated July 18, 1991, is hereby incorporated herein by reference to
Exhibit 1-A (8)(a)(1) to the Registration Statement on Form S-6 (Reg.
No. 33-41838) of Separate Account VUL-2 of The American Franklin Life
Insurance Company, filed July 24, 1991.
8(a)(2) Amendment No. 1 dated November 1, 1991 to Participation Agreement
among American Franklin, VIPF and FDC.
8(a)(3) Amendment No. 2 dated January 18, 1995 to Participation Agreement
among American Franklin, VIPF and FDC.
8(a)(4) Amendment No. 3 dated July 1, 1996 to Participation Agreement among
American Franklin, VIPF and FDC.
8(b)(1) Participation Agreement among American Franklin, Variable Insurance
Products Fund II ("VIPF II") and FDC, dated July 18, 1991, is hereby
incorporated herein by reference to Exhibit 1-A (8)(a)(2) to the
Registration Statement on Form S-6 (Reg. No. 33-41838) of Separate
Account VUL-2 of The American Franklin Life Insurance Company, filed
July 24, 1991.
8(b)(2) Amendment No. 1 dated November 1, 1991 to Participation Agreement
among American Franklin, VIPF II and FDC.
8(b)(3) Amendment No. 2 dated January 18, 1995 to Participation Agreement
among American Franklin, VIPF II and FDC.
8(b)(4) Amendment No. 3 dated July 1, 1996 to Participation Agreement among
American Franklin VIPF II and FDC.
8(c) Sub-License Agreement between FDC and American Franklin, dated
July 18, 1991, is hereby incorporated herein by reference to
Exhibit 1-A(8)(a)(3) to the Registration Statement on Form S-6 (Reg.
No. 33-41838)
ii
<PAGE>
of Separate Account VUL-2 of The American Franklin Life Insurance
Company, filed July 24, 1991.
8(d)(1) Participation Agreement among MFS Variable Insurance Trust, American
Franklin and Massachusetts Financial Services Company ("MFS"), dated
July 30, 1996.
8(d)(2) Indemnification Agreement between American Franklin and MFS dated July
30, 1996.
9 Opinion and consent of Elizabeth E. Arthur, Esq., Assistant Secretary
of American Franklin.
10(a) List of Consents.
10(b) Consent of Ernst & Young LLP.
10(c) Consent of Coopers & Lybrand L.L.P.
10(d) Consent of Chadbourne & Parke LLP.
10(e) Consent of Elizabeth E. Arthur, Esq. (contained in Exhibit 9).
11 Not applicable.
12 Not applicable.
13 Not applicable.
14 A Financial Data Schedule meeting the requirements of Rule 483(e) of
the Securities Act of 1933 is filed as Exhibit 27 hereof.
15 Power of Attorney with respect to the Registration Statement.
27 Financial Data Schedule.
iii
<PAGE>
[LETTERHEAD]
EXHIBIT 1
I, Elizabeth E. Arthur, Assistant Secretary of The American Franklin Life
Insurance Company, do hereby certify that at the regular meeting of the Board of
Directors of the Company held on May 22, 1996, at which meeting a quorum was
present, the following resolution was unanimously adopted:
Separate Account VA-1 was established for the purpose of issuing and
funding a variable annuity product pursuant to the following resolution:
WHEREAS, The American Franklin Life Insurance Company (the "Company")
wishes to establish and issue a new variable annuity product (the "American
Franklin Variable Annuity"); and
WHEREAS, Article XIV-1/2 of the Illinois Insurance Code permits the
establishment of one or more separate accounts to provide for variable
annuity contracts; and
WHEREAS, the Board of Directors finds it is necessary and in the best
interests of the Company to establish a separate account for the American
Franklin Variable Annuity; NOW THEREFORE, BE IT
RESOLVED, That, pursuant to Article XIV-1/2 of the Illinois Insurance
Code, a separate account designated "Separate Account VA-1 of The American
Franklin Life Insurance Company" (the "Separate Account") is hereby
established, to which shall be allocated any amounts paid to the Company
which are to be applied to the Separate Account under the terms of such
variable annuity contracts.
FURTHER RESOLVED, That the proper officers of the Company are
empowered to make any and all necessary applications to the Illinois
Insurance Department for the approval of the creation of the Separate
Account and of the form of the American Franklin Variable Annuity
contracts.
FURTHER RESOLVED, That the Separate Account is hereby empowered to do
the following:
Page 1 of 10
<PAGE>
(a) REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940
To the extent required by the Investment Company Act of 1940 (the
"1940 Act"), prepare, execute and file with the Securities and
Exchange Commission a Notification of Registration and a Registration
Statement, including financial statements, exhibits and other
documents relating thereto, and any amendments to the foregoing;
(b) APPLICATIONS FOR EXEMPTIONS AND NO-ACTION REQUESTS UNDER THE 1940
ACT
Prepare, execute and file with the Securities and Exchange Commission,
from time to time applications, and any amendments thereto, for such
exemptions from or orders under, and requests for no-action or
interpretive letters with respect to, and any other relief from,
provisions of the 1940 Act or any rules and regulations thereunder;
(c) PERIODIC REPORTING UNDER THE 1940 ACT
Prepare, execute and file with the Securities and Exchange Commission
such reports and documents as may be required of the Separate Account
by the 1940 Act;
(d) REGISTRATION UNDER THE SECURITIES ACT OF 1933
Effect such registration with the Securities and Exchange Commission
under the Securities Act of 1933 (the "1933 Act") as may be necessary
or appropriate to permit any variable annuity contracts issued and
administered by the Company which the Company from time to time may
propose to offer to provide for allocations of amounts to the Separate
Account;
(e) FILING REGISTRATION STATEMENTS UNDER THE 1933 ACT
To the extent required by the 1933 Act, prepare, execute and file with
the Securities and Exchange Commission a Registration Statement or
Statements, including prospectuses, financial statements, supplements,
exhibits and other documents relating thereto, and any amendments to
the foregoing;
(f) APPLICATION FOR ADDITIONAL EXEMPTIONS AND NO-ACTION REQUESTS
Page 2 of 10
<PAGE>
Prepare, execute and file with the Securities and Exchange Commission
from time to time applications, and any amendments thereto, for
exemptions from or orders under, and requests for no-action or
interpretive letters with respect to, and any other relief from the
1933 Act, the Securities Exchange Act of 1934 (the "1934 Act"), the
Trust Indenture Act of 1939 or the Investment Advisers Act of 1940;
(g) PERIODIC REPORTING UNDER THE 1934 ACT
Prepare, execute and file with the Securities and Exchange Commission
such reports and documents as may be required of the Separate Account
by the 1934 Act;
(h) STATE SECURITIES AND INSURANCE LAW PROCEEDINGS
Prepare, execute and file all such registrations, filings and
qualifications under blue sky or other applicable securities laws and
regulations and under insurance securities laws and insurance laws
and regulations of such states and other jurisdictions as may be
necessary or appropriate, and in connection therewith, prepare,
execute, acknowledge and file all such applications, applications for
exemptions, certificates, affidavits, covenants, consents to service
of process and other instruments and take all such action as the
Officers of the Company may deem necessary or appropriate;
(i) AGENT FOR SERVICE OF PROCESS
Appoint the General Counsel of the Company or his designee as agent
for service under any such registration statement duly authorized to
receive communications and notices from the Securities and Exchange
Commission with respect thereto, and to exercise powers given such
agent by the 1933 Act and any Rules thereunder and any other necessary
Acts;
(j) CUSTODIAL ARRANGEMENTS
Provide for custodial or depository arrangements for assets allocated
to the Separate Account as the Officers of the Company may deem
necessary and appropriate;
(k) FISCAL YEAR
Page 3 of 10
<PAGE>
Conclude the fiscal year for the Separate Account on the thirty-first
day of December in each year;
(l) INDEPENDENT PUBLIC ACCOUNTANTS OR AUDITORS
Select an independent public accountant or auditor to audit the books
and records of the Separate Account;
(m) RULES AND REGULATIONS
Delegate the authority to the Chief Executive Officer or the President
of the Company to adopt Rules and Regulations for Certain Operations
of the Separate Account in such form as the officer executing the same
may deem necessary or appropriate;
(n) INVESTMENT MANAGEMENT SERVICES
Provide for investment management services as the Officers of the
Company may deem necessary and appropriate;
(o) SALES OF POLICIES
Provide for the sale of variable annuity contracts issued and
administered by the Company as the Officers of the Company may deem
necessary and appropriate, to the extent such contracts provide for
allocation of amounts to the Separate Account;
(p) INVESTMENT OF ASSETS IN REGISTERED INVESTMENT COMPANIES
Invest or reinvest the assets of the Separate Account in securities
issued by one or more investment companies registered under the 1940
Act as the Company's Board of Directors may designate;
(q) DIVISIONS OF THE SEPARATE ACCOUNT
Divide the Separate Account into divisions and subdivisions with each
division or subdivision investing in shares of designated classes of
designated investment companies or other appropriate securities;
(r) UNIT VALUE
Provide for units to represent interests in the Separate Account and
to value such units in a manner deemed necessary and appropriate by
the Officers of the Company; and
Page 4 of 10
<PAGE>
(s) GENERAL AUTHORITY
Perform such additional functions and take such additional action as
may be necessary or desirable to carry out the foregoing and the
intent and purpose thereof.
FURTHER RESOLVED, That the Officers of the Company be, and each of
them hereby is, authorized to do the following:
(a) REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940
With the assistance of accountants, legal counsel and other
consultants, to take all actions necessary to register the Separate
Account as a unit investment trust under the 1940 Act and to take such
related actions as they deem necessary and appropriate to carry out
the foregoing;
(b) APPLICATIONS FOR EXEMPTIONS AND NO-ACTION REQUESTS
UNDER THE 1940 ACT
With the assistance of accountants or auditors, legal counsel and
other consultants, to prepare, execute, and file with the Securities
and Exchange Commission applications, and any amendments thereto, for
such exemptions from or orders under, and requests for no-action or
interpretive letters with respect to, and any other relief from
provisions of the 1940 Act or any rules and regulations thereunder, as
they may from time to time deem necessary or appropriate;
(c) PERIODIC REPORTING UNDER THE 1940 ACT
With the assistance of accountants, auditors, legal counsel and other
consultants, to prepare, execute and file with the Securities and
Exchange Commission such reports and documents as may be required by
the 1940 Act;
(d) REGISTRATION UNDER THE SECURITIES ACT OF 1933
To register under the 1933 Act units of interest in the Separate
Account relating to variable annuity contracts under which amounts
will be allocated by the Company to the Separate Account;
(e) FILING REGISTRATION STATEMENTS UNDER THE 1933 ACT
Page 5 of 10
<PAGE>
To the extent required by the 1933 Act, with the assistance of
accountants, auditors, legal counsel and other consultants, to
prepare, execute and file with the Securities and Exchange Commission
a Registration Statement or Statements, including prospectuses,
supplements, any exhibits and other documents relating thereto, and
amendments to the foregoing;
(f) APPLICATIONS FOR ADDITIONAL EXEMPTIONS AND NO-ACTION
REQUESTS
With the assistance of accountants, auditors, legal counsel and other
consultants, to prepare, execute and file with the Securities and
Exchange Commission from time to time applications, and any amendments
thereto, for exemptions from or orders under, and requests for
no-action or interpretive letters with respect to any other relief from
the 1933 Act, the 1934 Act, the Trust Indenture Act of 1939 and the
Investment Advisers Act of 1940;
(g) PERIODIC REPORTING UNDER THE 1934 ACT
With the assistance of accountants, auditors, legal counsel and other
consultants, to prepare, execute and file with the Securities and
Exchange Commission such reports and documents as may be required of
the Separate Account by the 1934 Act;
(h) STATE SECURITIES AND INSURANCE LAW PROCEEDINGS
With the assistance of accountants, auditors, legal counsel and other
consultants, to effect all such registrations, filings and
qualifications under blue sky or other applicable securities laws and
regulations and under insurance securities laws and insurance laws and
regulations of such states and other jurisdictions as they may deem
necessary or appropriate, with respect to the Company, and with
respect to any units of interest in the Separate Account relating to
variable annuity contracts; such authorization to include
registration, filing and qualification of the Company and of said
units, as well as registration, filing and qualification of officers,
employees and agents of the Company as brokers, dealers, agents,
salesmen, or otherwise; and such authorization shall also include, in
connection therewith, authority to prepare, execute, acknowledge and
file all such applications, applications for exemptions, certificates,
affidavits, covenants, consents to service of process and other
instruments and to take all such action as the Officers of the Company
may deem necessary or appropriate;
Page 6 of 10
<PAGE>
FURTHER RESOLVED, That the Board of Directors hereby adopts the form
of any resolution required to be adopted by state, or any other
jurisdiction, blue sky or other applicable securities laws and regulations
and by insurance securities laws and insurance laws and regulations in
connection with an application for qualification and registration, renewal
or qualification or registration of the Company and with respect to any
units of interest in the Separate Account relating to variable annuity
contracts, or any consent to service of process or other requisite paper or
document required to be filed in connection therewith, if (i) in the
opinion of the Officers of the Company the adoption of such resolution is
necessary or advisable, and (ii) the Secretary or Assistant Secretary of
the Company evidences such adoption by inserting in the minutes a copy of
such resolution, which will thereupon be deemed to be adopted by this Board
of Directors, with the same force and effect as if specifically adopted at
this or any subsequent meeting;
AGENT FOR SERVICE OF PROCESS
FURTHER RESOLVED, That the General Counsel of the Company is hereby
appointed as agent for service under any such registration statement duly
authorized to receive communications and notices from the Securities and
Exchange Commission with respect thereto and to exercise powers given to
such agent by the Securities Act of 1933 and the Rules thereunder, and any
other necessary Acts; and
POWER OF ATTORNEY
FURTHER RESOLVED, That the Company hereby appoints the President, any
Vice President and the Secretary, and each of them (with full power to each
of them to act alone), its true and lawful attorney and agent, with full
power of substitution to each, to execute in its name, place and stead
registration statements and amendments thereto under the Securities Act of
1933 and all instruments necessary or appropriate in connection therewith,
and to file the same with the Securities and Exchange Commission, each of
said attorneys and agents, and their substitutes, to have full power and
authority to do or cause to be done in the name and on behalf of the
Separate Account every act or thing with respect thereto as fully and to
all intents and purposes as any director or officer of the Company might or
could do with respect thereto, hereby ratifying and confirming any and all
action taken by said attorneys and agents with respect thereto.
RESOLVED, That each officer and director who may be required to
execute any registration statement or any amendment thereof (whether on
behalf of the Company or as an officer or director thereof or by attesting
Page 7 of 10
<PAGE>
the seal of this Company or otherwise) be, and hereby is, authorized to
execute a power of attorney appointing Raymond P. Weber, Elizabeth E.
Arthur, Edward P. Smith, and Peter K. Ingerman, and each of them (with full
power to each of them to act alone), as his or her true and lawful attorney
and agent, to execute in his or her name, place and stead (and in any such
capacity), any registration statement and any and all instruments necessary
and appropriate in connection therewith, to attest the seal of this Company
thereon, and to file the same with the Securities and Exchange Commission,
or with any other authority, said attorney and agent to have power to act
and to have full power and authority to do and perform in the name and on
behalf of each of the said officers and directors, or both, as the case may
be, every act whatsoever necessary or advisable to be done in the premises
as fully and to all intents and purposes as any such officer or director
might or could do in person.
RESOLVED, That the net asset unit value of the Separate Account shall
be computed on each day during which the New York Stock Exchange is open
for trading; and
FURTHER RESOLVED, That such computation shall be based on the net
asset value of the shares of the Variable Insurance Products Fund (the "VIP
Fund") or the Variable Insurance Products Fund II (the "VIP II Fund") or
shares of such other registered investment companies as the Officers of the
Company may designate as investments for the Separate Account, at the net
asset values provided by such investment companies, as of the time of
closing of the composite tape reporting daily transactions on the national
securities exchanges.
RESOLVED, That the Officers of the Company be, and each of them hereby
is, authorized to enter into participation agreements and other appropriate
agreements with the VIP Fund, the VIP II Fund, and Fidelity Distributors
Corporation, or with such other registered investment companies as the
Officers of the Company may designate as investments for the Separate
Account.
RESOLVED, That the Separate Account shall constitute a funding medium
for such variable annuity contracts issued by the Company as the Chief
Executive Officer or President may from time to time designate; and
FURTHER RESOLVED, That the income, gains and losses (whether or not
realized) from assets allocated to the Separate Account shall, in
accordance with any variable annuity contracts issued by the Company
providing for allocations to the Separate Account, be credited to or
charged against the Separate Account without regard to the other income,
gains or losses of the Company; and
Page 8 of 10
<PAGE>
FURTHER RESOLVED, That the Officers of the Company be, and each of
them hereby is, authorized to prepare the forms of the variable annuity
contracts funded through the Separate Account and to provide in those
contracts for the assessment of charges for mortality and expense risks,
sales and administrative expenses, and other expenses.
RESOLVED, That the fundamental investment policy of the Separate
Account shall be to invest or reinvest the assets of the Separate Account
in securities issued by the VIP Fund or the VIP II Fund or such other
investment companies registered under the 1940 Act as the Officers of the
Company may designate; and
FURTHER RESOLVED, That the Separate Account be divided into such
divisions corresponding to the divisions of the VIP Fund or the VIP II Fund
or such other investment companies as are selected; and
FURTHER RESOLVED, That the Executive Committee be, and it hereby is,
authorized in its discretion as it may deem appropriate from time to time
in accordance with applicable laws and regulations (a) to divide the
Separate Account into one or more additional divisions or subdivisions, (b)
to modify or eliminate any such divisions or subdivisions, (c) to change
the designation of the Separate Account to another designation, (d) to
change the designation of any such divisions or subdivisions, and (e) to
designate any further divisions or subdivisions thereof.
RESOLVED, That the Officers of the Company be, and each of them hereby
is, authorized to execute with such company as such Officers may select, an
agreement for the provision of administrative services relating to the
variable annuity contracts funded through the Separate Account.
RESOLVED, That Franklin Financial Services Corporation ("FFSC") is
hereby designated as the principal underwriter of the variable annuity
contracts funded through the Separate Account; and
FURTHER RESOLVED, That the Officers of the Company be, and each of
them hereby is, authorized to execute with FFSC agreements providing for
the distribution of the variable annuity contracts funded through the
Separate Account and the selection, training, appointment, and supervision
by FFSC of the Company associates who are to be authorized to sell such
contracts and will be registered representatives of FFSC.
Page 9 of 10
<PAGE>
RESOLVED, That the Officers of the Company be, and each of them hereby
is, authorized to execute and deliver all such agreements, documents and
papers and to do or cause to be done all such acts and things as they may
deem necessary or desirable to carry out the foregoing resolutions and the
intent and purpose thereof.
RESOLVED, That the following which expresses the policy of the Company
with respect to determining the suitability for applicants be adopted: No
recommendation shall be made to a potential applicant to purchase a
variable annuity contract and no variable annuity contract shall be issued
in the absence of reasonable grounds to believe that the purchase of such
annuity contract is not unsuitable for such applicant on the basis of
information furnished after reasonable inquiry of such applicant concerning
the applicant's financial and investment objectives, financial situation
and needs, and any other information known to the Company or to the
associate making the recommendation.
RESOLVED, That the Officers of the Company be, and each of them hereby
is, authorized to invest cash in the Separate Account or in any division
thereof as may be deemed necessary or appropriate to facilitate the
commencement of the Separate Account's operations or to meet any minimum
capital requirements under the 1940 Act and to transfer cash or securities
from time to time between the Company's general account and the Separate
Account, as deemed necessary or appropriate so long as such transfers are
not prohibited by law and are consistent with the terms of the variable
annuity contracts issued by the Company providing for allocations to the
Separate Account.
RESOLVED, That Ernst & Young LLP are hereby selected as the
independent auditors to audit the books and records of the Separate Account
for the year 1996 and each year thereafter until replaced by action of the
Board of Directors.
Dated at Springfield, Illinois, this 17th day of July, 1996.
/s/ Elizabeth E. Arthur
------------------------------
Elizabeth E. Arthur
Page 10 of 10
<PAGE>
EXHIBIT 3(a)
SALES AGREEMENT
AGREEMENT dated as of July 30, 1996, by and between Separate Account VA-1,
established pursuant to Article XIV-1/2 of the Illinois Insurance Code (the
"Separate Account"), of The American Franklin Life Insurance Company, an
Illinois legal reserve stock life insurance corporation ("American Franklin"),
and Franklin Financial Services Corporation, a Delaware corporation ("Franklin
Financial");
W I T N E S S E T H :
WHEREAS, the Separate Account and Franklin Financial desire to enter into
an agreement setting forth the terms on which Franklin Financial will act as
principal underwriter for the Separate Account in respect of interests in the
Separate Account issued under American Franklin's The ChairmanTM combination
fixed and variable annuity contracts (the "Contracts");
NOW, THEREFORE, it is hereby agreed as follows:
1. SERVICES TO BE PROVIDED AND EXPENSES TO BE ASSUMED BY FRANKLIN
FINANCIAL. Franklin Financial will act as the exclusive principal
underwriter (as that term is defined in the Investment Company Act of 1940,
as amended (the "1940 Act")) for the Separate Account in respect of
<PAGE>
interests in the Separate Account issued under the Contracts. Until the
termination of the employment of Franklin Financial as principal underwriter
for the Separate Account pursuant to the terms hereof, Franklin Financial
will provide, or provide for, in its offices all services and will assume all
expenses required for the sale of those Contracts of American Franklin that
depend in whole or in part on the investment performance of the Separate
Account and are sold prior to such termination.
In the event that the employment of Franklin Financial as principal
underwriter for the Separate Account is terminated, Franklin Financial will
thereafter continue to assume any continuing sales expense and to provide any
continuing sales service required in connection with such Contracts.
Notwithstanding anything to the contrary in the foregoing, however,
Franklin Financial shall not be obligated to pay, and the Separate Account shall
pay, (i) taxes, if any, based on the income of, capital gains of assets in, or
existence of, the Separate Account, (ii) taxes, if any, in connection with the
acquisition, disposition or transfer of assets of the Separate Account, (iii)
commissions, sales charges or other capital items payable in connection with the
purchase or sale of the Separate Account's investments, and (iv) interest on
account of any borrowings by the Separate Account.
2
<PAGE>
The services of Franklin Financial to the Separate Account under this
Agreement are not to be deemed exclusive and Franklin Financial shall be free to
render similar services to others, including without limitation such other
separate accounts as are now or may hereafter be established by American
Franklin or any of its affiliates.
2. COMPENSATION TO BE PAID TO FRANKLIN FINANCIAL. For providing the
services set forth above, Franklin Financial shall receive and accept as full
compensation therefor the amounts described as contingent deferred sales charges
in the prospectus (the "Prospectus") forming a part of the Registration
Statement filed by the Separate Account under the Securities Act of 1933, as
amended, and the 1940 Act with respect to the Contracts.
3. INTERESTED AND AFFILIATED OFFICERS. It is understood that members of
the Board of Directors, officers, employees or agents of American Franklin and
its affiliates may also be directors, officers, employees or agents of Franklin
Financial.
4. FORM OF CONTRACTS. As long as Franklin Financial is acting as
principal underwriter for the Separate Account hereunder, Franklin Financial and
American Franklin will have the exclusive right as between them and the Separate
Account to determine the form and substance of
3
<PAGE>
the Contracts, subject to all applicable provisions of federal and state law.
5. LIABILITY OF FRANKLIN FINANCIAL. In the absence of gross negligence or
willful misconduct in the performance of its duties, or of reckless disregard of
its obligations and duties under this Agreement, neither Franklin Financial nor
any of its officers, directors, employees or agents shall be subject to
liability for any act or omission in the course of, or connected with, rendering
services or performing its obligations hereunder.
6. TERM OF AGREEMENT. The employment of Franklin Financial as principal
underwriter for the Separate Account pursuant to the terms of this Agreement
shall continue in effect from year to year from the date hereof unless
terminated as provided below. The employment of Franklin Financial as principal
underwriter for the Separate Account pursuant to the terms hereof as well as the
provisions of this Agreement relating to such employment shall immediately
terminate in the event of the assignment of this Agreement (within the meaning
of the 1940 Act), and the employment of Franklin Financial as principal
underwriter for the Separate Account pursuant to the terms hereof as well as the
provisions of this Agreement relating to such employment may be terminated at
any time by either party without the payment of any penalty on not more than 60
days' nor less
4
<PAGE>
than 30 days' notice to the other. Such notice shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at the
principal office of such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
SEPARATE ACCOUNT VA-1 OF
THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY
By: THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY, Depositor
By Robert J. Gibbons
----------------------------------
Name: Robert J. Gibbons
Title: President
FRANKLIN FINANCIAL SERVICES
CORPORATION
By Gary D. Osmonson
----------------------------------
Name: Gary D. Osmonson
Title: Senior Vice President
5
<PAGE>
EXHIBIT 3(b)
REGISTERED
REPRESENTATIVE
AGREEMENT
[GRAPHICS]
THE FINANCIAL FUTURE BELONGS TO
THOSE WHO BELIEVE IN THEIR ABILITIES
-------------------------------------
[LOGO] FRANKLIN
FINANCIAL SERVICES
CORPORATION
<PAGE>
The Contract/Supplement, effective ......, between the Franklin Financial
Services Corporation, herein called FFSC and ..................................
...........herein called the REPRESENTATIVE to authorize the REPRESENTATIVE to
procure in person and through agents appointed or approved by him or assigned to
him by the Company, applications for securities related products or insurance
with all companies whose products are approved for sale by FFSC. This shall
include all products of Franklin Financial Services Company as well as companies
that have executed sales agreements with FFSC.
