As filed with the Securities and Exchange Commission on November 6, 2000
FILE NO. 333-93367
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF
1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
------------
A. Exact name of trust:
JPF SEPARATE ACCOUNT A
B. Name of depositor:
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
C. Complete address of depositor's principal executive offices:
One Granite Place
Concord, NH 03301
D. Name and complete address of agent for service:
Ronald R. Angarella
President
Jefferson Pilot Securities Corporation
One Granite Place
Concord, NH 03301
Copies to:
Charlene Grant, Esq. Joan E. Boros, Esq.
Jefferson Pilot Financial 1025 Thomas Jefferson Street, N.W.
Company Suite 400 East
One Granite Place Washington, D.C. 20007-0805
Concord, NH 03301
------------
E. Title of securities being registered:
Units of Interest in the Separate Account under Individual Flexible Premium
Variable Life Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date.
The Registrant is registering an indefinite amount of securities pursuant to
Section 24(f) of the Investment Company Act of 1940.
Registrant hereby amends this Registration Statement under the Securities Act
of 1933 on such date or dates as may be necessary to delay its effective date
until Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
<PAGE>
November 1, 2000
Ensemble Exec
JPF Separate Account A
Flexible Premium Variable Life Insurance Policy
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
SERVICE OFFICE: One Granite Place, Concord, New Hampshire 03301 800-258-3648
--------------------------------------------------------------------------------
This Prospectus describes the Ensemble Exec Variable Life Insurance Policy
("Ensemble Exec" or "the Policy"), a flexible premium variable life insurance
policy issued and underwritten by Jefferson Pilot Financial Insurance Company
("we" or "JP Financial" or "the Company") and designed primarily for use on a
multi-life basis when the insured people share a common employment or business
relationship. The Policy provides life insurance and pays a benefit, as
described in this Prospectus, upon the Insured's death or surrender of the
Policy. The Policy allows flexible premium payments, Policy Loans, Withdrawals,
and a choice of Death Benefit Options. Your account values may be invested on
either a fixed or variable or combination of fixed and variable basis. You may
allocate your Net Premiums to JPF Separate Account A ("Separate Account A" or
the "Separate Account"), and/or the General Account, or both Accounts. The
Divisions of Separate Account A support the benefits provided by the variable
portion of the Policy. The Accumulation Value allocated to each Division is not
guaranteed and will vary with the investment performance of the associated
Fund. Net Premiums allocated to the General Account will accumulate at rates of
interest we determine; such rates will not be less than 4% per year. Your
Policy may lapse if the Net Accumulation Value is insufficient to pay a Monthly
Deduction. We will send premium reminder notices for Planned Premiums and for
premiums required to continue the Policy in force. If the Policy lapses, you
may reinstate it.
The Policy has a free look period during which you may return the Policy. We
will refund your Premium (See "Right of Policy Examination").
This Prospectus also describes the Divisions used to fund the Policy through
the Separate Account. Each Division invests exclusively in one of the following
Portfolios:
JPVF International Equity Portfolio
JPVF World Growth Stock Portfolio
JPVF Global Hard Assets Portfolio
JPVF Emerging Growth Portfolio
JPVF Capital Growth Portfolio
JPVF Small Company Portfolio
JPVF Growth Portfolio
JPVF S&P 500 Index Portfolio
JPVF Value Portfolio
JPVF Balanced Portfolio
JPVF High Yield Bond Portfolio
JPVF Money Market Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Contrafund Portfolio
MFS Research Series
MFS Utilities Series
Oppenheimer Strategic Bond Fund/VA
Oppenheimer Bond Fund/VA
Templeton International Securities Fund: Class 2
Not all Divisions may be available under all Policies or in all jurisdictions.
You may obtain the current Prospectus and Statement of Additional Information
("SAI") for any of the Portfolios by calling (800) 258-3648 x7719.
Replacing existing insurance or supplementing an existing flexible premium
variable life insurance policy with the Policy may not be to your advantage.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
THE FUNDS. BOTH THIS PROSPECTUS AND THE UNDERLYING FUND PROSPECTUSES SHOULD BE
READ AND RETAINED FOR FUTURE REFERENCE.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Ensemble Exec insurance policies and shares of the funds are not deposits or
obligations of or guaranteed by any bank. They are not federally insured by the
FDIC or any other government agency. Investing in the contracts involves
certain investment risks, including possible loss of principal invested.
THIS PROSPECTUS AND OTHER INFORMATION ABOUT JPF SEPARATE ACCOUNT A REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CAN BE FOUND IN THE SEC'S
WEB SITE AT http://www.sec.gov.
<PAGE>
table of contents
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
DEFINITIONS ....................................... 3
POLICY SUMMARY .................................... 4
THE SEPARATE ACCOUNT .............................. 5
CHARGES & FEES .................................... 6
Charges & Fees Assessed Against
Premium ......................................... 6
Charges & Fees Assessed Against
Accumulation Value .............................. 6
Charges & Fees Assessed Against the
Separate Account ................................ 7
Charges Assessed Against the Underlying
Funds ........................................... 8
ALLOCATION OF PREMIUMS ............................ 9
The Portfolios ................................... 9
Investment Advisers for each of the
Funds ........................................... 10
Mixed and Shared Funding; Conflicts of
Interest ........................................ 11
Fund Additions, Deletions or Substitutions . 11
General Account ................................... 12
POLICY CHOICES .................................... 12
General .......................................... 12
Detailed Information about the Policy ............ 12
Premium Payments ................................. 13
Modified Endowment Contract ...................... 13
Compliance with the Internal Revenue
Code ............................................ 13
Death Benefit Options ............................ 14
Transfers and Allocations to Funding
Options ......................................... 15
Telephone Transfers, Loans and
Reallocations ................................... 16
Automated Transfers (Dollar Cost
Averaging and Portfolio Rebalancing) ............ 16
POLICY VALUES ..................................... 17
Accumulation Value ............................... 17
Unit Values ...................................... 18
Net Investment Factor ............................ 18
Surrender Value .................................. 18
POLICY RIGHTS ..................................... 18
Surrenders ....................................... 18
Withdrawals ...................................... 18
Grace Period ..................................... 19
Reinstatement of a Lapsed or Terminated
Policy .......................................... 19
</TABLE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Coverage Beyond Insured's Attained
Age 100 ......................................... 19
Right to Defer Payment ........................... 19
Policy Loans ..................................... 20
Policy Changes ................................... 21
Right of Policy Examination ...................... 22
Supplemental Benefits ............................ 22
DEATH BENEFIT ..................................... 23
POLICY SETTLEMENT ................................. 23
Settlement Options ............................... 24
THE COMPANY ....................................... 25
DIRECTORS & OFFICERS .............................. 26
ADDITIONAL INFORMATION ............................ 27
Reports to Policyowners .......................... 27
Right to Instruct Voting of Fund Shares .......... 27
Disregard of Voting Instructions ................. 28
State Regulation ................................. 28
Legal Matters .................................... 28
The Registration Statement ....................... 28
Financial Statements ............................. 28
Employment Benefit Plans ......................... 28
Distribution of the Policy ....................... 28
Independent Auditors ............................. 29
GROUP OR SPONSORED ARRANGEMENTS 29
TAX MATTERS ....................................... 29
General .......................................... 29
Federal Tax Status of the Company ................ 29
Life Insurance Qualification ..................... 30
Charges for JP Financial Income Taxes ............ 32
MISCELLANEOUS POLICY PROVISIONS ................... 33
The Policy ....................................... 33
Payment of Benefits .............................. 33
Suicide and Incontestability ..................... 33
Protection of Proceeds ........................... 33
Nonparticipation ................................. 33
Changes in Owner and Beneficiary;
Assignment ...................................... 33
Misstatements .................................... 33
ILLUSTRATIONS OF ACCUMULATION
VALUES, CASH VALUES AND DEATH
BENEFITS ......................................... A-1
</TABLE>
--------------------------------------------------------------------------------
This prospectus does not constitute an offer in any jurisdiction in which such
offering may not be lawfully made. No dealer, salesman or other person is
authorized to give any information or make any representations in connection
with this offering other than those contained in this prospectus, and, if given
or made, such other information or representations must not be relied upon. The
purpose of this variable life insurance policy is to provide insurance
protection. Life insurance is a long-term investment. Policyowners should
consider their need for insurance coverage and the policy's long-term investment
potential. No claim is made that the policy is any way similar or comparable to
an investment in a mutual fund.
--------------------------------------------------------------------------------
2
<PAGE>
definitions
--------------------------------------------------------------------------------
Accumulation Value: The total amount that a Policy provides for investment plus
the amount held as collateral for Policy Debt.
Age: The Insured's age at his/her nearest birthday.
Allocation Date: The date when the initial Net Premium is placed in the
Divisions and the General Account as instructed by the Policyowner in the
application. The Allocation Date is the later of 1) 25 days from the date we
mail the Policy to the agent for delivery to you; or 2) the date we receive all
administrative items needed to activate the Policy.
Attained Age: The Insured's age at the last Policy Anniversary.
Beneficiary: The person you designate in the application to receive the Death
Benefit proceeds. If changed, the Beneficiary is as shown in the latest change
filed with us. If no Beneficiary survives the Insured, you or your estate will
be the Beneficiary. The Beneficiary's interest may be subject to that of any
assignee.
Code: The Internal Revenue Code of 1986, as amended.
Company: Jefferson Pilot Financial Insurance Company.
Cost of Insurance: A charge related to our expected mortality cost for your
basic insurance coverage under the Policy, not including any supplemental
benefit provision that you may elect through a Policy rider.
Date of Receipt: Any Company business day, prior to 4:00 p.m. Eastern time, on
which a notice or premium payment is received at our home office.
Death Benefit: The amount which is payable on the Death of the Insured,
adjusted as provided in the Policy.
Death Benefit Options: The methods for determining the Death Benefit.
Division: A separate division of Separate Account A which invests only in the
shares of a specified Portfolio of a Fund.
Fund: An open-end management investment company whose shares are purchased by
the Separate Account to fund the benefits provided by the Policy.
General Account: A non-variable funding option available in the Policy that
guarantees a minimum interest rate of 4% per year.
Grace Period: The 61-day period beginning on the Monthly Anniversary Day on
which the Policy's Net Accumulation Value is insufficient to cover the current
Monthly Deduction. The Policy will lapse without value at the end of the 61-day
period unless we receive a sufficient payment.
Insured: The person on whose life the Policy is issued.
Issue Age: The Age of the Insured on the Policy's Issue Date.
Issue Date: The effective date on which we issue the Policy.
Load Basis Amount: An amount per $1,000 of Specified Amount which varies by
sex, Issue Age (or Attained Age for an increase in Specified Amount) and rating
class of the Insured. This amount is used to calculate the Acquisition Charge.
The maximum Load Basis Amount is $66.65, resulting in an Acquisition Charge of
$.40 per $1000 of Specified Amount in Years 1 through 10.
Loan Value: Generally, 100% of the Policy's Net Accumulation Value on the date
of a loan.
Monthly Anniversary Date: The same day in each month as the Policy Date.
Net Accumulation Value: Accumulation Value less Policy Debt.
Net Premium: The gross premium less a 2.5% State Premium Tax Charge, a 1.25%
Federal DAC Tax Charge and a 3% Premium Load. We currently do not intend to
assess the Premium Load beginning in the 11th Policy Year.
Policy: The life insurance contract described in this Prospectus.
Policy Date: The date set forth in the Policy from which policy years, policy
months and policy anniversaries will be determined. If the Policy Date falls on
the 29th, 30th or 31st of a month, the Policy Date will be the 28th of such
month. You may request the Policy Date. If You do not request a date, it is the
date the Policy is issued.
3
<PAGE>
Policy Debt: The principal of any loans outstanding against the Policy, plus
the accrued loan interest which has not been paid.
Portfolio: A separate investment series of one of the Funds.
Premium Load: A charge we assess against premium payments.
Proof of Death: One or more of: a) a copy of a certified death certificate; b)
a copy of a certified decree of a court of competent jurisdiction as to the
finding of death; c) a written statement by a medical doctor who attended the
Insured; or d) any other proof satisfactory to us.
Refund of Sales Charges: A refund we make of all first-year acquisition
charges, Premium Load and administrative charges you paid if you surrender your
Policy in the first two Policy Years.
SEC: Securities and Exchange Commission.
Separate Account A or the Separate Account: JPF Separate Account A, a separate
investment account we established for the purpose of funding the Policy.
Service Office: Our principal executive offices at One Granite Place, Concord,
New Hampshire 03301.
Specified Amount: The amount you choose at application, which may subsequently
be increased or decreased, as provided in the Policy. The Specified Amount is
used in determining the Death Benefit.
State: Any State of the United States, the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, the Commonwealth of the Northern Mariana Islands or
any other possession of the United States.
Surrender Value: Net Accumulation Value plus Refund of Sales Charges if the
surrender occurs in the first two Policy years.
Target Premium: The premium from which first year commissions will be
determined and which varies by sex, Issue Age, rating class of the Insured and
Specified Amount.
Valuation Date: The date and time at which the Accumulation Value of a variable
investment option is calculated. Currently, this calculation occurs after the
close of business of the New York Stock Exchange on any normal business day,
Monday through Friday, that the New York Stock Exchange and the Company are
open. In addition to being closed on all federal holidays, we will also be
closed on Good Friday, the Friday following Thanksgiving and the day before or
following Christmas.
Valuation Period: The period of time between two successive Valuation Dates,
beginning at the close of regular trading on the New York Stock Exchange on
each Valuation Date, and ending at the close of regular trading on the New York
Stock Exchange on the next succeeding Valuation Date.
policy summary
--------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance policy.
The Policy provides life insurance and pays a benefit (subject to adjustment
under the Policy's Age and/or Sex, Suicide and Incontestability, and Grace
Period provisions) upon surrender or Death of the Insured. The Policy allows
flexible premium payments, Policy Loans, Withdrawals and a choice of Death
Benefit Options. Account values may be either fixed or variable or a
combination of fixed and variable.
We designed Ensemble Exec primarily to be used in multi-life situations where
the insureds share common employment or have a business relationship. The
Policy may be owned individually or by a corporation, trust, association or
other similar entity. You may use the Policy to informally fund non-qualified
executive deferred compensation, salary continuation plans, retiree medical
benefits or other purposes.
Charges and fees will be assessed against premium payments, Accumulation Value,
the Separate Account, the underlying Funds and upon partial withdrawals.
You must purchase your variable life insurance policy from a registered
representative. The Policy, the initial application on the Insured, any
subsequent applications, endorsements and any riders constitute the entire
contract.
At the time of application, you must choose a Death Benefit Option, decide on
the amount of planned premium and determine how to allocate Net Premiums. You
may elect to supplement the benefits afforded by the Policy through the
addition of riders we make available.
4
<PAGE>
The proceeds payable upon the Death of the Insured depend on the Death Benefit
Option chosen. Under Option 1 the Death Benefit equals the current Specified
Amount. Under Option 2, the Death Benefit equals the current Specified Amount
plus the Accumulation Value on the date of death. Under Option 3, the Death
Benefit equals the Specified Amount plus total premiums paid, less any
withdrawals. We may make other options available. We will reduce the Death
Benefit proceeds by any outstanding Policy Debt.
Although the Policy is designed to allow flexible premiums, you must pay
sufficient premiums to continue the Policy in force. The initial premium must
be paid at issue. The initial premium is based on Issue Age, underwriting class
and Specified Amount. No premium payment may be less than $250 ($50 for
electronic fund transfers). We will send you premium reminder notices for
Planned Premiums and for premiums required to continue the Policy in force.
Should your Policy lapse, you may reinstate it.
You may allocate your Net Premiums to the Separate Account, the General Account
or both Accounts. Net Premiums allocated to the Separate Account must be
allocated to one or more of the Divisions of the Separate Account and
allocations must be in whole percentages. The variable portion of the Policy is
supported by the Divisions you choose and will vary with the investment
performance of the associated Portfolios. Net Premiums allocated to the General
Account will accumulate at rates of interest we determine. The effective rate
of interest will not be less than 4% per year.
the separate account
--------------------------------------------------------------------------------
The Separate Account underlying the Policy is JPF Separate Account A. Amounts
allocated to the Separate Account are invested in the Portfolios. Each
Portfolio is a series of an open-end management investment company whose shares
are purchased by the Separate Account to fund the benefits provided by the
Policy. The Portfolios, including their investment objectives and their
investment advisers, are described in this Prospectus. Complete descriptions of
the Portfolios' investment objectives and restrictions and other material
information relating to the Portfolios are contained in the Funds'
prospectuses, which are delivered with this Prospectus.
Separate Account A was established under New Hampshire law on August 20, 1984.
Under New Hampshire Insurance Law, the income, gains or losses of the Separate
Account are credited without regard to the other income, gains or losses of the
Company. These assets are held for our variable life insurance policies and
variable annuities. Any and all distributions made by the Portfolios with
respect to shares held by the Separate Account will be reinvested in additional
shares at net asset value. The assets maintained in the Separate Account will
not be charged with any liabilities arising out of any other business we
conduct. We are, however, responsible for meeting the obligations of the Policy
to the Policyowner.
No stock certificates are issued to the Separate Account for shares of the
Portfolios held in the Separate Account. Ownership of Portfolio shares is
documented on the books and records of the Portfolios and of the Company for
the Separate Account.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 and meets the definition of separate
account under the federal securities laws. Such registration does not involve
any approval or disapproval by the Commission of the Separate Account or our
management or investment practices or policies. We do not guarantee the
Separate Account's investment performance.
Divisions. The Policies presently offer twenty Divisions but may add or delete
Divisions. You may invest in a total of 17 Divisions over the life of the
Policy. Each Division will invest exclusively in shares of a single Portfolio.
5
<PAGE>
charges & fees
--------------------------------------------------------------------------------
> CHARGES & FEES ASSESSED AGAINST PREMIUM
Premium Charges
Before a premium is allocated to any of the Divisions of Separate Account A
and the General Account, we will deduct the following fees and charges:
o a state premium tax charge of 2.5% unless otherwise required by state law
(1.0% in Oregon and 2.35% in California).
The state premium tax charge reimburses us for taxes we pay to states and
municipalities in which the Policy is sold. The amount of tax assessed by a
state or municipality may be more or less than the charge. We may impose the
premium tax charge in states which do not themselves impose a premium tax.
o a federal income tax charge of 1.25% ("Federal DAC Tax Charge") which
reimburses us for our increased federal tax liability under the federal
tax laws. Subject to state law, we reserve the right to increase these tax
charges due to changes in the state or federal tax laws that increase our
tax liability.
o a Premium Load which we currently do not intend to assess after the 10th
Policy Year and which is guaranteed not to exceed 3% of premium.
> CHARGES & FEES ASSESSED AGAINST ACCUMULATION VALUE
Charges and fees assessed against the Policy's Accumulation Value can be
deducted from any one of the Divisions, the General Account, or pro rata
from each of the Divisions and the General Account. If you do not designate
one Division, we will deduct the charges pro rata from each of the Divisions
and the General Account.
Monthly Deduction
On each Monthly Anniversary Date and on the Policy Date, we will deduct from
the Policy's Accumulation Value an amount to cover certain expenses
associated with start-up and maintenance of the Policy, administrative
expenses, the cost of insurance for the Policy and any optional benefits
added by rider.
The Monthly Deduction equals:
i) the Cost of Insurance for the Policy (as described below), plus
ii) a Monthly Administrative Fee of $10, plus
iii) a monthly Acquisition Charge during the first ten Policy Years equal to
0.6% of the Load Basis Amount, plus
iv) the cost of optional benefits provided by rider.
v) a monthly acquisition charge during the first 120 months following any
increase in Specified Amount.
Cost of Insurance. The Cost of Insurance charge is related to our expected
mortality cost for your basic insurance coverage under the Policy, not
including any supplemental benefit provisions that you may elect through a
Policy rider.
The Cost of Insurance charge equals (i) multiplied by the result of (ii)
minus (iii) where:
i) is the current Cost of Insurance Rate as described in the Policy;
ii) is the death benefit at the beginning of the policy month divided by
1.0032737 (to arrive at the proper values for the beginning of the month
assuming the guaranteed interest rate of 4%); and
iii) is the Accumulation Value at the beginning of the policy month, prior
to the monthly deduction for the Cost of Insurance.
The current Cost of Insurance Rate is variable and is based on the Insured's
issue age, sex (where permitted by law), rating class, Policy Year and
Specified Amount. Because the Accumulation Value and the Death Benefit of
the Policy may vary from month to month, the Cost of Insurance charge may
also vary on each day a Monthly Deduction is taken. In addition, you should
note that the Cost of Insurance charge is related to the difference between
the Death Benefit payable under the Policy and the Accumulation Value of the
Policy. An increase in the Accumulation Value or a decrease in the Death
Benefit may result in a smaller Cost of Insurance charge while a decrease in
the Accumulation Value or an increase in the Death Benefit may result in a
larger cost of insurance charge.
6
<PAGE>
The Cost of Insurance rate for standard risks will not exceed those based on
the 1980 Commissioners Standard Ordinary Mortality Tables Male or Female
(1980 Tables). Substandard risks will have monthly deductions based on Cost
of Insurance rates which may be higher than those set forth in the 1980
Tables. A table of guaranteed maximum Cost of Insurance rates per $1,000 of
the Amount at Risk will be included in each Policy. We may adjust the
Monthly Cost of Insurance rates from time to time. Adjustments will be on a
class basis and will be based on our estimates for future factors such as
mortality experience, investment earnings, expenses (including reinsurance
costs), taxes and the length of time Policies stay in force. Any adjustments
will be made on a nondiscriminatory basis. The current Cost of Insurance
rate will not exceed the applicable maximum Cost of Insurance rate shown in
your Policy.
Monthly Administrative Expense Charge. The Monthly Deduction amount also
includes a monthly administration fee of $10.00. This fee may not be
increased.
Acquisition Charge. We will deduct from the Accumulation Value a monthly
acquisition charge of 0.6% of the Load Basis Amount in Policy Years 1
through 10 (7.2% annually). The Load Basis Amount is an amount per $1000 of
Specified Amount, which varies by sex, Issue Age and rating class of the
Insured. The maximum load Basis Amount is $66.65, resulting in a maximum
Acquisition Charge of $.40 per $1000 of Specified Amount in years 1 through
10. This charge does not vary with the amount of premium paid. We will also
deduct a pro-rated acquisition charge on increases in Specified Amount. We
reserve the right to increase or decrease this charge for policies not yet
issued in order to correspond with changes in distribution costs of the
Policy. The charge compensates us for the cost of selling the Policy,
including, among other things, agents' commissions, advertising and printing
of prospectuses and sales literature. Normally this charge compensates us
for total sales expenses for the year. To the extent sales expenses in any
policy year are not recovered by the Acquisition Charges we collect, we may
recover sales expenses from other sources, including profits from the
Mortality Risk and Expense Risk Charges.
Charges for Optional Benefits. If you elect any optional benefits by adding
riders to the Policy, an optional benefits charge will be included in the
Monthly Deduction amount. The amount of the charge will vary depending upon
the actual optional benefits selected and is described on each applicable
Policy rider.
Refund of Sales Charges. If you surrender your Policy within the first two
policy years, we will refund to you all first-year acquisition charges,
Premium Load and administrative charges you paid.
This guaranteed refund is available only upon surrender in the first two
Policy Years. If the Policy has additional coverage due to a Supplementary
Coverage Rider, the refund of Premium Load and Administrative Charges will
be reduced by the percentage of total coverage that is due to the
Supplementary Coverage Rider.
> CHARGES & FEES ASSESSED AGAINST THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge
We will assess a charge on a daily basis against each Division at a current
annual rate of 0.60% in Policy Years 1 through 25 and 0.40% in Policy Years
26 and later of the value of the Divisions to compensate us for mortality
and expense risks we assume in connection with the Policy. We reserve the
right to increase this charge, but guarantee that it will not exceed 0.85%
in Policy Years 1 through 25 and 0.60% in Policy Years 26 and thereafter.
The mortality risk we assume is that Insureds, as a group, may live for a
shorter period of time than estimated and that we will, therefore, pay a
Death Benefit before collecting a sufficient Cost of Insurance charge. The
expense risk assumed is that expenses incurred in issuing and administering
the Policies and operating the Separate Account will be greater than the
administrative charges assessed for such expenses.
The Separate Account is not subject to any taxes. However, if taxes are
assessed against the Separate Account, we reserve the right to assess taxes
against the Separate Account Value.
Administrative Charge for Transfers or Withdrawal
We may impose an Administrative Fee of $50 for each transfer among the
Divisions of the Separate Account or the General Account, after the first 12
transfers in a Policy Year (up to a maximum of 20). We will also charge an
Administrative Fee on withdrawals equal to the lesser of 2% of the
withdrawal amount or $50.
7
<PAGE>
> CHARGES ASSESSED AGAINST THE UNDERLYING FUNDS
Following are the investment advisory and sub-investment management fees,
paid by each of the Funds as a percentage of average net assets.
Jefferson Pilot Variable Fund, Inc.
<TABLE>
<CAPTION>
World Growth Stock,
Global Hard Assets,
Small Company, S&P
Average Daily Money Value, Capital 500
Net Assets Market and Balanced Growth Index
-------------------- -------- -------------------- --------- ---------
<S> <C> <C> <C> <C>
First $200 million .50% .75% 1.00% .24%
Next $1.1 billion .45% .70% .95% .24%
Over $1.3 billion .40% .65% .90% .24%
</TABLE>
<TABLE>
<CAPTION>
Average Daily Emerging High Yield International
Net Assets Growth Bond and Growth Equity
-------------------- ---------- ----------------- --------------
<S> <C> <C> <C>
First $200 million .80% .75% 1.00%
Next $1.1 billion .75% .75% 1.00%
Over $1.3 billion .70% .75% 1.00%
</TABLE>
The compensation of the Sub-Investment Managers is paid directly from the
investment management fees of JP Investment Advisory and is set forth in the
table below as an annual percentage of the average daily net assets of the
Portfolio managed:
<TABLE>
<CAPTION>
Sub-Investment Manager Fees
----------------------------------------------
Templeton Van Eck Lord
Janus World Global Abbett
Average Daily Capital Growth Hard Small
Net Assets Growth Stock Assets Company
-------------------- --------- ----------- --------- --------
<S> <C> <C> <C> <C>
First $200 million .70% .50% .50% .50%
Next $1.1 billion .65% .45% .45% .45%
Over $1.3 billion .60% .40% .40% .40%
</TABLE>
<TABLE>
<CAPTION>
Credit MFS MFS
Suisse Emerging Money
Net Assets Value Growth Market
-------------------- -------- ---------- ---------
<S> <C> <C> <C>
First $100 Million .50% .40% .30%
Next $100 million .50% .40% .30%
Next $300 million .50% .40% .25%
Over $500 million .50% .40% .25%
Over $1 billion .50% .40% .25%
</TABLE>
<TABLE>
<CAPTION>
MFS
High Janus Barclay's
Net Assets Yield Bond Balanced S&P 500 Index
------------------- ---------- -------- -------------
<S> <C> <C> <C>
First $100 Million .40% .55% .05%
Next $100 million .40% .50% .05%
Next $300 million .40% .50% .05%
Over $500 million .40% .45% .025%
Over $1 billion .40% .45% .01%
</TABLE>
<TABLE>
<CAPTION>
Lombard Odier
Strong International
Net Assets Growth Equity
------------------- -------- --------------
<S> <C> <C>
First $25 million .60% .50%
Next $75 million .50% .50%
Next $50 million .40% .50%
Over $150 million .30% .50%
</TABLE>
Templeton International Securities Fund: Class 2.
<TABLE>
<CAPTION>
Total
Other Annual
Expenses Distribution Expenses
Management (After Expense Fee (After Expense
Fee Reimbursement) (12b-1) Reimbursement)
------------ ---------------- -------------- ---------------
<S> <C> <C> <C>
.69% .19% .25% 1.13%
</TABLE>
The fund's class 2 distribution plan or "rule 12b-1 plan" is described in
the fund's prospectus. On 2/8/00, shareholders approved a merger and
reorganization that combined the fund with the Templeton International
Equity Fund, effective 5/1/00. The shareholders of that fund had approved
new management fees, which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and the assets of
the fund as of 12/31/99, and not the assets of the combined fund. However,
if the table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fees 0.65%,
Distribution and Service Fees 0.25%, Other Expenses 0.20%, and Total Fund
Operating Expenses 1.10%.
Fidelity VIP and VIP II
<TABLE>
<CAPTION>
Total
Management Other Annual
Fidelity VIP Fee Expenses Expenses
------------ ------------ ---------- ---------
<S> <C> <C> <C>
Equity-Income .48% .08% .56%
Growth .58% .07% .65%
Fidelity VIP II
---------------
Contrafund .58% .07% .65%
</TABLE>
MFS Variable Insurance Trust
<TABLE>
<CAPTION>
Total
Management Other Annual
Fee Expenses Expenses
------------ ---------- ---------
<S> <C> <C> <C>
MFS Research Series .75% .11% .86%
MFS Utilities Series .75% .16% .91%
</TABLE>
Oppenheimer Variable Account Funds
<TABLE>
<CAPTION>
Total
Management Other Annual
Fee Expenses Expenses
------------ ---------- ---------
<S> <C> <C> <C>
Strategic Bond Fund/VA .74% .04% .78%
Bond Fund/VA .72% .01% .75%
</TABLE>
Certain of the unaffiliated Portfolio advisers reimburse us for
administrative costs incurred in connection with administering the Funds as
variable funding options under the Policy. These reimbursements are paid by
the advisers and are not charged to the Portfolios.
For further details on each Portfolio's expenses please refer to that
Portfolio's prospectus. Additional copies of each Portfolio's prospectus
and the Statement of Additional Information for each Portfolio may be
obtained free of charge by calling (800)258-3648 x7719.
8
<PAGE>
Other Charges
We reserve the right to charge the assets of each Division to provide for
any income taxes or other taxes payable by us on the assets attributable to
that Division. Although we currently make no charge, we reserve the right to
charge you an administrative fee, not to exceed $50, to cover the cost of
preparing any additional illustrations of current Accumulation and Surrender
Values and current mortality assumptions which you may request after the
Policy Date.
allocation of premiums
--------------------------------------------------------------------------------
You may allocate all or a part of your Net Premiums to the Divisions
currently available under your Policy or you may allocate all or a part of
your Net Premiums to the General Account.
> THE PORTFOLIOS
The Separate Account currently invests in shares of the Portfolios listed
below. Net Premiums applied to the Separate Account will be invested in the
Portfolios in accordance with your selection. Portfolios may be added or
withdrawn as permitted by applicable law. We reserve the right to limit the
total number of Portfolios you may elect to 17 over the lifetime of the
Policy or to increase the total number of Portfolios you may elect. Shares
of the Portfolios are not sold directly to the general public. Each of the
Portfolios is available only through the purchase of variable annuities or
variable life insurance policies (See Mixed and Shared Funding).
