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1ST ATLANTIC GUARANTY CORPORATION
Prospectus
November 25, 1998
This Prospectus describes four types of face-amount certificates
("Certificates") currently offered by 1st Atlantic Guaranty Corporation ("1st
Atlantic Guaranty" or "Company"):
- Growth Certificates
- Reserve Certificates
- Premier Certificates
- Cornerstone Certificates
You can use the Certificates to lock-in competitive interest rates, guaranteed
by the Company, for one or more renewable terms of varying length to suit your
needs. See "The Certificates." Like any securities investment, the Certificates
involve certain risks that you should consider. See "Special Risk
Considerations."
Please read this Prospectus carefully before you invest and keep it for future
reference. No one has the authority to change the terms and conditions of the
Certificate as described in this Prospectus, or to bind the Company by any
statement not in it.
NEITHER THE SEC NOR ANY STATE REGULATOR HAS APPROVED OR DISAPPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CERTIFICATES ARE BACKED BY THE ASSETS OF THE COMPANY. THEY ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL GOVERNMENT OR ANY GOVERNMENT AGENCY.
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TABLE OF CONTENTS
GLOSSARY....................................................4
QUESTIONS AND ANSWERS.......................................5
SPECIAL RISK CONSIDERATIONS.................................6
THE CERTIFICATES............................................7
Growth Certificates.......................................7
Reserve Certificates......................................8
Premier Certificates......................................8
Cornerstone Certificates..................................8
At A Glance...............................................9
GENERAL TERMS AND CONDITIONS................................9
Face-Amount...............................................10
Account Value.............................................10
Principal Investments.....................................10
Additional Investments....................................10
Interest Rates............................................10
Guarantee Periods.........................................11
Maturity Date.............................................12
Fees and Charges..........................................12
Other Terms and Conditions................................12
PERFORMANCE.................................................13
HOW TO BUY CERTIFICATES.....................................13
Through the Company.......................................13
Through Authorized Sellers................................13
Affinity Groups...........................................13
Investment Amounts........................................14
Canceling Your Order......................................14
Application Acceptance....................................14
ACCESSING YOUR ACCOUNT VALUE................................14
Interest Withdrawals......................................14
Principal Withdrawals and Loans...........................14
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Withdrawal Amounts........................................15
Penalty for Early Withdrawal..............................15
Effect on Interest Rates..................................15
Requesting a Withdrawal...................................16
ACCOUNT TRANSACTIONS........................................16
Transferring Ownership....................................16
TAX MATTERS.................................................16
THE COMPANY.................................................17
Organization and Operations...............................17
Directors and Officers....................................18
MANAGEMENT..................................................19
Board of Directors........................................19
Committees of the Board of Directors......................19
Investment Adviser........................................20
Atlantic Capital Funding Corporation......................20
Related Party Transactions................................21
RESERVES....................................................21
INVESTMENTS.................................................21
Types of Investments......................................21
Investment Policies.......................................23
INVESTOR SERVICES...........................................23
Automatic Investments.....................................23
Direct Deposits...........................................24
Inquiries.................................................24
Reports...................................................24
INDEPENDENT AUDITORS........................................24
FINANCIAL STATEMENTS........................................24
EXPERTS.....................................................24
THE COMPANY AND ITS SERVICE PROVIDERS [back cover page]
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GLOSSARY
The following is a glossary of terms frequently used in this Prospectus:
ACCOUNT VALUE - your principal investments(s), plus accrued interest, less
withdrawals and applicable fees, charges, and penalties.
CERTIFICATE - one of the four different Certificates currently offered by this
Prospectus, namely, the Growth, Reserve, Premier, and Cornerstone Certificates.
CERTIFICATE ANNIVERSARY - each 12-month period following the Effective Date of
your Certificate.
CLIENT CARE DEPARTMENT - the department of 1st Atlantic Guaranty Corporation
responsible for administering and servicing the Certificates. The address and
telephone numbers of our Client Care Department are 4847 Cordell Avenue, Suite
200, Bethesda, MD 20814 (1-888-74-YIELD or 301-215-7515).
COMPANY - 1st Atlantic Guaranty Corporation.
EFFECTIVE DATE - generally the first or fifteenth day of any given month,
depending on when we accept your application to purchase a Certificate.
Applications accepted after the first day of the month will have an Effective
Date of the fifteenth day of that month; applications accepted after the
fifteenth day of the month will have an Effective Date of the first day of the
following month.
FACE-AMOUNT - the amount that you invest at the time you purchase your
Certificate. You select the face-amount subject to certain minimum and maximum
limitations.
GUARANTEE PERIOD - a time period that you select to lock in the interest rate
applicable to your principal investment for that period.
INTEREST RATE - the rate of interest that you earn on your Certificate. We
guarantee the interest rate for the Guarantee Periods that you select. Interest
compounds monthly, based on a 30-day month and a 360-day year.
INTEREST RATE DATE - the date on which we set the interest rate available under
the Certificates, generally, the first and fifteenth day of each month.
MATURITY DATE - the date on which the Certificate matures. Each Certificate
matures 20 years after its Effective Date.
MINIMUM INTEREST RATE - the minimum annual rate of interest you will earn on
your principal investment during any Guarantee Period, currently 3.5% for each
Certificate.
OUR, US, WE - 1st Atlantic Guaranty Corporation.
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PRINCIPAL, PRINCIPAL INVESTMENT - the amount of your initial investment and any
subsequent investment (Growth Certificates only). For purposes of these
definitions, we treat interest that has accrued during a Guarantee Period as
principal for the next Guarantee Period to which it is applied.
SURRENDER VALUE - the amount of your Account Value immediately prior to
surrender, less any applicable fees, withdrawal charge and early withdrawal
penalty assessable at the time of surrender.
YOU, YOUR - a current or prospective Certificate owner.
QUESTIONS AND ANSWERS
WHO IS 1ST ATLANTIC GUARANTY? 1st Atlantic Guaranty is a Maryland corporation
registered with the SEC as a face-amount certificate company, which is a type of
investment company. Like other investment companies, 1st Atlantic Guaranty
invests the monies that it receives from investors in a portfolio of securities
issued by other companies. It also invests in other types of assets, including,
for example, real estate and real estate loans. See "The Company" and
"Investments."
WHAT ARE THE CERTIFICATES? The Certificates are basically guaranteed
fixed-income securities. When you buy a Certificate, you are buying a guarantee
by the Company, backed solely by its assets, to pay you the amount of your
principal investment (known as the "face-amount"), plus accrued interest (less
any withdrawals and applicable fees and charges), when your Certificate matures.
Each Certificate matures 20 years after its Effective Date. We currently offer
four different Certificates that you can select from to suit your needs. See
"The Certificates" and "General Terms and Conditions."
WHAT ASSETS BACK THE COMPANY'S GUARANTEES? The Company maintains reserves to
meet its guarantees under the Certificates. These reserves consist primarily of
income-producing instruments such as government and corporate bonds, preferred
stock, and real estate mortgages. See "Reserves" and "Other Terms and
Conditions" under "General Terms and Conditions."
WHY BUY A CERTIFICATE? We offer Certificate interest rates that are generally
higher than those available through bank certificates of deposits ("CDs") or
U.S. Treasury obligations ("Treasuries"). See "Interest Rates" under "General
Terms and Conditions." The Certificates also have several features that can give
you more investment flexibility than are available through CDs and Treasuries.
