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As Filed with the Securities and Exchange Commission on September 12, 2000
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Registration File No. 333-______
811-10121
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMERICAN FAMILY
VARIABLE ACCOUNT II
(EXACT NAME OF REGISTRANT)
AMERICAN FAMILY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
6000 AMERICAN PARKWAY
MADISON, WISCONSIN 53783-0001
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES F. ELDRIDGE, ESQ.
AMERICAN FAMILY LIFE INSURANCE COMPANY
6000 AMERICAN PARKWAY
MADISON, WISCONSIN 53783-0001
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2415
It is proposed that this filing will become effective as soon as practicable
after the effective date.
TITLE OF SECURITIES BEING OFFERED: Flexible Premium Variable Annuity Contracts.
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 shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
PROSPECTUS
___ __, 2000
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the American Family Variable
Annuity Contract (the "Contract").
To learn more about the Contract, you may want to read the Statement of
Additional Information dated ____ ___, 2000 (known as the "SAI"). For a free
copy of the SAI, contact us at:
American Family Life Insurance Company
ADMINISTRATIVE SERVICE CENTER
P.O. Box _______
_______, ______________
1-___-___-_____ (toll free)
We have filed the SAI with the U.S. Securities and Exchange Commission ("SEC")
and have incorporated it by reference into this prospectus. (It is legally a
part of this prospectus.) The SAI's table of contents appears at the end of this
prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the SAI
and other information about us. You may also read and copy these materials at
the SEC's public reference room in Washington, D.C. Call 1-800-SEC-0330 for
information about the SEC's public reference room.
VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN RISKS, AND YOU MAY LOSE SOME OR ALL
OF YOUR INVESTMENT.
- The investment performance of the portfolios in which the Subaccounts
invest will vary.
- We do not guarantee how any of the portfolios will perform.
- The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the Contract.
- Neither the U.S. Government nor any federal agency insures your investment
in the Contract.
AMERICAN FAMILY VARIABLE ANNUITY CONTRACT
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by
AMERICAN FAMILY LIFE INSURANCE COMPANY
through the
AMERICAN FAMILY VARIABLE ANNUITY ACCOUNT II
HOME OFFICE
6000 American Parkway
Madison, Wisconsin 53783-0001
Telephone: (888) 428-5433
The American Family Variable Annuity Contract (the "Contract") has 10 funding
choices -- one Fixed Account (paying a guaranteed minimum fixed rate of
interest) and 9 Subaccounts. The Subaccounts invest in the following 9
portfolios:
FEDERATED INSURANCE SERIES
- Federated Quality Bond Fund II
- Federated International Equity Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- Fidelity VIP Growth Portfolio
- Fidelity VIP Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- Fidelity VIP II ContraFund-REGISTERED TRADEMARK- Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
- Fidelity VIP III Growth and Income Portfolio
SEI INSURANCE PRODUCTS TRUST
- SEI VP Prime Obligation Fund
STRONG VARIABLE INSURANCE FUNDS, INC.
- Strong Mid Cap Growth Fund II
STRONG OPPORTUNITY FUND II, INC.
- Strong Opportunity Fund II
<PAGE>
A PROSPECTUS FOR EACH OF THE PORTFOLIOS AVAILABLE THROUGH THE VARIABLE ACCOUNT
MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS BEFORE INVESTING AND
SAVE THEM FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
CONTRACT OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
TABLE OF CONTENTS
Glossary......................................................................5
Highlights....................................................................7
The Contract.........................................................7
How to Invest........................................................7
Cancellation --The 10 Day Free-Look Period...........................8
Investment Options...................................................8
Transfers............................................................8
Access to Your Money.................................................9
Death Benefit........................................................9
Fees and Charges....................................................10
Settlement Options..................................................11
Federal Tax Status..................................................11
Inquiries...........................................................11
Fee Table....................................................................12
Condensed Financial Information..............................................15
About American Family Life Insurance Company and the Variable Account........15
American Family Life Insurance Company..............................15
The Accumulation Period......................................................19
Purchasing a Contract...............................................19
Cancellation --The 10 Day Free-Look Period..........................19
Designating Your Investment Options.................................19
Additional Premium Payments.........................................20
Planned Premium Payments............................................20
Your Accumulation Value......................................................21
Accumulation Value..................................................21
Surrender Value.....................................................21
Subaccount Value....................................................21
Unit Value..........................................................21
Fixed Account Accumulation Value....................................22
Transfers Between Investment Options.........................................23
Dollar Cost Averaging...............................................23
Automatic Asset Reallocation........................................24
Excessive Trading Limits............................................24
Telephone Transfers.................................................25
Transfer Fee........................................................25
Access to Your Money.........................................................25
Surrenders..........................................................25
Partial Surrenders..................................................26
Systematic Withdrawal Plan..........................................27
Death Benefit................................................................27
Death Benefit Before the Annuity Commencement Date..................27
Death Benefit Payable...............................................27
Death of the Annuitant..............................................27
Death of Owner......................................................28
3
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Fees and Charges.............................................................28
Mortality and Expense Risk Charge...................................28
Asset-Based Administration Charge...................................29
Partial Surrender Processing Fee....................................29
Transfer Fee........................................................29
Surrender Charge....................................................29
Annual Policy Fee...................................................30
Portfolio Management Fees and Charges...............................31
Other Charges.......................................................31
Premium Taxes.......................................................31
Other Taxes.........................................................31
The Payout Period............................................................31
The Annuity Commencement Date.......................................31
Settlement Options..................................................32
Determining the Amount of Your Income Payment.......................32
Fixed Income Payments...............................................32
The Fixed Account............................................................33
Fixed Account Transfers.............................................34
Investment Performance of the Subaccounts....................................34
Voting Rights................................................................35
Federal Tax Matters..........................................................36
Taxation of Non-Qualified Contracts.................................36
Taxation of Qualified Contracts.....................................38
Other Tax Issues....................................................38
Our Income Taxes....................................................39
Possible Tax Law Changes............................................39
Other Information............................................................39
Payments We Make....................................................39
Modifying the Contract..............................................40
Distribution of the Contracts.......................................40
Legal Proceedings...................................................41
Reports to Owners...................................................41
Inquiries...........................................................41
Financial Statements................................................41
Statement of Additional Information Table of Contents........................42
4
<PAGE>
GLOSSARY
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For your convenience, we are providing a glossary of the special terms we
use in this prospectus.
ACCUMULATION PERIOD
The period of time beginning on the Annuity Contract Date and ending on the
earlier of:
- the Annuity Commencement Date; or
- the date this Contract terminates.
ACCUMULATION VALUE
The amount during the Accumulation Period calculated as:
- the Variable Account Accumulation Value; plus
- the Fixed Account Accumulation Value.
ADMINISTRATIVE SERVICE CENTER
An office that provides administrative services and to which the Owner may
direct inquiries as to beneficiary and ownership changes, requests for
surrenders, partial surrenders, and transfers. The address of the Administrative
Service Center is P.O. Box [_________] __________, ___________.
ANNUITANT
The person named as the proposed Annuitant on the Application or named as the
Joint Annuitant, whose life determines the benefits payable.
ANNUITY COMMENCEMENT DATE
The date, unless later changed, on which We base the beginning date of the
income payments.
ANNUITY CONTRACT DATE
The date shown on the Contract schedule that determines each:
- Contract year;
- Contract anniversary; and
- Contract month.
APPLICATION
The form completed by the proposed Annuitant(s) and/or proposed Owner when
applying for coverage under the Contract. This includes any amendments or
endorsements; or supplemental applications.
ATTAINED AGE
The Annuitant's age, at his/her nearest birthday.
BENEFICIARY
The person selected to receive the death benefit if the Owner dies before the
Annuity Commencement Date or upon the death of the Annuitant.
BUSINESS DAY
A day when the New York Stock Exchange is open for trading, except for the day
after Thanksgiving, and any day that a Subaccount's corresponding investment
option does not value its shares. Assets are valued at the close of the Business
Day (4:00 P.M. Eastern Time).
DEATH BENEFIT
The amount that We will pay upon the death of the Owner or the Annuitant.
EXCESS INTEREST
Any interest credited in addition to the guaranteed interest in the Fixed
Account.
FIXED ACCOUNT
An account in which the Accumulation Value accrues interest at no less than the
guaranteed minimum rate. The Fixed Account is part of Our General Account.
FIXED ACCOUNT ACCUMULATION VALUE
The amount under the Annuity Contract in the Fixed Account.
FREE-LOOK PERIOD
The period during which you may examine and return the Contract to us at our
Administrative Service Center or the agent who sold the Contract and receive
a refund. The length of the Free-Look Period varies by state.
5
<PAGE>
FUND
An open-end diversified management investment company or unit investment trust
in whose Portfolio a Subaccount invests.
GENERAL ACCOUNT
All Our assets other than those allocated to the Variable Account or any other
separate account. We have complete ownership and control of the assets of the
General Account
HOME OFFICE
Our office at 6000 American Pkwy, Madison, Wisconsin 53783-0001.
INCOME PAYMENTS
The amount that the proceeds or death benefit will provide when applied under
a settlement option of this Contract. Payments can be made on a monthly,
quarterly, semiannual or annual basis.
ISSUE AGE
The Annuitant's age on his/her birthday nearest the Annuity Contract Date.
ISSUE DATE
The date that this Contract was issued.
OWNER (you, your)
The person named in the Application as the Owner, unless later changed according
to the conditions and provisions of this Contract.
PLANNED PREMIUM
The amount shown on a schedule that the Owner requests to be billed, unless
later changed.
PREMIUM TAX
The amount of tax, if any, charged by a federal, state, or other governmental
entity on premium payments or contract values.
PROCEEDS
The amount We pay subject to the Contract's provisions:
1. upon the surrender or partial surrender of this Contract; or
2. upon full or partial annuitization.
SEC
The Securities and Exchange Commission, a United States government agency.
SURRENDER CHARGE
The contingent deferred sales charge is an amount subtracted from the
Accumulation Value during the first nine years after each premium payment date
upon surrender or partial surrender of the Contract.
SURRENDER VALUE
An amount equal to:
- the Accumulation Value on the surrender date; minus
- any surrender charge, any applicable state premium tax and any portion of
the annual policy fee due Us.
VALUATION PERIOD
The time between the close of business on a Business Day and the close of
business on the next Business Day.
VARIABLE ACCOUNT
American Family Variable Separate Account II.
VARIABLE ACCOUNT ACCUMULATION VALUE
The amount under the Contract in the Variable Account.
WE, US, OUR, AMERICAN FAMILY
American Family Life Insurance Company.
6
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HIGHLIGHTS
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================================================================================
These highlights provide only a brief overview of the more important
features of the Contract. More detailed information about the Contract appears
later in this prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS
CAREFULLY.
THE CONTRACT
An annuity is a contract between you (the Owner) and an insurance
company (American Family Life Insurance Company) in which you agree to make one
or more payments to us and, in return, we agree to pay a series of payments to
you at a later date. The American Family Variable Annuity Contract is a special
kind of annuity that is:
- FLEXIBLE PREMIUM - you may add premium payments at any time.
- TAX-DEFERRED - you do not have to pay taxes on earnings until you
take money out by surrender, partial surrender, or we make income
payments to you, or we pay the death benefit.
- VARIABLE - you can direct your premium into any of 9 Subaccounts.
Each Subaccount invests exclusively in a single portfolio of a
fund. The money you invest in the Subaccounts will fluctuate
daily based on the performance of the portfolios. You bear the
investment risk on the amounts you invest in the Subaccounts.
You can also direct money to the Fixed Account. Amounts in the Fixed
Account earn interest annually at a fixed rate that is guaranteed by us never to
be less than 3%, and may be more. We guarantee the interest, as well as
principal, on money placed in the Fixed Account.
Like all deferred annuities, the Contract has two phases: the
"accumulation" period and the "payout" period. During the accumulation period,
you can allocate money to any combination of investment alternatives. Any
earnings on your investments accumulate tax-deferred until they are withdrawn.
The payout period begins once you start receiving regular income payments from
the Contract. The money you can accumulate during the accumulation period will
directly determine the dollar amount of any income payments you receive.
This Contract cannot be offered in any state where it is not lawful to
make such offer.
HOW TO INVEST
You may obtain a Contract application from your American Family agent
who is also a registered representative. You may purchase the Contract with a
single payment of $750 or more. We will not issue a Contract if the Annuitant is
older than age 80 on the issue date.
You can pay additional premium of $50 or more if you authorize us to
draw on an account by check or electronic debit at any time before the Annuity
Commencement Date. You must send all premium payments after the initial premium
payment to the Administrative Service Center in St. Louis, Missouri, at the
address listed on the front cover of this prospectus
We may limit the total premium(s) paid to us during any Contract year.
7
<PAGE>
CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD
You may return your Contract to us for a refund within 10 days after
you receive it. In some jurisdictions, this period may be longer than 10
days. Upon receipt, we will refund an amount equal to the Accumulation Value,
without deduction for any surrender charge normally assessed. Or, if greater,
and required by the law of your state, we will refund your premium payments.
We will pay the refund within 7 calendar days after we receive the Contract.
The Contract will then be deemed void.
INVESTMENT OPTIONS
You may invest your money in any of 9 portfolios by directing it into
the corresponding Subaccount. The portfolios now available to you under the
Contract are:
FEDERATED INSURANCE SERIES
- Federated Quality Bond Fund II
- Federated International Equity Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- Fidelity VIP Growth Portfolio
- Fidelity VIP Equity-Income Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- Fidelity VIP II ContraFund-REGISTERED TRADEMARK- Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
- Fidelity VIP III Growth and Income Portfolio
SEI INSURANCE PRODUCTS TRUST
- SEI VP Prime Obligation Fund
STRONG VARIABLE INSURANCE FUNDS, INC.
- Strong MidCap Growth Fund II
STRONG OPPORTUNITY FUND II, INC.
- Strong Opportunity Fund II
Each Subaccount invests exclusively in shares of one portfolio of a
fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The portfolios
are described in their own prospectuses that accompany this prospectus. The
value of your investment in the Subaccounts will fluctuate daily based on the
investment results of the portfolios in which you invest, and on the fees and
charges we deduct.
DEPENDING ON MARKET CONDITIONS, YOU CAN GAIN OR LOSE MONEY IN ANY OF
THE SUBACCOUNTS. WE RESERVE THE RIGHT TO OFFER OTHER INVESTMENT CHOICES IN THE
FUTURE.
You may also direct your money to the Fixed Account and receive a
guaranteed rate of return. Money you place in the Fixed Account will earn
interest during the Contract year at a fixed rate that we guarantee to be not
less than 3.0%.
