<PAGE> 1
As Filed with the Securities and Exchange Commission on April 28, 2000
Registration Nos. 333-25663
811-08178
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[x] Post Effective Amendment No. 4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 5
AMERICAN FIDELITY SEPARATE ACCOUNT B
(Exact Name of Registrant)
AMERICAN FIDELITY ASSURANCE COMPANY
(Name of Depositor)
2000 N. CLASSEN BOULEVARD, OKLAHOMA CITY, OKLAHOMA 73106
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, Including Area Code (405) 523-2000
Stephen P. Garrett Copies to:
Senior Vice President
Law and Government Affairs Jerry A. Warren, Esq.
American Fidelity Assurance Company McAfee & Taft
2000 N. Classen Boulevard A Professional Corporation
Oklahoma City, Oklahoma 73106 10th Floor, Two Leadership Square
(Name and Address of Agent for Service) Oklahoma City, OK 73102-7103
Approximate Date of Proposed Public Offering: As soon as practicable after
effectiveness of the
Registration Statement
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[x] on May 1, 2000 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Individual variable annuity contracts
================================================================================
<PAGE> 2
AFADVANTAGE VARIABLE ANNUITY(R)
FROM
[AMERICAN FIDELITY LOGO]
A MEMBER OF THE AMERICAN FIDELITY GROUP
May 1, 2000
<PAGE> 3
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AFADVANTAGE VARIABLE ANNUITY(R)
ISSUED BY
AMERICAN FIDELITY SEPARATE ACCOUNT B
AND
AMERICAN FIDELITY ASSURANCE COMPANY
PROSPECTUS
MAY 1, 2000
American Fidelity Assurance Company is offering individual variable annuity
contracts. This prospectus describes the individual contracts available under
the AFAdvantage Variable Annuity(R) policy. Our home office is 2000 N. Classen
Boulevard, Oklahoma City, Oklahoma 73106.
AFAdvantage Variable Annuity(R) is a fixed and variable deferred annuity
policy. You have 12 investment options in the annuity -- the guaranteed interest
account option and the following portfolios:
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
Small Company Stock Portfolio
International Value Portfolio
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund
Merrill Lynch American Balanced Fund
Merrill Lynch High Current Income Fund
Merrill Lynch Small Cap Value Focus Fund
(formerly Merrill Lynch Special Value Focus Fund)
Merrill Lynch Basic Value Focus Fund
This prospectus contains important information about American Fidelity
Separate Account B that you should know before investing. We filed a Statement
of Additional Information with the Securities and Exchange Commission dated May
1, 2000 that provides more information about the annuity we are offering. You
can get a copy of our Statement of Additional Information at no charge from us
or from the SEC. The SEC maintains a web site (http://www.sec.gov) that contains
our Statement of Additional Information, material incorporated by reference and
other material that we file electronically with the SEC. For a free copy of the
Statement of Additional Information, call us at (800) 662-1106 or write us at
P.O. Box 25523, Oklahoma City, Oklahoma 73125-0523 or e-mail us at
[email protected].
Our Statement of Additional Information is incorporated by reference in
this prospectus. The table of contents of the Statement of Additional
Information is on the last page of this prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and keep it for future reference.
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<PAGE> 4
GLOSSARY OF TERMS
SOME OF THE TERMS USED IN THIS PROSPECTUS ARE TECHNICAL. TO HELP YOU
UNDERSTAND THESE TERMS, WE HAVE DEFINED THEM BELOW.
Account value: The value of your policy in the investment options during
the accumulation phase.
Accumulation phase: The period of time between purchasing a policy and
receiving annuity payments. Until you decide to begin receiving annuity
payments, your annuity is in the accumulation phase. During the annuity phase,
we call this unit of measurement an annuity unit.
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 person on whose life annuity payments are based.
Annuity date: The date annuity payments begin.
Annuity options: The various methods available to select as pay-out plans
for your annuity payments.
Annuity payments: Regular income payments you may receive from your policy.
Annuity phase: The period during which we make annuity payments.
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.
Policy: The AFAdvantage Variable Annuity(R).
Policy owner: The person or entity entitled to ownership rights under a
policy.
Portfolios: The eleven investment options available under the policy other
than the guaranteed interest account. Each portfolio (sometimes called a fund)
has its own investment objective.
Portfolio companies: American Fidelity Dual Strategy Fund, Inc., The
Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Stock Index Fund,
Dreyfus Variable Investment Fund and Merrill Lynch Variable Series Funds, Inc.
Purchase payment: The money you invest to buy the policy.
Qualified Policy: Policies purchased under special tax qualification rules
(examples: Individual Retirement Annuities, 403(b) Tax-Deferred Annuities, HR.
10 and Corporate Pension and other qualified retirement plans). If you do not
purchase the policy under a qualified plan, your policy is referred to as a non-
qualified policy.
i
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Fee Table................................................... 2
Condensed financial information............................. 5
The AFAdvantage Variable Annuity(R)......................... 6
How to purchase an AFAdvantage Variable Annuity(R) policy... 7
Receiving payments from the annuity......................... 8
Investment options.......................................... 10
Expenses.................................................... 12
Withdrawals................................................. 13
Loans....................................................... 14
Death Benefit............................................... 15
Performance................................................. 16
Taxes....................................................... 16
Other information........................................... 19
Table of contents of the statement of additional
information............................................... 20
</TABLE>
ii
<PAGE> 6
SUMMARY
IN THIS SUMMARY, WE DISCUSS SOME OF THE IMPORTANT FEATURES OF YOUR ANNUITY
POLICY. YOU SHOULD READ THE ENTIRE PROSPECTUS FOR MORE DETAILED INFORMATION
ABOUT YOUR POLICY AND SEPARATE ACCOUNT B.
The AFAdvantage Variable Annuity. In this prospectus, we described the
AFAdvantage Variable Annuity(R) flexible premium variable and fixed deferred
annuity policy that we offer. The annuity policy is a contract between you, as
the policy owner, and us, American Fidelity, as the insurance company. Through
the annuity policy, we are able to provide a means for you to invest, on a tax
deferred basis, in the portfolios and in our guaranteed interest account. We
designed the AFAdvantage Variable Annuity(R) for people seeking long-term
tax-deferred earnings, 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 afford to lose some or all of your investment.
Like all deferred annuities, the AFAdvantage Variable Annuity(R) has two
phases: the accumulation phase and the annuity phase. During the accumulation
phase, you invest money in your annuity on a pre-tax basis, and your earnings
accumulate on a tax deferred basis and are taxed as income only when you make a
withdrawal. Similarly, during the annuity phase, your earnings are taxed as
income only when you receive an annuity payment or otherwise make a withdrawal.
A federal tax penalty may apply if you make withdrawals before you are 59 1/2.
The annuity phase begins when you start receiving regular payments from
your policy. Among other factors, the amount of the payments you may receive
during the annuity phase will depend on the amount of money you invest in your
policy during the accumulation phase and on the investment performance of your
investment options.
Investment Options. When you invest in the annuity, you may allocate your
money to our guaranteed interest account or to one or more of the following
portfolios:
American Fidelity Dual
Strategy Fund, Inc.
The Dreyfus Socially
Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Dreyfus Variable Investment
Fund-Growth and Income Portfolio
Dreyfus Variable Investment
Fund-Small Company Stock Portfolio
Dreyfus Variable Investment
Fund-International Value Portfolio
Merrill Lynch Variable Series
Funds, Inc.-Prime Bond Fund
Merrill Lynch Variable Series
Funds, Inc.-American Balanced Fund
Merrill Lynch Variable Series
Funds, Inc.-High Current Income Fund
Merrill Lynch Variable Series
Funds, Inc.-Small Cap Value Focus Fund
Merrill Lynch Variable Series
Funds, Inc.-Basic Value Focus Fund
These portfolios offer professionally managed investment choices. You can
find a complete description of each of the portfolios in the attached
prospectuses. You can make or lose money in the portfolios, depending upon
market conditions.
Our guaranteed interest account option offers an interest rate that is
guaranteed by us. While your money is in the guaranteed interest account, we
guarantee the interest your money will earn. However, you may still be subject
to a withdrawal charge on any withdrawals.
Taxes. The earnings you accumulate as a result of your investments under
the policy are not taxed until you make a withdrawal or receive an annuity
payment. In most cases, if you withdraw money from the portfolios, earnings come
out first and are taxed as income. If you withdraw any money before you are
59 1/2, you may be charged a federal tax penalty on the taxable amounts
withdrawn. In most cases, the penalty is 10% on the taxable amounts. Part of the
payments you receive during the annuity phase of your policy is considered
1
<PAGE> 7
a return of your original investment. That part of each payment is not taxable
as income. If the policy is issued pursuant to a qualified plan under special
tax qualification rules, the entire payment may be taxable.
Withdrawals. You may withdraw money at any time during the accumulation
phase. A withdrawal charge may apply. Restrictions exist under federal tax law
concerning when you can withdraw money from a qualified plan, and you may have
to pay income tax and a tax penalty on any money you withdraw. The minimum
partial withdrawal is $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 to less than $100.
Free Look. If you cancel your policy within 20 days after receiving it, you
will get a refund of either the amount you paid for your policy or the value of
your policy, whichever is more. In the event of a refund, we determine the value
of your policy on either the day we receive the policy at our home office or the
day our agent receives the policy, whichever occurs earlier.
Questions. If you have any questions about your AFAdvantage Variable
Annuity(R) policy or need more information, please contact us at:
American Fidelity Assurance Company
Annuity Services Department
P.O. Box 25523
Oklahoma City, Oklahoma 73125-0523
Telephone: (800) 662-1106
E-mail: [email protected]
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of the amount withdrawn in excess of the
free withdrawal amount)
<TABLE>
<CAPTION>
POLICY WITHDRAWAL
YEAR CHARGE
------ ----------
<S> <C>
1.............................................. 8%
2.............................................. 7%
3.............................................. 6%
4.............................................. 5%
5.............................................. 4%
6.............................................. 3%
7.............................................. 2%
8.............................................. 1%
9+............................................. 0%
</TABLE>
Transfer Fee There is no charge for the 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.
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge........................... 1.25%
Account Fees and Expenses
Administrative Charge..................................... .15%
Distribution Expense Charge............................... .10%
-----
Total Separate Account Annual Expenses...................... 1.50%
</TABLE>
2
<PAGE> 8
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF THE PORTFOLIO'S AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL ANNUAL
FEES REIMBURSEMENT) EXPENSES
---------- -------------- ------------
<S> <C> <C> <C>
AMERICAN FIDELITY DUAL STRATEGY FUND, INC............ .50% .00% .50%
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.... .75% .04% .79%
DREYFUS STOCK INDEX FUND............................. .25% .01% .26%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio........................ .75% .04% .79%
Small Company Stock Portfolio...................... .75% .22% .97%
International Value Portfolio...................... 1.00% .35% 1.35%
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
(Class A Shares)
Merrill Lynch Prime Bond Fund...................... .40% .07% .47%
Merrill Lynch American Balanced Fund............... .55% .06% .61%
Merrill Lynch High Current Income Fund............. .50% .02% .52%
Merrill Lynch Small Cap Value Focus Fund........... .75% .06% .81%
Merrill Lynch Basic Value Focus Fund............... .60% .06% .66%
</TABLE>
The purpose of the fee table is to show you the various costs and expenses
that you will bear directly or indirectly. The table reflects expenses of
Separate Account B and the expenses of the portfolios available under the
separate account. Under certain circumstances, you may make a withdrawal without
incurring a withdrawal charge. For more information about withdrawal expenses,
see "Expenses -- Withdrawal Charge" on page 12. Although premium taxes are not
reflected in the fee table, they may apply.
As of May 1, 1999, the Merrill Lynch International Equity Focus Fund is no
longer available as an investment option. If you have already invested in this
portfolio, you are not required to transfer to another investment option. If you
transfer any of the money you have invested in this portfolio, however, you must
transfer the entire amount.
3
<PAGE> 9
EXAMPLES
This chart shows the expenses you would pay on a $1,000 investment if (a)
you surrender your policy at the end of each time period or (b) if you do not
surrender your policy or if you annuitize. This chart assumes a 5% annual return
on your money.
<TABLE>
<CAPTION>
TIME PERIODS
--------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL STRATEGY FUND, INC. .... (a) $120.98 $180.00 $245.05 $418.21
(b) $ 40.98 $123.46 $206.68 $418.21
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND,
INC. ........................................ (a) $123.89 $188.09 $258.55 $445.09
(b) $ 43.89 $132.05 $220.76 $445.09
DREYFUS STOCK INDEX FUND....................... (a) $118.57 $173.25 $233.71 $395.30
(b) $ 38.57 $116.30 $194.86 $395.30
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio............... (a) $123.89 $188.09 $258.55 $445.09
(b) $ 43.89 $132.05 $220.76 $445.09
Small Company Stock Portfolio............. (a) $125.69 $193.08 $266.83 $461.33
(b) $ 45.69 $137.35 $229.39 $461.33
International Value Portfolio............. (a) $129.48 $203.51 $284.05 $494.54
(b) $ 49.48 $148.42 $247.34 $494.54
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund............. (a) $120.68 $179.16 $243.64 $415.38
(b) $ 40.68 $122.57 $205.21 $415.38
Merrill Lynch American Balanced Fund...... (a) $122.08 $183.08 $250.20 $428.51
(b) $ 42.08 $126.73 $212.05 $428.51
Merrill Lynch High Current Income Fund.... (a) $121.18 $180.56 $245.99 $420.10
(b) $ 41.18 $124.06 $207.66 $420.10
Merrill Lynch Small Cap Value Focus
Fund.................................... (a) $124.09 $188.65 $259.48 $446.91
(b) $ 44.09 $132.64 $221.72 $446.91
Merrill Lynch Basic Value Focus Fund...... (a) $122.59 $184.47 $252.53 $433.15
(b) $ 42.59 $128.21 $214.47 $433.15
</TABLE>
We based annual expenses of the portfolios on data provided by the funds
for the year ended December 31, 1999. Except for American Fidelity Dual Strategy
Fund, Inc., we did not independently verify the data provided. However, we did
prepare the examples. In the fee table, policy size is $1,450. The $30 policy
maintenance charge is reflected in the examples as $20.69.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. SIMILARLY,
THE 5% ANNUAL RATE OF RETURN ASSUMED IN THE EXAMPLES IS NOT AN ESTIMATE OR
GUARANTEE OF FUTURE PERFORMANCE.
4
<PAGE> 10
CONDENSED FINANCIAL INFORMATION
We calculate the value of each policy owner's share of different accounts
with a unit of measurement called an accumulation unit. The table below sets
forth the accumulation unit values as of January 1, 1998 and December 31, 1998,
and also as of January 1, 1999 and December 31, 1999. Separate Account B began
operating on January 1, 1998. An explanation of how we calculate the value of an
accumulation unit is located on page 7.
<TABLE>
<CAPTION>
NUMBER OF
UNIT VALUE AT UNIT VALUE AT UNITS AT
JANUARY 1, DECEMBER 31, DECEMBER 31,
--------------- ----------------- ------------------
<S> <C> <C> <C>
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
1998.................................................. $ -- $ -- --
1999.................................................. $10.000 $10.827 117,520
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
1998.................................................. $10.000 $13.216 45,112
1999.................................................. $13.216 $16.935 138,362
DREYFUS STOCK INDEX FUND
1998.................................................. $10.000 $12.881 132,663
1999.................................................. $12.881 $15.303 426,172
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
1998.................................................. $10.000 $11.423 55,399
1999.................................................. $11.423 $13.153 140,249
Small Company Stock Portfolio
1998.................................................. $10.000 $ 9.733 38,646
1999.................................................. $ 9.733 $10.605 78,432
Dreyfus Variable Investment Fund -- International Value
Portfolio
1998.................................................. $ -- $ -- --
1999.................................................. $10.000 $11.925 6,860
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Prime Bond Fund
1998.................................................. $10.000 $10.440 20,781
1999.................................................. $10.440 $10.042 44,285
Merrill Lynch American Balanced Fund
1998.................................................. $10.000 $11.325 31,096
1999.................................................. $11.325 $12.108 84,943
Merrill Lynch High Current Income Fund
1998.................................................. $10.000 $ 9.502 2,488
1999.................................................. $ 9.502 $ 9.918 7,200
Merrill Lynch Small Cap Value Focus Fund
1998.................................................. $10.000 $ 9.379 8,913
1999.................................................. $ 9.379 $12.368 23,027
Merrill Lynch Basic Value Focus Fund
1998.................................................. $ -- $ -- --
1999.................................................. $10.000 $ 9.973 4,710
</TABLE>
Merrill Lynch International Equity Focus Fund ceased to be an investment
option on May 1, 1999, and American Fidelity Dual Strategy Fund, Inc., the
Dreyfus International Value Portfolio and Merrill Lynch Basic Value Focus Fund
were first offered as investment options on that date.
The unit value of the Merrill Lynch International Equity Focus Fund at
January 1, 1998 and December 31, 1998 was 10.000 and 11.151, respectively. The
unit value at January 1, 1999 and December 31, 1999 was 11.151 and 15.121,
respectively. At December 31, 1998 and 1999, respectively, there were 7,349 and
6,241 units of International Equity Focus Fund outstanding.
5
<PAGE> 11
THE AFADVANTAGE VARIABLE ANNUITY(R)
OWNING AN AFADVANTAGE VARIABLE ANNUITY(R) POLICY
As the owner of an AFAdvantage Variable Annuity(R) policy, you 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. Ownership changes must be sent to our
home office on an acceptable form. The change will go into effect at the time
the form is signed, subject to any payments we make or other actions we take
before we record it. We will not be liable for any payment made or action taken
before we record a change in ownership. The policy owner designated at the time
the policy is issued will remain the owner unless changed. A CHANGE OF OWNERSHIP
MAY BE A TAXABLE EVENT.
Spouses may own a policy jointly. Upon the death of either owner, the
surviving spouse will be the primary beneficiary. If a non-spouse is designated
as the beneficiary of a jointly owned policy, the designation will be treated as
creating a contingent beneficiary unless otherwise indicated in a form we
accept.
NAMING A BENEFICIARY
The beneficiary is the person or entity you name to receive the benefit of
your policy upon the death of the person upon whose life the annuity payments
are based. Annuity payments may be based on your life, as the owner of the
policy, or on the life of another natural person. The person upon whose life the
annuity payments are based is called the annuitant. The beneficiary is named at
the time the policy is issued but may be 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 paying any
death benefits.
You can change the beneficiary of your policy 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 action 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 time of your or the annuitant's
death, as applicable. You can name any beneficiary to be an irrevocable
beneficiary. The interest of an irrevocable beneficiary cannot be changed
without his or her consent.
ASSIGNING 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, your ability to
assign it may be limited.
VOTING RIGHTS
Although we legally own the portfolios' shares, we believe that we must get
instructions from you and the other policy owners about how to vote the shares
when a fund solicits proxies in conjunction with a shareholder vote. When we
receive your instructions, we will vote all of the shares we own in proportion
to those instructions. If we determine that we are no longer required to seek
the policy owners' instructions, we will vote the shares in our own right.
6
<PAGE> 12
HOW TO PURCHASE AN AFADVANTAGE VARIABLE ANNUITY(R) POLICY
PURCHASE PAYMENTS
A purchase payment is the money you give us when you invest to buy a
policy. Once we receive your initial purchase payment and application, we will
issue your policy and allocate your initial purchase payment within two business
days. We will contact you if you do not provide all of the required information
in your application. If we are unable to complete the initial application
process within five business days, we will either return your money or get your
permission to keep it until we get all of the necessary information. If we
receive a premium deposit by 3:00 p.m., Central Time, we will apply same day
pricing to determine the number of accumulation units to credit to your account.
We reserve the right to reject any application or purchase payment. At the time
you buy the policy, the person upon whose life the annuity payments are based
cannot be older than 85 years old, or the maximum age permitted under state law.
After your initial purchase payment, you may make purchase payments at any
time during the accumulation phase of your annuity. These payments will be
credited to your policy within one business day. The minimum amount of each
purchase payment, including your initial payment, is $25. All payment
allocations must be in whole percentages.
ACCUMULATION UNITS
If you allocate money to any of the portfolios, the value of that portion
of your policy will go up or down depending upon the investment performance of
the portfolio(s) you choose. (The same thing is not true if you invest solely in
the guaranteed interest account.) 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 of measurement an annuity unit.
Every business day, we determine the value of an accumulation unit for one
share of each 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:
- dividing the value of the underlying portfolio share at the end of the
current period, including the value of any dividends or gains per share
for the current period, by the value of an underlying portfolio share for
the previous period; and
- subtracting from that amount any mortality and expense risk,
administrative and distribution expense charges.
The value of an accumulation unit relating to any portfolio 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 on each day we are open and then credit your
policy accordingly.
EXAMPLE
On Thursday, we receive an additional purchase payment of $100 from you.
You allocate this amount to the Merrill Lynch Special Value Focus Fund. When the
New York Stock Exchange closes on that Thursday, we determine that an
accumulation unit for the Merrill Lynch Special Value Focus Fund is valued at
$10.75. To determine the increased value of your policy, we 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.
7
<PAGE> 13
UNDERWRITER
American Fidelity Securities, Inc., a wholly-owned subsidiary of American
Fidelity, is the principal underwriter for the annuity policies and acts as the
distributor of the policies. The principal business address of American Fidelity
Securities, Inc. is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
RECEIVING PAYMENTS FROM THE ANNUITY
ANNUITY DATE
Any time after you invest in a policy, you can select an annuity date,
which is the month and year in which you will begin receiving regular monthly
income payments from the annuity. You must notify us of your desired annuity
date at least 30 days before you want to begin receiving annuity payments. You
may change the annuity date by written request any time before the original
annuity date. Any change must be requested at least 30 days before the new
annuity date. The annuity date may not be later than the annuitant's 85th
birthday or the maximum date permitted under state law, whichever is earlier. If
your policy is issued pursuant to a qualified plan, you are generally required
to select an annuity date that occurs by April 1 following either the date you
retire or the date you turn 70 1/2, whichever comes later (or the earlier of
these dates if the policy is issued pursuant to an Individual Retirement
Annuity). In addition, the annuity date is subject to the limitation described
under "Tax Treatment of Withdrawals -- Tax-Deferred Annuities and 401(k) Plans"
on page 18 if the policy is issued pursuant to such an annuity or plan.
SELECTING AN ANNUITY OPTION
We offer various income plans for your annuity payments. We call these
annuity options. In order to receive annuity payments under an annuity option,
you must give us notice of the annuity option of your choice at least 30 days
before the annuity date. If no option is selected, we will make annuity payments
to you in accordance with Option 2 below and the full value of your policy will
be paid out in 120 monthly payments. 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. If a policy is
issued pursuant to a qualified plan, you may be required to obtain spousal
consent to elect an annuity option other than a joint and survivor annuity.
8
<PAGE> 14
You can choose one of the following annuity options or any other annuity
option acceptable to us. After annuity payments begin, you cannot change your
annuity option.
<TABLE>
<S> <C> <C>
- - - - -------------------------------------------------------------------------------------------------------
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 We will make monthly payments for the guaranteed
GUARANTEED PERIODS 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 two people whose life is the subject of
the policy. Payments will continue during the
lifetime of the survivor of those two people 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.
- - - - -------------------------------------------------------------------------------------------------------
</TABLE>
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 provide a variable annuity.
If you choose to have any portion of your annuity payments come from the
portfolio(s), the dollar amount of each of your monthly payments will depend
upon three things:
- the value of your policy in the portfolios on the annuity date,
- the assumed investment rate used in the annuity table for the policy, and
- 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. If you choose a higher assumed investment rate, your initial annuity
payment will be higher. Subsequent payments will be only slightly higher when
actual performance (less any deductions and expenses) is more than the assumed
rate and will decrease more rapidly when actual performance (less any deductions
and expenses) is less than the assumed rate. 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.
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<PAGE> 15
INVESTMENT OPTIONS
When you buy an AFAdvantage Variable Annuity(R) policy, you can allocate
the money you invest under the policy to any one or more of the portfolios
listed below and to our guaranteed interest account.
Interests in the guaranteed interest account are not registered under the
Securities Act of 1933 because of certain exemptive and exclusionary provisions.
The guaranteed interest account also is not registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the guaranteed
interest account nor any interests in it are subject to the provisions of these
Acts. We have been advised that the SEC staff has not reviewed the disclosure in
this prospectus relating to the guaranteed interest account. 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.
<TABLE>
<CAPTION>
- - - - -------------------------------------------------------------------------------------------------------------------
TYPE OF PORTFOLIO
NAME COMPANY INVESTMENT ADVISOR SUB-ADVISOR
- - - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AMERICAN FIDELITY DUAL Open-end, diversified, American Fidelity Lawrence W. Kelley &
STRATEGY FUND, INC. management investment company Assurance Company Associates, Inc. and Todd
Investment Advisors, Inc.
- - - - -------------------------------------------------------------------------------------------------------------------
THE DREYFUS SOCIALLY Open-end, diversified, The Dreyfus Corporation NCM Capital Management
RESPONSIBLE GROWTH FUND, management investment company Group, Inc.
