File Nos. 333-25663
811-08178
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. ___ [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
American Fidelity Separate Account B
_________________________________________
(Exact Name of Registrant)
American Fidelity Assurance Company
_________________________________________
(Name of Depositor)
2000 N. Classen Blvd., Oklahoma City, Oklahoma 73106
____________________________________________________________ __________
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (405) 523-2000
Name and Address of Agent for Service
Stephen P. Garrett
Senior Vice President
Law & Governmental Affairs Dept.
American Fidelity Corporation
2000 N. Classen Blvd.
Oklahoma City, OK 73106
Copies to:
Lynn K. Stone
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Calculation of Registration Fee under the Securities Act of 1933:
Registrant is registering an indefinite number of securities under the
Securities Act of 1933 pursuant to Investment Company Act Rule 24f-2.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
CROSS REFERENCE SHEET
(Required by Rule 495)
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Item No. Location
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PART A
Item 1. Cover Page Cover Page
Item 2. Definitions Glossary of Terms
Item 3. Synopsis Summary
Item 4. Condensed Financial Information Not Applicable
Item 5. General Description of Registrant, Depositor,
and Portfolio Companies Investment Options,
American Fidelity,
the Separate Account
Item 6. Deductions and Expenses Expenses
Item 7. General Description of Variable Annuity
Contracts The AFAdvantage
Variable Annuity
Item 8. Annuity Period Annuity Provisions
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value How to Purchase the
AFAdvantage Variable
Annuity
Item 11. Redemptions Withdrawals
Item 12. Taxes Taxes
Item 13. Legal Proceedings. Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information Table of Contents of
the Statement of
Additional Information
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CROSS REFERENCE SHEET (CONT'D)
(Required by Rule 495)
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Item No. Location
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PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents. Table of Contents
Item 17. General Information and History General Information
and History of the
Company
Item 18. Services Not Applicable
Item 19. Purchase of Securities Being Offered Not Applicable
Item 20. Underwriters Distributor
Item 21. Calculation of Performance Data Performance
Information
Item 22. Annuity Payments. Annuity Provisions
Item 23. Financial Statements Financial Statements
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PART C
Information required to be included in Part C is set forth under the appropriate
Item so numbered, in Part C to this Registration Statement.
PART A
THE AFADVANTAGE VARIABLE ANNUITY
issued by
AMERICAN FIDELITY SEPARATE ACCOUNT B
and
AMERICAN FIDELITY ASSURANCE COMPANY
___________, 1997
This prospectus describes the AFAdvantage Variable Annuity offered by American
Fidelity Assurance Company (American Fidelity, our, us or we). Our home office
is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
The annuity is a fixed and variable deferred annuity policy which has 10
Investment Options - the Guaranteed Interest Account Option and the following
Portfolios :
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund
Merrill Lynch Special Value Focus Fund
Merrill Lynch American Balanced Fund
Merrill Lynch International Equity Focus Fund
Merrill Lynch High Current Income Fund
DREYFUS STOCK INDEX FUND
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
Small Company Stock Portfolio
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about the AFAdvantage Variable
Annuity.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information (SAI) dated _________, 1997. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated by reference into this prospectus. The Table of Contents of the SAI
is found on the last page of this prospectus. For a free copy of the SAI, call
us at (800) 662-1106 or write us at: P.O. Box 25523, Oklahoma City, Oklahoma
73125-0523.
INVESTMENT IN A VARIABLE ANNUITY IS SUBJECT TO RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL. THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
GLOSSARY OF TERMS
SUMMARY
FEE TABLE
THE AFADVANTAGE VARIABLE ANNUITY
Policy Owner
Joint Owner
Beneficiary
Assignment of the Policy
ANNUITY PROVISIONS
Annuity Date
Selection of an Annuity Option
Annuity Payments
Annuity Options
HOW TO PURCHASE THE AFADVANTAGE VARIABLE ANNUITY
Purchase Payments
Allocation of Purchase Payments
Right to Examine Policy
Accumulation Units
INVESTMENT OPTIONS
Portfolios
Guaranteed Interest Account Option
Voting Rights
Substitution
Transfers
Transfers during the Accumulation Phase
Transfers during the Annuity Phase
Automatic Dollar Cost Averaging
Asset Rebalancing
PERFORMANCE
EXPENSES
Insurance Charges
Mortality and Expense Risk Charge
Administrative Charge
Distribution Expense Charge
Policy Maintenance Charge
Withdrawal Charge
Reduction or Elimination of the Withdrawal Charge
Transfer Fee
Premium Taxes
Income Taxes
Portfolio Expenses
TAXES
Annuities in General
Qualified and Non-Qualified Policies
Tax Treatment of Withdrawals - Non-Qualified Policies
Tax Treatment of Withdrawals - Qualified Policies
Tax Treatment of Withdrawals - Tax-Sheltered Annuities
Diversification
WITHDRAWALS
Systematic Withdrawal Program
Suspension of Payments or Transfers
LOANS
DEATH BENEFIT
Death Benefit Amount
Death of Owner Before Annuity Date
Death of Annuitant Before the Annuity Date
Death of Owner After the Annuity Date
Death of Annuitant After the Annuity Date
OTHER INFORMATION
American Fidelity
The Separate Account
Legal Proceedings
Distribution
Administration
Financial Statements
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
GLOSSARY OF TERMS
Some of the terms used in this prospectus are technical. To help you understand
these terms, we have defined them below and have capitalized them throughout the
prospectus.
ACCOUNTS: The Guaranteed Interest Account and the Portfolios.
ACCOUNT VALUE: The value of your Policy in the Investment Options during the
Accumulation Phase.
ACCUMULATION PHASE: Until you decide to begin receiving Annuity Payments, your
annuity is in the Accumulation Phase.
ACCUMULATION UNIT: The unit of measurement we use to keep track of the value of
your Policy invested in the Portfolios during the Accumulation Phase.
ANNUITANT: The natural person on whose life Annuity Payments are based.
ANNUITY DATE: The date Annuity Payments begin. You can choose the month and year
in which Annuity Payments will begin.
ANNUITY OPTIONS: You can choose among available pay-out plans for your Annuity
Payments. These are referred to as Annuity Options.
ANNUITY PAYMENTS: You can receive regular income payments from your Policy.
These are referred to as Annuity Payments.
ANNUITY PHASE: The period during which we make Annuity Payments.
ANNUITY UNIT: The unit of measurement we use to calculate your Annuity Payments
during the Annuity Phase.
BENEFICIARY: The person or entity you name to receive any death benefits.
FUNDS: Merrill Lynch Variable Series Funds, Inc., Dreyfus Stock Index Fund, The
Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Variable Investment
Fund.
GUARANTEED INTEREST ACCOUNT OPTION: An investment option within our general
account which earns interest credited by us.
INVESTMENT OPTIONS: The Portfolios and the Guaranteed Interest Account Option.
JOINT OWNER: The Policy can be owned by you and your spouse (the Joint Owner).
NON-QUALIFIED: If you do not purchase the Policy under a Qualified plan, your
Policy is referred to as a Non-Qualified Policy.
POLICY: The AFAdvantage Variable Annuity.
POLICY ANNIVERSARY: The anniversary of the date your Policy was issued.
POLICY OWNER: The person or entity entitled to ownership rights under a
Policy.
POLICY YEAR: The annual period which begins on the date your Policy was issued
and each anniversary of that date.
PORTFOLIOS: The variable investment options available under the Policy. Each
Portfolio has its own investment objective and is invested in a Fund or a
corresponding portfolio of a Fund.
PURCHASE PAYMENT: The money you invest to buy the Policy.
QUALIFIED: Policies purchased under special tax qualification rules (examples:
Individual Retirement Annuities, 403(b) Tax-Sheltered Annuities, H.R. 10 and
Corporate Pension and other qualified retirement plans).
TAX DEFERRAL: Tax deferral means that you are not taxed on earnings or
appreciation on the assets in your Policy until you take money out of your
Policy.
SUMMARY
The following information is a summary of some of the more important features of
your annuity Policy. More detailed information is contained in the corresponding
sections of this prospectus.
THE AFADVANTAGE VARIABLE ANNUITY. This prospectus describes the flexible premium
variable and fixed deferred annuity policy offered by American Fidelity
Assurance Company (American Fidelity). It is a contract between you, the Policy
Owner, and American Fidelity, an insurance company. The Policy provides a means
for investing on a Tax-Deferred basis in the Portfolios and the Guaranteed
Interest Account Option. The AFAdvantage Variable Annuity is designed for people
seeking long-term Tax-Deferred accumulation of assets, generally for retirement
or other long-term purposes. The Tax-Deferred feature is most attractive to
people in high federal and state tax brackets. You should not buy the Policy if
you are looking for a short-term investment or if you cannot accept the risk of
getting back less money than you put in.
Like all deferred annuities, your Policy has two phases: the Accumulation Phase
and the Annuity Phase. During the Accumulation Phase, you invest money in your
annuity and your earnings accumulate on a Tax-Deferred basis. Your earnings are
based on the investment performance of the Portfolios you selected and/or the
interest rate earned on the money you have in the Guaranteed Interest Account.
You can withdraw money from your Policy during the Accumulation Phase. During
the Accumulation Phase, the earnings are taxed as income only when you make a
withdrawal. A federal tax penalty may apply if you make withdrawals before age
59 1/2. The Annuity Phase occurs when you begin receiving regular payments from
your Policy. Among other factors, the amount of the payments you may receive
during the Annuity Phase will depend upon the amount of money you are able to
accumulate in your Policy during the Accumulation Phase.
ANNUITY PROVISIONS. You can receive monthly Annuity Payments from your Policy
under an Annuity Option. During the Annuity Phase, payments can come from the
Portfolios and/or the Guaranteed Interest Account.
HOW TO PURCHASE THE AFADVANTAGE VARIABLE ANNUITY. You may make purchase payments
at any time during the Accumulation Phase. Each payment must be at least $25.
You must complete an application and make your first Purchase Payment to
purchase the Policy.
INVESTMENT OPTIONS. You may allocate your money to the Guaranteed Interest
Account Option of American Fidelity or the following Portfolios:
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund
Merrill Lynch Special Value Focus Fund
Merrill Lynch American Balanced Fund
Merrill Lynch International Equity Focus Fund
Merrill Lynch High Current Income Fund
DREYFUS STOCK INDEX FUND
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
Small Company Stock Portfolio
The Portfolios offer professionally managed investment choices and are fully
described in the attached prospectuses for the Funds. You can make or lose money
in the Portfolios, depending upon market conditions.
The Guaranteed Interest Account Option offers an interest rate that is
guaranteed by us. While your money is in the Guaranteed Interest Account Option,
the interest your money will earn (subject to a withdrawal charge on any
withdrawals from the Guaranteed Interest Account) is guaranteed by American
Fidelity.
EXPENSES. The following are the annual insurance charges which are deducted from
the average daily value of your Policy allocated to the Portfolios every year:
Mortality and Expense Risk Charge - 1.25%; Administrative Charge - .15%; and
Distribution Expense Charge - .10%. Each year we also deduct a $30 policy
maintenance charge from your Policy. There are also annual expenses of the
Portfolios which range from .30% to .96% of the average daily value of the
Portfolios, depending upon the Portfolio(s) you invest in.
You can transfer between accounts up to 12 times a Policy Year during the
Accumulation Phase. After that the charge is the lesser of $25 or 2% of the
amount transferred. You may make one transfer a Policy Year during the Annuity
Phase. The one transfer is free.
During the first Policy Year, any withdrawals you make will have a withdrawal
charge. After the first Policy Year, you may make a withdrawal of up to 10% of
the value of your Policy once each Policy Year without incurring a withdrawal
charge (referred to as the "free withdrawal amount"). If you do not use the free
withdrawal amount in any year, it may not be carried forward and used the next
Policy Year.
The withdrawal charge is a percentage of the amount withdrawn in excess of the
free withdrawal amount as shown below:
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Policy Year Withdrawal Charge %
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1 8%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 1%
9 + 0%
</TABLE>
American Fidelity may assess a state premium tax charge which ranges from 0-4.0%
(depending upon the state).
TAXES. Your earnings are not taxed until you take them out. In most cases, if
you take money out, earnings come out first and are taxed as income. If you are
younger than 59 1/2 when you take money out, you may be charged a federal tax
penalty on the taxable amounts withdrawn, which in most cases is 10% on the
taxable amounts. Payments during the Annuity Phase are considered partly a
return of your original investment. That part of each payment is not taxable as
income. If the Policy is tax-qualified, the entire payment may be taxable.
WITHDRAWALS. You may make a withdrawal at any time during the Accumulation
Phase. There may be limits to the amount you can withdraw from a Qualified Plan.
Any partial withdrawal must be for at least $250 (there are exceptions for
withdrawals allowed under 403(b) and 401 hardship provisions), but a withdrawal
must not reduce the value of your Policy below $100. This requirement is waived
if the partial withdrawal is pursuant to the Systematic Withdrawal Program. You
may request a withdrawal or elect the Systematic Withdrawal Program. Of course,
you may also have to pay income tax and a tax penalty on any money you take out.
DEATH BENEFIT. If you or the Annuitant die during the Accumulation Phase, the
person you have selected as your Beneficiary will receive a death benefit.
OTHER INFORMATION.
Free Look. If you cancel the Contract within 20 days after receiving it, we
will refund you the greater of the Purchase Payment paid or the value of your
Policy as of the earlier of the date we receive the Policy at our home office or
the date our agent receives the Policy.
No Probate. In most cases, when you die, your Beneficiary will receive the
death benefit without going through probate.
INQUIRIES. If you have any questions about your AFAdvantage Variable Annuity or
need more information, please contact us at:
American Fidelity Assurance Company
Annuity Services Department
P.O. Box 25523
Oklahoma City, OK 73125-0523
(800) 662-1106
FEE TABLE
OWNER TRANSACTION EXPENSES
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Withdrawal Charge
(as a percentage of
the amount withdrawn)
(see Note 2 below) Policy Year Withdrawal Charge
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1 8%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 1%
9+ 0%
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Transfer Fee No charge for first 12 transfers in a Policy
Year during the Accumulation Phase and no
charge for one transfer allowed each Policy
Year during the Annuity Phase; thereafter the
fee is the lesser of $25 or 2% of the amount
transferred.
Policy Maintenance Charge $30 per Policy per Policy Year.
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SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Administrative Charge .15%
Distribution Expense Charge .10%
-----
Total Separate Account Annual Expenses 1.50%
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FUND ANNUAL EXPENSES
(as a percentage of the average daily net assets of a Portfolio)
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Other
Expenses
Management (after expense Total Annual
Fees reimbursement) Expenses
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MERRILL LYNCH VARIABLE SERIES FUNDS INC.
Merrill Lynch Prime Bond Fund .44% .05% .49%
Merrill Lynch Special Value Focus Fund .75% .06% .81%
Merrill Lynch American Balanced Fund .55% .05% .60%
Merrill Lynch International Equity Focus Fund .75% .14% .89%
Merrill Lynch High Current Income Fund .49% .05% .54%
DREYFUS STOCK INDEX FUND .245% .055% .30%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.* .72% .24% .96%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio .75% .08% .83%
Small Company Stock Portfolio* .56% .19% .75%
<FN>
* From time to time, The Dreyfus Corporation and, in the case of The Dreyfus
Socially Responsible Growth Fund, Inc., NCM Capital Management Group, Inc., may
waive all or part of their fees and/or voluntarily assume certain Fund expenses.
As of the date of this Prospectus, certain fees are being waived or expenses
being assumed, in each case on a voluntary basis. Without such waivers or
reimbursements, the Management Fees, Other Expenses and Total Annual Expenses
that would have been incurred for the fiscal year ended December 31, 1996 would
be - The Dreyfus Socially Responsible Growth Fund, Inc.: .75%, .24% and .99%;
and Dreyfus Variable Investment Fund - Small Company Stock Portfolio: .75%, .19%
and .94%. There is no guarantee that any fee waivers or expense reimbursements
will continue in the future.
</FN>
</TABLE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money if: (a) you surrender your Policy at the end of each
time period; or (b) if your Policy is not surrendered or is annuitized:
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Time Periods
1 Year 3 Years
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund a) $122.83 a) $188.54
b) $ 42.25 b) $127.19
Merrill Lynch Special Value Focus Fund a) $125.87 a) $197.39
b) $ 45.46 b) $136.66
Merrill Lynch American Balanced Fund a) $123.84 a) $191.59
b) $ 43.35 b) $130.46
Merrill Lynch International Equity Focus Fund a) $126.51 a) $199.59
b) $ 42.26 b) $139.01
Merrill Lynch High Current Income Fund a) $123.29 a) $189.93
b) $ 42.75 b) $128.68
DREYFUS STOCK INDEX FUND a) $121.08 a) $183.24
b) $ 40.34 b) $121.53
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. a) $127.15 a) $201.51
b) $ 46.96 b) $141.06
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio a) $125.96 a) $197.94
b) $ 45.66 b) $137.24
Small Company Stock Portfolio a) $125.22 a) $195.74
b) $ 44.86 b) $134.89
</TABLE>
THE ANNUAL EXPENSES OF THE PORTFOLIOS ARE BASED ON DATA PROVIDED BY THE FUNDS.
WE HAVE NOT INDEPENDENTLY VERIFIED SUCH DATA.
1. The purpose of the Fee Table is to show you the various expenses you can
expect to incur directly or indirectly with the Policy. The Fee Table reflects
expenses of the Separate Account as well as the Portfolios.
2. Under certain circumstances, you can make a withdrawal without incurring
the withdrawal charge. (See Expenses - Withdrawal Charge.)
3. Premium taxes are not reflected. They may apply.
4. The assumed average Policy size is $1,360. The $30 policy maintenance
charge is reflected in the examples as $22.06.
5. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
As of the date of this prospectus, the sale of the AFAdvantage Variable
Annuity had not begun. Therefore, no condensed financial information is
presented.
THE AFADVANTAGE VARIABLE ANNUITY
An annuity is a contract between you, the Policy Owner, and an insurance company
(in this case American Fidelity), where the insurance company promises to pay
you (or someone else you choose) an income in the form of Annuity Payments
beginning on a date chosen by you. Until you decide to begin receiving Annuity
Payments, your annuity is in the Accumulation Phase. Once you begin receiving
Annuity Payments, your Policy is in the Annuity Phase. If you or the Annuitant
die during the Accumulation Phase, American Fidelity will pay a death benefit to
your Beneficiary.
The Policy benefits from Tax Deferral. Tax deferral means that you are not taxed
on earnings or appreciation on the assets in your Policy until you take money
out of your Policy.
The Policy is called a variable annuity because you can choose among the
available Portfolios and, depending upon market conditions, you can make or lose
money in any of these Portfolios. If you select the variable annuity portion of
the Policy, the amount of money you are able to accumulate in your Policy during
the Accumulation Phase depends in part upon the investment performance of the
Portfolio(s) you select. The Annuity Payments you will receive during the
Annuity Phase can come from the Portfolios and/or the Guaranteed Interest
Account.
The Guaranteed Interest Account Option offers an interest rate that is
guaranteed by American Fidelity. If you select the Guaranteed Interest Account
Option, your money will be placed with our other general assets. If you select
the Guaranteed Interest Account Option, the amount of money you are able to
accumulate in your Policy during the Accumulation Phase depends upon the total
interest credited to your Policy.
POLICY OWNER . You, as the Policy Owner, have all the rights under the Policy.
You can name a new Policy Owner. A change of Owner will revoke any prior
designation of Owner. Any ownership changes must be sent to our home office on a
form we accept. The change will go into effect when it is signed, subject to any
payments we make or other actions we take before we record it. American Fidelity
will not be liable for any payment made or action taken before it records the
change. The Policy Owner is as designated at the time the Policy is issued,
unless changed. A CHANGE OF OWNERSHIP MAY BE A TAXABLE EVENT.
JOINT OWNER . The Policy can be owned by Joint Owners. If Joint Owners are
named, any Joint Owner must be the spouse of the other Owner. Upon the death of
either Owner, the surviving spouse will be the primary Beneficiary. Any other
Beneficiary designation will be treated as a contingent Beneficiary unless
otherwise indicated in a form we accept.
BENEFICIARY . The Beneficiary is the person(s) or entity you name to receive any
death benefit. The Beneficiary is named at the time the Policy is issued unless
changed at a later date. If the Beneficiary and the Policy Owner or Annuitant,
as applicable, die at the same time, we will assume that the Beneficiary died
first for purposes of payment of the death benefit. You can name any Beneficiary
to be an irrevocable Beneficiary. The interest of an irrevocable Beneficiary
cannot be changed without his or her consent.
You can change the Beneficiary at any time during the Annuitant's life. To do
so, you need to send a request to our home office. The request must be on a form
we accept. The change will go into effect when signed, subject to any payments
we make or actions we take before we record the change. A change cancels all
prior Beneficiaries, except a change will not cancel any irrevocable Beneficiary
without his or her consent. The interest of the Beneficiary will be subject to:
any assignment of the Policy which is binding on us, and any Annuity Option in
effect at the Annuitant's death.
ASSIGNMENT OF THE POLICY
During the Annuitant's life, you can assign some or all of your rights under the
Policy to someone else. A signed copy of the assignment must be sent to our home
office on a form we accept. The assignment will go into effect when it is
signed, subject to any payments we make or other actions we take before we
record it. We are not responsible for the validity or effect of any assignment.
If there are irrevocable Beneficiaries, you need their consent before assigning
your ownership rights in the Policy. Any assignment made after the death benefit
has become payable will be valid only with our consent. If the Policy is
assigned, your rights may only be exercised with the consent of the assignee of
record. AN ASSIGNMENT MAY BE A TAXABLE EVENT.
If the Policy is issued pursuant to a Qualified plan, there may be limitations
on your ability to assign it.
ANNUITY PROVISIONS
ANNUITY DATE
You can receive regular monthly income payments (Annuity Payments) under your
Policy. You can choose the month and year in which those payments begin. We call
that date the Annuity Date. You can select an Annuity Date at any time during
the Accumulation Phase. You must notify us of this date at least 30 days prior
to the date you want your Annuity Payments to begin. Prior to the Annuity Date,
you may change the Annuity Date by written request. Any change must be requested
at least 30 days prior to the new Annuity Date. Your Annuity Date must be the
first day of a calendar month. The Annuity Date may not be later than the
earlier of when the Annuitant reaches attained age 85 or the maximum date
permitted under state law. Your Annuity Date cannot be any earlier than 30
days after you buy the Contract.
SELECTION OF AN ANNUITY OPTION
You can choose among income plans. We call those Annuity Options. A selection to
receive Annuity Payments under an Annuity Option must be made at least 30 days
prior to the Annuity Date. If no option is selected, Option 2 with 120 monthly
payments guaranteed will automatically be applied. Prior to the Annuity Date,
you may change the Annuity Option selected by written request. Any change must
be requested at least 30 days prior to the Annuity Date. If an option is based
on life expectancy, we will require proof of the payee's date of birth.
ANNUITY PAYMENTS
Annuity Payments are paid in monthly installments. Annuity Payments can be made
on a variable basis (which means they will be based on the investment
performance of the Portfolios) and/or on a fixed basis (which means they will
come from the Guaranteed Interest Account). However, payments under Option 4 can
only come from the Guaranteed Interest Account (fixed annuity). Depending on
your election, the value of your Policy (adjusted for the policy maintenance
charge and any taxes) will be applied to provide the Annuity Payment. If no
election has been made 30 days prior to the Annuity Date, amounts in the
Guaranteed Interest Account will be used to provide a fixed annuity and amounts
in the Portfolios will be used to provided a variable annuity. If you choose
to have any portion of your Annuity Payments come from the Portfolio(s), the
dollar amount of your payment will depend upon 3 things: 1) the value of your
Policy in the Portfolio(s) on the Annuity Date, 2) the assumed investment rate
used in the annuity table for the Policy, and 3) the performance of the
Portfolios you selected. You can choose either a 3%, 4% or 5% assumed investment
rate. If you do not choose an assumed investment rate, the assumed investment
rate will be 3%. If the actual performance exceeds the 3% assumed rate (or
whichever rate you choose), your Annuity Payments will increase. Similarly, if
the actual rate is less than 3% (or whichever rate you choose), your Annuity
Payments will decrease. The amount of the first Annuity Payment will depend
on the Annuity Option elected and the age of the Annuitant at the time the first
payment is due.
ANNUITY OPTIONS
You can choose one of the following Annuity Options or any other Annuity Option
acceptable to us. After Annuity Payments begin, you cannot change the Annuity
Option.
OPTION 1. LIFETIME ONLY ANNUITY: We will make monthly payments during the life
of the Annuitant. If this option is elected, payments will stop when the
Annuitant dies.
OPTION 2. LIFETIME ANNUITY WITH GUARANTEED PERIODS: We will make monthly
payments for the guaranteed period selected during the life of the Annuitant.
When the Annuitant dies, any amounts remaining under the guaranteed period
selected will be distributed to the Beneficiary at least as rapidly as they were
being paid as of the date of the Annuitant's death. The guaranteed period may be
10 years or 20 years.
OPTION 3. JOINT AND SURVIVOR ANNUITY: We will make monthly payments during the
joint lifetime of the Annuitant and a Joint Annuitant. Payments will continue
during the lifetime of the surviving Annuitant and will be computed on the basis
of 100%, 66 2/3% or 50% of the Annuity Payment in effect during the joint
lifetime.
OPTION 4. PERIOD CERTAIN: We will make monthly payments for a specified period.
The specified period must be at least five years and cannot be more than 30
years. This option is available as a fixed annuity only.
HOW TO PURCHASE THE AFADVANTAGE VARIABLE ANNUITY
PURCHASE PAYMENTS
A Purchase Payment is the money you give us to buy the Policy. You may make
Purchase Payments at any time during the Accumulation Phase. You may increase,
decrease, or change the frequency of such payments. However, each Purchase
Payment must be for at least $25. If in any year no Purchase Payments are made,
the Policy will not lapse. We reserve the right to reject any application or
Purchase Payment. We may deduct amounts from Purchase Payments for premium
taxes, if any. At the time you buy the Policy, you and the Annuitant cannot be
older than 85 years old, or the maximum age permitted under state law.
ALLOCATION OF PURCHASE PAYMENTS
We will allocate the first net Purchase Payment to one or more Investment
Options according to your instructions. We will allocate subsequent Purchase
Payments in the same manner as the first unless you change your instructions.
You may change the allocations of Investment Options by using a form we accept.
We reserve the right to limit the available Investment Options from which you
may choose. All allocations must be in whole percentages, and must not be less
than $25.
Once we receive your Purchase Payment and application, we will issue your Policy
and allocate your first Purchase Payment within 2 business days. If you do not
give us all of the information we need, we will contact you to get it. If for
some reason we are unable to complete this process within 5 business days, we
will either send back your money or get your permission to keep it until we get
all of the necessary information. We will credit your subsequent Purchase
Payments to your Policy within one business day. Our business day closes when
the New York Stock Exchange closes, which is usually at 4:00 p.m. Eastern time.
RIGHT TO EXAMINE POLICY
If you change your mind about owning the Policy, you can cancel it within 20
days after receiving it. When you cancel the Policy within this time period, we
will not assess a withdrawal charge. If you return the Policy, it will be void
from the beginning and we will refund to you the greater of: the Purchase
Payments paid, or the value of your Policy as of the earlier of the date we
receive the Policy at our home office, or the date our agent receives the
Policy.
ACCUMULATION UNITS
The value of the portion of your Policy allocated to the Portfolios will go up
or down depending upon the investment performance of the Portfolio(s) you
choose. The value of your Policy will also depend on the expenses of the Policy.
In order to keep track of the value of your Policy, we use a measurement called
an Accumulation Unit. During the Annuity Phase, we call the unit an Annuity
Unit.
Every business day we determine the value of an Accumulation Unit for a share of
a Portfolio by multiplying the Accumulation Unit value for the previous period
by a factor for each Portfolio for the current period. The factor for each
Portfolio is determined by:
1. dividing the value of the underlying Portfolio share at the end of
the current period by the value of an underlying Portfolio share for the
previous period; and
2. subtracting from that amount any mortality and expense risk,
administrative and distribution expense charges.
The value of an Accumulation Unit may go up or down from day to day.
When you make a Purchase Payment, we credit your Policy with Accumulation Units.
The number of Accumulation Units credited is determined by dividing the amount
of the Purchase Payment allocated to a Portfolio by the value of the
Accumulation Unit for that Portfolio.
We calculate the value of an Accumulation Unit for each Portfolio after the New
York Stock Exchange closes each day and then credit your Policy accordingly.
EXAMPLE:
On Thursday we receive an additional Purchase Payment of $100 from you. You
direct this to go to the Merrill Lynch Special Value Focus Fund investment
option. When the New York Stock Exchange closes on that Thursday, we
determine that the value of an Accumulation Unit for the Merrill Lynch
Special Value Focus Fund is $10.75. We then divide $100 by $10.75 and credit
your Policy on Thursday night with 9.30 Accumulation Units for the Merrill Lynch
Special Value Focus Fund.
INVESTMENT OPTIONS
When you buy the Policy you can allocate your money to the Portfolios listed
below and/or the Guaranteed Interest Account.
PORTFOLIOS
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Variable Series Funds, Inc. is an open-end management investment
company with sixteen separate funds. Merrill Lynch Asset Management, L.P. is the
investment adviser to the Funds. The following Funds are available under the
Policy:
Merrill Lynch Prime Bond Fund
Merrill Lynch Special Value Focus Fund
Merrill Lynch American Balanced Fund
Merrill Lynch International Equity Focus Fund
Merrill Lynch High Current Income Fund
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified, management investment
company. The Dreyfus Corporation serves as the Fund's manager. Dreyfus has hired
its affiliate, Mellon Equity Associates, to serve as the Fund's index fund
manager and provide day-to-day management of the Fund's investments.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. is an open-end, diversified
management investment company. The Dreyfus Corporation serves as the Fund's
investment adviser. NCM Capital Management Group, Inc. serves as the Fund's
sub-investment adviser and provides day-to-day management of the Fund's
portfolio.
THE DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end management investment company
with thirteen portfolios. The Dreyfus Corporation serves as the investment
adviser. The following Funds are available under the Policy:
Growth and Income Portfolio
Small Company Stock Portfolio
Additional Portfolios and/or Funds may be available in the future.
Shares of the Funds are issued and redeemed in connection with investments in
and payments under certain variable annuity contracts and variable life
insurance policies of various life insurance companies which may or may not be
affiliated. The Funds do not believe that offering their shares in this manner
will be disadvantageous to you. Nevertheless, the Board of Trustees or the
Boards of Directors, as applicable, intend to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken. If such a conflict were to
occur, one or more insurance company separate accounts might withdraw its
investments in a Portfolio. An irreconcilable conflict might result in the
withdrawal of a substantial amount of a Portfolio's assets which could adversely
affect such Portfolio's net asset value per share.
YOU SHOULD READ THE PROSPECTUSES FOR THE FUNDS CAREFULLY BEFORE INVESTING. THEY
CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS
PROSPECTUS. You can obtain a copy of the Statement of Additional Information
for the Portfolios by contacting American Fidelity's Service Office at: (800)
662-1106, P.O. Box 25523, Oklahoma City, Oklahoma 73125-0523.
GUARANTEED INTEREST ACCOUNT OPTION
The Guaranteed Interest Account Option is an investment option within our
general account which earns interest credited by us.
Because of certain exemptive and exclusionary provisions, interests in the
Guaranteed Interest Account are not registered under the Securities Act of 1933
and the Guaranteed Interest Account is not registered as an investment company
under the Investment Company Act of 1940. Therefore, neither the Guaranteed
Interest Account nor any interests in it are subject to the provisions of these
Acts. The Company has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this prospectus relating to the
Guaranteed Interest Account Option. Disclosures regarding the Guaranteed
Interest Account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
VOTING RIGHTS
American Fidelity is the legal owner of the Portfolio shares. However, American
Fidelity believes that when a Portfolio solicits proxies in conjunction with a
shareholder vote, it is required to obtain from you and other Policy Owners
instructions as to how to vote those shares. When we receive those instructions,
we will vote all of the shares we own in proportion to those instructions.
Should we determine that we are no longer required to comply with the above, we
will vote the shares in our own right.
SUBSTITUTION
American Fidelity may substitute one of the Portfolios you have selected with
another Portfolio. We would not do this without the prior approval of the
Securities and Exchange Commission. We will give you notice of our intention to
do this.
TRANSFERS
You may direct us to make transfers between all Investment Options. A transfer
request must be in a form we accept. We reserve the right to limit the number of
transfers that may be made. If you elect to use this transfer privilege, we will
not be liable for transfers made as instructed by you. All transfers must be in
whole percentages. All transfers made on a given date count as one transfer.
We reserve the right, at any time and without prior notice, to end, suspend or
change the transfer privilege.
TRANSFERS DURING THE ACCUMULATION PHASE. If you make more than 12 transfers in a
Policy Year, there is a transfer fee deducted. The fee is the lesser of $25 per
transfer or 2% of the amount transferred. The minimum amount which you can
transfer is $500 from an Account or your entire value in the Account. All
transfers must be in whole percentages.
TRANSFERS DURING THE ANNUITY PHASE. You may make transfers among the Portfolios.
