<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1997
FILE NO. 333-
FILE NO. 811-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. / /
</TABLE>
------------------------
VARIABLE ANNUITY ACCOUNT A OF AMERICAN FOUNDATION
(Exact Name of Registrant)
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
(Name of Depositor)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (205) 879-9230
------------------------
STEVE M. CALLAWAY, ESQUIRE
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA, 35223
(Name and Address of Agent for Services)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 383-0158
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
registrant has elected to register an indefinite amount of securities being
offered.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(a) AND 495(a)
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-4.
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
PART A
1. Cover Page........................................... Cover Page
2. Definitions.......................................... Definitions
3. Synopsis............................................. Expense Tables; Summary
4. Condensed Financial Information...................... Condensed Financial Information; Yields and Total
Returns
5. General Description of Registrant, Depositor and
Portfolio Companies................................ The Company, Variable Account and Funds
a. Depositor........................................ The Company, Variable Account and Funds-- American
Foundation Life Insurance Company
b. Registrant....................................... The Company, Variable Account and Funds-- The
American Foundation Variable Annuity Separate
Account
c. Portfolio Company................................ The Company, Variable Account and Funds-- The Funds
d. Fund Prospectus.................................. The Company, Variable Account and Funds-- The Funds
e. Voting Rights.................................... The Company, Variable Account and Funds-- Voting
Rights
f. Administrators................................... The Company, Variable Account and Funds--
6. Deductions and Expenses.............................. Charges and Deductions
a. General.......................................... Charges and Deductions
b. Sales Load %..................................... Charges and Deductions--Surrender Charge
c. Special Purchase Plan............................ Surrenders; Transfers
d. Commissions...................................... Distribution of Contracts
e. Expenses--Registrant............................. Charges and Deductions
f. Fund Expenses.................................... Charges and Deductions--Other Charges Including
Investment Management Fees of the Funds
g. Organizational Expenses.......................... N/A
7. General Description of Variable Annuity Contracts.... Description of Variable Annuity Contracts
a. (i) Allocation of Purchase Payments.............. Purchase Payments, Allocation of Purchase Payments
(ii) Transfers....................................... Description of Variable Annuity Contract-- Transfers;
Payments
b. Changes.......................................... Description of Variable Annuity Contract--
Modification
c. Inquiries........................................ Description of Variable Annuity Contract-- Inquiries
8. Annuity Options...................................... Annuity Options
9. Death Benefit........................................ Description of Variable Annuity Contract-- Death
Benefit Before Annuity Commencement Date; Payment
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
10. Purchases and Contract Value......................... Description of Variable Annuity Contract
a. Purchases........................................ Description of Variable Annuity Contract-- Purchase
Payments
b. Valuation........................................ Description of Variable Annuity Contract-- Variable
Account Value
c. Daily Calculation................................ Description of Variable Annuity Contract-- Variable
Account Value
d. Underwriter...................................... Distribution of Contracts
11. Redemptions.......................................... Description of Variable Annuity Contract
a. --By Owners...................................... Description of Variable Annuity Contract-- Surrenders
and Partial Surrenders; Payments
--By Annuitant....................................... Description of Variable Annuity Contract-- proceeds
on Annuity Commencement Date; Annuity Options
b. Delay in Payment................................. Description of Variable Annuity Contract-- Suspension
or Delay in Payments
c. Lapse............................................ Description of Variable Annuity Contract-- Annuity
Options
d. Free Look Period................................. Description of Variable Annuity Contract--Free Look
Period
12. Taxes................................................ Federal Tax Matters
13. Legal Proceedings.................................... Legal Proceedings; APPENDIX
14. Table of Contents in the Statement of Additional
Information........................................ Statements of Additional Information Table of
Contents
PART B
15. Cover Page........................................... Cover Page
16. Table of Contents.................................... Statement of Additional Information Table of Contents
17. General Information and History...................... See Prospectus--The Company, Variable Account and
Funds
18. Services
a. Fees and Expenses of Registrant.................. N/A
b. Management Contract.............................. See Prospectus--The Company, Variable Account and
Funds
c. Custodian and Independent Public Accountant.... Safekeeping of Account Assets; Experts
d. Assets of Registrants............................ Safekeeping of Accounts Assets
e. Affiliated Persons............................... N/A
f. Principal Underwriter............................ See Prospectus--Distribution of Contracts
19. Purchase of Securities Being Offered................. See Prospectus--Distribution of Contracts
20. Underwriter.......................................... See Prospectus--Distribution of Contracts
21. Calculation of Performance Data...................... Calculation of Yields and Total Returns
22. Annuity Options...................................... See Prospectus--Annuity Options
23. Financial Statements................................. Financial Statements
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE AND FIXED ANNUITY CONTRACT
ISSUED BY
American Foundation Life Insurance Company
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: 1-800-456-6330
This Prospectus describes the individual flexible premium deferred variable
and fixed annuity contract (the "Contract") offered by American Foundation Life
Insurance Company ("American Foundation Life"). The Contract is designed for
individual investors who desire to accumulate capital on a tax deferred basis
for retirement or other long term investment purpose. It may be purchased on a
non-qualified basis. The Contract may also be sold for use with retirement plans
receiving special federal income tax treatment under the Internal Revenue Code
such as pension and profit sharing plans (including H.R. 10 plans), tax
sheltered annuity plans, and individual retirement annuities or accounts.
Purchase Payments will be allocated, as designated by the Owner(s), to one
or more of the Sub-Accounts of Variable Annuity Account A of American Foundation
(the "Variable Account"), or the Guaranteed Account or both. The assets of each
Sub-Account will be invested solely in a corresponding investment portfolio
(each, a "Fund") of Protective Investment Company, Oppenheimer Variable Account
Funds, MFS-Registered Trademark- Variable Insurance Trust, and Calvert Variable
Series Portfolios.
The Contract Value, except for the Guaranteed Account Value, will vary
according to the investment performance of the Funds in which the selected
Sub-Accounts are invested. The Owner(s) bear the investment risk of amounts
allocated to the Variable Account.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor should know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same date as this Prospectus and is incorporated herein by reference.
The Table of Contents for the Statement of Additional Information is on Page xx
of this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing or calling American Foundation Life at the
address or telephone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY. INVESTORS SHOULD KEEP A COPY FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS
FOR EACH OF THE FUNDS.
AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, NOR IS THE CONTRACT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF
PURCHASE PAYMENTS (PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... 4
Expense Tables............................................................ 7
Summary................................................................... 12
Condensed Financial Information........................................... 13
The Company, Variable Account and Funds................................... 14
American Foundation Life Insurance Company.............................. 14
Variable Annuity Account A of American Foundation....................... 14
Administration.......................................................... 14
The Funds............................................................... 15
Other Investors in the Funds............................................ 17
Addition, Deletion or Substitution of Investments....................... 18
Description of the Contracts.............................................. 18
Issuance of a Contract.................................................. 18
Purchase Payments....................................................... 19
Free Look Period........................................................ 19
Allocation of Purchase Payments......................................... 19
Variable Account Value.................................................. 19
Transfers............................................................... 21
Surrenders and Partial Surrenders....................................... 22
The Guaranteed Account.................................................... 23
Death Benefit............................................................. 24
Suspension or Delay in Payments........................................... 25
Charges and Deductions.................................................... 25
Surrender Charge (Contingent Deferred Sales Charge)..................... 25
Administration Charges.................................................. 26
Transfer Fee............................................................ 26
Mortality and Expense Risk Charge....................................... 27
Contract Maintenance Fee................................................ 27
Fund Expenses........................................................... 27
Premium Taxes........................................................... 27
Other Taxes............................................................. 27
Annuity Options........................................................... 28
Annuity Income Payments................................................. 28
Death of Annuitant or Owner After Annuity Commencement Date............. 29
Yields and Total Returns.................................................. 29
Federal Tax Matters....................................................... 31
Introduction............................................................ 31
The Company's Tax Status................................................ 31
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Taxation of Annuities in General.......................................... 31
Tax Deferral During Accumulation Period................................. 31
Taxation of Partial and Full Surrenders................................. 32
Taxation of Annuity Payments............................................ 33
Taxation of Death Benefit Proceeds...................................... 33
Assignments, Pledges, and Gratuitous Transfers.......................... 34
Penalty Tax on Premature Distributions.................................. 34
Aggregation of Contracts................................................ 34
Qualified Retirement Plans................................................ 35
In General.............................................................. 35
Direct Rollovers........................................................ 37
Federal Income Tax Withholding............................................ 37
General Matters........................................................... 37
Modification............................................................ 37
Reports................................................................. 38
Inquiries............................................................... 38
Distribution of the Contracts............................................. 38
Legal Proceedings......................................................... 38
Voting Rights............................................................. 38
Financial Statements...................................................... 39
Statement of Additional Information Table of Contents..................... 40
</TABLE>
3
<PAGE>
DEFINITIONS
"We", "us", "our", "American Foundation Life", and "Company" refer to
American Foundation Life Insurance Company. "You" and "your" refer to the
person(s) who has been issued a Contract.
ACCUMULATION UNIT: A unit of measurement used to calculate the value of a
Sub-Account.
ADMINISTRATIVE OFFICE: 2801 Highway 280 South, Birmingham, Alabama 35223.
AGE: The age on the birthday immediately prior to any date for which age is
to be determined.
ALLOCATION OPTION: Any account within the Guaranteed Account and any
Sub-Account to which Purchase Payments may be allocated or Contract Value
transferred under this Contract.
ANNIVERSARY VALUE: At any time, the sum of: (1) the Contract Value on a
Contract Anniversary; plus (2) all Purchase Payments made since that Contract
Anniversary; minus (3) any partial surrenders (and any associated charges) made
since that Contract Anniversary. An Anniversary Value is determined for each
Contract Anniversary through the earlier of: (1) the deceased Owner's 80th
birthday, or (2) the date of the deceased Owner's death.
ANNUITANT: The person on whose life annuity payments are based. The Owner
is the Annuitant unless the Owner designates another person as the Annuitant.
The Owner may change the Annuitant by Written Notice prior to the Annuity
Commencement Date. However, if any Owner is not an individual, the Annuitant may
not be changed.
ANNUITY COMMENCEMENT DATE: The date as of which Annuity Income Payments are
determined (i.e., the date as of which the Annuity Purchase Value is applied to
a selected Annuity Option). The initial Annuity Income Payment must be within
one month of the Annuity Commencement Date.
ANNUITY INCOME PAYMENT: Payments made by the Company that are determined on
the Annuity Commencement Date and are based on the Annuity Option selected.
ANNUITY OPTION: The payout option selected by the Owner(s) pursuant to
which the Company makes Annuity Income Payments.
ANNUITY PURCHASE VALUE: At any time prior to the Annuity Commencement Date,
the greater of: (1) Surrender Value, or (2) 95% of Contract Value (less
applicable premium tax).
BENEFICIARY: The person or persons entitled to receive the Death Benefit
upon the death of an Owner. Unless designated irrevocably, the Owner may change
the Beneficiary by Written Notice prior to the death of any Owner.
PRIMARY--The Primary Beneficiary is the surviving Joint Owner, if any. If
there is no surviving Joint Owner, the Primary Beneficiary is the person
or persons designated on the application or, if changed by the Owner, the
person or persons so named in our records.
CONTINGENT--The person or persons named to receive the Death Benefit if
the Primary Beneficiary is not living at the time of an Owner's death. If
no Beneficiary designation is in effect or if no Beneficiary is living at
the time of an Owner's death, the estate of the deceased Owner is the
Beneficiary.
IRREVOCABLE--An irrevocable Beneficiary is one whose written consent is
needed before the Owner can change the Beneficiary designation or
exercise certain other rights.
CODE: The Internal Revenue Code of 1986, as amended.
4
<PAGE>
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: At any time, the sum of: (1) the Variable Account Value,
and (2) the Guaranteed Account Value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date
or any Contract Anniversary.
DCA FIXED ACCOUNT: The DCA Fixed Account is part of the Company's general
account and is not part of or dependent upon the investment performance of the
Variable Account. Only Purchase Payments may be allocated to the DCA Fixed
Account, which is available only for dollar cost averaging. No transfers may be
made to the DCA Fixed Account from other Allocation Options.
DEATH BENEFIT: The amount, if any, paid to a Beneficiary upon the death of
an Owner prior to the Annuity Commencement Date. Only one Death Benefit is
payable under this Contract even though the Contract may, in some circumstances,
continue beyond an Owner's death. References to the death of an Owner mean the
death of the first of two Joint Owners to die.
EFFECTIVE DATE: The date as of which the initial Purchase Payment is
credited under the Contract and the date the Contract takes effect. Contract
Years are measured from the Effective Date. The Effective Date is shown on the
specifications page of the Contract.
FIXED ACCOUNT: The Fixed Account is part of the Company's general account
and is not part of or dependent upon the investment performance of the Variable
Account.
FUND: Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series thereof, in which a corresponding
Sub-Account invests.
GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Account and any other
account that we may offer with interest rate guarantees.
GUARANTEED ACCOUNT VALUE: At any time prior to the Annuity Commencement
Date, the sum of: (1) Purchase Payments allocated to the Guaranteed Account;
plus, (2) Variable Account Value transferred into the Guaranteed Account; plus,
(3) interest credited to the Guaranteed Account; minus, (4) Contract Value
transferred out of the Guaranteed Account; minus, (5) the amount of any partial
surrenders removed from the Guaranteed Account, including any surrender charges
and applicable premium tax; minus, (6) fees deducted from the Guaranteed
Account.
INTEREST GUARANTEED PERIOD: The term for which an interest rate is
guaranteed for an account within the Guaranteed Account.
MAXIMUM ANNIVERSARY VALUE: The greatest Anniversary Value attained.
NET ASSET VALUE PER SHARE: The value per share of any Fund as computed on
any Valuation Day as described in the Fund prospectus.
NON-QUALIFIED CONTRACTS: Contracts which are not Qualified Contracts.
OWNER: The person or persons who own the Contract and are entitled to
exercise all rights and privileges provided in the Contract. Two persons may own
the Contract together; they are called Joint Owners. Provisions relating to
action by the Owner mean, in the case of Joint Owners, both Owners acting
together. Individuals as well as non-natural persons, such as corporations or
trusts, may be Owners.
PAYEE: Person or persons designated by the Owner to receive the Annuity
Income Payments under the Contract. The Annuitant is the Payee unless another
party is designated as the Payee.
5
<PAGE>
PIC: Protective Investment Company.
PURCHASE PAYMENT(S): Amount(s) paid by the Owner and accepted by the
Company as consideration for this Contract.
QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans
that receive favorable tax treatment under Sections 401, 403, 408 or 457 of the
Code.
QUALIFIED PLANS: Retirement plans that receive favorable tax treatment
under Sections 401, 403, 408, or 457 of the Code.
SUB-ACCOUNT: A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE: Prior to the Annuity Commencement Date, the total amount
equal to that part of any Purchase Payment(s) allocated to the Sub-Account plus
any Contract Value transferred to the Sub-Account, adjusted by investment
performance, and decreased by partial surrenders (including any applicable
surrender charges and premium tax), any Contact Value transferred out of the
Sub-Account and any fees deducted from the Sub-Account. Sub-Account Value can be
determined at any time by multiplying the Accumulation Unit value for a
Sub-Account by the number of Accumulation Units of that Sub-Account credited
under a Contract.
SURRENDER VALUE: The amount available for a full surrender. It is equal to
the Contract Value minus any applicable surrender charge, contract maintenance
fee and premium tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading
on the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next Valuation Day.
VARIABLE ACCOUNT: Variable Annuity Account A of American Foundation, a
separate investment account of the Company.
VARIABLE ACCOUNT VALUE: The sum of all Sub-Account Values.
WRITTEN NOTICE: A notice or request submitted in writing in a form
satisfactory to the Company that is received at the Administrative Office.
Written Notice to change or assign the Contract is effective as of the date that
the Notice was signed, however, the Company is not responsible for following any
instruction or making any change or assignment before receipt of the Notice.
6
<PAGE>
EXPENSE TABLES
The following expense information assumes that the entire Contract Value is
Variable Account Value.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Purchase Payments................................. None
Maximum Surrender Charge (contingent deferred sales charge)............... 7%
Transfer Processing Fee................................................... None*
ANNUAL CONTRACT MAINTENANCE FEE............................................. $ 30
ANNUAL ACCOUNT EXPENSES
(as a percentage of net assets)
Mortality and Expense Risk Charge......................................... 1.25%
Administration Charge..................................................... 0.15%
Total Account Expenses.................................................... 1.40%
</TABLE>
<TABLE>
<S> <C>
ANNUAL FUND EXPENSES
(as percentage of average net assets)
PIC FUNDS (1)
MONEY MARKET FUND
-----------------
Management (Advisory) Fees................................................ 0.60%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 0.60%
<CAPTION>
CORE U.S. EQUITY
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.80%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 0.80%
<CAPTION>
CAPITAL GROWTH
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.80%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 0.80%
<CAPTION>
SMALL CAP EQUITY
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.80%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 0.80%
<CAPTION>
INTERNATIONAL
EQUITY FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 1.10%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 1.10%
<CAPTION>
GROWTH AND INCOME
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.80%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 0.80%
<CAPTION>
GLOBAL INCOME
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 1.10%
Other Expenses After Reimbursement....................................... 0.00%
Total Annual Fund Expenses (after reimbursements)........................ 1.10%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
OPPENHEIMER FUNDS (2)
<CAPTION>
CAPITAL
APPRECIATION FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.72%
Other Expenses After Reimbursement....................................... 0.03%
Total Annual Fund Expenses (after reimbursements)........................ 0.75%
<CAPTION>
GROWTH FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement....................................... 0.04%
Total Annual Fund Expenses (after reimbursements)........................ 0.79%
<CAPTION>
GROWTH & INCOME
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement....................................... 0.25%
Total Annual Fund Expenses (after reimbursements)........................ 1.00%
<CAPTION>
STRATEGIC BOND
FUND
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement....................................... 0.10%
Total Annual Fund Expenses (after reimbursements)........................ 0.85%
MFS FUNDS
<CAPTION>
MFS EMERGING
GROWTH SERIES
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement (3)(4)................................ 0.25%
Total Annual Fund Expenses (after reimbursements) (4).................... 1.00%
<CAPTION>
MFS RESEARCH
SERIES
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement (3)(4)................................ 0.25%
Total Annual Fund Expenses (after reimbursements) (4).................... 1.00%
<CAPTION>
MFS GROWTH WITH
INCOME SERIES
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement (3)(4)................................ 0.25%
Total Annual Fund Expenses (after reimbursements) (4).................... 1.00%
<CAPTION>
MFS TOTAL RETURN
SERIES
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.75%
Other Expenses After Reimbursement (3)(4)................................ 0.25%
Total Annual Fund Expenses (after reimbursements) (4).................... 1.00%
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
CALVERT FUNDS
<CAPTION>
SOCIAL SMALL CAP
GROWTH PORTFOLIO
-----------------
<S> <C>
Management (Advisory) Fees................................................ . %
Other Expenses After Reimbursement....................................... . %
Total Annual Fund Expenses (after reimbursements) (5).................... . %
<CAPTION>
SOCIAL BALANCED
PORTFOLIO
-----------------
<S> <C>
Management (Advisory) Fees................................................ 0.71%
Other Expenses After Reimbursement....................................... 0.10%
Total Annual Fund Expenses (after reimbursements) (6).................... 0.81%
</TABLE>
- ------------------------
* American Foundation Life reserves the right to charge a Transfer Fee in the
future. (See "Charges and Deductions".)
(1) The annual expenses listed for all of the PIC Funds are net of certain
reimbursements by PIC's investment manager. (See "The Funds".) Absent the
reimbursements, total expenses for the period ended December 31, 1996 were:
Money Market Fund 1.27%, CORE U.S. Equity Fund 0.91%, Small Cap Equity Fund
0.94%, International Equity Fund 1.38%, Growth and Income Fund 0.88%,
Capital Growth Fund 1.02%, and Global Income Fund 1.42%. PIC's investment
manager has voluntarily agreed to reimburse certain of each Fund's expenses
in excess of its management fees. Although this reimbursement may be ended
on 120 days notice to PIC, the investment manager has no present intention
of doing so.
(2) Oppenheimer Growth Fund expenses are net of certain reimbursements by the
investment manager. Absent the reimbursements, the Oppenheimer Growth Fund's
total expenses for the period ended December 31, 1996 were 0.81%.
(3) Each Series has an expense offset arrangement which reduces the Series'
custodian based fee based on the amount of cash maintained by the Series
with its custodian and dividend disbursing agent, and may enter into other
such arrangements and directed brokerage arrangements (which would also have
the effect of reducing the Series' expenses). Any such fee reductions are
not reflected under "Other Expenses."
(4) The investment advisor has agreed to bear expenses for each Series, subject
to reimbursement by each Series, such that each Series' "Other Expenses"
shall not exceed 0.25% of the average daily net assets of the Series during
the current fiscal year. See the Funds prospectus, "Information Concerning
Shares of Each Series-- Expenses." Otherwise, "Other Expenses" for the
Emerging Growth Series, Research Series, Growth With Income Series and Total
Return Series would be 0.41%, 0.73%, 1.32% and 1.35%, respectively, and
"Total Operating Expenses" would be 1.16%, 1.48%, 2.07% and 2.10%,
respectively, for these Series.
(5) The figures listed for the Calvert Funds Social Small Cap Growth Portfolio
are reflective of an expense agreement effective on October 1, 1997.
Additionally, the "Other Expenses" item reflects a reduction of 0.25% for
fees paid by another entity. Without this reduction, "Total Annual Fund
Expenses" would have been 1.59% for this Portfolio.
(6) The figures listed for the Calvert Funds Social Balanced Portfolio are based
on expenses for fiscal year 1996 and have been restated to reflect an
increase in transfer agency expenses of 0.03% expected to be incurred in
1997. "Management (Advisory) Fees" include a performance adjustment which,
depending upon performance, could cause the fee to be as high as 0.85% or as
low as 0.55%. The "Other Expenses" item reflects a reduction of 0.03% for
fees paid by another entity. Without this reduction the "Total Annual Fund
Expenses" would have been 0.84% for this Portfolio.
9
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The above tables are intended to assist the owner in understanding the costs
and expenses that he or she will bear directly or indirectly. The tables reflect
the expenses for the Account and reflect the investment management fees and
other expenses and total expenses for each Fund for the period January 1, 1996
to December 31, 1996. For a more complete description of the various costs and
expenses see "Charges and Deductions" and the prospectuses for each of the
Funds, which accompany this prospectus. IN ADDITION TO THE EXPENSES LISTED
ABOVE, PREMIUM TAXES VARYING FROM 0 TO 3.5% MAY BE APPLICABLE IN CERTAIN STATES.
CURRENTLY, NO PREMIUM TAX IS IMPOSED FOR CONTRACTS ISSUED IN NEW YORK.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
1. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PIC Money Market............................................................. $ 91 $ 115 $ 141 $ 240
PIC CORE U.S. Equity......................................................... 93 121 152 261
PIC Capital Growth........................................................... 93 121 152 261
PIC Small Cap Equity......................................................... 93 121 152 261
PIC International Equity..................................................... 96 130 167 290
PIC Growth and Income........................................................ 93 121 152 261
PIC Global Income............................................................ 96 130 167 290
Oppenheimer Capital Appreciation............................................. 93 119 149 255
Oppenheimer Growth........................................................... 93 121 151 260
Oppenheimer Growth & Income.................................................. 95 127 162 281
Oppenheimer Strategic Bond................................................... 94 122 154 266
MFS Emerging Growth.......................................................... 95 127 162 281
MFS Research................................................................. 95 127 162 281
MFS Growth With Income....................................................... 95 127 162 281
MFS Total Return............................................................. 95 127 162 281
Calvert Social Small Cap Growth.............................................. 98 137 178 313
Calvert Social Balanced...................................................... 93 120 150 258
</TABLE>
10
<PAGE>
2. If the Contract is not surrendered or is annuitized* at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PIC Money Market............................................................. $ 21 $ 65 $ 111 $ 240
PIC CORE U.S. Equity......................................................... 23 71 122 261
PIC Capital Growth........................................................... 23 71 122 261
PIC Small Cap Equity......................................................... 23 71 122 261
PIC International Equity..................................................... 26 80 137 290
PIC Growth and Income........................................................ 23 71 122 261
PIC Global Income............................................................ 26 80 137 290
Oppenheimer Capital Appreciation............................................. 23 69 119 255
Oppenheimer Growth........................................................... 23 71 121 260
Oppenheimer Growth & Income.................................................. 25 77 132 281
Oppenheimer Strategic Bond................................................... 24 72 124 266
MFS Emerging Growth.......................................................... 25 77 132 281
MFS Research................................................................. 25 77 132 281
MFS Growth With Income....................................................... 25 77 132 281
MFS Total Return............................................................. 25 77 132 281
Calvert Social Small Cap Growth.............................................. 28 87 148 313
Calvert Social Balanced...................................................... 23 71 122 262
</TABLE>
- ------------------------
* Currently, no surrender charge will be applied to the Contract Value upon
annuitization. (See "Charges and Deductions".)
The examples assume that no transfer fee or premium taxes have been
assessed. The examples assume that the contract maintenance fee is $30. The
contract maintenance fee reflected in the above examples is based on an
anticipated average Contract Value of $42,000, for purposes of the examples
based on a $1,000 investment.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE 5%
ANNUAL RETURN ASSUMED IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESS
THAN THE ASSUMED AMOUNT.
11
<PAGE>
SUMMARY
THE CONTRACT
HOW IS A CONTRACT ISSUED? The Contract is an individual flexible premium
deferred variable and fixed annuity contract that American Foundation Life
issues upon receipt of completed application information and an initial Purchase
Payment. (See "Issuance of Contract".)
WHAT ARE THE PURCHASE PAYMENTS? The minimum amount which American
Foundation Life will accept as an initial Purchase Payment is $5,000 for a
Non-Qualified Contract and $2,000 for a Qualified Contract. Subsequent Purchase
Payments may be made at any time. The minimum subsequent Purchase Payment is
$250, unless the payment is made electronically under the Automatic Purchase
Plan. Currently, we will accept a minimum payment of $100 under this Plan. The
maximum aggregate Purchase Payments we will accept without Our prior approval is
$1,000,000. (See "Purchase Payments".)
CAN I CANCEL THE CONTRACT? You have the right to return the Contract within
a certain number of days (which varies by state and is never less than ten days)
after you receive it. The returned Contract will be treated as if it were never
issued. American Foundation Life will refund the Contract Value in states where
permitted. This amount may be more or less than the Purchase Payments. Where
required, we will refund Purchase Payments. (See "Free Look Period".)
CAN I TRANSFER AMOUNTS IN THE CONTRACT? Prior to the Annuity Commencement
Date, you may request transfers of Contract Value from one Allocation Option to
another. However, no transfers may be made into the DCA Fixed Account. At least
$100 must be transferred. American Foundation Life reserves the right to limit
the maximum amount that may be transferred from the Fixed Account to the greater
of (a) $2,500; or (b) 25% of the value of the Fixed Account per Contract Year.
The Company reserves the right to limit the number transfers in any Contract
Year to 12 or to charge a Transfer Fee of $25 for each transfer in excess of 12
during any Contract Year. (See "Transfers".)
CAN I SURRENDER THE CONTRACT? Upon Written Notice before the Annuity
Commencement Date, You may surrender the Contract and receive its Surrender
Value. (See "Surrenders and Partial Surrenders".)
IS THERE A DEATH BENEFIT? If any Owner dies prior to the Annuity
Commencement Date and while this Contract is in force, a Death Benefit may be
payable to the Beneficiary. The Death Benefit is determined as of the end of the
Valuation Period during which we receive due proof of the Owner's death. The
amount of the Death Benefit will depend upon the age of the Owner on the date of
death.
In general, if the Owner dies on or before his or her 90th birthday, the
Death Benefit is the greater of: (1) the Contract Value; or (2) total Purchase
Payments made under the Contract reduced by any partial surrenders and any
associated Surrender Charges; or (3) the Maximum Anniversary Value.
If the Owner dies after his or her 90th birthday, the Death Benefit is the
Contract Value. (See "Death Benefit".)
ARE THERE CHARGES AND DEDUCTIONS FROM MY CONTRACT? The following charges
and deductions are made in connection with the Contract:
SURRENDER CHARGES. Full or partial surrenders are subject to a surrender
charge. The surrender charge is equal to a specified percentage (maximum 7%) of
each Purchase Payment surrendered. No surrender charge applies to Contract Value
in excess of aggregate Purchase Payments (less prior partial surrenders of
Purchase Payments). The surrender charge is calculated using the assumption that
the Contract Value in excess of aggregate Purchase Payments (less prior partial
surrenders of Purchase Payments) is surrendered before any Purchase Payments and
that Purchase Payments are surrendered on a first-in-first-out basis. (See
"Surrender Charge".)
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<PAGE>
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a mortality and expense
risk charge to compensate us for assuming certain mortality and expense risks.
The charge is equal, on an annual basis, to 1.25% of the average daily net
assets of the Variable Account.
ADMINISTRATION CHARGE. We will deduct an administration charge equal, on an
annual basis, to .15% of the average daily net assets of the Variable Account.
CONTRACT MAINTENANCE FEE. A contract maintenance fee of $30 is deducted
from the Contract Value on each Contract Anniversary, and on any day that the
Contract is surrendered, if the surrender occurs on a day other than the
Contract Anniversary. Under certain circumstances, this fee may be waived. (See
"Contract Maintenance Fee".)
TAXES. Some states impose premium taxes at rates ranging up to 3.5%. The
State of New York does not currently impose a premium tax on annuity contracts.
If premium taxes are applicable to your Contract, we will deduct them from your
Contract by applying the premium tax rate to one of the following: Your Purchase
Payment(s), amounts that You surrender, the Death Benefit, or the Annuity
Purchase Value. The Company reserves the right to impose a charge for other
taxes attributable to the Variable Account. (See "Charges and Deductions".)
INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES OF THE FUNDS. The net assets
of each Sub-Account of the Variable Account will reflect the investment
management fee incurred by the corresponding Fund as well as other operating
expenses of that Fund. For each Fund, the investment manager is paid a daily fee
for its investment management services. The management fees are based on the
average daily net assets of the Fund. (See "Funds Expenses" and the Funds'
Prospectuses.)