1. Subject to the terms and conditions herein, FFSC authorizes the
REPRESENTATIVE to solicit and remit to the appropriate office applications and
orders for cash purchases of shares of mutual fund investment companies and
other securities with respect to which FFSC acts as broker-dealer.
2. The REPRESENTATIVE may procure and remit applications or securities
only while registered as a "registered Representative" with the National
Association of Securities Dealers and only after successfully completing an
examination specified by the NASD and after supplying to the satisfaction of
FFSC information required on forms prescribed by the NASD. The REPRESENTATIVE
may procure applications only while authorized to sell mutual funds or
securities in accordance with the laws of the state in which the Registered
Representative will offer such contracts and only upon delivery to the offeree
of a prospectus for such mutual funds or securities conforming to the Securities
Acts of 1933.
3. REPRESENTATIVE expressly agrees to comply with such other rules and
regulations as the Securities and Exchange Commission, the National Association
of Securities Dealers, the regulatory authority of the jurisdiction or
jurisdictions in which the REPRESENTATIVE is authorized to represent FFSC, or as
FFSC may establish presently or in the future under requirements of applicable
federal or state law or regulation and to submit to such supervision as may be
necessary to insure compliance with such laws and regulations. Such rules and
regulations will include (but are not limited to) the following:
(a) REPRESENTATIVE shall adhere to high standards of commercial honor
and just and equitable principles of trade in the course of all dealings with
customers, including solicitation of applications under this contract, and
shall be familiar with and comply with all aspects and requirements of the
NASD's RULES OF FAIR PRACTICE.
(b) REPRESENTATIVE shall not utilize advertising media other than items
furnished by FFSC for such purposes.
(c) REPRESENTATIVE shall not utilize supplemental sales materials other
than those supplied by FFSC.
(d) REPRESENTATIVE shall not dispatch any item of correspondence unless a
copy of it has been sent to the Home Office of FFSC for review and approval.
(e) REPRESENTATIVE shall fully explain the terms of the mutual fund or
security being sold, and shall not make any untrue statement or fail to state a
material fact to a prospective purchaser.
(f) REPRESENTATIVE shall take steps to acquaint himself with prospective
customers, including such inquiries as may be necessary to satisfy himself that
the offering contemplated is not unsuitable having in view the customer's
resources, investment objectives and other investments.
(g) REPRESENTATIVE shall not make any agreement with any person for the
repurchase or resale of stock other than mutual fund shares or other securities
authorized by FFSC, nor shall he directly or indirectly, solicit, purchase, or
traffic in any security of other issuers nor resort to "twisting", "switching"
or "churning" of customer securities accounts.
<PAGE>
4. REPRESENTATIVE shall promptly report and remit to FFSC all monies
received on behalf of FFSC without commingling the same with his own funds.
Purchase payments will be the property of and will be promptly paid to FFSC and
all such monies or other settlements received by REPRESENTATIVE for or on behalf
of FFSC shall be received by the Representative in a fiduciary capacity. No
cash payments shall be accepted by Representatives from customers.
5. For all sales made by Representative, FFSC will pay commissions to
Representative based on the Broker/Dealer Concession or commission paid for each
investment company, their products, and other securities as published by FFSC
and the commission rate qualified for by the Representative.
(a) FFSC will determine the commission payable on all products or
securities made available for sale. Commissions will then be payable based on
the commission rate the associate has qualified for as determined by FFSC.
Commissions and any other compensation due Second Party shall be less
commissions paid to subordinate associates if applicable.
(b) FFSC reserves the right to determine the commission payable for all
products of securities made available for sale after the effective date of this
supplement.
6. The REPRESENTATIVE or REPRESENTATIVES who obtain an original
application will be entitled to commissions on subsequent payments only as long
as the portion of that account or the customer is assigned to him by FFSC and he
is a licensed REPRESENTATIVE of FFSC within the territory in which the customer
resides at the time such payment is made. In the event the customer's residence
is not within the territory assigned to the original REPRESENTATIVE or
REPRESENTATIVES, or if the customer or account is no longer assigned to the
original REPRESENTATIVE or REPRESENTATIVES, the commissions on such subsequent
payments shall thereafter be paid in accordance with the applicable rules and
policies of FFSC. Any commissions paid or credited to the REPRESENTATIVE by
FFSC may be charged back to the REPRESENTATIVE OR REPRESENTATIVES to the extent
that such commissions are attributable to the uncompleted portion of a pre-
authorized of pre-dated check or draft plan or to a dishonored check or draft or
to an uncompleted military allotment or payroll deduction or similar plan for
the systematic purchase of a mutual fund or other security.
7. Commissions will be paid to the representative's estate or legal
representative after his death. All commissions payable under this section are
subject to the provisions of Section 6 above and will be payable only so long as
the customer's account is assigned to the designated person or the
representative's estate or legal representative by Franklin Financial Services
Corporation.
8. FFSC reserves the right to modify the commission rates set forth herein
during the period of time in which commissions may be paid under the provisions
of this Agreement. Commissions on purchased shares of mutual funds, variable
annuities, or unit investment trusts or other securities related products which
are derived from values of existing Franklin Life, American Franklin, or FFSC
policies or products will be determined based on the applicable rules and
policies of the Franklin Companies.
9. Should the REPRESENTATIVE wrongfully withhold any funds, receipts or
other property belonging to FFSC, or to one of its customers or applicants, or
violate any governing law or regulation relating to the sale of securities, this
Agreement may be terminated forthwith and all rights and claims of
REPRESENTATIVE hereunder, including the claim for payment of any further sums of
money or commissions whatsoever from FFSC. REPRESENTATIVE shall reimburse FFSC
for any costs, expenses or legal fees that it may incur in recovering funds
wrongfully withheld or any property belonging to FFSC or its customers or
applicants, or for the defense of any action wherein FFSC and REPRESENTATIVE or
either of them is charged with a violation of any government law or regulation
relating to the subject of securities as a consequence of the alleged conduct of
REPRESENTATIVE.
<PAGE>
10. REPRESENTATIVE shall be responsible for the fidelity and honesty of
all subordinate REPRESENTATIVES or agents under him, and shall be jointly and
severally liable to FFSC for all monies collected by or passing into the
hands of said subordinate of FFSC, as the case may be, for any indebtedness
of the REPRESENTATIVE or subordinate REPRESENTATIVES, with interest, payable
at an annual rate of interest to be determined by FFSC, and agrees to
indemnify FFSC or such Regional manager, as the case may be, for either of
them by REPRESENTATIVE or any subordinate REPRESENTATIVES, or the withholding
of any funds collected or passing into the hands of any REPRESENTATIVE or
subordinate REPRESENTATIVES , or for any legal action brought by or against
REPRESENTATIVE or any subordinate REPRESENTATIVES in which FFSC may be a
party therein, and it is agreed by REPRESENTATIVE that FFSC may, if it so
desires, employ its own counsel in defense of any legal proceeding to which
it may be made a party and may employ counsel for the purpose of prosecuting
its respective rights violated herein and all expenses of such litigation,
including costs and attorney's fees, shall be paid by REPRESENTATIVE. Any
claim for commissions which said subordinate REPRESENTATIVE may have shall be
limited to his written contract with FFSC.
11. All books of account, documents of any kind, vouchers, notices, lists
of customers and books and papers and sales literature of any kind used from
time to time by REPRESENTATIVE in connection with this Agreement, shall be and
remain the property of FFSC and shall at all times be subject to inspection by
FFSC and upon demand at the termination of this Agreement, shall be delivered to
FFSC.
12. FFSC may offset against any commissions or other claims due and to
become due to REPRESENTATIVE under this Agreement any debts owing at any time by
the REPRESENTATIVE to FFSC and the Franklin Companies or either of them and any
such debt or debts shall be a first lien against said commissions and other
claims.
13. REPRESENTATIVE will pay all fees relating to qualification or
licensing as a securities salesman as well as taxes and licenses required by
municipal or state laws in the territory in which he is licensed under this
Agreement. At the option of FFSC, REPRESENTATIVE will furnish a good and
sufficient bond.
14. Either party hereto may terminate this AGREEMENT without cause by
sending the other at his last known address, by mail, ten days' notice in
writing to that effect or by delivery of such notice in person.
The power and authority of REPRESENTATIVE to act for and on behalf of FFSC
is strictly limited to the terms and provisions of this AGREEMENT and nothing
herein contained shall be construed to grant REPRESENTATIVE by implication or
otherwise any right, power, authority or privilege that is not herein
specifically set forth.
First Party reserves the right to amend this contract/supplement at any
time in the future and the submission of an application by Second Party hereto
after receipt of notice of any such amendment shall constitute Second Party's
Agreement to the amendment.
FRANKLIN FINANCIAL SERVICES
BY
-------------------------------------
<PAGE>
Exhibit 3(c)
SCHEDULE OF SALES COMMISSIONS
COMMISSIONS. Commission rates for The Chairman combination fixed and
variable annuity contracts are as follows:
(1) 4.75% of purchase payments made prior to the first Contract
Anniversary (with chargebacks as described below), plus a 0.25% annual trail
commission (discussed below);
(2) 4.50% of purchase payments made on or after the first Contract
Anniversary (with chargebacks as described below), plus a 0.25% annual trail
commission (discussed below).
REDUCTIONS. The commission rates for purchase payments paid at the
Annuitant's attained age 80 and older are 50% of the above rates. There is no
commission reduction applicable to commissions on purchase payments made prior
to Annuitant's attained age of 80. The commission reduction is based on the
attained insurance age of the Annuitant. When the Contract has an Annuitant and
a Contingent Annuitant, the commission reduction is based on the Annuitant's
age, not the age of the Contingent Annuitant. The Owner's age does not
currently affect commission reductions.
TRAIL COMMISSIONS. Trail commissions are payable at the end of each
quarter, starting with the fifth quarter (fifteen months after issue), at a
0.25% annual rate (0.0625% per quarter) on Variable Account Values, and continue
for the life of the Contract.
CHARGEBACKS. There will be a chargeback of 100% of commissions paid on a
purchase payment surrendered or withdrawn within six months following the date
such purchase payment was made. There will be a chargeback of 50% of
commissions paid on any purchase payment surrendered or withdrawn within the
period beginning six months following the date such purchase payment was made
and ending 12 months following the date such purchase payment was made.
If the Contract is annuitized during the first two Contract Years, a
chargeback of 50% of the original commission will be made.
<PAGE>
Exhibit 3(d)
AGREEMENT BETWEEN FRANKLIN FINANCIAL
SERVICES CORPORATION AND
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
THIS AGREEMENT dated July 30, 1996 by and between The American
Franklin Life Insurance Company, an Illinois legal reserve stock life insurance
corporation, having its principal office at #1 Franklin Square, Springfield,
Illinois (the "Company"), and Franklin Financial Services Corporation, a
Delaware corporation, having its principal office at #1 Franklin Square,
Springfield, Illinois ("Franklin Financial");
W I T N E S S E T H :
WHEREAS, the Company is engaged in the issuance of life insurance
policies and annuity contracts, pursuant to insurance laws in several of the
states, territories and possessions of the United States through its licensed
life insurance agents, and desires to issue and sell flexible premium variable
annuity contracts (the "Contracts") through all or some of the said agents; and
WHEREAS, the Contracts may be deemed to be securities under the
Securities Exchange Act of 1934 (the "Act"), and applicable state laws, and the
sale of such securities may be deemed to be through an instrumentality of
interstate commerce within the meaning of Section 15(a) of the Act; and
<PAGE>
WHEREAS, Franklin Financial is an affiliate of the Company and
Franklin Financial is registered as a broker-dealer under Section 15(b) of the
Act and also is registered as a member of the National Association of Securities
Dealers, Inc. ("NASD"); and
WHEREAS, it is the desire of the parties to enter into an agreement
pursuant to which certain agents of the Company ("Agents") who are to be
authorized to sell the Contracts will be registered representatives of Franklin
Financial, which will be responsible for selecting, training and supervising
them for that purpose, all as more particularly described herein;
NOW, THEREFORE, it is hereby agreed as follows:
l. The Company will advise Franklin Financial of the names of the
Agents who are to be authorized by the Company to sell the Contracts. Franklin
Financial will then select the Agents and train them in the sale of variable
annuity contracts and will use its best efforts to qualify such agents under
applicable federal and state laws to engage in the sale of the Contracts.
Agents so trained and qualified will be registered representatives of Franklin
Financial under applicable requirements of the NASD and, in addition to all
other requirements for such qualification, will be required to comply with
applicable examination
2
<PAGE>
requirements before being permitted to engage in the sale of the Contracts.
2. Franklin Financial will regularly advise the Company of the
qualifications of each Agent under applicable federal and state law.
3. Before any Agent will be authorized to offer or sell the
Contracts, the Company, Franklin Financial and the Agent will enter into a
mutually satisfactory agreement pursuant to which the Agent will acknowledge
that he will be a registered representative of Franklin Financial in connection
with his selling activities related to the Contracts, that such activities will
be under the supervision and control of Franklin Financial and the supervisor or
supervisors designated by Franklin Financial, and that the Agent's right to
continue to sell the Contracts is subject to his continued compliance with such
agreement and all rules, procedures and standards established by Franklin
Financial.
4. Franklin Financial will maintain its registration under the Act
and its membership in the NASD and will fully comply with the requirements of
the NASD and of applicable law and will establish such rules and procedures as
may be necessary adequately to supervise the selling activities of the Agents.
Upon request by Franklin
3
<PAGE>
Financial, the Company will furnish or require the Agents to furnish such
appropriate records as may be necessary to insure such supervision.
5. In the event any Agent fails or refuses to submit to such
supervision of Franklin Financial, or otherwise fails to meet the rules,
procedures and standards imposed by Franklin Financial on its registered
representatives, Franklin Financial shall promptly advise the Company thereof
and shall notify such Agent that he is no longer authorized to offer or sell the
Contracts, and Franklin Financial and the Company shall take whatever additional
action may be necessary to terminate the sales activities of such Agent relating
to the Contracts.
6. It is contemplated that all or some of the home office
supervisors, Regional Managers, or General Agents of the Company will become
qualified as registered representatives of Franklin Financial and in that
capacity will, subject to the policies of Franklin Financial, supervise the
selling activities of Agents relating to the Contracts. In the event any such
person shall fail or refuse to provide such supervision to Franklin Financial's
satisfaction, Franklin Financial (with the cooperation of the Company) shall
furnish a qualified person to perform such supervision or, if Franklin Financial
is unable to
4
<PAGE>
furnish such supervision, the authority of the unsupervised Agents
to sell the Contracts shall be withdrawn forthwith.
7. Commissions payable to Agents in connection with sales of the
Contracts shall be paid by the Company to the Agents through the General Agents
or otherwise under the Company's usual agency contracts and nothing contained
herein shall obligate Franklin Financial to pay any commissions or other
remuneration to the Agents or to reimburse any such Agents for expenses incurred
by them, nor shall Franklin Financial have any interest whatsoever in any
commissions or other remuneration payable to Agents by the Company. All
contingent deferred sales charges received by Franklin Financial under the Sales
Agreement dated the date hereof between Franklin Financial and Separate Account
VA-1 of The American Franklin Life Insurance Company, a separate account
established by the Company pursuant to Article XIV-l/2 of the Illinois Insurance
Code, in excess of amounts necessary to pay other sales or promotional expenses
incurred by Franklin Financial, shall be remitted to the Company to the extent
necessary to reimburse the Company for such commissions or other remuneration to
the Agents paid by the Company. The amount of such commissions and other
remuneration to the Agents not so reimbursed shall be deemed to have been
contributed to the capital of Franklin Financial and all such commissions so
paid by the Company
5
<PAGE>
shall be appropriately reflected in the books and records maintained by or on
behalf of Franklin Financial.
8. Franklin Financial will assume full responsibility for the sales
activities of the Agents relating to the Contracts and for initial and continued
compliance by itself and Agents with applicable rules of NASD and federal and
state securities laws, and in connection therewith may demand and receive such
assurances from the Company as it deems appropriate demonstrating compliance
with the Act, the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended.
9. Franklin Financial may request that all or some of the notices
and the books and records required to be prepared, sent, and/or maintained by
it, as a registered broker-dealer or as a member of the NASD, in connection with
the sale of the Contracts, be prepared, sent and/or maintained by the Company,
at the Company's expense, as agent for Franklin Financial. The Company agrees
that such books and records are the property of Franklin Financial, will be made
and preserved in accordance with Rules 17a-3 and 17a-4 under the Act, and will
be subject to examination by the Securities and Exchange Commission in
accordance with Section 17(a) of the Act.
6
<PAGE>
10. Franklin Financial will provide such prospectuses and such other
material as the Company and Franklin Financial may mutually determine to be
necessary or desirable, and which are authorized by applicable law, for use in
connection with the offering or sale of the Contracts. The Company, at its own
expense will qualify or register the Contracts in all jurisdictions where such
qualification or registration is required and will obtain all necessary
approvals of the offering and sale of the Contracts in accordance with the
requirements of the NASD and applicable federal and state law.
11. This Agreement may not be assigned by either party except by
mutual consent and shall continue for a period of one year and from year to year
thereafter subject to termination by either party at any time upon 30 days'
written notice to the other party and to the Securities and Exchange Commission.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY
By Robert J. Gibbons
-----------------------
Name: Robert J. Gibbons
Title: President
FRANKLIN FINANCIAL SERVICES
CORPORATION
By Gary D. Osmonson
-----------------------
Name: Gary D. Osmonson
Title: Senior Vice President
8
<PAGE>
Exhibit 4(a)(1)
THE CHAIRMAN-TM- COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
Unless otherwise directed by the Owner, The American Franklin Life Insurance
Company ("American Franklin") will pay a monthly income to the Annuitant if
living on the Annuity Commencement Date. The dollar amounts of such payments
will be determined on the basis of the provisions of this Contract. The first
payment will be payable on the Annuity Commencement Date. Subsequent payments
will be payable on the corresponding day of each month thereafter or at other
intervals in accordance with the provisions of this Contract.
All payments and values provided by this Contract, when based on the investment
experience of the Separate Account, are variable, may increase or decrease and
are not guaranteed as to amount. See the "Separate Account" and "Variable
Annuity Payments" provisions in this Contract.
CANCELLATION RIGHT. This Contract may be returned for cancellation to American
Franklin within 10 days after delivery. Upon surrender of this Contract within
the 10 day period, American Franklin will refund the sum of the Owner's Account
Value at the end of the Valuation Period in which the request is received, plus
any premium taxes and Annual Contract Fee that have been deducted.
This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.
SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE.
/s/ /s/
- ---------------------- --------------------
Secretary President
READ THIS CONTRACT CAREFULLY
[American Franklin Logo]
A STOCK COMPANY
A Subsidiary of American General Corporation
Home Office: Springfield, Illinois
#1 Franklin Square Springfield, Illinois 62713 (217) 528-2011
FORM T1575
<PAGE>
INDEX
Page
10% Free Withdrawal Privilege. . . . . . . . . . . . . . . . . . . . 17
Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Allocation of Purchase Payments. . . . . . . . . . . . . . . . . . . 8
Annual Contract Fee. . . . . . . . . . . . . . . . . . . . . . . . . 18
Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Annuity Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Change of Investment Advisor or
Investment Policy. . . . . . . . . . . . . . . . . . . . . . . . 7
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Division Accumulation Units. . . . . . . . . . . . . . . . . . . . . 12
Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Full Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 7
Guarantee Periods. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Guaranteed Interest Rates. . . . . . . . . . . . . . . . . . . . . . 12
Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . . 12
Ownership Provisions . . . . . . . . . . . . . . . . . . . . . . . . 9
Partial Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . 15
Payment of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . 19
Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Surrender Charge Exceptions. . . . . . . . . . . . . . . . . . . . . 17
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Variable Account Asset Rebalancing . . . . . . . . . . . . . . . . . 14
Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . . . 20
FORM T1575
2
<PAGE>
The American Franklin Life Insurance Company
SCHEDULE PAGE
INITIAL PURCHASE PAYMENT: $10,000
MINIMUM ADDITIONAL PURCHASE PAYMENTS
(Per Division or Guarantee Period): $ 100
ADDITIONAL BENEFITS: NONE
MAXIMUM ASSET CHARGE FACTORS (Separate Account Only) ANNUAL RATE: 1.40%
MAXIMUM ANNUAL CONTRACT FEE: $ 30
TRANSFER CHARGE: $ 25
ISSUE AGE: 35
ANNUITY COMMENCEMENT DATE: JANUARY 1, 2026
INITIAL ALLOCATION:
Net Dollar
Amount of
Percentage Allocations
VIP Money Market Portfolio 100% $10,000
VIP High Income Portfolio xx% $ xxx
VIP Investment Grade Bond Portfolio xx% $ xxx
VIP Equity-Income Portfolio xx% $ xxx
VIP Growth Portfolio xx% $ xxx
VIP Overseas Portfolio xx% $ xxx
VIP Asset Manager Portfolio xx% $ xxx
VIP Index 500 Portfolio xx% $ xxx
VIP II Contrafund Portfolio xx% $ xxx
MFS Emerging Growth Portfolio xx% $ xxx
MFS Research Portfolio xx% $ xxx
MFS Growth With Income Portfolio xx% $ xxx
MFS Total Return Portfolio xx% $ xxx
MFS Utilities Portfolio xx% $ xxx
MFS Value Portfolio xx% $ xxx
Fixed Account
1 Year Guarantee Period xx% $ xxx
3 Year Guarantee Period xx% $ xxx
5 Year Guarantee Period xx% $ xxx
------ ---------
Total Allocations 100% $10,000
ANNUITANT: JOHN DOE CONTRACT NUMBER: 123456
CONTRACT OWNER: JOHN DOE DATE OF ISSUE: JANUARY 1, 1996
CONTRACT JURISDICTION: (STATE NAME)
FORM T1575
3
<PAGE>
DEFINITIONS
ACCOUNT. Any of the Divisions or the Fixed Account.
ACCOUNT VALUE. The sum of the Fixed Account Value and the Separate Account
Value. The Fixed Account Value is the accumulated value of Net Purchase
Payments, renewals and transfers into the Fixed Account and interest on such
amounts, minus the accumulated value of any withdrawals and transfers out of the
Fixed Account and any Annual Contract Fee allocated to the Fixed Account and
interest on such amounts. The Separate Account Value is the sum of the values
of the Separate Account Divisions. The value of a Separate Account Division is
the value of a Division's Accumulation Unit multiplied by the number of
Accumulation Units in that Division.
ACCUMULATION PERIOD. The period during which Net Purchase Payments are applied.
ACCUMULATION UNIT. An accounting unit of measure used to calculate the value of
a Division of this Contract before annuity payments begin.
ANNUITANT. The person upon whose date of birth and sex income payments are
based. The Annuitant's name is shown on Page 3.
ANNUITY OPTION. One of the several forms in which the Owner can request
American Franklin to make annuity payments.
ANNUITY UNIT. A unit of measurement to calculate variable annuity payments.
BENEFICIARY. The person entitled to receive benefits in the event the Owner or
Annuitant dies. If no named Beneficiary is living at the time any payment is to
be made, the Owner shall be the Beneficiary, or if the Owner is not living, the
Owner's estate shall be the Beneficiary.
CONTINGENT ANNUITANT. A person named by the Owner of a Non-Qualified Contract
to become the Annuitant if: (1) the Annuitant dies before the Annuity
Commencement Date; and (2) the Contingent Annuitant is then living. A
Contingent Annuitant may not be named except at the time of application. Once
named, the choice may not be revoked or replaced. If a Contingent Annuitant
dies, a new Contingent Annuitant may not be named. After Annuity Payments start,
a Contingent Annuitant may not become the Annuitant.
CONTINGENT BENEFICIARY. A person named by the Owner to receive benefits in the
event a designated Beneficiary is not living at the time of the Owner's or
Annuitant's death.
CONTRACT ANNIVERSARY. Each anniversary of the Date of Issue of this Contract.
CONTRACT YEAR. A period of 12 consecutive months beginning on the Date of Issue
or any anniversary thereof.
DATE OF ISSUE. The date on which this Contract becomes effective as shown on
Page 3.
DIVISION. The subdivisions of the Separate Account which are used to determine
how the Owner's Account is allocated among the Variable Funds.
FIXED ACCOUNT. The name of the investment alternative under which payments are
allocated to American Franklin's General Account.
FIXED ANNUITY OPTION. An annuity option with payments which do not vary with
investment performance as to dollar amount.
FORM T1575
4
<PAGE>
GUARANTEED INTEREST RATE. The minimum rate American Franklin may use to credit
interest on an effective annual basis during any Guarantee Period.
GUARANTEE PERIOD. The period for which a Guaranteed Interest Rate is credited.
HOME OFFICE. The American Franklin Life Insurance Company, #1 Franklin Square,
Springfield, Illinois 62713; 217-528-2011.
ISSUE AGE. The Annuitant's age as of his or her nearest birthday on the Date of
Issue.
NET ASSET VALUE PER SHARE. The net assets of a Variable Fund divided by the
number of shares in the Variable Fund.
NET PURCHASE PAYMENT. The gross amount of a Purchase Payment less any Premium
Taxes deducted at the time a Purchase Payment is made.
NON-QUALIFIED CONTRACT. A Contract that does not qualify for the special
federal income tax treatment applicable in connection with retirement plans or
deferred compensation plans.
OWNER. The Owner of this Contract. The "Owner" is the person, persons or
entity entitled to the ownership rights stated in this Contract. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), or Section 408(k) of the Internal
Revenue Code to serve as legal owner of assets of a retirement plan, but the
term "Owner" as used herein, shall refer to the organization entering into this
Contract.
OWNER'S ACCOUNT. An account established for each Owner to which each Net
Purchase Payment is credited.
PAYOUT PERIOD. The period, starting with the Annuity Commencement Date, during
which Annuity Payments are made by the Company.
PREMIUM TAX. The amount of tax, if any, charged by a state or municipality on
Purchase Payments or Contract values.