INC.
- - - - -------------------------------------------------------------------------------------------------------------------
DREYFUS STOCK INDEX FUND Open-end management investment The Dreyfus Corporation Mellon Equity Associates
company (affiliate of The Dreyfus
Corporation)
- - - - -------------------------------------------------------------------------------------------------------------------
DREYFUS VARIABLE Open-end, management investment The Dreyfus Corporation None
INVESTMENT FUND company offering 13 portfolios,
Portfolios available under three of which are available
AFAdvantage Variable under the AFAdvantage Variable
Annuity(R) policy: Annuity(R)
- Growth and Income
Portfolio
- Small Company Stock
Portfolio
- International Value
Portfolio
- - - - -------------------------------------------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE Open-end, management investment Merrill Lynch Asset None
SERIES FUNDS, INC. company offering 19 separate Management, L.P.
Portfolios available under funds, five of which are
AFAdvantage Variable available under the AFAdvantage
Annuity(R) policy: Variable Annuity(R)
- Merrill Lynch Prime
Bond Fund
- Merrill Lynch American
Balanced Fund
- Merrill Lynch High
Current Income Fund
- Merrill Lynch Small
Cap Value Focus Fund
- Merrill Lynch Basic
Value Focus Fund
- - - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional portfolios may be available in the future.
Shares of each of the portfolio companies 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. None of the portfolio companies
believe that offering its shares in this manner will be disadvantageous to you.
Nevertheless, the board of trustees or the board of directors, as applicable, of
each portfolio company intends 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 their investments from a
10
<PAGE> 16
portfolio company. 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 PORTFOLIOS CAREFULLY BEFORE
INVESTING; THEY CONTAIN DETAILED INFORMATION ABOUT THE INVESTMENT OPTIONS AND
ARE ATTACHED TO THIS PROSPECTUS. YOU CAN OBTAIN A COPY OF THE STATEMENT OF
ADDITIONAL INFORMATION FOR ANY OF THE PORTFOLIOS BY CONTACTING US AT THE ADDRESS
AND PHONE NUMBER ON THE COVER OF THIS PROSPECTUS.
SUBSTITUTION
At our discretion, we may substitute another portfolio for any one of the
portfolios available under the AFAdvantage Variable Annuity(R) policy with
another portfolio. We will not make a substitution without first getting prior
approval from the Securities and Exchange Commission. If we decide to make a
substitution, we will give you notice of our intention.
TRANSFERS
At your direction, we will make transfers between any of the investment
options to which you have allocated money. We reserve the right to limit the
number of transfers that may be made. All of the transfers you make in any one
day count as one transfer. If you transfer funds between investment options, we
will not be liable for transfers we make at your direction. All transfers must
be in whole percentages. 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, we will deduct a transfer fee. The fee is $25 per transfer or
2% or the amount transferred, whichever is less. In order to make a transfer,
you must at least transfer $500 from the investment option from which you are
making the transfer, unless the full amount is valued at less than $500, in
which case you must transfer the entire amount. All transfers must be in whole
percentages.
Transfers During the Annuity Phase. During the annuity phase, you may only
make one transfer in each policy year. You may also make transfers from the
portfolios to the guaranteed interest account option to provide for a fixed
annuity. 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
Our automatic dollar cost averaging system allows you to transfer an
established amount of money each quarter from one investment option to another.
The minimum amount that may be transferred, from each investment option, in this
way is $500. By transferring the same amount on a regular schedule instead of
transferring the entire amount at one time, you may be less susceptible to the
impact of market fluctuations. Automatic dollar cost averaging is only available
during the accumulation phase.
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
After you allocate your money to different investment options, the
performance of the different investment options may cause the allocation of your
total investment to shift. At your direction, we will automatically rebalance
your policy to return it to your original percentage allocations. If you request
our asset rebalance service, we will make any necessary transfers on the first
day after the end of your policy year. Asset rebalancing is only available
during the accumulation phase. If you participate in the asset rebalancing
program, the transfers we make for you are taken into account in determining any
transfer fee.
11
<PAGE> 17
EXPENSES
SOME CHARGES AND EXPENSES THAT EXIST IN CONNECTION WITH THE POLICY WILL
REDUCE YOUR INVESTMENT RETURN. YOU SHOULD CAREFULLY READ THIS SECTION FOR
INFORMATION ABOUT THESE EXPENSES.
INSURANCE CHARGES
We deduct insurance charges each day. We include the insurance charge
deduction in our calculation of the value of the accumulation and annuity units.
The insurance charges include:
- mortality and expense risk;
- administrative expense; and
- distribution expense.
Mortality and Expense Risk Charge. The mortality and expense risk charge is
equal, on an annual basis, to 1.25% of the average daily value of the policy
invested in a portfolio, after expenses are deducted. This charge also
compensates us for all the insurance benefits provided by your policy, including
the guarantee of annuity rates, the death benefits, and certain other expenses,
related to the policy, and for assuming the risk that the current charges will
not be sufficient in the future to cover the cost of administering the policy.
Administrative Charge. The administrative charge is equal, on an annual
basis, to .15% of the average daily value of the policy invested in a portfolio,
after expenses are deducted. We may increase this charge, but it 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 described below, is for
all the expenses associated with the policy's administration. Some examples of
these expenses include: preparing the policy, confirmations, annual reports and
statements, maintaining policy records, personnel costs, legal and accounting
fees, filing fees, and computer and systems costs.
Distribution Expense Charge. The distribution expense charge is equal, on
an annual basis, to .10% of the average daily value of the policy invested in a
portfolio, after expenses are deducted. We may increase this charge, but it will
never be more than .25% of the average daily value of the policy invested in a
portfolio. This charge compensates us for the costs associated with distributing
the policies.
WITHDRAWAL CHARGE
Any withdrawals you make may be subject to a withdrawal charge. The
withdrawal charge compensates us for expenses associated with selling the
policy. During the accumulation phase, you can make withdrawals from your policy
in the manner described in "Withdrawals." During the first policy year, we
charge a withdrawal fee for each withdrawal. After the first policy year, you
may withdraw up to 10% of the value of your policy one time during each policy
year without incurring a withdrawal charge. The free withdrawal cannot be
carried forward from one policy year to the next. The withdrawal charge is a
percentage of the amount withdrawn in excess of the free withdrawal amount as
shown in the Fee Table on pages 2-3.
We calculate the withdrawal charge at the time of each withdrawal. The
withdrawal charge will never exceed 8% of the total purchase payments. The
charge for partial withdrawals will be deducted from the value of your policy
remaining. No withdrawal charge will be applied when a death benefit is paid or
we make a payment under any annuity option providing at least seven annual
payments or 72 monthly payments.
NOTE: For tax purposes, withdrawals are considered to have come from the
last money you put into the policy. Accordingly, for tax purposes, earnings are
considered to come out of your policy first. THERE ARE RESTRICTIONS ON WHEN YOU
CAN WITHDRAW FROM A QUALIFIED PLAN KNOWN AS A SECTION 403(B) TAX-DEFERRED
ANNUITY OR A 401(K) PLAN. For more information, you should read "Taxes"
beginning on page 16 and the related discussion in our Statement of Additional
Information.
We may reduce or eliminate the withdrawal charge if we sell the policy
under circumstances which reduce its sales expenses. These circumstances might
include a large group of individuals that intend to
12
<PAGE> 18
purchase the policy or a prospective purchaser who already has a relationship
with us. We do not deduct withdrawal charges for policies issued to our
officers, directors or employees and of any of our affiliates. Any circumstances
resulting in the reduction or elimination of the withdrawal charge requires our
prior approval.
TRANSFER CHARGE
There is no charge for the 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, whichever is less. Systematic transfers occurring under
Automatic Dollar Cost Averaging or Asset Rebalancing are taken into account when
determining any transfer fees assessed.
POLICY MAINTENANCE CHARGE AND FUND EXPENSES
We deduct $30 from your policy every year as a policy maintenance charge.
Although we reserve the right to change the policy maintenance charge, 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 each year on your policy anniversary date. During the annuity phase, we
will deduct the charge pro-rata from your annuity payments. If you make a total
withdrawal any time other than on a policy anniversary date, the full policy
maintenance charge will be deducted.
There are also deductions from and expenses paid out of the assets of the
various portfolios which are described in the attached prospectuses for the
funds.
TAXES
If we have to pay state or other governmental entity (e.g., municipalities)
premium taxes or similar taxes relating to your policy, we will deduct the
amount of the tax from your policy. Some of these taxes are due when the policy
is issued; others are due when your annuity payments begin. We pay any premium
taxes when they become payable to the states. Premium taxes generally range from
0% to 4.0%, depending on the state.
We will also deduct from the policy any income taxes which we incur as a
result of the policy. Currently, we are not making any such deductions.
WITHDRAWALS
You can only make partial and total withdrawals during the accumulation
phase of your policy. Any partial withdrawal must be at least $250, although we
may make exceptions for hardship. The withdrawal charge, the policy maintenance
charge or any taxes due will be deducted from the amount withdrawn before you
receive it. We will deduct an equal dollar amount of the money you withdraw
pro-rata from each of your investment options. If you do not want the withdrawal
to come from each of your investment options equally, you must tell us using a
form we accept. After a withdrawal, the value of your policy cannot be less than
$100. INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
Restrictions exist concerning when you can withdraw money from a qualified
plan referred to as a 403(b) Tax-Deferred Annuity or 401(k) plan. For a more
complete explanation, see "Taxes" and the discussion in our Statement of
Additional Information.
SYSTEMATIC WITHDRAWAL PROGRAM
After you have owned your policy for one year, you can participate in our
systematic withdrawal program. If you participate in this program you cannot
exercise the 10% free withdrawal option discussed on page 11. If you withdraw
more than the 10% free withdrawal amount using the systematic withdrawal
program, you will incur a withdrawal charge. During the policy year in which
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
13
<PAGE> 19
withdrawals. After your first year in the withdrawal program, the free
withdrawal amount will be based on the value of your policy on the most recent
policy anniversary. Systematic withdrawals can be made monthly, quarterly or
semi-annually. The $250 minimum withdrawal discussed above does not apply to
withdrawals made under the systematic withdrawal program. 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
We may be required to suspend or postpone payments or withdrawals or
transfers for any period when:
- the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
- trading on the New York Stock Exchange is restricted;
- an emergency exists as a result of which disposal of the fund shares is
not reasonably practicable or we cannot reasonably value the fund shares;
- during any other period when, by order, the Securities and Exchange
Commission permits such suspension or postponement for the protection of
owners.
We reserve 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) tax-deferred annuity qualified
plan, we may make a loan to you at any time before you begin receiving annuity
payments. However, we will not make any loans during your first policy year. The
value of your policy in the guaranteed interest account serves as the security
for the loan. The loan cannot be more than $50,000 or one-half of the value of
your policy in the guaranteed interest account, whichever amount is less. Under
certain circumstances, the $50,000 limit may be reduced. The minimum loan we
will make is $2,500. We can change this amount at our discretion.
If you fail to make a loan payment before the end of the calendar quarter
following the calendar quarter in which the payment was due, the outstanding
balance of your loan will become due and payable. If the loan payment is not
paid within the required time period, the loan balance plus interest will be
considered to be 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 (but such interest accruals will not
result in additional deemed distributions). 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.
14
<PAGE> 20
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 death benefit
options discussed below.
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:
- lump sum payment;
- payment of the entire death benefit within five years of the date of your
death or the death of any joint owner; or
- 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, he or she may:
- choose to continue the policy in his or her own name at the current value
of the policy;
- choose a lump sum payment of the death benefit; or
- 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.
15
<PAGE> 21
DEATH OF OWNER AFTER THE ANNUITY DATE
If you, or any joint owner who is not the annuitant, dies 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.
PERFORMANCE
We may periodically advertise performance based on the historical
performance of the various portfolios. We calculate cumulative total return
performance for various time periods by subtracting the initial investment from
the value at the end of the period, dividing the result by the initial
investment (the hypothetical initial investment is assumed to be $1,000.00) and
converting the quotient to a percentage. This performance number reflects the
deduction of insurance charges, the policy maintenance charge and expenses of
the portfolios, but may or may not include the withdrawal charge. Results
calculated without the withdrawal charge will be higher than if the withdrawal
charge were included.
We may also advertise compound average annual total return information. We
determine compound average annual total return in the same way that we determine
cumulative return performance except that the results are annualized and the
withdrawal charge will not be deducted. Any advertisement will also include
average annual total return figures (standardized average annual total return).
These figures reflect the deduction of insurance charges, the policy maintenance
charge, withdrawal charges and the expenses of the portfolio.
At times, we calculate performance during a time period that is before the
date on which we offered the policies for the first time. In such instances, we
base performance on the historical performance of the portfolio, modified to
reflect the charges and expenses of the AFAdvantage Variable Annuity(R).
Accordingly, we evaluate a portfolio's performance as if the policies existed
during the period stated in the advertisement. These figures should not be
interpreted to reflect actual historic performance. Past performance does not
guarantee future results of the portfolios. Performance will also include the
actual performance since addition of the portfolio to the separate account.
We have included more detailed information about calculating performance in
the Statement of Additional Information.
TAXES
THE FOLLOWING GENERAL TAX DISCUSSION 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.
ANNUITY POLICIES IN GENERAL
The rules of the Internal Revenue Code which relate to annuities generally
provide that you will not be taxed on any increase in the value of your policy
until a distribution occurs -- either as a withdrawal or as annuity payments.
Different rules exist regarding how you will be taxed depending on the
distribution and the type of policy.
16
<PAGE> 22
You will be taxed on the amount of any withdrawal that is attributable to
earnings. Different rules apply to annuity payments. A portion of each annuity
payment you receive will be treated as a partial return of the money you
invested to buy the policy. This amount will not be taxed (unless you paid for
the policy on a pre-tax basis under a qualified plan). The remaining portion of
the annuity payment will be treated as ordinary income. The amount of each
annuity payment that is considered taxable or non-taxable depends upon the
period over which the annuity payments are expected to be made. The entire
amount of annuity payments received after you have received the full amount of
the money you invested to buy the policy is considered income.
TAX TREATMENT OF WITHDRAWALS
If you purchase a policy under a qualified plan, your policy is referred to
as a qualified policy. Examples of qualified plans are Individual Retirement
Annuities, including Roth IRAs; Tax Deferred Annuities (sometimes referred to as
403(b) Policies); H.R. 10 Plans (sometimes referred to as Keogh plans); and
Corporate Pension and Profit-Sharing/401(k) Plans.
If you do not purchase the policy under a qualified plan, your policy is
referred to as a non-qualified policy.
Non-Qualified Policies
If you own a non-qualified policy and you make a withdrawal from the
policy, the Internal Revenue Code treats the withdrawal as coming first from any
earnings and then from the money you invested to pay for your policy, which we
call your purchase payments. In most cases, withdrawn earnings are considered
income.
Any amount you receive which is considered income may be subject to a 10%
tax penalty. Some distributions that are excepted from the 10% penalty are
listed below:
- on or after the date on which the taxpayer reaches age 59 1/2;
- after the policy holder dies;
- if the taxpayer becomes totally disabled (as that term is defined in the
Code);
- in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer or the joint
lives (or joint life expectancies) of the taxpayer and his or her
beneficiary;
- under an immediate annuity; or
- from amounts which come from purchase payments made before August 14,
1982. Certain other exemptions may also be available.
When a non-natural person, such as a corporation or certain other entities
other than tax-qualified trusts, owns the policy, it will generally not be
treated as an annuity for tax purposes. This means that any increase in the
value of such a policy may be taxed as ordinary income every year.
The policy provides that when the annuitant dies prior to the annuity date,
a death benefit will be paid to the person designated as the beneficiary. If the
owner of the policy is not the, 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.
Qualified Policies
The information above describing the taxation of non-qualified policies
does not apply to qualified policies. If you make 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 Internal Revenue 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-Deferred
17
<PAGE> 23
Annuities), 408 and 408A (Individual Retirement Annuities) and 401 (H.R. 10 and
Corporate Pension and Profit-Sharing/401(k) 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 distributions:
- if the distribution is made on or after the date on which the owner or
annuitant (as applicable) reaches age 59 1/2;
- following the death or disability of the owner or annuitant (as
applicable) (for this purpose disability is was defined in Section
72(m)(7) of the Code);
- made after separation from service (in the case of an Individual
Retirement Annuity, a separation from service is not required),
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 person and his designated beneficiary;
- to an owner or annuitant (as applicable) who has separated from service
after he has turned 55, except in the case of an Individual Retirement
Annuity;
- 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;
- distributions made to an alternate payee pursuant to a qualified domestic
relations order, except in the case of an Individual Retirement Annuity;
- distributions from an IRA 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);
- from an IRA made to the owner or annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses
(as defined in Section 72(t)(7) of the Code) of such person for the
taxable year; and
- from an IRA made to the owner or annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code).
The Statement of Additional Information contains a more complete discussion
of withdrawals from qualified policies.
Tax-Deferred Annuities and 401(k) Plans
The Internal Revenue Code limits the withdrawal of purchase payments made
by owners from certain tax-deferred annuities. Withdrawals can only be made when
an owner:
- reaches age 59 1/2;
- leaves his/her job;
- dies; or
- becomes disabled (as that term is defined in the Code).
A withdrawal may also be made in the case of hardship; however, the owner
can only withdraw purchase payments and not any earnings. Similar limitations
apply to a policy issued pursuant to a 401(k) Plan.
18
<PAGE> 24
DIVERSIFICATION
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. We believe that all of the portfolios are
being managed in such a way that they comply with the requirements.
Neither the Internal Revenue 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 you are considered the owner of the portfolios'
shares, 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 for which owners may select. If any guidance is provided
which is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is a position which is not new, it may
be applied retroactively and you, as the owner of the policy, could be treated
as the owner of the portfolios.
Due to the uncertainty in this area, we reserve the right to modify the
policy in an attempt to maintain favorable tax treatment.
OTHER INFORMATION
AMERICAN FIDELITY ASSURANCE COMPANY
We are an Oklahoma stock life insurance company organized in 1960. We are
licensed to conduct life, annuity and accident and health insurance business in
forty-nine states and the District of Columbia.
Our office is located at 2000 N. Classen Boulevard, Oklahoma City, Oklahoma
73106. We have been a wholly-owned subsidiary of American Fidelity Corporation
since 1974. The stock of American Fidelity Corporation is controlled by a family
investment partnership, Cameron Enterprises, A Limited Partnership, an Oklahoma
limited partnership. William M. Cameron, an individual, and Lynda L. Cameron, an
individual, each own 50% of the common stock of Cameron Associates, Inc., the
sole general partner of Cameron Enterprises, A Limited Partnership. The address
of both American Fidelity Corporation and Cameron Enterprises, A Limited
Partnership, is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
SEPARATE ACCOUNT B
We established Separate Account B under Oklahoma insurance law in 1996 to
hold the assets that underlie the AFAdvantage Variable Annuity(R) policies. The
inception date for Separate Account B was October 27, 1997 when its registration
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 became effective. The Separate Account is divided
into 11 sub-accounts.
We hold Separate Account B's assets in our name on behalf of Separate
Account B, and those assets legally belong to us. Under Oklahoma law, however,
those assets cannot be charged with liabilities that arise out of any other
business that we conduct. All of the income, gains and losses (realized or
unrealized) that result from the separate account's assets are credited to or
charged against Separate Account B without regard to our other income, gains and
losses. We are obligated to pay all benefits and make all payments under the
AFAdvantage Variable Annuity(R).
LEGAL PROCEEDINGS
There are no pending material legal proceedings affecting us, Separate
Account B or American Fidelity Securities, Inc.
19
<PAGE> 25
FINANCIAL STATEMENTS
Our financial statements and Separate Account B's financial statements are
included in our Statement of Additional Information. The cover of this
prospectus contains information about how to obtain our Statement of Additional
Information.
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History of the Company.............. 1
Legal Opinions.............................................. 1
Underwriter................................................. 1
Calculation of Performance Data............................. 2
Federal Tax Status.......................................... 8
Annuity Provisions.......................................... 19
Financial Statements........................................ 20
</TABLE>
20
<PAGE> 26
<TABLE>
<S> <C>
- - - - ------------------------------------ ---------------
- - - - ------------------------------------ PLACE
- - - - ------------------------------------ STAMP
HERE
---------------
</TABLE>
American Fidelity Assurance Company
P.O. Box 25523
Oklahoma City, OK 73125-0523
Attention: Annuity Services Department
<PAGE> 27
Please send me the Statement of Additional Information for the following:
<TABLE>
<S> <C>
[ ] AFAdvantage Variable Annuity [ ] Dreyfus Stock Index Fund
[ ] American Fidelity Dual [ ] Dreyfus Variable Investment
Strategy Fund, Inc. Fund
[ ] The Dreyfus Socially [ ] Merrill Lynch Variable Series
Responsible Growth Fund, Inc. Fund, Inc.
</TABLE>
<TABLE>
<S> <C>
Name
------------------------------------------------------------
(please print)
Address
------------------------------------------------------------
(please print)
------------------------------------------------------------
(please print)
------------------------------------------------------------
(please print)
</TABLE>
<PAGE> 28
AFADVANTAGE VARIABLE ANNUITY
ISSUED BY
AMERICAN FIDELITY SEPARATE ACCOUNT B
AND
AMERICAN FIDELITY ASSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This is not a prospectus. This Statement of Additional Information should be
read in conjunction with the Prospectus dated May 1, 2000 for the AFAdvantage
Variable Annuity.
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus,
write to us at: call us at: e-mail us at:
P.O. Box 25523, (800) 662-1106 [email protected]
Oklahoma City, OK 73125-0523
<PAGE> 29
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION AND HISTORY OF THE COMPANY .................. 1
LEGAL OPINIONS .................................................. 1
UNDERWRITER ..................................................... 1
CALCULATION OF PERFORMANCE DATA ................................. 2
FEDERAL TAX STATUS .............................................. 8
ANNUITY PROVISIONS .............................................. 19
FINANCIAL STATEMENTS ............................................ 20
</TABLE>
<PAGE> 30
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. William M. Cameron, an individual,
and Lynda L. Cameron, an individual, each own 50% of the common stock of Cameron
Associates, Inc., the sole general partner of Cameron Enterprises, A Limited
Partnership.
LEGAL OPINIONS
McAfee & Taft A Professional Corporation, Oklahoma City, Oklahoma, has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Policies.
UNDERWRITER
American Fidelity Securities, Inc., a wholly-owned subsidiary of the Company, is
the principal underwriter for the annuity policies and acts as the distributor.
The offering is on a continuous basis.
<PAGE> 31
CALCULATION OF PERFORMANCE DATA
From time to time, the Company may advertise performance data as described in
the Prospectus. All performance advertising will include quotations of
standardized average annual total return, calculated in accordance with standard
methods prescribed by the rules of the Securities and Exchange Commission, to
facilitate comparison with standardized average annual total return advertised
by other variable annuity separate accounts. Standardized average annual 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 average annual total return (T) is computed by
equating the redeemable value (ERV) with the initial hypothetical $1,000
investment (P) over a period of years (n) according to the following formula:
ERV = P (1+T)**n (where "**n" means to the nth power). Standardized average
annual total return reflects the expenses of the Portfolio, the deduction of a
policy maintenance charge, 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.
Cumulative total return may also be provided. Cumulative total return is
calculated the same way as average annual total return except the results are
not annualized.
Nonstandardized compound average annual return and nonstandardized cumulative
total return may also be advertised. Nonstandardized compound average annual
return and nonstandardized cumulative total return will not include the
withdrawal charge and may be for periods other than those required to be
presented or may otherwise differ from standardized average annual total return
and cumulative total return.
The standardized average annual 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 average annual 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 average annual total return and
nonstandardized total return quotations will show what the investment
performance of an initial $1,000.00 investment would have been (reduced by the
applicable charges) had they been held in a Portfolio for the period quoted (see
below). Standardized average annual total return will also include performance
since addition of the Fund to the Separate Account. If the time period since
addition to the Separate Account is less than one year, this performance number
is not annualized.
Quotations of standardized average annual total return and nonstandardized total
returns are based upon historical earnings and will fluctuate. Past performance
does not guarantee future results.
-2-
<PAGE> 32
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 have a limited performance
history. However, the corresponding Funds have been in existence for some time
and consequently have investment performance history. In order to demonstrate
how the historical investment experience of the Funds affects Accumulation Unit
values, the following performance information was developed. The information is
based upon the historical experience of the Funds and is for the periods shown.
All calculations reflect the deduction of insurance charges, the policy
maintenance charge and the expenses of the portfolio. However, charts 1 and 3
reflect the deduction of the withdrawal charge and charts 2 and 4 do not reflect
the deduction of the withdrawal charge.
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 standardized average annual total return 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. All calculations do not reflect the deduction of any
premium taxes.