WHAT ANNUITY OPTIONS ARE AVAILABLE? Currently, we apply the Contract Value
to an Annuity Option on the Annuity Commencement Date, unless you choose to
receive the Surrender Value in a lump sum. Annuity Options include: Payments for
a Fixed Period and Life Income with Payments for a Guaranteed Period. (See
"Annuity Options".)
IS THE CONTRACT AVAILABLE FOR QUALIFIED RETIREMENT PLANS? The Contract may
be issued for use with retirement plans receiving special federal income tax
treatment under the Code such as pension and profit sharing plans (including
H.R. 10 plans), "tax sheltered" annuity plans, and individual retirement
annuities or accounts. (See "Federal Tax Matters".)
FEDERAL TAX STATUS
Generally, a distribution from the Contract, which includes a full or
partial surrender or payment of a Death Benefit, will result in taxable income
if there has been an increase in the Contract Value. In certain circumstances, a
10% penalty tax may also apply. (See "Federal Tax Matters".)
CONDENSED FINANCIAL INFORMATION
No condensed financial information is provided for the Variable Account
because, as of the date of this Prospectus, the Variable Account had not yet
commenced operations.
13
<PAGE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
The Contracts are issued by American Foundation Life Insurance Company, a
wholly owned subsidiary of Protective Life Insurance Company, which is the chief
operating subsidiary of Protective Life Corporation, a Delaware insurance
holding company whose stock is traded on the New York Stock Exchange. American
Foundation Life was organized as an Alabama insurance company in 1978. American
Foundation Life is authorized to transact insurance business in 29 states
(including New York) and offers a variety of individual life, annuity, and group
dental insurance products. The Company's assets for the fiscal year ending 1996
were in excess of 100 million dollars. All policyholder liabilities of American
Foundation Life are guaranteed by Protective Life Insurance Company.
VARIABLE ANNUITY ACCOUNT A OF AMERICAN FOUNDATION
Variable Annuity Account A of American Foundation is a separate investment
account of American Foundation Life. The Variable Account was established under
Alabama law by the Board of Directors of American Foundation on December 1,
1997. The Variable Account is registered with the Securities and Exchange
Commission (the "SEC") as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act") and meets the definition of a separate account
under federal securities laws. This registration does not involve supervision by
the SEC of the management or investment policies or practices of the Variable
Account.
American Foundation Life owns the assets of the Variable Account. These
assets are held separate from other assets and are not part of American
Foundation Life's general account. The portion of the assets of the Variable
Account equal to the reserves or other contract liabilities with respect to the
Variable Account are not chargeable with the liabilities that arise from any
other business American Foundation Life conducts. American Foundation Life may
transfer to its general account any assets of the Variable Account which exceed
the reserves and other contract liabilities of the Variable Account (which will
always be at least equal to the aggregate Variable Account Value under the
Contracts). American Foundation Life may accumulate in the Variable Account the
charge for mortality and expense risks, and investment results applicable to
those assets that are in excess of the net assets supporting the Contracts. The
income, gains and losses, both realized and unrealized, from the assets of the
Variable Account are credited to or charged against the Variable Account without
regard to any other income, gains or losses of American Foundation Life.
The Variable Account has seventeen Sub-Accounts: PIC Money Market; PIC CORE
U.S. Equity; PIC Capital Growth; PIC Small Cap Equity; PIC International Equity;
PIC Growth and Income; PIC Global Income; Oppenheimer Capital Appreciation;
Oppenheimer Growth; Oppenheimer Growth & Income; Oppenheimer Strategic Bond; MFS
Emerging Growth; MFS Research; MFS Growth With Income; MFS Total Return; Calvert
Social Small Cap Growth; and Calvert Social Balanced. Each Sub-Account invests
in shares of a corresponding Fund. Therefore, the investment experience of Your
Contract depends on the experience of the Sub-Accounts that You select.
ADMINISTRATION
Pursuant to the terms of an agreement with American Foundation Life,
Protective Life Insurance Company administers the Contracts at the
Administrative Office (Protective Life's home office) at 2801 Highway 280 South,
Birmingham, Alabama 35223. Contract administration includes: processing
applications for the Contracts and subsequent Owner requests; processing
Purchase Payments, transfers, surrenders and Death Benefit claims as well as
performing record maintenance and disbursing Annuity Income Payments.
14
<PAGE>
THE FUNDS
Each Sub-Account invests in a corresponding Fund. Each Fund is an investment
portfolio of one of the following investment companies: PIC (the "PIC Funds")
managed by Investment Distributors Advisory Services, Inc., and subadvised by
Goldman Sachs Asset Management or Goldman Sachs Asset Management International;
Oppenheimer Variable Account Funds (the "Oppenheimer Funds") managed by
OppenheimerFunds, Inc.; MFS Variable Insurance Trust (the "MFS Funds") managed
by Massachusetts Financial Services Company; or Calvert Variable Series
Portfolios (the "Calvert Funds") managed by Calvert Asset Management Company,
Inc. Shares of these Funds are offered only to: (1) the Variable Account, (2)
separate accounts of other life insurance companies supporting variable annuity
contracts or variable life insurance policies, and (3) certain qualified
retirement plans. Such shares are not offered directly to investors but are
available only through the purchase of such contracts or policies or through
such plans. See the prospectus for each Fund for details about that Fund.
There is no guarantee that any Fund will meet its investment objectives.
Please refer to the prospectus for each of the Funds you are considering for
more information.
THE PIC FUNDS
PIC MONEY MARKET FUND. This Fund seeks to maximize current income to
the extent consistent with the preservation of capital and maintenance of
liquidity. This Fund will pursue its objective by investing exclusively in
high quality money market instruments. An investment in the Money Market
Fund is neither insured nor guaranteed by the U.S. Government and the Fund
cannot assure that it will be able to maintain a stable net asset value of
$1 per share.
PIC CORE U.S. EQUITY FUND. This Fund seeks a total return consisting of
capital appreciation plus dividend income. This Fund will pursue its
objective by investing, under normal circumstances, at least 90% of its
total assets in equity securities selected using both fundamental research
and a variety of quantitative techniques that seek to maximize the Fund's
reward to risk ratio.
PIC CAPITAL GROWTH FUND. This Fund seeks long-term capital growth. The
Fund will pursue its objective by investing, under normal circumstances, at
least 65% of its total assets in equity securities having long-term capital
appreciation potential.
PIC SMALL CAP EQUITY FUND. This Fund seeks long-term capital growth.
This Fund will pursue its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies with public stock market capitalizations of $1 billion or less at
the time of investment.
PIC INTERNATIONAL EQUITY FUND. This Fund seeks long-term capital
appreciation. This Fund will pursue its objective by investing, primarily in
equity and equity-related securities of companies that are organized outside
the United States or whose securities are primarily traded outside the
United States.
PIC GROWTH AND INCOME FUND. This Fund seeks long-term growth of capital
and growth of income. This Fund will pursue its objectives by investing,
under normal circumstances, at least 65% of its total assets in equity
securities having favorable prospects of capital appreciation and/or
dividend paying ability.
PIC GLOBAL INCOME FUND. This Fund seeks high total return, emphasizing
current income and, to a lesser extent, providing opportunities for capital
appreciation. This Fund will pursue its objectives by investing in high
quality fixed-income securities of U.S. and foreign issuers and through
foreign currency transactions.
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<PAGE>
THE OPPENHEIMER FUNDS
CAPITAL APPRECIATION FUND. This Fund seeks to achieve capital
appreciation by investing in "growth-type" companies.
GROWTH FUND. This Fund seeks to achieve capital appreciation by
investing in securities of well-known established companies.
GROWTH & INCOME FUND. This Fund seeks a high total return (which
includes growth in the value of its shares as well as current income) from
equity and debt securities. From time to time this Fund may focus on small
to medium capitalization common stocks, bonds and convertible securities.
STRATEGIC BOND FUND. This Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance
such income by writing covered call options on debt securities.
THE MFS FUNDS
MFS EMERGING GROWTH SERIES. This Fund seeks to provide long-term growth
of capital.
MFS RESEARCH SERIES. This Fund seeks to provide long-term growth of
capital and future income.
MFS GROWTH WITH INCOME SERIES. This Fund seeks to provide reasonable
current income and long-term growth of capital and income.
MFS TOTAL RETURN SERIES. This Fund seeks primarily to provide
above-average income (compared to a portfolio invested entirely in equity
securities) consistent with the prudent employment of capital and
secondarily to provide a reasonable opportunity for growth of capital and
income.
THE CALVERT FUNDS
SOCIAL SMALL CAP GROWTH PORTFOLIO. This Fund seeks to achieve long-term
capital appreciation by investing primarily in the equity securities of
small companies publicly traded in the United States. In seeking capital
appreciation, the Portfolio invests primarily in the equity securities of
small-capitalized growth companies that have historically exhibited
exceptional growth characteristics and that, in the Advisor's opinion, have
strong earnings potential relative to the US market as a whole.
SOCIAL BALANCED PORTFOLIO. This Fund seeks to achieve a total return
above the rate of inflation through an actively managed, non-diversified
portfolio of common and preferred stocks, bonds, and money market
instruments that offer income and capital growth opportunity and that
satisfy the social concern criteria established for the Fund.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
MORE DETAILED INFORMATION CONCERNING THE INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS OF THE FUNDS, THE EXPENSES OF THE FUNDS, THE RISKS ATTENDANT TO
INVESTING IN THE FUNDS AND OTHER ASPECTS OF THEIR OPERATIONS CAN BE FOUND IN THE
CURRENT PROSPECTUSES FOR THE FUNDS, WHICH ACCOMPANY THIS PROSPECTUS, AND THE
CURRENT STATEMENT OF ADDITIONAL INFORMATION FOR EACH OF THE FUNDS. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF PURCHASE PAYMENTS OR TRANSFERS AMONG THE SUB-ACCOUNTS.
Each Fund sells its shares to the Variable Account in accordance with the
terms of a participation agreement between the appropriate investment company
and American Foundation Life. The termination provisions of these agreements
vary. Should a participation agreement relating to a Fund terminate, the
Variable Account would not be able to purchase additional shares of that Fund.
In that event, Owners would no longer be able to allocate Variable Account Value
or Purchase Payments to Sub-Accounts investing in that Fund. In certain
circumstances, it is also possible that a Fund may refuse to sell its shares
16
<PAGE>
to the Variable Account despite the fact that the participation agreement
relating to that Fund has not been terminated. Should a Fund decide to
discontinue selling its shares to the Variable Account, American Foundation Life
would not be able to honor requests from Owners to allocate Purchase Payments or
transfer Account Value to the Sub-Account investing in shares of that Fund.
American Foundation Life has entered into agreements with the investment
managers or advisers of several of the Funds pursuant to which each such
investment manager or adviser pays American Foundation Life a servicing fee
based upon an annual percentage of the average daily net assets invested by the
Variable Account in the Funds managed by that manager or adviser. These fees are
in consideration for administrative services provided to the Funds by American
Foundation Life. Payments of fees under these agreements by managers or advisers
do not increase the fees or expenses paid by the Funds or their shareholders.
OTHER INVESTORS IN THE FUNDS
Currently, PIC sells shares of its Funds only to American Foundation Life as
the underlying investment for the Variable Account and to certain separate
accounts of Protective Life Insurance Company as the underlying investment for
variable annuity and variable life insurance contracts issued by Protective
Life. PIC may in the future sell shares of its Funds to other separate accounts
of American Foundation Life or its life insurance company affiliates to support
other variable annuity contracts or variable life insurance contracts. Upon
obtaining any necessary regulatory approval, PIC may also sell shares to certain
retirement plans qualifying under Section 401 of the Code. American Foundation
Life currently does not foresee any disadvantages to Owners that would arise
from the sale of PIC Fund shares to support variable annuity and variable life
insurance contracts of its affiliates or from the possible sale of shares to
such retirement plans. However, the board of directors of PIC will monitor
events in order to identify any material irreconcilable conflicts that might
possibly arise if such shares were also offered to support variable annuity
contracts other than the Contracts or variable life insurance contracts or to
retirement plans. In event of such a conflict, the board of directors would
determine what action, if any, should be taken in response to the conflict. In
addition, if American Foundation Life believes that the PIC's response to any
such conflicts insufficiently protects Owners, it will take appropriate action
on its own, including withdrawing the Account's investment in the Fund. (See the
PIC Prospectus for more detail.)
Shares of the Oppenheimer, MFS and Calvert Funds are sold to separate
accounts of insurance companies, which may or may not be affiliated with
American Foundation Life or each other, a practice known as "shared funding."
They may also be sold to separate accounts to serve as the underlying investment
for both variable annuity contracts and variable life insurance policies, a
practice known as "mixed funding." As a result, there is a possibility that a
material conflict may arise between the interests of Owners of American
Foundation Life's Contracts, whose Contract Values are allocated to the Variable
Account, and of owners of other contracts whose contract values are allocated to
one or more other separate accounts investing in any one of the Funds. Shares of
some of these Funds may also be sold to certain qualified pension and retirement
plans. As a result, there is a possibility that a material conflict may arise
between the interests of Contract Owners generally or certain classes of
Contract Owners, and such retirement plans or participants in such retirement
plans. In the event of any such material conflicts, American Foundation Life
will consider what action may be appropriate, including removing the Fund from
the Variable Account or replacing the Fund with another fund. As is the case
with PIC, the board of directors (or trustees) of the Oppenheimer Funds, MFS
Funds and Calvert Funds monitors events related to their Funds to identify
possible material irreconcilable conflicts among and between the interests of
the Fund's various investors. There are certain risks associated with mixed and
shared funding and with the sale of shares to qualified pension and retirement
plans, as disclosed in each Fund's prospectus.
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<PAGE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
American Foundation Life reserves the right, subject to applicable law, to
make additions to, deletions from, or substitutions for the shares that are held
in the Variable Account or that the Variable Account may purchase. If the shares
of a Fund are no longer available for investment or if in American Foundation
Life's judgment further investment in any Fund should become inappropriate in
view of the purposes of the Variable Account, American Foundation Life may
redeem the shares, if any, of that Fund and substitute shares of another
registered open-end management company or unit investment trust. American
Foundation Life will not substitute any shares attributable to a Contract's
interest in the Variable Account without notice and any necessary approval of
the SEC and state insurance authorities.
American Foundation Life also reserves the right to establish additional
Sub-Accounts of the Variable Account, each of which would invest in shares
corresponding to a new Fund. Subject to applicable law and any required SEC
approval, American Foundation Life may, in its sole discretion, establish new
Sub-Accounts or eliminate one or more Sub-Accounts if marketing needs, tax
considerations or investment conditions warrant. Any new Sub-Accounts may be
made available to existing Owner(s) on a basis to be determined by American
Foundation Life.
If any of these substitutions or changes are made, American Foundation Life
may by appropriate endorsement change the Contract to reflect the substitution
or other change. If American Foundation Life deems it to be in the best interest
of Owner(s) and Annuitants, and subject to any approvals that may be required
under applicable law, the Variable Account may be operated as a management
company under the 1940 Act, it may be de-registered under that Act if
registration is no longer required, or it may be combined with other American
Foundation Life separate accounts. American Foundation Life reserves the right
to make any changes to the Variable Account required by the 1940 Act or other
applicable law or regulation.
DESCRIPTION OF THE CONTRACTS
ISSUANCE OF A CONTRACT
To purchase a Contract, certain application information and an initial
Purchase Payment must be submitted to American Foundation Life through a
licensed representative of American Foundation Life, who is also a registered
representative of a broker-dealer having a distribution agreement with
Investment Distributors, Inc. The minimum initial Purchase Payment is $5,000 for
Non-Qualified Contracts and $2,000 for Qualified Contracts. American Foundation
Life reserves the right to accept or decline a request to issue a Contract.
Contracts may be sold to or in connection with retirement plans which do not
qualify for special tax treatment as well as retirement plans that qualify for
special tax treatment under the Code. Generally, the maximum age for Owners on
the Effective Date is 85.
If the necessary application information for a Contract is accompanied by
the initial Purchase Payment, the initial Purchase Payment (less any applicable
premium tax) will be allocated to the Allocation Options as directed in the
application within two business days of receipt of the Purchase Payment at the
Administrative Office. If the necessary application information is not received,
American Foundation Life will retain the Purchase Payment for up to five
business days while it attempts to complete the information. If the necessary
application information is not complete after five days, American Foundation
Life will inform the applicant of the reason for the delay and the initial
Purchase Payment will be returned immediately unless the applicant specifically
consents to American Foundation Life retaining it until the information is
complete. Once the information is complete, the initial Purchase Payment will be
allocated to the appropriate Allocation Options within two business days.
Information necessary to complete an application may be transmitted to the
Company by telephone, facsimile, or electronic media.
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<PAGE>
PURCHASE PAYMENTS
Subsequent Purchase Payment(s) may be accepted by American Foundation Life.
The Company reserves the right to reject any Purchase Payment. The Company
further reserves the right to limit the maximum aggregate Purchase Payment that
can be made without prior approval. This amount is currently $1,000,000. The
minimum subsequent Purchase Payment that will be accepted is $250, unless the
payment is made electronically under the Automatic Purchase Plan.
Under the current Automatic Purchase Payment plan, the Owner can select a
monthly or quarterly payment schedule pursuant to which Purchase Payments will
be automatically deducted from a bank account. Each automatic purchase payment
must be at least $100.
FREE LOOK PERIOD
You have the right to return the Contract within a certain number of days
after you receive it by returning it to the Administrative Office or the sales
representative who sold it along with a written cancellation request. The number
of days is determined by state law (and is at least ten days) in the state where
the Contract is delivered. Return of the Contract by mail is effective on being
received by us. We will treat the returned Contract as if it had never been
issued. However, in states where permitted, American Foundation Life will refund
the Contract Value and any charges deducted from either Purchase Payments or
Contract Value. This amount may be more or less than the aggregate amount of
your Purchase Payments up to that time. Where required, we will refund the
Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
Owners must indicate in the application how Purchase Payments are to be
allocated among the Allocation Options. These allocation instructions apply to
both initial and subsequent Purchase Payments. If such instructions are
indicated by percentages, whole percentages must be used. Owners may not
allocate any Purchase Payment to more than 10 Allocation Options.
For Individual Retirement Annuities and Contracts issued in states where,
upon cancellation during the free look period, we return at least your Purchase
Payments, we reserve the right to allocate your initial Purchase Payment (and
any subsequent Purchase Payment made during the free look period) to the PIC
Money Market Sub-Account until the expiration of the number of days in the free
look period starting from the date the Contract is mailed from the
Administrative Office. Thereafter, all Purchase Payments will be allocated
according to your allocation instructions then in effect.
Owners may change allocation instructions by Written Notice at any time.
Owners also may change instructions by telephone, facsimile transmission or
automated telephone system. The Company reserves the right to limit or eliminate
any of these non-written communication methods for any Contract or class of
Contracts at any time for any reason.
We will send you a confirmation of all instructions communicated to us to
determine if they are genuine. For non-written instructions regarding
allocations, We will require a form of personal identification prior to acting
on instructions and we will record any telephone voice instructions. If we
follow these procedures, we will not be liable for any losses due to
unauthorized or fraudulent instructions.
VARIABLE ACCOUNT VALUE
SUB-ACCOUNT VALUE. A Contract's Variable Account Value at any time is the
sum of the Sub-Account Values and therefore reflects the investment experience
of the Sub-Accounts to which it is allocated. There is no guaranteed minimum
Variable Account Value. The Sub-Account Value for any Sub-Account as of the
Effective Date is equal to the amount of the initial Purchase Payment allocated
to that Sub-Account. On subsequent Valuation Days prior to the Annuity
Commencement Date, the Sub-Account Value is equal to that part of any Purchase
Payment allocated to the Sub-Account and any Contract Value transferred to the
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Sub-Account, adjusted by interest income, dividends, net capital gains or losses
(realized or unrealized), decreased by partial surrenders (including any
applicable surrender charges and premium tax), Contract Value transferred out of
the Sub-Account and fees deducted from the Sub-Account.
DETERMINATION OF ACCUMULATION UNITS. Purchase Payments allocated to and
Contract Value transferred to a Sub-Account are converted into Accumulation
Units. The number of Accumulation Units is determined by dividing the dollar
amount directed to the Sub-Account by the value of the Accumulation Unit for
that Sub-Account for the Valuation Day as of which the allocation or transfer
occurs. Purchase Payments allocated to or amounts transferred to a Sub-Account
under a Contract increase the number of Accumulation Units of that Sub-Account
credited to the Contract. The Company executes such allocations and transfers as
of the end of the Valuation Period in which it receives a Purchase Payment or
Written Notice or other instruction requesting a transfer.
Certain events reduce the number of Accumulation Units of a Sub-Account
credited to a Contract. Partial surrenders or transfers from a Sub-Account
result in the cancellation of the appropriate number of Accumulation Units of
that Sub-Account as do payments resulting from the following events: a
surrender, a Death Benefit claim, application of the Annuity Purchase Value to
an Annuity Option, and deduction of the annual contract maintenance fee.
Accumulation Units are canceled as of the end of the Valuation Period in which
the Company receives Written Notice of or other instructions regarding the
event.
DETERMINATION OF ACCUMULATION UNIT VALUE. The Accumulation Unit value at
the end of every Valuation Day is the Accumulation Unit value at the end of the
previous Valuation Day multiplied by the net investment factor. Therefore, the
Sub-Account Value for a Contract may be determined on any day by multiplying the
number of Accumulation Units attributable to the Contract in that Sub-Account by
the Accumulation Unit value for that Sub-Account on that day.
NET INVESTMENT FACTOR. The net investment factor measures the investment
performance of a Sub-Account from one Valuation Period to the next. For each
Sub-Account, the net investment factor reflects the investment performance of
the Fund in which the Sub-Account invests and the charges assessed against that
Sub-Account for a Valuation Period. Each Sub-Account has a net investment factor
for each Valuation Period which may be greater or less than one. Therefore, the
value of an Accumulation Unit may increase or decrease. The net investment
factor for any Sub-Account for any Valuation Period is determined by dividing
(1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Fund to the Sub-Account, if the "ex-dividend" date occurs
during the current Valuation Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account.
(2) is the net asset value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
(3) is a factor representing the Mortality and Expense Risk Charge and the
Administration Charge for the number of days in the Valuation Period.
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TRANSFERS
Prior to the Annuity Commencement Date, you may instruct us to transfer
Contract Value between and among the Allocation Options. You must transfer at
least $100, or if less, the entire amount in the Allocation Option each time you
make a transfer. If after the transfer, the Contract Value remaining in any
Allocation Option from which a transfer is made would be less than $100, then we
will automatically transfer the entire Contract Value in that Allocation Option
instead of the requested amount. We reserve the right to limit the number of
transfers to no more than 12 per year. For each additional transfer over 12
during each Contract Year, we reserve the right to charge a Transfer Fee which
will not exceed $25. The Transfer Fee, if any, will be deducted from the amount
being transferred. (See "Charges and Deductions-- Transfer Fee".)
Transfers involving a Guaranteed Account are subject to additional
restrictions. The maximum amount that may be transferred from the Fixed Account
during a Contract Year is the greater of: (1) $2,500, or (2) 25% of the Fixed
Account Value. Transfers into the DCA Fixed Account are not permitted.
Owners may request transfers by Written Notice at any time. Owners also may
request transfers by telephone, facsimile transmission, or automated telephone
system. The Company reserves the right to limit or eliminate any of these
non-written communication methods for any Contract or class of Contracts at any
time for any reason.
We will send you a confirmation of all transfer requests communicated to Us
by such non-written methods to ensure that they are genuine. We will require a
form of personal identification prior to acting on non-written requests and We
will record telephone requests. If we follow these procedures we will not be
liable for any losses due to unauthorized or fraudulent transfer requests.
RESERVATION OF RIGHTS. We reserve the right without prior notice to modify,
restrict, suspend or eliminate the transfer privileges (including acceptance of
non-written instructions) at any time, for any class of Contracts, for any
reason. In particular, we reserve the right to not honor transfers requested by
a third party holding a power of attorney from an Owner where that third party
requests transfers during a single Valuation Period on behalf of the Owners of
two or more Contracts.
DOLLAR COST AVERAGING. If you elect at the time of application or at any
time thereafter by Written Notice, You may systematically and automatically
transfer, on a monthly or quarterly basis, specified dollar amounts from the DCA
Fixed Account or any other Allocation Option to any Allocation Option (except
that no transfers may be made into the DCA Fixed Account). The minimum amount
per transfer is $100. This is known as the "dollar-cost averaging" method of
investment. By transferring equal amounts of Contract Value on a regularly
scheduled basis, as opposed to allocating a larger amount at one particular
time, an Owner may be less susceptible to the impact of market fluctuations in
the value of Sub-Account Accumulation Units. American Foundation Life, however,
makes no guarantee that the dollar cost averaging method will result in a profit
or protection against loss.
Dollar cost averaging transfers may be made on the 1st through the 28th day
of each month. If elected, transfers will commence on the next occurring day of
the month that you select following our receipt of your instructions. If no day
is selected, transfers will occur on the same day of the month as Your Contract
Anniversary, or on the 28th day of the month if your Contract Anniversary occurs
on the 29th, 30th or 31st day of the month. In states where, upon cancellation
during the free look period, we are required to return your Purchase Payment, we
reserve the right to delay commencement of dollar cost averaging transfers until
the expiration of the free look period.
We will process dollar cost averaging transfers until the earlier of the
following: (1) the designated number of transfers have been completed, or (2)
the Owner instructs us by Written Notice to cancel the automatic transfers. Any
time dollar cost averaging transfers end, all Contract Value remaining in the
DCA Fixed Account will be transferred to the Fixed Account.
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Automatic transfers made to facilitate the dollar cost averaging will not
count toward the 12 transfers permitted each Contract Year if American
Foundation Life elects to limit transfers or the designated number of free
transfers in any Contract Year if the Company elects to charge for transfers in
excess of that number in any Contract Year. We reserve the right to discontinue
offering the automatic transfers upon 30 days' written notice to the Owner.
PORTFOLIO REBALANCING. At the time of application or at any time thereafter
by Written Notice, you may instruct American Foundation Life to automatically
transfer, on a quarterly, semi-annual or annual basis, your Variable Account
Value between and among specified Sub-Accounts to achieve a particular
percentage allocation of Variable Account Value among such Sub-Accounts
("Portfolio Rebalancing"). Such percentage allocations must be in whole numbers
and must allocate amounts only among the Sub-Accounts. No Variable Contract
Value may be transferred to the Guaranteed Account as part of Portfolio
Rebalancing. Unless you instruct otherwise when electing rebalancing, the
percentage allocation of your Variable Account Value for Portfolio Rebalancing
is based on your Purchase Payment allocation instructions in effect at the time
of rebalancing. Any allocation instructions from you that differ from your
current Purchase Payment allocation instructions, are deemed to be a request to
change your Purchase Payment allocation.
Once elected, Portfolio Rebalancing begins on the first quarterly,
semi-annual or annual anniversary following election. You may change or
terminate Portfolio Rebalancing by Written Notice, or by non-written
communication methods if you have previously authorized us to accept such
transfer requests by such methods. Portfolio Rebalancing transfers will not
count as one of the 12 transfers during any Contract Year if the Company elects
to limit transfers or the designated number of free transfers in any Contract
Year if the Company elects to charge for transfers in excess of that number in
any Contract Year. American Foundation Life reserves the right to discontinue
Portfolio Rebalancing upon 30 days' written notice to the Owner.
SURRENDERS AND PARTIAL SURRENDERS
PARTIAL SURRENDERS. At any time before the Annuity Commencement Date, an
Owner may make a partial surrender of the Contract Value. The Company will
withdraw the amount requested from the Contract Value as of the Valuation Period
during which written notice requesting the partial surrender is received. Any
applicable surrender charge will be deducted from the amount requested. (See
"Surrender Charge".)
In the case of certain Qualified Plans, federal tax law imposes restrictions
on the form and manner in which benefits may be paid. For example, spousal
consent may be needed in certain instances before a distribution may be made.
The Owner may specify the amount of the partial surrender to be made from
any of the Allocation Options. If the Owner does not so specify, or if the
amount in the designated account(s) is inadequate to comply with the request,
the partial surrender will be made from each Allocation Option based on the
proportion that the value of each Allocation Option bears to the total Contract
Value.
A partial surrender may have federal income tax consequences. (See "Taxation
of Partial and Full Surrenders".)
SURRENDER. At any time before the Annuity Commencement Date, the Owner may
request a surrender of the Contract for its Surrender Value. The Surrender Value
will be determined as of the end of the Valuation Day on which written notice
requesting surrender and the Contract are received at the Home Office. The
Surrender Value will be paid in a lump sum unless the Owner requests payment
under a payment option. A surrender may have federal income tax consequences.
(See "Taxation of Partial and Full Surrenders".)
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SURRENDER AND PARTIAL SURRENDER RESTRICTIONS. The Owner's right to make
surrenders and partial surrenders is subject to any restrictions imposed by
applicable law or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. There are
certain restrictions on surrenders and partial surrenders of Contracts used as
funding vehicles for Code Section 403(b) retirement plans. Section 403(b)(11) of
the Code restricts the distribution under Section 403(b) annuity contracts of:
(1) contributions made pursuant to a salary reduction agreement in years
beginning after December 31, 1988, (2) earnings on those contributions, and (3)
earnings after December 31, 1988 on amounts attributable to salary reduction
contributions held as of December 31, 1988. Distributions of those amounts may
only occur upon the death of the employee, attainment of age 59 1/2, separation
from service, disability, or hardship. In addition, income attributable to
salary reduction contributions may not be distributed in the case of hardship.
SYSTEMATIC WITHDRAWALS. Currently, the company offers a systematic
withdrawal plan. This plan allows you to pre-authorize periodic partial
surrenders prior to the Annuity Commencement Date. You may elect to participate
in this plan at the time of application or at a later date by properly
completing an election form. In order to participate in the plan you must have:
(1) made an initial Purchase Payment of at least $12,000, or (2) a Surrender
Value as of the previous Contract Anniversary equal to $12,000. There may be
federal income tax consequences to systematic withdrawals from the Contract and
the Owner should, therefore, consult with his or her tax advisor before
participating in any systematic withdrawal plan. (See "Taxation of Partial and
Full Surrenders".)