PURCHASE PAYMENT. An amount paid to the Company as consideration for the
benefits described herein.
QUALIFIED CONTRACT. A Contract that is qualified for the special federal income
tax treatment applicable in connection with certain retirement plans.
SECTION 457 CONTRACT. A Contract that is issued in connection with a deferred
compensation plan established under Section 457 of the Internal Revenue Code.
SEPARATE ACCOUNT. A segregated investment account entitled "Separate Account
VA-1" established by American Franklin to separate the assets funding the
variable benefits for the class of contracts to which this Contract belongs from
the other assets of American Franklin. That portion of the assets of the
Separate Account equal to the reserves and other contract liabilities with
respect to the Separate Account shall not be chargeable with liabilities arising
out of any other business American Franklin may conduct. Income, gains and
losses, whether or not realized, from assets allocable to the Separate Account,
are credited to or charged against such account without regard to American
Franklin's other income, gains or losses.
VALUATION DATE. Any day on which the Company is open for business except, with
respect to any Division, a day on which the related Variable Fund does not value
its shares.
VALUATION PERIOD. The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at close of regular trading
on the Exchange on the next Valuation Date.
FORM T1575
5
<PAGE>
VARIABLE ANNUITY OPTION. An Annuity Option under which the Company promises to
pay the Annuitant or other properly-designated Payee one or more payments which
vary in amount in accordance with the net investment experience of the
applicable Divisions selected to measure the value of this Contract.
VARIABLE FUND. An individual investment fund or series in which a Division
invests.
FORM T1575
6
<PAGE>
GENERAL PROVISIONS
Entire Contract This Contract, and a copy of the Application for
the Contract, if attached, is the entire Contract.
All statements made by Owner or Annuitant will be
deemed representations and not warranties. No
statement will be used to reduce a claim under
this Contract unless it is in writing and made a
part of this Contract.
Not Contestable This Contract is not contestable.
Guarantees Subject to the Net Investment Factor provision of
this Contract, American Franklin guarantees that
the dollar amount of Variable Annuity Payments
made during the lifetime of the payee(s) will not
be adversely affected by American Franklin's
actual mortality experience or by the actual
expenses incurred by American Franklin in excess
of expense deductions provided for in this
Contract.
Settlement All benefits under this Contract are payable from
the Home Office.
Nonparticipating This Contract is nonparticipating and does not
share in American Franklin's surplus or earnings.
Change of Investment Unless otherwise required by law or regulation,
Adviser or Investment the investment adviser or any investment policy of
Policy of Variable Funds a Variable Fund may not be changed without
American Franklin's consent. If required, approval
or change of any investment objective will be
filed with the Insurance Department of the state
where this Contract is delivered. Owners will be
notified of any material investment policy change
which has been approved. Notification of an
investment policy change will be given in advance
to those Owners who have the right to consent to
or vote on such change.
Any substitution of the underlying investments of
any Division will comply with all applicable
requirements of the Investment Company Act of 1940
and rules thereunder.
Modification Rights Reserved American Franklin reserves the right to modify the
by American Franklin Contract, but only if such modification:
(1) Is necessary to make the Contract or the
Separate Account comply with any law or
regulation issued by a governmental agency to
which American Franklin is subject; or
(2) Is necessary to assure continued
qualification of the Contract under the
Internal Revenue Code or other federal or
state laws relating to retirement annuities
or Annuity contracts; or
(3) Is necessary to reflect a change in the
operation of the Separate Account or the
Division(s); or
(4) Provides additional Separate Account options
or
FORM T1575
7
<PAGE>
(5) Withdraws Separate Account options.
In the event of any such modification, American
Franklin will provide notice to the Owner or to
the payee(s) during the Annuity Period. American
Franklin may also make appropriate endorsements in
the Contract to reflect such modification.
When required by law, American Franklin will
obtain approval by Owners of changes and American
Franklin will gain approval from any appropriate
regulatory authority.
Changing the Terms Any change in the Contract must be approved by one
of the Contract of American Franklin's officers. No agent has the
authority to make any changes or waive any of the
terms of the Contract.
Termination This Contract will remain in force until
surrendered for its full value, or all annuity
payments have been made, or the death benefit has
been paid, except as follows:
If the Owner's Account Value is less than $500,
American Franklin may cancel this Contract upon 60
days' notice to the Owner. Such cancellation
would be considered a full surrender of this
Contract.
If the Owner's Account Value in any Division
(except the Money Market Division) falls below
$500, American Franklin reserves the right to
transfer the remaining balance, without charge, to
the Money Market Division.
PURCHASE PAYMENTS
Minimum Payments The minimum amounts acceptable as Purchase
Payments are shown on Page 3. American Franklin
reserves the right to modify these minimums or to
refuse a Purchase Payment for any reason.
Allocation of The initial allocation for Net Purchase Payments
Purchase Payments is shown on Page 3 of this Contract and will
remain in effect until changed by written notice.
The percentage allocation for future Net Purchase
Payments may be changed at any time by written
notice.
Changes in the allocation will be effective on the
date American Franklin receives the Owner's
notice. The allocation may be 100% to any
available Division or Guarantee Period, or may be
divided among these options in whole percentage
points totaling 100%.
The initial Net Purchase Payment will be credited
to the Owner's Account not more than two business
days after American Franklin receives it, together
with all other required documentation, in good
order at the Home Office. Subsequent Net Purchase
Payments will be credited as of the end of the
Valuation Period in which they are so received.
American Franklin reserves the right to limit the
total number of Fixed Account Guarantee Periods
and Separate Account Divisions that may be chosen
during the life of the Contract.
FORM T1575
8
<PAGE>
Premium Taxes When applicable, American Franklin will deduct an
amount to cover Premium Taxes. Such deduction
will be made:
(1) From Purchase Payment(s) when received; or
(2) From the Account Value at the time annuity
payments are to commence; or
(3) From the amount of any partial withdrawal; or
(4) From proceeds payable upon termination of the
Contract for any other reason, including
death of the Annuitant or Owner, or surrender
of the Contract.
If Premium Tax is paid, American Franklin may
reimburse itself for such tax when deduction is
being made under paragraphs 2, 3, or 4 above
calculated by multiplying the sum of Purchase
Payments being withdrawn by the applicable Premium
Tax percentage.
OWNERSHIP PROVISIONS
Exercise of Contract This Contract belongs to the Owner, who is
Rights entitled to exercise all rights and privileges in
connection with this Contract. Where a Contract
is jointly owned, both Owners must join in any
request to exercise the rights or privileges of an
Owner.
In any case, such rights and privileges can be
exercised without the consent of the Beneficiary
(other than an irrevocably - designated
Beneficiary) or any other person. Such rights and
privileges may be exercised only during the
lifetime of the Annuitant and prior to the Annuity
Commencement Date, except as otherwise provided in
this Contract.
Unless the Owner specifies otherwise, on the
Annuity Commencement Date the Annuitant will
become the payee. If the Owner or the Annuitant
dies prior to the Annuity Commencement Date, the
Beneficiary will become the payee. Such payees
may thereafter exercise such rights and privileges
of ownership which continue.
Beneficiary The Owner named the Beneficiary and any Contingent
Beneficiary when applying for this Contract. By
written notice to American Franklin, a non-
irrevocable Beneficiary or Contingent Beneficiary
may be changed by the Owner prior to the Annuity
Commencement Date or by the Annuitant or other
properly-designated payee after the Annuity
Commencement Date.
Change of Ownership Ownership of a Qualified Contract may not be
transferred except to: (1) the Annuitant; (2) a
trustee or successor trustee of a pension or
profit sharing trust which is qualified under
Section 401(a) of the Internal Revenue Code;
(3) the employer of the Annuitant, provided that
the Qualified Contract after transfer is
maintained under the terms of a retirement plan
qualified under Section 403(a) of the Internal
Revenue Code for the benefit of the Annuitant;
(4) the trustee of an individual
FORM T1575
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retirement account plan qualified under Section
408 of the Internal Revenue Code; or (5) as
otherwise permitted from time to time by laws and
regulations governing the retirement or deferred
compensation plans for which a Qualified Contract
may be issued (including but not limited to
transfers pursuant to a qualified domestic
relations order within the meaning of Section
414(p) of the Internal Revenue Code). In no other
case may a Qualified Contract be sold, assigned,
transferred, discounted or pledged as collateral.
During the lifetime of the Annuitant and prior to
the Annuity Commencement Date, the Owner may
change the ownership of a Non-Qualified Contract.
A change of ownership will not be binding upon
American Franklin until American Franklin receives
written notification at its Home Office. When
such notification is so received, the change will
be effective as of the date of the signed request
for change, but the change will be without
prejudice to American Franklin on account of any
payment made, or any action taken by it prior to
receiving the change, or on account of any tax
consequence.
Distribution of If an Owner (including the first to die in the
Death Benefit case of joint Owners) under a Non-Qualified
under Non-Qualified Contract dies prior to the Annuitant and before
Contracts the Annuity Commencement Date, the death benefit
must be distributed to the Beneficiary either
(1) within five years after the date of death of
the Owner, or (2) over the life of the Beneficiary
or a period not greater than the expected life of
the Beneficiary, with annuity payments beginning
within one year after the date of death of the
Owner. The Beneficiary shall be considered the
designated beneficiary for the purposes of Section
72(s) of the Internal Revenue Code. In all cases,
any such designated beneficiary will not be
entitled to exercise any rights prohibited by
applicable federal income tax law.
These mandatory distribution requirements will not
apply when the designated Beneficiary is the
spouse of the deceased Owner, if the spouse elects
to continue this Contract in the spouse's own
name, as Owner. When the deceased Owner of a
Non-Qualified Contract was also the Annuitant, the
surviving spouse (if the surviving spouse is the
designated Beneficiary) may elect to be named as
both Owner and Annuitant and continue this
Contract.
If the payee under a Non-Qualified Contract dies
after the Annuity Commencement Date and before all
of the payments under the Annuity Option have been
distributed, the remaining amount payable, if any,
must be distributed at least as rapidly as under
the method of distribution then in effect.
If the Owner prior to the Annuity Commencement
Date, or the payee thereafter, is not a natural
person, then the foregoing distribution
requirements shall apply upon the death of the
primary Annuitant within the meaning of the
Internal Revenue Code.
FORM T1575
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Periodic Reports American Franklin will send to each Owner, at
least once during each Contract Year, a statement
showing the Owner's Account Value as of a date not
more than two months prior to the date of mailing.
American Franklin will also send such statements
as may be required by applicable state and federal
laws, rules and regulations.
Owner's Account American Franklin will establish an Owner's
Account for the Owner under this Contract and will
maintain such account during the Accumulation
Period. The Owner's Account Value for any
Valuation Period will be equal to the Owner's
Separate Account Value, if any, plus the Owner's
Fixed Account Value, if any, for that Valuation
Period.
FIXED ACCOUNT
Fixed Account Value That portion of a Net Purchase Payment which is
allocated to the Fixed Account will be credited to
the Owner's Account and allocated to the Guarantee
Period(s) selected. The Fixed Account Value of an
Owner's Account for any Valuation Period is equal
to the sum of the values in each of the Guarantee
Periods credited to the Owner's Account for such
Valuation Period.
The value in any one Guarantee Period on a
Valuation Date is the accumulated value of the Net
Purchase Payments, renewals and transfers
allocated to the Guarantee Period and interest on
such amounts at the Guaranteed Interest Rate,
minus the accumulated value of withdrawals and
transfers out of that Guarantee Period and any
Annual Contract Fee allocated to that Guarantee
Period, and interest on such amounts at the
Guaranteed Interest Rate.
Guarantee Periods The Owner may select one or more Guarantee
Period(s). The Guarantee Period(s) selected will
determine the Guaranteed Interest Rates(s). The
Net Purchase Payment or the portion thereof (or
amount transferred in accordance with the transfer
privilege provision described below) allocated to
a particular Guarantee Period will earn interest
at the Guaranteed Interest Rate during the
Guarantee Period. Guarantee Periods begin on the
date as of which American Franklin credits the
Owner's Account Value to that Guarantee Period or,
in the case of a transfer, on the effective date
of the transfer. The Guarantee Period is the
number of years American Franklin credits the
Guaranteed Interest Rate. The expiration date of
any Guarantee Period is the last day of the
Guarantee Period. Subsequent Guarantee Periods
begin on the first day following the expiration
date. As a result of Guarantee Period renewals,
additional Purchase Payments and transfers of
portions of the Owner's Account Value, Guarantee
Periods of the same duration may have different
expiration dates and Guaranteed Interest Rates.
American Franklin will notify the Owner in writing
at least 30 and no more than 60 days prior to the
expiration date of any Guarantee Period. A new
Guarantee Period of the same duration as the
previous Guarantee Period will begin automatically
unless American Franklin receives written notice
to the contrary from the Owner at least three
Valuation
FORM T1575
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Dates prior to the end of such Guarantee Period.
The Owner may elect to change to another Guarantee
Period or Division which American Franklin offers
at such time.
If the amount of an Owner's Account Value in a
Guarantee Period is less than $500 at the end of
such Guarantee Period, American Franklin reserves
the right to transfer such amount, without charge,
to the Money Market Division of the Separate
Account. However, American Franklin will transfer
such amount to another available Division at the
Owner's request.
Guaranteed Interest American Franklin will periodically establish an
Rates applicable Guaranteed Interest Rate for each
Guarantee Period it offers. These rates will be
guaranteed for the duration of the respective
Guarantee Periods. The Guarantee Periods that
American Franklin makes available at any time will
be determined in its discretion.
No Guaranteed Interest Rate shall be less than an
effective annual rate of 3.0% per year.
SEPARATE ACCOUNT
Divisions The Separate Account has a number of Divisions,
each investing in a corresponding Variable Fund.
Net Purchase Payments will be allocated to the
Divisions and the Fixed Account as shown on
Page 3, unless the Owner changes the allocation.
American Franklin will use the Net Purchase
Payments and any transferred amounts to purchase
Variable Fund shares applicable to the Divisions
at their net asset value. American Franklin will
be the owner of all Variable Fund shares purchased
with the Net Purchase Payments or transferred
amounts.
Division Net Purchase Payments and transferred amounts
Accumulation allocated to the Separate Account will be credited
Units to the Owner's Account in the form of Division
Accumulation Units. The number of Division
Accumulation Units will be determined by dividing
the amount allocated to a Division by the Division
Accumulation Unit value as of the end of the
Valuation Period as of which the transaction is
credited. The value of each Division Accumulation
Unit was arbitrarily set as of the date the
Division first purchased Variable Fund shares.
Subsequent values on any Valuation Date are equal
to the previous Division
Accumulation Unit value times the Net Investment
Factor for the Valuation Period ending on that
Valuation Date.
Net Investment The Net Investment Factor is an index applied to
Factor measure the investment performance of a Division
from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or
equal to one; therefore, the value of an
Accumulation Unit may increase, decrease or remain
the same.
FORM T1575
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The Net Investment Factor for a Division is
determined by dividing (1) by (2), and then
subtracting (3) from the result, where:
(1) Is the sum of:
(a) The Net Asset Value Per Share of the
Variable Fund shares held in the
Division, determined at the end of the
current Valuation Period; plus
(b) The per share amount of any dividend or
capital gain distributions made on the
Variable Fund shares held in the
Division during the current Valuation
Period;
(2) Is the Net Asset Value Per Share of the
Variable Fund shares held in the Division,
determined at the end of the previous
Valuation Period; and
(3) Is a factor representing the mortality risk,
expense risk, and administrative expense
charge. American Franklin will determine the
daily asset charge factor annually, but in no
event may it exceed the Maximum Asset Charge
Factor as specified on Page 3.
Separate Account The Owner's Separate Account Value for any
Value Valuation Period is the total of the values in
each Division credited to the Owner's Account for
such Valuation Period. The value for each
Division will be equal to:
(1) The number of Division Accumulation Units;
multiplied by
(2) The Division Accumulation Unit value for the
Valuation Period.
The Owner's Separate Account Value will vary from
Valuation Date to Valuation Date reflecting the
total value in the Divisions.
TRANSFERS
Transfers Transfers may be made at any time during the
Accumulation Period after the first 30 days
following the Date of Issue. A transfer will be
effective at the end of the Valuation Period in
which American Franklin receives the written
request for a transfer. Transfers will be subject
to the following restrictions:
(1) Prior to the Annuity Commencement Date, the
Owner may make up to 12 transfers each
Contract Year without charge.
(2) There will be a charge of $25.00 for each
transfer in excess of 12 in a Contract Year.
(3) Transfers under the Variable Account Asset
Rebalancing program will not count towards
the 12 free transfers each Contract Year.
The $25.00 charge will not apply to transfers
made through Variable Account Asset
Rebalancing. Transfers under any other asset
management arrangement approved by
FORM T1575
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American Franklin will be subject to the
$25.00 charge and will count towards the 12
free transfers unless waived by American
Franklin.
(4) Not more than 25% of the Owner's Account
Value allocated to a Guarantee Period at its
inception may be transferred to the Variable
Account or another Guarantee Period during
any Contract Year. Transfers from a
Guarantee Period are made on a first in,
first out basis.
The 25% limit does not apply to:
(a) Transfers within 15 days before or after
the end of the applicable Guarantee
Period to the same or another Guarantee
Period; or
(b) A renewal at the end of a Guarantee
Period to the same Guarantee Period.
(5) If a transfer would cause the Account Value
in any Division or Guarantee Period to fall
below $500, American Franklin reserves the
right to also transfer the remaining balance
in that Division or Guarantee Period in the
same proportions as the transfer request.
(6) American Franklin reserves the right to defer
any transfer from the Fixed Account to any of
the Divisions for up to six months.
American Franklin reserves the right to restrict
or terminate transfers.
After the Annuity Commencement Date, the Owner may
make one transfer among the Divisions or from a
Division to a Fixed Annuity Option during any 180
day period; such transfer is without charge. The
Owner may not make transfers from a Fixed Annuity
Option to a Division after the Annuity
Commencement Date.
Variable Account "Variable Account Asset Rebalancing" occurs when
Asset Rebalancing funds are transferred by American Franklin between
the Divisions so that the values in each Division
match the percentage allocation then in effect.
Variable Account Asset Rebalancing of the
Divisions will occur periodically:
(1) If selected by the Owner; and
(2) If the Owner's Account Value is equal to or
greater than $25,000 at the time of selection
by the Owner.
The Owner may select Variable Account Asset
Rebalancing when applying for this Contract, or it
may be selected at a later date. American
Franklin reserves the right to increase or lower
the minimum Account Value required for Variable
Account Asset Rebalancing.
FORM T1575
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SURRENDERS
General Surrender The amount surrendered will normally be paid to
Provisions the Owner within five Valuation Dates following
American Franklin's receipt of:
(1) The Owner's written request on a form
acceptable to American Franklin; and
(2) This Contract, if required.
American Franklin reserves the right to defer
payment of surrenders from the Fixed Account for
up to six months from the date American Franklin
receives the request.
Full Surrender At any time prior to the Annuity Commencement Date
and during the lifetime of the Annuitant, the
Owner may surrender this Contract by sending
American Franklin a written request. The amount
payable on surrender is:
(1) The Owner's Account Value at the end of the
Valuation Period in which American Franklin
receives the Owner's request on a form
acceptable to it;
(2) Minus any applicable Surrender Charge;
(3) Minus any applicable Annual Contract Fee; and
(4) Minus any applicable Premium Tax.
The amount payable upon surrender will not be less
than the amount required by state law.
Upon payment of the surrender amount, this
Contract will be terminated and American Franklin
will have no further obligation to the Owner.
All collateral assignees must consent to any
surrender or partial withdrawal. American
Franklin may require that this Contract be
returned to its Home Office prior to making
payment.
Partial Withdrawals A portion of the Owner's Account Value may be
withdrawn at any time prior to the Annuity
Commencement Date. The Owner must send American
Franklin a written request specifying the
Divisions or Guarantee Periods from which the
partial withdrawal is to be made. However, in
cases where the Owner does not so specify, or the
withdrawal cannot be made in accordance with the
Owner's specification, American Franklin reserves
the right to implement the withdrawal pro rata
from each Division and Guarantee Period based on
the Owner's Account Value in each. Partial
withdrawals will be made effective at the end of
the Valuation Period in which American Franklin
receives the written request. Partial withdrawals
will be subject to the following guidelines:
FORM T1575
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(1) The partial withdrawal amount must be at
least $100 or, if less, the Owner's entire
Account Value.
(2) American Franklin will surrender Division
Accumulation Units from the Separate Account
or interests in a Guarantee Period so that
the total amount withdrawn will be the sum
of:
(a) The amount payable to the Owner; and
(b) Any Surrender Charge and any applicable
Premium Tax.
(3) If a partial withdrawal would cause the
Owner's Account Value in any Division or
Guarantee Period (except the Money Market
Division) to fall below $500, American
Franklin reserves the right to transfer the
remaining balance without charge to the Money
Market Division.
(4) If the Owner's Account Value is less than
$500, American Franklin may cancel this
Contract upon 60 days' notice to the Owner.
Such cancellation would be considered a full
surrender of this Contract.
(5) Partial withdrawals of amounts held under
Qualified Contracts are subject to certain
restrictions on withdrawals set forth in the
Internal Revenue Code.
Surrender Charge Except as noted under "Surrender Charge
for Partial Exceptions," a Surrender Charge will be applied to
Withdrawals and the amount of any Purchase Payment withdrawn
Full Surrenders during the first 7 years after it was first
credited, as follows:
Surrender Charge
Year of as a Percentage
Purchase Payment of Purchase
Withdrawal Payment Withdrawn
---------------- -----------------
1st 6%
2nd 6%
3rd 5%
4th 5%
5th 4%
6th 4%
7th 2%
Thereafter 0%
FORM T1575
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For purposes of computing the Surrender Charge,
the oldest Purchase Payments are deemed to be
withdrawn first, and Purchase Payments are deemed
to be withdrawn before any amounts in excess of
Purchase Payments are withdrawn from an Owner's
Account. The following transactions will be
considered as withdrawals for purposes of
computing the Surrender Charge: total surrender,
partial withdrawal, commencement of an annuity
payment option and termination due to insufficient
Owner Account Value.
Surrender Charge The Surrender Charge will not apply:
Exceptions
(1) To any amounts in excess of Purchase Payments
that are withdrawn from an Owner's Account;
or
(2) To any amounts in excess of the amount
permitted by the 10% Free Withdrawal
Privilege if such amounts are required to be
withdrawn to obtain or retain favorable
federal tax treatment; (the granting of this
exception is subject to American Franklin's
approval);
(3) Upon the death of the Annuitant at any age
during the Payout Period;
(4) Upon the death of the Annuitant at any age
during the Accumulation Period if no
Contingent Annuitant survives;
(5) Upon the death of the Owner, including the
first to die in the case of joint Owners, of
a Non-Qualified Contract, unless the Contract
is being continued under the special rule for
a surviving spouse as defined under Internal
Revenue Code Section 72(s);
(6) Upon selection of an annuity payment option
involving payments for at least 10 years;
(7) Upon selection of an annuity payment option
based on life contingencies if life
expectancy is at least 10 years.
10% Free Withdrawal The Surrender Charge does not apply to that
Privilege portion of each withdrawal or a total surrender in
any Contract Year that does not exceed:
(1) Ten Percent (10%) of the amount of Purchase
Payments not previously withdrawn that have
been credited to this Contract for at least
one year, but not more than seven years; less
(2) The amount of any previous withdrawals during
such Contract Year.
For withdrawals under a systematic withdrawal
plan, Purchase Payments credited for 30 days or
more are eligible for the 10% Free Withdrawal
Privilege.
FORM T1575
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If multiple withdrawals are made during a Contract
Year, the amount eligible for the free withdrawal
will be recalculated at the time of each partial
withdrawal. After the first Contract Year, non-
automatic and automatic withdrawals may be made in
the same Contract Year subject to the 10%
limitation.
A free withdrawal pursuant to any of the foregoing
Surrender Charge Exceptions is not deemed a
withdrawal of Purchase Payments except for
purposes of computing the 10% free withdrawal
privilege.
ANNUAL CONTRACT FEE
Manner of An Annual Contract Fee not to exceed $30.00 will
Deducting be deducted at the end of each Contract Year prior
to the Annuity Commencement Date. The fee will be
allocated among the Guarantee Periods and
Divisions in proportion to the Owner's Account
Value in each. The entire fee for the year will
be deducted from the proceeds of any full
surrender of this Contract.
TAX CHARGE
Right to Impose American Franklin reserves the right to impose
additional charges or establish reserves for any
federal, state or local taxes incurred or that may
be incurred by American Franklin, and that may be
deemed attributable to the Contracts.
DEATH BENEFIT
Death Benefit If the Annuitant dies before the Annuity
Commencement Date, and is survived by a Contingent
Annuitant, the Contract will be continued with the
Contingent Annuitant being named the Annuitant.
If this is a Non-Qualified Contract, this Contract
may qualify for continuation under the
"Distribution of Death Benefit under Non-Qualified
Contracts" provision. Otherwise, American
Franklin will pay the death benefit to the
Beneficiary if one of the following dies prior to
the Annuity Commencement Date:
(1) The Annuitant (provided that no Contingent
Annuitant survives); or
(2) The Owner of a Non-Qualified Contract
(including the first to die in the case of
joint Owners).
If the Annuitant or such Owner dies, the amount of
the death benefit will be the greater of the
following amounts, less any applicable Premium
Tax:
(1) The sum of all Net Purchase Payments less any
prior partial withdrawals; or
FORM T1575
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(2) The Owner's Account Value as of the end of
the Valuation Period in which American
Franklin receives proof of the Annuitant's or
such Owner's death and a written request from
the Beneficiary as to the form of payment.
The death benefit will not be less than the amount
payable on a full surrender at the date used to
value the death benefit. The death benefit will
be paid when American Franklin receives:
(1) Proof of the Owner's or Annuitant's death;
and
(2) A written request from the Beneficiary for
either a single sum or payment under an
Annuity Option.