-3-
<PAGE> 33
HISTORICAL PERFORMANCE FOR PERIODS ENDED DECEMBER 31, 1999
CHART 1 - AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 YEARS SubAccount FUND Since Addition
or Since Fund Inception INCEPTION to Separate
1 YEAR 5 YEARS Inception Date DATE Account*1
------ ------- ------------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL 5.71% 22.55% 13.29% 05/01/99 01/01/70 (2.73)%
STRATEGY FUND, INC
THE DREYFUS SOCIALLY 17.10%* 24.05% 19.23% 10/27/97 10/07/93 20.25%
RESPONSIBLE GROWTH
FUND, INC
DREYFUS STOCK INDEX 7.81%* 23.53% 13.69% 10/27/97 09/29/89 14.47%
FUND
DREYFUS VARIABLE
INVESTMENT FUND
Growth and Income Portfolio 4.18%* 19.89 16.25% 10/27/97 05/02/94 6.45%
Small Company Stock Portfolio (2.01)%* N/A 3.16% 10/27/97 05/01/96 (4.05)%
International Value Portfolio 14.92% N/A 6.67% 05/01/99 05/01/96 8.25%
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC
Prime Bond Fund (14.27)%* 2.05% 3.14% 10/27/97 04/20/82 (6.40)%
American Balanced Fund (4.04)%* 8.97% 6.31% 10/27/97 06/01/88 2.37%
High Current Income Fund (6.60)%* 3.28% 6.57% 10/27/97 04/20/82 (7.09)%
Small Cap Value Focus Fund 20.86%* 12.40% 8.12% 10/27/97 04/20/82 3.12%
Basic Value Focus Fund 8.31% 14.50% 11.95% 05/01/99 07/01/93 (11.01)%
</TABLE>
-4-
<PAGE> 34
CHART 2 - COMPOUND AVERAGE ANNUAL RETURN (WITHOUT WITHDRAWAL CHARGES)
<TABLE>
<CAPTION>
10 YEARS SubAccount FUND Since Addition
or Since Fund Inception INCEPTION to Separate
1 YEAR 5 YEARS Inception Date DATE Account*(1)
------ ------- ------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL 13.71% 23.25% 13.29% 05/01/99 01/01/70 5.27%
STRATEGY FUND, INC.
THE DREYFUS SOCIALLY 25.10%* 24.72% 19.58% 10/27/97 10/07/93 23.16%
RESPONSIBLE GROWTH
FUND, INC.
DREYFUS STOCK INDEX 15.81%* 24.20% 13.69% 10/27/97 09/29/89 17.42%
FUND
DREYFUS VARIABLE
INVESTMENT FUND
Growth and Income Portfolio 12.18%* 20.65% 16.81% 10/27/97 05/02/94 9.20%
Small Company Stock Portfolio 5.99%* N/A 4.47% 10/27/97 05/01/96 (1.58)%
International Value Portfolio 22.92% N/A 8.02% 05/01/99 05/01/96 16.25%
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC.
Prime Bond Fund (6.81)%* 2.80% 3.14% 10/27/97 04/20/82 (3.99)%
American Balanced Fund 3.96%* 9.77% 6.31% 10/27/97 06/01/88 5.01%
High Current Income Fund 1.40%* 4.04% 6.57% 10/27/97 04/20/82 (4.69)%
Small Cap Value Focus Fund 28.86%* 13.23% 8.12% 10/27/97 04/20/82 5.78%
Basic Value Focus Fund 16.31% 15.34% 12.26% 05/01/99 07/01/93 (3.27)%
</TABLE>
*Actual performance of separate account accumulation units instead of proforma
calculation using historical portfolio performance less applicable charges.
(1) If less than one year, reflects total return for the period and is not
annualized.
-5-
<PAGE> 35
CHART 3 - CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION> 10 YEARS Since
or Since SubAccount FUND Addition to
Fund Inception INCEPTION Separate
1 YEAR 5 YEARS Inception Date DATE Account*
------ ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL 5.71% 176.44% 248.20% 05/01/99 01/01/70 (2.73)%
STRATEGY FUND, INC.
THE DREYFUS SOCIALLY 17.10%* 193.78% 199.43% 10/27/97 10/07/93 49.43%
RESPONSIBLE GROWTH
FUND, INC.
DREYFUS STOCK INDEX 7.81%* 187.59% 260.91% 10/27/97 09/29/89 34.21%
FUND
DREYFUS VARIABLE
INVESTMENT FUND
Growth and Income Portfolio 4.18%* 147.65 134.81% 10/27/97 05/02/94 14.59%
Small Company Stock Portfolio (2.01)%* N/A 12.11% 10/27/97 05/01/96 (8.62)%
International Value Portfolio 14.92% N/A 26.75% 05/01/99 05/01/96 8.25%
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC.
Prime Bond Fund (14.27)%* 10.67% 36.18% 10/27/97 04/20/82 (13.42)%
American Balanced Fund (4.04)%* 53.66% 84.33% 10/27/97 06/01/88 5.23%
High Current Income Fund (6.60)%* 17.54% 88.94% 10/27/97 04/20/82 (14.79)%
Small Cap Value Focus Fund 20.86%* 79.44% 118.24% 10/27/97 04/20/82 6.91%
Basic Value Focus Fund 8.31% 96.81% 108.36% 05/01/99 07/01/93 (11.01)%
</TABLE>
-6-
<PAGE> 36
CHART 4 - CUMULATIVE TOTAL RETURN WITHOUT WITHDRAWAL CHARGES
<TABLE>
<CAPTION>
10 YEARS Since
or Since SubAccount FUND Addition
Fund Inception INCEPTION to Separate
1 YEAR 5 YEARS Inception Date DATE Account*
------ ------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN FIDELITY DUAL 13.71% 184.44% 248.20% 05/01/99 01/01/70 5.27%
STRATEGY FUND, INC.
THE DREYFUS SOCIALLY 25.10%* 201.78% 204.91% 10/27/97 10/07/93 57.43%
RESPONSIBLE GROWTH
FUND, INC.
DREYFUS STOCK INDEX 15.81%* 195.59% 260.91% 10/27/97 09/29/89 41.87%
FUND
DREYFUS VARIABLE
INVESTMENT FUND
Growth and Income Portfolio 12.18%* 155.65% 141.33% 10/27/97 05/02/94 21.13%
Small Company Stock Portfolio 5.99%* N/A 17.39% 10/27/97 05/01/96 (3.40)%
International Value Portfolio 22.92% N/A 32.72% 05/01/99 05/01/96 16.25%
MERRILL LYNCH VARIABLE
SERIES FUNDS, INC.
Prime Bond Fund (6.81)%* 14.80% 36.18% 10/27/97 04/20/82 (8.48)%
American Balanced Fund 3.96%* 59.40% 84.33% 10/27/97 06/01/88 11.24%
High Current Income Fund 1.40%* 21.92% 88.94% 10/27/97 04/20/82 (9.93)%
Small Cap Value Focus Fund 28.86%* 86.14% 118.24% 10/27/97 04/20/82 13.01%
Basic Value Focus Fund 16.31% 104.16% 112.18% 05/01/99 07/01/93 (3.27)%
</TABLE>
*Actual performance of separate account accumulation units instead of proforma
calculation using historical portfolio performance less applicable changes.
-7-
<PAGE> 37
FEDERAL 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 Internal Revenue Code of 1986, as amended ("Code") governs
taxation of annuities in general. An Owner (other than a corporation or other
non-natural person) 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 includible 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 feature) by the number of
years over which the annuity is expected to be paid. The exclusion amount for
payments made from a Policy issued pursuant to a Qualified Plan is generally
determined by dividing the cost-basis of the Policy by the anticipated number of
payments to be made under the Policy. 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.
-8-
<PAGE> 38
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 Funds underlying the Policies will be managed by
the investment advisers 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 is ability to transfer among investment choices
-9-
<PAGE> 39
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.
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<PAGE> 40
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
The following discussion in this section explains how the general principles of
tax-deferred investing apply to a non-qualified Policy when the Owner of such
Policy is a natural person. As described above, different rules may apply to an
Owner of a non-qualified Policy that is not a natural person, such as a
corporation. The discussion assumes at all times that the non-qualified Policy
will be treated as an "annuity policy" under the Code.
TAX TREATMENT OF WITHDRAWALS, SURRENDERS AND DISTRIBUTIONS
The cost basis of a non-qualified Policy is generally the sum of the purchase
payments for the Policy. The taxpayer will generally have to include in income
the portion of any payment from a non-qualified Policy that exceeds the portion
of the cost basis (or principal) of the Policy which is allocable to such
payment. The difference between the cost basis and the value of the
non-qualified Policy represents the increase in the value of the Policy. The
taxable portion of a payment from a non-qualified Policy is generally taxed at
the taxpayer's marginal income tax rate.
PARTIAL WITHDRAWALS. A partial withdrawal refers to a withdrawal from a
non-qualified Policy that is less than its total value and that is not paid in
the form of an annuity. Usually, a partial withdrawal of the value of a
non-qualified Policy will be treated as coming first from earnings (which
represent the increase in the value of the Policy). This portion of the
withdrawal will be included in the taxpayer's income. After the earnings portion
is exhausted, the remainder of the partial withdrawal will be treated as coming
from the taxpayer's principal in the Policy (generally the sum of the purchase
payments). This portion of the withdrawal will not be included in income. If the
non-qualified Policy contains investments made prior to August 14, 1982, a
partial withdrawal from the Policy will be treated, to the extent it is
allocable to such pre-August 14, 1982 investments, as coming first from
principal and then, only after the principal portion is exhausted, from
earnings.
SURRENDERS. If a taxpayer surrenders a non-qualified Policy and receives a lump
sum payment of its entire value, the portion of the payment that exceeds the
taxpayer's then remaining cost basis in the Policy will be included in income.
The taxpayer will not include in income the part of the payment that is equal to
the cost basis.
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<PAGE> 41
TAX TREATMENT OF ANNUITY PAYMENTS
If a taxpayer receives annuity payments from a non-qualified Policy, a fixed
portion of each payment is generally excludable from income as a tax-free
recovery of cost basis in the Policy and the balance is included in income. The
portion of the payment that is excludable from income is determined under
detailed rules provided in the Code (which in general terms determine such
excludable amount by dividing the cost basis in the Policy at the time the
annuity payments begin by the expected return under the Policy). If the annuity
payments continue after the cost basis has been recovered, the additional
payments will generally be included in full in income.
PENALTY TAX ON DISTRIBUTIONS
Generally, a penalty equal to 10% of the amount of any payment that is
includable in the taxpayer's income will apply to any distribution received from
a non-qualified Policy in addition to ordinary income tax. This 10% penalty will
not apply, however, if the distribution meets certain conditions. Some of the
distributions that are excepted from the 10% penalty are listed below:
o A distribution that is made on or after the date the taxpayer
reaches age 59 1/2.
o A distribution that is made on or after the death of the
Owner.
o A distribution that is made when the taxpayer is totally
disabled.
o A distribution that is made as part of a series of
substantially equal periodic payments which are made at least
annually for the taxpayer's life (or life expectancy) or the
joint lives (or joint life expectancies) of the taxpayer and
his joint Beneficiary.
o A part of a distribution that is attributable to investment in
the Policy prior to August 14, 1982.
o A distribution that is paid as an immediate annuity (within
the meaning of Section 72(u)(4) of the Code).
REQUIRED DISTRIBUTIONS
To qualify as an "annuity policy" under the Code, a non-qualified Policy must
meet certain distribution requirements. Generally, if the Owner/Annuitant dies
before annuity payments begin, the amounts accumulated under the non-qualified
Policy either must be distributed within 5 years of death or must begin to be
paid within one year of death under a method that will pay the entire value of
the Policy over the life (or life expectancy) of the Beneficiary under the
Policy. Special rules apply, however, if the Beneficiary under the Policy is the
surviving spouse of the Owner. If the Owner's spouse is the Beneficiary under
the Policy, these rules involving required distributions in the event of death
will be applied as if the surviving spouse had been the original Owner of the
Policy. If the Owner/Annuitant dies after annuity payments have begun, payments
generally must continue at least as rapidly as under the method in effect at
death (unless such method provides that payments stop at death). Payments made
upon the death of the Annuitant who is not the Owner of the Policy do not
qualify for the death of the Owner exception to the 10% penalty tax described
above, unless another exception applies.
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<PAGE> 42
The above information does not apply to Qualified Policies. However, separate
tax withdrawal penalties and restrictions 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.")
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 and
401(k) Plans - 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.
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<PAGE> 43
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.
Beginning in 1998, individuals may purchase a new type of non-deductible IRA,
known as a Roth IRA. Purchase payments for a Roth IRA are limited to a maximum
of $2,000 per year. Lower maximum limitations apply to individuals with adjusted
gross incomes between $95,000 and $110,000 in the case of single taxpayers,
between $150,000 and $160,000 in the case of married taxpayers filing joint
returns, and between $0 and $10,000 in the case of married taxpayers filing
separately. An overall $2,000 annual limitation continues to apply to all of a
taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2; on the individual's death or disability; or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of Policies to be qualified as a Roth IRA should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
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<PAGE> 44
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.
CORPORATE PENSION AND PROFIT-SHARING/401(K) 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/401(k) Plans should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED POLICIES
The following discussion explains how the general principles of tax-deferred
investing apply to Policies issued pursuant to Qualified Plans.
SPECIAL TAX TREATMENT FOR LUMP SUM DISTRIBUTIONS FROM A CORPORATE PENSION OR
PROFIT-SHARING/401(k) OR H.R. 10 PLAN
If the taxpayer receives an amount from a Policy issued pursuant to a Corporate
Pension or Profit-Sharing/401(k) or H.R. 10 Plan and the distribution qualifies
as a lump sum distribution under the Code, the portion of the distribution that
is included in income may be eligible for special tax treatment. The plan
administrator should provide the taxpayer with information about the tax
treatment of a lump sum distribution at the time the distribution is made.
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<PAGE> 45
SPECIAL RULES FOR DISTRIBUTIONS THAT ARE ROLLED OVER
In addition, special rules apply to a distribution from a Policy that relates to
a Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan or a Section 403(b)
Tax-Sheltered Annuity if the distribution is properly rolled over in accordance
with the provisions of the Code. These provisions contain various requirements,
including the requirement that the rollover be made directly from the
distributing plan or within 60 days of receipt:
o To a traditional individual retirement arrangement under Section
408 of the Code.
o To another Corporate Pension or Profit-Sharing/401(k) or H.R. 10
Plan or an annuity plan under Section 403(a) of the Code (if the
distribution is from such a plan).
o To a Section 403(b) Tax-Sheltered Annuity (if the distribution is
from a Section 403(b) Tax-Sheltered Annuity).
These special rules only apply to distributions that qualify as "eligible
rollover distributions" under the Code. In general, a distribution from a
Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan or Section 403(b)
Tax-Sheltered Annuity will be an eligible rollover distribution EXCEPT to the
extent:
o It represents the return of "after-tax" contributions or is not
otherwise includable in income.
o It is part of a series of payments made for the taxpayer's life
(or life expectancy) or the joint lives (or joint life
expectancies) of the taxpayer and his Beneficiary under the plan
or for a period of more than ten years.
o It is a required minimum distribution under Section 401(a)(9) of
the Code as described below.
o It is made from a Corporate Pension or Profit-Sharing/401(k) or
H.R. 10 Plan by reason of a hardship.
Required minimum distributions under Section 401(a)(9) include the following
required payments:
o If the Plan is an Individual Retirement Annuity, required
payments for the calendar year in which the taxpayer reaches age
70 1/2 or any later calendar year.
o If the plan is a Corporate Pension or Profit-Sharing/401(k), H.R.
10, or Tax-Sheltered Annuity (and if the taxpayer does not own
more than 5% of the employer maintaining the applicable plan),
required payments for the later of the calendar year in which the
taxpayer reaches age 70 1/2 or the calendar year the taxpayer
terminates employment with the employer or for any later calendar
year. The above rule for IRAs applies to taxpayer who are more
than 5% owners.
The administrator of the applicable Qualified Plan should provide additional
information about these rollover tax rules when a distribution is made.
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<PAGE> 46
DISTRIBUTIONS IN THE FORM OF ANNUITY PAYMENTS
If any distribution is made from a Qualified Policy issued pursuant to a
Qualified Plan and is made in the form of annuity payments (and is not eligible
for rollover or is not in any event rolled over), a fixed portion of each
payment is generally excludable from income for federal income tax purposes to
the extent it is treated as allocable to the taxpayer's "after-tax"
contributions to the Policy (and any other cost basis in the Policy). To the
extent the payment exceeds such portion, it is includable in income. The portion
of the annuity payment that is excludable from income is determined under
detailed rules provided in the Code. In very general terms, these detailed rules
determine such excludable amount by dividing the "after-tax" contributions and
other cost basis in the Policy at the time the annuity payments begin by the
anticipated number of payments to be made under the Policy. If the annuity
payments continue after the number of anticipated payments has been made, such
additional payments will generally be included in full in income.
PENALTY TAX ON WITHDRAWALS
Generally, there is a penalty tax equal to 10% of the portion of any payment
from a Qualified Policy that is included in income. This 10% penalty will not
apply if the distribution meets certain conditions. Some of the distributions
that are excepted from the 10% penalty are listed below:
o A distribution that is made on or after the date the taxpayer
reaches age 59 1/2.
o A distribution that is properly rolled over to a traditional IRA
or to another eligible employer plan or account.
o A distribution that is made on or after the death of the Owner.
o A distribution that is made when the taxpayer is totally disabled
(as defined in Section 72(m)(7) of the Code).
o A distribution that is made as part of a series of substantially
equal periodic payments which are made at least annually for the
taxpayer's life (or life expectancy) or the joint lives (or joint
life expectancies) of the taxpayer and his joint Beneficiary
under the Qualified Policy (and, with respect to Qualified
Policies issued pursuant to Corporate Pension and
Profit-Sharing/401(k) or H.R. 10 Plans, which begin after the
taxpayer separates from service with the employer maintaining the
plan).
o A distribution that is made by reason of separation from service
with the employer maintaining the applicable plan during or after
the calendar year in which the taxpayer reaches age 55.
o A distribution that is made to the taxpayer to the extent it does
not exceed the amount allowable as a deduction for medical care
under Section 213 of the Code (determined without regard to
whether the taxpayer itemizes deductions).
o A distribution that is made to an alternate payee pursuant to a
qualified domestic relations order (that meets the conditions of
Section 414(p) of the Code) (not applicable to Individual
Retirement Annuities).
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<PAGE> 47
o 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 reemployed for at
least 60 days).
o Distributions from an Individual Retirement Annuity made to the
Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the qualified higher education
expenses (as defined in Section 72(t)(7) of the Code) of the
Owner or Annuitant (as applicable) for the taxable year.
o Distributions from an Individual Retirement Annuity made to the
Owner or Annuitant (as applicable) which are qualified first-time
home buyer distributions (as defined in Section 72(t)(8) of the
Code).
REQUIRED DISTRIBUTIONS
Distributions from a Policy issued pursuant to a Qualified Plan (other than a
Roth IRA) must meet certain rules concerning required distributions that are set
forth in the Code. Such rules are summarized below:
o Required distributions generally must start by April 1 of the
calendar year following the calendar year in which the taxpayer
reaches age 70 1/2.
o If the Qualified Plan is a Corporate Pension or
Profit-Sharing/401(k), H.R. 10, or 403(b) Tax-Sheltered Annuity
Plan and the taxpayer does not own more than 5% of the employer
maintaining the plan, the required distributions generally do not
have to start until April 1 of the calendar year following the
later of the calendar year in which the taxpayer reaches age 70
1/2 or the calendar year in which the taxpayer terminates
employment with the employer.
o When distributions are required under the Code, a certain minimum
amount, determined under the Code, must be made each year.
In addition, other rules apply under the Code to determine when and how required
minimum distributions must be made in the event of the taxpayer's death. The
applicable plan documents will contain such rules.
TAX-SHELTERED ANNUITIES AND 401(k) PLANS - 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) or
401(k) 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
Policy 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
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<PAGE> 48
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.
TAX-SHELTERED ANNUITIES/LOANS
If a Policy is issued pursuant to a 403(b) Tax-Sheltered Annuity, the Owner may
take a loan under the Policy 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 the Policy invested in the Guaranteed Interest Account. The
loan cannot be more than the lesser of $50,000 or one-half of the value of the
Policy in the Guaranteed Interest Account. Under certain circumstances, the
$50,000 limit may be reduced. The minimum loan amount if $2,500 (which can be
changed at our discretion).
If a loan payment is not made before the end of the calendar quarter following
the calendar quarter in which the payment was due, the outstanding loan balance
(principal plus interest) will become due and payable. If the loan payment is
not repaid within such time period, 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 the taxpayer qualifies for a
plan distribution under the Code. If the loan is in default and the taxpayer
does not yet qualify for a distribution to satisfy the outstanding loan balance,
the loan will continue to accrue interest (but such interest accruals will not
result in additional deemed distributions). Any amounts which may become taxable
will be reported as plan distributions and will be subject to income tax and
penalties, if applicable.
ANNUITY PROVISIONS
VARIABLE ANNUITY PAYOUT
An Owner may elect a variable annuity payout. Variable annuity payments reflect
the investment performance of the Portfolios in accordance with the allocation
of the value of the Policy to the Portfolios 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 Portfolio on the Annuity Date. This sets the number of
Annuity Units for each applicable Portfolio. The number of Annuity Units payable
remains the same unless an Owner transfers a portion of the annuity benefit to
another Portfolio or to a fixed annuity. The dollar amount is not fixed and will
change from month to month.
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<PAGE> 49
The dollar amount of the variable annuity payments for each applicable Portfolio
after the first payment is determined by multiplying the fixed number of Annuity
Units per payment in each Portfolio 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 Portfolio.
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 Portfolio 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
Following are the financial statements of the Separate Account and the Company.
The financial statements of the Separate Account as of and for the year ended
December 31, 1999 and the financial statements of the Company as of December 31,
1999 and 1998 and for each of the years in the three-year period ended December
31, 1999, have been audited by KPMG LLP. 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.
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<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Fidelity Assurance Company:
We have audited the accompanying statements of assets and liabilities of the
Socially Responsible Growth, Stock Index, Growth and Income, Small Company
Stock, International Value, Dual Strategy Fund, Prime Bond, American Balanced,
High Current Income, Special Value Focus, International Equity Focus, and Basic
Value Focus Segregated Sub-Accounts of American Fidelity Separate Account B
(Account B) as of December 31, 1999, the related statements of operations for
the year then ended, and the statements of changes in net assets and the
financial highlights for each of the years in the two-year period then ended.
These financial statements and financial highlights are the responsibility of
Account B's management. Our responsibility is to express an opinion on these
financial statements and financial highlights 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 and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1999 were verified by confirmation
with the underlying funds. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Socially Responsible
Growth, Stock Index, Growth and Income, Small Company Stock, International
Value, Dual Strategy Fund, Prime Bond, American Balanced, High Current Income,
Special Value Focus, International Equity Focus and Basic Value Focus Segregated
Sub-Accounts of American Fidelity Separate Account B as of December 31, 1999,
the results of their operations for the year then ended and the changes in their
net assets and the financial highlights for each of the years in the two-year
period then ended, in conformity with generally accepted accounting principles.
January 21, 2000
21
<PAGE> 51
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
SOCIALLY GROWTH
RESPONSIBLE STOCK AND
ASSETS GROWTH INDEX INCOME
----------- ---------- ----------
<S> <C> <C> <C>
Investments:
Dreyfus Socially Responsible Growth Fund, Inc.
(59,977 shares at net asset value of $39.070 per share)
(cost $1,962,571) $2,343,309 -- --
Dreyfus Stock Index Fund (169,625 shares at net asset
value of $38.450 per share) (cost $5,648,901) -- 6,522,086 --
Dreyfus Variable Investment Fund:
Growth and Income Portfolio (72,402 shares at net
asset value of $25.480 per share) (cost $1,651,264) -- -- 1,844,795
Small Company Stock Portfolio (49,838 shares at net
asset value of $16.690 per share) (cost $728,684) -- -- --
International Value Portfolio (5,221 shares at net
asset value of $15.670 per share) (cost $79,155) -- -- --
American Fidelity Dual Strategy Fund, Inc. (107,411 shares
at net asset value of $11.850 per Share)
(Cost $1,184,974)
---------- ---------- ----------
Total assets 2,343,309 6,522,086 1,844,795
LIABILITIES
Accounts payable 96 267 75
---------- ---------- ----------
Total liabilities 96 267 75
---------- ---------- ----------
Net assets $2,343,213 6,521,819 1,844,720
========== ========== ==========
Accumulation units outstanding 138,362 426,172 140,249
========== ========== ==========
Net asset value per unit $ 16.935 15.303 13.153
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
SMALL DUAL
COMPANY INTERNATIONAL STRATEGY
ASSETS STOCK VALUE FUND
---------- ------------- ----------
<S> <C> <C> <C>
Investments:
Dreyfus Socially Responsible Growth Fund, Inc.