When you elect systematic withdrawals, you will instruct American Foundation
Life to withdraw a level dollar amount from the Contract on a monthly or
quarterly basis. The amount requested must be at least $100 per withdrawal. You
may instruct us as to the Allocation Options from which the withdrawals should
be made. If no instruction is given, the amount you request will be withdrawn
from each Allocation Option based on the proportion that the value of each
Allocation Option bears to the total Contract Value.
We will pay you the amount requested each month or quarter as applicable and
cancel the applicable Accumulation Units. If the amount to be withdrawn from an
Allocation Option exceeds the value available, no further systematic withdrawal
transactions will be processed.
The maximum penalty-free amount which can be withdrawn under the plan each
year, is the greater of (1) 10% of all Purchase Payments made, as of the date of
the request, or (2) cumulative earnings calculated as of each Contract
Anniversary. Unless you instruct us to reduce the monthly withdrawal amount so
that the annual amount would not exceed the above limits, we will continue to
process withdrawals for the designated monthly amount. Once the amount of the
withdrawals exceeds the above limits, we reserve the right to deduct a surrender
charge, if otherwise applicable, from the remaining payments made during that
Contract Year. (See "Surrender Charge".)
If you request a partial surrender that is not part of the systematic
withdrawal plan in a year when the systematic withdrawal plan has been utilized,
that partial surrender will be subject to any applicable surrender charge. (See
"Surrender Charge".) Systematic withdrawals will terminate in the event that a
non-systematic withdrawal plan partial surrender is made from a Contract
participating in the plan and the Surrender Value after the partial surrender
does not equal or exceed $12,000.
Systematic withdrawals may be discontinued by the Owner at any time upon
written request. We reserve the right to discontinue the systematic withdrawal
plan upon written notice to you.
THE GUARANTEED ACCOUNT
The Guaranteed Account has not been, and are not required to be, registered
with the SEC under the Securities Act of 1933, and neither these accounts nor
the Company's general account have been registered as an investment company
under the 1940 Act. Therefore, neither the Guaranteed Account, the Company's
general account, nor any interests therein are generally subject to regulation
under the 1933 Act or
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the 1940 Act. The disclosures relating to the Guaranteed Account included in
this prospectus are for the Owner's information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain generally
applicable provisions of federal securities law relating to the accuracy and
completeness of statements made in prospectuses.
The Fixed Account and the DCA Fixed Account are part of American Foundation
Life's general account. The assets of American Foundation Life's general account
support its insurance and annuity obligations and are subject to American
Foundation Life's general liabilities from business operations. Since the Fixed
Account and the DCA Fixed Account are part of the general account, American
Foundation Life assumes the risk of investment gain or loss on this amount.
You may allocate some or all of your Purchase Payments and may transfer some
or all of your Contract Value to an account within the Guaranteed Account,
except that transfers may not be made into the DCA Fixed Account. Amounts
allocated or transferred to an account within the Guaranteed Account earn
interest from the date the funds are credited to the account, or such other date
as directed on the application we use to issue your Contract. The interest rate
we apply to Purchase Payments and transfers will remain in effect for the
Interest Guaranteed Period. The Interest Guaranteed Period for the Fixed Account
and the DCA Fixed Account is one year.
After an Interest Guaranteed Period expires, a new Interest Guaranteed
Period will begin. The interest rate for the new Interest Guaranteed Period will
be set by us and may not be the same as the interest rate then in effect for
Purchase Payments or transfers for that account.
We, in our sole discretion, establish interest rates for each account in the
Guaranteed Account, but will not declare a rate which is less than an annual
effective interest rate of 3.00%. Because American Foundation Life anticipates
changing the current interest rates for accounts within the Guaranteed Account
from time to time, allocations to accounts within the Guaranteed Account may be
credited with different current interest rates. For the purposes of interest
crediting, amounts deducted, transferred or withdrawn from the Guaranteed
Account will be separately accounted for on a "first-in, first-out" (FIFO)
basis.
GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any time is equal
to the sum of: (1) Purchase Payments allocated to the Guaranteed Account; plus,
(2) amounts transferred into the Guaranteed Account; plus, (3) interest credited
to the Guaranteed Account; minus, (4) amounts transferred out of the Guaranteed
Account; minus, (5) the amount of any partial surrenders removed from the
Guaranteed Account, including any surrender charges and applicable premium tax;
minus, (6) fees deducted from the Guaranteed Account, including the contract
maintenance fee.
DEATH BENEFIT
If any Owner dies before the Annuity Commencement Date and while this
Contract is in force, the Company will pay a Death Benefit to the Beneficiary.
In the case of certain Qualified Contracts, regulations promulgated by the
Treasury Department prescribe certain limitations on the designation of a
Beneficiary.
The Death Benefit is determined as of the end of the Valuation Period in
which due proof of death is received by us. The Death Benefit will depend upon
the age of the Owner when he or she dies.
If the Owner dies on or before his or her 90th birthday, the Death Benefit
is the greatest of: (1) the Contract Value, (2) aggregate Purchase Payments made
under the Contract reduced by any partial surrenders and any associated charges,
or (3) the Maximum Anniversary Value. The Maximum Anniversary Value is the
greatest Anniversary Value attained. The Anniversary Value is the sum of: (1)
the Contract Value on a Contract Anniversary; plus (2) all Purchase Payments
made since that Contract Anniversary; minus (3) any partial surrenders (and any
associated charges) made since that Contract
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Anniversary. An Anniversary Value is determined for each Contract Anniversary
through the earlier of: (1) the deceased Owner's 80th birthday, or (2) the date
of that Owner's death.
If the Owner dies after his or her 90th birthday, the Death Benefit is the
Contract Value.
Only one Death Benefit is payable under this Contract, even though the
Contract may, in some circumstances, continue beyond the time of an Owner's
death.
The Death Benefit may be taken in one sum immediately. In this event, the
Contract will terminate. If the Death Benefit is not taken in one sum
immediately, then the entire interest in the Contract must be distributed under
one of the following options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life expectancy of
the Beneficiary, with distributions beginning within one year of the
Owner's death, or
(2) the entire interest must be distributed within 5 years of the Owner's
death.
If the Beneficiary is the deceased Owner's spouse, then the surviving spouse may
elect, in lieu of receiving the Death Benefit, to continue the Contract and
become the new Owner. The surviving spouse may select a new Beneficiary. Upon
this spouse's death, the Death Benefit will become payable to the new
Beneficiary and must then be distributed to the new Beneficiary in one sum
immediately or according to either paragraph (1) or (2) above.
If any Owner is not an individual, the death of the Annuitant is treated as
the death of an Owner.
SUSPENSION OR DELAY IN PAYMENTS
Payments of a partial or full surrender of the Variable Account Value or
Death Benefit are usually made within seven (7) calendar days. However, the
Company may delay such payment of a partial or full surrender of the Variable
Account Value or Death Benefit for any period in the following circumstances:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the SEC as a result of which
(a) the disposal of securities in the Variable Account is not reasonably
practicable, or (b) it is not reasonably practicable to determine fairly
the value of the net assets of the Variable Account); or
4) when the SEC, by order, so permits for the protection of Owners.
American Foundation Life further reserves the right to delay payment of a
partial or full surrender of the Guaranteed Account Value for up to six months
in those states where applicable law requires us to reserve such right.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
GENERAL. No charge for sales expenses is deducted from Purchase Payments at
the time Purchase Payments are paid. However, within certain time limits
described below, a surrender charge (contingent deferred sales charge) is
deducted from the Contract Value if a partial surrender or surrender is made
before the Annuity Commencement Date. Currently, no surrender charge is applied
when the Contract is annuitized under an available Annuity Option on the Annuity
Commencement Date.
CHARGE FOR PARTIAL OR FULL SURRENDER. The surrender charge is equal to the
percentage of each Purchase Payment surrendered as specified in the table below.
The surrender charge is separately calculated and applied to each Purchase
Payment at any time that the Purchase Payment is surrendered. No such
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surrender charge applies to the Contract Value in excess of aggregate Purchase
Payments. The surrender charge is calculated using the assumption that all
Contract Value in excess of aggregate Purchase Payments is surrendered before
any Purchase Payments and that Purchase Payments are surrendered on a first-in-
first-out basis.
The surrender charge is as follows:
<TABLE>
<CAPTION>
NUMBER OF FULL YEARS ELAPSED SURRENDER CHARGE AS A PERCENTAGE
BETWEEN THE DATE OF RECEIPT OF PURCHASE PAYMENT WITHDRAWN
OF PURCHASE PAYMENT(S) & DATE OF SURRENDER IN A FULL YEAR
- ------------------------------------------------------------- -----------------------------------
<S> <C>
Less than 1 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
The surrender charge is not applied to the payment of a Death Benefit.
Currently, the surrender charge is not applied to systematic withdrawals made
within the limits described in the "Systematic Withdrawals" section of this
prospectus. (See "Death Benefits" and "Systematic Withdrawals.")
Surrenders will result in the cancellation of Accumulation Units from each
applicable Sub-Account(s) and/or in a reduction of the Guaranteed Account Value.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Surrender charges may be
decreased or waived on Contracts issued to a trustee, employer or similar entity
pursuant to a retirement plan or when sales are made in a similar arrangement
where offering the Contracts to a group of individuals under such a program
results in saving of sales expenses. The entitlement to such a reduction in
surrender charge will be determined by the Company.
In addition, surrender charges are waived for a surrender or partial
surrender of a Contract Value under Contracts issued to employees and registered
representatives of any member of the selling group and their spouses and minor
children, or to officers, directors, trustees or bona-fide full time employees
of American Foundation Life or the investment advisers of any of the Funds or
their affiliated companies (based upon the Owner's status at the time the
Contract is purchased).
ADMINISTRATION CHARGES
We will deduct an administration charge equal, on an annual basis, to .15%
of the daily net asset value of each Sub-Account. This deduction is made to
reimburse American Foundation Life for expenses incurred in the administration
of the Contract and the Variable Account. The administration charge is deducted
only from the Variable Account Value.
TRANSFER FEE
Currently, there is no charge for transfers. American Foundation Life
reserves the right, however, to charge $25 for each transfer after the first 12
transfers in any Contract Year. For the purpose of assessing the fee, each
request would be considered to be one transfer, regardless of the number of
Allocation Options affected by the transfer in one day. The fee would be
deducted from the amount being transferred.
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MORTALITY AND EXPENSE RISK CHARGE
To compensate American Foundation Life for assuming mortality and expense
risks, we deduct a daily mortality and expense risk charge equal on an annual
basis, to 1.25% of the average annual daily net assets of the Variable Account.
The mortality risk American Foundation Life assumes is that Annuitant(s) may
live for a longer period of time than estimated when the guarantees in the
Contract were established. Because of these guarantees, each Payee is assured
that the Annuitant's longevity will not have an adverse effect on Annuity Income
Payments received. The mortality risk that American Foundation Life assumes also
includes a guarantee to pay a Death Benefit if an Owner dies before the Annuity
Commencement Date. The expense risk that American Foundation Life assumes is the
risk that the administration charge, contract maintenance fee and transfer fees
may be insufficient to cover actual future expenses.
CONTRACT MAINTENANCE FEE
The contract maintenance fee is $30 and is deducted from the Contract Value
on each Contract Anniversary, and on any day that the Contract is surrendered,
if such surrender occurs on any day other than the Contract Anniversary. The
contract maintenance fee deduction will be apportioned among the Allocation
Options in the same proportion as the value of each Allocation Option bears to
the total Contract Value. The contract maintenance fee will be waived by
American Foundation Life in the event that the Purchase Payments made adjusted
for any partial surrenders, or the Contract Value, equals or exceeds $50,000 on
the date(s) the contract maintenance fee is to be deducted.
In addition, the contract maintenance fee may be reduced or waived for
Contracts issued to employees and registered representatives of any member of
the selling group and their spouses and minor children, or to officers,
directors, trustees, or bona-fide full time employees of American Foundation
Life or the investment advisers of any of the Funds or their affiliated
companies (based upon the Owner's status at the time the Contract is purchased).
Such waiver or reduction will only be made to the extent that American
Foundation Life estimates that it will incur lower administrative expenses or
perform fewer administrative services.
FUND EXPENSES
The net assets of each Sub-Account of the Variable Account will reflect the
investment management fees and other operating expenses incurred by the Funds.
For each Fund, an investment manager is paid a daily fee for its services. (See
the prospectuses for the Funds, which accompany this Prospectus.)
PREMIUM TAXES
Some states impose premium taxes at rates ranging up to 3.5%. The State of
New York does not currently impose a premium tax on annuities. If premium taxes
are applicable to your Contract, we will deduct them from your Contract by
applying the premium tax rate to one of the following: your Purchase Payment(s),
your surrender amount(s), your Death Benefit, or the amount applied to an
Annuity Option.
OTHER TAXES
Currently, no charge will be made against the Variable Account for federal,
state or local taxes other than premium taxes. American Foundation Life may,
however, make such a charge in the future if income or gains within the Variable
Account will result in any federal income tax liability to American Foundation
Life. Charges for other taxes attributable to the Variable Account, if any, may
also be made.
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ANNUITY OPTIONS
The Annuity Commencement Date may not be later than the Annuitant's 90th
birthday unless approved by American Foundation Life. Annuity Commencement Dates
that represent an advanced age for the Annuitant (E.G., past age 85), may, in
certain circumstances, have adverse income tax consequences. (See "Federal
Income Tax Matters".) Distributions from Qualified Contracts may be required
before the Annuity Commencement Date. You may change the Annuity Commencement
Date and the Annuity Option selected, but any such change must be by Written
Notice received at the Administrative Office at least 30 days prior to the
scheduled Annuity Commencement Date. On the Annuity Commencement Date we apply
the Contract Value to the Annuity Option that you select. If you have not
selected an Annuity Option by the Annuity Commencement Date, we apply Contract
Value under Option 1--Payments for a 5 Year Certain Period. We reserve the right
at any time to apply the Annuity Purchase Value rather than the Contract Value
to the selected Annuity Option.
The Annuity Options are fixed, which means that each Annuity Option will
result in a guaranteed amount to be paid during the annuity period that is not
in any way dependent upon the investment experience of the Variable Account.
The following Annuity Options are currently being offered. Additional
Annuity Options are offered for Qualified Contracts, however certain
restrictions apply.
Annuity Option 1--Payment for a Certain Period: Payments are made for
any selected period of not less than 5 nor more than 30 years. The amount of
each payment depends on the Annuity Purchase Value applied, the period
selected and the monthly payment rates in effect on the Annuity Commencement
Date.
Annuity Option 2--Life Income with Payments for a Certain Period:
Payments are made as long as the named Annuitant remains alive. In addition,
regardless of when the named Annuitant dies, Payments will continue for the
certain period selected, which may be up to 30 years. Payments stop at the
end of the selected certain period or when the named Annuitant dies,
whichever is later.
After the death of the Annuitant, any remaining guaranteed payments shall be
payable to the Beneficiary unless you specified otherwise before the Annuitant's
death.
MINIMUM AMOUNTS. We reserve the right, where permitted, to pay the total
amount of this Contract in one lump sum, if less than $5,000, or, if monthly
payments are less than $100, to make payments quarterly, semi-annually, or
annually at our option. In some states, including New York, lower minimum
amounts apply.
If we have available at the time an Annuity Option is elected, options or
payment rates on a more favorable basis than those guaranteed, the higher
benefits shall apply.
ANNUITY INCOME PAYMENTS
The company generally makes first payment under any Annuity Option one month
following the Annuity Commencement Date. Subsequent payments are made in
accordance with the manner of payment selected.
The Annuity Option selected must result in each Annuity Income Payment being
an amount at least equal to the minimum payment amount according to American
Foundation Life's rules then in effect. If at any time such Payments are less
than the minimum payment amount, we have the right to change the frequency to an
interval resulting in a payment at least equal to the minimum. If any amount due
is less than the minimum per year, we may make other arrangements that are
equitable to the Payee.
Once Annuity Income Payments have commenced, no surrender of the Contract
may be made.
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DEATH OF ANNUITANT OR OWNER AFTER ANNUITY COMMENCEMENT DATE
In the event that any Owner dies on or after the Annuity Commencement Date,
the Beneficiary becomes the new Owner. If any Owner or Annuitant dies on or
after the Annuity Commencement Date and before all the Annuity Income Payments
under the Annuity Option selected have been paid, any remaining portion of such
Payments will be paid out at least as fast as under the Annuity Option in effect
when the Owner or Annuitant died.
YIELDS AND TOTAL RETURNS
From time to time, American Foundation Life may advertise or include in
sales literature yields, effective yields, and total returns for the
Sub-Accounts. THESE FIGURES ARE BASED ON HISTORIC RESULTS AND DO NOT INDICATE OR
PROJECT FUTURE PERFORMANCE. The Funds have been in existence prior to the
commencement of the offering of the Contract described in this prospectus, and
prior to the investment by the Sub-Accounts in such Funds. The Variable Account
may advertise or include in sales literature the performance of the Sub-Accounts
that invest in these Funds for these prior periods. The performance information
of any period prior to the commencement of the offering of the Contract and the
investments by the Sub-Accounts is calculated as if the Contract had been
offered during those periods and the Sub-Account had invested in those Funds
during those periods, using current charges and expenses. American Foundation
Life also may, from time to time, advertise or include in sales literature
Sub-Account performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
Yields, effective yields, and total returns for the Sub-Accounts are based
on the investment performance of the corresponding Funds. The Funds' performance
also reflects the Funds' expenses. Certain of the expenses of each Fund may be
reimbursed by the investment manager. (See the Prospectuses for the Funds.)
The yield of the PIC Money Market Sub-Account refers to the annualized
income generated by an investment in the Sub-Account over a specified seven-day
period. The yield is calculated by assuming that the income generated for that
seven-day period is generated each seven day period over a 52 week period and is
shown as a percentage of the investment. The effective yield is calculated
similarly, but when annualized the income earned by an investment in the
Sub-Account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Sub-Account (except the PIC Money Market Sub-Account) refers
to the annualized income generated by an investment in the Sub-Account over a
specified 30 day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30 day or one month period is
generated each period over a 12 month period and is shown as a percentage of the
investment.
The total return of a Sub-Account refers to return quotations assuming an
investment under a Contract has been held in the Sub-Account for various periods
of time. Average annual return refers to total return quotations that are
annualized based on an average return over various periods of time.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which the quotations are provided. Average annual
total return information shows the average percentage change in the value of an
investment in the Sub-Account from the beginning date of the measuring period to
the end of that period. This standardized version of average annual total return
reflects all historical investment results, less all charges and deductions
applied against the Sub-Account (including any Surrender Charge that would apply
if an Owner
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terminated the Contract at the end of each period indicated, but excluding any
deductions for premium taxes).
In addition to the standard version of average annual total return described
above, total return performance information computed on two different
non-standard bases may be used in advertisements or sales literature. Average
annual total return information may be presented, computed on the same basis as
the standard version except deductions will include neither the surrender charge
nor the Contract maintenance fee. In addition, American Foundation Life may from
time to time disclose average annual total return in other non-standard formats
and cumulative total return for Contracts funded by the Sub-Accounts.
American Foundation Life may, from time to time, also disclose yield,
standard average annual total returns, and non-standard total returns for the
Funds.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Sub-Account may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment portfolios of mutual funds with investment objectives
similar to each of the Sub-Accounts. Lipper Analytical Services, Inc.
("Lipper"), the Variable Annuity Research Data Service ("VARDS"), and
Morningstar Inc. ("Morningstar") are independent services which monitor and rank
the performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.
Lipper and Morningstar rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, Morningstar and VARDS each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk adjusted rankings, which consider the effects of
market risk on total return performance. This type of ranking provides data as
to which funds provide the highest total return within various categories of
funds defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Sub-Account to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
American Foundation Life may also report other information including the
effect of tax-deferred compounding on a Sub-Account's investment returns, or
returns in general, which may be illustrated by tables, graphs, or charts.
All income and capital gains derived from Sub-Account investments are
reinvested and can lead to substantial long-term accumulation of assets,
provided that the underlying Fund's investment experience is positive.
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FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the Contract
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The federal income tax treatment of the Contract is unclear in
certain circumstances, and a qualified tax adviser should always be consulted
with regard to the application of law to individual circumstances. This
discussion is based on the Code, Treasury regulations, and interpretations
existing on the date of this Prospectus. These authorities, however, are subject
to change by Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Contract. In addition, American Foundation Life MAKES
NO GUARANTEE REGARDING ANY TAX TREATMENT--FEDERAL, STATE OR LOCAL--OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
THE COMPANY'S TAX STATUS
American Foundation Life is taxed as a life insurance company under the
Code. Since the operations of the Variable Account are a part of, and are taxed
with, the operations of the Company, the Variable Account is not separately
taxed as a "regulated investment company" under the Code. Under existing federal
income tax laws, investment income and capital gains of the Variable Account are
not taxed to the extent they are applied under a Contract. American Foundation
Life does not anticipate that it will incur any federal income tax liability
attributable to such income and gains of the Variable Account, and therefore
does not intend to make provision for any such taxes. If American Foundation
Life is taxed on investment income or capital gains of the Variable Account,
then American Foundation Life may impose a charge against the Variable Account
in order to make provision for such taxes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an Owner's Contract Value is generally not taxable to the Owner
until received, either in the form of annuity payments as contemplated by the
Contracts, or in some other form of distribution. However, this rule applies
only if (1) the investments of the Variable Account are "adequately diversified"
in accordance with Treasury Department regulations, (2) the Company, rather than
the Owner, is considered the owner of the assets of the Variable Account for
federal income tax purposes, and (3) the Owner is an individual (or an
individual is treated as the Owner for tax purposes).
DIVERSIFICATION REQUIREMENTS. The Code and Treasury Department regulations
prescribe the manner in which the investments of a segregated asset account,
such as the Variable Account, are to be "adequately diversified." If the
Variable Account fails to comply with these diversification standards, the
Contract will not be treated as an annuity contract for federal income tax
purposes and the Owner would generally be taxable currently on the excess of the
Contact Value over the premiums paid for the Contact. American Foundation Life
expects that the Variable Account, through the Funds, will comply with the
diversification requirements prescribed by the Code and Treasury Department
regulations.
OWNERSHIP TREATMENT. In certain circumstances, variable annuity contract
owners may be considered the owners, for federal income tax purposes, of the
assets of a segregated asset account, such as the Variable Account, used to
support their contracts. In those circumstances, income and gains from the
segregated asset account would be includable in the contract owners' gross
income. The Internal Revenue Service (the "IRS") has stated in published rulings
that a variable contract owner will be considered the owner of the assets of a
segregated asset account if the owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. In
addition, the Treasury
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Department announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the insurance
company, to be treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by way of regulations or
rulings on the "extent to which policyholders may direct their investments to
particular sub-accounts of a segregated asset account without being treated as
owners of the underlying assets." As of the date of this Prospectus, no such
guidance has been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of the assets of a segregated
asset account. For example, the owner of this Contract has the choice of more
Allocation Options to which to allocate Purchase Payments and Variable Account
values, and may be able to transfer among Allocation Options more frequently
than in such rulings. These differences could result in the Owner being treated
as the owner of the assets of the Variable Account and thus subject to current
taxation on the income and gains from those assets. In addition, the Company
does not know what standards will be set forth in the regulations or rulings
which the Treasury Department has stated it expects to issue. American
Foundation Life therefore reserves the right to modify the Contract as necessary
to attempt to prevent Contract Owners from being considered the owners of the
assets of the Variable Account. However, there is no assurance such efforts
would be successful.
NON-NATURAL OWNER. As a general rule, Contracts held by "non-natural
persons" such as a corporation, trust or other similar entity, as opposed to a
natural person, are not treated as annuity contracts for federal tax purposes.
The income on such Contracts (as defined in the tax law) is taxed as ordinary
income that is received or accrued by the Owner of the Contract during the
taxable year. There are several exceptions to this general rule for non-natural
Owners. First, Contracts will generally be treated as held by a natural person
if the nominal owner is a trust or other entity which holds the Contract as an
agent for a natural person. However, this special exception will not apply in
the case of any employer who is the nominal owner of a Contract under a
non-qualified deferred compensation arrangement for its employees.
In addition, exceptions to the general rule for non-natural Owners will
apply with respect to (1) Contracts acquired by an estate of a decedent by
reason of the death of the decedent, (2) certain Qualified Contracts, (3)
Contracts purchased by employers upon the termination of certain Qualified
Plans, (4) certain Contracts used in connection with structured settlement
agreements, and (5) Contracts purchased with a single purchase payment when the
annuity starting date is no later than a year from purchase of the Contract and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
DELAYED ANNUITY COMMENCEMENT DATES. If the Contract's Annuity Commencement
Date occurs (or is scheduled to occur) at a time when the Annuitant has reached
an advanced age (E.G., past age 85), it is possible that the Contract would not
be treated as an annuity for federal income tax purposes. In that event, the
income and gains under the Contract could be currently includable in the Owner's
income.
The remainder of this discussion assumes that the Contract will be treated
as an annuity contract for federal income tax purposes.
TAXATION OF PARTIAL AND FULL SURRENDERS
In the case of a partial surrender, amounts received generally are
includable in income to the extent the Owner's Contract Value before the
surrender exceeds his or her "investment in the contract." In the case of a full
surrender, amounts received are includable in income to the extent they exceed
the "investment in the contract." For these purposes, the investment in the
contract at any time equals the total of the Purchase Payments made under the
Contract to that time (to the extent such payments were neither deductible when
made nor excludable from income as, for example, in the case of certain
contributions to Qualified Contracts) less any amounts previously received from
the Contract which were
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not included in income. Partial and full surrenders may be subject to a 10%
penalty tax. (See "Penalty on Premature Distributions".) Partial and full
surrenders also may be subject to federal income tax withholding requirements.
(See "Federal Income Tax Withholding".) In addition, in the case of partial and
full surrenders from certain Qualified Plans, mandatory withholding requirements
may apply, unless a "direct rollover" of the amount surrendered is made. (See
"Direct Rollovers".)
Under the Waiver of Surrender Charges provision of the Contract, amounts
distributed may not be subject to Surrender Charges if the Owner has a terminal
illness or if the Owner enters, for a period of at least 90 days, certain
nursing home facilities. Such distributions will be treated as surrenders for
federal tax purposes.
The Contract provides a Death Benefit that in certain circumstances may
exceed the greater of the Purchase Payments and the Contract Value. As described
elsewhere in this Prospectus, the Company imposes certain charges with respect
to the Death Benefit. It is possible that these charges (or some portion
thereof) could be treated for federal tax purposes as a partial surrender of the
Contract.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each Annuity Income Payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. The
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract, adjusted for any period certain or
refund feature, to the total expected amount of Annuity Income Payments for the
term of the Contract (determined under Treasury Department regulations). Annuity
Income Payments may be subject to federal income tax withholding requirements.
(See "Federal Income Tax Withholding".) In addition, in the case of Annuity
Income Payments from certain Qualified Plans, mandatory withholding requirements
may apply, unless a "direct rollover" of such Annuity Income Payments is made.
(See "Direct Rollovers".) A simplified method of determining the taxable portion
of Annuity Income Payments applies to certain Qualified Contracts.
Once the total amount of the investment in the Contract is excluded using
this ratio, Annuity Income Payments will be fully taxable. If Annuity Income
Payments cease because of the death of the Annuitant and before the total amount
of the investment in the Contract is recovered, the unrecovered amount generally
will be allowed as a deduction.
There may be special income tax issues present in situations where the Owner
and the Annuitant are not the same person and are not married to one another. A
tax advisor should be consulted in those situations.
TAXATION OF DEATH BENEFIT PROCEEDS
Prior to the Annuity Commencement Date, amounts may be distributed from a
Contract because of the death of an Owner or, in certain circumstances, the
death of the Annuitant. Such Death Benefit proceeds are includable in income as
follows: (1) if distributed in a lump sum, they are taxed in the same manner as
a full surrender, as described above, or (2) if distributed under an Annuity
Option, they are taxed in the same manner as Annuity Income Payments, as
described above. After the Annuity Commencement Date, where a guaranteed period
exists under an Annuity Option, and the Annuitant dies before the end of that
period, payments made to the Beneficiary for the remainder of that period are
includable in income as follows: (1) if received in a lump sum, they are
included in income to the extent that they exceed the unrecovered investment in
the contract at that time, or (2) if distributed in accordance with the existing
Annuity Option selected, they are fully excluded from income until the remaining
investment in the contract is deemed to be recovered, and all Annuity Income
Payments thereafter are fully includable in income.
Proceeds payable on death may be subject to federal income tax withholding
requirements. (See "Federal Income Tax Withholding".) In addition, in the case
of such proceeds from certain Qualified
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Plans, mandatory withholding requirements may apply, unless a "direct rollover"
of such proceeds is made. (See "Direct Rollovers".)
ASSIGNMENTS, PLEDGES, AND GRATUITOUS TRANSFERS
Other than in the case of Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), any assignment
or pledge (or agreement to assign or pledge) any portion of the Contract Value
is treated for federal income tax purposes as a surrender of such amount or
portion. The investment in the contract is increased by the amount includable as
income with respect to such assignment or pledge, though it is not affected by
any other aspect of the assignment or pledge (including its release). If an
Owner transfers a Contract without adequate consideration to a person other than
the Owner's spouse (or to a former spouse incident to divorce), the Owner will
be taxed on the difference between his or her Contract Value and the investment
in the contract at the time of transfer. In such case, the transferee's
investment in the contract will be increased to reflect the increase in the
transferor's income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a Contract has not been issued in connection with a Qualified Plan,
there generally is a 10% penalty tax on the amount of any payment from the
Contract that is includable in income unless the payment is: (a) received on or
after the Owner reaches age 59 1/2; (b) attributable to the Owner's becoming
disabled (as defined in the tax law); (c) made on or after the death of the
Owner or, if the Owner is not an individual, on or after the death of the
primary annuitant (as defined in the tax law); (d) made as a series of
substantially equal periodic payments (not less frequently than annually) for
the life (or life expectancy) of the Annuitant or the joint lives (or joint life
expectancies) of the Annuitant and a designated beneficiary (as defined in the
tax law), or (e) made under a Contract purchased with a single Purchase Payment
when the annuity starting date is no later than a year from purchase of the
Contract and substantially equal periodic payments are made, not less frequently
than annually, during the annuity period. (Similar rules, discussed below, apply
in the case of certain Contracts issued in connection with Qualified Plans.)