TRANSFERS
You have the flexibility to transfer assets within your Contract. At
any time during the accumulation period, you may transfer amounts among the
Subaccounts and between the Fixed Account and the Subaccounts. Certain
restrictions apply.
- Transfers from one or more Subaccounts to the Fixed Account
or from the Fixed Account to one or more Subaccounts must be
at least $250 or the total Accumulation Value in the
Subaccount(s) or Fixed Account, if less.
- Only one transfer may be made from the Fixed Account each
Contract year.
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- You may not transfer more than 25% of the Accumulation Value
in the Fixed Account as of the date of transfer. If such
transfer causes the Accumulation Value in the Fixed Account
to fall below $1,000, we will transfer the full Accumulation
Value.
You may make 12 free transfers each Contract year. We impose a $25
charge per transfer on each transfer after the twelfth during a Contract year.
Transfers made under the asset reallocation and dollar cost averaging programs
do NOT count toward the 12 free transfers.
AUTOMATIC ASSET REALLOCATION PROGRAM
Under the automatic asset reallocation program, we will automatically
transfer amounts monthly, quarterly, semi-annually or annually to maintain a
particular percentage allocation among the Subaccounts. Automatic asset
reallocation is available only during the accumulation period.
DOLLAR COST AVERAGING PROGRAM
The dollar cost averaging program permits you to systematically
transfer (on a monthly, quarterly, semi-annual or annual basis) a set dollar
amount from the Money Market Subaccount to the other Subaccounts. Dollar cost
averaging is available only during the accumulation period. The minimum transfer
amount is $250.
ACCESS TO YOUR MONEY
During the accumulation period, you may request a partial surrender of
part of your Accumulation Value or you may also fully surrender the Contract and
receive its Surrender Value.
Partial surrenders are subject to the following conditions:
- the minimum amount you can withdraw is $250; and
- you may not make a partial surrender if the withdrawal plus
the surrender charge, and the partial surrender processing
fee would cause the Accumulation Value to fall below $1,000.
Surrenders and partial surrenders may be subject to a surrender charge.
In any Contract year, you may withdraw a portion of your Accumulation Value,
called the free withdrawal amount, without incurring a surrender charge.
You may have to pay federal income taxes and a penalty tax on any money
you fully or partially surrender from the Contract.
DEATH BENEFIT
We will pay a death benefit on the death of the Annuitant or Owner
before the Annuity Commencement Date.
The death benefit is equal to the greater of:
- THE ACCUMULATION VALUE on the later of the date that we receive
due proof of death and the date when we receive the Beneficiary's
instructions on payment method (We must receive payment
instructions within 60 days of the date of death.); or
- THE MINIMUM DEATH BENEFIT. The minimum death benefit equals the
sum of all premium payments, minus reductions for partial
surrenders.
If the Annuitant or Owner is Attained Age 80 or older at the time of death,
the death benefit is the Accumulation Value as determined above.
9
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FEES AND CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily mortality and
expense risk charge from your Accumulation Value in the Subaccounts at an annual
rate of 1.00%.
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily
administrative charge from your Accumulation Value in each Subaccount at an
annual rate of 0.15%.
ANNUAL CONTRACT FEE. We deduct an annual contract fee of $30 from
your Accumulation Value on the last Business Day of each Contract year during
the accumulation period, on the date when the Contract is surrendered, and on
the Annuity Commencement Date. We guarantee this charge will not exceed $50.
We currently waive deduction of the charge for Contracts whose Accumulation
Value is $20,000 or more on the date of assessment.
TRANSFER FEE. You may make 12 free transfers each Contract year. We
impose a $25 charge per transfer on each transfer after the twelfth during a
Contract year before the Annuity Commencement Date.
PARTIAL SURRENDER PROCESSING FEE. For each partial surrender, we deduct
a processing fee of 2% of the amount surrendered up to $25, from the remaining
Accumulation Value.
SURRENDER CHARGE. During the accumulation period, you may withdraw all
or part of your Surrender Value before the Annuitant's death. Certain
withdrawals may be taken without payment of any surrender charge. Other
withdrawals are subject to surrender charges.
We calculate the surrender charge from the date you made the premium
payment(s) being withdrawn. The surrender charge applies during the entire nine
year period following each premium payment, and will vary depending on the
number of years since you made the premium payment(s) being withdrawn.
NUMBER OF COMPLETE YEARS
FROM DATE OF PREMIUM
PAYMENT:
0 1 2 3 4 5 6 7 8 9 10+
---------------------------------------------------------------------
SURRENDER CHARGE:
8% 8% 7% 6% 5% 4% 3% 2% 1% 1% 0
In determining surrender charges, we will treat your premium payments
as being withdrawn in the order in which we received them -- that is on a
first-in, first-out basis. We also treat premium payments as being withdrawn
before earnings.
We do not assess a surrender charge on:
- the death benefit;
- on the withdrawal of premium payments you paid us more than nine
years ago;
- on proceeds applied to a settlement option with a fixed payout
period of at least 5 years;
- on proceeds applied to a settlement option with a life
contingency; or
- on the free withdrawal amount.
10
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Each Contract year, after the first Contract year, you may withdraw the
FREE WITHDRAWAL AMOUNT which is an amount equal to 10% of total premium payments
minus any prior partial surrenders.
PREMIUM TAXES. We will deduct state premium taxes, which currently
range from 0% up to 3.5%, if your state requires us to pay the tax. If
applicable, we will make the deduction either: (a) from premium payments as we
receive them, (b) from your Surrender Value upon surrender or partial surrender,
(c) on the Annuity Commencement Date, or (d) upon payment of a death benefit.
PORTFOLIO MANAGEMENT FEES AND CHARGES. Each portfolio deducts portfolio
management fees and charges from the amounts you have invested in the
portfolios. For 1999, these charges ranged from ___% to ___ % annually. See the
Fee Table in this Prospectus and the prospectuses for the portfolios.
SETTLEMENT OPTIONS
The Contract allows you to receive income payments under one of six
fixed settlement options beginning on the Annuity Commencement Date you select.
The latest Annuity Commencement Date you may select is the Contract anniversary
when the oldest Annuitant is age 95. You may receive income payments for a
specific period of time, or for life with or without a guaranteed number of
payments.
We will use your Accumulation Value (less any applicable premium taxes)
on the Annuity Commencement Date to fund your income payments under the
settlement option you choose.
FEDERAL TAX STATUS
Generally, a Contract's earnings are not taxed until you take them out.
For federal tax purposes, if you take money out during the accumulation period,
including a surrender or partial surrender payment, earnings come out first and
are taxed as ordinary income. If you are younger than 59 1/2 when you take money
out, you also may be charged a 10% federal penalty tax on earnings. The income
payments you receive during the payout period are considered partly a return of
your original investment so that part of each payment is not taxable as income
until the "investment in the contract" has been fully recovered.
Death benefits are taxable and generally are included in the income of
the recipient as follows: if received under a settlement option, death benefits
are taxed in the same manner as income payments; if not received under a
settlement option (for instance, if paid out in a lump sum), death benefits are
taxed in the same manner as a full surrender or partial surrender. Different tax
consequences may apply for a qualified Contract. For a further discussion of the
federal tax status of variable annuity contracts, see "Federal Tax Status."
INQUIRIES
If you need additional information, please contact us at:
THE ADMINISTRATIVE SERVICE CENTER
P.O. Box _________________
[_________________________]
[________] (toll free)
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FEE TABLE
================================================================================
================================================================================
The purpose of the Fee Table is to help you understand the various
costs and expenses that you will pay directly and indirectly by investing in the
Subaccounts and/or the Fixed Account. The Fee Table shows the current expenses
for the Variable Account as well as the actual charges and expenses for each
portfolio for the fiscal year ended December 31, 1999, except as stated in the
footnotes.
<TABLE>
YOUR TRANSACTION EXPENSES (1)
<S> <C>
Sales Charge Imposed on Premium Payments.....................................................................None
Partial Surrender Processing Fee ................................................2% of amount withdrawn up to $25
Maximum Surrender Charge
(as a percentage of your premium payment) (2)..............................................................8.0%
Transfer Fee....................................................................No fee for the first 12 transfers
in a Contract year, then $25
per additional transfer
ANNUAL CONTRACT FEE (3)................................................................................................$30
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets in the Subaccounts)
Mortality and Expense Risk Charge............................................................................1.00%
Administrative Expenses......................................................................................0.15%
------
Total Variable Account Annual Expenses.......................................................................1.15%
</TABLE>
ANNUAL PORTFOLIO EXPENSES
(as a percentage of average daily net assets in the portfolios after fee
waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT EXPENSES (AFTER
FEES OTHER EXPENSES FEE WAIVERS
(AFTER FEE 12b-1 (AFTER AND
NAME OF PORTFOLIO WAIVERS) FEES REIMBURSEMENTS) REIMBURSEMENTS)
----------------- ---------- ----- -------------- --------------
<S> <C> <C> <C> <C>
FEDERATED INSURANCE SERIES
Federated Quality Bond Fund II(4) 0.06% 0.64% 0.70%
Federated International Equity Fund II(4) 0.54% 0.71% 1.25%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Growth Portfolio(5) 0.58% 0.25% 0.10% 0.93%
Fidelity VIP Equity-Income Portfolio(5) 0.48% 0.25% 0.10% 0.83%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP II ContraFund-REGISTERED TRADEMARK-
Portfolio(5) 0.58% 0.25% 0.12% 0.95%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Fidelity VIP III Growth & Income Portfolio(5) 0.48% 0.25% 0.13% 0.86%
SEI INSURANCE PRODUCTS TRUST
SEI VP Prime Obligation Fund(6) 0.03% 0.66% 0.69%
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STRONG VARIABLE INSURANCE FUNDS, INC.
Strong MidCap Growth Fund II(7) 1.00% 0.15% 1.15%
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II(7) 1.00% 0.14 1.14%
</TABLE>
(1) If you request an additional copy of your Contract, we reserve the right
to charge a maximum fee of $10 for the cost of preparing that copy.
(2) We do not assess a surrender charge on death benefit payments or the
free withdrawal amount. We do assess a surrender charge if you surrender your
Contract, partially surrender its Surrender Value, or, annuitize under the
Contract in certain cases.
(3) We will also deduct a prorata portion of this fee on the Annuity
Commencement Date or the date you surrender your Contract. We currently waive
deduction of the charge for Contracts whose Accumulation Value is $20,000 or
more on the date of assessment.
(4) The adviser has voluntarily agreed to reimburse Federated Quality Bond
Fund II and Federated International Equity Fund II to the extent Total Annual
Expenses for Federated Quality Bond Fund II exceeds ___% of average net
assets and Total Annual Expenses for Federated International Equity Fund II
exceeds ___% of average net assets. Absent reimbursements, the Total Annual
Expenses during 1999 would have been ___ % for Federated Quality Bond Fund II
and ___% for Federated International Equity Fund II.
(5) The adviser has voluntarily agreed to reimburse the Fidelity VIP Growth,
Fidelity VIP Equity-Income, Fidelity VIP Growth & Income and Fidelity VIP
Equity-Income Portfolios to the extent Total Annual Expenses (excluding
interest, taxes, certain securities lending costs, brokerage commissions, and
extraordinary expenses) for the Fidelity VIP Growth and Fidelity VIP
Equity-Income Portfolio exceed 1.75% of average net assets and Total Annual
Expenses (excluding interest, taxes, certain securities lending costs,
brokerage commissions, and extraordinary expenses) for the Fidelity VIP
Growth & Income and Fidelity VIP Equity-Income Portfolios exceed 1.25% of
average net assets.
(6) The adviser and administrator for the SEI VP Prime Obligation Fund have
each voluntarily agreed to waive a portion of its fee to ensure Total Annual
Expenses do not exceed 0.69% of average net assets. Absent reimbursement, the
Total Annual Expenses during 1999 would have been 0.73% for the SEI VP Prime
Obligation Fund.
(7) The adviser has voluntarily agreed to reimburse Strong Mid Cap Growth
Fund II and Strong Opportunity Fund II to the extent Total Annual Expenses
for the Strong Mid Cap Growth Fund II exceeds 1.15% of average net assets and
Total Annual Expenses for the Strong Opportunity Fund II exceeds 1.14% of
average net assets. Absent reimbursement, the Total Annual Expenses during
1999 would have been 1.17% for Strong Mid Cap Growth Fund II.
EXAMPLES
The purpose of the following Examples is to assist you in understanding
the expenses that you would pay over time. The Examples are based on the actual
charges and expenses for the Variable Account and for each portfolio for the
fiscal year ended December 31, 1999, as stated in the Fee Table.
EXAMPLE 1
Example 1 below shows the dollar amount of expenses that you would bear directly
or indirectly if you:
- invested $1,000 in a Subaccount;
- earned a 5% annual return on your investment;
- fully surrendered your Contract with applicable surrender charges
deducted.
13
<PAGE>
<TABLE>
<CAPTION>
ASSUMES YOU SURRENDER THE CONTRACT EXAMPLE 1
------------------------------------------------------- ----------------------------
SUBACCOUNT 1 YEAR 3 YEARS
------------------------------------------------------- ------------- --------------
<S> <C> <C>
FEDERATED INSURANCE SERIES
------------------------------------------------------- ------------- --------------
Federated Quality Bond $[ ] $[ ]
------------------------------------------------------- ------------- --------------
Federated International Equity $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------- ------------- --------------
Fidelity VIP Growth Portfolio $[ ] $[ ]
------------------------------------------------------- ------------- --------------
Fidelity VIP Equity-Income Portfolio $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------- ------------- --------------
Fidelity VIP II ContraFund-REGISTERED TRADEMARK- $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
------------------------------------------------------- ------------- --------------
Fidelity VIP III Growth and Income $[ ] $[ ]
------------------------------------------------------- ------------- --------------
SEI INSURANCE PRODUCTS TRUST
------------------------------------------------------- ------------- --------------
SEI VP Prime Obligation Fund $[ ] $[ ]
------------------------------------------------------- ------------- --------------
STRONG VARIABLE INSURANCE FUNDS, INC.
------------------------------------------------------- ------------- --------------
Strong MidCap Growth $[ ] $[ ]
------------------------------------------------------- ------------- --------------
STRONG OPPORTUNITIES FUNDS, INC.
------------------------------------------------------- ------------- --------------
Strong Opportunity $[ ] $[ ]
------------------------------------------------------- ------------- --------------
</TABLE>
EXAMPLE 2
Example 2 has the same assumptions as Example 1, except that you decided not to
surrender your Contract. Surrender charges are not deducted.