See "The Certificates" and "General Terms and Conditions." See also "Special
Risk Considerations." Unlike CDs or Treasuries, our Certificates are backed by
our assets and are not insured or guaranteed by the federal government or any
government agency.
HOW IS INTEREST PAID? You can elect to withdraw the interest earned on your
Certificate on a monthly, quarterly, or annual basis during the life of your
Certificate. You can also allow your interest to accumulate up to the Maturity
Date of your Certificate. Interest compounds monthly. See "Interest Withdrawals"
under "Accessing Your Account Value."
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WHAT FACTORS AFFECT THE INTEREST I CAN EARN? The amount of interest you can earn
will depend on the type of Certificate you select, the amount you invest, the
available interest rates, and the length of time you decide to lock in the
interest rate. You can lock in interest rates for Guarantee Periods of 1, 3, 5,
and 10 years (5 or 10 years in the case of the Cornerstone Certificates). You
will always earn at least the Minimum Interest Rate for each Certificate,
subject to the terms and conditions described herein. See "The Certificates" and
"General Terms and Conditions."
WHO MANAGES THE COMPANY? The Board of Directors ("Board") of the Company is
primarily responsible for the management of the Company. The Board has
established an Investments Committee, which oversees the investment activities
of the Company. Key Asset Management, Inc. ("Adviser" or "Key Asset Management")
manages the Company's securities portfolio. As of December 31, 1997, the Adviser
managed over $60 billion in assets, including $20 billion in investment company
assets. The Company's wholly-owned subsidiary, Atlantic Capital Funding
Corporation ("Atlantic Capital" or "ACFC"), manages the Company's real estate
loan portfolio. See "Management."
HOW DO I BUY OR REDEEM CERTIFICATES? You can purchase and redeem Certificates by
contacting our Client Care Department. See "How to Buy Certificates," "Accessing
Your Account Value," and "Account Transactions." Certain minimum and maximum
investment requirements apply to each Certificate. See "At A Glance" under "The
Certificates." For a description of fees and charges that may apply, see "Fees
and Charges" under "General Terms and Conditions" and "Penalty for Early
Withdrawal" under "Accessing Your Account Value."
ARE THERE ANY FEES AND PENALTIES UNDER THE CERTIFICATES? We assess a service fee
to process payments of accrued interest. We also assess a maximum withdrawal
charge of 5% on any Account Values withdrawn prior to your 5th Certificate
Anniversary. This charge does not apply to scheduled withdrawals of interest or
to systematic withdrawals under the Reserve Certificate. In addition, we impose
an early withdrawal penalty equal to 12 months accrued interest on principal
amounts withdrawn prior to your 5th Certificate Anniversary or prior to the end
of a Guarantee Period. After your 5th Certificate Anniversary, the early
withdrawal penalty applies only if you withdraw principal prior to the end of a
Guarantee Period. See "Fees and Charges" and "Penalty for Early Withdrawal"
under "Accessing Your Account Value" for details.
SHOULD I BUY A CERTIFICATE? Before purchasing a Certificate, you should consider
whether the Certificate suits your financial objectives, particularly in light
of the amount of your purchase and the long-term nature of the Certificates. You
should not rely on the Certificates for short-term financial needs. The
Certificates are intended to be part of a well-balanced, comprehensive
investment program. See "Special Risk Considerations," immediately below.
SPECIAL RISK CONSIDERATIONS
As with any security that you buy, you bear certain risks when you invest in a
Certificate. We highlight below certain risks that you may find prudent to
consider before investing in a Certificate.
OPERATING HISTORY. The Company is newly formed, which means it has no operating
history or "track record." This fact is common to all new investment companies.
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PORTFOLIO INVESTMENTS. We expect to meet our obligations under the Certificates
through earnings on our portfolio investments. Because our guarantees under the
Certificates are backed only by our assets, you bear a number of portfolio
investment risks.
These risks include, for example, (i) market risk (i.e., the risk that the
market value of one or all of our investments might decline), (ii) credit risk
(i.e., the risk that an issuer of a security that we purchased might default),
(iii) liquidity risk (i.e., the risk that one or more of our investments might
not be liquid at the time necessary to meet our payment obligations), (iv)
interest rate risk (i.e., the risk that interest rates might move in a direction
that causes an adverse effect on our investments), and (v) valuation risk (i.e.,
the risk that one or more of our investments might be overvalued).
We will try to minimize these risks by adhering to certain reserve requirements
and investment guidelines established by federal law. See "Reserves" and
Investments." However, a failure of the Company's portfolio investments to
generate adequate earnings may limit our ability to pay competitive interest
rates and could conceivably prevent the Company from meeting its obligations
(i.e., default) under the Certificates, including the payment of principal and
interest.
YEAR 2000 CONSIDERATIONS. Like other companies, the Company is taking steps to
address the so-called "Year 2000 problem." The problem exists because many
computer programs use only the last two digits to refer to a year and may not
properly recognize a year that begins with a "20" instead of a "19." The Company
believes that its computer systems are Year 2000 compliant. In addition, the
Company has sought assurances from its third party service providers regarding
the steps they are taking to address the Year 2000 problem so as to enable them
to continue to provide uninterrupted services to the Company. Nevertheless, as a
practical matter, the Company cannot predict with certainty what effect the Year
2000 problem may have on its operations.
COMPETITIVE FACTORS. There are but a handful of face-amount certificate
companies in existence today. One company, IDS Certificate Company, dominates
the face-amount certificate industry. In addition, there exist a number of
financial products, such as CDs and insurance products, which offer investors a
guaranteed fixed rate of return. Our principal means of competing is by offering
attractive interest rates on our Certificates and responsive customer service.
THE CERTIFICATES
GROWTH CERTIFICATES
WHO SHOULD INVEST? Growth Certificates are designed for investors seeking
competitive interest rates on a single lump-sum investment, but who do not have
the amount necessary to purchase a Premier Certificate, which normally offers a
higher rate of interest.
INVESTMENT AMOUNTS. You can purchase Growth Certificates with a single principal
investment or "lump sum," subject to the limits described above. Because these
Certificates do not require any additional payments, they are sometimes referred
to as "fully paid" Certificates. You have the option, however, of making one or
more additional principal investments in amounts ranging from $250 up to an
aggregate maximum of 15% of your initial investment, subject to a maximum of
$37,500. See "Additional Investments" under "General Terms and Conditions."
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RESERVE CERTIFICATES
WHO SHOULD INVEST? Reserve Certificates are designed for investors seeking a
high rate of current income. Because of the Reserve Certificate's unique
systematic withdrawal feature, the Certificate may be ideal for retired persons
who need to receive disbursements from their retirement accounts either to meet
IRS requirements for minimum disbursements from their tax-qualified plan or to
fund retirement living.
INVESTMENT AMOUNTS. You can purchase Reserve Certificates with a single
principal investment ranging from $25,000 to $2.5 million. Like the Growth
Certificates, Reserve Certificates are sometimes referred to as "fully paid"
Certificates. We do not accept additional principal investments under the
Reserve Certificates.