If the Annuitant dies, and a Contingent Annuitant
was named but predeceased the Annuitant, American
Franklin will require proof of the Contingent
Annuitant's death in addition to proof of the
death of the Annuitant.
American Franklin will pay a single sum to the
Beneficiary unless an Annuity Option is chosen.
If the Annuitant dies on or after the Annuity
Commencement Date, the Beneficiary will receive
the death benefit, if any, provided by the Annuity
Option in effect.
PAYMENT OF BENEFITS
Application of Owner's Unless directed otherwise, American Franklin will
Account Value apply the Fixed Account Value to provide a Fixed
Annuity, and the Separate Account Value to provide
a Variable Annuity.
The Owner must tell American Franklin in writing
at least 30 days prior to the Annuity Commencement
Date if Fixed and Separate Account values are to
be applied in different proportions. Transfers
and partial withdrawals will be permitted within
the 30-day period.
Annuity The Annuity Commencement Date (Annuity Date) is
Commencement Date shown on page 3. Payments under a Qualified
Contract or a Section 457 Contract generally must
begin no later than April 1 following the calendar
year in which the Annuitant attains age 70-1/2 to
comply with certain federal tax requirements. The
Annuity Date may be changed by written notice from
the Owner, subject to approval of American
Franklin.
Annuity Options The Owner may elect to have annuity payments made
Available to a beginning on the Annuity Commencement Date under
Contract Owner any one of the Annuity Options described in this
Contract. American Franklin will notify the Owner
60 to 90 days prior to the scheduled Annuity Date
that the Contract is scheduled to mature, and
request that an Annuity Option be selected. If
the Owner has not selected an Annuity Option 10
days prior to the Annuity Commencement Date,
American Franklin will proceed as follows:
FORM T1575
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If the scheduled Annuity Commencement Date is any
date prior to the Annuitant's 99th birthday,
American Franklin will extend the Annuity
Commencement Date to the Annuitant's 99th
birthday, subject to various state limitations.
If the scheduled Annuity Commencement Date is the
Annuitant's 99th birthday, the Account Value less
any applicable Surrender Charges, Annual Contract
Fee and Premium Taxes will be paid in one sum to
the Owner.
Options Available The Owner may elect, in lieu of payment in one
to Beneficiary sum, that any amount or part thereof due under
this Contract be applied under any of the Annuity
Options described below. Within 60 days after the
death of the Annuitant or Owner, the Beneficiary
may make such election if the Owner has not done
so. In such case, the Beneficiary thereafter
shall have all the rights and options of the
Owner.
The first annuity payment under any Annuity Option
shall be made on the first day of the second month
after approval of the claim for settlement.
Subsequent payments shall be made periodically in
accordance with the manner of payment elected.
Payment Contract At such time as one of these Annuity Options
becomes effective, this Contract shall be
surrendered to American Franklin in exchange for a
payment contract providing for the option elected.
Fixed Annuity Fixed Annuity Payments start on the Annuity
Payments Commencement Date. The amount of the first
monthly payment for the Annuity Option selected
will be at least as favorable as that produced by
the applicable annuity tables of this Contract for
each $1,000 applied as of the end of the Valuation
Period that contains the tenth day prior to the
Annuity Commencement Date.
The dollar amount of any payments after the first
payment is specified during the entire period of
annuity payments, according to the provisions of
the Annuity Option selected.
VARIABLE ANNUITY PAYMENTS
Annuity Units American Franklin converts the Division
Accumulation Units into Division Annuity Units at
the values determined at the end of the Valuation
Period which contains the tenth day prior to the
Annuity Commencement Date. The number of Division
Annuity Units remains constant as long as an
annuity remains in force and allocation among the
Divisions has not changed.
Each Division Annuity Unit Value was arbitrarily
set when the Division first converted Division
Accumulation Units into Division Annuity Units.
Subsequent values on any Valuation Date are equal
to the previous Division Annuity Unit Value times
the Net Investment Factor for that Division for
the Valuation Period ending on that Valuation
Date, with an offset for the 3-1/2% assumed
interest rate used in the
FORM T1575
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annuity tables of this Contract.
Variable Annuity Payments start on the Annuity
Commencement Date. Payments will vary in amount
and are determined at the end of the Valuation
Period that contains the tenth day prior to each
payment. If the monthly payment under the Annuity
Option selected is based on a single Division, the
monthly payment is found by multiplying the
Division Annuity Unit Value on such date by the
number of Division Annuity Units.
If the monthly payment under the Annuity Option
selected is based upon more than one Division, the
above procedure is repeated for each applicable
Division. The sum of these payments is the
Variable Annuity Payment.
American Franklin guarantees that the amount of
each payment will not be affected by variations in
expense or mortality experience.
ANNUITY OPTIONS
First Option - Life Annuity. An annuity payable
monthly during the lifetime of the Annuitant,
ceasing with the last annuity payment due prior to
the death of the Annuitant.
Second Option - Life Annuity with 120, 180, or 240
Monthly Payments Certain. An annuity payable
monthly during the lifetime of the Annuitant
including the commitment that if, at the death of
the Annuitant, annuity payments have been made for
less than 120 months, 180 months, or 240 months
(as selected by the Owner in electing this
option), annuity payments shall be continued
during the remainder of the selected period to the
Beneficiary.
Third Option - Joint and Last Survivor Life
Annuity. An annuity payable monthly during the
joint lifetime of the Annuitant and a secondary
annuitant, and thereafter during the remaining
lifetime of the survivor, ceasing with the last
annuity payment due prior to the death of the
survivor.
Fourth Option - Payments for a Designated Period.
An amount payable monthly for a number of years
which may be from five to 40 (as selected by the
Owner in electing this option). If this option is
selected on a variable basis, the number of years
may not exceed the life expectancy of the
Annuitant or other properly-designated payee.
Fifth Option - Payments of a Specified Dollar
Amount. The amount due will be paid in equal
monthly annuity payments of a designated dollar
amount (not less than $125 nor more than $200 per
annum per $1,000 of the original amount due) until
the remaining balance is less than the amount of
one annuity payment, at which time such balance
will be paid and will be the final annuity payment
under this option. Payments under this option are
available on a fixed basis only. The remaining
balance at the end of any month is determined by
decreasing the balance at the end of the previous
month by the amount of any
FORM T1575
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installment paid during the month and by adding to
the result interest at a rate not less than 3.5%
compounded annually. Upon the death of the payee
under this option, payments will be continued to
the Beneficiary until such remaining balance is
paid.
In lieu of monthly payments, payments may be
elected on a quarterly, semi-annual or annual
basis, in which cases the amount of each annuity
payment will be determined on a basis consistent
with that described in this Contract for monthly
payments.
No election of any Annuity Option may be made in
the case where a Fixed or Variable Annuity is
elected, unless a minimum initial annuity payment
of $100 will be provided. No election of any
Annuity Option may be made in the case where a
combination of a Fixed and a Variable Annuity is
elected, unless a minimum initial annuity payment
of $50 on each basis will be provided. If the
initial annuity payment does not meet the minimum
amount required for the Annuity Option elected,
American Franklin will provide a less frequent
payment schedule. If the minimum is still not
met, American Franklin will make a lump-sum
payment of the Owner's Account Value (less any
Surrender Charge, uncollected Annual Contract Fee
and applicable Premium Tax) as of the date of this
determination to the Annuitant or other properly-
designated payee.
If the age or sex of the Annuitant has been
misstated to American Franklin, any amount payable
will be that which would have been payable had the
misstatement not occurred. American Franklin will
deduct any overpayment from the next payment or
payments due and add any underpayments to the next
payment due. Interest at an effective annual rate
of 3.5% will be added to any such adjustment.
Annuity Tables The tables that follow show the dollar amount of
the first monthly payment for each $1,000 applied
under the Annuity Options. Under the First or
Second Options, the amount of each payment will
depend upon the sex of the Annuitant and the
Annuitant's adjusted age at the time the first
payment is due. Under the Third Option, the
amount of each payment will depend upon the sex
and adjusted ages of both Annuitants at the time
the first payment is due.
In using the table of annuity payment rates, the
ages of the Annuitants must be reduced by one year
for Annuity Commencement Dates occurring during
the decade 2000-2009, reduced two years for
Annuity Commencement Dates occurring during the
decade 2010-2019, and reduced an additional year
for each decade that follows. The age 70 rate is
also used for ages above 70.
Alternate Amount of If a fixed life income option is elected, the
Installments Under Owner (or if the Owner has not elected a payment
Fixed Life Income Options option, the Beneficiary) may elect life income
payments equal to those provided by those fixed
single premium immediate annuity option rates in
use by American Franklin when annuity payments
begin.
FORM T1575
22
<PAGE>
ANNUITY TABLES
AMOUNT OF MONTHLY PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE
Options 1 and 2 - Life Annuities
Adjusted Age
of Male Monthly Payments Guaranteed
Option 1 Option 2 Option 2 Option 2
None 120 180 240
50 4.37 4.33 4.28 4.21
51 4.44 4.40 4.34 4.26
52 4.52 4.47 4.40 4.32
53 4.59 4.54 4.47 4.37
54 4.68 4.62 4.54 4.43
55 4.77 4.70 4.61 4.49
56 4.86 4.78 4.69 4.55
57 4.96 4.87 4.76 4.61
58 5.06 4.97 4.84 4.67
59 5.18 5.07 4.93 4.73
60 5.30 5.17 5.01 4.79
61 5.42 5.28 5.10 4.86
62 5.56 5.40 5.20 4.92
63 5.71 5.52 5.29 4.98
64 5.87 5.65 5.38 5.04
65 6.04 5.79 5.48 5.10
66 6.22 5.92 5.58 5.15
67 6.41 6.07 5.68 5.21
68 6.62 6.22 5.77 5.26
69 6.84 6.37 5.87 5.30
70 and above 7.07 6.53 5.96 5.35
FORM T1575
23
<PAGE>
Adjusted Age
of Female Monthly Payments Guaranteed
Option 1 Option 2 Option 2 Option 2
None 120 180 240
50 4.05 4.03 4.01 3.97
51 4.10 4.09 4.06 4.02
52 4.17 4.14 4.12 4.07
53 4.23 4.21 4.17 4.12
54 4.30 4.27 4.23 4.18
55 4.37 4.34 4.30 4.23
56 4.44 4.41 4.36 4.29
57 4.52 4.48 4.43 4.35
58 4.61 4.56 4.50 4.41
59 4.70 4.65 4.58 4.48
60 4.79 4.74 4.66 4.54
61 4.89 4.83 4.74 4.61
62 5.00 4.93 4.83 4.67
63 5.12 5.03 4.92 4.74
64 5.24 5.14 5.01 4.81
65 5.38 5.26 5.11 4.88
66 5.52 5.38 5.20 4.95
67 5.67 5.51 5.31 5.01
68 5.83 5.65 5.41 5.08
69 6.01 5.79 5.52 5.14
70 and above 6.20 5.94 5.62 5.20
Option 3 - Joint and Last Survivor Life Annuity
Adjusted Age of
Annuitant Adjusted Age of Secondary Annuitant
Male F50 F55 F60 F65 F70
50 3.76 3.89 4.01 4.11 4.19
55 3.84 4.01 4.18 4.33 4.46
60 3.90 4.11 4.33 4.56 4.77
65 3.95 4.19 4.47 4.78 5.09
70 3.99 4.25 4.58 4.96 5.39
FORM T1575
24
<PAGE>
Adjusted Age of
Annuitant Adjusted Age of Secondary Annuitant
Female M50 M55 M60 M65 M70
50 3.76 3.84 3.90 3.95 3.99
55 3.89 4.01 4.11 4.19 4.25
60 4.01 4.18 4.33 4.47 4.58
65 4.11 4.33 4.56 4.78 4.96
70 4.19 4.46 4.77 5.09 5.39
Option 4 - Payments for a Designated Period
Years of Amount of Monthly Years of Amount of Monthly
Payment Payment Payment Payment
5 $18.12 23 $5.24
6 15.35 24 5.09
7 13.38 25 4.96
8 11.90 26 4.84
9 10.75 27 4.73
10 9.83 28 4.63
11 9.09 29 4.53
12 8.46 30 4.45
13 7.94 31 4.37
14 7.49 32 4.29
15 7.10 33 4.22
16 6.76 34 4.15
17 6.47 35 4.09
18 6.20 36 4.03
19 5.97 37 3.98
20 5.75 38 3.92
21 5.56 39 3.88
22 5.39 40 3.83
FORM T1575
25
<PAGE>
THE CHAIRMAN-TM- COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.
All payments and values provided by this Contract, when based on the investment
experience of a separate account, are variable, may increase or decrease and are
not guaranteed as to amount. See the "Separate Account" and "Variable Annuity
Payments" provisions in this Contract.
For Information, Service or to make a Complaint
Contact a Registered Representative,
or the Variable Annuity Department
The American Franklin Life
Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
(217) 528-2011
[American Franklin Logo]
A STOCK COMPANY
A Subsidiary of American General Corporation
FORM T1575
<PAGE>
Exhibit 4(a)(2)
THE CHAIRMAN-TM- COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
Unless otherwise directed by the Owner, The American Franklin Life Insurance
Company ("American Franklin") will pay a monthly income to the Annuitant if
living on the Annuity Commencement Date. The dollar amounts of such payments
will be determined on the basis of the provisions of this Contract. The first
payment will be payable on the Annuity Commencement Date. Subsequent payments
will be payable on the corresponding day of each month thereafter or at other
intervals in accordance with the provisions of this Contract.
All payments and values provided by this Contract, when based on the investment
experience of the Separate Account, are variable, may increase or decrease and
are not guaranteed as to amount. See the "Separate Account" and "Variable
Annuity Payments" provisions in this Contract.
CANCELLATION RIGHT. This Contract may be returned for cancellation to American
Franklin within 10 days after delivery. Upon surrender of this Contract within
the 10 day period, American Franklin will refund the sum of the Owner's Account
Value at the end of the Valuation Period in which the request is received, plus
any premium taxes and Annual Contract Fee that have been deducted.
This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.
SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE.
/s/ /s/
- ---------------------- --------------------
Secretary President
READ THIS CONTRACT CAREFULLY
[American Franklin Logo]
A STOCK COMPANY
A Subsidiary of American General Corporation
Home Office: Springfield, Illinois
#1 Franklin Square Springfield, Illinois 62713 (217) 528-2011
FORM T1575Z
<PAGE>
INDEX
Page
10% Free Withdrawal Privilege. . . . . . . . . . . . . . . . . . 17
Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Allocation of Purchase Payments. . . . . . . . . . . . . . . . . 8
Annual Contract Fee. . . . . . . . . . . . . . . . . . . . . . . 18
Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . 21
Annuity Tables . . . . . . . . . . . . . . . . . . . . . . . . . 23
Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Change of Investment Advisor or
Investment Policy . . . . . . . . . . . . . . . . . . . . . 7
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Division Accumulation Units. . . . . . . . . . . . . . . . . . . 12
Divisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Fixed Account. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Full Surrender . . . . . . . . . . . . . . . . . . . . . . . . . 15
General Provisions . . . . . . . . . . . . . . . . . . . . . . . 7
Guarantee Periods. . . . . . . . . . . . . . . . . . . . . . . . 11
Guaranteed Interest Rates. . . . . . . . . . . . . . . . . . . . 12
Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . 12
Ownership Provisions . . . . . . . . . . . . . . . . . . . . . . 9
Partial Withdrawals. . . . . . . . . . . . . . . . . . . . . . . 15
Payment of Benefits. . . . . . . . . . . . . . . . . . . . . . . 19
Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . 8
Schedule Page. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Separate Account . . . . . . . . . . . . . . . . . . . . . . . . 12
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . 16
Surrender Charge Exceptions. . . . . . . . . . . . . . . . . . . 17
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Variable Account Asset Rebalancing . . . . . . . . . . . . . . . 14
Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . 20
FORM T1575Z
2
<PAGE>
The American Franklin Life Insurance Company
SCHEDULE PAGE
INITIAL PURCHASE PAYMENT: $10,000
MINIMUM ADDITIONAL PURCHASE PAYMENTS
(Per Division or Guarantee Period): $ 100
ADDITIONAL BENEFITS: NONE
MAXIMUM ASSET CHARGE FACTORS (Separate Account Only) ANNUAL RATE: 1.40%
MAXIMUM ANNUAL CONTRACT FEE: $ 30
TRANSFER CHARGE: $ 25
ISSUE AGE: 35
ANNUITY COMMENCEMENT DATE: JANUARY 1, 2026
INITIAL ALLOCATION:
Net Dollar
Amount of
Percentage Allocations
VIP Money Market Portfolio 100% $10,000
VIP High Income Portfolio xx% $ xxx
VIP Investment Grade Bond Portfolio xx% $ xxx
VIP Equity-Income Portfolio xx% $ xxx
VIP Growth Portfolio xx% $ xxx
VIP Overseas Portfolio xx% $ xxx
VIP Asset Manager Portfolio xx% $ xxx
VIP Index 500 Portfolio xx% $ xxx
VIP II Contrafund Portfolio xx% $ xxx
MFS Emerging Growth Portfolio xx% $ xxx
MFS Research Portfolio xx% $ xxx
MFS Growth With Income Portfolio xx% $ xxx
MFS Total Return Portfolio xx% $ xxx
MFS Utilities Portfolio xx% $ xxx
MFS Value Portfolio xx% $ xxx
Fixed Account
1 Year Guarantee Period xx% $ xxx
3 Year Guarantee Period xx% $ xxx
5 Year Guarantee Period xx% $ xxx
------ -----------
Total Allocations 100% $10,000
ANNUITANT: JOHN DOE CONTRACT NUMBER: 123456
CONTRACT OWNER: JOHN DOE DATE OF ISSUE: JANUARY 1, 1996
CONTRACT JURISDICTION: (STATE NAME)
FORM T1575Z
3
<PAGE>
DEFINITIONS
ACCOUNT. Any of the Divisions or the Fixed Account.
ACCOUNT VALUE. The sum of the Fixed Account Value and the Separate Account
Value. The Fixed Account Value is the accumulated value of Net Purchase
Payments, renewals and transfers into the Fixed Account and interest on such
amounts, minus the accumulated value of any withdrawals and transfers out of the
Fixed Account and any Annual Contract Fee allocated to the Fixed Account and
interest on such amounts. The Separate Account Value is the sum of the values
of the Separate Account Divisions. The value of a Separate Account Division is
the value of a Division's Accumulation Unit multiplied by the number of
Accumulation Units in that Division.
ACCUMULATION PERIOD. The period during which Net Purchase Payments are applied.
ACCUMULATION UNIT. An accounting unit of measure used to calculate the value of
a Division of this Contract before annuity payments begin.
ANNUITANT. The person upon whose date of birth income payments are based. The
Annuitant's name is shown on Page 3.
ANNUITY OPTION. One of the several forms in which the Owner can request
American Franklin to make annuity payments.
ANNUITY UNIT. A unit of measurement to calculate variable annuity payments.
BENEFICIARY. The person entitled to receive benefits in the event the Owner or
Annuitant dies. If no named Beneficiary is living at the time any payment is to
be made, the Owner shall be the Beneficiary, or if the Owner is not living, the
Owner's estate shall be the Beneficiary.
CONTINGENT ANNUITANT. A person named by the Owner of a Non-Qualified Contract
to become the Annuitant if: (1) the Annuitant dies before the Annuity
Commencement Date; and (2) the Contingent Annuitant is then living. A
Contingent Annuitant may not be named except at the time of application. Once
named, the choice may not be revoked or replaced. If a Contingent Annuitant
dies, a new Contingent Annuitant may not be named. After Annuity Payments start,
a Contingent Annuitant may not become the Annuitant.
CONTINGENT BENEFICIARY. A person named by the Owner to receive benefits in the
event a designated Beneficiary is not living at the time of the Owner's or
Annuitant's death.
CONTRACT ANNIVERSARY. Each anniversary of the Date of Issue of this Contract.
CONTRACT YEAR. A period of 12 consecutive months beginning on the Date of Issue
or any anniversary thereof.
DATE OF ISSUE. The date on which this Contract becomes effective as shown on
Page 3.
DIVISION. The subdivisions of the Separate Account which are used to determine
how the Owner's Account is allocated among the Variable Funds.
FIXED ACCOUNT. The name of the investment alternative under which payments are
allocated to American Franklin's General Account.
FIXED ANNUITY OPTION. An annuity option with payments which do not vary with
investment performance as to dollar amount.
FORM T1575Z
4
<PAGE>
GUARANTEED INTEREST RATE. The minimum rate American Franklin may use to credit
interest on an effective annual basis during any Guarantee Period.
GUARANTEE PERIOD. The period for which a Guaranteed Interest Rate is credited.
HOME OFFICE. The American Franklin Life Insurance Company, #1 Franklin Square,
Springfield, Illinois 62713; 217-528-2011.
ISSUE AGE. The Annuitant's age as of his or her nearest birthday on the Date of
Issue.
NET ASSET VALUE PER SHARE. The net assets of a Variable Fund divided by the
number of shares in the Variable Fund.
NET PURCHASE PAYMENT. The gross amount of a Purchase Payment less any Premium
Taxes deducted at the time a Purchase Payment is made.
NON-QUALIFIED CONTRACT. A Contract that does not qualify for the special
federal income tax treatment applicable in connection with retirement plans or
deferred compensation plans.
OWNER. The Owner of this Contract. The "Owner" is the person, persons or
entity entitled to the ownership rights stated in this Contract. The Owner may
designate a trustee or custodian of a retirement plan which meets the
requirements of Section 401, Section 408(c), or Section 408(k) of the Internal
Revenue Code to serve as legal owner of assets of a retirement plan, but the
term "Owner" as used herein, shall refer to the organization entering into this
Contract.
OWNER'S ACCOUNT. An account established for each Owner to which each Net
Purchase Payment is credited.
PAYOUT PERIOD. The period, starting with the Annuity Commencement Date, during
which Annuity Payments are made by the Company.
PREMIUM TAX. The amount of tax, if any, charged by a state or municipality on
Purchase Payments or Contract values.
PURCHASE PAYMENT. An amount paid to the Company as consideration for the
benefits described herein.
QUALIFIED CONTRACT. A Contract that is qualified for the special federal income
tax treatment applicable in connection with certain retirement plans.
SECTION 457 CONTRACT. A Contract that is issued in connection with a deferred
compensation plan established under Section 457 of the Internal Revenue Code.
SEPARATE ACCOUNT. A segregated investment account entitled "Separate Account
VA-1" established by American Franklin to separate the assets funding the
variable benefits for the class of contracts to which this Contract belongs from
the other assets of American Franklin. That portion of the assets of the
Separate Account equal to the reserves and other contract liabilities with
respect to the Separate Account shall not be chargeable with liabilities arising
out of any other business American Franklin may conduct. Income, gains and
losses, whether or not realized, from assets allocable to the Separate Account,
are credited to or charged against such account without regard to American
Franklin's other income, gains or losses.
VALUATION DATE. Any day on which the Company is open for business except, with
respect to any Division, a day on which the related Variable Fund does not value
its shares.
VALUATION PERIOD. The period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at close of regular trading
on the Exchange on the next Valuation Date.
FORM T1575Z
5
<PAGE>
VARIABLE ANNUITY OPTION. An Annuity Option under which the Company promises to
pay the Annuitant or other properly-designated Payee one or more payments which
vary in amount in accordance with the net investment experience of the
applicable Divisions selected to measure the value of this Contract.
VARIABLE FUND. An individual investment fund or series in which a Division
invests.
FORM T1575Z
6
<PAGE>
GENERAL PROVISIONS
Entire Contract This Contract, and a copy of the Application
for the Contract, if attached, is the entire
Contract. All statements made by Owner or
Annuitant will be deemed representations and
not warranties. No statement will be used to
reduce a claim under this Contract unless it
is in writing and made a part of this Contract.
Not Contestable This Contract is not contestable.
Guarantees Subject to the Net Investment Factor provision
of this Contract, American Franklin guarantees
that the dollar amount of Variable Annuity
Payments made during the lifetime of the
payee(s) will not be adversely affected by
American Franklin's actual mortality experience
or by the actual expenses incurred by American
Franklin in excess of expense deductions
provided for in this Contract.
Settlement All benefits under this Contract are payable
from the Home Office.
Nonparticipating This Contract is nonparticipating and does not
share in American Franklin's surplus or
earnings.
Change of Investment Unless otherwise required by law or regulation,
Adviser or Investment the investment adviser or any investment policy
Policy of Variable Funds of a Variable Fund may not be changed without
American Franklin's consent. If required,
approval or change of any investment objective
will be filed with the Insurance Department of
the state where this Contract is delivered.
Owners will be notified of any material
investment policy change which has been
approved. Notification of an investment
policy change will be given in advance to those
Owners who have the right to consent to or vote
on such change.
Any substitution of the underlying investments
of any Division will comply with all applicable
requirements of the Investment Company Act of
1940 and rules thereunder.
Modification Rights Reserved American Franklin reserves the right to modify
by American Franklin the Contract, but only if such modification:
(1) Is necessary to make the Contract or the
Separate Account comply with any law or
regulation issued by a governmental agency
to which American Franklin is subject; or
(2) Is necessary to assure continued
qualification of the Contract under the
Internal Revenue Code or other federal or
state laws relating to retirement
annuities or Annuity contracts; or
(3) Is necessary to reflect a change in the
operation of the Separate Account or the
Division(s); or
(4) Provides additional Separate Account
options or
FORM T1575Z
7
<PAGE>
(5) Withdraws Separate Account options.
In the event of any such modification, American
Franklin will provide notice to the Owner or to
the payee(s) during the Annuity Period.
American Franklin may also make appropriate
endorsements in the Contract to reflect such
modification.