The investment results of the Portfolios, whose investment objectives are
described below, are likely to differ significantly. There is no assurance
that any of the Portfolios will achieve their respective investment
objectives. Investment in some of the Portfolios involves special risks,
which are described in their respective prospectuses. You should read the
prospectuses for the Portfolios and consider carefully, and on a continuing
basis, which Portfolio or combination of Portfolios is best suited to your
long-term investment objectives. Except where otherwise noted, all of the
Portfolios are diversified, as defined in the Investment Company Act of
1940.
o JPVF International Equity Portfolio seeks long-term capital appreciation
through investments in securities whose primary trading markets are
outside the United States.
o JPVF World Growth Stock Portfolio seeks to achieve long-term capital
growth through a policy of investing primarily in stocks of companies
organized in the United States or in any foreign nation. A portion of the
Portfolio may also be invested in debt obligations of companies and
governments of any nation. Any income realized will be incidental.
o JPVF Global Hard Assets Portfolio seeks long-term capital appreciation by
investing globally, primarily in "Hard Asset Securities". Hard Asset
Securities include equity and debt securities of "Hard Asset Companies",
that are directly or indirectly engaged in the exploration, development,
production or distribution of one or more of the following: precious
metals; ferrous and non-ferrous metals; oil and gas, petroleum,
petrochemicals or other hydrocarbons; forest productions; real estate; and
other basic non-agricultural commodities. Income is a secondary
consideration.
o JPVF Emerging Growth Portfolio seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if any,
is incidental to the Portfolio's investment objective of long-term growth.
o JPVF Capital Growth Portfolio seeks capital growth. Realization of income
is not a significant investment consideration and any income realized will
be incidental.
o JPVF Small Company Portfolio seeks to achieve growth of capital. The
Portfolio pursues its objective by investing primarily in a diversified
portfolio of equity securities issued by small companies, which are
defined as companies with market capitalization equal to or less than the
largest company in the Russell 2000[TM] Index.
o JPVF Growth Portfolio seeks capital growth by investing primarily in
equity securities that the Sub-Investment Manager believes have above-
average growth prospects.
o JPVF S&P 500 Index Portfolio seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the S&P 500.
9
<PAGE>
o JPVF Value Portfolio (formerly JPVF Growth and Income Portfolio) seeks
long-term growth of capital by investing primarily in a wide range of
equity issues that may offer capital appreciation and, secondarily, seeks
a reasonable level of current income.
o JPVF Balanced Portfolio seeks reasonable current income and long-term
capital growth, consistent with conservation of capital, by investing
primarily in common stocks and fixed income securities.
o JPVF High Yield Bond Portfolio seeks a high level of current income by
investing primarily in corporate obligations with emphasis on higher
yielding, higher risk, lower-rated or unrated securities. These securities
may be considered speculative and involve greater risks, including risk of
default, than higher rated securities.
o JPVF Money Market Portfolio seeks to achieve as high a level of current
income as is consistent with preservation of capital and liquidity. An
investment in the Money Market Portfolio is neither insured nor guaranteed
by the U.S. Government.
o Fidelity Variable Insurance Products Fund-- Growth Portfolio seeks capital
appreciation by investing primarily in common stocks.
o Fidelity Variable Insurance Products Fund-- Equity-Income Portfolio seeks
reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Fund will also consider the
potential for capital appreciation.
o Fidelity Variable Insurance Products Fund II--Contrafund Portfolio seeks
maximum total return over the long term by investing its assets mainly in
equity securities of companies that are undervalued or out-of-favor.
o MFS Variable Insurance Trust--Research Series seeks to provide long-term
growth of capital and future income by investing a substantial proportion
of its assets in equity securities of companies believed to possess
better-than-average prospects for long-term growth.
o MFS Variable Insurance Trust--Utilities Series seeks capital growth and
current income (incomes above that available from a portfolio invested
entirely in equity securities) by investing, under normal circumstances,
at least 65% (but up to 100% at the discretion of the Adviser) of its
assets in equity and debt securities of both domestic and foreign
companies in the utilities industry.
o Oppenheimer Variable Account Funds-- Strategic Bond Fund/VA seeks a high
level of current income principally derived from interest on debt
securities and seeks to enhance such income by writing covered call
options on debt securities. The Portfolio intends to invest principally
in: (i) foreign government and corporate debt securities, (ii) U.S.
Government securities, and (iii) lower-rated high yield domestic debt
securities, commonly known as "junk bonds", which are subject to a greater
risk of loss of principal and nonpayment of interest than higher-rated
securities. These securities may be considered to be speculative.
o Oppenheimer Variable Account Funds-- Bond Fund/VA primarily seeks a high
level of current income from investment in high yield, fixed-income
securities rated "Baa" or better by Moody's or "BBB" or better by Standard
& Poor's. Secondarily, this Portfolio seeks capital growth when consistent
with its primary objective.
o Franklin Templeton Variable Insurance Products Trust--Templeton
International Securities Fund seeks long-term capital growth. The fund
will invest in equity securities of companies located outside the U.S.,
including those in emerging markets.
Some of the above Portfolios may use instruments known as derivatives as
part of their investment strategies, as described in their respective
prospectuses. The use of certain derivatives such as inverse floaters and
principal on debt instruments may involve higher risk of volatility to a
Portfolio. The use of leverage in connection with derivatives can also
increase risk of losses. See the prospectus for the Portfolio for a
discussion of the risks associated with an investment in those Portfolios.
You should refer to the accompanying prospectuses of the Portfolios for more
complete information about their investment policies and restrictions.
> INVESTMENT ADVISERS FOR EACH OF THE FUNDS
Jefferson Pilot Variable Fund, Inc. ("JPVF") The investment manager to JPVF
is Jefferson Pilot Investment Advisory Corporation ("JP Investment
10
<PAGE>
Advisory"), an affiliate of the Company. JP Investment Advisory and JPVF
have contracted with nine unaffiliated companies to act as sub-investment
advisers to the Funds. They are:
o JPVF International Equity Portfolio: Lombard Odier International Portfolio
Management Limited ("Lombard Odier")
o JPVF World Growth Stock Portfolio: Templeton Investment Council, Inc.
("TICI")
o JPVF Global Hard Assets Portfolio: Van Eck Associates Corporation ("Van
Eck")
o JPVF Emerging Growth Portfolio: Massachusetts Financial Services Company
("MFS")
o JPVF Capital Growth Portfolio: Janus Capital Corporation ("Janus")
o JPVF Small Company Portfolio: Lord, Abbett & Co. ("Lord Abbett")
o JPVF Growth Portfolio: Strong Capital Management, Inc. ("Strong")
o JPVF S&P 500 Index Portfolio: Barclays Global Fund Advisors ("Barclays")
o JPVF Value Portfolio: Credit Suisse Asset Management, LLC ("Credit
Suisse")
o JPVF Balanced Portfolio: Janus
o JPVF High Yield Bond: MFS
o JPVF Money Market Portfolio: MFS
Fidelity Variable Insurance Products Fund--Fidelity Management and Research
Company ("FMR")
Fidelity Variable Insurance Products Fund II--FMR
MFS Variable Insurance Trust--Massachusetts Financial Services Company
("MFS")
Oppenheimer Variable Account Funds-- OppenheimerFunds, Inc. ("Oppenheimer")
Franklin Templeton Variable Insurance Products Trust--Templeton Investment
Counsel, Inc. ("TICI")
> MIXED AND SHARED FUNDING; CONFLICTS OF INTEREST
Shares of the Funds are available to insurance company separate accounts
which fund variable annuity contracts and variable life insurance policies,
including the Policy described in this Prospectus. Because Fund shares are
offered to separate accounts of both affiliated and unaffiliated insurance
companies, it is conceivable that, in the future, it may not be advantageous
for variable life insurance separate accounts and variable annuity separate
accounts to invest in these Funds simultaneously, since the interests of
such Policyowners or contractholders may differ. Although neither the
Company nor the Funds currently foresees any such disadvantages either to
variable life insurance or to variable annuity Policyowners, each Fund's
Board of Trustees/Directors has agreed to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and
to determine what action, if any, should be taken in response thereto. If
such a conflict were to occur, one of the separate accounts might withdraw
its investment in a Fund. This might force that Fund to sell portfolio
securities at disadvantageous prices.
> FUND ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right, subject to compliance with appropriate state and
federal laws, to add, delete or substitute shares of another Portfolio or
Fund for Portfolio shares already purchased or to be purchased in the future
for the Division in connection with the Policy. We may substitute shares of
one Portfolio for shares of another Portfolio if, among other things, (a) it
is determined that a Portfolio no longer suits the purpose of the Policy due
to a change in its investment objectives or restrictions; (b) the shares of
a Portfolio are no longer available for investment; or (c) in our view, it
has become inappropriate to continue investing in the shares of the
Portfolio. Substitution may be made with respect to both existing
investments and the investment of any future premium payments. However, no
substitution, addition or deletion of securities will be made without prior
notice to Policyowners, and without such prior approval of the SEC or other
regulatory authorities as may be necessary, all to the extent required and
permitted by the Investment Company Act of 1940 or other applicable law.
We also reserve the right to make the following changes in the operation of
the Separate Account and the Divisions;
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Division to another, or from any Division to
our general account;
11
<PAGE>
(d) to add, combine, or remove Divisions in the Separate Account;
(e) to assess a charge for taxes attributable to the operation of the
Separate Account or for other taxes, described in "Charges and Fees--Other
Charges" on page 10 above; and
(f) to change the way we assess other charges, as long as the total other
charges do not exceed the amount currently charged the Separate Account and
the Portfolios in connection with the Policies.
Portfolio shares are subject to certain investment restrictions which may
not be changed without the approval of the majority of the Portfolio's
shareholders. See accompanying Prospectuses for the Portfolios.
> GENERAL ACCOUNT
Interests in the General Account have not been registered with the SEC in
reliance upon exemptions under the Securities Act of 1933, as amended and
the General Account has not been registered as an investment company under
the 1940 Act. However, disclosure in this Prospectus regarding the General
Account may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of the
statements. Disclosure in this Prospectus relating to the Fixed Account has
not been reviewed by the SEC.
The General Account is a fixed funding option available under the Policy. We
guarantee a minimum interest rate of 4.0% on amounts in the General Account
and assume the risk of investment gain or loss. The investment gain or loss
of the Separate Account or any of the Portfolios does not affect the General
Account Value.
The General Account is secured by our general assets. Our general assets
include all assets other than those held in separate accounts sponsored by
us or our affiliates. We will invest the assets of the General Account in
those assets we chose, as allowed by applicable law. We will allocate
investment income of such General Account assets between ourself and those
policies participating in the General Account.
We guarantee that, at any time, the General Account Value of your Policy
will not be less than the amount of the Net Premiums allocated to the
General Account, plus any monthly accumulation value adjustment, plus
interest at an annual rate of not less than 4.0%, less the amount of any
Withdrawals, Policy Loans or Monthly Deductions, plus interest at an annual
rate of not less than 4.0%.
If you do not accept the Policy issued as applied for or you exercise your
"free look" option, no interest will be credited and we will retain any
interest earned on the initial Net Premium.
policy choices
----------------------------------------------------------------------------
> GENERAL
The Policy is designed to provide the Insured with lifetime insurance
protection and to provide you with flexibility in amount and frequency of
premium payments and level of life insurance proceeds payable under the
Policy. It provides life insurance coverage on the Insured with a Death
Benefit payable on the Insured's Death. You are not required to pay
scheduled premiums to keep the Policy in force and you may, subject to
certain limitations, vary the frequency and amount of premium payments.
To purchase a Policy, you must complete an application and submit it to us
through the agent selling the Policy. The Policy is issued on a guaranteed
or simplified issue basis. The Insured must be no younger than age 15 and no
older than age 70. Smoking status is reflected in the current cost of
insurance rates. Policies issued in certain States will not directly reflect
the Insured's sex in either the premium rates or the charges or values under
the Policy. We may reject an application for any reason.
The minimum Specified Amount at issue is $25,000. We reserve the right to
revise our rules to specify different minimum Specified Amounts at issue. We
may reinsure all or a portion of the Policy.
> DETAILED INFORMATION ABOUT THE POLICY
This prospectus describes the standard Ensemble Exec flexible premium
variable universal life insurance policy. There may be variations in your
policy because of specific state requirements in the
12
<PAGE>
state where your Policy is issued. We will describe any such variations in
your Policy or in Supplements to this Prospectus, as appropriate.
> PREMIUM PAYMENTS
The Policy is a flexible premium life insurance policy. This means that you
may decide when to make premium payments and in what amounts. You must pay
your premiums to us at our home office or through one of our authorized
agents for forwarding to us. There is no fixed schedule of premium payment
on the Policy either as to amount or frequency. You may determine, within
certain limits, your own premium payment schedule. We will not bill premium
payments for less than $250 ($50 for electronic fund transfers).
We may require evidence of insurability if payment of a premium will result
in an immediate increase in the difference between the Death Benefit and the
Accumulation Value.
In order to help you obtain the insurance benefits you desire, we will state
a Planned Periodic Premium and Premium Frequency in the Policy. This premium
will generally be based on your insurance needs and financial abilities, the
Specified Amount of the Policy and the Insured's age, sex and risk class.
You are not required to pay Planned Periodic Premiums. If you do not pay a
Planned Periodic Premium, your Policy will not lapse, so long as the
Policy's Net Accumulation Value is sufficient to pay the Monthly Deduction.
Payment of the Planned Periodic Premiums will not guarantee that your Policy
will remain in force. (See "Grace Period")
> MODIFIED ENDOWMENT CONTRACT
The Policy will be allowed to become a Modified Endowment contract under the
Internal Revenue Code only with your consent. Otherwise, if at any time the
premiums paid under the Policy exceed the limit for avoiding modified
endowment contract status, we will refund the excess premium to you with
interest within 60 days after the end of the Policy Year in which the
premium was received. If, for any reason, we do not refund the excess
premium within that 60-day period, we will hold the excess premium in a
separate deposit fund and credit it with interest until refunded to you. The
interest rate used on any refund, or credited to the separate deposit fund
created by this provision, will be the excess premium's pro rata rate of
return on the contract until the date we notify you that the excess premium
and the earnings on such excess premium have been removed from the Policy.
After the date of such notice, the interest rate paid on the separate
deposit fund will be such rate as we may declare from time to time on
advance premium deposit funds. We may also notify you of other options
available to you to keep the Policy in compliance.
> COMPLIANCE WITH THE INTERNAL REVENUE CODE
The Policy is intended to qualify as life insurance under the Internal
Revenue Code. The Death Benefit provided by the Policy is intended to
qualify for the federal income tax exclusion. If at any time the premium
paid under the Policy exceeds the amount allowable for such qualification,
we will refund the excess premium to you with interest within 60 days after
the end of the Policy Year in which it was received. If, for any reason, we
do not refund the excess premium within the 60-day period, such amount will
be held in a separate deposit fund and will be credited with interest until
refunded to you. The interest rate used on any refund, or credited to the
separate deposit fund created by this provision, will be the excess
premium's pro rata rate of return on the contract until the date we notify
you that the excess premium and the earnings on such excess premium have
been removed from the Policy. After the date of such notice, the interest
rate paid on the separate deposit fund will be such rate as we may declare
from time to time on advance premium deposit funds.
We also reserve the right to refuse to make any change in the Specified
Amount or the Death Benefit Option or any other change if such change would
cause the policy to fail to qualify as life insurance under the Code.
Backdating
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed but
no earlier than six months prior to state approval of the Policy. Backdating
may be desirable so that you can purchase a particular Policy Specified
Amount for lower Cost of Insurance Rate based on a younger insurance age.
For a backdated Policy, we will assess policy fees and charges from the
Policy Date. Backdating of your Policy will not affect the date on which
your premium payments are credited to the Separate Account.
13
<PAGE>
Allocation of Premiums
We will allocate premium payments, net of the premium tax charge, Federal
DAC tax charge and Premium Load, plus interest earned prior to the
Allocation Date, among the General Account and the divisions of the Separate
Account in accordance with your directions to us. The minimum percentage of
any net premium payment allocated to any division or the General Account is
5% and allocation percentages must be in whole numbers only. Your initial
premium (including any interest) will be allocated, as you instructed, on
the Allocation Date. Your subsequent premiums will be allocated as of the
date they are received in our Service Office. Prior to the Allocation Date,
the initial net premium, and any other premiums received, will be allocated
to the General Account. (See "Right of Policy Examination")
You may change your premium allocation instructions at any time. Your
request may be written or by telephone, so long as the proper telephone
authorization is on file with us. Allocations must be changed in whole
percentages. The change will be effective as of the date of the next premium
payment after you notify us. We will send you confirmation of the change.
(See "Transfers and Allocations to Funding Options")
You will be advised at least annually as to the number of Units which remain
credited to the Policy, the current Unit Values, the Separate Account Value,
the General Account Value, and the Accumulation Value.
> DEATH BENEFIT OPTIONS
At the time of purchase, you must choose between the available Death Benefit
Options. The amount payable upon the Death of the Insured depends upon which
Death Benefit Option you choose.
Option 1: The Death Benefit will be the greater of the current Specified
Amount or the Accumulation Value on the Death of the Insured multiplied by
the corridor percentage, as described below.
Option 2: The Death Benefit equals the greater of the current Specified
Amount plus the Accumulation Value on the Death of the Insured or the
Accumulation Value on the date of death multiplied by the corridor
percentage, as described below.
Option 3: The Death Benefit equals the current specified amount plus the
total premiums paid less any withdrawals to the date of death. If the total
of the withdrawals exceeds the premiums paid then the Death Benefit will be
less than the Specified Amount.
The corridor percentage is used to determine a minimum ratio of Death
Benefit to Accumulation Value. This is required to qualify the Policy as
life insurance under the federal tax laws.
Death Benefit Qualification Test
You will also choose between the two Death Benefit qualification tests, the
cash value accumulation test and the guideline premium test. Once you have
made your choice, the Death Benefit qualification test cannot be changed.
The guideline premium test limits the amount of premium payable for an
Insured of a particular age and sex. It also applies a prescribed corridor
percentage to determine a minimum ratio of Death Benefit to Accumulation
Value.
Following are the Corridor Percentages under the Guideline Premium Test:
Corridor Percentages
(Attained Age of the Insured at the
Beginning of the Contract Year)
<TABLE>
<CAPTION>
Age % Age % Age % Age %
------ ------ ----- ------ ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250% 50 185% 60 130% 70 115%
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94+ 101
</TABLE>
The cash value accumulation test requires that the Death Benefit be
sufficient to prevent the Accumulation Value, as defined in Section 7702 of
the Code, from ever exceeding the net single premium required to fund the
future benefits under the Policy. If the Accumulation Value is ever greater
than the net single premium at the Insured's age and sex for the proposed
Death Benefit, the Death Benefit will be automatically increased by
multiplying the Accumulation Value by a corridor percentage that is defined
as $1000 divided by the net single premium.
The tests differ as follows:
(1) the guideline premium test limits the amount of premium that you can pay
into your Policy; the cash value accumulation test does not.
(2) the factors that determine the minimum Death Benefit relative to the
Policy's Accumulation Value are different. Required increases in the
14
<PAGE>
minimum Death Benefit due to growth in Accumulation Value will generally
be greater under the cash value accumulation test.
(3) If you wish to pay premiums in excess of the guideline premium test
limitation, you should elect the cash value accumulation test. If you do
not wish to pay premiums in excess of the guideline premium test
limitations, you should consider the guideline premium test.
You should consult with a qualified tax adviser before choosing the Death
Benefit Qualification Test.
The following example demonstrates the Death Benefits under Options 1, 2 and
3 for the cash value accumulation test and the guideline premium test. The
example shows an Ensemble III Policy issued to a male, non-smoker, Age 45,
at the time of calculation of the Death Benefit. The Policy is in its 10th
Policy Year and there is no outstanding Policy Debt.
<TABLE>
<CAPTION>
Cash Value Guideline
Accumulation Premium
Test Test
-------------- ----------
<S> <C> <C>
Specified Amount .................... 100,000 100,000
Accumulation Value .................. 52,500 52,500
Corridor Percentage ................. 294% 215%
Total Premiums less Withdrawals..... 15,000 15,000
Death Benefit Option 1 .............. 154,088 112,875
Death Benefit Option 2 .............. 154,088 152,500
Death Benefit Option 3 .............. 154,088 115,000
</TABLE>
Under any of the Death Benefit Options, the Death Benefit will be reduced by
a Withdrawal. (See "Withdrawals") The Death Benefit payable under any of the
Options will also be reduced by the amount necessary to repay the Policy
Debt in full and, if the Policy is within the Grace Period, any payment
required to keep the Policy in force.
The Death Benefit will be set at 101% of the Cash Value on the Policy
Anniversary Date nearest the Insured's Attained Age 100.
After we issue the Policy, you may, subject to certain restrictions, change
the Death Benefit selection by sending us a request in writing. If you
change the Death Benefit Option from Option 2 to Option 1, the Specified
Amount will be increased by the Policy's Accumulation Value on the effective
date of the change. If you change the Death Benefit option from Option 1 to
Option 2, the Specified Amount will be decreased by the Policy's
Accumulation Value on the effective date of the change. If you change the
Death Benefit Option from Option 3 to Option 2, the Specified Amount will be
increased by the Premiums paid to the date of the change less any
withdrawals and then will be decreased by the Accumulation Value in the date
of the change. If you change the Death Benefit from Option 3 to Option 1,
the Specified Amount will be increased by the Premiums paid less any
withdrawals, to the date of the change. You may not change from Options 1 or
2 to Option 3. If a change would result in an immediate change in the Death
Benefit, such change will be subject to evidence of insurability.
> TRANSFERS AND ALLOCATIONS TO FUNDING OPTIONS
You may transfer all or part of the Accumulation Value to any other Division
or to the General Account at any time. Funds may be transferred between the
Divisions or from the Divisions to the General Account. We currently permit
12 transfers per year without imposing any transfer charge. For transfers
over 12 in any Policy Year, we will impose a transfer charge of $50, which
we will deduct on a pro rata basis from the Division or Divisions or the
General Account into which the amount is transferred, unless you specify
otherwise. We will not impose a Transfer Charge on the transfer of any Net
Premium payments received prior to the Allocation Date, plus interest
earned, from the General Account to the Divisions on the Allocation Date, or
on loan repayments. We will not impose a Transfer Charge for transfers under
the Dollar Cost Averaging or Portfolio Rebalancing features. You may
currently make up to 20 transfers per Policy Year. Transfers of any Net
Premium payments received prior to the Allocation Date from the General
Account to the Divisions on the Allocation Date, loan repayments, transfers
in connection with Dollar Cost Averaging and transfers in connection with
Portfolio Rebalancing will not count against the 20 transfers. We reserve
the right to modify transfer privileges and charges.
You may at any time transfer 100% of the Policy's Accumulation Value to the
General Account and choose to have all future premium payments allocated to
the General Account. After you do this, the minimum period the Policy will
be in force will be fixed and guaranteed. The minimum period will depend on
the amount of Accumulation Value, the Specified Amount, the sex, Attained
Age and rating class of the Insured at the time of transfer. The minimum
period will decrease if you choose to surrender the Policy or make a
withdrawal. The minimum period will increase if you choose to decrease the
Specified Amount, make additional premium payments, or we credit a higher
interest rate or charge a lower cost of insurance rate than those guaranteed
for the General Account.
Except for transfers in connection with Dollar Cost Averaging, Automatic
Portfolio Rebalancing and loan
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repayments, we allow transfers out of the General Account to the Divisions
only once in every 180 days and limit their amount to the lesser of (a) 25%
of the Accumulation Value in the General Account not being held as loan
collateral, or (b) $100,000. Any other transfer rules, including minimum
transfer amounts, also apply. We reserve the right to modify these
restrictions.
We will not impose a transfer charge for a transfer of all Accumulation
Value in the Separate Account to the General Account. A transfer from the
General Account to the Divisions of the Separate Account will be subject to
the transfer charge unless it is one of the first 12 transfers in a Policy
Year and except for the transfer of any Net Premium payments received prior
to the Allocation Date, plus interest earned, from the General Account and
loan repayments.
We reserve the right to refuse or restrict transfers made by third-party
agents on behalf of Policyowner or pursuant to market timing services when
we determine that such transfers will be detrimental to the Portfolios,
Policyowner the Separate Account or you.
> TELEPHONE TRANSFERS, LOANS AND REALLOCATIONS
You, your authorized representative, or a member of his/her administrative
staff may request a transfer of Accumulation Value or reallocation of
premiums (including allocation changes relating to existing Dollar Cost
Averaging and Automatic Portfolio Rebalancing programs) either in writing or
by telephone. In order to make telephone transfers, you must complete a
written telephone transfer authorization form and return it to us at our
Home Office. All transfers must be in accordance with the terms of the
Policy. If the transfer instructions are not in good order, we will not
execute the transfer and you will be notified.
We may also permit loans to be made by telephone, provided that your
authorization form is on file with us. Only you may request loans by
telephone.
We will use reasonable procedures, such as requiring identifying information
from callers, recording telephone instructions, and providing written
confirmation of transactions, in order to confirm that telephone
instructions are genuine. Any telephone instructions which we reasonably
believe to be genuine will be your responsibility, including losses arising
from any errors in the communication of instructions. As a result of this
procedure, you will bear the risk of loss. If we do not use reasonable
procedures, as described above, we may be liable for losses due to
unauthorized instructions.
> AUTOMATED TRANSFERS (DOLLAR COST AVERAGING AND PORTFOLIO REBALANCING)
Dollar Cost Averaging describes a system of investing a uniform sum of money
at regular intervals over an extended period of time. Dollar Cost Averaging
is based on the economic fact that buying a security with a constant sum of
money at fixed intervals generally results in acquiring more of the item
when prices are low and less of it when prices are high.
You may establish automated transfers of a specific dollar amount (the
"Periodic Transfer Amount") on a monthly, quarterly or semi-annual basis
from the Money Market Division or the General Account to any other Portfolio
or to the General Account. You must have a minimum of $3,000 allocated to
either the Money Market Division or the General Account in order to enroll
in the Dollar Cost Averaging program. The minimum Periodic Transfer Amount
is $250. A minimum of 5% of the Periodic Transfer Amount must be transferred
to any specified Division. There is no additional charge for the program.
You may start or stop participation in the Dollar Cost Averaging program at
any time, but you must give us at least 30 days' notice to change any
automated transfer instructions that are currently in place. We reserve the
right to suspend or modify automated transfer privileges at any time.
You may elect an Automatic Portfolio Rebalancing feature which provides a
method for reestablishing fixed proportions between various types of
investments on a systematic basis. Under this feature, we will automatically
readjust the allocation between the Divisions and the General Account to the
desired allocation, subject to a minimum of 5% per Division or General
Account, on a quarterly, semi-annual or annual basis. There is no additional
charge for the program.
You may not elect Dollar Cost Averaging and Automatic Portfolio Rebalancing
at the same time. We will make transfers and adjustments pursuant to these
features on the Policy's Monthly Anniversary Date in the month when the
transaction is to take place, or the next succeeding business day if the
Monthly Anniversary Date falls on a holiday or weekend. We must have an
authorization form on file before either feature may begin. Transfers under
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these features are not subject to the transfer fee and do not count toward
the 12 free transfers or the 20 transfer maximum currently allowed per year.
Before participating in the Dollar Cost Averaging or Automatic Portfolio
Rebalancing programs, you should consider the risks involved in switching
between investments available under the Policy. Dollar Cost Averaging
requires regular investments regardless of fluctuating price levels, and
does not guarantee profits or prevent losses. Automatic Portfolio
Rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your
Accumulation Value allocated to the better performing segments. Therefore,
you should carefully consider market conditions and each Portfolio's
investment policies and related risks before electing to participate in the
Dollar Cost Averaging or Automatic Portfolio Rebalancing programs.
policy values
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> ACCUMULATION VALUE
The Accumulation Value of Your Policy is determined on a daily basis.
Accumulation Value is the sum of the values in the Divisions plus the value
in the General Account. We calculate Your Policy's Accumulation Value in the
Divisions by units and unit values under the Policies. Your Policy's
Accumulation Value will reflect the investment experience of the Divisions
investing in the Portfolios, any additional net premiums paid, any
withdrawals, any policy loans, and any charges assessed in connection with
the Policy. We do not guarantee Accumulation Values in the Separate Account
as to dollar amount.
On the Allocation Date, the Accumulation Value in the Separate Account (the
"Separate Account Value") equals the initial premium payments, less the
premium load and the State Premium Tax and Federal DAC Tax Charges, plus
interest earned prior to the Allocation Date, and less the Monthly Deduction
for the first policy month. We will establish the initial number of units
credited to the Separate Account for Your Policy on the Allocation Date. At
the end of each Valuation Period thereafter, the Accumulation Value in a
Division is
(i) the Accumulation Value in the Division on the preceding Valuation Date
multiplied by the net investment factor, described below, for the current
Valuation Period, plus
(ii) any Net Premium we receive during the current Valuation Period which is
allocated to the Division, plus
(iii) all Accumulation Value transferred to the Division from another
Division or the General Account during the current Valuation Period, minus
(iv) the Accumulation Value transferred from the Division to another
Division or the General Account and Accumulation Value transferred to secure
a Policy Debt during the current Valuation Period, minus
(v) all withdrawals from the Division during the current Valuation Period.
Whenever a Valuation Period includes the Monthly Anniversary Date, the
Separate Account Value at the end of such period is reduced by the portion
of the monthly deduction and increased by any Accumulation Value Adjustment
allocated to the Divisions.
We will calculate a guaranteed monthly Accumulation Value Adjustment at the
beginning of the second Policy Year and every Policy Year thereafter. The
adjustment will be allocated among the General Account and the Divisions in
the same proportion as premium payments. The adjustment is calculated as (i)
multiplied by the total of (ii) plus (iii) minus (iv), but not less than
zero, where:
(i) is the lesser of .0333% and the excess of the monthly mortality and
expense risk charge currently assessed over .01666% in Policy Years 2
through 25 and the lesser of .02083% and the excess of the monthly mortality
and expense risk charge currently assessed over .008333% in Policy Years 26
and thereafter;
(ii) is the amount allocated to the Divisions at the beginning of the Policy
Year;
(iii) is the Type B loan balance at the beginning of the Policy Year; and
(iv) is the Guideline Single Premium at issue under Section 7702 of the
Code, adjusted for any increases in Specified Amount.
See "Policy Loans" for a description of Type B loans.
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> UNIT VALUES
We credit Units to you upon allocation of Net Premiums to a Division. Each
Net Premium payment you allocate to a Division will increase the number of
units in that Division. We credit both full and fractional units. We
determine the number of units and fractional units by dividing the Net
Premium payment by the unit value of the Division to which you have
allocated the payment. We determine each Division's unit value on each
Valuation Date. The number of units credited to your Policy will not change
because of subsequent changes in unit value. The number is increased by
subsequent contributions or transfers allocated to a Division, and decreased
by charges and withdrawals from that Division. The dollar value of each
Division's units will vary depending on the investment performance of the
corresponding Portfolio, as well as any expenses charged directly to the
Separate Account.
The initial Unit Value of each Division's units was $10.00. Thereafter, the
Unit Value of a Division on any Valuation Date is calculated by multiplying
the Division's Unit Value on the previous Valuation Date by the Net
Investment Factor for the Valuation Period then ended.
> NET INVESTMENT FACTOR
The Net Investment Factor measures each Division's investment experience and
is used to determine changes in Unit Value from one Valuation Period to the
next. We calculate the Net Investment Factor by dividing (1) by (2) and
subtracting (3) from the result, where:
(1) is the sum of:
(a) the Net Asset Value of a Fund share held in the Separate Account for
that Division determined at the end of the current Valuation Period;
plus
(b) the per share amount of any dividend or capital gain distributions
made for shares held in the Separate Account for that Division if the
ex-dividend date occurs during the Valuation Period;
(2) is the Net Asset Value of a Fund share held in the Separate Account for
that Division determined as of the end of the preceding Valuation
Period; and
(3) is the daily charge representing the Mortality & Expense Risk Charge.
This charge is equal, on an annual basis, to a percentage of the average
daily Net Asset Value of Fund shares held in the Separate Account for
that Division.
Because the Net Investment Factor may be greater than, less than or equal to
1, values in a Division may increase or decrease from Valuation Period to
Valuation Period.
> GENERAL ACCOUNT VALUE
The General Account Value reflects amounts allocated to the General Account
through payment of premiums or transfers from the Separate Account, plus
interest credited to those amounts. Amounts allocated to the General
Account, and interest thereon, are guaranteed; however there is no assurance
that the Separate Account Value of the Policy will equal or exceed the Net
Premiums paid and allocated to the Separate Account.