(59,977 shares at net asset value of $39.070 per share)
(cost $1,962,571) -- -- --
Dreyfus Stock Index Fund (169,625 shares at net asset
value of $38.450 per share) (cost $5,648,901) -- -- --
Dreyfus Variable Investment Fund:
Growth and Income Portfolio (72,402 shares at net
asset value of $25.480 per share) (cost $1,651,264) -- -- --
Small Company Stock Portfolio (49,838 shares at net
asset value of $16.690 per share) (cost $728,684) 831,802 -- --
International Value Portfolio (5,221 shares at net
asset value of $15.670 per share) (cost $79,155) -- 81,806 --
American Fidelity Dual Strategy Fund, Inc. (107,411 shares
at net asset value of $11.850 per Share)
(Cost $1,184,974) 1,272,495
---------- ---------- ----------
Total assets 831,802 81,806 1,272,495
LIABILITIES
Accounts payable 34 4 52
---------- ---------- ----------
Total liabilities 34 4 52
---------- ---------- ----------
Net assets 831,768 81,802 1,272,443
========== ========== ==========
Accumulation units outstanding 78,432 6,860 117,520
========== ========== ==========
Net asset value per unit 10.605 11.925 10.827
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 52
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Assets and Liabilities
December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------
HIGH
PRIME AMERICAN CURRENT
ASSETS BOND BALANCED INCOME
--------- --------- ---------
<S> <C> <C> <C>
Investments:
Merrill Lynch Variable Series Funds, Inc.:
Merrill Lynch Prime Bond Fund (39,922 shares at net
asset value of $11.140 per share) (cost $474,126) $ 444,732 -- --
Merrill Lynch American Balanced Fund (69,495 shares
at net asset value of $14.800 per share) (cost $1,063,492) -- 1,028,526 --
Merrill Lynch High Current Income Fund (7,447 shares
at net asset value of $9.590 per share) (cost $75,526) -- -- 71,414
Merrill Lynch Special Value Focus Fund (12,198 shares
at net asset value of $23.350 per share) (cost $235,927) -- -- --
Merrill Lynch International Equity Fund
Focus Fund (6,745 shares at net asset value of $13.990
per share) (cost $69,314) -- -- --
Merrill Lynch Basic Value Focus Fund (3,4534 shares at
net asset value of $13.600 per share) (cost $49,094) -- -- --
--------- --------- ---------
Total assets 444,732 1,028,526 71,414
LIABILITIES
Accounts payable 18 42 3
--------- --------- ---------
Total liabilities 18 42 3
--------- --------- ---------
Net assets $ 444,714 1,028,484 71,411
========= ========= =========
Accumulation units outstanding 44,285 84,943 7,200
========= ========= =========
Net asset value per unit $ 10.042 12.108 9.918
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------
SPECIAL INTERNATIONAL BASIC
VALUE EQUITY VALUE
ASSETS FOCUS FOCUS FOCUS
--------- ------------- ---------
<S> <C> <C> <C>
Investments:
Merrill Lynch Variable Series Funds, Inc.:
Merrill Lynch Prime Bond Fund (39,922 shares at net
asset value of $11.140 per share) (cost $474,126) -- -- --
Merrill Lynch American Balanced Fund (69,495 shares
at net asset value of $14.800 per share) (cost $1,063,492) -- -- --
Merrill Lynch High Current Income Fund (7,447 shares
at net asset value of $9.590 per share) (cost $75,526) -- -- --
Merrill Lynch Special Value Focus Fund (12,198 shares
at net asset value of $23.350 per share) (cost $235,927) 284,819 -- --
Merrill Lynch International Equity Fund
Focus Fund (6,745 shares at net asset value of $13.990
per share) (cost $69,314) -- 94,370 --
Merrill Lynch Basic Value Focus Fund (3,4534 shares at
net asset value of $13.600 per share) (cost $49,094) -- -- 46,969
--------- --------- ---------
Total assets 284,819 94,370 46,969
LIABILITIES
Accounts payable 11 4 2
--------- --------- ---------
Total liabilities 11 4 2
--------- --------- ---------
Net assets 284,808 94,366 46,967
========= ========= =========
Accumulation units outstanding 23,027 6,241 4,710
========= ========= =========
Net asset value per unit 12.368 15.121 9.973
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 53
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------
SOCIALLY GROWTH
RESPONSIBLE STOCK AND
GROWTH INDEX INCOME
----------- --------- ---------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund $ 288 45,322 7,433
--------- --------- ---------
Less expenses (note 2):
Mortality and risk 15,263 46,898 14,980
Administration 1,832 5,628 1,798
Distribution 1,221 3,752 1,198
--------- --------- ---------
Total expenses 18,316 56,278 17,976
--------- --------- ---------
Net investment income (loss) (18,028) (10,956) (10,543)
Realized gains on investments:
Realized gains distributions from underlying mutual fund 77,620 41,326 55,768
--------- --------- ---------
Proceeds from sales 15,820 42,996 15,863
Cost of investments sold 14,322 39,332 14,992
--------- --------- ---------
1,498 3,664 871
--------- --------- ---------
Net realized gains on investments 79,118 44,990 56,639
--------- --------- ---------
Unrealized appreciation on investments:
End of year 380,738 873,185 193,531
Beginning of year 60,773 178,638 42,636
--------- --------- ---------
Change in unrealized appreciation 319,965 694,547 150,895
--------- --------- ---------
Net increase in net assets resulting from operations $ 381,055 728,581 196,991
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------
SMALL DUAL
COMPANY INTERNATIONAL STRATEGY
STOCK VALUE FUND
--------- ------------- ---------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund -- 198 --
--------- --------- ---------
Less expenses (note 2):
Mortality and risk 7,075 308 3,872
Administration 849 37 464
Distribution 566 25 310
--------- --------- ---------
Total expenses 8,490 370 4,646
--------- --------- ---------
Net investment income (loss) (8,490) (172) (4,646)
Realized gains on investments:
Realized gains distributions from underlying mutual fund -- 5,112 --
--------- --------- ---------
Proceeds from sales 27,373 79 10,662
Cost of investments sold 26,815 79 10,625
--------- --------- ---------
558 -- 37
--------- --------- ---------
Net realized gains on investments 558 5,112 37
--------- --------- ---------
Unrealized appreciation on investments:
End of year 103,118 2,651 87,521
Beginning of year 18,680 -- --
--------- --------- ---------
Change in unrealized appreciation 84,438 2,651 87,521
--------- --------- ---------
Net increase in net assets resulting from operations 76,506 7,591 82,912
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 54
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------
HIGH
PRIME AMERICAN CURRENT
BOND BALANCED INCOME
-------- -------- --------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund $ 24,025 38,033 5,333
-------- -------- --------
Less expenses (note 2):
Mortality and risk 4,222 8,539 610
Administration 507 1,025 73
Distribution 338 683 49
-------- -------- --------
Total expenses 5,067 10,247 732
-------- -------- --------
Net investment income (loss) 18,958 27,786 4,601
-------- -------- --------
Realized gains on investments:
Realized gains distributions from underlying mutual fund -- 89,441 --
-------- -------- --------
Proceeds from sales 15,833 8,428 55
Cost of investment sold 16,443 8,396 55
-------- -------- --------
(610) 32 --
-------- -------- --------
Net realized gains (losses) on investments (610) 89,473 --
Unrealized appreciation (depreciation) on investments:
End of year (29,394) (34,966) (4,112)
Beginning of year 925 21,026 (1,476)
-------- -------- --------
Change in unrealized appreciation (depreciation) (30,319) (55,992) (2,636)
-------- -------- --------
Net increase (decrease) in net assets resulting from operations $(11,971) 61,267 1,965
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------
SPECIAL INTERNATIONAL BASIC
VALUE EQUITY VALUE
FOCUS FOCUS FOCUS
-------- ------------- --------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from underlying mutual fund 1,268 4,222 620
-------- -------- --------
Less expenses (note 2):
Mortality and risk 2,149 1,187 92
Administration 258 142 11
Distribution 171 95 7
-------- -------- --------
Total expenses 2,578 1,424 110
-------- -------- --------
Net investment income (loss) (1,310) 2,798 510
-------- -------- --------
Realized gains on investments:
Realized gains distributions from underlying mutual fund 15,228 -- 3,036
-------- -------- --------
Proceeds from sales 2,092 57,606 34
Cost of investment sold 2,024 52,947 34
-------- -------- --------
68 4,659 --
-------- -------- --------
Net realized gains (losses) on investments 15,296 4,659 3,036
Unrealized appreciation (depreciation) on investments:
End of year 48,892 25,056 (2,125)
Beginning of year 1,334 4,165 --
-------- -------- --------
Change in unrealized appreciation (depreciation) 47,558 20,891 (2,125)
-------- -------- --------
Net increase (decrease) in net assets resulting from operations 61,544 28,348 1,421
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 55
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
SOCIALLY GROWTH
RESPONSIBLE STOCK AND
GROWTH INDEX INCOME
----------- ----------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ (18,028) (10,956) (10,543)
Net realized gains on investments 79,118 44,990 56,639
Increase in unrealized appreciation on investments 319,965 694,547 150,895
----------- ----------- -----------
Net increase in net assets resulting from operations 381,055 728,581 196,991
----------- ----------- -----------
Changes from principal transactions:
Net purchase payments received (note 3) 1,381,089 4,126,312 1,030,016
Withdrawal of funds (note 3) (15,119) (41,852) (15,125)
----------- ----------- -----------
Increase in net assets derived from principal transactions 1,365,970 4,084,460 1,014,891
----------- ----------- -----------
Increase in net assets 1,747,025 4,813,041 1,211,882
Net assets:
Beginning of year 596,188 1,708,778 632,838
----------- ----------- -----------
End of year $ 2,343,213 6,521,819 1,844,720
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------
SMALL DUAL
COMPANY INTERNATIONAL STRATEGY
STOCK VALUE FUND
----------- ------------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) (8,490) (172) (4,646)
Net realized gains on investments 558 5,112 37
Increase in unrealized appreciation on investments 84,438 2,651 87,521
----------- ----------- -----------
Net increase in net assets resulting from operations 76,506 7,591 82,912
----------- ----------- -----------
Changes from principal transactions:
Net purchase payments received (note 3) 406,042 74,243 1,200,164
Withdrawal of funds (note 3) (26,932) (32) (10,633)
----------- ----------- -----------
Increase in net assets derived from principal transactions 379,110 74,211 1,189,531
----------- ----------- -----------
Increase in net assets 455,616 81,802 1,272,443
Net assets:
Beginning of year 376,152 -- --
----------- ----------- -----------
End of year 831,768 81,802 1,272,443
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 56
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
HIGH
PRIME AMERICAN CURRENT
BOND BALANCED INCOME
---------- ---------- ----------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 18,958 27,786 4,601
Net realized gains (losses) on investments (610) 89,473 --
Increase (decrease) in unrealized appreciation on investments (30,319) (55,992) (2,636)
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations (11,971) 61,267 1,965
Changes from principal transactions:
Net purchase payments received (note 3) 255,241 622,724 45,959
Withdrawal of funds (note 3) (15,500) (7,682) (155)
---------- ---------- ----------
Increase (decrease) in net assets derived
from principal transactions 239,741 615,042 45,804
---------- ---------- ----------
Increase in net assets 227,770 676,309 47,769
Net assets:
Beginning of year 216,944 352,175 23,642
---------- ---------- ----------
End of year $ 444,714 1,028,484 71,411
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------
SPECIAL INTERNATIONAL BASIC
VALUE EQUITY VALUE
FOCUS FOCUS FOCUS
---------- ------------- ----------
<S> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) (1,310) 2,798 510
Net realized gains (losses) on investments 15,296 4,659 3,036
Increase (decrease) in unrealized appreciation on investments 47,558 20,891 (2,125)
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations 61,544 28,348 1,421
Changes from principal transactions:
Net purchase payments received (note 3) 141,647 40,979 45,546
Withdrawal of funds (note 3) (1,976) (56,913) --
---------- ---------- ----------
Increase (decrease) in net assets derived
from principal transactions 139,671 (15,934) 45,546
---------- ---------- ----------
Increase in net assets 201,215 12,414 46,967
Net assets:
Beginning of year 83,593 81,952 --
---------- ---------- ----------
End of year 284,808 94,366 46,967
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 57
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------
SOCIALLY GROWTH SMALL
RESPONSIBLE STOCK AND COMPANY
GROWTH INDEX INCOME STOCK
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (2,032) 1,317 (626) (809)
Net realized gains (losses) on investments 22,916 4,357 3,274 (669)
Increase in unrealized appreciation on investments 60,773 178,638 42,636 18,680
---------- ---------- ---------- ----------
Net increase in net assets resulting from operations 81,657 184,312 45,284 17,202
Changes from principal transactions:
Net purchase payments received (note 3) 538,786 1,685,647 613,593 362,476
Withdrawal of funds (note 3) (24,255) (161,181) (26,039) (3,526)
---------- ---------- ---------- ----------
Increase in net assets derived from principal transactions 514,531 1,524,466 587,554 358,950
---------- ---------- ---------- ----------
Increase in net assets 596,188 1,708,778 632,838 376,152
Net assets:
Beginning of year -- -- -- --
---------- ---------- ---------- ----------
End of year $ 596,188 1,708,778 632,838 376,152
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 58
AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------
HIGH SPECIAL INTERNATIONAL
PRIME AMERICAN CURRENT VALUE EQUITY
BOND BALANCED INCOME FOCUS FOCUS
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income (loss) $ 2,964 (2,067) 759 (344) (389)
Net realized gains (losses) on investments 12 (2,041) (16) (735) (56)
Increase in unrealized appreciation (depreciation)
on investments 925 21,026 (1,476) 1,334 4,165
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets resulting from operations 3,901 16,918 (733) 255 3,720
Changes from principal transactions:
Net purchase payments received (note 3) 215,155 391,488 25,852 87,244 78,722
Withdrawal of funds (note 3) (2,112) (56,231) (1,477) (3,906) (490)
--------- --------- --------- --------- ---------
Increase in net assets derived from principal transactions 213,043 335,257 24,375 83,338 78,232
--------- --------- --------- --------- ---------
Increase in net assets 216,944 352,175 23,642 83,593 81,952
Net assets:
Beginning of year -- -- -- -- --
--------- --------- --------- --------- ---------
End of year $ 216,944 352,175 23,642 83,593 81,952
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 59
AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Year ended December 31, 1999
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
------------------------------------------------
Segregated Sub-Accounts
------------------------------------------------
Socially Growth
Responsible Stock and
Growth Index Income
------------ ----------- -----------
<S> <C> <C> <C>
Investment income and expenses:
Investment income $ 0.003 0.163 0.073
Operating expenses 0.211 0.202 0.176
----------- ---------- ----------
Net investment income (loss) (0.208) (0.039) (0.103)
Capital changes:
Net realized and unrealized gains from securities 3.927 2.461 1.833
----------- ---------- ----------
Net increase in accumulation unit value 3.719 2.422 1.730
Accumulation unit value, beginning of period 13.216 12.881 11.423
----------- ---------- ----------
Accumulation unit value, end of period $ 16.935 15.303 13.153
=========== ========== ==========
Number of accumulation units outstanding, end of period 138,362 426,172 140,249
=========== ========== ==========
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
------------------------------------------------
Segregated Sub-Accounts
------------------------------------------------
Small Dual
Company International Strategy
Stock Value Fund
---------- ------------ ---------
<S> <C> <C> <C>
Investment income and expenses:
Investment income 0.000 0.053 0.000
Operating expenses 0.141 0.100 0.090
--------- -------- --------
Net investment income (loss) (0.141) (0.047) (0.090)
Capital changes:
Net realized and unrealized gains from securities 1.013 1.972 0.917
--------- -------- --------
Net increase in accumulation unit value 0.872 1.925 0.827
Accumulation unit value, beginning of period 9.733 10.000 10.000
--------- -------- --------
Accumulation unit value, end of period 10.605 11.925 10.827
========= ======== ========
Number of accumulation units outstanding, end of period 78,432 6,860 117,520
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 60
AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Year ended December 31, 1999
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
------------------------------------------------
SEGREGATED SUB-ACCOUNTS
-----------------------------------
HIGH
PRIME AMERICAN CURRENT
BOND BALANCED INCOME
---------- --------- ---------
<S> <C> <C> <C>
Investment income and expenses:
Investment income $ 0.706 0.622 1.035
Operating expenses 0.149 0.168 0.142
----------- ---------- ---------
Net investment income (loss) 0.557 0.454 0.893
Capital changes:
Net realized and unrealized gains (losses) from securities (0.955) 0.329 (0.477)
----------- ---------- ---------
Net increase (decrease) in accumulation unit value (0.398) 0.783 0.416
Accumulation unit value, beginning of period 10.440 11.325 9.502
----------- ---------- ---------
Accumulation unit value, end of period $ 10.042 12.108 9.918
=========== ========== =========
Number of accumulation units outstanding, end of period 44,285 84,943 7,200
=========== ========== =========
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
-=----------------------------------------------
SEGREGATED SUB-ACCOUNTS
-----------------------------------
SPECIAL INTERNATIONAL BASIC
VALUE EQUITY VALUE
FOCUS FOCUS FOCUS
---------- ------------- ---------
<S> <C> <C> <C>
Investment income 0.073 0.552 0.412
Operating expenses 0.149 0.186 0.073
---------- --------- ---------
Net investment income (loss) (0.076) 0.366 0.339
Capital changes:
Net realized and unrealized gains (losses) from securities 3.065 3.604 (0.366)
---------- --------- ---------
Net increase (decrease) in accumulation unit value 2.989 3.970 (0.027)
Accumulation unit value, beginning of period 9.379 11.151 10.000
---------- --------- ---------
Accumulation unit value, end of period 12.368 15.121 9.973
========== ========= =========
Number of accumulation units outstanding, end of period 23,027 6,241 4,710
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 61
AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Year ended December 31, 1998
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
------------------------------------------------------
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------
SOCIALLY GROWTH SMALL
RESPONSIBLE STOCK AND COMPANY
GROWTH INDEX INCOME STOCK
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income (loss) and expenses:
Net investment income (loss) $ 0.049 0.182 0.123 0.063
Operating expenses 0.160 0.161 0.147 0.124
----------- ----------- ----------- -----------
Net investment income (loss) (0.111) 0.021 (0.024) (0.061)
Capital changes:
Net realized and unrealized gains (losses) from securities 3.327 2.860 1.447 (0.206)
----------- ----------- ----------- -----------
Net increase (decrease) in accumulation unit value 3.216 2.881 1.423 (0.267)
Accumulation unit value, beginning of period 10.000 10.00 10.000 10.000
----------- ----------- ----------- -----------
Accumulation unit value, end of period $ 13.216 12.881 11.423 9.733
=========== =========== =========== ===========
Number of accumulation units outstanding, end of period 45,112 132,663 55,399 38,646
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 62
AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Year ended December 31, 1998
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHANGES
--------------------------------------------------------------
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------
HIGH SPECIAL INTERNATIONAL
PRIME AMERICAN CURRENT VALUE EQUITY
BOND BALANCED INCOME FOCUS FOCUS
--------- -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Investment income (loss) and expenses:
Investment income (loss) $ 0.503 0.000 0.821 0.000 0.001
Operating expenses 0.133 0.149 0.136 0.123 0.145
---------- --------- -------- -------- ------
Net investment income (loss) 0.370 (0.149) 0.685 (0.123) (0.144)
Capital changes:
Net realized and unrealized gains (losses) from securities 0.070 1.474 (1.183) (0.498) 1.295
---------- --------- -------- -------- ------
Net increase (decrease) in accumulation unit value 0.440 1.325 (0.498) (0.621) 1.151
Accumulation unit value, beginning of period 10.000 10.000 10.000 10.000 10.000
---------- --------- -------- -------- ------
Accumulation unit value, end of period $ 10.440 11.325 9.502 9.379 11.151
========== ========= ======== ======== ======
Number of accumulation units outstanding end of period 20,781 31,096 2,488 8,913 7,349
========== ========= ======== ======== ======
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 63
AMERICAN FIDELITY SEPARATE ACCOUNT B
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
American Fidelity Separate Account B (Account B) is a separate
account of American Fidelity Assurance Company (AFA), and is
registered as a unit investment trust under the Investment Company
Act of 1940, as amended. The inception of Account B was October
27, 1997; however, no purchases occurred until operations
commenced in January 1998.
The assets of each of the twelve segregated sub-accounts are held
for the exclusive benefit of the variable annuity contract owners
and are not chargeable with liabilities arising out of the
business conducted by any other account or by AFA. Contract owners
allocate their variable annuity purchase payments to one or more
of the twelve segregated sub-accounts. Such payments are then
invested in the various funds underlying the sub-accounts
(collectively referred to as the Funds).
One of Account B's sub-accounts, the American Fidelity Dual
Strategy Fund, Inc. is a mutual fund sponsored by AFA.
(b) INVESTMENTS
Investments in shares of the Funds are stated at fair value, which
is the net asset value per share as determined daily by the Funds.
Transactions are recorded on a trade date basis by the Funds.
Income from dividends, and gains from realized gain distributions,
are recorded on the ex-distribution date.
Realized gains and losses from investment transactions and
unrealized appreciation or depreciation of investments are
determined on the average cost basis.
(c) INCOME TAXES
Account B is not taxed separately because the operations of
Account B are part of the total operations of AFA. AFA files its
federal income tax returns under sections of the Internal Revenue
Code applicable to life insurance companies. Account B's net
increase in net assets from operations is not expected to result
in taxable income under present regulations. Account B will not be
taxed as a "regulated investment company" under subchapter "M" of
the Internal Revenue Code.
(d) ANNUITY RESERVES
Annuity reserves are computed for currently payable contracts
according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5 percent unless the annuitant elects
otherwise, in which case the rate may vary from zero to 5 percent
as regulated by the laws of the respective states. Charges to
annuity reserves for mortality and expense risks experience are
reimbursed to AFA if the reserves required are less than
originally estimated.
34 (Continued)
<PAGE> 64
AMERICAN FIDELITY SEPARATE ACCOUNT B
Notes to Financial Statements
December 31, 1999
If additional reserves are required, AFA reimburses Account B. At
December 31, 1999, there were no contract owners who had elected
the variable annuity method of payout. Accordingly, Account B held
no annuity reserves at December 31, 1999.
(e) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
(2) VARIABLE ANNUITY CONTRACTS
AFA manages the operations of Account B and assumes certain mortality and
expense risks under the variable annuity contracts. Administrative fees
are equal to .0004110 of the Funds' daily net assets (.15% per annum).
Distribution fees are equal to .0002740 (.10% per annum). Mortality and
expense fees are equal to .0034247% of the Funds' daily net assets (1.25%
per annum). Policy maintenance charges, which are deducted from contract
owners' accounts, are equal to $30 per policy per year. All such fees
were paid to AFA.
During the accumulation period, contract owners may partially or totally
withdraw from Account B by surrendering a portion or all of their
accumulation units. The Internal Revenue Code may limit certain
withdrawals based upon age, disability, and other factors. When contract
owners withdraw, they receive the current value of their accumulation
units, less applicable withdrawal charges.
(3) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
SEGREGATED SUB ACCOUNTS
-------------------------------------------------------------------------------
SOCIALLY GROWTH SMALL DUAL
RESPONSIBLE STOCK AND COMPANY INTERNATIONAL STRATEGY
GROWTH INDEX INCOME STOCK VALUE FUND
----------- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units:
Outstanding,
beginning of
year 45,112 132,663 55,399 38,646 -- --
Increase for
payments
received 94,301 296,535 86,108 42,648 6,863 118,572
Decrease for
withdrawal of
funds (1,051) (3,026) (1,258) (2,862) (3) (1,052)
-------- -------- -------- -------- -------- --------
Outstanding, end
of year 138,362 426,172 140,249 78,432 6,860 117,520
======== ======== ======== ======== ======== ========
</TABLE>
35 (Continued)
<PAGE> 65
AMERICAN FIDELITY SEPARATE ACCOUNT B
Notes to Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31, 1999
SEGREGATED SUB ACCOUNTS
-------------------------------------------------------------------------
HIGH SPECIAL BASIC
AMERICAN CURRENT VALUE INTERNATIONAL VALUE
PRIME BOND BALANCED INCOME FOCUS EQUITY FOCUS FOCUS
---------- -------- ------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Accumulation units:
Outstanding,
beginning of
year 20,781 31,096 2,488 8,913 7,349 --
Increase for
payments
received 25,032 54,512 4,728 14,304 3,589 4,710
Decrease for
withdrawal of
funds (1,528) (665) (16) (190) (4,697) --
------- ------- ------- ------- ------- -------
Outstanding,
end of year 44,285 84,943 7,200 23,027 6,241 4,710
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------
SOCIALLY
RESPONSIBLE GROWTH AND SMALL COMPANY
GROWTH STOCK INDEX INCOME STOCK
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Accumulation units:
Outstanding, beginning of
year -- -- -- --
Increase for payments
received 47,072 146,860 58,248 39,070
Decrease for withdrawal of
funds (1,960) (14,197) (2,849) (424)
-------- -------- -------- --------
Outstanding, end of year 45,112 132,663 55,399 38,646
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------
INTERNATIONAL
PRIME AMERICAN HIGH CURRENT SPECIAL VALUE EQUITY
BOND BALANCED INCOME FOCUS FOCUS
------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation units:
Outstanding,
beginning of
year -- -- -- -- --
Increase for
payments
received 20,993 36,529 2,637 9,387 7,400
Decrease for
withdrawal of
funds (212) (5,433) (149) (474) (51)
------- ------- ------- ------- -------
Outstanding, end of
year 20,781 31,096 2,488 8,913 7,349
======= ======= ======= ======= =======
</TABLE>
36
<PAGE> 66
(4) YEAR 2000 RISKS (UNAUDITED)
Like other variable annuity funds, financial and business organizations
and individuals around the world, Account B could be adversely affected
if the computer systems used by AFA and other service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem."