SYSTEMATIC WITHDRAWAL. Reserve Certificates allow you to make systematic
withdrawals of both principal and accrued interest, without incurring any
withdrawal charge or early withdrawal penalty. To take advantage of the
systematic withdrawal feature, you must maintain, at all times, a minimum
Account Value equal to 50% of your original principal investment. You can choose
to make systematic withdrawals either monthly or quarterly. The minimum amount
you may withdraw at any time is $150. We will treat withdrawals as coming first
from accrued interest earned on your principal investment, and then from
principal. Systematic withdrawals will reduce the amount of your Account Value,
and may result in the application of a lower interest rate. See "Effect on
Interest Rates" under "Accessing Your Account Value."
PREMIER CERTIFICATES
WHO SHOULD INVEST? Premier Certificates are designed for investors seeking
competitive interest rates on large investments. Interest rates on Premier
Certificates normally will be the most favorable of all of the Certificates
offered by this Prospectus.
INVESTMENT AMOUNTS. You can purchase Premier Certificates with a single
principal investment, subject to the limits described above. Like the Growth
Certificates, Premier Certificates are sometimes referred to as "fully paid"
Certificates. We do not accept additional principal investments under the
Premier Certificates.
CORNERSTONE CERTIFICATES
WHO SHOULD INVEST? Cornerstone Certificates are designed for investors seeking
competitive interest rates on a single lump-sum investment, who also have an
interest in providing much needed capital to the religious community.
WHAT MAKES THIS CERTIFICATE DIFFERENT? 1st Atlantic Guaranty will invest at
least 35% of the proceeds it receives from the sale of the Cornerstone
Certificates in loans used to purchase, construct, or renovate places of worship
and related educational facilities. 1st Atlantic Guaranty will apply the balance
of the proceeds to other types of investments, such as government and corporate
bonds, preferred stock, and real estate loans.
INVESTMENT AMOUNTS. You can purchase Cornerstone Certificates with a single
principal investment or "lump-sum," subject to the limits described above. Like
the Growth Certificates, these Certificates are sometimes referred to as "fully
paid" Certificates. We do not accept additional principal investments under the
Cornerstone Certificate.
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AT A GLANCE
The chart below provides an overview of the four different types of Certificates
we offer. For more detailed information, please refer to the remainder of this
section. See also "General Terms and Conditions" for additional information
about common features of the Certificates.
<TABLE>
<CAPTION>
================================================================================
NAME OF CERTIFICATE
-------------------
- --------------------------------------------------------------------------------
GROWTH RESERVE PREMIER CORNERSTONE
------ ------- ------- -----------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CERTIFICATE TYPE Fully Paid Fully Paid Fully Paid Fully Paid
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT $2,500 $25,000 $250,000 $1,000
- --------------------------------------------------------------------------------
MINIMUM ADDITIONAL $250* None None None
INVESTMENT Permitted Permitted Permitted
- --------------------------------------------------------------------------------
MAXIMUM INVESTMENT $250,000 $2.5 million $2.5 million $2.5 million
- --------------------------------------------------------------------------------
GUARANTEE PERIODS 1, 3, 5 or 10 years 5 or 10 years
- --------------------------------------------------------------------------------
MATURITY DATE 20 years from Effective Date
- --------------------------------------------------------------------------------
BENCHMARKS For 1, 3, 5 year Guarantee Periods: the higher of (i) the
----------------------------------
average rate for CDs of comparable maturities as quoted on
the Bank Rate Monitor National Index plus 2% and (ii) the
yield on Treasuries of comparable maturities, on a given
Interest Rate Date.
For 10 year Guarantee Periods: the yield on
-----------------------------
10-year Treasury bonds plus 3% on a given Interest Rate
Date.
For the Cornerstone Certificates: the rate for the 11TH
--------------------------------
District Cost of Funds Index plus 3%.
See "Interest Rates" under "General Terms and Conditions."
- --------------------------------------------------------------------------------
INTEREST RATE
TARGET** 0.5% below to 0.5% above the benchmark for the 1 and 3
year Guarantee Periods and up to 1% above the benchmark
for the 5 and 10 year guarantee periods**
- --------------------------------------------------------------------------------
MINIMUM INTEREST
RATE 3.5% for all Certificates
- --------------------------------------------------------------------------------
* You may make additional contributions to your Growth Certificate in an
aggregate amount up to 15% of your initial investment, subject to the
maximum of $37,500.
** Interest rates generally will be higher for larger investments.
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
GENERAL TERMS AND CONDITIONS
The following terms and conditions apply to each type of Certificate described
in this Prospectus, unless otherwise specifically noted. We reserve the right to
issue other Certificates with different terms and conditions. The terms and
conditions of your Certificate may not be changed except by mutual agreement.
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FACE-AMOUNT
The face-amount of your Certificate equals the amount you invest when you
purchase your Certificate. The face-amount will remain the same during the life
of your Certificate.
ACCOUNT VALUE
Your Account Value initially will equal the face-amount of your Certificate.
Periodically, we will adjust your Account Value to reflect increases due to
additional principal investments (Growth Certificates only) and accrued
interest, and decreases due to withdrawals and fees and charges or penalties.
See "Reports" under "Shareholder Services" for information on the types of
reports we will provide to you.
PRINCIPAL INVESTMENTS
The amount that you invest in your Certificate constitutes your principal
investment. We also treat interest that has accrued on your Certificate during a
Guarantee Period and that you apply to another Guarantee Period as principal for
that period. We will credit your principal investment and issue your Certificate
on its Effective Date, which generally will be either the first or fifteenth day
of a given month, depending on the date we accept your application.
ADDITIONAL INVESTMENTS
Growth Certificate owners may make additional unscheduled principal investments
during the life of their Certificates, subject to the minimum and maximum limits
described above. Please note that we will credit additional principal
investments only on the first day of each month coinciding with or following the
date we receive your payment. We will not accept additional principal
investments for any Cornerstone, Premier, or Reserve Certificate. However, you
can purchase more than one Certificate of the same type, in which case we will
aggregate your principal investments under all Certificates for purposes of
determining the applicable interest rate on the additional Certificates you
purchase. See "Applicable Interest Rate."
INTEREST RATES
WHEN WE CALCULATE INTEREST RATES. We calculate the Certificate interest rates
for each Guarantee Period generally at the beginning and middle of each month
(each an "Interest Rate Date"). We may calculate the interest rates more
frequently or at different times, in our sole discretion, and, from time to
time, we may offer special promotional rates on the Certificates. See
"Applicable Interest Rate" below for a discussion of the interest rate that will
apply to your Guarantee Period.
HOW WE CALCULATE INTEREST RATES. We set the interest rates in our sole
discretion, primarily in response to changes in market conditions, as generally
reflected in the benchmarks that we use. On any given Interest Rate Date, the
interest rates available for each Guarantee Period will be the HIGHER of (i) the
Minimum Interest Rate and (ii) our Interest Rate Target for that Guarantee
Period. The Minimum Interest Rate for each Certificate is 3.5%. The Interest
Rate Target for the 1 and 3 year Guaranty Periods is the corresponding benchmark
plus or minus 0.50%. The Interest Rate Target for the 5 and 10 year Guaranty
Periods is the corresponding benchmark plus up to 1%.