When required by law, American Franklin will
obtain approval by Owners of changes and
American Franklin will gain approval from any
appropriate regulatory authority.
Changing the Terms Any change in the Contract must be approved by
of the Contract one of American Franklin's officers. No agent
has the authority to make any changes or waive
any of the terms of the Contract.
Termination This Contract will remain in force until
surrendered for its full value, or all annuity
payments have been made, or the death benefit
has been paid, except as follows:
If the Owner's Account Value is less than $500,
American Franklin may cancel this Contract upon
60 days' notice to the Owner. Such
cancellation would be considered a full
surrender of this Contract.
If the Owner's Account Value in any Division
(except the Money Market Division) falls below
$500, American Franklin reserves the right to
transfer the remaining balance, without charge,
to the Money Market Division.
PURCHASE PAYMENTS
Minimum Payments The minimum amounts acceptable as Purchase
Payments are shown on Page 3. American
Franklin reserves the right to modify these
minimums or to refuse a Purchase Payment for
any reason.
Allocation of The initial allocation for Net Purchase
Purchase Payments Payments is shown on Page 3 of this Contract
and will remain in effect until changed by
written notice. The percentage allocation for
future Net Purchase Payments may be changed at
any time by written notice.
Changes in the allocation will be effective on
the date American Franklin receives the Owner's
notice. The allocation may be 100% to any
available Division or Guarantee Period, or may
be divided among these options in whole
percentage points totaling 100%.
The initial Net Purchase Payment will be
credited to the Owner's Account not more than
two business days after American Franklin
receives it, together with all other required
documentation, in good order at the Home
Office. Subsequent Net Purchase Payments will
be credited as of the end of the Valuation
Period in which they are so received.
American Franklin reserves the right to limit
the total number of Fixed Account Guarantee
Periods and Separate Account Divisions that may
be chosen during the life of the Contract.
FORM T1575Z
8
<PAGE>
Premium Taxes When applicable, American Franklin will deduct
an amount to cover Premium Taxes. Such
deduction will be made:
(1) From Purchase Payment(s) when received; or
(2) From the Account Value at the time annuity
payments are to commence; or
(3) From the amount of any partial withdrawal;
or
(4) From proceeds payable upon termination of
the Contract for any other reason,
including death of the Annuitant or Owner,
or surrender of the Contract.
If Premium Tax is paid, American Franklin may
reimburse itself for such tax when deduction is
being made under paragraphs 2, 3, or 4 above
calculated by multiplying the sum of Purchase
Payments being withdrawn by the applicable
Premium Tax percentage.
OWNERSHIP PROVISIONS
Exercise of Contract This Contract belongs to the Owner, who is
Rights entitled to exercise all rights and privileges
in connection with this Contract. Where a
Contract is jointly owned, both Owners must
join in any request to exercise the rights or
privileges of an Owner.
In any case, such rights and privileges can be
exercised without the consent of the
Beneficiary (other than an irrevocably -
designated Beneficiary) or any other person.
Such rights and privileges may be exercised
only during the lifetime of the Annuitant and
prior to the Annuity Commencement Date, except
as otherwise provided in this Contract.
Unless the Owner specifies otherwise, on the
Annuity Commencement Date the Annuitant will
become the payee. If the Owner or the
Annuitant dies prior to the Annuity
Commencement Date, the Beneficiary will become
the payee. Such payees may thereafter exercise
such rights and privileges of ownership which
continue.
Beneficiary The Owner named the Beneficiary and any
Contingent Beneficiary when applying for this
Contract. By written notice to American
Franklin, a non-irrevocable Beneficiary or
Contingent Beneficiary may be changed by the
Owner prior to the Annuity Commencement Date or
by the Annuitant or other properly-designated
payee after the Annuity Commencement Date.
Change of Ownership Ownership of a Qualified Contract may not be
transferred except to: (1) the Annuitant; (2)
a trustee or successor trustee of a pension or
profit sharing trust which is qualified under
Section 401(a) of the Internal Revenue Code;
(3) the employer of the Annuitant, provided
that the Qualified Contract after transfer is
maintained under the terms of a retirement plan
qualified under Section 403(a) of the Internal
Revenue Code for the benefit of the Annuitant;
(4) the trustee of an individual
FORM T1575Z
9
<PAGE>
retirement account plan qualified under Section
408 of the Internal Revenue Code; or (5) as
otherwise permitted from time to time by laws
and regulations governing the retirement or
deferred compensation plans for which a
Qualified Contract may be issued (including but
not limited to transfers pursuant to a
qualified domestic relations order within the
meaning of Section 414(p) of the Internal
Revenue Code). In no other case may a
Qualified Contract be sold, assigned,
transferred, discounted or pledged as
collateral.
During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Owner may
change the ownership of a Non-Qualified
Contract.
A change of ownership will not be binding upon
American Franklin until American Franklin
receives written notification at its Home
Office. When such notification is so received,
the change will be effective as of the date of
the signed request for change, but the change
will be without prejudice to American Franklin
on account of any payment made, or any action
taken by it prior to receiving the change, or
on account of any tax consequence.
Distribution of If an Owner (including the first to die in the
Death Benefit case of joint Owners) under a Non-Qualified
under Non-Qualified Contract dies prior to the Annuitant and before
Contracts the Annuity Commencement Date, the death
benefit must be distributed to the Beneficiary
either (1) within five years after the date of
death of the Owner, or (2) over the life of the
Beneficiary or a period not greater than the
expected life of the Beneficiary, with annuity
payments beginning within one year after the
date of death of the Owner. The Beneficiary
shall be considered the designated beneficiary
for the purposes of Section 72(s) of the
Internal Revenue Code. In all cases, any such
designated beneficiary will not be entitled to
exercise any rights prohibited by applicable
federal income tax law.
These mandatory distribution requirements will
not apply when the designated Beneficiary is
the spouse of the deceased Owner, if the spouse
elects to continue this Contract in the
spouse's own name, as Owner. When the deceased
Owner of a Non-Qualified Contract was also the
Annuitant, the surviving spouse (if the
surviving spouse is the designated Beneficiary)
may elect to be named as both Owner and
Annuitant and continue this Contract.
If the payee under a Non-Qualified Contract
dies after the Annuity Commencement Date and
before all of the payments under the Annuity
Option have been distributed, the remaining
amount payable, if any, must be distributed at
least as rapidly as under the method of
distribution then in effect.
If the Owner prior to the Annuity Commencement
Date, or the payee thereafter, is not a natural
person, then the foregoing distribution
requirements shall apply upon the death of the
primary Annuitant within the meaning of the
Internal Revenue Code.
FORM T1575Z
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Periodic Reports American Franklin will send to each Owner, at
least once during each Contract Year, a statement
showing the Owner's Account Value as of a date not
more than two months prior to the date of mailing.
American Franklin will also send such statements
as may be required by applicable state and federal
laws, rules and regulations.
Owner's Account American Franklin will establish an Owner's
Account for the Owner under this Contract and will
maintain such account during the Accumulation
Period. The Owner's Account Value for any
Valuation Period will be equal to the Owner's
Separate Account Value, if any, plus the Owner's
Fixed Account Value, if any, for that Valuation
Period.
FIXED ACCOUNT
Fixed Account Value That portion of a Net Purchase Payment which is
allocated to the Fixed Account will be credited to
the Owner's Account and allocated to the Guarantee
Period(s) selected. The Fixed Account Value of an
Owner's Account for any Valuation Period is equal
to the sum of the values in each of the Guarantee
Periods credited to the Owner's Account for such
Valuation Period.
The value in any one Guarantee Period on a
Valuation Date is the accumulated value of the Net
Purchase Payments, renewals and transfers
allocated to the Guarantee Period and interest on
such amounts at the Guaranteed Interest Rate,
minus the accumulated value of withdrawals and
transfers out of that Guarantee Period and any
Annual Contract Fee allocated to that Guarantee
Period, and interest on such amounts at the
Guaranteed Interest Rate.
Guarantee Periods The Owner may select one or more Guarantee
Period(s). The Guarantee Period(s) selected will
determine the Guaranteed Interest Rates(s). The
Net Purchase Payment or the portion thereof (or
amount transferred in accordance with the transfer
privilege provision described below) allocated to
a particular Guarantee Period will earn interest
at the Guaranteed Interest Rate during the
Guarantee Period. Guarantee Periods begin on the
date as of which American Franklin credits the
Owner's Account Value to that Guarantee Period or,
in the case of a transfer, on the effective date
of the transfer. The Guarantee Period is the
number of years American Franklin credits the
Guaranteed Interest Rate. The expiration date of
any Guarantee Period is the last day of the
Guarantee Period. Subsequent Guarantee Periods
begin on the first day following the expiration
date. As a result of Guarantee Period renewals,
additional Purchase Payments and transfers of
portions of the Owner's Account Value, Guarantee
Periods of the same duration may have different
expiration dates and Guaranteed Interest Rates.
American Franklin will notify the Owner in writing
at least 30 and no more than 60 days prior to the
expiration date of any Guarantee Period. A new
Guarantee Period of the same duration as the
previous Guarantee Period will begin automatically
unless American Franklin receives written notice
to the contrary from the Owner at least three
Valuation
FORM T1575Z
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Dates prior to the end of such Guarantee Period.
The Owner may elect to change to another Guarantee
Period or Division which American Franklin offers
at such time.
If the amount of an Owner's Account Value in a
Guarantee Period is less than $500 at the end of
such Guarantee Period, American Franklin reserves
the right to transfer such amount, without charge,
to the Money Market Division of the Separate
Account. However, American Franklin will transfer
such amount to another available Division at the
Owner's request.
Guaranteed Interest American Franklin will periodically establish an
Rates applicable Guaranteed Interest Rate for each
Guarantee Period it offers. These rates will be
guaranteed for the duration of the respective
Guarantee Periods. The Guarantee Periods that
American Franklin makes available at any time will
be determined in its discretion.
No Guaranteed Interest Rate shall be less than an
effective annual rate of 3.0% per year.
SEPARATE ACCOUNT
Divisions The Separate Account has a number of Divisions,
each investing in a corresponding Variable Fund.
Net Purchase Payments will be allocated to the
Divisions and the Fixed Account as shown on
Page 3, unless the Owner changes the allocation.
American Franklin will use the Net Purchase
Payments and any transferred amounts to purchase
Variable Fund shares applicable to the Divisions
at their net asset value. American Franklin will
be the owner of all Variable Fund shares purchased
with the Net Purchase Payments or transferred
amounts.
Division Net Purchase Payments and transferred amounts
Accumulation allocated to the Separate Account will be
Units credited to the Owner's Account in the form of
Division Accumulation Units. The number of
Division Accumulation Units will be determined by
dividing the amount allocated to a Division by the
Division Accumulation Unit value as of the end of
the Valuation Period as of which the transaction
is credited. The value of each Division
Accumulation Unit was arbitrarily set as of the
date the Division first purchased Variable Fund
shares. Subsequent values on any Valuation Date
are equal to the previous Division
Accumulation Unit value times the Net Investment
Factor for the Valuation Period ending on that
Valuation Date.
Net Investment The Net Investment Factor is an index applied to
Factor measure the investment performance of a Division
from one Valuation Period to the next. The Net
Investment Factor may be greater or less than or
equal to one; therefore, the value of an
Accumulation Unit may increase, decrease or remain
the same.
FORM T1575Z
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The Net Investment Factor for a Division is
determined by dividing (1) by (2), and then
subtracting (3) from the result, where:
(1) Is the sum of:
(a) The Net Asset Value Per Share of the
Variable Fund shares held in the
Division, determined at the end of the
current Valuation Period; plus
(b) The per share amount of any dividend or
capital gain distributions made on the
Variable Fund shares held in the
Division during the current Valuation
Period;
(2) Is the Net Asset Value Per Share of the
Variable Fund shares held in the Division,
determined at the end of the previous
Valuation Period; and
(3) Is a factor representing the mortality risk,
expense risk, and administrative expense
charge. American Franklin will determine the
daily asset charge factor annually, but in no
event may it exceed the Maximum Asset Charge
Factor as specified on Page 3.
Separate Account The Owner's Separate Account Value for any
Value Valuation Period is the total of the values in
each Division credited to the Owner's Account for
such Valuation Period. The value for each
Division will be equal to:
(1) The number of Division Accumulation Units;
multiplied by
(2) The Division Accumulation Unit value for the
Valuation Period.
The Owner's Separate Account Value will vary from
Valuation Date to Valuation Date reflecting the
total value in the Divisions.
TRANSFERS
Transfers Transfers may be made at any time during the
Accumulation Period after the first 30 days
following the Date of Issue. A transfer will be
effective at the end of the Valuation Period in
which American Franklin receives the written
request for a transfer. Transfers will be subject
to the following restrictions:
(1) Prior to the Annuity Commencement Date, the
Owner may make up to 12 transfers each
Contract Year without charge.
(2) There will be a charge of $25.00 for each
transfer in excess of 12 in a Contract Year.
(3) Transfers under the Variable Account Asset
Rebalancing program will not count towards
the 12 free transfers each Contract Year.
The $25.00 charge will not apply to transfers
made through Variable Account Asset
Rebalancing. Transfers under any other asset
management arrangement approved by
FORM T1575Z
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American Franklin will be subject to the
$25.00 charge and will count towards the 12
free transfers unless waived by American
Franklin.
(4) Not more than 25% of the Owner's Account
Value allocated to a Guarantee Period at its
inception may be transferred to the Variable
Account or another Guarantee Period during
any Contract Year. Transfers from a
Guarantee Period are made on a first in,
first out basis.
The 25% limit does not apply to:
(a) Transfers within 15 days before or after
the end of the applicable Guarantee
Period to the same or another Guarantee
Period; or
(b) A renewal at the end of a Guarantee
Period to the same Guarantee Period.
(5) If a transfer would cause the Account Value
in any Division or Guarantee Period to fall
below $500, American Franklin reserves the
right to also transfer the remaining balance
in that Division or Guarantee Period in the
same proportions as the transfer request.
(6) American Franklin reserves the right to defer
any transfer from the Fixed Account to any of
the Divisions for up to six months.
American Franklin reserves the right to restrict
or terminate transfers.
After the Annuity Commencement Date, the Owner may
make one transfer among the Divisions or from a
Division to a Fixed Annuity Option during any 180
day period; such transfer is without charge. The
Owner may not make transfers from a Fixed Annuity
Option to a Division after the Annuity
Commencement Date.
Variable Account "Variable Account Asset Rebalancing" occurs when
Asset Rebalancing funds are transferred by American Franklin between
the Divisions so that the values in each Division
match the percentage allocation then in effect.
Variable Account Asset Rebalancing of the
Divisions will occur periodically:
(1) If selected by the Owner; and
(2) If the Owner's Account Value is equal to or
greater than $25,000 at the time of selection
by the Owner.
The Owner may select Variable Account Asset
Rebalancing when applying for this Contract, or it
may be selected at a later date. American
Franklin reserves the right to increase or lower
the minimum Account Value required for Variable
Account Asset Rebalancing.
FORM T1575Z
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SURRENDERS
General Surrender The amount surrendered will normally be paid to
Provisions the Owner within five Valuation Dates following
American Franklin's receipt of:
(1) The Owner's written request on a form
acceptable to American Franklin; and
(2) This Contract, if required.
American Franklin reserves the right to defer
payment of surrenders from the Fixed Account for
up to six months from the date American Franklin
receives the request.
Full Surrender At any time prior to the Annuity Commencement Date
and during the lifetime of the Annuitant, the
Owner may surrender this Contract by sending
American Franklin a written request. The amount
payable on surrender is:
(1) The Owner's Account Value at the end of the
Valuation Period in which American Franklin
receives the Owner's request on a form
acceptable to it;
(2) Minus any applicable Surrender Charge;
(3) Minus any applicable Annual Contract Fee; and
(4) Minus any applicable Premium Tax.
The amount payable upon surrender will not be less
than the amount required by state law.
Upon payment of the surrender amount, this
Contract will be terminated and American Franklin
will have no further obligation to the Owner.
All collateral assignees must consent to any
surrender or partial withdrawal. American
Franklin may require that this Contract be
returned to its Home Office prior to making
payment.
Partial Withdrawals A portion of the Owner's Account Value may be
withdrawn at any time prior to the Annuity
Commencement Date. The Owner must send American
Franklin a written request specifying the
Divisions or Guarantee Periods from which the
partial withdrawal is to be made. However, in
cases where the Owner does not so specify, or the
withdrawal cannot be made in accordance with the
Owner's specification, American Franklin reserves
the right to implement the withdrawal pro rata
from each Division and Guarantee Period based on
the Owner's Account Value in each. Partial
withdrawals will be made effective at the end of
the Valuation Period in which American Franklin
receives the written request. Partial withdrawals
will be subject to the following guidelines:
FORM T1575Z
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(1) The partial withdrawal amount must be at
least $100 or, if less, the Owner's entire
Account Value.
(2) American Franklin will surrender Division
Accumulation Units from the Separate Account
or interests in a Guarantee Period so that
the total amount withdrawn will be the sum
of:
(a) The amount payable to the Owner; and
(b) Any Surrender Charge and any applicable
Premium Tax.
(3) If a partial withdrawal would cause the
Owner's Account Value in any Division or
Guarantee Period (except the Money Market
Division) to fall below $500, American
Franklin reserves the right to transfer the
remaining balance without charge to the Money
Market Division.
(4) If the Owner's Account Value is less than
$500, American Franklin may cancel this
Contract upon 60 days' notice to the Owner.
Such cancellation would be considered a full
surrender of this Contract.
(5) Partial withdrawals of amounts held under
Qualified Contracts are subject to certain
restrictions on withdrawals set forth in the
Internal Revenue Code.
Surrender Charge Except as noted under "Surrender Charge
for Partial Exceptions," a Surrender Charge will be applied
Withdrawals and to the amount of any Purchase Payment withdrawn
Full Surrenders during the first 7 years after it was first
credited, as follows:
Surrender Charge
Year of as a Percentage
Purchase Payment of Purchase
Withdrawal Payment Withdrawn
---------------- -----------------
1st 6%
2nd 6%
3rd 5%
4th 5%
5th 4%
6th 4%
7th 2%
Thereafter 0%
FORM T1575Z
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<PAGE>
For purposes of computing the Surrender Charge,
the oldest Purchase Payments are deemed to be
withdrawn first, and Purchase Payments are deemed
to be withdrawn before any amounts in excess of
Purchase Payments are withdrawn from an Owner's
Account. The following transactions will be
considered as withdrawals for purposes of
computing the Surrender Charge: total surrender,
partial withdrawal, commencement of an annuity
payment option and termination due to insufficient
Owner Account Value.
Surrender Charge The Surrender Charge will not apply:
Exceptions
(1) To any amounts in excess of Purchase Payments
that are withdrawn from an Owner's Account;
or
(2) To any amounts in excess of the amount
permitted by the 10% Free Withdrawal
Privilege if such amounts are required to be
withdrawn to obtain or retain favorable
federal tax treatment; (the granting of this
exception is subject to American Franklin's
approval);
(3) Upon the death of the Annuitant at any age
during the Payout Period;
(4) Upon the death of the Annuitant at any age
during the Accumulation Period if no
Contingent Annuitant survives;
(5) Upon the death of the Owner, including the
first to die in the case of joint Owners, of
a Non-Qualified Contract, unless the Contract
is being continued under the special rule for
a surviving spouse as defined under Internal
Revenue Code Section 72(s);
(6) Upon selection of an annuity payment option
involving payments for at least 10 years;
(7) Upon selection of an annuity payment option
based on life contingencies if life
expectancy is at least 10 years.
10% Free Withdrawal The Surrender Charge does not apply to that
Privilege portion of each withdrawal or a total surrender in
any Contract Year that does not exceed:
(1) Ten Percent (10%) of the amount of Purchase
Payments not previously withdrawn that have
been credited to this Contract for at least
one year, but not more than seven years; less
(2) The amount of any previous withdrawals during
such Contract Year.
For withdrawals under a systematic withdrawal
plan, Purchase Payments credited for 30 days or
more are eligible for the 10% Free Withdrawal
Privilege.
FORM T1575Z
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<PAGE>
If multiple withdrawals are made during a Contract
Year, the amount eligible for the free withdrawal
will be recalculated at the time of each partial
withdrawal. After the first Contract Year, non-
automatic and automatic withdrawals may be made in
the same Contract Year subject to the 10%
limitation.
A free withdrawal pursuant to any of the foregoing
Surrender Charge Exceptions is not deemed a
withdrawal of Purchase Payments except for
purposes of computing the 10% free withdrawal
privilege.
ANNUAL CONTRACT FEE
Manner of An Annual Contract Fee not to exceed $30.00 will
Deducting be deducted at the end of each Contract Year prior
to the Annuity Commencement Date. The fee will be
allocated among the Guarantee Periods and
Divisions in proportion to the Owner's Account
Value in each. The entire fee for the year will
be deducted from the proceeds of any full
surrender of this Contract.
TAX CHARGE
Right to Impose American Franklin reserves the right to impose
additional charges or establish reserves for any
federal, state or local taxes incurred or that may
be incurred by American Franklin, and that may be
deemed attributable to the Contracts.
DEATH BENEFIT
Death Benefit If the Annuitant dies before the Annuity
Commencement Date, and is survived by a Contingent
Annuitant, the Contract will be continued with the
Contingent Annuitant being named the Annuitant.
If this is a Non-Qualified Contract, this Contract
may qualify for continuation under the
"Distribution of Death Benefit under Non-Qualified
Contracts" provision. Otherwise, American
Franklin will pay the death benefit to the
Beneficiary if one of the following dies prior to
the Annuity Commencement Date:
(1) The Annuitant (provided that no Contingent
Annuitant survives); or
(2) The Owner of a Non-Qualified Contract
(including the first to die in the case of
joint Owners).
If the Annuitant or such Owner dies, the amount of
the death benefit will be the greater of the
following amounts, less any applicable Premium
Tax:
(1) The sum of all Net Purchase Payments less any
prior partial withdrawals; or
FORM T1575Z
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(2) The Owner's Account Value as of the end of
the Valuation Period in which American
Franklin receives proof of the Annuitant's or
such Owner's death and a written request from
the Beneficiary as to the form of payment.
The death benefit will not be less than the amount
payable on a full surrender at the date used to
value the death benefit. The death benefit will
be paid when American Franklin receives:
(1) Proof of the Owner's or Annuitant's death;
and
(2) A written request from the Beneficiary for
either a single sum or payment under an
Annuity Option.
If the Annuitant dies, and a Contingent Annuitant
was named but predeceased the Annuitant, American
Franklin will require proof of the Contingent
Annuitant's death in addition to proof of the
death of the Annuitant.
American Franklin will pay a single sum to the
Beneficiary unless an Annuity Option is chosen.
If the Annuitant dies on or after the Annuity
Commencement Date, the Beneficiary will receive
the death benefit, if any, provided by the Annuity
Option in effect.
PAYMENT OF BENEFITS
Application of Owner's Unless directed otherwise, American Franklin will
Account Value apply the Fixed Account Value to provide a Fixed
Annuity, and the Separate Account Value to provide
a Variable Annuity.
The Owner must tell American Franklin in writing
at least 30 days prior to the Annuity Commencement
Date if Fixed and Separate Account values are to
be applied in different proportions. Transfers
and partial withdrawals will be permitted within
the 30-day period.
Annuity The Annuity Commencement Date (Annuity Date) is
Commencement Date shown on page 3. Payments under a Qualified
Contract or a Section 457 Contract generally must
begin no later than April 1 following the calendar
year in which the Annuitant attains age 70-1/2 to
comply with certain federal tax requirements. The
Annuity Date may be changed by written notice from
the Owner, subject to approval of American
Franklin.
Annuity Options The Owner may elect to have annuity payments made
Available to a beginning on the Annuity Commencement Date under
Contract Owner any one of the Annuity Options described in this
Contract. American Franklin will notify the Owner
60 to 90 days prior to the scheduled Annuity Date
that the Contract is scheduled to mature, and
request that an Annuity Option be selected. If
the Owner has not selected an Annuity Option 10
days prior to the Annuity Commencement Date,
American Franklin will proceed as follows:
FORM T1575Z
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If the scheduled Annuity Commencement Date is any
date prior to the Annuitant's 99th birthday,
American Franklin will extend the Annuity
Commencement Date to the Annuitant's 99th
birthday, subject to various state limitations.
If the scheduled Annuity Commencement Date is the
Annuitant's 99th birthday, the Account Value less
any applicable Surrender Charges, Annual Contract
Fee and Premium Taxes will be paid in one sum to
the Owner.
Options Available The Owner may elect, in lieu of payment in one
to Beneficiary sum, that any amount or part thereof due under
this Contract be applied under any of the Annuity
Options described below. Within 60 days after the
death of the Annuitant or Owner, the Beneficiary
may make such election if the Owner has not done
so. In such case, the Beneficiary thereafter
shall have all the rights and options of the
Owner.
The first annuity payment under any Annuity Option
shall be made on the first day of the second month
after approval of the claim for settlement.
Subsequent payments shall be made periodically in
accordance with the manner of payment elected.
Payment Contract At such time as one of these Annuity Options
becomes effective, this Contract shall be
surrendered to American Franklin in exchange for a
payment contract providing for the option elected.
Fixed Annuity Fixed Annuity Payments start on the Annuity
Payments Commencement Date. The amount of the first
monthly payment for the Annuity Option selected
will be at least as favorable as that produced by
the applicable annuity tables of this Contract for
each $1,000 applied as of the end of the Valuation
Period that contains the tenth day prior to the
Annuity Commencement Date.
The dollar amount of any payments after the first
payment is specified during the entire period of
annuity payments, according to the provisions of
the Annuity Option selected.
VARIABLE ANNUITY PAYMENTS
Annuity Units American Franklin converts the Division
Accumulation Units into Division Annuity Units at
the values determined at the end of the Valuation
Period which contains the tenth day prior to the
Annuity Commencement Date. The number of Division
Annuity Units remains constant as long as an
annuity remains in force and allocation among the
Divisions has not changed.