You may also make transfers from the Portfolios to the Guaranteed Interest
Account Option to provide for a fixed annuity. You may only make one transfer
each Policy year during the Annuity Phase. There is no transfer fee charged for
the one transfer. You cannot make a transfer from your fixed annuity to a
Portfolio.
AUTOMATIC DOLLAR COST AVERAGING
Automatic Dollar Cost Averaging allows you to systematically transfer a set
amount each quarter from any Investment Option (source account) to any of
the other Investment Option(s). By allocating amounts on a regular schedule
as opposed to allocating the total amount at one particular time, you may be
less susceptible to the impact of market fluctuations. Automatic Dollar
Cost Averaging is only available during the Accumulation Phase. The minimum
amount which can be transferred each quarter is $500 from each source account.
If you participate in Automatic Dollar Cost Averaging, the transfers made under
the program are taken into account in determining any transfer fee.
ASSET REBALANCING
Once your money has been allocated among the Investment Options, the performance
of the Investment Options may cause your allocation to shift. You can direct us
to automatically rebalance your Policy to return to your original percentage
allocations by selecting our Asset Rebalancing service. The transfer date will
be the 1st day after the end of the Policy year. Asset Rebalancing is only
available during the Accumulation Phase. If you participate in Asset
Rebalancing, the transfers made under the program are taken into account in
determining any transfer fee.
PERFORMANCE
American Fidelity may periodically advertise performance based on the historical
performance of the various Portfolios. American Fidelity will calculate
performance by determining the percentage change in the value of an Accumulation
Unit by dividing the increase (decrease) for that unit by the value of the
Accumulation Unit at the beginning of the period. This performance number
reflects the deduction of the insurance charges, policy maintenance charge and
expenses of the Portfolios. It does not reflect the deduction of any applicable
withdrawal charge. Results calculated without the withdrawal charge will be
higher. American Fidelity may also advertise cumulative total return
information. Cumulative total return is determined the same way except that the
results are not annualized. Any advertisement will also include average annual
total return figures which reflect the deduction of the insurance charges,
policy maintenance charge, withdrawal charges and the expenses of the Portfolio.
For periods starting prior to the date the Policies were first offered, the
performance will be based on the historical performance of the corresponding
Portfolios, modified to reflect the charges and expenses of the AFAdvantage
Variable Annuity as if the Policies had been in existence during the period
stated in the advertisement. These figures should not be interpreted to reflect
actual historic performance.
More detailed information regarding how performance is calculated is found
in the SAI.
Any past performance does not guarantee future results of the Portfolios.
EXPENSES
There are charges and other expenses associated with the Contract that will
reduce your investment return. These charges and expenses are:
INSURANCE CHARGES
We deduct insurance charges each day. We do this as part of the calculation of
the value of the Accumulation Units during the Accumulation Phase and the
Annuity Units during the Annuity Phase. The insurance charges are: 1) the
mortality and expense risk charge; 2) the administrative charge; and 3) the
distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE . This charge is equal, on an annual
basis, to 1.25% of the average daily value of the Policy invested in a
Portfolio, after the deduction of expenses. This charge compensates us for all
the insurance benefits provided by your Policy (for example, the guarantee of
annuity rates, the death benefits, certain expenses related to the Policy, and
for assuming the risk (expense risk) that the current charges will be
insufficient in the future to cover the cost of administering the Policy).
ADMINISTRATIVE CHARGE . This charge is equal, on an annual basis, to .15%
of the average daily value of the Policy invested in a Portfolio, after the
deduction of expenses. This charge may be increased but will never be more than
.25% of the average daily value of the Policy invested in a Portfolio. This
charge, together with the policy maintenance charge (which is explained below),
is for all the expenses associated with the administration of the Policy. Some
of these expenses include: preparation of the Policy, confirmations, annual
reports and statements, maintenance of Policy records, personnel costs, legal
and accounting fees, filing fees, and computer and systems costs.
DISTRIBUTION EXPENSE CHARGE . This charge is equal, on an annual basis, to
.10% of the average daily value of the Policy invested in a Portfolio, after the
deduction of expenses. This charge may be increased but will never be more than
.25% of the average daily value of the Policy invested in a Portfolio. This
charge compensates American Fidelity for the costs associated with the
distribution of the Policies.
POLICY MAINTENANCE CHARGE
Every Policy Year American Fidelity deducts $30 from your Policy as a policy
maintenance charge. American Fidelity reserves the right to change the policy
maintenance charge, however, it will never be more than $36 per year. The charge
will be deducted pro-rata from the Accounts. During the Accumulation Phase, the
policy maintenance charge will be deducted on each Policy Anniversary. If you
make a total withdrawal on other than a Policy Anniversary, the full policy
maintenance charge will be deducted at the time of the withdrawal. During the
Annuity Phase, the charge will be deducted pro-rata from Annuity Payments.
WITHDRAWAL CHARGE
Withdrawals may be subject to a withdrawal charge. During the Accumulation
Phase, you can make withdrawals from your Policy (see the "Withdrawals"
section). During the first Policy Year, all withdrawals will have a withdrawal
charge. After the first Policy Year, you can make a withdrawal of up to 10% of
the value of your Policy (at the time you request the withdrawal) once each
Policy Year without incurring a withdrawal charge (free withdrawal amount). If
you do not use the free withdrawal amount in any year, it cannot be carried
forward to the next Policy Year.
The withdrawal charge is a percentage of the amount withdrawn in excess of the
free withdrawal amount as shown below:
<TABLE>
<CAPTION>
<S> <C>
Policy Year Withdrawal Charge %
- -------------------- -------------------
1 8%
2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8 1%
9+ 0%
</TABLE>
The withdrawal charge is calculated at the time of each withdrawal and will
never exceed 8% of the total Purchase Payments. For partial withdrawals, the
charge will be deducted from the value of your Policy remaining. No withdrawal
charge will be applied when a death benefit is paid or payment under any annuity
option providing at least seven annual or 72 monthly payments.
The withdrawal charge compensates us for expenses associated with selling the
Policy.
NOTE: For tax purposes, withdrawals are considered to have come from the last
money you put into the Policy. Thus, for tax purposes, earnings are considered
to come out first. THERE ARE LIMITS TO THE AMOUNT YOU CAN WITHDRAW FROM A
QUALIFIED PLAN KNOWN AS SECTION 403(b) PLAN. See Taxes and the discussion in the
SAI.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
American Fidelity will reduce or eliminate the amount of the withdrawal charge
when the Policy is sold under circumstances which reduce its sales expenses.
Some examples are: if there is a large group of individuals that will be
purchasing the Policy or a prospective purchaser already had a relationship with
American Fidelity. American Fidelity will not deduct a withdrawal charge under a
Policy issued to an officer, director or employee of American Fidelity or any of
its affiliates. Any circumstances resulting in the reduction or elimination of
the withdrawal charge requires our prior approval.
TRANSFER FEE
There is no charge for the first 12 transfers in a Policy Year during the
Accumulation Phase. Thereafter, the fee is the lesser of $25 or 2% of the amount
transferred. During the Annuity Phase, there is no charge for the one transfer
allowed during each Policy Year.
The transfer fee is deducted from the Investment Option which is the source of
the transfer. If your entire interest in an Investment Option is being
transferred, the transfer fee will be deducted from the amount being
transferred. If you make transfers from multiple Investment Options, the
transfer fee will be deducted pro-rata from each source Investment Option.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. American Fidelity is responsible for the payment
of these taxes and will make a deduction from the value of your Policy for them.
Some of these taxes are due when the Policy is issued, others are due when
Annuity Payments begin. It is our current practice to pay any premium taxes when
they become payable to the states. Premium taxes generally range from 0% to
4.0%, depending on the state.
INCOME TAXES
American Fidelity will deduct from the Policy any income taxes which it may
incur because of the Policy. Currently, American Fidelity is not making any such
deductions.
PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
Portfolios which are described in the attached prospectuses for the Funds.
TAXES
NOTE: AMERICAN FIDELITY HAS PREPARED THE FOLLOWING INFORMATION ON TAXES AS A
GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU SHOULD
CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES. WE HAVE INCLUDED
ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT OF ADDITIONAL
INFORMATION.
ANNUITIES IN GENERAL
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Basically, these rules provide that you will not be taxed on the earnings on the
money held in your annuity until you take the money out. This is referred to as
Tax Deferral. There are different rules regarding how you will be taxed
depending upon how you take the money out and the type of Policy - Qualified or
Non-Qualified (see following sections).
You, as the Owner, will not be taxed on increases in the value of your Policy
until a distribution occurs - either as a withdrawal or as Annuity Payments.
When you make a withdrawal you are taxed on the amount of the withdrawal that is
earnings. For Annuity Payments, different rules apply. A portion of each Annuity
Payment you receive will be treated as a partial return of your Purchase
Payments and will not be taxed. The remaining portion of the Annuity Payment
will be treated as ordinary income. How the Annuity Payment is divided between
taxable and non-taxable portions depends upon the period over which the Annuity
Payments are expected to be made. Annuity Payments received after you have
received all of your Purchase Payments are fully includible in income.
When a Non-Qualified Policy is owned by a non-natural person (e.g., a
corporation or certain other entities other than tax-qualified trusts), the
Policy will generally not be treated as an annuity for tax purposes. This means
that the Policy may not receive the benefits of Tax-Deferral. Income may be
taxed as ordinary income every year.
QUALIFIED AND NON-QUALIFIED POLICIES
If you purchase the Policy under a Qualified plan, your Policy is referred to as
a Qualified Policy. Examples of Qualified plans are: Individual Retirement
Annuities (IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b)
Policies), H.R. 10 Plans (sometimes referred to as Keogh plans) and Corporate
Pension and Profit-Sharing Plans.
If you do not purchase the Policy under a Qualified plan, your Policy is
referred to as a Non-Qualified Policy.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED POLICIES
If you make a withdrawal from your Policy, the Code treats such a withdrawal as
first coming from earnings and then from your Purchase Payments. In most cases,
such withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a tax penalty. The amount of the penalty
is equal to 10% of the amount that is includible in income. Some withdrawals
will be exempt from the penalty. They include any amounts: (1) paid on or after
the taxpayer reaches age 59 1/2; (2) paid after the Owner dies; (3) paid if the
taxpayer becomes totally disabled (as that term is defined in the Code); (4)
paid in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer; (5) paid under an
immediate annuity; or (6) which come from purchase payments made prior to August
14, 1982.
The Policy provides that when the Annuitant dies prior to the Annuity Date, a
death benefit will be paid to the Beneficiary. If the Owner is not the
Annuitant, such payments made when the Annuitant dies do not qualify for the
death of Owner exception described above, and will be subject to the 10% tax
penalty unless the Beneficiary is 59 1/2 years old or one of the other
exceptions to the penalty applies.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED POLICIES
The above information describing the taxation of Non-Qualified Policies does not
apply to Qualified Policies. In the case of a withdrawal under a Qualified
Policy, a ratable portion of the amount received is taxable, generally based on
the ratio of your cost basis to your total accrued benefit under the retirement
plan. The Code imposes a 10% penalty tax on the taxable portion of any
distribution from qualified retirement plans, including Policies issued and
qualified under Code Sections 403(b) (Tax-Sheltered Annuities), 408(b)
(Individual Retirement Annuities) and 401 (H.R. 10 and Corporate Pension and
Profit-Sharing Plans). To the extent amounts are not includible in gross income
because they have been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) if distribution is made on or after the date
on which the Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Owner or Annuitant (as
applicable) (for this purpose disability is as defined in Section 72(m)(7) of
the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Owner or Annuitant (as
applicable) and his designated beneficiary; (d) distributions to an Owner or
Annuitant (as applicable) who has separated from service after he has attained
age 55; (e) distributions made to the Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Owner or Annuitant (as applicable) for amounts
paid during the taxable year for medical care; (f) distributions made to an
alternate payee pursuant to a qualified domestic relations order; and (g)
distributions from an Individual Retirement Annuity for the purchase of medical
insurance (as described in Section 213(d)(1)(D) of the Code) for the Owner or
Annuitant (as applicable) and his or her spouse and dependents if the Owner or
Annuitant (as applicable) has received unemployment compensation for at least 12
weeks. This exception will no longer apply after the Owner or Annuitant (as
applicable) has been re-employed for at least 60 days. The exceptions stated in
items (d) and (f) above do not apply in the case of an Individual Retirement
Annuity. The exception stated in item (c) applies to an Individual Retirement
Annuity without the requirement that there be a separation from service.
A more complete discussion of withdrawals from Qualified Policies is contained
in the SAI.
TAX TREATMENT OF WITHDRAWALS - TAX-SHELTERED ANNUITIES
The Code limits the withdrawal of purchase payments made by owners from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his/her job; (3) dies; (4) becomes disabled (as that term
is defined in the Code); or (5) in the case of hardship. However, in the case of
hardship, the owner can only withdraw the purchase payments and not any
earnings.
DIVERSIFICATION
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. American Fidelity believes that the Portfolios are being
managed so as to comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, and not American
Fidelity would be considered the owner of the shares of the Portfolios. If this
occurs, it will result in the loss of the favorable tax treatment for the
Policy. It is unknown to what extent under federal tax law Owners are permitted
to select Portfolios, to make transfers among the Portfolios or the number and
type of Portfolios Owners may select from. If any guidance is provided which is
considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is considered not to be a new position,
it may be applied retroactively. This would mean that you, as the Owner of the
Policy, could be treated as the owner of the Portfolios.
Due to the uncertainty in this area, American Fidelity reserves the right to
modify the Policy in an attempt to maintain favorable tax treatment.
WITHDRAWALS
You can have access to the money in your Policy: (1) by making a withdrawal
(either a partial or a total withdrawal); (2) by receiving Annuity Payments; or
(3) when a death benefit is paid to your Beneficiary. Withdrawals can only be
made during the Accumulation Phase.
You may withdraw all or some of the value of your Policy, minus taxes due, if
any, minus the withdrawal charge and policy maintenance charge. You must apply
for a withdrawal using a form we accept. Any partial withdrawal amount must be
at least $250, with exceptions for hardship. This requirement is waived if the
partial withdrawal is pursuant to the Systematic Withdrawal Program (see below).
After a withdrawal, the value of your Policy cannot be less than $100. Any
amount withdrawn will be deducted pro-rata from the Investment Options. If you
want to withdraw amounts in any other proportion, you must tell us using a form
we accept.
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL
YOU MAKE.
There are limits to the amount you can withdraw from a Qualified plan referred
to as a 403(b) plan. For a more complete explanation see - Taxes and the
discussion in the SAI.
SYSTEMATIC WITHDRAWAL PROGRAM
After the first Policy year, you can participate in a Systematic Withdrawal
Program in lieu of the 10% free withdrawal option. If the total amount of
systematic withdrawals during a Policy Year exceeds the 10% free withdrawal
amount, a withdrawal charge will be incurred. During the Policy Year that
systematic withdrawals begin, the 10% free withdrawal amount will be based on
the value of your Policy on the business day before you request systematic
withdrawals. The request must be made on a form we accept. During subsequent
years, the free withdrawal amount will be based on the value of your Policy on
the last Policy Anniversary. Systematic withdrawals can be made monthly,
quarterly or semi-annually. We reserve the right to limit the terms and
conditions under which systematic withdrawals can be elected and to stop
offering any or all systematic withdrawals at any time.
INCOME TAXES AND TAX PENALTIES MAY APPLY TO SYSTEMATIC WITHDRAWALS.
SUSPENSION OF PAYMENTS OR TRANSFERS
American Fidelity may be required to suspend or postpone payments for
withdrawals or transfers for any period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of the Fund shares is
not reasonably practicable or American Fidelity cannot reasonably value the Fund
shares;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
American Fidelity has reserved the right to defer payment for a withdrawal or
transfer from the Guaranteed Interest Account for the period permitted by law
but not for more than six months.
LOANS
If you purchased your Policy under a 403(b) Qualified plan, we may make a loan
to you at any time before Annuity Payments begin. However, no loans will be made
during the first Policy Year. The security for the loan will be the value of
your Policy in the Guaranteed Interest Account. The loan cannot be more than the
lesser of $50,000 or one-half of the value of your Policy in the Guaranteed
Interest Account. Under certain circumstances, the $50,000 limit may be reduced.
The minimum loan we will make is $2,500 (which can be changed by us at our
discretion).
If a loan payment is not made within 60 days of the date a payment is due, the
outstanding loan balance (principal plus interest) will become due and payable.
If not repaid, the loan balance plus interest will be considered in default and
will be treated as taxable income for the tax year of the default. Satisfaction
of any unpaid loan balance plus interest from the Guaranteed Interest Account
will only occur when you qualify for a plan distribution under the federal tax
guidelines. If the loan is in default and you do not yet qualify for a
distribution to satisfy the outstanding loan balance, the loan will continue to
accrue interest which, if not paid by you, will be taxable income in the tax
year accrued. Any amounts which may become taxable will be reported as plan
distributions and will be subject to income tax and tax penalties, if
applicable.
Upon your death, the Beneficiary will receive the death benefit reduced by the
loan balance. If Annuity Payments begin while there is an outstanding loan, the
value of the Guaranteed Interest Account will be reduced by the loan balance.
DEATH BENEFIT
DEATH BENEFIT AMOUNT
The death benefit will be the greater of: (1) the Purchase Payments you have
made, less any money you have taken out and any applicable withdrawal charges;
or (2) the value of your Policy minus the policy maintenance charge and taxes,
if any, determined on the business day we receive proof of death and an election
for the payment period.
DEATH OF OWNER BEFORE ANNUITY DATE
If you or any Joint Owner dies before the Annuity Date, the death benefit will
be paid to your Beneficiary. When any Joint Owner dies, the surviving Joint
Owner, if any, will be treated as the primary Beneficiary. Any other person
chosen as a Beneficiary at the time of death will be treated as a contingent
Beneficiary. The death benefit will be paid under one of the following death
benefit options.
Death Benefit Options:
If you or any Joint Owner dies before the Annuity Date, a Beneficiary who is not
your spouse must elect the death benefit to be paid under one of the following
options:
1. lump sum payment;
2. payment of the entire death benefit within five years of the date of
your death or the death of any Joint Owner; or
3. payment of the death benefit under any Annuity Option. If this option is
chosen, the annuity must be distributed over the lifetime of the Beneficiary or
over a period not extending beyond the life expectancy of the Beneficiary; and
the distribution must begin within one year of the date of your death or any
Joint Owner's death.
Any portion of the death benefit not applied under an Annuity Option within one
year of the date of death must be distributed within five years of the date of
death.
If the Beneficiary is your spouse (spousal Beneficiary), he or she may:
1. choose to continue the Policy in his or her own name at the current
value of the Policy;
2. choose a lump sum payment of the death benefit; or
3. apply the death benefit to an Annuity Option.
If the deceased Owner was also the Annuitant and the spousal Beneficiary
continues the Policy or applies the death benefit to an Annuity Option, the
spousal Beneficiary will become the new Annuitant.
If a lump sum payment is requested, we will pay the amount within seven days
of receipt of proof of death and the election, unless the Suspension or Deferral
Payments Provision is in effect. Payment to the Beneficiary (other than a lump
sum payment) may only be elected during the 60 day period beginning with the
date we receive proof of death. If the Beneficiary does not select a payment
method during the 60 day period after we receive proof of death, the death
benefit will be paid in a lump sum.
DEATH OF ANNUITANT BEFORE THE ANNUITY DATE
If you are not the Annuitant and the Annuitant dies before the Annuity Date, the
death benefit will be paid to the Beneficiary. The death benefit will be paid in
a lump sum and must be paid in full within five years of the date of death. If
the Owner is a non-individual (e.g., a corporation), the death of the Annuitant
will be treated as the death of the Owner.
DEATH OF OWNER AFTER THE ANNUITY DATE
If you, or any Joint Owner who is not the Annuitant, die during the Annuity
Period, any remaining payments under the Annuity Option elected will continue at
least as rapidly as they were being paid at your death or such Joint Owner's
death. When any Owner dies during the Annuity Period, the Beneficiary becomes
the Owner. Upon the death of any Joint Owner during the Annuity Period, the
surviving Joint owner, if any, will be treated as the primary Beneficiary. Any
other Beneficiary designation on record at the time of death will be treated as
a contingent Beneficiary.
DEATH OF ANNUITANT AFTER THE ANNUITY DATE
If the Annuitant dies on or after the Annuity Date, the death benefit, if any,
will be as set forth in the Annuity Option elected. Death benefits will be paid
at least as rapidly as they were being paid at the Annuitant's death.
OTHER INFORMATION
AMERICAN FIDELITY
American Fidelity Assurance Company (American Fidelity), 2000 N. Classen
Boulevard, Oklahoma City, Oklahoma 73106 is an Oklahoma stock life insurance
company organized in 1960. American Fidelity is licensed to conduct life,
annuity and accident and health insurance business in forty-nine states and the
District of Columbia. American Fidelity is a wholly owned subsidiary of American
Fidelity Corporation since 1974.
THE SEPARATE ACCOUNT
American Fidelity established a separate account, American Fidelity Separate
Account B (Separate Account), to hold the assets that underlie the Policies. Our
Board of Directors adopted a resolution to establish the Separate Account under
Oklahoma insurance law on September 20, 1996. American Fidelity has registered
the Separate Account with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is divided into sub-accounts. Each sub-account invests in a Portfolio.
The assets of the Separate Account are held in American Fidelity 's name on
behalf of the Separate Account and legally belong to American Fidelity. However,
those assets that underlie the Policies, are not chargeable with liabilities
arising out of any other business we may conduct. All the income, gains and
losses (realized or unrealized) resulting from these assets are credited to or
charged against the Policies and not against any other Policies we may issue.
LEGAL PROCEEDINGS
There are no pending material legal proceedings affecting the Separate Account,
American Fidelity or American Fidelity Securities, Inc.
DISTRIBUTION
American Fidelity Securities, Inc. (AFS, Inc.) acts as the distributor of the
Policies. AFS, Inc. is a wholly-owned subsidiary of American Fidelity.
ADMINISTRATION
American Fidelity performs certain administrative services regarding the
Policies. The administrative services include issuance of the Policies and
maintenance of Policy Owner's records.
FINANCIAL STATEMENTS
The financial statements of American Fidelity have been included in the
Statement of Additional Information. No financial statements of the Separate
Account have been included because, as of the date of this prospectus, the
Separate Account had no assets.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
General Information and History of the Company
Experts
Legal Opinions
Distributor
Reduction or Elimination of the Withdrawal Charge
Performance Information
Tax Status
Annuity Provisions
Financial Statements
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________________________________________________________________________
__________________
__________________
__________________
FRONT
- -----
American Fidelity Assurance Company
Annuity Services Department
P.O. Box 25523
Oklahoma City, OK 73125-0523
________________________________________________________________________
________________________________________________________________________
Please send me, at no charge, the Statement of Additional Information
dated __________, 1997, for the AFAdvantage Variable Annuity issued by
American Fidelity Assurance Company.
(Please print or type and fill in all information)
BACK ________________________________________________________________________
- -----
Name
________________________________________________________________________
Address
________________________________________________________________________
City State Zip Code
________________________________________________________________________
Form #
</TABLE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE AND FIXED DEFERRED
ANNUITY POLICIES
ISSUED BY
AMERICAN FIDELITY SEPARATE ACCOUNT B
AND
AMERICAN FIDELITY ASSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED _____, 1997, FOR THE INDIVIDUAL
FLEXIBLE PREMIUM VARIABLE AND FIXED DEFERRED ANNUITY POLICIES WHICH ARE REFERRED
TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
SHOULD KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE US AT:
AMERICAN FIDELITY ASSURANCE COMPANY, ANNUITY SERVICES DEPARTMENT, P.O. BOX
25523, OKLAHOMA CITY, OK 73125-0523, (800) 662-1106.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED _____, 1997.
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY OF THE COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTOR
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
CALCULATION OF PERFORMANCE INFORMATION
TAX STATUS
ANNUITY PROVISIONS
FINANCIAL STATEMENTS
GENERAL INFORMATION AND HISTORY OF THE COMPANY
American Fidelity Assurance Company ("Company") was organized in the State of
Oklahoma in 1960 and during its existence has never changed its name. Neither
the sales of variable annuity contracts nor the sales of any other insurance
product by the Company have ever been suspended by any state where the Company
has done or is presently doing business.
The Company is a wholly owned subsidiary of American Fidelity Corporation, an
insurance holding company. The stock of American Fidelity Corporation is
controlled by a family investment partnership, Cameron Enterprises, A Limited
Partnership, an Oklahoma limited partnership ("CELP"). In accordance with the
partnership agreement, management of the affairs of CELP is vested in five
managing general partners: William M. Cameron, William E. Durrett, Edward C.
Joullian, III, John W. Rex and Theodore M. Elam.
EXPERTS
The financial statements of the Company as of and for the year ended
December 31, 1996 and 1995 and for each of the years in the three year period
ended December 31, 1996, included in this Statement of Additional Information
have been audited by KPMG Peat Marwick LLP.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, has provided
advice on certain matters relating to the federal securities and income
tax laws in connection with the Policies.
DISTRIBUTOR
American Fidelity Securities, Inc., a wholly-owned subsidiary of the Company,
acts as the distributor. The offering is on a continuous basis.
REDUCTION OR ELIMINATION OF THE WITHDRAWAL CHARGE
The amount of the Withdrawal Charge on the Policies may be reduced or eliminated
when sales of the Policies are made to individuals or to a group of individuals
in a manner that results in savings of sales expenses. The entitlement to a
reduction of the withdrawal charge will be determined by the Company after
examination of the following factors: 1) the size of the group; 2) the total
amount of purchase payments expected to be received from the group; 3) the
nature of the group for which the Policies are purchased, and the persistency
expected in that group; 4) the purpose for which the Policies are purchased and
whether that purpose makes it likely that expenses will be reduced; and 5) any
other circumstances which the Company believes to be relevant to determining
whether reduced sales or administrative expenses may be expected. None of the
reductions in charges for sales is contractually guaranteed.
The withdrawal charge will be eliminated when the Policies are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction or elimination of the withdrawal charge be permitted
where the reduction or elimination will be unfairly discriminatory to any
person.
CALCULATION OF PERFORMANCE INFORMATION
From time to time, the Company may advertise performance data as described in
the Prospectus. All performance advertising will include quotations of
standardized total return, calculated in accordance with standard methods
prescribed by rules of the Securities and Exchange Commission, to facilitate
comparison with standardized total return advertised by other variable annuity
separate accounts. Standardized total return advertised for a specific period is
found by first taking a hypothetical $1,000 investment in a Portfolio on the
first day of the period at the 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 is then divided by the initial investment which is then expressed as a
percentage. Standardized total return reflects the expenses of the Portfolio,
the deduction of a policy maintenance charge and a mortality and expense risk,
distribution expense and administrative charges. The redeemable value also
reflects the effect of any applicable withdrawal charge that may be imposed at
the end of the period. No deduction is made for premium taxes which may be
assessed by certain states.
Nonstandardized total return may also be advertised. Nonstandardized total
return may be for periods other than those required to be presented or may
otherwise differ from standardized total return.
The standardized total return quotations will be current to the last day of the
calendar quarter preceding the date on which an advertisement is submitted for
publication. The standardized total return will be based on calendar quarters
and will cover at least periods of one, five, and ten years, or a period
covering the time the Portfolio has been in existence if it has not been in
existence for one of the prescribed periods. If Accumulation Units for the
Policies have not been in existence for as long as the corresponding Portfolio,
the standardized total return and nonstandardized total return quotations will
show what the investment performance of Accumulation Units would have been
(reduced by the applicable charges) had they been held in a Portfolio for the
period quoted (see below).
Quotations of standardized total return and nonstandardized total return are
based upon historical earnings and will fluctuate. Past performance does not
guarantee future results. Factors affecting the performance of a Portfolio
include general market conditions, operating expenses and investment management.
An Owner's value upon a withdrawal of a Policy may be more or less than the
original purchase payment.
PERFORMANCE INFORMATION
The Accumulation Units of the Separate Account are new and therefore have no
performance history. However, the corresponding Portfolios have been in
existence for some time and consequently have investment performance history. In
order to demonstrate how the historical investment experience of the Portfolios
affects Accumulation Unit values, the following performance information was
developed. The information is based upon the historical experience of the
Portfolios and is for the periods shown.
ACTUAL PERFORMANCE WILL VARY AND THE HYPOTHETICAL RESULTS SHOWN ARE NOT
NECESSARILY REPRESENTATIVE OF FUTURE RESULTS. Performance for periods ending
after those shown may vary substantially from the examples shown below. Chart 1
shows the performance of the Accumulation Units calculated for a specified
period of time assuming an initial Purchase Payment of $1,000 allocated to each
Portfolio and a deduction of all charges and deductions (see "Expenses" in the
prospectus). Chart 2 is identical to Chart 1 except that it does not reflect the
deduction of the withdrawal charge. Chart 3 shows cumulative total return with
the deduction of all charges. Chart 4 shows cumulative total return without the
deduction of the withdrawal charge. The performance figures in all 4 charts also
reflect the actual fees and expenses paid by each Portfolio. The percentage
increases are determined by subtracting the initial Purchase Payment from the
ending value and dividing the remainder by the beginning value. All calculations
do not reflect the deduction of any premium taxes.
HISTORICAL FUND PERFORMANCE FOR PERIODS ENDING 12/31/96:
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CHART 1 - AVERAGE ANNUAL TOTAL RETURN
10 YEARS
or Since INCEPTION
1 YEAR 5 YEARS Inception DATE
Merrill Lynch Variable Series
Funds, Inc.
Prime Bond Fund 10.13% 1.85% 3.39% 4/20/82
Special Value Focus Fund -4.50% 6.05% 2.73% 4/20/82
American Balanced Fund -2.90% 3.56% 5.87% 6/01/88
International Equity Focus Fund -5.97% N/A 0.26% 7/01/93
High Current Income Fund -1.39% 7.26% 7.36% 4/20/82
Dreyfus Stock Index Fund 9.71% 9.34% 8.83% 9/29/89
The Dreyfus Socially
Responsible Growth Fund, Inc. 8.42% N/A 12.49% 10/07/93
Dreyfus Variable Investment Fund
Growth and Income Portfolio 7.95% N/A 20.72% 5/02/94
Small Company Stock Portfolio N/A N/A -4.97% 5/01/96
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CHART 2 - TOTAL RETURN WITHOUT WITHDRAWAL CHARGES
10 YEARS
or Since INCEPTION
1 YEAR 5 YEARS Inception DATE
Merrill Lynch Variable Series
Funds, Inc.
Prime Bond Fund -2.31% 2.60% 3.39% 4/20/82
Special Value Focus Fund 3.50% 6.83% 2.73% 4/20/82
American Balanced Fund 5.10% 4.32% 5.87% 6/01/88
International Equity Focus Fund 2.03% N/A 1.59% 7/01/93
High Current Income Fund 6.61% 8.05% 7.36% 4/20/82
Dreyfus Stock Index Fund 17.71% 10.14% 8.96% 9/29/89
The Dreyfus Socially
Responsible Growth Fund, Inc. 16.42% N/A 14.10% 10/07/93
Dreyfus Variable Investment Fund
Growth and Income Portfolio 15.95% N/A 22.88% 5/02/94
Small Company Stock Portfolio N/A N/A 7.01% 5/01/96
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CHART 3- CUMULATIVE TOTAL RETURN
10 YEARS
or Since INCEPTION
1 YEAR 5 YEARS Inception DATE
Merrill Lynch Variable Series
Funds, Inc.
Prime Bond Fund -10.13% 9.58% 39.61% 4/20/82
Special Value Focus Fund -4.50% 34.13% 30.96% 4/20/82
American Balanced Fund -2.90% 19.12% 63.19% 6/01/88
International Equity Focus Fund -5.97% N/A 0.91% 7/01/93
High Current Income Fund -1.39% 41.96% 103.52% 4/20/82
Dreyfus Stock Index Fund 9.71% 56.27% 84.83% 9/29/89
The Dreyfus Socially
Responsible Growth Fund, Inc. 8.42% N/A 46.34% 10/07/93
Dreyfus Variable Investment Fund
Growth and Income Portfolio 7.95% N/A 65.28% 5/02/94
Small Company Stock Portfolio N/A N/A -3.36% 5/01/96
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CHART 4- CUMULATIVE TOTAL RETURN WITHOUT WITHDRAWAL CHARGES
10 YEARS
or Since INCEPTION
1 YEAR 5 YEARS Inception DATE
Merrill Lynch Variable Series
Funds, Inc.
Prime Bond Fund -2.31% 13.67% 39.61% 4/20/82
Special Value Focus Fund 3.50% 39.14% 30.96% 4/20/82
American Balanced Fund 5.10% 23.57% 63.19% 6/01/88
International Equity Focus Fund 2.03% N/A 5.67% 7/01/93
High Current Income Fund 6.61% 47.26% 103.52% 4/20/82
Dreyfus Stock Index Fund 17.71% 62.11% 86.51% 9/29/89
The Dreyfus Socially
Responsible Growth Fund, Inc. 16.42% N/A 53.24% 10/07/93
Dreyfus Variable Investment Fund
Growth and Income Portfolio 15.95% N/A 73.28% 5/02/94
Small Company Stock Portfolio N/A N/A 4.64% 5/01/96
</TABLE>
TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE POLICIES.