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When determining the Interest Rate Target for the one, three, and five year
Guarantee Periods under each Certificate (other than the Cornerstone
Certificate), the benchmark will be the HIGHER of: (i) the average rate for CDs
of comparable maturity quoted on the Bank Rate Monitor National Index (" Index")
plus 2%, and (ii) the yield for Treasuries of comparable maturity, on a given
Interest Rate Date. The average rates set out in the BRM Index are based on a
weekly survey of the 50 largest banks and the 50 largest thrift institutions in
the 10 largest metropolitan areas in the United States. The BRM Index is a
publication of the Bank Rate Monitor, an organization that collects and
disseminates information about bank rates and the banking industry. The BRM
Index does not include an average rate for 10 year CDs. Accordingly, we use the
yield on 10 year Treasury notes plus 3% as the benchmark for the 10 year
Guarantee Period.
The benchmark for the 5 and 10 year Guarantee Periods under the Cornerstone
Certificates is the 11th District Cost of Funds Index plus 3%. This Index is a
weighted average of the costs of borrowing by member banking institutions of the
Federal Home Loan Bank of San Francisco (the 11th District). The index rate
tends to lag market interest rate adjustments and tends to be relatively stable
because institutions borrow money for varying terms and do not pay market rates
for all of their borrowings. The Index is reported monthly, but generally lags
behind two months (e.g. January's index is reported in March, February's index
is reported in April, etc.)
We reserve the right to use, in our sole discretion, an index other than the BRM
Index or 11th District Cost of Funds Index should such indexes cease to be
published.
APPLICABLE INTEREST RATE. The applicable interest rate for your initial
Guarantee Period will be the rate in effect on the date we accept your
application and receive your principal investment at our offices. We will send
you a confirmation of the interest rate that applies to your Certificate. For
subsequent principal investments made under the Growth Certificate, we will
apply the interest rate in effect for the current Guarantee Period in which you
are invested. You will begin earning interest on the Effective Date of your
Certificate or, in the case of any subsequent principal investment permitted
under the Growth Certificates, on the first day of the month following the date
we receive the payment. Prior to the end of each Guarantee Period, we will
notify you in writing or by telephone of the interest rates available under your
Certificate for the subsequent Guarantee Periods. The interest rate that applies
to your Guarantee Period will remain the same throughout that Guarantee Period
and will not be affected by changes in Certificate interest rates that may occur
after you lock in your interest rate for that Period.
If you already own a Certificate and purchase another of the same type, we will
calculate the interest rate on the new Certificate based on the aggregate
Account Values that you maintain in each Certificate of that type.
INFORMATION ON INTEREST RATES. We will publish quotations of the available
interest rates from time to time. Also, you can find out what the available
interest rates are on any given day by calling us at 1-888-74-YIELD or
301-215-7515. Interest rates for future Guarantee Periods may be greater or less
than the interest rates for the current Guarantee Period that you select.
GUARANTEE PERIODS
You can lock in the interest rates available under your Certificate for
Guarantee Periods of 1, 3, 5 and 10 years (5 and 10 years only in the case of
the Cornerstone Certificates). Your initial
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Guarantee Period begins on the Effective Date. Generally, the longer the
Guarantee Period you select, the higher the interest rate you will earn. At the
end of each Guarantee Period, you can select another Guarantee Period of the
same or different length. We will notify you in writing or by telephone at least
15 days prior to the expiration of each Guarantee Period. For convenience,
unless you specify otherwise prior to the end of your current Guarantee Period,
we will automatically apply your Account Value to another Guarantee Period of
equal length, using the then applicable interest rate.
You may continue to select successive Guarantee Periods up until the
Certificate's Maturity Date. See "Maturity Date," immediately below. You may not
select a Guarantee Period that would carry the Certificate past its Maturity
Date. If you select a Guarantee Period that would end after your Certificate's
Maturity Date, we will instead apply your Account Value to the next shortest
Guarantee Period that ends at or prior to your Certificate's Maturity Date,
using that Period's then applicable interest rate.
MATURITY DATE
The Maturity Date for all 1st Atlantic Guaranty Certificates is 20 years from
the Effective Date. On the Maturity Date, we will pay you your Account Value,
which equals the face-amount of your Certificate, plus any subsequent principal
investments, plus all accrued interest, less any withdrawals previously taken
and less applicable fees, charges, and penalties previously assessed.
FEES AND CHARGES
SERVICE FEES. We charge a per payment fee of $5.00 to process regular monthly,
quarterly, or annual payments of accrued interest that you have elected to
withdraw and $25.00 to process any unscheduled interest payment requests. We
will deduct the fee from each payment you receive. This charge does not apply to
systematic withdrawals under the Reserve Certificates.
WITHDRAWAL CHARGE. If you withdraw some or all of your Account Value (including
any unscheduled withdrawals or accrued interest) prior to your fifth Certificate
Anniversary, we will assess a withdrawal charge from your remaining Account
Value or, in the case of a complete surrender, the amount withdrawn, according
to the following schedule:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
As a % of amount withdrawn: 5% 4% 3% 2% 1% 0%
- ---------------------------
# of Certificate Anniversaries: 1 2 3 4 5 Over 5
- ------------------------------
</TABLE>
This charge does not apply to scheduled withdrawals of interest or to systematic
withdrawals under the Reserve Certificates. In addition to a withdrawal charge,
you may be subject to an early withdrawal penalty. See "Penalty for Early
Withdrawal" under "Accessing Your Account Value."
OTHER TERMS AND CONDITIONS
The Certificates carry no voting rights and are not entitled to participate in
any dividends that may be declared by the Board of Directors. The Certificates
are not secured by any particular asset of the Company; however, as required by
federal law, the Company maintains reserves with its custodian to support its
obligations under the Certificates. See "Reserves."
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PERFORMANCE
From time to time, we may quote current and historical yields on our
Certificates in advertisements and in sales literature. The availability of the
current yields quoted will depend on when you purchase your Certificate and how
much you invest. Quotations of historical yields are not indicative of future
yields. We also may compare our yields to those offered by competing products,
such as CDs and Treasuries, as well as other fixed-income securities.
HOW TO BUY CERTIFICATES
You can buy Certificates through one of the methods described below. You must
complete an application and submit it, along with payment, at the time of
purchase. WE RESERVE THE RIGHT TO ACCEPT OR REJECT ANY APPLICATION IN OUR SOLE
DISCRETION.
THROUGH THE COMPANY
BY MAIL. You can buy Certificates directly from the Company by sending a
completed application, along with a check, to 1st Atlantic Guaranty Corporation,
4847 Cordell Avenue, Suite 200, Bethesda, MD 20814.
BY WIRE. You may also wire payments for Certificates to the Company's wire bank
account. Before wiring funds, please call us at 1-888-74-YIELD or 301-215-7515
to advise us of your investment and to receive instructions as to how and where
to wire your investment. The minimum amount you may wire is $1,000. Please
remember to return your completed application to us at the address above.
THROUGH AUTHORIZED SELLERS
You can buy Certificates through broker-dealers that have selling group
agreements with our principal underwriter, CI Investments, Inc. ("Underwriter").
The Underwriter has agreed to use its best efforts to promote the sale of
Certificates. For its services, Underwriter receives compensation that will not
exceed 5% of the amount of the initial purchase payments under the Certificates.
The Underwriter may re-allow a portion of its compensation to broker-dealers
with whom it has a selling group agreement. Please call us at 1-888-74-YIELD or
301-215-7515 to find out whether your broker-dealer is on our list of authorized
sellers. We will pay any compensation to authorized sellers out of our general
funds, so that all of your money will be invested in your Certificate.