<TABLE>
<CAPTION>
ASSUMES YOU DO NOT SURRENDER EXAMPLE 2
------------------------------------------------------- ----------------------------
SUBACCOUNT 1 YEAR 3 YEARS
------------------------------------------------------- ------------- --------------
<S> <C> <C>
FEDERATED INSURANCE SERIES
------------------------------------------------------- ------------- --------------
Federated Quality Bond $[ ] $[ ]
------------------------------------------------------- ------------- --------------
Federated International Equity $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------- ------------- --------------
Fidelity VIP Growth Portfolio $[ ] $[ ]
------------------------------------------------------- ------------- --------------
Fidelity VIP Equity-Income Portfolio $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------- ------------- --------------
Fidelity VIP II ContraFund-REGISTERED TRADEMARK- $[ ] $[ ]
------------------------------------------------------- ------------- --------------
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
------------------------------------------------------- ------------- --------------
Fidelity VIP III Growth and Income $[ ] $[ ]
------------------------------------------------------- ------------- --------------
SEI INSURANCE PRODUCTS TRUST
------------------------------------------------------- ------------- --------------
SEI VP Prime Obligation Fund $[ ] $[ ]
------------------------------------------------------- ------------- --------------
STRONG VARIABLE INSURANCE FUNDS, INC.
------------------------------------------------------- ------------- --------------
Strong MidCap Growth $[ ] $[ ]
------------------------------------------------------- ------------- --------------
STRONG OPPORTUNITIES FUNDS, INC.
------------------------------------------------------- ------------- --------------
Strong Opportunity $[ ] $[ ]
------------------------------------------------------- ------------- --------------
</TABLE>
The examples assume that you made no transfers. The examples also do
not take into account any premium taxes. The examples reflect the annual
contract fee of $30 as an annual charge of ____% which we calculated by
dividing the total annual contract fee of $30 by an assumed average
investment of $________ in the Contract.
PLEASE REMEMBER THAT THE EXAMPLES ARE SIMPLY ILLUSTRATIONS AND DO NOT REPRESENT
PAST OR FUTURE EXPENSES. Your actual expenses may be higher or lower than those
shown in the examples. Similarly your rate of return may be more or less than
the 5% assumed in the examples.
14
<PAGE>
CONDENSED FINANCIAL INFORMATION
================================================================================
================================================================================
Because the Variable Account had not commenced operations as of
December 31, 1999, no condensed financial information is included in this
prospectus.
ABOUT AMERICAN FAMILY LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
================================================================================
================================================================================
AMERICAN FAMILY LIFE INSURANCE COMPANY
We are a stock life insurance company. We were incorporated under
Wisconsin law in 1957. We are subject to regulation by the Officer of the
Commissioner of Insurance of the state of Wisconsin, as well as by the
insurance departments of all other states in which we do business. We
established the Variable Account to support the investment options under the
Contract and under other variable annuity contracts we may issue. Our General
Account supports the Fixed Account option under the Contract.
We are a wholly owned subsidiary of Am Fam, Inc. Am Fam, Inc. is a
downstream holding company and a wholly owned subsidiary of American Family
Mutual Insurance Company ("American Family Mutual"). American Family Mutual
is one of the leading property/casualty insurance companies in the United
States with operations in fifteen states located primarily in the Midwest.
American Family Mutual offers a broad line of insurance coverage to
individuals and businesses, including automobile, accident and health,
homeowners, farm owners, mobile homeowners, inland marine, burglary,
commercial, personal and fire coverage.
IMSA. We are a member of the Insurance Marketplace Standards
Association ("IMSA"). IMSA members subscribe to a set of ethical standards
involving the sales and service of individually sold life insurance and
annuities. As a member of IMSA, we may use the IMSA logo and language in
advertisements.
THE VARIABLE ACCOUNT
We established American Family Variable Account II as a separate investment
account under Wisconsin law. We own the assets in the Variable Account and we
are obligated to pay all benefits under the Contracts. We may use the Variable
Account to support other variable annuity contracts we issue. The Variable
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 and qualifies as a
"separate account" within the meaning of the Federal securities laws. This
registration does not involve supervision of the management or investment
practices or policies of the Variable Account by the Securities and Exchange
Commission. We have divided the Variable Account into Subaccounts, each of which
invests in shares of one portfolio of the following funds:
X Federated Insurance Series
X Fidelity Variable Insurance Products Fund
X Fidelity Variable Insurance Products Fund II
X Fidelity Variable Insurance Products Fund III
X SEI Insurance Products Trust
X Strong Variable Insurance Funds, Inc.
X Strong Opportunity Fund II, Inc.
The Subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
15
<PAGE>
Income, gains, and losses, whether or not realized, from assets allocated to the
Variable Account will be credited to or charged against the Variable Account
without regard to our other income, gains, or losses. Income, gains, and losses
credited to, or charged against, a Subaccount reflect the Subaccount's own
investment performance and not the investment performance of our other assets.
The Variable Account assets are held separate from our other assets and are not
part of our General Account. We may not use the Variable Account's assets to pay
any of our liabilities other than those arising from the Contracts. If the
Variable Account's assets exceed the required reserves and other liabilities, we
may transfer the excess to our General Account. The Variable Account may include
other Subaccounts that are not available under the Contracts and are not
discussed in this prospectus.
- If investment in the funds or a particular portfolio is no longer
possible or in our judgment becomes inappropriate for the
purposes of the Variable Account, we may substitute another fund
or portfolio without your consent. The substituted fund or
portfolio may have different fees and expenses. Substitution may
be made with respect to existing investments or the investment of
future premiums, or both. However, no such substitution will be
made without any necessary approval of the SEC. Furthermore, we
may close Subaccounts to allocations of premiums or Accumulation
Value, or both, at any time in our sole discretion. The funds,
which sell their shares to the Subaccounts pursuant to
participation agreements, also may terminate these agreements and
discontinue offering their shares to the Subaccounts.
In addition, we reserve the right to make other structural and operational
changes affecting the Variable Account. See "Additional Information -- Changes
to the Variable Account."
THE PORTFOLIOS
================================================================================
================================================================================
- The Variable Account invests in shares of certain portfolios.
Each portfolio is part of a mutual fund that is registered with
the Securities and Exchange Commission as an open-end management
investment company. This registration does not involve
supervision of the management or investment practices or policies
of the portfolios or mutual funds by the Securities and Exchange
Commission.
- Each portfolio's assets are held separate from the assets of the
other portfolios, and each portfolio has investment objectives
and policies that are different from those of the other
portfolios. Thus, each portfolio operates as a separate
investment fund, and the income or losses of one portfolio
generally have no effect on the investment performance of any
other portfolio.
- The following table summarizes each portfolio's investment
objective(s) and identifies its investment adviser (and
subadviser, if applicable). THERE IS NO ASSURANCE THAT ANY OF THE
PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). You can find
more detailed information about the portfolios, including a
description of risks and expenses, in the prospectuses for the
portfolios that accompany this prospectus. You should read these
prospectuses carefully.
16
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
--------- -------------------------------------------
FEDERATED QUALITY BOND FUND II |_| INVESTMENT OBJECTIVE: Seeks to provide
current income by investing in a
diversified portfolio of investment
grade securities, which are rated in one
of the four highest categories by a
nationally recognized statistical rating
organization.
INVESTMENT ADVISER: Federated Investment
Management Company.
FEDERATED INTERNATIONAL |_| INVESTMENT OBJECTIVE: Seeks total return
EQUITY FUND II on assets through adiversified portfolio
consisting primarily of non-U.S. stocks.
INVESTMENT ADVISER: Federated Investment
Management Company.
FIDELITY VIP GROWTH |_| INVESTMENT OBJECTIVE: Seeks to achieve
capital appreciation by investing in the
common stock of companies that the
adviser believes have above-average
growth potential.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
FIDELITY VIP EQUITY-INCOME |_| INVESTMENT OBJECTIVE: Seeks reasonable
income by investing primarily in
income-producing equity securities. In
choosing these securities, the adviser
will also consider the potential for
capital appreciation.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
FIDELITY VIP II CONTRAFUND
-REGISTERED TRADEMARK- |_| INVESTMENT OBJECTIVE: Seeks long-term
capital appreciation by investing in the
securities of companies whose value the
adviser believes is not fully recognized
by the public.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
FIDELITY VIP III
GROWTH & INCOME |_| INVESTMENT OBJECTIVE: Seeks high total
return through a combination of current
income and capital appreciation.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
17
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
--------- -------------------------------------------
SEI VP PRIME OBLIGATION FUND |_| INVESTMENT OBJECTIVE: Seeks to preserve
principal and provide liquidity,
diversification and a competitive yield
by investing in high quality, short-term
money market instruments.
INVESTMENT ADVISER: SEI Investments
Management Corporation.
STRONG MID CAP GROWTH FUND II |_| INVESTMENT OBJECTIVE: Seeks capital
growth. The Fund invests primarily in
securities that the adviser believes
have above-average growth prospects.
INVESTMENT ADVISER: Strong Capital
Management, Inc.
STRONG OPPORTUNITY FUND II |_| INVESTMENT OBJECTIVE: Seeks capital
growth. It currently emphasizes
medium-sized companies that the adviser
believes are under-priced and have
attractive growth prospects.
INVESTMENT ADVISER: Strong Capital
Management, Inc.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY
IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment
objectives and policies of certain portfolios available under the Contract are
very similar to the investment objectives and policies of other portfolios that
are or may be managed by the same investment adviser or manager. Nevertheless,
the investment performance of the portfolios available under the Contract may be
lower or higher than the investment performance of these other (publicly
available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION,
THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE
CONTRACT WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF ANY OTHER
PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR
MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME.
PORTFOLIO MANAGEMENT FEES AND CHARGES
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, 4 portfolios deduct 12b-1
fees. See the Fee Table in this Prospectus and the prospectuses for the
portfolios.
We receive compensation from certain investment advisers and/or administrators
(and/or an affiliate thereof) of the portfolios in connection with
administrative or other services and cost savings experienced by the investment
advisers, administrators or affiliates. Such compensation may range from ___% to
___% and is based on a percentage of assets of the particular portfolios
attributable to the Contract. We also receive a portion of the 12b-1 fees
deducted from portfolio assets as reimbursement for providing certain services
permitted under the fund's 12b-1 plan. Some advisers, administrators, or
portfolios may pay us more than others.
18
<PAGE>
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
THE ACCUMULATION PERIOD
================================================================================
================================================================================
The accumulation period begins when we issue your Contract and
continues until the Annuity Commencement Date. The accumulation period will also
end if you surrender your Contract, or a death benefit is payable, before the
payout period.
PURCHASING A CONTRACT
You may purchase a Contract with a premium payment of $750 or more. The
first premium payment is the only one we require you to make.
To purchase a Contract, you must complete an application and send it
with your premium to us through one of our authorized agents who is also a
registered representative. Contracts may be sold to or in connection with
retirement plans that qualify for special tax treatment.
If you are purchasing the Contract through a tax favored arrangement,
including IRAs, Roth IRAs, and SIMPLE IRAs, you should carefully consider the
costs and benefits of the Contract (including annuity income benefits) before
purchasing the Contract, since the tax favored arrangement itself provides for
tax sheltered growth.
We will not issue you a Contract if the Annuitant is older than age 80
on the issue date.
CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD
You have the right to cancel the Contract for any reason within 10 days
after you receive it. In some jurisdictions, this period may be longer than 10
days. To cancel the Contract, you must provide written notice of cancellation
and return the Contract to us or to the agent who sold it before the end of the
Free-Look Period. We deem the Free-Look Period to begin 10 days after we deliver
you the Contract.
Upon exercise of your free-look right, we will refund an amount
equal to the Accumulation Value, without deduction for any surrender charge
normally assessed. Or, if greater, and required by the law of your state, we
will refund your premium payments. We will pay the refund within 7 calendar
days after we receive the Contract. The Contract will then be deemed void.
DESIGNATING YOUR INVESTMENT OPTIONS
When you complete your application, you will give us instructions on
how to allocate your first premium payment among the 9 Subaccounts and the Fixed
Account. The amount you direct to a particular Subaccount and/or to the Fixed
Account must be in whole percentages from 10% to 100% of the premium payment.
If your application is complete and your premium payment has been
received at our Home Office or our Administrative Service Center, we will issue
your Contract within two business days of its receipt, and credit your initial
premium payment to your Contract. If your application is incomplete, we will
contact you and seek to complete it within five business days. If we cannot
complete your application within five business days after we receive it, we will
return your premium payment, unless you expressly permit us to keep it. We will
credit the payment as soon as we receive all necessary application information.
19
<PAGE>
The date we credit your initial premium payment to your Contract is the
issue date. We allocate your initial premium payment among the Subaccounts
and the Fixed Account according to your instructions.
We may reject any application or premium payment for any reason
permitted by law.
ADDITIONAL PREMIUM PAYMENTS
There are no requirements on how many premium payments to make. You
determine the amount and timing of each additional premium payment, except that
the premium payment must be at least $50. You may make premium payments at any
time until the earliest of: (a) the Annuity Commencement Date; (b) the date you
surrender the Contract; or (c) the date you reach age 70 1/2 for qualified
Contracts (other than Roth IRAs and rollovers and transfers).
We reserve the right not to accept an initial premium payment or total
premium payments of $1,000,000 or more. The Tax Code may also limit the amount
of premiums you may make.
We will credit any additional premium payments you make to your
Contract at the accumulation unit value next computed at the end of the Business
Day on which we receive them at our Administrative Service Center. Our Business
Day closes at 4:00 p.m. Eastern Time (1:00 p.m. Pacific Time). If we receive
your premium payments after the close of a Business Day, we will calculate and
credit them as of the end of the next Business Day.
We will direct your premium payment to the Subaccounts and/or the Fixed
Account according to your written instructions in effect at the time we receive
it at our Administrative Service Center. You may change your instructions at any
time by sending us a written request or by telephone authorization. Changing
your allocation instructions will not change the way existing Accumulation Value
is apportioned among the Subaccounts or the Fixed Account.
PLANNED PREMIUM PAYMENTS
You may elect to participate in our planned premium payment program.
Under this program, you will provide us with a schedule showing the amount
and frequency of any additional premium payments you intend to make under the
Contract. Your minimum planned premium payment must be at least $50. We will
forward to you an annual, semiannual or quarterly premium payment reminder
notice. You are under no obligation to make premium payments in accordance
with the schedule.
We reserve the right to limit the number and amount of any planned
premiums payments.
THE ACCUMULATION VALUE IN A SUBACCOUNT WILL VARY WITH THE INVESTMENT
PERFORMANCE OF THAT SUBACCOUNT. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS
YOU ALLOCATE TO THE SUBACCOUNTS. YOU SHOULD PERIODICALLY REVIEW YOUR PREMIUM
PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET CONDITIONS AND YOUR OVERALL
FINANCIAL OBJECTIVES.