AGGREGATION OF CONTRACTS
In certain circumstances, the amount of an Annuity Income Payment or a
surrender from a Contract that is includable in income may be determined by
combining some or all of the annuity contracts owned by an individual not issued
in connection with Qualified Plans. For example, if a person purchases a
Contract offered by this Prospectus and also purchases at approximately the same
time an immediate annuity issued by American Foundation Life, the IRS may treat
the two contracts as one contract. In addition, if a person purchases two or
more deferred annuity contracts from the same insurance company (or its
affiliates) during any calendar year, all such contracts will be treated as one
contract for purposes of determining whether any payment not received as an
annuity (including surrenders prior to the Annuity Commencement Date) is
includable in income. The effects of such aggregation are not clear; however, it
could affect the amount of a withdrawal or an annuity payment that is taxable
and the amount which might be subject to the 10% penalty tax described above.
LOSS OF INTEREST DEDUCTION WHERE CONTRACT IS HELD BY OR FOR THE BENEFIT OF
CERTAIN NON-NATURAL PERSONS
In the case of Contracts issued after June 8, 1997 to a non-natural taxpayer
(such as a corporation or a trust), or held for the benefit of such an entity,
recent changes in the tax law may result in otherwise deductible interest no
longer being deductible by the entity, regardless of whether the income on such
Contracts is treated as ordinary income that is received or accrued by the owner
during the taxable year. Entities that are considering purchasing the Contract,
or entities that will be beneficiaries under a Contract, should consult a tax
adviser.
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QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain types of
retirement plans which receive favorable treatment under the Code. Numerous
special tax rules apply to the participants in Qualified Plans and to Contracts
used in connection with Qualified Plans. Therefore, no attempt is made in this
Prospectus to provide more than general information about use of the Contract
with the various types of Qualified Plans.
The tax rules applicable to Qualified Plans vary according to the type of
plan and the terms and conditions of the plan itself. For example, both the
amount of the contribution that may be made, and the tax deduction or exclusion
that the Owner may claim for such contribution, are limited under Qualified
Plans and vary with the type of plan. Also, for full surrenders, partial
surrenders and Annuity Income Payments under Qualified Contracts, there many be
no "investment in the contract" and the total amount received may be taxable.
Similarly, loans from Qualified Contracts, where available, are subject to a
variety of limitations, including restrictions as to the amount that may be
borrowed, the duration of the loan, and the manner in which the loan must be
repaid. (Owners should always consult their tax advisors and retirement plan
fiduciaries prior to exercising any loan privileges that are available.)
If this Contract is used in connection with a Qualified Plan, the Owner and
Annuitant must be the same individual. In addition, special rules apply to the
time at which distributions must commence and the form in which the
distributions must be paid. For example, the length of any guarantee period may
be limited in some circumstances to satisfy certain minimum distribution
requirements under the Code. Furthermore, failure to comply with minimum
distribution requirements applicable to Qualified Plans will result in the
imposition of an excise tax. This excise tax generally equals 50% of the amount
by which a minimum required distribution exceeds the actual distribution from
the Qualified Plan. In the case of Individual Retirement Accounts or Annuities
("IRAs"), distributions of minimum amounts (as specified in the tax law) must
generally commence by April 1 of the calendar year following the calendar year
in which the Owner attains age 70 1/2. In the case of certain other Qualified
Plans, distributions of such minimum amounts must generally commence by the
later of this date or April 1 of the calendar year following the calendar year
in which the employee retires.
There may be a 10% penalty tax on the taxable amount of payments from
certain Qualified Contracts. There are exceptions to this penalty tax which vary
depending on the type of Qualified Plan. In the case of an IRA, exceptions
provide that the penalty tax does not apply to a payment (a) received on or
after the Owner reaches age 59 1/2, (b) received on or after the Owner's death
or because of the Owner's disability (as defined in the tax law), or (c) made as
a series of substantially equal periodic payments (not less frequently than
annually) for the life (or life expectancy) of the Owner or for the joint lives
(or joint life expectancies) of the Owner and his designated beneficiary (as
defined in the tax law). These exceptions, as well as certain others not
described herein, generally apply to taxable distributions from other Qualified
Plans (although, in the case of plans qualified under sections 401 and 403,
exception "c" above for substantially equal periodic payments applies only if
the Owner has separated from service). In addition, the penalty tax does not
apply to certain distributions from IRAs taken after December 31, 1997 which are
used for qualified first time home purchases or for higher education expenses.
Special conditions must be met for these two exceptions to the penalty tax.
Those wishing to take a distribution from an IRA for these purposes should
consult their tax adviser.
When issued in connection with a Qualified Plan, a Contract will be amended
as generally necessary to conform to the requirements of the plan. However,
Owners, Annuitants, and Beneficiaries are cautioned that the rights of any
person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
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Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES. Section 408 of the Code
permits eligible individuals to contribute to an individual retirement program
known as IRAs. IRAs are subject to limits on the amounts that may be
contributed, the persons who may be eligible and on the time when distributions
may commence. Also, subject to the direct rollover and mandatory withholding
requirements (discussed below), distributions from certain Qualified Plans may
be "rolled over" on a tax-deferred basis into an IRA. The Contract may not,
however, be used in connection with an "Education IRA" under Section 530 of the
Code, or as a "SIMPLE IRA" under Section 408(p) of the Code.
IRAs generally may not invest in life insurance contracts, but an annuity
that is purchased by, or used as, an IRA may provide a death benefit that equals
the greater of the premiums paid and the contract's cash value. The Contract
provides a Death Benefit that in certain circumstances may exceed the greater of
the Purchase Payments and the Contract Value. It is possible that the Death
Benefit could be viewed as violating the prohibition on investment in life
insurance contracts with the result that the Contract would not be viewed as
satisfying the requirements of an IRA.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh," permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. The Contract provides a
Death Benefit that in certain circumstances may exceed the greater of the
Purchase Payments and the Contract Value. It is possible that such Death Benefit
could be characterized as an incidental death benefit. There are limitations on
the amount of incidental benefits that may be provided under pension and profit
sharing plans. In addition, the provision of such benefits may result in
currently taxable income to participants. Employers intending to use the
Contract in connection with such plans should seek competent advice.
SECTION 403(b) POLICIES. Section 403(b) of the Code permits public school
employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. Purchasers of the Contracts for use as a "Section 403(b) Policy"
should seek competent advice as to eligibility, limitations on permissible
amounts of purchase payments and other tax consequences associated with such
Contracts. In particular, purchasers and their advisers should consider that the
Contract provides a Death Benefit that in certain circumstances may exceed the
greater of the Purchase Payments and the Contract Value. It is possible that
such Death Benefit could be characterized as an incidental death benefit. If the
Death Benefit were so characterized, this could result in currently taxable
income to purchasers. In addition, there are limitations on the amount of
incidental death benefits that may be provided under a Section 403(b) Policy.
Even if the Death Benefit under the Contract were characterized as an incidental
death benefit, it is unlikely to violate those limits unless the purchaser also
purchases a life insurance contract as part of his or her Section 403(b) Policy.
Section 403(b) Policies contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
earnings after December 31, 1988 on amounts attributable to salary reduction
contributions held as of December 31, 1988. These amounts can be paid only if
the employee has reached age 59 1/2, separated from service, died, become
disabled, or in the case of hardship. Amounts permitted to be distributed in the
event of hardship are limited to actual contributions; earnings thereon can not
be distributed on account of hardship. (These limitations on withdrawals do not
apply to the extent the
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Company is directed to transfer some or all of the Contract Value to the issuer
of another Section 403(b) Policy or into a Section 403(b)(7) custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Section 457 of the Code permits employees of state and local
governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a Contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. Those who intend to use the
Contracts in connection with such plans should seek competent advice.
DIRECT ROLLOVERS
If your Contract is used in connection with a pension, profit-sharing, or
annuity plan qualified under sections 401(a) or 403(a) of the Code, or is a
Section 403(b) Policy, any "eligible rollover distribution" from the Contract
will be subject to direct rollover and mandatory withholding requirements. An
eligible rollover distribution generally is any taxable distribution from a
qualified pension plan under section 401(a) of the Code, qualified annuity plan
under section 403(a) of the Code, or section 403(b) annuity or custodial
account, excluding certain amounts (such as minimum distributions required under
section 401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for life or a specified period of 10
years or more).
Under these requirements, federal income tax equal to 20% of the eligible
rollover distribution will be withheld from the amount of the distribution.
Unlike withholding on certain other amounts distributed from the Contract,
discussed below, you cannot elect out of withholding with respect to an eligible
rollover distribution. However, this 20% withholding will not apply if, instead
of receiving the eligible rollover distribution, you elect to have it directly
transferred to certain Qualified Plans. Prior to receiving an eligible rollover
distribution, you will receive a notice (from the plan administrator or the
Company) explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20% withholding by electing a direct transfer.
FEDERAL INCOME TAX WITHHOLDING
American Foundation Life will withhold and remit to the federal government a
part of the taxable portion of each distribution made under a Contract unless
the distributee notifies American Foundation Life at or before the time of the
distribution that he or she elects not to have any amounts withheld. In certain
circumstances, American Foundation Life may be required to withhold tax. The
withholding rates applicable to the taxable portion of periodic annuity payments
(other than eligible rollover distributions) are the same as the withholding
rates generally applicable to payments of wages. In addition, the withholding
rate applicable to the taxable portion of non-periodic payments (including
surrenders prior to the Annuity Commencement Date) is 10%. Regardless of whether
you elect not to have federal income tax withheld, you are still liable for
payment of federal income tax on the taxable portion of the payment. As
discussed above, the withholding rate applicable to eligible rollover
distributions is 20%.
GENERAL MATTERS
MODIFICATION
No one is authorized to modify or waive any term or provision of this
Contract unless we agree to the modification or waiver in writing and it is
signed by our President, Vice-President or Secretary. We reserve the right to
change or modify the provisions of this Contract to conform to any applicable
laws, rules or regulations issued by a government agency. Where required, we
will obtain all necessary approvals, including that of the Owner.
37
<PAGE>
REPORTS
At least annually, we will send to you at the address contained in our
records a report showing the current Contract Value, the current value of your
Allocation Options, your current investment allocation and any other information
required by law.
INQUIRIES
Inquiries regarding a Contract may be made by writing to American Foundation
Life at the Administrative Office.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be offered on a continuous basis and American Foundation
Life does not anticipate discontinuing the offering of the Contracts.
Nevertheless, American Foundation Life reserves the right to discontinue the
offering at any time. Investment Distributors, Inc. serves as principal
underwriter (as defined in the 1940 Act) for the Contracts. Investment
Distributors, Inc. has agreed to use its best efforts to sell the Contracts.
Investment Distributors, Inc., is a wholly-owned subsidiary of Protective Life
Corporation and has the same address as American Foundation Life. Applications
for Contracts are solicited by agents who are licensed by applicable state
insurance authorities to sell American Foundation Life's Contracts and who are
also registered representatives of broker/dealers having a distribution
agreement with Investment Distributors, Inc. or broker/dealers having a
distribution agreement with such broker/dealer. Investment Distributors, Inc. is
an affiliate of American Foundation Life Insurance Company and is registered
with the SEC under the Securities Exchange Act of 1934 as a broker/dealer.
Investment Distributors, Inc. is a member of the National Association of
Securities Dealers, Inc. The maximum commission American Foundation Life will
pay is 7.0% of the Purchase Payments for the sale of a Contract, not including
subsequent asset-based commissions.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is a
party or the assets of the Variable Account are subject. American Foundation
Life is involved in pending and threatened proceedings in which claims for
monetary damages or penalties may be asserted. Management, after consultation
with legal counsel, does not believe that such proceedings are material, nor
does it anticipate the ultimate liability arising from any such proceeding would
be material, to American Foundation Life in relation to its total assets. Such
proceedings are not related to the Variable Account.
VOTING RIGHTS
In accordance with its view of applicable law, American Foundation Life will
vote the Fund shares held in the Variable Account at special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Sub-Accounts. If, however, the 1940
Act or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or American Foundation Life determines
that it is allowed to vote such shares in its own right, it may elect to do so.
The number of votes which are available to an Owner will be calculated
separately for each Sub-Account of the Variable Account, and may include
fractional votes. The number of votes attributable to a Sub-Account will be
determined by applying an Owner's percentage interest, if any, in a particular
Sub-Account to the total number of votes attributable to that Sub-Account. An
Owner holds a voting interest in each Sub-Account to which the Variable Account
Value is allocated. The Owner has voting interest only prior to the Annuity
Commencement Date.
38
<PAGE>
The number of votes which are available to the Owner will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of that Fund. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the Fund.
Shares as to which no timely instructions are received and shares held by
American Foundation Life in a Sub-Account as to which no Owner has a beneficial
interest will be voted in proportion to the voting instructions which are
received with respect to all Contracts participating in that Sub-Account. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast on that item.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Fund.
FINANCIAL STATEMENTS
The audited balance sheets for American Foundation Life as of December 31,
1997 and 1996 and the related statements of income, stockholder's equity, and
cash flows for the three years in the period ended December 31, 1997 and the
related financial statement schedules as well as the Report of Independent
Accountants are contained in the Statement of Additional Information.
No financial statements for the Variable Account have been provided because,
as of the date of this prospectus, the Variable Account had not yet commenced
operations.
39
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................ 3
The Contract............................................................ 3
Error in Age or Sex..................................................... 3
Incontestability........................................................ 3
Non-Participation....................................................... 3
Assignment.............................................................. 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................... 3
PIC Money Market Sub-Account Yield...................................... 4
Other Sub-Account Yields................................................ 5
Average Annual Total Returns............................................ 5
Other Total Returns..................................................... 6
Effect of the Contract Maintenance Fee on Performance Data.............. 6
SAFEKEEPING OF ACCOUNT ASSETS............................................. 7
STATE REGULATION.......................................................... 7
RECORDS AND REPORTS....................................................... 7
LEGAL MATTERS............................................................. 7
EXPERTS................................................................... 7
OTHER INFORMATION......................................................... 7
FINANCIAL STATEMENTS...................................................... 8
</TABLE>
40
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone: (800) 456-6330
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT A OF AMERICAN FOUNDATION
INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE AND FIXED ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to
the information described in the Prospectus for the individual flexible premium
deferred variable and fixed annuity contract (the "Contract") offered by
American Foundation Life Insurance Company. This Statement of Additional
Information is not a Prospectus. It should be read only in conjunction with the
Prospectuses for the Contract and the Funds. The Prospectus is dated the same as
this Statement of Additional Information. You may obtain a copy of the
Prospectus by writing or calling us at our address or phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY , 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................................................ 3
The Contract............................................................................................ 3
Error in Age or Sex..................................................................................... 3
Incontestability........................................................................................ 3
Non-Participation....................................................................................... 3
Assignment.............................................................................................. 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................... 3
PIC Money Market Sub-Account Yield...................................................................... 4
Other Sub-Account Yields................................................................................ 5
Average Annual Total Returns............................................................................ 5
Other Total Returns..................................................................................... 6
Effect of the Contract Maintenance Fee on Performance Data.............................................. 6
SAFEKEEPING OF ACCOUNT ASSETS............................................................................. 7
STATE REGULATION.......................................................................................... 7
RECORDS AND REPORTS....................................................................................... 7
LEGAL MATTERS............................................................................................. 7
EXPERTS................................................................................................... 7
OTHER INFORMATION......................................................................................... 7
FINANCIAL STATEMENTS...................................................................................... 8
</TABLE>
2
<PAGE>
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The Contract and its attachments, including the copy of your Application and
any endorsements, riders and amendments, constitute the entire agreement between
you and us. All statements in the Application shall be considered
representations and not warranties. The terms and provisions of this Contract
are to be interpreted in accordance with the Internal Revenue Code of 1986, as
amended (the "Code") and applicable regulations.
ERROR IN AGE OR SEX
When a benefit of the Contract is contingent upon any person's age or sex,
we may require proof of such. We may suspend payments until proof is provided.
When we receive satisfactory proof, we will make the payments which were due
during the period of suspension.
If, after proof of age and sex is furnished it is determined that the
information in the Application was not correct, we will adjust any benefit under
the Contract to that which would be payable based upon the correct age and sex.
If we have underpaid a benefit because of the error, we will make up the
underpayment in a lump sum. If the error resulted in an overpayment, we will
deduct the amount of the overpayment from any current or future payment due
under the Contract. Underpayments and overpayments will bear interest at an
annual effective interest rate of 3%.
INCONTESTABILITY
We shall not contest the Contract.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
American Foundation Life's surplus or profits.
ASSIGNMENT
You have the right to assign the Contract if it is a Non-Qualified Contract.
We do not assume responsibility for the assignment. Any claim made under an
assignment is subject to proof of the nature and extent of the assignee's
interest prior to payment by us. Assignments have federal income tax
consequences. (See "Assignments, Pledges and Gratuitous Transfers" in the
prospectus.)
All instructions and requests to change or assign the Contract must be in
writing in a form acceptable to us, and signed by the Owner(s). The instruction,
change or assignment will relate back to and take effect on the date it was
signed, except we will not be responsible for following any instruction or
making any change or assignment before we receive it.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, American Foundation Life may disclose yields, total
returns, and other performance data pertaining to the Contracts for a
Sub-Account. Such performance data will be computed or accompanied by
performance data computed, in accordance with the standards defined by the
Securities and Exchange Commission ("SEC").
Because of the charges and deductions imposed under a Contract, yields for
the Sub-Accounts will be lower than the yields for their respective Funds. The
calculations of yields, total returns, and other performance data do not reflect
the effect of premium tax that may be applicable to a particular Contract.
Premium tax rates currently range from 0% to 3.50% based on the state in which
the Contract is sold. Currently, New York does not impose a premium tax.
3
<PAGE>
PIC MONEY MARKET SUB-ACCOUNT YIELD
From time to time, advertisements and sales literature may quote the current
annualized yield of the PIC Money Market Sub-Account for a seven-day period in a
manner which does not take into consideration any realized or unrealized gain,
or losses on shares of the PIC Money Market Fund or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven day period in value of a
hypothetical account under a Contract having a balance of 1 Accumulation Unit of
the PIC Money Market Sub-Account at the beginning of the period, dividing such
net change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the PIC Money Market Fund attributable to the hypothetical
account, and 2) charges and deductions imposed under the Contract attributable
to the hypothetical account. The charges and deductions reflect the per unit
charges for the hypothetical account for: 1) the annual contract maintenance
fee, 2) administration charge, and 3) the mortality and expense risk charge. For
purposes of calculating current yields for a Contract, an average per unit
contract maintenance fee is used based on the $30 contract maintenance fee
deducted at the end of each Contract Year. Current yield will be calculated
according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
<TABLE>
<CAPTION>
WHERE:
<S> <C>
NCS the net change in the value of the Fund (exclusive of unrealized gains or losses on
the sale of securities and unrealized appreciation and depreciation) for the
seven-day period attributable to a hypothetical Account having a balance of 1
Sub-Account Accumulation Unit.
ES per unit expenses attributable to the hypothetical account for the seven-day
period.
UV The Accumulation Unit value as of the end of the last day of the prior seven-day
period.
</TABLE>
The effective yield of the PIC Money Market Sub-Account determined on a
compounded basis for the same seven-day period may also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCS-ES)/UV))to the power of "365/7" - 1
<TABLE>
<CAPTION>
WHERE:
<S> <C>
NCS the net change in the value of the portfolio (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and depreciation)
for the seven-day period attributable to a hypothetical account having a balance
of 1 Sub-Account Accumulation Unit.
ES per Accumulation Unit expenses attributable to the hypothetical account for the
seven-day period.
UV the Accumulation Unit value as of the end of the last day of the prior seven-day
period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the
current and effective yields for the PIC Money Market Sub-Account will be lower
than such yields for the PIC Money Market Fund.
The current and effective yields on amounts held in the PIC Money Market
Sub-Account normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The PIC Money Market Sub-Account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the PIC Money Market Fund, the types of quality of
portfolio securities held by the PIC Money Market Fund and
4
<PAGE>
the PIC Money Market Fund's operating expenses. Yields on amounts held in the
PIC Money Market Sub-Account may also be presented for periods other than a
seven day period.
OTHER SUB-ACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Sub-Accounts (except the PIC Money Market
Sub-Account) for a Contract for 30-day or one-month periods. The annualized
yield of a Sub-Account refers to income generated by the Sub-Account over a
specific 30 day or one month period. Because the yield is annualized, the yield
generated by a Sub-Account during a 30-day or one-month period is assumed to be
generated each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Sub-Account Accumulation Units, less Sub-Account expenses
for the period; by 2) the maximum offering price per Accumulation Unit on the
last day of the period times the daily average number of units outstanding for
the period; by 3) compounding that yield for a six-month period; and by 4)
multiplying that result by 2. Expenses attributable to the Sub-Account include
the annual contract maintenance fee, the administration charge and the mortality
and expense risk charge. The yield calculation assumes an contract maintenance
fee of $30 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating the 30-day (or one-month yield), an average
administration fee per dollar of Contract value in the Variable Account is used
to determine the amount of the charge attributable to the Sub-Account for the
30-day or one-month period. The 30 day or one month yield is calculated
according to the following formula:
Yield = 2 X [(((N1-ES)/(U X UV)) + 1)to the power of 6 - 1]
<TABLE>
<CAPTION>
WHERE:
<S> <C>
N1 net income of the Fund for the 30 day or one month period attributable to the
Sub-Account Accumulation Units.
ES expenses of the Sub-Account for the 30 day or one month period.
U the average number of Accumulation Units outstanding.
UV the Accumulation Unit value as ofthe end of the last day in the 30 day or one month
period.
</TABLE>
Because of the charges and deductions imposed under the Contracts, the yield
for the Sub-Account will be lower than the yield for the corresponding Fund.
The yield on the amounts held in the Sub-Accounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield is affected by the types and quality of portfolio
securities held by the corresponding Fund and its operating expenses.
Yield calculations do not take into account the surrender charge under the
Contract equal to 2% to 7% of Purchase Payments made during the six years prior
to the surrender (including the year in which the surrender is made) on amounts
surrendered under the Contract.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the Sub-Accounts for various periods of
time.
When a Sub-Account invests in a Fund that has been in operation for less
than 10 years, American Foundation Life may include standard average annual
total return figures measured from the date that such Fund began operations.
When a Sub-Account invests in a Fund that has been in operation for 1, 5, and 10
years, respectively, the Company will provide standard annual total return for
these periods. Average annual total returns for other periods of time may, from
time to time, also be disclosed.
5
<PAGE>
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the Surrender Value of that investment as of the last day of each of the
periods. The ending date of each period for which total return quotations are
provided will generally be for the most recent month-end practicable considering
the type and media of the communication and will be stated in the communication.
Average annual total returns will be calculated using Sub-Account unit
values computed on each Valuation Day based on the performance of the
Sub-Account's underlying Fund, the deductions for the mortality and expense risk
charge and the administration charge. The average annual total return
calculation also assumes that the contract maintenance fee is $30 per year per
contract deducted at the end of each Contract Year. For purposes of calculating
standard average annual total return, an average per dollar contract maintenance
fee attributable to the hypothetical account for the period for the quotation
standard average annual total returns will therefore reflect a deduction of the
surrender charge for any period less than eight years. The total return will
then be calculated according to the following formula:
TR = (ERV/P)to the power of 1/N - 1
<TABLE>
<CAPTION>
WHERE:
<S> <C> <C>
TR = the average annual total return net of Sub-Account recurring charges.
ERV = the ending redeemable value (net of any applicable surrender charge) of the
hypothetical account at the end of the period.
P = a hypothetical single purchase payment of $1,000.
N = the number of years in the period.
</TABLE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the surrender charge and in certain
cases the contract maintenance fee may be assumed to be waived. These are
calculated in exactly the same way as standard average annual total returns
described above, except that the ending Surrender Value of the hypothetical
account for the period is replaced with an ending value for the period that does
not take into account any charges on amounts surrendered and in certain cases
the contract maintenance fee may be assumed to be waived.
American Foundation Life may disclose cumulative total returns in
conjunction with the standard formats described above. The cumulative total
returns will be calculated using the following formula:
CTR = (ERV/P) - 1
<TABLE>
<CAPTION>
WHERE:
<S> <C> <C>
CTR = The cumulative total return net of Sub-Account recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of the
period. (In certain cases the Contract maintenance fee may be assumed to be
waived.)
P = A hypothetical single Purchase Payment of $1,000.
</TABLE>
EFFECT OF THE CONTRACT MAINTENANCE FEE ON PERFORMANCE DATA
The Contract provides for a $30 annual contract maintenance fee to be
deducted annually at the end of each Contract Year or upon a full surrender. For
purposes of reflecting the contract maintenance fee in yield and total return
quotations, the annual charge is converted into a per dollar per day charge
based on the average Variable Account Value of all Contracts on the last day of
the period for which quotations are provided. The per-dollar per-day average
charge is then adjusted to reflect the basis upon which the particular quotation
is calculated.
6
<PAGE>
SAFEKEEPING OF ACCOUNT ASSETS
Title to the assets of the Variable Account are held by American Foundation
Life. The assets are kept physically segregated and held separate and apart from
the Company's general account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Fund shares held
by each of the Sub-Accounts.
The officers and employees of American Foundation Life are covered by an
insurance company blanket bond issued in the amount of $15 million dollars. The
bond insures against dishonest and fraudulent acts of officers and employees.
STATE REGULATION
American Foundation Life is subject to regulation and supervision by the
Department of Insurance of the State of Alabama which periodically examines its
affairs. It is also subject to the insurance laws and regulations of all
jurisdictions where it is authorized to do business. A copy of the Contract form
has been filed with, and where required approved by, insurance officials in each
jurisdiction where the Contracts are sold. American Foundation Life is required
to submit annual statements of its operations, including financial statements,
to the insurance departments of the various jurisdictions in which it does
business for the purposes of determining solvency and compliance with local
insurance laws and regulations.
RECORDS AND REPORTS
American Foundation Life will maintain all records and accounts relating to
the Variable Account. As presently required by the 1940 Act and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to
Owner(s) periodically at the last known address.
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws.
EXPERTS
The [consolidated] balance sheets for American Foundation Life as of
December 31, 1997 and 1996 and the related [consolidated] statements of income,
stockholder's equity, and cash flows for the three years in the period ended
December 31, 1997 have been audited Coopers & Lybrand LLP, independent auditors,
as set forth in their report thereon and included herein. Such financial
statements are included in this Statement of Additional Information in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N.W., Washington, DC 20549.
7
<PAGE>
FINANCIAL STATEMENTS
[To be added by amendment]
8
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
(1) Certified resolution of the board of directors of American Foundation
Life Insurance Company (the "Company") establishing American Foundation
Variable Annuity Separate Account A (the "Account").
(2) Not Applicable.
(3) (a) Form of underwriting agreement among the Company, the Account and
Investment Distributors, Inc. ("IDI"). (To be filed by amendment.)
(b) Form of distribution agreement between IDI and retail
broker-dealers. (To be filed by amendment.)
(4) (a) Contract Form.
(b) Qualified Retirement Plan Endorsement.
(c) Individual Retirement Annuity Endorsements.
(d) Tax Sheltered Annuity Endorsement.
(5) Contract Application.
(6) (a) Certificate of Incorporation of the Company.
(b) By-Laws of the Company.
(7) Not Applicable.
(8) (a) Form of participation/distribution agreement between Protective
Investment Company and the Company. (To be filed by amendment.)
(b) Form of service agreement between Protective Life Insurance Company
and the Company. (To be filed by amendment.)
(c) Participation Agreement with Oppenheimer Variable Account Funds. (To
be filed by amendment.)
(d) Participation Agreement with MFS Variable Insurance Trust. (To be
filed by amendment.)
(e) Participation Agreement with Calvert Variable Series Portfolios. (To
be filed by amendment.)
(9) Opinion and Consent of Steve M. Callaway, Esquire. (To be filed by
amendment.)
(10) (a) Consent of Sutherland, Asbill & Brennan LLP. (To be filed by
amendment.)
(b) Consent of Coopers & Lybrand LLP. (To be filed by amendment.)
(11) Not Applicable.
(12) Not Applicable.
(13) Performance data computation schedule. (To be filed by amendment.)
(14) Financial data schedules. (To be filed by amendment.)
(15) Copies of Powers of Attorney.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Drayton Nabers, Jr...................................... Director
John D. Johns........................................... Director
Wayne E. Stuenkel....................................... President, Chief Actuary, and Director
R. Stephen Briggs....................................... Executive Vice President, Director
Jim E. Massengale....................................... Executive Vice President, Acquisitions, and Director
A. S. Williams III...................................... Executive Vice President, Investments, Treasurer, and
Director
Danny L. Bentley........................................ Senior Vice President, Group, and Director
Richard J. Bielen....................................... Senior Vice President, Investments, and Director
Carolyn King............................................ Senior Vice President, Investment Products, and Director
Deborah J. Long......................................... Senior Vice President, Secretary, General Counsel, and
Director
Steven A. Schultz....................................... Senior Vice President, Financial Institutions, and
Director
J. Russell Bailey, Jr................................... Vice President, Group
Brent E. Fritz.......................................... Vice President, Individual Life Product Development
Jerry W. DeFoor......................................... Vice President and Controller
James T. Helton III..................................... Vice President and Group Actuary
John M. O'Sullivan...................................... Vice President and Actuary, Investment Products
T. Michael Presley...................................... Vice President and Actuary, Financial Institutions
Charles M. Prior........................................ Vice President, Investments
David C. Stevens........................................ Vice President, Group Operations
Carl S. Thigpen......................................... Vice President, Investments and Assistant Secretary
</TABLE>
- ------------------------
* Unless otherwise indicated, principal business address is 2801 Highway 280
South, Birmingham, Alabama 35223
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Protective Life Corporation. Protective Life
Corporation is described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by
Protective Life Corporation may therefore be considered to be under common
control with the registrant or the Company. Such other companies and entities,
together with the identity of their controlling persons (where applicable), are
set forth on the organization chart incorporated herein by reference to item 26
of post-effective amendment number 5 to Protective Life Insurance Company's Form
N-4 registration statement (File No. 33-70984) for
2
<PAGE>
certain deferred variable annuity contracts issued by Protective Life filed with
the Commission on April 30, 1997.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not applicable.