Each Division Annuity Unit Value was arbitrarily
set when the Division first converted Division
Accumulation Units into Division Annuity Units.
Subsequent values on any Valuation Date are equal
to the previous Division Annuity Unit Value times
the Net Investment Factor for that Division for
the Valuation Period ending on that Valuation
Date, with an offset for the 3-1/2% assumed
interest rate used in the
FORM T1575Z
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annuity tables of this Contract.
Variable Annuity Payments start on the Annuity
Commencement Date. Payments will vary in amount
and are determined at the end of the Valuation
Period that contains the tenth day prior to each
payment. If the monthly payment under the Annuity
Option selected is based on a single Division, the
monthly payment is found by multiplying the
Division Annuity Unit Value on such date by the
number of Division Annuity Units.
If the monthly payment under the Annuity Option
selected is based upon more than one Division, the
above procedure is repeated for each applicable
Division. The sum of these payments is the
Variable Annuity Payment.
American Franklin guarantees that the amount of
each payment will not be affected by variations in
expense or mortality experience.
ANNUITY OPTIONS
First Option - Life Annuity. An annuity payable
monthly during the lifetime of the Annuitant,
ceasing with the last annuity payment due prior to
the death of the Annuitant.
Second Option - Life Annuity with 120, 180, or 240
Monthly Payments Certain. An annuity payable
monthly during the lifetime of the Annuitant
including the commitment that if, at the death of
the Annuitant, annuity payments have been made for
less than 120 months, 180 months, or 240 months
(as selected by the Owner in electing this
option), annuity payments shall be continued
during the remainder of the selected period to the
Beneficiary.
Third Option - Joint and Last Survivor Life
Annuity. An annuity payable monthly during the
joint lifetime of the Annuitant and a secondary
annuitant, and thereafter during the remaining
lifetime of the survivor, ceasing with the last
annuity payment due prior to the death of the
survivor.
Fourth Option - Payments for a Designated Period.
An amount payable monthly for a number of years
which may be from five to 40 (as selected by the
Owner in electing this option). If this option is
selected on a variable basis, the number of years
may not exceed the life expectancy of the
Annuitant or other properly-designated payee.
Fifth Option - Payments of a Specified Dollar
Amount. The amount due will be paid in equal
monthly annuity payments of a designated dollar
amount (not less than $125 nor more than $200 per
annum per $1,000 of the original amount due) until
the remaining balance is less than the amount of
one annuity payment, at which time such balance
will be paid and will be the final annuity payment
under this option. Payments under this option are
available on a fixed basis only. The remaining
balance at the end of any month is determined by
decreasing the balance at the end of the previous
month by the amount of any
FORM T1575Z
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installment paid during the month and by adding to
the result interest at a rate not less than 3.5%
compounded annually. Upon the death of the payee
under this option, payments will be continued to
the Beneficiary until such remaining balance is
paid.
In lieu of monthly payments, payments may be
elected on a quarterly, semi-annual or annual
basis, in which cases the amount of each annuity
payment will be determined on a basis consistent
with that described in this Contract for monthly
payments.
No election of any Annuity Option may be made in
the case where a Fixed or Variable Annuity is
elected, unless a minimum initial annuity payment
of $100 will be provided. No election of any
Annuity Option may be made in the case where a
combination of a Fixed and a Variable Annuity is
elected, unless a minimum initial annuity payment
of $50 on each basis will be provided. If the
initial annuity payment does not meet the minimum
amount required for the Annuity Option elected,
American Franklin will provide a less frequent
payment schedule. If the minimum is still not
met, American Franklin will make a lump-sum
payment of the Owner's Account Value (less any
Surrender Charge, uncollected Annual Contract Fee
and applicable Premium Tax) as of the date of this
determination to the Annuitant or other properly-
designated payee.
If the age of the Annuitant has been misstated to
American Franklin, any amount payable will be that
which would have been payable had the misstatement
not occurred. American Franklin will deduct any
overpayment from the next payment or payments due
and add any underpayments to the next payment due.
Interest at an effective annual rate of 3.5% will
be added to any such adjustment.
Annuity Tables The tables that follow show the dollar amount of
the first monthly payment for each $1,000 applied
under the Annuity Options. Under the First or
Second Options, the amount of each payment will
depend upon the Annuitant's adjusted age at the
time the first payment is due. Under the Third
Option, the amount of each payment will depend
upon the adjusted ages of both Annuitants at the
time the first payment is due.
In using the table of annuity payment rates, the
ages of the Annuitants must be reduced by one year
for Annuity Commencement Dates occurring during
the decade 2000-2009, reduced two years for
Annuity Commencement Dates occurring during the
decade 2010-2019, and reduced an additional year
for each decade that follows. The age 70 rate is
also used for ages above 70.
Alternate Amount of If a fixed life income option is elected, the
Installments Under Fixed Owner (or if the Owner has not elected a payment
Life Income Options option, the Beneficiary) may elect life income
payments equal to those provided by those fixed
single premium immediate annuity option rates in
use by American Franklin when annuity payments
begin.
FORM T1575Z
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ANNUITY TABLES
AMOUNT OF MONTHLY PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE
Options 1 and 2 - Life Annuities
Adjusted Unisex Age Monthly Payments Guaranteed
Option 1 Option 2 Option 2 Option 2
None 120 180 240
50 4.18 4.15 4.12 4.07
51 4.24 4.21 4.18 4.12
52 4.31 4.28 4.24 4.17
53 4.38 4.34 4.30 4.23
54 4.45 4.41 4.36 4.28
55 4.53 4.48 4.43 4.34
56 4.61 4.56 4.50 4.40
57 4.70 4.64 4.57 4.46
58 4.79 4.73 4.65 4.52
59 4.89 4.82 4.72 4.59
60 5.00 4.91 4.81 4.65
61 5.11 5.02 4.89 4.71
62 5.23 5.12 4.98 4.78
63 5.36 5.23 5.07 4.85
64 5.49 5.35 5.17 4.91
65 5.64 5.48 5.26 4.98
66 5.80 5.61 5.36 5.04
67 5.96 5.74 5.46 5.10
68 6.14 5.88 5.57 5.16
69 6.34 6.03 5.67 5.21
70 and above 6.54 6.19 5.77 5.27
FORM T1575Z
23
<PAGE>
Option 3 - Joint and Last Survivor Life Annuity
Adjusted Unisex
Age of Annuitant Adjusted Age of Secondary Annuitant
50 55 60 65 70
50 3.75 3.85 3.94 4.01 4.07
55 3.85 4.00 4.13 4.24 4.33
60 3.94 4.13 4.32 4.49 4.65
65 4.01 4.24 4.49 4.75 5.00
70 4.07 4.33 4.65 5.00 5.36
Option 4 - Payments for a Designated Period
Years of Amount of Monthly Years of Amount of Monthly
Payment Payment Payment Payment
5 $18.12 23 $5.24
6 15.35 24 5.09
7 13.38 25 4.96
8 11.90 26 4.84
9 10.75 27 4.73
10 9.83 28 4.63
11 9.09 29 4.53
12 8.46 30 4.45
13 7.94 31 4.37
14 7.49 32 4.29
15 7.10 33 4.22
16 6.76 34 4.15
17 6.47 35 4.09
18 6.20 36 4.03
19 5.97 37 3.98
20 5.75 38 3.92
21 5.56 39 3.88
22 5.39 40 3.83
FORM T1575Z
24
<PAGE>
THE CHAIRMAN-TM- COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
ISSUED BY
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.
All payments and values provided by this Contract, when based on the investment
experience of a separate account, are variable, may increase or decrease and are
not guaranteed as to amount. See the "Separate Account" and "Variable Annuity
Payments" provisions in this Contract.
For Information, Service or to make a Complaint
Contact a Registered Representative,
or the Variable Annuity Department
The American Franklin Life
Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
(217) 528-2011
[American Franklin Logo]
A STOCK COMPANY
A Subsidiary of American General Corporation
FORM T1575Z
<PAGE>
EXHIBIT 4(b)(1)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
TERMINAL ILLNESS WAIVER OF SURRENDER
CHARGES RIDER
WHEN SURRENDER CHARGES WILL BE WAIVED: After the first Contract Year, a
Surrender Charge will not apply to partial withdrawals or total surrenders if
American Franklin receives satisfactory evidence that the Annuitant or Owner is
terminally ill with 12 months or less to live. The Surrender Charge may be
waived only after:
1. American Franklin receives a request for waiver of Surrender Charges
while the Contract and the rider are in force; and
2. American Franklin receives a written statement signed by a Physician
providing:
a. the diagnosis; and
b. a statement that the medical condition of the Annuitant or the
Owner is expected to result in death within 12 months; and
3. American Franklin's right to a second opinion by a Physician has been
exercised and a confirmatory opinion obtained or such right
has been waived.
A second medical opinion may be requested at American Franklin's expense. If
the second opinion differs from the first, American Franklin will submit all
medical information to an independent third party, and will rely on the third
party's decision.
DEFINITIONS: "Physician" means a duly licensed physician, licensed in the
state in which treatment is received, and who is acting within the scope of that
license. It does not include:
1. The Annuitant; or
2. The Owner : or
3. A spouse, child, parent, grandparent, brother, or sister of the
Annuitant or Owner.
"Owner" means a natural person designated as Owner of the Contract to which this
rider is attached. Owner also means a joint Owner.
CONTRACT TERMS APPLY: This rider is attached to and made a part of the
Contract. The terms of the Contract apply to the rider except to the extent
they are in conflict with the rider's terms.
CONSIDERATION: The consideration for this rider is payment of the initial
Purchase Payment for the base Contract. There is no additional charge for this
rider.
WHEN RIDER ENDS: This rider will end if the Contract terminates or is
surrendered for cash.
Signed for the Company at Springfield, Illinois.
Secretary
Form B261
<PAGE>
EXHIBIT 4(b)(2)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
LONG TERM CARE WAIVER OF SURRENDER
CHARGES RIDER
WHEN SURRENDER CHARGES WILL BE WAIVED: After the first Contract Year, a
surrender charge will not apply to partial withdrawals or total surrenders if
the Annuitant or Owner is confined to a Long Term Care Facility or Hospital and
has been so confined for at least 30 days.
DEFINITIONS: "Confined" means necessarily confined as an inpatient. To be
covered, confinement must commence while this Contract is in force and be
required by sickness or injury. Such confinement must have been upon the
recommendation of a physician.
"Owner" means a natural person designated as Owner of the Contract to which this
rider is attached. Owner also means a joint Owner.
"Injury" means accidental bodily injury which is sustained while this Contract
is in force.
"Sickness" means sickness or disease which first manifests itself while this
Contract is in force.
"Inpatient" means a person who is confined in a Hospital or Long Term Care
Facility as a resident patient and for whom a charge of at least one day's room
and board is made by the Hospital or Long Term Care Facility.
"Physician" means a duly licensed physician, licensed in the state in which
treatment is received, and who is acting within the scope of that license. It
does not include:
1. The Annuitant; or
2. The Owner; or
3. A spouse, child, parent, grandparent, brother, or sister of the
Annuitant or Owner.
"Long Term Care Facility" means a state licensed Skilled Nursing Facility or
Intermediate Care Facility. Long Term Care Facility DOES NOT MEAN: A Hospital;
a place that primarily treats drug addicts or alcoholics; a home for the aged or
mentally ill; a community living center; or a place that primarily provides
domiciliary, residency or retirement care; or a place owned or operated by the
spouse, child, parent, grandparent, brother or sister of the Annuitant or Owner.
"Skilled Nursing Facility" means a facility which: is operated as a Skilled
Nursing Facility according to the law of the jurisdiction in which it is
located; provides skilled nursing care under the supervision of a physician;
provides continuous 24 hours a day nursing service by or under the supervision
of a registered graduate professional nurse (R.N.); and maintains a daily
medical record of each patient.
"Intermediate Care Facility" means a facility which: is operated as an
Intermediate Care Facility according to the law of the jurisdiction in which it
is located; provides continuous 24 hours a day nursing service by or under the
supervision of a registered graduate professional nurse (R.N.) or a licensed
practical nurse (L.P.N.); and maintains a daily medical record of each patient.
FORM AFA928 RIDER PAGE 1
<PAGE>
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
LONG TERM CARE WAIVER OF SURRENDER
CHARGES RIDER (CONTINUED)
"Hospital' means a facility which: is operated as a hospital according to the
law of the jurisdiction in which it is located; operates primarily for the care
and treatment of sick or injured persons as inpatients; provides continuous 24
hours a day nursing service by or under the supervision of a registered graduate
professional nurse (R.N.); is supervised by a staff of physicians; and has
medical, diagnostic and major surgical facilities or has access to such
facilities on a pre-arranged basis.
Neither "registered graduate professional nurse" nor "licensed practical nurse"
includes the spouse, child, parent, grandparent, brother or sister of the
Annuitant or Owner.
NOTICE AND PROOF OF CLAIM: Written notice and proof of Confinement for 30 days
in a Hospital or Long Term Care Facility must be received at American Franklin's
Home Office prior to a waiver of surrender charges because of Confinement. The
written notice must be received while Confined or within 30 days after discharge
from such Long Term Care Facility or Hospital.
CONTRACT TERMS APPLY: This rider is attached to and made a part of the
Contract. The terms of the Contract apply to the rider except to the extent
they are in conflict with the rider's terms.
WHEN RIDER ENDS: This rider will end if the Contract terminates or is
surrendered for cash.
Signed for the Company at Springfield, Illinois.
Secretary
FORM AFA928 RIDER PAGE 2
<PAGE>
Exhibit 4(c)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
QUALIFIED CONTRACT ENDORSEMENT
This endorsement has been added to and made a part of the Contract to which it
is attached.
At the request of the proposed annuitant, American Franklin hereby amends the
provisions of the Contract by the addition of the following section:
PLAN PROVISIONS. The exercise of all rights under this Contract
(including, without limitation, the amount and timing of purchase
payments, the selection of annuity options and the timing and
amount of distributions) are subject to the provisions of the plan
in connection with which this Contract was issued.
The effective date of this endorsement is the date of issue of the Contract.
Secretary
<PAGE>
Exhibit 4(d)
THE AMERICAN FRANKLIN GENERAL LIFE INSURANCE COMPANY
INDIVIDUAL RETIREMENT ANNUITY (IRA) ENDORSEMENT
This endorsement has been added to and made a part of the Contract to
which it is attached.
The Owner of this Contract represents that it is being acquired as an
IRA, either regular or spousal, qualified for special tax treatment under
Sections 219 and 408(b) of the Internal Revenue Code of 1986, as amended (the
"Code"). The following provisions are herewith made a part of the Contract. In
the event of conflict between this endorsement and the Contract, the provisions
of the endorsement will control. The Contract may be modified as necessary for
compliance with the Code and Treasury Regulations.
1. EXCLUSIVE BENEFIT.
This Contract is for the exclusive benefit of the Owner or his or her
beneficiaries. The Owner shall be the Annuitant.
2. ROLLOVERS.
Rollover amounts may be received by this Contract in accordance with
the provisions of Section 402(c)(1), 402(c)(9), 403(a)(4), 403(b)(8), or
408(d)(3) of the Code. A contract which receives regular IRA contributions may
not receive a rollover contribution.
3. DISTRIBUTION OF OWNER'S INTEREST.
A. Distribution of the entire interest of the Owner will be made, or will
commence, no later than the required beginning date. The required
beginning date will be the first day of April following the calendar
year in which such individual attains age 70-1/2. Distribution may be
made either in a lump sum or in equal, or substantially equal, amounts
over:
(1) The life of the Owner; or
(2) The lives of the Owner and his or her named beneficiary; or
(3) A period certain not extending beyond the life expectancy of the
Owner; or
<PAGE>
(4) A period certain not extending beyond the joint and last survivor
life expectancy of the Owner and his or her named beneficiary.
B. Periodic payments must be made in intervals of no longer than one
year. Such payments may be either nonincreasing or they may increase
only as provided in Proposed Treasury Regulation 1.401(a)(9)-1, Q&A
F-3.
C. For the purposes of 3.A.(1) through 3.A.(4), the amount to be
distributed each year, beginning with the first calendar year for
which distributions are required and then for each succeeding calendar
year, shall be made in accordance with the requirements of Code
Section 401(a)(9) including the incidental death benefit requirements
of Code Section 401(a)(9)(G) and the regulations thereunder, including
the minimum distribution incidental benefit requirement of Proposed
Treasury Regulation 1.401(a)(9)-2.
D. The life expectancies described in 3.A.(1) through 3.A.(4) cannot
exceed the period computed by the use of the expected return multiples
in Tables V and VI of Section 1.72-9 of the Treasury Regulations.
E. Unless otherwise elected by the Owner by the time distributions are
required to begin, life expectancies shall be recalculated annually.
This election shall be irrevocable as to the Owner and shall apply in
all subsequent years.
F. If the beneficiary designated in paragraph 3.A.(2) and A.(4) is not
the Owner's spouse, then such beneficiary's life expectancy may not be
recalculated. Instead, such beneficiary's life expectancy will be
calculated using the attained age of such beneficiary during the
calendar year in which the individual attains age 70-1/2. Payments
for subsequent years shall be calculated based on such life expectancy
reduced by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
4. DISTRIBUTION UPON DEATH.
If the Owner dies, his or her interest will be paid as follows:
2
<PAGE>
A. If the Owner dies after payment has commenced, the remaining portion
of his or her interest will continue to be paid at least as rapidly as
under the method of distribution being used prior to the Owner's
death.
B. If the Owner dies before payment has commenced, distribution of the
Owner's entire interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the Owner's death,
except to the extent that an election is made to receive distributions
in accordance with (1) or (2) below:
(1) If the Owner's interest is payable to a beneficiary named by the
Owner, then the Owner's entire interest will be paid over the life
or over a period certain not greater than the life expectancy of
the named beneficiary commencing no later than December 31 of the
calendar year immediately following the calendar year in which the
Owner died. The named beneficiary may elect at any time to
receive greater payments.
(2) If the Owner's named beneficiary is the Owner's surviving spouse,
the date distributions are required to begin in accordance with
(1) above shall not be earlier than the later of:
(a) December 31 of the calendar year immediately following the
calendar year in which the Owner died; and
(b) December 31 of the calendar year in which the Owner would
have attained age 70-1/2.
(3) If the named beneficiary is the Owner's surviving spouse, the
spouse may treat the Contract as his or her own IRA. This
election will be deemed to have been made if such surviving
spouse:
(a) Makes a regular IRA contribution to the Contract; or
(b) Makes a rollover to or from such Contract; or
(c) Fails to elect any of the above provisions.
3
<PAGE>
C. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Treasury Regulations Section 1.72-9. For purposes
of distributions beginning after the Owner's death, unless otherwise
elected by the surviving spouse by the time distributions are required
to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable by the surviving spouse and shall apply
to all subsequent years. In the case of any other named beneficiary:
(1) Life expectancies shall be calculated using the attained age of
the beneficiary during the calendar year in which payments are
required to begin; and
(2) Payments for any subsequent calendar year will be based on such
life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first
calculated.
D. Distributions under this paragraph are considered to have begun if:
(1) Distributions are made on account of the Owner reaching his or her
required beginning date (as defined in subparagraph 3.A.); or
(2) The Owner irrevocably begins to receive distributions prior to the
required beginning date in an annuity form acceptable under
Proposed Treasury Regulation Section 1.401(a)(9).
5. OWNER'S INTEREST NONFORFEITABLE.
The entire interest of the Owner in this Contract is nonforfeitable.
6. CONTRACTS NON-TRANSFERABLE.
This Contract is not transferable by the Owner with one exception.
The Contract may be transferred to a former spouse of the Owner under a divorce
decree or written instrument incident to such divorce. Nothing contained in
this endorsement shall operate to prevent the Owner from exercising his or her
right to name or to change beneficiaries.
4
<PAGE>
7. MAXIMUM CONTRIBUTIONS.
Except in the case of a rollover contribution (as described in
paragraph 2), no purchase payments will be accepted unless they are in cash and
the total of such purchase payments paid shall not exceed $2,000 for any
taxable year.
Contributions can be made to a Spousal IRA even if the spouse has
earned some compensation during the year. Provided the spouse does not make a
contribution to an IRA, a Spousal IRA which separately accounts for the Owner's
interest and the spouse's interest can be established. The maximum deductible
amount for such an IRA is the lesser of $2,250 or 100% of compensation. No more
than $2,000 of the annual contribution may, however, be allocated to the
interest of a single spouse.
The above purchase payment limitations are different if the employer
of the Owner has established a Simplified Employee Pension Program (SEP)
(pursuant to Code Section 408(k)) under which this Contract is an investment. A
SEP permits an employer to contribute to the Contract. The Owner and his or her
employer are responsible for seeing that contributions in excess of regular IRA
limits are made under a valid SEP.
8. ANNUAL REPORTS.
The issuer of an IRA shall furnish annual calendar year reports
concerning the status of the annuity.
9. INCLUDIBLE COMPENSATION.
Compensation means wages, salaries, professional fees, or other
amounts derived from or received for personal services actually rendered. Such
amounts include, but are not limited to:
A. Commissions paid to salespersons;
B. Payment for services on the basis of a percentage of profits;
C. Commissions on insurance premiums; and
D. Tips and bonuses.
Compensation includes earned income, as defined in Code Section
401(c)(2) (reduced by the deduction the self-employed person takes for
contributions made to a self-employed retirement (Keogh) plan). For purposes of
this definition, Section 401(c)(2) shall be applied as if the
5
<PAGE>
term "trade" or "business" for purposes of Section 1402 included service
described in Subsection (c)(6). Compensation does not include amounts derived
from or received as earnings or profits from property or amounts not includible
in gross income. (Earnings or profits from property includes, but is not
limited to, interest and dividends). Compensation also does not include any
amount received as a pension or annuity or as deferred compensation. The term
"compensation" shall include any amount which an individual would include in
gross income under Code Section 71 with respect to a divorce or separation
instrument described in Subparagraph (A) of Code Section 71(b)(2).
10. AMENDMENT.
All amendments of the endorsement, as required by law, shall be made
effective by mailing by United States Postal Service a copy of such amendment to
the Owner at his or her address of record as shown by the records of American
Franklin. All amendments shall be effective on the earlier of:
A. The date of such mailing; or
B. In the case of a retroactive amendment, the effective date of the
amendment.
11. EFFECTIVE DATE.
Except as described in paragraph 10, the effective date of this
endorsement is the date of issue of the Contract.
Secretary
6
<PAGE>
Exhibit 4(e)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SECTION 457 CONTRACT ENDORSEMENT
This endorsement has been added to and made a part of the Contract to which it
is attached.
At the request of the proposed Annuitant, American Franklin hereby amends the
provisions of the Contract by the addition of the following sections:
RESTRICTION ON TRANSFERABILITY. This Contract may be sold,
assigned, discounted, or pledged as collateral or as security
for the performance of an obligation or for any other purpose
by the Owner only.
RESTRICTION ON ANNUITY OPTIONS. Any annuity payments under this
Contract will be paid as a Fixed Annuity only.
RESTRICTION ON CHANGE OF BENEFICIARY. Only the Owner may change
the Beneficiary or Contingent Beneficiary regardless of whether
any such change is requested before or after the Annuity Date.
PLAN PROVISIONS. The exercise of all rights under this Contract
(including, without limitation, the amount and timing of purchase
payments, the selection of annuity options and the timing and
amount of distributions) are subject to the provisions of the plan
in connection with which this Contract was issued.
The effective date of this endorsement is the date of issue of the Contract.
Secretary
<PAGE>
Exhibit 4(f)
THE AMERICAN FRANKLIN GENERAL LIFE INSURANCE COMPANY
SECTION 403(b) CONTRACT ENDORSEMENT
This endorsement has been added to and made a part of the Contract to
which it is attached.
The following provisions are herewith made a part of the Contract. In
the event of conflict between this endorsement and the Contract, the provisions
of the endorsement will control. The Contract may be modified as necessary for
compliance with the Internal Revenue Code of 1986, AS AMENDED (the "Code"), and
Treasury Regulations.
1. LIMITATIONS ON DISTRIBUTIONS GENERALLY.
Proceeds of this Contract will be distributed at least as rapidly as
required to meet the minimum distribution requirements prescribed under the Code
for Section 403(b) arrangements, including the minimum distribution requirements
set forth in Proposed Treasury Regulation 1.401(a)(9)-1 and the minimum
distribution incidental benefit requirement set forth in Proposed Treasury
Regulation 1.401(a)(9)-2.
2. LIMITATIONS ON DISTRIBUTIONS ATTRIBUTABLE TO CONTRIBUTIONS MADE PURSUANT TO
A SALARY REDUCTION AGREEMENT.
Distributions under this Contract which are attributable to
contributions made pursuant to a salary reduction agreement may be made only on
or after the Owner has: (A) attained age 59-1/2; (B) separated from service;
(C) died; (D) become disabled; (E) incurred a hardship or (F) satisfied such
other conditions as may be prescribed in Section 403(b) of the Code and the
Treasury Regulations thereunder. The terms "service", "disabled" and "hardship"
are defined in the Treasury Regulations.
3. OWNER'S INTEREST NONFORFEITABLE.
The entire interest of the Owner in this Contract is nonforfeitable.
<PAGE>
4. CONTRACTS NON-TRANSFERABLE.
This Contract is not transferable by the Owner with one exception.
The Contract may be transferred to a former spouse of the Owner under a divorce
decree or written instrument incident to such divorce which qualifies as a
qualified domestic relations order. Nothing contained in this endorsement shall
operate to prevent the Owner from exercising his or her right to name or to
change beneficiaries.
5. TERMINATION.
This Endorsement may be terminated upon written request of the
Contractholder at any time. However, such termination may cause this Contract
to fail to qualify under Section 403(b) of the Code.