20
<PAGE>
YOUR ACCUMULATION VALUE
================================================================================
================================================================================
ACCUMULATION VALUE
The Accumulation Value serves as the starting point for calculating
values under a Contract.
ACCUMULATION VALUE:
- Equals the sum of all values in the Fixed Account, and in each
Subaccount;
- Is determined first on the Issue Date and then on each
Business Day; and
- Has no guaranteed minimum amount and may be more or less than
premiums paid.
SURRENDER VALUE
The Surrender Value is the amount we pay to you when you surrender your
Contract. We determine the Surrender Value at the end of the valuation period
when we receive your written surrender request.
SURRENDER VALUE AT THE END OF ANY BUSINESS DAY EQUALS:
- the Accumulation Value on the surrender date; MINUS
- any surrender charge; MINUS
- any state premium tax due; MINUS
- any portion of the annual contract fee due.
SUBACCOUNT ACCUMULATION VALUE
At the end of any valuation period, the Accumulation Value in a
Subaccount is equal to the number of units in the Subaccount multiplied by the
Accumulation Unit Value of that Subaccount.
THE NUMBER OF UNITS IN ANY SUBACCOUNT AT THE END OF ANY BUSINESS DAY
EQUALS:
- the initial units purchased at the Accumulation Unit Value on the
Issue Date; PLUS
- units purchased with additional premium payments; PLUS
- units purchased via transfers from another Subaccount or the
Fixed Account; MINUS
- units redeemed to pay for the annual policy fee; MINUS
- units redeemed to pay for partial surrenders; MINUS
- units redeemed as part of a transfer to another Subaccount or the
Fixed Account.
Every time you allocate or transfer money to or from a Subaccount, we
convert that dollar amount into units. We determine the number of units we
credit to, or subtract from, your Contract by dividing the dollar amount of the
transaction by the unit value for that Subaccount at the end of the valuation
period.
ACCUMULATION UNIT VALUE
We determine the Accumulation Unit Value for each Subaccount to reflect
how investment performance affects the Accumulation Value. The Accumulation Unit
Value for each Subaccount was arbitrarily set at $10 when the Subaccount began
operations. Thereafter, the Accumulation Unit Value at the end of every
valuation period is the Accumulation Unit Value at the end of the previous
valuation period times the net investment factor, as described below.
21
<PAGE>
The net investment factor is an index applied to measure the investment
performance of a Subaccount from one valuation period to the next. Each
Subaccount has a net investment factor for each valuation period which may be
greater or less than one. Therefore, Accumulation Unit Value may increase or
decrease. The net investment factor for any Subaccount for any valuation period
equals:
- the Accumulation Unit Value, determined at the end of the current
valuation period; PLUS OR MINUS
- the amount of any dividend or capital gains distributions;
PLUS OR MINUS
- the per share amount of any dividend or capital gain distributions;
PLUS OR MINUS
- the per share charge or credit for any taxes attributable to the
operation of the Subaccount; DIVIDED BY
- the Accumulation Unit Value for the immediately preceding valuation
period; MINUS
- a daily charge for the mortality and expense risk and asset-based
administrative charges.
The net investment factor may be greater or less than one.
FIXED ACCOUNT ACCUMULATION VALUE
On the issue date, the Fixed Account Accumulation Value is equal to the
net premiums allocated to the Fixed Account.
THE FIXED ACCOUNT ACCUMULATION VALUE AT THE END OF ANY BUSINESS DAY IS
EQUAL TO:
- the net premium(s) allocated to the Fixed Account; PLUS
- any amounts transferred to the Fixed Account; PLUS
- interest credited to the Fixed Account; MINUS
- amounts deducted to pay for the annual policy fee; MINUS
- amounts withdrawn from the Fixed Account; MINUS
- amounts transferred from the Fixed Account to a Subaccount.
Interest will be credited to the Fixed Account on each [DATE] as follows:
> For amounts in the Fixed Account for the entire Contract year
interest will be credited from the beginning to the end of the
Contract year
> For amounts allocated to the Fixed Account during the Contract
year interest will be credited from the date the net premium
payment is allocated to the end of the Contract year
> For amounts transferred to the Fixed Account during the Contract
year interest will be credited from the date of the transfer to
the end of the Contract year
> For amounts deducted or withdrawn from the Fixed Account during
the prior Contract year interest will be credited from the
beginning of the prior Contract year to the date of deduction or
withdrawal.
22
<PAGE>
TRANSFERS BETWEEN INVESTMENT OPTIONS
================================================================================
================================================================================
You may make transfers between and among the Subaccounts and the Fixed
Account. We will determine the amount you have available for transfers at the
end of the valuation period when we receive your written request. The following
features apply to transfers under the Contract:
- You may request a transfer of up to 100% of the Accumulation
Value from one Subaccount to another Subaccount or to the Fixed
Account in writing or by phone (as states permit).
- For transfers to the Fixed Account, you must transfer at least
$250 or the total Accumulation Value in the Subaccount(s), if
less than $250.
- You may transfer amounts among the Subaccounts, an unlimited
number of times in a Contract year. There is no minimum transfer
amount.
- We impose a $25 charge per transfer on each transfer after the
twelfth during a Contract year before the Annuity Commencement
Date. Transfers due to dollar cost averaging, automatic asset
reallocation, or the initial allocation of Accumulation Value
from the Money Market Subaccount do NOT count as transfers for
the purpose of assessing the transfer fee. See "Transfers Between
Investment Options -- Dollar Cost Averaging" and "Transfers
Between Investment Options -- Automatic Asset Reallocation."
- We consider each telephone or written request to be a single
transfer, regardless of the number of Subaccounts (or Fixed
Account) involved.
- We process transfers based on unit values determined at the end
of the Business Day when we receive your transfer request.
- Transfers from the Fixed Account:
- You may make only one transfer per year from the Fixed
Account to the Subaccounts.
- You may not transfer more than 25% of the Accumulation Value
in the Fixed Account as of the date of transfer. If such
transfer causes the Accumulation Value in the Fixed Account
to fall below $1,000, we will transfer the full Accumulation
Value.
- We reserve the right to revoke or modify the transfer privilege
at any time.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program in the
application or by completing an election form that we receive by the
beginning of the month. Dollar cost averaging is an investment strategy
designed to reduce the investment risks associated with market fluctuations.
The strategy spreads the allocation of your premium into the Subaccounts over
a period of time by systematically and automatically transferring, on a
monthly, quarterly, semi-annual or annual basis, specified dollar amounts
from the Money Market Subaccount into any other Subaccount(s). This allows
you to potentially reduce the risk of investing most of your premium payment
into the Subaccounts at a time when prices are high. We do not assure the
success of this strategy, and success depends on market trends. We cannot
guarantee that dollar cost averaging will result in a profit or protect
against loss. You should carefully consider your financial ability to
continue the program over a long enough period of time to purchase units when
their value is low as well as when it is high.
On each dollar cost averaging transfer day, we will automatically
transfer equal amounts (minimum $250) from the Money Market Subaccount to
your designated "destination accounts" in the percentages selected. You may
have multiple destination accounts. To participate in dollar cost averaging,
you must elect a period of time and place at least $1,000 in the Money Market
Subaccount.
23
<PAGE>
If you have elected dollar cost averaging, the program will start on
the first Business Day after the later of:
- the Contract Date; or
- when the Accumulation Value of the Money Market Subaccount equals
or exceeds the greater of: (a) the minimum amount stated above;
or (b) the amount of the first transfer.
DOLLAR COST AVERAGING WILL END IF:
- we receive your written request to cancel your participation;
- the Accumulation Value in the Money Market Subaccount is depleted; or
- the specified number of transfers has been completed.
You will receive written notice confirming each transfer and when the
program has ended. You are responsible for reviewing the confirmation to verify
that the transfers are being made as requested. There is no additional charge
for dollar cost averaging. A transfer under this program is NOT considered a
transfer for purposes of assessing the transfer fee. We may modify, suspend, or
discontinue the dollar cost averaging program at any time upon 30 days' written
notice to you. You cannot choose dollar cost averaging if you are participating
in the automatic asset reallocation program.
AUTOMATIC ASSET REALLOCATION
We also offer an automatic asset reallocation program under which we
will automatically transfer amounts monthly, quarterly, semi-annually or
annually to maintain a particular percentage allocation among the Subaccounts.
Accumulation Value allocated to each Subaccount will grow or decline in value at
different rates. Over time, this method of investing may help you buy low. The
automatic asset reallocation program does not guarantee gains, nor does it
assure that you will not have losses. The Fixed Account does not participate in
this program.
TO PARTICIPATE IN THE AUTOMATIC ASSET REALLOCATION PROGRAM:
- you must elect this feature in the Application or after issue by
submitting an automatic asset reallocation request form to our
Administrative Service Center.
There is no additional charge for the automatic asset reallocation
program. Any reallocation which occurs under the automatic asset reallocation
program will NOT be counted towards the 12 "free" transfers allowed during each
Contract year. You can end this program at any time.
AUTOMATIC ASSET REALLOCATION WILL END IF:
- we receive your written request to terminate the program.
We may modify, suspend, or discontinue the automatic asset reallocation
program at any time. You cannot choose automatic asset reallocation if you are
participating in the dollar cost averaging program.
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers in any Contract year, or to
refuse any transfer request for an Owner if:
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<PAGE>
- we believe, in our sole discretion, that excessive trading by the
Owner, or a specific transfer request, or a group of transfer
requests, may have a detrimental effect on the unit values of any
Subaccount or the share prices of any portfolio or would be
detrimental to other Owners; or
- we are informed by one or more portfolios that they intend to restrict
the purchase of portfolio shares because of excessive trading or
because they believe that a specific transfer or group of transfers
would have a detrimental effect on the price of portfolio shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Owners.
TELEPHONE TRANSFERS
You must notify us on your application or in writing that you want the
ability to make transfers by telephone, you will have the ability to make a
transfer by giving us instructions over the telephone. You may use your
telephone to authorize a transfer from one Subaccount or the Fixed Account to
another Subaccount or the Fixed Account, to change the allocation instructions
for future investments, and/or to change automatic asset reallocation and dollar
cost averaging programs.
We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If we follow such procedures we will not
be liable for any losses due to unauthorized or fraudulent instructions. We may
be liable for such losses if we do not follow those reasonable procedures.
The procedures that we may follow for telephone transfers include:
- providing you with a written confirmation of all transfers made
according to telephone instructions;
- requiring a form of personal identification prior to acting on
instructions received by telephone; and
- tape recording instructions received by telephone.
We reserve the right to modify, restrict, suspend or eliminate the
transfer privileges (including the telephone transfer facility) at any time, for
any class of Contracts, for any reason.
TRANSFER FEE
We will impose a transfer fee of $25 for the thirteenth and each
subsequent transfer request you make per Contract year. Transfers you make
pursuant to the automatic asset reallocation and dollar cost averaging programs
do not count toward your 12 free transfers. See "Fees and Charges - Transfer
Fee."
ACCESS TO YOUR MONEY
================================================================================
================================================================================
SURRENDERS
At any time before the Annuity Commencement Date, you may surrender
your Contract for its Surrender Value.
The SURRENDER VALUE is equal to :
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<PAGE>
- the Accumulation Value on the surrender date; MINUS
- any applicable surrender charge; MINUS
- any premium taxes not previously deducted; MINUS
- any portion of the annual policy fee unless waived.
The Surrender Value will be determined at the unit value next
determined as of the close of business on the Business Day we receive your
written request for surrender at our Administrative Service Center, unless you
specify a later date in your request. If we receive your written request after
the close of our Business Day, usually 4:00 p.m. Eastern Time, we will determine
the Surrender Value as of the next Business Day. The Surrender Value will be
paid in a lump sum unless you request payment under a settlement option. A
surrender may have adverse federal income tax consequences, including a penalty
tax. See "Federal Tax Matters."
PARTIAL SURRENDERS
Before the Annuity Commencement Date, you may request a partial
surrender of part of your Surrender Value. Partial surrenders are subject to the
following conditions:
- the minimum amount you can withdraw is $250; and
- you may not make a partial surrender if the withdrawal plus
the surrender charge, partial surrender processing fee and
any applicable premium tax charge would cause the
Accumulation Value to fall below $1,000.
We will withdraw the amount you request from the Surrender Value as of
the Business Day on which you request a partial surrender from our
Administrative Service Center, provided we receive your request before the close
of our Business Day, usually 4:00 p.m. Eastern Time. If we receive your request
after the close of our Business Day, we will make the withdrawal as of the next
Business Day. We will then reduce your Accumulation Value by any applicable
surrender charge, the partial surrender processing fee, any applicable premium
tax charge plus the dollar amount we sent to you. If the amount of the partial
surrender is $5,000 or more, your request must be in writing.
You may specify how much you wish to withdraw from each Subaccount
and/or the Fixed Account. If you do not specify, or if you do not have
sufficient assets in the Subaccounts or Fixed Account you specified to comply
with your request, we will make the partial surrender on a pro rata basis from
the Fixed Account and those Subaccounts in which you are invested. We will base
the pro rata reduction on the ratio that the Accumulation Value in each
Subaccount and the Fixed Account has to the entire Accumulation Value before the
partial surrender.
Remember, any partial surrender you take will reduce your Accumulation
Value, and may reduce the death benefit by the amount of the partial surrender
plus any charges. See "Death Benefit."
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
PARTIAL SURRENDER YOU MAKE.
Your right to surrender and make partial surrenders is also subject to
any restrictions imposed by applicable law or employee benefit plan.
See "Fees and Charges -- Surrender Charge" for an explanation of the
surrender charges that may apply.
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<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
You can elect to receive regular payments from your Accumulation Value
during the accumulation period by instructing us to withdraw selected amounts
from the Fixed Account or any of the Subaccounts. We will specify the terms of
the withdrawal plan on your Application or make these withdrawals on a monthly,
quarterly, semi-annual or annual basis as you direct. You must complete an
enrollment form and send it to our Administrative Service Center. You may
terminate the systematic withdrawal plan at any time.
There are some limitations to the systematic withdrawal plan:
- withdrawals must be at least $100;
- you must have a minimum balance at least equal to the amount
you want to withdraw; and
- we will deduct a surrender charge from any amount you
withdraw in excess of your free withdrawal amount.
Income taxes and tax penalties may apply to the amount withdrawn. We
may suspend or modify the systematic withdrawal plan at any time.
