<PAGE> 1
As Filed with the Securities and Exchange Commission on April 28, 2000
Registration Nos. 2-30771
811-01764
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[x] Post Effective Amendment No. 47
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 47
AMERICAN FIDELITY SEPARATE ACCOUNT A
(FORMERLY AMERICAN FIDELITY VARIABLE ANNUITY FUND A)
(Exact Name of Registrant)
AMERICAN FIDELITY ASSURANCE COMPANY
(Name of Depositor)
2000 N. CLASSEN BOULEVARD, OKLAHOMA CITY, OKLAHOMA 73106
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, Including Area Code (405) 523-2000
Stephen P. Garrett Copies to:
Senior Vice President
Law and Government Affairs Jerry A. Warren, Esq.
American Fidelity Assurance Company McAfee & Taft
2000 N. Classen Boulevard A Professional Corporation
Oklahoma City, Oklahoma 73106 10th Floor, Two Leadership Square
(Name and Address of Agent for Service) Oklahoma City, OK 73102-7103
Approximate Date of Proposed Public Offering: As soon as practicable after
effectiveness of the
Registration Statement
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485
[x] on May 1, 2000 pursuant to paragraph (a) (1) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Group variable annuity contracts
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<PAGE> 2
AFPR1ME
GROWTH
Variable Annuity(TM)
FROM
[AMERICAN FIDELITY LOGO]
A MEMBER OF THE AMERICAN FIDELITY GROUP
May 1, 2000
<PAGE> 3
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AFPR1ME
GROWTH
Variable Annuity(TM)
ISSUED BY
AMERICAN FIDELITY SEPARATE ACCOUNT A
AND
AMERICAN FIDELITY ASSURANCE COMPANY
PROSPECTUS
MAY 1, 2000
American Fidelity Separate Account A is offering the AFPR1ME GROWTH
Variable Annuity(TM) to employers and self-employed individuals for use in
qualified retirement plans. The AFPR1ME GROWTH Variable Annuity(TM) is issued by
American Fidelity Assurance Company in the form of group contracts between
American Fidelity and the employer or self-employed individual.
The assets of Separate Account A will be invested solely in American
Fidelity Dual Strategy Fund, Inc. Dual Strategy Fund's primary investment
objective is long-term capital growth; its secondary investment objective is the
production of income. The fund invests in a diversified portfolio consisting
primarily of common stock. Any income and realized capital gains from the fund
will be reinvested by Separate Account A in shares of the fund.
This prospectus contains important information about the AFPR1ME GROWTH
Variable Annuity(TM) and Separate Account A that a prospective investor should
know before investing. To learn more about the variable annuity and Separate
Account A, you should read our Statement of Additional Information dated May 1,
2000 that we filed with the Securities and Exchange Commission. The SEC
maintains a web site (http://www.sec.gov) that contains our Statement of
Additional Information, material incorporated by reference and other material
that we file electronically with the SEC.
The Statement of Additional Information is incorporated by reference into
this document. The table of contents of the Statement of Additional Information
appears on the last page of this prospectus. For a free copy of our Statement of
Additional Information, call us at (800) 662-1106 or write to us at P.O. Box
25523, Oklahoma City, Oklahoma 73125-0523 or e-mail us at [email protected].
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR
FUTURE REFERENCE.
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GLOSSARY OF TERMS
SOME OF THE TERMS USED IN THIS PROSPECTUS ARE TECHNICAL. TO HELP YOU
UNDERSTAND THESE TERMS, WE HAVE DEFINED THEM BELOW.
Accumulation period: The period of time between becoming a participant and
the commencement of annuity payments. Until you begin receiving annuity
payments, your policy is in the accumulation period.
Accumulation unit: The unit of measurement we use to keep track of the
value of your account.
Annuitant: The person on whose life annuity payments are based.
Annuity: A series of installment payments for the life of the annuitant, or
for the joint lifetime of the annuitant and another person and thereafter during
the lifetime of their survivor, with either a minimum number of payments or a
specific sum.
Annuity date: The date annuity payments begin.
Annuity options: The various methods available to select as pay-out plans
for your annuity payments.
Annuity payments: Payments made after retirement to annuitants pursuant to
the contract.
Annuity period: The period during which we make annuity payments.
Annuity unit: The unit of measurement we use to calculate your annuity
payments during the annuity period.
Contract: The master group contract between American Fidelity and a
contract owner.
Contract owner: The entity to which a contract is issued, which is normally
the employer of participants or an organization representing an employer.
Participant: A person, like yourself, who has an interest in an annuity
contract due to making premium deposits.
Participant account: The account we maintain for you, as a participant,
reflecting the accumulation units credited to you.
Premium deposit: Money invested by or on behalf of participants in a
contract.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Fee Table................................................... 2
Condensed Financial Information............................. 2
American Fidelity, Separate Account A and Dual Strategy
Fund...................................................... 3
The AFPR1ME GROWTH Variable Annuity(TM)..................... 4
Purchasing Accumulation Units............................... 5
Receiving Payments From the Annuity......................... 6
Expenses.................................................... 9
Withdrawals................................................. 10
Death Benefit............................................... 11
Performance................................................. 11
Federal Tax Matters......................................... 12
Legal Proceedings........................................... 16
Financial Statements........................................ 16
Table of Contents of Statement of Additional Information.... 16
</TABLE>
ii
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SUMMARY
IN THIS SUMMARY, WE DISCUSS SOME OF THE IMPORTANT FEATURES OF YOUR GROUP
ANNUITY CONTRACT. YOU SHOULD READ THE ENTIRE PROSPECTUS FOR MORE DETAILED
INFORMATION.
The AFPR1ME GROWTH Variable Annuity(TM). The AFPR1ME GROWTHVariable
Annuity(TM) is a contract between an employer, who is the contract owner on
behalf of its participants, and American Fidelity, which is the insurance
company. Money invested in the AFPR1ME GROWTH Variable Annuity(TM) is invested
on a tax deferred basis in Dual Strategy Fund. The AFPR1ME GROWTH Variable
Annuity(TM) is designed for people seeking long-term earnings, generally for
retirement or other long-term purposes. The tax deferred feature is most
attractive to people in high federal and state tax brackets. You should not
become a participant in the AFPR1ME GROWTH Variable Annuity(TM) if you are
looking for a short-term investment or if you cannot afford to lose some or all
of your investment.
Like all deferred annuities, the annuity contract has two phases: the
accumulation period and the annuity period. During the accumulation period, you
invest money in your annuity on a pre-tax basis, and your earnings accumulate on
a tax deferred basis. You can withdraw money from your participant account
during the accumulation period, but federal income tax and penalties may apply
if you make withdrawals before age 59 1/2.
The annuity period begins when you start receiving regular payments from
your participant account. Among other factors, the amount of the payments you
may receive during the annuity period will depend on the amount of money you
invest in your participant account during the accumulation period and on the
investment performance of Dual Strategy Fund.
Dual Strategy Fund. The money you invest in your AFPR1ME GROWTH Variable
Annuity(TM) is used to purchase, at net asset value, shares of Dual Strategy
Fund. You can make or lose money on your investment, depending on market
conditions.
Taxes. Generally, the premium deposits you make are excludable from your
gross income, and earnings are not taxed until you make a withdrawal. In most
cases, if you withdraw money from your participant account, earnings come out
first and are taxed as income. If you withdraw any money before you are 59 1/2,
you may be charged a federal tax penalty on the taxable amounts withdrawn. In
most cases, the penalty is 10% on the taxable amounts. All payments during the
annuity period are taxable.
Withdrawals. You may withdraw money at any time during the accumulation
period. No fees are charged for withdrawals. Restrictions exist under federal
tax law concerning when you can withdraw money from a qualified plan, and you
may have to pay income tax and a tax penalty on any money you withdraw. If a
withdrawal causes your participant account to have a remaining value of less
than $1,000, we may redeem all your accumulation units and cancel your account.
After a complete withdrawal, you may not establish a new participant account
without our consent.
Although the contract does not have a "free-look" provision, you do have
the right to withdraw all or part of the value of your participant account at
any time without paying a withdrawal fee.
Questions. If you have any questions about your contract or need more
information, please contact us at:
American Fidelity Assurance Company
Annuity Services Department
P.O. Box 25523
Oklahoma City, OK 73125-0523
Telephone: (800) 662-1106
E-mail: [email protected]
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FEE TABLE
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES (AS A PERCENTAGE OF
PURCHASE PAYMENTS)
Sales Charges............................................. 3.00%
Administrative Expense.................................... 0.25%
Minimum Death Benefit Expense............................. 0.75%
Deferred Sales Load....................................... None
Surrender Fees............................................ None
Exchange Fee.............................................. None
PER PAYMENT CHARGE.......................................... $ 0.50
ONE-TIME CONTRACT CERTIFICATE FEE........................... $15.00
SEPARATE ACCOUNT A ANNUAL EXPENSES (AS A PERCENTAGE OF
AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Fees........................... .96025%
DUAL STRATEGY FUND ANNUAL EXPENSES (AS A PERCENTAGE OF ITS
AVERAGE NET ASSETS)
Management Fee............................................ 0.50%
</TABLE>
The purpose of the fee table is to show you the various costs and expenses
that you will bear directly or indirectly. The table reflects the expenses of
both Separate Account A and Dual Strategy Fund. For a more complete explanation
of each of the expense components, see "Expenses" on page 9 of this prospectus
as well as the description of expenses of Dual Strategy Fund in the accompanying
prospectus. Although premium taxes are not reflected in the fee table, they may
apply.
EXAMPLE
If you surrender your contract at the end of the applicable time period,
you would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C>
$69 $99 $131 $221
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN ABOVE.
SIMILARLY, THE 5% ANNUAL RATE OF RETURN ASSUMED IN THE EXAMPLE IS NOT AN
ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
CONDENSED FINANCIAL INFORMATION
The following table shows accumulation unit values and the number of
accumulation units outstanding for Separate Account A for 1999 and for Separate
Account A's predecessor, American Fidelity Variable Annuity Fund A, for all
prior years. The information is derived from the financial statements of
Separate Account A and its predecessor. Beginning January 1, 1999, accumulation
unit information for Separate Account A reflects its operations as a unit
investment trust investing in Dual Strategy Fund.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995(A) 1994 1993 1992 1991 1990
------- ------- ------- ------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value:
Beginning of year....... $24.333 $19.463 $15.339 $12.199 $9.094 $9.709 $9.108 $8.866 $6.924 $6.514
End of year............. $28.552 $24.333 $19.463 $15.339 $12.199 $9.094 $9.709 $9.108 $8.866 $6.924
Number of Accumulation
Units outstanding at end
of year (in 000's)...... 7,985 7,584 7,044 6,443 5,997 5,616 5,114 4,644 4,268 4,041
</TABLE>
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(a) Investment management by the present sub-advisers commenced October 2, 1995.
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AMERICAN FIDELITY, SEPARATE ACCOUNT A AND DUAL STRATEGY FUND
AMERICAN FIDELITY
American Fidelity Assurance Company is an Oklahoma stock life insurance
company incorporated under the laws of the State of Oklahoma in 1960. Its
principal executive offices are located at 2000 N. Classen Boulevard, Oklahoma
City, Oklahoma 73106, telephone number 800-662-1106. American Fidelity is
licensed to conduct life, annuity and accident and health insurance business in
49 states and the District of Columbia.
American Fidelity has been a wholly-owned subsidiary of American Fidelity
Corporation since 1974. The stock of American Fidelity Corporation is controlled
by a family investment partnership, Cameron Enterprises, A Limited Partnership,
an Oklahoma limited partnership. William M. Cameron, an individual, and Lynda L.
Cameron, an individual, each own 50% of the common stock of Cameron Associates,
Inc., the sole general partner of Cameron Enterprises, A Limited Partnership.
The address of both American Fidelity Corporation and Cameron Enterprises, A
Limited Partnership, is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma
73106. American Fidelity served as the investment adviser to Separate Account
A's predecessor, American Fidelity Variable Annuity Fund A, and is presently the
investment adviser to Dual Strategy Fund.
SEPARATE ACCOUNT A
American Fidelity's board of directors adopted a resolution on May 7, 1968
to establish Separate Account A as a separate account under Oklahoma insurance
law. The inception date of Separate Account A was January 1, 1970 under the name
American Fidelity Variable Annuity Fund A. It was organized as an open-end
diversified management investment company with its own portfolio of securities.
On January 1, 1999, Separate Account A became a unit investment trust. As part
of the reorganization, the assets of Separate Account A were transferred intact
to Dual Strategy Fund in exchange for shares of Dual Strategy Fund. Separate
Account A is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940. Separate Account A has no sub-accounts.
The assets of Separate Account A are held in American Fidelity's name on
behalf of Separate Account A and legally belong to American Fidelity. Under
Oklahoma law, however, the assets of Separate Account A may not be charged with
liabilities arising out of other business activities of American Fidelity. All
income, gains and losses, realized or unrealized, are credited to or charged
against Separate Account A contracts without regard for income, gains and losses
of American Fidelity. American Fidelity is obligated to pay all benefits and
make all payments under the AFPR1ME GROWTH Variable Annuity(TM).
DUAL STRATEGY FUND
Separate Account A invests exclusively in American Fidelity Dual Strategy
Fund, Inc., an open-end diversified management investment company.
Pursuant to a management and investment advisory agreement and subject to
the authority of Dual Strategy Fund's board of directors, American Fidelity
serves as Dual Strategy Fund's investment adviser and conducts the business and
affairs of Dual Strategy Fund. American Fidelity has engaged Lawrence W. Kelly &
Associates, Inc. and Todd Investment Advisors, Inc. as sub-advisers to provide
day-to-day portfolio management for Dual Strategy Fund.
Dual Strategy Fund offers its shares to Separate Account A as a funding
vehicle for the annuity contracts. Dual Strategy Fund shares are also offered to
other separate accounts supporting other variable annuity contracts. Dual
Strategy Fund does not offer its shares directly to the general public.
Dual Strategy Fund's investment objectives are, first, long-term growth of
capital and, second, the production of income. Dual Strategy Fund invests in a
diversified portfolio consisting primarily of common stock. Meeting investment
objectives depends on various factors, including how well the portfolio managers
anticipate changing economic and market conditions. There is no assurance that
Dual Strategy Fund will achieve its objectives.
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ADDITIONAL INFORMATION CONCERNING DUAL STRATEGY FUND CAN BE FOUND IN THE
CURRENT PROSPECTUS FOR DUAL STRATEGY FUND WHICH ACCOMPANIES THIS PROSPECTUS. YOU
SHOULD READ DUAL STRATEGY FUND'S PROSPECTUS CAREFULLY BEFORE INVESTING.
VOTING RIGHTS
American Fidelity is the legal owner of the Dual Strategy Fund shares
allocated to Separate Account A. However, we believe that when Dual Strategy
Fund solicits proxies in conjunction with a shareholder vote, we are required to
obtain from contract owners (based on instructions they receive from their
respective participants and annuitants) instructions as to how to vote those
shares. When we receive the instructions, we will vote all of the shares we own
for the benefit of Separate Account A in proportion to those instructions.
Should we determine that we are no longer required to comply with the above, we
will vote the shares in our own right.
SUBSTITUTION
We cannot guarantee that Dual Strategy Fund will always be available for
our variable annuity products. If it should not be available, we will try to
replace it with a comparable fund. A substitution of shares attributable to the
contracts will not be made without prior notice to contract owners, participants
and annuitants and the prior approval of the SEC in conformity with the
Investment Company Act of 1940.
THE AFPR1ME GROWTH VARIABLE ANNUITY(TM)
ABOUT THE CONTRACT
The AFPR1ME GROWTH Variable Annuity(TM) is a group annuity. A group annuity
is a contract between the contract owner, on behalf of its participants, and an
insurance company (in this case American Fidelity), where the insurance company
promises to pay you (or someone else you choose) an income in the form of
annuity payments beginning on a date chosen by you. The person upon whose life
the policy is based is called the annuitant. You or someone else specified by
you may be the annuitant. If you, or the annuitant, as the case may be, die
during the accumulation period, American Fidelity will pay a death benefit to
your beneficiary.
We may change the AFPR1ME GROWTH Variable Annuity(TM) at any time if
required by state or federal laws. After a contract has been in force for three
years, we may change any term of the contract except that benefits already
earned by participants cannot be decreased and guaranteed monthly life incomes
cannot be decreased. We will notify contract owners of any change at least 90
days before a change will take effect.
NAMING A BENEFICIARY
A beneficiary is the person or entity you name to receive the benefit of
your policy upon the death of the annuitant. You name the beneficiary or
beneficiaries, as the case may be, at the time you become a participant in the
contract, but you may change beneficiaries at a later date. If the beneficiary
and you, or the annuitant, as applicable, die at the same time, we will assume
that the beneficiary died first for purposes of paying any death benefits.
You can change the beneficiary of your policy at any time during the
annuitant's life, unless you name the person as an irrevocable beneficiary. The
interest of an irrevocable beneficiary cannot be changed without his or her
consent.
To change a beneficiary, you need to send a request on a form we accept to
our home office. The change will go into effect when signed, subject to any
payments we make or actions we take before we record the change. A change
cancels all prior beneficiaries, except a change will not cancel any irrevocable
beneficiary without that person's consent. The interest of the beneficiary will
be subject to any annuity option in effect at the time of the annuitant's death.
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PURCHASING ACCUMULATION UNITS
PREMIUM DEPOSITS
In order to keep track of the value of your account, we use a measurement
called an accumulation unit. Each time you invest money with us, you are making
a premium deposit. Every premium deposit you make increases the number of
accumulation units in your participant account. You may make premium deposits at
any time during the accumulation period. Your first premium deposit must be at
least $20, and after that, each premium deposit must be at least $10. You may
increase, decrease or change the frequency of you deposits at any time. We
reserve the right to reject any application or premium deposit.
Once we receive your initial premium deposit and application, we will issue
you a certificate evidencing your participation in the annuity contract. We will
invest your first premium deposit within two business days of receiving it. If
you do not give us all of the information we need, we will contact you to get
it. If for some reason we are unable to complete the initial application process
within five business days, we will either send your money back to you or get
your permission to keep it until we get all of the necessary information. After
your initial premium deposit, we will credit all subsequent premium deposits to
your participant account using the accumulation unit value next determined after
we receive your deposit. If we receive a premium deposit by 3:00 p.m., Central
Time, we will apply same-day pricing to determine the number of accumulation
units to credit to your account.
ACCUMULATION UNITS
The value of your participant account will go up or down depending upon the
investment performance of Dual Strategy Fund and the expenses of, and deductions
charged by, Separate Account A. The value of your participant account is based
on the number of accumulation units in your account and the value of the
accumulation units.