PURCHASERS BEAR THE COMPLETE RISK THAT THE POLICIES MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Policy until distribution occurs, either in
the form of a lump sum payment or as annuity payments under the Annuity Option
elected. For a lump sum payment received as a total surrender (total redemption)
or death benefit, the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Policy. For Non-Qualified Policies, this cost
basis is generally the purchase payments, while for Qualified Policies there may
be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Policy (adjusted for any period certain or refund feature)
bears to the expected return under the Policy. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Policy (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Policy has been recovered (i.e. when the total of the
excludable amounts equal the investment in the Policy) are fully taxable. The
taxable portion is taxed at ordinary income rates. For certain types of
Qualified Plans there may be no cost basis in the Policy within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Policies
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Policy as
an annuity contract would result in imposition of federal income tax to the
Policy Owner with respect to earnings allocable to the Policy prior to the
receipt of payments under the Policy. The Code contains a safe harbor provision
which provides that annuity contracts such as the Policies meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Policies. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Portfolios underlying the Policies will be managed
by the investment advisers for the Portfolios in such a manner as to comply with
these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the Separate Account will cause the owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Policy is different
in some respects from the situations addressed in published rulings issued by
the Internal Revenue Service in which it was held that the policy owner was not
the owner of the assets of the separate account. It is unknown whether these
differences, such as the Owner's ability to transfer among investment choices or
the number and type of investment choices available, would cause the Owner to be
considered as the owner of the assets of the Separate Account resulting in the
imposition of federal income tax to the Owner with respect to earnings allocable
to the Policy prior to receipt of payments under the Policy.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Policy in an attempt to maintain favorable tax treatment.
MULTIPLE POLICIES
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year period to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year
period.
POLICIES OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase payments
for the Policies will be taxed currently to the Owner if the Owner is a
non-natural person, e.g., a corporation or certain other entities. Such Policies
generally will not be treated as annuities for federal income tax purposes.
However, this treatment is not applied to Policies held by a trust or other
entity as an agent for a natural person nor to Policies held by qualified plans.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a Policy to be owned by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Policy may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Policies.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary, or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
(c) the portion of the distributions not includible in gross income (i.e.
returns of after-tax contributions). Participants should consult their own tax
counsel or other tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED POLICIES
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any distribution. However, the penalty is not imposed on amounts received: (a)
after the taxpayer reaches age 59 1/2; (b) after the death of the Owner; (c) if
the taxpayer is totally disabled (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (d) in a series of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his Beneficiary; (e) under an immediate annuity; or (f)
which are allocable to purchase payments made prior to August 14, 1982.
The Policy provides that upon the death of the Annuitant prior to the Annuity
Date, the death benefit will be paid to the named Beneficiary. Such payments
made upon the death of the Annuitant who is not the Owner of the Policy do not
qualify for the death of Owner exception described above, and will be subject to
the ten (10%) percent distribution penalty unless the Beneficiary is 59 1/2
years old or one of the other exceptions to the penalty applies.
The above information does not apply to Qualified Policies. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Policies.
(See "Tax Treatment of Withdrawals - Qualified Policies.")
QUALIFIED PLANS
The Policies offered by the Prospectus are designed to be suitable for use under
various types of Qualified Plans. Because of the minimum purchase payment
requirements, the Policies may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each Qualified Plan varies with
the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Policies issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, participants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Policies comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Policies may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications, depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Policy issued under a Qualified Plan.
Policies issued pursuant to Qualified Plans include special provisions
restricting Policy provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Policies issued pursuant to
Qualified Plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified Policies. (See
"Tax Treatment of Withdrawals - Qualified Policies.")
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Policies for the benefit of their employees. Such
contributions are not includable in the gross income of the employee until the
employee receives distributions from the Policy. The amount of contributions to
the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals Qualified Policies" and "Tax-Sheltered Annuities -
Withdrawal Limitations.") Employee loans are allowed under these Policies. Any
employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment and the tax consequences of loans.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Policies.") Under
certain conditions, distributions from other IRAs and other Qualified Plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
Policies for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of Policies to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
c. H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish Qualified
Plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" plans. Contributions made to the plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Policies.")
Purchasers of Policies for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
d. Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to establish
various types of retirement plans for employees. These retirement plans may
permit the purchase of the Policies to provide benefits under the plan.
Contributions to the plan for the benefit of employees will not be includible in
the gross income of the employees until distributed from the plan. The tax
consequences to participants may vary depending upon the particular plan design.
However, the Code places limitations and restrictions on all plans including on
such items as: amount of allowable contributions; form, manner and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals - Qualified Policies.") Purchasers of Policies for use with
Corporate Pension or Profit Sharing Plans should obtain competent tax advice as
to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED POLICIES
In the case of a withdrawal under a Qualified Policy, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Policy. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Policies
issued and qualified under Code Sections 403(b) (Tax-Sheltered Annuities),
408(b) (Individual Retirement Annuities) and 401 (H.R. 10 and Corporate Pension
and Profit-Sharing Plans). To the extent amounts are not includible in gross
income because they have been properly rolled over to an IRA or to another
eligible Qualified Plan, no tax penalty will be imposed. The tax penalty will
not apply to the following distributions: (a) if distribution is made on or
after the date on which the Owner or Annuitant (as applicable) reaches age 59
1/2; (b) distributions following the death or disability of the Owner or
Annuitant (as applicable) (for this purpose disability is as defined in Section
72(m)(7) of the Code); (c) after separation from service, distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his designated beneficiary; (d) distributions to
an Owner or Annuitant (as applicable) who has separated from service after he
has attained age 55; (e) distributions made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Owner or Annuitant (as applicable)
for amounts paid during the taxable year for medical care; (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order; and
(g) distributions from an Individual Retirement Annuity for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for the
Owner or Annuitant (as applicable) and his or her spouse and dependents if the
Owner or Annuitant (as applicable) has received unemployment compensation for at
least 12 weeks. This exception will no longer apply after the Owner or Annuitant
(as applicable) has been re-employed for at least 60 days. The exceptions stated
in items (d) and (f) above do not apply in the case of an Individual Retirement
Annuity. The exception stated in item (c) applies to an Individual Retirement
Annuity without the requirement that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
TAX-SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2 ; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
value which represents contributions by the Owner and does not include any
investment results. The limitations on withdrawals apply only to salary
reduction contributions made after the end of the plan year beginning in 1988,
and to income attributable to such contributions and to income attributable to
amounts held as of the end of the plan year beginning in 1988. The limitations
on withdrawals do not affect rollovers and transfers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
VARIABLE ANNUITY PAYOUT
An owner may elect a variable annuity payout. Variable annuity payments reflect
the investment performance of the Funds in accordance with the allocation of the
value of the Policy to the Funds during the Annuity Period. Variable annuity
payments are not guaranteed as to dollar amount.
The Company will determine the number of Annuity Units payable for each payment
by dividing the dollar amount of the first annuity payment by the Annuity Unit
value for each applicable Fund on the Annuity Date. This sets the number of
Annuity Units for each applicable Fund. The number of Annuity Units payable
remains the same unless an owner transfers a portion of the annuity benefit to
another Fund or to a fixed annuity. The dollar amount is not fixed and will
change from month to month.
The dollar amount of the variable annuity payments for each applicable Fund
after the first payment is determined by multiplying the fixed number of Annuity
Units per payment in each Fund by the Annuity Unit value for the last valuation
period of the month preceding the month for which the payment is due. This
result is the dollar amount of the payment for each applicable Fund. The total
dollar amount of each variable annuity payment is the sum of all variable
annuity payments reduced by the applicable portion of the policy maintenance
charge.
VARIABLE ANNUITY UNIT
The value of any annuity unit for each Fund was arbitrarily set initially at
$10. The Annuity unit value at the end of any subsequent valuation period is
determined as follows:
1. The net investment factor for the current valuation period is multiplied
by the value of the Annuity Unit for the Fund for the immediately preceding
valuation period.
2. The result is then divided by the assumed investment rate factor which
equals 1.00 plus the assumed investment rate for the number of days since the
preceding valuation date.
An Owner can choose either a 3%, 4%, or 5% assumed investment rate. If one is
not chosen, the assumed investment rate will be 3%.
The assumed investment rate is the assumed rate of return used to determine the
first annuity payment for a variable annuity option. A higher assumed investment
rate will result in a higher first payment. Choice of a lower assumed investment
rate will result in a lower first payment. Payments will increase whenever the
actual return exceeds the chosen rate. Payments will decrease whenever the
actual return is less than the chosen rate.
FIXED ANNUITY PAYOUT
The dollar amount of each fixed annuity payment will be at least as great as
that determined in accordance with the 3% Annuity Table. The fixed annuity
provides a 3% annual guaranteed interest rate on all Annuity Options. The
Company may pay or credit excess interest on a fixed annuity at its discretion.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be considered
only as bearing upon the ability of the Company to meet its obligations under
the Policies.
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995, AND FOR
EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
INDEPENDENT AUDITORS' REPORT
Board of Directors
American Fidelity Assurance Company:
We have audited the accompanying consolidated balance sheets of American
Fidelity Assurance Company and subsidiaries (the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, stockholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Fidelity
Assurance Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
March 14, 1997
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Assets 1996 1995
- ------------------------------------------------------ ---------- ---------
<S> <C> <C>
Investments:
Fixed maturities held-to-maturity, at amortized cost
(fair value $251,034 and $241,533 in 1996 and
1995, respectively) $ 251,944 233,313
Fixed maturities available-for-sale, at fair value
(amortized cost of $551,856 and $546,401
in 1996 and 1995, respectively) 559,121 572,717
Equity securities, at fair value:
Preferred stocks (cost $4,600 in 1995) - 2,700
Common stocks (cost $9,692 and $6,192 in
1996 and 1995, respectively) 12,046 7,460
Mortgage loans on real estate, net 130,508 121,641
Investment real estate, at cost (less accumulated
depreciation of $7,047 and $7,816 in 1996
and 1995, respectively) 18,954 25,685
Policy loans 8,359 8,165
Short-term and other investments 12,763 9,347
---------- ---------
993,695 981,028
---------- ---------
Cash 15,962 14,726
Accrued investment income 14,248 13,770
Accounts receivable:
Uncollected premiums 21,665 16,518
Reinsurance receivable 36,794 28,947
Other 12,341 10,329
---------- ---------
70,800 55,794
---------- ---------
Deferred policy acquisition costs 162,497 152,415
Other assets 6,954 7,807
Separate account assets 98,896 74,767
---------- ---------
Total assets $1,363,052 1,300,307
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Liabilities and Stockholder's Equity 1996 1995
- ------------------------------------------------------- ---------- ---------
<S> <C> <C>
Policy liabilities:
Reserves for future policy benefits:
Life and annuity $ 102,820 99,036
Accident and health 121,097 106,992
Unearned premiums 2,376 1,972
Benefits payable 33,178 26,027
Funds held under deposit administration contracts 556,665 542,808
Other policy liabilities 85,068 88,239
---------- ---------
901,204 865,074
---------- ---------
Other liabilities:
Net deferred income tax liability 48,278 52,115
General expenses, taxes, licenses and fees payable
and other liabilities 34,125 29,868
---------- ---------
82,403 81,983
---------- ---------
Notes payable 19,839 19,042
Separate account liabilities 98,896 74,767
---------- ---------
Total liabilities 1,102,342 1,040,866
---------- ---------
Stockholder's equity:
Common stock, par value $10 per share. 250,000
shares authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 19,916 17,718
Net unrealized holding gain on investments
available-for-sale, net of deferred tax expense
of $3,367 and $9,656 in 1996 and
1995, respectively 6,252 16,028
Retained earnings 232,042 223,195
---------- ---------
Total stockholder's equity 260,710 259,441
Commitments and contingencies (notes 9, 10, 11, and 13)
Total liabilities and stockholder's equity $1,363,052 1,300,307
========== =========
</TABLE>
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Revenues:
Premiums:
Life and annuity $ 24,187 24,514 25,012
Accident and health 166,057 156,960 194,382
----------- -------- --------
190,244 181,474 219,394
Net investment income 67,502 65,326 57,079
Other 11,250 12,190 8,102
----------- -------- --------
Total revenues 268,996 258,990 284,575
----------- -------- --------
Benefits:
Benefits paid or provided:
Life and annuity 18,539 18,849 17,604
Accident and health 93,858 74,219 109,796
Interest credited to funded contracts 28,386 27,635 24,251
Increase in reserves for future policy benefits:
Life and annuity (net of increase in reinsurance
reserves ceded of $11, $53, and $8 in 1996,
1995, and 1994, respectively) 4,336 4,619 4,994
Accident and health (net of increase (decrease) in
reinsurance reserves ceded of $2,941, $(441), and
$2,109 in 1996, 1995, and 1994, respectively) 13,259 15,535 7,888
----------- -------- --------
158,378 140,857 164,533
----------- -------- --------
Expenses:
Selling costs 47,105 48,784 56,684
Other operating, administrative and general expenses 44,942 42,586 39,066
Taxes, other than income taxes, and licenses and fees 6,535 6,250 6,184
Increase in deferred policy acquisition costs (10,082) (11,902) (6,507)
----------- -------- --------
88,500 85,718 95,427
----------- -------- --------
Total benefits and expenses 246,878 226,575 259,960
----------- -------- --------
Income from continuing operations before income taxes 22,118 32,415 24,615
Income taxes from continuing operations:
Current 4,421 10,443 4,506
Deferred 4,650 554 7,248
----------- -------- --------
9,071 10,997 11,754
----------- -------- --------
Net income from continuing operations 13,047 21,418 12,861
Income from discontinued operations (net of applicable
income tax expense of $646) - - 2,006
----------- -------- --------
Net income $ 13,047 21,418 14,867
=========== ======== ========
Net income per share from continuing operations $ 52.19 85.67 51.44
=========== ======== ========
Net income per share $ 52.19 85.67 59.47
=========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-in Holding Retained
Stock Capital Gain Earnings
------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 2,500 11,890 5,103 189,210
Net income - - - 14,867
Investments transferred to available-
for-sale, net of deferred taxes - - 4,400 -
Decrease in unrealized holding gain,
net of deferred taxes - - (8,554) -
Capital contributed by parent - 1,743 - -
Dividends - - - (2,300)
------- ---------- ----------- ---------
Balance at December 31, 1994 2,500 13,633 949 201,777
Net income - - - 21,418
Investments transferred to available-
for-sale, net of deferred taxes - - 8,828 -
Increase in unrealized holding gain,
net of deferred taxes - - 6,251 -
Capital contributed by parent on
sale of AFI - 4,085 - -
------- ---------- ----------- ---------
Balance at December 31, 1995 2,500 17,718 16,028 223,195
Net income - - - 13,047
Decrease in unrealized holding gain,
net of deferred taxes - - (9,776) -
Capital contributed by parent - 2,198 - -
Dividends - - - (4,200)
------- --------- ----------- ---------
Balance at December 31, 1996 $ 2,500 19,916 6,252 232,042
======= ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,047 21,418 14,867
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation 935 876 1,142
Accretion of discount on investments (469) (605) (233)
Realized gains on investments (1,793) (2,423) (1,755)
Increase in deferred policy acquisition costs (10,082) (11,902) (6,507)
Increase in accrued investment income (478) (1,819) (899)
(Increase) decrease in accounts receivable (15,006) 847 (11,360)
Increase in policy liabilities 36,130 66,489 43,438
Increase (decrease) in general expenses, taxes, licenses and
fees payable and other liabilities 4,257 256 (3,704)
Deferred income taxes 4,650 554 7,248
Other 840 471 (1,508)
---------- --------- ---------
Total adjustments 18,984 52,744 25,862
---------- --------- ---------
Net cash provided by operating activities 32,031 74,162 40,729
---------- --------- ---------
Cash flows from investing activities:
Sale, maturity or repayment of investments:
Fixed maturities held-to-maturity 26,867 73,984 96,526
Fixed maturities available-for-sale 166,678 36,640 25,419
Equity securities 5,708 5,635 3,286
Mortgage loans on real estate 15,736 12,426 18,657
Real estate 9,101 7,677 627
Net (increase) decrease in short-term and other investments (3,416) 3,283 23,149
Purchase of investments:
Fixed maturities held-to-maturity (45,961) (60,439) (105,841)
Fixed maturities available-for-sale (171,753) (164,417) (91,023)
Equity securities (4,580) (4,249) (6,981)
Mortgage loans on real estate (24,671) (14,328) (14,972)
Real estate (907) (2,820) (891)
Policy loans, net (194) (305) (281)
Cash received from sale of AFI to AFC, net of cash transferred - 21,005 -
Contributions from discontinued operations - - 2,006
---------- --------- ---------
Net cash used in investing activities (27,392) (85,908) (50,319)
---------- --------- ---------
</TABLE>
(Continued)
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid to parent $ (4,200) - (2,300)
Capital contribution from parent - 4,085 -
Proceeds from notes payable 9,075 7,095 16,396
Repayment of notes payable (8,278) (5,849) (10,221)
------------ -------- --------
Net cash (used in) provided by financing activities (3,403) 5,331 3,875
------------ -------- --------
Net increase (decrease) in cash 1,236 (6,415) (5,715)
Cash at beginning of year 14,726 21,141 26,856
------------ -------- --------
Cash at end of year $ 15,962 14,726 21,141
============ ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on notes payable $ 1,340 1,478 1,420
============ ======== ========
Federal income taxes $ 7,100 12,500 4,068
============ ======== ========
Supplemental disclosure of noncash investing activities:
Change in unrealized holding gain on investments
available-for-sale, net of deferred tax (benefit) expense of
$(6,289), $15,554, and $(1,746) in 1996, 1995, and 1994,
respectively. $ (9,776) 15,079 (4,154)
============ ======== ========
Investments transferred to available-for-sale $ - 300,850 86,493
============ ======== ========
Supplemental disclosure of noncash financing activities:
Capital contribution from parent in the form of a
note receivable $ - - 1,743
============ ======== ========
Capital contribution from parent through forgiveness
of deferred tax liability $ 2,198 - -
============ ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
American Fidelity Assurance Company (AFA or the Company) and subsidiaries
provide a variety of financial services. The principal subsidiary of AFA for the
years ended December 31, 1996 and 1995, is Security General Life Insurance
Company (SGLI), a life insurance company. Principal subsidiaries for the year
ended December 31, 1994, include SGLI; American Fidelity Insurance Company
(AFI), a property and casualty insurance company; and Cimarron Insurance Company
(CIC), a property and casualty insurance company. The Company and its insurance
subsidiaries are subject to state insurance regulations and periodic
examinations by state insurance departments.
AFA is licensed in 49 states and the District of Columbia. AFA is represented by
approximately 250 salaried managers and agents, and over 3,000 brokers.
Activities of AFA are largely concentrated in the group disability income, group
and individual annuity, and individual medical markets. In addition, individual
and group life business is also conducted. The main thrust of AFA's sales is
worksite marketing of voluntary products through the use of payroll deduction.
The Company sells these voluntary products through a salaried sales force that
is broken down into two divisions: the Association Group Division (AGD) and
American Fidelity Educational Services (AFES). AGD specializes in voluntary
disability income insurance programs aimed at selected groups and associations
and is funded by employees through payroll deductions. AFES focuses on marketing
to public school employees with ancillary insurance products such as disability
income, tax sheltered annuities, life insurance, dread disease, and accidental
death and dismemberment. The expertise gained by the Company in worksite
marketing of voluntary products is used by the Brokerage Division in developing
products to meet special situations and focuses on marketing to a broad range of
employers through independent broker agencies and agents interested in getting
into or enhancing their payroll deduction capability.
A significant portion of the Company's business consists of group and individual
annuities. The Company's earnings related to these products are impacted by
conditions in the overall interest rate environment. Additionally, the Company
has recently taken measures to reduce its involvement with major medical
products in order to concentrate on its more profitable lines of business.
For the year ended December 31, 1994, AFI was a subsidiary of AFA. AFI
specializes in the underwriting of preferred and standard private passenger
automobile, full coverage commercial automobile, commercial property, and ocean
marine coverages. Other products include inland marine, miscellaneous casualty
lines, and general fire lines. Miscellaneous liability products insuring service
contracts and mechanical breakdown insurance are offered via financial
institutions, manufacturers, and franchised automobile dealers. All business,
except for certain mechanical breakdown insurance, is produced by approximately
800 independent agents throughout Texas, Oklahoma, Kansas, and Louisiana. In
1995, AFA sold AFI to its parent, American Fidelity Corporation (AFC). (See Note
12.)
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which vary in some respects from
statutory accounting practices prescribed or permitted by state insurance
departments. (See Note 2.) The consolidated financial statements include the
accounts and operations of AFA and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates. Principal estimates that could change
in the future are the actuarial assumptions used in establishing deferred policy
acquisition costs and policy liabilities.
INVESTMENTS
Management determines the appropriate classification of investments at the time
of purchase. If management has the intent and the Company has the ability at the
time of purchase to hold the investments until maturity, they are classified as
held-to-maturity and carried at amortized cost. Investments to be held for
indefinite periods of time and not intended to be held-to-maturity are
classified as available-for-sale and carried at fair value. Fair value of
investments available-for-sale are based on quoted market prices.
The effect of any unrealized holding gains or losses on securities
available-for-sale are reported as a separate component of stockholder's equity,
net of deferred taxes. Transfers of securities between categories are recorded
at fair value at the date of transfer.
Fixed maturities held-to-maturity and short-term investments (bonds, notes, and
redeemable preferred stocks) are reported at cost, adjusted for amortization of
premium or accretion of discount because it is management's intent to hold these
investments to maturity. Equity securities (common and nonredeemable preferred
stocks) are reported at current fair value. Mortgage loans on real estate are
reported at the unpaid balance less an allowance for possible losses. Investment
in real estate is carried at cost less accumulated depreciation. Investment in
real estate, excluding land, is depreciated on a straight-line basis using
estimated lives ranging from 6 to 35 years. Policy loans are reported at the
unpaid balance.
Realized gains or losses on disposal of investments are determined on a
specific-identification basis and are included in the accompanying consolidated
statements of income.
Because the Company's primary business is in the insurance industry, the Company
holds a significant amount of assets that are matched with its liabilities in
relation to maturity and interest margin. In order to maximize earnings and
minimize risk, the Company invests in a diverse portfolio of investments. The
portfolio is diversified by geographic region, investment type, underlying
collateral, maturity, and industry.
Management does not believe the Company has any significant concentrations of
credit risk. The investment portfolio includes fixed maturities, equity
securities, mortgage loans, real estate, policy loans, and short-term
investments. The Company's portfolio does not include any fixed maturities that
are low investment- grade and have a high-yield ("junk bonds"). The Company
limits its risks by investing in fixed maturities and equity securities of rated
companies; mortgage loans adequately collateralized by real estate; selective
real estate supported by appraisals; and policy loans collateralized by policy
cash values. In addition, the Company performs due diligence procedures prior to
making mortgage loans. These procedures include evaluations of the credit-
worthiness of the mortgagees and/or tenants and independent appraisals. Certain
fixed maturities are guaranteed by the United States government.
The Company periodically reviews its investment portfolio to determine if
allowances for possible losses are necessary. In connection with this
determination, management reviews published market values, credit ratings,
independent appraisals, and other valuation information. While management
believes that the allowances are adequate, adjustments may be necessary in the
future due to changes in economic conditions. In addition, regulatory agencies
periodically review investment valuation as an integral part of their
examination process. Such agencies may require the Company to recognize
adjustments to the losses based upon available information and judgments of the
regulatory examiners at the time of their examination.
RECOGNITION OF PREMIUM REVENUE AND COSTS
Revenues from life, payout annuity (with life contingencies), and accident and
health policies represent premiums recognized over the premium-paying period and
are included in life, annuity, and accident and health premiums. Expenses are
associated with earned premiums to result in recognition of profits over the
life of the policies. Expenses include benefits paid to policyholders and the
change in the reserves for future policy benefits.
Revenues from accumulation policies, which are included in other revenues,
represent amounts assessed against policyholders. Such assessments are
principally surrender charges. Policyholder account balances for accumulation
annuities consist of premiums received, plus credited interest, less accumulated
policyholder assessments. Policyholder account balances are reported in the
consolidated balance sheets as funds held under deposit administration
contracts. Expenses for accumulation annuities represent interest credited to
policyholder account balances.
Revenues from most universal life policies, which are included in other
revenues, represent amounts assessed against policyholders. Such assessments are
principally mortality charges, surrender charges, and policy service fees.
Policyholder account balances consist of premiums received plus credited
interest, less accumulated policyholder assessments. Policyholder account
balances are reported in the consolidated balance sheets as other policy
liabilities. Expenses include interest credited to policyholder account balances
and benefits in excess of account balances returned to policyholders.
POLICY ACQUISITION COSTS
The Company defers costs which vary with and are primarily related to the
production of new business. Deferred costs associated with life, annuity,
universal life, and accident and health insurance policies consist principally
of field sales compensation, direct response costs, underwriting and issue
costs, and related expenses. Deferred costs associated with life policies are
amortized (with interest) over the anticipated premium paying period of the
policies using assumptions that are consistent with the assumptions used to
calculate policy reserves. Deferred costs associated with annuities and
universal life policies are amortized over the life of the policies at a
constant rate based on the present value of the estimated gross profit to be
realized. Deferred costs related to accident and health insurance policies are
amortized over the anticipated premium paying period of the policies based on
each subsidiary's experience.
POLICY LIABILITIES
Life and annuity and accident and health policy benefit reserves are primarily
calculated using the net level reserve method. The net level reserve method
includes assumptions as to future investment yields, withdrawal rates, mortality
rates, and other assumptions based on each subsidiary's experience. These
assumptions are modified as necessary to reflect anticipated trends and include
provisions for possible unfavorable deviation.
Reserves for benefits payable are determined using case-basis evaluations and
statistical analyses. These reserves represent the estimate of all benefits
incurred but unpaid. The estimates are periodically reviewed and, as adjustments
become necessary, they are reflected in current operations. Although such
estimates are the Company's best estimate of the ultimate value, the actual
results may vary from these values in either direction.
REINSURANCE
The Company accounts for reinsurance transactions as prescribed by Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" (Statement 113).
Statement 113 requires the reporting of reinsurance transactions relating to the
balance sheet on a gross basis and precludes immediate gain recognition on
reinsurance contracts.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
EQUIPMENT
Equipment, which is included in other assets, is stated at cost and is
depreciated on a straight-line basis using estimated lives of 3 to 10 years.
Additions, renewals, and betterments are capitalized. Expenditures for software,
maintenance, and repairs generally are expensed. Upon retirement or disposal of
an asset, the asset and related accumulated depreciation are eliminated and any
related gain or loss is included in income.
SEPARATE ACCOUNT
The Company maintains a separate account under Oklahoma insurance law designated
as American Fidelity Variable Annuity Fund A (the Fund). The Fund is an
open-end, diversified management investment company under the Investment Company
Act of 1940, as amended. Under Oklahoma law, the assets of the Fund are
segregated from the Company's assets. The Fund's assets primarily consist of
equity securities, cash, and cash equivalents. The Company acts as investment
manager of the Fund, assumes certain expense risks, and provides sales and
administrative services.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding. During the years ended December 31, 1996, 1995, and 1994, the
weighted average number of shares was 250,000.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to be consistent with the
current year presentation.
(2) STATUTORY FINANCIAL INFORMATION
The Company and its insurance subsidiaries are required to file statutory
financial statements with state insurance regulatory authorities. Accounting
principles used to prepare these statutory financial statements differ from
financial statements prepared on the basis of generally accepted accounting
principles.
The Company and its principal insurance subsidiary reported statutory net income
for the years ended December 31 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------ ------
(Unaudited)
<S> <C> <C> <C>
AFA $ 13,227 30,510 11,882
SGLI 176 306 610
</TABLE>
The Company and its principal insurance subsidiary reported statutory
stockholder's equity at December 31 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ -------
(Unaudited)
<S> <C> <C>
AFA $ 146,033 137,099
SGLI 3,302 3,158
</TABLE>
Retained earnings of the Company and its insurance subsidiaries are restricted
as to payment of dividends by statutory limitations applicable to insurance
companies. Without prior approval of the state insurance department, dividends
that can be paid by the Company or an insurance subsidiary are generally limited
to the greater of (a) 10% of statutory capital and surplus, or (b) the statutory
net gain from operations. These limitations are based on the amounts reported
for the previous calendar year.
The Oklahoma Insurance Department has adopted risk based capital (RBC)
requirements for life insurance companies. These requirements are applicable to
the Company and its principal subsidiary, SGLI. The RBC calculation serves as a
benchmark for the regulation of life insurance companies by state insurance
regulators. RBC provides for surplus formulas similar to target surplus formulas
used by commercial rating agencies. The formulas specify various weighting
factors that are applied to statutory financial balances or various levels of
activity based on the perceived degree of risk, and are set forth in the RBC
requirements. The amount determined under such formulas is called the authorized
control level RBC (ACLC).
The RBC guidelines define specific capital levels based on a company's ACLC that
are determined by the ratio of the company's total adjusted capital (TAC) to its
ACLC. TAC is equal to statutory capital, plus the Asset Valuation Reserve and
any voluntary investment reserves, 50% of dividend liability, and certain other
specified adjustments. Companies where TAC is less than or equal to 2.0 times
ACLC are subject to certain corrective actions, as set forth in the RBC
requirements.
At December 31, 1996, the statutory TAC of the Company and SGLI significantly
exceeds the level requiring corrective action.
(3) INVESTMENTS
Investment income for the years ended December 31 is summarized below (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- -------
<S> <C> <C> <C>
Interest on fixed maturities $ 58,271 53,931 47,177
Dividends on equity securities 44 139 457
Interest on mortgage loans 11,747 11,543 11,922
Investment real estate income 3,295 4,055 2,990
Interest on policy loans 1,281 1,200 1,128
Interest on short-term investments 120 571 348
Net realized gains on investments 1,793 2,423 1,755
Other 1,186 1,071 (94)
--------- ------- -------
77,737 74,933 65,683
Less investment expenses (10,235) (9,607) (8,604)
--------- ------- -------
Net investment income $ 67,502 65,326 57,079
========= ======= =======
</TABLE>
Net realized gains (losses) and the changes in unrealized gains (losses) on
investments for the years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------------------------
Realized Unrealized Realized Unrealized Realized Unrealized
---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities
held-to-maturity $ (1,127) - 581 - 216 -
Fixed maturities
available-for-sale 573 (19,051) 271 31,529 129 (4,703)
Equity securities 27 2,986 611 (896) 1,396 (1,197)
Real estate 2,398 - 1,436 - (129) -
Mortgage loans (68) - (196) - 116 -
Other (10) - (280) - 27 -
---------- ----------- --------- ----------- --------- -----------
$ 1,793 (16,065) 2,423 30,633 1,755 (5,900)
========== =========== ========= =========== ========= ===========
</TABLE>
Included in the above realized gains (losses) is the (decrease) increase in the
allowance for possible losses on mortgage loans of $(790,000), $235,000, and
$(248,000) in 1996, 1995, and 1994, respectively, and the increase (decrease) in
the allowance for losses on investment real estate of $117,000 and $(70,000) in
1996 and 1995, respectively. In addition, the Company realized net gains
(losses) of approximately $1,000, $(11,000), and $106,000 during 1996, 1995, and
1994, respectively, on investments in fixed maturities that were called or
prepaid.
In December 1995, the Company transferred investments with an estimated fair
value and an amortized cost of approximately $300,850,000 and $287,269,000,
respectively, from the held to-maturity portfolio to the available-for-sale
portfolio at their estimated fair value in response to the guidance included in
the Financial Accounting Standards Board Special Report, "A Guide to
Implementation of Statement 115." This guidance offered a one-time reassessment
opportunity, without calling into question the intent of the Company to hold
other securities to maturity in the future. At the date of transfer, the net
unrealized gain on the transferred securities was approximately $13,581,000 and
was included as an increase in stockholder's equity, net of deferred taxes.
HELD-TO-MATURITY
The amortized cost and estimated fair value of investments in fixed maturities
held-to-maturity are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obli-
gations of U.S. government
corporations and agencies $ 9,925 365 - 10,290
Corporate securities 142,209 1,078 (2,271) 141,016
Mortgage-backed securities 99,810 1,146 (1,228) 99,728
------------------ ---------- ----------- ---------
Totals $ 251,944 2,589 (3,499) 251,034
================== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 5,701 617 - 6,318
Corporate securities 125,939 4,520 (216) 130,243
Mortgage-backed securities 101,673 3,432 (133) 104,972
------------------ ---------- ----------- ---------
Totals $ 233,313 8,569 (349) 241,533
================== ========== =========== =========
</TABLE>
The amortized cost and estimated fair value of investments in fixed maturities
held-to-maturity at December 31 are shown below (in thousands) by contractual
maturity. Expected maturities will differ from contractual maturities because
the issuers of such securities may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996
---------------------
Estimated
Amortized Fair
Cost Value
---------- ---------
<S> <C> <C>
Due in one year or less $ 6,006 6,020
Due after one year through five years 9,979 10,122
Due after five years through ten years 51,479 51,488
Due after ten years 84,670 83,676
---------- ---------
152,134 151,306
Mortgage-backed securities 99,810 99,728
---------- ---------
$ 251,944 251,034
========== =========
</TABLE>
Proceeds from sales of investments in fixed maturities held-to-maturity during
1996, 1995, and 1994 were approximately $7,948,000, $33,685,000, and
$10,946,000, respectively. Gross gains of approximately $33,000, $1,022,000, and
$31,000 and gross losses of approximately $1,161,000, $430,000, and $141,000,
respectively, were realized on those sales. In 1996, 1995, and 1994, changes in
circumstances caused the Company to change its intent to hold these securities
to maturity. These changes primarily consisted of the significant deterioration
in the issuers' creditworthiness in 1996, 1995, and 1994, and the impact of a
subsidiary's coinsurance and assumption agreement with an unaffiliated company
in 1994.