DEATH BENEFIT
================================================================================
================================================================================
DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE
We will pay a death benefit if the Annuitant dies before the Annuity
Commencement Date. Assuming you are also the Owner, your Beneficiary will
receive a death benefit unless the Beneficiary is your surviving spouse and
elects to continue the Contract. The death benefit is calculated at the close
of the Business Day on which we receive written notice and due proof of death
as well as properly completed required claim forms, at our Administrative
Service Center. If the Beneficiary elects to delay receipt of the death
benefit, the amount of the death benefit payable in the future may be
affected. If the deceased Annuitant was not an Owner, the proceeds may be
received in a lump sum or applied to any of the settlement options within one
year of death. If the deceased Annuitant was an Owner, then death proceeds
must be distributed in accordance with the Death of Owner provisions below.
If we do not receive a request to apply the death benefit proceeds to a
settlement option, we will make a lump sum distribution. We will generally
pay lump sum death benefit payments within 7 days after our Administrative
Service Center has received sufficient information to make the payment.
DEATH BENEFIT PAYABLE
The death benefit equals the greater of:
- the ACCUMULATION VALUE on the later of the date that we
receive due proof of death and the date when we receive the
Beneficiary's instructions on payment method at our
Administrative Service Center; or
- the MINIMUM DEATH BENEFIT. The minimum death benefit equals
the sum of all premium payments, minus reductions for
partial surrender.
Upon payment of the death benefit, the Contract will terminate.
If the Annuitant or Owner is Attained Age 80 or older at the time of
death, the death benefit is the Accumulation Value as determined above.
DEATH OF THE ANNUITANT
1. If the Annuitant dies prior to the Annuity Commencement Date, we will
pay the death benefit as provided above.
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2. If the Annuitant dies after the Annuity Commencement Date but before
all of the proceeds payable under the Contract have distributed, we
will pay the remaining proceeds to the Beneficiary(ies) under the
method of payment in effect at the time of the Annuitant's death,
unless the Beneficiary elects to receive the discounted Value of any
remaining payments in a lump sum.
DEATH OF OWNER
If any Owner of the Contract dies before the Annuity Commencement Date,
the following applies:
- If the new Owner is the deceased Owner's spouse, the Contract
will continue, treating the spouse as the new Owner and, if the
deceased Owner was also the Annuitant, the deceased Owner's
spouse will also be the Annuitant.
- If the new Owner is someone other than the deceased Owner's
spouse, the entire interest in the Contract must be distributed
to the new Owner:
- within 5 years of the deceased Owner's death
or
- over the life of the new Owner or over a period not
extending beyond the life or the life expectancy of the new
Owner, as long as payments begin within one year of the
deceased Owner's death.
If the deceased Owner was the Annuitant, the new Owner will be the
joint Owner, if any, or if there is no joint Owner, the Beneficiary.
If the deceased Owner was not the Annuitant, the new Owner will be the
joint Owner, if any, or if there is no joint Owner, the Annuitant.
If the new Owner dies after the deceased Owner but before the entire
interest has been distributed, any remaining distributions will be to the new
Owner's estate.
If any Owner dies on or after the Annuity Commencement Date, but before
all proceeds payable under this Contract have been distributed, the Company will
continue payments to the Annuitant (or, if the deceased Owner was the Annuitant,
to the Beneficiary) under the payment method in effect at the time of the
deceased Owner's death.
If any Owner of this Contract is not an individual, the death of any
Annuitant shall be treated as the death of an Owner.
In all events, death benefit distributions will be made from the
Contract in accordance with Section 72(s) of the Internal Revenue Code of 1986,
as amended.
FEES AND CHARGES
================================================================================
================================================================================
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we deduct a
daily mortality and expense risk charge from your assets in the Subaccounts. The
charge is equal, on an annual basis, to 1.00% of the average daily net assets
you have invested in the Subaccounts.
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<PAGE>
The mortality risk we assume is that Annuitants may live for a longer
period of time than estimated. The mortality risk that we assume also includes a
guarantee to pay a death benefit if the Owner dies before the Annuity
Commencement Date. The expense risk that we assume is the risk that the
administrative fees and transfer fees (if imposed) may be insufficient to cover
actual future expenses. We may use any profits from the mortality and expense
risk charge to pay the costs of distributing the Contracts.
ASSET-BASED ADMINISTRATION CHARGE
We deduct a daily asset-based administration charge from each
Subaccount to help reimburse us for our administrative costs, such as Owner
inquiries, changes in allocations, Owner reports, Contract maintenance costs and
data processing costs. This charge is equal, on an annual basis, to 0.15% of
your average daily net assets in the Subaccounts. This charge is designed to
help compensate us for the cost of administering the Contracts and the Variable
Account.
PARTIAL SURRENDER PROCESSING FEE
For each partial surrender, we deduct a processing fee of 2% of the
amount withdrawn up to $25, from the remaining Accumulation Value to help
reimburse us for the administrative costs of processing partial surrenders.
TRANSFER FEE
A transfer fee of $25 will be imposed for the thirteenth and each
subsequent transfer during a Contract year. Any unused free transfers do not
carry over to the next Contract year. Each written or telephone request would be
considered to be one transfer, regardless of the number of Subaccounts affected
by the transfer. Transfers you make through our automatic asset reallocation and
dollar cost averaging programs do NOT count toward your twelve free transfers.
We deduct the transfer fee from the amount transferred.
SURRENDER CHARGE
We do not deduct a charge for sales expenses from premium payments
at the time premium payments are paid to us. However, we will deduct a
surrender charge, if applicable, if you surrender your Contract or partially
surrender Accumulation Value before the Annuity Commencement Date. We do not
assess a surrender charge on withdrawals made if the Contract terminates due
to your death or the death of the last surviving annuitant.
As a general rule, the surrender charge equals a percentage of the
premium payments withdrawn that: (a) we have held for less than nine years; and
(b) are not eligible for a free withdrawal. The surrender charge applies during
the entire nine year period following each premium payment. The applicable
percentage depends on the number of years since you made the premium payment
being withdrawn, as shown on this chart:
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<TABLE>
<CAPTION>
NUMBER OF COMPLETED
YEARS FROM THE DATE OF SURRENDER CHARGE
PREMIUM PAYMENT PERCENTAGE
------------------------------------ ----------------
<S> <C>
0.............................. 8%
1.............................. 8%
2.............................. 7%
3.............................. 6%
4.............................. 5%
5.............................. 4%
6.............................. 3%
7 ............................. 2%
8.............................. 1%
9.............................. 1%
10 and later .................. 0%
</TABLE>
In determining surrender charges, we will deem premium payments to be
surrendered in the order in which they were received -- that is, on a first-in,
first-out basis. We also treat premium payments as being withdrawn before
earnings.
Because surrender charges are based on the date each premium payment is
made, you may be subject to a surrender charge, even though the Contract may
have been issued many years earlier.
When you request a partial surrender, you will be sent a check in the
amount you requested, less applicable tax withholding. If a surrender charge
applies, your Accumulation Value will be reduced by the dollar amount we send
you, plus the surrender charge, the partial surrender processing fee and any
applicable premium tax charge. The deductions will be made pro-rata from all
Subaccounts and the Fixed Account in which the Contract is invested based on the
remaining Accumulation Value in each Subaccount and the Fixed Account, unless
you request otherwise.
FREE WITHDRAWAL AMOUNT
Each Contract year, after the first Contract year, you may withdraw a
portion of your Accumulation Value without incurring a surrender charge. This
amount is called the free withdrawal amount. The FREE WITHDRAWAL AMOUNT is an
amount equal to 10% of total premium payments minus any prior partial
surrenders.
We do not assess a surrender charge on proceeds applied to a settlement
option with a fixed pay-out period of at least 5 years or on a settlement option
with a life contingency. You may also withdraw, free of surrender charge, any
premium payment that has been held by us for more than nine years.
We will pay the Surrender Value to you in a lump sum within 7 days
after we receive your completed, signed surrender form absent other
arrangements, unless the payment is from the Fixed Account. We may defer payment
from the Fixed Account for the time allowed by law but not more than 6 months.
ANNUAL CONTRACT FEE
At the end of each Contract year before the Annuity Commencement Date,
we will deduct an annual policy fee of $30 from your Accumulation Value as
partial reimbursement for our administrative expenses relating to the Contract.
We will deduct the fee from each Subaccount and the Fixed Account based on the
proportion that the Accumulation Value in each Subaccount and the Fixed Account
bears to
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the total Accumulation Value. We will also deduct a pro rata portion of this
charge on the Annuity Commencement Date, or the date you surrender the
Contract. We guarantee this charge will not exceed $50.
We will not deduct this fee after income payments have begun. We
also currently waive deduction of the charge for Contracts whose Accumulation
Value is more than $20,000 on the date of assessment.
PORTFOLIO MANAGEMENT FEES AND CHARGES
Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, 4 portfolios deduct
12b-1 fees. See the Fee Table in this Prospectus and the prospectuses for the
portfolios.
We receive compensation from certain investment advisers and/or
administrators (and/or an affiliate thereof) of the portfolios in connection
with administrative or other services and cost savings experienced by the
investment advisers, administrators or affiliates. Such compensation may range
from ____% to ____% and is based on a percentage of assets of the particular
portfolios attributable to the Contract. We also receive a portion of the 12b-1
fees deducted from portfolio assets as reimbursement for providing certain
services permitted under the fund's 12b-1 plan. Some advisers, administrators,
or portfolios may pay us more than others.
OTHER CHARGES
If you request an additional copy of your Contract, we reserve the
right to charge a maximum fee of $10 for the cost of preparing that copy.
PREMIUM TAXES
Various states and other governmental entities charge a premium tax on
annuity contracts issued by insurance companies. Premium tax rates currently
range up to 3.5%, depending on the state. We are responsible for paying these
taxes. If applicable, we will deduct the cost of such taxes from the
Accumulation Value of your Contract either:
- from premium payments as we receive them,
- from Accumulation Value upon surrender or partial surrender,
- on the Annuity Commencement Date, or
- upon payment of a death benefit.
OTHER TAXES
Currently, no charge is made against the Variable Account for any
federal, state or local taxes (other than premium taxes) that we incur or that
may be attributable to the Variable Account or the Contracts. We may, however,
deduct such a charge in the future, if necessary.
THE PAYOUT PERIOD
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================================================================================
THE ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the day that the payout period begins
under the settlement option you have selected. If you own a Contract that is not
a qualified Contract, you must select the Annuity Commencement Date on which you
will begin to receive income payments. The Annuity
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Commencement Date can be no earlier than the fifth Contract anniversary and can
be no later than the Contract anniversary when the oldest Annuitant is age 95.
In the case of an IRA that satisfies Tax Code section 408, the Annuity
Commencement Date must be no later than April 1 of the calendar year following
the year in which you reach age 70 1/2 and the payment must be made in a
specified form or manner. Roth IRAs under section 408A of the Tax Code do not
require distributions at any time prior to your death; the Annuity Commencement
Date for Roth IRAs can be no later than age 95.
SETTLEMENT OPTIONS
You must choose a settlement option on or before the Annuity
Commencement Date. The settlement option you select will affect the dollar
amount of each income payment you receive. You may select or change your
settlement option on or before the Annuity Commencement Date while the
Annuitant is living by sending a written request signed by you and/or your
Beneficiary, as appropriate, to our Administrative Service Center. You may
choose one of the settlement options described below or any other settlement
option being offered by us as of the Annuity Commencement Date. You may also
choose a lump sum payment or payment under a Flexible Settlement Account. We
pay interest on proceeds held in the Flexible Settlement Account as required
by state law. The settlement options we currently offer provide for fixed
income payments.
You may elect to receive income payments on a monthly, quarterly,
semi-annual or annual basis depending upon the settlement option you choose. If
you do not specify the frequency of payment, we will pay you monthly. The first
payment under any option will be made on the day of the month you request
(subject to our agreement) and will be based on the payment frequency you
selected measured from the Annuity Commencement Date. We will make subsequent
payments on the same day of each subsequent period in accordance with the
payment interval and settlement option you select.
If you do not select a settlement option by the Annuity Commencement
Date, we will apply the Accumulation Value under the Fixed Period and Life
settlement option, with a ten year guaranteed period of payments, as described
below.
A Beneficiary may have the death benefit paid as an annuity under one
of the settlement options.
DETERMINING THE AMOUNT OF YOUR INCOME PAYMENT
On the Annuity Commencement Date, we will use the Surrender Value to
calculate your income payments under the settlement option you select. The
Surrender Value is your Accumulation Value minus any applicable surrender
charges, annual policy fee, and premium tax charge.
For qualified Contracts, distributions must satisfy certain
requirements specified in the Tax Code.
FIXED INCOME PAYMENTS
Fixed income payments are periodic payments that we make to the
Annuitant. The amount of the fixed income payment is fixed and guaranteed by us.
The amount of each payment depends on:
- the form and duration of the settlement option you choose;
- the age of the Annuitant;
- the gender of the Annuitant (if applicable);
- the amount of your Surrender Value on the Annuity Commencement
Date; and
- the applicable guaranteed annuity tables in the Contract.
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The guaranteed annuity tables in the Contract are based on a minimum
guaranteed interest rate of 3.5%. We may, in our sole discretion, make income
payments in an amount based on a higher interest rate.
AVAILABLE SETTLEMENT OPTIONS:
FIXED PERIOD. We will make equal periodic payments for a fixed
period not less than 5 years and not longer than 30 years. If the
payee dies before the period ends, the beneficiary may elect one
of the following options: payments for the remainder of the
period, a single sum payment or another fixed settlement option
with a lesser fixed period.
FIXED PERIOD AND LIFE. We will make equal periodic payments for a
guaranteed minimum period of not less than 10 years. If the payee
lives longer than the minimum period, payments will continue for
his or her life. The minimum period can be 10, 15, or 20 years.
If the payee dies before the end of the guarantee period, the
balance of the guaranteed payments will be paid to the
beneficiary.
FIXED AMOUNT. We will make equal periodic payments of a definite
amount. The amount of each payment must be at least $20 for a
period of not less than 5 years and not longer than 30 years.
Payments will continue until the Proceeds are exhausted. The last
payment will equal the amount of any unpaid Proceeds. If the payee
dies before the Proceeds are paid, the beneficiary may elect one
of the following options: payments for the remainder of the
period, a lump sum payment or another fixed settlement option
with a lesser fixed period.
JOINT AND SURVIVOR LIFETIME INCOME. We will make equal periodic
payments to two payees for a guaranteed minimum of 10 years.
Payments will continue as long as either payee is living. If both
payees die before the end of the minimum period, the beneficiary
may elect one of the following options: payments for the remainder
of the period, a lump sum payment or another fixed settlement
option with a lesser fixed period.
INSTALLMENT REFUND. Payments are guaranteed for the lifetime of
the payee. Payments are guaranteed to total no less than the
amount of the proceeds or death benefit applied. If the payee
dies before the guaranteed payments have been made, the remaining
payment will be paid to the beneficiary.