AFFINITY GROUPS
From time to time, we may seek to introduce our Certificates to members of
affinity groups, including service organizations, non-profit associations, and
other types of membership organizations (collectively, "affinity groups").
Although affinity groups are not permitted to sell Certificates, they may
provide us with mailing lists and other information to enable us to market
Certificates to their members. For their cooperation, we may compensate affinity
groups an amount that we mutually agreed upon. Please call us at 1-888-74-YIELD
or 301-215-7515 for the current list of affinity groups with whom we have
arrangements.
13
<PAGE> 14
INVESTMENT AMOUNTS
For an explanation of the minimum and maximum investments in each type of
Certificate, see "The Certificates." Certain additional restrictions may apply
under if you use the Certificates to fund your Individual Retirement Account
("IRA") or other qualified retirement plan account.
CANCELING YOUR ORDER
You can, without penalty or withdrawal charge, cancel your investment in a
Certificate within 10 days after we receive your application. Simply call us at
the same telephone number or write to us. You will not earn any interest on
Certificates that you cancel under this provision. We will process your
cancellation request on the business day we receive it and, if applicable, will
send out a check to you generally within 10 business days.
APPLICATION ACCEPTANCE
All applications to purchase Certificates are subject to acceptance or rejection
by us in our sole discretion. If we accept your application to purchase a
Certificate, you will receive a confirmation of such acceptance. You will also
receive a quarterly statement reflecting all account activity. See "Reports." We
do not issue paper certificates to evidence the purchase of Certificates.
Instead, we will register your purchase on our books, thereby relieving you of
the responsibility for the safekeeping of paper certificates and the need to
deliver them to us upon redemption. Please refer to the Certificate Terms and
Conditions attached to your application for detailed information about your
Certificate.
ACCESSING YOUR ACCOUNT VALUE
You can access all or any part of your Certificate's Account Value at any time,
subject to the terms and conditions described below.
INTEREST WITHDRAWALS
You can schedule regular withdrawals of interest that has accrued under your
Certificate on a monthly, quarterly, or annual basis. Each accrued interest
withdrawal will be subject to a small service fee of $5. Unscheduled interest
withdrawals are subject to a higher fee of $25 and may be subject to a
withdrawal charge. See "Fees and Charges" under "General Terms and Conditions."
PRINCIPAL WITHDRAWALS AND LOANS
You can also withdraw some or all of your principal investments in your
Certificate prior to maturity. However, a withdrawal charge and an early
withdrawal penalty may apply upon withdrawal, other than for systematic
withdrawals under the Reserve Certificates. See "Withdrawal Charge" under "Fees
and Charges," and "Penalty for Early Withdrawal," below.
14
<PAGE> 15
To avoid incurring a withdrawal charge and the penalty for early withdrawal, you
may request a temporary principal withdrawal or "loan" of up to 50% of your
Account Value for a term not to exceed the earlier of five years or the Maturity
Date of your Certificate. You will not earn interest on the amount you withdraw
from your Certificate. Loans are subject to an annual interest charge not to
exceed 6% of the amount withdrawn. If you decide not to reinvest your temporary
principal withdrawal, we will treat it as a permanent withdrawal and will assess
against your remaining Account Value the penalty for early withdrawal that would
have applied at the time of the withdrawal. Withdrawals of principal may cause
your Certificate to fall into a lower interest rate category. See "Effect on
Interest Rates," below.
WITHDRAWAL AMOUNTS
The minimum amount that you may withdraw at any time from your Certificate is
$100 ($150 in the case of the Reserve Certificates), provided, however, that the
remaining Account Value under your Certificate (other than Reserve Certificate)
does not fall below the stated minimum investment amounts. We will notify you
and seek additional instructions from you if the amount of your withdrawal
request would cause your Account Value to fall below that minimum. If you fail
to respond and your withdrawal would cause your Account Value to fall below that
minimum, we will treat your request as one for a complete surrender of your
Certificate.
PENALTY FOR EARLY WITHDRAWAL
If you withdraw some or all of your principal investments on or before your
fifth Certificate Anniversary or prior to the end of a Guarantee Period, we will
deduct a penalty from your remaining Account Value, or, in the case of a
complete surrender, from the amount withdrawn, equal to 12 months interest
payable on the amount withdrawn. After your fifth Certificate Anniversary, the
penalty will apply only if you withdraw prior to the end of a Guarantee Period.
In no event will the penalty applicable during Certificate years 16 through 20
exceed 5%, 4%, 3%, 2% and 2%, respectively, of the amount withdrawn.
The foregoing penalty does not apply to systematic withdrawals under the Reserve
Certificate. In addition, the penalty does not apply if the withdrawal is due to
the need to meet unexpected expenses from your death, disability, or
hospitalization.
We assess the foregoing penalty largely because of the negative impact that
early withdrawals of principal investments may have on our reserves and our
ability to offer competitive interest rates to our customers. You may be subject
to additional penalties if you withdraw amounts held in a Certificate from an
IRA or other tax-qualified plan. Please consult your tax adviser.
EFFECT ON INTEREST RATES
A withdrawal will cause a reduction in the Account Value under your Certificate.
If the reduction puts your Account Value in a lower category of applicable
interest rates, we will apply the lower interest rate from the date of the
withdrawal, even if it occurs prior to the end of a Guarantee Period.
15
<PAGE> 16
REQUESTING A WITHDRAWAL
You may submit written requests for a withdrawal to the Company at our Client
Care Department. We will treat withdrawal requests as coming first from accrued
interest, and then from your principal investment. We will process withdrawal
requests on the business day that we receive them, and will send out a check to
you generally within 10 business days.
We may take longer to process your request if you recently purchased or, in the
case of Growth Certificates, added to a Certificate with a check that has not
yet cleared. In addition, we reserve the right to defer payments for up to 90
days, in which case we will pay interest on the deferred payment at the Minimum
Interest Rate. For our mutual protection, we may require a signature guarantee
if:
- you seek to withdraw an amount in excess of $50,000,
- you ask us to pay redemption proceeds to someone other than the
registered owners,
- you ask us to send redemption proceeds to an address other than the
address of record, a preauthorized bank account, or a preauthorized
brokerage firm account,
- we receive instructions from an agent, not the registered owners, or
- we believe a signature guarantee would protect us against potential
claims based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You can
obtain a signature guarantee from certain banks, brokers or other eligible
guarantors. YOU SHOULD VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR
PRIOR TO SIGNING. A NOTARIZED SIGNATURE IS NOT SUFFICIENT.
ACCOUNT TRANSACTIONS
TRANSFERRING OWNERSHIP
You may transfer ownership of your Certificate by submitting a completed
transfer request form to our Client Care Department. Please note that transfers
of ownership from a tax-qualified plan may have adverse tax consequences. Please
consult your tax adviser.
TAX MATTERS
All interest that you earn on your Certificate is taxable to you in the year in
which it accrues, regardless of whether you elect to receive it during that
year. We will send you a report showing all reportable income under your
Certificate.
If you are using your Certificate to fund an IRA or other tax-qualified plan,
you generally will pay no federal income taxes on your interest until you begin
taking withdrawals. However, withdrawals from IRAs and qualified plans generally
are subject to a federal income tax penalty of 10% if made before age 59 1/2.