AVAILABLE-FOR-SALE
The gross unrealized holding gains on equity securities available-for-sale were
$2,369,000 and $1,367,000 in 1996 and 1995, respectively. Gross unrealized
holding losses on equity securities available-for-sale were $15,000 and
$1,999,000 in 1996 and 1995, respectively.
The amortized cost and estimated fair value of investments in fixed maturities
available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
------------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
Obligations of U.S. government
Corporations and agencies $ 86,884 1,627 (674) 87,837
Corporate securities 353,707 7,074 (2,414) 358,367
Mortgage-backed securities 111,265 2,135 (483) 112,917
------------------ ---------- ----------- ---------
Totals $ 551,856 10,836 (3,571) 559,121
================== ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
------------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
Obligations of U.S. government
Corporations and agencies $ 89,143 4,462 - 93,605
Obligations of states and political
subdivisions 11,564 159 - 11,723
Corporate securities 330,140 17,336 (134) 347,342
Mortgage-backed securities 115,554 4,912 (419) 120,047
------------------ ---------- ----------- ---------
Totals $ 546,401 26,869 (553) 572,717
================== ========== =========== =========
</TABLE>
The amortized cost and estimated fair value of investments in fixed maturities
available-for-sale at December 31 are shown below (in thousands) by contractual
maturity. Expected maturities will differ from contractual maturities because
the issuers of such securities may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996
---------------------
Estimated
Amortized Fair
Cost Value
---------- ---------
<S> <C> <C>
Due in one year or less $ 19,197 19,362
Due after one year through five years 138,587 142,004
Due after five years through ten years 222,672 224,815
Due after ten years 60,135 60,023
Mortgage-backed securities 111,265 112,917
---------- ---------
$ 551,856 559,121
========== =========
</TABLE>
Proceeds from sales of investments in fixed maturities available-for-sale were
approximately $136,577,000, $31,944,000, and $24,344,000 in 1996, 1995, and
1994, respectively. Gross gains of approximately $1,257,000, $359,000, and
$441,000 and gross losses of approximately $684,000, $88,000, and $312,000 were
realized on those sales in 1996, 1995, and 1994, respectively.
The home office building is included in real estate investments. The Company and
its subsidiaries occupy approximately 45% of the building. An additional 35% of
the building is occupied by companies affiliated through common ownership.
At December 31, 1996 and 1995, investments with carrying values of approximately
$5,282,000 and $5,279,000, respectively, were on deposit with state insurance
departments as required by statute.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments (in thousands) and the fair
value estimates, methods, and assumptions are set forth below:
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 15,962 15,962 14,726 14,726
Short-term and other investments 12,763 12,763 9,347 9,347
Accounts receivable 34,006 34,006 26,847 26,847
Accrued investment income 14,248 14,248 13,770 13,770
Reinsurance receivables on paid and
unpaid benefits 36,794 36,794 28,947 28,947
Policy loans 8,359 8,359 8,165 8,165
Fixed maturities held-to-maturity 251,944 251,034 233,313 241,533
Fixed maturities available-for-sale 559,121 559,121 572,717 572,717
Equity securities 12,046 12,046 10,160 10,160
Mortgage loans 130,508 137,978 121,641 128,300
Financial liabilities:
Certain policy liabilities 613,151 596,386 590,638 575,100
Other liabilities 34,125 34,125 29,868 29,868
Notes payable 19,839 19,758 19,042 19,459
</TABLE>
CASH, SHORT-TERM AND OTHER INVESTMENTS, ACCOUNTS RECEIVABLE, ACCRUED INVESTMENT
INCOME, REINSURANCE RECEIVABLES ON PAID AND UNPAID BENEFITS, AND OTHER
LIABILITIES
The carrying amount of these financial instruments approximates fair value
because they mature within a relatively short period of time and do not present
unanticipated credit concerns.
POLICY LOANS
Policy loans have average interest rates of 6.6% and 7.6% as of December 31,
1996 and 1995, respectively, and have no specified maturity dates. The aggregate
fair value of policy loans approximates the carrying value reflected on the
consolidated balance sheets. These loans typically carry an interest rate that
is tied to the crediting rate applied to the related policy and contract
reserves. Policy loans are an integral part of the life insurance policies which
the Company has in force and cannot be valued separately.
FIXED MATURITY INVESTMENTS
The fair value of fixed maturity investments is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain securities is not readily available through
market sources other than dealer quotations, so fair value estimates are based
on quoted market prices of similar instruments, adjusted for the differences
between the quoted instruments and the instruments being valued.
EQUITY SECURITIES
The fair value of equity securities investments of the Company is based on bid
prices published in financial newspapers or bid quotations received from
securities dealers.
MORTGAGE LOANS
Fair values are estimated for portfolios of loans with similar characteristics.
Mortgage loans are segregated into either commercial or residential categories,
and have average net yield rates of 8.92% and 9.25% for December 31, 1996 and
1995, respectively. The fair value of mortgage loans was calculated by
discounting scheduled cash flows to maturity using estimated market discount
rates of 7.71% and 7.08% for December 31, 1996 and 1995, respectively. These
rates reflect the credit and interest rate risk inherent in the loan.
Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information. The fair value of certain residential loans is based on the
approximate fair value of the underlying real estate securing the mortgages.
CERTAIN POLICY LIABILITIES
Certain policies sold by the Company are investment-type contracts. These
liabilities are segregated into two categories: deposit administration funds and
immediate annuities which do not have life contingencies. The fair value of the
deposit administration funds is estimated as the cash surrender value of each
policy less applicable surrender charges. The fair value of the immediate
annuities without life contingencies is estimated as the discounted cash flows
of expected future benefits less the discounted cash flows of expected future
premiums, using the current pricing assumptions. The carrying amount of all
other policy liabilities approximates fair value.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------- ---------- -------- ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Funds held under deposit
administration contracts $ 556,665 540,105 542,808 527,400
Annuities 56,486 56,281 47,830 47,700
</TABLE>
NOTES PAYABLE
The fair value of the Company's notes payable is estimated by discounting the
scheduled cash flows of each instrument through the scheduled maturity. The
discount rates used are similar to those used for the valuation of the Company's
commercial mortgage loan portfolio.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument, nor do they reflect income taxes on differences between fair value
and tax basis of the assets. Because no established exchange exists for a
significant portion of the Company's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
(5) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs principally represent field sales
compensation, direct response costs, underwriting and issue costs, and related
expenses. Information relating to the increase in deferred policy acquisition
costs, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Life Accident
and Annuity and Health Total
------------- ----------- --------
<S> <C> <C> <C>
Year ended December 31, 1996:
Deferred costs $ 7,088 22,145 29,233
Amortization (6,437) (12,714) (19,151)
------------- ----------- --------
Net increase $ 651 9,431 10,082
============= =========== ========
Year ended December 31, 1995:
Deferred costs 9,234 17,516 26,750
Amortization (3,385) (11,463) (14,848)
------------- ----------- --------
Net increase $ 5,849 6,053 11,902
============= =========== ========
Year ended December 31, 1994:
Deferred costs 6,253 21,766 28,019
Amortization (3,344) (18,168) (21,512)
------------- ----------- --------
Net increase $ 2,909 3,598 6,507
============= =========== ========
</TABLE>
(6) RESERVES FOR FUTURE POLICY BENEFITS
Reserves for life and annuity future policy benefits as of December 31 are
principally based on the interest assumptions set forth below (in thousands):
<TABLE>
<CAPTION>
Interest
1996 1995 Assumptions
-------- ------ ---------------
<S> <C> <C> <C>
Life and annuity reserves:
Issued prior to 1970 $ 3,305 3,342 4.75%
Issued 1970 through 1980 28,792 28,831 6.75% to 5.25%
Issued after 1982 (indeterminate premium products) 530 486 10.00% to 8.50%
Issued through 1987 (SGLI acquisition) 1,423 1,378 11.00%
Issued 1981 - 1994 (all other)) 27,357 26,335 8.50% to 7.00%
Issued after 1994 (all other) 1,701 737 7.00%
Life contingent annuities 30,151 29,262 Various *
Group term life waiver of premium disabled lives 5,105 4,530 6.00%
All other life reserves 4,456 4,135 Various
-------- ------
$102,820 99,036
======== ======
</TABLE>
These reserves are revalued as limited-pay contracts. As a result, the
reserve is somewhat greater than the present value of future benefits and
expenses at these interest rates, i.e., the actual interest rates required to
support the reserves are somewhat lower than the rates shown.
Assumptions as to mortality are based on the Company's prior experience. This
experience approximates the 1955-60 Select and Ultimate Table (individual life
issued prior to 1981), the 1965-70 Select and Ultimate Table (individual life
issued in 1981 and after) and the 1960 Basic Group Table (all group issues).
Assumptions for withdrawals are based on the Company's prior experience. All
assumptions used are adjusted to provide for possible adverse deviations.
(7) LIABILITY FOR BENEFITS PAYABLE
The provisions for benefits pertaining to prior years decreased in 1996 by
approximately $1,850,000 primarily due to the improvement in the loss ratios of
life cancer products. The provisions for benefits pertaining to prior years
decreased in 1995 by approximately $8,858,000 primarily due to releasing
reserves of a group terminated in 1995 and improvement in the loss ratios of
cancer products.
(8) NOTES PAYABLE
Notes payable as of December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ------
(in thousands)
<S> <C> <C>
5.91% line of credit, due in 1998, interest due monthly $ 3,500 -
5.971% line of credit, due in 1998, interest due monthly 5,000 -
6.84% line of credit, due in 2000, interest due monthly 4,000 4,000
8.4% mortgage loan, due in monthly installments of $25,000 (including interest) to 2010 2,383 2,472
8.4% mortgage loan, due in monthly installments of $22,000 (including interest) to 2027 2,902 2,921
Other 2,054 1,996
Various notes payable, paid in 1996 - 7,653
--------------- ------
$ 19,839 19,042
=============== ======
</TABLE>
The promissory notes are guaranteed by AFC. The mortgage loans are secured by
mortgages on the home office building and other investment real estate. The
mortgage loans are also secured by an assignment of the leases on investment
real estate and the portion of the home office building leased to others.
AFA has a $20,000,000 line of credit with the Federal Home Loan Bank of Topeka.
The line of credit is secured by securities pledged as collateral by AFA with
carrying amount of approximately $26,000,000 at December 31, 1996. The
collateral required for this line of credit at December 31, 1996, was
$14,706,000. The pledged securities are held in the Company's name in a
custodial account at Boatmen's First National Bank of Oklahoma to secure current
and future borrowings. To participate in this available credit, AFA purchased
28,912 shares of Federal Home Loan Bank of Topeka common stock for $2,844,550 in
1994 and an additional 4,314 shares in 1996, with a total carrying value of
approximately $3,322,600 at December 31, 1996. AFA has outstanding advances of
$5,000,000, $4,000,000 and $3,500,000 at December 31, 1996, at fixed interest
rates of 5.971%, 6.84%, and 5.91%, respectively.
The Company has unused lines of credit of $7,500,000 at December 31, 1996.
Interest expense for the years ended December 31, 1996, 1995, and 1994, totaled
approximately $1,319,000, $1,482,000, and $1,366,000, respectively.
Scheduled maturities (excluding interest) of the above indebtedness at December
31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 422
1998 9,576
1999 191
2000 4,208
2001 227
Thereafter 5,215
-------
$19,839
=======
</TABLE>
(9) INCOME TAXES
Total income tax expense in the accompanying consolidated statements of income
differs from the federal statutory rate of 35% principally due to correction of
prior year estimate of deferred tax liability to parent in 1996 and 1994.
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, are presented below (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Investment real estate, principally due to
valuation allowances $ 311 101
Other investments 428 677
Life and health reserves 12,956 12,309
Other liabilities 1,433 255
--------- --------
Total gross deferred tax assets 15,128 13,342
--------- --------
Deferred tax liabilities:
Fixed maturities (3,010) (9,694)
Equity securities, principally due to difference in
fair value and cost (824) (2,643)
Deferred policy acquisition costs (51,937) (49,011)
Other assets (7,635) (4,109)
--------- --------
Total gross deferred tax liabilities (63,406) (65,457)
--------- --------
Net deferred tax liability $(48,278) (52,115)
========= ========
</TABLE>
Management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize the deferred tax
assets reported on the consolidated balance sheets.
The Company and its subsidiaries are included in AFC's consolidated federal
income tax return. Income taxes are reflected in the accompanying consolidated
financial statements as if the Company and its subsidiaries were separate tax
paying entities. At December 31, 1996 and 1995, other accounts receivable
includes income taxes receivable from AFC and other members of the consolidated
group of approximately $4,988,000 and $4,771,000, respectively.
Prior to 1984, life insurance companies were taxed under the 1959 Tax Act on the
lesser of taxable income or gain from operations plus one-half of any excess of
gain from operations over taxable investment income. The one-half of the excess
of the gain from operations was accumulated in a special memorandum tax account
known as the "policyholders surplus account" (PSA). Accumulations at December
31, 1996 were approximately $8,161,000 for AFA. Pursuant to the Tax Reform Act
of 1984, the PSA was "frozen" at the December 31, 1983, amount and, accordingly,
no further additions to the PSA will be made. These excess amounts in the PSA
will become taxable at the regular corporate tax rate, if distributions to
stockholders exceed certain stated amounts or if certain criteria are not met.
No provision for deferred federal income taxes applicable to the PSA has been
made because management is of the opinion that no distribution of the PSA will
be made in the foreseeable future.
(10) REINSURANCE
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers to
minimize its exposure to significant losses from reinsurer insolvencies.
Management believes that all reinsurers presently used are financially sound and
will be able to meet their contractual obligations; therefore, no allowance for
uncollectible amounts has been included in the financial statements. At December
31, 1996, reinsurance receivables with a carrying value of approximately
$11,688,000 were associated with two reinsurers. At December 31, 1995,
reinsurance receivables with a carrying value of approximately $8,962,000 were
associated with a single reinsurer.
Reinsurance agreements in effect for life insurance policies vary according to
the age of the insured and the type of risk. Retention amounts for life
insurance range from $500,000 on group life to $250,000 on individual life
coverages, with slightly lower limits on accidental death benefits. At December
31, 1996 and 1995, the face amounts of life insurance in force that are
reinsured amounted to approximately $403,000,000 (approximately 6.3% of total
life insurance in force) and $278,000,000 (approximately 4.8% of total life
insurance in force), respectively.
Reinsurance agreements in effect for accident and health insurance policies vary
with the type of coverage. Retention limits range from $75,000 for individual
cancer coverage to $250,000 for major medical coverage.
Reinsurance agreements reduced benefits paid for life and accident and health
policies by approximately $61,730,000, $52,318,000, and $33,127,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
Since 1990, the Company has been involved in a reinsurance agreement with one of
its subsidiaries, SGLI. This agreement was amended in 1994 which allowed SGLI to
cede most of its individual major medical business to an unaffiliated company.
This transaction consists of a coinsurance agreement. The transaction was
approved by the Oklahoma Insurance Department. The resulting gain of
approximately $2,500,000 is included in other revenue in the 1994 consolidated
statement of income.
In 1995, AFA and SGLI entered into an assumption agreement whereby AFA assumed
all of SGLI's remaining rights and insurance liability in force. The assumption
is pending policyholder approval, as certain states allow as much as three years
for policy holders to reject an assumption.
(11) EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in a pension plan (the Plan)
covering all employees who have satisfied longevity and age requirements. The
Company's funding policy is to contribute annually the maximum amount that can
be deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
The Plan's funded status as of December 31 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 11,248 11,150
Nonvested benefits 1,420 1,582
--------- -------
Total accumulated benefit obligation $ 12,668 12,732
========= =======
Projected benefit obligation for service rendered to date 14,679 14,809
Plan assets, at fair value 16,864 14,175
--------- -------
Plan assets in excess of (less than) projected benefit
obligation 2,185 (634)
Unrecognized transition amount (443) (605)
Unrecognized prior service cost due to plan amendment 521 607
Unrecognized net loss 370 3,542
--------- -------
Prepaid pension cost included in other assets $ 2,633 2,910
========= =======
</TABLE>
In determining the projected benefit obligation, the weighted average assumed
discount rate used was 7.5% and 7% in 1996 and 1995, respectively. The rate of
increase in future salary levels was 5.0% in 1996 and 1995. The expected
long-term rate of return on assets used in determining net periodic pension cost
was 9.5% and 8.25% in 1996 and 1995, respectively. Plan assets are invested in
short-term investments and in an unallocated deposit administration contract
with SGLI.
Net periodic pension cost for the years ended December 31 included the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Service costs - benefits earned during period $ 1,237 1,025 1,193
Interest cost 1,054 919 951
Return on plan assets (3,711) (2,455) (547)
Net amortization and deferral 2,421 1,366 (130)
-------- ------- ------
Net periodic pension cost $ 1,001 855 1,467
======== ======= ======
</TABLE>
The Company participates in a defined contribution thrift and profit sharing
plan as provided under section 401(a) of the Internal Revenue Code, which
includes the tax deferral feature for employee contributions provided by section
401(k) of the Internal Revenue Code. The Company contributed approximately
$822,000, $831,000, and $852,000 to this plan during the years ended December
31, 1996, 1995, and 1994, respectively.
(12) DISCONTINUED OPERATIONS
Effective January 1, 1995, AFA sold AFI to AFC for approximately $28,717,000. In
connection with this sale, AFC contributed capital of approximately $4,085,000
to AFA as reflected in the accompanying consolidated statement of stockholder's
equity. AFI's net income for the year ended December 31, 1994 is reflected as
income from discontinued operations in the accompanying consolidated statements
of income.
(13) COMMITMENTS AND CONTINGENCIES
Rent expense for the years ended December 31, 1996, 1995, and 1994, was
approximately $5,674,000, $5,133,000, and $5,219,000, respectively. A portion of
rent expense relates to leases that expire or are cancelable within one year.
The aggregate minimum annual rental commitments as of December 31, 1996, under
noncancellable long-term leases for office space are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $306
1998 225
1999 116
2000 57
2001 19
</TABLE>
The Company has pledged approximately $30,940,000 of its treasury notes as
collateral on lines of credit held by affiliated companies.
The Company has outstanding mortgage loan commitments of approximately
$13,182,000 and $7,755,000 at December 31, 1996 and 1995, respectively.
In the normal course of business, there are various legal actions and
proceedings pending against the Company and its subsidiaries. In management's
opinion, the ultimate liability, if any, resulting from these legal actions will
not have a material adverse effect on the Company's financial position.
(14) LEASES
The Company leases various real estate properties to nonaffiliates under
operating lease agreements, with lease expiration dates ranging from 1997
through 2001. The properties leased are included in the consolidated balance
sheets as investment real estate with the related debt included in notes
payable. Rental income on these properties is included in the consolidated
statements of income as net investment income.
Investments in real estate held for lease can be summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land and buildings $4,857 13,864
Less accumulated depreciation 1,567 3,612
------ ------
Net investment 3,290 10,252
Less indebtedness 884 6,119
------ ------
Investment net of indebtedness $2,406 4,133
====== ======
</TABLE>
Future minimum rentals on noncancellable operating leases can be summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------
<S> <C>
1997 $ 706
1998 547
1999 174
2000 111
2001 40
------
Total future minimum rentals $1,578
======
</TABLE>
(15) RELATED PARTY TRANSACTIONS
The Company and its subsidiaries lease automobiles, furniture, and equipment
from a partnership that owns a controlling interest in AFC. These operating
leases are cancelable upon one month's notice. During the years ended December
31, 1996, 1995, and 1994, rentals paid under these leases were approximately
$2,966,000, $2,955,000, and $3,154,000, respectively.
During the years ended December 31, 1996, 1995, and 1994, the Company and its
subsidiaries paid management fees and investment advisory fees to AFC totaling
approximately $16,536,000, $17,885,000, and $12,259,000, respectively.
Short-term and other investments at December 31, 1995 include notes receivable
from AFC totaling approximately $6,485,000 which were repaid in 1996. During the
years ended December 31, 1996, 1995, and 1994, the Company recorded investment
income on the notes from AFC of approximately $481,000, $699,000, and $656,000,
respectively.
AFC and several of its subsidiaries rent office space in the home office
building from the Company. During the years ended December 31, 1996, 1995, and
1994, the Company received rental income from AFC and several of its
subsidiaries of approximately $1,280,000, $1,281,000, and $1,077,000,
respectively.
During 1996, AFC contributed capital of approximately $2,198,000 through
forgiveness of a deferred tax liability owed by AFA to AFC.
An officer of AFC serves on the board of directors of a financial institution in
which the Company maintains cash balances.
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - BUSINESS SEGMENT INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
The Company's reportable segments are its strategic business units. The
components of operations for the years ended December 31, 1996, 1995, and 1994
are included in the table below.
Assets and related investment income are allocated based upon related insurance
reserves which are backed by such assets. Other operating expenses are allocated
in relation to the mix of related revenues.
<TABLE>
<CAPTION>
1996 1995 1994
------------- --------- --------
<S> <C> <C> <C>
TOTAL REVENUES:
American Fidelity Education Services Division $ 142,493 129,628 113,890
Association Group Division 99,979 96,140 90,658
Brokerage Division 24,558 31,898 78,406
Non insurance operations 1,966 1,324 1,621
------------- --------- --------
$ 268,996 258,990 284,575
============= ========= ========
PRETAX EARNINGS:
American Fidelity Education Services Division 14,275 16,034 4,818
Association Group Division 9,349 5,751 13,275
Brokerage Division (1,903) 10,113 6,765
Non insurance operations 397 517 (243)
------------- --------- --------
$ 22,118 32,415 24,615
============= ========= ========
TOTAL ASSETS:
American Fidelity Education Services Division 922,671 885,216
Association Group Division 197,225 181,426
Brokerage Division 239,986 231,774
Non insurance operations 3,170 1,891
------------- ---------
$ 1,363,052 1,300,307
============= =========
</TABLE>
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Ceded Assumed Percentage
Gross to Other From Other Net of Amount
Amount Companies Companies Amount Assumed to Net
----------- --------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Life insurance in force $ 6,276,241 403,148 125,101 5,998,194 2.09%
=========== ========= ========== ========= ===============
Premiums:
Life insurance 23,240 1,907 2,854 24,187 11.80%
Accident and health insurance 248,054 82,040 43 166,057 0.03%
----------- --------- ---------- --------- ---------------
Total premiums $ 271,294 83,947 2,897 190,244 11.83%
=========== ========= ========== ========= ===============
Year ended December 31, 1995
Life insurance in force $ 5,679,074 277,982 131,621 5,532,713 2.38%
=========== ========= ========== ========= ===============
Premiums:
Life insurance 23,527 1,758 2,745 24,514 11.20%
Accident and health insurance 231,340 74,385 5 156,960 0.00%
----------- --------- ---------- --------- ---------------
Total premiums $ 254,867 76,143 2,750 181,474 11.20%
=========== ========= ========== ========= ===============
Year ended December 31, 1994
Life insurance in force $ 5,158,468 346,885 140,023 4,951,606 2.83%
=========== ========= ========== ========= ===============
Premiums:
Life insurance 23,199 797 2,610 25,012 10.43%
Accident and health insurance 261,729 67,347 - 194,382 0.00%
----------- --------- ---------- --------- ---------------
Total premiums $ 284,928 68,144 2,610 219,394 10.43%
=========== ========= ========== ========= ===============
</TABLE>
See accompanying independent auditor's report.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The following financial statements for the Company are included in Part B
hereof:
1. Independent Auditors' Report.
2. Consolidated Balance Sheets as of December 31, 1996 and 1995.
3. Consolidated Statements of Income for the Years ended December 31, 1996,
1995, and 1994.
4. Consolidated Statements of Stockholder's Equity for the Years Ended
December 31, 1996, 1995, and 1994.
5. Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994.
6. Notes to Consolidated Financial Statements - December 31, 1996 and 1995.
B. EXHIBITS
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Separate Account.*
2. Not Applicable.
3. Form of Principal Underwriters Agreement.
4. (i) Individual Variable and Fixed Deferred Annuity*
(ii) Loan Rider*
(iii) 403(b) Annuity Rider*
(iv) Individual Retirement Annuity Rider*
5. Application Form.*
6. (i) Copy of Articles of Incorporation of the Company.
(ii) Copy of the Bylaws of the Company.
7. Not Applicable.
8. (i) Form of Fund Participation Agreement between the Company and Merrill
Lynch Variable Series Funds, Inc.
(ii) Form of Fund Participation Agreement between the Company and each of
Dreyfus Variable Investment Fund, The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus
Stock Index Fund.)
9. Opinion and Consent of Counsel.
10. Consent of Independent Auditors.
11. Not Applicable.
12. Not Applicable.
13. Calculation of Performance Information.
14. Not Applicable.
15. Company Organizational Chart.
27. Not Applicable.
*Incorporated by reference to Registrant's Form N-4 electronically filed on
April 23, 1997.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the Executive Officers and Directors of the Company:
Name and Principal Position and Offices
Business Address* with Depositor
- ----------------------- -----------------------------------
Lynda L. Cameron Director
William M. Cameron Vice Chairman and Chief Executive
Officer, Director
David R. Carpenter Senior Vice President, Treasurer
William E. Durrett Chairman of the Board, Director
Stephen P. Garrett Senior Vice President, Secretary
Edward C. Joullian, III Director
Kenneth D. Klehm Senior Vice President
Alfred L. Litchenburg Senior Vice President
John W. Rex President, Chief Operating Officer,
Director
Galen P. Robbins, M.D. Director
3433 N.W. 56th
Oklahoma City, OK
John D. Smith Director
P.O. Box 18832
Atlanta, GA
* The principal business address for all officers and directors listed above is
2000 N. Classen Boulevard, Oklahoma City, Oklahoma except as noted above.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart is included as Exhibit 15.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not Applicable.
ITEM 28. INDEMNIFICATION
The Bylaws of the Company (Article VIII, Section 3) provide, in part, that:
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), amounts paid in settlement (whether with
or without court approval), judgments, fines actually and reasonably incurred by
him in connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendre or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify every person who is or was a party or
is or was threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent or in any other capacity
of or in another corporation, or a partnership, joint venture, trust, or other
enterprise, or by reason of any action alleged to have been taken or not taken
by him while acting in such capacity, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such threatened, pending, or completed action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation. The termination of any such threatened or
actual action or suit by a settlement or by an adverse judgment or order shall
not of itself create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation. Nevertheless, there shall be no indemnification
with respect to expenses incurred in connection with any claim, issue, or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless, and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
(c) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in Subsections (a) and (b) hereof, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with such defense.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company 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, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company 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
Company 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) Not Applicable.
American Fidelity Securities, Inc. ("AFS, Inc.") is the principal underwriter
for the Policies. The following persons are the officers and directors of AFS,
Inc. The principal business address for each officer and director of AFS, Inc.
is 2000 N. Classen Blvd., Oklahoma City, Oklahoma 73106.
<TABLE>
<CAPTION>
<C> <S> <C>
(b) Name and Principal Positions and Offices
Business Address with Underwriter
------------------ ------------------------------------
William E. Durrett Director, Chairman, President
David R. Carpenter Director, Senior Vice President,
Treasurer, Chief Financial Officer
Marvin R. Ewy Director, Vice President, Secretary,
Chief Operations Officer
Nancy K. Steeber Vice President, Operations Officer
</TABLE>
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
David R. Carpenter, Senior Vice President and Treasurer, whose address is 2000
N. Classen Blvd., Oklahoma City, OK 73106, maintains physical possession of the
accounts, books or documents of the Separate Account required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes 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 sixteen
(16) months old for so long as payment under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard 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. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. American Fidelity Assurance Company ("Company") hereby represents that
the fees and charges deducted under the Policies described in the Prospectus, in
the aggregate, are reasonable in relation to the services rendered, the expenses
to be incurred and the risks assumed by the Company.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, the Registrant has caused this Registration Statement to be
signed on its behalf in the City of Oklahoma City and State of Oklahoma, on this
1st day of October, 1997.
AMERICAN FIDELITY SEPARATE ACCOUNT B
(Registrant)
By: AMERICAN FIDELITY ASSURANCE COMPANY
(Depositor)
By: /s/ JOHN W. REX
_________________________________________
John W. Rex
AMERICAN FIDELITY ASSURANCE COMPANY
(Depositor)
By: /s/ JOHN W. REX
_________________________________________
John W. Rex
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- -------------------------- ------------------------ -------
Vice Chairman, Chief
/s/ WILLIAM M. CAMERON* Executive Officer and 10/1/97
- ----------------------- -------
William M. Cameron Director (Principal
Executive Officer)
/s/ WILLIAM E. DURRETT Chairman of the Board 10/1/97
- ---------------------- -------
William E. Durrett and Director
LYNDA L. CAMERON* Director 10/1/97
- ---------------------- -------
Lynda L. Cameron*
/s/ JOHN W. REX Director, President and 10/1/97
- ---------------------- -------
John W. Rex Chief Operating Officer
EDWARD C. JOULLIAN, III* Director 10/1/97
- --------------------------- -------
Edward C. Joullian, III
GALEN P. ROBBINS, M.D.* Director 10/1/97
- ------------------------- -------
Galen P. Robbins, M.D.
JOHN D. SMITH* Director 10/1/97
- ----------------------- -------
John D. Smith*
Senior Vice President,
/s/ DAVID R. CARPENTER Controller & Treasurer 10/1/97
- ---------------------- -------
David R. Carpenter (Principal Financial
Officer)
</TABLE>
*By /s/ JOHN W. REX
______________________________________
John W. Rex, Power of Attorney
EXHIBITS
TO
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-4
FOR
AMERICAN FIDELITY SEPARATE ACCOUNT B
AMERICAN FIDELITY ASSURANCE COMPANY
INDEX TO EXHIBITS
EXHIBIT NO.
EX-99.B3 Form of Principal Underwriters Agreement.
EX-99.B6(i) Articles of Incorporation of the Company.
EX-99.B6(ii) Bylaws of the Company.
EX-99.B8(i) Form of Fund Participation Agreement between
the Company and Merrill Lynch Variable Series Fund, Inc.
EX-99.B8(ii) Form of Fund Participation Agreement between
the Company and each of Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life
and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund.)
EX-99.B9 Opinion and Consent of Counsel.
EX-99.10 Consent of Independent Auditors.
EX-99.B13 Calculation of Performance Information.
EX-99.B15 Company Organizational Chart.
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between AMERICAN FIDELITY ASSURANCE COMPANY
("INSURANCE COMPANY") on behalf of AMERICAN FIDELITY SEPARATE ACCOUNT B (the
"VARIABLE ACCOUNT") and AMERICAN FIDELITY SECURITIES, INC. (the "PRINCIPAL
UNDERWRITER") as follows:
I
INSURANCE COMPANY proposes to issue and sell individual Fixed and Variable
Deferred Annuity Contracts (the "Contracts") of the Variable Account to the
public through PRINCIPAL UNDERWRITER. THE PRINCIPAL UNDERWRITER agrees to
provide sales service subject to the terms and conditions herein. The contracts
to be sold are more fully described in the registration statement and prospectus
hereinafter mentioned. Such Contracts will be issued by INSURANCE COMPANY
through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during the
term of this Agreement, subject to registration requirements of the Securities
Act of 1933 and the Investment Company Act of 1940 and the provisions of the
Securities Exchange Act of 1934, to be the distributor of the Contracts issued
through the Variable Account. PRINCIPAL UNDERWRITER will sell the Contracts
under such terms as set by the INSURANCE COMPANY and will make such sales to
purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution services in such
amount as to meet all of its obligations to selling broker-dealers with respect
to all Purchase Payments accepted by INSURANCE COMPANY on the Contracts covered
hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish PRINCIPAL
UNDERWRITER with copies of all prospectuses, financial statements and other
documents which PRINCIPAL UNDERWRITER reasonably requests for use in connection
with the distribution of the Contracts. INSURANCE COMPANY shall provide to
PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectuses as PRINCIPAL UNDERWRITER shall request.
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make any
representations concerning the Contracts or the Variable Account of INSURANCE
COMPANY other than those contained in the current registration statements or
prospectuses relating to the Variable Account filed with the Securities and
Exchange Commission or such sales literature as may be authorized by INSURANCE
COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as indicated
by applicable state and federal law and to render the necessary assistance to
one another for the accurate and timely preparation of such records.
VII
This agreement shall be effective upon the execution hereof and will remain in
effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed
on their behalf by their respective officers thereunto duly authorized.
EXECUTED this 14th day of July, 1997.