> SURRENDER VALUE
The Surrender Value of the Policy is the amount you can receive in cash by
surrendering the Policy. The Surrender Value will equal (a) the Net
Accumulation Value on the date of surrender; plus (b) a Refund of Sales
Charges if the surrender takes place in the first two Policy Years.
policy rights
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> SURRENDERS
By Written Request, you may surrender the Policy for its Surrender Value at
any time while the Insured is alive. All insurance coverage under the Policy
will end on the date of the Surrender. All or part of the Surrender Value
may be applied to one or more of the Settlement Options described in this
Prospectus or in any manner to which we agree and that we make available.
(See Right to Defer Payment, Policy Settlement and Payment of Benefits)
> WITHDRAWALS
By Written Request, you may, at any time after the expiration of the Free
Look Period, make withdrawals from the Policy. A charge equal to the lesser
of $50 or 2% of the Withdrawal will be deducted from the amount of the
Accumulation Value which you withdraw.
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The minimum amount of any withdrawal after the charge is applied is $500.
The amount you withdraw cannot exceed the Net Accumulation Value.
Withdrawals will generally affect the Policy's Accumulation Value and the
life insurance proceeds payable under the Policy as follows.
o The Policy's Accumulation Value will be reduced by the amount of the
withdrawal plus the $50 charge;
o The Death Benefit will be reduced by an amount equal to the reduction in
Accumulation Value.
If the Death Benefit Option for the Policy is Option 1, a withdrawal will
reduce the Specified Amount. However, we will not allow a withdrawal if the
Specified Amount will be reduced below $50,000.
If the Death Benefit Option for the Policy is Option 2, a withdrawal will
reduce the Accumulation Value, usually resulting in a dollar-for-dollar
reduction in the Death Benefit.
If the Death Benefit Option for the Policy is Option 3, a Withdrawal will
result in a dollar-for-dollar reduction in the Death Benefit.
You may allocate a withdrawal among the Divisions and the General Account.
If you do not make such an allocation, we will allocate the withdrawal among
the Divisions and the General Account in the same proportion that the
Accumulation Value in each Division and the General Account Value, less any
Policy Debt, bears to the total Accumulation Value of the Policy, less any
Policy Debt. (See Right to Defer Payment, Policy Changes and Payment of
Benefits)
> GRACE PERIOD
Generally, on any Monthly Anniversary Date, if your Policy's Net
Accumulation Value is insufficient to satisfy the Monthly Deduction, we will
allow you 61 days of grace for payment of an amount sufficient to continue
coverage. We call this "lapse pending status".
Written notice will be mailed to your last known address, according to Our
records, not less than 61 days before termination of the Policy. This notice
will also be mailed to the last known address of any assignee of record.
The Policy will stay in force during the Grace Period. If the Insured dies
during the Grace Period, we will reduce the Death Benefit by the amount of
any Monthly Deduction due and the amount of any outstanding Policy Debt.
If payment is not made within 61 days after the Monthly Anniversary Day, the
Policy will terminate without value at the end of the Grace Period.
> REINSTATEMENT OF A LAPSED OR TERMINATED POLICY
If the Policy terminates as provided in its Grace Period provision, you may
reinstate it. To reinstate the Policy, the following conditions must be met:
o The Policy has not been fully surrendered.
o You must apply for reinstatement within 5 years after the date of
termination and before the Insured's Attained Age 100.
o We must receive evidence of insurability satisfactory to us.
o We must receive a premium payment sufficient to keep the Policy in force
for the current month plus two additional months.
o If a loan was outstanding at the time of lapse, we will require that
either you repay or reinstate the loan.
o Supplemental Benefits will be reinstated only with our consent. (See
Grace Period and Premium Payments)
> COVERAGE BEYOND INSURED'S ATTAINED AGE 100
At the Insured's Attained Age 100, we will make several changes to your
Policy. At that point and thereafter, the Specified Amount will equal the
current Accumulation Value. The Death Benefit will be set to Option 1 and
will equal 101% of the Specified Amount less Policy Debt. We will no longer
deduct any Cost of Insurance charges or monthly Administrative Charges, the
Monthly Accumulation Value Adjustment will cease and no new premiums will be
accepted.
> RIGHT TO DEFER PAYMENT
Payments of any Separate Account Value will be made within 7 days after our
receipt of your Written Request. However, we reserve the right to suspend or
postpone the date of any payment of any benefit or values for any Valuation
Period (1) when the New York Stock Exchange is closed (except holidays or
weekends); (2) when trading on the Exchange is restricted; (3) when an
emergency exists as determined by the SEC so that disposal of the securities
held in the Funds is not reasonably
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practicable or it is not reasonably practicable to determine the value of
the Funds' net assets; or (4) during any other period when the SEC, by
order, so permits for the protection of security holders. For payment from
the Separate Account in such instances, we may defer payment of Full
Surrender and Withdrawal Values, any Death Benefit in excess of the current
Specified Amount, transfers and any portion of the Loan Value.
Payment of any General Account Value may be deferred for up to six months,
except when used to pay amounts due us.
> POLICY LOANS
We will grant loans at any time after the expiration of the Right of Policy
Examination. The amount of the loan will not be more than the Loan Value.
Unless otherwise required by state law, the Loan Value for this Policy is
100% of Net Accumulation Value at the end of the Valuation Period during
which the loan request is received.
We will usually disburse loan proceeds within seven days from the Date of
Receipt of a loan request, although we reserve the right to postpone
payments under certain circumstances. See "OTHER MATTERS--Postponement of
Payments". We may, in our sole discretion, allow you to make loans by
telephone if you have filed a proper telephone authorization form with us.
So long as your Policy is in force and the Insured is living, you may repay
your loan in whole or in part at any time without penalty.
Accumulation Value equal to the loan amount will be maintained in the
General Account to secure the loan. You may allocate a policy loan among the
Divisions of the Separate Account and the existing General Account value
that is not already allocated to secure a Policy Loan, and we will transfer
Separate Account Value as you have indicated. If you do not make this
allocation, the loan will be allocated among the Divisions and the General
Account in the same proportion that the Accumulation Value in each Division
and the Accumulation Value in the General Account less Policy Debt bears to
the total Accumulation Value of the Policy, less Policy Debt, on the date of
the loan. We will make a similar allocation for unpaid loan interest due. A
policy loan removes Accumulation Value from the investment experience of the
Separate Account, which will have a permanent effect on the Accumulation
Value and Death Benefit even if the loan is repaid. General Account Value
equal to Policy Debt will accrue interest daily at an annual rate of 4%.
We will charge interest on any outstanding Policy Debt with the interest
compounded annually. There are two types of loans available. A Type A loan
is charged the same interest rate as the interest credited to the amount of
the Accumulation Value held in the General Account to secure loans, which is
an effective annual rate of 4%. The amount available at any time for a Type
A loan is the maximum loan amount, less the Guideline Single Premium at
issue, adjusted on a pro rata basis for increases in Specified Amount, as
set forth in the Code, less any outstanding Type A loans. Any other loans
are Type B loans. A Type B loan is charged an effective annual interest rate
of 5%. One loan request can result in both a Type A and a Type B loan. A
loan request will first be granted as a Type A loan, to the extent
available, and then as a Type B loan. All loans become Type A loans at
attained age 100. Otherwise, once a loan is granted, it remains a Type A or
Type B loan until it is repaid. Interest is due and payable at the end of
each Policy Year and any unpaid interest due becomes loan principal.
If Policy Debt exceeds Accumulation Value, we will notify you and any
assignee of record. You must make a payment within 61 days from the date
Policy Debt exceeds Accumulation Value or the Policy will lapse and
terminate without value (See "Grace Period"). If this happens, you may be
taxed on the total appreciation under the Policy. However, you may reinstate
the Policy, subject to proof of insurability and payment of a reinstatement
premium. See "Reinstatement of a Lapsed Policy".
You may repay the Policy Debt, in whole or in part, at any time during the
Insured's life, so long as the Policy is in force. The amount necessary to
repay all Policy Debt in full will include any accrued interest. If there is
any Policy Debt, we will apply payments received from you as follows: we
will apply payments as premium in the amount of the Planned Periodic
Premium, received at the Premium Frequency, unless you specifically
designate the payment as a loan repayment. We will apply payments in excess
of the Planned Periodic Premium or payments received other than at the
Premium Frequency, first as policy loan repayments, then as premium when you
have repaid the Policy Debt.
If you have both a Type A and a Type B loan, we will apply repayments first
to the Type B loan and
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then to the Type A loan. Upon repayment of all or part of the Policy Debt,
we will transfer the Policy's Accumulation Value securing the repaid portion
of the debt in the General Account to the Divisions and the General Account
in the same proportion in which the loan was taken.
An outstanding loan amount will decrease the Surrender Value available under
the Policy. If a loan is not repaid, the decrease in the Surrender Value
could cause the Policy to lapse. In addition, the Death Benefit will be
decreased because of an outstanding Policy Loan. Furthermore, even if you
repay the loan, the amount of the Death Benefit and the Policy's Surrender
Value may be permanently affected since the Loan Value is not credited with
the investment experience of the Funds.
> POLICY CHANGES
You may make changes to your Policy, as described below, by submitting a
Written Request to our Home Office. Supplemental Policy Specification pages
and/or a notice confirming the change will be sent to you once the change is
completed.
Increase or Decrease in Specified Amount
You may increase the Specified Amount of this Policy after the 1st Policy
Year, so long as you are under attained age 86 and you send us a written
request and the Policy to Our home office. However:
o Any increase must be at least $25,000 for a fully underwritten issue and
$5,000 for a simplified or guaranteed issue
o Any decrease must be at least $25,000
o Any increase or decrease will affect your cost of insurance charge
o Any increase or decrease may affect the monthly Accumulation Value
Adjustment
o We may require evidence of insurability for an increase
o Any increase will affect the amount available for a Type A loan, but a
decrease will not have any such effect
o Any increase will be effective on the Monthly Anniversary Date after the
Date of Receipt of the request
o We will assess a charge against the Accumulation Value on the Monthly
Anniversary Date that an increase takes effect. This charge is an amount
per $1000 of increase in Specified Amount, which varies by sex, attained
age, and rating class of the Insured at the time of the increase
o Any increase will result in a new Acquisition Charge for the 120 months
following the increase;
o Any decrease may result in federal tax implications (See "Federal Tax
Matters")
o No decrease may decrease the Specified Amount below $25,000.
o Any decrease will first apply to coverage provided by the most recent
increase, then to the next most recent, and so on, and finally to the
coverage under the original application
o We will allow increases in Specified Amount at any time, so long as the
Policy is issued as a 1035 exchange and the increase is needed to avoid
the Policy becoming a modified endowment contract because of additional
1035 exchange money we receive after the policy is issued
Change in Death Benefit Option
Any change in the Death Benefit Option is subject to the following
conditions:
o The change will take effect on the Monthly Anniversary Date on or next
following the date on which your Written Request is received.
o Evidence of insurability may be required if the change would result in
an increase in the difference between the Death Benefit and the
Accumulation Value.
o If you change from Option 1 to Option 2 the Specified Amount will be
decreased by the Accumulation Value.
o If you change from Option 2 to Option 1, the Specified Amount will be
increased by the Accumulation Value.
o If you change from Option 3 to Option 1, the Specified Amount will be
increased by the total premiums paid less any withdrawals.
o If you change from Option 3 to Option 2, the Specified Amount will be
increased by the total premiums paid less any withdrawals, and decreased
by the Accumulation Value.
o Changes from Option 1 to 2 or from Option 3 to Option 1 or 2 will be
allowed at any time while this Policy is in force, We will not require
evidence of insurability for this change, so long as the Specified
Amount is adjusted to make the difference between the Death Benefit and
the Accumulation Value after the change in Death Benefit Option the same
as it was before the change.
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If the change decreases the Specified Amount below the minimum of $25,000,
we will increase the Specified Amount to $25,000.
Changes from Option 2 to 1 will be allowed at any time while this Policy is
in force. The new Specified Amount will be increased to equal the Specified
Amount plus the Accumulation Value as of the date of the change. (See
Surrender Charge and Right of Policy Examination) Changes to Option 3 are
not allowed.
> RIGHT OF POLICY EXAMINATION ("FREE LOOK PERIOD")
The Policy has a free look period during which you may examine the Policy.
If for any reason you are dissatisfied, you may return the Policy to us at
our Service Office or to our representative within 10 days of delivery of
the Policy to you (or within a different period if required by State law).
Return the Policy to Jefferson Pilot Financial Insurance Company at One
Granite Place, Concord, New Hampshire 03301. Upon its return, the Policy
will be deemed void from its beginning. We will return to you within seven
days all payments we received on the Policy. Prior to the Allocation Date,
we will hold the initial Net Premium, and any other premiums we receive, in
our General Account. We will retain any interest earned if the Free Look
right is exercised, unless otherwise required by State law.
> SUPPLEMENTAL BENEFITS
The supplemental benefits currently available as riders to the Policy
include the following:
o Accelerated Benefit Rider--pays a portion of the Death Benefit upon
occurrence of critical or terminal illness or nursing home confinement,
subject to the terms of the rider.
o Accidental Death Benefit Rider--provides a benefit in the event of
accidental death, subject to the terms of the rider.
o Automatic Increase Rider--allows for scheduled annual increases in
Specified Amount, subject to the terms of the rider.
o Children's Term Insurance Rider--provides increments of level term
insurance on the Insured's children, subject to the terms of the rider.
o Death Benefit Maintenance Rider--provides a death benefit beyond the
Insured's age 100, subject to the terms of the rider.
o Disability Waiver of Deductions--waives monthly deductions in the event
of disability before age 65, subject to the terms of the rider.
o Disability Waiver of Specified Premium-- deposits a specified premium
monthly into the Policy if the Insured is disabled before age 65,
subject to the terms of the rider.
o Guaranteed Death Benefit Rider--guarantees that the Policy will stay in
force during the guarantee period with a Death Benefit equal to the
Specified Amount, subject to the terms of the rider.
o Guaranteed Insurability Rider--provides that the Insured can purchase
additional insurance at certain future dates without evidence of
insurability, subject to the terms of the rider.
o Spouse Term Rider--provides coverage on the spouse of the insured,
subject to the terms of the rider.
o Supplemental Coverage Rider--provides additional coverage to the Policy,
subject to the terms of the rider.
These riders may not be available in all states. All riders are available in
Policies issued on an individual basis. For Policies issued on a simplified
issue or guaranteed issue basis, only the Supplementary Coverage Rider, the
Death Benefit Maintenance Rider and the Guaranteed Death Benefit Rider are
available.
Other riders for supplemental benefits may become available under the Policy
from time to time. The charges for each of these riders are described in
Your Policy.
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death benefit
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The Death Benefit under the Policy will be paid in a lump sum unless you or
the beneficiary have elected that they be paid under one or more of the
available Settlement Options.
Payment of the Death Benefit may be delayed if the Policy is being
contested. You may elect a Settlement Option for the beneficiary and deem it
irrevocable. You may revoke or change a prior election. The beneficiary may
make or change an election within 90 days of the Death of the Insured,
unless you have made an irrevocable election.
All or part of the Death Benefit may be applied under one of the Settlement
Options, or such options as we may choose to make available in the future.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in a lump sum. Any excess Death Benefit due will be paid as
elected.
(See "Right to Defer Payment" and "Policy Settlement")
policy settlement
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We will pay proceeds in whole or in part in the form of a lump sum or the
Settlement Options available under the Policy upon the death of the Insured
or upon Surrender.
A Written Request may be made to elect, change or revoke a Settlement Option
before payments begin under any Settlement Option. This request will take
effect upon its filing at our Home Office. If you have not elected a
Settlement Option when the
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Death Benefit becomes payable to the beneficiary, that beneficiary may make
the election.
> SETTLEMENT OPTIONS
The following Settlement Options are available under the Policy:
Option A--Installments of a specified amount. Payments of an agreed amount
to be made monthly until the proceeds and interest are exhausted.
Option B--Installments for a specified period. Payments to be made monthly
for an agreed number of years.
Option C--Life Income. Payments to be made each month for the lifetime of
the payee. We guarantee that payments will be made for a minimum of 10, 15
or 20 years, as agreed upon.
Option D--Interest. We will pay interest on the proceeds we hold, calculated
at the compound rate of 3% per year. We will make interest payments at 12,
6, 3 or 1 month intervals.
Option E--Interest: Retained Asset Account (Performance Plus Account). We
will pay interest on the proceeds we hold, based on the floating 13-week
U.S. Treasury Bill rate fixed quarterly. The payee can write checks against
such account at any time and in any amount up to the total in the account.
The checks must be for a minimum of $250.
The interest rate for Options A, B and D will not be less than 3% per year.
The interest rate for Option C will not be less than 2.5% per year. The
interest rate for Option E will not be less than 2% per year.
Unless otherwise stated in the election of any option, the payee of the
policy benefits shall have the right to receive the withdrawal value under
that option. For Options A, D and E, the withdrawal value shall be any
unpaid balance of proceeds plus accrued interest. For Option B, the
withdrawal value shall be the commuted value of the remaining payments. We
will calculate this withdrawal value on the same basis as the original
payments. For Option C, the withdrawal value will be the commuted value of
any remaining guaranteed payments. If the payee is alive at the end of the
guarantee period, we will resume the payment on that date. The payment will
then continue for the lifetime of the payee.
If the payee of policy benefits dies before the proceeds are exhausted or
the prescribed payments made, a final payment will be made in one sum to the
estate of the last surviving payee. The amount to be paid will be calculated
as described for the applicable option in the Withdrawal Value provision of
the Policy.
At least $25,000 of Policy proceeds must be applied to each settlement
option chosen. We reserve the right to change payment intervals to increase
payments to $250 each.
Calculation of Settlement Option Values
The value of the Settlement Options will be calculated as set forth in the
Policy.
24
<PAGE>
the company
----------------------------------------------------------------------------
Jefferson Pilot Financial Insurance Company ("JP Financial" or "the
Company") is a stock life insurance company chartered in 1903 in Tennessee,
redomesticated to New Hampshire in 1991 and redomesticated to Nebraska
effective June 12, 2000. Prior to May 1, 1998, JP Financial was known as
Chubb Life Insurance Company of America. In April 30, 1997, Chubb Life,
formerly a wholly-owned subsidiary of The Chubb Corporation, became a
wholly-owned subsidiary of Jefferson-Pilot Corporation, a North Carolina
corporation. The principal offices of Jefferson-Pilot Corporation are
located at 100 North Greene Street, Greensboro, North Carolina 27401; its
telephone number is 336-691-3000. Chubb Life changed its name to Jefferson
Pilot Financial Insurance Company effective May 1, 1998. JP Financial's
service center is located at One Granite Place, Concord, New Hampshire
03301; its telephone number is 800-258-3648.
We are licensed to do life insurance business in forty-nine states of the
United States, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands, Guam and the Commonwealth of the Northern Mariana Islands.
At December 31, 1999 the Company and its subsidiaries had total assets of
approximately $6.2 billion and had $68 billion of insurance in force, while
total assets of Jefferson-Pilot Corporation and its subsidiaries (including
the Company) were approximately $26.4 billion.
We write individual life insurance and annuities. It is subject to Nebraska
law governing insurance.
Effective August 1, 2000, Alexander Hamilton Life and Guarantee Life
Insurance Company ("GLIC") merged with and into the Company, with the
Company as the surviving entity. Both Alexander Hamilton Life and GLIC were
affiliates of the Company. Alexander Hamilton Life was a stock life company
initially organized under the laws of the State of North Carolina in 1981,
and reincorporated in the State of Michigan in September 1995. GLIC was a
stock life insurance company incorporated under the laws of the state of
Nebraska. GLIC originally was organized in 1901 as a mutual assessment
association and, after a period as a mutual life insurance company, became a
stock life insurance company on December 26, 1995.
Upon the merger, the existence of Alexander Hamilton Life and GLIC ceased,
and the Company became the surviving company. GLIC did not have any separate
accounts or insurance contracts registered with the SEC. All of the
Contracts issued by Alexander Hamilton Life before the merger were, at the
time of the merger, assumed by the Company. The merger did not affect any
provisions of, or rights or obligations under, those Contracts.
In approving the merger on July 14, 2000, the boards of directors of the
Company, Alexander Hamilton Life, and GLIC determined that the merger of
three financially strong stock life insurance companies would result in an
overall enhanced capital position and reduced expenses, which, together,
would be in the long-term interests of their respective contract owners. On
July 14, 2000, the 100% stockholders of the Company, Alexander Hamilton Life
and GLIC voted to approve the merger. In addition, the Nebraska Department
of Insurance has approved the merger.
We are currently rated AAA (Superior) by Duff & Phelps, AAA (Superior) by
Standard & Poor's Corporation and A+ (Superior) by A.M. Best and Company.
These ratings do not apply to JPF Separate Account A, but reflect the
opinion of the rating companies as to our relative financial strength and
ability to meet its contractual obligations to its policyowners.
25
<PAGE>
directors and officers
----------------------------------------------------------------------------
MANAGEMENT OF JP FINANCIAL
Executive Officers and Directors of JP Financial
Directors
<TABLE>
<CAPTION>
Principal Occupation and
Name Business Address
-------------------------------------------------------------------------------------------
<S> <C>
Robert D. Bates .............. Executive Director
8801 Indian Hills Drive
Omaha, Nebraska 68114
Dennis R. Glass .............. Executive Vice President
(also serves as Executive Vice President, Chief Financial
Officer of Jefferson-Pilot Corporation and Jefferson-Pilot
Life Insurance Company)
100 North Greene Street
Greensboro, North Carolina 27401
Kenneth C. Mlekush ........... President
(also serves as Executive Vice President of Jefferson-Pilot
Life Insurance Company)
100 North Greene Street
Greensboro, North Carolina 27401
David A. Stonecipher ......... Chairman and Chief Executive Officer
(also serves as President and Chief Executive Officer of
Jefferson-Pilot Life Insurance Company)
100 North Greene Street
Greensboro, North Carolina 27401
</TABLE>
Executive Officers (Other Than Directors)
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Charles C. Cornelio .............. Executive Vice President
Leslie L. Durland ................ Executive Vice President
John D. Hopkins .................. Executive Vice President, General Counsel
John C. Ingram ................... Executive Vice President
Reggie D. Adamson ................ Senior Vice President
Ronald R. Angarella .............. Senior Vice President
Charles P. Elam II ............... Senior Vice President, Annuity Actuary
Bruce G. Parker, Jr. ............. Senior Vice President
Hal B. Phillips, Jr. ............. Senior Vice President, Chief Life Actuary
Hoyt J. Phillips ................. Senior Vice President
Richard T. Stange ................ Senior Vice President, Deputy General Counsel
James R. Abernathy ............... Vice President
George Bentham ................... Vice President
David K. Booth ................... Vice President
H. Lusby Brown ................... Vice President
Margaret O. Cain ................. Vice President
John A. Cindia ................... Vice President
Rebecca M. Clark ................. Vice President
Richard C. Dielensnyder .......... Vice President
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Kenneth S. Dwyer ................... Vice President
Peter N. Ellinwood ................. Vice President
Ronald H. Emery .................... Vice President
Randal J. Freitag .................. Vice President
Carol. A. Hardiman ................. Vice President
James A. Hoffman, II ............... Vice President and Associate General Counsel
Donald M. Kane ..................... Vice President
Patrick A. Lang .................... Vice President
Shari J. Lease ..................... Vice President
James. E. MacDonald, Jr. ........... Vice President
Marvin L. Maynard .................. Vice President
Donna L. Metcalf ................... Vice President
W. Hardee Mills, Jr. ............... Vice President
Thomas E. Murphy, Jr. M.D. ......... Vice President and Medical Director
Robert A. Reed ..................... Vice President, Secretary
James M. Sandelli .................. Vice President
Russell C. Simpson ................. Vice President and Treasurer
Francis A. Sutherland, Jr. ......... Vice President
John A. Thomas ..................... Vice President
John A. Weston ..................... Vice President
Robert H. Whalen ................... Vice President
</TABLE>
The officers and employees of JP Financial who have access to the assets of
Separate Account A are covered by a fidelity bond issued by American
International Group in the amount of $20,000,000.
additional information
----------------------------------------------------------------------------
> REPORTS TO POLICYOWNERS
We will maintain all records relating to the Separate Account. At least once
in each Policy Year, we will send you an Annual Summary containing the
following information:
1. A statement of the current Accumulation Value and Surrender Value since
the prior report or since the Issue Date, if there has been no prior report;
2. A statement of all premiums paid and all charges incurred;
3. The balance of outstanding Policy Loans for the previous calendar year;
4. Any reports required by the 1940 Act.
We will promptly mail confirmation notices at the time of the following
transactions:
1. policy issue;
2. receipt of premium payments;
3. initial allocation among Divisions on the Allocation Date;
4. transfers among Divisions;
5. change of premium allocation;
6. change between Death Benefit Options;
7. increases or decreases in Specified Amount;
8. withdrawals, surrenders or loans;
9. receipt of loan repayments;
10. reinstatements; and
11. redemptions due to insufficient funds.
> RIGHT TO INSTRUCT VOTING OF FUND SHARES
In accordance with our view of present applicable law, we will vote the
shares of the Funds held in the Separate Account in accordance with
instructions received from Policyowners having a voting interest in the
Funds. Policyowners having such an interest will receive periodic reports
relating to the Fund, proxy material and a form for giving voting
instructions. The number of shares you have a right to vote will be
determined as of a record date established
27
<PAGE>
by the Fund. The number of votes that you are entitled to direct with
respect to a Fund will be determined by dividing your Policy's Accumulation
Value in a Division by the net asset value per share of the corresponding
Portfolio in which the Division invests. We will solicit your voting
instructions by mail at least 14 days before any shareholders meeting.
We will cast the votes at meetings of the shareholders of the Fund and our
votes will be based on instructions received from Policyowners. However, if
the Investment Company Act of 1940 or any regulations thereunder should be
amended or if the present interpretation should change, and as a result we
determine that we are permitted to vote the shares of the Fund in our right,
we may elect to do so.
We will vote Fund shares for which we do not receive timely instructions and
Fund shares which are not otherwise attributable to Policyowners in the same
proportion as the voting instruction which we receive for all Policies
participating in each Fund through the Separate Account.
> DISREGARD OF VOTING INSTRUCTIONS
When required by state insurance regulatory authorities, we may disregard
voting instructions if the instructions require that the shares be voted so
as to cause a change in the sub-classification or investment objectives of a
Fund or to approve or disapprove an investment advisory contract for a Fund.
We may also disregard voting instructions initiated by a Policyowner in
favor of changes in the investment policy or the investment adviser of the
Fund if we reasonably disapprove of such changes.
We only disapprove a change if the proposed change is contrary to state law
or prohibited by state regulatory authorities or if we determine that the
change would have an adverse effect on the Separate Account if the proposed
investment policy for a fund would result in overly speculative or unsound
investments. In the event that we do disregard voting instructions, a
summary of that action and the reasons for such action will be included in
the next annual report to Policyowners.
> STATE REGULATION
The Policy will be offered for sale in all jurisdictions where we are
authorized to do business and where the Policy has been approved by the
appropriate Insurance Department or regulatory authorities.
> LEGAL MATTERS
We know of no pending material legal proceedings pending to which either the
Separate Account or the Company is a party or which would materially affect
the Separate Account. The legal validity of the securities described in the
prospectus has been passed on by our Counsel. The law firm of Jorden Burt
Boros Cicchetti Berenson & Johnson, 1025 Thomas Jefferson Street, Suite 400,
East Lobby, Washington, DC 20007-5201, serves as our Special Counsel with
regard to the federal securities laws.
> THE REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933
relating to the offering described in this Prospectus. This Prospectus does
not include all of the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to SEC rules and
regulations. You should refer to the instrument as filed to obtain any
omitted information.
> FINANCIAL STATEMENTS
Our financial statements which are included in the Prospectus should be
considered only as bearing on our ability to meet our obligations under the
Policy. They should not be considered as bearing on the investment
experience of the assets held in the Separate Account. Our most current
audited financial statements are as of the end of the most recent fiscal
year.
> EMPLOYMENT BENEFIT PLANS
Employers and employee organizations should consider, in connection with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the
purchase of policy in connection with an employment-related insurance or
benefit plan. The U.S. Supreme Court held, in a 1983 decision, that, under
Title VII, optional annuity benefits under a deferred compensation plan
could not vary on the basis of sex.
> DISTRIBUTION OF THE POLICY
Jefferson Pilot Variable Corporation (JPVC), a North Carolina Corporation
incorporated on January 13, 1970, will serve as principal underwriter of the
securities offered under the Policy as defined by the federal securities
laws. The Policy will be sold by individuals who, in addition to being
licensed as
28
<PAGE>
life insurance agents for us, are also registered representatives of
broker-dealers who have entered into written sales agreements with JPVC. Any
such broker-dealers will be registered with the SEC and will be members of
the National Association of Securities Dealers, Inc. We may also offer and
sell policies directly.
We will pay commissions under various schedules and accordingly commissions
will vary with the form of schedule selected. In any event, commissions to
registered representatives are not expected to exceed the following: 35% of
first year target premium and 10% of first year excess premium; 20% of
second through fifth year target premium and 6% of excess premium; and 3% of
sixth through tenth year premium for target and excess. Compensation
arrangements vary among broker-dealers. Override payments, expense
allowances and bonuses based on specific production levels may be paid.
Alternative Commission Schedules will reflect differences in up-front
commissions versus ongoing compensation. Except as previously described in
this prospectus, no separate deductions from premiums are made to pay sales
commissions or sales expenses.
> INDEPENDENT AUDITORS
Ernst & Young, LLP, 200 Clarendon Street, Boston, Massachusetts are the
independent auditors for the Separate Account and Ernst & Young, LLP, 300
North Greene Street, Greensboro, North Carolina, are the independent
auditors for the Company. The services provided to the Separate Account
include primarily the audits of the Separate Account's financial statements.
group or sponsored arrangements
----------------------------------------------------------------------------
Policies may be purchased under group or sponsored arrangements. A group
arrangement includes a program under which a trustee, employer or similar
entity purchases individual Policies covering a group of individuals on a
group basis. A sponsored arrangement includes a program under which an
employer permits group solicitation of its employees or an association
permits group solicitation of its members for the purchase of Policies on an
individual basis.
We may modify the following types of charges for Policies issued in
connection with group or sponsored arrangement: the cost of insurance
charge, surrender or withdrawal charges, administrative charges, charges for
withdrawal or transfer and charges for optional rider benefits. We may also
issue Policies in connection with group or sponsored arrangements on a
"non-medical" or guaranteed issue basis; actual monthly cost of insurance
charges may be higher than the current cost of insurance charges under
otherwise identical Policies that are medically underwritten. We may also
specify different minimum Specified Amounts at issue for Policies issued in
connection with group or sponsored arrangements.
We may also modify or eliminate certain charges or underwriting requirements
for Policies issued in connection with an exchange of another JP Financial
policy or a policy of any JP Financial affiliate.
The amounts of any reduction, the charges to be reduced, the elimination or
modification of underwriting requirements and the criteria for applying a
reduction or modification will generally reflect the reduced sales and
administrative effort, costs and differing mortality experience appropriate
to the circumstances giving rise to the reduction or modification.
Reductions and modifications will not be made where prohibited by law and
will not be unfairly discriminatory.
tax matters
----------------------------------------------------------------------------
> GENERAL
Following is a discussion of the federal income tax considerations relating
to the Policy. This discussion is based on our understanding of federal
income tax laws as they now exist and are currently interpreted by the
Internal Revenue Service. These laws are complex and tax results may vary
among individuals. Anyone contemplating the purchase of or the exercise of
elections under the Policy should seek competent tax advice.
29
<PAGE>
> FEDERAL TAX STATUS OF THE COMPANY
We are taxed as a life insurance company in accordance with the Internal
Revenue Code of 1986 as amended ("Code"). For federal income tax purposes,
the operations of each Separate Account form a part of our total operations
and are not taxed separately, although operations of each Separate Account
are treated separately for accounting and financial statement purposes.