We calculate the value of an accumulation unit after the New York Stock
Exchange closes on each day we are open for business and then credit your
participant account accordingly. We determine the value of an accumulation unit
by multiplying the accumulation unit value for the previous period by a factor
for the current period. The factor, which we call the net investment factor, is
determined by:
- dividing the value of a Dual Strategy Fund share at the end of the
current period, including the value of any dividends or gains per share
for the current period, by the value of a Dual Strategy Fund share for
the previous period, and
- subtracting from that amount the mortality and expense risk charge.
The value of an accumulation unit may go up or down from day to day.
The value of your account at any time before you begin receiving annuity
payments is determined by multiplying the total number of accumulation units
credited to your account by the current accumulation unit value. When you make a
premium deposit, we credit your participant account with accumulation units. The
number of accumulation units credited is determined by dividing the amount of
the net premium deposit (after deduction of 4% to cover sales, administrative
and maximum death benefit charges and $.50 per premium deposit) by the value of
the accumulation unit. A $15 contract certificate issuance fee will also be
deducted from the first premium deposit. Each participant is advised
semiannually of the number of accumulation units credited to his or her account,
the current accumulation unit value, and the total value of the account.
EXAMPLE:
On Thursday morning, we receive a premium deposit of $100 from you. At 3:00
p.m., Central Time, on that Thursday, we determine that the value of an
accumulation unit is $20.25. We then divide $95.50 by $20.25 and credit
your participant account on Thursday night with 4.72 accumulation units.
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UNDERWRITER
American Fidelity Securities, Inc., a wholly-owned subsidiary of American
Fidelity, is the principal underwriter for the annuity policies and acts as the
distributor of the policies. The principal business address of American Fidelity
Securities, Inc. is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
RECEIVING PAYMENTS FROM THE ANNUITY
ANNUITY DATE
Upon investing in the AFPR1ME GROWTH Variable Annuity(TM), you will select
an annuity date, which is the month and year that you will begin receiving
regular monthly income payments from the annuity. You may select your desired
annuity date at any time after your initial investment and you may change the
annuity date if you choose; however, you must notify us of your desired annuity
date at least 30 days before you want to begin receiving annuity payments. The
annuity date may not be later than the earliest to occur of the distribution
date required by federal law, the contract owner's tax qualified plan or, if
applicable, state law.
SELECTING AN ANNUITY OPTION
On your annuity date, we will begin making annuity payments in accordance
with one of our income plans. If the value of your participant account is at
least $1,000, you may choose from our various income plans offered, which we
call annuity options. You must designate the annuity option you prefer at least
30 days before your annuity date. If you do not choose an annuity option, we
will make annuity payments to you in accordance with Option 2 below, and the
full amount of your participant account will be paid out in 120 monthly
payments. If the value of your account is less than $1,000, we reserve the right
to pay you the entire amount of your participant account in one lump sum on your
annuity date.
You may change your annuity option by written request at any time before
you begin receiving annuity payments. Any change must be requested at least 30
days before the annuity date. If an option is based on life expectancy, we will
require proof of the payee's date of birth.
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You may choose one of the following annuity options at any time during the
accumulation period. After your annuity payments begin, you cannot change your
annuity option.
<TABLE>
<S> <C> <C>
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OPTION 1 LIFE VARIABLE ANNUITY We will make monthly payments during the life of
the annuitant. If this option is elected, payments
will stop when the annuitant dies.
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OPTION 2 LIFE VARIABLE ANNUITY WITH We will make monthly payments for the guaranteed
PAYMENTS CERTAIN period selected during the life of the annuitant.
When the annuitant dies, any amounts remaining under
the guaranteed period selected will be distributed to
the beneficiary at least as rapidly as they were
being paid as of the date of the annuitant's death.
If the beneficiary dies before the end of the
guaranteed period, the present value of the remaining
payments will be paid to the estate of the
beneficiary based on an annual compound interest rate
of 3.5%. The guaranteed period may be 10 years, 15
years or 20 years.
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OPTION 3 UNIT REFUND LIFE VARIABLE We will make monthly payments during the
ANNUITY lifetime of the annuitant. Upon the annuitant's
death, we will make an additional payment equal to
the value at the date of death of the number of
variable annuity units equal to the excess, if any,
of (a) the total amount applied under this option
divided by the variable annuity unit value on the
annuity date over (b) the variable annuity units
represented by each annuity payment multiplied by the
number of annuity payments paid prior to death.
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OPTION 4 JOINT AND SURVIVOR ANNUITY We will make monthly payments during the joint
lifetime of the annuitant and a joint annuitant.
Payments will continue during the lifetime of the
surviving annuitant based on 66 2/3% of the annuity
payment in effect during the joint lifetime. If the
joint annuitant is not the annuitant's spouse, this
annuity option may not be selected if, as of the
annuity date, the present value of the annuity
payments which would be payable to the joint
annuitant exceeds 49% of the present value of all
payments payable to the annuitant and the joint
annuitant.
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OPTION 5 FIXED ANNUITY You may elect forms of fixed annuities that have
essentially the same characteristics as Annuity
Options 1 through 4 above.
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</TABLE>
ANNUITY PAYMENTS
Annuity payments are paid in monthly installments, although we reserve the
right to change the frequency of payments. If the amount of your monthly annuity
payment becomes less than $20, we may change the payment interval to result in
payments of at least $20.
Annuity payments may be made on a variable basis and/or on a fixed basis.
Payments made on a variable basis are based on the actual investment performance
of Dual Strategy Fund. Payments made on a fixed basis are based on a dollar
amount that is fixed as of the annuity date and an annual rate of interest of
4%. If you choose a fixed annuity, your annuity payments will be based on an
interest rate of 4% regardless of the actual performance of Dual Strategy Fund.
If you choose to have any portion of your annuity payments based on a
variable annuity option, the amount of your first annuity payment will be based
on an assumed investment rate of 4.5%. The amount of
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subsequent annuity payments you receive may be more or less than your initial
payment depending on three things:
- the value of your participant account on the annuity date,
- the assumed investment rate of 4.5%, and
- the performance of Dual Strategy Fund.
After you receive your first annuity payment, if Dual Strategy Fund's
actual performance exceeds the 4.5% assumed rate, your monthly annuity payments
will increase if you chose a variable annuity. Similarly, if the actual
performance rate is less than 4.5%, your annuity payments will decrease relative
to the first payment you received. The amount of the first annuity payment will
depend on the annuity option elected and the age of the annuitant at the time
the first payment is due.
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EXPENSES
Charges and other expenses associated with the AFPR1ME GROWTH Variable
Annuity(TM) will reduce your investment return. These charges and expenses are
explained below.
<TABLE>
<S> <C>
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SALES CHARGE We deduct a 3% sales charge from each premium deposit
we receive. The sales charge is intended to recover our
distribution expenses associated with marketing contracts.
If the 3% sales charge is not adequate to recover our
distribution expenses, we pay the difference. We may pay
the difference, if there is one, from, among other things,
proceeds derived from the mortality and expense risk
charges discussed below. The sales charge for lump sum or
periodic payments of $2,000 or more may be less than 3%,
depending on the actual commission paid.
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INSURANCE CHARGES
Administrative Expenses We deduct .25% of each premium deposit we receive to
recover administrative expenses we incur, including
salaries, rent, postage, telephone and office equipment,
printing, travel, legal, actuarial and accounting fees.
We also charge an additional $.50 administrative
charge against each premium deposit (for the processing of
each premium payment received for each plan participant)
and a one-time certificate issuance fee of $15 (which is
applied toward the expense of setting up each new
administrative record). We will not increase the additional
$.50 administrative charge until your premium deposits
equal twice the amount of premium deposits made during your
first year of participation. We may increase the deduction
on premium deposits in excess of such amount when our labor
costs exceed the expenses associated with the technology
used to administer our products and services.
Minimum Death Benefit A deduction of .75% of each premium deposit is made to
cover our costs associated with the minimum death payment.
This deduction is not applicable after you reach age 65.
Mortality and Expense Risk We assume the risk that the actuarial estimate of
mortality rates among variable annuitants may be erroneous
and the reserves based on such estimate will not be
sufficient to meet annuity payment obligations. In other
words, we assume the risk that participants will live
longer than we expect and that we will not have enough
money to pay all of the annuity payments we are obligated
to pay. We receive .96025% on an annual basis (.0026308%
for each one-day valuation period) of average account value
for mortality and expense risks assumed. Of this amount,
.85% is for mortality risks and .11025% is for expense
risks.
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</TABLE>
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<TABLE>
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TAXES
Premium Taxes Some states and other governmental entities, such as
municipalities, charge premium or similar taxes. We are
responsible for paying these taxes and will deduct the
amount of taxes paid on your behalf from the value of your
participant account. Some taxes are due when premium
deposits are made; others are due when annuity payments
begin. Currently, we pay any premium taxes when they become
payable to the states. Premium taxes presently range from
0% to 4%, depending on the state.
Income Taxes We will deduct from each contract any income taxes
which it may incur because of the contract. Currently, we
are not making any such deductions.
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DUAL STRATEGY FUND EXPENSES Dual Strategy Fund pays us, its investment adviser, an
annual management and investment advisory fee of .50% of
the value of the average daily net assets of Dual Strategy
Fund.
Deductions are taken from, and expenses paid out of,
the assets of Dual Strategy Fund. Because Separate Account
A purchases shares of Dual Strategy Fund, the net assets of
Separate Account A will reflect the investment advisory fee
and portfolio expenses incurred by Dual Strategy Fund. You
should read the attached prospectus for Dual Strategy Fund
for information about such deductions
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</TABLE>
WITHDRAWALS
You may withdraw cash from the annuity by redeeming all or part of the
accumulation units in your participant account at any time before we begin
making annuity payments to you. The redemption value of your account is equal to
the value of the accumulation units in your account next computed after we
receive the request for redemption. There is no assurance that the redemption
value of your participant account will equal or exceed the aggregate amount of
premium deposits. We do not charge any administrative fees for withdrawals.
If you redeem part of the accumulation units in your account, the number of
accumulation units in your participant account will decrease. The reduction in
the number of accumulation units will equal the amount withdrawn divided by the
applicable accumulation unit value next computed after we receive the redemption
request. If a partial redemption reduces the value of your participant account
to less than $1,000, we reserve the right to pay you the cash value of all of
the accumulation units in your account and cancel your account. After full
redemption and cancellation of a participant's account, no further premium
deposits may be made on behalf of the participant without our consent.
A participant's request for redemption should be submitted to us in
writing, with the signature of the person in whose name the participant account
is registered, signed exactly as the name appears on our register. In certain
instances, we may require additional documents, such as trust instruments, death
certificates, appointments as executor or administrator, or certificates of
corporate authority. All proper redemption requests received before 3:00 p.m.,
Central Time, will receive same-day pricing.
Payments for accumulation units redeemed are made within three business
days after we receive a properly tendered request. However, we may delay the
mailing of a redemption check for recently purchased accumulation units until
such time as the payment check has cleared. Redemption rights may be suspended
or payment postponed at times when:
- the New York Stock Exchange is closed (other than customary weekend and
holiday closings) or trading on the New York Stock Exchange is
restricted;
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<PAGE> 16
- an emergency exists as a result of which disposal by Dual Strategy Fund
of securities owned by it is not reasonably practicable or it is not
reasonably practicable for Dual Strategy Fund to determine the value of
its net assets; or
- for such other periods as the SEC may by order permit for the protection
of participants.
Restrictions exist under federal income tax law concerning when you can
make withdrawals from a qualified plan. In addition, certain adverse tax
consequences may result from withdrawals, as explained below under "Federal Tax
Matters."
DEATH BENEFIT
In the event of a participant's death before receipt of annuity payments,
death proceeds are payable to the person's named beneficiary in an amount equal
to:
- the value of the participant's account as of the valuation date (the date
on which we have received both written notice of death and the
beneficiary's written instructions), or
- if greater, and if the participant's death occurs before age 65, 100% of
the total premium deposits made by the participant, less any redemptions.
Payments normally are made within seven days of receipt of notice.
If a participant dies during the annuity period, we will pay any remaining
guaranteed payments to:
- the participant's beneficiary, or
- the participant's estate, if no beneficiary survives.
Any payments made to a beneficiary must be made on a payment schedule at least
as rapid as that made to the participant.
A beneficiary who is the spouse of a deceased participant may choose to
receive the death benefit in any form that the participant could have chosen to
receive annuity payments. Federal tax law requires that annuity contracts issued
after January 18, 1985 restrict the length of time over which non-spouse
beneficiaries may elect to receive death benefit proceeds. Contracts issued
after January 18, 1985 provide that non-spouse beneficiaries must either:
- take a total distribution within five years of the death of the
participant, or
- within one year of the participant's death, begin receiving annuity
payments under an annuity option for a period not to exceed the expected
lifetime of the beneficiary.
PERFORMANCE
Separate Account A may from time to time advertise performance in sales
literature, advertisements and reports to contract owners. Performance will be
calculated on the basis of total return and average annual total return for one,
five and ten year periods, assuming an initial investment of $1,000, the
deduction of all sales charges and other expenses from investment results and
the reinvestment of dividends and distributions during the period. Total return
is calculated by subtracting the initial investment from the ending value for a
specified period, dividing the difference by the initial investment and
converting the quotient to a percentage. Average annual total return is
calculated pursuant to a standardized formula and is expressed as a percentage
rate which, if applied on a compounded annual basis to the original investment,
would result in the value of the investment at the end of the period.
Performance calculations do not reflect the deduction of any premium taxes.
ANY PAST PERFORMANCE RESULTS ARE NOT AN INDICATION OF FUTURE RESULTS.
ADDITIONAL INFORMATION REGARDING SEPARATE ACCOUNT A'S PERFORMANCE IS CONTAINED
IN THE STATEMENT OF ADDITIONAL INFORMATION.
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<PAGE> 17
FEDERAL TAX MATTERS
THE FOLLOWING DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES UNDER THE
CONTRACTS IS NOT EXHAUSTIVE, AND SPECIAL RULES MAY APPLY TO SITUATIONS NOT
DISCUSSED HERE. FOR FURTHER INFORMATION, CONSULT A QUALIFIED TAX ADVISER BEFORE
ESTABLISHING ANY RETIREMENT PROGRAM. THIS DESCRIPTION IS NOT INTENDED AS TAX
ADVICE. WE HAVE INCLUDED ADDITIONAL INFORMATION REGARDING TAXES IN THE STATEMENT
OF ADDITIONAL INFORMATION.
GENERAL
Annuity contracts are a means of setting aside money for future
needs -- usually retirement. Congress has recognized how important saving for
retirement is and provided special rules in the Internal Revenue Code of 1986,
as amended, for annuities. Basically, these rules provide that you will not be
taxed on the money you contribute under your contract and/or the earnings on
your contributions until you receive a distribution from your contract. There
are different rules regarding how you will be taxed depending upon how you take
money out of your contract.
TAXES PAYABLE BY PARTICIPANTS AND ANNUITANTS
The contracts offered by this prospectus are used with retirement programs
which receive favorable tax-deferred treatment under federal income tax law.
Increases in the value of a participant's account are not subject to income tax
until annuity payments commence, at which time the amount of each payment is
considered as ordinary income.
Annuity payments and other amounts received under all contracts generally
are subject to some form of federal income tax withholding. The withholding
requirement will vary among recipients depending on the type of program, the tax
status of the individual and the type of payments from which taxes are withheld.
Additionally, annuity payments and other amounts received under all contracts
may be subject to state income tax withholding requirements.
SECTION 403(b) ANNUITIES FOR EMPLOYEES OF CERTAIN TAX-EXEMPT ORGANIZATIONS OR
PUBLIC EDUCATIONAL INSTITUTIONS
Premium Deposits. Under Section 403(b) of the Internal Revenue Code,
payments made by tax-exempt organizations meeting the requirements of Section
501(c)(3) of the code and public educational institutions to purchase annuity
contracts for their employees are excludable from the gross income of employees
to the extent that the aggregate premium deposits do not exceed the limitations
prescribed by Section 402(g), Section 403(b)(2) and Section 415 of the code.
This gross income exclusion applies to employer contributions and voluntary
salary reduction contributions.
An individual's voluntary salary reduction contributions under Section
403(b) are generally limited to $15,000 per year (as adjusted from time to time
by the Internal Revenue Service). Additional catch-up contributions are
permitted under certain circumstances. Combined employer and salary reduction
contributions are generally limited to the individual's "exclusion allowance."
An employee's exclusion allowance for a taxable year is equal to 20% of
includible compensation times years of service, minus amounts previously
contributed by the employer for annuity contracts and excludable from the
employee's gross income. In addition, employer contributions must comply with
various nondiscrimination rules; these rules may have the effect of further
limiting the rate of employer contributions for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) reaching age 59 1/2, (2) separation from service, (3) death, (4)
disability, or (5) hardship (hardship distributions are limited to the amount of
salary reduction contributions, not including any earnings).
Distributions from a Section 403(b) annuity contract are taxed as ordinary
income to the recipient in accordance with Section 72 of the Internal Revenue
Code. Distributions received before the recipient reaches
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<PAGE> 18
age 59 1/2 generally are subject to a 10% penalty tax in addition to regular
income tax. Certain distributions are excepted from this penalty tax, including
distributions following (1) death, (2) disability, (3) separation from service
during or after the year the participant reaches age 55, (4) separation from
service at any age if the distribution is in the form of substantially equal
periodic payments over the life (or life expectancy) of the participant (or the
joint lives (or joint life expectancy) of the participant and beneficiary), and
(5) distributions not in excess of tax deductible medical expenses.
Required Distributions. Generally, distributions from Section 403(b)
annuities must commence no later than April 1 of the calendar year following the
later of the calendar year in which the participant reaches age 70 1/2 or the
calendar year in which the participant retires. Such distributions must be made
over a period that does not exceed the life expectancy of the participant (or
the joint life expectancy of the participant and beneficiary). If a participant
dies prior to the commencement of annuity payments, the amount accumulated under
the account must be distributed within five years or, if distributions to a
beneficiary designated under the account start within one year of the
participant's death, distributions are permitted over the life of the
beneficiary or over a period not extending beyond the beneficiary's life
expectancy. If the designated beneficiary is the participant's surviving spouse,
the beneficiary must commence receiving benefits on or before the later of the
end of the calendar year in which the deceased spouse would have reached age
70 1/2 or the end of the calendar year following the year in which the
participant died. If the participant has started receiving annuity distributions
prior to his or her death, distributions must continue at least as rapidly as
under the method in effect at the date of death. A penalty tax of 50% will be
imposed on the amount by which the minimum required distribution in any year
exceeds the amount actually distributed in that year.