LIFETIME - NO REFUND. Payments are made for the lifetime of the
payee. No minimum number of payments is guaranteed. Payments end
at the death of the payee.
THE FIXED ACCOUNT
================================================================================
================================================================================
You may allocate some or all of your premium payments and transfer some
or all of your Accumulation Value to the Fixed Account. The Fixed Account is
part of our General Account. We own the assets in the General Account, and we
use these assets to support our insurance and annuity obligations other than
those funded by our separate accounts. These assets are subject to our general
liabilities from business operations. Subject to applicable law, we have sole
discretion over investment of
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<PAGE>
the Fixed Account's assets. We bear the full investment risk for all amounts
allocated or transferred to the Fixed Account. We guarantee that the amounts
allocated to the Fixed Account will be credited interest daily at a net
effective annual interest rate of at least 3%. The principal, after charges and
deductions, is also guaranteed. We will determine any interest rate credited in
excess of the guaranteed rate at our sole discretion. The Fixed Account value
will not share in the investment performance of our General Account.
Our current practice is that each Contract year, we, in our sole
discretion, intend to establish a current interest rate that will be credited
daily to amounts held in the Fixed Account for the duration of the Contract
year. For each amount allocated or transferred to the Fixed Account, we apply
the current interest rate to the end of the Contract year. At the end of the
Contract year, we reserve the right to declare a new current interest rate on
this amount and accrued interest thereon. You assume the risk that interest
credited to amounts in the Fixed Account may not exceed the minimum 3%
guaranteed rate.
WE HAVE NOT REGISTERED THE FIXED ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
FIXED ACCOUNT TRANSFERS
GENERAL
A transfer charge of $25 will be imposed for the thirteenth and each
subsequent request you make to transfer Accumulation Value from one or more
Subaccounts to the Fixed Account (or to one or more Subaccounts) during a single
Contract year before the Annuity Commencement Date.
Before the Annuity Commencement Date, you may make ONE transfer each
Contract year from the Fixed Account to one or more of the Subaccounts.
PAYMENT DEFERRAL
We have the right to defer payment of any surrender, partial surrender,
or transfer from the Fixed Account for up to six months from the date we receive
your written request at our Administrative Service Center. During such deferral,
we will continue to credit interest at the current guaranteed interest rate(s)
for the Fixed Account.
INVESTMENT PERFORMANCE OF THE SUBACCOUNTS
================================================================================
================================================================================
The Company periodically advertises performance of the Subaccounts and
portfolios. We may disclose at least four different kinds of performance.
First, we may disclose standard total return figures for the
Subaccounts that reflect the deduction of all charges under the Contract,
including the mortality and expense charge, the annual policy fee and the
surrender charge. THESE FIGURES ARE BASED ON THE ACTUAL HISTORICAL PERFORMANCE
OF THE SUBACCOUNTS SINCE THEIR INCEPTION.
Second, we may disclose total return figures on a non-standard basis.
This means that the data may be presented for different time periods and
different dollar amounts. The data will not be reduced by the surrender charge
assessed under the Contract. We will only disclose non-standard performance data
if it is accompanied by standard total return data.
Third, we may present historic performance data for the portfolios
since their inception reduced by all fees and charges under the Contract,
although we may not deduct the surrender charge in some
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<PAGE>
cases. Such adjusted historic performance includes data that precedes the
inception dates of the Subaccounts, but is designed to show the performance that
would have resulted if the Contract had been available during that time.
Fourth, we may include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
In advertising and sales literature (including illustrations), the
performance of each Subaccount may be compared with the performance of other
variable annuity issuers in general or to the performance of particular types of
variable annuities investing in mutual funds, or portfolios of mutual funds with
investment objectives similar to the Subaccount. Lipper Analytical Services,
Inc. ("Lipper"), CDA Investment Technologies ("CDA"), 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's and Morningstar's 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, CDA,
VARDS and Morningstar rank or illustrate 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 Variable Account level
into consideration. In addition, VARDS prepares risk 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 Subaccount 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.
We may also report other information including the effect of systematic
investments and tax-deferred compounding on a Subaccount's investment returns,
or returns in general. We may illustrate this information by using tables,
graphs, or charts. All income and capital gains derived from Subaccount
investments are reinvested and can lead to substantial long-term accumulation of
assets, provided that the Subaccount investment experience is positive.
VOTING RIGHTS
================================================================================
================================================================================
We are the legal owner of the portfolio shares held in the Subaccounts.
However, when a portfolio is required to solicit the votes of its shareholders
through the use of proxies, we believe that current law requires us to solicit
you and other Contract Owners as to how we should vote the portfolio shares held
in the Subaccounts. If we determine that we no longer are required to solicit
your votes, we may vote the shares in our own right.
When we solicit your vote, the number of votes you have will be
calculated separately for each Subaccount in which you have an investment. The
number of your votes is based on the net asset value per share of the portfolio
in which the Subaccount invests. It may include fractional shares. Before the
Annuity Commencement Date, you hold a voting interest in each Subaccount to
which the Accumulation Value is allocated. If you have a voting interest in a
Subaccount, you will receive proxy materials and reports relating to any meeting
of shareholders of the portfolio in which that Subaccount invests.
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If we do not receive timely voting instructions for portfolio shares,
we will vote those shares in proportion to the voting instructions we receive.
Instructions we receive to abstain on any item will reduce the total number of
votes being cast on a matter. For further details as to how we determine the
number of your votes, see the SAI.
FEDERAL TAX MATTERS
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The following discussion is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state tax or other tax laws.
We believe that our Contracts will qualify as annuity contracts for
federal income tax purposes and the following discussion assumes that they will
so qualify. Further information on the tax status of the Contract can be found
in the SAI under the heading "Tax Status of the Contracts."
When you invest in an annuity contract, you usually do not pay taxes on
your investment gains until you withdraw the money -- generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of DEFERRING tax on investment income.
If you invest in a variable annuity as part of an IRA, Roth IRA or
SIMPLE IRA program, your Contract is called a QUALIFIED CONTRACT. If your
annuity is independent of any formal retirement or pension plan, it is called a
NON-QUALIFIED CONTRACT.
We believe that if you are a natural person you will not be taxed on
increases in the Contract Value of your Contract until a distribution occurs or
until annuity payments begin. (The agreement to assign or pledge any portion of
a Contract's accumulation value generally will be treated as a distribution.)
When annuity payments begin, you will be taxed only on the investment gains you
have earned and not on the payments you made to purchase the Contract.
Generally, withdrawals from your annuity should only be made once the annuitant
reaches age 59 1/2, dies or is disabled; otherwise a tax penalty of ten percent
of the amount treated as income could be applied against any amounts included in
income, in addition to the tax otherwise imposed on such amount.
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON
If a non-natural person (such as a corporation or a trust) owns a
non-qualified annuity contract, the owner generally must include in income any
increase in the excess of the accumulation value over the investment in the
contract (generally, the premiums or other consideration paid for the contract)
during the taxable year. There are some exceptions to this rule and a
prospective owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by
natural persons.
WITHDRAWALS
When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the accumulation value immediately before the
distribution over the Owner's investment in the contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the contract.
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PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution from a Contract, there may be imposed a
federal tax penalty equal to ten percent of the amount treated as income. In
general, however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special
rules may apply in connection with the exceptions enumerated above. Additional
exceptions apply to distributions from a Qualified Contract. You should consult
a tax adviser with regard to exceptions from the penalty tax.
INCOME PAYMENTS
Although tax consequences may vary depending on the settlement option
elected under an annuity contract, a portion of each income payment is generally
not taxed and the remainder is taxed as ordinary income. The non-taxable portion
of an income payment is generally determined in a manner that is designed to
allow you to recover your investment in the contract ratably on a tax-free basis
over the expected stream of annuity payments, as determined when income payments
start. Once your investment in the contract has been fully recovered, however,
the full amount of each income payment is subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the
death of the annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (i) if distributed in a lump sum, they are taxed in
the same manner as a surrender of the Contract, or (ii) if distributed under a
settlement option, they are taxed in the same way as income payments.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer or assignment of ownership of a Contract, the selection of
certain Annuity Commencement Dates, or the exchange of a Contract may result in
certain tax consequences to you that are not discussed herein. An Owner
contemplating any such transfer, assignment or exchange, should consult a tax
advisor as to the tax consequences.
WITHHOLDING
Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that are issued by us (or
our affiliates) to the same Owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in such
Owner's income when a taxable distribution occurs.
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FURTHER INFORMATION
We believe that the contracts will qualify as annuity contracts for
Federal income tax purposes and the above discussion is based on that
assumption. Further details can be found in the Statement of Additional
Information under the heading "Tax Status of the Contracts."
TAXATION OF QUALIFIED CONTRACTS
The tax rules that apply to Qualified Contracts vary according to the
type of retirement plan and the terms and conditions of the plan. Your rights
under a Qualified Contract may be subject to the terms of the retirement plan
itself, regardless of the terms of the Qualified Contract. Adverse tax
consequences may result if you do not ensure that contributions, distributions
and other transactions with respect to the Contract comply with the law.
INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of
the Tax Code, permit individuals to make annual contributions of up to the
lesser of $2,000 or 100% of the compensation included in your income for the
year. The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless certain exceptions apply. The Internal Revenue
Service has reviewed the Contract and its traditional IRA and SIMPLE IRA riders
and has issued an opinion letter approving the use of the Contract and the
riders as a traditional IRA and a SIMPLE IRA.
SIMPLE IRAS permit certain small employers to establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to defer
to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased for cost
of living adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of the employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the first two years after the
commencement of the employee's participation in the plan.
ROTH IRAS, as described in Tax Code section 408A, permit certain
eligible individuals to make non-deductible contributions to a Roth IRA in cash
or as a rollover or transfer from another Roth IRA or other IRA. A rollover from
or conversion of an IRA to a Roth IRA is generally subject to tax and other
special rules apply. The Owner may wish to consult a tax adviser before
combining any converted amounts with any other Roth IRA contributions, including
any other conversion amounts from other tax years. Distributions from a Roth IRA
generally are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during the five taxable years starting with the year in which the first
contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts
attributable to a conversion from an IRA if they are distributed during the five
taxable years beginning with the year in which the conversion was made.
OTHER TAX ISSUES
Qualified Contracts generally have minimum distribution rules that
govern the timing and amount of distributions. Roth IRAs do not require
distributions before death. You should consult a tax advisor for more
information about these distribution rules.
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Distributions from Qualified Contracts generally are subject to
withholding for the Owner's federal income tax liability. The withholding rate
varies according to the type of distribution and the Owner's tax status. The
Owner will be provided the opportunity to elect to not have tax withheld from
distributions.
OUR INCOME TAXES
At the present time, we make no charge for any federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment divisions (that is, the Subaccounts)
of the Variable Account or to the Contracts. We do have the right in the future
to make additional charges for any such tax or other economic burden resulting
from the application of the tax laws that we determine is attributable to the
investment divisions of the Variable Account or the Contracts.
Under current laws in several states, we may incur state and local
taxes (in addition to premium taxes). These taxes are not now significant and we
are not currently charging for them. If they increase, we may deduct charges for
such taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative
changes that could otherwise diminish the favorable tax treatment that annuity
contract owners currently receive. We make no guarantee regarding the tax status
of any contract and do not intend the above discussion as tax advice.
OTHER INFORMATION
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PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial surrender, or
death benefit within 7 days after we receive all applicable written notices,
permitted telephone requests, and/or due proofs of death. However, we can
postpone these payments if:
X the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the New York Stock
Exchange is restricted as determined by the SEC; OR
X the SEC permits, by an order, the postponement of any payment for
the protection of Owners; OR
X the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of their value not reasonably practicable.
We have the right to defer payment of amounts from the Fixed Account
for up to 6 months after receipt of the written notice. We will pay interest on
any payment deferred for 30 days or more at an annual rate of 3%.
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If you have submitted a check or draft to our Administrative Service
Center, we have the right to defer payment of surrenders, partial surrenders,
death benefit, or payments under a settlement option until the check or draft
has been honored.
MODIFYING THE CONTRACT
Any modification or waiver of our rights or requirements under the
Contract must be in writing and signed by our President, one of our Vice
Presidents, our Secretary or our Assistant Secretary. No agent or other person
may bind us by waiving or changing any provision contained in the Contract.
Upon notice to you, we may modify the Contract:
X to conform the Contract, our operations, or the Variable
Account's operations to the requirements of any law (or
regulation issued by a government agency) to which the Contract,
our Company, or the Variable Account is subject;
X to assure continued qualification of the Contract under the Code
or other Federal or state laws relating to retirement annuities
or variable annuity contracts;
X to reflect a change in the Variable Account's operation; or
X provide additional investment options.
If we modify the Contract, we will make appropriate endorsements to the
Contract. If any provision of the Contract conflicts with the laws of a
jurisdiction that govern the Contract, we reserve the right to amend the
provision to conform with these laws.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by licensed insurance agents in those states
where the Contract may be lawfully sold. The agents are also registered
representatives of a registered broker-dealer that is a member of the National
Association of Securities Dealers, Inc. ("NASD"). Sales commissions will be paid
to the broker-dealer who sells the Contracts. Sales commissions may vary, but
are expected not to exceed 3.75% of premium payments. The broker-dealer is
expected to compensate sales representatives in varying amounts from these
commissions. In addition, we may pay additional promotional incentives, in the
form of cash or other compensation, such as production incentive bonuses,
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts other than those described under "Fees and Charges."
American Family Securities, LLC, located at 6000 American Parkway,
Madison, WI 53783-0001 acts as the principal underwriter for the Contracts.
American Family Securities, LLC is affiliated with American Family. American
Family Securities, LLC was organized under the laws of Wisconsin on July 7,
2000 as an indirect wholly owned subsidiary of American Family Mutual Insurance
Company. American Family Securities, LLC is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer, and is a member of the NASD.
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LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. These
actions are in various stages of discovery and development, and some seek
punitive as well as compensatory damages. While it is not possible to predict
the outcome of such matters with absolute certainty, we believe that the
ultimate disposition of these proceedings should not have a material adverse
effect on the financial position of American Family Life Insurance Company. In
addition, we are, from time to time, involved as a party to various governmental
and administrative proceedings. There are no pending or threatened lawsuits that
will materially impact the Variable Account.
REPORTS TO OWNERS
We will mail a report to you at least annually at your last known
address of record. The report will state the Accumulation Value (including the
Accumulation Value in each Subaccount and the Fixed Account), the Surrender
Value, any activity since the last report (e.g., premium payments, partial
surrenders and interest credited to the Fixed Account) and any further
information required by any applicable law or regulation.