16
<PAGE> 17
We are required to withhold federal income taxes on IRA withdrawals unless you
tell us not to. We are also required to withhold 20% on most other distributions
from tax-qualified plans, unless the distribution is directly rolled over to
another tax-qualified plan or IRA.
If you are using your Certificate to fund a Roth IRA, your contributions will
not be tax deductible; however, the distributions from your Roth IRA may be tax
free depending on how and when you withdraw your money from the account. Subject
to certain income limitations, you may make a rollover contribution from a
non-Roth IRA to a Roth IRA. The rollover will be taxable currently, but future
distributions from the Roth IRA may be tax free as in the preceding sentence.
The maximum contribution to a Roth IRA is $2,000, not counting rollover
contributions, and contributions may be made beyond age 70 1/2. The maximum
yearly contribution to all IRA's combined is still $2,000.
The foregoing is only a brief summary of certain federal income tax matters
relevant to an investment in a Certificate. It is not intended as tax advice.
Please consult a qualified tax adviser for information about any tax
consequences with regard to your individual circumstances.
THE COMPANY
ORGANIZATION AND OPERATIONS
The Company was organized as a Maryland corporation on October 1, 1997. It is
registered with the SEC as a face-amount certificate company, which is a type of
investment company. The Company's capitalization consists solely of 14,500,000
shares of authorized common stock, par value $0.01 per share ("common stock").
On August 27, 1998, John J. Lawbaugh, the Company's Chairman, President and
Treasurer, and Brian P. Smith, the Company's Secretary, contributed the initial
capitalization of the Company, and as of that date, owned all of the issued and
outstanding shares of the Company's common stock. As of the date of this
Prospectus, the Company has capital in excess of the minimum amount required by
the rules and regulations of the SEC and the Investment Company Act of 1940
("1940 Act"). The Company believes that its capital is adequate for its business
activities.
The Company's business activities currently consist entirely of the issuance and
servicing of Certificates and the investment of the proceeds received from the
sale of its Certificates in securities and other assets. The profitability of
the Company's operations is determined by the difference between (1) the amount
of the Company's earnings on its investment portfolio and (2) the expenses the
Company incurs (e.g., the interest it agrees to pay, taxes, and its investment
and operating expenses, such as investment advisory fees, brokerage costs,
custodial expenses, disinterested director fees, and distribution fees). The
Company, through it wholly-owned subsidiary, Atlantic Capital, manages its real
estate loan portfolio, which supports its obligations under the Certificates.
See "Atlantic Capital" under "Management."
17
<PAGE> 18
DIRECTORS AND OFFICERS
Certain information about the Company's directors and officers, including their
principal occupations for the past five years, is set out below. Members of the
Board who are considered "interested persons" of the Company under the 1940 Act
are indicated by an asterisk (*). The Company has no employees, and all of the
directors and officers, other than directors who are not interested persons of
the Company, serve in such capacities without compensation. Officers are
appointed annually at the annual meeting of the Company's Board of Directors.
<TABLE>
<CAPTION>
Positions with the Principal Occupations
Name and Age Company During the Past Five Years
- ------------ ------- --------------------------
<S> <C> <C>
Donald N. Briggs (54) Director President, Briggs Associates, Inc. (brokerage
and appraisals); President, Don Briggs & Co.
(commercial leasing)
James F. Cole (59) Director General Treasurer of the International
Association of Bridge, Structural, Ornamental &
Reinforcing Iron Workers Union
J. Donald Elam (65) Director President of Trinity Financial Group (fund
raising and planned giving consultants)
Nancy Hopkinson (56) Director Currently Retired (since 1996); prior to that,
Teacher and Administrator, Montgomery
County Public Schools
John J. Lawbaugh (29)* Chairman of the President, Atlantic Pension & Trust (private
+ Board, President pension fund management); President, Atlantic
and Treasurer Capital Funding Corporation; President,
Commercial Finance Group (commercial and
residential mortgage banking)
Brian Murphy (54) Director Partner, Berenson & Murphy (law firm)
(formerly, Griffin, Berenson & Murphy)
Greg Nichols (45)+ Director Principal, Nichols & Associates (wholesale
retail business development); Principal, U.S.
Estate Group (estate and financial planning)
Brian P. Smith Director and Operations Manager, Atlantic Pension & Trust
(44)* Secretary (private pension fund management); Operations
Manager, Atlantic Capital Funding Corporation
(commercial and residential mortgage banking)
since 1996; prior to that Operations Manager,
Enterprise Network Applications (computer
software company)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
Willard R. Stinson (62) Director Chief Financial Officer, Shepherd Group of
Companies (financial planning firm since
1996); prior to that, Financial Planner,
Shepherd Group of Companies, and Financial
Planner, First Financial Planners, Inc. (since
1995); prior to that, Vice President and
Comptroller, General Public Utilities (electric
utility company)
</TABLE>
- --------------
+ Messrs. Lawbaugh and Nichols are brothers-in-law.
MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors ("Board") is responsible for managing the Company's
business affairs. Directors are elected annually at the Company's annual meeting
of shareholders. Each Director who is not an interested person of the Company
receives an annual retainer of $500, plus a $750 fee for each regular or special
Board meeting he or she attends. The Directors also receive reimbursement for
their expenses incurred in attending any meeting of the Board. The Board
generally meets quarterly.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and an Executive Committee. The duties of
each Committee and its present membership are as follows:
AUDIT COMMITTEE: The members of the Audit Committee consult with the Company's
independent auditors if the auditors deem it desirable, and meet with the
Company's independent auditors at least once annually to discuss the scope and
results of the annual audit of the Company and such other matters as the
Committee members deem appropriate or desirable. Directors Briggs, Cole, Elam,
Hopkinson, Murphy, Nichols, and Stinson are members of the Audit Committee.
EXECUTIVE COMMITTEE: During intervals between meetings of the Board, the
Executive Committee possesses and may exercise all of the powers of the Board in
the management of the Company except as to those matters that specifically
require action by the Board. Directors Hopkinson, Lawbaugh, and Murphy are
members of the Executive Committee.
INVESTMENTS COMMITTEE: The members of the Investments Committee oversee the
investment activities of the Adviser, which manages the Company's securities
portfolio, and the activities of the Company's wholly-owned subsidiary, Atlantic
Capital, which manages the Company's real estate loan portfolio. Directors
Briggs, Cole, and Lawbaugh are members of the Investments Committee.
19
<PAGE> 20
INVESTMENT ADVISER
Key Asset Management serves as the Company's investment adviser pursuant to an
investment advisory agreement ("Advisory Agreement"). Subject to the supervision
of the Board, the Adviser is responsible under the Advisory Agreement for
selecting and managing the Company's securities investments to ensure that the
Company has, in cash or qualified investments, as that term is defined in
Section 28(b) of the 1940 Act, assets having an aggregate value not less than
that required by applicable law. The Adviser also is responsible for placing
orders for the purchase and sale of the Company's securities investments with
brokers and dealers that the Adviser selects.