Tax-Free Transfers and Rollovers. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that total or partial amounts may be transferred tax free
between Section 403(b) annuity contracts and/or Section 403(b)(7) custodial
accounts under certain circumstances. In addition, Section 403(b)(8) of the code
permits tax-free rollovers from Section 403(b) programs to IRAs or other Section
403(b) programs under certain circumstances. Such a rollover must be completed
within 60 days of receipt of the distribution. The portion of any distribution
which is eligible to be rolled over to an IRA or another Section 403(b) program
is subject to 20% federal income tax withholding unless the participant elects a
direct rollover of such distribution to an IRA or other Section 403(b) program.
SECTIONS 401(a), 401(k) AND 403(a) QUALIFIED PENSION, PROFIT-SHARING OR ANNUITY
PLANS
Premium Deposits. Premium deposits made by an employer (or a self-employed
individual) under a pension, profit-sharing or annuity plan qualified under
Section 401(a) or Section 403(a) of the code are excluded from the gross income
of the employee for federal income tax purposes. Payments made by an employee
generally are made on an after-tax basis, unless they are made on a pre-tax
basis by reason of Sections 401(k) or 414(h) of the Code.
Taxation of Distributions. Distributions from contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
contract"). If a distribution is made in the form of an annuity, a fixed portion
of each payment is generally excludable from income for federal income tax
purposes to the extent it is allocable to the taxpayer's after-tax contributions
to the plan. In general, the excludable amount is determined by dividing the
after-tax contributions (basis) by the anticipated number of payments to be made
under the contract. For most individuals receiving lump sum distributions after
reaching age 59 1/2, the rate of tax may be determined under a special 5-year
income averaging provision. Those who reach age 50 by January 1, 1986 may
instead elect to use a 10-year income averaging provision based on the income
tax rates in effect for 1986. In addition, individuals who reached age 50 by
January 1, 1986 may elect capital gains treatment for the taxable portion of a
lump sum distribution attributable to years of service before 1974; such capital
gains treatment has otherwise been repealed. Taxable distributions received from
an account under a qualified plan prior to reaching of age 59 1/2 are subject to
the same 10% penalty tax (and the same exceptions) as described with respect to
Section 403 (b) annuities.
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<PAGE> 19
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to Section 403(b)
annuities.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under Sections 401(a) or 403(a) may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another Section 401(a) or 403(a) plan is subject to 20%
federal income tax withholding unless the participant elects direct rollover of
such distribution to an IRA or other Section 401(a) or 403(a) plan.
INDIVIDUAL RETIREMENT ANNUITIES (IRAS)
Traditional IRAs
Premium Deposits. Federal tax laws limit the extent to which individuals
may make tax-deductible contributions for traditional IRA contracts. Deductible
contributions equal to the lesser of $2,000 or 100% of compensation are
permitted only for an individual who (i) is not (and whose spouse is not) an
active participant in another retirement plan; (ii) is an active participant in
another retirement plan, but is unmarried and has adjusted gross income in 2000
of $32,000 or less; (iii) is an active participant in another retirement plan,
but is married and has adjusted gross income in 2000 of $52,000 or less; or (iv)
is not an active participant in another retirement plan, but his or her spouse
is an active participant in another retirement plan and has adjusted gross
income of $150,000 or less. Such individuals may also establish an IRA for a
spouse during the tax year if the combined compensation of both spouses is at
least equal to the contributed amount. An individual who is an active
participant in another retirement plan and whose adjusted gross income exceeds
the cut-off point (for 2000, $32,000 if unmarried and $52,000 if married) by
less than $10,000 is entitled to make deductible IRA contributions in
proportionately reduced amounts.
An individual may make non-deductible IRA contributions to the extent of
the excess of (i) the lesser of $2,000 or 100% of compensation over (ii) the IRA
deduction limit with respect to the individual.
Taxation of Distributions. Distributions from IRA contracts are taxed as
ordinary income to the recipient except to the extent allocable to the
recipient's after-tax contributions (which constitute "investment in the
contract"). If a distribution is made in the form of an annuity, the rules for
determining the taxable portion of a distribution are similar to the rules
described with respect to pension, profit-sharing, and annuity plans. In
addition, a 10% penalty tax will be imposed on taxable distributions received
before the year in which the recipient reaches age 59 1/2, except that
distributions made on account of death, disability or in the form of
substantially equal periodic payments over the life (or life expectancy) of the
participant (or the joint lives (or joint life expectancies) of the participant
and beneficiary) are not subject to the penalty tax. In addition, early
withdrawals for the purchase of a home by a first-time home buyer (subject to a
$10,000 lifetime limit) or for the payment of qualified higher education
expenses or medical insurance (in limited circumstances) are not subject to the
penalty tax.
Required Distributions. The minimum distribution requirements for IRA
contracts are generally the same as described with respect to Section 403(b)
annuities, except that no amounts are exempted from the minimum distribution
requirements and in all events such distributions must commence no later than
April 1 of the calendar year following the calendar year in which the
participant attains age 70 1/2.
Tax-Free Rollovers. Federal law permits funds to be transferred in a
tax-free rollover from a qualified employer pension, profit-sharing or annuity
plan, or a Section 403(b) annuity contract to an IRA contract under certain
conditions. Amounts accumulated under such a rollover IRA may subsequently be
rolled over on a tax-free basis to another such plan or Section 403(b) annuity
contract. In addition, a tax-free rollover maybe made from one IRA to another,
provided that not more than one such rollover may be made during any
twelve-month period. In order to qualify for tax-free treatment, all rollovers
must be completed within 60 days after the distribution is received.
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Roth IRAs
Premium Deposits. The "Roth IRA" permits individuals to make non-deductible
contributions and, if specific requirements are met, receive distributions that
are tax free. The Roth IRA is an individual retirement account and is treated in
the same manner as a regular IRA with certain exceptions. An individual can make
an annual non-deductible contribution to a Roth IRA up to the lesser of $2,000
or 100% of the individual's annual compensation minus the aggregate amount of
contributions for the tax year to all other IRAs maintained for the benefit of
that individual. Unlike a traditional IRA, active participation in an employer's
qualified plan does not reduce the amount that an individual can contribute to a
Roth IRA. The contribution that can be made to a Roth IRA is phased out for
individuals with adjusted gross income of between $95,000 and $110,000, and for
joint filers with combined adjusted gross income of between $150,000 and
$160,000.
Taxation of Distributions. Distributions from a Roth IRA are not includible
in income if the contribution to which the distribution relates is a "qualified
distribution." A "qualified distribution" is a distribution which is made on or
after the recipient becomes age 59 1/2, on account of death or disability or for
a qualified first-time home buyer expense. A distribution is not considered to
be a "qualified distribution" if it is made within the five-year period
beginning with the first tax year for which the individual made a contribution
to a Roth IRA. A distribution is also not a "qualified distribution" for
payments properly allocable to a "qualified rollover contribution" from a
regular IRA if it is made within the five-year period beginning with the first
tax year in which the rollover contribution was made. Non-qualifying
distributions from a Roth IRA are includible in income to the extent of earnings
on contributions. Distributions that are attributable to contributions to a Roth
IRA are received tax free, since these contributions were nondeductible.
Required Distributions. Roth IRAs are not subject to minimum distribution
rules before death.
Tax-Free Rollovers. A tax-free rollover may be made to a Roth IRA from (a)
another Roth IRA or (b) a regular IRA that meets the requirements for the
exclusion of a rollover under Section 408(d)(3) of the Internal Revenue Code if
the taxpayer has adjusted gross income of not more than $100,000 and, if
married, does not file a separate return.
Simplified Employee Pension Plans
Premium Deposits. Under Section 408(k) of the code, employers may establish
a type of IRA plan referred to as a simplified employee pension plan ("SEP").
Employer contributions under a SEP, which generally must be made at a rate
representing a uniform percent of the compensation of participating employees,
are excluded from the gross income of employees for federal income tax purposes.
Employer contributions to a SEP cannot exceed the lesser of $30,000 or 15% of an
employee's compensation.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $7,000
indexed for inflation. Employees of tax-exempt organizations are not eligible
for this type of SEP. Additionally, only certain small employers who have SEPs
that permitted salary reduction contributions on December 31, 1996 may continue
to allow salary reduction contributions.
Taxation of Distributions. SEP distributions are subject to taxation in the
same manner as regular IRA distributions.
Required Distributions. SEP distributions are subject to the same minimum
required distribution rules applicable to traditional IRAs.
Tax-Free Rollovers. Funds may be rolled over tax free from one SEP to
another as long as the rollover is completed within 60 days after the
distribution is received and is done no more frequently than once every twelve
months.
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DIVERSIFICATION
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. American Fidelity believes that Dual Strategy
Fund is being managed so as to comply with the requirements.
DISTRIBUTION
American Fidelity Securities, Inc., a wholly-owned subsidiary of American
Fidelity, acts as the distributor of the contracts.
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting Separate Account
A, Dual Strategy Fund, American Fidelity or American Fidelity Securities, Inc.
FINANCIAL STATEMENTS
The financial statements of Separate Account A and of American Fidelity are
included in the Statement of Additional Information.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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PAGE
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General Information and History............................. 2
Performance Information..................................... 2
Annuity Payments............................................ 2
Federal Income Tax Considerations........................... 4
Underwriter................................................. 8
Custodian and Independent Accountants....................... 8
Legal Matters............................................... 8
Financial Statements........................................ 8
</TABLE>
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- - - - ------------------------------------ ---------------
- - - - ------------------------------------ PLACE
- - - - ------------------------------------ STAMP
HERE
---------------
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American Fidelity Assurance Company
P.O. Box 25523
Oklahoma City, OK 73125-0523
Attention: Annuity Services Department
<PAGE> 23
Please send me the Statement of Additional Information for the following:
[ ] AFPrime Growth Variable Annuity
[ ] American Fidelity Dual Strategy Fund, Inc.
<TABLE>
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Name
------------------------------------------------------------
(please print)
Address
------------------------------------------------------------
(please print)
------------------------------------------------------------
(please print)
------------------------------------------------------------
(please print)
</TABLE>
<PAGE> 24
AFPR1ME
GROWTH
Variable Annuity(TM)
ISSUED BY
AMERICAN FIDELITY SEPARATE ACCOUNT A
AND
AMERICAN FIDELITY ASSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This Statement of Additional Information is not a prospectus. You should read
this document in conjunction with the Prospectus dated May 1, 2000 relating to
the AFPR1ME GROWTH Variable Annuity(TM).
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus,
<TABLE>
<CAPTION>
<S> <C> <C>
write to us at: call us at: e-mail us at:
P.O. Box 25523 (800) 662-1106 [email protected]
Oklahoma City, OK 73125-0523
</TABLE>
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
General Information and History............................. 2
Performance Information..................................... 2
Annuity Payments............................................ 2
Federal Income Tax Considerations........................... 4
Underwriter................................................. 8
Custodian and Independent Accountants....................... 8
Legal Matters............................................... 8
Financial Statements........................................ 8
</TABLE>
<PAGE> 26
GENERAL INFORMATION AND HISTORY
American Fidelity Assurance Company ("Company") was organized in the State
of Oklahoma in 1960 and during its existence has never changed its name. Neither
the sales of variable annuity contracts nor the sales of any other insurance
product by the Company have ever been suspended by any state where the Company
has done or is presently doing business. American Fidelity Separate Account A is
offering the AFPR1ME GROWTH Variable Annuity (TM) to employers and self-employed
individuals for use in qualified retirement plans.
The Company is a wholly owned subsidiary of American Fidelity Corporation,
an insurance holding company. The stock of American Fidelity Corporation is
controlled by a family investment partnership, Cameron Enterprises, A Limited
Partnership, an Oklahoma limited partnership. William M. Cameron, an individual,
and Lynda L. Cameron, an individual, each own 50% of the common stock of Cameron
Associates, Inc., the sole general partner of Cameron Enterprises, A Limited
Partnership.
PERFORMANCE INFORMATION
American Fidelity Separate Account A's average annual total returns for the
one, five and ten year periods ended December 31, 1999 were 10.84%, 24.28% and
15.26%, respectively. The average annual total return (T) is computed by
equating the value at the end of the period (ERV) with a hypothetical initial
investment of $1,000 (P) over a period of years (n) according to the following
formula as required by the Securities and Exchange Commission: ERV = P(1 + T)**n
(where "**n" means to the nth power). Average annual total returns are
calculated after deduction of all applicable fees and expenses.
American Fidelity Separate Account A's total returns for the one, five and
ten year time periods ended December 31, 1999 were 10.84%, 196.54% and 313.97%,
respectively. Total return is measured by comparing the investment return at the
end of a specified period to the initial investment. To calculate total return,
an initial $1,000.00 investment is multiplied by 96% (which gives effect to the
3.00% sales charge, 0.25% administrative fee and 0.75% minimum death benefit
expense). The product is then reduced by the $0.50 per payment expense and the
one-time contract certificate fee of $15. The resulting amount is divided by the
Accumulation Unit value at the beginning of the period in order to determine the
initial number of Accumulation Units purchased. The number of Accumulation Units
purchased is multiplied by the Accumulation Unit value as of the end of the
period in order to determine the ending value. The difference between the ending
value and the initial investment divided by the initial investment converted to
a percentage equals total return. Total return may be calculated for one, five
and ten year periods and for other time periods.
Returns for periods prior to Separate Account A's reorganization on January
1, 1999 reflect the investment performance of American Fidelity Variable Annuity
Fund A. For periods subsequent to 1998, Separate Account A reports its
performance as a unit investment trust investing in Dual Strategy Fund.
Performance will fluctuate over time, and any past performance results are not
an indication of future results.
The following assumptions are reflected in computations of average annual
total returns and in calculating total return: (1) reinvestment of dividends and
other distributions, (2) a complete redemption at the end of any period
illustrated and (3) no deduction for premium taxes.
ANNUITY PAYMENTS
VARIABLE ANNUITY PAYMENTS
A Participant may elect a variable annuity payout. Variable Annuity
Payments reflect the investment performance of Dual Strategy Fund during the
Annuity Period. Variable Annuity Payments are not guaranteed as to dollar
amounts.
The Company will determine the first Annuity Payment by using the 4.5%
annuity table in the Contract. It shows the dollar amount of the first monthly
payment which can be purchased with each $1,000 of value in a Participant
Account after deducting any applicable premium taxes.
2
<PAGE> 27
The value of a Participant Account is determined by multiplying the
Participant's Accumulation Units by the Accumulation Unit value on the
fourteenth day before the first Annuity Payment. The first Annuity Payment
varies according to the Annuity Option selected and the Participant's age.
The Company will determine the number of Annuity Units payable for each
payment by dividing the dollar amount of the first Annuity Payment by the
Annuity Unit value on the Annuity Date. This sets the number of Annuity Units.
The number of Annuity Units payable remains the same unless a Participant
transfers a portion of the annuity benefit to a fixed annuity. The dollar amount
is not fixed and will change from month to month.
The dollar amount of Annuity Payments after the first payment is determined
by multiplying the fixed number of Annuity Units per payment by the Annuity Unit
value on the fourteenth calendar day preceding the payment date. The result is
the dollar amount of the payment.
ANNUITY UNIT
The value of an Annuity Unit is determined by multiplying the value of an
Annuity Unit for the immediately preceding period by the product of
1. the net investment factor for the fourteenth calendar day prior to the
valuation date for which the value is being determined, and
2. .9998794.
VARIABLE ANNUITY FORMULAS
The following formulas summarize the Annuity Payment calculations described
above:
<TABLE>
<S> <C> <C>
Dollar Amount of First Monthly Payment
Number of Variable Annuity Units = -----------------------------------------------------
Variable Annuity Unit Value on Date of First Payment
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Value of Annuity Net Investment Factor
Annuity = Unit on Preceding X .9998794 X for 14th Day Preceding
Unit Value Valuation Date Current Valuation Date
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Dollar Amount
of Second and Number of Annuity Unit Value
Subsequent Annuity = Annuity Units X for Period in Which
Payments Per Payment Payment is Due
</TABLE>
FIXED ANNUITY PAYMENTS
The dollar amount of each fixed Annuity Payment will be at least as great
as that determined in accordance with the 4% annuity table in the Contract. The
fixed annuity provides a 4% annual guaranteed interest rate on all Annuity
Options. The Company may pay or credit excess interest on a fixed annuity at its
discretion.
3
<PAGE> 28
FEDERAL INCOME TAX CONSIDERATIONS
Note: The following description is based upon the Company's understanding of
current federal income tax law applicable to tax-qualified annuities in general.
The Company cannot predict the probability that any changes in such laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of such changes. The Company does not guarantee the tax status of
the policies. Purchasers bear the complete risk that the policies may not be
treated as "Annuity Contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described herein may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other tax
laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"),
governs taxation of annuities in general. A Participant is not taxed on
increases in the value of his or her Participant Account until distribution
occurs, either in the form of a lump sum payment or as Annuity Payments under
the Annuity Option elected. For a lump sum payment received as a total surrender
(total redemption) or death benefit, the recipient is taxed on the portion of
the payment that exceeds the Participant's cost basis, which may be zero. The
taxable portion of a lump sum payment is taxed at ordinary income tax rates.
For Annuity Payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. For traditional IRA Contracts and SEP
and salary reduction SEP Contracts, the exclusion amount for payments based on a
fixed Annuity Option is determined by multiplying the payment by the ratio that
the Participant's cost basis (adjusted for any period certain or refund feature)
bears to the expected return under the Contract. For traditional IRA Contracts
and SEP and salary reduction SEP Contracts, the exclusion amount for payments
based on a variable annuity option is determined by dividing the Participant's
cost basis (adjusted for any period certain or refund feature) by the number of
years over which the annuity is expected to be paid. Payments received after the
Participant's investment has been recovered (i.e., when the total of the
excludable amounts equal the Participant's investment) are fully taxable. The
taxable portion is taxed at ordinary income rates. For Section 401(a), 401(k),
and 403(a) qualified pension, profit-sharing or annuity plans and 403(b)
tax-deferred annuities ("Qualified Plans"), the exclusion amount is generally
determined by dividing the cost-basis of the Contract by the anticipated number
of payments to be made under the Contract. Participants, Annuitants and
beneficiaries under the Contracts should seek competent financial advice about
the tax consequences of any distributions.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, Separate Account A is not a separate entity from
the Company, and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Participant with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than 55% of the total assets consist of cash, cash items, U.S.
government securities and securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contract. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment
4
<PAGE> 29
portfolio will be deemed adequately diversified if: (1) no more than 55% of the
value of the total assets of the portfolio is represented by any one investment;
(2) no more than 70% of the value of the total assets of the portfolio is
represented by any two investments; (3) no more than 80% of the value of the
total assets of the portfolio is represented by any three investments; and (4)
no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that Dual Strategy Fund will be managed in such a
manner as to comply with these diversification requirements.