Both investment income and realized capital gains of the Separate Account
are reinvested without tax since the Code does not impose a tax on the
Separate Account for these amounts. However, we reserve the right to make a
deduction for such tax should it be imposed in the future.
> LIFE INSURANCE QUALIFICATION
The Policy contains provisions not found in traditional life insurance
policies. However, we believe that it should qualify under the Code as a
life insurance contract for federal income tax purposes, with the result
that all Death Benefits paid under the Policy will generally be excludable
from the gross income of the Policy's Beneficiary.
Section 7702 of the Code includes a definition of life insurance for tax
purposes. The definition provides limitations on the relationship between
the death benefit and the account value. If necessary, we will increase your
death benefit to maintain compliance with Section 7702.
The Policy is intended to qualify as life insurance under the Code. The
Death Benefit provided by the Policy is intended to qualify for the federal
income tax exclusion. If at any time the premium paid under the Policy
exceeds the amount allowable for such qualification, we will refund the
premium to you with interest within 60 days after the end of the Policy Year
in which the premium was received. If, for any reason, we do not refund the
excess premium within such 60-day period, the excess premium will be held in
a separate deposit fund and credited with interest until refunded to you.
The interest rate used on any refund, or credited to the separate deposit
fund created by this provision will be the excess premiums. We may notify
you of other options available to you to keep your policy in compliance. You
may also choose to have the Policy become a modified endowment contract.
A modified endowment contract is a life insurance policy which fails to meet
a "seven-pay" test. In general, a policy will fail the seven-pay test if the
cumulative amount of premiums paid under the policy at any time during the
first seven policy years exceeds a calculated premium level. The calculated
seven-pay premium level is based on a hypothetical policy issued on the same
insured and for the same initial death benefit which, under specified
conditions (which include the absence of expense and administrative
charges), would be fully paid for after seven years. Your policy will be
treated as a modified endowment unless the cumulative premiums paid under
your policy, at all times during the first seven policy years, are less than
or equal to the cumulative seven-pay premiums which would have been paid
under the hypothetical policy on or before such times.
Whenever there is a "material change" under a Policy, it will generally be
treated as a new contract for purposes of determining whether the Policy is
a modified endowment contract, and subject to a new seven-pay premium period
and a new seven-pay limit. The new seven-pay limit would be determined
taking into account, under a prospective adjustment formula, the Policy
Account Value of the policy at the time of such change. A materially changed
Policy would be considered a modified endowment if it failed to satisfy the
new seven-pay limit. A material change could occur as a result of a change
in death benefit option, the selection of additional benefits, the
restoration of a terminated policy and certain other changes.
If the benefits under your Policy are reduced, for example, by requesting a
decrease in Face Amount, or in some cases by making partial withdrawals,
terminating additional benefits under a rider, changing the death benefit
option, or as a result of policy termination, the calculated seven-pay
premium level will be redetermined based on the reduced level of benefits
and applied retroactively for purposes of the seven-pay test. If the
premiums previously paid are greater than the recalculated seven-pay premium
level limit, the policy will become a modified endowment unless you request
a refund of the excess premium, as outlined above. Generally, a life
insurance policy which is received in exchange for a modified endowment or a
modified endowment which terminates and is restored, will also be considered
a modified endowment.
If a Policy is deemed to be a modified endowment contract, any distribution
from the Policy will be
30
<PAGE>
taxed in a manner comparable to distributions from annuities (i.e., on an
"income first) basis); distributions for this purpose include a loan,
pledge, assignment or partial withdrawal. Any such distributions will be
considered taxable income to the extent Accumulation Value under the Policy
exceeds investment in the Policy.
A 10% penalty tax will apply to the taxable portion of such a distribution.
No penalty will apply to distributions (i) to taxpayers 59 1/2 years of age
or older, (ii) in the case of a disability which can be expected to result
in death or to be of indefinite duration or (iii) received as part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of the taxpayer and his beneficiary.
To the extent a Policy becomes a modified endowment contract, any
distribution, as defined above, which occurs in the policy year it becomes a
modified endowment contract and in any year thereafter, will be taxable
income to you. Also, any distributions within two years before a Policy
becomes a modified endowment contract will also be income taxable to you to
the extent that accumulation value exceeds investment in the Policy, as
described above. The Secretary of the Treasury has been authorized to
prescribe rules which would similarly treat other distributions made in
anticipation of a policy becoming a modified endowment contract. For
purposes of determining the amount of any distribution includible in income,
all modified endowment contracts that fail the above-described tests which
are issued by the same insurer, or its affiliates, to the same policyowner
during any calendar year are treated as one contract.
If the Insured reaches age 100, the Death Benefit will be set at 101% of the
Accumulation Value of the Policy. We believe the Policy will continue to
qualify as life insurance under the Code, however, there is some uncertainty
regarding this treatment. It is possible, therefore, that you would be
viewed as constructively receiving the Surrender Value in the year in which
the Insured attains age 100 and would realize taxable income at that time,
even if the Policy proceeds were not distributed at that time.
The foregoing summary does not purport to be complete or to cover all
situations, and, as always, there is some degree of uncertainty with respect
to the application of the current tax laws. In addition to the provisions
discussed above, Congress may consider other legislation which, if enacted,
could adversely affect the tax treatment of life insurance policies. Also,
the Treasury Department may amend current regulations or adopt new
regulations with respect to this and other Code provisions. Therefore, you
are advised to consult a tax adviser for more complete tax information,
specifically regarding the applicability of the Code provisions to your
situation.
Under normal circumstances, if the Policy is not a modified endowment
contract, loans received under the Policy will be construed as your
indebtedness. You are advised to consult a tax adviser or attorney regarding
the deduction of interest paid on loans.
Even if the Policy is not a modified endowment contract, a partial
withdrawal together with a reduction in death benefits during the first 15
Policy Years may create taxable income for you. The amount of that taxable
income is determined under a complex formula and it may be equal to part or
all of, but not greater than, the income on the contract. A partial
withdrawal made after the first 15 Policy Years will be taxed on a recovery
of premium-first basis, and will only be subject to federal income tax to
the extent such proceeds exceed the total amount of premiums you have paid
that have not been previously withdrawn.
If you make a partial withdrawal, surrender, loan or exchange of the Policy,
we may be required to withhold federal income tax from the portion of the
money you receive that is includible in your federal gross income. A
Policyowner who is not a corporation may elect not to have such tax
withheld; however, such election must be made before we make the payment. In
addition, if you fail to provide us with a correct taxpayer identification
number (usually a social security number) or if the Treasury notifies Us
that the taxpayer identification number which has been provided is not
correct, the election not to have such taxes withheld will not be effective.
In any case, you are liable for payment of the federal income tax on the
taxable portion of money received, whether or not an election to have
federal income tax withheld is made. If you elect not to have federal income
tax withheld, or if the amount withheld is insufficient, then you may be
responsible for payment of estimated tax. You may also incur penalties under
the estimated tax rules if the withholding and estimated tax payments are
31
<PAGE>
insufficient. We suggest that you consult with a tax adviser as to the tax
implications of these matters.
In the event that a Policy is owned by the trustee under a pension or profit
sharing plan, or similar deferred compensation arrangement, tax consequences
of ownership or receipt of proceeds under the Policy could differ from those
stated herein. However, if ownership of such a Policy is transferred from
the plan to a plan participant (upon termination of employment, for
example), the Policy will be subject to all of the federal tax rules
described above. A Policy owned by a trustee under such a plan may be
subject to restrictions under ERISA and a tax adviser should be consulted
regarding any applicable ERISA requirements.
The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans and others, where the tax consequences may vary
depending on the particular facts and circumstances of each individual
arrangement. A tax adviser should be consulted regarding the tax attributes
of any particular arrangement where the value of it depends in part on its
tax consequences.
Federal estate and local estate, inheritance and other tax consequences of
ownership or receipt of policy proceeds depend upon the circumstances of
each Policyowner and Beneficiary.
Current Treasury regulations set standards for diversification of the
investments underlying variable life insurance policies in order for such
policies to be treated as life insurance. We believe we presently are and
intend to remain in compliance with the diversification requirements as set
forth in the regulations. If the diversification requirements are not
satisfied, the Policy would not be treated as a life insurance contract. As
a consequence to you, income earned on a Policy would be taxable to you in
the calendar quarter in which the diversification requirements were not
satisfied, and for all subsequent calendar quarters.
The Secretary of the Treasury may issue a regulation or a ruling which will
prescribe the circumstances in which a Policyowner's control of the
investments of a segregated account may cause the Policyowner, rather than
the insurance company, to be treated as the owner of the assets of the
account. The regulation or ruling could impose requirements that are not
reflected in the Policy, relating, for example, to such elements of
Policyowner control as premium allocation, investment selection, transfer
privileges and investment in a division focusing on a particular investment
sector. Failure to comply with any such regulation or ruling presumably
would cause earnings on a Policyowner's interest in Separate Account A to be
includible in the Policyowner's gross income in the year earned. However, we
have reserved certain rights to alter the Policy and investment alternatives
so as to comply with such regulation or ruling. We believe that any such
regulation or ruling would apply prospectively. Since the regulation or
ruling has not been issued, there can be no assurance as to the content of
such regulation or ruling or even whether application of the regulation or
ruling will be prospective. For these reasons, Policyowners are urged to
consult with their own tax advisers.
The foregoing summary does not purport to be complete or to cover all
situations, including the possible tax consequences of changes in ownership.
Counsel and other competent advisers should be consulted for more complete
information.
> CHARGES FOR JP FINANCIAL INCOME TAXES
We are presently taxed as a life insurance company under the provisions of
the Code. The Code specifically provides for adjustments in reserves for
variable policies, and we will include flexible premium life insurance
operations in our tax return in accordance with these rules.
Currently no charge is made against the Separate Account for our federal
income taxes, or provisions for such taxes, that may be attributable to the
Separate Account. We may charge each Division for its portion of any income
tax charged to us on the Division or its assets. Under present laws, we may
incur state and local taxes (in addition to premium taxes) in several
states. At present these taxes are not significant. However, if they
increase, we may decide to make charges for such taxes or provisions for
such taxes against the Separate Account. We would retain any investment
earnings on any tax charges accumulated in a Division. Any such charges
against the Separate Account or its Divisions could have an adverse effect
on the investment experience of such Division.
32
<PAGE>
miscellaneous policy provisions
----------------------------------------------------------------------------
> THE POLICY
The Policy which you receive, the application you make when you purchase the
Policy, any applications for any changes approved by us and any riders
constitute the whole contract. Copies of all applications are attached to
and made a part of the Policy.
Application forms are completed by the applicants and forwarded to us for
acceptance. Upon acceptance, the Policy is prepared, executed by our duly
authorized officers and forwarded to you.
We reserve the right to make a change in the Policy; however, we will not
change any terms of the Policy beneficial to you.
> PAYMENT OF BENEFITS
All benefits are payable at our Service Office. We may require submission of
the Policy before we grant Policy Loans, make changes or pay benefits.
> SUICIDE AND INCONTESTABILITY
Suicide Exclusion--In most states, if the Insured dies by suicide, while
sane or insane, within 2 years from the Issue Date of this Policy, this
Policy will end and we will refund premiums paid, without interest, less any
Policy Debt and less any withdrawal. If the Insured commits suicide within 2
years of the effective date of any Increase in Specified Amount, our only
liability with regard to the Increase will be for the sum of the Monthly
Deductions for such Increase in Specified Amount.
Incontestability--We will not contest or revoke the insurance coverage
provided under the Policy after the Policy has been in force during the
lifetime of the Insured for two years from the date of issue or
reinstatement.
> PROTECTION OF PROCEEDS
To the extent provided by law, the proceeds of the Policy are not subject to
claims by a Beneficiary's creditors or to any legal process against any
Beneficiary.
> NONPARTICIPATION
The Policy is not entitled to share in our divisible surplus. No dividends
are payable.
> CHANGES IN OWNER AND BENEFICIARY; ASSIGNMENT
Unless otherwise stated in the Policy, you may change the Policyowner and
the Beneficiary, or both, at any time while the Policy is in force. A
request for such change must be made in writing and sent to us at our
Service Office. After we have agreed, in writing, to the change, it will
take effect as of the date on which your Written Request was signed.
The Policy may also be assigned. No assignment of Policy will be binding on
us unless made in writing and sent to us at our Service Office. We will use
reasonable procedures to confirm that the assignment is authentic.
Otherwise, we are not responsible for the validity of any assignment. Your
rights and the Beneficiary's interest will be subject to the rights of any
assignee of record.
> MISSTATEMENTS
If the age or sex of the Insured has been misstated in an application,
including a reinstatement application, we will adjust the benefits payable
to reflect the correct age or sex.
33
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
appendix a
----------------------------------------------------------------------------
> ILLUSTRATIONS OF ACCUMULATION VALUES, CASH VALUES AND DEATH BENEFITS
Following are a series of tables that illustrate how the Accumulation
Values, Surrender Values and Death Benefits of a policy change with the
investment performance of the Portfolios. The tables show how the
Accumulation Values, Surrender Values and Death Benefits of a Policy issued
to an Insured of a given age and given premium would vary over time if the
return on the assets held in each Portfolio were a constant gross annual
rate of 0%, 6%, and 12%. The tables on pages A-3 through A-13 illustrate a
Policy issued to a male, age 45, under a standard rate non-smoker
underwriting risk classification. The Accumulation Values, Surrender Values
and Death Benefits would be different from those shown if the returns
averaged 0%, 6%, and 12% over a period of years, but fluctuated above and
below those averages for individual policy years.
The Surrender Value exceeds the Accumulation Value during the first two
policy years due to the refund of Sales Charges feature.
The second column shows the accumulation value of the premiums paid at the
stated interest rate. The third and sixth columns illustrate the
Accumulation Values and the fourth and seventh columns illustrate the
Surrender Values of the Policy over the designated period. The Accumulation
Values shown in the third column and the Surrender Values shown in the
fourth column assume the monthly charge for cost of insurance is based upon
the current cost of insurance rates as discounted, and that the mortality
and expense risk charge and Premium Load are charged at current rates. The
current cost of insurance rates are based on the sex, issue age, policy
year, and rating class of the Insured, and the Specified Amount of the
Policy. The Accumulation Values shown in the sixth column and the Surrender
Values shown in the seventh column assume the monthly charge for cost of
insurance is based upon the maximum cost of insurance rates allowable, which
are based on the Commissioner's 1980 Standard Ordinary Mortality Table, and
upon the maximum mortality and expense risk charges and premium load
provided in the Policy, as described below. The current cost of insurance
rates are different for Specified Amounts below $100,000 and above $100,000.
The fifth and eighth columns illustrate the Death Benefit of a Policy over
the designated period on a current and guaranteed basis, respectively. The
illustrations of Death Benefits reflect the same assumptions as the
Accumulation Values and Surrender Values. The Death Benefit values also vary
between tables, depending upon whether Option I, Option II or Option III
death benefits are illustrated.
The amounts shown for the death benefit, Accumulation Values, and Surrender
Values reflect the fact that the net investment return of the dividends of
Separate Account A is lower than the gross return on the assets in the
Portfolios, as a result of expenses paid by the Portfolios and charges
levied against the divisions of Separate Account A.
The policy values shown take into account a daily investment advisory fee
equivalent to the maximum annual rate of .71% of the aggregate arithmetic
average daily net assets of the Portfolios, plus a charge of .15% of the
aggregate arithmetic average daily net assets to cover expenses incurred by
the Portfolios for the twelve months ended December 31, 1999. The .71%
investment advisory fee is an average of the individual investment advisory
fees of the twenty Portfolios. The .15% expense figure is an average of the
annual expenses of the Jefferson Pilot Variable Fund Portfolios, the
Templeton International Securities Fund, the Fidelity VIP and VIP II
Portfolios, the Oppenheimer Portfolios and the MFS Portfolios. The
investment advisor and Jefferson Pilot Variable Fund have entered into an
expense reimbursement plan with the S&P 500 Index Portfolio whereby the
advisor reimburses the fund at an annual rate of 0.28% of average daily net
assets. The investment advisor to the Fidelity Variable Insurance Products
Fund and the Fidelity Variable Insurance Products Fund II has also entered
into similar expense reimbursement plans with the Equity-Income Portfolio
(.01%), the Growth Portfolio (.01)% and the Contrafund Portfolio (.03%).
Had these arrangements not been in place, the expense ratio would have been
increased by .01% for a total of .16%.
These expense reimbursement arrangements are expected to continue past the
current year. Expenses for the Templeton International Securities Fund:
Class 2, the Fidelity Equity Income, Growth, and Contrafund Portfolios, the
MFS Research and Utilities Series, and the Oppenheimer Bond and Strategic
Bond Portfolios were provided by the investment managers for these
portfolios and JP Financial has not independently verified such information.
The policy values also take into account a daily charge to each division of
Separate Account A for assuming mortality and expense risks which is
equivalent to a charge at an annual rate of 0.60% (0.85% guaranteed) of the
average daily net assets of the divisions of Separate Account A in Policy
Years 1 through 25 and 0.40% (0.60% guaranteed) thereafter.
A-1
<PAGE>
After deduction of these amounts, the illustrated gross investment rates of
0%, 6%, and 12% correspond to approximate net annual rates of -1.46%, 4.54%
and 10.54%, respectively, on a current basis, and -1.71%, 4.29% and 10.29%
on a guaranteed basis.
The assumed annual premium used in calculating Accumulation Value, Cash
Value, and Death Benefits is net of the 2.5% state premium tax charge, the
1.25% federal DAC tax charge and the Premium Load, which is 3% in Policy
Years 1 through 10 only on a current basis and 3% in all years on a
guaranteed basis. It also reflects deduction of the Monthly Deduction and
addition of the Monthly Accumulation Value Adjustment. As part of the
Monthly Deduction, the Monthly Acquisition Charge of 0.6% of the Load Basis
Amount is per month in Policy Years 1 through 10 has been deducted. The Load
Basis Amount varies by Sex, Issue Age and rating class of the Insured.
The hypothetical values shown in the tables do not reflect any charges for
federal income taxes or other taxes against Separate Account A since JP
Financial is not currently making such charges. However, if, in the future,
such charges are made, the gross annual investment rate of return would have
to exceed the stated investment rates by a sufficient amount to cover the
tax charges in order to produce the Accumulation Values, Surrender Values
and death benefits illustrated.
The tables illustrate the policy values that would result based on
hypothetical investment rates of return if premiums are paid in full at the
beginning of each year, if all net premiums are allocated to Separate
Account A, and if no policy loans have been made. The values would vary from
those shown if the assumed annual premium payments were paid in installments
during a year. The values would also vary if the policyowner varied the
amount or frequency of premium payments. The tables also assume that the
policyowner has not requested an increase or decrease in Specified Amount,
that no withdrawals have been made and that no transfers have been made and
no transfer charges imposed.
Upon request, we will provide a comparable illustration based upon the
proposed Insured's age, sex and rating class, the face amount requested, the
proposed frequency and amount of premium payments and any available riders
requested. Existing policyowners may request illustrations based on existing
Surrender Value at the time of request. We reserve the right to charge an
administrative fee of up to $25 for such illustrations.
A-2
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,513 1,875 100,000 1,345 1,708 100,000
2 4,305 3,169 3,531 100,000 2,798 3,160 100,000
3 6,620 4,983 4,983 100,000 4,367 4,367 100,000
4 9,051 6,981 6,981 100,000 6,065 6,065 100,000
5 11,604 9,187 9,187 100,000 7,903 7,903 100,000
6 14,284 11,628 11,628 100,000 9,895 9,895 100,000
7 17,098 14,328 14,328 100,000 12,052 12,052 100,000
8 20,053 17,313 17,313 100,000 14,387 14,387 100,000
9 23,156 20,619 20,619 100,000 16,917 16,917 100,000
10 26,414 24,271 24,271 100,000 19,659 19,659 100,000
11 29,834 28,483 28,483 100,000 22,750 22,750 100,000
12 33,426 33,142 33,142 100,000 26,116 26,116 100,000
13 37,197 38,305 38,305 100,000 29,793 29,793 100,000
14 41,157 44,036 44,036 100,000 33,833 33,833 100,000
15 45,315 50,403 50,403 100,000 38,288 38,288 100,000
16 49,681 57,446 57,446 100,000 43,212 43,212 100,000
17 54,265 65,300 65,300 100,000 48,668 48,668 100,000
18 59,078 74,063 74,063 100,000 54,731 54,731 100,000
19 64,132 83,854 83,854 103,979(4) 61,491 61,491 100,000
20 69,439 94,718 94,718 115,555(4) 69,060 69,060 100,000
25 100,227 169,065 169,065 196,115(4) 122,320 122,320 141,892(4)
30 139,522 293,704 293,704 314,263(4) 210,107 210,107 224,815(4)
35 189,673 502,916 502,916 528,061(4) 355,015 355,015 372,766(4)
40 253,680 848,413 848,413 890,834(4) 585,735 585,735 615,021(4)
45 335,370 1,412,395 1,412,395 1,483,015(4) 942,874 942,874 990,017(4)
50 439,631 2,352,140 2,352,140 2,375,662(4) 1,524,887 1,524,887 1,540,136(4)
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the
corridor percentage. See "Death Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-3
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,513 1,875 100,000 1,345 1,708 100,000
2 4,305 3,169 3,531 100,000 2,798 3,160 100,000
3 6,620 4,983 4,983 100,000 4,367 4,367 100,000
4 9,051 6,981 6,981 100,000 6,065 6,065 100,000
5 11,604 9,187 9,187 100,000 7,903 7,903 100,000
6 14,284 11,628 11,628 100,000 9,895 9,895 100,000
7 17,098 14,328 14,328 100,000 12,052 12,052 100,000
8 20,053 17,313 17,313 100,000 14,387 14,387 100,000
9 23,156 20,619 20,619 100,000 16,917 16,917 100,000
10 26,414 24,271 24,271 100,000 19,659 19,659 100,000
11 29,834 28,483 28,483 100,000 22,750 22,750 100,000
12 33,426 33,142 33,142 100,000 26,116 26,116 100,000
13 37,197 38,305 38,305 100,000 29,793 29,793 100,000
14 41,157 44,036 44,036 100,000 33,833 33,833 100,000
15 45,315 50,403 50,403 100,000 38,288 38,288 100,000
16 49,681 57,411 57,411 109,720(4) 43,212 43,212 100,000
17 54,265 65,126 65,126 121,339(4) 48,668 48,668 100,000
18 59,078 73,607 73,607 133,756(4) 54,731 54,731 100,000
19 64,132 82,934 82,934 147,058(4) 61,399 61,399 108,872(4)
20 69,439 93,195 93,195 161,344(4) 68,616 68,616 118,792(4)
25 100,227 161,694 161,694 250,500(4) 114,422 114,422 177,266(4)
30 139,522 271,012 271,012 380,902(4) 181,298 181,298 254,810(4)
35 189,673 442,344 442,344 574,567(4) 274,888 274,888 357,056(4)
40 253,680 707,621 707,621 861,762(4) 403,506 403,506 491,401(4)
45 335,370 1,114,125 1,114,125 1,292,376(4) 574,156 574,156 666,015(4)
50 439,631 1,737,211 1,737,211 1,925,524(4) 804,215 804,215 891,392(4)
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency
or in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-4
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,507 1,870 101,507 1,338 1,700 101,338
2 4,305 3,152 3,514 103,152 2,774 3,136 102,774
3 6,620 4,946 4,946 104,946 4,315 4,315 104,315
4 9,051 6,915 6,915 106,915 5,971 5,971 105,971
5 11,604 9,079 9,079 109,079 7,747 7,747 107,747
6 14,284 11,464 11,464 111,464 9,654 9,654 109,654
7 17,098 14,091 14,091 114,091 11,694 11,694 111,694
8 20,053 16,982 16,982 116,982 13,874 13,874 113,874
9 23,156 20,169 20,169 120,169 16,199 16,199 116,199
10 26,414 23,670 23,670 123,670 18,673 18,673 118,673
11 29,834 27,688 27,688 127,688 21,419 21,419 121,419
12 33,426 32,098 32,098 132,098 24,341 24,341 124,341
13 37,197 36,941 36,941 136,941 27,455 27,455 127,455
14 41,157 42,264 42,264 142,264 30,776 30,776 130,776
15 45,315 48,114 48,114 148,114 34,326 34,326 134,326
16 49,681 54,459 54,459 154,459 38,117 38,117 138,117
17 54,265 61,442 61,442 161,442 42,159 42,159 142,159
18 59,078 69,107 69,107 169,107 46,456 46,456 146,456
19 64,132 77,534 77,534 177,534 51,014 51,014 151,014
20 69,439 86,809 86,809 186,809 55,837 55,837 155,837
25 100,227 148,823 148,823 248,823 84,265 84,265 184,265
30 139,522 248,787 248,787 348,787 120,383 120,383 220,383
35 189,673 408,765 408,765 508,765 160,639 160,639 260,639
40 253,680 664,997 664,997 764,997 198,557 198,557 298,557
45 335,370 1,076,924 1,076,924 1,176,924 214,970 214,970 314,970
50 439,631 1,743,367 1,743,367 1,843,367 178,653 178,653 278,653
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-5
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,507 1,870 101,507 1,338 1,700 101,338
2 4,305 3,152 3,514 103,152 2,774 3,136 102,774
3 6,620 4,946 4,946 104,946 4,315 4,315 104,315
4 9,051 6,915 6,915 106,915 5,971 5,971 105,971
5 11,604 9,079 9,079 109,079 7,747 7,747 107,747
6 14,284 11,464 11,464 111,464 9,654 9,654 109,654
7 17,098 14,091 14,091 114,091 11,694 11,694 111,694
8 20,053 16,982 16,982 116,982 13,874 13,874 113,874
9 23,156 20,169 20,169 120,169 16,199 16,199 116,199
10 26,414 23,670 23,670 123,670 18,673 18,673 118,673
11 29,834 27,688 27,688 127,688 21,419 21,419 121,419
12 33,426 32,098 32,098 132,098 24,341 24,341 124,341
13 37,197 36,941 36,941 136,941 27,455 27,455 127,455
14 41,157 42,264 42,264 142,264 30,776 30,776 130,776
15 45,315 48,114 48,114 148,114 34,326 34,326 134,326
16 49,681 54,459 54,459 154,459 38,117 38,117 138,117
17 54,265 61,442 61,442 161,442 42,159 42,159 142,159
18 59,078 69,107 69,107 169,107 46,456 46,456 146,456
19 64,132 77,534 77,534 177,534 51,014 51,014 151,014
20 69,439 86,809 86,809 186,809 55,837 55,837 155,837
25 100,227 148,823 148,823 248,823 84,265 84,265 184,265
30 139,522 248,787 248,787 349,665 120,383 120,383 220,383
35 189,673 406,961 406,961 528,607 160,639 160,639 260,639
40 253,680 651,939 651,939 793,950 198,557 198,557 298,557
45 335,370 1,027,355 1,027,355 1,191,723 214,970 214,970 314,970
50 439,631 1,602,802 1,602,802 1,776,546 178,653 178,653 278,653
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-6
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,506 1,869 102,000 1,336 1,698 102,000
2 4,305 3,148 3,510 104,000 2,766 3,129 104,000
3 6,620 4,938 4,938 106,000 4,298 4,298 106,000
4 9,051 6,902 6,902 108,000 5,941 5,941 108,000
5 11,604 9,060 9,060 110,000 7,699 7,699 110,000
6 14,284 11,440 11,440 112,000 9,583 9,583 112,000
7 17,098 14,063 14,063 114,000 11,597 11,597 114,000
8 20,053 16,953 16,953 116,000 13,747 13,747 116,000
9 23,156 20,142 20,142 118,000 16,038 16,038 118,000
10 26,414 23,653 23,653 120,000 18,477 18,477 120,000
11 29,834 27,690 27,690 122,000 21,188 21,188 122,000
12 33,426 32,135 32,135 124,000 24,081 24,081 124,000
13 37,197 37,035 37,035 126,000 27,174 27,174 126,000
14 41,157 42,445 42,445 128,000 30,489 30,489 128,000
15 45,315 48,424 48,424 130,000 34,057 34,057 130,000
16 49,681 54,969 54,969 132,000 37,901 37,901 132,000
17 54,265 62,230 62,230 134,000 42,044 42,044 134,000
18 59,078 70,278 70,278 136,000 46,514 46,514 136,000
19 64,132 79,221 79,221 138,000 51,340 51,340 138,000
20 69,439 89,180 89,180 140,000 56,559 56,559 140,000
25 100,227 158,959 158,959 184,393 90,825 90,825 150,000
30 139,522 276,864 276,864 296,245 151,014 151,014 161,585
35 189,673 474,767 474,767 498,505 258,357 258,357 271,275
40 253,680 801,595 801,595 841,675 429,342 429,342 450,809