In addition, pursuant to the Advisory Agreement, the Adviser has agreed to
render regular reports to the Board regarding its investment decisions and
brokerage allocation practices for the Company, to assist the Company's
custodian in valuing portfolio securities and computing the Company's reserves,
and to furnish the Company with the assistance, cooperation, and information
necessary for it to meet various legal requirements regarding registration and
reporting. The Adviser also has agreed to furnish to the Company adequate
facilities and personnel necessary for the Directors and officers of the Company
to manage the affairs and conduct of the Company's business. The Adviser,
located at 127 Public Square, Cleveland, Ohio, 44114-1306, is a registered
investment adviser with over $60 billion of assets under management as of the
date of this Prospectus. For its services, the Adviser receives a quarterly fee
payable in arrears based on the annual percentage, set forth below, of the
average daily net asset value of the Company's assets that it manages:
<TABLE>
<CAPTION>
Large Cap Equities and Convertible Securities:
Assets Annual Fee
------ ----------
<S> <C>
Up to $25,000,000 0.45%
Next $25,000,000 0.40%
Above $50,000,000 0.35%
</TABLE>
<TABLE>
<CAPTION>
Small Cap and Mid Cap Equities:
Assets Annual Fee
------ ----------
<S> <C>
Up to $10,000,000 0.90%
Next $15,000,000 0.70%
Next $25,000,000 0.55%
Above $50,000,000 0.45%
</TABLE>
ATLANTIC CAPITAL FUNDING CORPORATION
Atlantic Capital is a Maryland corporation newly created by the Company for the
purpose of managing its real estate loan portfolio. ACFC, which is a
wholly-owned by the Company, performs all of the underwriting, closing and
servicing of mortgage investments for 1st Atlantic. ACFC may originate and
process loans directly as well as offer its loan programs to outside mortgage
brokers on a wholesale basis. In the latter case, outside brokers will originate
and process loans and ACFC will underwrite and close the loans that meet its
investment requirements. ACFC may enter into agreements with select outside
mortgage brokers to service certain types of mortgages that may require special
servicing treatment because of various factors, such as the unique features of
the underlying real estate or the credit quality of the borrowers.
20
<PAGE> 21
RELATED PARTY TRANSACTIONS
On September 16, 1998, Messrs. Lawbaugh and Smith contributed the common stock
of ACFC to 1st Atlantic Guaranty for no consideration.
RESERVES
Federal law requires us to maintain a portion of the payments that we receive
under the Certificates as reserves. The purpose of these reserves is to ensure
that we have enough assets to meet our obligations under the Certificates.
Federal law also requires that we invest our reserves in "qualified
investments," which are investments of a kind that life insurance companies can
invest in or hold under the provisions of the laws of the District of Columbia
or those otherwise approved for investment by the SEC. See "Types of
Investments" and "Investment Policies" under "Investments." In addition, federal
law prohibits us from declaring or paying dividends to our shareholders in
excess of certain limits unless we meet our reserve requirements.
We maintain our reserves with our custodian, Key Trust Company of Ohio, 127
Public Square, Cleveland, Ohio, 44114 ("Custodian"). Pursuant to its Custody
Agreement with us, the Custodian is responsible for the safekeeping of our
assets, and, among other things, is authorized to take certain remedial steps
should we fail to make a payment when due or otherwise default on any of our
obligations under the Certificates. The Custodian is an affiliate of the
Adviser.
INVESTMENTS
As noted above, we are permitted to invest our reserves only in assets that
constitute "qualified investments" under the laws of the District of Columbia
and such other assets as the SEC may permit. Set out below is a summary of the
types of investments in which we expect to invest as well as a description of
certain investment policies established by our Board of Directors.
TYPES OF INVESTMENTS
We expect to invest our reserves, as well as the amount that we hold in excess
of the reserves, primarily in the types of securities and other investments
described below. Except as specifically noted, we may invest our reserves in
such investments without limitation. In addition, except as specifically noted,
the limitations described below apply only at the time of investment. The assets
that we hold in excess of reserves are not subject to the limitations described
below.
BANK OBLIGATIONS. We may invest in CDs, bankers' acceptances, and other
short-term debt obligations of banks. CDs are short-term obligations that
commercial banks issue for a specified period of time and at a specified
interest rate. Banker's acceptances are time drafts drawn on a commercial bank
by a borrower, usually in connection with international commercial transactions.
COMMERCIAL PAPER AND OTHER CORPORATE DEBT. We may invest in commercial paper
issued by companies that meet the criteria for investment by life insurance
companies under the laws of the District of Columbia ("qualified corporations").
Commercial paper consists of short-term unsecured promissory notes that
qualified corporations issue to finance short-term credit needs. We also may
invest in longer-term debt obligations of qualified corporations. We will not
invest
21
<PAGE> 22
more than two percent of our reserves in any one issue of such obligations of
any one qualified corporation. In addition, we do not intend to invest in any
debt securities rated below investment grade by any nationally recognized
statistical rating organization.
EQUIPMENT RELATED INSTRUMENTS. We may invest in equipment trust certificates and
similar instruments (collectively, "equipment related instruments") that are
secured by transportation equipment (e.g., railroad cars, trucks, and airplanes)
that has been sold or leased to a common carrier. Equipment related instruments
are a means of financing the acquisition of equipment. A trustee, such as a
bank, holds the title to the equipment, collects purchase or lease payments from
the purchaser, and, in turn, makes principal and interest payments to the
instrument holders for a specified term. In case of default, the trustee is
authorized to sell the equipment to protect the instrument holders. We will not
invest more than two percent of our reserves in any one issue of an
equipment-related instrument by any one qualified corporation.
MUNICIPAL SECURITIES. We may invest in various types of municipal securities,
which are debt securities issued by a state, its political subdivisions,
agencies, authorities, school districts, and other governmental
instrumentalities for various public purposes, including, for example, the
construction of public facilities, hospitals, highways, and schools. We will
only invest in municipal securities that (i) represent direct and general
obligations of the issuing governmental entity, or (ii) are payable from
designated revenues pledged to the payment of the principal and interest on such
securities.
PREFERRED AND COMMON STOCK. We may invest in preferred and common stock of
qualified corporations. Preferred stock has priority over common stock as to
income and generally as to the assets of an issuer, but usually has limited
voting rights. We may invest in the common stocks of qualified corporations
whose debt and preferred stock, if any, also meet our criteria for investment.
We will not invest more than one percent of our reserves in the preferred or
common stock of any single qualified corporation.
REAL ESTATE AND REAL ESTATE LOANS. We may invest directly in real estate or in
real estate loans. We generally will only purchase or hold real estate if it is
income producing. We may, however, also receive real estate in satisfaction of
debts owed to us, and may improve or develop any real estate that we acquire. We
will not invest or agree to invest in real estate if such investment would cause
us to: (i) invest more than two percent of our reserves in real estate or
improvements thereon during any period of 12 consecutive months; (ii) invest or
hold more than five percent of our reserves in real estate or improvements
thereon for the purpose of producing income; or (iii) hold more than 10% of our
reserves in real estate. We also may invest in real estate loans secured by a
first lien on the real estate, provided such loan is worth at least 33 1/3% more
than the amount loaned.
U.S. GOVERNMENT SECURITIES. We may invest in direct obligations of the U.S.
Government ("U.S. Government securities"). These include bills (which have
maturities of one year or less), notes (which have maturities of between 2 and
10 years), and bonds (which have maturities greater than 10 years) issued by the
U.S. Treasury ("Treasury"). The market value of U.S. Government securities will
fluctuate with changes in interest rate levels. Thus, if interest rates increase
from the time the security was purchased, the market value of the security will
decrease. Conversely, if interest rates decrease, the market value of the
security will increase.