MULTIPLE IRA CONTRACTS
For purposes of applying Section 72 of the Code to Contracts issued
pursuant to IRAs, SEPs and salary reduction SEPs ("IRA Contracts"), all IRA
Contracts are treated as one Contract and all distributions during a taxable
year are treated as one distribution.
TAX TREATMENT OF ASSIGNMENTS
Contracts issued pursuant to Qualified Plans generally may not be assigned.
The assignment or pledge of an IRA Contract may be a taxable event. The Owner of
a Contract should consult competent tax advisers before assigning or pledging
the Contract.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in the gross
income of the Participant are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as wages
and at the rate of 10% from non-periodic payments. However, the Participant, in
most cases, may elect not to have taxes withheld or to have withholding done at
a different rate.
Effective January 1, 1993, certain distributions from Qualified Plans which
are not directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity are subject to a mandatory
20% withholding for federal income tax. The 20% withholding requirement
generally does not apply to: (a) a series of substantially equal payments made
at least annually for the life or life expectancy of the participant or joint
and last survivor expectancy of the participant and a designated beneficiary, or
for a specified period of 10 years or more; or (b) distributions which are
required minimum distributions; or (c) the portion of the distributions not
includible in gross income (i.e., returns of after-tax contributions).
Participants should consult their own tax counsel or other tax adviser regarding
withholding requirements.
QUALIFIED PLANS
The Contracts offered by the Prospectus are designed to be suitable for use
under various types of Qualified Plans and IRAs. Because of the minimum Premium
Deposit requirements, the Contracts may not be appropriate for some periodic
payment retirement plans. Taxation of participants in each Qualified Plan or IRA
varies with the type of plan and terms and conditions of each specific plan.
Participants, Annuitants and beneficiaries are cautioned that benefits under a
Qualified Plan or IRA may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures.
Participants, Annuitants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. The Prospectus, under "Federal Tax
Matters," describes the types of qualified plans with which the Contract may be
used. Such descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding qualified plans are very complex and will
have differing applications,
5
<PAGE> 30
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to participating in a Contract issued under a
qualified plan.
Contracts issued pursuant to qualified plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, Contracts issued pursuant
to qualified plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from qualified policies.
TAX TREATMENT OF WITHDRAWALS
Special Tax Treatment for Lump Sum Distributions from Qualified Plans. If
the taxpayer receives an amount from a Qualified Plan issued pursuant to a
Qualified Plan and the distribution qualifies as a lump sum distribution under
the Code, the portion of the distribution that is included in income may be
eligible for special tax treatment. The plan administrator should provide the
taxpayer with information about the tax treatment of a lump sum distribution at
the time the distribution is made.
Special Rules for Distributions that are Rolled Over. Special rules apply
to a distribution from a Contract that relates to a Qualified Plan Contract or a
rollover IRA Contract if the distribution is properly rolled over in accordance
with the provisions of the Code. These provisions contain various requirements,
including the requirement that the rollover be made directly from the
distributing plan or within 60 days of receipt:
- To a traditional IRA under Section 408 of the Code.
- To another, similar Qualified Plan.
These special rules only apply to distributions that qualify as "eligible
rollover distributions" under the Code. In general, a distribution from a
Qualified Plan Contract will be an eligible rollover distribution except to the
extent:
- It represents the return of "after-tax" contributions or is not otherwise
includable in income.
- It is part of a series of payments made for the taxpayer's life (or life
expectancy) or the joint lives (or joint life expectancies) of the
taxpayer and his beneficiary under the plan or for a period of more than
ten years.
- It is a required minimum distribution under Section 401(a)(9) of the Code
as described below.
- It is made from a Qualified Plan by reason of a hardship.
The administrator of the applicable Qualified Plan should provide
additional information about these rollover tax rules when a distribution is
made.
Distributions in the Form of Annuity Payments. If any distribution from a
Qualified Plan Contract or IRA Contract is made in the form of annuity payments
(and is not eligible for rollover or is not in any event rolled over), a fixed
portion of each payment is generally excludable from income for federal income
tax purposes to the extent it is treated as allocable to the taxpayer's
"after-tax" contributions to the Contract (and any other cost basis in the
Contract). To the extent the payment exceeds such portion, it is includable in
income. The portion of the annuity payment that is excludable from income is
determined under detailed rules provided in the Code. If the annuity payments
continue after all excludable amounts have been paid, such additional payments
will generally be included in full in income.
Penalty Tax on Withdrawals. Generally, there is a penalty tax equal to 10%
of the portion of any payment from a Qualified Plan Contract or IRA Contract
that is included in income. This 10% penalty will
6
<PAGE> 31
not apply if the distribution meets certain conditions. Some of the
distributions that are excepted from the 10% penalty are listed below:
- A distribution that is made on or after the date the taxpayer reaches age
59 1/2.
- A distribution that is properly rolled over to a traditional IRA or to
another eligible employer plan or account.
- A distribution that is made on or after the death of the taxpayer.
- A distribution that is made when the taxpayer is totally disabled (as
defined in Section 72(m)(7) of the Code).
- A distribution that is made as part of a series of substantially equal
periodic payments which are made at least annually for the taxpayer's
life (or life expectancy) or the joint lives (or joint life expectancies)
of the taxpayer and his joint beneficiary under the Qualified Contract
(and, with respect to Qualified Plan Contracts, which begin after the
taxpayer separates from service with the employer maintaining the plan).
- A distribution that is made to the taxpayer by reason of separation from
service with the employer of the applicable plan during or after the
calendar year in which the taxpayer reaches age 55.
- A distribution that is made to the taxpayer to the extent it does not
exceed the amount allowable as a deduction for medical care under Section
213 of the Code (determined without regard to whether the taxpayer
itemizes deductions).
- A distribution that is made to an alternate payee pursuant to a qualified
domestic relations order (that meets the conditions of Section 414(p) of
the Code) (not applicable to IRA Contracts).
- Distributions from an IRA Contract for the purchase of medical insurance
(as described in Section 213(d)(1)(D) of the Code) for the taxpayer and
his or her spouse and dependents if the taxpayer has received
unemployment compensation for at least 12 weeks (this exception will no
longer apply after the taxpayer has been reemployed for at least 60
days).
- Distributions from an IRA Contract made to the taxpayer to the extent
such distributions do not exceed the qualified higher education expenses
(as defined in Section 72(t)(7) of the Code) of the taxpayer for the
taxable year.
- Distributions from an IRA Contract made to the taxpayer which are
qualified first-time home buyer distributions (as defined in Section
72(t)(8) of the Code).
Required Distributions. Distributions from a Contract issued pursuant to a
Qualified Plan or IRA Contract (other than a Roth IRA) must meet certain rules
concerning required distributions that are set forth in the Code. Such rules are
summarized below:
- Required distributions generally must start by April 1 of the calendar
year following the calendar year in which the taxpayer reaches age
70 1/2.
- If the Contract is issued pursuant to a Qualified Plan and the taxpayer
does not own more than 5% of the employer maintaining the plan, the
required distributions generally do not have to start until April 1 of
the calendar year following the later of the calendar year in which the
taxpayer reaches age 70 1/2 or the calendar year in which the taxpayer
terminates employment with the employer.
- When distributions are required under the Code, a certain minimum amount,
determined under the Code, must be distributed each year.
In addition, other rules apply under the Code to determine when and how
required minimum distributions must be made in the event of the taxpayer's
death. The applicable plan documents will contain such rules.
7
<PAGE> 32
WITHDRAWAL LIMITATIONS
Contracts issued pursuant to 401(k) Qualified Plans and 403(b) tax-deferred
annuities are subject to limitations on when amounts may be distributed. The
Prospectus, under "Federal Tax Matters," describes the applicable limitations.
UNDERWRITER
The Contracts are offered on a continuous basis by the Company's wholly
owned subsidiary, American Fidelity Securities, Inc. ("AFS"), 2000 N. Classen
Boulevard, Oklahoma City, Oklahoma 73106. AFS may also serve as an underwriter
and distributor of other separate accounts of the Company. The aggregate
underwriting commissions paid to and retained by AFS for 1997, 1998, and 1999
were $449,200, $600,700 and $655,000, respectively.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The name and address of the person who maintains physical possession of
the accounts, books and other documents of American Fidelity Separate Account A
required by Section 31(a) of the Investment Company Act of 1940 is David R.
Carpenter, Senior Vice President and Treasurer, American Fidelity Assurance
Company, 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
The financial statements of American Fidelity Separate Account A included
in this Statement of Additional Information have been audited by KPMG LLP,
independent auditors, as set forth in its report appearing below. KPMG LLP's
address is 700 Oklahoma Tower, Oklahoma City, Oklahoma 73102.
LEGAL MATTERS
McAfee & Taft A Professional Corporation has provided advice on certain
matters relating to the federal securities and income tax laws applicable to the
Contracts.
FINANCIAL STATEMENTS
Following are the financial statements of Separate Account A and the
Company. The consolidated financial statements of the Company should be
considered only as bearing on the ability of the Company to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in Separate Account A.
8
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Fidelity Assurance Company:
We have audited the accompanying statements of assets and liabilities of
American Fidelity Separate Account A (Account A) as of December 31, 1999 and the
related statement of operations for the year then ended, and the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of Account A's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1999 were verified by examination
of the underlying portfolio. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of American Fidelity Separate
Account A as of December 31, 1999, the results of its operations for the year
then ended, and the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
January 17, 2000
9
<PAGE> 34
AMERICAN FIDELITY SEPARATE ACCOUNT A
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<S> <C>
Investments, at fair value:
American Fidelity Dual Strategy Fund, Inc. shares (cost $193,408,717) $227,984,913
------------
Total assets 227,984,913
Total liabilities 5,967
------------
Net assets $227,978,946
============
Accumulation units outstanding 7,984,733
============
Net asset value per unit $ 28.5519
============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 35
AMERICAN FIDELITY SEPARATE ACCOUNT A
Statement of Operations
Year ended December 31, 1999
<TABLE>
<S> <C>
Investment loss:
Investment income distributions
from underlying mutual fund $ --
Mortality and expense charges (note 2) 1,963,174
-------------
Net investment loss (1,963,174)
-------------
Realized gains on investments:
Realized gains (losses) distributions
from underlying mutual fund --
Proceeds from sales 185,163,848
Cost of investments sold 108,948,635
-------------
Net realized gains 76,215,213
-------------
Unrealized appreciation on investments:
Beginning of year 75,909,629
End of year 34,576,196
-------------
Decrease in unrealized
appreciation (41,333,433)
-------------
Net increase in net
assets resulting from operations $ 32,918,606
=============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 36
AMERICAN FIDELITY SEPARATE ACCOUNT A
Statements of Changes in Net Assets
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (1,963,174) 168,897
Net realized gains on investments 76,215,213 10,959,470
Increase (decrease) in unrealized appreciation
on investments (41,333,433) 24,642,892
------------- -------------
Net increase in net
assets resulting from operations 32,918,606 35,771,259
------------- -------------
Changes from principal transactions:
Net purchase payments received (notes 2 and 3) 28,997,718 27,107,727
Withdrawal of funds (note 3) (18,485,827) (15,421,088)
------------- -------------
Increase in net assets derived from
principal transactions 10,511,891 11,686,639
------------- -------------
Increase in net assets 43,430,497 47,457,898
Net assets:
Beginning of year 184,548,449 137,090,551
------------- -------------
End of year $ 227,978,946 184,548,449
============= =============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 37
AMERICAN FIDELITY SEPARATE ACCOUNT A
Financial Highlights
<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME AND CAPITAL CHARGES
----------------------------------------------------------------------
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income and expenses:
Investment income * $ 0.0000 $ 0.3370 $ 0.3284 $ 0.2817 $ 0.2163
Operating expenses * 0.2514 0.3141 0.2576 0.1882 0.1364
----------- ----------- ------------ ------------ ------------
Net investment income (loss) (0.2514) 0.0229 0.0708 0.0935 0.0799
Capital changes:
Net realized and unrealized gains from securities 4.4704 4.8468 4.0535 3.0468 3.0251
----------- ----------- ------------ ------------ ------------
Net increase in accumulation unit value 4.2190 4.8697 4.1243 3.1403 3.1050
----------- ----------- ------------ ------------ ------------
Accumulation unit value, beginning of period 24.3329 19.4632 15.3389 12.1986 9.0936
----------- ----------- ------------ ------------ ------------
Accumulation unit value, end of period $ 28.5519 $ 24.3329 $ 19.4632 $ 15.3389 $ 12.1986
=========== =========== ============ ============ ============
Number of accumulation units outstanding, end of period 7,984,733 7,584,332 7,043,575 6,443,056 5,996,795
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
* As discussed in note 1, effective January 1, 1999, Account A transferred its
investment portfolio to the Fund in exchange for shares of the Fund. Prior
to January 1, 1999, the investment income of the portfolio and investment
management expenses of the portfolio were reflected in Account A's financial
statements.
13
<PAGE> 38
AMERICAN FIDELITY SEPARATE ACCOUNT A
Notes to Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
American Fidelity Separate Account A (Account A) is a separate
account of American Fidelity Assurance Company (AFA). Account A
was formerly known as American Fidelity Variable Annuity Fund A,
and operated as an open-end diversified management investment
company from 1968 to December 31, 1998. Effective January 1, 1999,
it was converted to a unit investment trust separate account, and
it transferred its investment portfolio to the American Fidelity
Dual Strategy Fund, Inc. (the Fund) in exchange for shares of the
Fund. There was no impact on the net assets or net asset value per
unit as a result of the transfer.
(b) INVESTMENTS
Account A's investment objectives are primarily long-term growth
of capital and secondarily the production of income. Investments
are made in the portfolio of the Fund and are valued at the
reported net asset values of such portfolio, which values its
investment securities at fair value.
Transactions are recorded on a trade date basis by the Fund.
Income from dividends, and gains from realized gain distributions,
are recorded on the distribution date. Realized gains and losses
from investment transactions and unrealized appreciation or
depreciation of investments are determined on the average cost
basis.
(c) INCOME TAXES
Account A is not taxed separately because the operations of
Account A are part of the total operations of AFA. AFA files its
federal income tax returns under sections of the Internal Revenue
Code applicable to life insurance companies. Account A's net
increase in net assets from operations is not expected to result
in taxable income under present regulations. Account A will not be
taxed as a "regulated investment company" under Subchapter "M" of
the Internal Revenue Code.
(d) ANNUITY RESERVES
Annuity reserves are computed for currently payable contracts
according to the Progressive Annuity Mortality Table. The assumed
interest rate is 3.5 percent unless the annuitant elects
otherwise, in which case the rate may vary from zero to 5 percent
as regulated by the laws of the respective states. Charges to
annuity reserves for mortality and expense risks experience are
reimbursed to AFA if the reserves required are less than
originally estimated. If additional reserves are required, AFA
reimburses Account A. At December 31, 1999, there were no contract
owners who had elected the variable annuity method of payout.
Accordingly, Account A held no annuity reserves at December 31,
1999.
(e) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of
14 (Continued)
<PAGE> 39
the financial statements and the reported amounts of increase and
decrease in net assets from operations during the period. Actual
results could differ from those estimates.
(2) VARIABLE ANNUITY CONTRACTS
AFA manages the operations of Account A and assumes certain mortality and
expense risks under the variable annuity contracts. Mortality and expense
fees are equal to .0026308% of the Account A's daily net assets (.96025%
per annum). All such fees were paid to AFA.
Net purchase payments received represent gross payments less deductions
of $1,092,046 and $1,021,967 for the years ended December 31, 1999 and
1998, respectively. The deductions are comprised of sales charges (3.25%
of purchase payments), minimum death benefits (.75% of purchase
payments), administrative charges ($.500 per payment), and certificate
issuance fees ($15.00 per certificate). These deductions were paid to
AFA.
During the accumulation period, contract owners may partially or totally
withdraw from Account A by surrendering a portion or all of their
accumulation units. The Internal Revenue Code may limit certain
withdrawals based upon age, disability, and other factors. When contract
owners withdraw, they receive the current value of their accumulation
units, less applicable withdrawal charges.
(3) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for the year ended December 31, 1999 were as
follows:
<TABLE>
<S> <C>
Accumulation units:
Outstanding, beginning of year 7,584,332
Increase for payments received 1,107,855
Decrease for withdrawal of funds 707,454
---------
Outstanding, end of year 7,984,733
=========
</TABLE>
(4) YEAR 2000 RISKS (UNAUDITED)
Like other variable annuity funds, financial and business organizations
and individuals around the world, Account A could be adversely affected
if the computer systems used by AFA and Account A's other service
providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the
"Year 2000 Problem." AFA has had a formal project team (including 22
information systems professionals) working to correct the problem since
1996. In the briefest terms, the correction is to change all date-related
fields in AFA's computer systems to four digits instead of two digits. At
the same time, all relationships with systems outside AFA must be checked
for the same change and all must be tested to determine that
relationships continue to be compatible. Conversion efforts were complete
at December 31, 1999. AFA and Account A have not experienced any
significant difficulties to-date relating to Year 2000 issues, and
management does not expect Year 2000 issues to have a significant impact
on AFA's or Account A's operations subsequent to December 31, 1999.