INSURANCE COMPANY
AMERICAN FIDELITY ASSURANCE
COMPANY
BY: /s/ JOHN W. REX
--------------------
John W. Rex, President
ATTEST: /s/ STEPHEN P. GARRETT
-----------------------------
Stephen P. Garrett, Secretary
PRINCIPAL UNDERWRITER
AMERICAN FIDELITY SERVICES, INC.
BY: /s/ WILLIAM E. DURRETT
------------------------------
William E. Durrett, President
ATTEST: /s/ MARVIN R. EWY
-------------------------
Marvin R. Ewy, Secretary
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FIDELITY ASSURANCE COMPANY
NOVEMBER 4, 1987
-------------------------------
We, the undersigned William E. Durrett and Stephen P. Garrett as President
and Secretary, respectively, of American Fidelity Assurance Company, an Oklahoma
corporation, do hereby certify that the Board of Directors of said corporation
on the 4th day of November 1987 duly adopted a resolution to amend the Articles
of Incorporation as follows:
ARTICLE I
As Filed: The name of the corporation is AMERICAN FIDELITY ASSURANCE
COMPANY.
As Amended: No change.
ARTICLE II
As filed: The duration of the corporation's existence shall be perpetual.
As amended: No change.
ARTICLE III
As filed: The kinds of insurance the corporation is formed to transact, and
the objects, powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609, et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated, and the amendments,
additions, and supplements thereto, and generally to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plans.
(i) In connection with the foregoing but without limitation of its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or nonparticipating
basis and to determine the right to participate and the extent of
participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey, lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, and in
such securities and assets and in such manner as provided and authorized by the
laws of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
As amended: No change.
ARTICLE IV
As filed: This corporation is and shall be a stock company, non-assessable,
and not a mutual company. The authorized capital of this corporation shall be
$2,000,000.00, consisting of 200,000 shares of common stock of the par value of
ten dollars ($10.00) per share.
As amended: This corporation is and shall be a stock company,
non-assessable, and not a mutual company. The authorized capital of this
corporation shall be $2,500,000.00, consisting of 250,000 shares of common stock
of the par value of ten dollars ($10.00) per share.
ARTICLE V
As filed: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such By-laws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
W. D. Carr, Stillwater, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
W. E. Durrett, Oklahoma City, Oklahoma
E. C. Joullian III, Oklahoma City, Oklahoma
As amended: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such By-laws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
William M. Cameron, Oklahoma City, Oklahoma
William E. Durrett, Oklahoma City, Oklahoma
E. C. Joullian III, Oklahoma City, Oklahoma
John W. Rex, Oklahoma City, Oklahoma
Galen P. Robbins, Oklahoma City, Oklahoma
John D. Smith, Atlanta, Georgia
ARTICLE VI
As Filed: The principal place of business shall be located at 2000 Classen
Center, Oklahoma City, Oklahoma, and business may be transacted in every county
in the State of Oklahoma, and in such other states of the United States and such
other countries as the Board of Directors may from time to time determine.
As Amended: No change.
ARTICLE VII
As filed: The corporation's indebtedness shall be limited only as directed
by the laws of the State of Oklahoma and acts of the Board of Directors.
As amended: No change.
ARTICLE VIII
As filed: Any process in any action or proceeding may be served on the
corporation by service upon Don J. Gutteridge, Jr., 2000 Classen Center,
Oklahoma City, Oklahoma.
As amended: Any process in any action or proceeding may be served on the
corporation by service upon Stephen P. Garrett, 2000 Classen Center, 7th Floor,
North Building, Oklahoma City, Oklahoma 73106.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 250,000; that the said
change(s) and amendment has been consented to and approved by a majority vote of
the stockholders holding at least a majority of each class of stock outstanding
and entitled to vote thereon.
ATTEST: AMERICAN FIDELITY ASSURANCE COMPANY
/s/ STEPHEN P. GARRETT BY /S/ WILLIAM E. DURRETT
- ------------------------------ -----------------------------------
Stephen P. Garrett, Secretary William E. Durrett, President
(SEAL)
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
Before me the undersigned, a Notary Public in and for said County and State, on
this 4th day of November, 1987; personally appeared WILLIAM E. DURRETT and
STEPHEN P. GARRETT, in their capacity as Senior Vice President and Secretary,
respectively, of AMERICAN FIDELITY ASSURANCE COMPANY, an Oklahoma corporation,
to me known to be the identical person who executed the within and foregoing
instrument and acknowledged to me that they executed the same as their free and
voluntary act in deed for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
/s/ B. K. FRAZIER
----------------------
Notary Public
My Commission Expires:
10-15-89
- ----------------
(SEAL)
AMENDED ARTICLES OF INCORPORATION
OF
AMERICAN FIDELITY ASSURANCE COMPANY
(Domestic Stock Company)
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
TO: THE INSURANCE COMMISSIONER OF THE STATE OF OKLAHOMA
AND THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
We, the undersigned John W. Rex and Don J. Gutteridge, Jr. do hereby
certify that we hold the offices of Senior Vice President and Vice
President/Secretary respectively of American Fidelity Assurance Company, an
Oklahoma corporation, and that we are persons legally competent to sign,
acknowledge and execute Amended Articles of Incorporation of American Fidelity
Assurance Company pursuant to the laws of the State of Oklahoma and we do hereby
execute the following Amended Articles of Incorporation of American Fidelity
Assurance Company and we further affirm that the following amendments were
adopted in the manner prescribed by the Statutes of the State of Oklahoma, each
such amendment being adopted on the 30th day of October 1979.
ARTICLE I
As filed: The name of this corporation is: American Fidelity Assurance
Company.
As amended: No change.
ARTICLE II
As filed: The duration of the corporation's existence shall be perpetual.
As amended: No change.
ARTICLE III
As filed: The kinds of insurance the corporation is formed to transact, and
the objects, powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609, et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated, and the amendments,
additions, and supplements thereto, and generally to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plans.
(i) In connection with the foregoing but without limitation of its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or
non-participating basis and to determine the right to participate and
the extent of participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey, lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, in such
securities and assets and in such manner as provided and authorized by the laws
of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
As amended: No change.
ARTICLE IV
As filed: This corporation is and shall be a stock company, non-assessable
and not a mutual company. The authorized capital of this corporation shall be
$1,000,000.00, consisting of 100,000 shares of common stock of the par value of
ten dollars ($10.00) per share.
As amended: This corporation is and shall be a stock company,
non-assessable, and not a mutual company. The authorized capital of this
corporation shall be $2,000,000.00, consisting of 200,000 shares of common stock
of the par value of ten dollars ($10.00) per share.
ARTICLE V
As filed: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such by-laws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
C. B. Cameron, Oklahoma City, Oklahoma
Lenice Cameron, Oklahoma City, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
V. P. Crowe, Oklahoma City, Oklahoma
W. T. Richardson, Oklahoma City, Oklahoma
C. W. Barbour, Oklahoma City, Oklahoma
E. C. Joullian III, Oklahoma City, Oklahoma
Grady D. Harris, Jr., Oklahoma City, Oklahoma
W. D. Carr, Stillwater, Oklahoma
As amended: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such bylaws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
W. D. Carr, Stillwater, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
W. E. Durrett, Oklahoma City, Oklahoma
E. C. Joullian III, Oklahoma City, Oklahoma
ARTICLE VII
As filed: The principal place of business shall be located at 2901 Classen
Boulevard, Oklahoma City, Oklahoma, and business may be transacted in every
county in the State of Oklahoma, and in such other states of the United States
and such other countries as the Board of Directors may from time to time
determine.
As amended: The principal place of business shall be located at 2000
Classen Center, Oklahoma City, Oklahoma, and business may be transacted in every
county in the State of Oklahoma, and in such other states of the United States
and such other countries as the Board of Directors may from time to time
determine.
ARTICLE VII
As filed: The corporation's indebtedness shall be limited only as directed
by the laws of the State of Oklahoma and acts of the Board of Directors.
As amended: No change.
ARTICLE VIII
As filed: Any process in any action or proceeding may be served on the
corporation by service upon C. B. Cameron, 2901 Classen Boulevard, Oklahoma
City, Oklahoma.
As amended: Any process in any action or proceeding may be served on the
corporation by service upon Don J. Gutteridge, Jr., 2000 Classen Center,
Oklahoma City, Oklahoma.
ARTICLE IX
(1) Such amendments were proposed by a resolution of the Board of Directors
on the 30th day of October, 1979.
(2) The amendment was unanimously adopted by the sole shareholder in
accordance with the provisions of Title 18, Sec. 153 of the "Business
Corporation Act" on October 30, 1979.
IN WITNESS WHEREOF the undersigned corporation has caused these Amended
Articles to be executed this 30th day of October, 1979.
AMERICAN FIDELITY ASSURANCE COMPANY
By /s/ JOHN W. REX
--------------------------
Senior Vice President
ATTEST:
/s/ DON J. GUTTERIDGE, JR.
- -----------------------------
Vice President/Secretary
(Corporate Seal)
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
I, Mary Lue Lane, a Notary Public in and for said county and state hereby
certify that on the 30th day of October, 1979, John W. Rex, Senior Vice
President, and Don J. Gutteridge, Jr., Vice President/Secretary, personally
appeared before me and being first duly sworn acknowledge that they signed the
foregoing document in the respective capacity therein set forth and declared
that the statements therein contained are true.
IN WITNESS WHEREOF I have hereunto set my hand and seal the day and year
first above written.
/s/ MARY LUE LANE
--------------------
Notary Public
My Commission Expires: 3/3/83
-------
(SEAL)
AMENDED ARTICLES OF INCORPORATION
OF
AMERICAN FIDELITY ASSURANCE COMPANY
-----------------------------------
(Domestic Stock Company)
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
TO: THE INSURANCE COMMISSIONER OF THE STATE OF OKLAHOMA
AND THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
We, the undersigned John W. Rex and Don J. Gutteridge, Jr. do hereby
certify that we hold the offices of Vice President and Secretary respectively of
American Fidelity Assurance Company, an Oklahoma corporation, and that we are
persons legally competent to sign, acknowledge and execute Amended Articles of
Incorporation of American Fidelity Assurance Company pursuant to the laws of the
State of Oklahoma and we do hereby execute the following Amended Articles of
Incorporation of American Fidelity Assurance Company and we further affirm that
the following amendments were adopted in the manner prescribed by the Statutes
of the State of Oklahoma, each such amendment being adopted on the 30th day of
December, 1975.
ARTICLE I
As filed: The name of this corporation is: American Fidelity Assurance
Company.
As amended: No change.
ARTICLE II
As filed: The duration of the corporation's existence shall be perpetual.
As amended: No change.
ARTICLE III
As filed: The kinds of insurance the corporation is formed to transact, and
the objects, powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609, et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated, and the amendments,
additions, and supplements thereto, and generally to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plans.
(i) In connection with the foregoing but without limitation of its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or
non-participating basis and to determine the right to participate and
the extent of participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey, lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, in such
securities and assets and in such manner as provided and authorized by the laws
of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
As amended: No change
ARTICLE IV
As filed: This corporation is and shall be a stock company, non-assessable
and not a mutual company. The authorized capital of this corporation shall be
$800,000.00 consisting of 80,000 shares of common stock of the par value of ten
dollars ($10.00) per share.
As amended: This corporation is and shall be a stock company,
non-assessable, and not a mutual company. The authorized capital of this
corporation shall be $1,000,000.00, consisting of 100,000 shares of common stock
of the par value of ten dollars ($10.00) per share.
ARTICLE V
As filed: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such by-laws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
C. B. Cameron, Oklahoma City, Oklahoma
Lenice Cameron, Oklahoma City, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
V. P. Crowe, Oklahoma City, Oklahoma
W. T. Richardson, Oklahoma City, Oklahoma
C. W. Barbour, Oklahoma City, Oklahoma
E. C. Joullian, III, Oklahoma City, Oklahoma
Grady D. Harris, Jr., Oklahoma City, Oklahoma
W. D. Carr, Stillwater, Oklahoma
As amended: No change.
ARTICLE VI
As filed: The principal place of business shall be located at 2901 Classen
Boulevard, Oklahoma City, Oklahoma, and business may be transacted in every
county in the State of Oklahoma, and in such other states of the United States
and such other countries as the Board of Directors may from time to time
determine.
As amended: No change.
ARTICLE VII
As filed: The corporation's indebtedness shall be limited only as directed
by the laws of the State of Oklahoma and acts of the Board of Directors.
As amended: No change.
ARTICLE VIII
As filed: Any process in any action or proceeding may be served on the
corporation by service upon C. B. Cameron, 2901 Classen Boulevard, Oklahoma
City, Oklahoma.
As amended: No change.
ARTICLE IX
(1) Such amendments were proposed by a resolution of the Board of Directors
on the 30th day of December, 1975.
(2) The amendment was unanimously adopted by the sole shareholder in
accordance with the provisions of Title 18, Sec. 153 of the "Business
Corporation Act" on December 30, 1975.
IN WITNESS WHEREOF the undersigned corporation has caused these Amended
Articles to be executed this 30th day of December, 1975.
AMERICAN FIDELITY ASSURANCE COMPANY
By /s/ JOHN W. REX
-------------------------------
Vice President
ATTEST:
/S/ DON J. GUTTERIDGE
- ----------------------------
Secretary
(Corporate Seal)
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
I, Mary Lue Lane, a Notary Public in and for said county and State hereby
certify that on the 30th day of December, 1975, John W. Rex, Vice President, and
Don J. Gutteridge, Jr., Secretary, personally appeared before me and being first
duly sworn acknowledge that they signed the foregoing document in the respective
capacity therein set forth and declared that the statements therein contained
are true.
IN WITNESS WHEREOF I have hereunto set my hand and seal the day and year
first above written.
/S/ MARY LUE LANE
----------------------
Notary Public
My Commission Expires:
3-3-79
------
(SEAL)
AMENDED ARTICLES OF INCORPORATION
OF
AMERICAN FIDELITY ASSURANCE COMPANY
-----------------------------------
(Domestic Stock Company)
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
TO: THE INSURANCE COMMISSIONER OF THE STATE OF OKLAHOMA AND THE SECRETARY OF
STATE OF THE STATE OF OKLAHOMA:
We, the undersigned C. B. Cameron and Don J. Gutteridge, Jr. do hereby
certify that we hold the offices of President and Assistant Secretary
respectively of American Fidelity Assurance Company, an Oklahoma corporation,
and that we are persons legally competent to sign, acknowledge and execute
Amended Articles of Incorporation of American Fidelity Assurance Company
pursuant to the laws of the state of Oklahoma and we do hereby execute the
following Amended Articles of Incorporation of American Fidelity Assurance
Company and we further affirm that the following amendments were adopted in the
manner prescribed by the Statutes of the State of Oklahoma, each such amendment
being adopted on the 23rd day of December, 1971.
ARTICLE I
As filed: The name of this corporation is: American Fidelity Assurance
Company.
As amended: No change.
ARTICLE II
As filed: The duration of the corporation's existence shall be perpetual.
As amended: No change.
ARTICLE III
As filed: The kinds of insurance the corporation is formed to transact, and
the objects, powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609, et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated, and the amendments,
additions, and supplements thereto, and general to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plane.
(i) In connection with the foregoing but without limitation of its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or
non-participating basis and to determine the right to participate and
the extent of participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey, lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, in such
securities and assets and in such manner as provided and authorized by the laws
of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
As amended: No change.
ARTICLE IV
As filed: This corporation is and shall be a stock company, non-assessable
and not a mutual company. The authorized capital of this corporation shall be
$600,000.00 consisting of 60,000 shares of common stock of the par value of ten
dollars ($10.00) per share.
As amended: This corporation is and shall be a stock company,
non-assessable, and not a mutual company. The authorized capital of this
corporation shall be $800,000.00, consisting of 80,000 shares of common stock of
the par value of ten dollars ($10.00) per share.
ARTICLE V
As filed: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such bylaws as
shall be from time to time adopted. The names and addressees of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
C. B. Cameron, Oklahoma City, Oklahoma
Lenice Cameron, Oklahoma City, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
V. P. Crowe, Oklahoma City, Oklahoma
W. T. Richardson, Oklahoma City, Oklahoma
C. W. Barbour, Oklahoma City, Oklahoma
E. C. Joullian, III, Oklahoma City, Oklahoma
Grady D. Harris, Jr., Oklahoma City, Oklahoma
W. D. Carr, Stillwater, Oklahoma
As amended: No change.
ARTICLE VI
As filed: The principal place of business shall be located at 2901 Classen
Boulevard, Oklahoma City, Oklahoma, and business may be transacted in every
county in the State of Oklahoma, and in such other states of the United States
and such other countries as the Board of Directors may from time to time
determine.
As amended: No change.
ARTICLE VII
As filed: The corporation's indebtedness shall be limited only as directed
by the laws of the State of Oklahoma and acts of the Board of Directors.
As amended: No change.
ARTICLE VIII
As filed: Any process in any action or proceeding may be served on the
corporation by service upon C. B. Cameron, 2901 Classen Boulevard, Oklahoma
City, Oklahoma.
As amended: No change.
ARTICLE IX
1. Such amendments were proposed by a resolution of the Board of Directors
on the 1st day of December, 1971.
2. The amendment was unanimously adopted by the shareholders in accordance
with the provisions of Title 18, Sec. 153 of the "Business Corporation Act" on
December 23, 1971.
IN WITNESS WHEREOF the undersigned corporation has caused these Amended
Articles to be executed this 27th day of December, 1971.
AMERICAN FIDELITY ASSURANCE COMPANY
By /s/ C. B. CAMERON
--------------------------------
President
ATTEST:
/s/ DON J. GUTTERIDGE
- --------------------------
Assistant Secretary
(Corporate Seal)
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
I, Linda Gaylene Henley, a Notary Public in and for said county and state
hereby certify that on the 27th day of December, 1971, C. B. Cameron, President,
and Don J. Gutteridge, Jr., Assistant Secretary, personally appeared before me
and being first duly sworn acknowledge that they signed the foregoing document
in the respective capacity therein set forth and declared that the statements
therein contained are true.
IN WITNESS WHEREOF I have hereunto set my hand and seal the day and year
first above written.
/s/ LINDA GAYLENE HENLEY
---------------------------
Notary Public
My Commission Expires:
October 12, 1975
- ------------------
(SEAL)
AMENDED ARTICLES OF INCORPORATION
OF
AMERICAN FIDELITY ASSURANCE COMPANY
-----------------------------------
(Domestic Stock Company)
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
TO: THE INSURANCE COMMISSIONER OF THE STATE OF OKLAHOMA AND THE SECRETARY OF
STATE OF THE STATE OF OKLAHOMA:
We, the undersigned C. W. Cameron and H. A. Conner do hereby certify that
we hold the offices of President and Secretary respectively of American Fidelity
Assurance Company, an Oklahoma corporation, and that we are persons legally
competent to sign, acknowledge and execute Amended Articles of Incorporation of
American Fidelity Assurance Company pursuant to the laws of the state of
Oklahoma and we do hereby execute the following Amended Articles of
Incorporation of American Fidelity Assurance Company and we further affirm that
the following amendments were adopted in the manner prescribed by the Statutes
of the State of Oklahoma, each such amendment being adopted on the 28th day of
November, 1966.
ARTICLE I
As filed: The name of this corporation is: American Fidelity Assurance
Company.
As amended: No change.
ARTICLE II
As filed: The duration of the corporation's existence shall be perpetual.
As amended: No change.
ARTICLE III
As filed: The kinds of insurance the corporation is formed to transact, and
the objects, powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609, et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated, and the amendments,
additions, and supplements thereto, and generally to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plans.
(i) In connection with the foregoing but without limitation of its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or nonparticipating
basis and to determine the right to participate and the extent of
participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey, lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, in such
securities and assets and in such manner as provided and authorized by the laws
of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
As Amended: No change.
ARTICLE IV
As Filed: This corporation is and shall be a stock company, non-assessable,
and not a mutual company. The authorized capital of this corporation shall be
$200,000.00, consisting of 20,000 shares of common stock of the par value of ten
($10.00) dollars per share.
As Amended: This corporation is and shall be a stock company,
non-assessable and not a mutual company. The authorized capital of this
corporation shall be $600,000.00 consisting of 60,000 shares of common stock of
the par value of ten ($10.00) dollars per share.
ARTICLE V
As Filed: The affairs and business of this corporation shall be managed,
controlled and conducted by a Board of Directors composed of not less than five
nor more than fifteen members, in accordance with and subject to such by-laws as
shall be from time to time adopted.
The names and address of the corporation's first directors who are to serve
for a period ending the first Monday in April, 1961, and until their successors
are elected and shall be qualified are as follows:
C. W. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
C. B. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
Lenice Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
H. A. Conner, 2901 Classen Blvd., Oklahoma City, Oklahoma
V. P. Crowe, 570 First National Bldg., Oklahoma City, Oklahoma.
The names and addresses of the corporation's first principal officers who are to
serve for a period ending the first Monday in April, 1961, and until their
successors are elected and shall qualify, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
President - C. W. Cameron, 2901 Classen Blvd.,
Oklahoma City, Oklahoma
Vice President- C. B. Cameron, 2901 Classen Blvd.,
Oklahoma City, Oklahoma
Secretary - H. A. Conner, 2901 Classen Blvd.,
Oklahoma City, Oklahoma
Treasurer - H. A. Conner, 2901 Classen Blvd.,
Oklahoma City, Oklahoma
</TABLE>
As Amended: The affairs and business of this corporation shall be managed,
controlled and conducted by Board of Directors composed of not less than five
nor more than fifteen members in accordance with and subject to such by-laws as
shall be from time to time adopted. The names and addresses of the current
directors of the corporation who shall hold office until the next annual meeting
of the shareholders or until their respective successors shall be elected and
qualified are as follows:
C. W. Cameron, Oklahoma City, Oklahoma
C. B. Cameron, Oklahoma City, Oklahoma
Lenice Cameron, Oklahoma City, Oklahoma
H. A. Conner, Oklahoma City, Oklahoma
V. P. Crowe, Oklahoma City, Oklahoma
W. T. Richardson, Oklahoma City, Oklahoma
C. W. Barbour, Oklahoma City, Oklahoma
E. C. Joullian, III, Oklahoma City, Oklahoma
Grady D. Harris, Jr., Oklahoma City, Oklahoma
W.D. Carr, Stillwater, Oklahoma
ARTICLE VI
As Filed: The principal place of business shall be located at 2901 Classen
Blvd., Oklahoma City, Oklahoma, and business may be transacted in every county
in the State of Oklahoma, and in the State of Texas, Louisiana, Kansas,
Arkansas, Mississippi, Missouri, Nebraska, and such other States of the United
States of America as the Board of Directors may from time to time determine.
As Amended: The principal place of business shall be located at 2901
Classen Blvd., Oklahoma City, Oklahoma, and business may be transacted in every
county in the State of Oklahoma, and in such other states of the United States
and such other countries as the Board of Directors may from time to time
determine.
ARTICLE VII
As Filed: The corporation's indebtedness shall be limited only as directed
by the laws of the State of Oklahoma and acts of the Board of Directors.
As Amended: No change.
ARTICLE VIII
As Filed: Any process in any action or proceeding may be served on the
corporation by service upon C. B. Cameron, 2901 Classen Blvd., Oklahoma City,
Oklahoma.
As Amended: No change.
ARTICLE IX
1. Such amendments were proposed by a resolution of the Board of Directors
on the 11th day of November, 1966.
2. The amendment was adopted by vote of the shareholders in accordance with
the provisions of Title 18, Sec. 153 of the "Business Corporation Act".
3. The meeting of the shareholders of the corporation at which the
amendment was adopted was held at the Conference Room, Cameron Building, 2901
Classen Blvd., Oklahoma City, Oklahoma, on November 28, 1966.
4. Notice of the meeting was given to the shareholders by mailing notice on
November 17, 1966, to each shareholder, said notice having been mailed more than
ten days prior to the meeting of shareholders.
5. 13,971 shares out of the 20,000 shares of the issued common stock being
a majority thereof, voted for much amendments.
6. None of the shares of the issued common stock voted against such
amendment.
7. The number of shares voted as a class-all of the outstanding shares are
common stock and there is no outstanding stock of any other class. The vote of
the shares of the common stock of the corporation in set forth in Paragraphs 5
and 6 above.
IN WITNESS WHEREOF the undersigned corporation has caused these Amended
Articles to be executed this 29th day of November, 1966.
AMERICAN FIDELITY ASSURANCE COMPANY
BY /s/ C. W. CAMERON
------------------------------
President
ATTEST:
/S/ H. A. CONNER
- ---------------------
Secretary
(Corporate Seal)
STATE OF OKLAHOMA )
COUNTY OF OKLAHOMA ) SS:
I, Junedean M. Emmert, a Notary Public in and for said county and state
hereby certify that on the 29th day of November, 1966, C. W. Cameron, President
and H. A. Conner, Secretary personally appeared before me and being first duly
sworn acknowledge that they signed the foregoing document in the respective
capacity therein set forth and declared that the statements therein contained
are true.
IN WITNESS WHEREOF I have hereunto set my hand and seal the day and year
first above written.
/s/ JUNEDEAN M. EMMERT
--------------------------
Notary Public
My Commission Expires:
January 30, 1968
- ------------------------
(SEAL)
ARTICLES OF INCORPORATION
of
AMERICAN FIDELITY ASSURANCE COMPANY
(Domestic Stock Company)
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
We, the undersigned Incorporators:
C. W. Cameron 2901 Classen Blvd., Oklahoma City, Oklahoma;
Lenice Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma;
C. B. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma;
Bruce M. Johnson, 570 First National Bldg., Oklahoma City, Oklahoma;
James C. Gibbens, 570 First National Bldg., Oklahoma City, Oklahoma;
each being ever twenty-one years of age, citizens of the United States, residing
in the State of Oklahoma, and persons legally competent to enter into contracts,
for the purpose of forming a corporation pursuant to the provisions of the laws
of the State of Oklahoma, do hereby adopt the following Articles of
Incorporation:
ARTICLE I
The name of this corporation is:
American Fidelity Assurance Company.
ARTICLE II
The duration of the corporation's existence shall be perpetual.
ARTICLE III
The kinds of insurance the corporation is formed to transact, and the objects,
powers and purposes to be transacted, promoted and carried on are:
(1) To engage in the insurance business as domestic, stock, life and/or
accident and health insurer, as authorized by Title 36, Sections 609; et seq.
and Sections 2102, et seq. Oklahoma Statutes Annotated and the amendments,
additions, and supplements thereto, and generally to make, write, execute and
issue contracts and policies of insurance as follows:
(a) Upon the lives or health of persons and families and every
insurance appertaining thereto.
(b) To grant, purchase or dispose of annuities and endowments.
(c) Against bodily injury or death by accident and other disability
insurance.
(d) Hospitalization and dread disease coverage.
(e) Group life, health, accident and annuities.
(f) Credit life, health and accident insurance.
(g) To reinsure and to accept reinsurance and to make and enter into
contracts pertaining to the same.
(h) To issue policies on the ordinary, monthly ordinary debit,
industrial, family, or other plans.
(i) In connection with the foregoing but without limitation on its
general purposes, to issue any or all of its policies with or without
participation in profits, savings or unabsorbed portions of premiums,
and to classify policies issued on a participating or
non-participating basis and to determine the right to participate and
the extent of participation of any class or classes of policies.
(2) To own, acquire, buy, sell, mortgage, trade, lease, convey; lease for
oil and gas development and transfer any real, personal or mixed property when
the same shall be necessary or convenient and to enter into and carry out and
perform any and all contracts of every kind and character pertaining to its
business.
(3) To employ such agents and solicitors for insurance and such other
agents, employees and officers as may be necessary or desirable for the proper
conduct and best interests of the corporation.
(4) To invest the assets, capital, reserve, surplus, and any money or
assets of whatsoever kind and character belonging to this corporation, in such
securities and assets and in such manner as provided and authorized by the laws
of the State of Oklahoma.
(5) To do and perform every act, kindred, necessary or convenient to
properly carry out and perform any of the foregoing purposes or either of them,
in any state or territory of the United States of America, or worldwide, not
inconsistent with nor prohibited by the Constitution or laws of the State of
Oklahoma.
ARTICLE IV
This corporation is and shall be a stock company, non-assessable, and not a
mutual company. The authorized capital of this corporation shall be $200,000,000
consisting of 20,000 shares of common stock of the par value of ten ($10.00)
dollars per share.
ARTICLE V
The affairs and business of this corporation shall be managed, controlled and
conducted by a Board of Directors composed of not less than five nor more than
fifteen members in accordance with and subject to such by-laws as shall be from
time to time adopted.
The names and addresses of the corporation's first directors who are to serve
for a period ending the first Monday in April, 1961, and until their successors
are elected and shall be qualified are as follows:
C. W. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
C. B. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
Lenice Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma
H. A. Conner 2901 Classen Blvd., Oklahoma City, Oklahoma
V. P. Crowe, 570 First National Bldg., Oklahoma City, Oklahoma
The names and addresses of the corporation's first principal officers who are to
serve for a period ending the first Monday in April 1961, and until their
successors are elected and shall quality, are as follows:
President - C. W. Cameron 2901 Classen Blvd.,
Oklahoma City, Oklahoma
Vice President - C. B. Cameron 29O1 Classen Blvd.,
Oklahoma City, Oklahoma
Secretary - H. A. Conner 2901 Classen Blvd.,
Oklahoma City, Oklahoma
Treasurer - H. A. Conner 2901 Classen Blvd.,
Oklahoma City, Oklahoma
ARTICLE VI
The principal place of business shall be located at 2901 Classen Blvd., Oklahoma
City, Oklahoma, and business may be transacted in every county in the State of
Oklahoma, and in the States of Texas, Louisiana, Kansas, Arkansas, Mississippi,
Missouri, Nebraska, and such other States of the United States of America as the
Board of Directors may from time to time determine.
ARTICLE VII
The corporation's indebtedness shall be limited only as directed by the laws of
the State of Oklahoma and acts of the Board of Directors.
ARTICLE VIII
Any process in any action or proceeding may be served on the corporation by
service upon C. B. Cameron, 2901 Classen Blvd., Oklahoma City, Oklahoma.
Executed at Oklahoma City, Oklahoma, this 29th day of November, 1960.
/s/ C. W. CAMERON
------------------
C. W. Cameron
/s/ LENICE CAMERON
------------------
Lenice Cameron
/s/ C. B. CAMERON
------------------
C. B. Cameron
/s/ BRUCE H. JOHNSON
---------------------
Bruce H. Johnson
/s/ JAMES C. GIBBENS
--------------------
James C. Gibbens
STATE OF OKLAHOMA )
) SS:
COUNTY OF OKLAHOMA )
Before me, the undersigned, a Notary Public in and for said county and
state on this 29th day of November, 1960, personally appeared C. W. Cameron,
Lenice Cameron, C. B. Cameron, Bruce H. Johnson and James C. Gibbens to me known
to be the identical persons who executed the within and foregoing instrument and
acknowledged to me that they executed the same as their free and voluntary act
and deed for the uses and purposes therein set forth.
/s/ MYRNA CONLEY
----------------------
Notary Public
My Commission Expires:
July 31, 1964
- ---------------
(SEAL)
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENT TO BY-LAWS
------------------------
The following Amendment to the By-laws of American Fidelity Assurance Company,
an Oklahoma corporation, was adopted by the Board of Directors on April 4, 1990.
Article IV of the Corporation Bylaws is hereby amended in its entirety as
follows:
ARTICLE IV
OFFICERS
Section 4.01 Officers. The officers of the corporation shall be a
President, a Secretary and a Treasurer. The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more
Executive Vice Presidents, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 4.03. One person may hold
two or more offices; provided, however, that no person shall at the same time
hold the offices of President and Secretary or more than one of the offices of
President, Executive Vice President and Vice President.
Section 4.02 Appointment. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.03
or Section 4.05 of this Article, shall be chosen annually by the Board of
Directors, and each shall hold his office until he shall resign or shall be
removed or otherwise disqualified to serve, or his successor shall be elected
and qualified.
Section 4.03 Subordinate Officers. The Board of Directors may appoint, and
may empower the Chairman of the Board or the President to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such titles and such authority and perform such
duties as are provided in the by-laws or as the Board of Directors may from time
to time determine.
Section 4.04 Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors, or to the President, or to the Secretary of the corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.05 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the by-laws for regular appointments to such office.
Section 4.06 Chairman Emeritus of the Board. The Chairman Emeritus of the
Board, if any, shall be elected by and shall have such powers and duties which
may be assigned to him from time to time by the Board of Directors.
Section 4.07 Chairman of the Board. The Chairman of the Board, if any,
shall, if present, preside at all meetings of the Board of Directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by the by-laws.
Section 4.08 Vice Chairman of the Board. The Vice Chairman of the Board, if
any, shall, if present, in the absence of the Chairman, preside at all meetings
of the Board of Directors and exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board of Directors or
prescribed by the by-laws.
Section 4.09 President. Subject to such powers and duties, if any, as may
be assigned by the Board of Directors to the Chairman Emeritus of the Board, the
Chairman of the Board, and the Vice Chairman of the Board, if there be such an
officer, the President shall be the Chief Executive Officer of the corporation
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the
corporation, including:
(a) He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors.
(b) He shall sign or countersign, as may be necessary, all such bills,
notes, checks, contracts and other instruments as may pertain to the ordinary
course of the corporation's business and shall, with the Secretary, sign the
minutes of all shareholders' and directors' meetings over which he may have
presided.