ITEM 28. INDEMNIFICATION
Article XI of the By-laws of the Company provides, in substance, that any of
the Company's directors and officers, who is a party or is threatened to be made
a party to any action, suit or proceeding, other than an action by or in the
right of the Company, by reason of the fact that he is or was an officer or
director, shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such claim, 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 Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. If the claim, action or suit is or was by or in the right
of the Company to procure a judgment in its favor, such person shall be
indemnified by the Company against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such 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 Company except
that no indemnification shall be made in respect of 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 Company unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper. To the extent
that a director or officer has been successful on the merits or otherwise in
defense of any such action, suit or proceeding, or in defense of any claim,
issue or matter therein, he shall be indemnified by the Company against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, not withstanding that he has not been successful on any
other claim issue or matter in any such action, suit or proceeding. Unless
ordered by a court, indemnification shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
officer or director is proper in the circumstances because he has met the
applicable standard of conduct. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to, or who have been successful on the merits or otherwise with
respect to, such claim action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (c) by the
shareholders.
In addition, the executive officers and directors are insured by PLC's
Directors' and Officers' Liability Insurance Policy including Company
Reimbursement and are indemnified by a written contract with PLC which
supplements such coverage.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question
3
<PAGE>
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 UNDERWRITER
(a) IDI is the principal underwriter (as defined in the Act) for the
Contracts and is also the principal underwriter for other variable and
modified guaranteed annuity contracts issued by the Registrant and its
affiliates and for Protective Investment Company.
(b) Incorporated herein by reference to item 29 of post-effective amendment
number 5 to Protective Life Insurance Company's Form N-4 registration
statement (File No. 33-70984) for certain deferred variable annuity
contracts issued by Protective Life filed with the Commission on April
30, 1997.
(c) Not Applicable
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept
by Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 2801 Highway 280 South, Birmingham, Alabama 35223.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement are
never more than 16 months old for as long as purchase payments under the
contracts offered herein are being accepted.
(b) The registrant undertakes that it will 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 post card or similar written communication affixed
to or included in the prospectus that the applicant can remove and send
to the Company for a statement of additional information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available
under this Form N-4 promptly upon written or oral request to the Company
at the address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, it
is relying on a no-action letter dated November 28, 1988, to the American
Council of Life Insurance (Ref. No. IP-6-88) regarding Sections 22(e),
27(c)(1), and 27(d) of the Investment Company Act of 1940, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
(e) The Company represents that the fees and charges deducted under the
contracts offered herein are, in the aggregate, reasonable in relation to
the services rendered, the expenses expected to be incurred and the risks
assumed by it under such contracts.
4
<PAGE>
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 Birmingham, and the State of Alabama, on this 5th day of
December, 1997.
ANNUITY ACCOUNT A OF AMERICAN FOUNDATION
(Registrant)
By: /s/ WAYNE E. STUENKEL
-----------------------------------------
Wayne E. Stuenkel, PRESIDENT
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
(Depositor)
By: /s/ WAYNE E. STUENKEL
-----------------------------------------
Wayne E. Stuenkel, PRESIDENT
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the duties
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ WAYNE E. STUENKEL Principal and Director
- ------------------------------ (Principal Executive December 5, 1997
Wayne E. Stuenkel Officer)
Vice President (Principal
/s/ JERRY W. DEFOOR Financial Officer and
- ------------------------------ Principal Accounting December 5, 1997
Jerry W. DeFoor Officer
/s/ R. STEPHEN BRIGGS
- ------------------------------ Director December 5, 1997
R. Stephen Briggs
/s/ JIM E. MASSENGALE
- ------------------------------ Director December 5, 1997
Jim E. Massengale
/s/ A.S. WILLIAMS, III
- ------------------------------ Director December 5, 1997
A.S. Williams, III
5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ STEVEN A. SCHULTZ
- ------------------------------ Director December 5, 1997
Steven A. Schultz
/s/ DEBORAH A. LONG
- ------------------------------ Director December 5, 1997
Deborah A. Long
/s/ CAROLYN KING
- ------------------------------ Director December 5, 1997
Carolyn King
/s/ RICHARD J. BIELEN
- ------------------------------ Director December 5, 1997
Richard J. Bielen
/s/ DANNY L. BENTLEY
- ------------------------------ Director December 5, 1997
Danny L. Bentley
6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
1. Certified resolution of the board of directors of American Foundation Life
Insurance Company establishing Separate Account A of American Foundation.
4.(a) Contract Form.
4.(b) Qualified Retirement Plan Endorsement.
4.(c) Individual Retirement Annuity Endorsements.
4.(d) Tax Sheltered Annuity Endorsement.
5. Contract Application.
6.(a) Certificate of Incorporation of American Foundation Life Insurance Company.
6.(b) By-Laws of American Foundation Life Insurance Company.
15. Copies of Powers of Attorney.
</TABLE>
<PAGE>
CERTIFICATE OF TRUE COPY
RESOLVED, That the Board of Directors of the Company hereby establishes a
separate account, pursuant to Alabama Insurance Code Section 27-38-1,
designated the "Variable Annuity Account A of American Foundation"
(hereinafter "Annuity Account") for the following use and purposes, and
subject to such conditions as hereinafter set forth; and
RESOLVED FURTHER, That the Annuity Account is established for the
purpose of providing for the issuance by the Company of certain
variable annuity contracts ("Contracts"), and shall constitute a
funding medium to support reserves under such contracts issued by the
Company; and
RESOLVED FURTHER, That to the extent so provided under such Contracts
issued by the Company that portion of the assets of the Annuity
Account equal to the reserves and other contract liabilities of the
Annuity Account shall not be chargeable with liabilities arising out
of any other business the Company may conduct; and
RESOLVED FURTHER, That the income, gains and losses, realized or
unrealized, from assets allocated to such Annuity Account shall be
credited to, or charged against, the account, without regard to other
income, gains or losses of the Company; and
RESOLVED FURTHER, That the Annuity Account shall be divided into
investment subaccounts, each investment subaccount in the Annuity
Account shall invest in the shares of a mutual fund portfolio
designated on the contract specifications page of the Contract and net
premiums under the Contracts shall be allocated to the eligible
portfolios in accordance with instructions received from owners of the
Contracts; and
RESOLVED FURTHER, That the Board of Directors expressly reserve the
right to add or remove any investment subaccount of the Annuity
Account or substitute one designated mutual fund for another as it may
hereafter deem necessary or appropriate;
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, be, and they hereby are, severally authorized
to invest such amount or amount of the Company's cash in the Annuity
Account or in any investment subaccount thereof as may be deemed
necessary or appropriate to facilitate the commencement of the Annuity
Account's operations and/or to meet any minimum capital requirements
under the Investment Company Act of 1940 (the "1940 Act"); and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the
<PAGE>
same hereby are authorized and each of them, with full power to act without
the others, be, and they hereby are, severally authorized to transfer cash
from time to time between the Company's general account and the Annuity
Account as deemed necessary or appropriate and consistent with the terms of
the Contracts; and
RESOLVED FURTHER, That the Board of Directors of the Company reserves
the right to change the designation of the Annuity Account hereafter
to such other designation as it may deem necessary or appropriate; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, with such assistance from the Company's
independent certified public accountants, legal counsel and
independent consultants or others as they may require, be, and they
hereby are, severally authorized and directed to take all action
necessary to: (a) register the Annuity Account as a unit investment
trust under the 1940 Act; (b) register the Contracts in such amounts,
which may be an indefinite amount, as such officer of the Company
shall from time to time deem appropriate under the Securities Act of
1933 (the "1933 Act"); and (c) take all other actions which are
necessary in connection with the offering of the Contracts for sale
and the operation of the Annuity Account in order to comply with the
1940 Act, the Securities Exchange Act of 1934, the 1933 Act, and other
applicable federal laws, including the filing of any amendments to
registration statements, any undertakings, and any applications for
exemptions from the 1940 Act or other applicable federal laws as the
officers of the Company shall deem necessary or appropriate; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, hereby are severally authorized and empowered
to prepare, execute and cause to be filed with the Securities and
Exchange Commission on behalf of the Annuity Account, and by the
Company as sponsor and depositor, a Notification of Registration on
Form N-8A, a registration statement registering the Annuity Account as
an investment company under the 1940 Act and the Contracts under the
1933 Act, and any and all amendments to the foregoing on behalf of the
Annuity Account and the Company and on behalf of an as
attorneys-in-fact for the chief executive officer and/or the chief
financial officer and/or the principal accounting officer and/or any
other officer of the Company; and
RESOLVED FURTHER, That Steve M. Callaway is duly appointed as agent
for service under such registration statement, duly authorized to
receive communications and notices from the Securities and Exchange
Commission with respect thereto; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the
<PAGE>
other, hereby are severally authorized on behalf of the Annuity Account and
on behalf of the Company to take any and all action that each of them may
deem necessary or advisable in order to offer and sell the Contracts,
including any registrations, filings and qualifications both of the
Company, its officers, agents and employees, and of the Contracts, under
the insurance and securities laws of any of the states of the United States
of America or other jurisdictions, and in connection therewith to prepare,
execute, deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of process
and other papers and instruments as may be required under such laws, and to
take any and all further action which such officers or legal counsel of the
Company may deem necessary or desirable (including entering into whatever
agreements and contracts may be necessary) in order to maintain such
registrations or qualifications for as long as the officers or legal
counsel deem it to be in the best interests of the Annuity Account and the
Company; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, be, and they hereby are, severally authorized
in their names and on behalf of the Annuity Account and the Company to
execute and file irrevocable written consents on the part of the
Annuity Account and of the Company to be used in such states wherein
such consents to service of process may be requisite under the
insurance or securities laws therein in connection with the
registration or qualification of the Contracts and to appoint the
appropriate state official, or such other person as may be allowed by
insurance or securities laws, agent of the Annuity Account and of the
Company for the purpose of receiving and accepting process; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, be, and hereby are, severally authorized to
establish procedures under which the Company will provide voting
rights for owners of the Contracts with respect to securities owned by
the Annuity Account; and
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act with the others, are hereby severally authorized to execute such
agreement or agreement as deemed necessary and appropriate (i) with
Investment Distributors, Inc. or other qualified entity under which
Investment Distributors, Inc. or such other entity will be appointed
principal underwriter and distributor for the Contracts, (ii) with one
or more qualified banks or other qualified entities to provide
administrative and/or custody services in connection with the
establishment and maintenance of the Annuity Account and the design,
issuance, and administration of the Contracts, and (iii) with the
designated mutual funds and/or the principal underwriter and
distributor of those funds for the purchase and redemption of fund
shares.
<PAGE>
RESOLVED FURTHER, That the appropriate officers of the Company be and
the same hereby are authorized and each of them, with full power to
act without the others, are hereby severally authorized to execute and
deliver such agreements and other documents and do such acts and
things as each of them may deem necessary or desirable to carry out
the foregoing resolutions and the intent and purposes thereof.
I, Deborah J. Long, Secretary of AMERICAN FOUNDATION LIFE INSURANCE COMPANY, do
hereby certify that the foregoing is a true and correct copy of a resolution
adopted by the Board of Directors via unanimous written consent dated as of the
1st day of December, 1997, and that such resolution remains in full force and
effect.
WITNESS MY HAND and Seal of the Corporation this _____ day of ________________,
1997.
By: /s/ Deborah J. Long
----------------------------------------
Deborah J. Long, Secretary
SEAL
<PAGE>
AMERICAN FOUNDATION LIFE INSURANCE COMPANY (800) 456-6330
- --------------------------------------------------------------------------------
2801 Highway 280 South (A Stock Insurance Company)
Birmingham, Alabama 35223
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY CONTRACT
(NON-PARTICIPATING)
American Foundation Life Insurance Company agrees to provide the benefits
described in this Contract.
THIS IS A VARIABLE ANNUITY CONTRACT
THE VALUE OF THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE
SEPARATE ACCOUNT, IS VARIABLE. IT WILL INCREASE AND DECREASE AS A RESULT OF
FLUCTUATIONS IN THE NET INVESTMENT FACTOR. NO MINIMUM CONTRACT VALUE IS
GUARANTEED FOR AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT.
YOU HAVE THE RIGHT TO RETURN THIS CONTRACT
You may cancel this Contract within thirty days after you receive it by
returning the Contract to our Administrative Office, or to the Agent who sold
the Contract, with a written request for cancellation. Return of this Contract
by mail is effective on being post-marked, properly addressed and postage
pre-paid. We will promptly return the Contract Value plus any charges deducted
from either Purchase Payments or the Contract Value. This amount may be more or
less than the Purchase Payments.
/s/ Wayne E. Stuenkel /s/ Deborah J. Long
Wayne E. Stuenkel Deborah J. Long
President Secretary
THIS IS A LEGAL CONTRACT
READ IT CAREFULLY
<PAGE>
CONTRACT SPECIFICATIONS
FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY CONTRACT
CONTRACT NUMBER EFFECTIVE DATE
OWNER ISSUE AGE OF OWNER
JOINT OWNER ISSUE AGE OF JOINT OWNER
ANNUITANT ISSUE AGE OF ANNUITANT
BENEFICIARY ANNUITY COMMENCEMENT DATE
As contained in our records
INITIAL PURCHASE PAYMENT:
TYPE OF PLAN: [ ] QUALIFIED [X] NON-QUALIFIED
ANNUAL CONTRACT MAINTENANCE FEE: {$30}
MORTALITY AND EXPENSE RISK CHARGE: {1.25%} per annum of the average daily
Variable Account Value in the Variable Account.
ADMINISTRATION CHARGE: {0.15%} per annum of the average daily Variable Account
Value in the Variable Account.
TRANSFER FEE: {$25} per transfer in excess of {12} in any Contract Year.
SURRENDER CHARGE: Full or partial surrenders may be subject to a Surrender
Charge. When applicable, the Surrender Charge will be determined according the
table below:
Page-2-
<PAGE>
NUMBER OF FULL YEARS ELAPSED BETWEEN SURRENDER CHARGE AS A PERCENTAGE OF
THE DATE OF RECEIPT OF THE PURCHASE PURCHASE PAYMENT WITHDRAWN
PAYMENT AND THE DATE OF SURRENDER IN A FULL YEAR
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
ALLOCATION OPTIONS AVAILABLE ON THE EFFECTIVE DATE:
GOLDMAN SACHS/PIC
Growth and Income
International Equity
Global Income
CORE U.S. Equity
Small Cap Equity
Money Market
Capital Growth
CALVERT
Small Cap Growth
Balanced
MFS
Emerging Growth
Research
Growth with Income
Total Return
OPPENHEIMERFUNDS
Capital Appreciation
Growth
Growth & Income
Strategic Bond
AMERICAN FOUNDATION LIFE GUARANTEED ACCOUNTS
Fixed Account
DCA Fixed Account
Page-3-
<PAGE>
INDEX
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
GENERAL PROVISIONS
Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Modification of the Contract. . . . . . . . . . . . . . . . . . . . . . . 8
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Error in Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Receipt of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Protection of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Non-Participating . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Minimum Values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Application of Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PARTIES TO THE CONTRACT
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PURCHASE PAYMENT
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Allocation of Purchase Payments . . . . . . . . . . . . . . . . . . . . . 11
No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
GUARANTEED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VARIABLE ACCOUNT
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sub-Accounts of the Variable Account. . . . . . . . . . . . . . . . . . . 12
Variable Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Page-4-
<PAGE>
FEES AND CHARGES
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . 14
Administration Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Contract Maintenance Fee. . . . . . . . . . . . . . . . . . . . . . . . . 14
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SURRENDERS
Surrenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Suspension or Delay in Payment of Surrender . . . . . . . . . . . . . . . 15
DEATH OF OWNER OR ANNUITANT
Death of an Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Death of the Annuitant. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Suspension of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ANNUITY OPTIONS
Annuity Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . 17
Annuity Income Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Annuity Option 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Annuity Option 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Annuity Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Page-5-
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: A unit of measurement used to calculate the value of a
Sub-Account.
ADMINISTRATIVE OFFICE: 2801 Highway 280 South, Birmingham, Alabama, 35223.
AGE: The age on the birthday immediately prior to any date for which age is to
be determined.
ALLOCATION OPTION: Any account within the Guaranteed Account and any Sub-Account
of the Variable Account into which amounts may be allocated under this Contract.
ANNIVERSARY VALUE: At any time, the sum of: (1) the Contract Value on a Contract
Anniversary; plus, (2) all Purchase Payments made since that Contract
Anniversary; minus, (3) any partial surrenders (and any associated charges) made
since that Contract Anniversary. An Anniversary Value is determined for each
Contract Anniversary through the earlier of: (1) the deceased Owner's 80th
birthday; or, (2) the date of the deceased Owner's death.
ANNUITY COMMENCEMENT DATE: The date on which Annuity Income Payments are
determined. The initial Annuity Income Payment must be within one month of the
Annuity Commencement Date.
ANNUITY INCOME PAYMENT: Payments made by the Company that are determined on the
Annuity Commencement Date and are based on the annuity option selected.
ANNUITY PURCHASE VALUE: At any time prior to the Annuity Commencement Date, the
greater of: (1) Surrender Value; or (2) 95% of Contract Value (less applicable
premium tax).
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY: American Foundation Life Insurance Company, also referred to as "we",
"us" and "our".
CONTRACT ANNIVERSARY: The same month and day as the Effective Date in each
subsequent year of the Contract.
CONTRACT VALUE: At any time, the sum of: (1) the Variable Account Value; and (2)
the Guaranteed Account Value.
CONTRACT YEAR: Any period of 12 months commencing with the Effective Date or any
Contract Anniversary.
Page-6-
<PAGE>
DCA FIXED ACCOUNT: The DCA Fixed Account is part of American Foundation Life's
general account and is not part of or dependent upon the investment performance
of the Variable Account. Only Purchase Payments may be allocated to the DCA
Fixed Account, which is available only for dollar cost averaging. No transfers
may be made from other Allocation Options into this account.
DEATH BENEFIT: The amount, if any, paid to a Beneficiary upon the death of an
Owner prior to the Annuity Commencement Date. Only one Death Benefit is payable
under this Contract even though the Contract may, in some circumstances,
continue beyond an Owner's death.
EFFECTIVE DATE: The date as of which your initial Purchase Payment is credited
under to this Contract and the date this Contract takes effect. Contract Years
are measured from the Effective Date.
FIXED ACCOUNT: The Fixed Account is part of American Foundation Life's general
account and is not part of or dependent upon the investment performance of the
Variable Account.
FUND: Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series thereof, in which a corresponding
Sub-Account invests.
GUARANTEED ACCOUNT: The Fixed Account, DCA Fixed Account and any other account
that we may offer with interest rate guarantees.
GUARANTEED ACCOUNT VALUE: At any time prior to the Annuity Commencement Date,
the sum of: (1) Purchase Payments allocated to the Guaranteed Account; plus, (2)
Variable Account Value transferred into the Guaranteed Account; plus, (3)
interest credited to the Guaranteed Account; minus, (4) Contract Value
transferred out of the Guaranteed Account; minus, (5) the amount of any partial
surrenders removed from the Guaranteed Account, including any surrender charges
and applicable premium tax; minus, (6) fees deducted from the Guaranteed
Account.
INTEREST GUARANTEED PERIOD: The term for which an interest rate is guaranteed
for an Allocation Option within the Guaranteed Account.
MAXIMUM ANNIVERSARY VALUE: The greatest Anniversary Value attained.
NET ASSET VALUE PER SHARE: The value per share of any Fund as computed on any
Valuation Day.
NON-QUALIFIED CONTRACTS: Contracts which are not Qualified Contracts.
PURCHASE PAYMENT(S): Amount(s) paid by the Owner and accepted by the Company as
consideration for this Contract.
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QUALIFIED CONTRACTS: Contracts issued in connection with retirement plans that
receive favorable tax treatment under Sections 401, 403, 408 or 457 of the Code.
SUB-ACCOUNT: A separate division of the Variable Account. Each Sub-Account
invests in a corresponding Fund.
SUB-ACCOUNT VALUE: The Sub-Account Value is the value of an Accumulation Unit of
the Sub-Account for which the value is being determined multiplied by the number
of Accumulation Units of that Sub-Account attributable to this Contract.
SURRENDER VALUE: The amount available for a full surrender. It is equal to the
Contract Value minus any applicable surrender charge, contract maintenance fee
and premium tax.
VALUATION DAY: Each day on which the New York Stock Exchange is open for
business.
VALUATION PERIOD: The period which begins at the close of regular trading on the
New York Stock Exchange on any Valuation Day and ends at the close of regular
trading on the next Valuation Day.
VARIABLE ACCOUNT: Variable Annuity Account A of American Foundation, a separate
investment account of the Company.
VARIABLE ACCOUNT VALUE: The sum of all Sub-Account Values.
GENERAL PROVISIONS
ENTIRE CONTRACT - This Contract and its attachments, including the copy of your
Application and any endorsements, riders and amendments, constitute the entire
agreement between you and us. All statements in the Application shall be
considered representations and not warranties.
MODIFICATION OF THIS CONTRACT - No one is authorized to modify or waive any
term or provision of this Contract unless we agree to the modification or waiver
in writing and it is signed by our President, Vice-President or Secretary. We
reserve the right to change or modify the provisions of this Contract to conform
to any applicable laws, rules or regulations issued by a government agency, or
to assure continued qualification of the Contract as an annuity contract under
the Code. Where required, we will obtain all necessary approvals, including
that of the Owner.
INCONTESTABILITY - We will not contest the provisions of this Contract.
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ASSIGNMENT - You have the right to assign this Contract. We do not assume
responsibility for the assignment. Any claim made under an assignment is subject
to proof of the nature and extent of the assignee's interest prior to payment by
us.
NOTICE - All instructions and requests to change or assign this Contract must
be in writing in a form acceptable to us, and signed by the Owner(s). The
instruction, change or assignment will relate back to and take effect on the
date it was signed, except we will not be responsible for following any
instruction or making any change or assignment before we receive it.
ERROR IN AGE OR SEX - When a benefit of this Contract is contingent upon any
person's age or sex, we may require proof of such. We may suspend payments
until proof is provided. When we receive satisfactory proof, we will make the
payments which were due during the period of suspension.
If, after proof of age and sex is furnished it is determined that the
information in the Application was not correct, we will adjust any benefit under
this Contract to that which would be payable based upon the correct age and sex.
If we have underpaid a benefit because of the error, we will make up the
underpayment in a lump sum. If the error resulted in an overpayment, we will
deduct the amount of the overpayment from any current or future payment due
under the Contract. Underpayments and overpayments will bear interest at an
annual effective interest rate of 3%.
SETTLEMENT - Benefits due under this Contract are payable from our
Administrative Office. The Owner may apply the settlement proceeds to any
payout option we offer for such payments at the time the election is made.
Unless directed otherwise in writing, we will make payments according to the
Owner's instructions as contained in our records at the time the payment is
made. We shall be discharged from all liability to the extent of any partial
or full surrender, or Death Benefit paid, or payments made under any annuity
option.
RECEIPT OF PAYMENT: If any Owner, Annuitant, Beneficiary or Payee is incapable
of giving a valid receipt for any payment, we may make such payment to whomever
has legally assumed his or her care and principal support. Any such payment
shall fully discharge us to the extent of that payment.
PROTECTION OF PROCEEDS: To the extent permitted by law and except as provided by
an assignment, no benefits payable under this Contract will be subject to the
claims of creditors of any payee.
PREMIUM TAXES: Premium taxes will be deducted, if applicable. Premium taxes may
be deducted from the Purchase Payment(s) when received, upon full or partial
surrender, from the Death Benefit, or from the Account Value before Annuity
Income Payments begin.
NON-PARTICIPATING - This Contract does not share in our surplus or profits, or
pay dividends.
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MINIMUM VALUES - The values available under the Contract are at least equal to
the minimum values required in the state where the Contract is delivered.
APPLICATION OF LAW - The provisions of the Contract are to be interpreted in
accordance with the laws of the state where the Contract is delivered and with
the Code and applicable regulations.
REPORTS: At least annually, we will send to you at the address contained in our
records a report showing the current Contract Value, Allocation Option values,
your current investment allocation and any other information required by law.
PARTIES TO THE CONTRACT
OWNER: The person or persons to whom this Contract is issued, also referred to
as "you" or "your". Two persons may own this Contract together; they are called
Joint Owners. The Owner, or the Joint Owners together, are entitled to exercise
all rights and privileges provided by this Contract.
BENEFICIARY - The person or persons entitled to receive the Death Benefit upon
the death of an Owner. Unless designated irrevocably, the Owner may change the
Beneficiary by written notice prior to the death of any Owner.
PRIMARY - The Primary Beneficiary is the surviving Joint Owner, if any. If
there is no surviving Joint Owner, the Primary Beneficiary is the person or
persons designated on the application or, if changed by the Owner, the
person or persons so named in our records.
CONTINGENT - The person or persons named to receive the death benefits if
the Primary Beneficiary is not living at the time of an Owner's death. If
no Beneficiary designation is in effect or if no Beneficiary is living at
the time of an Owner's death, the estate of the deceased Owner will be the
Beneficiary.
IRREVOCABLE - An irrevocable Beneficiary is one whose written consent is
needed before the Owner can change the Beneficiary designation or exercise
certain other rights.
ANNUITANT: Payments under this Contract may depend upon the continued survival
of a living person called an Annuitant. The Annuitant may be changed by written
notice prior to the Annuity Commencement Date. However, if any Owner is not an
individual the Annuitant may not be changed. The Owner is the Annuitant unless
another Annuitant is named.
PAYEE: The person or persons designated by the Owner to receive the Annuity
Income Payments from this Contract. The Annuitant is the Payee unless otherwise
designated.
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PURCHASE PAYMENTS
PURCHASE PAYMENTS: Purchase Payments are payable at our Administrative Office.
They may be made by check payable to American Foundation Life Insurance Company
or by any other method we deem acceptable. Your initial Purchase Payment is
shown on the Contract Specifications page.
Subsequent Purchase Payments will be accepted by the Company. The minimum
subsequent Purchase Payment we will accept is {$250}. The maximum aggregate
Purchase Payment(s) we will accept without prior Administrative Office approval
is $1,000,000.
ALLOCATION OF PURCHASE PAYMENTS: We will allocate your Purchase Payments to the
Allocation Options according to your instructions as contained in our records at
the time the Purchase Payment is received at our Administrative Office. Your
initial allocation instructions are contained in the Application but may be
changed at any time by written notice. Allocations are to be made in whole
percentages and you may not allocate any one Purchase Payment to more than 10
Allocation Options.
NO DEFAULT: This Contract will not be in default if subsequent Purchase
Payments are not made.
GUARANTEED ACCOUNT
You may allocate some or all of your Purchase Payments and may transfer some or
all of your Contract Value to an account within the Guaranteed Account, except
that transfers may not be made into the DCA Fixed Account. Amounts allocated to
an account within the Guaranteed Account earn interest from the date the funds
are credited to the account. The interest rate we apply to Purchase Payments
and transfers will remain in effect for the Interest Guaranteed Period. The
Interest Guaranteed Period for the Fixed Account and the DCA Fixed Account is
one year.
After an Interest Guaranteed Period expires, a new Interest Guaranteed Period
will begin. The interest rate for the new Interest Guaranteed Period will be set
by us and may not be the same as the interest rate then in effect for Purchase
Payments or transfers allocated to that account.
We, in our sole discretion, establish interest rates from time to time for each
account in the Guaranteed Account, but will not declare a rate which is less
than an annual effective interest rate of 3.00%. For the purposes of interest
crediting, amounts deducted, transferred or withdrawn from the Guaranteed
Account will be separately accounted for on a "first-in, first-out" (FIFO)
basis.
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VARIABLE ACCOUNT
GENERAL DESCRIPTION: The variable benefits under the Contract are provided
through the Variable Annuity Account A of American Foundation, which is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. The portion of the assets of
Variable Annuity Account A equal to the reserves and other contract liabilities
with respect to the Variable Account are not chargeable with the liabilities
arising out of any other business we may conduct. The income, gains and losses,
both realized and unrealized, from the assets of Variable Annuity Account A
shall be credited to or charged against the Variable Account without regard to
any other income, gains or losses of the Company. We have the right to transfer
to our general account any assets of Variable Annuity Account A which are in
excess of such reserves and other liabilities.
SUB-ACCOUNTS OF THE VARIABLE ACCOUNT: Variable Annuity Account A of American
Foundation is divided into a series of Sub-Accounts. The Sub-Accounts
available on the effective date of this Contract are listed on the Contract
Specifications page. Each Sub-Account invests exclusively in shares of a
corresponding Fund. The income, dividends, and gains, if any, distributed
from the shares of a Fund will be reinvested by purchasing additional shares
of that Fund at its net asset value.
When permitted by law, we may:
(1) create new variable accounts;
(2) combine variable accounts, including Variable Annuity Account A of
American Foundation;
(3) add new Sub-Accounts to or remove existing Sub-Accounts from the
Variable Annuity Account A or combine Sub-Accounts;
(4) make new Sub-Accounts or other Sub-Accounts available to such classes
of the Contracts as we may determine;
(5) add new Funds or remove existing Funds;
(6) if shares of a Fund are no longer available for investment or if we
determine that investment in a Fund is no longer appropriate in light
of the purposes of Variable Annuity Account A, substitute a different
Fund for any existing Fund;
(7) deregister Variable Annuity Account A under the Investment Company Act
of 1940 if such registration is no longer required;
(8) operate Variable Annuity Account A as a management investment company
under the Investment Company Act of 1940 or as any other form
permitted by law; and
(9) make any changes to Variable Annuity Account A or its operations as
may be required by the Investment Company Act of 1940 or other
applicable law or regulations.
The investment policy of Variable Annuity Account A will not be changed without
obtaining all necessary regulatory approvals.
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The values and benefits of this Contract provided by the Variable Account depend
on the investment performance of the Funds in which the Sub-Accounts invests.
We do not guarantee the investment performance of the Funds. You bear the full
investment risk for amounts allocated or transferred to the Sub-Accounts.