15
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
Board of Directors
American Fidelity Assurance Company:
We have audited the accompanying consolidated balance sheets of American
Fidelity Assurance Company and subsidiaries (the Company) as of December 31,
1999 and 1998, and the related consolidated statements of income, stockholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Fidelity
Assurance Company and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
March 14, 2000
16
<PAGE> 41
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Investments:
Fixed maturities held-to-maturity, at amortized cost
(fair value $222,215 in 1998) $ -- 211,622
Fixed maturities available-for-sale, at fair value
(amortized cost of $942,689 and $691,835
in 1999 and 1998, respectively) 912,589 720,221
Equity securities, at fair value:
Preferred stock (cost $725) 703 --
Common stocks (cost $22,808 and $11,272 in
1999 and 1998, respectively) 25,047 13,317
Mortgage loans on real estate, net 145,507 133,440
Investment real estate, at cost (less accumulated
depreciation of $954 and $815 in 1999
and 1998, respectively) 9,404 10,160
Policy loans 11,234 11,147
Short-term and other investments 52,480 19,181
------------ ------------
1,156,964 1,119,088
------------ ------------
Cash 16,158 17,245
Accrued investment income 15,185 15,523
Accounts receivable:
Uncollected premiums 21,753 22,560
Reinsurance receivable 79,087 61,201
Other 7,436 8,372
------------ ------------
108,276 92,133
------------ ------------
Deferred policy acquisition costs 215,221 193,741
Other assets 7,088 8,497
Separate account assets 242,952 188,721
------------ ------------
Total assets $ 1,761,844 1,634,948
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 42
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
------------ ------------
<S> <C> <C>
Policy liabilities:
Reserves for future policy benefits:
Life and annuity $ 133,188 131,494
Accident and health 185,338 164,067
Unearned premiums 3,866 3,363
Benefits payable 39,116 36,830
Funds held under deposit administration contracts 564,028 577,301
Other policy liabilities 102,298 96,666
------------ ------------
1,027,834 1,009,721
------------ ------------
Other liabilities:
Net deferred income tax liability 49,120 63,155
General expenses, taxes, licenses and fees payable
and other liabilities 43,060 39,868
------------ ------------
92,180 103,023
------------ ------------
Notes payable 146,393 57,858
Separate account liabilities 242,952 188,721
------------ ------------
Total liabilities 1,509,359 1,359,323
------------ ------------
Stockholder's equity:
Common stock, par value $10 per share. 250,000
shares authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 23,244 23,244
Accumulated other comprehensive income (loss) (18,129) 19,775
Retained earnings 244,870 230,106
------------ ------------
Total stockholder's equity 252,485 275,625
Commitments and contingencies (notes 9, 11 and 14)
------------ ------------
Total liabilities and stockholder's equity $ 1,761,844 1,634,948
============ ============
</TABLE>
18
<PAGE> 43
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Premiums:
Life and annuity $ 29,286 26,901 25,282
Accident and health 215,301 206,821 181,944
----------- ----------- -----------
244,587 233,722 207,226
Net investment income 66,352 70,479 69,175
Other 19,237 14,757 13,190
----------- ----------- -----------
Total revenues 330,176 318,958 289,591
----------- ----------- -----------
Benefits:
Benefits paid or provided:
Life and annuity 25,875 18,790 18,045
Accident and health 123,551 116,908 105,594
Interest credited to funded contracts 27,199 29,208 30,207
Increase in reserves for future policy benefits:
Life and annuity (net of (decrease) increase in
reinsurance reserves ceded of $(783),
$1,362, and $55 in 1999, 1998, and 1997, respectively) 2,477 1,179 2,788
Accident and health (net of increase in
reinsurance reserves ceded of $16,583, $9,316,
and $9,838 in 1999, 1998, and 1997, respectively) 6,264 13,588 10,250
----------- ----------- -----------
185,366 179,673 166,884
----------- ----------- -----------
Expenses:
Selling costs 71,258 64,931 56,835
Other operating, administrative and general expenses 52,442 49,258 43,241
Taxes, other than federal income taxes, and licenses
and fees 8,561 7,644 7,251
Increase in deferred policy acquisition costs (21,480) (16,004) (15,240)
----------- ----------- -----------
110,781 105,829 92,087
----------- ----------- -----------
Total benefits and expenses 296,147 285,502 258,971
----------- ----------- -----------
Income before income taxes 34,029 33,456 30,620
----------- ----------- -----------
Income taxes:
Current 5,390 10,482 2,680
Deferred 6,375 508 5,802
----------- ----------- -----------
11,765 10,990 8,482
----------- ----------- -----------
Net income $ 22,264 22,466 22,138
=========== =========== ===========
Basic net income per share $ 89.06 89.86 88.55
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 44
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDER'S
STOCK CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 2,500 19,916 232,042 6,252 260,710
Comprehensive income:
Net income -- -- 22,138 -- 22,138
Net change in unrealized holding
gain on investments available-
for-sale, net of deferred taxes -- -- -- 7,119 7,119
-------------
Comprehensive income 29,257
Dividends -- -- (33,834) -- (33,834)
Capital contribution -- 3,328 -- -- 3,328
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1997 2,500 23,244 220,346 13,371 259,461
Comprehensive income:
Net income -- -- 22,466 -- 22,466
Net change in unrealized holding
gain on investments available-
for-sale, net of deferred taxes -- -- -- 6,404 6,404
-------------
Comprehensive income 28,870
Dividends -- -- (12,706) -- (12,706)
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1998 2,500 23,244 230,106 19,775 275,625
Comprehensive income:
Net income -- -- 22,264 -- 22,264
Investments transferred to
available-for-sale, net of
deferred taxes -- -- -- 6,885 6,885
Net change in unrealized holding
gain (loss) on investments available-
for-sale, net of deferred taxes -- -- -- (44,789) (44,789)
-------------
Comprehensive loss (15,640)
Dividends -- -- (7,500) -- (7,500)
------------ ------------ ------------ ------------- -------------
Balance at December 31, 1999 $ 2,500 23,244 244,870 (18,129) 252,485
============ ============ ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 45
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,264 22,466 22,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation on investment real estate 142 212 653
Accretion of discount on investments (281) (793) (546)
Realized losses (gains) on investments 1,683 (2,053) (1,823)
Increase in deferred policy acquisition costs (21,480) (16,004) (15,240)
Decrease (increase) in accrued investment income 338 (1,166) (218)
(Increase) decrease in accounts receivable (16,143) 1,189 (23,254)
Increase in policy liabilities 26,643 32,450 27,694
Increase in interest credited on deposit and
other investment-type contracts 27,199 29,208 30,207
Charges on deposit and other investment-type contracts (7,276) (3,255) (2,878)
Increase in general expenses, taxes, licenses and
fees payable and other liabilities 3,192 3,769 2,656
Deferred income taxes 6,375 508 5,802
Other 1,409 (2,737) 949
------------ ------------ ------------
Total adjustments 21,801 41,328 24,002
------------ ------------ ------------
Net cash provided by operating activities 44,065 63,794 46,140
------------ ------------ ------------
Cashflows from investing activities: Sale, maturity or repayment of
investments:
Fixed maturities held-to-maturity -- 24,305 20,940
Fixed maturities available-for-sale 186,806 122,675 133,727
Equity securities 6,930 160 11,673
Mortgage loans on real estate 21,974 29,244 20,200
Real estate 2,350 3,244 9,221
Net (increase) decrease in short-term and
other investments (33,299) 1,589 (11,013)
Purchase of investments:
Fixed maturities held-to-maturity -- (492) (4,349)
Fixed maturities available-for-sale (227,892) (191,017) (211,464)
Equity securities (18,746) (409) (19,489)
Mortgage loans on real estate (34,171) (27,415) (24,793)
Real estate (1,599) (3,263) (1,403)
Policy loans, net (87) (2,479) (309)
Cash received upon assumption of reserves (note 12) -- 18,747 --
------------ ------------ ------------
Net cash used in investing activities (97,734) (25,111) (77,059)
------------ ------------ ------------
</TABLE>
21 (Continued)
<PAGE> 46
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid to parent $ (7,500) (12,706) (14,156)
Capital contribution from parent -- -- 3,328
Proceeds from notes payable 240,208 25,000 109,775
Repayment of notes payable (151,673) (17,861) (76,583)
Deposits from deposit and other investment-type
contracts 57,780 60,269 87,709
Withdrawals from deposit and other investment-type
contracts (86,233) (84,567) (86,689)
------------ ------------ ------------
Net cash provided by (used in) financing activities 52,582 (29,865) 23,384
------------ ------------ ------------
Net (decrease) increase in cash (1,087) 8,818 (7,535)
Cash at beginning of year 17,245 8,427 15,962
------------ ------------ ------------
Cash at end of year $ 16,158 17,245 8,427
============ ============ ============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest on notes payable $ 4,263 3,073 2,076
============ ============ ============
Federal income taxes $ 4,400 6,600 4,800
============ ============ ============
Supplemental disclosure of noncash investing activities:
Change in unrealized holding gain on investments
available-for-sale, net of deferred tax expense (benefit)
of ($20,410), $3,449, and $3,840 in 1999, 1998, and
1997, respectively $ (37,904) 6,404 7,119
============ ============ ============
</TABLE>
22 (Continued)
<PAGE> 47
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year ended December 31, 1999, 1998, and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of noncash financing activities:
Amounts transferred to Parent through dividend of
common stock of affiliated companies:
Fixed maturities $ -- -- 8,567
========== ========== ==========
Real estate, net $ -- -- 2,632
========== ========== ==========
Short-term and other investments $ -- -- 3,006
========== ========== ==========
Accounts receivable $ -- -- 732
========== ========== ==========
Accrued investment income $ -- -- 109
========== ========== ==========
Other assets $ -- -- 241
========== ========== ==========
Policy liabilities $ -- -- 378
========== ========== ==========
Notes payable $ -- -- 2,312
========== ========== ==========
Deferred tax liability $ -- -- 683
========== ========== ==========
Other liabilities $ -- -- 682
========== ========== ==========
Amounts transferred to Parent through dividend of common stock of
non-affiliated companies:
Common stock $ -- -- 6,485
========== ========== ==========
Deferred tax liability assumed by the Company $ -- -- (1,961)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
23
<PAGE> 48
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
American Fidelity Assurance Company (AFA or the Company) and
subsidiaries provide a variety of financial services. AFA is a
wholly owned subsidiary of American Fidelity Corporation (AFC), a
Nevada insurance holding company. The Company is subject to state
insurance regulations and periodic examinations by state insurance
departments.
AFA is licensed in 49 states and the District of Columbia with
approximately 35% of direct premiums written in Oklahoma, Texas,
and California. AFA is represented by approximately 245 salaried
managers and agents, and over 7,200 brokers. Activities of AFA are
largely concentrated in the group disability income, group and
individual annuity, and individual medical markets. In addition,
individual and group life business is also conducted. The main
thrust of AFA's sales is worksite marketing of voluntary products
through the use of payroll deduction. The Company sells these
voluntary products through a salaried sales force that is broken
down into two divisions: the Association Worksite Division (AWD)
and American Fidelity Educational Services (AFES). AWD specializes
in voluntary disability income insurance programs aimed at
selected groups and associations whose premiums are funded by
employees through payroll deductions. AFES focuses on marketing to
public school employees with voluntary insurance products such as
disability income, tax sheltered annuities, life insurance, dread
disease, and accidental death and dismemberment. These premiums
are also funded by employees through payroll deductions. The
expertise gained by the Company in worksite marketing of voluntary
products is used by the Strategic Alliance Division in developing
products to meet special situations and focusing on marketing to a
broad range of employers through independent broker agencies and
agents interested in getting into or enhancing their payroll
deduction capability.
A significant portion of the Company's business consists of group
and individual annuities. The Company's earnings related to these
products are impacted by conditions in the overall interest rate
environment.
(b) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which
vary in some respects from statutory accounting practices
prescribed or permitted by state insurance departments (see note
2). The consolidated financial statements include the accounts and
operations of AFA and its wholly owned subsidiaries, except where
control is expected to be temporary. All significant intercompany
accounts and transactions have been eliminated in the consolidated
financial statements.
(c) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from those estimates. Principal estimates that could
24 (Continued)
<PAGE> 49
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
change in the future are the actuarial assumptions used in
establishing deferred policy acquisition costs and policy
liabilities.
(d) INVESTMENTS
Management determines the appropriate classification of
investments at the time of purchase. If management has the intent
and the Company has the ability at the time of purchase to hold
the investments until maturity, they are classified as
held-to-maturity and carried at amortized cost. Investments to be
held for indefinite periods of time and not intended to be
held-to-maturity are classified as available-for-sale and carried
at fair value. Fair values of investments available-for-sale are
based on quoted market prices.
The effects of any unrealized holding gains or losses on
securities available-for-sale are reported as accumulated other
comprehensive income, a separate component of stockholder's
equity, net of deferred taxes. Transfers of securities between
categories are recorded at fair value at the date of transfer.
Fixed maturities held-to-maturity and short-term investments
(bonds, notes, and redeemable preferred stocks) are reported at
cost, adjusted for amortization of premium or accretion of
discount because it is management's intent to hold these
investments to maturity. Equity securities (common and
nonredeemable preferred stocks) are reported at current fair
value. Mortgage loans on real estate are reported at the unpaid
balance less an allowance for possible losses. Investment in real
estate is carried at cost less accumulated depreciation.
Investment in real estate, excluding land, is depreciated on a
straight-line basis using the estimated life of 39 years. Policy
loans are reported at the unpaid balance.
Realized gains or losses on disposal of investments are determined
on a specific-identification basis and are included in the
accompanying consolidated statements of income.
Because the Company's primary business is in the insurance
industry, the Company holds a significant amount of assets that
are matched with its liabilities in relation to maturity and
interest margin. In order to maximize earnings and minimize risk,
the Company invests in a diverse portfolio of investments. The
portfolio is diversified by geographic region, investment type,
underlying collateral, maturity, and industry. Management does not
believe the Company has any significant concentrations of credit
risk in its investments.
The investment portfolio includes fixed maturities, equity
securities, mortgage loans, real estate, policy loans, and
short-term investments. The Company's portfolio does not include
any fixed maturities that are low investment-grade and have a
high-yield ("junk bonds"). The Company limits its risks by
investing in fixed maturities and equity securities of rated
companies; mortgage loans adequately collateralized by real
estate; selective real estate supported by appraisals; and policy
loans collateralized by policy cash values. In addition, the
Company performs due diligence procedures prior to making mortgage
loans. These procedures include evaluations of the
creditworthiness of the mortgagees and/or tenants and independent
appraisals. Certain fixed maturities are guaranteed by the United
States government.
25 (Continued)
<PAGE> 50
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The Company periodically reviews its investment portfolio to
determine if allowances for possible losses are necessary. In
connection with this determination, management reviews published
market values, credit ratings, independent appraisals, and other
valuation information. While management believes that the
allowances are adequate, adjustments may be necessary in the
future due to changes in economic conditions. In addition,
regulatory agencies periodically review investment valuation as an
integral part of their examination process. Such agencies may
require the Company to recognize adjustments to the allowance for
losses based upon available information and judgments of the
regulatory examiners at the time of their examination.
(e) RECOGNITION OF PREMIUM REVENUE AND COSTS
Revenues from life, payout annuity (with life contingencies), and
accident and health policies represent premiums recognized over
the premium-paying period and are included in life, annuity, and
accident and health premiums. Expenses are associated with earned
premiums to result in recognition of profits over the life of the
policies. Expenses include benefits paid to policyholders and the
change in the reserves for future policy benefits.
Revenues from accumulation policies, which are included in other
revenues, represent amounts assessed against policyholders. Such
assessments are principally surrender charges. Policyholder
account balances for accumulation annuities consist of premiums
received, plus credited interest, less accumulated policyholder
assessments. Policyholder account balances are reported in the
consolidated balance sheets as funds held under deposit
administration contracts. Expenses for accumulation annuities
represent interest credited to policyholder account balances.
Revenues from universal life policies, which are included in other
revenues, represent amounts assessed against policyholders. Such
assessments are principally mortality charges, surrender charges,
and policy service fees. Policyholder account balances consist of
premiums received plus credited interest, less accumulated
policyholder assessments. Policyholder account balances are
reported in the consolidated balance sheets as other policy
liabilities. Expenses include interest credited to policyholder
account balances and benefits in excess of account balances
returned to policyholders.
(f) POLICY ACQUISITION COSTS
The Company defers costs which vary with and are primarily related
to the production of new business. Deferred costs associated with
life, annuity, universal life, and accident and health insurance
policies consist principally of field sales compensation, direct
response costs, underwriting and issue costs, and related
expenses. Deferred costs associated with life policies are
amortized (with interest) over the anticipated premium paying
period of the policies using assumptions that are consistent with
the assumptions used to calculate policy reserves. Deferred costs
associated with annuities and universal life policies are
amortized over the life of the policies at a constant rate based
on the present value of the estimated gross profit to be realized.
Deferred costs related to accident and health insurance policies
are amortized over the anticipated premium paying period of the
policies based on the Company's experience. Deferred
26 (Continued)
<PAGE> 51
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
policy acquisition costs are subject to recoverability testing at
the time of policy issue and at the end of each accounting period,
and are written off if determined to be unrecoverable.
(g) POLICY LIABILITIES
Life and annuity and accident and health policy benefit reserves
are primarily calculated using the net level reserve method. The
net level reserve method includes assumptions as to future
investment yields, withdrawal rates, mortality rates, and other
assumptions based on the Company's experience. These assumptions
are modified as necessary to reflect anticipated trends and
include provisions for possible unfavorable deviation.
Reserves for benefits payable are determined using case-basis
evaluations and statistical analyses. These reserves represent the
estimate of all benefits incurred but unpaid. The estimates are
periodically reviewed and, as adjustments become necessary, they
are reflected in current operations. Although such estimates are
the Company's best estimate of the ultimate value, the actual
results may vary from these values in either direction.
(h) REINSURANCE
The Company accounts for reinsurance transactions as prescribed by
Statement of Financial Accounting Standards No. 113, "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" (Statement 113). Statement 113 requires the reporting
of reinsurance transactions relating to the balance sheet on a
gross basis and precludes immediate gain recognition on
reinsurance contracts.
(i) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
(j) EQUIPMENT
Equipment, which is included in other assets, is stated at cost
and is depreciated on a straight-line basis using estimated lives
of 3 to 10 years. Additions, renewals, and betterments are
capitalized. Expenditures for maintenance and repairs generally
are expensed. The costs associated with internally developed
software are generally capitalized. Upon retirement or disposal of
an asset, the asset and related accumulated depreciation are
eliminated and any related gain or loss is included in income.
27 (Continued)
<PAGE> 52
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(k) SEPARATE ACCOUNTS
The Company maintains a separate account under Oklahoma insurance
law designated as American Fidelity Separate Account A (Account
A). Account A was formerly known as American Fidelity Variable
Annuity Fund A, and operated as an open-end diversified management
investment company from 1968 to December 31, 1998. Effective
January 1, 1999, it was converted to a unit investment trust
separate account, and it transferred its investment portfolio to
the American Fidelity Dual Strategy Fund (the Fund), an open-end
investment company sponsored by AFA, in exchange for shares of the
Fund. Under Oklahoma law, the assets of Account A are segregated
from the Company's assets, are held for the exclusive benefit of
the variable annuity contract owners and are not chargeable with
liabilities arising out of the business conducted by any other
account or by the Company.
The Company also maintains a separate account under Oklahoma
insurance law designated as American Fidelity Separate Account B
(Account B). Account B is registered as a unit investment trust
under the Investment Company Act of 1940, as amended. Under
Oklahoma law, the assets of each of the twelve segregated
sub-accounts are held for the exclusive benefit of the variable
annuity contract owners and are not chargeable with liabilities
arising out of the business conducted by any other account or by
the Company.
(l) BASIC NET INCOME PER SHARE
Basic net income per share is based on the weighted average number
of shares outstanding. During the years ended December 31, 1999,
1998, and 1997, the weighted average number of shares outstanding
was 250,000. There are no dilutive securities outstanding.
(m) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to be consistent
with the current year presentation.
(n) COMPREHENSIVE INCOME
The Company accounts for comprehensive income as prescribed by
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements.