(c) He shall execute bonds, mortgages, and other contracts requiring a seal
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
(d) At the annual meeting of the shareholders, he shall submit a complete
report of the operations of the corporation's affairs as existing at the close
of each year and shall report to the Board of Directors from time to time all
such matters coming to his attention and relating to the interest of the
corporation as should be brought to the attention of the Board.
(e) He shall be an ex officio member of all standing committees, including
the Executive Committee, if any; and he shall have such usual powers and duties
of supervision and management as may pertain to the office of the President and
shall have such other powers and duties as may be prescribed by the Board of
Directors or the by-laws.
Section 4.10 Executive Vice President. The Executive Vice President, if
any, shall be the executive officer of the corporation next in authority to the
President, who he shall assist in the management of the business of the
corporation and the implementation of orders and resolutions of the Board of
Directors. In the absence of the Chairman of the Board and the President, he
shall preside at all meetings of the shareholders and of the directors, and
shall exercise all other powers and perform all other duties of the Chairman of
the Board and the President; and he shall perform such other duties as the Board
of Directors may from time to time prescribe. He shall have all authority
conferred upon an Executive Vice President by these by-laws.
Section 4.11 Senior Vice Presidents. In the absence or disability of the
Chairman of the Board, President and Executive Vice President, the Senior Vice
Presidents, in order of their rank as fixed by the Board of Directors or, if not
ranked, the Senior Vice President designated by the Board of Directors, shall
perform all of the duties of the President and, when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the President. The
Senior Vice Presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the Board
of Directors or the by-laws.
Section 4.12 Vice Presidents. The Vice Presidents of the corporation, in
the order of their seniority and rank, shall be Vice President and Second Vice
President of their respective department or corporate function. Each Vice
President shall have the authority and duties, and shall perform the functions
consonant with his department and designated duties and shall have such other
powers and perform such other duties as from time to time may be prescribed for
each respectively by the Board of Directors or the by-laws.
Regional Vice Presidents and Resident Vice Presidents of the corporation,
in the order of their seniority and rank of their respective divisions or
corporate functions shall have the authority and duties and shall perform the
functions consonant with their department and designated duties. They shall have
such other duties as from time to time may be prescribed for each respectively
by the Board of Directors or the by-laws.
Assistant Vice Presidents and Associate Vice Presidents of the corporation,
in the order of their seniority and rank of their respective divisions or
corporate functions, shall have the authority and duties and shall perform the
functions consonant with their department and designated duties. They shall have
such other duties as from time to time may be prescribed for each respectively
by the Board of Directors or the by-laws.
Section 4.13 Secretary. The Secretary shall keep or cause to be kept, at
the principal office of the corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings of directors and
shareholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office of
the corporation or at the office of the corporation's transfer agent, a share
ledger, or a duplicate share ledger, showing the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required by the by-laws or by law
to be given, and he shall keep the seal of the corporation in safe custody. He
shall also sign, with the President or Vice President, all contracts, deeds,
licenses and other instruments when so ordered. He shall make such reports to
the Board of Directors as they may request and shall also prepare such reports
and statements as are required by the laws of the State of Oklahoma and shall
perform such other duties as may be prescribed by the Board of Directors or by
the by-laws.
The Secretary shall allow any shareholder, on application, during normal
business hours, to inspect the share ledger in accordance with applicable law.
He shall attend to such correspondence and perform such other duties as may be
incidental to his office or as may be properly assigned to him by the Board of
Directors.
The Assistant Secretary or Secretaries, if any, shall perform the duties of
the Secretary in the case of his absence or disability and such other duties as
may be specified by the Board of Directors.
Section 4.14 Treasurer. The Treasurer shall keep and maintain, or cause to
be kept and maintained, adequate and correct amounts of the properties and
business transactions of the corporation, including account of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, shall render to the President and directors,
whenever they request it, an account of all of his transactions as Treasurer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
the by-laws.
The Assistant Treasurer or Treasurers, if any, shall perform the duties of
the Treasurer in the event of his absence or disability and such other duties as
the Board of Directors may determine.
Section 4.15 Delegation of Duties. In case of the absence or disability of
any officer of the corporation or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may, by a vote of a
majority of the whole Board, delegate, for the time being, the powers or duties,
or any of them, of such officer to any other officer or to any director.
DATED this 4th day of April, 1990.
/s/ STEPHEN P. GARRETT
--------------------------------
Stephen P. Garrett, Secretary
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENT TO BY-LAWS
-------------------------------------
The following amendment to the By-Laws of American Fidelity Assurance Company,
an Oklahoma corporation, were adopted by the Board of Directors on April 30,
1986:
Article VIII, Section 3(a) and (b) of the Corporation's By-Laws are hereby
amended to read as follows :
"3(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of or with the consent of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), amounts paid in settlement (whether with or without
court approval), judgments, fines actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, if he
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
3(b) The Corporation shall indemnify every person who is or was a party or is or
was threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of or with the consent
of the Corporation as a director, officer, employee or agent or in any other
capacity of or in another corporation, or a partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or not
taken by him while acting in such capacity, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such threatened, pending or completed action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation. The termination of any such
threatened or actual action or suit by a settlement or by an adverse judgment or
order shall not of itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Corporation. Nevertheless, there shall be no
indemnification with respect to expenses incurred in connection with any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Corporation
unless, and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper."
Dated this 27th day of May 1986.
/s/ STEPHEN P. GARRETT
-----------------------------
Stephen P. Garrett, Secretary
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENT TO BY-LAWS
ADOPTED JULY 25, 1978
The following amendment to the By-Laws of American Fidelity Assurance
Company, an Oklahoma corporation, was adopted by the Executive Committee on July
25, 1978.
ARTICLE VIII
Section 3 - Indemnification of Directors and Officers
(a) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), amounts paid in settlement (whether with
or without court approval), judgements, fines actually and reasonably incurred
by him in connection with such action, suit, or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgement, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify every person who is or was a party or
is or was threatened to be made a party to any threatened, pending, or completed
action or suit by or in the right of the Corporation to procure a judgement in
its favor by reason of the fact that he is or was a director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent or in any other capacity
of or in another corporation, or a partnership, joint venture, trust, or other
enterprise, or by reason of any action alleged to have been taken or not taken
by him while acting in such capacity, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such threatened, pending, or completed action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation. The termination of any such threatened or
actual action or suit by a settlement or by an adverse judgement or order shall
not of itself create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation. Nevertheless, there shall be no indemnification
with respect to expenses incurred in connection with any claim, issue, or matter
as to which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless, and only
to the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
(c) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in Subsections (a) and (b) hereof, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with such defense.
(d) Any indemnification under Subsections (a) and (b) hereof (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific cases upon a determination that indemnification is proper in the
circumstances because the person claiming indemnification has met the applicable
standard of conduct set forth in such subsections. Such determination shall be
made by the Board of Directors by a majority vote of a quorum consisting of
disinterested directors, or, if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or by the stockholders.
(e) The amount of any expenses incurred by a person in defending any
threatened or actual action, suit, or proceeding referred to in Subsection (a)
hereof or any threatened or actual action or suit referred to in Subsection (b)
hereof may be advanced to or for the benefit of such person by the Corporation
prior to the final disposition thereof as authorized by the Board of Directors
in the specific case upon the receipt of an undertaking by or on behalf of such
person to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation.
(f) The indemnification provided by this Article VIII, Section 3, shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office and shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
(g) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VIII.
DATED this 25th day of July, 1978.
/S/ DON J. GUTTERIDGE, JR.
-----------------------------------
Don J. Gutteridge, Jr., Secretary
(SEAL)
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENTS TO BYLAWS ADOPTED ON
MAY 6, 1968 AND NOVEMBER 15, 1968
The following amendments to the bylaws of American Fidelity Assurance
Company were adopted by the shareholders on May 6, 1968:
Article IV, Section 1 - Election of Officers.
At the annual meeting of the Directors they shall, as hereinafter provided,
elect a Chairman of the Board, a President, one or more Vice Presidents (one of
whom may be designated as an Executive Vice President), a Secretary and a
Treasurer. In addition thereto, the Board, in its discretion, shall elect such
other officers including Assistant Secretary or Secretaries and Assistant
Treasurer or Treasurers as the Board shall, from time to time, determine. Terms
of office shall each be one year, or until his successor shall be elected or
installed, unless removed by the Board of Directors.
Article IV, Section 3A - The Chairman of the Board.
The Chairman of the Board shall preside at all meetings of the shareholders
of the Company and of the Board of Directors, and shall perform such other
duties as the Board of Directors may prescribe.
Article II, Section 7 - Officers of Shareholders' Meetings.
The Chairman of the Board, if present, shall preside at all meetings of the
shareholders. In his absence the President, or in his absence the Vice
President, or in his absence the next officer in due order who may be present
shall preside. The Secretary of the Corporation shall act as Secretary of all
shareholders' meetings and shall keep a true and correct record of the
proceedings of all such meetings.
The following amendment to the bylaws of American Fidelity Assurance
Company was adopted by the Board of Directors on November 15, 1968:
Article VIII, Section 1 - Salaries Approved by Board of Directors.
No salary compensation or emolument shall be paid to the ten most highly
paid officers or employees of the Company nor any salary compensation or
emolument amounting in any year to more than $20,000 to any person, firm or
corporation, unless such payment is first authorized by a vote of the Board of
Directors of the Company, or by a committee of the Board charged with the duty
of authorizing such payments. The limitation as to time contained in the
foregoing shall not be construed as preventing the Company acting through its
proper officers, from entering in contracts with its agents for the payment of
commissions. The payment of any salary, compensation or emolument amounting in
any year to not more than $20,000 (other than the salaries of the ten most
highly paid officers or employees of the Company) to any person, firm or
corporation, may be authorized by the President of the Company.
Dated this 10th day of February, 1969.
/s/ H.A. CONNER
-------------------------
H. A. Conner, Secretary
(CORPORATE SEAL)
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENTS TO BY-LAWS ADOPTED
NOVEMBER 11, 1966
--------------------------
The following amendments to the By-Laws of American Fidelity Assurance
Company were adopted by the Board of Directors on November 11, 1966:
Article V, Section 6 - Memorandum of Action.
Any action which might be taken at a meeting of the Executive Committee may
be taken without a meeting ii a record or memorandum thereof be made in writing
and signed by all members of the Executive Committee.
Article VI, Section 7 - Fractional Shares.
Certificates for fractional shares of stock may be issued. The registered
ownership of any fractional share represented by such certificates shall entitle
the holder thereof to receive dividends, participate in the corporate assets in
the event of liquidation of the Corporation and to exercise voting rights in
person or by proxy.
Dated this 20th day of April, 1967.
/s/ H.A. CONNER
---------------------------------
H. A. Conner, Secretary
(CORPORATE SEAL)
APPROVED
MAY 25 1967
JOE B. HUNT
INSURANCE COMMISSIONER
/S/ JOE B. HUNT
- --------------------------
FINANCIAL STATEMENT ANALYST
AMERICAN FIDELITY ASSURANCE COMPANY
AMENDMENTS TO BYLAWS ADOPTED APRIL 21, 1964
The following amendments to the Bylaws of American Fidelity Assurance
Company, an Oklahoma corporation, were adopted by the shareholders on April 21,
1964:
Section 2 of Article II - "Annual Meeting. An annual meeting of the
shareholders of the Company shall be held on the third Tuesday in April of each
year."
Section 9 of Article II - "Election of Directors. The number of directors
which shall constitute the whole board shall not be less than five (5) nor more
than fifteen (15). The shareholders at any annual meeting may determine the
number which shall constitute the board and the number so determined shall
remain fixed until changed at a subsequent annual meeting. The directors shall
be elected at the annual meeting of the shareholders and shall serve for one (1)
year and each shall serve until his successor shall be elected and shall
qualify, even though it necessitates remaining in office for a period in excess
of one year."
Dated this 21st day of April, 1964.
/S/ H.A. CONNER
----------------------------
H. A. Conner, Secretary
(CORPORATE SEAL)
AMENDMENT TO BY-LAWS ADOPTED APRIL 2, 1962
The following amendment to By-Laws of American Fidelity Assurance Company,
an Oklahoma corporation, was adopted by the shareholders on April 2, 1962:
Section 2 of Article VII of the By-Laws of this Company which reads: "Funds of
the Company and Checks. Funds of the company shall be deposited only in the
corporate name of the company and in such banks as the President or the
Executive Committee shall designate. All checks and drafts shall be signed by
one (1) of the following officers of the company, namely: President, or a Vice
President, or the Secretary, and may be countersigned by an Assistant Secretary
or such other persons as the President or the Executive Committee may, from time
to time, provide" is hereby amended to read: "Funds of the Company and Checks.
Funds of the company shall be deposited only in the corporate name of the
company and in such banks as the President or the Board of Directors shall
designate. Checks or demands for money and notes of the corporation shall be
signed by such officer or officers or agent or agents as the Board of Directors
may from time to time designate."
Dated this 2nd day of April, 1962.
/S/ H.A. CONNER
--------------------------------
H. A. Conner, Secretary
(Corporate Seal)
AMENDMENTS TO BY-LAWS
The following amendments to the By-laws of American Fidelity Assurance
Company, an Oklahoma corporation, were adopted by the Board of Directors on
March 10, 1961:
Section 6 of Article II of the By-laws of this company which reads:
"Section 6 - Quorum and Voting.
Unless otherwise provided in the Articles of Incorporation, the holders of a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the shareholders. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present, shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law, the Articles of
Incorporation, or a specific provision of these By-laws. Upon demand of any
shareholder, vote upon any question before the meeting shall be held by ballot.
Each outstanding share shall be entitled to one (1) vote on each matter
submitted to a vote at a meeting of shareholders. A shareholder may vote either
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. No proxy shall be valid after eleven (11) months
from the date of its execution unless otherwise expressly provided therein to be
irrevocable, and in no event shall it remain irrevocable for a period of more
than eleven (11) months. All proxies shall be filed with the Secretary and kept
as a part of his records for a period of three (3) years but may thereafter be
destroyed. If at any meeting of shareholders a quorum is not present, those
present may adjourn from day to day, for not more than ten (10) days, until a
quorum is present."
is hereby amended to read:
"Section 6 - Quorum and Voting.
Unless otherwise provided in the Articles of Incorporation, the holders of a
majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the shareholders. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law, the Articles of
Incorporation, or a specific provision of these By-laws. If at any meeting of
shareholders a quorum is not present, those present may adjourn from day to day,
for not more than ten days, until a quorum in present. Any shareholder entitled
to vote may cast his votes in person or by proxy. The appointment of a proxy
shall be in writing and signed but shall require no other attestation and shall
be filed with the secretary of the corporation at or before the meeting, but in
no case shall a proxy be appointed for a period of over seven years. If any
shareholder appoints two or more persons to act as proxies and if the instrument
does not otherwise provide, then a majority of such persons present at the
meeting, or if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such instrument upon all of the persons
so appointed; and if such proxies be equally divided as to the right and manner
of voting in any particular case, the vote shall be divided among the proxies.
Any person holding shares in a representative or fiduciary capacity which he may
represent in person may represent the same by proxy and confer general or
discretionary power upon such proxy. The authority of a proxy if not coupled
with an interest may be terminated at will; unless otherwise provided in the
appointment, the proxy's authority shall cease eleven months after the
appointment. The termination of a proxy's authority by act of the shareholder
shall, subject to the time limitation herein set forth, be ineffective until
written notice of the termination has been given to the secretary of the
corporation. Unless otherwise provided therein, an appointment filed with the
secretary shall have the effect of revoking all proxy appointments of prior
date. A proxy's authority shall not be revoked by the death or incapacity of the
maker unless before the vote is cast or the authority is exercised written
notice of such death or incapacity is given to the corporation."
Section 6 of Article VI of the By-laws of this company which reads:
"Section 6 - Treasury Shares.
Treasury shares, or other shares, not at the time issued and outstanding, shall
not, directly or indirectly, be voted at any meeting of the shareholders, or
counted in calculating the actual voting power of shareholders at any given
time."
is hereby amended to read:
"Section 6 - Authorized but Unissued Shares.
Shares, not at the time issued and outstanding, shall not, directly or
indirectly, be voted at any meeting of the shareholders, or counted in
calculating the actual voting power of shareholders at any given time."
/s/ H.A. CONNER
----------------------
H. A. Conner
Secretary
(Corporate Seal)
BY-LAWS
OF
AMERICAN FIDELITY ASSURANCE COMPANY
ARTICLE 1 - COMPANY
Section 1 - Name of Company.
The name of this company shall be American Fidelity Assurance Company.
Section 2 - Home Office.
The home office of this company shall be in Oklahoma City, Oklahoma.
Section 3 - Corporate Seal.
The corporate seal of this company shall be in the following form with the
following inscription, to wit:
ARTICLE II - SHAREHOLDERS' MEETINGS
Section 1 - Meeting Place.
The place of all meetings of the shareholders shall be the home office of
the company in Oklahoma City, Oklahoma.
Section 2 - Annual Meeting.
An annual meeting of the shareholders of the company shall be held on the
first Monday in April of each year.
Section 3 - Special Meetings.
Special meetings of the shareholders may be called at any time by the
President or upon written request of any five Directors of the company or by the
holders of not less than one-tenth of all the shares entitled to vote at the
meeting, or such meeting may be held at any time without call or notice upon the
unanimous consent of the shareholders.
Section 4 - Notice of Meeting.
If the shareholders' meeting is not held upon the unanimous consent of the
shareholders, a written or printed notice of every annual or special meeting of
shareholders stating the time and place and, in the case of special meetings,
the object or objects thereof shall be prepared and mailed by the Secretary of
the corporation, postage prepaid to each shareholder entitled to vote thereat at
such address as appears on the books of the corporation at least ten days before
the date of such meeting.
Section 5 - Voting List.
The officer or agent having charge of the stock transfer books for shares of the
corporation shall make, at least ten days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the home office of the company and shall
be subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such lists or
transfer books or to vote at any meeting of shareholders. Failure to comply with
the requirements of this section shall not affect the validity of any action
taken at such meeting.
Section 6 - Quorum and Voting.
Unless otherwise provided in the Articles of Incorporation, the holders of
a majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the shareholders. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present, shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law, the Articles of
Incorporation, or a specific provision of these by-laws. Upon demand of any
shareholder, vote upon any questions before the meeting shall be held by ballot.
Each outstanding share shall be entitled to one (1) vote on each matter
submitted to a vote at a meeting of shareholders. A shareholder may vote either
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. No proxy will be valid after eleven (11) months
from the date of its execution unless otherwise expressly provided therein to be
irrevocable, and in no event shall it remain irrevocable for a period of more
than eleven (11) months.
All proxies shall be filed with the Secretary and kept as a part of his records
for a period of three (3) years but may thereafter be destroyed. If at any
meeting of shareholders a quorum is not present, those present may adjourn from
day to day, for not more than ten (10) days, until a quorum is present.
Section 7 - Officers of Shareholders' Meetings.
- -----------------------------------------------
The President, if present, shall preside at all meetings of the
shareholders. In his absence, the Vice President, or in his absence, the next
officer, in due order, who may be present shall preside. The Secretary of the
corporation shall act as Secretary of all shareholders' meetings and shall keep
a true and correct record of the proceedings of all such meetings.
Section 8 - Order of Business.
The order of business at the annual meeting, and so far as practicable at
all other meetings of the shareholders, shall be as follows:
(1) Calling meeting to order;
(2) Calling of roll and checking proxies;
(3) Proof of notice of meeting;
(4) Reading of any unapproved minutes;
(5) Reports of officers;
(6) Reports of committees;
(7) Election of directors;
(8) Unfinished business;
(9) New business; and,
(10) Adjournment.
Section 9 - Election of Directors.
- ---------------------------------
The Board of Directors shall consist of 9 members. Such Directors shall be
elected by the shareholders at the annual meeting on the first Monday in April
of each year, and they shall hold office until the next annual meeting of the
shareholders and until their successors have been elected and qualified.
ARTICLE III - DIRECTORS' MEETINGS
Section 1 - Annual Meetings.
An annual meeting of the Board of Directors for the purpose of election of
officers of the company and the transaction of any other business coming before
such meeting shall be held each year immediately following the adjournment of
the annual shareholders' meeting, and no notice of such meeting to the elected
Directors shall be necessary in order to legally constitute the meeting provided
a majority of the whole Board shall be present. If a majority of the whole Board
shall not be present, then such regular annual meeting may be held at such time
as shall be fixed by the consent, in writing, of all the Directors. Other
meetings of the Board may be held without notice at such time as shall be
determined by the Board.
Section 2 - Special Meetings.
Special meetings of the Board of Directors may be held at any time on the
written call of the President or if he be absent or unable to act, by any other
officer in the order of their seniority. Such meetings may also be held at any
time without call or notice upon the unanimous consent of the Directors.
Section 3 - Notice of Meetings.
The Secretary of the corporation shall notify each member of the Board of
Directors of all regular or special meetings, except the regular or annual
meetings immediately following the annual shareholders' meetings, either
personally or by mail, telephone or telegram not less than five (5) days before
any such meeting, giving the time, place, and in case of special meetings, the
objects thereof, and no business shall be considered at any special meeting
other than the objects contained or mentioned in such notice, except upon the
unanimous consent of all the Directors present, but any Director may, in
writing, either before or after the meeting, waive notice thereof; and without
notice by any director by his attendance at and participation in any action
taken at any meeting shall be deemed to have waived such notice.
Section 4 - Quorum.
At all meetings of the Board, a quorum shall consist of a majority of the
entire number of Directors and the acts of a majority of the Directors present
at a meeting at which a quorum is present shall be the acts of the Board of
Directors except as may be otherwise specifically provided by statute or by
these by-laws. A minority of the Board present at any regular or special meeting
may, in the absence of a quorum, adjourn to a later date but may not transact
any business until a quorum has been secured. At any adjourned meeting at which
a required number of Directors shall be present, any business may be transacted
which might have been transacted at the meeting as originally notified.
Section 5 - Order of Business.
The order of business at the annual meetings and so far as practical at all
other meetings of the Directors shall be as follows.
(1) Calling meeting to order;
(2) Proof of notice of meeting;
(3) Reading of any unapproved minutes;
(4) Reports of officers and directors;
(5) Reports of committees;
(6) Election of officers;
(7) Unfinished business;
(8) New business; and,
(9) Adjournment.
Section 6 - Vacancies.
Any vacancy occurring in the Board of Directors through death, resignation,
disqualification, disability or other cause may be filled by the remaining
members of the Board though less than a quorum, and each person so elected shall
continue as a member of the Board until he is removed therefrom as hereinafter
provided for, or until his successor is elected by the shareholders, and the
shareholders may hold such election at their next annual meeting or at any
special meeting duly called for that purpose.
Section 7 - When Board May Declare Vacancies.
The Board of Directors shall declare vacant the office of a Director if he
be declared of unsound mind by an order of court or convicted of a felony, or
may do so within sixty (60) days after notice of his election if he does not
accept such office in writing or does not attend a meeting of the Board of
Directors.
ARTICLE IV - OFFICERS
Section 1 - Election of Officers.
At the annual meeting of the Directors they shall, as hereinafter provided,
elect a President, one or more Vice Presidents (one of whom may be designated as
an Executive Vice President), a Secretary, and a Treasurer. In addition thereto,
the Board, in its discretion, shall elect such other officers including
Assistant Secretary or Secretaries and Assistant Treasurer or Treasurers as the
Board shall, from time to time, determine. Starting in April, 1961, terms of
office each shall be one year, or until his successor shall be elected or
installed unless removed by the Board of Directors.
Section 2 - Removal of Officers.
Any office or agent elected or appointed by the Board of Directors may be
removed at any time with or without cause by the affirmative vote of a majority
of the whole Board of Directors.
Section 3 - Vacancies.
If the office of any officer or officers becomes vacant for any reason, the
vacancy may be filled by the affirmative vote of the majority of the whole Board
of Directors.
Section 4 - The President.
(a) The president shall exercise the duties of supervision and management of
the business and shall preside at all meetings of the shareholders and
Directors.
(b) He shall sign or countersign, as may be necessary, all such bills,
notes, checks, contracts and other instruments as may pertain to the ordinary
course of the corporation's business and shall, with the Secretary, sign the
minutes of all shareholders' and Directors' meetings over which he may have
presided.
(c) He shall execute bonds, mortgages, and other contracts requiring a seal
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
(d) At the regular annual meeting of the shareholders, he shall submit a
complete report of the operations of the corporation's affairs as existing at
the close of each year and shall report to the Board of Directors from time to
time all such matters coming to his attention and relating to the interest of
the corporation as should be brought to the attention of the Board.
(e) He shall be ex officio a member of all standing committees; he shall
have such usual powers of supervision and management as may pertain to the
office of the President and perform such other duties as may be properly
required of him by the Board of Directors.
Section 5 - The Vice President.
In the absence of the President occasioned by inability, absence from city,
failure or refusal to act, the Vice President shall perform all duties which
should be performed by the President were he present.
Section 6 - The Secretary and Assistant Secretary.
The Secretary shall attend all sessions of the Board of Directors and all
meetings of the shareholders and record all votes and minutes of all proceedings
in the books to be kept for that purpose. He shall issue or cause to be issued
calls for meetings of shareholders and Directors and shall notify all officers
and Directors of their election. He shall have charge of and keep the seal of
the corporation and affix the same to the certificates of stock when such
certificates are signed by the President and the Secretary and shall affix the
seal, attested by his signature, to such other instruments as may require the
same. He shall keep the share certificate and transfer books and other usual
corporation books and records and shall prepare, record, transfer, issue, seal
and cancel certificates of shares of stock as required by the transactions of
the corporation and its shareholders. He shall also sign with the President or
Vice President all contracts, deeds, licenses and other instruments when so
ordered. He shall make such reports to the Board of Directors as they may
request and shall also prepare such reports and statements as are required by
the laws of the State of Oklahoma and shall perform such other duties as may be
prescribed by the Board of Directors. He shall allow any shareholder, on
application in business hours, to inspect the share certificate and transfer
books and the share ledger. He shall attend to such correspondence and do such
other duties as may be incidental to his office or as may be properly assigned
to him by the Board of Directors. The Assistant Secretary or Secretaries shall
perform the duties of the Secretary in the case of his absence or disability and
such other duties as may be specified by the Board of Directors.
Section 7 - The Treasurer and Assistant Treasurer.
The Treasurer shall have the custody of all monies and securities of the
corporation and shall cause to be kept regular books of account. He shall cause
to be disbursed the funds of the corporation in payment of the just demands
against the corporation or as are ordered by the Board of Directors and shall
see that proper vouchers are taken for such disbursements and shall render to
the Board of Directors, from time to time, as may be required of him, an account
of all his transactions as Treasurer and of the financial condition of the
corporation.
He shall perform all duties incident to his office or which are properly
required of him by the Board of Directors. The Assistant Treasurer or Treasurers
shall perform the duties of the Treasurer in the event of his absence or
disability and such other duties as the Board of Directors may determine.
ARTICLE V - EXECUTIVE COMMITTEE
Section 1 - Election.
At the annual meeting of the Directors, the Board, may if it deems it
necessary, acting by resolution adopted by a majority of the number of Directors
fixed by these by-laws, shall elect from their own members an Executive
Committee of three voting members.
Section 2 - Duties.
The Executive Committee shall have all of the powers of the Directors in
the interim between meetings of the Board, except where action of the Board of
Directors is required by law. It shall keep regular minutes of its proceedings
which shall be reported to the Directors at their next meeting.
Section 3 - Meetings.
The Executive Committee shall meet at such times as may be fixed by the
Committee, or on the call of the Chairman of the Board or the President.
Section 4 - Quorum and Voting.
A majority of the members of the Executive Committee as fixed by these
by-laws shall constitute a quorum for the transaction of business. The act of
the majority of the members of the Executive Committee present at a meeting at
which a quorum is present shall be the act of the Executive Committee. At all
meetings of the Executive Committee, each member present shall have one (1) vote
which shall be cast by him in person.
Section 5 - Vacancies.
The Board of Directors, acting by resolution adopted by a majority of the
number of Directors fixed by these by-laws, shall fill all vacancies in the
Executive Committee which may occur from time to time.
ARTICLE VI - CAPITAL STOCK
Section 1 - Certificate of Shares.
Each shareholder of the company whose shares have been paid for in full
shall be entitled to a certificate or certificates showing the number of the
shares of the company standing on the books in his name. Each certificate shall
be numbered, bear the signatures of the President or Vice President and
Secretary and the seal of the company and be issued in numerical order from the
share certificate book. A full record of each certificate of shares as issued
must be entered on the corresponding stubs of the share certificate book.
Section 2 - Transfer of Shares.
Transfer of shares shall be made upon the proper share books of the Company
and must be accompanied by the surrender of the duly endorsed certificate or
certificates representing the transferred shares. Surrendered certificates shall
be canceled and attached to the corresponding stubs in the share certificate
book and new certificates issued to the parties entitled thereto.
Section 3 - Closing of Transfer Books.
The Board of Directors shall have power to close the share transfer books
of the corporation for a period not exceeding forty (40) days preceding the date
of any meeting of shareholders or the date of payment of any dividend or the
date for the allotment of rights or the date when any change or conversion or
exchange of capital shares of stock shall go into effect. While the share
transfer books of the company are closed, no transfer of shares shall be made
thereon. The Board of Directors, in lieu of closing the share transfer books as
aforesaid, may fix in advance a date not exceeding forty (40) days preceding the
date of any meeting of shareholders or the date for the payment of any dividend
or the date for the allotment of rights or the date when any change or
conversion or exchange of capital shares of stock shall go into effect as a
record date for the determination of the shareholders entitled to notice of and
to vote at any such meeting or entitled to receive payment of any such dividend
or to any such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital shares of stock and in such case
only such shareholders as shall be shareholders of record on the date so fixed
shall be entitled to such notice of and to vote at such meeting or to receive
payment of such dividend or to receive such allotment rights and to exercise
such rights as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after any such record date fixed as aforesaid.
Section 4 - Registered Shareholders.
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof, and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person whether or not it shall have express or
other notice thereof save as expressly provided by the laws of Oklahoma.
Section 5 - Lost Certificate.
Any person claiming a certificate of shares to be lost or destroyed shall
make an affidavit or affirmation of that fact and advertise the same in such
manner as the Board of Directors may require and the Board of Directors may, in
their discretion, require the owner of the lost or destroyed certificate, or his
legal representative, to give the corporation a bond in such sum as they may
direct to indemnify the corporation against any claim that may be made against
it on account of the alleged loss of any such certificate. A new certificate of
the same tenor and for the same number of shares as the one alleged to be lost
or destroyed may be issued without advertising and without requiring any bond
when, in the judgment of the Directors, it is proper to do so.
Section 6 - Treasury Shares
Treasury shares, or other shares, not at the time issued and outstanding,
shall not, directly or indirectly, be voted at any meeting of the shareholders,
or counted in calculating the actual voting power of shareholders at any given
time.
ARTICLE VII
EXECUTION OF POLICIES, INSTRUMENTS AND CONTRACTS
Section 1 - Policies.
All policies of insurance shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary whose signatures may be
engraved, printed, or stamped thereon. When signatures are engraved, printed, or
stamped, the policy shall be countersigned by a duly authorized Registrar who
shall be appointed by the President, a Vice President, or the Secretary.
Section 2 - Funds of the Company and Checks.
Funds of the company shall be deposited only in the corporate name of the
company and in such banks as the President or the Executive Committee shall
designate. All checks and drafts shall be signed by one (1) of the following
officers of the company, namely: The President, or a Vice President or the
Secretary, and may be countersigned by an Assistant Secretary or such other
persons as the President or the Executive Committee may, from time to time,
provide.
Section 3 - Facsimile Signatures.
The Executive Committee may authorize the use of a check-signing machine or
any other mechanical device to imprint on checks and drafts of the company the
facsimile signature of the President, the Vice President and the Secretary, or
such officers as it may designate. Such authority, when given, together with
such limitations and restrictions as the Executive Committee may impose thereon,
shall be recorded in the minutes of the Executive Committee and may be revoked
at any time by the Executive Committee or by the President.
Section 4 - Instruments and Contracts.
The President or any Vice President shall have the power to execute in the
name of the company any contract, agreement, certificate, conveyance, receipt,
release or any other instrument whatsoever in writing required or permitted by
law to be executed by the company or which it is necessary for it to execute in
the transactions of its business or in the management of its affairs. Whenever
the affixing of the company seal to any instrument is necessary, the instrument
shall be attested by the Secretary or an Assistant Secretary with the seal of
the company affixed. No authority herein granted shall be construed to supersede
or contravene the control of the Directors over the affairs of the company;
provided, however, that any person, firm or corporation may and shall be
entitled to accept and act upon any document or instrument signed,
countersigned, endorsed or executed by the officers of the company pursuant to
the provisions of these by-laws unless, prior to the receipt of such document or
instrument, such person, firm or corporation has been furnished with a certified
copy of a resolution of the Board of Directors or the Executive Committee
prescribing a different signature, counter-signature, endorsement or execution.
Section 5 - Voting of Stock by the Company.