VARIABLE ACCOUNT VALUE: Purchase Payments may be allocated among, and amounts
may be transferred to the various Sub-Accounts within the Variable Account.
This is done by converting the amount of the Purchase Payment or transfer into
Accumulation Units. The number of Accumulation Units is determined by dividing
the dollar amount directed to each Sub-Account by the value of the Accumulation
Unit for that Sub-Account on the Valuation Day on which the transaction occurs.
Transfers from a Sub-Account will result in the cancellation of the appropriate
number of Accumulation Units of that Sub-Account. The following events will
also result in the cancellation of an appropriate number of Accumulation Units
of a Sub-Account:
(1) a full or partial surrender;
(2) payment of the Death Benefit;
(3) the Annuity Commencement Date; and
(4) the deduction of the Annual Contract Maintenance Fee.
Accumulation Units will be canceled as of the end of the Valuation Period during
which the transaction occurs.
NET INVESTMENT FACTOR: The Accumulation Unit value for each Sub-Account on any
Valuation Day is determined by multiplying the Accumulation Unit value on the
prior Valuation Day by the Net Investment Factor for the Valuation Period. The
Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Period to the next. A Net Investment Factor is
determined for each Sub-Account for each Valuation Period. The Net Investment
Factor may be greater or less than one, so the value of an Accumulation Unit can
increase or decrease. The Net Investment Factor for any Sub-Account for any
Valuation Period is determined by dividing (1) by (2) and subtracting (3),
where:
(1) is the result of:
a. the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions
made by the Funds held in the Sub-Account, if the "ex-dividend" date
occurs during the current Valuation Period; plus or minus
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c. a per share charge or credit for any taxes reserved for, which is
determined by the Company to have resulted from the investment
operations of the Sub-Account.
(2) is the Net Asset Value per share of the Fund held in the Sub-Account,
determined at the end of the last prior Valuation Period.
(3) is a factor representing the Mortality and Expense Risk Charge and the
Administration Charge for the number of days in the Valuation Period.
FEES AND CHARGES
MORTALITY AND EXPENSE RISK CHARGE: We will deduct a Mortality and Expense Risk
Charge to compensate the Company for assuming the mortality and expense risks
under this Contract. The Mortality and Expense Risk Charge is deducted only
from the Variable Account Value and is shown on the Contract Specifications
page.
ADMINISTRATION CHARGE: We will deduct an Administration Charge to reimburse the
Company for expenses incurred in the administration of the Contract and the
Variable Account. The Administration Charge is deducted only from the Variable
Account Value and is shown on the Contract Specifications page.
CONTRACT MAINTENANCE FEE: The Contract Maintenance Fee is shown on the Contract
Specifications page. It is deducted on each Contract Anniversary, and on any day
that the Contract is surrendered, if the surrender occurs on any day other than
the Contract Anniversary. The Contract Maintenance Fee will be deducted from
the Allocation Options in the same proportion as their values are to the
Contract Value. The Contract Maintenance Fee will be waived by the Company in
the event the Contract Value or the aggregate Purchase Payments reduced by
surrenders, withdrawals and associated surrender charges equals or exceeds
{$50,000} on the date the Contract Maintenance Fee is to be deducted.
TRANSFERS
Prior to the Annuity Commencement Date, you may, in a form acceptable to us,
instruct us to transfer amounts among the Allocation Options. You must transfer
at least {$100}, or if less, the entire amount in the Allocation Option each
time you make a transfer. If after the transfer, the amount remaining in any of
the Allocation Options from which the transfer is made is less than {$100} we
reserve the right to transfer the entire amount instead of the requested amount.
We also reserve the right to limit the number of transfers to no more than {12}
per year. For each additional transfer over {12} during each Contract Year, we
may charge a Transfer Fee which is indicated on the Contract Specifications
page. The Transfer Fee, if any, will be deducted from the amount being
transferred.
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Transfers involving a Guaranteed Account are subject to additional restrictions.
The maximum amount which may be transferred from the Fixed Account in any
Contract Year is the greater of (a) {$2,500}; or (b) {25% of the Fixed Account
Value}. Transfers into the DCA Fixed Account are not permitted. The DCA Fixed
Account is available only for dollar cost averaging, which is a systematic
transfer of funds. Any Purchase Payment allocated to the DCA Fixed Account
must include instructions regarding the amount and frequency of the dollar cost
averaging transfers, and the Allocation Option(s) into which the transfers are
to be made. If, for any reason, transfers from the DCA Fixed Account are
terminated, we will transfer any amount remaining in the DCA Fixed Account into
the Fixed Account unless you have otherwise instructed us how to allocate the
remaining amount.
We reserve the right, at any time and without prior notice, to terminate,
suspend or modify the transfer privileges described above.
SURRENDERS
SURRENDERS: Full or partial surrenders may be made any time prior to the Annuity
Commencement Date. The Surrender Value is the Contract Value less any surrender
charge, Contract Maintenance Fee, and applicable premium taxes. The Surrender
Charge percentage is shown on the Contract Specifications page. The surrender
charge will not apply to: (1) Purchase Payments that are no longer subject to
the surrender charge; (2) earnings credited to an Allocation Option; or (3)
payment of the Death Benefit.
The surrender charge applies to and is calculated separately for each Purchase
Payment. The Company assumes that Purchase Payments are withdrawn on a
"first-in first-out" (FIFO) basis, and that any earnings, (including earnings
attributable to previous Contract Years) are withdrawn before any Purchase
Payments. Surrenders will result in the cancellation of Accumulation Units from
a Sub-Account or a reduction of the Guaranteed Account value, as appropriate.
Surrenders will be made on a pro-rata basis from your Allocation Options unless
you specify, in writing, the amount(s) and Allocation Option(s) from which the
surrender is to be taken.
SUSPENSION OR DELAY IN PAYMENT OF SURRENDER: The Company has the right to
suspend or delay the date of payment of a partial or full surrender from the
Variable Account Value for any period:
1) when the New York Stock Exchange is closed; or
2) when trading on the New York Stock Exchange is restricted; or
3) when an emergency exists (as determined by the Securities & Exchange
Commission) as a result of which (a) the disposal of securities in the
Variable Account is not reasonably practicable; or (b) it is not
reasonably practicable to determine fairly the value of the net assets
of the Variable Account; or
4) when the Securities & Exchange Commission, by order, so permits for
the protection of security holders.
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The Company further reserves the right to delay payment of a partial or full
surrender from any Guaranteed Account for up to six months in those states where
permitted.
DEATH OF OWNER OR ANNUITANT
DEATH OF AN OWNER: If any Owner dies before the Annuity Commencement Date and
while this Contract is in force, the guaranteed Death Benefit will be paid to
the Beneficiary.
DEATH OF THE ANNUITANT: If the Annuitant is not an Owner and dies prior to the
Annuity Commencement Date, the Owner first named on the Application will become
the new Annuitant unless the Owner designates otherwise. If any Owner is not an
individual, the death of the Annuitant will be treated as the death of an Owner.
The Contract shall be interpreted to comply with the requirements of Section
72(s) of the Internal Revenue Code.
DEATH BENEFIT: The Death Benefit will be determined as of the end of the
Valuation Period during which due proof of death is received by us and will
depend upon the age of the deceased Owner on the date of death. If the Owner's
death occurs on, or before the deceased Owner's 90th birthday, the Death Benefit
will equal the greater of: (1) the Contract Value; or (2) aggregate Purchase
Payments made under the Contract reduced by any partial surrenders, withdrawals
and any associated surrender charges; or (3) the Maximum Anniversary Value. If
the Owner's death occurs after the deceased Owner's 90th birthday, the Death
Benefit will be equal to the Contract Value.
Only one Death Benefit is payable under this Contract, even though the Contract
may, in some circumstances, continue beyond the time of an Owner's death.
The Death Benefit may be taken in one sum immediately and the Contract will
terminate. If the Death Benefit is not taken immediately as a lump sum, then the
entire interest in the Contract must be distributed under one of the following
options:
(1) the entire interest must be distributed over the life of the
Beneficiary, or over a period not extending beyond the life expectancy
of the Beneficiary, with distribution beginning within one year of the
Owner's death; or,
(2) the entire interest must be distributed within 5 years of the Owner's
death.
If the Beneficiary is the deceased Owner's spouse, the surviving spouse may
elect, in lieu of receiving the Death Benefit, to continue the Contract and
become the new Owner. The surviving spouse may select a new Beneficiary. Upon
this spouse's death, the Death Benefit will become payable and must then be
distributed to the new Beneficiary in one sum immediately or according to either
paragraph (1) or (2), above.
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If there is more than one Beneficiary, the foregoing provisions apply to each
Beneficiary individually.
If any Owner dies on or after the Annuity Commencement Date, the Beneficiary
will become the new Owner and remaining payments must be distributed at least as
rapidly as under the income option in effect at the time of the Owner's death.
SUSPENSION OF PAYMENT: Payment of a Death Benefit may be suspended or delayed
under the circumstances described in the provision "Suspension or Delay in
Payment of Surrender".
ANNUITY OPTIONS
ANNUITY COMMENCEMENT DATE: The Annuity Commencement Date may not be later than
the Annuitant's 90th birthday, unless allowed by the state in which this
Contract is delivered and approved by the Company. The Owner may change the
Annuity Commencement Date by written notice. The proposed Annuity Commencement
Date must be at least 30 days beyond the date the written request is received
by the Company.
ANNUITY INCOME PAYMENT: If the Annuitant is alive on the Annuity Commencement
Date and unless directed otherwise, the Company will apply the Annuity Purchase
Value to the annuity option elected. You may elect to have all or part of the
Annuity Purchase Value applied on the Annuity Commencement Date under one of the
annuity options described below. In the absence of an election, the Annuity
Purchase Value will be applied on the Annuity Commencement Date under Annuity
Option 1 - Payments for a 5 Year Certain Period. Selection of an annuity option
must be in writing and received by the Company at least 30 days prior to the
Annuity Commencement Date. Annuity options must comply with current Federal and
state statutes and Internal Revenue Service Regulations.
This Contract may not be surrendered after the Annuity Commencement Date.
ANNUITY OPTION 1 - PAYMENT FOR A CERTAIN PERIOD: Payments will be made for any
period of not less than 5 nor more than 30 years. The amount of each payment
depends on the total amount applied, the period selected and the monthly payment
rates we are using on the Annuity Commencement Date.
ANNUITY OPTION 2 - LIFE INCOME WITH PAYMENTS FOR A CERTAIN PERIOD: Payments are
based on the life of the named Annuitant. Payments will continue for the
lifetime of that person with payments guaranteed for a period of not more than
30 years. Payments stop at the end of the selected certain period or when the
named person dies, whichever is later.
MINIMUM AMOUNTS: We reserve the right to pay the total amount of this Contract
in one lump sum, if less than {$2,000}. If monthly payments are less than
{$20}, we may make payments quarterly, semi-annually, or annually at our option.
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ANNUITY TABLES
OPTION 1 TABLE OPTION 2 TABLE
Payments for a Payments for Life, and Life Income with
Certain Period Payments for a Certain Period
LIFE WITH 10 YEARS
LIFE ONLY PERIOD CERTAIN
--------------- ------------------
MONTHLY AGE OF
YEARS PAYMENT ANNUITANT MALE FEMALE MALE FEMALE
- ----- ------- --------- ---- ------ ---- ------
5 17.91 60 4.77 4.25 4.68 4.21
10 9.61 65 5.46 4.78 5.28 4.70
15 6.87 70 6.44 5.53 6.03 5.36
20 5.51 75 7.79 6.63 6.90 6.21
25 4.71 80 9.70 8.26 7.81 7.22
30 4.18 85 & 12.38 10.70 8.60 8.20
over
These tables illustrate the minimum monthly payment rates for each $1,000
applied. The basis for these calculations is the 1983 Individual Annuitant
Mortality Table A projected 14 years with interest at 3% per annum. Minimum
monthly payment rates for ages and Certain Periods not shown will be calculated
on the same basis and may be obtained from us. To determine future minimum
monthly rates according to these tables, one year will be deducted from the
attained age of the Annuitant for every three completed years beyond the year
1997.
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY CONTRACT
NON-PARTICIPATING
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AMERICAN FOUNDATION LIFE INSURANCE COMPANY
2801 HWY. 280 SOUTH
BIRMINGHAM, ALABAMA 35223
QUALIFIED RETIREMENT PLAN ENDORSEMENT
The Contract to which this Qualified Plan Endorsement is attached is amended as
of its Effective Date as follows:
The Contract was issued to a custodian or trustee of a qualified retirement plan
under Section 401(a) of the Internal Revenue Code (the "Code") maintained on
behalf of Annuitants for whom the annuity under the Contract is purchased. Such
custodian or trustee is the Owner and Beneficiary. Except as otherwise provided
under the Code and applicable regulations, the Annuitant cannot be changed. The
Owner shall not distribute the Contract to the Annuitant until a distributable
event under the plan for which the Contract is purchased occurs. If a Contract
is distributed by the Owner to the Annuitant, (1) the Annuitant becomes the
Owner, (2) the provisions below apply to such Owner, and (3) a Beneficiary may
be designated by such Owner (or, in the absence of such a designation, the
Owner's estate shall be the Beneficiary), subject to the provisions below.
1. After such distribution, the Contract is nontransferable and may not be
sold, assigned, discounted or pledged as collateral for a loan or as
security for the performance of an obligation or for any other purpose to
any person other than to American Foundation Life Insurance Company, nor
may the Annuitant be changed. Annuity payments under the Contract cannot
be surrendered, commuted, assigned, encumbered or anticipated in any way,
except to the extent required by a qualified domestic relations order as
defined in Code Section 414(p).
2. No amount may be paid from the Contract in a lump sum unless such payment
is allowed under both the retirement plan for which the annuity under the
Contract is purchased and the Code and related regulations. An Annuitant
who is married must have the consent of his or her spouse in order to: (a)
withdraw all or part of the Contract Value, and (b) choose an Annuity
Option other than a Qualified Joint and Survivor Annuity (within the
meaning of Code Section 417). If no Annuity Option is chosen, a Qualified
Joint and Survivor Annuity will be automatic for a married Annuitant. The
form of the spouse's consent must satisfy Code Section 417 (and applicable
regulations).
3. The Annuitant's entire interest in this Contract shall be distributed as
required under Code Section 401(a)(9) and applicable regulations. Unless
otherwise provided under applicable law, the Annuitant's entire interest
shall be distributed, or commence to be distributed, no later than the
"Required Beginning Date," over:
(a) the life of the Annuitant, or the lives of the Annuitant and his or
her designated beneficiary (within the meaning of Code Section
401(a)(9)), or
(b) a period not extending beyond the life expectancy of the Annuitant, or
the joint and last survivor expectancy of the Annuitant and his or her
designated beneficiary.
If the Annuitant's interest is to be distributed over a period greater than
one year, then the amount to be distributed by December 31 of each year
(including the year in which the Required Beginning Date occurs) shall be
made in accordance with the requirements of Code Section 401(a)(9), and the
regulations thereunder, including the incidental death benefit requirements
of Code Section 401(a)(9)(G), including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
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4. An unmarried Annuitant will be deemed to have elected a life annuity unless
he or she makes a different election in the manner required under Code
Section 417.
5. Except as otherwise provided by law, the term "Required Beginning Date" as
used in this Endorsement means April 1 of the calendar year following the
later of the calendar year in which (1) the Annuitant attains age 70-1/2,
or (2) the Annuitant retires. However, the Required Beginning Date means
April 1 of the calendar year following the calendar year in which the
Annuitant attains age 70-1/2 for an Annuitant who (1) is a 5-percent owner
(as defined in Code Section 416) of the organization sponsoring the plan
which purchased this Contract with respect to the plan year ending in the
calendar year in which the Annuitant attains age 70-1/2; and (2) is not in
a governmental plan or church plan (as defined in Code Section 401(a)
(9)(C)).
6. Payments must be made in periodic intervals of no longer than one year. In
addition, payments must be either nonincreasing or they may increase only
as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the Proposed Income Tax
Regulations.
If guaranteed payments are to be made under the Contract, the period over
which the guaranteed payments are to be made must not exceed the shorter of
(1) the Annuitant's life expectancy, or if a Joint Annuitant is named, the
joint and last survivor expectancy of the Annuitant and the Joint
Annuitant, and (2) the applicable maximum period under
Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations.
7. Notwithstanding any other provisions of the Contract or this Endorsement,
(a) Unless otherwise permitted under applicable law, if the Annuitant dies
before the Required Beginning Date and an irrevocable annuity
distribution has not begun, the entire interest will be distributed in
accordance with one of the following three provisions:
(1) The entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the Annuitant's death.
(2) If the interest is payable to an individual who is the
Annuitant's designated beneficiary, except as provided in
paragraph (3) below, the entire interest will be distributed
beginning within one year of the Annuitant's death and will be
made (in accordance with the regulations under Code section
401(a)(9)) over the life of the designated beneficiary, or over a
period not extending beyond the life expectancy of the designated
beneficiary. An irrevocable election of this method of
distribution must be made by the designated beneficiary within
one year of the Annuitant's death.
(3) If the designated beneficiary in paragraph (2) above is the
Annuitant's surviving spouse, the spouse may irrevocably elect to
receive equal or substantially equal payments over the life of
the surviving spouse, or over a period not extending beyond the
life expectancy of the surviving spouse, commencing at any date
on or before the later of: (i) December 31 of the calendar year
immediately following the calendar year in which the Annuitant
died; and (ii) December 31 of the calendar year in which the
Annuitant would have attained age 70-1/2. Such election by the
surviving spouse must be made no later than the earlier of
December 31 of the calendar year containing the fifth anniversary
of the Annuitant's death or the date distributions are required
to begin pursuant to the preceding sentence.
2
<PAGE>
If the surviving spouse dies before distributions begin, the
limitations of this Section 7(a) (without regard to this
paragraph (3)) shall be applied as if the surviving spouse were
the Annuitant.
(b) Unless otherwise permitted under applicable law, if the Annuitant dies
on or after the Required Beginning Date (or if distributions have
begun before the Required Beginning Date as irrevocable annuity
payments), the remaining portion of such interest, if any, will
continue to be distributed at least as rapidly as under the method of
distribution being used at the time of the Annuitant's death.
(c) Distributions under this Section 7 are considered to have begun if the
distributions are made on account of the Owner reaching his or her
Required Beginning Date or, if prior to the Required Beginning Date,
distributions irrevocably commence to an Owner over a period permitted
and in an annuity form acceptable under Section 1.401(a)(9) of the
Proposed Income Tax Regulations.
8. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Life
expectancies shall be recalculated unless such recalculation is not
permitted, or the Annuitant (or for purposes of distributions beginning
after the Annuitant's death, the Annuitant's surviving spouse) elects at
the time distributions are to begin that life expectancies are not to be
recalculated annually. Such an election shall be irrevocable as to the
Annuitant (or the Annuitant's surviving spouse), and shall apply to all
subsequent years. The life expectancy of a non-spouse beneficiary may not
be recalculated, and shall be calculated using the attained age of such
beneficiary during the calendar year in which distributions are required to
begin pursuant to this Endorsement. Payments for any subsequent calendar
year shall be calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year life
expectancy was first calculated.
9. Upon the death prior to the Annuity Commencement Date of the Annuitant,
leaving a spouse surviving, the death benefit will be paid as a Qualified
Preretirement Survivor Annuity (within the meaning of Code Section 417)
unless the spouse has consented to the designation of someone else as
beneficiary or elects a different Annuity Option and such designation is
permitted under applicable law. In either case, the form of the consent or
election must satisfy Code Section 417.
10. Elections and consents made pursuant to this Endorsement may be made and
revoked only in the form, time and manner prescribed in Code Section 417
(and applicable regulations).
11. We will not pay the Account Value in one lump sum in lieu of annuity
benefits if the Contract Value is greater than $3,500, as determined on the
first day of the month preceding the Annuity Commencement Date, in
accordance with the requirements of Code Section 411(a)(11) and 417 (and
applicable regulations).
12. Notwithstanding any provision of the Contract to the contrary that would
otherwise limit a distributee's election under this paragraph, a
distributee may elect, at the time and in the manner prescribed by the
Company, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover.
A distributee includes an Annuitant. In addition, the Annuitant's
surviving spouse and the Annuitant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p), are distributees with regard to the interest of the
spouse or former spouse.
3
<PAGE>
An eligible rollover distribution is any distribution of all or any portion
of the balance to the credit of the distributee, except than an eligible
rollover distribution does not include (1) any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the
joint lives (or joint and last survivor expectancies) of the distributee
and the distributee's designated beneficiary, or for a specified period of
ten years or more; (2) any distribution to the extent such distribution is
required under Code Section 401(a)(9); and (3) the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
An eligible retirement plan is an individual retirement account described
in Code Section 408(a), an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
A direct rollover is a payment by the Company to the eligible retirement
plan specified by the distributee.
13. All references in the Contract to Code Section 72(s) are deleted.
14. Annuity payments will be based on unisex rates.
15. The terms of the Contract and Endorsement are subject to the provisions of
any plan under which the Contract and Endorsement are issued.
16. All annuity options under the Contract must meet the requirements of Code
Section 401(a)(9) and applicable regulations, including the requirement
that payments to persons other than the Annuitant are incidental. The
provisions of this Endorsement reflecting the requirements of Code Section
401(a)(9) override any annuity option which is inconsistent with such
requirements.
17. The Company reserves the right, and the Owner agrees the Company shall have
such right, to make any amendments to this Endorsement from time to time as
may be necessary to comply with the Code, as amended, and any regulations
relating to the Contract under Code Section 401(a). We will notify you
immediately of any such changes.
Signed for the Company as of the Effective Date.
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
/s/ Deborah J. Long
Deborah J. Long
Secretary
4
<PAGE>
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
2801 HWY. 280 SOUTH
BIRMINGHAM, ALABAMA 35223
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
The Contract to which this Individual Retirement Annuity Endorsement is attached
is issued to fund a program under the Individual Retirement Annuity provisions
of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the
applicable provisions of the Contract are restricted or amended by this
Endorsement as required by Code Section 408.
The Contract is amended as of the Effective Date as follows:
1. The Annuitant must be an individual who is the sole Owner, and all payments
made from the Contract while the Annuitant is alive must be made to the
Annuitant. Except as otherwise permitted under the Code and applicable
regulations, neither the Owner nor the Annuitant can be changed. The
Contract is established for the exclusive benefit of the Owner and his or
her beneficiaries. The Owner's interest under the Contract is
nontransferable, and may not be sold, assigned, discounted or pledged as
collateral for a loan or as security for the performance of any obligation
or for any other purpose, to any person other than the Company.
2. Regardless of any other provision of the Contract or this Endorsement,
(a) Unless otherwise permitted under applicable law, the entire interest
of the Owner will be distributed, or commence to be distributed, no
later than the first day of April following the calendar year in which
the Owner attains age 70-1/2 (the "Required Beginning Date"), in equal
or substantially equal amounts over:
(1) the life of the Owner, or the lives of such Owner and his or her
designated beneficiary (within the meaning of Code Section
401(a)(9)), or
(b) a period not extending beyond the life expectancy of the Owner,
or the joint and last survivor expectancy of the Owner and his or
her designated beneficiary.
Payments must be made in periodic intervals of no longer than one
year. In addition, payments must be either nonincreasing or they may
increase only as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
(b) If the Owner's interest is to be distributed over a period greater
than one year, the amount to be distributed by December 31 of each
year (including the year in which the Required Beginning Date occurs)
shall be made in accordance with the requirements of Code Section
401(a)(9) and the regulations thereunder, including the incidental
death benefit requirements of Code Section 401(a)(9)(G) and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income
Tax Regulations.
1
<PAGE>
3. Notwithstanding any other provision of the Contract or this Endorsement,
(a) Unless otherwise permitted under applicable law, if the Owner dies
before the Required Beginning Date and an irrevocable annuity
distribution has not begun, the entire interest will be distributed in
accordance with one of the following four provisions:
(1) The entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the Owner's death.
(2) If the interest is payable to an individual who is the Owner's
designated beneficiary, except as provided in paragraphs (3) and
(4) below, the entire interest will be distributed beginning
within one year of the Owner's death and will be made (in
accordance with the regulations under Code Section 401(a)(9))
over the life of the designated beneficiary or over a period not
extending beyond the life expectancy of the designated
beneficiary. The irrevocable election of this method of
distribution must be made by the designated beneficiary within
one year of the Owner's death.
(3) If the designated beneficiary in paragraph (2) above is the
Owner's surviving spouse, the spouse may irrevocably elect to
receive equal or substantially equal payments over the life of
the surviving spouse or over a period not extending beyond the
life expectancy of the surviving spouse, commencing at any date
prior to the later of: (i) December 31 of the calendar year
immediately following the calendar year in which the Owner died;
and (ii) December 31 of the calendar year in which the Owner
would have attained age 70-1/2. Such election by the surviving
spouse must be made no later than the earlier of December 31 of
the calendar year containing the fifth anniversary of the Owner's
death or the date distributions are required to begin pursuant to
the preceding sentence.
(4) If the designated beneficiary is the Owner's surviving spouse,
the spouse may irrevocably elect to treat the Contract as his or
her own individual retirement annuity. This election will be
deemed to have been made if such surviving spouse pays an Annuity
Premium, makes a rollover to or from the Contract, or fails to
elect paragraphs (2) or (3) of this Section 3(a).
If the designated beneficiary in paragraph (2) above is the Owner's
surviving spouse and the surviving spouse dies before distributions
begin, the limitations of this Section 3(a) (without regard to
paragraphs (3) and (4)) shall be applied as if the surviving spouse
were the Owner.
(b) Unless otherwise permitted under applicable law, if the Owner dies on
or after the Required Beginning Date (or if distributions have begun
before the Required Beginning Date as irrevocable annuity payments),
the remaining portion of such interest, if any, will continue to be
distributed at least as rapidly as under the method of distribution
being used at the time of the Owner's death.
(c) Distributions under this Section 3 are considered to have begun if
distributions are made on account of the Owner reaching his or
her Required Beginning Date or if prior to the
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<PAGE>
Required Beginning Date distributions irrevocably commence to an Owner over
a period permitted and in an annuity form acceptable under Section
1.401(a)(9) of the Proposed Income Tax Regulations.
4. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Life
expectancies shall be recalculated unless such recalculation is not
permitted, or the Owner (or for purposes of distributions beginning after
the Owner's death, the Owner's surviving spouse) elects at the time
distributions are to begin that life expectancies are not to be
recalculated annually. Such an election shall be irrevocable as to the
Owner (or the Owner's surviving spouse), and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated, and shall be calculated using the attained age of such
beneficiary during the calendar year in which distributions are required to
begin pursuant to this Endorsement. Payments for any subsequent calendar
year shall be calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year life
expectancy was first calculated.
5. Annuity Premiums are payable in cash and may not include any amounts other
than a rollover contribution (as permitted by Code Sections 402(c),
403(a)(4), 403(b)(8), or 408(d)(3)), a nontaxable transfer from an
Individual Retirement Account under Code Section 408(a) or another
Individual Retirement Annuity under Code Section 408(b), a contribution
made in accordance with the terms of a Simplified Employee Pension as
described in Code Section 408(k), and a contribution in cash not to exceed
$2,000 in any taxable year. Any refund of Annuity Premiums (other than
those attributable to excess contributions) will be applied, before the
close of the calendar year following the year of the refund, toward the
payment of future Annuity Premiums or the purchase of additional benefits.
No contribution will be accepted under a SIMPLE plan established by any
employer pursuant to Code Section 408(p). No transfer or rollover of funds
attributable to contributions made by a particular employer under its
SIMPLE plan will be accepted from a SIMPLE IRA, that is, an Individual
Retirement Account under Code Section 408(a) or an Individual Retirement
Annuity under Code Section 408(b) used in conjunction with a SIMPLE plan,
prior to the expiration of the 2-year period beginning on the date the
Owner first participated in that employer's SIMPLE plan.
6. Except as provided by law, the entire interest of the Owner in the Contract
is nonforfeitable.
7. If the Contract is issued in connection with a Simplified Employee Pension,
annuity payments will be based on unisex rates.
8. The Company will furnish annual calendar year reports concerning the status
of this Contract.
9. All references in the Contract to Code Section 72(s) are deleted.
10. All annuity options under the Contract must meet the requirements of Code
Sections 401(a)(9) and 408(b)(3). The provisions of this Endorsement
reflecting the requirements of these Code sections override any annuity
option which is inconsistent with such requirements.
3
<PAGE>
If guaranteed payments are to be made under the Contract, the period over
which the guaranteed payments are to be made must not exceed the shorter of
(1) the Annuitant's life expectancy, or if a Joint Annuitant is named, the
joint and last survivor expectancy of the Annuitant and the Joint
Annuitant, and (2) the applicable maximum period under
Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations.
The market value adjustment and surrender charge will not be applied to the
extent of a distribution required under Code Sections 401(a)(9) and
408(b)(3) for this Contract.
11. The Company reserves the right, and the Owner agrees the Company shall have
such right, to make any amendments to this Endorsement from time to time as
may be necessary to comply with the Code, as amended, and any regulations
relating to the Contract as an Individual Retirement Annuity under Code
Section 408(b). We will notify you immediately of any such changes.
Signed for the Company as of the Effective Date.
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
/s/ Deborah J. Long
Deborah J. Long
Secretary
4
<PAGE>
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
2801 HWY. 280 SOUTH
BIRMINGHAM, ALABAMA 35223
TAX-SHELTERED ANNUITY ENDORSEMENT
The Contract to which this Tax-Sheltered Annuity Endorsement is attached is
amended as of its Effective Date as follows:
1. The Annuitant must be an individual who is the sole Owner and, except as
otherwise permitted by this Endorsement, all payments made from the
Contract while the Annuitant is alive must be made to the Annuitant.
The Owner's interest in the Contract is nontransferable within the meaning
of Internal Revenue Code (the "Code") Section 401(g) and applicable
regulations. In particular, the Contract may not be sold, assigned,
discounted or pledged as collateral for a loan or as security for the
performance of any obligation or for any other purpose, to any person other
than the Company. Except as provided by law, the Owner's interest in the
Contract is nonforfeitable. Except as otherwise permitted under the Code
and applicable regulations, the Annuitant cannot be changed.