22
<PAGE> 23
U.S. GOVERNMENT AGENCY SECURITIES. We may invest in securities issued by certain
federal agencies that are (i) backed by the full faith and credit of the United
States, (ii) guaranteed by the Treasury, (iii) or are supported by the agency's
right to borrow from the Treasury. Issuing agencies may include, for example,
the Government National Mortgage Association ("GNMA" or Ginnie Mae"), Federal
National Mortgage Association ("FNMA" or "Fannie Mae"), or Federal Home Loan
Mortgage Corporation ("FHLMC" or "Freddie Mac"). Although their close
relationship with the U.S. Government is believed to make them high-quality
securities with minimal credit risks, the U.S. Government is not obligated by
law to support either FNMA or FHLMC.
INVESTMENT POLICIES
The Company's Board has established the investment policies set out below.
Subject to the approval of the Company's shareholders, the Board may change
these policies at any time without Certificate owner approval.
BORROWING. We may borrow money to a limited extent from banks (including the
Company's custodian bank) as we deem necessary or appropriate to our business.
We currently do not intend to borrow amounts equal to more than 25% of our total
assets (including the amount borrowed). We will not buy securities on margin or
sell securities short.
COMMODITIES. We do not currently intend to engage in the purchase or sale of
commodities.
CONCENTRATION. Except as noted below, we will not invest more than 25% of our
assets in the securities of issuers in any one industry. The foregoing
limitation does not apply to investments in U.S. Government and U.S. Government
agency securities, nor to real estate and real estate loans.
LOANS. In addition to real estate loans, described above, we may make loans of
varying terms to broker-dealers and other financial institutions in amounts up
to 85% of the value of the securities pledged as collateral for the loans at the
time we make the loans. The securities pledged as collateral must be of a type
in which we can invest.
PORTFOLIO TURNOVER. We will buy, sell, or hold our assets in the manner that we
deem prudent, without regard to the impact on the turnover rate of our
portfolio.
SENIOR SECURITIES. We are restricted by law from issuing any securities other
than face-amount certificates, common stock, and promissory notes or other paper
related to our borrowings.
UNDERWRITING SECURITIES. We do not intend to act as an underwriter of securities
issued by other persons. We may, however, be deemed to be an underwriter when we
purchase and later sell unregistered securities.
INVESTOR SERVICES
AUTOMATIC INVESTMENTS
You can automatically make periodic investments in your Growth Certificates
subject to applicable limits. See "At A Glance" under "The Certificates." To
establish your automatic investment plan, please call 1-888-74-YIELD or
1-301-215-7515.
23
<PAGE> 24
DIRECT DEPOSITS
You can arrange for your investment in your Certificates to be deposited
directly out of your payroll or government check. To establish your direct
deposit arrangement, please call 1-888-74-YIELD or 301-215-7515.
INQUIRIES
1st Atlantic Guaranty has a dedicated staff of individuals that are available
each business day to assist you with questions you may have about the
Certificates or your account. Please call 1-888-74-YIELD between the hours of
9:00 and 5:00 on any business day.
REPORTS
Each quarter we will send you an account statement showing your Certificate's
Account Value, your Certificate's Surrender Value, and all account activity for
the preceding quarter, including the amount and rate of interest you earned, the
amount of any principal investments you made, and the amount of any fees and
charges assessed. In addition, we will send you annual reports that include
audited financial statements for the Company's fiscal year ending September 30.
We file quarterly and annual reports with the SEC. You may read and copy, at
prescribed rates, these reports and any other materials that we file with the
SEC at the SEC's Public Reference Room, located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information about the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. You also may obtain reports
and other information about us by visiting the SEC's Internet site
(www.sec.gov).
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, located at 2300 Clarendon Blvd, Suite 200, Arlington, VA
22201, serve as the independent auditors of the Company. Their auditing services
include rendering an opinion on the financial statements of the Company.
FINANCIAL STATEMENTS
We had no material operations prior to the date of this Prospectus. An audited
balance sheet for the Company, as of August 27, 1998, and the report of the
Company's independent auditors thereon, appears on the next page.
EXPERTS
The Company has included the audited balance sheet in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent auditors, and
upon the authority of said firm as experts in accounting and auditing.
24
<PAGE> 25
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
The Board of Directors and Shareholders
1st Atlantic Guaranty Corporation:
We have audited the accompanying balance sheet of 1st Atlantic Guaranty
Corporation as of August 27, 1998. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. Our procedures
included confirmation of the opening cash deposit on August 27, 1998, by
correspondence with the bank. An audit of a balance sheet also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of 1st Atlantic Guaranty Corporation
as of August 27, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Washington, D.C.
August 28, 1998
<PAGE> 26
1ST ATLANTIC GUARANTY CORPORATION
BALANCE SHEET
AUGUST 27, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $250,000
---------------
TOTAL QUALIFIED ASSETS 250,000
---------------
TOTAL ASSETS 250,000
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Total Liabilities -
---------------
Stockholders' Equity:
Common Stock, $.01 par value, 14.5 million 100,000
shares authorized - 10 million shares
issued
Additional paid-in-capital 150,000
---------------
Total Stockholders' Equity 250,000
---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $250,000
===============
</TABLE>
See Notes to Balance Sheet.
<PAGE> 27
1ST ATLANTIC GUARANTY CORPORATION
NOTES TO THE BALANCE SHEET
AUGUST 27, 1998
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
1st Atlantic Guaranty Corporation (the "Company") is a Maryland
corporation organized on October 1, 1997. The Company is registered with
the Securities and Exchange Commission as a face-amount certificate
company under the Investment Company Act of 1940. The Company is in the
business of issuing face-amount investment certificates. The certificates
offered by the Company are not insured. The Company's certificates will be
sold through the Company and authorized sellers.
The Company's management, together with Key Asset Management Inc., the
Company's selected investment adviser, will be responsible for managing
the Company's investments.
The Company currently offers five types of certificates each with a
specified maturity of twenty years. Within their specified maturity, four
certificates have interest rate terms of either one, three, five, or ten
years and one certificate has interest rate terms of either five or ten
years. The Company guarantees a fixed rate of return for each interest
rate term, subject to fees and penalties for early withdrawal. The
Company's gross income is derived primarily from the interest and
dividends generated by its investments. The Company's net income is
determined by deducting from such gross income its interest payments on
the certificates and other expenses, including, but not limited to, taxes,
the fees paid for investment advisory services, custodial services, and
distribution fees.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of balance sheet presentation
The accompanying balance sheet is presented in accordance with generally
accepted accounting principles.
The preparation of the balance sheet 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 during the period. Actual
results could differ from those estimates.
<PAGE> 28
THE COMPANY AND ITS
SERVICE PROVIDERS
The Company:
1st Atlantic Guaranty Corporation
4847 Cordell Avenue, Suite 200
Bethesda, MD 20814
Investment Advisor:
Key Asset Management, Inc.
127 Public Square
Cleveland, OH 44114
Custodian:
Key Trust Company of Ohio
127 Public Square
Cleveland, OH 44114
Independent Auditors:
KPMG Peat Marwick LLP [1st ATLANTIC GUARANTY LOGO]
2300 Clarendon Blvd
Suite 200
Arlington, VA 22201
Legal Counsel:
Freedman, Levy, Kroll & Simonds PROSPECTUS
1050 Connecticut Aveune, Suite 825
Washington, D.C. 20036
November 25, 1998