45 335,370 1,335,110 1,335,110 1,401,866 694,111 694,111 728,816
50 439,631 2,224,086 2,224,086 2,246,327 1,125,556 1,125,556 1,136,811
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-7
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 12% (10.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 12% (10.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,506 1,869 102,000 1,336 1,698 102,000
2 4,305 3,148 3,510 104,000 2,766 3,129 104,000
3 6,620 4,938 4,938 106,000 4,298 4,298 106,000
4 9,051 6,902 6,902 108,000 5,941 5,941 108,000
5 11,604 9,060 9,060 110,000 7,699 7,699 110,000
6 14,284 11,440 11,440 112,000 9,583 9,583 112,000
7 17,098 14,063 14,063 114,000 11,597 11,597 114,000
8 20,053 16,953 16,953 116,000 13,747 13,747 116,000
9 23,156 20,142 20,142 118,000 16,038 16,038 118,000
10 26,414 23,653 23,653 120,000 18,477 18,477 120,000
11 29,834 27,690 27,690 122,000 21,188 21,188 122,000
12 33,426 32,135 32,135 124,000 24,081 24,081 124,000
13 37,197 37,035 37,035 126,000 27,174 27,174 126,000
14 41,157 42,445 42,445 128,000 30,489 30,489 128,000
15 45,315 48,424 48,424 130,000 34,057 34,057 130,000
16 49,681 54,969 54,969 132,000 37,901 37,901 132,000
17 54,265 62,230 62,230 134,000 42,044 42,044 134,000
18 59,078 70,278 70,278 136,000 46,514 46,514 136,000
19 64,132 79,220 79,220 140,000 51,340 51,340 138,000
20 69,439 89,105 89,105 154,263 56,559 56,559 140,000
25 100,227 155,099 155,099 240,284 90,825 90,825 150,000
30 139,522 260,435 260,435 366,036 145,730 145,730 204,820
35 189,673 425,532 425,532 552,730 223,034 223,034 289,702
40 253,680 681,165 681,165 829,542 329,360 329,360 401,104
45 335,370 1,072,898 1,072,898 1,244,553 470,544 470,544 545,826
50 439,631 1,673,349 1,673,349 1,854,740 660,934 660,934 732,580
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 10.79% on the current basis and 10.54% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-8
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,417 1,779 100,000 1,255 1,617 100,000
2 4,305 2,882 3,245 100,000 2,532 2,894 100,000
3 6,620 4,398 4,398 100,000 3,832 3,832 100,000
4 9,051 5,974 5,974 100,000 5,153 5,153 100,000
5 11,604 7,616 7,616 100,000 6,494 6,494 100,000
6 14,284 9,333 9,333 100,000 7,855 7,855 100,000
7 17,098 11,126 11,126 100,000 9,228 9,228 100,000
8 20,053 12,997 12,997 100,000 10,609 10,609 100,000
9 23,156 14,953 14,953 100,000 11,994 11,994 100,000
10 26,414 16,989 16,989 100,000 13,375 13,375 100,000
11 29,834 19,275 19,275 100,000 14,860 14,860 100,000
12 33,426 21,648 21,648 100,000 16,338 16,338 100,000
13 37,197 24,103 24,103 100,000 17,811 17,811 100,000
14 41,157 26,647 26,647 100,000 19,274 19,274 100,000
15 45,315 29,283 29,283 100,000 20,724 20,724 100,000
16 49,681 31,969 31,969 100,000 22,152 22,152 100,000
17 54,265 34,774 34,774 100,000 23,550 23,550 100,000
18 59,078 37,691 37,691 100,000 24,905 24,905 100,000
19 64,132 40,734 40,734 100,000 26,201 26,201 100,000
20 69,439 43,917 43,917 100,000 27,423 27,423 100,000
25 100,227 62,150 62,150 100,000 31,990 31,990 100,000
30 139,522 86,325 86,325 100,000 31,699 31,699 100,000
35 189,673 119,074 119,074 125,028(4) 16,851 16,851 100,000
40 253,680 159,944 159,944 167,942(4) 0 0 0
45 335,370 209,849 209,849 220,341(4) 0 0 0
50 439,631 273,250 273,250 275,983(4) 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-9
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,417 1,779 100,000 1,255 1,617 100,000
2 4,305 2,882 3,245 100,000 2,532 2,894 100,000
3 6,620 4,398 4,398 100,000 3,832 3,832 100,000
4 9,051 5,974 5,974 100,000 5,153 5,153 100,000
5 11,604 7,616 7,616 100,000 6,494 6,494 100,000
6 14,284 9,333 9,333 100,000 7,855 7,855 100,000
7 17,098 11,126 11,126 100,000 9,228 9,228 100,000
8 20,053 12,997 12,997 100,000 10,609 10,609 100,000
9 23,156 14,953 14,953 100,000 11,994 11,994 100,000
10 26,414 16,989 16,989 100,000 13,375 13,375 100,000
11 29,834 19,275 19,275 100,000 14,860 14,860 100,000
12 33,426 21,648 21,648 100,000 16,338 16,338 100,000
13 37,197 24,103 24,103 100,000 17,811 17,811 100,000
14 41,157 26,647 26,647 100,000 19,274 19,274 100,000
15 45,315 29,283 29,283 100,000 20,724 20,724 100,000
16 49,681 31,969 31,969 100,000 22,152 22,152 100,000
17 54,265 34,774 34,774 100,000 23,550 23,550 100,000
18 59,078 37,691 37,691 100,000 24,905 24,905 100,000
19 64,132 40,734 40,734 100,000 26,201 26,201 100,000
20 69,439 43,917 43,917 100,000 27,423 27,423 100,000
25 100,227 62,150 62,150 100,000 31,990 31,990 100,000
30 139,522 85,218 85,218 119,772(4) 31,699 31,699 100,000
35 189,673 112,263 112,263 145,820(4) 16,851 16,851 100,000
40 253,680 143,410 143,410 174,649(4) 0 0 0
45 335,370 178,792 178,792 207,397(4) 0 0 0
50 439,631 219,256 219,256 243,023(4) 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
h(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-10
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,412 1,774 101,412 1,247 1,610 101,247
2 4,305 2,867 3,229 102,867 2,510 2,873 102,510
3 6,620 4,366 4,366 104,366 3,786 3,786 103,786
4 9,051 5,918 5,918 105,918 5,074 5,074 105,074
5 11,604 7,529 7,529 107,529 6,369 6,369 106,369
6 14,284 9,206 9,206 109,206 7,668 7,668 107,668
7 17,098 10,950 10,950 110,950 8,962 8,962 108,962
8 20,053 12,761 12,761 112,761 10,244 10,244 110,244
9 23,156 14,645 14,645 114,645 11,504 11,504 111,504
10 26,414 16,594 16,594 116,594 12,730 12,730 112,730
11 29,834 18,773 18,773 118,773 14,025 14,025 114,025
12 33,426 21,016 21,016 121,016 15,274 15,274 115,274
13 37,197 23,312 23,312 123,312 16,470 16,470 116,470
14 41,157 25,664 25,664 125,664 17,603 17,603 117,603
15 45,315 28,067 28,067 128,067 18,663 18,663 118,663
16 49,681 30,442 30,442 130,442 19,633 19,633 119,633
17 54,265 32,879 32,879 132,879 20,493 20,493 120,493
18 59,078 35,356 35,356 135,356 21,218 21,218 121,218
19 64,132 37,879 37,879 137,879 21,780 21,780 121,780
20 69,439 40,453 40,453 140,453 22,148 22,148 122,148
25 100,227 53,529 53,529 153,529 20,094 20,094 120,094
30 139,522 66,089 66,089 166,089 7,583 7,583 107,583
35 189,673 74,610 74,610 174,610 0 0 0
40 253,680 73,551 73,551 173,551 0 0 0
45 335,370 54,073 54,073 154,073 0 0 0
50 439,631 3,154 3,154 103,154 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-11
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,412 1,774 101,412 1,247 1,610 101,247
2 4,305 2,867 3,229 102,867 2,510 2,873 102,510
3 6,620 4,366 4,366 104,366 3,786 3,786 103,786
4 9,051 5,918 5,918 105,918 5,074 5,074 105,074
5 11,604 7,529 7,529 107,529 6,369 6,369 106,369
6 14,284 9,206 9,206 109,206 7,668 7,668 107,668
7 17,098 10,950 10,950 110,950 8,962 8,962 108,962
8 20,053 12,761 12,761 112,761 10,244 10,244 110,244
9 23,156 14,645 14,645 114,645 11,504 11,504 111,504
10 26,414 16,594 16,594 116,594 12,730 12,730 112,730
11 29,834 18,773 18,773 118,773 14,025 14,025 114,025
12 33,426 21,016 21,016 121,016 15,274 15,274 115,274
13 37,197 23,312 23,312 123,312 16,470 16,470 116,470
14 41,157 25,664 25,664 125,664 17,603 17,603 117,603
15 45,315 28,067 28,067 128,067 18,663 18,663 118,663
16 49,681 30,442 30,442 130,442 19,633 19,633 119,633
17 54,265 32,879 32,879 132,879 20,493 20,493 120,493
18 59,078 35,356 35,356 135,356 21,218 21,218 121,218
19 64,132 37,879 37,879 137,879 21,780 21,780 121,780
20 69,439 40,453 40,453 140,453 22,148 22,148 122,148
25 100,227 53,529 53,529 153,529 20,094 20,094 120,094
30 139,522 66,089 66,089 166,089 7,583 7,583 107,583
35 189,673 74,610 74,610 174,610 0 0 0
40 253,680 73,551 73,551 173,551 0 0 0
45 335,370 54,073 54,073 154,073 0 0 0
50 439,631 3,154 3,154 103,154 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-12
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,411 1,773 102,000 1,245 1,608 102,000
2 4,305 2,863 3,225 104,000 2,502 2,865 104,000
3 6,620 4,356 4,356 106,000 3,767 3,767 106,000
4 9,051 5,901 5,901 108,000 5,039 5,039 108,000
5 11,604 7,502 7,502 110,000 6,311 6,311 110,000
6 14,284 9,168 9,168 112,000 7,579 7,579 112,000
7 17,098 10,898 10,898 114,000 8,833 8,833 114,000
8 20,053 12,694 12,694 116,000 10,064 10,064 116,000
9 23,156 14,560 14,560 118,000 11,259 11,259 118,000
10 26,414 16,490 16,490 120,000 12,404 12,404 120,000
11 29,834 18,648 18,648 122,000 13,599 13,599 122,000
12 33,426 20,869 20,869 124,000 14,724 14,724 124,000
13 37,197 23,141 23,141 126,000 15,771 15,771 126,000
14 41,157 25,469 25,469 128,000 16,724 16,724 128,000
15 45,315 27,847 27,847 130,000 17,566 17,566 130,000
16 49,681 30,195 30,195 132,000 18,272 18,272 132,000
17 54,265 32,606 32,606 134,000 18,812 18,812 134,000
18 59,078 35,058 35,058 136,000 19,148 19,148 136,000
19 64,132 37,558 37,558 138,000 19,234 19,234 138,000
20 69,439 40,114 40,114 140,000 19,019 19,019 140,000
25 100,227 53,223 53,223 150,000 11,244 11,244 150,000
30 139,522 66,295 66,295 160,000 0 0 0
35 189,673 76,190 76,190 170,000 0 0 0
40 253,680 76,322 76,322 180,000 0 0 0
45 335,370 47,961 47,961 190,000 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-13
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 6% (4.54% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 6% (4.29% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,411 1,773 102,000 1,245 1,608 102,000
2 4,305 2,863 3,225 104,000 2,502 2,865 104,000
3 6,620 4,356 4,356 106,000 3,767 3,767 106,000
4 9,051 5,901 5,901 108,000 5,039 5,039 108,000
5 11,604 7,502 7,502 110,000 6,311 6,311 110,000
6 14,284 9,168 9,168 112,000 7,579 7,579 112,000
7 17,098 10,898 10,898 114,000 8,833 8,833 114,000
8 20,053 12,694 12,694 116,000 10,064 10,064 116,000
9 23,156 14,560 14,560 118,000 11,259 11,259 118,000
10 26,414 16,490 16,490 120,000 12,404 12,404 120,000
11 29,834 18,648 18,648 122,000 13,599 13,599 122,000
12 33,426 20,869 20,869 124,000 14,724 14,724 124,000
13 37,197 23,141 23,141 126,000 15,771 15,771 126,000
14 41,157 25,469 25,469 128,000 16,724 16,724 128,000
15 45,315 27,847 27,847 130,000 17,566 17,566 130,000
16 49,681 30,195 30,195 132,000 18,272 18,272 132,000
17 54,265 32,606 32,606 134,000 18,812 18,812 134,000
18 59,078 35,058 35,058 136,000 19,148 19,148 136,000
19 64,132 37,558 37,558 138,000 19,234 19,234 138,000
20 69,439 40,114 40,114 140,000 19,019 19,019 140,000
25 100,227 53,223 53,223 150,000 11,244 11,244 150,000
30 139,522 66,295 66,295 160,000 0 0 0
35 189,673 76,190 76,190 170,000 0 0 0
40 253,680 76,322 76,322 180,000 0 0 0
45 335,370 47,961 47,961 190,000 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals 4.79% on the current basis and 4.54% on the guaranteed basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 6% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-14
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,322 1,684 100,000 1,164 1,527 100,000
2 4,305 2,608 2,971 100,000 2,278 2,641 100,000
3 6,620 3,859 3,859 100,000 3,340 3,340 100,000
4 9,051 5,083 5,083 100,000 4,350 4,350 100,000
5 11,604 6,282 6,282 100,000 5,303 5,303 100,000
6 14,284 7,462 7,462 100,000 6,200 6,200 100,000
7 17,098 8,621 8,621 100,000 7,033 7,033 100,000
8 20,053 9,757 9,757 100,000 7,798 7,798 100,000
9 23,156 10,872 10,872 100,000 8,487 8,487 100,000
10 26,414 11,958 11,958 100,000 9,094 9,094 100,000
11 29,834 13,173 13,173 100,000 9,721 9,721 100,000
12 33,426 14,347 14,347 100,000 10,255 10,255 100,000
13 37,197 15,469 15,469 100,000 10,695 10,695 100,000
14 41,157 16,542 16,542 100,000 11,035 11,035 100,000
15 45,315 17,561 17,561 100,000 11,270 11,270 100,000
16 49,681 18,459 18,459 100,000 11,387 11,387 100,000
17 54,265 19,308 19,308 100,000 11,375 11,375 100,000
18 59,078 20,089 20,089 100,000 11,216 11,216 100,000
19 64,132 20,808 20,808 100,000 10,890 10,890 100,000
20 69,439 21,466 21,466 100,000 10,374 10,374 100,000
25 100,227 23,449 23,449 100,000 4,183 4,183 100,000
30 139,522 22,644 22,644 100,000 0 0 0
35 189,673 16,375 16,375 100,000 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-15
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION I: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,322 1,684 100,000 1,164 1,527 100,000
2 4,305 2,608 2,971 100,000 2,278 2,641 100,000
3 6,620 3,859 3,859 100,000 3,340 3,340 100,000
4 9,051 5,083 5,083 100,000 4,350 4,350 100,000
5 11,604 6,282 6,282 100,000 5,303 5,303 100,000
6 14,284 7,462 7,462 100,000 6,200 6,200 100,000
7 17,098 8,621 8,621 100,000 7,033 7,033 100,000
8 20,053 9,757 9,757 100,000 7,798 7,798 100,000
9 23,156 10,872 10,872 100,000 8,487 8,487 100,000
10 26,414 11,958 11,958 100,000 9,094 9,094 100,000
11 29,834 13,173 13,173 100,000 9,721 9,721 100,000
12 33,426 14,347 14,347 100,000 10,255 10,255 100,000
13 37,197 15,469 15,469 100,000 10,695 10,695 100,000
14 41,157 16,542 16,542 100,000 11,035 11,035 100,000
15 45,315 17,561 17,561 100,000 11,270 11,270 100,000
16 49,681 18,459 18,459 100,000 11,387 11,387 100,000
17 54,265 19,308 19,308 100,000 11,375 11,375 100,000
18 59,078 20,089 20,089 100,000 11,216 11,216 100,000
19 64,132 20,808 20,808 100,000 10,890 10,890 100,000
20 69,439 21,466 21,466 100,000 10,374 10,374 100,000
25 100,227 23,449 23,449 100,000 4,183 4,183 100,000
30 139,522 22,644 22,644 100,000 0 0 0
35 189,673 16,375 16,375 100,000 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-16
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,317 1,679 101,317 1,157 1,520 101,157
2 4,305 2,595 2,957 102,595 2,258 2,621 102,258
3 6,620 3,832 3,832 103,832 3,301 3,301 103,301
4 9,051 5,037 5,037 105,037 4,284 4,284 104,284
5 11,604 6,212 6,212 106,212 5,203 5,203 105,203
6 14,284 7,365 7,365 107,365 6,057 6,057 106,057
7 17,098 8,491 8,491 108,491 6,838 6,838 106,838
8 20,053 9,589 9,589 109,589 7,540 7,540 107,540
9 23,156 10,662 10,662 110,662 8,155 8,155 108,155
10 26,414 11,699 11,699 111,699 8,674 8,674 108,674
11 29,834 12,857 12,857 112,857 9,201 9,201 109,201
12 33,426 13,965 13,965 113,965 9,619 9,619 109,619
13 37,197 15,008 15,008 115,008 9,928 9,928 109,928
14 41,157 15,989 15,989 115,989 10,121 10,121 110,121
15 45,315 16,903 16,903 116,903 10,192 10,192 110,192
16 49,681 17,664 17,664 117,664 10,131 10,131 110,131
17 54,265 18,360 18,360 118,360 9,924 9,924 109,924
18 59,078 18,969 18,969 118,969 9,554 9,554 109,554
19 64,132 19,494 19,494 119,494 9,002 9,002 109,002
20 69,439 19,939 19,939 119,939 8,249 8,249 108,249
25 100,227 20,431 20,431 120,431 949 949 100,949
30 139,522 17,215 17,215 117,215 0 0 0
35 189,673 7,683 7,683 107,683 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-17
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION II: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
PREMIUMS
-----------------------------------
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,317 1,679 101,317 1,157 1,520 101,157
2 4,305 2,595 2,957 102,595 2,258 2,621 102,258
3 6,620 3,832 3,832 103,832 3,301 3,301 103,301
4 9,051 5,037 5,037 105,037 4,284 4,284 104,284
5 11,604 6,212 6,212 106,212 5,203 5,203 105,203
6 14,284 7,365 7,365 107,365 6,057 6,057 106,057
7 17,098 8,491 8,491 108,491 6,838 6,838 106,838
8 20,053 9,589 9,589 109,589 7,540 7,540 107,540
9 23,156 10,662 10,662 110,662 8,155 8,155 108,155
10 26,414 11,699 11,699 111,699 8,674 8,674 108,674
11 29,834 12,857 12,857 112,857 9,201 9,201 109,201
12 33,426 13,965 13,965 113,965 9,619 9,619 109,619
13 37,197 15,008 15,008 115,008 9,928 9,928 109,928
14 41,157 15,989 15,989 115,989 10,121 10,121 110,121
15 45,315 16,903 16,903 116,903 10,192 10,192 110,192
16 49,681 17,664 17,664 117,664 10,131 10,131 110,131
17 54,265 18,360 18,360 118,360 9,924 9,924 109,924
18 59,078 18,969 18,969 118,969 9,554 9,554 109,554
19 64,132 19,494 19,494 119,494 9,002 9,002 109,002
20 69,439 19,939 19,939 119,939 8,249 8,249 108,249
25 100,227 20,431 20,431 120,431 949 949 100,949
30 139,522 17,215 17,215 117,215 0 0 0
35 189,673 7,683 7,683 107,683 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-18
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
GUIDELINE PREMIUM TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,316 1,678 102,000 1,155 1,518 102,000
2 4,305 2,590 2,952 104,000 2,250 2,612 104,000
3 6,620 3,821 3,821 106,000 3,280 3,280 106,000
4 9,051 5,017 5,017 108,000 4,245 4,245 108,000
5 11,604 6,180 6,180 110,000 5,138 5,138 110,000
6 14,284 7,317 7,317 112,000 5,957 5,957 112,000
7 17,098 8,424 8,424 114,000 6,691 6,691 114,000
8 20,053 9,500 9,500 116,000 7,331 7,331 116,000
9 23,156 10,546 10,546 118,000 7,868 7,868 118,000
10 26,414 11,551 11,551 120,000 8,289 8,289 120,000
11 29,834 12,671 12,671 122,000 8,692 8,692 122,000
12 33,426 13,734 13,734 124,000 8,958 8,958 124,000
13 37,197 14,724 14,724 126,000 9,079 9,079 126,000
14 41,157 15,641 15,641 128,000 9,044 9,044 128,000
15 45,315 16,477 16,477 130,000 8,838 8,838 130,000
16 49,681 17,135 17,135 132,000 8,442 8,442 132,000
17 54,265 17,711 17,711 134,000 7,830 7,830 134,000
18 59,078 18,176 18,176 136,000 6,968 6,968 136,000
19 64,132 18,530 18,530 138,000 5,816 5,816 138,000
20 69,439 18,777 18,777 140,000 4,334 4,334 140,000
25 100,227 17,539 17,539 150,000 0 0 0
30 139,522 10,118 10,118 160,000 0 0 0
35 189,673 0 0 0 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-19
<PAGE>
JEFFERSON PILOT FINANCIAL INSURANCE COMPANY
ENSEMBLE EXEC FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C>
DEATH BENEFIT OPTION III: ASSUMED HYPOTHETICAL GROSS ANNUAL
CASH VALUE ACCUMULATION TEST RATE OF RETURN(1): (Current) 0% (-1.46% net)
MALE NON-SMOKER ISSUE AGE 45 (Guaranteed) 0% (-1.71% net)
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(2): $2,000
</TABLE>
<TABLE>
<CAPTION>
ASSUMING CURRENT COSTS ASSUMING GUARANTEED COSTS
PREMIUMS ----------------------------------------------- ---------------------------------------------
END ACCUMULATED
OF AT 5% INTEREST ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR PER YEAR VALUE(3) VALUE(3) BENEFIT(3) VALUE(3) VALUE(3) BENEFIT(3)
------ ------------ -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,100 1,316 1,678 102,000 1,155 1,518 102,000
2 4,305 2,590 2,952 104,000 2,250 2,612 104,000
3 6,620 3,821 3,821 106,000 3,280 3,280 106,000
4 9,051 5,017 5,017 108,000 4,245 4,245 108,000
5 11,604 6,180 6,180 110,000 5,138 5,138 110,000
6 14,284 7,317 7,317 112,000 5,957 5,957 112,000
7 17,098 8,424 8,424 114,000 6,691 6,691 114,000
8 20,053 9,500 9,500 116,000 7,331 7,331 116,000
9 23,156 10,546 10,546 118,000 7,868 7,868 118,000
10 26,414 11,551 11,551 120,000 8,289 8,289 120,000
11 29,834 12,671 12,671 122,000 8,692 8,692 122,000
12 33,426 13,734 13,734 124,000 8,958 8,958 124,000
13 37,197 14,724 14,724 126,000 9,079 9,079 126,000
14 41,157 15,641 15,641 128,000 9,044 9,044 128,000
15 45,315 16,477 16,477 130,000 8,838 8,838 130,000
16 49,681 17,135 17,135 132,000 8,442 8,442 132,000
17 54,265 17,711 17,711 134,000 7,830 7,830 134,000
18 59,078 18,176 18,176 136,000 6,968 6,968 136,000
19 64,132 18,530 18,530 138,000 5,816 5,816 138,000
20 69,439 18,777 18,777 140,000 4,334 4,334 140,000
25 100,227 17,539 17,539 150,000 0 0 0
30 139,522 10,118 10,118 160,000 0 0 0
35 189,673 0 0 0 0 0 0
40 253,680 0 0 0 0 0 0
45 335,370 0 0 0 0 0 0
50 439,631 0 0 0 0 0 0
</TABLE>
-------
(1) For policy years 26 and thereafter, the illustrated net annual rate of
return equals -1.21% on the current basis and -1.46% on the guaranteed
basis.
(2) Assumes a $2,000 premium is paid at the beginning of each policy year.
Values would be different if premiums are paid with a different frequency or
in different amounts.
(3) Assumes that no policy loans or withdrawals have been made. Zero values
indicate lapse in the absence of an additional premium payment.
(4) Increase is due to adjustment by the corridor percentage. See "Death
Benefits".
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS BY THE OWNER AND DIFFERENT INVESTMENT
RATES OF RETURN FOR THE FUNDS. THE ACCUMULATION VALUE, CASH VALUE AND DEATH
BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED 0% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY JPF SEPARATE ACCOUNT A, OR THE FUNDS THAT THIS ASSUMED
INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-20
<PAGE>
start
Audited Consolidated Financial Statements
Jefferson Pilot Financial Insurance Company and Subsidiaries
As of December 31, 1999 and 1998 and for the two years ended December 31, 1999,
the eight months ended December 31, 1997, and the four months ended April 30,
1997
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Audited Consolidated Financial Statements
As of December 31, 1999 and 1998 and for the two years ended December 31, 1999,
the eight month period ended December 31, 1997, and the four month period ended
April 30, 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors...........................................1
Consolidated Balance Sheets..............................................2
Consolidated Statements of Income........................................4
Consolidated Statements of Stockholder's Equity..........................5
Consolidated Statements of Cash Flows....................................6
Notes to Consolidated Financial Statements...............................8
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors
Jefferson Pilot Financial Insurance Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of Jefferson Pilot
Financial Insurance Company and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the two years ended December 31, 1999, the eight month
period ended December 31, 1997, and the four month period ended April 30, 1997
(Predecessor). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jefferson Pilot
Financial Insurance Company and subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1999 and for the eight month
period ended December 31, 1997, and for the four month period ended April 30,
1997 (Predecessor), in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young, LLP
Greensboro, North Carolina
February 4, 2000
1
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Consolidated Balance Sheets
(In Thousands, except for Share Amounts)
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------
<S> <C> <C>
Assets
Invested assets:
Debt securities available-for-sale, at fair value (amortized cost
1999-$3,043,854; 1998-$2,962,335) $2,920,793 $3,099,405
Equity securities available-for-sale, at fair value (cost 1999-$8,333;
1998-$8,350) 9,686 10,668
Policy loans 267,335 246,290
Mortgage loans on real estate 441,836 282,355
--------------------------
Total investments 3,639,650 3,638,718
Cash and cash equivalents 49,158 6,514
Accrued investment income 59,876 53,626
Due from reinsurers 275,991 245,759
Deferred policy acquisition costs 208,209 112,959
Value of business acquired 510,825 402,176
Cost in excess of net assets acquired, net of accumulated amortization
(1999-$12,119; 1998-$7,490) 150,664 155,293
Property and equipment, net of accumulated depreciation (1999-$9,184;
1998-$11,629) 9,611 15,560
Deferred federal income taxes 22,688 2,814
Assets held in separate accounts 1,274,866 833,239
Other assets 9,818 17,128
--------------------------
$6,211,356 $5,483,786
==========================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------------
<S> <C> <C>
Liabilities
Policy liabilities:
Policyholder contract deposits $2,841,387 $2,721,645
Future policy benefits 649,691 632,672
Policy and contract claims 42,427 51,089
Premiums paid in advance 2,148 2,851
Other policyholders' funds 95,855 96,711
-------------------------------
Total policy liabilities 3,631,508 3,504,968
Payable to affiliates 37,726 57,585
Liabilities related to separate accounts 1,274,866 833,239
Securities sold under repurchase agreements 166,570 102,130
Accrued expenses and other liabilities 141,941 50,688
-------------------------------
5,252,611 4,548,610
Commitments and contingent liabilities
Stockholder's equity
Common stock, par value $5 per share, 600,000 shares authorized, issued
and outstanding 3,000 3,000
Paid in capital 756,066 756,066
Retained earnings 236,305 134,007
Accumulated other comprehensive income - net unrealized (losses) gains
on securities (36,626) 42,103
-------------------------------
958,745 935,176
-------------------------------
$6,211,356 $5,483,786
===============================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Consolidated Statements of Income
(In Thousands)
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------------------------------ ----------------------
Eight months ended Four months ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C>
Revenues
Premiums and policy charges $317,215 $315,937 $235,247 $117,385
Net investment income 261,344 246,306 158,181 82,056
Realized investment (losses) gains (720) 1,276 4,788 3,473
Other (expense) income (239) 508 3,303 1,087
------------------------------------------------------------ ---------------------
Total revenues 577,600 564,027 401,519 204,001
Benefits and expenses
Policy benefits and claims 283,773 293,709 217,622 108,274
Commissions and operating
expenses, net of deferrals 48,062 63,172 53,830 22,521
Amortization of intangibles 67,744 61,971 35,842 38,206
Taxes, licenses and fees 20,311 19,799 11,514 (12,423)
------------------------------------------------------------ ---------------------
Total benefits and expenses 419,890 438,651 318,808 156,578
------------------------------------------------------------ ---------------------
Income from continuing operations before
federal income tax 157,710 125,376 82,711 47,423
Federal income tax expense(benefit):
Current 28,387 35,260 14,422 20,596
Deferred 27,025 9,826 14,572 (7,926)
------------------------------------------------------------ ---------------------
55,412 45,086 28,994 12,670
------------------------------------------------------------ ---------------------
Income from continuing operations 102,298 80,290 53,717 34,753
Discontinued operations:
Adjustment to reduce estimated
losses during phase-out-period, net of
taxes of $3,206 for the four months
ended April 30, 1997 - - - 6,006
------------------------------------------------------------ ---------------------
Net income $102,298 $ 80,290 $ 53,717 $ 40,759
============================================================ =====================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(In Thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income - Total
Common Paid in Retained Net Unrealized (Losses) Stockholder's
Stock Capital Earnings Gains on Securities Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Predecessor balances
January 1, 1997 $ 3,000 $ 249,872 $ 595,536 $ 17,622 $866,030
Net income - - 40,759 - 40,759
Other comprehensive income - - - (10,708) (10,708)
------------------
Comprehensive income 30,051
Dividends declared - - (103,008) - (103,008)
----------------------------------------------------------------------------------------
Predecessor balances, April 30, 1997 3,000 249,872 533,287 6,914 793,073
Purchase accounting adjustments - 532,628 (533,287) (6,914) (7,573)
----------------------------------------------------------------------------------------
Successor balances, May 1, 1997 3,000 782,500 - - 785,500
Net income - - 53,717 - 53,717
Other comprehensive income - - - 33,932 33,932
------------------
Comprehensive income 87,649
----------------------------------------------------------------------------------------
Successor balances, December 31, 1997 3,000 782,500 53,717 33,932 873,149
Net income - - 80,290 - 80,290
Other comprehensive income - - - 8,171 8,171
------------------
Comprehensive income 88,461
Purchase price adjustment - (26,434) - - (26,434)
----------------------------------------------------------------------------------------
Balance, December 31, 1998 3,000 756,066 134,007 42,103 935,176
Net income - - 102,298 - 102,298
Other comprehensive income - - - (78,729) (78,729)
------------------
Comprehensive income 23,569
----------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 3,000 $ 756,066 $ 236,305 $ (36,626) $958,745
========================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------------------------------- -------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
---------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Operating activities
Net income $102,298 $80,290 $53,717 $40,759
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Change in future policy benefits, policy and
contract claims and premiums paid in advance, net 7,242 (109,284) (11,066) 6,070
Credits to policyholder accounts, net (124,370) (111,916) (65,949) (36,595)
Policy acquisition costs deferred,
net of amortization (95,250) (74,759) (38,200) (7,907)
Net amortization of value of
business acquired 31,325 18,335 (3,159) 1,284
Change in accrued investment income (6,250) (2,902) 704 1,045
Realized investment losses (gains) 720 (1,276) (4,788) (3,473)
Amortization of investment premium
(discounts) 4,201 6,131 5,719 (277)
Provision for depreciation 6,417 10,737 1,210 2,485
Provision for deferred income tax 27,025 9,826 14,572 (7,926)
Change in receivables and asset accruals (14,323) (47,170) 52,758 (9,870)
Change in payables and expense accruals 78,929 62,357 (1,019) (57,386)
Other operating activities, net (10,533) (7,817) 570 (6,865)
---------------------------------------------------- --------------
Net cash provided by (used in) operating
activities 7,431 (167,448) 5,069 (78,656)
---------------------------------------------------- -------------------
Investing activities
Proceeds from sales of debt securities 239,384 91,131 205,590 199,970
Proceeds from maturities of debt securities 302,338 313,234 98,301 40,743
Proceeds from sales of equity securities 2,616 11,294 10,386 18,343
Purchases of debt securities (627,847) (491,995) (379,041) (203,214)
Purchases of equity securities (2,600) (2,738) (322) (6,284)
Mortgage loans originated (167,280) (166,989) (121,718) -
Repayments of mortgage loans 6,936 6,101 4,582 1,016
Policy loans issued, net of repayments (21,045) (9,561) (14,652) (4,219)
Other investing activities, net - 179 4,185 28,254
---------------------------------------------------- -------------------
Net cash (used in) provided by investing activities
(267,498) (249,344) (192,689) 74,609
---------------------------------------------------- -------------------
</TABLE>
6
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In Thousands)
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------------------------------ --------------------
Eight months Four months
ended ended
Year ended December 31, December 31, December 31,
1999 1998 1997 1997
------------------------------------------------------------ --------------------
<S> <C> <C> <C> <C>
Financing activities
Deposits credited to policyholders' funds $ 440,343 $ 523,980 $ 343,754 $ 139,658
Withdrawals from policyholders' funds (200,888) (230,256) (108,331) (49,006)
Dividends paid - - (101,004) (2,004)
Proceeds from securities sold under
repurchase agreements 64,440 102,351 - -
Decrease in loans payable (1,184) (1,057) (51,142) (303)
------------------------------------------------------------ --------------------
Net cash provided by financing activities 302,711 395,018 83,277 88,345
------------------------------------------------------------ --------------------
Change in cash and cash equivalents 42,644 (21,774) (104,343) 84,298
Cash and cash equivalents, beginning
of period 6,514 28,288 132,631 48,333
------------------------------------------------------------ --------------------
Cash and cash equivalents, end of period $ 49,158 $ 6,514 $ 28,288 $ 132,631
============================================================ ====================
</TABLE>
7
See notes to consolidated financial statements.
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Basis of Presentation
Nature of Operations
Jefferson-Pilot Financial Insurance Company (the Company), formerly know as
Chubb Life Insurance Company of America, is a wholly-owned subsidiary of
Jefferson-Pilot Corporation (Parent) and is principally engaged in the sale of
individual life insurance and investment products. These products are marketed
primarily through personal producing general agents throughout the United
States.