In all cases where the company owns, holds or represents, under power of
attorney or proxy, or in any representative capacity, shares of the capital
stock of any corporation, or shares or interests in business trusts,
co-partnerships or other associations, such shares or interests shall be
represented and voted by the President, or in the absence of the President, by a
Vice President, and if more than one (1) Vice President be present, then by the
Vice President who shall have priority of appointment, or in the absence of a
Vice President, by the Secretary, or in the absence of the Secretary, by the
Treasurer, provided, however, that in the absence of any such officer, then any
person specifically appointed by the Board Of Directors for the purpose shall
have the right, if present, to represent and vote such shares or interest. If it
is not possible or desirable to have a representative of the company present in
person, then the President or any Vice President shall have the authority to
execute in the name of the company a proxy or proxies for the voting of such
shares or interests.
ARTICLE VIII - MISCELLANEOUS PROVISIONS
Section 1 - Salaries Approved by the Board of Directors.
No salary, compensation or emolument shall be paid to any officer or
Director of the company, nor any salary, compensation or emolument amounting in
any year to more than ten thousand dollars ($10,000.00) to any person, firm or
corporation, unless such payment is first authorized by a vote of the Board of
Directors of the company, or by a committee of the Board charged with the duty
of authorizing such payments. The limitation as to time contained in the
foregoing shall not be construed as preventing the company, acting through its
proper officers, from entering into contracts with its agents for the payment of
commissions. The payment of any salary, compensation or emolument amounting in
any year to not more than ten thousand dollars ($10,000.00) to any person, firm
or corporation, other than to an officer or Director of the company, may be
authorized by the President of the Company.
Section 2 - Waiver.
Whenever any notice is required to be given, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Attendance of a person, either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where the person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 3 - Indemnification of Directors and Officers.
Each person who shall serve, or may have served, as a Director or officer
of this company shall be indemnified by the company against liabilities imposed
upon him and expenses reasonably incurred by him in connection with any claim
made against him, or any action, suit or proceeding to which he may be a party
by reason of his being, or having been, such Director or officer, and against
such sums as independent counsel selected by the Board of Directors shall deem
reasonable payment made in settlement of any such claim, action, suit or
proceeding primarily with a view of avoiding expenses of litigation; provided,
however, that no Director or officer shall be indemnified with respect to
matters as to which he shall be adjudged and in such action, suit or proceeding,
to be liable for negligence or misconduct in the performance of duty, or with
respect to any matters which shall be settled by the payment of sums which
counsel selected by the Board of Directors shall not deem reasonable payment
made primarily with a view to avoiding expenses of litigation, or with respect
to matters for which such indemnification would be against public policy. Such
indemnification shall be in addition to any other rights to which Directors or
officers may be entitled.
Section 4 - Amendment to the By-laws.
These by-laws may be amended at any meeting of the Board of Directors
called for the purpose, provided notice of the proposed change has been mailed
to each Director at least five (5) days before such meeting; or they may be
amended by a two-thirds (2/3) vote of the Directors at any regular annual
meeting.
Adopted at meeting of stockholders held the 30th day of November, 1960.
/s/ H.A. CONNER
-----------------------------------
Secretary
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made as of the _____ day of April, 1997, between MERRILL
LYNCH VARIABLE SERIES FUNDS, INC., an open-end management investment company
organized as a Maryland corporation (the "Fund"), and AMERICAN FIDELITY
ASSURANCE COMPANY, a life insurance company organized and domiciled under the
laws of the state of Oklahoma (the "Company"), on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A as
attached hereto, as such schedule may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Fund has filed a registration statement with the Securities
and Exchange Commission to register itself as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and to register the offer and sale of its shares under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and
WHEREAS, Merrill Lynch Funds 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 (the "1934 Act"),
is a member in good standing of The National Association of Securities Dealers,
Inc. (the "NASD") and acts as principal underwriter of the shares of the Fund;
and
WHEREAS, the capital stock of the Fund is divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets; and
WHEREAS, each series of shares of Fund is divided into Class A Shares and
Class B Shares, which represent identical ownership rights with respect to a
particular portfolio of securities and other assets except that the Class B
Shares exclusively bear certain expenses relating to distribution-related
services incurred in connection with such shares; and
WHEREAS, the several series of shares of the Fund offered by the Fund to
the Company and the Accounts are set forth on Schedule B attached hereto (each,
a "Portfolio," and, collectively, the "Portfolios"), together with the
applicable share class; and
WHEREAS, the Fund has received an order from the SEC granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and rules 6e-2(b) (15)
and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
and certain qualified pension and retirement plans (the "Shared Fund Exemptive
Order");
WHEREAS, Merrill Lynch Asset Management, L.P. ("MLAM") is duly registered
as an investment adviser under the Investment Advisers Act of 1940, as amended,
and any applicable state securities law, and acts as the Fund's investment
adviser; and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and/or variable annuity contracts
funded or to be funded through one or more of the Accounts (the "Contracts");
and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts, and
the Fund intends to sell such Shares to the relevant Accounts at such Shares'
net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE 1
SALE OF THE FUND SHARES
1.1 Subject to Section 1.3 of this Agreement, the Fund shall cause the
Underwriter to make Shares of the Portfolios available to the Accounts at such
Shares' most recent net asset value provided to the Company prior to receipt of
such purchase order by the Fund (or the Underwriter as its agent), in accordance
with the operational procedures mutually agreed to by the Underwriter and the
Company from time to time and the provisions of the then-current prospectus of
the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such
quantities and at such times as determined by the Company to be necessary to
meet the requirements of the Contracts. The Directors of the Fund (the
"Directors") may refuse to sell Shares of any Portfolio to any person (including
the Company and the Accounts), or suspend or terminate the offering of Shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Directors acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any full
or fractional Shares of any Portfolio when requested by the Company on behalf of
an Account at such Shares' most recent net asset value provided to the Company
prior to receipt by the Fund (or the Underwriter as its agent) of the request
for redemption, as established in accordance with the operational procedures
mutually agreed to by the Underwriter and the Company from time to time and the
provisions of the then current-prospectus of the Fund. The Fund shall make
payment for such Shares in the manner established from time to time by the Fund,
but in no event shall payment be delayed for a greater period than is permitted
by the 1940 Act (including any Rule or order of the SEC thereunder).
1.3 The Fund shall accept purchase and redemption orders resulting from
investment in and payments under the Contracts on each Business Day, provided
that such orders are received prior to 9:00 a.m. on such Business Day and
reflect instructions received by the Company from Contract holders in good order
prior to the time the net asset value of each Portfolio is priced in accordance
with its prospectus (such Portfolio's "valuation time") on the prior Business
Day. Any purchase or redemption order for Shares of any Portfolio received, on
any Business Day, after such Portfolio's valuation time on such Business Day
shall be deemed received prior to 9:00 a.m. on the next succeeding Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC. Purchase and redemption orders shall be provided by the
Company to the Underwriter as agent for the Fund in such written or electronic
form (including facsimile) as may be mutually acceptable to the Company and the
Underwriter. The Underwriter may reject purchase and redemption orders that are
not in proper form. In the event that the Company and the Underwriter agree to
use a form of written or electronic communication which is not capable of
recording the time, date and recipient of any communication and confirming good
transmission, the Company agrees that it shall be responsible (i) for confirming
with the Underwriter that any communication sent by the Company was in fact
received by the Underwriter in proper form, and (ii) for the effect of any delay
in the Underwriter's receipt of such communication in proper form. The Fund and
its agents shall be entitled to rely, and shall be fully protected from all
liability in acting, upon the instructions of the persons named in the list of
authorized individuals attached hereto as Schedule C, or any subsequent list of
authorized individuals provided to the Fund or its agents by the Company in such
form, without being required to determine the authenticity of the authorization
or the authority of the persons named therein.
1.4 Purchase orders that are transmitted to the Fund in accordance with
Section 1.3 of this Agreement shall be paid for no later than 12:00 noon on the
same Business Day that the Fund receives notice of the order. Payments shall be
made in federal funds transmitted by wire. In the event that the Company shall
fail to pay in a timely manner for any purchase order validly received by the
Underwriter on behalf of the Fund pursuant to Section 1.3 of this Agreement
(whether or not such failure is the fault of the Company), the Company shall
hold the Fund harmless from any losses reasonably sustained by the Fund as the
result of acting in reliance on such purchase order.
1.5 Issuance and transfer of the Fund's Shares will be by book entry only.
Stock certificates will not be issued to the Company or to any Account. Shares
ordered from the Fund will be recorded in the appropriate title for each
Account.
1.6 The Fund shall furnish prompt notice to the Company of any income,
dividends or capital gain distribution payable on Shares of any Portfolio. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's Shares in additional Shares of
that Portfolio. The Fund shall notify the Company of the number of Shares so
issued as payment of such dividends and distributions.
1.7 The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
such 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.
1.8 The Company agrees that it will not take any action to operate any
Account as a management investment company under the 1940 Act without the Fund's
and the Underwriter's prior written consent.
1.9 The Fund agrees that its Shares will be sold only to Participating
Insurance Companies and their separate accounts. No Shares of any Portfolio will
be sold directly to the general public. The Company agrees that Fund Shares will
be used only for the purposes of funding the Contracts and Accounts listed in
Schedule A, as such schedule may be amended from time to time.
1.10 The Fund agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article 4 of
this Agreement.
1.11 So long as it shall be the intention of the Fund to maintain the net
asset value per share of any Portfolio at $1.00, on any day on which (a) the net
asset value per share of the Shares is determined, (b) MLAM determines, in the
manner described in the then- current prospectus of the Fund, that the net
income of such Portfolio on such day is negative, and (c) MLAM delivers a
certificate to the Company setting forth the reduction in the number of
outstanding Shares to be effected as described in the then-current prospectus of
the Fund in connection with such determination, the Company, on behalf of itself
and the Accounts, agrees to return to the Fund its pro rata share of the number
of Shares to be reduced and agrees that, upon delivery by MLAM to the Company of
such certificate, (a) the Company's ownership interest in the Shares so to be
returned shall immediately cease, (b) such Shares shall be deemed to have been
canceled and to be no longer outstanding, and (c) all rights in respect of such
Shares shall cease.
ARTICLE 2
OBLIGATION OF THE PARTIES
2.1 The Fund shall prepare and be responsible for filing with the SEC and
any state securities regulators requiring such filing, all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Fund. The Fund shall bear the costs or registration and qualification of
its Shares, preparation and filing of the documents listed in this Section 2.1
and all taxes to which an issuer is subject on the issuance and transfer of its
shares.
2.2 At least annually, the Fund or its designee shall provide the Company,
free of charge, with as many copies of the current prospectus (describing only
the Portfolios ) for the Shares as the Company may reasonably request for
distribution to existing Contract owners whose Contracts are funded by such
Shares. The Fund 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
Contracts. If requested by the Company in lieu thereof, the Fund or its designee
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type) 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 Contracts and the prospectus for the Shares printed together in one
document; the expenses of such printing to be borne by the Company. In the event
that the Company requests that the Fund or its designee provide the Fund's
prospectus in a "camera ready" format, the Fund shall be responsible solely for
providing the prospectus in the format in which it 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.
2.3 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Fund or its
designee. The Fund 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 Contract funded by the Shares. The Fund 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.
2.4 The Fund or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Fund's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.5 The Company shall furnish, or cause to be furnished, to the Fund or its
designee, a copy of each prospectus for the Contracts or statement of additional
information for the Contracts in which the Fund or its investment adviser is
named prior to the filing of such document with the SEC. The Company shall
furnish, or shall cause to be furnished, to the Fund or its designee, each piece
of sales literature or other promotional material in which the Fund or its
investment adviser is named, at least five Business Days prior to its use. No
such prospectus, statement of additional information or material shall be used
if the Fund or its designee reasonably objects to such use within five Business
Days after receipt of such material.
2.6 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund or its investment
adviser in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Fund Shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Fund, Fund-sponsored proxy statement, or in sales literature or other
promotional material approved by the Fund or its designee, except with the
written permission of the Fund or its designee.
2.7 The Fund shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may by amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
with the written permission of the Company.
2.8 The Company shall amend the registration statement of the Contracts
under the 1933 Act and registration statement for each Account under the 1940
Act from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws and insurance laws of the various states.
2.9 The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Internal Revenue Code of 1986, as
amended (the "Code"), will identify such Contract as a modified endowment
contract (or policy).
2.10 Solely with respect to Contracts and Accounts that are subject to the
1940 Act, so long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for variable policyowners: (a) the
Company will provide pass-through voting privileges to owners of Contracts - or
policies whose cash values are invested, through the Accounts, in Shares of the
Fund; (b) the Fund shall require all Participating Insurance Companies to
calculate voting privileges in the same manner and the Company shall be
responsible for assuring that the Accounts calculate voting privileges in the
manner established by the Fund; (c) with respect to each Account, the Company
will vote Shares of the Fund held by the Account and for which no timely voting
instructions from Contract owners are received, as well as Shares held by the
Account that are owned by the Company for its general account, in the same
proportion as the Company votes Shares held by the Account for which timely
voting instructions are received from Contract owners; and (d) the Company and
its agents will in no way recommend or oppose or interfere with the solicitation
of proxies for Fund Shares held by Contract owners without the prior written
consent of the Fund, which consent may be withheld in the Fund's sole
discretion.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Oklahoma and
has established each Account as a segregated asset account under such law on the
date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3 The Company represents and warrants that the issuance of the Contracts
will be registered under the 1933 Act prior to any issuance or sale of the
Contracts; the Contracts will be issued and sold in compliance in all material
respects will all applicable federal and state laws; and the sale of the
Contracts shall comply in all material respects with state insurance suitability
requirements.
3.4 The Company represents and warrants that the Contracts are currently
and at the time of issuance will be treated as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of the
Code. The Company shall make every effort to maintain such treatment and shall
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
3.5 The Fund represents and warrants that it is duly organized and validly
existing under the laws of the State of Maryland.
3.6 The Fund represents and warrants that the sale of the Fund Shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and that the Fund is registered under the 1940 Act. The Fund shall use its
best efforts to amend its registration statement under the 1933 Act and the 1940
Act from time to time as required in order to affect the continuous offering of
its shares. The Company shall advise the Fund of any state requirements to
register Shares for sale in such states. If the Fund determines registration is
appropriate, the Fund shall use its best efforts to register and qualify its
Shares for sale in accordance with the laws of all fifty states, the District of
Columbia, Virgin Islands and Puerto Rico and such other jurisdictions reasonably
requested by the Company.
3.7 The Fund represents and warrants that the investments of each Portfolio
will comply with the diversification requirements set forth in section 817(h) of
the Code and the rules and regulations thereunder.
ARTICLE 4
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Fund's Shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Directors will monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities decision in any relevant proceeding; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Directors shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Directors. The Company will assist the
Directors in carrying out their responsibilities under the Shared Fund Exemptive
Order by providing the Directors with all information reasonably necessary for
the Directors to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Directors, or a majority of
the Fund's Directors who are not affiliated with Merrill Lynch Asset Management,
L.P. or the Underwriter (the "Disinterested Directors"), that a material
irreconcilable conflict exists that affects the interests of Contract owners,
the Company shall, in cooperation with other Participating Insurance Companies
whose contract owners are also affected, at its expense and to the extent
reasonably practicable (as determined by the Directors) take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, which
steps could include: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question of whether or not such segregation should
be implemented to a vote of all affected Contracts owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's or
Accounts' investment in the Fund and terminate this Agreement with respect to
such Account(s); provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Disinterested Directors. Any such
withdrawal and termination must take place within 30 days after the Fund gives
written notice that this provision is being implemented. Until the end of such
30 day- period, the Fund shall continue to accept and implement orders by the
Company for the purchase and redemption of Shares of the Fund.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's (or Accounts') investment in the Fund and terminate this Agreement
with respect to such Account(s) within 30 days after the Fund informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Disinterested
Directors. Until the end of such 30- day period, the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
Shares of the Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the Disinterested Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Directors determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the Directors
inform the Company in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a majority of the
Disinterested Directors.
4.7 The Company shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonably request so that the
Directors may fully carry out the duties imposed upon them by the Shared Fund
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Directors.
4.8 If and to the extent that (a) 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 application for the Shared Fund Exemptive Order) on
terms and conditions materially different from those contained in the
application for the Shared Fund Exemptive Order, or (b) the Shared Fund
Exemptive Order is granted on terms and conditions that differ from those set
forth in this Article 4, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary (a) to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable, or (b) to conform this Article 4 to the
terms and conditions contained in the Shared Fund Exemptive Order, as the case
may be.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Fund and each of its Directors, officers, employees and agents
and each person, if any, who controls the Fund within the meaning of Section 15
of the 1933 Act (collectively the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article 5), 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
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to the
Company by or on behalf of the Fund for use in Company Documents or
otherwise for use in connection with the sale of the Contracts or Shares;
or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Fund Documents (as defined in Section 5.2(a) below) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Fund Documents or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Fund by or on behalf of the Company;
or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) 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.
5.2 Indemnification by the Fund. The Fund agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statement of any material fact contained in the registration
statement or prospectus for the Fund (or any amendment or supplement
thereto) or in sales literature approved by the Fund (but solely with
respect to statements regarding the Fund), (collectively, "Fund Documents"
for the purposes of this Article 5), 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 indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and was accurately derived from
written information furnished to the Fund by or on behalf of the Company
for use in Fund Documents or otherwise for use in connection with the sale
of the Contracts or Shares; or
(b) arise out of or result from statement or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Fund or persons under its
control, with respect to the sale or acquisition of the Contracts or
Shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Fund;
or
(d) arise out of or result from any failure by the Fund to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund.
5.3 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any Losses incurred or assessed against any Indemnified Party to the extent such
Losses arise out of or result from such Indemnified Party's willful misfeasance,
bad faith or negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the party against whom indemnification is sought in writing within
five business days after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon or
otherwise received by such Indemnified Party (or after such Indemnified Party
shall have received notice of service upon or other notification to any
designated agent), but failure to notify the party against whom indemnification
is sought of any such claim or shall not relieve that party from any liability
that it may have to the Indemnified Party in the absence of Sections 5.1 and
5.2.
5.5 In case any such action is brought against the Indemnified Parties, the
indemnifying party shall be entitled to participate, at its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE 6
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by six
(6) months' advance written notice to the other party, and may be terminated by
the Fund pursuant to Sections 6.2 through 6.4 below upon written notice to the
Company.
6.2 This Agreement may be terminated at the option of the Fund upon any
finding or ruling against the Company by a court or the NASD, the SEC, the
insurance department of any state, or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the Contracts,
the operation of the Account, the administration of the Contracts or the
purchase of the Shares, or any settlement of any proceedings or undertaking to
any regulatory body that would, in the Fund's reasonable judgment, materially
impair the Company's ability to meet and perform the Company's obligations and
duties hereunder.
6.3 This Agreement may be terminated at the option of the Fund if the
Contracts cease to qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify.
6.4 This Agreement may be terminated by the Fund, at its option, if the
Fund shall reasonably determine, in its sole judgment exercised in good faith,
that either (1) the Company shall have suffered a material adverse change in its
business or financial condition or (2) the Company shall have been the subject
of material adverse publicity that is likely to have a material adverse impact
upon the business and operations of either the Fund or the Underwriter.
6.5 This Agreement may be terminated at the option of the Company if (A)
the Internal Revenue Service determines that any Portfolio fails to qualify as a
"Regulated Investment Company" under the Code or fails to comply with the
diversification requirements of Section 817(h) of the Code, or (B) the Company
shall reasonably determine, in its sole judgment exercised in good faith, that
either (1) the Fund or the Underwriter shall have been the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Company, or (2) the Fund breaches any obligation
under this Agreement in a material respect and such breach shall continue
unremedied for thirty (30) days after receipt of notice from the Company of such
breach.
6.6 Notwithstanding any termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter may, at the option of the Fund, continue
to make available additional Fund Shares for so long after the termination of
this Agreement as the Fund desires pursuant to the terms and conditions of this
Agreement as provided in Section 6.7 below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, if the Fund or
Underwriter so elects to make additional Shares available, the owners of the
Existing Contracts or the Company, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in the Fund, redeem investments
in the Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
6.7 In the event of a termination of this Agreement pursuant to this
Article 6, the Fund and the Underwriter shall promptly notify the Company
whether the Underwriter and the Fund will continue to make Shares available
after such termination; if the Underwriter and the Fund will continue to make
Shares so available, the provisions of this Agreement shall remain in effect
except for Section 6.1 hereof and thereafter either the Fund or the Company may
terminate the Agreement, as so continued pursuant to this Section 6.7, upon
prior written notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Fund, need not be
greater than six months.
6.8 The provisions of Article 5 shall survive the termination of this
Agreement, and the provisions of Article 4 and Sections 2.4 and 2.10 shall
survive the termination of this Agreement so long as Shares of the Fund are held
on behalf of Contract owners in accordance with Section 6.6.
ARTICLE 7
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail 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.
If to the Fund:
Merrill Lynch Variable Series Funds, Inc.
c/o Merrill Lynch Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: General Counsel
If to the Company:
American Fidelity Assurance Company
2000 Classen Boulevard, 5 North
Oklahoma City, Oklahoma 73106-6092
Attention: Marketing Director
American Fidelity Educational Services Division
ARTICLE 8
MISCELLANEOUS
8.1 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.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 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.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York, shall be subject
to the provisions of the 1933, 1934, and 1940 Acts, and the rules, 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.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no Director, officer, agent, or holder of shares of
beneficial interest of the Fund shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby. Each party
shall use its best efforts to provide the other party with reasonable notice of
any governmental investigation or inquiry relating to this Agreement or the
transactions contemplated hereby of which it has knowledge.
8.7 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.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
8.11 No failure or delay by a party in exercising any right or remedy under
this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
AMERICAN FIDELITY ASSURANCE COMPANY
By:
Name:
Title:
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
By:
Name:
Title:
SCHEDULE A
Segregated Accounts of American Fidelity Assurance Company Participating in
Portfolios of Merrill Lynch Variable Series Funds, Inc.
Name of Separate Account Date Established
Separate Account B September 20, 1996
SCHEDULE B
Share Classes and Portfolios of Merrill Lynch Variable Series Funds, Inc.
Offered to Segregated Accounts of American Fidelity Assurance Company
PORTFOLIOS SHARE CLASS(ES)
High Current Income Fund Class A Shares
Special Value Focus Fund Class A Shares
Prime Bond Fund Class A Shares
American Balanced Fund Class A Shares
International Equity Focus Fund Class A Shares
SCHEDULE C
Persons Authorized to Act on Behalf of American Fidelity Assurance Company
The Fund, the Underwriter and their respective agents are authorized to
rely on instructions from the following individuals on behalf of American
Fidelity Assurance Company on its own behalf and on behalf of each Account:
Name Signature
Nancy Steeber ______________________________
Cherie Horsfall ______________________________
Kathy Erickson ______________________________
Shelly Harnett ______________________________
Brandi Marintez ______________________________
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the day of _________, 1997, between
AMERICAN FIDELITY ASSURANCE COMPANY, a life insurance company organized under
the laws of the State of Oklahoma ("Insurance Company"), and each of DREYFUS
VARIABLE INVESTMENT FUND, THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. and
DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND) (each
a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may be,
of a Fund, which has the responsibility for management and control of the
Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying investment
medium. Individuals who participate under a group Contract are
"Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract with a
Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates, including
Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended from
time to time by agreement of the parties hereto, the shares of which are
available to serve as the underlying investment medium for the aforesaid
Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of additional
information of a Fund, as most recently filed with the Commission.
1.12 "Separate Account" shall mean American Fidelity Separate Account B, a
separate account established by Insurance Company in accordance with the
laws of the State of Oklahoma.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion System
shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general account(s)
of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Oklahoma Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c) it
has registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts; and
(d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any Participating
Fund as an investment medium for insurance company separate accounts
supporting variable annuity contracts or variable life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state
laws; and (c) the sale of the Contracts shall comply in all material
respects with state insurance law requirements. Insurance Company agrees to
notify each Participating Fund promptly of any investment restrictions
imposed by state insurance law and applicable to the Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited to
or charged against such Separate Account without regard to other income,
gains or losses from assets allocated to any other accounts of Insurance
Company. Insurance Company represents and warrants that the assets of the
Separate Account are and will be kept separate from Insurance Company's
General Account and any other separate accounts Insurance Company may have,
and will not be charged with liabilities from any business that Insurance
Company may conduct or the liabilities of any companies affiliated with
Insurance Company.
2.4 Each Participating Fund represents that its shares are registered with the
Commission under the Securities Act of 1933, that it is registered with the
Commission under the Act as an open-end, management investment company and
that it possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will maintain such
qualification (under Subchapter M or any successor or similar provision)
and that it will notify Insurance Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies or
annuity contracts, whichever is appropriate, under applicable provisions of
the Code, and that it will make every effort to maintain such treatment and
that it will notify each Participating Fund and Dreyfus immediately upon
having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future. Insurance
Company agrees that any prospectus offering a Contract that is a "modified
endowment contract," as that term is defined in Section 7702A of the Code,
will identify such Contract as a modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section 817(h)
of the Code and the Regulations thereunder. In the event a Participating
Fund becomes aware that it has failed to so comply, it will take reasonable
steps (a) to notify Insurance Company of such failure and (b) to adequately
diversify the Participating Fund so as to achieve compliance.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares available
to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its directors,
trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the
Participating Fund in an amount not less than that required by Rule 17g-1
under the Act. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than the coverage required
or appropriate for purposes of its operations under applicable law. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase at
the then applicable net asset value per share by Insurance Company and the
Separate Account on each Business Day pursuant to rules of the Commission.
Notwithstanding the foregoing, each Participating Fund may refuse to sell
its shares to any person, or suspend or terminate the offering of its
shares, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of its Board, acting in
good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary and in the best interests of the
Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts or
(b) "qualified pension or retirement plans" as determined under Section
817(h)(4) of the Code. Except as otherwise set forth in this Section 3.3,
no shares of any Participating Fund will be sold to the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis to
Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and capital
gain information shall be reported immediately upon discovery to Insurance
Company. Non-material errors will be corrected in the next Business Day's
net asset value per share.
In the event of a material error in the net asset value per share, the
Participating Fund shall take the following steps. Any such error shall be
reported promptly upon discovery to the Insurance Company. Notification can
be made orally or by direct or indirect systems access but must be
confirmed in writing. The letter must state for each day for which an error
occurred the incorrect price, the correct price and the reason for the
price change. If an adjustment is necessary to correct an error that has
caused the Separate Account to receive less than that to which it is
entitled, the Participating Fund shall make all necessary adjustments to
the number of shares owned in the Separate Account and distribute to the
Insurance Company any and all amounts of the underpayment. The Insurance
Company will credit the appropriate amount of such payment to the Separate
Account. When making adjustments for an error, the Participating Fund shall
not net same day transactions in the Separate Account. No adjustment for an
error shall be taken in any Separate Account until such time as the parties
hereto have agreed to a resolution of the error, but the parties shall use
all reasonable efforts to reach such agreement within two business days
after discovery of the error.
3.5 At the end of each Business Day, Insurance Company will use the information
described in Sections 3.2 and 3.4 to calculate the unit values of the
Separate Account for the day. Using this unit value, Insurance Company will
process the day's Separate Account transactions received by it by the close
of trading on the floor of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) to determine the net dollar amount of each Participating
Fund's shares that will be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders will be
transmitted to each Participating Fund by Insurance Company by 11:00 a.m.
Eastern time on the Business Day next following Insurance Company's receipt
of that information. Subject to Sections 3.6 and 3.8, all purchase and
redemption orders for Insurance Company's General Accounts shall be
effected at the net asset value per share of each Participating Fund next
calculated after receipt of the order by the Participating Fund or its
Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating Fund
will execute orders at the applicable net asset value per share determined
as of the close of trading on the day of receipt of such orders by
Insurance Company acting as agent ("effective trade date"), provided that
the Participating Fund receives notice of such orders by 11:00 a.m. Eastern
time on the next following Business Day and, if such orders request the
purchase of Participating Fund shares, the conditions specified in Section
3.8, as applicable, are satisfied. A redemption or purchase request that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value per share computed on
the Business Day immediately preceding the next following Business Day upon
which such conditions have been satisfied in accordance with the
requirements of this Section and Section 3.8.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or redemption
orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial account
on the day the order is transmitted. Insurance Company shall make all
reasonable efforts to transmit to the applicable Participating Fund payment
in Federal Funds by 12:00 noon Eastern time on the Business Day the
Participating Fund receives the notice of the order pursuant to Section
3.5. Each applicable Participating Fund will execute such orders at the
applicable net asset value per share determined as of the close of trading
on the effective trade date if the Participating Fund receives payment in
Federal Funds by 12:00 midnight Eastern time on the Business Day the
Participating Fund receives the notice of the order pursuant to Section
3.5. If payment in Federal Funds for any purchase is not received or is
received by a Participating Fund after 12:00 noon Eastern time on such
Business Day, Insurance Company shall promptly, upon each applicable
Participating Fund's request, reimburse the respective Participating Fund
for any charges, costs, fees, interest or other expenses incurred by the
Participating Fund in connection with any advances to, or borrowings or
overdrafts by, the Participating Fund, or any similar expenses incurred by
the Participating Fund, as a result of portfolio transactions effected by
the Participating Fund based upon such purchase request. If Insurance
Company's order requests the redemption of any Participating Fund's shares
valued at or greater than $1 million dollars, the Participating Fund will
wire such amount to Insurance Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times. Each
Participating Fund will register and qualify its shares for sale in
accordance with the laws of the various states if required by applicable
law.
3.10 Each Participating Fund will confirm each purchase or redemption order made
by Insurance Company. Transfer of Participating Fund shares will be by book
entry only. No share certificates will be issued to Insurance Company.
Insurance Company will record shares ordered from a Participating Fund in
an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the appropriate
number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business Day,
on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be automatically
reinvested in additional shares of the applicable Participating Fund at the
net asset value per share on the ex-dividend date. Each Participating Fund
shall, on the day after the ex-dividend date or, if not a Business Day, on
the first Business Day thereafter, notify Insurance Company of the number
of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of the
Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as Insurance
Company may reasonably request for distribution to each Contractholder and
Participant. If requested by Insurance Company, each Participating Fund
will provide documentation (including the Participating Fund's prospectus
as set in type, on diskette or in camera-ready copy) and other reasonable
assistance as is reasonably necessary for Insurance Company to print
together in one document the current prospectus for the variable contracts
issued by Insurance Company, the current prospectus for each Participating
Fund and the current prospectus of each other fund in which the assets of
the variable contracts are invested. In such case, each Participating Fund
will bear that portion of the reasonable expenses allocable to the
Participating Fund portion of the combined printed prospectuses. Insurance
Company shall submit the invoices for such printing and duplicating to each
Participating Fund and shall employ all reasonable efforts to monitor and
control such costs.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, 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 Participating Fund or its shares,
contemporaneously with the filing of such document with the Commission or
other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one copy
of all registration statements, Prospectuses, 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 Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in the
determination of the Participating Fund's daily net asset value per share
so as to accumulate to an annual charge at the rate set forth in the
Participating Fund's Prospectus. Excluded from the expense limitation
described herein shall be brokerage commissions and transaction fees and
extraordinary expenses.
5.2 Each Participating Fund shall bear the costs of registration and
qualification of its shares, the preparation and filing of required
documents and all taxes to which an issuer is subject on issuance and
transfer of its shares. Except as provided in this Article V and, in
particular in the next sentence, Insurance Company shall not be required to
pay directly any expenses of any Participating Fund or expenses relating to
the distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's
Prospectus, or marketing materials for prospective Insurance Company
Contractholders and Participants as Dreyfus and Insurance Company
shall agree from time to time.
b. Distribution expenses of any Participating Fund materials or marketing
materials for prospective Insurance Company Contractholders and
Participants.
c. Distribution expenses of any Participating Fund materials or marketing
materials for Insurance Company Contractholders and Participants.
Except as provided herein, all other expenses of each Participating
Fund shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 23, 1987
of the Securities and Exchange Commission under Section 6(c) of the Act
with respect to Dreyfus Variable Investment Fund and a copy of the order
dated August 23, 1989 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Life and Annuity Index
Fund, Inc. and, in particular, has reviewed the conditions to the relief
set forth in each related Notice. As set forth therein, if Dreyfus Variable
Investment Fund or Dreyfus Life and Annuity Index Fund, Inc. is a
Participating Fund, Insurance Company agrees, as applicable, to report any
potential or existing conflicts, to which it is reasonably aware, promptly
to the respective Board of Dreyfus Variable Investment Fund and/or Dreyfus
Life and Annuity Index Fund, Inc. and, in particular, whenever contract
voting instructions are disregarded, and recognizes that it will be
responsible for assisting each applicable Board in carrying out its
responsibilities under such application. Insurance Company agrees to carry
out such responsibilities with a view to the interests of existing
Contractholders.