6. EFFECTIVE DATE.
The effective date of this endorsement is the date of issue of the
Contract.
Secretary
2
<PAGE>
EXHIBIT 5(a)
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
SPRINGFIELD, ILLINOIS 62713
COMBINATION FIXED AND VARIABLE ANNUITY APPLICATION
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
1. PROPOSED ANNUITANT:
_____________________________________________________________________________________________________________
LAST FIRST MIDDLE
Address:
_____________________________________________________________________________________________________________
STREET ADDRESS CITY STATE ZIP CODE
Sex: _ Male _ Female Birthdate: ______/______/_____ Social Security No. : ______-_______-______
Telephone Number: ( )_____________________
- -------------------------------------------------------------------------------------------------------------
2. CONTINGENT ANNUITANT: (If Applicable)
_____________________________________________________________________________________________________________
LAST FIRST MIDDLE
Address:
_____________________________________________________________________________________________________________
STREET ADDRESS CITY STATE ZIP CODE
Tax Identification or
Sex: _ Male _ Female Birthdate: ______/______/_____ Social Security No. : ______-_______-______
Telephone Number: ( )_____________________
- -------------------------------------------------------------------------------------------------------------
3. OWNER: (Complete only if different than Annuitant)
_____________________________________________________________________________________________________________
LAST FIRST MIDDLE
Address:
_____________________________________________________________________________________________________________
STREET ADDRESS CITY STATE ZIP CODE
Sex: _ Male _ Female Birthdate: ______/______/_____ Tax Identification or Social Security Number:
Telephone Number: ( )_____________________ _________________________________________
- -------------------------------------------------------------------------------------------------------------
4. JOINT OWNER: (If Applicable)
_____________________________________________________________________________________________________________
LAST FIRST MIDDLE
Address:
_____________________________________________________________________________________________________________
STREET ADDRESS CITY STATE ZIP CODE
Sex: _ Male _ Female Birthdate: ______/______/_____ Tax Identification or Social Security Number:
Telephone Number: ( )_____________________ _________________________________________
- -------------------------------------------------------------------------------------------------------------
5. MAILING ADDRESS: _ Annuitant _ Owner _ Other
____________________________
____________________________
____________________________
- -------------------------------------------------------------------------------------------------------------
6. PAYMENT SELECTION:
a. _ INITIAL PURCHASE PAYMENT AMOUNT: b. FREQUENCY c. METHOD
$_________________________ _ Single _ Tax Sheltered Allotment
_ Annual _ Bank Draft
b. _ SUBSEQUENT PAYMENT AMOUNT: _ Semi-Annual _ Regular
$_________________________ _ Quarterly NOTE: MONTHLY REGULAR
_ Monthly NOT AVAILABLE
- -------------------------------------------------------------------------------------------------------------
7. PAYMENT INFORMATION:
a. _ 1035 Exchange
_ Transfer, estimated amount $____________ c. _ Qualified (CHECK APPROPRIATE BOXES IN 1 & 2 BELOW)
1. _ Rollover _ Transfer
b. _ Non-Qualified 2. Type of Plan: _ IRA _ SEP-IRA _ 401(k)
_ 401(a) _ 457 _ Other
Tax Year of applicable contribution: _____________
- -------------------------------------------------------------------------------------------------------------
8. BENEFICIARY DESIGNATION:
a. Primary ____________________________________________________________________________________________
_____________________________________________ Relationship _____________________________________
b. Contingent _________________________________________________________________________________________
_____________________________________________ Relationship _____________________________________
- -------------------------------------------------------------------------------------------------------------
9. Do you intend the replacement or change of any of your existing life
insurance policies or annuities in connection with this application for a
new annuity? _ No _ Yes If Yes, give company name and
address, type of policy and policy number:
_____________________________________________________________________________________________________________
_____________________________________________________________________________________________________________
- -------------------------------------------------------------------------------------------------------------
Form AF-B284 Page 1
<PAGE>
- -------------------------------------------------------------------------------------------------------------
10. TELEPHONE TRANSFER PRIVILEGE:
_ Check here to decline telephone transfer authorization.
_ By checking this box, I authorize The American Franklin Life Insurance
Company to act on telephone transfer instructions given by me or by any
person who can furnish proper identification, to transfer values among
the variable divisions and fixed accounts.
_ By checking this box and signing on the line directly below, I hereby
authorize The American Franklin Life Insurance Company ("American
Franklin") to act on telephone transfer instructions given by me or
the Agent/Registered Representative of Record, whose name is
indicated below,
__________________________________________
PRINT NAME OF AGENT/REGISTERED REPRESENTATIVE
to transfer values among the variable divisions and fixed accounts.
Neither American Franklin, nor any person authorized by it, will be
responsible for any claim, loss, liability, or expense based upon
telephone transfer instructions received and acted on in good faith
in reliance on this authorization, including losses due to telephone
instruction communication errors. The liability of American Franklin
for erroneous transfers, unless clearly contrary to instructions
received, will be limited to the correction of the allocations on
a current basis.
If an error, objection, or any other claim should arise due to a
telephone transfer transaction, I will notify American Franklin
in writing within five (5) working days from receipt of confirmation
of the transaction from American Franklin. I understand that this
authorization is subject to the terms and provisions in my combination
fixed and variable annuity contract and its related prospectus. This
authorization will remain in effect until written notice of its
revocation is received by American Franklin at its Home Office in
Springfield, Illinois.
______________________________________________
OWNER
- -------------------------------------------------------------------------------------------------------------
11. VARIABLE ACCOUNT ASSET REBALANCING: ($25,000 Minimum)
_ Check here for Variable Account Asset Rebalancing of investment, based
on contract anniversary, to the percentage allocations for the Variable
Account indicated on the Statement of Allocation Percentages then in effect:
_ Quarterly _ Semi-Annually _ Annually
- -------------------------------------------------------------------------------------------------------------
12. DOLLAR COST AVERAGING:
(Available by either $ or % allocations)
Dollar cost average: _ $ ________________ OR _ __________________% (whole % only)
taken from the VIP Money Market Division
Frequency: _ Monthly _ Quarterly _ Semi-Annually
Duration: _ 12 Months _ 24 Months _ 36 Months _ 48 Months _ 60 Months
to be allocated to the following funds as indicated:
_____% or $ _________ VIP High Income Division _____% or $ ________ MFS Emerging Growth Division
_____% or $ _________ VIP Equity-Income Division _____% or $ ________ MFS Research Division
_____% or $ _________ VIP Growth Division _____% or $ ________ MFS Growth With Income Division
_____% or $ _________ VIP Overseas Division _____% or $ ________ MFS Total Return Division
_____% or $ _________ VIP II Investment Grade Bond Div _____% or $ ________ MFS Utilities Division
_____% or $ _________ VIP II Asset Manager Division _____% or $ ________ MFS Value Division
_____% or $ _________ VIP II Index 500 Division _____% or $ ________ Other_______________________
_____% or $ _________ VIP II Contrafund Division
- -------------------------------------------------------------------------------------------------------------
Form AF-B284 Page 2
<PAGE>
- -------------------------------------------------------------------------------------------------------------
13. SYSTEMATIC WITHDRAWAL: ($100 minimum withdrawal)
_ Specified Dollar Amount $___________________ OR _ Percentage of Annuity Value _____________%
Frequency: _ Monthly _ Quarterly _ Semi-Annually _ Annually
To begin on: _________/________/_______ (must be at least 30 days after issue date).
Date must be between the 5th and the 24th of the month.
to be taken from the following funds as indicated:
_____% or $ _________ 1-Year Fixed Account _____% or $ ________ VIP II Index 500 Division
_____% or $ _________ 3-Year Fixed Account _____% or $ ________ VIP II Contrafund Division
_____% or $ _________ 5-Year Fixed Account _____% or $ ________ MFS Emerging Growth Division
_____% or $ _________ VIP Money Market Division _____% or $ ________ MFS Research Division
_____% or $ _________ VIP High Income Division _____% or $ ________ MFS Growth With Income Division
_____% or $ _________ VIP Equity-Income Division _____% or $ ________ MFS Total Return Division
_____% or $ _________ VIP Growth Division _____% or $ ________ MFS Utilities Division
_____% or $ _________ VIP Overseas Division _____% or $ ________ MFS Value Division
_____% or $ _________ VIP II Investment Grade Bond Div _____% or $ ________ Other ______________________
_____% or $ _________ VIP II Asset Manager Division
- -------------------------------------------------------------------------------------------------------------
14. NOTICE OF WITHHOLDING
The taxable portion of the distributions you receive from your annuity
contract is subject to federal income tax withholding unless you elect not
to have withholding apply. Withholding of state income tax may also be
required by your state of residence. You may elect not to have withholding
apply by checking the appropriate box below. If you elect not to have
withholding apply to your distributions or if you do not have enough income
tax withheld, you may be responsible for payment of estimated tax. You may
incur penalties under the estimated tax rules if your withholding and
estimated tax are not sufficient. If the payee is not a person who has
signed this application, a separate election with respect to withholding
will be required to prevent withholding from distributions.
_ I do NOT want income tax withheld from distributions.
_ I do want 10% or _______% income tax withheld from distributions.
- -------------------------------------------------------------------------------------------------------------
15. FOR HOME OFFICE ADMINISTRATIVE CHANGES ONLY
- -------------------------------------------------------------------------------------------------------------
16. SIGNATURES
All statements made in this application are true to the best of the
knowledge and belief of the undersigned, and we agree to all terms and
conditions as shown.
WE FURTHER AGREE THAT THIS APPLICATION, IF ATTACHED, SHALL BE A PART OF THE
ANNUITY CONTRACT, AND VERIFY OUR UNDERSTANDING THAT ALL PAYMENTS AND VALUES
PROVIDED BY THE CONTRACT, WHEN BASED ON INVESTMENT EXPERIENCE OF A FUND, ARE
VARIABLE AND NOT GUARANTEED AS TO THE DOLLAR AMOUNT.
We acknowledge receipt of the current prospectuses for The American
Franklin Life Insurance Company Separate Account VA-1, Variable Insurance
Products Fund, Variable Insurance Products Fund II, and MFS Variable Insurance
Trust. If this application is for an IRA or a Simplified Employee Pension, we
acknowledge receipt of the Individual Retirement Annuity Disclosure Statement
provided to us in conjunction with the current prospectuses.
The American Franklin Life Insurance Company may indicate administrative
changes in the Section entitled "For Home Office Administrative Changes Only".
Any other changes in this application shall be subject to the written consent of
the Owner.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT: As Owner, the
number shown on this form is my correct Social Security Number or Taxpayer
Identification Number (or I am waiting for a number to be issued to me); and (a)
I am not subject to backup withholding; OR (B) CHECK BOX IF APPLICABLE: _ THE
INTERNAL REVENUE SERVICE HAS NOTIFIED ME THAT I AM SUBJECT TO BACKUP
WITHHOLDING.
Signed at ____________________________________________ this _______ day of __________________, __________
CITY STATE DAY MONTH YEAR
X ____________________________________________ X____________________________________________
SIGNATURE OF OWNER SIGNATURE OF PROPOSED ANNUITANT(S) OR
(IF OTHER THAN PROPOSED ANNUITANT OR APPLICANT) APPLICANT (IF JUVENILE CONTRACT)
X____________________________________
SIGNATURE OF AGENT (State License No.)
READ APPLICATION CAREFULLY BEFORE YOU SIGN.
Form AF-B284 Page 3
<PAGE>
STATEMENT OF ALLOCATION PERCENTAGES
ALLOCATION PERCENTAGES FOR PURCHASE PAYMENTS
(WHOLE NUMBERS ONLY)
FIXED ACCOUNT:
1 Year Guarantee Period .................................. ____________ %
3 Year Guarantee Period .................................. ____________ %
5 Year Guarantee Period .................................. ____________ %
INVESTMENT DIVISIONS OF SEPARATE ACCOUNT:
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Money Market ............................................................ ____________ %
High Income ........................................................... ____________ %
Equity-Income ........................................................... ____________ %
Growth ................................................................ ____________ %
Overseas ................................................................ ____________ %
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Investment Grade Bond .................................................. ____________ %
Asset Manager ........................................................... ____________ %
Index 500 .............................................................. ____________ %
Contrafund .............................................................. ____________ %
_______________________ ................................................. ____________ %
MFS VARIABLE INSURANCE TRUST
Emerging Growth .......................................................... ____________ %
Research ................................................................. ____________ %
Growth With Income ....................................................... ____________ %
Total Return ............................................................. ____________ %
Utilities ............................................................. ____________ %
Value ............................................................ ____________ %
_______________________ .................................................. _____________ %
<PAGE>
SUITABILITY QUESTIONNAIRE
SECTION I
Registered Representatives are required to make inquiries relating to the
financial condition and investment objectives of their customers. Customers are
urged to supply such information to assist the Registered Representative in
determining the suitability of this investment product. However, customers are
not required to answer such inquiries and should read and sign below if they
choose not to do so.
FINANCIAL DATA (COMPLETE FOR INDIVIDUALS ONLY)
Gross Income current year $____________________________ Federal Tax Bracket _____________%
Assets $________________________ Liabilities $_____________________ Net Worth: $______________
Discretionary Income (Gross Income less debt obligations) $______________________________
FINANCIAL DATA (COMPLETE FOR CORPORATIONS, PARTNERSHIPS)
Current estimated value $_________________________ Liquid Assets $________________________
Nonliquid assets $____________________________ Liabilities $__________________________
PRIMARY INVESTMENT OBJECTIVES
_ Safety of Principal _ Income _ Long-Term Growth _ Speculation _ Tax Deferred Income
RISK TOLERANCE
_ Conservative _ Balanced _ Aggressive
I UNDERSTAND THAT THE REGISTERED REPRESENTATIVE IS REQUIRED TO MAKE INQUIRIES IN
ORDER TO DETERMINE THE INVESTMENT OBJECTIVES OF HIS OR HER CUSTOMERS. HOWEVER,
I DO NOT WISH TO ANSWER SUCH INQUIRIES.
Date ________________________, ________ X_________________________________________________________
MONTH DAY YEAR SIGNATURE OF OWNER(S)
SECTION II
I understand that all installments and values provided by the contract, when
based on investment experience of a separate account, are variable and are not
guaranteed as to the dollar amount. I acknowledge receipt of a current
prospectus for The American Franklin Life Insurance Company Separate Account VA-1, Variable Insurance Products Fund,
Variable Insurance Products Fund II, and MFS Variable Insurance Trust.
Dated at _____________________________________________ this ______ of ________________________, _________
CITY STATE DAY MONTH YEAR
X________________________________________________________________________________________________________
Signature of Owner(s)
X________________________________________________________________________________________________________
Signature of Registered Representative
FOR BROKER-DEALER USE ONLY:
Appropriate Signatory: ______________________________________________ Date:__________________________
<PAGE>
FIELD ASSOCIATE'S REPORT
1. Do you have any knowledge or reason to believe that replacement of existing
insurance or annuities is involved?
_ Yes _ No If Yes, give details: ______________________________________________________
_____________________________________________________________________________________________
_____________________________________________________________________________________________
2. SPECIAL REQUESTS:
_____________________________________________________________________________________________
3. COMMISSION INSTRUCTIONS:
______________________________________________ __________________ % ___________
Writing Associate/Servicing Associate Associate Code
______________________________________________ __________________ % ___________
Associate Associate Code
______________________________________________ __________________ % ___________
Associate Associate Code
4. Annuity Contract will be mailed to the Writing Associate.
THE REPRESENTATIVE HEREBY CERTIFIES THAT HE/SHE WITNESSED THE SIGNATURE(S)
CONTAINED IN THIS APPLICATION AND THAT ALL INFORMATION CONTAINED IN THIS
APPLICATION IS TRUE TO THE BEST OF HIS/HER KNOWLEDGE AND BELIEF.
Signature of Writing Associate/Registered Representative X_______________________________________
Print Name: _________________________________ Telephone No.: ______________ Fax No.:_______________
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - -
RECEIPT
RECEIVED FROM __________________________________________________ $____________________________
in cash on account of the initial purchase payment on proposed Combination Fixed
and Variable Annuity Contract on the life of
____________________________________________ for which an application is this day made to THE AMERICAN
PROPOSED ANNUITANT
FRANKLIN LIFE INSURANCE COMPANY, Springfield, Illinois, 62713
Date _________________________, _________ SIGNED X___________________________________________
MONTH DAY YEAR AGENT/REGISTERED REPRESENTATIVE'S SIGNATURE
This receipt shall be void if altered or modified or if any check or draft
tendered on account of initial purchase payment is not paid when presented for
payment.
ALL CHECKS MUST BE MADE PAYABLE TO THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY.
DO NOT MAKE CHECKS PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK.
</TABLE>
<PAGE>
EXHIBIT 8(a)(2)
AMENDMENT NO. 1
Amendment to the Participation Agreement among The American Franklin
Life Insurance Company (the "Company"), Variable Insurance Products Fund (the
"Fund") and Fidelity Distributors Corporation (the "Underwriter") dated July 18,
1991 (the "Agreement").
WHEREAS, each of the parties is desirous of expanding the ability of
Company to participate in the qualified markets, the Company, the Underwriter
and the Fund hereby agree to amend the Agreement by deleting from Section 1.4
the reference to Section 2.12 and by deleting Section 2.12 in its entirety.
In witness whereof, each of the parties has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of November 1, 1991.
THE AMERICAN FRANKLIN LIFE FIDELITY DISTRIBUTORS CORPORATION
INSURANCE COMPANY
By: /s/ Robert M. Beuerlein By: /s/ Roger T. Servison
---------------------------- ---------------------------
Name: Robert M. Beuerlein Name: ROGER T. SERVISON
-------------------------- ---------------------------
Title: Exec VP Title: PRESIDENT
------------------------- ---------------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J. Gary Burkhead
---------------------------
Name: J. GARY BURKHEAD
-------------------------
Title: SENIOR V.P.
-------------------------
<PAGE>
EXHIBIT 8(a)(3)
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
and
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
WHEREAS, THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's
cost, such number of prospectuses and Statements of Additional Information as
are actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and
<PAGE>
Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 18 day of
--
January , 1995.
---
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By: /s/ Robert M. Beuerlein
--------------------------------
Robert M. Beuerlein
Senior Vice President - Actuarial
VARIABLE INSURANCE PRODUCTS FIDELITY DISTRIBUTORS
FUND CORPORATION
By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange
------------------------- ----------------------
J. Gary Burkhead Kurt A. Lange
2
<PAGE>
EXHIBIT 8(a)(4)
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
WHEREAS, THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION (the "Underwriter") have previously entered into a Participation
Agreement, as amended by Amendments No. 1 and No. 2 (the "Agreement"); and
WHEREAS, the parties to the Agreement wish to add a new separate
account of the Company to the separate accounts offering contracts funded by the
Fund;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Schedule A to the Agreement is hereby amended in its entirety by
the substitution therefor of a new Schedule A in the form appended to this
Amendment No. 3.
2. The Fund and the Underwriter hereby consent to the Company
offering interests in the MFS Variable Insurance Trust in connection with
Contracts funded through Separate Account VA-1 of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 3 as of the 1st day of July, 1996.
THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY
By: Robert J. Gibbons
-------------------------
Robert J. Gibbons, President
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS
CORPORATION
By: J. Gary Burkhead By: Neal Litvack
-------------------------- ---------------------
2
<PAGE>
SCHEDULE A
ACCOUNTS
Date of Resolution of Company's
Name of Account Board which Established Account
- ------------------------------- -----------------------------------
Separate Account VUL-2 April 9, 1991
Separate Account VA-1 May 22, 1996
<PAGE>
EXHIBIT 8(b)(2)
AMENDMENT NO. 1
Amendment to the Participation Agreement among The American Franklin
Life Insurance Company (the "Company"), Variable Insurance Products Fund II (the
"Fund") and Fidelity Distributors Corporation (the "Underwriter") dated July 18,
1991 (the "Agreement").
WHEREAS, each of the parties is desirous of expanding the ability of
Company to participate in the qualified markets, the Company, the Underwriter
and the Fund hereby agree to amend the Agreement by deleting from Section 1.4
the reference to Section 2.12 and by deleting Section 2.12 in its entirety.
In witness whereof, each of the parties has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of November 1, 1991.
THE AMERICAN FRANKLIN LIFE FIDELITY DISTRIBUTORS CORPORATION
INSURANCE COMPANY
By: /s/ Robert M. Beuerlein By: /s/ Roger T. Servison
--------------------------- ----------------------------
Name: Robert M. Beuerlein Name: ROGER T. SERVISON
--------------------------- -------------------------
Title: Exec VP Title: PRESIDENT
--------------------------- -------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ J. Gary Burkhead
------------------------------
Name: J. GARY BURKHEAD
----------------------------
Title: SENIOR V.P.
---------------------------
<PAGE>
EXHIBIT 8(b)(3)
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
WHEREAS, THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's
cost, such number of prospectuses and Statements of Additional Information as
are actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and
<PAGE>
Statements of Additional Information provided to the Company, or the
reimbursement made to the Company, are or have been used only for the
purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 18 day of
--
January , 1995.
---
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By: /s/ Robert M. Beuerlein
--------------------------------
Robert M. Beuerlein
Senior Vice President - Actuarial
VARIABLE INSURANCE PRODUCTS FIDELITY DISTRIBUTORS
FUND II CORPORATION
By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange
-------------------- -----------------
J. Gary Burkhead Kurt A. Lange
2
<PAGE>
EXHIBIT 8(b)(4)
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
WHEREAS, THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION (the "Underwriter") have previously entered into a Participation
Agreement, as amended by Amendments No. 1 and No. 2 (the "Agreement"); and
WHEREAS, the parties to the Agreement wish to add a new separate
account of the Company to the separate accounts offering contracts funded by the
Fund;
NOW, THEREFORE, the parties do hereby agree to amend the Agreement as
follows:
1. Schedule A to the Agreement is hereby amended in its entirety by
the substitution therefor of a new Schedule A in the form appended to this
Amendment No. 3.
2. The Fund and the Underwriter hereby consent to the Company
offering interests in the MFS Variable Insurance Trust in connection with
Contracts funded through Separate Account VA-1 of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 3 as of the 1st day of July, 1996.
THE AMERICAN FRANKLIN LIFE
INSURANCE COMPANY
By: Robert J. Gibbons
-----------------------------
Robert J. Gibbons, President
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS
CORPORATION
By: J. Gary Burkhead By: Neal Litvack
------------------ -------------------
2
<PAGE>
SCHEDULE A
ACCOUNTS
Date of Resolution of Company's
Name of Account Board which Established Account
- -------------------------------- --------------------------------
Separate Account VUL-2 April 9, 1991
Separate Account VA-1 May 22, 1996
<PAGE>
EXHIBIT 8(d)(1)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 30th day of July 1996, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY, an Illinois legal
reserve stock life insurance company (the "Company"), on its own behalf and on
behalf of each of the segregated asset accounts of the Company set forth in
Schedule A hereto, as may be amended from time to time (the "Accounts"), and
MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Franklin Financial Services Corporation ("FFSC"), a Delaware
corporation and the underwriter for the individual variable annuity and the
variable life policies, is registered as a broker-dealer with the SEC under the
1934 Act and is a member in good standing of the NASD; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; PROVIDED
that the Trust receives notice of such orders by 9:30 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading
and on which the Trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to insurance
companies which have entered into participation agreements with the Trust
and MFS (the "Participating Insurance Companies") and their separate
accounts, and, to the extent permitted by Section 817(h) of the Internal
Revenue Code of 1986, as amended (the "Code"), to qualified pension and
retirement plans and MFS or its affiliates. The Trust and MFS will not sell
Trust shares to any insurance company or separate account unless an
agreement containing provisions substantially the same as Articles III and
VII of this Agreement is in effect to govern such sales. The Company will
not resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy owners on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by the Trust, the Company
and the Trust shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6 hereof.
- 2 -
<PAGE>
1.6. In the event of net purchases, the Company shall pay for the Shares by
2:00 p.m. New York time on the next Business Day after an order to purchase
the Shares is made in accordance with the provisions of Section 1.1.
hereof. In the event of net redemptions, the Trust shall pay the
redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the
Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone followed
by written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares
in additional Shares of that Portfolio. The Trust shall notify the Company
of the number of Shares so issued as payment of such dividends and
distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the Trust
shall make an adjustment to the number of shares purchased or redeemed for
the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sale in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contracts under applicable provisions of the Code, that it will
maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the Policies
have ceased to be so treated or that they might not be so treated in the
future.
2.3. The Company represents and warrants that FFSC, the underwriter for the
individual variable annuity and the variable life policies, is a member in
good standing of the NASD and is a registered broker-dealer
- 3 -
<PAGE>
with the SEC. The Company represents and warrants that the Company and
FFSC will sell and distribute such policies in accordance in all material
respects with all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized
for issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the registration statement for its Shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares. The Trust shall register and qualify
the Shares for sale in accordance with the laws of the various states only
if and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
The Trust and MFS represent that the Trust and the Underwriter will sell
and distribute the Shares in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations and orders issued to the Trust by the SEC
thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear the
cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED, however, that the Company shall bear
all printing expenses of such combined documents where used for
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distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the event that the Company requests that the
Trust or its designee provide the Trust's prospectus in a "camera ready" or
diskette format, the Trust shall be responsible for providing the
prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (E.G., typesetting expenses), and the Company shall bear the expense
of adjusting or changing the format to conform with any of its
prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser who
requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies (if requested by the Company in lieu thereof, the Trust or its
designee shall provide such documentation in "camera ready" form as set in
type or as a diskette in the form sent to the financial printer), if and to
the extent applicable to the Shares, of the Trust's proxy materials,
reports to Shareholders and other communications to Shareholders in such
quantity as the Company shall reasonably require for distribution to Policy
owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts holding Shares calculates voting privileges
in the manner required by the Mixed and Shared Funding Exemptive Order.