2. The Owner must be an employee of an organization described in Code Section
403(b)(1)(A). If the Contract is used as a funding mechanism for a
rollover under Code Sections 403(b) or 408(d)(3), or a nontaxable transfer,
the Owner must be one individual and that same individual must be the
Annuitant.
3. Regardless of any other provision of the Contract or this Endorsement,
(a) Unless otherwise permitted under applicable law, the entire interest
of the Owner will be distributed, or commence to be distributed, no
later than the "Required Beginning Date," in equal or substantially
equal amounts over:
(1) the life of the Owner, or the lives of the Owner and his or her
designated beneficiary (within the meaning of Code Section
401(a)(9)), or
(2) a period not extending beyond the life expectancy of the Owner,
or the joint and last survivor expectancy of the Owner and his or
her designated Beneficiary.
Except as otherwise provided by law, the term "Required Beginning
Date" as used in this Endorsement means April 1 of the calendar year
following the later of (1) the calendar year in which the Owner
attains age 70-1/2; and (2) the calendar year in which the Owner
retires. However, the Required Beginning Date means April 1 of the
calendar year following the calendar year in which the Owner attains
age 70-1/2 for an Owner who (1) is a 5-percent owner (as defined in
Code Section 416) of the
1
<PAGE>
organization described in Section 2 of this Endorsement with respect
to the plan year ending in the calendar year in which the Owner
attains age 70-1/2; and (2) is not in a governmental plan or church
plan (as defined in Code Section 401(a)(9)(C)).
Payments must be made in periodic intervals of no longer than one
year. In addition, payments must be either nonincreasing or they may
increase only as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
(b) If the Owner's interest is to be distributed over a period greater
than one year, the amount to be distributed by December 31 of each
year (including the year in which the Required Beginning Date occurs)
shall be made in accordance with the requirements of Code Section
401(a)(9) and the regulations thereunder, including the incidental
death benefit requirements of Code Section 401(a)(9)(G) and the
regulations thereunder, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income
Tax Regulations.
4. Notwithstanding any other provision of the Contract or this Endorsement,
(a) Unless otherwise permitted under applicable law, if the Owner dies
before the Required Beginning Date and an irrevocable annuity
distribution has not begun, the entire interest will be distributed in
accordance with one of the following three provisions:
(1) The entire interest will be paid by December 31 of the calendar
year containing the fifth anniversary of the Owner's death.
(2) If the interest is payable to an individual who is the Owner's
designated beneficiary, except as provided in paragraph (3)
below, the entire interest will be distributed beginning within
one year of the Owner's death and will be made (in accordance
with the regulations under Code Section 401(a)(9)) over the life
of the designated beneficiary, or over a period not extending
beyond the life expectancy of the designated beneficiary. An
irrevocable election of this method of distribution must be made
by the designated beneficiary within one year of the Owner's
death.
(3) If the designated beneficiary in paragraph (2) above is the
Owner's surviving spouse, the spouse may irrevocably elect to
receive equal or substantially equal payments over the life of
the surviving spouse, or over a period not extending beyond the
life expectancy of the surviving spouse, commencing at any date
on or before the later of: (i) December 31 of the calendar year
immediately following the calendar year in which the Owner died;
and (ii) December 31 of the calendar year in which the Owner
would have attained age 70-1/2. Such election by the surviving
spouse must be made no later than the earlier of December 31 of
the calendar year containing the fifth anniversary of the Owner's
death or the date distributions are required to begin pursuant to
the preceding sentence.
2
<PAGE>
If the surviving spouse dies before distributions begin, the
limitations of this Section 4(a) (without regard to this
paragraph (3)) shall be applied as if the surviving spouse were
the Owner.
(b) Unless otherwise permitted under applicable law, if the Owner dies on
or after the Required Beginning Date (or if distributions have begun
before the Required Beginning Date as irrevocable annuity payments),
the remaining portion of such interest, if any, will continue to be
distributed at least as rapidly as under the method of distribution
being used at the time of the Owner's death.
(c) Distributions under this Section 4 are considered to have begun if
distributions are made on account of the Owner reaching his or her
Required Beginning Date or if prior to the Required Beginning Date
distributions irrevocably commence to an Owner over a period permitted
and in an annuity form acceptable under Section 1.401(a)(9) of the
Proposed Income Tax Regulations.
5. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Life
expectancies shall be recalculated unless such recalculation is not
permitted, or the Owner (or for purposes of distributions beginning after
the Owner's death, the Owner's surviving spouse) elects at the time
distributions are to begin that life expectancies are not to be
recalculated annually. Such an election shall be irrevocable as to the
Owner (or the Owner's surviving spouse), and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary may not be
recalculated, and shall be calculated using the attained age of such
beneficiary during the calendar year in which distributions are required to
begin pursuant to this Endorsement. Payments for any subsequent calendar
year shall be calculated based on such life expectancy reduced by one for
each calendar year which has elapsed since the calendar year life
expectancy was first calculated.
6. Annuity Premiums are payable in cash and may not include amounts other than
a rollover contribution (as permitted by Code Sections 403(b)(8) and
408(d)(3)) and a nontaxable transfer from another contract qualifying under
Code Section 403(b) or from a custodial account qualifying under Code
Section 403(b)(7). In all events, payments made pursuant to a salary
reduction agreement shall be limited to the extent provided in Code Section
402(g). Payments shall not exceed the amount allowed by Code Section 415.
To the extent payments are in excess of the amounts permitted under Code
Sections 402(g), 415, or 403(b)(2), the Company may distribute amounts
equal to such excess as permitted by applicable law.
7. Notwithstanding any other provision of the Contract, withdrawals and other
distributions attributable to contributions made pursuant to a salary
reduction agreement after December 31, 1988, and the earnings on such
contributions and on amounts held as of December 31, 1988, shall not be
paid unless the Owner has reached age 59-1/2, separated from service, died,
became disabled (within the meaning of Code Section 72(m)(7)), or incurred
a hardship; provided that amounts permitted to be distributed in the event
of hardship shall be limited to actual salary deferral contributions
(excluding earnings thereon); and provided further that amounts may be
distributed pursuant to a Qualified Domestic Relations Order to the extent
permitted by Code Section 414(p).
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<PAGE>
8. Notwithstanding any other provision of the Contract, an Annuity Premium
made by a permitted rollover or a nontaxable transfer from a custodial
account qualifying under Code Section 403(b)(7), and the earnings of such
amounts, shall not, except to the extent otherwise provided by Federal tax
law, be paid or made available unless the Owner has reached age 59-1/2,
separated from service, died, became disabled (within the meaning of Code
Section 72(m)(7)), or in the case of such amounts attributable to
contributions made under the custodial account pursuant to a salary
reduction agreement, incurred a hardship; provided that amounts permitted
to be distributed in the event of hardship shall be limited to amounts
attributable to actual salary deferral contributions made under the
custodial account (excluding earnings thereon); and provided further that
amounts may be distributed pursuant to a Qualified Domestic Relations Order
to the extent permitted by Code Section 414(p).
9. A distributee may elect, at the time and in the manner prescribed by us, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
(a) A distributee includes an Owner. In addition, the Owner's surviving
spouse and the Owner's spouse or former spouse who is the alternative
payee under a Qualified Domestic Relations Order, as defined in
Section 414(p), are distributees with regard to the interest of the
spouse or former spouse.
(b) An eligible rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include (1) any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint and
survivor expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or
more; (2) any distribution to the extent such distribution is required
under Code Section 401(a)(9); and (3) the portion of any distribution
that is not includible in gross income (determined without regard to
the exclusion for net unrealized appreciation with respect to employer
securities).
(c) An eligible retirement plan is an annuity described in Code Section
403(b), an Individual Retirement Account described in Code Section
408(a), or an Individual Retirement Annuity described in Code Section
408(b), that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an Individual
Retirement Account or an Individual Retirement Annuity.
(d) A direct rollover is a payment by us to the eligible retirement plan
specified by the distributee.
10. Annuity payments will be based on unisex rates.
4
<PAGE>
11. All references in the Contract to Code Section 72(s) are deleted.
12. All annuity options under the Contract must meet the requirements of Code
Section 403(b)(10) and applicable regulations, including the requirement
that payments to persons other than the Owner are incidental. The
provisions of this Endorsement reflecting the requirements of Code Sections
401(a)(9) and 403(b)(10) override any annuity option which is inconsistent
with such requirements.
If guaranteed payments are to be made under the Contract, the period over
which the guaranteed payments are to be made must not exceed the shorter of
(1) the Annuitant's life expectancy, or if a Joint Annuitant is named, the
joint and last survivor expectancy of the Annuitant and the Joint
Annuitant, and (2) the applicable maximum period under Section 1.401(a)(9)-
2 of the Proposed Income Tax Regulations.
The market value adjustment and surrender charge will not be applied to the
extent of a distribution required under Code Section 401(a)(9) and
403(b)(10) for this Contract.
13. The Company reserves the right, and the Owner agrees the Company shall have
such right, to make any amendments to this Endorsement from time to time as
may be necessary to comply with the Code, as amended, and any regulations
relating to the Contract as a Tax Sheltered Annuity under Code Section
403(b). We will notify you immediately of any such changes.
14. The terms of the Contract and Endorsement are subject to the provisions of
any plan under which the Contract and Endorsement are issued.
Signed for the Company as of the Effective Date.
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
/s/ Deborah J. Long
Deborah J. Long
Secretary
5
<PAGE>
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
ANNUITY APPLICATION P.O. BOX 10648 BIRMINGHAM, ALABAMA 35202-0648
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. OWNER NAME, STREET, CITY, STATE, ZIP CODE
/ / Male Birthdate (MO./DAY/YR.) / /
/ / Female Tax ID/Social Security No. - -
- ----------------------------------------------------------------------------------------------------------------------------------
2. JOINT OWNER (IF ANY) NAME, STREET, CITY, STATE, ZIP CODE
/ / Male Birthdate (MO./DAY/YR.) / /
/ / Female Tax ID/Social Security No. - -
- ----------------------------------------------------------------------------------------------------------------------------------
3. ANNUITANT (IF OTHER THAN OWNER) NAME, STREET, CITY, STATE, ZIP CODE
/ / Male Birthdate (MO./DAY/YR.) / /
/ / Female Tax ID/Social Security No. - -
- ----------------------------------------------------------------------------------------------------------------------------------
4. PRIMARY BENEFICIARY NAME, ADDRESS, RELATIONSHIP, SS# & PERCENTAGE
CONTINGENT BENEFICIARY (IF ANY)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5. TOTAL PURCHASE PAYMENT: $ ____________
6. PURCHASE PAYMENT ALLOCATION: Select the allocation for your purchase
payments. You may change your allocation for future purchase payments.
(Maximum of 10 fund selections, please.)
TOTAL ALLOCATION MUST EQUAL 100%
----
GOLDMAN SACHS/PIC MFS
___% Growth & Income ___% Emerging Growth
___% International Equity ___% Research
___% Global Income ___% Growth with Income
___% CORE U.S. Equity ___% Total Return
___% Small Cap Equity
___% Money Market OPPENHEIMER
___% Capital Growth ___% Capital Appreciation
___% Growth
CALVERT ___% Growth & Income
___% Small Cap Growth ___% Strategic Bond
___% Balanced
MODEL PORTFOLIOS
___% Growth Portfolio (COUNTS AS 6 FUND SELECTIONS)
___% Balanced Portfolio (COUNTS AS 6 FUND SELECTIONS)
___% Aggressive Growth Portfolio (COUNTS AS 4 FUND SELECTIONS)
AMERICAN FOUNDATION LIFE GUARANTEED ACCOUNTS
___% Fixed Account Rate Lock: / / Yes / / No
___% DCA Fixed Account Rate Lock: / / Yes / / No
(FOR DOLLAR COST AVERAGING ONLY)
- --------------------------------------------------------------------------------
7. PLAN TYPE - CHECK ALL THAT APPLY
/ / Non-Qualified / / 1035 Exchange
/ / CD Transfer / / IRA Rollover
/ / IRA Transfer / / IRA Direct Rollover
/ / IRA / / TSA Direct Rollover
/ / Other _____________________________
If IRA deposit includes deductible contributions, please complete:
$_______Amount__________________Previous Tax Year
$_______Amount__________________Current Tax Year
- --------------------------------------------------------------------------------
8. DOLLAR COST AVERAGING
Transfer the amount indicated below (MINIMUM $100)
/ / Monthly / / Quarterly ______ Months (MINIMUM 12 MONTHS)
Day of Month ________________ (1ST - 28TH , PLEASE)
FROM SOURCE FUND: _______________ Amt $_______
To Destination Fund Amt To Destination Fund Amt
________________________ $____ __________________ $____
________________________ $____ __________________ $____
________________________ $____ __________________ $____
________________________ $____ __________________ $____
________________________ $____ __________________ $____
- --------------------------------------------------------------------------------
9. OTHER ANNUITIES: Have you purchased other American Foundation Life Insurance
Company Annuities this calendar year? / / Yes / / No
- --------------------------------------------------------------------------------
10. REPLACEMENT: Will this annuity change or replace any existing life
insurance or annuity? / / Yes / / No
If yes, indicate company name and policy number in Special Remarks section on
reverse side.
- --------------------------------------------------------------------------------
AF-2013NY 7/97
<PAGE>
- --------------------------------------------------------------------------------
12. SYSTEMATIC WITHDRAWAL
Please withdraw the amounts indicated below to commence on: (MO./YR.)_______ (A
MINIMUM PURCHASE PAYMENT OF $12,000 IS REQUIRED TO START THE PROGRAM.)
$__________ from the _____________ Fund $__________ from the ____________ Fund
$__________ from the _____________ Fund $__________ from the ____________ Fund
/ / Monthly / / Withhold
/ / Quarterly / / Do not withhold Federal Income Taxes
(MINIMUM $100) AMERICAN FOUNDATION LIFE IS REQUIRED TO WITHHOLD
FEDERAL INCOME TAXES UNLESS YOU ELECT OTHERWISE.
/ / I wish to utilize DIRECT DEPOSIT (PLEASE ATTACH A VOIDED CHECK WITH
COMPLETE BANK NAME AND ADDRESS)
/ / Make check payable to: __________________________(IF DIFFERENT FROM OWNER)
/ / Mail check to: (IF DIFFERENT FROM OWNER'S ADDRESS) STREET_________________
________________________CITY_______________________STATE ZIP____________________
- --------------------------------------------------------------------------------
13. AUTOMATIC PURCHASE
/ / I authorize the Company to collect the amount indicated by initiating
automatic deductions from my account.
(PLEASE ATTACH A VOIDED CHECK OR SAVINGS WITHDRAWAL TICKET)
Billing Mode: / / Monthly / / Quarterly / / Semi-Annual / / Annual
Please make Purchase Payments to my contract in the amount of $___________
(MINIMUM $100) to commence during the month of ___________________________.
- --------------------------------------------------------------------------------
14. PROSPECTUS
/ / I HAVE received a current prospectus.
/ / I HAVE NOT received a current prospectus.
- --------------------------------------------------------------------------------
SPECIAL REMARKS:
- --------------------------------------------------------------------------------
AUTHORIZATION AND ACKNOWLEDGMENT: I (We) declare to the best of my (our)
knowledge and belief that all of the answers herein are complete and true. I
(We) agree that this Application shall be part of my (our) Contract issued by
the Company. Applicants utilizing the Systematic Withdrawal or Automatic
Purchase Option agree that if any debit/transfer is erroneously received by the
bank indicated on their voided check, or is not honored upon presentation, any
accumulation units purchased may be cancelled, and I (We) agree to hold the
Company harmless from any loss due to such debit/transfer. I (WE) UNDERSTAND
THAT ANNUITY PAYMENTS, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
Signed At:__________________________________ Date:______________________________
Signature of Signature of
Owner:___________________________________ Joint Owner:__________________________
Signature of
Annuitant:_______________________________ Witness:______________________________
(IF OTHER THAN OWNER)
- --------------------------------------------------------------------------------
AGENT REPORT: I certify to the best of my knowledge and belief that the annuity
being applied for:
/ / does / / does not replace or change any other annuity or
insurance.
Agent's Signature: ____________________ Print Agent's Name:_____________________
Broker/Dealer Name:____________________ Agent Number: __________________________
Branch:________________________________ Phone No. ______________________________
Client Account No:_____________________
- --------------------------------------------------------------------------------
AF-2013NY 7/97
<PAGE>
STATE OF ALABAMA )
JEFFERSON COUNTY ) 9 6 0 2 / 0 9 8 6
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
American Foundation Life Insurance Company hereby sets forth these Articles
of Amendment to its Restated Articles of Incorporation, as heretofore amended,
as follows:
(1) The name of the Corporation is American Foundation Life Insurance
Company.
(2) The amendment is to delete the provisions of subsection 4.2(g) of the
Restated Articles of Incorporation as heretofore amended and insert in
lieu thereof the following:
(g) If at any time the Corporation elects to redeem shares of
participating preferred stock as provided in subsection 4.2(e), the
Corporation shall pay to the holders of the shares so redeemed an
amount in cash equal to One Thousand Dollars ($1,000.00) per share.
(3) The date of adoption of the amendment set forth above by the Board of
Directors and shareholders of the Corporation was January 31, 1996.
(4) The number of shares outstanding are 200,000 shares of common stock,
$10.00 par value per share ("Common Stock"), and 2,000 shares of
participating preferred stock, $1.00 par value per share ("Preferred
Stock"), all of the shares of Common Stock and Preferred Stock being
entitled to vote on the amendment.
(5) The number of shares voted for the amendment was: 2,000 shares of
Preferred Stock voting as a class for the amendment and none was voted
against the amendment, and 200,000 shares of Common Stock voting as a
class for the amendment and none was voted against the amendment.
(6) The amendment does not change the amount of authorized capital stock
or the stated capital of the Corporation.
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary and verified by its President this 31st day of January, 1996.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Drayton Nabers, Jr.
Its President
By _____________________________________
John K. Wright
Its Secretary
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Laura R. Bagby, a notary public in and for said State and County, do
hereby certify that on this 31st day of January, 1996, personally appeared
before me Drayton Nabers, Jr., who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and John K. Wright as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Drayton Nabers, Jr., Affiant
Given under my hand and official seal this 31st day of January, 1996.
________________________________________
Laura R. Bagby
Notary Public
My Commission Expires: ______________________ (NOTARY SEAL)
This instrument prepared by:
John K. Wright
Attorney at Law
2801 Highway 280 South
Birmingham, Alabama 35223
(205) 868-3581
<PAGE>
STATE OF ALABAMA )
*
JEFFERSON COUNTY )
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
American Foundation Life Insurance Company hereby sets forth these Articles
of Amendment to its Restated Articles of Incorporation, as heretofore amended,
as follows:
(1) The name of the Corporation is American Foundation Life Insurance
Company.
(2) The amendment is to delete the provisions of subsection 4.2(g) of the
Restated Articles of Incorporation as heretofore amended and insert in
lieu thereof the following:
(g) The Corporation shall redeem all shares of the participating
preferred stock on the 30th day of September, 1996 and shall pay to
the holders of the shares so redeemed an amount in cash equal to One
Thousand Dollars ($1,000.00) per share.
(3) The date of adoption of the amendment set forth above by the Board of
Directors and shareholders of the Corporation was September 25, 1991.
(4) The number of shares outstanding are 200,000 shares of common stock,
$10.00 par value per share ("Common Stock"), and 2,000 shares of
participating preferred stock, $ 1.00 par value per share ("Preferred
Stock"), all of the shares of Common Stock and Preferred Stock being
entitled to vote on the amendment.
(5) The number of shares voted for the amendment was: 2,000 shares of
Preferred Stock voting as a class for the amendment and none was voted
against the amendment, and 200,000 shares of Common Stock voting as a
class for the amendment and none was voted against the amendment.
(6) The amendment does not change the amount of authorized capital stock
or the stated capital of the Corporation.
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary and verified by its President this 25th day of September, 1991.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Drayton Nabers, Jr.
Its President
By _____________________________________
Ryburn H. Bailey
Its Secretary
STATE OF ALABAMA )
*
JEFFERSON COUNTY )
I, Natalie R. Reid, a notary public in and for said State and County, do
hereby certify that on this 25th day of September, 1991, personally appeared
before me Drayton Nabers, Jr., who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and Ryburn H. Bailey as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Drayton Nabers, Jr., Affiant
Given under my hand and official seal this 25th day of September, 1991.
________________________________________
Natalie R. Reid
Notary Public
My Commission Expires: __________________ (NOTARIAL SEAL)
This instrument prepared by:
Meade Frierson, III
Maynard, Cooper, Frierson & Gale, P.C.
2400 AmSouth/Harbert Plaza
Birmingham, Alabama 35203
(205) 254-1000
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
American Foundation Life Insurance Company hereby sets forth these Articles
of Amendment to its Restated Certificate of Incorporation as filed in the Office
of the Secretary of State of Alabama as heretofore amended by amendments filed
September 26, 1983 and January 13, 1984:
(1) The name of the Corporation is American Foundation Life Insurance
Company.
(2) The amendment is to delete from the first sentence of Section 4.2(b)
of Article IV the phrase "semi-annually on the first day of April and
the first day of October."
(3) The date of adoption of the amendment set forth below by the Board of
Directors and shareholders of American Foundation Life Insurance
Company is August 25, 1986.
(4) The number of shares outstanding are 200,000 shares of common stock,
$10.00 par value per share ("Common Stock"), and 2,000 shares of
participating preferred stock, $ 1.00 par value per share ("Preferred
Stock"), the shares of said Common Stock and said Preferred Stock
being entitled to vote as a class upon the amendment.
(5) The number of shares voted for the amendment was 2,000 shares of
Preferred Stock voting as a class for the amendment and none against
and 200,000 shares of Common Stock voting as a class for the amendment
and none voted against the amendments.
(6) The amendment does not change the amount of authorized capital stock
or the stated capital of the Corporation.
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary, and verified by its President this 25th day of August, 1986.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Drayton Nabers, Jr.
Its President
By _____________________________________
Ryburn H. Bailey
Its Secretary
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Natalie R. Reid, a notary public in and for said State and County, do
hereby certify that on this 25th day of August, 1986, personally appeared before
me Drayton Nabers, Jr., who is known to me and who being by me first duly sworn,
declared that he is President of American Foundation Life Insurance Company,
that he and Ryburn H. Bailey as its Secretary signed the foregoing Articles of
Amendment and that the statements therein are true and correct.
________________________________________
Drayton Nabers, Jr.
Given under my hand and official seal this 25th day of August, 1986.
________________________________________
Notary Public (SEAL)
This instrument prepared by:
Meade Frierson, III
Maynard, Cooper, Frierson & Gale, P.C.
12th Floor, Watts Building
Birmingham, Alabama 35203
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
American Foundation Life Insurance Company hereby sets forth these Articles
of Amendment to its Restated Articles of Incorporation as filed on November 8,
1982 in the Office of the Secretary of State of the State of Alabama as
heretofore amended effective September 26, 1983:
(1) The name of the Corporation is American Foundation Life Insurance
Company.
(2) The date of adoption of the amendment set forth below by the Board of
Directors and sole shareholder of American Foundation Life Insurance
Company is December 30, 1983.
(3) The number of shares outstanding are 120,000 shares of $10.00 par
value common stock and 2,000 shares of $1.00 par value participating
preferred stock of which 120,000 is the number of shares entitled to
vote on the amendment.
(4) The number of shares voted for the amendment was 120,000 and none was
voted against the amendment.
(5) The amendment changes the amount of authorized capital stock from
2,000 shares of participating preferred stock of the par value of
$1.00 per share and 120,000 shares of common stock of the par value of
$10.00 per share to 2,000 shares of participating preferred stock of
the par value of $1.00 per share and 200,000 shares of common stock
the par value of $10.00 per share, resulting in an increase in the
stated capital of the corporation from $1,202,000.00 to $2,002,000.00.
(6) The amendment so adopted are that Section 4.1 of its Restated Articles
of Incorporation shall, on and after the date of filing of these
Articles of Amendment in accordance with the Alabama Business
Corporation Act, as amended, be deleted and that there be inserted in
lieu thereof the provisions set forth in Exhibit A hereto, attached
hereto and incorporated herein as if set forth in full at this point.
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary and verified by its President this 10th day of January, 1984.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Drayton Nabers, Jr.
Its President
By _____________________________________
Ryburn H. Bailey
Its Secretary
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Archie C. James, Jr., a notary public in and for said State and County,
do hereby certify that on this 10th day of January, 1984, personally appeared
before me Drayton Nabers, Jr., who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and Ryburn H. Bailey as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Drayton Nabers, Jr.
Given under my hand and official seal this 10th day of January, 1984.
________________________________________
Notary Public (SEAL)
My Commission Expires __________________
This instrument prepared by:
Meade Frierson, III
Maynard, Cooper, Frierson & Gale, P.C.
1900 First National-Southern Natural Building
Birmingham, Alabama 35203
<PAGE>
EXHIBIT A TO
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
ARTICLE IV.
CAPITAL STOCK
4.1 The aggregate number of shares of capital stock which the Corporation
shall have authority to issue shall be 200,000 shares of common stock of the par
value of $10.00 per share and 2,000 shares of participating preferred stock of
the par value of $1.00 per share having the rights, powers, preferences,
privileges and limitations set forth in Section 4.2 below.
<PAGE>
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
American Foundation Life Insurance Company hereby sets forth these Articles
of Amendment to its Restated Articles of Incorporation as filed on November 8,
1982 in the Office of the Secretary of State of the State of Alabama:
(1) The name of the Corporation is American Foundation Life Insurance
Company.
(2) The date of adoption of the amendment set forth below by the Board of
Directors and sole shareholder of American Foundation Life Insurance
Company is September 12, 1983.
(3) The number of shares outstanding all of which are of one Class, $10.00
par value common stock, is 120,000 which is the number of shares
entitled to vote on the amendment.
(4) The number of shares voted for the amendment was 120,000 and none was
voted against the amendment.
(5) The amendment changes the amount of authorized capital stock from
120,000 shares of common stock of the par value of $10.00 per share to
2,000 shares of participating preferred stock of the par value of
$1.00 per share and 120,000 shares of common stock the par value of
$10.00 per share, resulting in an increase in the stated capital of
the corporation from $1,200,000.00 to $1,202,000.00.
(6) The amendment so adopted are that all provisions of Article IV of its
Restated Articles of Incorporation shall, on and after the date of
filing of these Articles of Amendment in accordance with the Alabama
Business Corporation Act, as amended, be deleted and that there be
inserted in lieu thereof the provisions set forth in Exhibit A hereto,
attached hereto and incorporated herein as if set forth in full at
this point.
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary and verified by its President this 13th day of September, 1983.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Its President
By _____________________________________
Its Secretary
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Meade Frierson, III, a notary public in and for said State and County,
do hereby certify that on this 13th day of September, 1983, personally appeared
before me Lucian F. Bloodworth who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and Vivian Joiner as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Lucian F. Bloodworth, Affiant
Given under my hand and official seal this 13th day of September, 1983.
________________________________________
Notary Public (SEAL)
My Commission Expires __________________
This instrument prepared by:
Meade Frierson, III
Maynard, Cooper, Frierson & Gale, P.C.
1900 First National-Southern Natural Building
Birmingham, Alabama 35203
<PAGE>
EXHIBIT A TO
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
ARTICLE IV.
CAPITAL STOCK
4.1 The aggregate number of shares of capital stock which the Corporation
shall have authority to issue shall be 120,000 shares of common stock of the par
value of $10.00 per share and 2,000 shares of participating preferred stock of
the par value of $1.00 per share having the rights, powers, preferences,
privileges and limitations set forth in Section 4.2 below.
4.2 The participating preferred stock of the Corporation shall have the
rights, preferences, and voting powers, with the restrictions and limitations
thereof, as set forth in the subsections below. The shares of participating
preferred stock may be issued by the Board of Directors, without action by the
shareholders, for such consideration as they shall deem advisable or by means of
dividend upon the reclassification, reduction or restriction of surplus of the
Corporation as the Board of Directors shall deem necessary or desirable, in
which case shares so issued as a dividend shall be deemed fully-paid and
non-assessable:
(a) On and after April 1, 1985 the holders of the participating preferred
stock shall be entitled, in preference to any dividends paid upon any stock of
the Corporation, to receive minimum dividends, at the rate of Fifty Dollars
($50.00) per share per annum if, as and when declared by the Board of Directors
of the Corporation. The minimum dividends shall be cumulative (whether or not
there shall be net profits or net assets of the Corporation legally available
for the payment of the minimum dividends) but accumulations of minimum dividends
shall not bear interest. The minimum dividends and accumulations thereof shall
be payable before any dividend on any other class of capital stock of the
Corporation shall be paid or set apart.
(b) On and After April 1, 1985 the holders of the participating preferred
stock shall be entitled, in preference to any dividends paid upon any stock of
the Corporation, to receive additional dividends, payable semi-annually on the
first day of April and the first day of October if, as and when declared by the
Board of Directors of the Corporation from the statutory operating earnings of
the Corporation for the immediately preceding fiscal year of the Corporation in
excess of One Million Dollars ($1,000,000.00), such statutory operating earnings
to be determined on the basis of insurance accounting principles prescribed or
permitted under statutory authority without regard to capital gains or losses.
The additional dividends on the participating preferred stock shall not be
cumulative and shall be payable before any dividend on any other class of
capital stock shall be paid or set apart. Such additional dividends shall be
declared out of any account from which dividends are lawfully declarable,
subject to the foregoing limitations.
<PAGE>
(c) Except as provided in (a) or (b) or both, the holders of the
participating preferred stock shall not, as such, be entitled to participate in
the other earnings of the Corporation or to receive any other or further
dividends of any kind whatsoever or other share or interest in the profits of
the Corporation for or on account of the participating preferred stock.