INQUIRIES
Inquiries regarding your Contract may be made by calling or writing to
us at our Administrative Service Center.
FINANCIAL STATEMENTS
Our audited balance sheets as of December 31, 1999 and 1998, and the
related statements of income, comprehensive income, stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999, as
well as the Independent Auditors' Report, are contained in the SAI. Our
financial statements should be considered only as bearing on our ability to meet
our obligations under the Contracts. They should not be considered as bearing on
the investment performance of the assets held in the Variable Account.
There are no financial statements for the Variable Account, because it
had not commenced operations as of December 31, 1999.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
The SAI contains additional information about the Contract and the Variable
Account. You can obtain the SAI (at no cost) by writing to us at the address
shown on the front cover or by calling 1 (___) ___-____. The following is the
Table of Contents for the SAI.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Contract Provisions.....................................................
The Contract..............................................................
Assignment................................................................
Incontestability..........................................................
Incorrect Age or Gender...................................................
Nonparticipation..........................................................
Tax Status of the Contracts...............................................
Calculation of Subaccount and Adjusted Historic Portfolio Performance Data.........
Money Market Subaccount Yields............................................
Other Subaccount Yields...................................................
Average Annual Total Returns for the Subaccounts..........................
Non-Standard Subaccount Total Returns.....................................
Adjusted Historic Portfolio Performance Data..............................
Effect of the Annual Policy Fee on Performance Data.......................
Historic Performance Data..........................................................
General Limitations.......................................................
Time Periods Before the Date the Variable Account Commenced Operations....
Addition, Deletion or Substitution of Investments..................................
Resolving Material Conflicts..............................................
Voting Rights......................................................................
Safekeeping of Variable Account Assets.............................................
Distribution of the Contracts......................................................
Legal Matters......................................................................
Experts............................................................................
Other Information..................................................................
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
for the
AMERICAN FAMILY VARIABLE ANNUITY CONTRACT
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT
Issued Through
AMERICAN FAMILY VARIABLE ACCOUNT II
Offered by
AMERICAN FAMILY LIFE INSURANCE COMPANY
6000 American Parkway
Madison, Wisconsin 53783-0001
(888) 428-5433
ADMINISTRATIVE SERVICE CENTER:
P.O. Box ______
________, ________________
1-___-___-____ (toll free)
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the American Family Variable Annuity
Contract offered by American Family Life Insurance Company. You may obtain a
copy of the Prospectus for the Contract dated _______________, 2000 by calling
1-___-___-____ or by writing to our ADMINISTRATIVE SERVICE CENTER at P.O. Box
_______, ______, _________________.
This Statement incorporates terms used in the current Prospectus for
the Contract.
--------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is ___________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Contract Provisions...................................................2
The Contract............................................................2
Assignment..............................................................2
Incontestability........................................................2
Incorrect Age or Gender.................................................2
Nonparticipation........................................................3
Tax Status of the Contracts.............................................3
Calculation of Subaccount and Adjusted Historic Portfolio Performance Data.......4
Money Market Subaccount Yields..........................................4
Other Subaccount Yields.................................................5
Average Annual Total Returns for the Subaccounts........................6
Non-Standard Subaccount Total Returns...................................7
Adjusted Historic Portfolio Performance Data............................7
Effect of the Annual Policy Fee on Performance Data.....................7
Historic Performance Data........................................................8
General Limitations.....................................................8
Time Periods Before the Date the Variable Account Commenced Operations..8
Addition, Deletion or Substitution of Investments................................8
Resolving Material Conflicts............................................8
Voting Rights....................................................................9
Safekeeping of Variable Account Assets...........................................9
Distribution of the Contracts....................................................9
Legal Matters...................................................................10
Experts.........................................................................10
Other Information...............................................................10
</TABLE>
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ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract consists of the Contract, the signed Application
attached at issue, any attached amendments and supplements to the Application,
and any attached riders and endorsements. In the absence of fraud, we consider
all statements in the Application to be representations and not warranties. We
will not use any statement to contest a claim unless that statement is in an
attached Application or in an amendment or supplement to the Application
attached to the Contract.
ASSIGNMENT
The rights of the Owner and any Beneficiary are subject to the rights
of any assignee of this Contract unless the Beneficiary was effectively
designated as an irrevocable Beneficiary before the assignment. No assignment is
binding on us until the original or a copy of it is filed at the Administrative
Service Center and accepted by us. We are not responsible for the validity of
any assignment or its legal effect.
INCONTESTABILITY
We will not contest the Contract after the issue date.
INCORRECT AGE OR GENDER
If the age or gender (if applicable) of the Annuitant has been stated
incorrectly, then we will determine the Annuity Commencement Date and the amount
of the income payments by using the correct age and gender. After the Annuity
Commencement Date, any adjustment for underpayment will be paid immediately. Any
adjustment for overpayment will be deducted from future payments. We will make
adjustments for overpayments or underpayments with interest at the rate then in
use to determine the rate of payments.
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NONPARTICIPATION
The Contract does not participate in our surplus earnings or profits.
We will not pay dividends on this Contract.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must
satisfy in order to receive the tax treatment normally accorded to annuity
contracts.
DIVERSIFICATION REQUIREMENTS. The Tax Code requires that the
investments of each Subaccount of the Variable Account underlying the Contracts
be "adequately diversified" in order for the Contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that each Subaccount,
through the Portfolio in which it invests, will satisfy these diversification
requirements.
OWNER CONTROL. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the variable account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of our Contracts, such as the flexibility of an owner to allocate
premiums and transfer amounts among the Subaccounts of the Variable Account,
have not been explicitly addressed in published rulings. While we believe that
the Contracts do not give Owners investment control over Variable Account
assets, we reserve the right to modify the Contracts as necessary to prevent an
Owner from being treated as the Owner of the Variable Account assets supporting
the Contract.
REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract
for Federal income tax purposes, section 72(s) of the Tax Code requires any
Non-Qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of the death of a
holder of the Contract. Specifically, section 72(s) requires that (a) if any
Owner dies on or after the Annuity Commencement Date, but prior to the time the
entire interest in the Contract has been distributed, the entire interest in the
Contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such Owner's death; and (b) if any
Owner dies prior to the annuity start date, the entire interest in the Contract
will be distributed within five years after the date of such Owner's death.
These requirements will be considered satisfied as to any portion of an Owner's
interest which is payable to or for the benefit of a designated Beneficiary and
which is distributed over the life of such designated Beneficiary or over a
period not extending beyond the life expectancy of that Beneficiary, provided
that such distributions begin within one year of the Owner's death. The
designated Beneficiary refers to a natural person designated by the Owner as a
Beneficiary and to whom ownership of the Contract passes by reason of death.
However, if the designated Beneficiary is the surviving spouse of the deceased
Owner, the Contract may be continued with the surviving spouse as the new Owner.
The Non-Qualified Contracts contain provisions that are intended to
comply with these Tax Code requirements, although no regulations interpreting
these requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
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Other rules may apply to Qualified Contracts.
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
We may advertise and disclose historic performance data for the
Subaccounts, including yields, standard annual total returns, and nonstandard
measures of performance of the Subaccounts. Such performance data will be
computed, or accompanied by performance data computed, in accordance with the
SEC defined standards.
MONEY MARKET SUBACCOUNT YIELDS
Advertisements and sales literature may quote the current annualized
yield of the Money Market Subaccount for a seven-day period in a manner that
does not take into consideration any realized or unrealized gains or losses, or
income other than investment income, on shares of the Money Market portfolio.
We compute this current annualized yield by determining the net change
(not including any realized gains and losses on the sale of securities,
unrealized appreciation and depreciation, and income other than investment
income) at the end of the seven-day period in the value of a hypothetical
Subaccount under a Contract having a balance of one unit of the Money Market
Subaccount at the beginning of the period. We divide that net change in
Subaccount value by the value of the hypothetical Subaccount at the beginning of
the period to determine the base period return. Then we annualize this quotient
on a 365-day basis. The net change in account value reflects (i) net income from
the Money Market portfolio in which the hypothetical Subaccount invests; and
(ii) charges and deductions imposed under the Contract that are attributable to
the hypothetical Subaccount.
These charges and deductions include the per unit charges for the
annual policy fee, the mortality and expense risk charge and the asset-based
administration charge. For purposes of calculating current yields for a
Contract, we use an average per unit annual policy fee based on the $30 annual
policy fee.
We calculate the current yield by the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market portfolio (not
including any realized gains or losses on the sale of securities,
unrealized appreciation and depreciation, and income other than
investment income) for the seven-day period attributable to a
hypothetical Subaccount having a balance of one Subaccount unit.
ES = per unit charges deducted from the hypothetical Subaccount for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
We may also disclose the effective yield of the Money Market Subaccount
for the same seven-day period, determined on a compounded basis. We calculate
the effective yield by compounding the unannualized base period return by adding
one to the base return, raising the sum to a power equal to 365 divided by 7,
and subtracting one from the result.
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365/7
Effective Yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market portfolio (not
including any realized gains or losses on the sale of securities,
unrealized appreciation and depreciation, and income other than
investment income) for the seven-day period attributable to a
hypothetical Subaccount having a balance of one Subaccount unit.
ES = per unit charges deducted from the hypothetical Subaccount for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
The Money Market Subaccount yield is lower than the Money Market
portfolio's yield because of the charges and deductions that the Contract
imposes.
The current and effective yields on amounts held in the Money Market
Subaccount normally 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 Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market portfolio, the types and quality of
securities held by the Money Market portfolio and that portfolio's operating
expenses. We may also present yields on amounts held in the Money Market
Subaccount for periods other than a seven-day period.
Yield calculations do not take into account the surrender charge that
we assess on certain withdrawals of Accumulation Value.
OTHER SUBACCOUNT YIELDS
Sales literature or advertisements may quote the current annualized
yield of one or more of the Subaccounts (except the Money Market Subaccount)
under the Contract for 30-day or one-month periods. The annualized yield of a
Subaccount refers to income that the Subaccount generates during a 30-day or
one-month period and is assumed to be generated during each period over a
12-month period.
We compute the annualized 30-day yield by:
1. dividing the net investment income of the portfolio
attributable to the Subaccount units, less Subaccount
expenses attributable to the Contract for the period, by the
maximum offering price per unit on the last day of the
period;
2. multiplying the result by the daily average number of units
outstanding for the period;
3. compounding that yield for a 6-month period; and
4. multiplying the result by 2.
Expenses of the Subaccount include the annual policy fee, the
asset-based administration charge and the mortality and expense risk charge. The
yield calculation assumes that we deduct the annual policy fee at the end of
each Contract year. For purposes of calculating the 30-day or one-month yield,
we divide an average annual policy fee collected by the average Accumulation
Value in the Subaccount to determine the amount of the charge attributable to
the Subaccount for the 30-day or one-month period. We calculate the 30-day or
one-month yield by the following formula:
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6
Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30-day or one-month
period attributable to the Subaccount's units.
ES = charges deducted from the Subaccount for the 30-day or
one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month period.
The yield for the Subaccount is lower than the yield for the
corresponding portfolio because of the charges and deductions that the Contract
imposes.
The yield on the amounts held in the Subaccounts normally fluctuates
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 types and
quality of securities that a portfolio holds and its operating expenses affect
the corresponding Subaccount's actual yield.
Yield calculations do not take into account the surrender charge that
we assess on certain withdrawals of Accumulation Value.
AVERAGE ANNUAL TOTAL RETURNS FOR THE SUBACCOUNTS
Sales literature or advertisements may quote average annual total
returns for one or more of the Subaccounts for various periods of time. If we
advertise total return for the Money Market Subaccount, then those
advertisements and sales literature will include a statement that yield more
closely reflects current earnings than total return.
When a Subaccount has been in operation for 1, 5, and 10 years,
respectively, we will provide the average annual total return for these periods.
We may also disclose average annual total returns for other periods of time.
Standard 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 redemption value of that investment as of the last day
of each of the periods. Each period's ending date for which we provide total
return quotations will be for the most recent calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
We calculate the standard average annual total returns using Subaccount
unit values that we calculate on each Business Day based on the performance of
the Subaccount's underlying portfolio, the deductions for the mortality and
expense risk charge, the asset-based administration charge and the annual policy
fee. The calculation assumes that we deduct an annual policy fee of $ 30.00 at
the end of each Contract year. For purposes of calculating average annual total
return, we use an average per-dollar per-day annual policy fee attributable to
the hypothetical Subaccount for the period. The calculation also assumes total
surrender of the Contract at the end of the period for the return quotation and
will take into account the surrender charge applicable to the Contract that we
assess on surrenders of Accumulation Value.
6
<PAGE>
We calculate the standard total return by the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return net of Subaccount
recurring charges.
ERV = the ending redeemable value (minus any applicable
surrender charge) of the hypothetical Subaccount at
the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
NON-STANDARD SUBACCOUNT TOTAL RETURNS
Sales literature or advertisements may quote average annual total
returns for the Subaccounts that do not reflect any surrender charges. We
calculate such non-standard total returns in exactly the same way as the average
annual total returns described above, except that we replace the ending
redeemable value of the hypothetical Subaccount for the period with an ending
value for the period that does not take into account any surrender charges.
We may disclose cumulative total returns in conjunction with the
standard formats described above. We calculate the cumulative total returns
using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of Subaccount
recurring charges for the period.
ERV = the ending redeemable value of the hypothetical
investment at the end of the period.
P = a hypothetical single payment of $1,000.
ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
Sales literature or advertisements may quote adjusted yields and total
returns for the portfolios since their inception reduced by some or all of the
fees and charges under the Contract. Such adjusted historic portfolio
performance may include data that precedes the inception dates of the
Subaccounts. This data is designed to show the performance that would have
resulted if the Contract had been in existence during that time.
We will disclose nonstandard performance data only if we disclose the
standard performance data for the required periods.
EFFECT OF THE ANNUAL CONTRACT FEE ON PERFORMANCE DATA
The Contract provides for the deduction of a $30.00 annual contract
fee at the end of each Contract year from the Fixed Account and the
Subaccounts. We will waive this charge if your Accumulation Value is more
than $20,000 on the date the charge is assessed. We base it on the proportion
that the value of each such account bears to the total Accumulation Value.
For purposes of reflecting the annual contract
7
<PAGE>
fee in yield and total return quotations, we convert the annual contract fee
into a per-dollar per-day charge based on the average Accumulation Value in
the Subaccount for all Contracts on the last day of the period for which
quotations are provided. Then, we adjust the per-dollar per-day average
charge to reflect the basis upon which we calculate the particular quotation.