Acquisition
Jefferson-Pilot acquired the Company from The Chubb Corporation on May 13, 1997,
with an effective date of April 30, 1997. The acquisition was accounted for as a
purchase, utilizing "pushdown" accounting, and the assets and liabilities were
recorded at fair value as of April 30, 1997. For purposes of these financial
statements, the consolidated statements of income, stockholder's equity, and
cash flows for the four months ended April 30, 1997 represent the results of
operations of the "Predecessor", and are presented on the historical basis of
accounting. The consolidated statements of income, stockholder's equity, and
cash flows for the eight months ended December 31, 1997 and the years ended
December 31, 1998 and 1999 represent the results of operations of the
"Successor" and are presented on a purchase accounting basis. As a result, the
consolidated financial statements subsequent to the acquisition date (Successor)
are not comparable to the consolidated financial statements prior to the
acquisition date (Predecessor).
The initial cost of the acquisition was $785.5 million. In addition, immediately
prior to the acquisition, the Company declared a $103 million dividend to The
Chubb Corporation. The initial purchase price was adjusted by $26.4 million in
the first quarter of 1998 by mutual agreement between the Parent and The Chubb
Corporation, primarily to reflect tax strategies not anticipated at the original
acquisition date. Accordingly, the final cost of the acquisition by
Jefferson-Pilot was $759.1 million, including all acquisition costs. Adjustments
were made in 1998 to the assigned values of certain assets and liabilities at
the acquisition date to reflect the final purchase price.
8
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Basis of Presentation (continued)
The allocation of the pushed down purchase price and the determination of the
cost in excess of net assets acquired is as follows (in thousands):
<TABLE>
<S> <C>
Stockholder's equity as reported by Predecessor $ 793,073
Fair value adjustments:
Debt securities - available-for-sale (899)
Property and equipment (9,345)
Deferred policy acquisition costs (667,865)
Value of business acquired 459,607
Deferred federal income tax 83,374
Cost in excess of net assets acquired 100,313
Other assets (329)
Policy liabilities 18,213
Accrued expenses and other liabilities (17,076)
----------
Fair value of net assets acquired $ 759,066
===========
</TABLE>
The following proforma results of operations for the year ended December 31,
1997, assume that the acquisition occurred as of January 1, 1997. The proforma
results have been prepared for comparative purposes only and do not purport to
indicate the results of operations which would have actually been reported had
the acquisition occurred on January 1, 1997, or which may occur in the future
(in thousands):
<TABLE>
<S> <C>
Net revenues $496,530
Net income before realized investment gains (net of taxes) 70,658
Net income 26,713
</TABLE>
Discontinued Operations
In 1996, the Predecessor adopted a plan to exit the group insurance business.
Accordingly, the group health insurance business was accounted for as a
discontinued operation in the consolidated income statement for the four months
ended April 30, 1997. As a result of the decision by the Predecessor in 1996 to
discontinue the group health insurance business, a liability was established to
cover any future losses from operations and costs to exit the business including
severance for employees. The amount reflected in the statement of income for the
Predecessor reflects an adjustment to the future estimated losses, net of taxes
during the phase-out period.
9
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) and include the
accounts of Jefferson Pilot Financial Insurance Company and its subsidiaries,
principally Jefferson Pilot LifeAmerica Insurance Company. Significant
intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions affecting the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses for the reporting
period. Those estimates are inherently subject to change and actual results
could differ from those estimates. Included among the material (or potentially
material) reported amounts and disclosures that require extensive use of
estimates are asset valuation allowances, policy liabilities, deferred policy
acquisition costs, value of business acquired and the potential effects of
resolving litigated matters.
Cash and Cash Equivalents
The Company includes with cash and cash equivalents its holdings of short-term
investments which are highly liquid investments that mature within three months
of the date of acquisition.
10
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Invested Assets
Debt and equity securities are classified as securities available-for-sale,
stated at fair value with net unrealized gains and losses included in
accumulated other comprehensive income, net of deferred income taxes and
adjustments to deferred policy acquisition costs and value of business acquired.
Policy loans are carried at the unpaid balances.
Mortgage loans on real estate are stated at the unpaid balances, net of
allowances for unrecoverable amounts. The Company's mortgage loan portfolio is
comprised of conventional real estate mortgages collateralized by retail (27%)
and (28%), apartment (20%) and (21%), industrial (22%) and (12%), hotel (20%)
and (26%), and office (11%) and (13%) properties at December 31, 1999 and 1998,
respectively.
Mortgage loan underwriting standards emphasize the credit status of a
prospective borrower, quality of the underlying collateral and conservative
loan-to-value relationships. Of stated mortgage loan balances as of December 31,
1999 and 1998, 29% and 24% are due from borrowers in South Atlantic states, 21%
and 25% are due from borrowers in West South Central states, 14% and 14% are due
from borrowers in West North Central states, 11% and 5% are due from borrowers
in East North Central states, 8% and 11% are due from borrowers in Mountain
states and 11% and 11% are due from borrowers in Pacific states. No other
geographic region represents as much as 10% of December 31, 1999 and 1998
mortgage loans.
Amortization of premiums and accrual of discounts on investments in debt
securities are reflected in earnings over the contractual terms of the
investments in a manner that produces a constant effective yield. Realized gains
and losses on dispositions of securities are determined by the specific
identification method.
Recognition of Revenues, Benefits, Claims and Expenses:
Universal Life Products
Universal life products include universal life insurance, variable universal
life insurance and other interest-sensitive life insurance policies. Revenues
for universal life products consist of
11
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Universal Life Products (continued)
policy charges for the cost of insurance, policy administration and surrenders
that have been assessed against policy account balances during the period.
Policy fund liabilities for universal life and other interest-sensitive life
insurance policies are computed in accordance with the retrospective deposit
method and represent policy account balances before surrender charges. Policy
fund assets and liabilities for variable universal life insurance are segregated
and recorded as separate account assets and liabilities. Separate account assets
are carried at market values as of the balance sheet date and are invested by
the Company at the direction of the policyholder. Investments are made in
different portfolios in a series fund. Each of the portfolios has specific
investment objectives and the investment income and investment gains and losses
accrue directly to, and investment risk is borne by, the policyholders.
Accordingly, operating results of the separate account are not included in the
consolidated statements of income.
Policy claims that are charged to expense include claims incurred in the period
in excess of related policy account balances. Other policy benefits include
interest credited to universal life and other interest-sensitive life insurance
policies. Interest crediting rates ranged from 4.35% to 6.60% in 1999, 4.2% to
6.85% in 1998, and 4% to 6.875% in 1997.
Investment Products
Investment products include flexible premium annuities, structured settlement
annuities and other supplementary contracts without life contingencies. Revenues
for investment products consist of policy charges for the cost of insurance,
policy administration and surrenders that have been assessed against policy
account balances during the period. Deposits for these products are recorded as
policy fund liabilities, which are increased by interest credited to the
liabilities and decreased by withdrawals and policy charges assessed against the
contract holders. Interest crediting rates generally ranged from 4% to 9.5% in
1999, 4% to 8.15% in 1998, and 3.5% to 6.75% in 1997.
Traditional Life Insurance Products
Traditional life insurance products include those products with fixed and
guaranteed premiums and benefits. Premium revenues for traditional life
insurance are recognized as revenues when due. The liabilities for future policy
benefits are computed by the net level premium method
12
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Traditional Life Insurance Products (continued)
based on estimated future investment yield, mortality and withdrawal experience.
Interest rate assumptions ranged from 2% to 6% in 1999, 2% to 6% in 1998, and 3%
to 9% in 1997. Mortality is calculated principally on an experience multiple
applied to select and ultimate tables in common usage in the industry. Estimated
withdrawals are determined principally based on industry tables. Policy benefits
and claims are charged to expense as incurred.
Accident and Health Insurance
Accident and health insurance premiums are earned on a monthly pro rata basis
over the terms of the policies. Benefits include paid claims plus an estimate
for known claims and claims incurred but not reported as of the balance sheet
date.
Policy and Contract Claims
The liability for policy and contract claims consists of the estimated amount
payable for claims reported but not yet settled, and an estimate of claims
incurred but not reported, which is based on historical experience, adjusted for
trends and circumstances. Management believes that the recorded liability is
sufficient to provide for the associated claims adjustment expenses.
Reinsurance
Reinsurance receivables include amounts recoverable from reinsurers related to
paid benefits and estimated amounts related to unpaid policy and contract
claims, future policy benefits and policyholder contract deposits. The cost of
reinsurance is accounted for over the terms of the underlying reinsured policies
using assumptions consistent with those used to account for the policies.
Deferred Policy Acquisition Costs and Value of Business Acquired
Costs related to obtaining new business, including commissions, certain costs of
underwriting and issuing policies and certain agency office expenses, all of
which vary with and are primarily related to the production of new business,
have been deferred.
Deferred policy acquisition costs for traditional life insurance polices are
amortized over the premium paying periods of the related contracts using the
same assumptions for anticipated premium revenue that are used to compute
liabilities for future policy benefits. For universal life and investment
products, these costs are amortized at a constant rate based on the present
value of the estimated future gross profits to be realized over the terms of the
contracts, not to exceed 25 years.
13
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Deferred Policy Acquisition Costs and Value of Business Acquired(continued)
Value of business acquired represents the actuarially determined present value
of anticipated profits to be realized from life insurance and annuity business
purchased, using the same assumptions used to value the related liabilities.
Amortization of the value of business acquired occurs over the related contract
periods, using current crediting rates to accrete interest and a constant
amortization rate based on the present value of expected future profits.
The carrying amounts of deferred policy acquisition costs and value of business
acquired related to universal life and investment contracts is adjusted to
reflect the effects that the unrealized gains or losses on investments
classified as available-for-sale would have had on the present value of
estimated gross profits had such gains or losses actually been realized. This
adjustment is excluded from income and charged or credited directly to
accumulated other comprehensive income, net of applicable deferred income tax.
The carrying amounts of deferred policy acquisition costs and value of business
acquired are also adjusted for the effect of realized gains and losses.
The carrying amounts of deferred policy acquisition costs and value of business
required are reviewed periodically to determine that the unamortized portion
does not exceed expected recoverable amounts. No impairment adjustments have
been reflected in earnings for the three years ended December 31, 1999.
Cost in Excess of Assets Acquired
The excess of the Parent's purchase price over the fair value of assets
acquired, which has been "pushed down" to the Company level for financial
reporting purposes, is being amortized on a straight-line basis over 35 years.
Carrying amounts are regularly reviewed for indications of value impairment,
with consideration given to financial performance and other relevant factors.
Property and Equipment
Property and equipment used in operations are carried at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line method over the
estimated remaining useful lives of the assets.
14
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Federal Income Taxes
The Company is not included the Parent's consolidated tax return, but instead
files its own return with its wholly-owned subsidiaries.
Deferred income tax assets and liabilities are recorded on the differences
between the tax bases of assets and liabilities and the amounts at which they
are reported in the financial statements. Recorded amounts are adjusted to
reflect changes in income tax rates and other tax law provisions as they become
enacted.
New Accounting Pronouncement
Effective January 1, 2001, the Company will adopt SFAS 133, "Accounting for
Derivative Instruments and for Hedging Activities". SFAS 133 requires companies
to recognize all derivatives on the balance sheet at fair value and establishes
special accounting rules for hedging activities. The effect of the hedge
accounting rules is to permit a company to offset changes in fair value or cash
flows of both the hedged item and hedging instrument in earnings in the same
period. Changes in the fair value of derivatives that do not qualify for hedge
accounting are reported in earnings in the period of the change. Based on the
limited nature of the Company's use of derivatives and hedging activities,
adoption of this pronouncement is not expected to have a material impact on the
Company's financial position or results of operations.
15
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Invested Assets
Aggregate amortized cost, aggregate fair value and gross unrealized gains and
losses of debt securities available-for-sale were as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations and
direct obligations of U.S.
government agencies $ 78,201 $ 409 $ (238) $ 78,372
Corporate bonds 2,106,958 4,379 (92,674) 2,018,663
Obligations of states and
political subdivisions 482 - (127) 355
Mortgage-backed securities 858,096 2,028 (36,848) 823,276
Redeemable preferred stocks 117 10 - 127
-----------------------------------------------------------------------
Total debt securities $3,043,854 $6,826 $(129,887) $2,920,793
=======================================================================
<CAPTION>
December 31, 1998
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations
and direct obligations of
U.S.government agencies $ 107,222 $ 5,675 $ - $ 112,897
Corporate bonds 1,885,666 116,685 (13,787) 1,988,564
Obligations of states and
political subdivisions 9,451 43 (62) 9,432
Mortgage-backed
securities 958,472 33,684 (5,226) 986,930
Redeemable preferred
stocks 1,524 58 - 1,582
----------------- ----------------- ---------------- -----------------
Total debt securities $2,962,335 $ 156,145 $ (19,075) $3,099,405
================= ================= ================ =================
</TABLE>
16
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Invested Assets (continued)
Aggregate amortized cost and aggregate fair value of debt securities at December
31, 1999 by contractual maturity were as follows (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------------------------------
<S> <C> <C>
Due in one year or less $ 37,886 $ 37,876
Due after one year through five years 242,222 240,843
Due after five years through ten years 727,821 694,374
Due after ten years 559,453 541,688
Amounts not due at a single maturity date 1,476,472 1,406,012
-------------------------------------
$3,043,854 $2,920,793
=====================================
</TABLE>
Actual future maturities will differ from the contractual maturities shown
because the issuers of certain debt securities have the right to call or prepay
the amounts due to the Company, with or without penalty.
The sources of net investment income were as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------------------------------ ------------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
------------------------------------------------------------ ------------------------
<S> <C> <C> <C> <C>
Debt securities $226,627 $220,435 $144,632 $75,964
Equity securities 853 863 778 379
Policy loans 18,936 17,369 11,115 5,281
Mortgage loans 28,010 14,354 1,818 267
Other 1,012 3,544 2,242 1,095
------------------------------------------------------------ ------------------------
Gross investment income 275,438 256,565 160,585 82,986
Investment expenses 14,094 10,259 2,404 930
------------------------------------------------------------ ------------------------
Net investment income $261,344 $246,306 $158,181 $82,056
============================================================ ========================
</TABLE>
17
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Invested Assets (continued)
Realized investment gains and (losses) were as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------------------------------ -------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
------------------------------------------------------------ -------------------
<S> <C> <C> <C> <C>
Debt securities $ 2 $1,897 $4,100 $ 918
Equity securities (95) 2,893 447 2,722
Real estate 222 984 241 (167)
Increase in mortgage loan valuation allowance (863) (3,600) - -
Amortization of value of business acquired 14 (898) - -
------------------------------------------------------------ -------------------
$(720) $1,276 $4,788 $3,473
============================================================ ===================
</TABLE>
Information about gross realized gains and losses on available-for-sale
securities transactions is as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
-------------------------------------------------------- ---------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
-------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Gross realized:
Gains $ 2,725 $ 5,913 $ 8,431 $ 6,049
Losses (2,818) (1,123) (3,884) (2,409)
-------------------------------------------------------- ---------------------
Net realized gains (losses) on available
for sale securities $ (93) $ 4,790 $ 4,547 $3,640
======================================================== =====================
</TABLE>
18
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Invested Assets (continued)
The changes in unrealized gains and (losses) on securities classified as
available-for-sale for the Company were as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------------------------------- ------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in equity securities $ (966) $ (1,593) $ 3,897 $ (3,488)
Change in debt securities (260,130) 22,682 114,400 (29,369)
Change in deferred policy acquisition cost adjustment - - - 15,305
Change in value of business acquired adjustment 139,974 (8,519) (66,094) 1,080
-----------------------------------------------------------------------
(121,122) 12,570 52,203 (16,472)
Deferred income taxes 42,393 (4,399) (18,271) 5,764
-----------------------------------------------------------------------
Change in net unrealized gains $ (78,729) $ 8,171 $ 33,932 $(10,708)
=======================================================================
</TABLE>
The Company participates in a securities lending program. The Company generally
receives cash collateral in an amount that is in excess of the market value of
the securities loaned. Market values of securities loaned and collateral are
monitored daily, and additional collateral is obtained as necessary. At December
31, 1999, the market value of securities loaned and collateral received amounted
to $25.6 million and $26.2 million, respectively. At December 31, 1998, the
market value of securities loaned and collateral received amounted to $56.9
million and $58.8 million, respectively.
The allowance for credit losses on mortgage loans increased from $0 at December
31, 1997 to $3.6 at December 31, 1998, and to $4.5 million at December 31, 1999.
19
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Derivatives
Use of Derivatives
The Company's investment policy permits the use of derivative financial
instruments such as interest rate swaps in certain circumstances. At December
31, 1999 and 1998, such interest rate swaps are held to modify specific
floating-rate direct investments. The notional amount is $60 million at December
31, 1999 and 1998, with the Company receiving an average fixed rate of 7.45% in
both years and paying an average floating rate of 5.39% and 5.32%,
resepectively, based primarily on the 3 month and 6 month LIBOR rates.
The interest rate swaps are used to reduce the impact of interest rate
fluctuations on specific floating-rate direct investments. Interest is exchanged
periodically on the notional value, with the Company receiving a fixed rate and
paying a short-term LIBOR rate on a net exchange basis. The net amount received
or paid under swaps is reflected as an adjustment to investment income. All of
the hedges are of investments classified as available-for-sale, and net
unrealized gains and losses, net of the effects of income taxes and the impact
on deferred policy acquisition costs and the value of business acquired, are not
significant and are included in accumulated other comprehensive income in
stockholder's equity as of December 31, 1999 and 1998.
Credit and Market Risk
The Company is exposed to credit risk in the event of non-performance by
counterparties to swap agreements. The Company limits this exposure by entering
into swap agreements with counterparties having high credit ratings and by
regularly monitoring the ratings.
The Company's credit exposure on swaps is limited to the fair value of swap
agreements that are favorable to the Company. The Company does not expect any
counterparty to fail to meet its obligation; however, non-performance would not
have a material adverse effect on the Company's financial position or results of
operations.
The Company's exposure to market risk is mitigated by the offsetting effects of
changes in the value of swap agreements and the related direct investments. The
Company routinely monitors correlation between hedged items and hedging
instruments. In the event a hedge relationship is terminated or loses
correlation, any related hedging instrument that remained would be
marked-to-market through income. If the hedging instrument is terminated, any
gain or loss is deferred and amortized over the remaining life of the hedged
asset.
20
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Deferred Policy Acquisition Costs and Value of Business Acquired
Policy acquisition costs deferred and the related amortization charged to income
were as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------------------------------ ------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April
30,
1999 1998 1997 1997
------------------------------------------------------ ------------------
<S> <C> <C> <C> <C>
Beginning balance $112,959 $ 38,200 $ - $644,653
Deferral:
Commissions 85,032 58,374 26,240 37,512
Other 24,964 21,766 13,179 6,589
------------------------------------------------------ ------------------
109,996 80,140 39,419 44,101
Amortization (14,746) (5,381) (1,219) (36,194)
Change in adjustment to reflect the
effects of unrealized gains on
securities - - - 15,305
------------------------------------------------------ ------------------
Ending balance $208,209 $112,959 $38,200 $667,865
====================================================== ==================
Changes in the value of business acquired were as follows (in thousands):
<CAPTION>
Successor Predecessor
----------------------------------------------------- -----------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
----------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Beginning balance $402,176 $418,665 $481,600 $ 34,460
Deferral of commissions and accretion
of interest 17,030 33,617 34,929 -
Amortization (48,369) (51,952) (31,770) (1,284)
Adjustment related to purchase
accounting adjustments - 11,263 - -
Adjustment related to realized gains on
debt securities 14 (898) - -
Adjustment related to unrealized gains on
securities available-for-sale 139,974 (8,519) (66,094) 1,080
----------------------------------------------------- -----------------
Ending balance $510,825 $402,176 $418,665 $ 34,256
===================================================== =================
</TABLE>
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Deferred Policy Acquisition Costs and Value of Business Acquired (continued)
Expected approximate amortization percentages of the value of business acquired
as of December 31, 1999 over the next five years were as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 10.3%
2001 9.0%
2002 8.1%
2003 7.2%
2004 6.4%
</TABLE>
6. Federal Income Taxes
The tax effects of temporary differences that gave rise to deferred income tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
<S> <C> <C>
Deferred income tax assets:
Future policy benefits and policy fund balances $123,034 $138,869
Net unrealized losses on securities 19,721 -
Deferred policy acquisition costs - 26,771
Other 31,259 25,897
---------------------------------
Total 174,014 191,537
Deferred income tax liabilities:
Value of business acquired 124,918 141,847
Net unrealized gains on securities - 22,671
Other 26,408 24,205
---------------------------------
Total 151,326 188,723
---------------------------------
Net deferred income tax asset $ 22,688 $ 2,814
=================================
</TABLE>
22
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Federal Income Taxes (continued)
Under prior federal income tax law, one-half of the excess of a life insurance
company's income from operations over its taxable investment income was not
taxed, but was set aside in a special tax account designated as "Policyholders'
Surplus". The Company has approximately $13.5 million of untaxed "Policyholders'
Surplus" on which no payment of federal income taxes will be required unless it
is distributed as a dividend, or under other specified conditions. The Clinton
administration is proposing to tax, as part of its 2001 budget initiative, the
"Policyholders' Surplus" over a five-year period. No related deferred tax
liability has been recognized for the potential tax which would approximate $4.7
million under current proposed rates.
Federal income taxes paid in 1999 and 1998 were $19.3 million and $29 million,
respectively. Federal income taxes paid in 1997, including amounts remitted to
the Predecessor's parent for its share of income taxes, were $30.7 million for
the Successor and $24.1 million for the Predecessor.
7. Pensions
The Company's employees participate in the Parent's defined benefit pension
plans covering substantially all employees. The plans are noncontributory and
are funded through group annuity contracts issued by Jefferson-Pilot Life
Insurance Company, an affiliate. The assets of the plan are those of the related
contracts, and are primarily held in the separate accounts of Jefferson-Pilot
Life Insurance Company. The plans provide benefits based on annual compensation
and years of service. The funding policy is to contribute annually no more than
the maximum amount deductible for federal income tax purposes. The plans are
administered by the Parent.
Pension costs allocated to the Company were $1.5 million and $2.2 million for
1999 and 1998, respectively. Pension costs allocated to the Successor for the
eight months ended December 31, 1997 were $1.7 million. Pension costs allocated
to the Predecessor from its Parent for the four months ended April 30, 1997 were
not significant.
Terms of the acquisition agreement between the Parent and The Chubb Corporation
specified that The Chubb Corporation would assume all responsibilities for
pension costs through the acquisition. As such, the Company paid The Chubb
Corporation approximately $3.5 million representing the present value of all
future pension costs as of April 30, 1997. The difference between the amount
remitted to The Chubb Corporation and the liability recorded at April 30, 1997,
was recorded as a settlement gain for the Predecessor of approximately $300
thousand.
23
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Other Postretirement Benefits
The Company provides certain other postretirement benefits, principally health
care and life insurance, to retired employees and their beneficiaries and
covered dependents. Postretirement costs of the Company that were allocated from
the Parent amounted to approximately $116 thousand and $200 thousand for the
years ended December 31, 1999 and 1998. Prior to the acquisition, the Company
had recorded a postretirement benefit obligation of approximately $24.2 million,
representing all of the expected costs of retirees, vested active plan
participants, and other non-vested plan participants. As part of the
acquisition, The Chubb Corporation assumed all liabilities relating to these
postretirement benefits without any cash transferring to The Chubb Corporation.
The result of this assumption of the liabilities was a settlement gain of
approximately $24 million for the Predecessor. This gain is included in the
statement of income as a reduction to commissions and operating expenses, net of
deferrals.
9. Commitments and Contingent Liabilities
The Company leases electronic data processing equipment and field office space
under noncancelable operating lease agreements. The lease terms generally range
from three to five years. Neither annual rent nor future rental commitments are
significant.
The Company routinely enters into commitments to extend credit in the form of
mortgage loans and to purchase certain debt securities for its investment
portfolio in private placement transactions. The fair value of outstanding
commitments to fund mortgage loans and to acquire debt securities in private
placement transactions, which are not reflected in the consolidated balance
sheet, approximates $1.6 million as of December 31, 1999.
In the normal course of business, the Company and its subsidiary are parties to
various lawsuits. Because of the considerable uncertainties that exist, the
Company cannot predict the outcome of pending or future litigation. However,
management believes that the resolution of pending legal proceedings will not
have a material adverse effect on the Company's financial position or results of
operations.
24
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Reinsurance
The Company attempts to reduce its exposure to significant individual claims by
reinsuring portions of certain life insurance contracts written. The maximum
amount of individual life insurance retained on any one life, including
accidental death benefits, is $1.5 million.
The effect of reinsurance on the premiums and policy benefits in the
consolidated statements of income were as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
----------------------------------------------------- ------------------
Eight months Four months
ended ended
Year ended December 31, December 31, April 30,
1999 1998 1997 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct premiums and other considerations $382,529 $372,244 $248,903 $124,039
Less premiums and other
considerations ceded 65,314 86,575 14,976 7,063
Plus premiums and other
considerations assumed - 30,268 1,320 409
--------------------------------------------------------------------------
Net premiums and other
considerations $317,215 $315,937 $235,247 $117,385
==========================================================================
Policy benefits and claims ceded $ 53,398 $105,600 $ 26,329 $ 11,929
</TABLE>
Reinsurance contracts do not relieve the Company from its primary obligation to
policyholders. Therefore, the failure of a reinsurer to discharge its
reinsurance obligations could result in a loss to the Company. The Company
regularly evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk related to reinsurance activities. No significant
credit losses resulted from the Company's reinsurance activities during the
three years ended December 31, 1999.
As of December 31, 1999 and 1998, the Company had a reinsurance recoverable of
$87 million and $95 million, respectively, from a single reinsurer, pursuant to
a 50% coinsurance agreement. The Company and the reinsurer are joint and equal
owners in $191 million of securities and short-term investments as of December
31, 1999 and 1998, respectively, 50% of which are included in investments in the
accompanying consolidated balance sheets.
25
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Statutory Financial Information
The Company prepares financial statements on the basis of statutory accounting
practices (SAP) prescribed or permitted by the New Hampshire Department of
Insurance. Prescribed SAP include a variety of publications of the National
Association of Insurance Commissioners (NAIC) as well as state laws, regulations
and administrative rules. Permitted SAP encompass all accounting practices not
so prescribed. The impact of permitted accounting practices on statutory capital
and surplus is not significant for the Company.
The principal differences between SAP and generally accepted accounting
principles (GAAP) as they relate to the financial statements of the Company are
(1) policy acquisition costs are expensed as incurred under SAP, whereas they
are deferred and amortized under GAAP, (2) amounts collected from holders of
universal life-type and investment products are recognized as premiums when
collected under SAP, but are initially recorded as contract deposits under GAAP,
with cost of insurance recognized as revenue when assessed and other contract
charges recognized over the periods for which services are provided, (3) the
classification and carrying amounts of investments in certain securities are
different under SAP than under GAAP, (4) the criteria for providing asset
valuation allowances, and the methodologies used to determine the amounts
thereof, are different under SAP than under GAAP, (5) the timing of establishing
certain reserves, and the methodologies used to determine the amounts thereof,
are different under SAP than under GAAP, (6) no provision is made for deferred
income taxes under SAP, and (7) certain assets are not admitted for purposes of
determining surplus under SAP.
Reported capital and surplus on a statutory basis at December 31, 1999 and 1998
was $307.8 million and $350.9 million. Reported statutory net income for the
years ended December 31, 1999, 1998, and 1997 was $73.5 million, $90.7 million,
and $151.4 million, respectively.
The amount of GAAP equity in excess of statutory surplus is unavailable for
distribution. In addition, various state insurance laws restrict the Company and
its insurance subsidiary as to the amount of dividends from statutory surplus
they may pay without the prior approval of regulatory authorities. The
restrictions generally are based on net gains from operations and on certain
levels of surplus as determined in accordance with statutory accounting
practices. Dividends in excess of such thresholds are considered "extraordinary"
and require prior regulatory approval.
26
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Statutory Financial Information (continued)
Risk-Based Capital ("RBC") requirements promulgated by the NAIC require life
insurers to maintain minimum capitalization levels that are determined based on
formulas incorporating credit risk, insurance risk, interest rate risk and
general business risk. As of December 31, 1999 and 1998, the Company's adjusted
capital and surplus exceeded its authorized control level RBC.
The NAIC Codification of Statutory Accounting Principles (Codification) has been
completed. The purpose of Codification is to create uniformity in statutory
financial reporting across states. Codification must be adopted by individual
states before it will have any bearing on the statutory reporting requirements
of their domiciliary companies. The NAIC is encouraging the states to adopt
Codification as soon as possible, with an implementation date of January 1,
2001. The Company does not expect implementation to have a material impact on
its statutory surplus; however, implementation is expected to result in a net
reduction of statutory surplus and RBC throughout the insurance industry.
12. Transactions with Affiliated Companies
The Company has entered into service agreements with the Parent and other
subsidiaries of the Parent for personnel and facilities usage, general
management services and investment management services. The Company expensed $62
million, $69.9 million, and $2.8 million in 1999, 1998, and 1997, for general
management and investment services provided by Jefferson-Pilot Life Insurance
Company, of which $35.5 million and $55.6 million remained payable at December
31, 1999 and 1998, respectively. The remainder of the payables to affiliates at
December 31, 1999 and 1998 was due to other affiliates.
The Predecessor paid its parent, The Chubb Corporation, $2.0 million for general
management services and investment services for the four months ended April 30,
1997.
13. Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted market prices where
available. Fair values of financial instruments for which quoted market prices
are not available are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rates and the estimates of future cash flows. Certain
financial instruments, particularly insurance contracts, are excluded from fair
value disclosure requirements.
27
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Fair Values of Financial Instruments (continued)
The methods and assumptions used to estimate the fair value of financial
instruments are as follows:
o Fair values of debt securities with active markets are based
on quoted market prices. For debt securities that trade in
less active markets, fair values are obtained from independent
pricing services. Fair values of debt securities are
principally a function of current interest rates.
o Fair values of equity securities are based on quoted market
prices.
o The carrying value of cash and cash equivalents approximates
fair value due to the short maturities of these assets.
o Fair values of policy loans and mortgage loans are estimated
using discounted cash flow analyses.
o Fair values of separate account assets and liabilities are
reflected in the consolidated balance sheets.
o Fair values of securities sold under repurchase agreements
approximate carrying values, which include accrued interest.
The carrying value and fair value of financial instruments were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Debt securities available-for-sale $2,920,793 $2,920,793 $3,099,405 $3,099,405
Equity securities available-for-sale 9,686 9,686 10,668 10,668
Cash and cash equivalents 49,158 49,158 6,514 6,514
Policy loans 267,335 327,025 246,290 290,024
Mortgage loans on real estate 441,836 411,008 282,355 293,597
Financial Liabilities
Securities sold under repurchase agreements 166,570 166,570 102,130 102,130
</TABLE>
28
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Fair Values of Financial Instruments (continued)
Securities sold under repurchase agreements with a single counterparty, Credit
Suisse First Boston Corporation, totaled $101.5 million at December 31, 1999,
and had an average maturity date of March 8, 2000.