AFA has had a formal project team (including 22 information systems
professionals) working to correct the problem since 1996. In the briefest
terms, the correction is to change all date-related fields in AFA's
computer systems to four digits instead of two digits. At the same time,
all relationships with systems outside AFA must be checked for the same
change and all must be tested to determine that relationships continued
to be compatible. Conversion efforts were complete at December 31, 1999.
AFA and Account B have not experienced any significant difficulties
to-date relating to Year 2000 issues, and management does not expect Year
2000 issues to have a significant impact on AFA's or Account B's
operations subsequent to December 31, 1999.
37
<PAGE> 67
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,
1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, 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.
/s/ KPMG LLP
March 14, 2000
38
<PAGE> 68
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Investments:
Fixed maturities held-to-maturity, at amortized cost
(fair value $222,215 in 1998) $ -- 211,622
Fixed maturities available-for-sale, at fair value
(amortized cost of $942,689 and $691,835
in 1999 and 1998, respectively) 912,589 720,221
Equity securities, at fair value:
Preferred stock (cost $725) 703 --
Common stocks (cost $22,808 and $11,272 in
1999 and 1998, respectively) 25,047 13,317
Mortgage loans on real estate, net 145,507 133,440
Investment real estate, at cost (less accumulated
depreciation of $954 and $815 in 1999
and 1998, respectively) 9,404 10,160
Policy loans 11,234 11,147
Short-term and other investments 52,480 19,181
------------ ------------
1,156,964 1,119,088
------------ ------------
Cash 16,158 17,245
Accrued investment income 15,185 15,523
Accounts receivable:
Uncollected premiums 21,753 22,560
Reinsurance receivable 79,087 61,201
Other 7,436 8,372
------------ ------------
108,276 92,133
------------ ------------
Deferred policy acquisition costs 215,221 193,741
Other assets 7,088 8,497
Separate account assets 242,952 188,721
------------ ------------
Total assets $ 1,761,844 1,634,948
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 69
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
------------ ------------
<S> <C> <C>
Policy liabilities:
Reserves for future policy benefits:
Life and annuity $ 133,188 131,494
Accident and health 185,338 164,067
Unearned premiums 3,866 3,363
Benefits payable 39,116 36,830
Funds held under deposit administration contracts 564,028 577,301
Other policy liabilities 102,298 96,666
------------ ------------
1,027,834 1,009,721
------------ ------------
Other liabilities:
Net deferred income tax liability 49,120 63,155
General expenses, taxes, licenses and fees payable
and other liabilities 43,060 39,868
------------ ------------
92,180 103,023
------------ ------------
Notes payable 146,393 57,858
Separate account liabilities 242,952 188,721
------------ ------------
Total liabilities 1,509,359 1,359,323
------------ ------------
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 23,244 23,244
Accumulated other comprehensive income (loss) (18,129) 19,775
Retained earnings 244,870 230,106
------------ ------------
Total stockholder's equity 252,485 275,625
Commitments and contingencies (notes 9, 11 and 14)
------------ ------------
Total liabilities and stockholder's equity $ 1,761,844 1,634,948
============ ============
</TABLE>
40
<PAGE> 70
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Premiums:
Life and annuity $ 29,286 26,901 25,282
Accident and health 215,301 206,821 181,944
----------- ----------- -----------
244,587 233,722 207,226
Net investment income 66,352 70,479 69,175
Other 19,237 14,757 13,190
----------- ----------- -----------
Total revenues 330,176 318,958 289,591
----------- ----------- -----------
Benefits:
Benefits paid or provided:
Life and annuity 25,875 18,790 18,045
Accident and health 123,551 116,908 105,594
Interest credited to funded contracts 27,199 29,208 30,207
Increase in reserves for future policy benefits:
Life and annuity (net of (decrease) increase in
reinsurance reserves ceded of $(783),
$1,362, and $55 in 1999, 1998, and 1997, respectively) 2,477 1,179 2,788
Accident and health (net of increase in
reinsurance reserves ceded of $16,583, $9,316,
and $9,838 in 1999, 1998, and 1997, respectively) 6,264 13,588 10,250
----------- ----------- -----------
185,366 179,673 166,884
----------- ----------- -----------
Expenses:
Selling costs 71,258 64,931 56,835
Other operating, administrative and general expenses 52,442 49,258 43,241
Taxes, other than federal income taxes, and licenses
and fees 8,561 7,644 7,251
Increase in deferred policy acquisition costs (21,480) (16,004) (15,240)
----------- ----------- -----------
110,781 105,829 92,087
----------- ----------- -----------
Total benefits and expenses 296,147 285,502 258,971
----------- ----------- -----------
Income before income taxes 34,029 33,456 30,620
----------- ----------- -----------
Income taxes:
Current 5,390 10,482 2,680
Deferred 6,375 508 5,802
----------- ----------- -----------
11,765 10,990 8,482
----------- ----------- -----------
Net income $ 22,264 22,466 22,138
=========== =========== ===========
Basic net income per share $ 89.06 89.86 88.55
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 71
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,500 19,916 232,042 6,252 260,710
Comprehensive income:
Net income -- -- 22,138 -- 22,138
Net change in unrealized holding
gain on investments available-
for-sale, net of deferred taxes -- -- -- 7,119 7,119
-------------
Comprehensive income 29,257
Dividends -- -- (33,834) -- (33,834)
Capital contribution -- 3,328 -- -- 3,328
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1997 2,500 23,244 220,346 13,371 259,461
Comprehensive income:
Net income -- -- 22,466 -- 22,466
Net change in unrealized holding
gain on investments available-
for-sale, net of deferred taxes -- -- -- 6,404 6,404
-------------
Comprehensive income 28,870
Dividends -- -- (12,706) -- (12,706)
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1998 2,500 23,244 230,106 19,775 275,625
Comprehensive income:
Net income -- -- 22,264 -- 22,264
Investments transferred to
available-for-sale, net of
deferred taxes -- -- -- 6,885 6,885
Net change in unrealized holding
gain (loss) on investments available-
for-sale, net of deferred taxes -- -- -- (44,789) (44,789)
-------------
Comprehensive loss (15,640)
Dividends -- -- (7,500) -- (7,500)
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1999 $ 2,500 23,244 244,870 (18,129) 252,485
============ ============ ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 72
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,264 22,466 22,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation on investment real estate 142 212 653
Accretion of discount on investments (281) (793) (546)
Realized losses (gains) on investments 1,683 (2,053) (1,823)
Increase in deferred policy acquisition costs (21,480) (16,004) (15,240)
Decrease (increase) in accrued investment income 338 (1,166) (218)
(Increase) decrease in accounts receivable (16,143) 1,189 (23,254)
Increase in policy liabilities 26,643 32,450 27,694
Increase in interest credited on deposit and
other investment-type contracts 27,199 29,208 30,207
Charges on deposit and other investment-type contracts (7,276) (3,255) (2,878)
Increase in general expenses, taxes, licenses and
fees payable and other liabilities 3,192 3,769 2,656
Deferred income taxes 6,375 508 5,802
Other 1,409 (2,737) 949
------------ ------------ ------------
Total adjustments 21,801 41,328 24,002
------------ ------------ ------------
Net cash provided by operating activities 44,065 63,794 46,140
------------ ------------ ------------
Cashflows from investing activities: Sale, maturity or repayment of
investments:
Fixed maturities held-to-maturity -- 24,305 20,940
Fixed maturities available-for-sale 186,806 122,675 133,727
Equity securities 6,930 160 11,673
Mortgage loans on real estate 21,974 29,244 20,200
Real estate 2,350 3,244 9,221
Net (increase) decrease in short-term and
other investments (33,299) 1,589 (11,013)
Purchase of investments:
Fixed maturities held-to-maturity -- (492) (4,349)
Fixed maturities available-for-sale (227,892) (191,017) (211,464)
Equity securities (18,746) (409) (19,489)
Mortgage loans on real estate (34,171) (27,415) (24,793)
Real estate (1,599) (3,263) (1,403)
Policy loans, net (87) (2,479) (309)
Cash received upon assumption of reserves (note 12) -- 18,747 --
------------ ------------ ------------
Net cash used in investing activities (97,734) (25,111) (77,059)
------------ ------------ ------------
</TABLE>
43 (Continued)
<PAGE> 73
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid to parent $ (7,500) (12,706) (14,156)
Capital contribution from parent -- -- 3,328
Proceeds from notes payable 240,208 25,000 109,775
Repayment of notes payable (151,673) (17,861) (76,583)
Deposits from deposit and other investment-type
contracts 57,780 60,269 87,709
Withdrawals from deposit and other investment-type
contracts (86,233) (84,567) (86,689)
------------ ------------ ------------
Net cash provided by (used in) financing activities 52,582 (29,865) 23,384
------------ ------------ ------------
Net (decrease) increase in cash (1,087) 8,818 (7,535)
Cash at beginning of year 17,245 8,427 15,962
------------ ------------ ------------
Cash at end of year $ 16,158 17,245 8,427
============ ============ ============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest on notes payable $ 4,263 3,073 2,076
============ ============ ============
Federal income taxes $ 4,400 6,600 4,800
============ ============ ============
Supplemental disclosure of noncash investing activities:
Change in unrealized holding gain on investments
available-for-sale, net of deferred tax expense (benefit)
of ($20,410), $3,449, and $3,840 in 1999, 1998, and
1997, respectively $ (37,904) 6,404 7,119
============ ============ ============
</TABLE>
44 (Continued)
<PAGE> 74
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of noncash financing activities:
Amounts transferred to Parent through dividend of
common stock of affiliated companies:
Fixed maturities $ -- -- 8,567
========== ========== ==========
Real estate, net $ -- -- 2,632
========== ========== ==========
Short-term and other investments $ -- -- 3,006
========== ========== ==========
Accounts receivable $ -- -- 732
========== ========== ==========
Accrued investment income $ -- -- 109
========== ========== ==========
Other assets $ -- -- 241
========== ========== ==========
Policy liabilities $ -- -- 378
========== ========== ==========
Notes payable $ -- -- 2,312
========== ========== ==========
Deferred tax liability $ -- -- 683
========== ========== ==========
Other liabilities $ -- -- 682
========== ========== ==========
Amounts transferred to Parent through dividend of common stock of
non-affiliated companies:
Common stock $ -- -- 6,485
========== ========== ==========
Deferred tax liability assumed by the Company $ -- -- (1,961)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
45
<PAGE> 75
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
American Fidelity Assurance Company (AFA or the Company) and
subsidiaries provide a variety of financial services. AFA is a
wholly owned subsidiary of American Fidelity Corporation (AFC), a
Nevada insurance holding company. The Company is subject to state
insurance regulations and periodic examinations by state insurance
departments.
AFA is licensed in 49 states and the District of Columbia with
approximately 35% of direct premiums written in Oklahoma, Texas,
and California. AFA is represented by approximately 245 salaried
managers and agents, and over 7,200 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 Worksite Division (AWD)
and American Fidelity Educational Services (AFES). AWD specializes
in voluntary disability income insurance programs aimed at
selected groups and associations whose premiums are funded by
employees through payroll deductions. AFES focuses on marketing to
public school employees with voluntary insurance products such as
disability income, tax sheltered annuities, life insurance, dread
disease, and accidental death and dismemberment. These premiums
are also funded by employees through payroll deductions. The
expertise gained by the Company in worksite marketing of voluntary
products is used by the Strategic Alliance Division in developing
products to meet special situations and focusing 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.
(b) 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, except where
control is expected to be temporary. All significant intercompany
accounts and transactions have been eliminated in the consolidated
financial statements.
(c) 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
46 (Continued)
<PAGE> 76
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
change in the future are the actuarial assumptions used in
establishing deferred policy acquisition costs and policy
liabilities.
(d) 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 values of investments available-for-sale are
based on quoted market prices.
The effects of any unrealized holding gains or losses on
securities available-for-sale are reported as accumulated other
comprehensive income, 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 the estimated life of 39 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 in its investments.
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
creditworthiness of the mortgagees and/or tenants and independent
appraisals. Certain fixed maturities are guaranteed by the United
States government.
47 (Continued)
<PAGE> 77
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
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 allowance for
losses based upon available information and judgments of the
regulatory examiners at the time of their examination.
(e) 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 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.
(f) 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 the Company's experience. Deferred
48 (Continued)
<PAGE> 78
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
policy acquisition costs are subject to recoverability testing at
the time of policy issue and at the end of each accounting period,
and are written off if determined to be unrecoverable.
(g) 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 the Company'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.
(h) 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.
(i) 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.
(j) 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 maintenance and repairs generally
are expensed. The costs associated with internally developed
software are generally capitalized. 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.
49 (Continued)
<PAGE> 79
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(k) SEPARATE ACCOUNTS
The Company maintains a separate account under Oklahoma insurance
law designated as American Fidelity Separate Account A (Account
A). Account A was formerly known as American Fidelity Variable
Annuity Fund A, and operated as an open-end diversified management
investment company from 1968 to December 31, 1998. Effective
January 1, 1999, it was converted to a unit investment trust
separate account, and it transferred its investment portfolio to
the American Fidelity Dual Strategy Fund (the Fund), an open-end
investment company sponsored by AFA, in exchange for shares of the
Fund. Under Oklahoma law, the assets of Account A are segregated
from the Company's assets, are held for the exclusive benefit of
the variable annuity contract owners and are not chargeable with
liabilities arising out of the business conducted by any other
account or by the Company.
The Company also maintains a separate account under Oklahoma
insurance law designated as American Fidelity Separate Account B
(Account B). Account B is registered as a unit investment trust
under the Investment Company Act of 1940, as amended. Under
Oklahoma law, the assets of each of the twelve segregated
sub-accounts are held for the exclusive benefit of the variable
annuity contract owners and are not chargeable with liabilities
arising out of the business conducted by any other account or by
the Company.
(l) BASIC NET INCOME PER SHARE
Basic net income per share is based on the weighted average number
of shares outstanding. During the years ended December 31, 1999,
1998, and 1997, the weighted average number of shares outstanding
was 250,000. There are no dilutive securities outstanding.
(m) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to be consistent
with the current year presentation.
(n) COMPREHENSIVE INCOME
The Company accounts for comprehensive income as prescribed by
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements.
Comprehensive income (loss) consists of net income and net
unrealized gains (losses) on securities available-for-sale and is
presented in the consolidated statements of stockholder's equity.
SFAS No. 130 requires only additional disclosures in the
consolidated financial statements; it does not affect the
Company's financial position or results of operations.
(o) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging
activities. It requires
50 (Continued)
<PAGE> 80
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
that a company recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure
those instruments at fair value. This statement is required to be
adopted by the Company in 2001. Management does not anticipate
this statement to have a material adverse impact on the
consolidated financial position or the future results of
operations of the Company.
In October 1998, the AICPA issued Statement of Position 98-7,
"Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts that do not Transfer Insurance Risk" (SOP 98-7). This
statement provides that insurance and reinsurance contracts for
which the deposit method is appropriate should be classified and
accounted for as one of the following, those that (1) transfer
only significant timing risk, (2) transfer only significant
underwriting risk, (3) transfer neither significant timing nor
underwriting risk, or (4) have an indeterminate risk. SOP 98-7
does not address when deposit accounting should be applied. SOP
98-7 is effective for fiscal years beginning after June 15, 1999.
Management does not anticipate this statement to have a material
adverse impact on the consolidated financial position or the
future results of operations of the Company.
The Company adopted AICPA Statement of Position No. 97-3,
"Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3) in 1999. This statement
provides: (1) guidance for determining when an entity should
recognize a liability for guaranty-fund and other
insurance-related assessments, (2) guidance on how to measure the
liability, (3) guidance on when an asset may be recognized for a
portion or all of the assessment liability or paid assessment that
can be recovered through premium tax offsets or policy surcharges,
and (4) requirements for disclosures of certain information. In
the past, the Company has accounted for insurance-related
assessments in a manner consistent with the guidance provided by
SOP 97-3. The adoption of SOP 97-3 did not have a material impact
on the consolidated financial position or results of the
operations of the Company.
The Company adopted AICPA Statement of Position No. 98-1 (SOP
98-1), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" in 1999. This statement provides
guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as
incurred. The guidance provided by SOP 98-1 applies only to such
costs incurred prospectively and is not retroactive to prior
periods. In the past, the Company has capitalized certain costs
related to internally-developed software, in a manner consistent
with the guidance provided by SOP 98-1. The adoption of SOP 98-1
did not have a material impact on the consolidated financial
position or results of the operations of the Company.
(2) STATUTORY FINANCIAL INFORMATION
The Company is 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 reported statutory net income for the years ended December 31,
1999, 1998, and 1997, of approximately $13,876,000, $12,577,000, and
$16,276,000, respectively. The Company reported
51 (Continued)
<PAGE> 81
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
statutory capital and surplus at December 31, 1999 and 1998, of
approximately $132,194,000 and $126,277,000, respectively.
Retained earnings of the Company 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 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. 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, 1999 and 1998, the statutory TAC of the Company
significantly exceeds the level requiring corrective action.
On March 16, 1998, the NAIC approved the codification of statutory
accounting practices. The codification will constitute the only source of
"prescribed" statutory accounting practices and is subject to adoption by
the Oklahoma Insurance Department. The Statements of Statutory Accounting
Principles established under the codification are generally effective
January 1, 2001. The Company will be determining the impact the adoption
of the codification will have on statutory surplus during 2000.
52 (Continued)
<PAGE> 82
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(3) INVESTMENTS
Investment income for the years ended December 31 is summarized below (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Interest on fixed maturities $64,891 64,207 61,556
Dividends on equity securities 137 7 25
Interest on mortgage loans 11,993 11,890 12,091
Investment real estate income 1,073 1,208 2,285
Interest on policy loans 1,408 1,468 1,411
Interest on short-term investments 800 267 244
Net realized gains (losses) on investments (1,683) 2,053 1,823
Other 949 647 787
------- ------- -------
79,568 81,747 80,222
Less investment expenses (13,216) (11,268) (11,047)
------- ------- -------
Net investment income $66,352 70,479 69,175
======= ======= =======
</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>
1999 1998 1997
-------------------- -------------------- -------------------
REALIZED UNREALIZED REALIZED UNREALIZED REALIZED UNREALIZED
-------- ---------- -------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities
held-to-maturity $ -- -- 90 -- 173 --
Fixed maturities
available-for-sale (2,135) (58,486) 534 8,521 449 12,600
Equity securities 445 172 -- 1,332 -- (1,641)
Real estate 137 -- 1,283 -- 1,219 --
Mortgage loans (130) -- 147 -- (15) --
Other -- -- (1) -- (3) --
------- ------- ------- ------- ------- -------
$(1,683) (58,314) 2,053 9,853 1,823 10,959
======= ======= ======= ======= ======= =======
</TABLE>
Included in the above realized gains (losses) is the increase (decrease)
in the allowance for possible losses on mortgage loans of $130,000,
$(147,000), and $16,000, in 1999, 1998, and 1997, respectively. In
addition, the Company realized net gains of approximately $65,000,
$554,000, and $1,000 during 1999, 1998 and 1997, respectively, on
investments in fixed maturities that were called or prepaid.
53 (Continued)
<PAGE> 83
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(a) 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, 1998
----------------------------------------------
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 $ 9,011 992 -- 10,003
Corporate securities 118,417 7,445 -- 125,862
Mortgage-backed securities 84,194 2,181 (25) 86,350
-------- -------- -------- --------
Totals
$211,622 10,618 (25) 222,215
======== ======== ======== ========
</TABLE>
Effective January 1, 1999, management of the Company changed its
intent to hold securities to maturity. The Company transferred all
of its held-to-maturity securities to available-for-sale during
1999.
Proceeds from sales of investments in fixed maturities
held-to-maturity during 1998 and 1997 were approximately
$5,887,000 and $9,006,000, respectively. Gross gains of
approximately $173,000, in 1997, were realized on those sales. In
1998, gross losses of approximately $124,000 were realized on
those sales. In 1998 and 1997, significant deterioration in the
issuers' creditworthiness caused the Company to change its intent
to hold these securities to maturity.
(b) AVAILABLE-FOR-SALE
The gross unrealized holding gains on equity securities
available-for-sale were approximately $2,361,000 and $2,108,000 in
1999 and 1998, respectively. Gross unrealized holding losses on
equity securities available-for-sale were approximately $144,000
and $63,000 in 1999 and 1998, respectively.
54 (Continued)
<PAGE> 84
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The amortized cost and estimated fair value of investments in
fixed maturities available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------
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 $ 56,990 439 (1,326) 56,103
Corporate securities 597,725 1,984 (22,471) 577,238
Mortgage-backed securities 287,974 723 (9,449) 279,248
-------- -------- -------- --------
Totals $942,689 3,146 (33,246) 912,589
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------
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 $ 89,249 3,230 (25) 92,454
Corporate securities 439,030 21,958 (290) 460,698
Mortgage-backed securities 163,556 3,652 (139) 167,069
-------- -------- -------- --------
Totals $691,835 28,840 (454) 720,221
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of investments in
fixed maturities available-for-sale at December 31, 1999 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>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 38,044 38,139
Due after one year through five years 232,763 230,717
Due after five years through ten years 209,180 201,112
Due after ten years 174,728 163,373
-------- --------
654,715 63,341
Mortgage-backed securities 287,974 279,248
-------- --------
$942,689 912,589
======== ========
</TABLE>
55 (Continued)
<PAGE> 85
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Proceeds from sales of investments in fixed maturities
available-for-sale were approximately $96,932,000, $37,058,000,
and $102,958,000, in 1999, 1998, and 1997, respectively. Gross
gains of approximately $481,000, $206,000, and $1,152,000 and
gross losses of approximately $2,681,000, $12,000, and $704,000,
were realized on those sales in 1999, 1998, and 1997,
respectively.
At December 31, 1999, 1998 and 1997, investments with carrying
values of approximately $2,481,000, $2,662,000, and $2,497,000,
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>
1999 1998
-------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash $16,158 16,158 17,245 17,245
Short-term and other investments 52,480 52,480 19,181 19,181
Accounts receivable 29,189 29,189 30,932 30,932
Accrued investment income 15,185 15,185 15,523 15,523
Reinsurance receivables on paid
and unpaid benefits 79,087 79,087 61,201 61,201
Policy loans 11,234 11,234 11,147 11,147
Fixed maturities held-to-maturity -- -- 211,622 222,215
Fixed maturities 912,589 912,589 720,221 720,221
available-for-sale
Equity securities 25,750 25,750 13,317 13,317
Mortgage loans 145,507 142,908 133,440 142,600
Financial liabilities:
Certain policy liabilities 624,853 612,730 637,618 620,611
Other liabilities 43,060 43,060 39,868 39,868
Notes payable 146,393 145,069 57,858 58,250
</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 5.96% and 6.75% as of
December 31, 1999 and 1998, 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
56 (Continued)
<PAGE> 86
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
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 7.72% and
8.27% for December 31, 1999 and 1998, respectively. The fair value of
mortgage loans was calculated by discounting scheduled cash flows to
maturity using estimated market discount rates of 8.45% and 7.15% for
December 31, 1999 and 1998, respectively. These rates reflect the credit
and interest rate risk inherent in the loans. 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, 1999 DECEMBER 31, 1998
----------------------- ----------------------
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 $564,028 550,638 577,301 560,650
Annuities 60,825 62,092 60,317 59,961
</TABLE>
57 (Continued)
<PAGE> 87
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
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, except for
the Company's notes payable to the Federal Home Loan Bank of Topeka,
which are valued using discount rates at or near the carried rates
because the notes have relatively short lives or carry the option of
conversion to an adjustable rate.