(d) Upon any dissolution, liquidation, or other winding up of the
Corporation, whether voluntary or involuntary and whether or not the
Corporation shall have a surplus or earnings available for minimum or additional
dividends or both, or upon any distribution of capital (other than in redemption
of the participating preferred stock) or in the event of insolvency,
rehabilitation or reorganization of the Corporation, there shall be paid to the
holders of the participating preferred stock the sum of One Thousand Dollars
($1,000.00) per share, together with the amount of all unpaid, accrued dividends
thereon, whether or not earned or declared, before any sum shall be paid to any
assets distributed among the holders of the common stock of the Corporation, and
after such payment to the holders of the participating preferred stock, all
remaining assets and funds of the Corporation shall be paid to the holders of
the common stock according to their respective shares, except as otherwise
provided by law. If the assets remaining after payment or provision for the
liabilities of the Corporation are insufficient to pay the full amount as
hereinabove provided, such assets as remain shall be divided among the holders
of the participating preferred stock in proportion to the number of shares of
participating preferred stock held. The Corporation may, nevertheless, declare
and pay dividends upon any class or classes of stock without being required to
accumulate any reserve or otherwise provide in advance for any payment to
holders of participating preferred stock pursuant to this subsection (d).
Neither the merger or consolidation of the Corporation into or with another
corporation nor the merger or consolidation of any other corporation into or
with the Corporation, nor the sale, transfer or lease of all or substantially
all the assets of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation.
(e) To the maximum extent otherwise permitted by law, the Corporation
shall have the right to purchase any outstanding participating preferred stock
provided, however, that no sum may be set aside for or applied to the purchase
by the Corporation of any stock, common or preferred, unless and until all
cumulative minimum dividends have been paid. Shares of participating preferred
stock which have been purchased or redeemed by the Corporation shall be retired
and cancelled and shall under no circumstances be reissued.
(f) The participating preferred stock shall have no voting rights with
respect to the election of directors or any other matters submitted to vote of
the stockholders of the Corporation, except as may be otherwise provided by the
Constitution and laws of the State of Alabama or except as hereinafter provided
in subsection (h) below or as follows: in the event of the failure of the
Corporation to pay six (6) semi-annual minimum dividends, whether or not
successive, to the holders of the participating preferred stock, then and
thereafter until all past minimum dividends are paid the holders of the
participating preferred stock, voting separately as a class, shall have the
right to elect at any annual meeting of the shareholders of the Corporation then
or thereafter held until such time as the past dividends are fully paid such
number of directors as shall constitute (to the next lowest whole number)
one-fourth (1/4) of the Board of Directors from time to time. Unless and until
such event of deficiency in the payment of minimum dividends occurs the holders
of the participating preferred stock shall not be deemed to be voting
shareholders of the Corporation and, thus, shall not
<PAGE>
be entitled to notice of any meetings of shareholders, annual or special, or to
be entitled to participate, as such, in the management of the Corporation.
In no event shall the holders of participating preferred stock, as such
holders, be entitled to pre-emptive rights with respect to, or other right to
subscribe for or purchase, any stock or other securities of the Corporation.
(g) The Corporation shall redeem all shares of the participating preferred
stock on the 30th day of September, 1991 and shall pay to the holders of the
shares so redeemed an amount in cash equal to One Thousand Dollars ($1,000) per
share.
(h) The provisions of this Article IV shall not be amended, modified or
repealed, nor shall any amendment or restatement of these Articles of
Incorporation become effective if inconsistent with the provisions of this
Article IV, without the affirmative vote or written consent of the holders of at
least two-thirds (2/3) of the outstanding shares of the participating preferred
stock, unless such amendment be solely to increase the number of shares of
common stock authorized.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
Pursuant to a resolution duly adopted by its Board of Directors, American
Foundation Life Insurance Company hereby adopts, in accordance with Section
10-2A-116, Code of Alabama 1975, the following Restated Articles of
Incorporation:
ARTICLE I.
NAME
----
1.1 The name of the Corporation shall be American Foundation Life
Insurance Company (hereinafter referred to as "the Corporation").
ARTICLE II.
PERIOD OF DURATION
------------------
2.1 The duration of the Corporation shall be perpetual.
ARTICLE III.
PURPOSES, OBJECTS AND POWERS
----------------------------
3.1 The purposes and objects and powers of the Corporation are:
(a) To engage in any lawful business, act or activity for which a
corporation may be organized under the Alabama Business Corporation Act, it
being the purpose and intent of this Article III to invest the Corporation with
the broadest purposes, objects and powers lawfully permitted a corporation
formed under the said Act.
(b) To carry on and all aspects, ordinary or extraordinary, of any lawful
business and to enter into and carry out any transaction, ordinary and
extraordinary, permitted by law, having and exercising in connection therewith
all powers given to corporations by the laws of the State of Alabama.
(c) Without limiting the scope and generality of the foregoing, the
Corporation shall have the following specific purposes, objects and powers:
(1) To transact the business of life, disability, health and accident
insurance and to issue annuities and endowments and every other kind of
insurance in such places as may be approved by the Board of Directors
subject to applicable regulatory approvals, including
<PAGE>
without limitation, to transact the business of insuring the lives of
individuals and the writing of every kind of insurance pertaining to life,
including the granting, selling, purchasing and disposing of annuities and
endowments; to accept risks and insure against accidents to or sickness of
persons; to effect reinsurance, and generally to make all contracts and to
do and perform all things whatsoever pertaining to the business of insuring
lives and of taking risks against accidents to or sickness of persons, or
the granting, selling, purchasing and disposing of annuities and
endowments, and in and about the conduct of life insurance business to do
and perform every act and thing not inconsistent with the laws of the State
of Alabama or the provisions hereof.
(2) To have and to exercise any and all of the powers specifically
granted in the insurance laws of the State of Alabama, none of which shall
be deemed to be inconsistent with the nature, character or object of the
Corporation and none of which are denied to it by these Articles of
Incorporation.
(3) To build, manufacture or otherwise process or produce; to
acquire, own, manage, operate, improve or deal with; to sell, lease,
mortgage, pledge, distribute or otherwise deal in and dispose of, property
of every kind and wheresoever situated.
(4) To purchase, lease or otherwise acquire any interest in the
properties and rights of any person, firm, corporation or governmental
unit; to pay for the same in cash, in shares of stock, bonds, or other
securities, evidences of indebtedness or property of this Corporation or of
any other person, firm, corporation or governmental unit.
(5) To be a promotor or incorporator, to subscribe for, purchase,
deal in and dispose of, any stock, bond, obligation or other security, of
any person, firm, corporation, or governmental unit, and while the owner
and holder thereof to exercise all rights of possession and ownership.
(6) To purchase or otherwise acquire (including, without limitation,
to purchase its own shares to the extent of unreserved and unrestricted
capital surplus available therefor) to the fullest extent permitted by the
Alabama Business Corporation Act, and to sell, pledge or otherwise deal in
or dispose of shares of its own stock, bonds, obligations or other
securities.
(7) To borrow money from any person, firm, corporation or
governmental unit and to secure any debt or mortgage or pledge of any
property of the Corporation; to make contracts, guarantees, and indemnity
agreements and incur liabilities and issue its notes if not inconsistent
with the provisions of the Constititution of Alabama as the same may be
amended from time to time.
(8) To lend money, or aid or extend credit, to, or use its credit to
assist, any person, firm, corporation, or governmental unit, including,
without limitation, its employees and directors and those of any
subsidiary, in accordance with and subject to the provisions of the Alabama
Business Corporation Act and the Alabama Insurance Code.
<PAGE>
(9) To guarantee any indebtedness and other obligations of, and to
lend its aid and credit to, any person, firm, corporation, or governmental
unit, and to secure the same by mortgage or pledge of, or security interest
in, any property of the Corporation.
(10) To consolidate, merge or otherwise reorganize in any manner
permitted by law; to engage in one or more partnerships and joint ventures
as general or limited partner.
(11) To carry on its business anywhere in the United States and in
foreign countries.
(12) To elect or appoint officers and agents and define their duties
and fix their compensation; to pay pensions and establish pension plans,
pension trusts, profit sharing plans, stock bonus plans, stock option
plans, and other incentive or deferred compensation plans for any or all of
its directors, officers and employees.
(13) To make donations for the public welfare or for charitable,
scientific, or educational purposes; to transact any lawful business which
the Board of Directors shall find to be in aid of governmental policy.
3.2 All words, phrases and provisions appearing in this Article III are
used in their broadest sense, are not limited by reference to or inference from
any other words, phrases or provisions and shall be so construed.
ARTICLE IV.
CAPITAL STOCK
-------------
4.1 The aggregate number of shares of capital stock which the Corporation
shall have authority to issue shall be 120,000 shares of common stock of the par
value of $10.00 per share.
ARTICLE V.
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
5.1 The location and mailing address of the registered office of the
Corporation shall be 530 Beacon Parkway W., Suite 101, Birmingham, Alabama
35209, which shall be its principal place of business and home office in the
State of Alabama.
5.2 The registered agent at such address shall be Lucian F. Bloodworth,
President.
<PAGE>
ARTICLE VI.
BOARD OF DIRECTORS
------------------
6.1 The number of directors constituting the Board of Directors at the
time of this filing with the Secretary of State of Alabama shall be eight.
6.2 The names and addresses of the persons who are to serve as directors
until the 1982 annual meeting of shareholders or until their successors be
elected and qualify are:
DIRECTORS ADDRESS
James R. McWane 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
John J. McMahon, Jr. 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
Lucian F. Bloodworth 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
Olen Hendrix 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
W. Wayne Hartsfield 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
Frank B. Whitbeck 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
Fournier J. Gale, III 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
Herbert C. Stockham 530 Beacon Parkway W.
Suite 101
Birmingham, Alabama 35209
ARTICLE VII.
INTERNAL AFFAIRS
----------------
The following provisions for the regulation of the business and for the
conduct of the affairs of the Corporation, the directors and the shareholders
are hereby adopted:
<PAGE>
7.1 The by-laws of the Corporation shall be adopted by the shareholders.
The power to alter, amend, or repeal the by-laws or adopt new by-laws shall be
vested in the Board of Directors and the shareholders, or either of them, which
power may be exercised in the manner and to the extent provided in the by-laws,
provided, however, that the Board of Directors may not alter, amend or repeal
any by-law establishing what constitutes a quorum at such shareholders'
meetings, or which was adopted by the shareholders and specifically provides
that it cannot be altered, amended or repealed by the Board of Directors. The
by-laws may contain any provisions for the regulation of the busienss and for
the conduct of the affairs of the Corporation, the directors and shareholders
not inconsistent with these Articles of Incorporation.
7.2 The business and affairs of the Corporation shall be managed by the
Board of Directors. The number of directors comprising the Board of Directors
shall be eight. Hereafter, the number of directors of the Corporation shall be
fixed from time to time in the manner provided in the by-laws, or, in the
absence of a by-law fixing or providing a manner of determining the number of
directors, the number of directors shall remain eight. The Board of Directors
shall consist of not less than three natural persons, and no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Any director may be removed in accordance with the
provisions of the By-laws and Alabama law.
7.3 The Corporation reserves the right from time to time to amend, alter
or repeal each and every provision contained in these Articles of Incorporation,
or to add one or more additional provisions, in the manner now or hereafter
prescribed or permitted by the Alabama Insurance Code or the Alabama Business
Corporation Act, and all rights conferred upon shareholders at any time are
granted subject to this reservation.
The foregoing Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
heretofore amended and these Restated Articles of Incorporation supersede the
original Certificate of Incorporation and all amendments thereto.
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Restated Articles of Incorporation to be executed for it by its President
and by its Secretary and verified by its President this 8th day of September,
1982.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By______________________________________
Its President
By______________________________________
Its Secretary
<PAGE>
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Toni Prewitt, a notary public in and for said State and County, do
hereby certify that on this 8th day of September, 1982, personally appeared
before me Lucian F. Bloodworth who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and Vivian Joiner as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Lucian F. Bloodworth, Affiant
Given under my hand and official seal this 8th day of September, 1982.
________________________________________
Notary Public (SEAL)
This instrument prepared by:
Cabaniss, Johnston, Gardner,
Dumas & O'Neal
1900 First National-Southern Natural Building
Birmingham, Alabama 35203
<PAGE>
IN WITNESS WHEREOF, American Foundation Life Insurance Company has caused
these Articles of Amendment to be executed for it by its President and by its
Secretary and verified by its President this 31st day of January, 1996.
AMERICAN FOUNDATION LIFE INSURANCE
COMPANY
By _____________________________________
Drayton Nabers, Jr.
Its President
By _____________________________________
John K. Wright
Its Secretary
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Laura R. Bagby, a notary public in and for said State and County, do
hereby certify that on this 31st day of January, 1996, personally appeared
before me Drayton Nabers, Jr., who is known to me and who being by me first duly
sworn, declared that he is President of American Foundation Life Insurance
Company, that he and John K. Wright as its Secretary signed the foregoing
Articles of Amendment and that the statements therein are true and correct.
________________________________________
Drayton Nabers, Jr., Affiant
Given under my hand and official seal this 31st day of January, 1996.
________________________________________
Laura R. Bagby
Notary Public
My Commission Expires: ______________________ (NOTARY SEAL)
This instrument prepared by:
John K. Wright
Attorney at Law
2801 Highway 280 South
Birmingham, Alabama 35223
(205) 868-3581
<PAGE>
BY-LAWS
OF
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
(herein called "the Corporation")
ARTICLE I.
OFFICES
The principal office of the Corporation shall be located within Jefferson
County. The Corporation may have such other offices, either within or without
the State of Alabama, as the Board of Directors or the Executive Committee may
designate.
The registered office and registered agent shall be as stated in the
Restated Articles of Incorporation or as changed in accordance with law.
ARTICLE II.
SHAREHOLDERS
Section 1. MEETINGS. The annual meeting of the shareholders for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting shall be held at such date and time during the first
six months of the year as shall be specified by resolution of the Board of
Directors. Special meetings may be called, for any purposes, by the Board of
Directors, the Executive Committee or the chief executive officer.
Section 2. PLACE OF MEETING. The place of meeting shall be the executive
office of the Corporation in the State of Alabama unless some other place,
either within or without the State of Alabama, is designated by the
shareholders.
Section 3. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten, or, in the case it is proposed to increase the stock or bonded
indebtedness of the Corporation not less than thirty, nor more than fifty days
before the date of the meeting, either personally or by mail, by or at the
direction of the Board of Directors, the chief executive officer, or the
Secretary to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid.
<PAGE>
Section 4. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
purpose, the Board of Directors of the Corporation may fix in advance a date as
the record date for any such determination of shareholders, such date in any
case to be not more than fifty days and, in case of a meeting of shareholders,
not less than ten days prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken. If no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders.
Section 5. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 6. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of shareholders.
Section 7. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by another
corporation if a majority of the shares entitled to vote for the election of
directors of such other corporation is held by the Corporation shall not be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time, except that in determining compliance with Sections
234 or 237 of the Constitution of Alabama of 1901, such shares shall be counted
and voted in the manner authorized and directed by a majority of the remaining
shareholders of the Corporation.
Treasury shares, shares of stock of the Corporation not at the time
outstanding, and shares of stock held by the Corporation in a fiduciary capacity
shall not be voted, directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any given time,
except that in determining compliance with Section 234 and 237 of the
Constitution of Alabama of 1901, shares of stock held by the Corporation in a
fiduciary capacity shall be counted and voted in the manner authorized and
directed by a majority of the remaining shareholders of the Corporation.
Section 8. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof and
filed with the Secretary and made a part of the corporate records.
<PAGE>
ARTICLE III.
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the Corporation shall be fixed from time to time by resolution of the
shareholders; provided that the Board Shall consist of at least one natural
person, that at least 1/3 of the members of the Board shall be residents of the
State of Alabama, and that no decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. Each director shall
hold office until the next annual meeting of shareholders and until his
successor shall have been elected and qualified. Directors need not be
shareholders or residents of the State of Alabama except as otherwise provided
by the Alabama Insurance Code or by the shareholders of the Corporation.
Section 3. REGULAR MEETINGS. The shareholders may provide, by resolution,
the time and place, either within or without the State of Alabama, for the
holding of regular meetings without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
or of any committee designated thereby may be called by or at the request of the
President, the chief executive officer, or any two directors. A special meeting
of the Board of Directors or of any committee designated thereby shall be held
at the executive office of the Corporation, provided that by resolution, or by
waiver signed by all directors, it may be held at any other place, either within
or without the State of Alabama.
Section 5. NOTICE. Notice of any special meeting shall be given at least
one day previously thereto by written notice delivered personally or mailed to
each director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice Shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any director may waive notice of any meeting. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
Section 6. QUORUM. A majority of the number of directors fixed in the
manner provided by Section 2 of this Article III shall constitute a quorum for
the transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice. If a
quorum is present when a meeting is convened, the directors present may continue
to do business taking action by a vote of a majority of a quorum until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum or the refusal of any director present to vote.
<PAGE>
Notwithstanding the foregoing provision of this section to the contrary, in
the event of an emergency caused by enemy attack, at each meeting of the Board
during such emergency the presence of one-third of the total number of
directors, but in any event not less than two directors, shall constitute a
quorum and be sufficient for the transaction of business.
Section 7. MANNER OF ACTING; PRESENCE. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Members of the Board of Directors or of any committee thereof may
participate in a meeting of the Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
Section 8. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board of Directors. A director elected to fill
a vacancy shall be elected until the next annual meeting of shareholders. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose.
Section 9. COMMITTEES. The Board of Directors may, by resolution or
resolutions adopted by a majority of the full Board of Directors, designate one
or more committees, each committee to consist of two or more of the directors of
the Corporation, which, to the extent provided in such resolution or
resolutions, shall have and may during intervals between the meetings of the
Board exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation and may have power to authorize the Sea!
of the Corporation to be affixed to all papers which may require it; provided,
however, that no such committee shall have the authority of the Board of
Directors in reference to declaring a dividend or distribution from the capital
surplus, issuing capital stock, amending the Articles of Incorporation adopting
a plan of merger or consolidation, recommending to the shareholders the sale,
lease, mortgage, exchange or other disposition of all or substantially all of
the property and assets of the Corporation, recommending to the shareholders a
voluntary dissolution of the Corporation or a revocation thereof, filling
vacancies on the Board of Directors, or amending the by-laws of the Corporation
such committee or committees shall have such name or names as may be determined
from time to time by resolution or resolutions adopted by the Board of
Directors. The designation of any such committee or committees and the
delegation thereto of authority shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.
Section 10. INFORMAL ACTION. Any action required or permitted under the
Alabama corporate or insurance laws, the Articles of Incorporation or these By-
laws to be taken at any meeting of the Board of Directors or of any committee
thereof may be
<PAGE>
taken without a meeting, if a written consent setting forth the action so taken
is signed by all members of the Board of Directors or of such committee, as the
case may be. Such written consent shall be filed with the minutes of
proceedings of the Board of Directors or committee.
Section 11. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, one or more directors may be removed, with or
without cause, by a vote of the holders of a majority of shares then entitled to
vote at an election of directors and the shareholders may at such meeting elect
a successor director or directors for the unexpired term of the director or
directors removed.
ARTICLE IV.
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a President
and a Secretary and, in the discretion of the Board of Directors which may leave
one or more offices vacant from time to time, a Chairman of the Board, one or
more Senior Vice Presidents, Vice Presidents, Second Vice Presidents (the number
thereof to be determined by the Board of Directors, a Treasurer, one or more
Assistant Secretaries and Assistant Treasurers and such other officers and
assistant officers as may be deemed necessary by the Board of Directors. All
such officers shall be elected for a term of one year and shall be subject to
removall by the Board of Directors at its pleasure. Such officers shall perform
such duties and exercise such powers as are conferred by the Board of Directors
or as are conferred herein. The Board of Directors may designate one of such
elected officers the chief executive officer of the Corporation, the Board of
Directors or the chief executive officer, by and with the consent and approval
of the Board of Directors or of the Executive Committee, if any, may appoint
such other officers and agents as, in its or his discretion, are required for
the proper transaction of the Corporation's business. Any two or more offices
may be held by the same person.
Section 2. CHAIRMAN OF THE BOARD. Any director may be designated as
Chairman of the Board and shall preside, when present, at all meetings of the
shareholders and of the Board of Directors. The Chairman of the Board shall
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
Section 3. PRESIDENT. Subject to the control of the Board of Directors,
the President shall have general management and control of the affairs and
business of the Corporation, and shall perform all other duties and exercise all
other powers commonly incident to his office, or which are or may at any time be
authorized or required by law. He shall keep the Board of Directors fully
informed concerning the affairs and business
<PAGE>
of the Corporation. The Board of Directors may by resolution designate the
officer of the Corporation who in the event of the death, unavailability or
incapacity of the President shall perform the duties of the President until the
Board of Directors shall designate another person to perform such duties.
Section 4. VICE PRESIDENTS. Each Vice President shall have powers and
perform such duties as shall from time to time be assigned to him by these
By-laws or by the Board of Directors and shall have and may be assigned to him
by the chief executive officer.
Section 5. OTHER AUTHORITY OF OFFICERS. The Chairman of the Board of
Directors and the President may sign and execute all authorized bonds, contracts
or other obligations in the name of the Corporation, and with the Secretary or
an Assistant Secretary, may sign all certificates of shares of the capital stock
of the Corporation, and do and perform such other acts and things as may from
time to time be assigned to each of them by the Board of Directors. The chief
executive officer, the President the Treasurer or such other officers as are
authorized by the Board of Directors may enter into contracts in the name of the
Corporation or sell and convey any real estate or securities now or hereafter
belonging to the Corporation and execute any deeds or written instruments of
transfer necessary to convey good title thereto and each of the foregoing
officers, or the Secretary or the Treasurer of the Corporation, is authorized
and empowered to satisfy and discharge of record any mortgage or deed of trust
now or hereafter of record in which the Corporation is a grantee or of which it
is the owner, and any such satisfaction and discharge heretofore or hereafter so
entered by any such officer shall be valid and in all respects binding on the
Corporation.
Section 6. SECRETARY. The Secretary shall attend all meetings of the
shareholders, and record all votes and the minutes of all proceedings in a book
to be kept for that purpose, and shall perform like duties for the Board and its
committees as required. He shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors. He shall record all
transfers of stock, and cancel and preserve all certificates of stock
transferred, and shall keep a record, alphabetically arranged, of all persons
who are shareholders of the Corporation, showing their places of residence and
the number of shares of stock held by them respectively. The Secretary shall
also be the transfer agent of the Corporation for the transfer of all
certificates of stock ordered by the Board of Directors, and shall affix the
seal of the Corporation to all certificates of Stock or other instruments
requiring the seal. He shall keep such other books and perform such other duties
as may be assigned to him from time to time. The Board of Directors may
designate a bank or trust company as transfer agent of the Corporation stock, in
which case such transfer agent shall perform all duties above set forth relative
to transfers of such stock.
Section 7. TREASURER. The Treasurer shall have custody of all the funds
and securities of the Corporation, and shall perform such duties as may from
time to time be assigned to him by the Board of Directors or the chief executive
officer.
<PAGE>
Section 8. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries may sign with the President certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall, respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers, in general,
shall perform such duties as shall be assigned to them by the Secretary or the
Treasurer, respectively, or by the President or the Board of Directors.
Section 9. ELECTION AND TERM OF OFFICE. The officers of the Corporation
to be elected by the Board of Directors shall be elected annually by the Board
of Directors at the first meeting of the Board of Directors held after each
annual meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
Section 10. REMOVAL. The chief executive officer, Chairman of the Board,
or President may be removed, with or without cause, at any time by action of the
Board of Directors. Any other officer elected by the Board of Directors may be
removed, with or without cause, at any time, by action of the Board of Directors
or the Executive Committee, if any. Any other officer, agent or employee,
including any officer, agent or employee appointed by the Board of Directors,
may be removed, with or without cause, at any time by the Board of Directors,
the chief executive officer, the Executive Committee, if any, or the superior
officer to whom authority to so remove has been delegated by these By-laws or by
the chief executive officer.
Section 11. VACANCIES. A vacancy in any office elected or appointed by
the Board of Directors because of death, resignation, removal, disqualification
or otherwise, may be filled by the Board of Directors for the unexpired portion
of the term. A vacancy in any other office for any reason shall be filled by
the Board of Directors, or any committee, or superior officer to whom authority
in the premises may have been delegated by these by-laws or by resolution of the
Board of Directors.
Section 12. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors or committee thereof and no officer shall
be prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE V.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
<PAGE>
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Notwithstanding anything herein to the contrary, any loans to directors who
are not also employees of the Corporation or a subsidiary thereof, or the use of
the credit of the Corporation to assist same, shall require authorization in the
particular case by shareholders of the Corporation, and any loans to employees,
whether or not directors, of the Corporation or of any subsidiary shall be made
only in compliance with Alabama law.
Section 3 - CHECKS, DRAFTS. ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
Section 5. PROXIES. Unless otherwise provided by resolution of the Board
of Directors, the chief executive officer may from time to time appoint an
attorney or agent of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
the holder of stock or other securities in any other corporation any of whose
stock or securities may be held by the Corporation, at meetings of the holders
of the stock or other securities of such other corporation, or to consent in
writing, in the name and on behalf of the Corporation as such holder, to any
action by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed, in the name and on behalf of the Corporation
and under its corporate seal or otherwise, all such written proxies or other
instruments as he may deem necessary or proper in the premises.
ARTICLE VI.
CERTIFICATES FOR SHARES AND THEIR TRANSFER.
Section 1. CERTIFICATES OF SHARES. Certificates may be issued for whole
or fractional shares. Certificates representing shares of the Corporation shall
be in such form as shall be determined by the Board of Directors. Such
certificates shall be signed in the manner provided by the Alabama Business
Corporation Act and any act
<PAGE>
amendatory thereof, supplementary thereto or substituted therefor. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation,
and on surrender for cancellation of the certificate for such shares. The
person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
and end on the 31st day of December in each year.
ARTICLE VIII.
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and the Articles of Incorporation.
ARTICLE IX.
SEAL
The corporate seal shall have inscribed thereon the name of the Corporation
and the words "Corporate Seal" and "Alabama", and any word thereon may be
abbreviated. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
<PAGE>
ARTICLE X.
WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the Corporation under the provisions of these by-laws, the Articles of
Incorporation, the provisions of the Alabama Business Corporation Act or the
Alabama Insurance Code and any act amendatory thereof, supplementary thereto or
substituted therefor, or the Alabama Constitution, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
ARTICLE XI.
INDEMNIFICATION
In amplification and not in limitation of applicable provisions of the
Insurance Code of the State of Alabama and the Alabama Business Corporation Act:
(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 claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (other than an action by or in the right of the
Corporation by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation or was serving at the request of the
Corporation as a director, officer, partner, employee or agent of another
corporation, partnership, Joint venture, trust or other enterprise, against
expenses (including attorneys fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
claim, action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed claim,
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, partner, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such 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 and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine
<PAGE>
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a director, officer employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), 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 therewith, notwithstanding that he has not been successful on any
other claim, issue or matter in any such action, suit or proceeding.
(d) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall: be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in subsections (a) and (b). Such determination shall be
made (1) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to, or who have been wholly successful on the
merits or otherwise with respect to, such claim, action, suit or proceeding, or
(2) if such a quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred in defending a civil or
criminal claim, action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such claim, action, suit or proceeding as
authorized in the manner provided in subsection (d) upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if and to the extent that it shall ultimately be determined that be
is not entitled to be indemnified by the Corporation as authorized in this
section.
(f) The indemnification authorized by this section shall not be deemed
exclusive of and shall be in addition to any other rights to which those
indemnified may be entitled under any statute, rule of law, provision of
articles or certificate of incorporation, by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or
<PAGE>
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Section.
ARTICLE XII.
AMENDMENTS
Section 1. POWER OF DIRECTORS TO AMEND. The Board of Directors shall have
power to alter, amend and repeal the by-laws of the Corporation or adopt new
by-laws for the Corporation at any regular or special meeting of the Board,
provided that the Board of Directors may not alter, amend or repeal any by-law
which establishes what constitutes a quorum at such shareholders' meetings, or
which was adopted by the shareholders and specifically provides that it cannot
be altered, amended or repealed by the Board of Directors.
Section 2. POWER OF SHAREHOLDERS TO AMEND. The shareholders may alter,
amend, or repeal the by-laws of the Corporation or adopt new by-laws for the
Corporation at any annual meeting or at a special meeting, and all by-laws made
by the directors may be altered or repealed by the shareholders.
<PAGE>
DIRECTORS'
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned Directors of
American Foundation Life Insurance Company, an Alabama corporation, ("Company")
by his execution hereof or upon an identical counterpart hereof, does hereby
constitute and appoint John D. Johns, Steve M. Callaway or Jerry W. DeFoor, and
each or any of them, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, to execute and sign the Registration Statement on
Form N-4 to be filed by the Company with respect to variable annuity products
with the Securities and Exchange Commission, pursuant to the provisions of the
Securities Exchange Act of 1933 and the Investment Company Act of 1940 and,
further, to execute and sign any and all pre-effective and post-effective
amendments to such Registration Statement, and to file same, with all exhibits
and schedules thereto and all other documents in connection therewith, with the
Securities and Exchange Commission and with such state securities authorities as
may be appropriate, granting unto said attorney-in-fact and agent, and each of
them, full power and authority to do and 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 of the undersigned might or could do in person, hereby
ratifying and confirming all the acts of said attorney-in-fact and agent or any
of them which they may lawfully do in the premises or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 5th day of December, 1997.
WITNESS TO ALL SIGNATURES:
<TABLE>
<S> <C>
/s/ DEBORAH J. LONG
- -------------------------------------------
Deborah J. Long
/s/ DRAYTON NABERS, JR. /s/ DANNY L. BENTLEY
- ------------------------------------------- -------------------------------------------
Drayton Nabers, Jr. Danny L. Bentley
/s/ JOHN D. JOHNS /s/ RICHARD J. BIELEN
- ------------------------------------------- -------------------------------------------
John D. Johns Richard J. Bielen
/s/ R. STEPHEN BRIGGS /s/ CAROLYN KING
- ------------------------------------------- -------------------------------------------
R. Stephen Briggs Carolyn King
/s/ DEBORAH J. LONG /s/ JIM E. MASSENGALE
- ------------------------------------------- -------------------------------------------
Deborah J. Long Jim E. Massengale
/s/ STEVEN A. SCHULTZ /s/ A.S. WILLIAMS III
- ------------------------------------------- -------------------------------------------
Steven A. Schultz A.S. Williams III
/s/ WAYNE E. STUENKEL
- -------------------------------------------
Wayne E. Stuenkel
</TABLE>