HISTORIC PERFORMANCE DATA
GENERAL LIMITATIONS
The funds provide the portfolios' performance data. We derive
Subaccount performance data from the data that the funds provide and rely on the
funds' data.
TIME PERIODS BEFORE THE DATE THE VARIABLE ACCOUNT COMMENCED OPERATIONS
The Variable Account may disclose non-standardized total return for
time periods before the Variable Account commenced operations. Such performance
data would be based on the actual performance of the portfolios since their
inception, adjusted to reflect the effect of the current level of charges that
apply to the Subaccounts under the Contract.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
In the event of any such substitution or change, we may (by appropriate
endorsement, if necessary) change the Contract to reflect the substitution or
change. If we consider it to be in the best interest of Owners and Annuitants,
and subject to any approvals that may be required under applicable law, the
Variable Account may be operated as a management investment company under the
1940 Act, it may be deregistered under that Act if registration is no longer
required, it may be combined with other of our variable accounts, or the assets
may be transferred to another variable account. In addition, we may, when
permitted by law, restrict or eliminate any voting rights you have under the
Contracts.
RESOLVING MATERIAL CONFLICTS
The funds currently sell shares to registered separate accounts of
insurance companies other than us to support other variable annuity contracts
and variable life insurance contracts. In addition, our other separate accounts
and separate accounts of other affiliated life insurance companies may purchase
some of the funds to support other variable annuity or variable life insurance
contracts. Moreover, qualified retirement plans may purchase shares of some of
the funds. As a result, there is a possibility that an irreconcilable material
conflict may arise between your interests as a Contract Owner and the interests
of persons owning other contracts investing in the same funds. There is also the
possibility that a material conflict may arise between the interests of owners
generally, or certain classes of owners, and participating qualified retirement
plans or participants in such retirement plans.
We currently do not foresee any disadvantages to you that would arise
from the sale of fund shares to support variable life insurance contracts or
variable annuity contracts of other companies or to qualified retirement plans.
However, the management of each fund will monitor events related to its fund in
order to identify any material irreconcilable conflicts that might possibly
arise as a result of such fund offering its shares to support both variable life
insurance contracts and variable annuity contracts, or
8
<PAGE>
support the variable life insurance contracts and/or variable annuity contracts
issued by various affiliated and unaffiliated insurance companies.
In addition, the management of the funds will monitor the funds in
order to identify any material irreconcilable conflicts that might possibly
arise as a result of the sale of its shares to qualified retirement plans, if
applicable. In the event of such a conflict, the management of the appropriate
fund would determine what action, if any, should be taken in response to the
conflict. In addition, if we believe that the response of the funds to any such
conflict does not sufficiently protect you, then we will take our own
appropriate action, including withdrawing the Variable Account's investment in
such funds, as appropriate.
VOTING RIGHTS
We determine the number of votes you may cast by dividing your
Accumulation Value in a Subaccount by the net asset value per share of the
portfolio in which that Subaccount invests. We determine the number of votes
available to you as of the same date that the fund establishes for determining
shareholders eligible to vote at the relevant meeting of the portfolio's
shareholders. We will solicit voting instructions by sending you written
materials before the fund's meeting in accordance with the fund's procedures.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
We hold the Variable Account's assets physically segregated and
apart from the general account. We maintain records of all purchases and
sales of portfolio shares by each of the Subaccounts. A Fidelity bond in the
amount of $10 million per occurance and $20 million in the aggregate
covering our officers and employees will be issued by ______________.
DISTRIBUTION OF THE CONTRACTS
American Family Securities, LLC, 6000 American Parkway, Madison, WI
53783, acts as principal underwriter for the Contracts. American Family
Securities, LLC is registered with the SEC under the Securities Exchange Act of
1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
We offer the Contracts to the public on a continuous basis. We
anticipate continuing to offer the Contracts, but we reserve the right to
discontinue the offering. Agents who sell the Contracts are licensed by
applicable state insurance authorities to sell the Contracts and are registered
representatives of American Family Securities, LLC.
We may pay sales commissions to broker-dealers up to an amount equal to
3.75% of the premiums paid under a Contract. We expect the broker-dealer to
compensate sales representatives in varying amounts from these commissions. We
may pay other distribution expenses such as production incentive bonuses, an
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts other than those described in the prospectus under "Fees and Charges."
9
<PAGE>
LEGAL MATTERS
James F. Eldridge, General Counsel, American Family Life Insurance
Company, has passed upon all matters relating to Wisconsin law pertaining to the
Contracts, including the validity of the Contracts and the Company's authority
to issue the Contracts. Sutherland Asbill & Brennan LLP of Washington, D.C. has
provided advice on certain matters relating to the federal securities laws.
EXPERTS
PricewaterhouseCoopers, 203 N. LaSalle, Chicago, IL 60601, independent
auditors, have audited the balance sheets of American Family Life Insurance
Company as of December 31, 1999 and 1998 and the related statements of income,
comprehensive income, stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1999, appearing in this Statement of
Additional Information and Registration Statement. These are set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing. There are no financial statements available for the Variable Account,
because the Variable Account has not commenced operations as of the date of this
prospectus.
OTHER INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. The Statement of Additional
Information does not include all of the information set forth in the
registration statement, amendments and exhibits. 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, you should refer to the instruments filed with
the SEC.
10
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
All required financial statements are included in Part B of
this Registration Statement.
(b) EXHIBITS
(1) Certified resolution of the Board of Directors of American
Family Life Insurance Company (the "Company") authorizing
establishment of American Family Variable Account II (the
"Variable Account").
(2) Not applicable.
(3) (a) Form of Distribution Agreement.*
(b) Form of Sales Agreement.*
(4) Form of Contract for the Individual Flexible Premium Variable
Annuity.
(5) Form of Application for the Individual Flexible Premium
Variable Annuity.
(6) (a) Articles of Incorporation of American Family Life Insurance
Company.
(b) By-Laws of American Family Life Insurance Company.
(7) Not Applicable.
(8) (a) Form of Participation Agreement between Variable Insurance
Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III and American Family Life Insurance
Company. *
(b) Form of Participation Agreement between Federated Insurance
Series and American Family Life Insurance Company.*
(c) Form of Participation Agreement between SEI Insurance Products
Trust and American Family Life Insurance Company. *
(d) Form of Participation Agreement between Strong Variable
Insurance Funds, Inc., Strong Opportunity Fund II, Inc. and
American Family Life Insurance Company.*
(9) Opinion and Consent of ____________, Esq. *
(10) (a) Consent of Sutherland Asbill & Brennan LLP. *
(b) Consent of Auditors.*
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Powers of Attorney.
* To be filed by amendment.
C-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF AMERICAN FAMILY LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICE WITH DEPOSITOR
----------------------------------- ----------------------------------
<S> <C>
Harvey Randall Pierce Chairman of the Board, and C.E.O.
David Ralph Anderson Director, President C.O.O.
James Francis Eldridge Director, Executive Vice President, Secretary
John Brent Johnson Director, Executive Vice President, Treasurer
Joseph William Tisserand Director, Vice President
Daniel Raymond DeSalvo Director
Daniel Robert Schultz Vice President, Controller
Thomas Syme King Vice President
William Joseph Smith Assistant Treasurer
James Walter Behrens Assistant Secretary
</TABLE>
Principal business address is: 6000 American Parkway, Madison, Wisconsin 53783.
C-2
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
AMERICAN FAMILY INSURANCE GROUP
AFMIC
-----
AFS AMFAM AFBI
--- ----- ----
AFLIC ASICW AFFS AFIC ASICO
----- ----- ---- ---- -----
100% of all outstanding voting securities of each subsidiary corporation is
directly owned by its parent.
AFMIC - AMERICAN FAMILY MUTUAL INSURANCE COMPANY
Wisconsin mutual insurance corporation Incorporated 1927.
AFS - AMERICAN FAMILY SECURITIES, LLC
Wisconsin limited liability company Organized and acquired
2000.
AMFAM - AMFAM, INC. (downstream holding company)
Wisconsin business corporation Incorporated and acquired 1981.
AFBI - AMERICAN FAMILY BROKERAGE, INC.
Wisconsin business corporation Incorporated and acquired
1985.
AFLIC - AMERICAN FAMILY LIFE INSURANCE COMPANY
Wisconsin stock insurance corporation Incorporated and
acquired 1957.
ASICW - AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN
Wisconsin stock insurance corporation Incorporated and
acquired 1961.
AFIC - AMERICAN FAMILY INSURANCE COMPANY
Ohio stock insurance corporation Incorporated and acquired
1995.
ASICO - AMERICAN STANDARD INSURANCE COMPANY OF OHIO
Ohio stock insurance corporation Incorporated and acquired
1995.
AFFS - AMERICAN FAMILY FINANCIAL SERVICES, INC.
Wisconsin business corporation Incorporated and acquired 1969.
Address of all affiliates:
6000 American Parkway
Madison, WI 53783-0001
C-3
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
As of the date hereof, there are no contract owners.
ITEM 28. INDEMNIFICATION
Under its By-laws, American Family, to the full extent permitted by the
Wisconsin Business Corporation Law, will indemnify any person who was or is a
party to any proceeding by reason of the fact that he or she is or was a
director, officer or employee of American Family, as provided below.
C-4
<PAGE>
BY-LAWS OF AMERICAN FAMILY LIFE INSURANCE COMPANY (AS AMENDED NOVEMBER 11, 1987)
Article VII of American Family Life Insurance Company's By-Laws provides, in
part:
INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by law, the Corporation shall indemnify
each Director and Officer of the Corporation, and his heirs, executors and
administrators against all expenses and liability reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his being or having been a Director or Officer of
the Corporation, whether or not he continues to be a Director or Officer at the
time of incurring such expenses and liabilities; such expenses and liabilities
to include, but not limited to judgments, court costs, and attorneys' fees and
the cost of settlements. The Corporation shall not, however, indemnify such
Director or Officer with respect to matters as to which he shall be finally
adjudged in any such action, suit, or proceeding to have been liable for willful
misconduct in the performance of his duties as such Director or Officer. In the
event a settlement or compromise is effected, indemnification may be had only if
the Board of Directors shall have been furnished with an opinion of counsel for
the Corporation to the effect that such settlement or compromise is in the best
interests of the Corporation and that such Director or Officer is not liable for
willful misconduct in the performance of his duties with respect to such
matters, and, if the Board shall have adopted a resolution approving such
settlement or compromise. The foregoing right of indemnification shall not be
exclusive of other rights to which any Director or Officer may be entitled as a
matter of law.
Insofar as indemnification or liability arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provision, 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 any 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 securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C-5
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) American Family Securities, LLC is the registrant's principal
underwriter. It is also the principal underwriter for American Family
Variable Account I.
(b) Officers and Directors of American Family Securities, LLC, and their
addresses, are as follows:
<TABLE>
<CAPTION>
Name and Principal Business Address* Positions and Offices with the Underwriter
----------------------------------- ------------------------------------------
<S> <C>
James F. Eldridge Director
Dan DeSalvo Director and President
J. Brent Johnson Director
Dan Schultz Treasurer & Vice President, Operations
Christopher Spencer Chief Compliance Officer &
Vice President, Compliance
James W. Behrens Secretary
Al Meyer Vice President, Marketing
Joe Tisserand Vice President, Product
Don Alferman Vice President, Sales
Ralph Kaye Vice President, Sales
Dave Krueger Vice President, Sales
Russ Lemmons Vice President, Sales
Pete Walton Vice President, Sales
</TABLE>
C-6
<PAGE>
* All of the persons listed above have as their principal business address: 6000
American Parkway, Madison, Wisconsin 53783.
<TABLE>
<CAPTION>
(c)(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation Brokerage
Underwriter Commissions on Redemption Commissions Compensation
----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
</TABLE>
NOT APPLICABLE.
ITEM 30. LOCATION OF 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 American Family Life Insurance Company at 6000
American Parkway, Madison, Wisconsin 53783-0001 and by Navisys Incorporated at
9735 Landmark Parkway Dr., St. Louis, Missouri 63127.
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 premium 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 American
Family Life Insurance 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 hereby represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the Company.
C-7
<PAGE>
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, American Family Variable Account II, has caused
this registration statement to be signed on its behalf, in the City of Madison,
and the State of Wisconsin, on this 8th day of September, 2000.
AMERICAN FAMILY VARIABLE
ACCOUNT II (Registrant)
Attest: /s/ Rosalie Beck Detmer By: /s/ Harvey Randall Pierce*
------------ ------------
------------ Harvey Randall Pierce
Rosalie Beck Detmer -------------
Assistant General Counsel Chairman of the Board and C.E.O.
American Family Life American Family Life
Insurance Company Insurance Company
By: AMERICAN FAMILY LIFE
INSURANCE COMPANY (Depositor)
Attest: /s/ Rosalie Beck Detmer By: /s/ Harvey Randall Pierce*
------------- ------------
------------ Harvey Randall Pierce
Rosalie Beck Detmer ------------
Assistant General Counsel Chairman of the Board and C.E.O.
American Family Life American Family Life
Insurance Company Insurance Company
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Harvey Randall Pierce * Chairman of the Board, and C.E.O. 9/8, 2000
---------------------------------
Harvey Randall Pierce
/s/ David Ralph Anderson * Director, President and C.O.O. 9/8, 2000
---------------------------------
David Ralph Anderson
/s/ John Brent Johnson * Director, Executive Vice 9/8, 2000
--------------------------------- President, Treasurer
John Brent Johnson
/s/ Daniel Robert Schultz * Vice Present, Controller 9/8, 2000
---------------------------------
Daniel Robert Schultz
/s/ James Francis Eldridge * Director, Executive Vice 9/8, 2000
--------------------------------- President, Secretary
James Francis Eldridge
C-8
<PAGE>
/s/ Joseph William Tisserand * Director, Vice President 9/8, 2000
---------------------------------
Joseph William Tisserand
/s/ Daniel Raymond DeSalvo * Director 9/8, 2000
---------------------------------
Daniel Raymond DeSalvo
</TABLE>
/s/ James W. Behrens On September 8, 2000, as Attorney-in-Fact pursuant
------------------------- to powers of attorney filed herewith.
* By: James W. Behrens
--------------------
C-9
<PAGE>
EXHIBIT INDEX
(1) Certified resolution of the Board of Directors of American
Family Life Insurance Company authorizing establishment of
American Family Variable Account II.
(4) Form of Contract for the Individual Flexible Premium Variable
Annuity.
(5) Form of Application for the Individual Flexible Premium
Variable Annuity.
(6) (a) Articles of Incorporation of American Family Life Insurance
Company.
(b) By-Laws of American Family Life Insurance Company.
(15) Powers of Attorney.
C-10