14. Other Comprehensive Income
Comprehensive income and its components are displayed in the accompanying
Statement of Stockholder's Equity. Currently, the only element of other
comprehensive income applicable to the Company is changes in unrealized gains
and losses on securities classified as available-for-sale, which are displayed
in the following table, along with related tax effects. See Note 3 for further
detail of changes in unrealized gains on securities available-for-sale (in
thousands):
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------------------------------- -------------------
Eight months Four months ended
ended December April 30,
Year ended December 31, 31,
1999 1998 1997 1997
---------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Unrealized holding (losses) gains arising
during period, before taxes $(121,200) $16,463 $56,751 $(12,834)
Income taxes 42,420 (5,762) (19,863) 4,492
---------------------------------------------------- -------------------
Unrealized holding (losses) gains arising
during period, net of taxes (78,780) 10,701 36,888 (8,342)
Less reclassification adjustment:
(Losses) gains realized in net income, before
taxes (79) 3,892 4,547 3,640
Income taxes 28 (1,362) (1,591) (1,274)
---------------------------------------------------- -------------------
Reclassification adjustment for (losses)
gains realized in net income (51) 2,530 2,956 2,366
---------------------------------------------------- -------------------
Other comprehensive income - net unrealized
(losses) gains $ (78,729) $ 8,171 $33,932 $(10,708)
==================================================== ===================
</TABLE>
29
<PAGE>
Jefferson Pilot Financial Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Impact of Year 2000 (Unaudited)
The Company's administrative and financial reporting systems are shared among
numerous insurance affiliates within the consolidated Jefferson-Pilot
Corporation group. In prior years, the Parent discussed the nature and progress
of its plans to become Year 2000 ready. In late 1999, the Parent completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Parent experienced no significant disruptions in
critical information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Parent expensed approximately $20.6
million to date in connection with remediating its systems. The Parent is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Parent will continue to monitor its critical computer applications and those
of its vendors throughout the Year 2000 to ensure that any latent Year 2000
matters that arise are addressed promptly.
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Contractholders of JPF Separate Account A
JPF Separate Account A
The Board of Directors, JPF Separate Account A
We have audited the accompanying statements of assets and liabilities of the JPF
Separate Account A as of December 31, 1999, and the related statements of
operations and changes in net assets for each of the periods indicated therein.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the fund managers. 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JPF Separate Account A at
December 31, 1999, and the results of its operations and the changes in its net
assets for the periods indicated therein in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 23, 2000
F-16
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JPF SEPARATE ACCOUNT A
December 31, 1999
<TABLE>
<CAPTION>
JPVF JPVF JPVF
International World Global
Equity Growth Stock Hard Assets
Division Division Division
--------------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Investments at cost ....................... $ 16,851,415 $102,201,447 $6,226,361
============ ============ ==========
Investments at market value ............... $ 21,417,249 $127,656,364 $5,498,877
Net premiums receivable (payable) ......... 4,149 (98,543) (3,488)
------------ ------------ ----------
TOTAL NET ASSETS ...................... $ 21,421,398 $127,557,821 $5,495,389
============ ============ ==========
NET ASSET DISTRIBUTION
Ensemble ................................ $ 1,998,819 $ 79,803
Ensemble II ............................. $ 21,421,398 125,559,002 5,415,586
------------ ------------ ----------
TOTAL NET ASSETS ...................... $ 21,421,398 $127,557,821 $5,495,389
============ ============ ==========
UNITS OUTSTANDING
Ensemble ................................ 38,941 8,506
Ensemble II ............................. 1,324,511 2,539,786 599,530
NET ASSET VALUE PER UNIT
Ensemble ................................ $ 51.331 $ 9.382
Ensemble II ............................. $ 16.174 $ 49.441 $ 9.034
<CAPTION>
JPVF JPVF JPVF
Emerging Capital Small JPVF
Growth Growth Company Growth
Division Division Division Division
----------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost ....................... $ 68,466,574 $ 163,241,350 $86,427,896 $ 14,656,170
============= ============= =========== ============
Investments at market value ............... $ 150,071,069 $ 313,132,843 $90,708,885 $ 21,821,774
Net premiums receivable (payable) ......... 111,456 186,518 (32,214) 82,843
------------- ------------- ----------- ------------
TOTAL NET ASSETS ...................... $ 150,182,525 $ 313,319,361 $90,676,671 $ 21,904,617
============= ============= =========== ============
NET ASSET DISTRIBUTION
Ensemble ................................ $ 606,977
Ensemble II ............................. $ 150,182,525 $ 313,319,361 90,069,694 $ 21,904,617
------------- ------------- ----------- ------------
TOTAL NET ASSETS ...................... $ 150,182,525 $ 313,319,361 $90,676,671 $ 21,904,617
============= ============= =========== ============
UNITS OUTSTANDING
Ensemble ................................ 13,010
Ensemble II ............................. 3,524,253 5,025,427 2,005,820 940,853
NET ASSET VALUE PER UNIT
Ensemble ................................ $ 46.658
Ensemble II ............................. $ 42.617 $ 62.351 $ 44.908 $ 23.283
</TABLE>
See notes to financial statements.
F-17
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--(Continued)
JPF SEPARATE ACCOUNT A
December 31, 1999
<TABLE>
<CAPTION>
JPVF
Growth & JPVF JPVF
Income Balanced High Yield
Division Division Division
-------------- ---------------- --------------
<S> <C> <C> <C>
ASSETS
Investments at cost ................. $51,407,209 $ 33,635,926 $5,701,471
=========== ============ ==========
Investments at market value ......... $59,159,239 $ 42,340,461 $5,289,222
Accrued investment income ........... -- -- 434,055
Net premiums receivable ............. (30,855) 10,802 (5,770)
----------- ------------ ----------
TOTAL NET ASSETS ................ $59,128,384 $ 42,351,263 $5,717,507
=========== ============ ==========
NET ASSET DISTRIBUTION
Ensemble .......................... --
Ensemble II ....................... $59,128,384 $ 42,351,263 $5,717,507
----------- ------------ ----------
TOTAL NET ASSETS ................ $59,128,384 $ 42,351,263 $5,717,507
=========== ============ ==========
UNITS OUTSTANDING
Ensemble ..........................
Ensemble II ....................... 2,051,583 1,696,392 552,664
NET ASSET VALUE PER UNIT
Ensemble ..........................
Ensemble II ....................... $ 28.823 $ 24.967 $ 10.346
<CAPTION>
JPVF Fidelity Fidelity
Money VIP II VIP Fidelity
Market Contrafund Equity Income VIP Growth
Division Division Division Division
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost ................. $ 23,308,344 $ 47,379,961 $ 9,295,439 $ 35,954,839
============ ============ =========== ============
Investments at market value ......... $ 23,799,898 $ 64,970,351 $ 9,348,655 $ 45,268,975
Accrued investment income ........... -- -- -- --
Net premiums receivable ............. 111,369 30,150 258,023 179,000
------------ ------------ ----------- ------------
TOTAL NET ASSETS ................ $ 23,911,267 $ 65,000,501 $ 9,606,678 $ 45,447,975
============ ============ =========== ============
NET ASSET DISTRIBUTION
Ensemble .......................... $ 30,774
Ensemble II ....................... 23,880,493 $ 65,000,501 $ 9,606,678 $ 45,447,975
------------ ------------ ----------- ------------
TOTAL NET ASSETS ................ $ 23,911,267 $ 65,000,501 $ 9,606,678 $ 45,447,975
============ ============ =========== ============
UNITS OUTSTANDING
Ensemble .......................... 1,652
Ensemble II ....................... 1,331,669 2,985,507 809,036 2,383,455
NET ASSET VALUE PER UNIT
Ensemble .......................... $ 18.632
Ensemble II ....................... $ 17.934 $ 21.774 $ 11.875 $ 19.070
</TABLE>
See notes to financial statements.
F-18
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--(Continued)
JPF SEPARATE ACCOUNT A
December 31, 1999
<TABLE>
<CAPTION>
Fidelity Fidelity
VIP VIP II MFS
High Income Index 500 Research
Division Division Division
------------- ----------------- ----------------
<S> <C> <C> <C>
ASSETS
Investments at cost ....................... $1,920,397 $ 88,763,029 $ 8,640,649
========== ============= ============
Investments at market value ............... $1,757,092 $ 118,016,279 $ 10,681,214
Net premiums receivable (payable) ......... (1,234) 34,569 23,798
---------- ------------- ------------
TOTAL NET ASSETS ...................... $1,755,858 $ 118,050,848 $ 10,705,012
========== ============= ============
NET ASSET DISTRIBUTION
Ensemble ................................
Ensemble II ............................. $1,755,858 $ 118,050,848 $ 10,705,012
---------- ------------- ------------
TOTAL NET ASSETS ...................... $1,755,858 $ 118,050,848 $ 10,705,012
========== ============= ============
UNITS OUTSTANDING
Ensemble ................................
Ensemble II ............................. 137,722 5,182,440 703,899
NET ASSET VALUE PER UNIT
Ensemble ................................
Ensemble II ............................. $ 12.750 $ 22.781 $ 15.209
<CAPTION>
MFS Oppenheimer Oppenheimer Templeton
Utilities Bond Strategic Bond International
Division Division Division Division
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost ....................... $ 10,400,906 $ 20,267,178 $3,031,062 $57,221,420
============ ============ ========== ===========
Investments at market value ............... $ 12,769,955 $ 19,430,460 $3,033,798 $68,583,089
Net premiums receivable (payable) ......... 3,857 1,630 (77,951) (38,659)
------------ ------------ ---------- -----------
TOTAL NET ASSETS ...................... $ 12,773,812 $ 19,432,090 $2,955,847 $68,544,430
============ ============ ========== ===========
NET ASSET DISTRIBUTION
Ensemble ................................ $ 26,936
Ensemble II ............................. $ 12,773,812 19,405,154 $2,955,847 $68,544,430
------------ ------------ ---------- -----------
TOTAL NET ASSETS ...................... $ 12,773,812 $ 19,432,090 $2,955,847 $68,544,430
============ ============ ========== ===========
UNITS OUTSTANDING
Ensemble ................................ 1,217
Ensemble II ............................. 814,809 910,153 288,268 3,342,285
NET ASSET VALUE PER UNIT
Ensemble ................................ $ 22.139
Ensemble II ............................. $ 15.678 $ 21.322 $ 10.255 $ 20.510
</TABLE>
See notes to financial statements.
F-19
<PAGE>
STATEMENT OF OPERATIONS
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF
International
Equity
Division
-----------------------------------
Period from JPVF World Growth Stock Division
January 15, 1998(a) -------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, -------------------------------------------
1999 1998 1999 1998 1997
-------------- -------------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income ................................ $ -- $ -- $ 359,571 $2,325,200 $ 2,476,350
Distributions of realized gains ................ -- 27,704 1,324,887 7,901,423 13,293,185
---------- -------- ----------- ---------- -----------
-- 27,704 1,684,458 10,226,623 15,769,535
Expenses:
Mortality and expense risk charge .............. 129,696 29,866 1,061,262 1,080,424 1,001,394
---------- -------- ----------- ---------- -----------
Net investment income (loss) ................. (129,696) (2,162) 623,196 9,146,199 14,768,141
---------- -------- ----------- ---------- -----------
Gain (loss) on investments:
Net realized gain (loss) on investments ........ 720,386 (1,410) 1,558,287 1,498,732 1,393,920
Change in net unrealized gain (loss)
on investments ................................ 4,015,470 550,363 19,480,089 (8,293,399) (2,140,961)
---------- -------- ----------- ---------- -----------
Net gain (loss) on investments ................. 4,735,856 548,953 21,038,376 (6,794,667) (747,041)
---------- -------- ----------- ---------- -----------
Increase (decrease) in
net assets from operations .................... $4,606,160 $546,791 $21,661,572 $2,351,532 $14,021,100
========== ======== =========== ========== ===========
<CAPTION>
JPVF Global Hard Assets Division
----------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
Investment Income:
Dividend income ................................. $ 5,738 $ 72,099 $ 52,180
Distributions of realized gains ................. -- -- 154,999
---------- ---------- -----------
5,738 72,099 207,179
Expenses:
Mortality and expense risk charge ............... 51,987 43,859 60,762
---------- ---------- -----------
Net investment income (loss) .................. (46,249) 28,240 146,417
---------- ---------- -----------
Gain (loss) on investments:
Net realized gain (loss) on investments ......... (1,083,450) (826,362) (1,020,911)
Change in net unrealized gain (loss)
on investments ................................. 1,807,479 121,013 (2,862,423)
---------- ---------- -----------
Net gain (loss) on investments .................. 724,029 (705,349) (3,883,334)
---------- ---------- -----------
Increase (decrease) in
net assets from operations ..................... $ 677,780 $ (677,109) $(3,736,917)
========== ========== ===========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-20
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF Emerging Growth Division
-------------------------------------------
Year Ended December 31,
-------------------------------------------
1999 1998 1997
--------------- -------------- ------------
<S> <C> <C> <C>
Investment Income:
Dividend income ................................ $ -- $ -- $ --
Distributions of realized gains ................ -- 562,053 2,355,925
----------- ----------- ----------
-- 562,053 2,355,925
Expenses:
Mortality and expense risk charge .............. 821,544 549,991 341,819
----------- ----------- ----------
Net investment income (loss) ................. (821,544) 12,062 2,014,106
----------- ----------- ----------
Gain on investments:
Net realized gain on investments ............... 3,161,020 1,477,889 528,900
Change in net unrealized gain on investments ... 59,901,442 16,294,927 3,845,746
----------- ----------- ----------
Net gain on investments ........................ 63,062,462 17,772,816 4,374,646
----------- ----------- ----------
Increase in net assets from operations ....... $62,240,918 $17,784,878 $6,388,752
=========== =========== ==========
<CAPTION>
JPVF Capital Growth Division
--------------------------------------------
Year Ended December 31,
--------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Investment Income:
<S> <C> <C> <C>
Dividend income ................................ $ -- $ -- $ 21,278
Distributions of realized gains ................ 5,837,977 9,631,854 5,556,589
----------- ----------- -----------
5,837,977 9,631,854 5,577,867
Expenses:
Mortality and expense risk charge .............. 2,091,275 1,396,476 962,680
----------- ----------- -----------
Net investment income (loss) ................. 3,746,702 8,235,378 4,615,187
----------- ----------- -----------
Gain on investments:
Net realized gain on investments ............... 1,944,106 2,650,023 827,249
Change in net unrealized gain on investments ... 85,575,214 38,211,343 19,770,192
----------- ----------- -----------
Net gain on investments ........................ 87,519,320 40,861,366 20,597,441
----------- ----------- -----------
Increase in net assets from operations ....... $91,266,022 $49,096,744 $25,212,628
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-21
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF
Growth
Division
-----------------------------------
JPVF Small Company Division Period from
----------------------------------------------- January 20, 1998(a)
Year Ended December 31, Year Ended to
----------------------------------------------- December 31, December 31,
1999 1998 1997 1999 1998
--------------- ---------------- -------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income .......................... $ 102,370 $ 888,637 $ 377,561 $ -- $ --
Distributions of realized gains .......... 1,905,734 7,682,840 7,681,445 36,111 --
------------ ------------- ----------- ---------- ---------
2,008,104 8,571,477 8,059,006 36,111 --
Expenses:
Mortality and expense risk charge ........ 698,842 791,529 717,430 63,641 6,809
------------ ------------- ----------- ---------- ---------
Net investment income (loss) ........... 1,309,262 7,779,948 7,341,576 (27,530) (6,809)
------------ ------------- ----------- ---------- ---------
Gain (loss) on investments:
Net realized gain (loss) on investments .. (1,289,759) 939,643 1,112,075 101,362 (46,655)
Change in net unrealized gain (loss)
on investments .......................... 10,478,964 (20,294,880) 7,517,633 6,934,317 231,287
------------ ------------- ----------- ---------- ---------
Net gain (loss) on investments ........... 9,189,205 (19,355,237) 8,629,708 7,035,679 184,632
------------ ------------- ----------- ---------- ---------
Increase (decrease) in
net assets from operations ............ $ 10,498,467 $ (11,575,289) $15,971,284 $7,008,149 $ 177,823
============ ============= =========== ========== =========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-22
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF Growth & Income Division JPVF Balanced Division
------------------------------------------- ----------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend income ......................... $ -- $ 404,228 $ 294,059 $ 6,369 $ 554,007 $ 547,519
Distributions of realized gains ......... 408,080 -- 8,675,134 589,559 2,074,977 3,433,962
---------- ---------- ------------- ---------- ---------- ----------
408,080 404,228 8,969,193 595,928 2,628,984 3,981,481
Expenses:
Mortality and expense risk charge ....... 513,429 435,459 298,852 322,184 256,295 199,545
---------- ---------- ------------- ---------- ---------- ----------
Net investment income (loss) .......... (105,349) (31,231) 8,670,341 273,744 2,372,689 3,781,936
---------- ---------- ------------- ---------- ---------- ----------
Gain (loss) on investments:
Net realized gain (loss) on investments . 1,036,064 781,929 763,718 250,283 111,626 125,127
Change in net unrealized gain (loss)
on investments ......................... 1,596,857 4,120,409 (1,791,862) 6,776,884 1,976,202 (829,904)
---------- ---------- ------------- ---------- ---------- ----------
Net gain (loss) on investments .......... 2,632,921 4,902,338 (1,028,144) 7,027,167 2,087,828 (704,777)
---------- ---------- ------------- ---------- ---------- ----------
Increase (decrease) in
net assets from operations ........... $2,527,572 $4,871,107 $ 7,642,197 $7,300,911 $4,460,517 $3,077,159
========== ========== ============= ========== ========== ==========
<CAPTION>
JPVF High Yield
Division
----------------------------------
Period from
January 8, 1998(a)
Year Ended to
December 31, December 31,
1999 1998
-------------- -------------------
<S> <C> <C>
Investment Income:
Dividend income ......................... $ 434,055 $ 296,661
Distributions of realized gains ......... -- --
----------- ----------
434,055 296,661
Expenses:
Mortality and expense risk charge ....... 55,669 32,443
----------- ----------
Net investment income (loss) .......... 378,386 264,218
----------- ----------
Gain (loss) on investments:
Net realized gain (loss) on investments . (40,844) (77,480)
Change in net unrealized gain (loss)
on investments ......................... (124,383) (287,866)
----------- ----------
Net gain (loss) on investments .......... (165,227) (365,346)
----------- ----------
Increase (decrease) in
net assets from operations ........... $ 213,159 $ (101,128)
=========== ==========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-23
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF Money Market Division Fidelity VIP II Contrafund Division
------------------------------------- ----------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
------------- ----------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend income ............................ $ -- $507,941 $ 425,055 $ 215,838 $ 141,812 $ 53,570
Distributions of realized gains ............ -- -- -- 1,582,814 1,043,329 141,577
----------- -------- --------- ----------- ---------- ----------
-- 507,941 425,055 1,798,652 1,185,141 195,147
Expenses:
Mortality and expense risk charge .......... 177,261 111,692 90,263 461,629 246,378 112,772
----------- -------- --------- ----------- ---------- ----------
Net investment income (loss) ............. (177,261) 396,249 334,792 1,337,023 938,763 82,375
----------- -------- --------- ----------- ---------- ----------
Gain (loss) on investments:
Net realized gain (loss) on investments..... 142,086 53,452 61,042 1,161,891 381,646 143,362
Change in net unrealized gain (loss)
on investments ............................ 740,327 20,157 (11,529) 9,007,322 6,265,813 1,928,296
----------- -------- --------- ----------- ---------- ----------
Net gain (loss) on investments ............. 882,413 73,609 49,513 10,169,213 6,647,459 2,071,658
----------- -------- --------- ----------- ---------- ----------
Increase in net assets
from operations ......................... $ 705,152 $469,858 $ 384,305 $11,506,236 $7,586,222 $2,154,033
=========== ======== ========= =========== ========== ==========
<CAPTION>
Fidelity
VIP Equity Income
Division
----------------------------------
Period from
January 8, 1998(a)
Year Ended to
December 31, December 31,
1999 1998
-------------- -------------------
<S> <C> <C>
Investment Income:
Dividend income ............................ $ 69,348 $ 8,570
Distributions of realized gains ............ 153,295 30,500
----------- -----------
222,643 39,070
Expenses:
Mortality and expense risk charge .......... 67,673 38,308
----------- -----------
Net investment income (loss) ............. 154,970 762
----------- -----------
Gain (loss) on investments:
Net realized gain (loss) on investments..... 85,743 (114,816)
Change in net unrealized gain (loss)
on investments ............................ (139,539) 192,755
----------- -----------
Net gain (loss) on investments ............. (53,796) 77,939
----------- -----------
Increase in net assets
from operations ......................... $ 101,174 $ 78,701
=========== ===========
</TABLE>
(a) Commencement of operations.
See notes to financial statements.
F-24
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
Fidelity
VIP Growth
Division
----------------------------------
Period from Fidelity VIP High Income Division
January 8, 1998(a) ---------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, ---------------------------------------
1999 1998 1999 1998 1997
-------------- ------------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income ........................ $ 17,820 $ 141 $ 224,955 $ 398,490 $248,474
Distributions of realized gains ........ 1,120,427 3,709 8,409 253,207 30,711
---------- ---------- ----------- ---------- --------
1,138,247 3,850 233,364 651,697 279,185
Expenses:
Mortality and expense risk charge ...... 233,111 18,771 19,003 35,359 45,794
---------- ---------- ----------- ---------- --------
Net investment income (loss) ......... 905,136 (14,921) 214,361 616,338 233,391
---------- ---------- ----------- ---------- --------
Gain (loss) on investments:
Net realized gain (loss) on investments. 59,375 (10,197) (120,010) 97,475 71,464
Change in net unrealized gain (loss)
on investments ........................ 8,178,073 1,136,063 63,150 (784,352) 451,237
---------- ---------- ----------- ---------- --------
Net gain (loss) on investments ......... 8,237,448 1,125,866 (56,860) (686,877) 522,701
---------- ---------- ----------- ---------- --------
Increase (decrease) in net assets
from operations ..................... $9,142,584 $1,110,945 $ 157,501 $ (70,539) $756,092
========== ========== =========== ========== ========
<CAPTION>
Fidelity VIP II Index 500 Division
------------------------------------------
Year Ended December 31,
------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Investment Income:
Dividend income ........................ $ 781,774 $ 371,052 $ 101,288
Distributions of realized gains ........ 530,490 859,422 205,527
----------- ----------- ----------
1,312,264 1,230,474 306,815
Expenses:
Mortality and expense risk charge ...... 887,561 431,588 164,470
----------- ----------- ----------
Net investment income (loss) ......... 424,703 798,886 142,345
----------- ----------- ----------
Gain (loss) on investments:
Net realized gain (loss) on investments. 3,073,138 551,714 435,364
Change in net unrealized gain (loss)
on investments ........................ 14,391,208 10,456,961 3,844,079
----------- ----------- ----------
Net gain (loss) on investments ......... 17,464,346 11,008,675 4,279,443
----------- ----------- ----------
Increase (decrease) in net assets
from operations ..................... $17,889,049 $11,807,561 $4,421,788
=========== =========== ==========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-25
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
MFS Research MFS Utilities
Division Division
----------------------------------- -----------------------------------
Period from Period from
January 8, 1998(a) January 12, 1998(a)
Year Ended to Year Ended to
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
-------------- -------------------- -------------- --------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividend income ................................. $ 13,020 $ 3,768 $ 60,485 $ 13,390
Distributions of realized gains ................. 68,803 49,416 304,120 60,878
---------- ----------- ---------- --------
81,823 53,184 364,605 74,268
Expenses:
Mortality and expense risk charge ............... 65,517 22,916 68,471 17,630
---------- ----------- ---------- --------
Net investment income ......................... 16,306 30,268 296,134 56,638
---------- ----------- ---------- --------
Gain (loss) on investments:
Net realized gain (loss) on investments ......... 107,800 (192,250) 154,941 38,000
Change in net unrealized gain (loss)
on investments ................................. 1,704,948 335,616 2,096,308 272,742
---------- ----------- ---------- --------
Net gain (loss) on investments .................. 1,812,748 143,366 2,251,249 310,742
---------- ----------- ---------- --------
Increase (decrease) in net assets
from Operations .............................. $1,829,054 $ 173,634 $2,547,383 $367,380
========== =========== ========== ========
<CAPTION>
Oppenheimer Bond Division
----------------------------------------
Year Ended December 31,
----------------------------------------
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Dividend income ................................. $ 861,797 $229,399 $754,014
Distributions of realized gains ................. 82,763 207,606 12,303
------------- -------- --------
944,560 437,005 766,317
Expenses:
Mortality and expense risk charge ............... 173,390 145,903 114,725
------------- -------- --------
Net investment income ......................... 771,170 291,102 651,592
------------- -------- --------
Gain (loss) on investments:
Net realized gain (loss) on investments ......... (134,605) 296,390 31,843
Change in net unrealized gain (loss)
on investments ................................. (1,114,314) 247,987 235,133
------------- -------- --------
Net gain (loss) on investments .................. (1,248,919) 544,377 266,976
------------- -------- --------
Increase (decrease) in net assets
from Operations .............................. $ (477,749) $835,479 $918,568
============= ======== ========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-26
<PAGE>
STATEMENT OF OPERATIONS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
Oppenheimer
Strategic Bond
Division
-----------------------------------
Period from Templeton International Division
January 12, 1998(a) ------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, ------------------------------------------
1999 1998 1999 1998 1997
-------------- -------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividend income ............................. $ 109,302 $ 5,696 $ 1,540,020 $1,024,661 $ 678,464
Distributions of realized gains ............. -- 3,670 5,349,542 1,831,974 272,716
--------- -------- ----------- ---------- ----------
109,302 9,366 6,889,562 2,856,635 951,180
Expenses:
Mortality and expense risk charge ........... 20,608 8,104 529,156 429,430 301,799
--------- -------- ----------- ---------- ----------
Net investment income ..................... 88,694 1,262 6,360,406 2,427,205 649,381
--------- -------- ----------- ---------- ----------
Gain (loss) on investments:
Net realized gain (loss) on investments ..... (19,086) (2,048) 338,691 776,195 828,887
Change in net unrealized gain (loss)
on investments ............................ (22,018) 24,753 5,803,054 295,855 2,126,633
--------- -------- ----------- ---------- ----------
Net gain (loss) on investments .............. (41,104) 22,705 6,141,745 1,072,050 2,955,520
--------- -------- ----------- ---------- ----------
Increase in net assets
from operations .......................... $ 47,590 $ 23,967 $12,502,151 $3,499,255 $3,604,901
========= ======== =========== ========== ==========
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-27
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF
International
Equity
Division
----------------------------------- JPVF World Growth Stock Division
Period from -------------------------------------------------
Year Ended January 15, 1998(a) Year Ended December 31,
December 31, to -------------------------------------------------
1999 December 31, 1998 1999 1998 1997
-------------- -------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .............. $ (129,696) $ (2,162) $ 623,196 $ 9,146,199 $ 14,768,141
Net realized gain (loss) on investments ... 720,386 (1,410) 1,558,287 1,498,732 1,393,920
Change in net unrealized gain (loss)
on investments ........................... 4,015,470 550,363 19,480,089 (8,293,399) (2,140,961)
------------ ---------- ------------- ------------ ------------
Increase (decrease) in net assets from
operations ................................ 4,606,160 546,791 21,661,572 2,351,532 14,021,100
Contractholder transactions--Note F:
Transfers of net premiums ................. 3,996,999 1,201,519 16,845,423 19,624,937 20,387,148
Transfers from/to General Account
and within Separate Account, net ......... 5,710,860 6,623,800 (19,163,711) (12,458,969) (4,647,630)
Transfers of cost of insurance ............ (1,006,092) (238,990) (7,185,745) (7,802,232) (7,901,778)
Transfers on account of death ............. (1,803) (12,068) (284,192) (329,223) (143,565)
Transfers on account of other --
terminations ............................. (22,117) 16,339 (1,514,073) (2,164,208) (2,830,872)
------------ ---------- ------------- ------------ ------------
Net increase (decrease) in net assets
derived from contractholder transactions .. 8,677,847 7,590,600 (11,302,298) (3,129,695) 4,863,303
Net increase (decrease) in net assets ...... 13,284,007 8,137,391 10,359,274 (778,163) 18,884,403
------------ ---------- ------------- ------------ ------------
Balance at beginning of year ............... 8,137,391 -- 117,198,547 117,976,710 99,092,307
------------ ---------- ------------- ------------ ------------
Balance at end of year ..................... $ 21,421,398 $8,137,391 $ 127,557,821 $117,198,547 $117,976,710
============ ========== ============= ============ ============
<CAPTION>
JPVF Global Hard Assets Division
----------------------------------------------
Year Ended December 31,
---------------- ------------- ---------------
1999 1998 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ..................... $ (46,249) $ 28,240 $ 146,417
Net realized gain (loss) on investments .......... (1,083,450) (826,362) (1,020,911)
Change in net unrealized gain (loss)
on investments .................................. 1,807,479 121,013 (2,862,423)
------------- ---------- -------------
Increase (decrease) in net assets from
operations ....................................... 677,780 (677,109) (3,736,917)
Contractholder transactions--Note F:
Transfers of net premiums ........................ 1,235,187 1,192,112 1,487,487
Transfers from/to General Account
and within Separate Account, net ................ (275,408) (854,463) 594,080
Transfers of cost of insurance ................... (460,243) (412,766) (522,160)
Transfers on account of death .................... (5,186) (4,158) (5,118)
Transfers on account of other
terminations .................................... (80,350) (113,411) (297,357)
------------- ---------- -------------
Net increase (decrease) in net assets
derived from contractholder transactions ......... 414,000 (192,686) 1,256,932
Net increase (decrease) in net assets ............. 1,091,780 (869,795) (2,479,985)
------------- ---------- -------------
Balance at beginning of year ...................... 4,403,609 5,273,404 7,753,389
------------- ---------- -------------
Balance at end of year ............................ $ 5,495,389 $4,403,609 $ 5,273,404
============= ========== =============
</TABLE>
(a) Commencement of operations
See notes to financial statements.
F-28
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF Emerging Growth Division JPVF Capital Growth Division
----------------------------------------- -------------------------------------------
Year Ended December 31, Year Ended December 31,
----------------------------------------- -------------------------------------------
1999 1998 1997 1999 1998 1997
------------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .............. $ (821,544) $ 12,062 $ 2,014,106 $ 3,746,702 $ 8,235,378 $ 4,615,187
Net realized gain (loss)
on investments ........................... 3,161,020 1,477,889 528,900 1,944,106 2,650,023 827,249
Change in net unrealized gain (loss)
on investments ........................... 59,901,442 16,294,927 3,845,746 85,575,214 38,211,343 19,770,192
------------ ----------- ----------- ------------ ------------ ------------
Increase (decrease) in net assets from
operations ................................ 62,240,918 17,784,878 6,388,752 91,266,022 49,096,744 25,212,628
Contractholder transactions--Note F:
Transfers of net premiums ................. 17,827,633 15,940,085 12,081,437 36,826,017 29,497,989 23,605,444
Transfers from/to General Account
and within Separate Account, net ......... (2,063,189) 893,513 7,761,806 11,080,254 358,425 2,703,509
Transfers of cost of insurance ............ (5,826,562) (4,518,851) (3,150,610) (13,445,085) (10,254,190) (7,961,359)
Transfers on account of death ............. (165,890) (55,398) (29,914) (341,019) (314,463) (104,089)
Transfers on account of other
terminations ............................. (732,498) (634,670) (617,379) (2,211,653) (2,015,250) (2,348,433)
------------ ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in net assets
derived from contractholder transactions .. 9,039,494 11,624,679 16,045,340 31,908,514 17,272,511 15,895,072
Net increase (decrease) in net assets ...... 71,280,412 29,409,557 22,434,092 123,174,536 66,369,255 41,107,700
------------ ----------- ----------- ------------ ------------ ------------
Balance at beginning of year ............... 78,902,113 49,492,556 27,058,464 190,144,825 123,775,570 82,667,870
------------ ----------- ----------- ------------ ------------ ------------
Balance at end of year ..................... $150,182,525 $78,902,113 $49,492,556 $313,319,361 $190,144,825 $123,775,570
============ =========== =========== ============ ============ ============
<CAPTION>
JPVF Small Company Division
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1999 1998 1997
-------------------------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .............. $ 1,309,262 $ 7,779,948 $ 7,341,576
Net realized gain (loss)
on investments ........................... (1,289,759) 939,643 1,112,075
Change in net unrealized gain (loss)
on investments ........................... 10,478,964 (20,294,880) 7,517,633
-------------- -------------- ------------
Increase (decrease) in net assets from
operations ................................ 10,498,467 (11,575,289) 15,971,284
Contractholder transactions--Note F:
Transfers of net premiums ................. 13,211,682 15,832,378 15,002,595
Transfers from/to General Account
and within Separate Account, net ......... (11,233,252) (1,321,696) (3,643,068)
Transfers of cost of insurance ............ (5,181,027) (6,129,383) (5,977,445)
Transfers on account of death ............. (207,494) (182,629) (138,279)
Transfers on account of other
terminations ............................. (940,537) (1,303,312) (2,043,613)
-------------- -------------- ------------
Net increase (decrease) in net assets
derived from contractholder transactions .. (4,350,628) 6,895,358 3,200,190
Net increase (decrease) in net assets ...... 6,147,839 (4,679,931) 19,171,474
-------------- -------------- ------------
Balance at beginning of year ............... 84,528,832 89,208,763 70,037,289
-------------- -------------- ------------
Balance at end of year ..................... $ 90,676,671 $ 84,528,832 $ 89,208,763
============== ============== ============
</TABLE>
(a) Commencement of operations.