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, 1999:
Deferred costs $ 8,650 38,369 47,019
Amortization (7,202) (18,337) (25,539)
------- ------- -------
Net increase
$ 1,448 20,032 21,480
======= ======= =======
Year ended December 31, 1998:
Deferred costs $ 7,260 33,371 40,631
Amortization (4,669) (19,958) (24,627)
------- ------- -------
Net increase
$ 2,591 13,413 16,004
======= ======= =======
Year ended December 31, 1997:
Deferred costs $ 8,600 28,734 37,334
Amortization (5,581) (16,513) (22,094)
------- ------- -------
Net increase
$ 3,019 12,221 15,240
======= ======= =======
</TABLE>
58 (Continued)
<PAGE> 88
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(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
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST
1999 1998 ASSUMPTIONS
------- ------- --------------
<S> <C> <C> <C>
Life and annuity reserves:
Issued prior to 1970 $ 3,195 3,218 4.75%
Issued 1970 through 1980 27,874 28,458 6.75% to 5.25%
Issued after 1982 (indeterminate
premium products) 587 593 10.00% to 8.50%
Issued through 1987 (SGLI acquisition) 1,296 1,336 11.00%
Issued 1981 - 1994 (all other) 29,560 28,875 8.50% to 7.00%
Issued after 1994 (all other) 5,487 4,195 7.00%
Life contingent annuities 33,250 32,825 Various *
Group term life waiver of premium
disabled lives 5,803 5,287 6.00%
Reserves acquired through assumption
reinsurance agreement (see note 12) 20,673 21,971 5.50% to 2.25%
All other life reserves 5,463 4,736 Various
-------- -------
$133,188 131,494
======== =======
</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 the assumed interest rates, i.e., the actual interest rates
required to support the reserves are somewhat lower than the rates
assumed.
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 provision for benefits pertaining to prior years increased by
approximately $2,000,000 in 1999 due to higher than anticipated loss
experience, primarily related to cancer and group disability business.
The provision for benefits pertaining to prior years did not change
significantly in 1998.
59 (Continued)
<PAGE> 89
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(8) NOTES PAYABLE
Notes payable as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
6.20% line of credit, due in 2000, interest due monthly $ 15,000 --
6.01% line of credit, due in 2000, interest due monthly 20,000 --
6.21% line of credit, due in 2000, interest due monthly 40,000 --
5.88% line of credit, due in 2000, interest due monthly 10,000 --
6.84% line of credit, due in 2000, interest due monthly 4,000 4,000
5.81% line of credit, due in 2002, interest due monthly 10,000 10,000
5.78% line of credit, due in 2002, interest due monthly 3,000 3,000
5.80% line of credit, due in 2004, interest due monthly 5,000 --
5.05% line of credit, due in 2005, interest due monthly 4,286 5,000
5.55% line of credit, due in 2008, interest due monthly 6,500 6,500
5.03% line of credit, due in 2008, interest due monthly 5,000 5,000
5.60% line of credit, due in 2009, interest due monthly 5,000 --
5.87% line of credit, due in 2014, interest due monthly 15,000 --
7.50% construction loan due in 2010, interest due monthly,
principal payments due monthly beginning in 2001 3,607 --
Various notes payable, paid in 1999 -- 24,358
-------- ------
$146,393 57,858
======== ======
</TABLE>
AFA has a $142,786,000 and $55,000,000 line of credit with the Federal
Home Loan Bank of Topeka at December 31, 1999 and 1998, respectively. The
line of credit is secured by investment securities pledged as collateral
by AFA with a carrying value of approximately $157,562,000 and
$71,230,000 at December 31, 1999 and 1998, respectively. The collateral
required for this line of credit at December 31, 1999 and 1998, was
$148,323,000 and $63,250,000, respectively. The pledged securities are
held in the Company's name in a custodial account at InvesTrust, N.A., to
secure current and future borrowings. To participate in this available
credit, AFA has acquired 248,791 shares of Federal Home Loan Bank of
Topeka common stock with a total carrying value of approximately
$24,879,000 at December 31, 1999.
The Company has unused lines of credit of approximately $25,452,000
available at December 31, 1999.
The Company has an unused line of credit of approximately $100,000,000
pertaining to possible Year 2000 issues. Since the Company has not
experienced significant difficulties to-date relating to Year
60 (Continued)
<PAGE> 90
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
2000 issues, management does not anticipate drawing on the line of credit
prior to its expiration in April 2000.
Interest expense for the years ended December 31, 1999, 1998, and 1997,
totaled approximately $4,730,000, $3,336,000, and $2,076,000,
respectively.
Scheduled maturities (excluding interest) of the above indebtedness at
December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 89,000
2001 30
2002 13,036
2003 38
2004 5,041
Thereafter 39,248
--------
$146,393
========
</TABLE>
(9) INCOME TAXES
Total income tax expense in the accompanying consolidated statements of
income differs from the federal statutory rate of 35% of income before
income taxes principally due to payments made to AFC in 1999 and 1998
treated as management fees for tax purposes, and the correction of prior
year estimates of deferred taxes in 1998.
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>
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Fixed maturities $ 9,539 --
Other investments 284 450
Life and health reserves 16,800 17,906
Other liabilities 888 --
-------- -------
Total gross deferred tax assets 27,511 18,356
-------- -------
Deferred tax liabilities:
Fixed maturities -- (10,795)
Equity securities (775) (715)
Deferred policy acquisition costs (69,245) (62,378)
Other assets (6,611) (6,803)
Other liabilities -- (820)
-------- -------
Total gross deferred tax liabilities (76,631) (81,511)
-------- -------
Net deferred tax liability $(49,120) (63,155)
======== =======
</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.
61 (Continued)
<PAGE> 91
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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, 1999 and 1998, other
accounts payable includes income taxes payable to AFC and other members
of the consolidated group of approximately $1,862,000 and $687,000,
respectively.
Under the provision of the Life Insurance Company Tax Act of 1959,
certain special deductions were allowed to life insurance companies for
federal income tax purposes. These special deductions were repealed by
the Tax Reform Act of 1984, and the untaxed balances were frozen at their
December 31, 1993 levels. These balances, referred to as the
"policyholders surplus account" (PSA), were approximately $8,161,000 for
AFA and are subject to taxation if certain levels of premium income or
life insurance reserves are not maintained, or if the life insurance
company makes excess distributions to shareholders. In addition, on
February 7, 2000, the Clinton administration released its Fiscal 2001
Budget that included a revenue raising provision that would require life
insurance companies to include the balance of these special deductions in
income over a five year period. At this time it is uncertain whether this
provision will be included in any legislation proposed by Congress, and
if included, whether such provision would be enacted into law. As it is
not currently considered likely that a tax would become due on any such
balance, no deferred income taxes have been provided. However, if such
tax were to become payable, it would amount to approximately $2,856,350.
(10) OTHER COMPREHENSIVE INCOME (LOSS)
The change in the components of other comprehensive income (loss) are
reported net of income taxes for the periods indicated, as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain (loss) on investments:
Unrealized holding gain (loss) arising
during the period $ (60,004) 21,002 (39,002)
Plus: reclassification adjustment for losses
included in net income 1,690 (592) 1,098
---------- ---------- ----------
Other comprehensive loss $ (58,314) 20,410 (37,904)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 10,387 (3,635) 6,752
Less: reclassification adjustment for gains
included in net income (534) 186 (348)
---------- ---------- ----------
Other comprehensive income $ 9,853 (3,449) 6,404
========== ========== ==========
</TABLE>
62 (Continued)
<PAGE> 92
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 11,408 (3,993) 7,415
Less: reclassification adjustment for gains
included in net income (449) 153 (296)
---------- ---------- ----------
Other comprehensive income $ 10,959 (3,840) 7,119
========== ========== ==========
</TABLE>
(11) 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,
1999 and 1998, reinsurance receivables with a carrying value of
approximately $15,302,000 and $13,597,000, respectively were associated
with two reinsurers.
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, 1999 and 1998, the face amounts of life
insurance in force that are reinsured amounted to approximately
$1,974,000,000 (approximately 22.8% of total life insurance in force) and
$846,000,000 (approximately 11.2% 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
$100,000 for individual cancer coverage to $250,000 for major medical
coverage.
The effects of reinsurance agreements on earned and written premiums,
prior to deductions for benefits and commission allowances, were
approximately $(148,231,000), $(114,225,000), and $(92,731,000) for life
and accident and health reinsurance ceded, and $795,000, $14,220,000, and
$416,000, for life and accident and health reinsurance assumed, for the
years ended December 31, 1999, 1998 and 1997, respectively.
Reinsurance agreements reduced benefits paid for life and accident and
health policies by approximately $114,026,000, $88,999,000, and
$72,522,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
63 (Continued)
<PAGE> 93
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(12) ACQUIRED BUSINESS
Effective July 1, 1998, the Company entered into an assumption
reinsurance agreement with American Standard Life and Accident Insurance
Company (ASL) of Enid, Oklahoma, the National Organization of Life and
Health Guaranty Associations (NOLHGA) and the guaranty associations in
the states where ASL originally conducted its business. Under this
agreement, the Company has assumed the majority of ASL's policies
inforce, with the exception of those policies issued in states where a
guaranty association does not exist. Effective July 1, 1998, the Company
assumed approximately $24 million in life, annuity and health reserves
under this agreement, of which approximately $5 million were subsequently
ceded to a third-party reinsurer. ASL is an Oklahoma-domiciled company in
receivership under the oversight of the Oklahoma Insurance Department and
NOLHGA.
The Company recorded an asset for the value of the business acquired
based on the present value of the estimated future profits on the
business (PVP), at a 6.75% discount rate. The PVP was estimated to be
$4,313,000 at July 1, 1998. Approximately $578,000 and $311,000 of
amortization was recorded in 1999 and 1998, respectively, and is included
in operating expenses in the accompanying consolidated statement of
income. The December 31, 1999 and 1998 balance of the PVP asset
approximates $3,424,000 and $4,002,000, respectively, and is included in
other assets in the accompanying consolidated balance sheet.
An estimate of the amortization of the PVP for the next five years is as
follows:
2000 $ 504,000
2001 437,000
2002 379,000
2003 328,000
2004 284,000
(13) 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.
64 (Continued)
<PAGE> 94
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Plan's funded status as of December 31, is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 14,446 16,182
Nonvested benefits 1,957 1,947
------------ ------------
Total accumulated benefit obligation $ 16,403 18,129
============ ============
Change in benefit obligation:
Benefit obligation at beginning of period $ 22,257 19,466
Service cost 2,091 1,662
Interest cost 1,394 1,391
Actuarial loss (2,959) 1,342
Benefits paid (2,642) (1,604)
------------ ------------
Benefit obligation at end of period $ 20,141 22,257
============ ============
Change in plan assets:
Fair value of plan assets at beginning of period $ 24,205 21,839
Actual return on plan assets 2,806 3,970
Benefits paid (2,642) (1,604)
------------ ------------
Fair value of plan assets at end of period
$ 24,369 24,205
============ ============
Funded status at end of year (Plan assets in
excess of projected benefit obligation): $ 4,228 1,948
Unrecognized transition asset (23) (161)
Unrecognized net actuarial (gain) loss (4,051) (461)
Unrecognized prior service cost due to plan
amendment 320 385
------------ ------------
Prepaid benefit cost
$ 474 1,711
============ ============
============ ============
</TABLE>
In determining the projected benefit obligation, the weighted average
assumed discount rates used were 7.75% and 6.75% in 1999 and 1998,
respectively. The rate of increase in future salary levels was 5.0% in
1999 and 1998. The expected long-term rate of return on assets used in
determining net periodic pension cost was 9.5% in 1999 and 1998. Plan
assets are invested in fixed maturities, equity securities and in
short-term investments.
65 (Continued)
<PAGE> 95
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net periodic pension cost for the years ended December 31, included the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service costs - benefits earned
during period $ 2,091 1,662 1,284
Interest costs 1,394 1,391 1,193
Expected return on plan asset (2,175) (1,962) (4,065)
Net amortization and deferral (73) (73) 2,332
---------- ---------- ----------
Net periodic pension cost $ 1,237 1,018 744
========== ========== ==========
</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 $1,150,000, $1,023,000, and $881,000 to this
plan during the years ended December 31, 1999, 1998, and 1997,
respectively.
(14) COMMITMENTS AND CONTINGENCIES
Rent expense for office space and equipment for the years ended December
31, 1999, 1998, and 1997, was approximately $8,404,000, $8,573,000, and
$6,163,000, 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, 1999, under noncancellable
long-term leases for office space are as follows (in thousands):
2000 $ 1,796
2001 1,327
2002 893
2003 271
2004 240
Thereafter 37
The Company has pledged approximately $16,455,000 of its treasury notes
as collateral on lines of credit held by affiliated companies.
The Company has outstanding mortgage loan commitments of approximately
$14,800,000 and $10,595,000 at December 31, 1999 and 1998, 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.
Like other financial and business organizations and individuals around
the world, the Company could be adversely affected if the computer
systems used by the Company and the Company's other service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Company has had a
66 (Continued)
<PAGE> 96
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
formal project team (including 22 information systems professionals)
working to correct the problem since 1996. In the briefest terms, the
correction is to change all date related fields in the Company's computer
systems to four digits instead of two digits. At the same time, all
relationships with systems outside the Company must be checked for the
same change and all must be tested to determine that relationships
continue to be compatible.
Conversion efforts were complete at December 31, 1999. The Company has
not experienced any significant difficulties to-date relating to Year
2000 issues, and management does not expect Year 2000 issues to have a
significant impact on the Company's operations subsequent to December 31,
1999.
(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, 1999, 1998, and 1997, rentals paid under these
leases were approximately $3,995,000, $3,989,000, and $3,577,000,
respectively.
During the years ended December 31, 1999 and 1998, the Company paid
investment advisory fees to a partnership that owns a controlling
interest in AFC totaling approximately $3,427,000 and $3,190,000,
respectively.
During the years ended December 31, 1999, 1998, and 1997, the Company and
its subsidiaries paid management fees and investment advisory fees to AFC
totaling approximately $4,588,000, $4,523,000, and $2,848,000,
respectively.
The Company and its subsidiaries lease office space from a subsidiary of
AFC. The rent payments associated with the lease will be approximately
$2,200,000 per year for the next 12 years.
During 1999 and 1998, the Company paid cash dividends to AFC of
approximately $7,500,000 and $12,706,000, respectively.
During 1997, the Company paid a dividend of approximately $33,834,000 to
AFC. This dividend was in the form of cash payments of approximately
$8,800,000, common stock in affiliated companies (including SGLI) of
approximately $16,588,000 (including deferred tax liabilities assumed by
AFC of $683,000), and common stock in non-affiliated companies of
approximately $8,446,000 (including a deferred tax liability retained by
the Company of $1,961,000). This transaction was approved by the Oklahoma
Insurance Department.
During 1999, 1998, and 1997, the Company entered into a three-year
software lease agreement with AFC. Lease expense related to this
agreement was approximately $2,072,000, $1,344,000 and $616,000 for the
years ended December 31, 1999, 1998, and 1997, respectively, and is
included in selling costs and other operating, administrative and general
expenses.
67 (Continued)
<PAGE> 97
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
AFC and several of its subsidiaries rented office space in the home
office building from the Company until the home office building was sold
in 1997. During the years ended December 31, 1998, and 1997, the Company
received rental income from AFC and several of its subsidiaries of
approximately $299,000, and $1,280,000, respectively.
An officer of AFC serves on the board of directors of a financial
institution in which the Company maintains cash balance and through which
the Company has unused lines of credit of $100,000,000.
68
<PAGE> 98
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
Schedule III - Business Segment Information
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
The Company's reportable segments are its strategic business units. The
components of operations for the years ended December 31, 1999, 1998, and
1997 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>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
TOTAL REVENUES:
American Fidelity Education Services Division $ 189,136 158,707 152,021
Association Worksite Division 113,681 113,519 105,784
Strategic Alliance Division 26,485 45,987 32,290
Non insurance operations 874 745 (504)
----------- ----------- -----------
$ 330,176 318,958 289,591
=========== =========== ===========
PRETAX EARNINGS:
American Fidelity Education Services Division $ 26,077 16,407 24,621
Association Worksite Division 8,750 6,242 10,683
Strategic Alliance Division (836) 10,727 (2,344)
Non insurance operations 38 80 (2,340)
----------- ----------- -----------
$ 34,029 33,456 30,620
=========== =========== ===========
TOTAL ASSETS:
American Fidelity Education Services Division $ 1,273,329 1,156,565 1,029,976
Association Worksite Division 243,206 201,115 192,507
Strategic Alliance Division 241,953 274,732 274,818
Non insurance operations 3,356 2,536 2,135
----------- ----------- -----------
$ 1,761,844 1,634,948 1,499,436
=========== =========== ===========
</TABLE>
69
<PAGE> 99
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED ASSUMED OF AMOUNT
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Life insurance in force $ 8,666,056 1,973,599 10 6,692,467 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 32,295 2,991 (18) 29,286 (0.06)%
Accident and health insurance 359,728 145,240 813 215,301 0.38%
------------- ------------- ------------- ------------- -------------
Total premiums $ 392,023 148,231 795 244,587 0.33%
============= ============= ============= ============= =============
Year ended December 31, 1998
Life insurance in force $ 7,565,337 846,113 10 6,719,234 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 18,034 3,154 12,021 26,901 44.69%
Accident and health insurance 315,693 111,071 2,199 206,821 1.06%
------------- ------------- ------------- ------------- -------------
Total premiums $ 333,727 114,225 14,220 233,722 6.08%
============= ============= ============= ============= =============
Year ended December 31, 1997
Life insurance in force $ 6,872,047 306,917 10 6,565,140 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 26,756 1,474 -- 25,282 --
Accident and health insurance 272,785 91,257 416 181,944 --
------------- ------------- ------------- ------------- -------------
Total premiums $ 299,541 92,731 416 207,226 --
============= ============= ============= ============= =============
</TABLE>
70
<PAGE> 100
PART C
OTHER INFORMATION
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The following financial statements are included in Part B
hereof:
American Fidelity Separate Account B
Independent Auditors' Report
Statements of Assets and Liabilities as of December 31, 1999
Statements of Operations for the Year Ended December 31, 1999
Statements of Changes in Net Assets for the Years Ended
December 31, 1999 and 1998
Financial Highlights
Notes to Financial Statements
American Fidelity Assurance Company
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Schedule III - Business Segment Information
Schedule IV - Reinsurance
B. EXHIBITS
1. Resolution adopted by the Board of the Company authorizing the
establishment of the Separate Account. Incorporated herein by reference
to Exhibit 99.B1 to the Registrant's registration statement on Form N-4
filed on April 23, 1997 (No. 333-25663).
<PAGE> 101
3 Principal Underwriters Agreement dated July 14, 1997 between the
Company and American Fidelity Securities, Inc. Incorporated herein by
reference to Exhibit 99B.3 to Pre-Effective Amendment No. 1 to
Registrant's registration statement on Form N-4 filed on October 10,
1997 (No. 333-25663).
4.1 Individual Variable and Fixed Deferred Annuity. Incorporated herein by
reference to Exhibit 99.B4(i) to Registrant's registration statement on
Form N-4 filed on April 23, 1997 (No. 333-25663).
4.2 Loan Rider. Incorporated herein by reference to Exhibit 99.B4(ii) to
Registrant's registration statement on Form N-4 filed on April 23, 1997
(No. 333-25663).
4.3 403(b) Annuity Rider. Incorporated herein by reference to Exhibit
99B.4(iii) to Registrant's registration statement on Form N-4 filed on
April 23, 1997 (No. 333-25663).
4.4 Individual Retirement Annuity Rider. Incorporated herein by reference
to Exhibit 99.B4(iv) to Registrant's registration statement on Form N-4
filed on April 23, 1997 (No. 333-25663).
5 Application Form. Incorporated herein by reference to Exhibit 99.B5 to
Registrant's registration statement on Form N-4 filed on April 23, 1997
(No. 333-25663).
6.1 Articles of Incorporation of the Company. Incorporated herein by
reference to Exhibit 99.B6(i) to Pre-Effective Amendment No. 1 to
Registrant's registration statement on Form N-4 filed on October 10,
1997 (No. 333-25663).
6.2 Amended and Restated Bylaws of the Company. Incorporated herein by
reference to Exhibit 99.B6(ii) to Post-Effective Amendment No. 1 to
Registrant's registration statement on Form N-4 filed on April 24, 1998
(No. 333-25663).
8.1 Fund Participation Agreement dated April 18, 1997 between the Company
and Merrill Lynch Variable Series Funds, Inc., as amended by Exhibit 4
thereto dated January 20, 1999. Incorporated herein by reference to
Exhibit 8.1 to Post-Effective Amendment No. 2 to Registrant's
registration statement on Form N-4 on April 30, 1999 (No. 333-25663).
8.2 Fund Participation Agreement dated May 13, 1997 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.), as amended by Amendment thereto
effective January 1, 1999. Incorporated herein by reference to Exhibit
8.2 to Post-Effective Amendment No. 2 to Registrant's registration
Statement on Form N-4 on April 30, 1999 (No. 333-25663).
9* Opinion and Consent of Counsel.
10* Consent of Independent Auditors.
13* Calculation of Performance Information.
99* Company Organizational Chart.
- - - - -------------
* Filed herewith
C-2
<PAGE> 102
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Depositor
- - - - ------------------ ---------------------
<S> <C>
Lynda L. Cameron Director
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William M. Cameron Chairman of the Board and Chief
2000 N. Classen Boulevard Executive Officer, Director
Oklahoma City, OK 73106
David R. Carpenter Senior Vice President, Treasurer
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William E. Durrett Senior Chairman of the Board, Director
2000 N. Classen Boulevard
Oklahoma City, OK 73106
Stephen P. Garrett Senior Vice President, Secretary
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William A. Hagstrom Director
204 N. Robinson, Suite 1300
Oklahoma City, OK 73102
Charles R. Eitel Director
One Concourse Parkway
Atlanta, GA 30328
Kenneth D. Klehm Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, OK 73106
Alfred L. Litchenburg Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, OK 73106
David R. Lopez Director
1616 Guadalupe
Room 630
Austin, TX 78701
Paula Marshall-Chapman Director
2745 East 11th Street
Tulsa, OK 74104
</TABLE>
C-3
<PAGE> 103
<TABLE>
<S> <C>
John W. Rex President, Chief Operating Officer,
2000 N. Classen Boulevard Director
Oklahoma City, OK 73106
Galen P. Robbins, M.D. Director
11901 Quail Creek Road
Oklahoma City, OK 73120
John D. Smith Director
P. O. Box 18832
Atlanta, GA
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The Company organizational chart is included as Exhibit 99.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 5, 2000, there were 281 non-qualified contract owners and 7,573
qualified contract owners.
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, 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 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
C-4
<PAGE> 104
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 persons 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) American Fidelity Securities, Inc. is the principal
underwriter for the following investment companies (other than Registrant):
American Fidelity Dual Strategy Fund, Inc.
(b) 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 Boulevard, Oklahoma City, Oklahoma
73106.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Underwriter
- - - - ------------------ ---------------------
<S> <C>
David R. Carpenter Director, Chairman, President, Chief Executive
P. O. Box 25523 Officer, Treasurer, Chief Financial Officer
Oklahoma City, OK 73125
Marvin R. Ewy Director, Vice President, Secretary, Chief
P. O. Box 25523 Operations Officer
Oklahoma City, OK 73125
Nancy K. Steeber Director, Vice President, Operations Officer
P. O. Box 25523
Oklahoma City, OK 73125
</TABLE>
(c) The net underwriting discounts and commissions received by
American Fidelity Securities, Inc. in 1999 were $88,294, representing .25%
Administrative and Distribution Fees, withdrawal charges and policy maintenance
charge to the Registrant. It received no other compensation from or on behalf of
the Registrant during the year.
C-5
<PAGE> 105
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
David R. Carpenter, Senior Vice President and Treasurer, whose address is 2000
N. Classen Boulevard, Oklahoma City, Oklahoma 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 payments 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 statements required to be made
available under this Form promptly upon written or oral request.
d. The 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 expected 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.
C-6
<PAGE> 106
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, 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 28th day of
April, 2000.
AMERICAN FIDELITY SEPARATE ACCOUNT B
(Registrant)
By: American Fidelity Assurance Company
(Depositor)
By /s/ John W. Rex
----------------------------------------
John W. Rex, President
AMERICAN FIDELITY ASSURANCE COMPANY
(Depositor)
By /s/ John W. Rex
----------------------------------------
John W. Rex, President
Each of the undersigned officers and directors of American Fidelity Assurance
Company (the "Company"), hereby severally constitute and appoint John W. Rex,
his true and lawful attorney-in-fact with full power to him to sign for him, and
in his name as officer or director, or both, of the Company, a Registration
Statement (and any and all amendments thereto, including post-effective
amendments) on Form N-4 to be filed with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and to perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, may lawfully do or cause to be done by virtue
hereof.
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on April 28,
2000.
<TABLE>
<CAPTION>
Signature Title
- - - - --------- -----
<S> <C>
/s/ William M. Cameron Chairman, Chief Executive Officer and Director
- - - - --------------------------- (Principal Executive Officer)
William M. Cameron
/s/ William E. Durrett Senior Chairman and Director
- - - - ---------------------------
William E. Durrett
/s/ Lynda L. Cameron Director
- - - - ---------------------------
Lynda L. Cameron
/s/ John W. Rex Director, President and Chief Operating Officer
- - - - ---------------------------
John W. Rex
/s/ Charles R. Eitel Director
- - - - ---------------------------
Charles R. Eitel
/s/ Galen P. Robbins Director
- - - - ---------------------------
Galen P. Robbins, M.D.