The Trust and MFS will notify the Company of any changes of interpretations
or amendments to the Mixed and Shared Funding Exemptive Order.
3.7. The Trust shall use reasonable efforts, taking into account its
administrative considerations and schedules, to provide to the Company
copies of all prospectuses, statements of additional information, proxy
materials, reports to Shareholders and other communications to Shareholders
(or, if requested by the Company in lieu thereof, the Trust or its designee
shall provide such documentation in "camera ready" form as set in type or
as a diskette in the form sent to the financial printer) in a timely manner
to permit the
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Company to duplicate or print and mail such documentation without
need by the Company to incur overtime expenses or special handling
or delivery costs in order to distribute such documentation on or before
any date by which such documentation must be distributed in accordance with
applicable law or regulation, any date requested by the Trust, its
designee, MFS or the Underwriter or any date reasonably requested by the
Company.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least three (3) Business Days
prior to its use. No such material shall be used if the Trust, MFS, or
their respective designees reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statement on behalf of the Trust, MFS, any other investment adviser to
the Trust, or any affiliate of MFS or concerning the Trust or any other
such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional information
may be amended or supplemented from time to time, or in reports or proxy
statements for the Trust, or in sales literature or other promotional
material approved by the Trust, MFS or their respective designees, except
with the permission of the Trust, MFS or their respective designees. The
Trust, MFS or their respective designees each agrees to respond to any
request for approval on a prompt and timely basis. The Company shall adopt
and implement procedures reasonably designed to ensure that information
concerning the Trust, MFS or any of their affiliates which is intended for
use only by brokers or agents selling the Policies (I.E., information that
is not intended for distribution to Policy owners or prospective Policy
owners) is so used, and neither the Trust, MFS nor any of their affiliates
shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter shall
not give, any information or make any representations on behalf of the
Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company or its designee agrees to respond to any request for approval on a
prompt and timely basis. The parties hereto agree that this Section 4.4.
is neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to
the Policies, or to the Trust or its Shares, prior to or contemporaneously
with the filing of such document with the SEC or other regulatory
authorities. The Company and the Trust shall also each promptly inform the
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other of the results of any examination by the SEC (or other
regulatory authorities) that relates to the Policies, the Trust or
its Shares, and the party that was the subject of the examination
shall provide the other party with a copy of relevant portions of
any "deficiency letter" or other correspondence or written report
regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement, in an orderly manner.
The Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements
a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
and Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to
the Company or to the underwriter for the Policies if and in amounts agreed
to by the Trust in writing. Each party, however, shall, in accordance with
the allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expenses initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses
of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports to Policy owners. The
Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing and
distributing the Policy prospectus and statement of additional information;
and the cost of preparing, printing and distributing annual individual
account statements for Policy owners as required by state insurance laws.
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5.4. MFS will quarterly reimburse the Company certain of the administrative
costs and expenses incurred by the Company as a result of operations
necessitated by the beneficial ownership by Policy owners of shares of the
Portfolios of the Trust, equal to 0.15% per annum of the aggregate net
assets of the Trust attributable to such Policy owners. In no event shall
such fee be paid by the Trust, its shareholders or by the Policy holders.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1) of
the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
as they may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those requirements
applied directly to each such Portfolio.
6.2. The Trust and MFS represent that each Portfolio will, prior to the
sale of any Shares hereunder, be qualified as a Regulated Investment
Company under Subchapter M of the Code and that they will maintain such
qualification (under Subchapter M or any successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the Board
in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the
Mixed and Shared Funding Exemptive Order by providing the Board, as it may
reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is aware
to the Board including, but not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are
disregarded. The Company also agrees that, if a material irreconcilable
conflict arises, it will at its own cost remedy such conflict up to and
including (a) withdrawing the assets allocable to some or all of the
Accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting to a vote of all affected contract
owners whether to withdraw assets from the Trust or any Portfolio and
reinvesting such assets in a different investment medium and, as
appropriate, segregating the assets attributable to any appropriate group
of contract owners that votes in favor of such segregation, or offering to
any of the affected contract owners the option of segregating the assets
attributable to their contracts or policies, and (b) establishing a new
registered management investment company and segregating the assets
underlying the Policies, unless a majority of Policy owners materially
adversely affected by the conflict have voted to decline the offer to
establish a new registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of
the Accounts designated by the disinterested trustees and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the
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foregoing determination; PROVIDED, HOWEVER, that such withdrawal
and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed and Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS, the
Underwriter, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust, MFS or the Underwriter within
the meaning of Section 15 of the 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or expenses (including reasonable
counsel fees) to which any Indemnified Party may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Policies or contained in the Policies or
sales literature or other promotional material for the Policies
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading PROVIDED that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Company or its designee by or on behalf of the Trust or MFS for
use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or
sales literature or other promotional material (or any amendment
or supplement) or otherwise for use in connection with the sale
of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust not supplied by
the Company or its designee, or persons under its control and on which
the Company has reasonably relied) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution
of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Trust, or any
amendment thereof or
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supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Trust by or on behalf
of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(f) arise out of the enforcement by any Indemnified Party of its
rights under this Section 8.1;
as limited by and in accordance with the provisions of this Article VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company and FFSC
and each of their respective directors and officers and each person, if
any, who controls the Company or FFSC within the meaning of Section 15 of
the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of the Trust) or expenses (including reasonable counsel fees) to which any
Indemnified Party may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement therein not
misleading, PROVIDED that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Trust, MFS, the Underwriter or their respective designees by or
on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the Trust
or in sales literature or other promotional material for the
Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional material for
the Policies not supplied by the Trust, MFS, the Underwriter or
any of their respective designees or persons under their
respective control and on which any such entity has reasonably
relied) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or distribution of the Policies
or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement,
prospectus, statement of additional information, or sales
literature or other promotional literature of the Accounts or
relating to the Policies, or any
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amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement
or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or arise
out of or result from any other material breach of this Agreement
by the Trust; or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share
or dividend or capital gain distribution rate; or
(f) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement; or
(g) arise out of the enforcement by any Indemnified Party of its
rights under this Section 8.2;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code for any reason
other than the Trust's failure to comply with the diversification
requirements specified in Article VI of this Agreement.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section 8.5.
of notice of commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under
this section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any Indemnified Party under this
Article or otherwise except to the extent that the indemnifying party is
actually prejudiced by such omission or delay. In case any such action is
brought against any Indemnified Party, and it notified the indemnifying
party of the commencement thereof and of the Indemnified Party's intention
to assert a right of indemnification hereunder, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
assume the defense thereof, with counsel satisfactory to such Indemnified
Party, and to settle any such action; provided that the indemnifying party
may not, without the written consent of an Indemnified Party, enter into
any settlement of any such action that does not involve a complete
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and unconditional release of all claims against such Indemnified Party.
After notice from the indemnifying party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation, unless
(i) the employment of such additional counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to such
Indemnified Party to have charge of the defense of such action within a
reasonable period of time after notice of commencement of the action, or
(iii) the indemnifying party shall have failed to continue to defend such
action with counsel reasonably satisfactory to the Indemnified Party.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or any person who
controls, within the meaning of Section 15 of the 1933 Act, any party in
connection with the Agreement, the issuance or sale of the Policies, the
operation of the Accounts or the Trust, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees or against
the Underwriter or FFSC by the NASD, the SEC, or any insurance department or any
other regulatory body regarding such party's duties under this Agreement or
related to the issuance or sale of the Policies, the operation of the Accounts
or the Trust, or the sale or acquisition of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements
of the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if,
- 12 -
<PAGE>
for example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions
pursuant to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt
notice of the election to terminate for such cause and an
explanation of such cause shall be furnished to the Trust by the
Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company or FFSC by the NASD, the SEC, or
any insurance department or any other regulatory body regarding
the Company's or FFSC's duties under this Agreement or related to
the issuance or sale of the Policies, the operation of the
Accounts, or the sale or acquisition of the Shares provided;
however, that the Trust or MFS determines in its sole judgment
exercised in good faith, that any such proceedings are likely to
have a material adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust, MFS or the Underwriter by the
NASD, the SEC, or any state securities or insurance department or
any other regulatory body regarding the Trust's, MFS' or the
Underwriter's duties under this Agreement or related to the sale
or acquisition of the Shares or the operation of the Trust;
provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such proceedings are
likely to have a material adverse effect upon the ability of the
Trust or MFS to perform its obligations under this Agreement; or
(e) at the option of the Company, the Trust or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the Policy
owners having an interest in the Accounts (or any subaccounts) to
substitute the shares of another investment company for the
corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected
to serve as the underlying investment media. The Company will
give thirty (30) days' prior written notice to the Trust of the
Date of any proposed vote or other action taken to replace the
Shares; or
(f) at the option of either the Trust or MFS by written notice to the
Company, if (i) either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a material adverse
change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; (ii) the Trust or MFS shall have
notified the Company in writing of such determination and its
intent to terminate this Agreement; and (iii) after considering
the actions taken by the Company and any other changes in
circumstances since the giving of such notice, such determination
of the Trust or MFS shall continue to apply on the thirtieth
(30th) day following the giving of such notice, which thirtieth
day shall be the effective date of termination; or
(g) at the option of the Company by written notice to the Trust and
MFS, if (i) the Company shall determine, in its sole judgment
exercised in good faith, that the Trust, or MFS has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; (ii) the Company shall
have notified the Trust and MFS in writing of such determination
and its intent to terminate this Agreement; and (iii) after
considering the actions taken by the Trust or MFS, as
appropriate, and any other changes in circumstances since the
giving of such notice, such determination of the Company shall
continue to apply on the thirtieth (30th) day following the
giving of such notice, which thirtieth day shall be the effective
date of termination; or
- 13 -
<PAGE>
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement ; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto; provided that for purposes of this
Agreement and subject to clauses (f) and (g) above, "assignment"
shall not include a transfer of a controlling block of a party's
outstanding securities or other transaction that results in a
change of control of a party but does not result in a different
entity succeeding to the rights or obligations of such party
under this Agreement.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and conditions of
this Agreement, for all Policies in effect on the effective date of
termination of this Agreement (the "Existing Policies"), except as
otherwise provided under Article VII of this Agreement. Specifically,
without limitation, the owners of the Existing Policies shall be permitted
to transfer or reallocate investment under the Policies, redeem investments
in any Portfolio and/or invest in the Trust upon the making of additional
purchase payments under the Existing Policies.
11.6. No termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to
all other parties to this Agreement of its intent to terminate, which
notice shall set forth the basis for such termination. In addition
(a) in the event that any termination is based upon the provisions of
Article VII or the provisions of Section 11.1(a), 11.1(e),
11.1(f) or 11.1(g), such prior written notice shall be given in
advance of the effective date of termination as required by such
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 11.1(c), 11.1(d) or 11.1(h) of this Agreement, such prior
written notice shall be given at least thirty (30) days before
the effective date of termination, unless the termination is
based upon the provisions of Section 11.1(h) of this Agreement
and is due to a material breach of Section 1.5 or 1.6 of this
Agreement, in which case no such advance notice is required.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the other party at the address of such
party set forth below or at such other address as such party may from time to
time specify in writing to the other party.
- 14 -
<PAGE>
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
1 Franklin Square
Springfield, IL 62713
Facsimile No. (217) 528-0801
Attn: President
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by and registration, approval or qualification
proceedings before appropriate governmental authorities (including without
limitation the SEC, the NASD, and state insurance regulators) relating to
this Agreement or the transactions contemplated hereby.
- 15 -
<PAGE>
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and
liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon
the assets or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the obligations of
each Portfolio hereunder shall be several and not joint, in accordance with
its proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By its authorized officer,
By: Robert J. Gibbons
------------------------
Robert J. Gibbons
Title: President
----------------------------
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE
PORTFOLIOS
By its authorized officer and not individually,
By: A. Keith Brodkin
------------------------
A. Keith Brodkin
Chairman and President
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: Arnold D. Scott
------------------------
Arnold D. Scott
Senior Executive Vice President
- 16 -
<PAGE>
As of 7/30/96
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
NAME OF SEPARATE
ACCOUNT AND DATE
ESTABLISHED BY BOARD OF POLICIES FUNDED PORTFOLIOS
DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT VA-1, THE CHAIRMAN COMBINATION EMERGING GROWTH SERIES
MAY 22, 1996 FIXED AND VARIABLE ANNUITY RESEARCH SERIES
CONTRACTS GROWTH WITH INCOME SERIES
TOTAL RETURN SERIES
UTILITIES SERIES
VALUE SERIES
-17-
<PAGE>
EXHIBIT 8(d)(2)
INDEMNIFICATION AGREEMENT
BETWEEN
MASSACHUSETTS FINANCIAL SERVICES COMPANY
AND
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement") is made and entered into this 30th day of
July, 1996 by and between MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware
corporation ("MFS"), and THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY, an
Illinois legal reserve stock life insurance company (the "Company"), on its own
behalf and on behalf of each of the segregated asset accounts (the "Accounts")
of the Company referenced in the Participation Agreement (as defined below).
WHEREAS, MFS and the Company, on its own behalf and on behalf of the
Accounts, have entered into a Participation Agreement with MFS Variable
Insurance Trust, a Massachusetts business trust (the "Trust"), dated as of the
date hereof (the "Participation Agreement");
NOW, THEREFORE, in consideration of their mutual promises as set forth in
the Participation Agreement, MFS and the Company agree as follows:
ARTICLE I. DEFINITIONS
All capitalized terms not defined herein shall have the meanings as set
forth in the Participation Agreement.
ARTICLE II. APPLICABILITY
The indemnification provided by MFS under this Agreement shall relate
solely to certain losses, claims, damages, liabilities and expenses that may
arise in connection with the performance by the Trust or MFS of its obligations
and duties under the Participation Agreement.
ARTICLE III. INDEMNIFICATION
3.1. MFS agrees to indemnify and hold harmless the Company and FFSC and
each of their respective directors, officers and each person, if any,
who controls the
<PAGE>
Company or FFSC within the meaning of Section 15 of the 1933 Act and
any agents or employees of the foregoing (each an "Indemnified Party"
or, collectively, the "Indemnified Parties") against any and all
losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of MFS) or expenses
(including reasonable counsel fees) to which an Indemnified
Party may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related
to the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information ("SAI") of the Trust or sales literature for the
Trust (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, PROVIDED that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the
Trust, MFS or the Underwriter by or on behalf of the Company for
use in the registration statement, prospectus, or SAI of the
Trust or in sales literature or other promotional material for
the Trust (or any amendment or supplement) or otherwise for use
in connection with the sales of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature or
other promotional literature for the Policies not supplied by the
Trust, MFS, the Underwriter or their respective designees or
persons under their control and on which the Trust has reasonably
relied) or wrongful conduct of the Trust, MFS, the Underwriter or
persons under their control, with respect to the sale or
distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
literature covering the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of MFS
or the Trust; or
-2-
<PAGE>
(d) arise as a result of any material failure by the Trust or MFS to
provide the services and furnish the materials under the terms of
the Participation Agreement (including a failure, whether
unintentional or in good faith or otherwise, of the Trust to
comply with the diversification requirements specified in Article
VI of the Participation Agreement); or
(e) arise out of or result from any material breach of any
representation and/or warranty made by MFS or the Trust in the
Participation Agreement or any other material breach of the
Participation Agreement by MFS or the Trust; or
(f) arise out of or result from the materially incorrect or untimely
calculation or reporting by MFS of the daily net asset value per
share or dividend or capital gain distribution rate; or
(g) arise out of the enforcement by any Indemnified Party of its
rights under this Section 3.1;
as limited by and in accordance with the provisions of this Article III.
3.2. In no event shall MFS be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including,
without limitation, the Company, any Participating Insurance Company
or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by the Company
under the Participation Agreement or by any Participating Insurance
Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the
Company or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom); or (iii) the
failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts
(with respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code for any reason other than the
Trust's failure to comply with the diversification requirements
specified in Article VI of the Participation Agreement.
3.3. MFS shall not be liable under this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement or the Participation Agreement.
- 3 -
<PAGE>
3.4. Promptly after receipt by an Indemnified Party under this Section 3.4
of notice of commencement of any action, such Indemnified Party will,
if a claim in respect thereof is to be made against the indemnifying
party under this section, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
Indemnified Party under this Article or otherwise except to the extent
that the indemnifying party is actually prejudiced by such omission or
delay. In case any such action is brought against any Indemnified
Party, and it notified the indemnifying party of the commencement
thereof and of the Indemnified Party's intention to assert a right of
indemnification hereunder, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party,
and to settle any such action; provided that the indemnifying party
may not, without the written consent of an Indemnified Party, enter
into any settlement of any such action that does not involve a
complete and unconditional release of all claims against such
Indemnified Party. After notice from the indemnifying party of its
intention to assume the defense of an action, the Indemnified Party
shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified Party
under this section for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless (i) the
employment of such additional counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of
such action at the expense of the indemnifying party, (ii) the
indemnifying party shall not have employed counsel reasonably
satisfactory to such Indemnified Party to have charge of the defense
of such action within a reasonable period of time after notice of
commencement of the action, or (iii) the indemnifying party shall have
failed to continue to defend such action with counsel reasonably
satisfactory to the Indemnified Party.
3.5. Each party hereto shall promptly notify the other parties to the
Participation Agreement of the commencement of any litigation or
proceeding against it or any of its respective officers, directors,
trustees, employees or any person who controls, within the meaning of
Section 15 of the 1933 Act, any party in connection with this
Agreement and the Participation Agreement, the issuance or sale of the
Policies, the operation of the Accounts or the Trust, or the sale or
acquisition of Shares.
3.6. A successor by law of the parties to this Agreement and the
Participation Agreement shall be entitled to the benefits of the
indemnification contained herein. The indemnification provisions
contained herein shall survive any termination of this Agreement and
the Participation Agreement.
3.7. No Indemnified Party shall be required to demand indemnity from or
bring an action to obtain indemnity from the Trust or the Underwriter
prior to seeking
- 4 -
<PAGE>
indemnity under this Agreement from MFS. To the fullest extent
permitted by law, MFS hereby waives all rights of subrogation against
the Trust with respect to any matter for which an Indemnified Party
is indemnified under this Agreement.
ARTICLE IV. DURATION AND TERMINATION
This Agreement shall be effective upon execution and shall terminate with
respect to the Accounts, or one, some or all Portfolios, immediately upon
termination of the Participation Agreement with respect to the Accounts, or one,
some or all Portfolios, in accordance with the provisions of Article XI thereof.
ARTICLE V. CONFIDENTIALITY
Except as required by applicable law or pursuant to the written consent of
MFS, the Company shall treat as confidential the indemnification provided
pursuant to this Agreement, all information reasonably related to this
Agreement, and the existence of this Agreement. This Article V shall survive
the termination of this Agreement.
ARTICLE VI. MISCELLANEOUS
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
This Agreement may be executed simultaneously in one or more counterparts, each
of which taken together shall constitute one and the same instrument. The
captions in this Agreement are included for convenience of reference only. Any
notice required by this Agreement shall be sent to the persons so specified to
receive notice in the Participation Agreement.
- 5 -
<PAGE>
IN WITNESS WHEREOF, both of the parties hereto have caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
MASSACHUSETTS FINANCIAL
SERVICES COMPANY
By its authorized officer,
By: /s/Arnold D. Scott
--------------------------
Arnold D. Scott
Senior Executive Vice President
THE AMERICAN FRANKLIN LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/Robert J. Gibbons
--------------------------
Robert J. Gibbons
Title: President
--------------------------
- 6 -
<PAGE>
[Letterhead of The Franklin Life Insurance Company]
Exhibit 9
August 19, 1996
The American Franklin Life Insurance Company
#1 Franklin Square
Springfield, Illinois 62713
Gentlemen:
As Assistant Secretary of The American Franklin Life Insurance Company
("American Franklin"), I have supervised the corporate proceedings relating to
the creation of Separate Account VA-1 of The American Franklin Life Insurance
Company (the "Separate Account") and the proposed issuance in connection
therewith of American Franklin's The Chairman-TM- combination fixed and variable
annuity contracts (the "Contracts"). I have also participated in the
preparation of the Registration Statement on Form N-4 (the "Registration
Statement") of the Separate Account filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended. The Registration Statement covers an
indefinite number of units of interest in the Separate Account. In addition, I
have examined such other documents and such questions of law as in my judgment
are necessary or appropriate for purposes of this opinion. Based on the
foregoing, it is my opinion that:
1. American Franklin is a stock life insurance corporation duly organized
and validly existing under the laws of the State of Illinois and is
duly authorized under such laws to issue and sell annuity contracts,
including the Contracts.
2. The Separate Account is a separate account of American Franklin duly
created and validly existing pursuant to the laws of the State of
Illinois, under which income, gains and losses of the Separate Account
will be credited to or charged against the assets held in the Separate
<PAGE>
The American Franklin Life Insurance Company
August 19, 1996
Page Two
Account without regard to income, gains or losses arising out of any
other business American Franklin may conduct.
3. The issuance and sale of the Contracts have been duly authorized by
American Franklin. When issued and sold in the manner stated in the
Prospectus forming a part of the Registration Statement, the Contracts
will be legal and binding obligations of American Franklin in
accordance with their terms, except that administrative approval,
qualification or registration must be obtained, or the form of the
Contracts must be approved administratively, by or with regulatory
authorities prior to the issuance of the Contracts in certain
jurisdictions. American Franklin intends to obtain all necessary
administrative approvals, qualifications or registrations by or with
regulatory authorities deemed by the undersigned to be required by any
jurisdiction prior to the offering or sale of the Contracts in that
jurisdiction.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement, and to the use of my name under the caption "Legal Matters" in the
Prospectus forming a part of the Registration Statement.
Very truly yours,
Elizabeth E. Arthur
---------------------------
Elizabeth E. Arthur
Vice President and
Associate General Counsel
The Franklin Life Insurance
Company
<PAGE>
EXHIBIT 10(a)
LIST OF CONSENTS PURSUANT TO RULE 483(c)
Opinion and Consent of Elizabeth E. Arthur, Esq., Assistant Secretary of
The American Franklin Life Insurance Company, appears as Exhibit 9 hereto.
Consent of Ernst & Young LLP, independent auditors, appears as Exhibit 10(b)
hereto.
Consent of Coopers & Lybrand L.L.P., independent accountants, appears as Exhibit
10(c) hereto.
Consent of Messrs. Chadbourne & Parke LLP appears as Exhibit 10(d) hereto.
<PAGE>
EXHIBIT 10(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors and Accountants" and to the use of our report dated March 15, 1996
with respect to the financial statements of The American Franklin Life
Insurance Company as of December 31, 1995 and for the eleven months ended
December 31, 1995 and one month ended January 31, 1995 in this Registration
Statement on Form N-4 under the Securities Act of 1933 and the Investment
Company Act of 1940 and related Statement of Additional Information of
Separate Account VA-1 of The American Franklin Life Insurance Company.
ERNST & YOUNG LLP
Chicago, Illinois
August 19, 1996
<PAGE>
EXHIBIT 10(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form N-4
of Separate Account VA-1 of The American Franklin Life Insurance Company, as
depositor, of our report dated February 1, 1995, on our audits of the financial
statements of The American Franklin Life Insurance Company as of December 31,
1994 and for the years ended December 31, 1994 and 1993.
We also consent to the references to our firm under the caption
"Independent Auditors and Accountants" in the Statement of Additional
Information constituting a part of this Registration Statement on Form N-4 of
Separate Account VA-1 of The American Franklin Life Insurance Company.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
August 19, 1996
<PAGE>
EXHIBIT 10(d)
CONSENT OF COUNSEL
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus constituting a part of this Registration Statement on Form N-4 under
the Securities Act of 1933 and the Investment Company Act of 1940.
CHADBOURNE & PARKE LLP
New York, New York
August 19, 1996
<PAGE>
EXHIBIT 15
POWER OF ATTORNEY
The undersigned, acting in the capacity or capacities stated opposite
their respective names below, hereby constitute and appoint ELIZABETH E.
ARTHUR, RAYMOND P. WEBER, EDWARD P. SMITH and PETER K. INGERMAN, and each of
them, singularly, attorneys-in-fact of the undersigned with full power to
each of them for and in the name of the undersigned in the capacities
indicated below (a) to sign a Registration Statement under the Securities Act
of 1933, as amended (the "1933 Act"), and under the Investment Company Act of
1940, as amended (the "1940 Act"), on Form N-4 of Separate Account VA-1 of
The American Franklin Life Insurance Company and of The American Franklin
Life Insurance Company, as depositor, and any and all amendments (including
any Amendments and Post-Effective Amendments) thereto, and (b) to give any
certification which may be required in connection therewith pursuant to Rule
485 under the 1933 Act.
SIGNATURE TITLE DATE
- ----------------------- ----------------- -------------
Robert M. Beuerlein
- -----------------------
Robert M. Beuerlein Director July 10, 1996
- -----------------------
Robert M. Devlin Director July , 1996
ROBERT J. GIBBONS
- -----------------------
Robert J. Gibbons Director and President
(Principal Executive
Officer) July 10, 1996
- -----------------------
Harold S. Hook Director July , 1996
Jon P. Newton
- -----------------------
Jon P. Newton Director July 16, 1996
Jeffrey D. Pirmann
- -----------------------
Jeffrey D. Pirmann Vice President and
Treasurer (Principal
Financial Officer and
Principal Accounting
Officer) July 10, 1996
Gary D. Reddick
- -----------------------
Gary D. Reddick Director July 10, 1996
- -----------------------
Peter V. Tuters Director July , 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
SEPARATE ACCOUNT VA-1 HAS NOT YET COMMENCED OPERATIONS.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> AUG-19-1996
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