Comprehensive income (loss) consists of net income and net
unrealized gains (losses) on securities available-for-sale and is
presented in the consolidated statements of stockholder's equity.
SFAS No. 130 requires only additional disclosures in the
consolidated financial statements; it does not affect the
Company's financial position or results of operations.
(o) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging
activities. It requires
28 (Continued)
<PAGE> 53
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
that a company recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure
those instruments at fair value. This statement is required to be
adopted by the Company in 2001. Management does not anticipate
this statement to have a material adverse impact on the
consolidated financial position or the future results of
operations of the Company.
In October 1998, the AICPA issued Statement of Position 98-7,
"Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts that do not Transfer Insurance Risk" (SOP 98-7). This
statement provides that insurance and reinsurance contracts for
which the deposit method is appropriate should be classified and
accounted for as one of the following, those that (1) transfer
only significant timing risk, (2) transfer only significant
underwriting risk, (3) transfer neither significant timing nor
underwriting risk, or (4) have an indeterminate risk. SOP 98-7
does not address when deposit accounting should be applied. SOP
98-7 is effective for fiscal years beginning after June 15, 1999.
Management does not anticipate this statement to have a material
adverse impact on the consolidated financial position or the
future results of operations of the Company.
The Company adopted AICPA Statement of Position No. 97-3,
"Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3) in 1999. This statement
provides: (1) guidance for determining when an entity should
recognize a liability for guaranty-fund and other
insurance-related assessments, (2) guidance on how to measure the
liability, (3) guidance on when an asset may be recognized for a
portion or all of the assessment liability or paid assessment that
can be recovered through premium tax offsets or policy surcharges,
and (4) requirements for disclosures of certain information. In
the past, the Company has accounted for insurance-related
assessments in a manner consistent with the guidance provided by
SOP 97-3. The adoption of SOP 97-3 did not have a material impact
on the consolidated financial position or results of the
operations of the Company.
The Company adopted AICPA Statement of Position No. 98-1 (SOP
98-1), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" in 1999. This statement provides
guidance for determining whether costs of software developed or
obtained for internal use should be capitalized or expensed as
incurred. The guidance provided by SOP 98-1 applies only to such
costs incurred prospectively and is not retroactive to prior
periods. In the past, the Company has capitalized certain costs
related to internally-developed software, in a manner consistent
with the guidance provided by SOP 98-1. The adoption of SOP 98-1
did not have a material impact on the consolidated financial
position or results of the operations of the Company.
(2) STATUTORY FINANCIAL INFORMATION
The Company is required to file statutory financial statements with state
insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from financial statements
prepared on the basis of generally accepted accounting principles. The
Company reported statutory net income for the years ended December 31,
1999, 1998, and 1997, of approximately $13,876,000, $12,577,000, and
$16,276,000, respectively. The Company reported
29 (Continued)
<PAGE> 54
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
statutory capital and surplus at December 31, 1999 and 1998, of
approximately $132,194,000 and $126,277,000, respectively.
Retained earnings of the Company are restricted as to payment of
dividends by statutory limitations applicable to insurance companies.
Without prior approval of the state insurance department, dividends that
can be paid by the Company are generally limited to the greater of (a)
10% of statutory capital and surplus, or (b) the statutory net gain from
operations. These limitations are based on the amounts reported for the
previous calendar year.
The Oklahoma Insurance Department has adopted risk based capital (RBC)
requirements for life insurance companies. These requirements are
applicable to the Company. The RBC calculation serves as a benchmark for
the regulation of life insurance companies by state insurance regulators.
RBC provides for surplus formulas similar to target surplus formulas used
by commercial rating agencies. The formulas specify various weighting
factors that are applied to statutory financial balances or various
levels of activity based on the perceived degree of risk, and are set
forth in the RBC requirements. The amount determined under such formulas
is called the authorized control level RBC (ACLC).
The RBC guidelines define specific capital levels based on a company's
ACLC that are determined by the ratio of the company's total adjusted
capital (TAC) to its ACLC. TAC is equal to statutory capital, plus the
Asset Valuation Reserve and any voluntary investment reserves, 50% of
dividend liability, and certain other specified adjustments. Companies
where TAC is less than or equal to 2.0 times ACLC are subject to certain
corrective actions, as set forth in the RBC requirements.
At December 31, 1999 and 1998, the statutory TAC of the Company
significantly exceeds the level requiring corrective action.
On March 16, 1998, the NAIC approved the codification of statutory
accounting practices. The codification will constitute the only source of
"prescribed" statutory accounting practices and is subject to adoption by
the Oklahoma Insurance Department. The Statements of Statutory Accounting
Principles established under the codification are generally effective
January 1, 2001. The Company will be determining the impact the adoption
of the codification will have on statutory surplus during 2000.
30 (Continued)
<PAGE> 55
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(3) INVESTMENTS
Investment income for the years ended December 31 is summarized below (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Interest on fixed maturities $64,891 64,207 61,556
Dividends on equity securities 137 7 25
Interest on mortgage loans 11,993 11,890 12,091
Investment real estate income 1,073 1,208 2,285
Interest on policy loans 1,408 1,468 1,411
Interest on short-term investments 800 267 244
Net realized gains (losses) on investments (1,683) 2,053 1,823
Other 949 647 787
------- ------- -------
79,568 81,747 80,222
Less investment expenses (13,216) (11,268) (11,047)
------- ------- -------
Net investment income $66,352 70,479 69,175
======= ======= =======
</TABLE>
Net realized gains (losses) and the changes in unrealized gains (losses)
on investments for the years ended December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- -------------------
REALIZED UNREALIZED REALIZED UNREALIZED REALIZED UNREALIZED
-------- ---------- -------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities
held-to-maturity $ -- -- 90 -- 173 --
Fixed maturities
available-for-sale (2,135) (58,486) 534 8,521 449 12,600
Equity securities 445 172 -- 1,332 -- (1,641)
Real estate 137 -- 1,283 -- 1,219 --
Mortgage loans (130) -- 147 -- (15) --
Other -- -- (1) -- (3) --
------- ------- ------- ------- ------- -------
$(1,683) (58,314) 2,053 9,853 1,823 10,959
======= ======= ======= ======= ======= =======
</TABLE>
Included in the above realized gains (losses) is the increase (decrease)
in the allowance for possible losses on mortgage loans of $130,000,
$(147,000), and $16,000, in 1999, 1998, and 1997, respectively. In
addition, the Company realized net gains of approximately $65,000,
$554,000, and $1,000 during 1999, 1998 and 1997, respectively, on
investments in fixed maturities that were called or prepaid.
31 (Continued)
<PAGE> 56
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(a) HELD-TO-MATURITY
The amortized cost and estimated fair value of investments in
fixed maturities held-to-maturity are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 9,011 992 -- 10,003
Corporate securities 118,417 7,445 -- 125,862
Mortgage-backed securities 84,194 2,181 (25) 86,350
-------- -------- -------- --------
Totals
$211,622 10,618 (25) 222,215
======== ======== ======== ========
</TABLE>
Effective January 1, 1999, management of the Company changed its
intent to hold securities to maturity. The Company transferred all
of its held-to-maturity securities to available-for-sale during
1999.
Proceeds from sales of investments in fixed maturities
held-to-maturity during 1998 and 1997 were approximately
$5,887,000 and $9,006,000, respectively. Gross gains of
approximately $173,000, in 1997, were realized on those sales. In
1998, gross losses of approximately $124,000 were realized on
those sales. In 1998 and 1997, significant deterioration in the
issuers' creditworthiness caused the Company to change its intent
to hold these securities to maturity.
(b) AVAILABLE-FOR-SALE
The gross unrealized holding gains on equity securities
available-for-sale were approximately $2,361,000 and $2,108,000 in
1999 and 1998, respectively. Gross unrealized holding losses on
equity securities available-for-sale were approximately $144,000
and $63,000 in 1999 and 1998, respectively.
32 (Continued)
<PAGE> 57
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
The amortized cost and estimated fair value of investments in
fixed maturities available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 56,990 439 (1,326) 56,103
Corporate securities 597,725 1,984 (22,471) 577,238
Mortgage-backed securities 287,974 723 (9,449) 279,248
-------- -------- -------- --------
Totals $942,689 3,146 (33,246) 912,589
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 89,249 3,230 (25) 92,454
Corporate securities 439,030 21,958 (290) 460,698
Mortgage-backed securities 163,556 3,652 (139) 167,069
-------- -------- -------- --------
Totals $691,835 28,840 (454) 720,221
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of investments in
fixed maturities available-for-sale at December 31, 1999 are shown
below (in thousands) by contractual maturity. Expected maturities
will differ from contractual maturities because the issuers of
such securities may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less $ 38,044 38,139
Due after one year through five years 232,763 230,717
Due after five years through ten years 209,180 201,112
Due after ten years 174,728 163,373
-------- --------
654,715 63,341
Mortgage-backed securities 287,974 279,248
-------- --------
$942,689 912,589
======== ========
</TABLE>
33 (Continued)
<PAGE> 58
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Proceeds from sales of investments in fixed maturities
available-for-sale were approximately $96,932,000, $37,058,000,
and $102,958,000, in 1999, 1998, and 1997, respectively. Gross
gains of approximately $481,000, $206,000, and $1,152,000 and
gross losses of approximately $2,681,000, $12,000, and $704,000,
were realized on those sales in 1999, 1998, and 1997,
respectively.
At December 31, 1999, 1998 and 1997, investments with carrying
values of approximately $2,481,000, $2,662,000, and $2,497,000,
respectively, were on deposit with state insurance departments as
required by statute.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments (in thousands) and the
fair value estimates, methods, and assumptions are set forth below:
<TABLE>
<CAPTION>
1999 1998
-------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash $16,158 16,158 17,245 17,245
Short-term and other investments 52,480 52,480 19,181 19,181
Accounts receivable 29,189 29,189 30,932 30,932
Accrued investment income 15,185 15,185 15,523 15,523
Reinsurance receivables on paid
and unpaid benefits 79,087 79,087 61,201 61,201
Policy loans 11,234 11,234 11,147 11,147
Fixed maturities held-to-maturity -- -- 211,622 222,215
Fixed maturities 912,589 912,589 720,221 720,221
available-for-sale
Equity securities 25,750 25,750 13,317 13,317
Mortgage loans 145,507 142,908 133,440 142,600
Financial liabilities:
Certain policy liabilities 624,853 612,730 637,618 620,611
Other liabilities 43,060 43,060 39,868 39,868
Notes payable 146,393 145,069 57,858 58,250
</TABLE>
CASH, SHORT-TERM AND OTHER INVESTMENTS, ACCOUNTS RECEIVABLE, ACCRUED
INVESTMENT INCOME, REINSURANCE RECEIVABLES ON PAID AND UNPAID BENEFITS,
AND OTHER LIABILITIES The carrying amount of these financial instruments
approximates fair value because they mature within a relatively short
period of time and do not present unanticipated credit concerns.
POLICY LOANS
Policy loans have average interest rates of 5.96% and 6.75% as of
December 31, 1999 and 1998, respectively, and have no specified maturity
dates. The aggregate fair value of policy loans approximates the carrying
value reflected on the consolidated balance sheets. These loans typically
34 (Continued)
<PAGE> 59
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
carry an interest rate that is tied to the crediting rate applied to the
related policy and contract reserves. Policy loans are an integral part
of the life insurance policies which the Company has in force and cannot
be valued separately.
FIXED MATURITY INVESTMENTS
The fair value of fixed maturity investments is estimated based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain securities is not readily
available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for the differences between the quoted instruments and the
instruments being valued.
EQUITY SECURITIES
The fair value of equity securities investments of the Company is based
on bid prices published in financial newspapers or bid quotations
received from securities dealers.
MORTGAGE LOANS
Fair values are estimated for portfolios of loans with similar
characteristics. Mortgage loans are segregated into either commercial or
residential categories, and have average net yield rates of 7.72% and
8.27% for December 31, 1999 and 1998, respectively. The fair value of
mortgage loans was calculated by discounting scheduled cash flows to
maturity using estimated market discount rates of 8.45% and 7.15% for
December 31, 1999 and 1998, respectively. These rates reflect the credit
and interest rate risk inherent in the loans. Assumptions regarding
credit risk, cash flows, and discount rates are judgmentally determined
using available market information and specific borrower information. The
fair value of certain residential loans is based on the approximate fair
value of the underlying real estate securing the mortgages.
CERTAIN POLICY LIABILITIES
Certain policies sold by the Company are investment-type contracts. These
liabilities are segregated into two categories: deposit administration
funds and immediate annuities which do not have life contingencies. The
fair value of the deposit administration funds is estimated as the cash
surrender value of each policy less applicable surrender charges. The
fair value of the immediate annuities without life contingencies is
estimated as the discounted cash flows of expected future benefits less
the discounted cash flows of expected future premiums, using the current
pricing assumptions. The carrying amount of all other policy liabilities
approximates fair value.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ------------ --------- ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Funds held under deposit
administration contracts $564,028 550,638 577,301 560,650
Annuities 60,825 62,092 60,317 59,961
</TABLE>
35 (Continued)
<PAGE> 60
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
NOTES PAYABLE
The fair value of the Company's notes payable is estimated by discounting
the scheduled cash flows of each instrument through the scheduled
maturity. The discount rates used are similar to those used for the
valuation of the Company's commercial mortgage loan portfolio, except for
the Company's notes payable to the Federal Home Loan Bank of Topeka,
which are valued using discount rates at or near the carried rates
because the notes have relatively short lives or carry the option of
conversion to an adjustable rate.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument, nor do they reflect income
taxes on differences between fair value and tax basis of the assets.
Because no established exchange exists for a significant portion of the
Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
(5) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs principally represent field sales
compensation, direct response costs, underwriting and issue costs, and
related expenses. Information relating to the increase in deferred policy
acquisition costs, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT
AND ANNUITY AND HEALTH TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Year ended December 31, 1999:
Deferred costs $ 8,650 38,369 47,019
Amortization (7,202) (18,337) (25,539)
------- ------- -------
Net increase
$ 1,448 20,032 21,480
======= ======= =======
Year ended December 31, 1998:
Deferred costs $ 7,260 33,371 40,631
Amortization (4,669) (19,958) (24,627)
------- ------- -------
Net increase
$ 2,591 13,413 16,004
======= ======= =======
Year ended December 31, 1997:
Deferred costs $ 8,600 28,734 37,334
Amortization (5,581) (16,513) (22,094)
------- ------- -------
Net increase
$ 3,019 12,221 15,240
======= ======= =======
</TABLE>
36 (Continued)
<PAGE> 61
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(6) RESERVES FOR FUTURE POLICY BENEFITS
Reserves for life and annuity future policy benefits as of December 31
are principally based on the interest assumptions set forth below
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST
1999 1998 ASSUMPTIONS
------- ------- --------------
<S> <C> <C> <C>
Life and annuity reserves:
Issued prior to 1970 $ 3,195 3,218 4.75%
Issued 1970 through 1980 27,874 28,458 6.75% to 5.25%
Issued after 1982 (indeterminate
premium products) 587 593 10.00% to 8.50%
Issued through 1987 (SGLI acquisition) 1,296 1,336 11.00%
Issued 1981 - 1994 (all other) 29,560 28,875 8.50% to 7.00%
Issued after 1994 (all other) 5,487 4,195 7.00%
Life contingent annuities 33,250 32,825 Various *
Group term life waiver of premium
disabled lives 5,803 5,287 6.00%
Reserves acquired through assumption
reinsurance agreement (see note 12) 20,673 21,971 5.50% to 2.25%
All other life reserves 5,463 4,736 Various
-------- -------
$133,188 131,494
======== =======
</TABLE>
* These reserves are revalued as limited-pay contracts. As a result, the
reserve is somewhat greater than the present value of future benefits and
expenses at the assumed interest rates, i.e., the actual interest rates
required to support the reserves are somewhat lower than the rates
assumed.
Assumptions as to mortality are based on the Company's prior experience.
This experience approximates the 1955-60 Select and Ultimate Table
(individual life issued prior to 1981), the 1965-70 Select and Ultimate
Table (individual life issued in 1981 and after) and the 1960 Basic Group
Table (all group issues). Assumptions for withdrawals are based on the
Company's prior experience. All assumptions used are adjusted to provide
for possible adverse deviations.
(7) LIABILITY FOR BENEFITS PAYABLE
The provision for benefits pertaining to prior years increased by
approximately $2,000,000 in 1999 due to higher than anticipated loss
experience, primarily related to cancer and group disability business.
The provision for benefits pertaining to prior years did not change
significantly in 1998.
37 (Continued)
<PAGE> 62
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
(8) NOTES PAYABLE
Notes payable as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(in thousands)
<S> <C> <C>
6.20% line of credit, due in 2000, interest due monthly $ 15,000 --
6.01% line of credit, due in 2000, interest due monthly 20,000 --
6.21% line of credit, due in 2000, interest due monthly 40,000 --
5.88% line of credit, due in 2000, interest due monthly 10,000 --
6.84% line of credit, due in 2000, interest due monthly 4,000 4,000
5.81% line of credit, due in 2002, interest due monthly 10,000 10,000
5.78% line of credit, due in 2002, interest due monthly 3,000 3,000
5.80% line of credit, due in 2004, interest due monthly 5,000 --
5.05% line of credit, due in 2005, interest due monthly 4,286 5,000
5.55% line of credit, due in 2008, interest due monthly 6,500 6,500
5.03% line of credit, due in 2008, interest due monthly 5,000 5,000
5.60% line of credit, due in 2009, interest due monthly 5,000 --
5.87% line of credit, due in 2014, interest due monthly 15,000 --
7.50% construction loan due in 2010, interest due monthly,
principal payments due monthly beginning in 2001 3,607 --
Various notes payable, paid in 1999 -- 24,358
-------- ------
$146,393 57,858
======== ======
</TABLE>
AFA has a $142,786,000 and $55,000,000 line of credit with the Federal
Home Loan Bank of Topeka at December 31, 1999 and 1998, respectively. The
line of credit is secured by investment securities pledged as collateral
by AFA with a carrying value of approximately $157,562,000 and
$71,230,000 at December 31, 1999 and 1998, respectively. The collateral
required for this line of credit at December 31, 1999 and 1998, was
$148,323,000 and $63,250,000, respectively. The pledged securities are
held in the Company's name in a custodial account at InvesTrust, N.A., to
secure current and future borrowings. To participate in this available
credit, AFA has acquired 248,791 shares of Federal Home Loan Bank of
Topeka common stock with a total carrying value of approximately
$24,879,000 at December 31, 1999.
The Company has unused lines of credit of approximately $25,452,000
available at December 31, 1999.