</TABLE>
C-7
<PAGE> 107
<TABLE>
<S> <C>
/s/ John D. Smith Director
- - - - ---------------------------
John D. Smith
/s/ William A. Hagstrom Director
- - - - ---------------------------
William A. Hagstrom
/s/ David R. Lopez Director
- - - - ---------------------------
David R. Lopez
/s/ Paula Marshall-Chapman Director
- - - - ---------------------------
Paula Marshall-Chapman
/s/ David R. Carpenter Senior Vice President, Controller and Treasurer
- - - - --------------------------- (Principal Financial and Accounting Officer)
David R. Carpenter
</TABLE>
C-8
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - - - ------- -----------
<S> <C>
9* Opinion and Consent of Counsel.
10* Consent of Independent Auditors.
13* Calculation of Performance Information.
99* Company Organizational Chart.
</TABLE>
* Filed herewith
<PAGE> 1
EXHIBIT 9
April 28, 2000
American Fidelity Assurance Company
2000 North Classen Boulevard
Oklahoma City, Oklahoma 73106
Re: American Fidelity Separate Account B -
Post Effective Amendment No. 4 and 5
to Form N-4 Registration Statement
(Nos. 333-25663 and 811-08178)
Ladies and Gentlemen:
You have requested our opinion in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 4
and 5 to the above-referenced Registration Statement on Form N-4 for the AFPr1me
Growth Variable Annuity contract (the "Contract") to be issued by American
Fidelity Assurance Company ("AFA") and its separate account, American Fidelity
Separate Account A.
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.
Based on the foregoing, we are of the opinion that:
(1) American Fidelity Separate Account B is a separate account
as the term is defined in Section 2(a)(37) 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) The Contracts and the interests therein will be legally
issued when issued in accordance with the Prospectus contained in the
Registration Statement and in compliance with applicable state insurance law and
will represent binding obligations of AFA, provided that the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally.
You may use this opinion letter as an exhibit to the
Registration Statement. We consent to the reference to our firm under the
caption "Legal Matters" contained in the Statement of Additional Information
which forms a part of the Registration Statement.
Very truly yours,
/s/ McAfee & Taft A Professional Corporation
<PAGE> 1
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Fidelity Assurance Company:
We consent to the use of our reports included herein and the reference to our
firm under the heading "Financial Statements" in the Statement of Additional
Information.
/s/ KPMG LLP
Oklahoma City, Oklahoma
April 21, 2000
<PAGE> 1
EXHIBIT 13
AMERICAN FIDELITY SEPARATE ACCOUNT B
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-98 8.47842840
------------------
EQUALS ORIGINAL UNITS PURCHASED 117.94638730
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.03186120)
------------------
EQUALS UNITS HELD ON 31-Dec-99 114.91452610
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT(ERV) $ 1,137.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT(P) 1.1371
SUBTRACT 1.0 0.1371
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD(T) 13.71%
==================
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 3.21545937
------------------
EQUALS ORIGINAL UNITS PURCHASED 310.99755390
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (23.53852690)
------------------
EQUALS UNITS HELD ON 31-Dec-99 287.45902700
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT(ERV) $ 2,844.38
DIVIDED BY ORIGINAL $1,000 INVESTMENT(P) 2.8444
SUBTRACT 1.0 1.8444
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD(T) 184.44%
==================
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 2.35754944
------------------
EQUALS ORIGINAL UNITS PURCHASED 424.16925880
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (72.27609790)
------------------
EQUALS UNITS HELD ON 31-Dec-99 351.89316090
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT(ERV) $ 3,481.95
DIVIDED BY ORIGINAL $1,000 INVESTMENT(P) 3.4820
SUBTRACT 1.0 2.4820
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD(T) 248.20%
==================
</TABLE>
Page 1
<PAGE> 2
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR
COMPOUND AVERAGE COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000 (1 + T)**1 = $1,137.07 $1,000 (1 + T)**5 = $2,844.38 $1,000 (1 + T)**10 = $3,481.95
T = 13.71% T = 23.25% T = 13.29%
========= ========= =========
</TABLE>
Page 2
<PAGE> 3
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
CUMULATIVE 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:
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE 31-Dec-98 8.47842840
--------------------
EQUALS ORIGINAL UNITS PURCHASED 117.94638730
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.03186120)
--------------------
EQUALS UNITS HELD ON 31-Dec-99 114.91452610
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,137.07
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,057.07
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0571
SUBTRACT 1.0 0.0571
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.71%
====================
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE 31-Dec-94 3.21545937
--------------------
EQUALS ORIGINAL UNITS PURCHASED 310.99755390
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (23.53852690)
--------------------
EQUALS UNITS HELD ON 31-Dec-99 287.45902700
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,844.38
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (80.00)
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,764.38
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.7644
SUBTRACT 1.0 1.7644
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 176.44%
====================
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE 31-Dec-89 2.35754944
--------------------
EQUALS ORIGINAL UNITS PURCHASED 424.16925880
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 0.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (72.27609790)
--------------------
EQUALS UNITS HELD ON 31-Dec-99 351.89316090
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.89491193
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 3,481.95
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES) 0.00
--------------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 3,481.95
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 3.4820
SUBTRACT 1.0 2.4820
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 248.20%
====================
</TABLE>
Page 1
<PAGE> 4
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)**1 = $1,057.07 $1,000 (1 + T)**5 = $2,764.38 $1,000 (1 + T)**10 = $3,481.95
T = 5.71% T = 22.55% T = 13.29%
============== ============== ===============
</TABLE>
Page 2
<PAGE> 5
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
SEPARATE ACCOUNT B
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGES:
CUMULATIVE 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
<TABLE>
<CAPTION>
SINCE ADDITION TO SEPARATE ACCOUNT:
<S> <C> <C>
INITIAL INVESTMENT ON 01-May-99 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.0000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.77085070)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 97.2291493
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.82700000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,052.70
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0527
SUBTRACT 1.0 0.0527
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.27%
============
</TABLE>
Page 1
<PAGE> 6
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.
SEPARATE ACCOUNT B
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGES:
CUMULATIVE 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
<TABLE>
<CAPTION>
SINCE ADDITION TO SEPARATE ACCOUNT:
<S> <C> <C>
INITIAL INVESTMENT ON 01-May-99 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
-------------
EQUALS ORIGINAL UNITS PURCHASED 100.0000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.77085070)
-------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 97.2291493
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.82700000
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,052.70
LESS WITHDRAWAL CHARGE@ 8.00% (8% MAX ON PURCHASES) (80.00)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 972.70
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9727
SUBTRACT 1.0 (0.0273)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (2.73)%
=============
</TABLE>
Page 2
<PAGE> 7
EXHIBIT 13
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEAR:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 12.98760689
---------------
EQUALS ORIGINAL UNITS PURCHASED 76.99647890
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 14.34052670
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (6.52702690)
---------------
EQUALS UNITS HELD ON 31-Dec-99 84.80997870
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 35.58278549
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 3,017.78
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 3.0178
SUBTRACT 1.0 2.0178
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 201.78%
===============
SINCE INCEPTION:
INITIAL INVESTMENT ON 07-Oct-93 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 07-Oct-93 12.50000000
---------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 16.77831380
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (11.08691360)
---------------
EQUALS UNITS HELD ON 31-Dec-99 85.69140020
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 35.58278549
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 3,049.14
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 3.0491
SUBTRACT 1.0 2.0491
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 204.91%
===============
</TABLE>
Page 1
<PAGE> 8
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
THUS:
FIVE YEAR SINCE INCEPTION
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**5= $3,017.78 $1,000 (1 + T)** 6.2356 = $3,049.14
T = 24.72% T = 19.58%
========= =========
</TABLE>
Page 2
<PAGE> 9
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEAR:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 12.98760689
---------------
EQUALS ORIGINAL UNITS PURCHASED 76.99647890
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 14.34052670
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (6.52702690)
---------------
EQUALS UNITS HELD ON 31-Dec-99 84.80997870
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 35.58278549
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 3,017.78
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (80.00)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,937.78
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.9378
SUBTRACT 1.0 1.9378
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 193.78%
===============
SINCE INCEPTION:
INITIAL INVESTMENT ON 07-Oct-93 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 07-Oct-93 12.50000000
---------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 16.77831380
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (11.08691360)
---------------
EQUALS UNITS HELD ON 31-Dec-99 85.69140020
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 35.58278549
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 3,049.14
LESS WITHDRAWAL CHARGE @ 2.00% ON 90% (8% MAX ON PURCHASES) (54.88)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,994.26
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.9943
SUBTRACT 1.0 1.9943
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 199.43%
================
</TABLE>
Page 1
<PAGE> 10
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
SINCE INCEPTION
FIVE YEAR AVERAGE AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $2,937.78 $1,000 (1 + T)** 6.2356 = $2,994.26
T = 24.05% T = 19.23%
========= =========
</TABLE>
Page 2
<PAGE> 11
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 13.22000000
------------
EQUALS ORIGINAL UNITS PURCHASED 75.6429652
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (1.77147920)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 73.8714860
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 16.93500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,251.01
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2510
SUBTRACT 1.0 0.2510
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 25.10%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.04076820)
------------
EQUALS UNITS HELD ON 31-Dec-99 92.95923180
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 16.93500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,574.26
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.5743
SUBTRACT 1.0 0.5743
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 57.43%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,251.01 $1,000 (1 + T)** 2.1781 = $1,574.26
T = 25.10% T = 23.16%
========== =========
</TABLE>
Page 1
<PAGE> 12
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 13.22000000
------------
EQUALS ORIGINAL UNITS PURCHASED 75.6429652
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (1.77147920)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 73.8714860
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 16.93500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,251.01
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,171.01
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1710
SUBTRACT 1.0 0.1710
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 17.10%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.04076820)
------------
EQUALS UNITS HELD ON 31-Dec-99 92.95923180
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 16.93500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,574.26
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1000 INVESTMENT (ERV) $1,494.26
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.4943
SUBTRACT 1.0 0.4943
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 49.43%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)** 1 = $1,171.01 $1,000 (1 + T)** 2.1781 = $1,494.26
T = 17.10% T = 20.25%
========== =========
</TABLE>
Page 2
<PAGE> 13
EXHIBIT 13
DREYFUS STOCK INDEX FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.95866801
------------
EQUALS ORIGINAL UNITS PURCHASED 83.62135310
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 12.89692880
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (6.85394120)
------------
EQUALS UNITS HELD ON 31-Dec-99 89.66434070
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 32.96647001
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,955.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.9559
SUBTRACT 1.0 1.9559
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 195.59%
============
</TABLE>
<TABLE>
<S> <C> <C>
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 12.60174806
------------
EQUALS ORIGINAL UNITS PURCHASED 79.35407020
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 48.63576500
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (18.51343140)
------------
EQUALS UNITS HELD ON: 31-Dec-99 109.47645380
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 32.96647001
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 3,609.05
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 3.6091
SUBTRACT 1.0 2.6091
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 260.91%
============
</TABLE>
Page 1
<PAGE> 14
DREYFUS STOCK INDEX FUND
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000 (1 + T)**5 = $2,955.92 $1,000 (1 + T)**10 = $3,609.05
T = 24.20% T = 13.69%
========= =========
</TABLE>
Page 2
<PAGE> 15
DREYFUS STOCK INDEX FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.95866801
------------
EQUALS ORIGINAL UNITS PURCHASED 83.62135310
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 12.89692880
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (6.85394120)
------------
EQUALS UNITS HELD ON 31-Dec-99 89.66434070
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 32.96647001
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,955.92
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,875.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.8759
SUBTRACT 1.0 1.8759
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 187.59%
============
</TABLE>
<TABLE>
<S> <C> <C>
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 12.60174806
-------------
EQUALS ORIGINAL UNITS PURCHASED 79.35407020
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 48.63576500
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (18.51343140)
-------------
EQUALS UNITS HELD ON 31-Dec-99 109.476403800
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 32.96647001
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 3,609.05
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES) 0.00
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 3,609.05
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 3.6091
SUBTRACT 1.0 2.6091
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 260.91%
=============
</TABLE>
Page 1
<PAGE> 16
DREYFUS STOCK INDEX FUND
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
TEN YEAR
FIVE YEAR AVERAGE AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $2,875.92 $1,000 (1 + T)**10 = $3,609.05
T = 23.53% T = 13.69%
========= =========
</TABLE>
Page 2
<PAGE> 17
DREYFUS STOCK INDEX FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 12.88000000
------------
EQUALS ORIGINAL UNITS PURCHASED 77.6397516
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (1.96039990)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 75.6793517
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 15.30300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) 1,158.12
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1581
SUBTRACT 1.0 0.1581
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 15.81%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.28959240)
------------
EQUALS UNITS HELD ON 31-Dec-99 92.71040760
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 15.30300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,418.75
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.4187
SUBTRACT 1.0 0.4187
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 41.87%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,158.12 $1,000 (1 + T)** 2.1781 = $1,418.75
T = 15.81% T = 17.42%
========== =========
</TABLE>
Page 1
<PAGE> 18
DREYFUS STOCK INDEX FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 12.88000000
------------
EQUALS ORIGINAL UNITS PURCHASED 77.6397516
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (1.96039990)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 75.6793517
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 15.30300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,158.12
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) 1,078.12
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0781
SUBTRACT 1.0 0.0781
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 7.81%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.28959240)
------------
EQUALS UNITS HELD ON 31-Dec-99 92.71040760
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 15.30300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,418.75
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (76.61)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,342.14
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3421
SUBTRACT 1.0 0.3421
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 34.21%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,078.12 $1,000 (1 + T)** 2.1781 = $1,342.14
T = 7.81% T = 14.47%
========== =========
</TABLE>
<PAGE> 19
EXHIBIT 13
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
CUMULATIVE 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
FIVE YEAR:
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.86093534
------------
EQUALS ORIGINAL UNITS PURCHASED 84.31038290
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 32.42826780
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.50421110)
------------
EQUALS UNITS HELD ON 31-Dec-99 109.23443960
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 23.40362327
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,556.48
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.5565
SUBTRACT 1.0 1.5565
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 155.65%
============
SINCE INCEPTION:
INITIAL INVESTMENT ON 02-May-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 02-May-94 12.50000000
------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 33.14983370
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (10.03352260)
------------
EQUALS UNITS HELD ON 31-Dec-99 103.11631110
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 23.40362327
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,413.30
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.4133
SUBTRACT 1.0 1.4133
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 141.33%
============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
FIVE YEAR SINCE INCEPTION
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000 (1 + T)**5 = $2,556.48 $1,000 (1 + T)** 5.6685 = $2,413.30
T = 20.65% T = 16.81%
========= =========
</TABLE>
Page 1
<PAGE> 20
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
CUMULATIVE 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
FIVE YEAR:
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.86093534
-------------
EQUALS ORIGINAL UNITS PURCHASED 84.31038290
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 32.42826780
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.50421110)
-------------
EQUALS UNITS HELD ON 31-Dec-99 109.23443960
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 23.40362327
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,556.48
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (80.00)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,476.48
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.4765
SUBTRACT 1.0 1.4765
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 147.65%
=============
SINCE INCEPTION:
INITIAL INVESTMENT ON 02-May-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 02-May-94 12.50000000
-------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 33.14983370
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (10.03352260)
-------------
EQUALS UNITS HELD ON 31-Dec-99 103.11631110
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 23.40362327
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,413.30
LESS WITHDRAWAL CHARGE @ 3.00% ON 90% (8% MAX ON PURCHASES) (65.16)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,348.14
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.3481
SUBTRACT 1.0 1.3481
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 134.81%
=============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
SINCE INCEPTION
FIVE YEAR AVERAGE AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)**5 = $2,476.48 $1,000 (1 + T)** 5.6685 = $2,348.14
T = 19.89% T = 16.25%
========= =========
</TABLE>
Page 1
<PAGE> 21
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 11.42000000
-----------
EQUALS ORIGINAL UNITS PURCHASED 87.5656743
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.28084850)
-----------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 85.2848258
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 13.15300000
-----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,121.75
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1218
SUBTRACT 1.0 0.1218
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 12.18%
===========
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
-----------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.90781870)
-----------
EQUALS UNITS HELD ON 31-Dec-99 92.09218130
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 13.15300000
-----------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,211.29
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2113
SUBTRACT 1.0 0.2113
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 21.13%
===========
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C>
$1,000 (1 + T)**1 = $1,121.75 $1,000 (1 + T)** 2.1781 = $1,211.29
T = 12.18% T = 9.20%
========= =========
</TABLE>
Page 1
<PAGE> 22
DREYFUS VARIABLE INVESTMENT FUND - GROWTH AND INCOME PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 11.42000000
------------
EQUALS ORIGINAL UNITS PURCHASED 87.5656743
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.28084850)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 85.2848258
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 13.15300000
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,121.75
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,041.75
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0418
SUBTRACT 1.0 0.0418
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 4.18%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY PEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.90781870)
------------
EQUALS UNITS HELD ON 31-Dec-99 92.09218130
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 13.15300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,211.29
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (65.41)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1000 INVESTMENT (ERV) $1,145.88
DIVIDED BY ORIGINAL $1000 INVESTMENT (P) 1.1459
SUBTRACT 1.0 0.1459
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 14.59%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,041.75 $1,000 (1 + T)** 2.1781 = $1,145.88
T = 4.18% T = 6.45%
========= =========
</TABLE>
Page 2
<PAGE> 23
EXHIBIT 13
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
CUMULATIVE 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
<TABLE>
<S> <C> <C>
SINCE INCEPTION:
INITIAL INVESTMENT ON 01-May-96 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50000000
------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.43017710
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.11504610)
------------
EQUALS UNITS HELD ON 31-Dec-99 74.31513100
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 15.79653058
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,173.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1739
SUBTRACT 1.0 0.1739
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 17.39%
============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
SINCE INCEPTION
COMPOUND AVERAGE
ANNUAL RETURN
<S> <C>
$1,000 (1 + T)** 3.67 = $1,173.92
T = 4.47%
=========
</TABLE>
Page 1
<PAGE> 24
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
CUMULATIVE 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
<TABLE>
<S> <C> <C>
SINCE INCEPTION:
INITIAL INVESTMENT ON 01-May-96 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50000000
------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 2.43017710
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.11504610)
------------
EQUALS UNITS HELD ON 31-Dec-99 74.31513100
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 15.79653058
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,173.92
LESS WITHDRAWAL CHARGE @ 5.00% ON 90% (8% MAX ON PURCHASES) (52.83)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,121.09
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1211
SUBTRACT 1.0 0.1211
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 12.11%
============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
SINCE INCEPTION
AVERAGE
ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)** 3.67 = $1,121.09
T = 3.16%
=========
</TABLE>
Page 1
<PAGE> 25
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.73000000
------------
EQUALS ORIGINAL UNITS PURCHASED 102.7749229
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.82885430)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 99.9460686
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.60500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) 1,059.93
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0599
SUBTRACT 1.0 0.0599
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.99%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $ 1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES 8.91210200
------------
EQUALS UNITS HELD ON 31-Dec-99 91.08789800
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.60500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 965.99
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9660
SUBTRACT 1.0 (0.0340)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (3.40)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,059.93 $1,000 (1 + T)** 2.1781 = $965.99
T = 5.99% T = (1.58)%
========== =========
</TABLE>
Page 1
<PAGE> 26
DREYFUS VARIABLE INVESTMENT FUND - SMALL COMPANY STOCK PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.73000000
------------
EQUALS ORIGINAL UNITS PURCHASED 102.7749229
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.82885430)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 99.9460686
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.60500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,059.93
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $979.93
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9799
SUBTRACT 1.0 (0.0201)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (2.01)%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.91210200)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.08789800
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.60500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $965.99
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (52.16)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $913.83
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9138
SUBTRACT 1.0 (0.0862)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (8.62)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $979.93 $1,000 (1 + T)** 2.1781 = $913.83
T = (2.01)% T = (4.05)%
========== =========
</TABLE>
Page 2
<PAGE> 27
EXHIBIT 13
DREYFUS VARIABLE INVESTMENT FUND - INTERNATIONAL VALUE PORTFOLIO
CUMULATIVE 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
<TABLE>
ONE YEAR:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-98 12.92227698
---------------
EQUALS ORIGINAL UNITS PURCHASED 77.38574260
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.51438340
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.02277470)
---------------
EQUALS UNITS HELD ON 31-Dec-99 82.87735130
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 14.83111315
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,229.11
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2292
SUBTRACT 1.0 0.2292
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 22.92%
===============
</TABLE>
<TABLE>
SINCE INCEPTION:
<S> <C> <C>
INITIAL INVESTMENT ON 01-May-96 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50000000
---------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 18.48600390
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.99872150)
---------------
EQUALS UNITS HELD ON 31-Dec-99 89.48728240
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 14.83111315
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,327.20
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3272
SUBTRACT 1.0 0.3272
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 32.72%
===============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - INTERNATIONAL VALUE PORTFOLIO
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
THUS:
ONE YEAR SINCE INCEPTION
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C> <C>
$1,000 (1 + T)**1 = $1,229.16 $1,000 (1 + T)** 3.67 = $1,327.20
T = 22.92% T = 8.02%
========= =========
</TABLE>
Page 1
<PAGE> 28
DREYFUS VARIABLE INVESTMENT FUND - INTERNATIONAL VALUE PORTFOLIO
CUMULATIVE TOTAL RETURN WITH WITHDRAWAL CHARGE:
T = [ERV / P] - 1
w here: T = total return
P = initial $1,000 investment
ERV = ending value of $1,000 investment
<TABLE>
ONE YEAR:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-98 12.92
---------------
EQUALS ORIGINAL UNITS PURCHASED 77.3857426
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 7.5143834
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.0227747)
---------------
EQUALS UNITS HELD ON 31-Dec-99 82.8773513
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 14.83111315
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,229.16
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,149.16
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1492
SUBTRACT 1.0 0.1492
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 14.92%
===============
</TABLE>
<TABLE>
SINCE INCEPTION:
<S> <C> <C>
INITIAL INVESTMENT ON 01-May-96 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-May-96 12.50000000
---------------
EQUALS ORIGINAL UNITS PURCHASED 80.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 18.4860039
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.9987215)
---------------
EQUALS UNITS HELD ON 31-Dec-99 89.4872824
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 14.83111315
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,327.20
LESS WITHDRAWAL CHARGE @ 5.00% ON 90% (8% MAX ON PURCHASES) (59.72)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,267.48
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2675
SUBTRACT 1.0 0.2675
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 26.75%
===============
</TABLE>
DREYFUS VARIABLE INVESTMENT FUND - INTERNATIONAL VALUE PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN:
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
<TABLE>
THUS:
SINCE INCEPTION
ONE YEAR AVERAGE AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,149.16 $1,000 (1 + T)** 3.67 = $1,267.48
T = 14.92% T = 6.67%
======= =========
</TABLE>
Page 1
<PAGE> 29
DREYFUS VARIABLE INVESTMENT FUND
INTERNATIONAL VALUE PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGES:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 01-May-99 $1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.51572330)
------------
EQUALS UNITS HELD AT END OF PERIOD 31-Dec-99 97.4842767
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 11.92500000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,162.50
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1625
SUBTRACT 1.0 0.1625
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 16.25%
============
</TABLE>
Page 1
<PAGE> 30
DREYFUS VARIABLE INVESTMENT FUND
INTERNATIONAL VALUE PORTFOLIO
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGES:
CUMULATIVE 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
<TABLE>
<CAPTION>
SINCE ADDITION TO SEPARATE ACCOUNT:
<S> <C> <C>
INITIAL INVESTMENT ON 01-May-99 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
-------------
EQUALS ORIGINAL UNITS PURCHASED 100.0000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.51572330)
-------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 97.4842767
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 11.92500000
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,162.50
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,082.50
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0825
SUBTRACT 1.0 0.0825
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 8.25%
=============
</TABLE>
Page 2
<PAGE> 31
EXHIBIT 13
MERRILL LYNCH PRIME BOND FUND
CUMULATIVE 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
<TABLE>
5 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 9.86168170
---------------
EQUALS ORIGINAL UNITS PURCHASED 101.40258330
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 38.66919140
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (14.81272840)
---------------
EQUALS UNITS HELD ON 31-Dec-99 125.25904630
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.16517190