The Dreyfus Socially Responsible Growth Fund, Inc., if it is a
Participating Fund, shall furnish Insurance Company with a copy of its
application for an order of the Securities and Exchange Commission under
Section 6(c) of the Act for mixed and shared funding relief, and the notice
of such application and order when issued by the SEC. Insurance Company
agrees to comply with the conditions on which such order is issued,
including reporting any potential or existing conflicts promptly to the
Board of The Dreyfus Socially Responsible Growth Fund, Inc., and in
particular whenever Contractholder voting instructions are disregarded, to
the extent such conditions are not materially different from the conditions
of the mixed and shared funding relief obtained by Dreyfus Variable
Investment Fund and Dreyfus Life and Annuity Index Fund, Inc.,
respectively; and recognizes that it shall be responsible for assisting the
Board of The Dreyfus Socially Responsible Growth Fund, Inc. in carrying out
its responsibilities in connection with such order. Insurance Company
agrees to carry out such responsibilities with a view to the interests of
existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict (as contemplated in the
order of the Securities and Exchange Commission, and related application,
referenced in Section 6.1) exists with regard to Contractholder investments
in a Participating Fund, the Board shall give prompt notice to all
Participating Companies and any other Participating Fund. If the Board
determines that Insurance Company is responsible for causing or creating
said conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to remedy or
eliminate the irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment medium,
or submitting the question of whether such segregation should be
implemented to a vote of all affected Contractholders; and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision by
Insurance Company to disregard Contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote
by all Contractholders having an interest in a Participating Fund,
Insurance Company may be required, at the Board's election, to withdraw the
investments of the Separate Account in that Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an offer
to do so has been declined by vote of a majority of the Contractholders
materially adversely affected by the irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result of
any act or failure to act by Insurance Company pursuant to this Article VI,
shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at no
cost to Insurance Company, of the Participating Fund's proxy material,
reports to shareholders and other communications to shareholders in such
quantity as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants on a
timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have been
received in the same proportion as Participating Fund shares for which
instructions have been received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as the Participating Fund shares for
which instructions have been received from Contractholders or
Participants. Insurance Company further agrees to be responsible for
assuring that voting the Participating Fund shares for the Separate
Account is conducted in a manner consistent with other Participating
Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to change or supplement the Participating
Fund's current investment adviser.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne in
accordance with Sections 4.2 and 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company shall
make reasonable efforts to market the Contracts and shall comply with all
applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or supplemented
from time to time, or in reports or proxy statements for, the applicable
Participating Fund, or in sales literature or other promotional material
approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales literature
or other promotional material in which Insurance Company or the Separate
Account is named, at least fifteen Business Days prior to its use. No such
material shall be used unless Insurance Company approves such material.
Such approval (if given) must be in writing and shall be presumed not given
if not received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within ten
days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any representations
on behalf of Insurance Company or concerning Insurance Company, the
Separate Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as may be amended or supplemented from time to time, or in
published reports for the Separate Account that are in the public domain or
approved by Insurance Company for distribution to Contractholders or
Participants, or in sales literature or other promotional material approved
by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, 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), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. rules,
the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each Participating
Fund, Dreyfus, each respective Participating Fund's investment adviser and
sub-investment adviser (if applicable), each respective Participating
Fund's distributor, and their respective affiliates, and each of their
directors, trustees, officers, employees, agents and each person, if any,
who controls or is associated with any of the foregoing entities or persons
within the meaning of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of Section 9.1), against any and all losses, claims, damages
or liabilities joint or several (including any investigative, legal and
other expenses reasonably incurred in connection with, and any amounts paid
in settlement of, any action, suit or proceeding or any claim asserted) for
which the Indemnified Parties may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect to thereof) (i) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, 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; (ii) arise out of
or as a result of conduct, statements or representations (other than
statements or representations contained in the Prospectus and sales
literature or advertisements of the respective Participating Fund) of
Insurance Company or its agents, with respect to the sale and distribution
of Contracts for which the respective Participating Fund's shares are an
underlying investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or the respective Participating Fund's
shares; (iv) arise out of Insurance Company's incorrect calculation and/or
untimely reporting of net purchase or redemption orders; or (v) arise out
of any breach by Insurance Company of a material term of this Agreement or
as a result of any failure by Insurance Company to provide the services and
furnish the materials or to make any payments provided for in this
Agreement. Insurance Company will reimburse any Indemnified Party in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that with respect to clauses (i)
and (ii) above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission or alleged omission made in
such registration statement, prospectus, sales literature, or advertisement
in conformity with written information furnished to Insurance Company by
the respective Participating Fund specifically for use therein. This
indemnity agreement will be in addition to any liability which Insurance
Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities,
including any investigative, legal and other expenses reasonably incurred
in connection with, and any amounts paid in settlement of, any action, suit
or proceeding or any claim asserted, to which Insurance Company or any such
director, officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) (1) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or Prospectus or
sales literature or advertisements of the respective Participating Fund;
(2) arise out of or are based upon the omission to state in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(3) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
Prospectus or sales literature or advertisements with respect to the
Separate Account or the Contracts and such statements were based on
information provided to Insurance Company by the respective Participating
Fund; or (4) arise out of any breach by a Participating Fund of a material
term of this Agreement or as a result of any failure by a Participating
Fund to provide the services and furnish the materials or to make any
payments in conformity with and as provided for in this Agreement; and the
respective Participating Fund will reimburse any legal or other expenses
reasonably incurred by Insurance Company or any such director, officer,
employee, agent or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the respective Participating Fund will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or alleged
omission made in such registration statement, Prospectus, sales literature
or advertisements in conformity with written information furnished to the
respective Participating Fund by Insurance Company specifically for use
therein. This indemnity agreement will be in addition to any liability
which the respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company and each of its directors, officers, employees, agents, and each
person, if any, who controls Insurance Company within the meaning of the
1933 Act harmless against any and all liability, loss, damages, costs or
expenses (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) which Insurance Company
may incur, suffer or be required to pay due to the respective Participating
Fund's (1) incorrect calculation of the daily net asset value, dividend
rate or capital gain distribution rate; (2) incorrect reporting of the
daily net asset value, dividend rate or capital gain distribution rate; and
(3) untimely reporting of the net asset value, dividend rate or capital
gain distribution rate; provided that the respective Participating Fund
shall have no obligation to indemnify and hold harmless Insurance Company
if the incorrect calculation or incorrect or untimely reporting was the
result of incorrect information furnished by Insurance Company or
information furnished untimely by Insurance Company or otherwise as a
result of or relating to a breach of this Agreement by Insurance Company.
This indemnity agreement will be in addition to any liability that the
Participating Fund otherwise may have.
9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, 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 the extent that the indemnifying party has given notice to such effect
to the indemnified party and is performing its obligations under this
Article, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund harmless
against any tax liability incurred by the Participating Fund under Section
851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the general account of its affiliates, but
only if the Participating Fund provides prior notice to Insurance Company
that any such purchase or redemption might cause the Participating Fund to
incur tax liability under Section 851.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;
c. As to a Participating Fund, at the option of Insurance Company, upon
the institution of formal proceedings against that Participating Fund
by the Commission, National Association of Securities Dealers or any
other regulatory body, the expected or anticipated ruling, judgement
or outcome of which would, in Insurance Company's reasonable judgment,
materially impair that Participating Fund's ability to meet and
perform the Participating Fund's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by Insurance
Company with said termination to be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund,
following the issuance of any ruling, judgment or outcome in
connection with the institution of formal proceedings against
Insurance Company by the Commission, National Association of
Securities Dealers or any other regulatory body, the result of which
would, in the Participating Fund's reasonable judgment, materially
impair Insurance Company's ability to meet and perform Insurance
Company's obligations and duties hereunder. Prompt notice of election
to terminate shall be furnished by such Participating Fund with said
termination to be effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund,
if the Participating Fund shall determine, in its sole judgment
reasonably exercised in good faith, that Insurance Company has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and such
material adverse change or material adverse publicity is likely to
have a material adverse impact upon the business and operation of that
Participating Fund or Dreyfus; such Participating Fund shall notify
Insurance Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions taken by
Insurance Company and any other changes in circumstances since the
giving of such notice, such determination of the Participating Fund
shall continue to apply on the sixtieth (60th) day following the
giving of such notice, which sixtieth day shall be the effective date
of termination;
f. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or its
successors unless Insurance Company specifically approves the
selection of a new Participating Fund investment adviser. Such
Participating Fund shall promptly furnish notice of such termination
to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with
applicable federal law, or such law precludes the use of such shares
as the underlying investment medium of Contracts issued or to be
issued by Insurance Company. Termination shall be effective
immediately as to that Participating Fund only upon such occurrence
without notice;
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon 60 days' notice by such
Participating Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund reasonably
believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law;
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party; or
m. As to a Participating Fund, at the option of Insurance Company, if the
Insurance Company shall determine, in its sole judgment reasonably
exercised in good faith, that the Participating Fund is the subject of
material adverse publicity and such material adverse publicity is
likely to have a material adverse impact upon the sale of the variable
contracts and/or the operations or business reputation of Insurance
Company; Insurance Company shall notify the Participating Fund in
writing of such determination and its intent to terminate this
Agreement as to that Participating Fund, and after considering the
actions taken by Participating Fund and any other changes in
circumstances since the giving of such notice, such determination of
Insurance Company shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination.
n. As to a Participating Fund, at the option of Insurance Company,
following the issuance of any ruling, judgment or outcome in
connection with the institution of formal proceedings against the
Participating Fund by the Commission, National Association of
Securities Dealers or any other regulatory body, the result of which
would, in Insurance Company's reasonable judgment, materially impair
the Participating Fund's ability to meet and perform its obligations
and duties hereunder. Prompt notice of election to terminate shall be
furnished by Insurance Company with said termination to be effective
upon receipt of notice;
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section 10.2
hereof, Insurance Company, at its option, may continue to purchase
additional shares of that Participating Fund, as provided below, pursuant
to the terms and conditions of this Agreement for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Under such circumstances, only the
owners of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments in
that Participating Fund, redeem investments in that Participating Fund
and/or invest in that Participating Fund upon the making of additional
purchase payments under the Existing Contracts. Furthermore, the provisions
of this Agreement shall remain in effect and thereafter either that
Participating Fund or Insurance Company may terminate the Agreement as to
that Participating Fund, as so continued pursuant to this Section 10.3,
upon prior written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given by the
Participating Fund, need not be for longer than the greater of (i) six
months or (ii) the period required by Insurance Company to obtain any
necessary approval from the Commission or any state insurance regulatory
authority provided that Insurance Company makes a reasonable good faith
effort to obtain such approvals in a reasonable period of time.
10.4 Termination of this Agreement as to any one Participating Fund shall not be
deemed a termination as to any other Participating Fund unless Insurance
Company or such other Participating Fund, as the case may be, terminates
this Agreement as to such other Participating Fund in accordance with this
Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each respective
Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: American Fidelity Assurance Company
2000 Classen Boulevard
Oklahoma City, Oklahoma 73125
Attn: Stephen P. Garrett, Senior
Vice President and General
Counsel
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services,
Inc.
200 Park Avenue, 6th Floor West
New York, New York 10166
Attn: Elizabeth A. Keeley, Esq.
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the addresses
as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the undersigned
officer of the Fund in his capacity as an officer of the Fund. The
obligations of this Agreement shall only be binding upon the assets and
property of the Fund and shall not be binding upon any director, trustee,
officer or shareholder of the Fund individually. It is agreed that the
obligations of the Funds are several and not joint, that no Fund shall be
liable for any amount owing by another Fund and that the Funds have
executed one instrument for convenience only.
13.2 Each party shall cooperate with each other party in connection with
inquiries by appropriate governmental authorities (including without
limitation the Commission, the National Association of Securities Dealers
and state insurance regulators) relating to this Agreement or the
transactions contemplated by this Agreement.
13.3 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
13.4 If any provision of this Agreement shall be held invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected.
13.5 No failure or delay by a party in exercising any right or remedy under this
Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The
rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
AMERICAN FIDELITY ASSURANCE COMPANY
By:
__________________________________
Its:
__________________________________
Attest:_____________________
DREYFUS LIFE AND ANNUITY INDEX FUND,
INC. (d/b/a DREYFUS STOCK INDEX FUND)
By:
__________________________________
Its:
__________________________________
Attest:_____________________
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By:
__________________________________
Its:
__________________________________
Attest:_____________________
DREYFUS VARIABLE INVESTMENT FUND
By:
__________________________________
Its:
__________________________________
Attest:_____________________
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund:
Growth and Income Portfolio
Small Company Stock Portfolio
Dreyfus Stock Index Fund
The Dreyfus Socially Responsible Growth Fund, Inc.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
October 10, 1997
Board of Directors
American Fidelity Assurance Company
2000 N. Classen Blvd.
Oklahoma City, OK 73106
Re: Opinion of Counsel - American Fidelity Separate Account B
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-4 for the Flexible Premium Variable and Fixed
Deferred Annuity Policy (the "Policy") to be issued by American Fidelity
Assurance Company and its separate account, American Fidelity Separate Account
B.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. American Fidelity Separate Account B is a Unit Investment Trust as the
term is defined in Section 4(2) of the Investment Company Act of 1940 ( the
"Act"), and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the "Act".
2. Upon the acceptance of purchase payments made by a Policy Owner pursuant
to a Policy issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Policy
Owner will have a legally-issued, fully-paid, non-assessable contractual
interest under such Policy.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
We consent to the reference to our Firm under the captions "Legal Opinions"
contained in the Prospectus and the Statement of Additional Information which
forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ LYNN KORMAN STONE
__________________________
Lynn Korman Stone
[KPMG PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
Board of Directors
American Fidelity Assurance Company:
We consent to the use of our report included herein on the consolidated
financial statements of American Fidelity Assurance Company and subsidiaries as
of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, and to the references to our firm under the
heading "Experts" in part B of the Registration Statement.
/s/ KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
October 10, 1997
<TABLE>
<CAPTION>
EXHIBIT 13
MERRILL LYNCH INTERNATIONAL EQUITY FOCUS FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 10.6527413
----------
EQUALS ORIGINAL UNITS PURCHASED 93.8725512
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 1.3074874
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.7187348
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 92.4613038
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 11.0345443
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,020.27
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0203
SUBTRACT 1.0 0.0203
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 2.03%
====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 01-Jul-93 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jul-93 10.0000000
----------
EQUALS ORIGINAL UNITS PURCHASED 100
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.8495484
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -11.0902597
----------
EQUALS UNITS HELD ON 31-Dec-96 95.7592887
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 11.0345443
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,056.66
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0567
SUBTRACT 1.0 0.0567
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.67%
====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH INTERNATIONAL EQUITY FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,020.27 $1,000 (1 + T)** 3.5041 = $1,056.66
T = 2.03% T = 1.59%
==== ====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH INTERNATIONAL EQUITY FOCUS FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 10.6527413
----------
EQUALS ORIGINAL UNITS PURCHASED 93.8725512
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 1.3074874
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.7187348
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 92.4613038
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 11.0345443
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,020.27
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $940.27
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9403
SUBTRACT 1.0 -0.0597
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -5.97%
====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 01-Jul-93 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jul-93 10.0000000
----------
EQUALS ORIGINAL UNITS PURCHASED 100
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.8495484
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -11.0902597
----------
EQUALS UNITS HELD ON 31-Dec-96 95.7592887
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 11.0345443
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,056.66
LESS WITHDRAWAL CHARGE @ 5.00% ON% 90% (8% MAX ON PURCHASES) 47.55
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,009.11
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0091
SUBTRACT 1.0 0.0091
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 0.91%
====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH INTERNATIONAL EQUITY FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $940.27 $1,000 (1 + T)** 3.5041 = $1,009.11
T = -5.97% T = 0.26%
==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
MERRILL LYNCH HIGH CURRENT INCOME FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 9.82845567
----------
EQUALS ORIGINAL UNITS PURCHASED 101.7453843
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 10.0731576
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -3.0605324
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 108.7580095
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.80221623
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,066.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0661
SUBTRACT 1.0 0.0661
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 6.61%
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 9.49036386
----------
EQUALS ORIGINAL UNITS PURCHASED 105.370038
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 59.8706769
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -15.0138964
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 150.2268185
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.80221623
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,472.56
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.4726
SUBTRACT 1.0 0.4726
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 47.26%
====
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 11.4200000
-
EQUALS ORIGINAL UNITS PURCHASED 87.5656743
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 150.9577227
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -30.8982011
-
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 207.6251959
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.8022162
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $2,035.19
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.0352
SUBTRACT 1.0 1.0352
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 103.52%
======
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH CURRENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,066.07 $1,000 (1 + T)**5 = $1,472.56 $1,000 (1 + T)**10 = $2,035.19
T = 6.61% T = 8.05% T = 7.36%
=== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH CURRENT INCOME FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 9.82845567
----------
EQUALS ORIGINAL UNITS PURCHASED 101.7453843
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 10.0731576
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -3.0605324
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 108.7580095
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.80221623
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,066.07
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $986.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9861
SUBTRACT 1.0 -0.0139
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -1.39%
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 9.490363856
-----------
EQUALS ORIGINAL UNITS PURCHASED 105.370038
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 59.8706769
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -15.0138964
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 150.2268185
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.80221623
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,472.56
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) 53.01
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,419.55
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.4196
SUBTRACT 1.0 0.4196
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 41.96%
=====
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 11.4200000
----------
EQUALS ORIGINAL UNITS PURCHASED 87.5656743
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 150.9577227
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -30.8982011
----------
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 207.6251959
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 9.80221623
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $2,035.19
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES) 0.00
----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $2,035.19
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.0352
SUBTRACT 1.0 1.0352
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 103.52%
======
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH HIGH CURRENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $986.07 $1,000 (1 + T)**5 = $1,419.55 $1,000 (1 + T)**10 = $2,035.19
T = -1.39% T = 7.26% T = 7.36%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 16.7400399
----------
EQUALS ORIGINAL UNITS PURCHASED 59.737014
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.6612319
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.5675155
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 60.8307304
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 19.1385667
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,164.21
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1642
SUBTRACT 1.0 0.1642
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 16.42%
=====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 07-Oct-93 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 07-Oct-93 12.5000000
----------
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.9868223
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -7.9195126
---------
EQUALS UNITS HELD ON 31-Dec-96 80.0673097
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 19.1385667
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,532.37
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.5324
SUBTRACT 1.0 0.5324
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 53.24%
</TABLE>
<TABLE>
<CAPTION>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,164.21 $1,000 (1 + T)** 3.2356 = $1,532.37
T = 16.42% T = 14.10%
===== =====
</TABLE>
<TABLE>
<CAPTION>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 16.7400399
----------
EQUALS ORIGINAL UNITS PURCHASED 59.737014
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.6612319
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.5675155
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 60.8307304
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 19.1385667
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,164.21
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,084.21
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0842
SUBTRACT 1.0 0.0842
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 8.42%
====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 07-Oct-93 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 07-Oct-93 12.5000000
----------
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.9868223
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -7.9195126
---------
EQUALS UNITS HELD ON 31-Dec-96 80.0673097
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 19.1385667
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,532.37
LESS WITHDRAWAL CHARGE @ 5.00% ON 90% (8% MAX ON PURCHASES) 68.96
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,463.41
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.4634
SUBTRACT 1.0 0.4634
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 46.34%
=====
</TABLE>
<TABLE>
<CAPTION>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,084.21 $1,000 (1 + T)** 3.2356 = $1,463.41
T = 8.42% T = 12.49%
==== =====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
DREYFUS STOCK INDEX FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 15.66
-----
EQUALS ORIGINAL UNITS PURCHASED 63.8605376
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.5071224
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.6494682
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 64.7181918
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,177.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1771
SUBTRACT 1.0 0.1771
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 17.71%
=====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 14.4142252
----------
EQUALS ORIGINAL UNITS PURCHASED 69.3759105
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 30.3081131
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -10.5528098
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 89.1312138
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,621.09
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.6211
SUBTRACT 1.0 0.6211
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 62.11%
=====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 29-Sep-89 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 29-Sep-89 12.5000000
----------
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 40.1512184
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -17.6053966
----------
EQUALS UNITS HELD ON: 31-Dec-96 102.5458218
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,865.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8651
SUBTRACT 1.0 0.8651
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 86.51%
=====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C> <C>
SINCE INCEPTION
ONE YEAR AVERAGE FIVE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,177.07 $1,000 (1 + T)**5 = $1,621.09 $1,000 (1 + T)** 7.2603 = $1,865.07
T = 17.71% T = 10.14% T = 8.96%
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 15.66
-----
EQUALS ORIGINAL UNITS PURCHASED 63.8605376
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.5071224
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.6494682
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 64.7181918
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,177.07
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,097.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0971
SUBTRACT 1.0 0.0971
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 9.71%
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 14.4142252
----------
EQUALS ORIGINAL UNITS PURCHASED 69.3759105
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 30.3081131
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -10.5528098
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 89.1312138
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,621.09
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) 58.36
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,562.73
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.5627
SUBTRACT 1.0 0.5627
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 56.27%
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 29-Sep-89 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 29-Sep-89 12.5000000
----------
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 40.1512184
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -17.6053966
----------
EQUALS UNITS HELD ON 31-Dec-96 102.5458218
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.1876807
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,865.07
LESS WITHDRAWAL CHARGE @ 1.00% ON 90% (8% MAX ON PURCHASES) 16.79
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,848.28
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8483
SUBTRACT 1.0 0.8483
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 84.83%
</TABLE>
<TABLE>
<CAPTION>
DREYFUS STOCK INDEX FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C> <C>
SINCE INCEPTION
ONE YEAR AVERAGE FIVE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,097.07 $1,000 1 + T)**5 = $1,562.73 $1,000 (1 + T)** 7.2603 = $1,848.28
T = 9.71% T = 9.34% T = 8.83%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
MERRILL LYNCH PRIME BOND FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 10.8768422
----------
EQUALS ORIGINAL UNITS PURCHASED 91.9384486
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.2957283
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.9269092
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 95.3072677
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $976.87
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9769
SUBTRACT 1.0 -0.0231
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -2.31%
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 11.1509926
----------
EQUALS ORIGINAL UNITS PURCHASED 89.6781156
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 35.3136611
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -14.09012
--------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 110.9016567
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,136.71
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1367
SUBTRACT 1.0 0.1367
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 13.67%
======
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 12.0400000
----------
EQUALS ORIGINAL UNITS PURCHASED 83.0564784
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 81.21453
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -28.065864
---------
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 136.2051444
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,396.06
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3961
SUBTRACT 1.0 0.3961
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 39.61%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH PRIME BOND FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $976.87 $1,000 (1 + T)**5 = $1,136.71 $1,000 (1 + T)**10 = $1,396.06
T = -2.31% T = 2.60% T = 3.39%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH PRIME BOND FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 10.8768422
----------
EQUALS ORIGINAL UNITS PURCHASED 91.9384486
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.2957283
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.9269092
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 95.3072677
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $976.87
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 78.15
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $898.72
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.8987
SUBTRACT 1.0 -0.1013
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -10.13%
=====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 11.1509926
----------
EQUALS ORIGINAL UNITS PURCHASED 89.6781156
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 35.3136611
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -14.09012
--------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 110.9016567
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,136.71
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) 40.92
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,095.79
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0958
SUBTRACT 1.0 0.0958
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 9.58%
====
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 12.0400000
----------
EQUALS ORIGINAL UNITS PURCHASED 83.0564784
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 81.21453
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -28.065864
---------
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 136.2051444
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 10.2497201
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,396.06
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES) 0.00
----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,396.06
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3961
SUBTRACT 1.0 0.3961
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 39.61%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH PRIME BOND FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $898.72 $1,000 (1 + T)**5 = $1,095.79 $1,000 (1 + T)**10 = $1,396.06
T = -10.13% T = 1.85% T = 3.39%
===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
MERRILL LYNCH AMERICAN BALANCED FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 13.5385159
----------
EQUALS ORIGINAL UNITS PURCHASED 73.8633399
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.937632
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.1314539
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 74.6695180
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748997
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,050.97
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0510
SUBTRACT 1.0 0.0510
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.10%
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 12.14917489
-----------
EQUALS ORIGINAL UNITS PURCHASED 82.3101165
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 17.1777644
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -11.6968395
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 87.7910414
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748998
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,235.65
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2357
SUBTRACT 1.0 0.2357
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 23.57%
=====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 01-Jun-88 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jun-88 10.0000000
----------
EQUALS ORIGINAL UNITS PURCHASED 100
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 38.4048028
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -22.4596635
----------
EQUALS UNITS HELD ON 31-Dec-96 115.9451393
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748998
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,631.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.6319
SUBTRACT 1.0 0.6319
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 63.19%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH AMERICAN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C> <C>
SINCE INCEPTION
ONE YEAR AVERAGE FIVE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,050.97 $1,000 (1 + T)**5 = $1,235.65 $1,000 (1 + T)** 8.5890 = $1,631.92
T = 5.10% T = 4.32% T = 5.87%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH AMERICAN BALANCED FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 13.5385159
----------
EQUALS ORIGINAL UNITS PURCHASED 73.8633399
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.937632
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.1314539
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 74.6695180
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748998
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,050.97
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $970.97
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9710
SUBTRACT 1.0 -0.0290
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -2.90%
======
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 12.1491749
----------
EQUALS ORIGINAL UNITS PURCHASED 82.3101165
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 17.1777644
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -11.6968395
----------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 87.7910414
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748998
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,235.65
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) 44.48
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,191.17
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1912
SUBTRACT 1.0 0.1912
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 19.12%
=====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C>
INITIAL INVESTMENT ON 01-Jun-88 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jun-88 10.0000000
----------
EQUALS ORIGINAL UNITS PURCHASED 100
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 38.4048028
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -22.4596635
----------
EQUALS UNITS HELD ON 31-Dec-96 115.9451393
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 14.0748998
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,631.92
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8.0% MAX ON PURCHASES) 0.00
----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,631.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.6319
SUBTRACT 1.0 0.6319
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 63.19%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH AMERICAN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C> <C>
SINCE INCEPTION
ONE YEAR AVERAGE FIVE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $970.97 $1,000 (1 + T)**5 = $1,191.17 $1,000 (1 + T)** 8.5890 = $1,631.92
T = -2.90% T = 3.56% T = 5.87%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
MERRILL LYNCH SPECIAL VALUE FOCUS FUND
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 24.4447515
----------
EQUALS ORIGINAL UNITS PURCHASED 40.908577
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.2880443
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.3294883
----------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 45.8671330
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.5650720
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,035.00
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0350
SUBTRACT 1.0 0.0350
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 3.50%
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 16.661452
----------
EQUALS ORIGINAL UNITS PURCHASED 60.0187787
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 9.3887894
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -7.7473034
---------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 61.6602647
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.5650720
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,391.37
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3914
SUBTRACT 1.0 0.3914
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 39.14%
=====
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 18.4200000
----------
EQUALS ORIGINAL UNITS PURCHASED 54.2888165
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 23.533674
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -19.783995
---------
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 58.0384950
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.5650720
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,309.64
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3096
SUBTRACT 1.0 0.3096
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 30.96%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH SPECIAL VALUE FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,035.00 $1,000 (1 + T)**5 = $1,391.00 $1,000 (1 + T)**10 = $1,309.64
T = 3.50% T = 6.83% T = 2.73%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH SPECIAL VALUE FOCUS FUND
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 24.4447515
----------
EQUALS ORIGINAL UNITS PURCHASED 40.908577
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 6.2880443
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.3294883
---------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 45.8671330
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.5650720
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,035.00
LESS WITHDRAWAL CHARGE @ 8.00%(8% MAX ON PURCHASES): 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $955.00
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9550
SUBTRACT 1.0 -0.0450
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -4.50
====
</TABLE>
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-91 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-91 16.661452
---------
EQUALS ORIGINAL UNITS PURCHASED 60.0187787
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 9.3887894
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -7.7473034
---------
EQUALS UNITS HELD AT END OF 5 YEARS ON 31-Dec-96 61.6602647
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.565072
---------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,391.37
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES): 50.09
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,341.28
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3413
SUBTRACT 1.0 0.3413
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 34.13%
=====
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-86 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-86 18.4200000
----------
EQUALS ORIGINAL UNITS PURCHASED 54.2888165
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 23.533674
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -19.7839955
----------
EQUALS UNITS HELD AT END OF 10 YEARS ON 31-Dec-96 58.0384950
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 22.5650720
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,309.64
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES): 0.00
----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,309.64
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3096
SUBTRACT 1.0 0.3096
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 30.96%
=====
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH SPECIAL VALUE FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C> <C>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $955.00 $1,000 (1 + T)**5 = $1,341.00 $1,000 (1 + T)**10 = $1,309.64
T = -4.50% T = 6.05% T = 2.73%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 17.8779404
----------
EQUALS ORIGINAL UNITS PURCHASED 55.9348547
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.392402
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.5971692
----------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 61.7300875
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.7832323
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,159.49
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1595
SUBTRACT 1.0 0.1595
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 15.95%
=====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SINCE INCEPTION:
INITIAL INVESTMENT ON 02-May-94 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 02-May-94 12.50
-----
EQUALS ORIGINAL UNITS PURCHASED 80.0000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 18.0545441
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -5.8045263
----------
EQUALS UNITS HELD ON 31-Dec-96 92.2500178
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.7832324
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,732.75
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.7328
SUBTRACT 1.0 0.7328
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 73.28%
=====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,159.49 $1,000 (1 + T)** 2.6685 = $1,732.75
T = 15.95% T = 22.88%
===== =====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
1 YEAR:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 31-Dec-95 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-95 17.8779404
----------
EQUALS ORIGINAL UNITS PURCHASED 55.9348547
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.392402
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -1.5971692
----------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 61.7300875
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.7832323
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,159.49
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,079.49
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0795
SUBTRACT 1.0 0.0795
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 7.95%
====
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 02-May-94 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 02-May-94 12.50
-----
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 18.0545441
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -5.8045263
----------
EQUALS UNITS HELD ON 31-Dec-96 92.2500178
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 18.78
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,732.75
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8.0% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,652.75
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.6528
SUBTRACT 1.0 0.6528
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 65.28%
=====
</TABLE>
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
<S> <C>
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL RETURN ANNUAL RETURN
$1,000 (1 + T)**1 = $1,079.49 $1,000 (1 + T)** 2.6685 = $1,652.75
T = 7.95% T = 20.72%
==== =====
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 13
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 01-May-96 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50
-----
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.3606163
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.239634
--------
EQUALS UNITS HELD ON 31-Dec-96 78.1209823
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 13.3950457
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,046.43
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0464
SUBTRACT 1.0 0.0464
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 4.64%
====
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN WITH NO WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
SINCE INCEPTION
AVERAGE
ANNUAL RETURN
$1,000 (1 + T)** 0.67 = $1,046.43
T = 7.01%
====
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ ERV / P ] - 1
where: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
SINCE INCEPTION:
<S> <C> <C> <C> <C>
INITIAL INVESTMENT ON 01-May-96 $1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50
-----
EQUALS ORIGINAL UNITS PURCHASED 80
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.3606163
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES -2.239634
--------
EQUALS UNITS HELD AT END OF 1 YEAR ON 31-Dec-96 78.1209823
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-96 13.3950457
----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-96 $1,046.43
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) 80.00
-----
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $966.43
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9664
SUBTRACT 1.0 -0.0336
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) -3.36%
====
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN WITH WITHDRAWAL CHARGE:
P [ 1 + T ]**n = ERV
where: T = average annual total return
P = initial $1,000 investment
n = number of years
** = to the power of
ERV = ending value of $1,000 investment
THUS:
SINCE INCEPTION
AVERAGE
ANNUAL RETURN
$1,000 (1 + T)** 0.67 = $966.43
T = -4.97%
====
CAMERON ENTERPRISES, a limited partnership, owns 100% of CELP Ltd. Agency, Inc.
and 92.71% of American Fidelity Corp.
AMERICAN FIDELITY CORP. owns 100% of the following:
1. Market Place Realty Corporation
2. Cimarron Investment Company, Inc.
3. American Fidelity Assurance Company
4. Concourse C, Inc.
5. American Fidelity Credit Corporation
6. American Fidelity International Holdings, Inc.
CELP Limited Agency, Inc. owns 91.5% of North American Insurance Agency, Inc.
and 100% of National Insurance Marketers Agency, Incorporated
AMERICAN FIDELITY CORPORATION owns 80% of American Mortgage & Investment Company
which owns 95% of Holliday Mortgage Corporation.
AMERICAN FIDELITY CORPORATION owns 16.67% of Shade Works, LLC.
NORTH AMERICAN INSURANCE AGENCY, INC. owns 33.33% of Shade Works,
LLC and 95.4% of Agar Insurance Agency, Incorporated.
AMERICAN FIDELITY ASSURANCE CO. owns 100% of the following:
1. AF Apartments, Inc.
2. Security General Life Insurance Company
3. American Fidelity Securities, Inc.
4. American Fidelity Limited Agency, Inc.
5. Apple Creek Apartments, Inc.
6. American Fidelity Property Company
AMERICAN FIDELITY ASSURANCE COMPANY owns 75% of Balliet's, Inc.
AMERICAN FIDELITY Limited owns 100% of American Fidelity General Agency,
Inc.
AMERICAN FIDELITY PROPERTY COMPANY owns 100% of Home Rentals, Inc.
AMERICAN FIDELITY INTERNATIONAL HOLDINGS, INC. owns 100% of American
Fidelity Offshore Investments, Limited and 33% of American Fidelity Care, LLC.
AMERICAN FIDELITY OFFSHORE INVESTMENTS, LIMITED owns 99% of American Fidelity
(Cypress), Limited which owns 34% of Soyuznik Insurance Company.