The Company has an unused line of credit of approximately $100,000,000
pertaining to possible Year 2000 issues. Since the Company has not
experienced significant difficulties to-date relating to Year
38 (Continued)
<PAGE> 63
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
2000 issues, management does not anticipate drawing on the line of credit
prior to its expiration in April 2000.
Interest expense for the years ended December 31, 1999, 1998, and 1997,
totaled approximately $4,730,000, $3,336,000, and $2,076,000,
respectively.
Scheduled maturities (excluding interest) of the above indebtedness at
December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 89,000
2001 30
2002 13,036
2003 38
2004 5,041
Thereafter 39,248
--------
$146,393
========
</TABLE>
(9) INCOME TAXES
Total income tax expense in the accompanying consolidated statements of
income differs from the federal statutory rate of 35% of income before
income taxes principally due to payments made to AFC in 1999 and 1998
treated as management fees for tax purposes, and the correction of prior
year estimates of deferred taxes in 1998.
The tax effects of temporary differences that give rise to the deferred
tax assets and deferred tax liabilities at December 31, are presented
below (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Fixed maturities $ 9,539 --
Other investments 284 450
Life and health reserves 16,800 17,906
Other liabilities 888 --
-------- -------
Total gross deferred tax assets 27,511 18,356
-------- -------
Deferred tax liabilities:
Fixed maturities -- (10,795)
Equity securities (775) (715)
Deferred policy acquisition costs (69,245) (62,378)
Other assets (6,611) (6,803)
Other liabilities -- (820)
-------- -------
Total gross deferred tax liabilities (76,631) (81,511)
-------- -------
Net deferred tax liability $(49,120) (63,155)
======== =======
</TABLE>
Management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize the
deferred tax assets reported on the consolidated balance sheets.
39 (Continued)
<PAGE> 64
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Company and its subsidiaries are included in AFC's consolidated
federal income tax return. Income taxes are reflected in the accompanying
consolidated financial statements as if the Company and its subsidiaries
were separate tax paying entities. At December 31, 1999 and 1998, other
accounts payable includes income taxes payable to AFC and other members
of the consolidated group of approximately $1,862,000 and $687,000,
respectively.
Under the provision of the Life Insurance Company Tax Act of 1959,
certain special deductions were allowed to life insurance companies for
federal income tax purposes. These special deductions were repealed by
the Tax Reform Act of 1984, and the untaxed balances were frozen at their
December 31, 1993 levels. These balances, referred to as the
"policyholders surplus account" (PSA), were approximately $8,161,000 for
AFA and are subject to taxation if certain levels of premium income or
life insurance reserves are not maintained, or if the life insurance
company makes excess distributions to shareholders. In addition, on
February 7, 2000, the Clinton administration released its Fiscal 2001
Budget that included a revenue raising provision that would require life
insurance companies to include the balance of these special deductions in
income over a five year period. At this time it is uncertain whether this
provision will be included in any legislation proposed by Congress, and
if included, whether such provision would be enacted into law. As it is
not currently considered likely that a tax would become due on any such
balance, no deferred income taxes have been provided. However, if such
tax were to become payable, it would amount to approximately $2,856,350.
(10) OTHER COMPREHENSIVE INCOME (LOSS)
The change in the components of other comprehensive income (loss) are
reported net of income taxes for the periods indicated, as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain (loss) on investments:
Unrealized holding gain (loss) arising
during the period $ (60,004) 21,002 (39,002)
Plus: reclassification adjustment for losses
included in net income 1,690 (592) 1,098
---------- ---------- ----------
Other comprehensive loss $ (58,314) 20,410 (37,904)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 10,387 (3,635) 6,752
Less: reclassification adjustment for gains
included in net income (534) 186 (348)
---------- ---------- ----------
Other comprehensive income $ 9,853 (3,449) 6,404
========== ========== ==========
</TABLE>
40 (Continued)
<PAGE> 65
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------
PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 11,408 (3,993) 7,415
Less: reclassification adjustment for gains
included in net income (449) 153 (296)
---------- ---------- ----------
Other comprehensive income $ 10,959 (3,840) 7,119
========== ========== ==========
</TABLE>
(11) REINSURANCE
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies. Management believes that all
reinsurers presently used are financially sound and will be able to meet
their contractual obligations; therefore, no allowance for uncollectible
amounts has been included in the financial statements. At December 31,
1999 and 1998, reinsurance receivables with a carrying value of
approximately $15,302,000 and $13,597,000, respectively were associated
with two reinsurers.
Reinsurance agreements in effect for life insurance policies vary
according to the age of the insured and the type of risk. Retention
amounts for life insurance range from $500,000 on group life to $250,000
on individual life coverages, with slightly lower limits on accidental
death benefits. At December 31, 1999 and 1998, the face amounts of life
insurance in force that are reinsured amounted to approximately
$1,974,000,000 (approximately 22.8% of total life insurance in force) and
$846,000,000 (approximately 11.2% of total life insurance in force),
respectively.
Reinsurance agreements in effect for accident and health insurance
policies vary with the type of coverage. Retention limits range from
$100,000 for individual cancer coverage to $250,000 for major medical
coverage.
The effects of reinsurance agreements on earned and written premiums,
prior to deductions for benefits and commission allowances, were
approximately $(148,231,000), $(114,225,000), and $(92,731,000) for life
and accident and health reinsurance ceded, and $795,000, $14,220,000, and
$416,000, for life and accident and health reinsurance assumed, for the
years ended December 31, 1999, 1998 and 1997, respectively.
Reinsurance agreements reduced benefits paid for life and accident and
health policies by approximately $114,026,000, $88,999,000, and
$72,522,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
41 (Continued)
<PAGE> 66
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(12) ACQUIRED BUSINESS
Effective July 1, 1998, the Company entered into an assumption
reinsurance agreement with American Standard Life and Accident Insurance
Company (ASL) of Enid, Oklahoma, the National Organization of Life and
Health Guaranty Associations (NOLHGA) and the guaranty associations in
the states where ASL originally conducted its business. Under this
agreement, the Company has assumed the majority of ASL's policies
inforce, with the exception of those policies issued in states where a
guaranty association does not exist. Effective July 1, 1998, the Company
assumed approximately $24 million in life, annuity and health reserves
under this agreement, of which approximately $5 million were subsequently
ceded to a third-party reinsurer. ASL is an Oklahoma-domiciled company in
receivership under the oversight of the Oklahoma Insurance Department and
NOLHGA.
The Company recorded an asset for the value of the business acquired
based on the present value of the estimated future profits on the
business (PVP), at a 6.75% discount rate. The PVP was estimated to be
$4,313,000 at July 1, 1998. Approximately $578,000 and $311,000 of
amortization was recorded in 1999 and 1998, respectively, and is included
in operating expenses in the accompanying consolidated statement of
income. The December 31, 1999 and 1998 balance of the PVP asset
approximates $3,424,000 and $4,002,000, respectively, and is included in
other assets in the accompanying consolidated balance sheet.
An estimate of the amortization of the PVP for the next five years is as
follows:
2000 $ 504,000
2001 437,000
2002 379,000
2003 328,000
2004 284,000
(13) EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in a pension plan (the Plan)
covering all employees who have satisfied longevity and age requirements.
The Company's funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date
but also for those expected to be earned in the future.
42 (Continued)
<PAGE> 67
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The Plan's funded status as of December 31, is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $ 14,446 16,182
Nonvested benefits 1,957 1,947
------------ ------------
Total accumulated benefit obligation $ 16,403 18,129
============ ============
Change in benefit obligation:
Benefit obligation at beginning of period $ 22,257 19,466
Service cost 2,091 1,662
Interest cost 1,394 1,391
Actuarial loss (2,959) 1,342
Benefits paid (2,642) (1,604)
------------ ------------
Benefit obligation at end of period $ 20,141 22,257
============ ============
Change in plan assets:
Fair value of plan assets at beginning of period $ 24,205 21,839
Actual return on plan assets 2,806 3,970
Benefits paid (2,642) (1,604)
------------ ------------
Fair value of plan assets at end of period
$ 24,369 24,205
============ ============
Funded status at end of year (Plan assets in
excess of projected benefit obligation): $ 4,228 1,948
Unrecognized transition asset (23) (161)
Unrecognized net actuarial (gain) loss (4,051) (461)
Unrecognized prior service cost due to plan
amendment 320 385
------------ ------------
Prepaid benefit cost
$ 474 1,711
============ ============
============ ============
</TABLE>
In determining the projected benefit obligation, the weighted average
assumed discount rates used were 7.75% and 6.75% in 1999 and 1998,
respectively. The rate of increase in future salary levels was 5.0% in
1999 and 1998. The expected long-term rate of return on assets used in
determining net periodic pension cost was 9.5% in 1999 and 1998. Plan
assets are invested in fixed maturities, equity securities and in
short-term investments.
43 (Continued)
<PAGE> 68
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net periodic pension cost for the years ended December 31, included the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service costs - benefits earned
during period $ 2,091 1,662 1,284
Interest costs 1,394 1,391 1,193
Expected return on plan asset (2,175) (1,962) (4,065)
Net amortization and deferral (73) (73) 2,332
---------- ---------- ----------
Net periodic pension cost $ 1,237 1,018 744
========== ========== ==========
</TABLE>
The Company participates in a defined contribution thrift and profit
sharing plan as provided under section 401(a) of the Internal Revenue
Code, which includes the tax deferral feature for employee contributions
provided by section 401(k) of the Internal Revenue Code. The Company
contributed approximately $1,150,000, $1,023,000, and $881,000 to this
plan during the years ended December 31, 1999, 1998, and 1997,
respectively.
(14) COMMITMENTS AND CONTINGENCIES
Rent expense for office space and equipment for the years ended December
31, 1999, 1998, and 1997, was approximately $8,404,000, $8,573,000, and
$6,163,000, respectively. A portion of rent expense relates to leases
that expire or are cancelable within one year. The aggregate minimum
annual rental commitments as of December 31, 1999, under noncancellable
long-term leases for office space are as follows (in thousands):
2000 $ 1,796
2001 1,327
2002 893
2003 271
2004 240
Thereafter 37
The Company has pledged approximately $16,455,000 of its treasury notes
as collateral on lines of credit held by affiliated companies.
The Company has outstanding mortgage loan commitments of approximately
$14,800,000 and $10,595,000 at December 31, 1999 and 1998, respectively.
In the normal course of business, there are various legal actions and
proceedings pending against the Company and its subsidiaries. In
management's opinion, the ultimate liability, if any, resulting from
these legal actions will not have a material adverse effect on the
Company's financial position.
Like other financial and business organizations and individuals around
the world, the Company could be adversely affected if the computer
systems used by the Company and the Company's other service providers do
not properly process and calculate date-related information and data from
and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Company has had a
44 (Continued)
<PAGE> 69
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
formal project team (including 22 information systems professionals)
working to correct the problem since 1996. In the briefest terms, the
correction is to change all date related fields in the Company's computer
systems to four digits instead of two digits. At the same time, all
relationships with systems outside the Company must be checked for the
same change and all must be tested to determine that relationships
continue to be compatible.
Conversion efforts were complete at December 31, 1999. The Company has
not experienced any significant difficulties to-date relating to Year
2000 issues, and management does not expect Year 2000 issues to have a
significant impact on the Company's operations subsequent to December 31,
1999.
(15) RELATED PARTY TRANSACTIONS
The Company and its subsidiaries lease automobiles, furniture, and
equipment from a partnership that owns a controlling interest in AFC.
These operating leases are cancelable upon one month's notice. During the
years ended December 31, 1999, 1998, and 1997, rentals paid under these
leases were approximately $3,995,000, $3,989,000, and $3,577,000,
respectively.
During the years ended December 31, 1999 and 1998, the Company paid
investment advisory fees to a partnership that owns a controlling
interest in AFC totaling approximately $3,427,000 and $3,190,000,
respectively.
During the years ended December 31, 1999, 1998, and 1997, the Company and
its subsidiaries paid management fees and investment advisory fees to AFC
totaling approximately $4,588,000, $4,523,000, and $2,848,000,
respectively.
The Company and its subsidiaries lease office space from a subsidiary of
AFC. The rent payments associated with the lease will be approximately
$2,200,000 per year for the next 12 years.
During 1999 and 1998, the Company paid cash dividends to AFC of
approximately $7,500,000 and $12,706,000, respectively.
During 1997, the Company paid a dividend of approximately $33,834,000 to
AFC. This dividend was in the form of cash payments of approximately
$8,800,000, common stock in affiliated companies (including SGLI) of
approximately $16,588,000 (including deferred tax liabilities assumed by
AFC of $683,000), and common stock in non-affiliated companies of
approximately $8,446,000 (including a deferred tax liability retained by
the Company of $1,961,000). This transaction was approved by the Oklahoma
Insurance Department.
During 1999, 1998, and 1997, the Company entered into a three-year
software lease agreement with AFC. Lease expense related to this
agreement was approximately $2,072,000, $1,344,000 and $616,000 for the
years ended December 31, 1999, 1998, and 1997, respectively, and is
included in selling costs and other operating, administrative and general
expenses.
45 (Continued)
<PAGE> 70
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
AFC and several of its subsidiaries rented office space in the home
office building from the Company until the home office building was sold
in 1997. During the years ended December 31, 1998, and 1997, the Company
received rental income from AFC and several of its subsidiaries of
approximately $299,000, and $1,280,000, respectively.
An officer of AFC serves on the board of directors of a financial
institution in which the Company maintains cash balance and through which
the Company has unused lines of credit of $100,000,000.
46
<PAGE> 71
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
Schedule III - Business Segment Information
Years Ended December 31, 1999, 1998 and 1997
(in thousands)
The Company's reportable segments are its strategic business units. The
components of operations for the years ended December 31, 1999, 1998, and
1997 are included in the table below.
Assets and related investment income are allocated based upon related
insurance reserves which are backed by such assets. Other operating
expenses are allocated in relation to the mix of related revenues.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
TOTAL REVENUES:
American Fidelity Education Services Division $ 189,136 158,707 152,021
Association Worksite Division 113,681 113,519 105,784
Strategic Alliance Division 26,485 45,987 32,290
Non insurance operations 874 745 (504)
----------- ----------- -----------
$ 330,176 318,958 289,591
=========== =========== ===========
PRETAX EARNINGS:
American Fidelity Education Services Division $ 26,077 16,407 24,621
Association Worksite Division 8,750 6,242 10,683
Strategic Alliance Division (836) 10,727 (2,344)
Non insurance operations 38 80 (2,340)
----------- ----------- -----------
$ 34,029 33,456 30,620
=========== =========== ===========
TOTAL ASSETS:
American Fidelity Education Services Division $ 1,273,329 1,156,565 1,029,976
Association Worksite Division 243,206 201,115 192,507
Strategic Alliance Division 241,953 274,732 274,818
Non insurance operations 3,356 2,536 2,135
----------- ----------- -----------
$ 1,761,844 1,634,948 1,499,436
=========== =========== ===========
</TABLE>
47
<PAGE> 72
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
Years ended December 31, 1999, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED ASSUMED OF AMOUNT
GROSS TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Life insurance in force $ 8,666,056 1,973,599 10 6,692,467 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 32,295 2,991 (18) 29,286 (0.06)%
Accident and health insurance 359,728 145,240 813 215,301 0.38%
------------- ------------- ------------- ------------- -------------
Total premiums $ 392,023 148,231 795 244,587 0.33%
============= ============= ============= ============= =============
Year ended December 31, 1998
Life insurance in force $ 7,565,337 846,113 10 6,719,234 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 18,034 3,154 12,021 26,901 44.69%
Accident and health insurance 315,693 111,071 2,199 206,821 1.06%
------------- ------------- ------------- ------------- -------------
Total premiums $ 333,727 114,225 14,220 233,722 6.08%
============= ============= ============= ============= =============
Year ended December 31, 1997
Life insurance in force $ 6,872,047 306,917 10 6,565,140 --
============= ============= ============= ============= =============
Premiums:
Life insurance $ 26,756 1,474 -- 25,282 --
Accident and health insurance 272,785 91,257 416 181,944 --
------------- ------------- ------------- ------------- -------------
Total premiums $ 299,541 92,731 416 207,226 --
============= ============= ============= ============= =============
</TABLE>
48
<PAGE> 73
PART C
OTHER INFORMATION
ITEM 24 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in
Part B of this registration statement:
AMERICAN FIDELITY SEPARATE ACCOUNT A
Independent Auditors' Report
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the Year Ended December 31, 1999
Statement of Changes in Net Assets for the Year Ended December 31, 1999
and 1998
Financial Highlights
Notes to Financial Statements
AMERICAN FIDELITY ASSURANCE COMPANY AND SUBSIDIARIES
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Schedule III - Business Segment Information
Schedule IV - Reinsurance
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
1.1 - Resolution adopted by the Board of Directors of American Fidelity on
May 7, 1968, authorizing establishment of the Registrant. Incorporated
herein by reference to Exhibit 1.1 to Post-Effective Amendment No. 43
to Registrant's registration statement on Form N-4 filed on November
25, 1998 (No. 2-30771).
1.2 - Resolution adopted by the Board of Directors of American Fidelity on
April 6, 1998, authorizing reorganization of the Registrant as a unit
investment trust. Incorporated herein by reference to Exhibit 1.2 to
Post-Effective Amendment No. 43 to Registrant's registration statement
on Form N-4 filed on November 25, 1998 (No. 2-30771).
1.3 - Resolution adopted by the Board of Managers of the Registrant on March
19, 1998, authorizing reorganization of the Registrant as a unit
investment trust. Incorporated herein by reference to Exhibit 1.3 to
Post-Effective Amendment No. 43 to Registrant's registration statement
on Form N-4 filed on November 25, 1998 (No. 2-30771).
</TABLE>
C-1
<PAGE> 74
3 - Underwriting Contract between the Registrant and American Fidelity
Securities, Inc. dated December 20, 1972. Incorporated herein by
reference to Exhibit 3 to Post-Effective Amendment No. 43 to
Registrant's registration statement on Form N-4 filed on November 25,
1998 (No. 2- 30771).
4.1 - Form of Variable Annuity Master Contract. Incorporated herein by
reference to Exhibit 4.1 to Post-Effective Amendment No. 43 to
Registrant's registration statement on Form N-4 filed on November 25,
1998 (No. 2-30771).
4.2 - Form of Variable Annuity Contract Certificate. Incorporated herein by
reference to Exhibit 4.2 to Post-Effective Amendment No. 43 to
Registrant's registration statement on Form N-4 filed on November 25,
1998 (No. 2-30771).
5 - Forms of Variable Annuity Application. Incorporated herein by reference
to Exhibit 5 to Post- Effective Amendment No. 43 to Registrant's
registration statement on Form N-4 filed on November 25, 1998 (No.