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,148.02
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1480
SUBTRACT 1.0 0.1480
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 14.80%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 10.79272685
---------------
EQUALS ORIGINAL UNITS PURCHASED 92.65499020
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.68190290
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (28.75754880)
---------------
EQUALS UNITS HELD ON 31-Dec-99 148.57934430
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.16517190
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,361.76
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3618
SUBTRACT 1.0 0.3618
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 36.18%
===============
</TABLE>
Page 1
<PAGE> 32
MERRILL LYNCH PRIME BOND FUND
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
THUS:
FIVE YEAR TEN YEAR
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $1,148.02 $1,000 (1 + T)**10 = $1,361.76
T = 2.80% T = 3.14%
========= =========
</TABLE>
Page 2
<PAGE> 33
MERRILL LYNCH PRIME BOND FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 9.86168170
---------------
EQUALS ORIGINAL UNITS PURCHASED 101.40258330
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 38.66919140
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (14.81272840)
---------------
EQUALS UNITS HELD ON 31-Dec-99 125.25904630
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.16517190
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,148.02
LESS WITHDRAWAL CHARGE @ 4.00% 0N 90% (8% MAX ON PURCHASES) (41.33)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,106.69
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1067
SUBTRACT 1.0 0.1067
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 10.67%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 10.79272685
---------------
EQUALS ORIGINAL UNITS PURCHASED 92.65499020
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.68190290
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (28.75754880)
---------------
EQUALS UNITS HELD ON 31-Dec-99 148.57934430
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 9.16517190
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,361.76
LESS WITHDRAWAL CHARGE @ 0.00% 0N 90% (8% MAX ON PURCHASES) 0.00
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,361.76
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.3618
SUBTRACT 1.0 0.3618
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 36.18%
===============
</TABLE>
Page 1
<PAGE> 34
MERRILL LYNCH PRIME BOND FUND
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $1,106.69 $1,000 (1 + T)**10 = $1,361.76
T = 2.05% T = 3.14%
========= =========
</TABLE>
Page 2
<PAGE> 35
MERRILL LYNCH PRIME BOND FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 10.44000000
------------
EQUALS ORIGINAL UNITS PURCHASED 95.7854406
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.98745270)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 92.7979879
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.04200000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 931.88
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9319
SUBTRACT 1.0 (0.0681)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (6.81)%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $ 1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.86101590)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.13898410
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.04200000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 915.22
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9152
SUBTRACT 1.0 (0.0848)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (8.48)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $931.88 $1,000 (1 + T)** 2.1781 = $915.22
T = (6.81)% T = (3.99)%
========== =========
</TABLE>
Page 1
<PAGE> 36
MERRILL LYNCH PRIME BOND FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 10.44000000
------------
EQUALS ORIGINAL UNITS PURCHASED 95.7854406
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.98745270)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 92.7979879
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.04200000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $931.88
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (74.55)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $857.33
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.8573
SUBTRACT 1.0 (0.1427)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (14.27)%
============
SINCE ADDITION TO THE SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.86101590)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.13898410
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 10.04200000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $915.22
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (49.42)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $865.80
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.8658
SUBTRACT 1.0 (0.1342)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (13.42)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $857.33 $1,000 (1 + T)** 2.1781 = $865.80
T = (14.27)% T = (6.40)%
========== =========
</TABLE>
Page 2
<PAGE> 37
EXHIBIT 13
MERRILL LYNCH AMERICAN BALANCED FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.84964049
---------------
EQUALS ORIGINAL UNITS PURCHASED 84.39074590
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 54.70544540
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (10.94782030)
---------------
EQUALS UNITS HELD ON 31-Dec-99 128.14837100
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.43854982
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,593.98
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.5940
SUBTRACT 1.0 0.5940
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 59.40%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 11.46448542
---------------
EQUALS ORIGINAL UNITS PURCHASED 87.22589490
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.49922340
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (23.53617560)
---------------
EQUALS UNITS HELD ON 31-Dec-99 148.18894270
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.43854982
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,843.26
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8433
SUBTRACT 1.0 0.8433
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 84.33%
===============
</TABLE>
Page 1
<PAGE> 38
MERRILL LYNCH AMERICAN BALANCED FUND
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
THUS:
FIVE YEAR TEN YEAR
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $1,593.98 $1,000(1+T)**10 = $1,843.26
T = 9.77% T = 6.31%
========= =========
</TABLE>
Page 2
<PAGE> 39
MERRILL LYNCH AMERICAN BALANCED FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 11.84964049
---------------
EQUALS ORIGINAL UNITS PURCHASED 84.39074590
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 54.70544540
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (10.94782030)
---------------
EQUALS UNITS HELD ON 31-Dec-99 128.14837100
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.43854982
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,593.98
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (57.38)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,536.60
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.5366
SUBTRACT 1.0 0.5366
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 53.66%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 11.46448542
---------------
EQUALS ORIGINAL UNITS PURCHASED 87.22589490
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.49922340
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (23.53617560)
---------------
EQUALS UNITS HELD ON 31-Dec-99 148.18894270
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.43854982
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,843.26
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% 0.00
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,843.26
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8433
SUBTRACT 1.0 0.8433
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 84.33%
===============
</TABLE>
Page 1
<PAGE> 40
MERRILL LYNCH AMERICAN BALANCED FUND
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)**5 = $1,536.60 $1,000 (1+T)**10 = $1,843.26
T = 8.97% T = 6.31%
========= =========
</TABLE>
Page 2
<PAGE> 41
MERRILL LYNCH AMERICAN BALANCED FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 11.32000000
------------
EQUALS ORIGINAL UNITS PURCHASED 88.3392226
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.47770070)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 85.8615219
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.10800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,039.61
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0396
SUBTRACT 1.0 0.0396
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 3.96%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.12787740)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.87212260
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.10800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,112.39
DIVIDED BY ORIGINAL $1000 INVESTMENT (P) 1.1124
SUBTRACT 1.0 0.1124
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 11.24 %
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,039.61 $1,000 (1 + T)** 2.1781 = $1,112.39
T = 3.96% T = 5.01%
========== =========
</TABLE>
Page 1
<PAGE> 42
MERRILL LYNCH AMERICAN BALANCED FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 11.32000000
------------
EQUALS ORIGINAL UNITS PURCHASED 88.3392226
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.47770070)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 85.8615219
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.10800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,039.61
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $959.61
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9596
SUBTRACT 1.0 (0.0404)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (4.04)%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.12787740)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.87212260
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.10800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,112.39
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (60.07)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,052.32
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0523
SUBTRACT 1.0 0.0523
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 5.23%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $959.61 $1,000 (1 2.1781 = $1,052.32
T = (4.04)% T = 2.37%
========== =========
</TABLE>
Page 2
<PAGE> 43
EXHIBIT 13
MERRILL LYNCH HIGH CURRENT INCOME FUND
CUMULATIVE 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
<TABLE>
<S> <C> <C>
5 YEARS:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 9.40939453
---------------
EQUALS ORIGINAL UNITS PURCHASED 106.27676380
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 64.79458960
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.53998910)
---------------
EQUALS UNITS HELD ON 31-Dec-99 154.53136430
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 7.88991530
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,219.24
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2192
SUBTRACT 1.0 0.2192
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 21.92%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 9.76027688
---------------
EQUALS ORIGINAL UNITS PURCHASED 102.45610980
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 169.53089260
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (32.51571670)
---------------
EQUALS UNITS HELD ON 31-Dec-99 239.47128570
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 7.88991530
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,889.41
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8894
SUBTRACT 1.0 0.8894
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 88.94%
===============
</TABLE>
Page 1
<PAGE> 44
MERRILL LYNCH HIGH CURRENT INCOME FUND
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
COMPOUND COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000(1 + T)**5 = $1,219.24 $1,000 (1 + T)**10 = $1,889.41
T = 4.04% T = 6.57%
========= =========
</TABLE>
Page 2
<PAGE> 45
MERRILL LYNCH HIGH CURRENT INCOME FUND
CUMULATIVE 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
<TABLE>
5 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 9.40939453
---------------
EQUALS ORIGINAL UNITS PURCHASED 106.27676380
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 64.79458960
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.53998910)
---------------
EQUALS UNITS HELD ON 31-Dec-99 154.53136430
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 7.88991530
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,219.24
LESS WITHDRAWAL CHARGE @ 4.00%ON 90% (8% MAX ON PURCHASES) (43.89)
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,175.35
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1754
SUBTRACT 1.0 0.1754
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 17.54%
===============
10 YEARS:
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 9.76027688
---------------
EQUALS ORIGINAL UNITS PURCHASED 102.45610980
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 169.53089260
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (32.51571670)
---------------
EQUALS UNITS HELD ON 31-Dec-99 239.47128570
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 7.88991530
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,889.41
LESS WITHDRAWAL CHARGE @ 0.00%ON 90% (8% MAX ON PURCHASES) 0.00
---------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,889.41
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8894
SUBTRACT 1.0 0.8894
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 88.94%
===============
</TABLE>
Page 1
<PAGE> 46
MERRILL LYNCH HIGH CURRENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)**5 = $1,175.35 $1,000 (1 + T)**10 = $1,889.41
T = 3.28% T = 6.57%
========= =========
</TABLE>
Page 2
<PAGE> 47
MERRILL LYNCH HIGH CURRENT INCOME FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.50000000
------------
EQUALS ORIGINAL UNITS PURCHASED 105.2631579
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.02480340)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 102.2383545
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.91800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,014.00
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0140
SUBTRACT 1.0 (0.0140)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 1.40%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (9.18269810)
------------
EQUALS UNITS HELD ON 31-Dec-99 90.81730190
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.91800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $900.73
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9007
SUBTRACT 1.0 (0.0993)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (9.93)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,014.00 $1,000 (1 + T)** 2.1781 = $900.73
T = 1.40% T = (4.69)%
========== =========
</TABLE>
Page 1
<PAGE> 48
MERRILL LYNCH HIGH CURRENT INCOME FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.50000000
------------
EQUALS ORIGINAL UNITS PURCHASED 105.2631579
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.02480340)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 102.2383545
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.91800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,014.00
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $934.00
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9340
SUBTRACT 1.0 (0.0660)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (6.60)%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (9.18269810)
------------
EQUALS UNITS HELD ON 31-Dec-99 90.81730190
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.91800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $900.73
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (48.64)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $852.09
DIVIDED BY ORIGINAL $1000 INVESTMENT (P) 0.8521
SUBTRACT 1.0 (0.1479)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (14.79)%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $ 934.00 $1,000 (1 + T)** 2.1781 = $852.09
T = (6.60)% T = (7.09)%
========== =========
</TABLE>
Page 2
<PAGE> 49
EXHIBIT 13
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
(FORMERLY MERRILL LYNCH SPECIAL VALUE FOCUS FUND)
CUMULATIVE 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
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 17.08056322
------------
EQUALS ORIGINAL UNITS PURCHASED 58.54607880
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 45.54276640
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.19411230)
------------
EQUALS UNITS HELD ON 31-Dec-99 96.89473290
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 19.21071614
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,861.42
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.8614
SUBTRACT 1.0 0.8614
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 86.14%
============
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 13.09639726
------------
EQUALS ORIGINAL UNITS PURCHASED 76.35687740
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 54.09276290
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.84442990)
------------
EQUALS UNITS HELD ON 31-Dec-99 113.60521040
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 19.21071614
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,182.44
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.1824
SUBTRACT 1.0 1.1824
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 118.24%
============
</TABLE>
Page 1
<PAGE> 50
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
FIVE YEAR TEN YEAR
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $1,861.42 $1,000 (1 + T)**10 = $2,182.44
T = 13.23% T = 8.12%
========== ==========
</TABLE>
Page 2
<PAGE> 51
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
CUMULATIVE 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
<TABLE>
<CAPTION>
5 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 17.08056322
------------
EQUALS ORIGINAL UNITS PURCHASED 58.54607880
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 45.54276640
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (7.19411232)
------------
EQUALS UNITS HELD ON 31-Dec-99 96.89473290
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 19.21071614
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,861.42
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES): (67.01)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,794.41
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.7944
SUBTRACT 1.0 0.7944
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 79.44%
============
</TABLE>
<TABLE>
<CAPTION>
10 YEARS:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-89 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-89 13.09639721
------------
EQUALS ORIGINAL UNITS PURCHASED 76.35687740
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 54.09276290
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.84442990)
------------
EQUALS UNITS HELD ON 31-Dec-99 113.60521040
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 19.21071614
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,182.44
LESS WITHDRAWAL CHARGE @ 0.00% ON 90% (8% MAX ON PURCHASES): 0.00
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,182.44
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.1824
SUBTRACT 1.0 1.1824
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 118.24%
============
</TABLE>
Page 1
<PAGE> 52
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN
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
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C>
$1,000 (1 + T)**5 = $1,794.41 $1,000 (1 + T)**10 = $2,182.44
T = 12.40% T = 8.12%
========== ==========
</TABLE>
Page 2
<PAGE> 53
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.38000000
------------
EQUALS ORIGINAL UNITS PURCHASED 106.6098081
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.42561450)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 104.1841936
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.36800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,288.55
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2886
SUBTRACT 1.0 0.2886
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 28.86%
============
SINCE ADDITION TO THE SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES 8.62390870
------------
EQUALS UNITS HELD ON 31-Dec-99 91.37609130
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.36800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,130.14
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1301
SUBTRACT 1.0 0.1301
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 13.01%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,288.55 $1,000 (1 + T)** 2.1781 = $1,130.14
T = 28.86% T = 5.78%
========== =========
</TABLE>
Page 1
<PAGE> 54
MERRILL LYNCH SMALL CAP VALUE FOCUS FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
1 YEAR:
INITIAL INVESTMENT ON 31-Dec-98 $1,000.00
DIVIDED BY NET ASSET VALUE ON 31-Dec-98 9.38000000
------------
EQUALS ORIGINAL UNITS PURCHASED 106.6098081
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.42561450)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 104.1841936
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.36800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,288.55
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,208.55
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.2086
SUBTRACT 1.0 0.2086
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 20.86%
============
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 27-Oct-97 $1,000.00
DIVIDED BY FEE NET ASSET VALUE ON 27-Oct-97 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (8.62390870)
------------
EQUALS UNITS HELD ON 31-Dec-99 91.37609130
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 12.36800000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $1,130.14
LESS WITHDRAWAL CHARGE @ 6.00% ON 90% (8% MAX ON PURCHASES) (61.03)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $1,069.11
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0691
SUBTRACT 1.0 0.0691
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 6.91%
============
</TABLE>
COMPOUND AVERAGE ANNUAL 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
<TABLE>
<CAPTION>
ONE YEAR SINCE ADDITION TO S/A
COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN
<S> <C> <C> <C>
$1,000 (1 + T)**1 = $1,208.55 $1,000 (1 + T)** 2.1781 = $1,069.11
T = 20.86% T = 3.12%
========== =========
</TABLE>
Page 2
<PAGE> 55
EXHIBIT 13
MERRILL LYNCH BASIC VALUE FOCUS FUND
CUMULATIVE 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:
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-98 13.50762240
-------------
EQUALS ORIGINAL UNITS PURCHASED 74.03227380
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 22.68612420
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.43193180)
-------------
EQUALS UNITS HELD ON 31-Dec-99 94.28646620
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,163.11
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.1631
SUBTRACT 1.0 0.1631
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 16.31%
=============
5 YEAR:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 10.85285404
-------------
EQUALS ORIGINAL UNITS PURCHASED 92.14166120
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.56454640
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (11.20188380)
-------------
EQUALS UNITS HELD ON 31-Dec-99 165.50432380
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,041.64
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.0416
SUBTRACT 1.0 1.0416
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 104.16%
=============
SINCE INCEPTION:
INITIAL INVESTMENT ON 01-Jul-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jul-94 10.00000000
-------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 88.72536820
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.72653180)
-------------
EQUALS UNITS HELD ON 31-Dec-99 171.99883640
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,121.76
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.1218
SUBTRACT 1.0 1.1218
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 112.18%
=============
</TABLE>
Page 1
<PAGE> 56
MERRILL LYNCH BASIC VALUE FOCUS FUND
COMPOUND AVERAGE ANNUAL 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:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR SINCE INCEPTION
COMPOUND AVERAGE COMPOUND AVERAGE COMPOUND AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
$1,000 (1 + T)**1 = $1,163.11 $1,000 (1 + T)**5 = $2,041.64 $1,000 (1 + T)** 6.5041 = $2,121.76
T = 16.31% T = 15.34% T = 12.26%
========= ========= =========
</TABLE>
Page 2
<PAGE> 57
MERRILL LYNCH BASIC VALUE FOCUS FUND
CUMULATIVE 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
<TABLE>
1 YEAR:
<S> <C> <C>
INITIAL INVESTMENT ON 31-Dec-98 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-98 13.50762240
-------------
EQUALS ORIGINAL UNITS PURCHASED 74.03227380
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 22.68612420
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (2.43193180)
-------------
EQUALS UNITS HELD ON 31-Dec-99 94.28646620
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 1,163.11
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (80.00)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,083.11
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.0831
SUBTRACT 1.0 0.0831
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 8.31%
=============
5 YEAR:
INITIAL INVESTMENT ON 31-Dec-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-94 10.85285404
-------------
EQUALS ORIGINAL UNITS PURCHASED 92.14166120
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 84.56454640
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (11.20188380)
-------------
EQUALS UNITS HELD ON 31-Dec-99 165.50432380
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,041.64
LESS WITHDRAWAL CHARGE @ 4.00% ON 90% (8% MAX ON PURCHASES) (73.50)
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 1,968.14
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 1.9681
SUBTRACT 1.0 0.9681
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 96.81%
=============
SINCE INCEPTION:
INITIAL INVESTMENT ON 01-Jul-94 $ 1,000.00
DIVIDED BY FEE ADJUSTED NET ASSET VALUE ON 01-Jul-94 10.00000000
-------------
EQUALS ORIGINAL UNITS PURCHASED 100.00000000
PLUS UNITS ACQUIRED THROUGH DIVIDEND REINVESTMENT 88.72536820
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (16.72653180)
-------------
EQUALS UNITS HELD ON 31-Dec-99 171.99883640
MULTIPLIED BY FEE ADJUSTED NET ASSET VALUE ON 31-Dec-99 12.33587245
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $ 2,121.71
LESS WITHDRAWAL CHARGE @ 2.00% ON 90% (8% MAX ON PURCHASES) 38.19
-------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $ 2,083.57
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 2.0836
SUBTRACT 1.0 1.0836
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) 108.36%
=============
</TABLE>
Page 1
<PAGE> 58
MERRILL LYNCH BASIC VALUE FOCUS FUND
AVERAGE ANNUAL TOTAL RETURN
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:
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR AVERAGE FIVE YEAR AVERAGE AVERAGE
ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN ANNUAL TOTAL RETURN
<S> <C> <C>
$1,000 (1 + T)**1 = $ 1,083.11 $1,000 (1 + T)**5 = $1,968.14 $1,000 (1 + T)** 6.5041 = $2,083.57
T = 8.31% T = 14.50% T = 11.95%
========= ========= =========
</TABLE>
Page 2
<PAGE> 59
MERRILL LYNCH BASIC VALUE FOCUS FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH NO WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 01-May-99 $1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.0000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.00812190)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 96.9918781
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.97300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $967.30
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.9673
SUBTRACT 1.0 (0.0327)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (3.27)%
============
</TABLE>
Page 1
<PAGE> 60
MERRILL LYNCH BASIC VALUE FOCUS FUND
PERFORMANCE SINCE ADDITION TO SEPARATE ACCOUNT WITH WITHDRAWAL CHARGE:
CUMULATIVE 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
<TABLE>
<S> <C> <C>
SINCE ADDITION TO SEPARATE ACCOUNT:
INITIAL INVESTMENT ON 01-May-99 $ 1,000.00
DIVIDED BY NET ASSET VALUE ON 01-May-99 10.00000000
------------
EQUALS ORIGINAL UNITS PURCHASED 100.0000000
LESS UNITS USED TO PAY FOR POLICY MAINTENANCE CHARGES (3.00812190)
------------
EQUALS UNITS HELD AT END OF PERIOD ON 31-Dec-99 96.9918781
MULTIPLIED BY NET ASSET VALUE ON 31-Dec-99 9.97300000
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT
BEFORE WITHDRAWAL CHARGE ON 31-Dec-99 $967.30
LESS WITHDRAWAL CHARGE @ 8.00% (8% MAX ON PURCHASES) (77.38)
------------
EQUALS ENDING REDEEMABLE VALUE OF $1,000 INVESTMENT (ERV) $889.92
DIVIDED BY ORIGINAL $1,000 INVESTMENT (P) 0.8899
SUBTRACT 1.0 (0.1101)
EXPRESSED AS A PERCENTAGE EQUALS THE TOTAL RETURN FOR THE PERIOD (T) (11.01)%
============
</TABLE>
Page 2
<PAGE> 1
EXHIBIT 99.1
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<S> <C> <C> <C> <C>
American Fidelity Corp. (AFC)
94.0% - NV 73-0966202
- - - - --------------------------------------------------------------------------------------------------------------------------
Market Place *Security General Shade Works, LLC American Fidelity American Mortgage
Realty Corp. Life Ins. Co. (SGL) 16.67% - OK Assurance Co. (AFA) & Investment Co.
(MPRC) 100% - OK 73-1475654 100% - OK (AMICO)
100% - OK 73-0741925 73-0714500 98.7% - OK
73-1160212 NAIC #68691 NAIC #60410 73-1232134
Education - Concourse C, Inc. American Fidelity ASC Holding, L.L.C. American Fidelity
World.Com, Inc. 100% - OK Property Co. (AFPC) 75% - OK International
100% - OK 73-1575531 100% - OK 73-1528120 Holdings, Inc.
73-1505641 73-1290496 100% - OK
73-1421879
==========================================================================================================================
*American Fidelity Assurance Co. (AFA)
100% - OK
73-0714500
NAIC #60410
- - - - --------------------------------------------------------------------------------------------------------------------------
AF Apartments, Inc. Senior Partners, LLC American Fidelity Balliet's, L.L.C. Apple Creek American Fidelity
100% - OK 50% - OK Securities, Inc. 75% - OK Apartments, Inc. Ltd. Agency, Inc.
73-1512985 73-1559624 (AFS) 73-1529608 100% - OK (AFLA)
100% - OK 73-1408485 100% - OK
73-0783902 73-1352430
==========================================================================================================================
Concourse C, Inc.
100% - OK
73-1575531
- - - - --------------------------------------------------------------------------------------------------------------------------
EnrollCom, Inc Concourse Two, Inc Concourse Three, Inc
100% - OK 100% - OK 100% - OK
(Tax ID) (Tax ID (Tax ID
(applied for) (applied for) (applied for)
==========================================================================================================================
American Fidelity Property Co. (AFPC)
100% - OK
73-1290496
- - - - --------------------------------------------------------------------------------------------------------------------------
Home Rentals, Inc. Western Partners, LLC
100% - OK 100% - OK
73-1364266 73-1544275
==========================================================================================================================
ASC Holding, L.L.C.
75% - OK
73-1528120
- - - - --------------------------------------------------------------------------------------------------------------------------
InvesTrust, N.A. Asset Services Co., L.L.C.
100% - OK 100% - OK
73-1546867 73-1547246
==========================================================================================================================
American Fidelity International Holdings, Inc.
100% - OK
73-1421879
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity American Fidelity
Offshore Investments, Ltd. Care, LLC
100% - Bermuda 33% - OK
NAIC #20400 73-1424864
Reg. #EC20754
==========================================================================================================================
Senior Partners, LLC
50% - OK
73-1559624
- - - - --------------------------------------------------------------------------------------------------------------------------
Bordeaux, LLC Vineyard Cottages, LLC
75% - OK 66.7% - OK
73-1559626 73-1559625
==========================================================================================================================
American Fidelity Ltd. Agency, Inc. (AFLA)
100% - OK
73-1352430
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency, Inc.
(AFGA) - 100% - OK
73-1352431
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency of Alabama, Inc.
100% - AL
74-2945370
==========================================================================================================================
American Fidelity Offshore Investments, Ltd.
100% - Bermuda
NAIC #20400
Reg. #EC20754
- - - - --------------------------------------------------------------------------------------------------------------------------
****American Fidelity ****Covenant ****Pacific World ****American Fidelity Mari El Development
(China), Ltd. Underwriters Holdings, Ltd. (Cypress) Ltd. Corporation Limited
93% - Bermuda (Bermuda) Ltd. 55% - Labuan 99% - Republic of 51.3% - Republic of
33.33% - Bermuda Cyprus Cyprus
Reg. #7035
- AFOI
==========================================================================================================================
****American Fidelity (Cypress) Ltd.
99% - Republic of
Cyprus
- - - - --------------------------------------------------------------------------------------------------------------------------
****Soyuznik Insurance Co
34% - Russian Federation
</TABLE>
<PAGE> 2
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<CAPTION>
==========================================================================================================================
<S> <C> <C> <C> <C>
CELP Ltd. Agency, Inc.
100% - OK
73-1369092
==========================================================================================================================
North American Ins. Agency, Inc. (NAIA)
91.5% - OK
73-0687265
- - - - --------------------------------------------------------------------------------------------------------------------------
Shade Works, LLC Agar Ins. Agency, Inc. North American Ins. N.A.I.A. of Louisiana, Inc.
33.33% - OK 95.4% - OK Agency of Colorado, Inc. 100% - LA
73-1475654 73-0675989 100% - CO 72-0761691
84-0599059
North American North American North American N.A.I.A. Ins. Agency,
Insurance Agency of Ins. Agency of Ltd. Agency, Inc. Inc.
New Mexico, Inc. Tulsa, Inc. 100% - OK 100% - OK
100% - NM 100% - OK 73-1356772 73-1527682
85-0441542 73-0778755
==========================================================================================================================
</TABLE>
* Insurance Company
** A Limited Partnership
*** No tax or registration numbers
NOTE: All of the above organizations are corporations that have the word
Company, Inc., or Corp. The above organizations which have the
letters L.L.C. or L.C. are limited liability companies.