2-30771).
6.1 - Articles of Incorporation of American Fidelity and all amendments
through November 4, 1987. Incorporated herein by reference to Exhibit
6.1 to Post-Effective Amendment No. 43 to Registrant's registration
statement on Form N-4 filed on November 25, 1998 (No. 2-30771).
6.2 - Amended and Restated Bylaws of American Fidelity dated November 24,
1997. Incorporated herein by reference to Exhibit 8.2 to Post-Effective
Amendment No. 42 to Registrant's registration statement on Form N-3
filed on April 24, 1998 (No. 2-30771).
8 - Fund Participation Agreement dated December 22, 1998 between Registrant
and American Fidelity. Incorporated herein by reference to
Post-Effective Amendment No. 44 to Registrant's registration statement
on Form N-4 filed on January 11, 1999 (No. 2-30771).
9* - Opinion and Consent of Counsel.
10* - Independent Auditors' Consent.
13* - Schedule for computation of performance quotations.
C-2
<PAGE> 75
99* - American Fidelity organization chart.
- - - - -----------------
* Filed herewith.
ITEM 25 -- DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with American Fidelity
------------------ ----------------------
<S> <C>
Lynda L. Cameron Director
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William M. Cameron Chairman and Chief
2000 N. Classen Boulevard Executive Officer, Director
Oklahoma City, OK 73106
David R. Carpenter Senior Vice President, Treasurer
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William E. Durrett Senior Chairman, Director
2000 N. Classen Boulevard
Oklahoma City, OK 73106
Stephen P. Garrett Senior Vice President, Secretary
2000 N. Classen Boulevard
Oklahoma City, OK 73106
William A. Hagstrom Director
204 N. Robinson, Suite 1300
Oklahoma City, OK 73102
Charles R. Eitel Director
One Concourse Parkway
Atlanta, GA 30328
Kenneth D. Klehm Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, OK 73106
</TABLE>
C-3
<PAGE> 76
<TABLE>
<S> <C>
Alfred L. Litchenburg Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, OK 73106
David R. Lopez Director
1616 Guadalupe, Rm. 630
Austin, TX 78701
Paula Marshall-Chapman Director
2745 East 11th Street
Tulsa, OK 74104
John W. Rex President, Chief Operating Officer,
2000 N. Classen Boulevard Director
Oklahoma City, OK 73106
Galen P. Robbins, M.D. Director
11901 Quail Creek Road
Oklahoma City, OK 73120
John D. Smith Director
3400 Peach Tree Road, Suite 831
Atlanta, GA 30326
</TABLE>
ITEM 26 -- PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
American Fidelity's organization chart is included as Exhibit 99. The
subsidiaries of American Fidelity reflected in the organization chart are
included in the consolidated financial statements of American Fidelity in
accordance with generally accepted accounting principles.
ITEM 27 -- NUMBER OF CONTRACT OWNERS
As of April 5, 2000, there were 2,416 Contract Owners of qualified
contracts offered by the Registrant.
ITEM 28 -- INDEMNIFICATION
The Bylaws of American Fidelity (Article VIII, Section 3) generally
provide that American Fidelity shall indemnify its directors, officers,
employees and agents, as well as any person serving at the request of American
Fidelity as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against liabilities
incurred in acting in any such capacity if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interest of
American Fidelity and, with respect to any criminal action, if they had no
reasonable cause to believe their conduct was unlawful. Indemnification of these
persons is also provided for derivative actions. See American Fidelity's Bylaws
filed as Exhibit 6.2 to this registration statement.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or
C-4
<PAGE> 77
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 29 -- PRINCIPAL UNDERWRITERS
(a) American Fidelity Securities, Inc. is the sole underwriter for the
Registrant, American Fidelity Separate Account B and American Fidelity Dual
Strategy Fund, Inc.
(b) Director and officer information for American Fidelity Securities,
Inc. is as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with Underwriter
- - - - ------------------ ---------------------
<S> <C>
David R. Carpenter Director, Chairman, President, Chief Executive
P. O. Box 25523 Officer, Treasurer, Chief Financial Officer and
Oklahoma City, OK 73125 Registered Limited Principal
Marvin R. Ewy Director, Vice President, Secretary, Chief
P. O. Box 25523 Compliance Officer and Registered
Oklahoma City, OK 73125 Limited Principal
Nancy K. Steeber Director, Vice President, Operations Officer and
P. O. Box 25523 Registered Limited Principal
Oklahoma City, OK 73125
</TABLE>
(c) The net underwriting discounts and commissions received by American
Fidelity Securities, Inc. from the Registrant in 1999 were $654,983,
representing the 3% sales fee deducted from premium deposits to the Registrant.
It received no other compensation from or on behalf of the Registrant during the
year.
ITEM 30 -- LOCATION OF ACCOUNTS AND RECORDS
The name and address of the person who maintains physical possession of
the accounts, books and other documents of the Registrant required by Section
31(a) of the Investment Company Act of 1940 are:
David R. Carpenter
Senior Vice President and Treasurer
American Fidelity Assurance Company
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
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<PAGE> 78
ITEM 31 -- MANAGEMENT SERVICES
Not applicable.
ITEM 32 -- UNDERTAKINGS
UNDERTAKINGS
The Registrant hereby undertakes to:
(a) 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 so long as payments under the
variable annuity contracts may be accepted;
(b) include either (1) as part of any application to purchase a
contract offered by the Prospectus, a space that an applicant
can check to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed to or
included in the Prospectus that the applicant can remove to
send for a Statement of Additional Information; and
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form promptly upon written or oral request.
REPRESENTATIONS
American Fidelity hereby represents that the fees and charges deducted
under the Variable Annuity Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by American Fidelity.
American Fidelity hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each registration statement,
including the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption restrictions imposed
by Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
C-6
<PAGE> 79
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on
its behalf, in the City of Oklahoma City and State of Oklahoma on this 28th day
of April, 2000.
AMERICAN FIDELITY SEPARATE ACCOUNT A
(Registrant)
By: American Fidelity Assurance Company
(Depositor)
By /s/ John W. Rex
---------------------------------------
John W. Rex, President
AMERICAN FIDELITY ASSURANCE COMPANY
(Depositor)
By /s/ John W. Rex
---------------------------------------
John W. Rex, President
Each of the undersigned officers and directors of American Fidelity Assurance
Company (the "Company"), hereby severally constitute and appoint John W. Rex,
his true and lawful attorney-in-fact with full power to him to sign for him, and
in his name as officer or director, or both, of the Company, a Registration
Statement (and any and all amendments thereto, including post-effective
amendments) on Form N-4 to be filed with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and to perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, may lawfully do or cause to be done by virtue
hereof.
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on April 28,
2000.
<TABLE>
<CAPTION>
Signature Title
- - - - --------- -----
<S> <C>
/s/ William M. Cameron Chairman, Chief Executive Officer and
- - - - ----------------------------------- Director (Principal Executive Officer)
William M. Cameron
/s/ William E. Durrett Senior Chairman and Director
- - - - -----------------------------------
William E. Durrett
/s/ Lynda L. Cameron Director
- - - - -----------------------------------
Lynda L. Cameron
/s/ John W. Rex Director, President and Chief Operating
- - - - ----------------------------------- Officer
John W. Rex
/s/ Charles R. Eitel Director
- - - - -----------------------------------
Charles R. Eitel
/s/ Galen P. Robbins, M.D. Director
- - - - -----------------------------------
Galen P. Robbins, M.D.
/s/ John D. Smith Director
- - - - -----------------------------------
John D. Smith
/s/ William A. Hagstrom Director
- - - - -----------------------------------
William A. Hagstrom
/s/ David R. Lopez Director
- - - - -----------------------------------
David R. Lopez
/s/ Paula Marshall-Chapman Director
- - - - -----------------------------------
Paula Marshall-Chapman
/s/ David R. Carpenter Senior Vice President, Controller and
- - - - ----------------------------------- Treasurer (Principal Financial and
David R. Carpenter Accounting Officer)
</TABLE>
C-7
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- - - - ------- -----------
<S> <C>
9* - Opinion and Consent of Counsel
10* - Independent Auditors' Consent
13* - Schedule for computation of performance quotations
99* - American Fidelity organization chart
</TABLE>
* Filed herewith.
<PAGE> 1
EXHIBIT 9
[MCAFEE & TAFT LETTERHEAD]
April 28, 2000
American Fidelity Assurance Company
2000 North Classen Boulevard
Oklahoma City, Oklahoma 73106
Re: American Fidelity Separate Account A -
Post Effective Amendment No. 47 to
Form N-4 Registration Statement (Nos.
2-30771 and 811-01764)
Ladies and Gentlemen:
You have requested our opinion in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 47
to the above-referenced Registration Statement on Form N-4 for the AFPr1me
Growth Variable Annuity contract (the "Contract") to be issued by American
Fidelity Assurance Company ("AFA") and its separate account, American Fidelity
Separate Account A.
We have made such examination of the law and have examined
such records and documents as in our judgment are necessary or appropriate to
enable us to render the opinions expressed below.
Based on the foregoing, we are of the opinion that:
(1) American Fidelity Separate Account A is a separate account
as the term is defined in Section 2(a)(37) of the Investment Company Act of 1940
(the "Act"), and is currently registered with the Securities and Exchange
Commission pursuant to Section 8(a) of the Act.
(2) The Contracts and the interests therein will be legally
issued when issued in accordance with the Prospectus contained in the
Registration Statement and in compliance with applicable state insurance law and
will represent binding obligations of AFA, provided that the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally.
You may use this opinion letter as an exhibit to the
Registration Statement. We consent to the reference to our firm under the
caption "Legal Matters" contained in the Statement of Additional Information
which forms a part of the Registration Statement.
Very truly yours,
/s/ McAfee & Taft A Professional Corporation
<PAGE> 1
EXHIBIT 10
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
American Fidelity Assurance Company:
We consent to the use of our reports included herein and the reference to our
firm under the heading "Custodian and Independent Accountants" in the Statement
of Additional Information.
/s/ KPMG LLP
Oklahoma City, Oklahoma
April 21, 2000
<PAGE> 1
EXHIBIT 13
AMERICAN FIDELITY
SEPARATE ACCOUNT A
SCHEDULE OF COMPUTATIONS FOR EACH PERFORMANCE QUOTATION PROVIDED IN THE
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR TEN YEAR
(1) TOTAL RETURN TOTAL RETURN TOTAL RETURN TOTAL RETURN
------------ ------------ ------------
<S> <C> <C> <C>
(A) INITIAL INVESTMENT $ 1,000.00 $ 1,000.00 $ 1,000.00
multiplied by x x x
0.96 0.96 0.96 0.96
less $15.00 - - -
less $.50 $ 15.00 $ 15.00 $ 15.00
equals - - -
NET INITIAL INVESTMENT $ 0.50 $ 0.50 $ 0.50
= = =
$ 944.50 $ 944.50 $ 944.50
(B) NET INITIAL INVESTMENT $ 944.50 $ 944.50 $ 944.50
divided by / / /
ACCUMULATION UNIT VALUE ON PURCHASE DATE $ 24.3329 $ 9.0938 $ 6.5142
equals = = =
NUMBER OF ACCUMULATION UNITS PURCHASED 38.82 103.86 144.99
(C) ACCUMULATION UNIT VALUE AT THE END OF TIME PERIOD $ 28.5519 $ 28.5519 $ 28.5519
multiplied by x x x
NUMBER OF ACCUMULATION UNITS PURCHASED 38.82 103.86 144.99
equals = = =
ENDING VALUE $ 1,108.38 $ 2,965.40 $ 4,139.74
(D) ENDING VALUE $ 1,108.38 $ 2,965.40 $ 4,139.74
minus - - -
INITIAL INVESTMENT $ 1,000.00 $ 1,000.00 $ 1,000.00
equals = = =
TOTAL DOLLAR RETURN $ 108.38 $ 1,965.40 $ 3,139.74
(E) TOTAL DOLLAR RETURN $ 108.38 $ 1,965.40 $ 3,139.74
divided by / / /
INITIAL INVESTMENT $ 1,000.00 $ 1,000.00 $ 1,000.00
multiplied by 100 x x x
equals 100 100 100
TOTAL RETURN FOR THE PERIOD EXPRESSED AS A PERCENTAGE = = =
10.84% 196.54% 313.97%
</TABLE>
(2) AVERAGE ANNUAL TOTAL RETURN
Average annual total return quotations for the one, five and ten year periods
ending 31-Dec-99 are computed using the formula below:
n
P ( 1 + T ) = ERV
Where P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending value of a hypothetical $1,000 investment
as of the end of the one, five and ten year
periods computed in accordance with the formula
shown in (1) above.
Thus:
<TABLE>
<CAPTION>
ONE YEAR AVERAGE FIVE YEAR AVERAGE TEN YEAR AVERAGE
ANNUAL RETURN ANNUAL RETURN ANNUAL RETURN
<S> <C> <C>
1 5 10
$1,000 (1 + T)= $1,108.38 $1,000 (1 + T)= $2,965.40 $1,000 (1 + T) = $4,139.74
T = 10.84% T = 24.28% T = 15.26%
</TABLE>
<PAGE> 1
EXHIBIT 99.1
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<S> <C> <C> <C> <C>
American Fidelity Corp. (AFC)
94.0% - NV 73-0966202
- - - - --------------------------------------------------------------------------------------------------------------------------
Market Place *Security General Shade Works, LLC American Fidelity American Mortgage
Realty Corp. Life Ins. Co. (SGL) 16.67% - OK Assurance Co. (AFA) & Investment Co.
(MPRC) 100% - OK 73-1475654 100% - OK (AMICO)
100% - OK 73-0741925 73-0714500 98.7% - OK
73-1160212 NAIC #68691 NAIC #60410 73-1232134
Education - Concourse C, Inc. American Fidelity ASC Holding, L.L.C. American Fidelity
World.Com, Inc. 100% - OK Property Co. (AFPC) 75% - OK International
100% - OK 73-1575531 100% - OK 73-1528120 Holdings, Inc.
73-1505641 73-1290496 100% - OK
73-1421879
==========================================================================================================================
*American Fidelity Assurance Co. (AFA)
100% - OK
73-0714500
NAIC #60410
- - - - --------------------------------------------------------------------------------------------------------------------------
AF Apartments, Inc. Senior Partners, LLC American Fidelity Balliet's, L.L.C. Apple Creek American Fidelity
100% - OK 50% - OK Securities, Inc. 75% - OK Apartments, Inc. Ltd. Agency, Inc.
73-1512985 73-1559624 (AFS) 73-1529608 100% - OK (AFLA)
100% - OK 73-1408485 100% - OK
73-0783902 73-1352430
==========================================================================================================================
Concourse C, Inc.
100% - OK
73-1575531
- - - - --------------------------------------------------------------------------------------------------------------------------
EnrollCom, Inc Concourse Two, Inc Concourse Three, Inc
100% - OK 100% - OK 100% - OK
(Tax ID) (Tax ID (Tax ID
(applied for) (applied for) (applied for)
==========================================================================================================================
American Fidelity Property Co. (AFPC)
100% - OK
73-1290496
- - - - --------------------------------------------------------------------------------------------------------------------------
Home Rentals, Inc. Western Partners, LLC
100% - OK 100% - OK
73-1364266 73-1544275
==========================================================================================================================
ASC Holding, L.L.C.
75% - OK
73-1528120
- - - - --------------------------------------------------------------------------------------------------------------------------
InvesTrust, N.A. Asset Services Co., L.L.C.
100% - OK 100% - OK
73-1546867 73-1547246
==========================================================================================================================
American Fidelity International Holdings, Inc.
100% - OK
73-1421879
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity American Fidelity
Offshore Investments, Ltd. Care, LLC
100% - Bermuda 33% - OK
NAIC #20400 73-1424864
Reg. #EC20754
==========================================================================================================================
Senior Partners, LLC
50% - OK
73-1559624
- - - - --------------------------------------------------------------------------------------------------------------------------
Bordeaux, LLC Vineyard Cottages, LLC
75% - OK 66.7% - OK
73-1559626 73-1559625
==========================================================================================================================
American Fidelity Ltd. Agency, Inc. (AFLA)
100% - OK
73-1352430
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency, Inc.
(AFGA) - 100% - OK
73-1352431
- - - - --------------------------------------------------------------------------------------------------------------------------
American Fidelity General Agency of Alabama, Inc.
100% - AL
74-2945370
==========================================================================================================================
American Fidelity Offshore Investments, Ltd.
100% - Bermuda
NAIC #20400
Reg. #EC20754
- - - - --------------------------------------------------------------------------------------------------------------------------
****American Fidelity ****Covenant ****Pacific World ****American Fidelity Mari El Development
(China), Ltd. Underwriters Holdings, Ltd. (Cypress) Ltd. Corporation Limited
93% - Bermuda (Bermuda) Ltd. 55% - Labuan 99% - Republic of 51.3% - Republic of
33.33% - Bermuda Cyprus Cyprus
Reg. #7035
- AFOI
==========================================================================================================================
****American Fidelity (Cypress) Ltd.
99% - Republic of
Cyprus
- - - - --------------------------------------------------------------------------------------------------------------------------
****Soyuznik Insurance Co
34% - Russian Federation
</TABLE>
<PAGE> 2
WILLIAM M. CAMERON ("WMC")/LYNDA L. CAMERON ("LLC")
Cameron Associates, Inc.
50% WMC; 50% LLC - OK
73-1533495
**Cameron Enterprises,
A Limited Partnership (Celp) - OK
73-1267299
<TABLE>
<CAPTION>
==========================================================================================================================
<S> <C> <C> <C> <C>
CELP Ltd. Agency, Inc.
100% - OK
73-1369092
==========================================================================================================================
North American Ins. Agency, Inc. (NAIA)
91.5% - OK
73-0687265
- - - - --------------------------------------------------------------------------------------------------------------------------
Shade Works, LLC Agar Ins. Agency, Inc. North American Ins. N.A.I.A. of Louisiana, Inc.
33.33% - OK 95.4% - OK Agency of Colorado, Inc. 100% - LA
73-1475654 73-0675989 100% - CO 72-0761691
84-0599059
North American North American North American N.A.I.A. Ins. Agency,
Insurance Agency of Ins. Agency of Ltd. Agency, Inc. Inc.
New Mexico, Inc. Tulsa, Inc. 100% - OK 100% - OK
100% - NM 100% - OK 73-1356772 73-1527682
85-0441542 73-0778755
==========================================================================================================================
</TABLE>
* Insurance Company
** A Limited Partnership
*** No tax or registration numbers
NOTE: All of the above organizations are corporations that have the word
Company, Inc., or Corp. The above organizations which have the
letters L.L.C. or L.C. are limited liability companies.