See notes to financial statements.
F-29
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF
Growth
Division
-----------------------------------
Period from JPVF World Growth & Income Division
January 20, 1998(a) ----------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, ----------------------------------------------
1999 1998 1999 1998 1997
-------------- -------------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) .............. $ (27,530) $ (6,809) $ (105,349) $ (31,231) $ 8,670,341
Net realized gain (loss) on investments ... 101,362 (46,655) 1,036,064 781,929 763,718
Change in net unrealized gain (loss)
on investments ........................... 6,934,317 231,287 1,596,857 4,120,409 (1,791,862)
----------- ---------- ------------ ------------ ------------
Increase in net assets from operations ..... 7,008,149 177,823 2,527,572 4,871,107 7,642,197
Contractholder transactions--Note F:
Transfers of net premiums ................. 2,139,922 509,810
Transfers from/to General Account 10,779,535 10,756,077 8,132,090
and within Separate Account, net ......... 11,691,084 1,036,375
Transfers of cost of insurance ............ (554,122) (70,647) (2,106,086) (1,037,359) 5,643,742
Transfers on account of death ............. (857) -- (3,899,334) (3,696,570) (2,745,042)
Transfers on account of other (104,919) (92,605) (45,431)
terminations.............................. (35,596) 2,676
----------- ---------- (534,017) (591,078) (658,736)
Net increase in net assets derived ------------ ------------ ------------
from contractholder transactions .......... 13,240,431 1,478,214
Net increase in net assets ................. 20,248,580 1,656,037 4,135,179 5,338,465 10,326,623
----------- ---------- 6,662,751 10,209,572 17,968,820
Balance at beginning of year ............... 1,656,037 -- ------------ ------------ ------------
----------- ---------- 52,465,633 42,256,061 24,287,241
Balance at end of year ..................... $21,904,617 $1,656,037 ------------ ------------ ------------
=========== ========== $ 59,128,384 $ 52,465,633 $ 42,256,061
============ ============ ============
<CAPTION>
JPVF Balanced Division
----------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) ............. $ 273,744 $ 2,372,689 $ 3,781,936
Net realized gain (loss) on investments .. 250,283 111,626 125,127
Change in net unrealized gain (loss)
on investments .......................... 6,776,884 1,976,202 (829,904)
------------ ------------ ------------
Increase in net assets from operations .... 7,300,911 4,460,517 3,077,159
Contractholder transactions--Note F:
Transfers of net premiums ................ 5,826,918 5,092,290 4,506,381
Transfers from/to General Account
and within Separate Account, net ........ (749,285) 631,049 (154,536)
Transfers of cost of insurance ........... (2,143,582) (1,897,240) (1,580,912)
Transfers on account of death ............ (33,556) (107,286) (32,682)
Transfers on account of other
terminations............................. (372,514) (477,084) (480,806)
------------ ------------ ------------
Net increase in net assets derived
from contractholder transactions ......... 2,527,981 3,241,729 2,257,445
Net increase in net assets ................ 9,828,892 7,702,246 5,334,604
------------ ------------ ------------
Balance at beginning of year .............. 32,522,371 24,820,125 19,485,521
------------ ------------ ------------
Balance at end of year .................... $ 42,351,263 $ 32,522,371 $ 24,820,125
============ ============ ============
</TABLE>
See notes to financial statements.
F-30
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
JPVF
High Yield Bond
Division
---------------------------------- JPVF
Period from Money Market Division
January 8, 1998(a) ----------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, ----------------------------------------------
1999 1998 1999 1998 1997
-------------- ------------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .................. $ 378,386 $ 264,218 $ (177,261) $ 396,249 $ 334,792
Net realized gain (loss) on investments ....... (40,844) (77,480) 142,086 53,452 61,042
Change in net unrealized gain (loss)
on investments ............................... (124,383) (287,866) 740,327 20,157 (11,529)
---------- ---------- ------------ ----------- -------------
Increase (decrease) in net assets from
operations .................................... 213,159 (101,128) 705,152 469,858 384,305
Contractholder transactions--Note F:
Transfers of net premiums ..................... 1,611,508 599,541 7,019,291 4,544,085 4,688,133
Transfers from/to General Account
and within Separate Account, net ............. (711,546) 4,764,419 2,287,638 2,798,249 (2,751,900)
Transfers of cost of insurance ................ (376,460) (255,751) (1,446,885) (915,629) (782,134)
Transfers on account of death ................. (342) -- (7,579) (578) (6,947)
Transfers on account of other
terminations ................................. (2,318) (23,575) (190,803) (302,128) (592,016)
---------- ---------- ------------ ----------- -------------
Net increase in net assets derived
from contractholder transactions .............. 520,842 5,084,634 7,661,662 6,123,999 555,136
Net increase in net assets ..................... 734,001 4,983,506 8,366,814 6,593,857 939,441
---------- ---------- ------------ ----------- -------------
Balance at beginning of year ................... 4,983,506 -- 15,544,453 8,950,596 8,011,155
---------- ---------- ------------ ----------- -------------
Balance at end of year ......................... $5,717,507 $4,983,506 $ 23,911,267 $15,544,453 $ 8,950,596
========== ========== ============ =========== =============
<CAPTION>
Fidelity VIP II Contrafund Division
----------------------------------------------
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .................. $ 1,337,023 $ 938,763 $ 82,375
Net realized gain (loss) on investments ....... 1,161,891 381,646 143,362
Change in net unrealized gain (loss)
on investments ............................... 9,007,322 6,265,813 1,928,296
------------ ------------ ------------
Increase (decrease) in net assets from
operations .................................... 11,506,236 7,586,222 2,154,033
Contractholder transactions--Note F:
Transfers of net premiums ..................... 12,582,864 9,182,744 4,532,969
Transfers from/to General Account
and within Separate Account, net ............. 3,316,146 8,458,498 8,789,832
Transfers of cost of insurance ................ (3,837,642) (2,365,397) (1,101,248)
Transfers on account of death ................. (52,782) (42,331) (1,382)
Transfers on account of other
terminations ................................. (255,359) (262,093) (153,334)
------------ ------------ ------------
Net increase in net assets derived
from contractholder transactions .............. 11,753,227 14,971,421 12,066,837
Net increase in net assets ..................... 23,259,463 22,557,643 14,220,870
------------ ------------ ------------
Balance at beginning of year ................... 41,741,038 19,183,395 4,962,525
------------ ------------ ------------
Balance at end of year ......................... $ 65,000,501 $ 41,741,038 $ 19,183,395
============ ============ ============
</TABLE>
(a) Commencement of operations.
See notes to financial statements.
F-31
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
Fidelity Fidelity
VIP Equity Income VIP Growth
Division Division
----------------------------------- ----------------------------------
Period from Period from
January 8, 1998(a) January 8, 1998(a)
Year Ended to Year Ended to
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
-------------- -------------------- -------------- -------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ................... $ 154,970 $ 762 $ 905,136 $ (14,921)
Net realized gain (loss) on investments ........ 85,743 (114,816) 59,375 (10,197)
Change in net unrealized gain
on investments ................................ (139,539) 192,755 8,178,073 1,136,063
---------- ---------- ------------ ----------
Increase (decrease) in net assets from
operations ..................................... 101,174 78,701 9,142,584 1,110,945
Contractholder transactions--Note F:
Transfers of net premiums ...................... 3,054,942 1,459,008 7,194,482 925,584
Transfers from/to General Account
and within Separate Account, net .............. 3,139,659 2,814,317 23,690,440 5,643,806
Transfers of cost of insurance ................. (699,983) (305,514) (1,881,297) (177,953)
Transfers on account of death .................. -- -- (4,024) --
Transfers on account of other
terminations .................................. (34,625) (1,001) (161,248) (35,344)
Net increase (decrease) in net assets derived
from contractholder transactions ............... 5,459,993 3,966,810 28,838,353 6,356,093
Net increase (decrease) in net assets ........... 5,561,167 4,045,511 37,980,937 7,467,038
---------- ---------- ------------ ----------
Balance at beginning of year .................... 4,045,511 -- 7,467,038 --
---------- ---------- ------------ ----------
Balance at end of year .......................... $9,606,678 $4,045,511 $ 45,447,975 $7,467,038
========== ========== ============ ==========
<CAPTION>
Fidelity VIP High Income Division
--------------------------------------------
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------- --------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) ................... $ 214,361 $ 616,338 $ 233,391
Net realized gain (loss) on investments ........ (120,010) 97,475 71,464
Change in net unrealized gain
on investments ................................ 63,150 (784,352) 451,237
---------- ------------- ----------
Increase (decrease) in net assets from
operations ..................................... 157,501 (70,539) 756,092
Contractholder transactions--Note F:
Transfers of net premiums ...................... 4,917 82,028 1,344,308
Transfers from/to General Account
and within Separate Account, net .............. (837,892) (4,577,188) 3,119,835
Transfers of cost of insurance ................. (102,685) (264,842) (362,364)
Transfers on account of death .................. (11) (219) (3,474)
Transfers on account of other
terminations .................................. (8,950) (126,841) (173,019)
Net increase (decrease) in net assets derived
from contractholder transactions ............... (944,621) (4,887,062) 3,925,286
Net increase (decrease) in net assets ........... (787,120) (4,957,601) 4,681,378
---------- ------------- ----------
Balance at beginning of year .................... 2,542,978 7,500,579 2,819,201
---------- ------------- ----------
Balance at end of year .......................... $1,755,858 $ 2,542,978 $7,500,579
========== ============= ==========
</TABLE>
(a) Commencement of operations.
See notes to financial statements.
F-32
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
MFS Research
Division
-----------------------------------
Fidelity VIP II Index 500 Division Period from
----------------------------------------------- January 8, 1998(a)
Year Ended December 31, Year Ended to
----------------------------------------------- December 31, December 31,
1999 1998 1997 1999 1998
--------------- --------------- --------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income ..................... $ 424,703 $ 798,886 $ 142,345 $ 16,306 $ 30,268
Net realized gain (loss)
on investments ........................... 3,073,138 551,714 435,364 107,800 (192,250)
Change in net unrealized gain
on investments ........................... 14,391,208 10,456,961 3,844,079 1,704,948 335,616
------------ ----------- ----------- ----------- ----------
Increase (decrease) in net assets from
operations ................................ 17,889,049 11,807,561 4,421,788 1,829,054 173,634
Contractholder transactions--Note F:
Transfers of net premiums ................. 26,012,390 14,424,002 5,355,400 2,385,029 1,035,071
Transfers from/to General Account
and within Separate Account, net ......... 9,053,639 22,523,380 13,090,735 2,897,902 3,239,091
Transfers of cost of insurance ............ (7,515,597) (3,847,370) (1,230,424) (629,066) (193,228)
Transfers on account of death ............. (157,655) (63,585) (41,017) (1,372) (12,135)
Transfers on account of other
terminations ............................. (668,878) (380,850) (149,305) (19,098) 130
Net increase in net assets derived from
contractholder transactions ............... 26,723,899 32,655,577 17,025,389 4,633,395 4,068,929
Net increase in net assets ................. 44,612,948 44,463,138 21,447,177 6,462,449 4,242,563
------------ ----------- ----------- ----------- ----------
Balance at beginning of year ............... 73,437,900 28,974,762 7,527,585 4,242,563 --
------------ ----------- ----------- ----------- ----------
Balance at end of year ..................... $118,050,848 $73,437,900 $28,974,762 $10,705,012 $4,242,563
============ =========== =========== =========== ==========
<CAPTION>
MFS Utilities
Division
-----------------------------------
Period from Oppenheimer Bond Division
January 12, 1998(a) -----------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, -----------------------------------------------
1999 1998 1999 1998 1997
-------------- -------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income ..................... $ 296,134 $ 56,638 $ 771,170 $ 291,102 $ 651,592
Net realized gain (loss)
on investments ........................... 154,941 38,000 (134,605) 296,390 31,843
Change in net unrealized gain
on investments ........................... 2,096,308 272,742 (1,114,314) 247,987 235,133
----------- ---------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations ................................ 2,547,383 367,380 (477,749) 835,479 918,568
Contractholder transactions--Note F:
Transfers of net premiums ................. 1,869,430 730,856 3,187,323 3,736,503 2,691,506
Transfers from/to General Account
and within Separate Account, net ......... 4,892,184 3,166,986 146,154 595,445 (394,592)
Transfers of cost of insurance ............ (641,737) (145,371) (1,282,193) (1,076,884) (918,928)
Transfers on account of death ............. (6,552) -- (54,423) (43,142) (65,768)
Transfers on account of other
terminations ............................. (37,493) 30,746 (143,229) (227,487) (384,107)
Net increase in net assets derived from
contractholder transactions ............... 6,075,832 3,783,217 1,853,632 2,984,435 928,111
Net increase in net assets ................. 8,623,215 4,150,597 1,375,883 3,819,914 1,846,679
----------- ---------- ----------- ----------- -----------
Balance at beginning of year ............... 4,150,597 -- 18,056,207 14,236,293 12,389,614
----------- ---------- ----------- ----------- -----------
Balance at end of year ..................... $12,773,812 $4,150,597 $19,432,090 $18,056,207 $14,236,293
=========== ========== =========== =========== ===========
</TABLE>
(a) Commencement of operations.
F-33
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS--(Continued)
JPF SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
Oppenheimer
Strategic Bond
Division
-----------------------------------
Period from ) Templeton International I Division
January 12, 1998(a) -----------------------------------------------
Year Ended to Year Ended December 31,
December 31, December 31, -----------------------------------------------
1999 1998 1999 1998 1997
-------------- -------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income ..................... $ 88,694 $ 1,262 $ 6,360,406 $ 2,427,205 $ 649,381
Net realized gain
on investments ........................... (19,086) (2,048) 338,691 776,195 828,887
Change in net unrealized gain
on investments ........................... (22,018) 24,753 5,803,054 295,855 2,126,633
---------- ---------- ----------- ----------- -----------
Increase in net assets from operations ..... 47,590 23,967 12,502,151 3,499,255 3,604,901
Contractholder transactions--Note F:
Transfers of net premiums ................. 636,974 452,931 11,137,465 11,772,271 9,182,098
Transfers from/to General Account
and within Separate Account, net ......... 781,202 1,307,674 (5,910,457) 2,942,895 7,333,435
Transfers of cost of insurance ............ (196,836) (74,702) (3,422,189) (3,185,143) (2,324,520)
Transfers on account of death ............. -- -- (128,201) (31,916) (64,977)
Transfers on account of other
terminations ............................. (16,951) (6,002) (391,045) (356,684) (437,273)
---------- ---------- ----------- ----------- -----------
Net increase in net assets derived
from contractholder transactions ......... 1,204,389 1,679,901 1,285,573 11,141,423 13,688,763
Net increase in net assets ................. 1,251,979 1,703,868 13,787,724 14,640,678 17,293,664
---------- ---------- ----------- ----------- -----------
Balance at beginning of year ............... 1,703,868 -- 54,756,706 40,116,028 22,822,364
---------- ---------- ----------- ----------- -----------
Balance at end of year ..................... $2,955,847 $1,703,868 $68,544,430 $54,756,706 $40,116,028
========== ========== =========== =========== ===========
</TABLE>
(a) Commencement of operations.
See notes to consolidated financial statements.
F-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE A--ORGANIZATION OF ACCOUNT
Jefferson Pilot Financial Separate Account A (the "Separate Account") is a
separate account of Jefferson Pilot Financial Insurance Company ("JP
Financial"). The Separate Account is organized as a unit investment trust
registered under the Investment Act of 1940 as amended. It was established for
the purpose of funding flexible premium variable life insurance policies issued
by JP Financial. As of December 31, 1999, the Separate Account is comprised of
twenty-one investment divisions, eleven of which invest exclusively in the
corresponding portfolios of the Jefferson-Pilot Variable Fund, Inc., one of
which invests in the Templeton International Fund, five of which invest in
certain Fidelity Portfolios, two of which invest in certain Oppenheimer Funds,
and two of which invest in certain MFS Funds, all diversified Series Investment
Companies. Companies.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments: Investments in shares of the Fund are valued at the
net asset value per share which is calculated each day the New York Stock
Exchange is open for trading.
Investment Income: Dividend income and distributions of realized gains are
recorded on the ex-dividend date.
Investment Transactions: Purchases and sales of shares of the Fund are
recorded as of the trade date, the date the transaction is executed.
Federal Income Taxes: The operations of the Separate Account are included in
the federal income tax return of JP Financial which is taxed as a life
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the Separate Account.
Expenses: Currently, the Separate Account contains the net assets of two
variable insurance policies, Ensemble and Ensemble II. A mortality and expense
risk charge payable to JP Financial is accrued daily which will not exceed
.6%and .9% of the average net asset value of each division of the Separate
Account on an annual basis for Ensemble and Ensemble II, respectively.
Use of Estimates: The accompanying financial statements of the Separate
Account have been prepared in accordance with generally accepted accounting
principles. The preparation of financial statements requires management to make
estimates that affect amounts reported in the financial statements and
accompanying notes. Such estimates could change in the future as more
information becomes known, which could impact the amounts reported and
disclosed herein.
NOTE C--AFFILIATED COMPANY TRANSACTIONS
Administrative services necessary for the operation of the Separate Account are
provided by Jefferson Pilot Life Insurance Company, an affiliate of JP
Financial. JP Financial is the principal underwriter of the variable insurance
contracts that utilize the Separate Account. Jefferson Pilot Variable
Corporation, an affiliate of the Company, is the distributor.
NOTE D--DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a variable
life insurance contract will be subject to federal income taxes on the income
earned for any period for which the investments of the segregated assets
account, on which the contract is based, are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary
of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of the
Code. The Company believes that the segregated asset account satisfies the
current requirements of the regulations, and it intends that the segregated
asset account will continue to meet such requirements.
F-35
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE E--INVESTMENTS
In determining the net realized gain or loss on sales of shares of the Fund,
the cost of shares sold has been determined on an average cost basis. For
federal income tax purposes, the cost of shares owned at December 31, 1999 is
the same as for financial reporting purposes.
Following is a summary of shares of each portfolio of the Fund owned by the
respective divisions of the Separate Account and the related net asset values
at December 31, 1999.
<TABLE>
<CAPTION>
Net Asset
Value
Shares Per Share
----------- ----------------
<S> <C> <C>
JPVF International Equity Division 1,332,798 $ 16.069385
JPVF World Growth Stock Division 4,895,518 26.076172
JPVF Global Hard Assets Division 611,602 8.990947
JPVF Emerging Growth Division 3,689,566 40.674453
JPVF Capital Growth Division 7,974,859 39.265001
JPVF Small Company Division 5,024,169 18.054505
JPVF Growth Division 933,447 23.377614
JPVF Growth & Income Division 2,948,651 20.063152
JPVF Balanced Division 2,772,661 15.270695
JPVF High Yield Division 575,664 9.188039
JPVF Money Market Division 2,194,261 10.846432
Fidelity VIP II Contrafund Division 2,228,829 29.150000
Fidelity VIP Equity Income Division 363,619 25.710000
Fidelity VIP Growth Division 824,121 54.930000
Fidelity VIP High Income Division 155,357 11.310000
Fidelity VIP II Index 500 Division 704,954 167.410000
MFS Research Division 457,636 23.340000
MFS Utilities Division 528,558 24.160000
Oppenheimer Bond Division 1,686,672 11.520000
Oppenheimer Strategic Division 610,422 4.970000
Templeton International I Division 3,082,386 22.250000
</TABLE>
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE F--CONTRACTHOLDER TRANSACTIONS
<TABLE>
<CAPTION>
For the period
January 15, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
-------------------------- -------------------------
Units Amount Units Amount
----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
JPVF International Equity Division
Issuance of units 1,586,816 $21,345,389 806,326 $ 9,244,760
Redemptions of units 923,203 12,667,542 145,428 1,654,160
--------- ----------- -------- -----------
Net Increase 663,613 $ 8,677,847 660,898 $ 7,590,600
========= =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF World Growth Stock Division
Issuance of units 710,815 $31,376,896 943,836 $39,051,743 1,011,924 $39,798,520
Redemptions of units 970,125 42,679,194 1,018,017 42,181,438 895,063 34,935,217
--------- ------------ --------- ----------- --------- -----------
Net Increase (decrease) (259,310) $(11,302,298) (74,181) $(3,129,695) 116,861 $ 4,863,303
========= ============ ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Global Hard Assets Division
Issuance of units 806,194 $ 7,003,824 437,515 $ 3,764,642 589,273 $ 6,878,213
Redemptions of units 773,498 6,589,824 450,418 3,957,328 475,559 5,621,281
--------- ----------- --------- ----------- --------- -----------
Net Increase 32,696 $ 414,000 (12,903) $ (192,686) 113,714 $ 1,256,932
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Emerging Growth Division
Issuance of units 1,754,220 $49,040,558 2,202,083 $45,173,868 2,187,207 $37,160,174
Redemptions of units 1,468,922 40,001,064 1,639,619 33,549,189 1,257,679 21,114,834
--------- ----------- --------- ----------- --------- -----------
Net Increase 285,298 $ 9,039,494 562,464 $11,624,679 929,528 $16,045,340
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Capital Growth Division
Issuance of units 1,885,588 $92,037,794 1,791,255 $66,165,409 1,727,504 $49,693,896
Redemptions of units 1,232,624 60,129,280 1,324,641 48,892,898 1,166,517 33,798,824
--------- ----------- --------- ----------- --------- -----------
Net Increase 652,964 $31,908,514 466,614 $17,272,511 560,987 $15,895,072
========= =========== ========= =========== ========= ===========
</TABLE>
(a) Commencement of operations
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE F--CONTRACTHOLDER TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Small Company Division
Issuance of units 730,490 $27,595,578 916,453 $39,034,264 783,149 $32,220,885
Redemptions of units 845,859 31,946,206 747,736 32,138,906 707,768 29,020,695
--------- ----------- --------- ----------- --------- -----------
Net Increase (decrease) (115,369) $(4,350,628) 168,717 $ 6,895,358 75,381 $ 3,200,190
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 20, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
-------------------------- -------------------------
Units Amount Units Amount
----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
JPVF Growth Division
Issuance of units 1,109,124 $17,796,382 289,470 $ 3,260,004
Redemptions of units 295,421 4,555,951 162,322 1,781,790
--------- ----------- -------- -----------
Net Increase 813,703 $13,240,431 127,148 $ 1,478,214
========= =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Growth & Income Division
Issuance of units 1,018,584 $29,500,940 1,240,410 $32,593,480 1,110,245 $24,846,023
Redemptions of units 874,919 25,365,761 1,047,665 27,255,015 659,777 14,619,400
--------- ----------- --------- ----------- --------- -----------
Net Increase 143,665 $ 4,135,179 192,745 $ 5,338,465 450,468 $10,226,623
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Balanced Division
Issuance of units 578,685 $12,521,166 622,617 $11,686,604 557,010 $ 9,238,539
Redemptions of units 460,757 9,993,185 449,737 8,444,875 423,594 6,981,094
--------- ----------- --------- ----------- --------- -----------
Net Increase 117,928 $ 2,527,981 172,880 $ 3,241,729 133,416 $ 2,257,445
========= =========== ========= =========== ========= ===========
</TABLE>
(a) Commencement of operations
F-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(Continued)
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE F--CONTRACTHOLDER TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
For the period
January 8, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
------------------------- ---------------------------
Units Amount Units Amount
---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
JPVF High Yield Division
Issuance of units 825,411 $ 8,463,868 1,187,107 $ 11,940,568
Redemptions of units 773,012 7,943,026 686,842 6,855,934
-------- ----------- --------- ------------
Net Increase 52,399 $ 520,842 500,265 $ 5,084,634
======== =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
JPVF Money Market
Issuance of units 3,240,917 $57,033,996 3,082,919 $52,304,400 2,230,904 $36,446,460
Redemptions of units 2,805,821 49,372,334 2,722,078 46,180,401 2,193,315 35,891,324
--------- ----------- --------- ----------- --------- -----------
Net Increase 435,096 $ 7,661,662 360,841 $ 6,123,999 37,589 $ 555,136
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP II Contrafund Division
Issuance of units 1,754,276 $33,244,625 2,028,731 $31,008,560 1,533,238 $19,271,804
Redemptions of units 1,129,685 21,491,398 1,065,432 16,037,139 580,340 7,204,967
--------- ----------- --------- ----------- --------- -----------
Net Increase 624,591 $11,753,227 963,299 $14,971,421 952,898 $12,066,837
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP II Index 500 Division
Issuance of units 3,771,476 $77,313,900 3,405,171 $57,232,632 2,094,648 $28,323,380
Redemptions of units 2,439,500 50,590,001 1,486,670 24,577,055 822,768 11,297,991
--------- ----------- --------- ----------- --------- -----------
Net Increase 1,331,976 $26,723,899 1,918,501 $32,655,577 1,271,880 $17,025,389
========= =========== ========= =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP High Income Division
Issuance of units 23,042 $ 283,589 71,621 $ 908,088 797,876 $ 9,316,213
Redemptions of units 99,119 1,228,210 455,698 5,795,150 462,054 5,390,927
--------- ----------- --------- ----------- --------- -----------
Net Increase (decrease) (76,077) $ (944,621) (384,077) $(4,887,062) 335,822 $ 3,925,286
========= =========== ========= =========== ========= ===========
</TABLE>
(a) Commencement of operations
F-39
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE F--CONTRACTHOLDER TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
For the period
January 8, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
----------------------------- --------------------------
Units Amount Units Amount
----------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Fidelity VIP Growth Division
Issuance of units 2,522,313 $39,479,910 655,774 $ 7,806,648
Redemptions of units 672,246 10,641,557 122,386 1,450,555
--------- ----------- ------- -----------
Net Increase 1,850,067 $28,838,353 533,388 $ 6,356,093
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 8, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
----------------------------- --------------------------
Units Amount Units Amount
----------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Fidelity VIP Equity Income Division
Issuance of units 1,131,302 $13,584,576 982,482 $10,549,873
Redemptions of units 681,291 8,124,583 623,457 6,583,063
--------- ----------- ------- -----------
Net Increase 450,011 $ 5,459,993 359,025 $ 3,966,810
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 8, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
--------------------------- --------------------------
Units Amount Units Amount
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
MFS Reseach Division
Issuance of units 672,625 $ 8,701,356 631,245 $ 7,154,159
Redemptions of units 311,684 4,067,961 288,287 3,085,230
------- ----------- ------- -----------
Net Increase 360,941 $ 4,633,395 342,958 $ 4,068,929
======== =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 12, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
---------------------------- --------------------------
Units Amount Units Amount
---------- --------------- --------- --------------
<S> <C> <C> <C> <C>
MFS Utilities Division
Issuance of units 930,122 $11,856,880 667,553 $ 7,474,706
Redemptions of units 458,547 5,781,048 324,319 3,691,489
------- ----------- ------- -----------
Net Increase 471,575 $ 6,075,832 343,234 $ 3,783,217
======= =========== ======= ===========
</TABLE>
(a) Commencement of operations
F-40
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
JPF SEPARATE ACCOUNT A
DECEMBER 31, 1999
NOTE F--CONTRACTHOLDER TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Oppenheimer Bond Division
Issuance of units 646,006 $13,940,162 1,052,232 $22,601,035 396,342 $7,858,820
Redemptions of units 561,178 12,086,530 913,765 19,616,600 350,970 6,930,709
--------- ----------- --------- ----------- ------- ----------
Net Increase 84,828 $ 1,853,632 138,467 $ 2,984,435 45,372 $ 928,111
========= =========== ========= =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
For the period
January 12, 1998(a)
Year Ended December 31, through
1999 December 31, 1998
------------------------ -------------------------
Units Amount Units Amount
---------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Oppenheimer Strategic Division
Issuance of units 369,193 $ 3,720,887 374,307 $ 3,726,685
Redemptions of units 250,262 2,516,498 204,970 2,046,784
--------- ----------- ------- -----------
Net Increase 118,931 $ 1,204,389 169,337 $ 1,679,901
========= =========== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Units Amount Units Amount Units Amount
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Templeton International Division
Issuance of units 1,586,916 $28,116,196 2,289,338 $37,928,398 2,174,212 $32,480,846
Redemptions of units 1,515,331 26,830,623 1,615,048 26,786,975 1,245,865 18,792,083
--------- ----------- --------- ----------- --------- -----------
Net Increase 71,585 $ 1,285,573 674,290 $11,141,423 928,347 $13,688,763
========= =========== ========= =========== ========= ===========
</TABLE>
(a) Commencement of operations
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of The Guarantee Life Companies Inc.:
We have audited the accompanying consolidated balance sheets of The
Guarantee Life Companies Inc. and subsidiaries (Guarantee Life) as of December
31, 1999 and 1998, and the related consolidated statements of income,
comprehensive income, shareholders' 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 Guarantee Life'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 audit 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 The
Guarantee Life Companies Inc. 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.
/s/ KPMG LLP
Omaha, Nebraska
June 16, 2000
1
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Assets
------
Invested assets:
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $870,415 and $865,597) $ 830,823 $ 888,363
Held-to-maturity, at amortized cost (fair value: $123,219 and $158,341) 129,011 147,180
----------- -----------
959,834 1,035,543
Equity securities, at fair value (cost: $25,154 and $20,643) 24,885 23,835
Mortgage loans, net 113,010 103,736
Policy loans 32,527 31,767
Investment real estate, net 3,162 3,211
Other invested assets, net 14,236 54,970
Closed Block invested assets 289,795 314,108
----------- -----------
Total invested assets 1,437,449 1,567,170
Cash and cash equivalents 48,190 23,794
Accrued investment income 16,571 13,900
Ceded reinsurance recoverables 89,321 95,511
Accounts receivable, net 28,019 19,641
Deferred policy acquisition costs, net 155,610 144,844
Property, plant and equipment, net 18,723 19,929
Other assets 12,160 12,607
Closed Block other assets 8,395 16,224
Separate account assets -- 78,629
----------- -----------
Total assets $ 1,814,438 $ 1,992,249
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Future policy benefits:
Life $ 97,835 $ 97,433
Accident and health 96,154 80,700
Policyholder account balances:
Universal life contracts 461,984 445,986
Annuity contracts 324,255 349,834
Policy and contract claims 74,805 68,701
Other policyholder funds 51,475 43,751
Unearned premium revenue 12,847 13,149
Notes payable -- 112,500
Intercompany borrowing 91,250 --
Other liabilities 17,898 63,516
Closed Block liabilities 381,373 386,933
Discontinued operations 21,620 21,075
Separate account liabilities -- 78,629
----------- -----------
Total liabilities 1,631,496 1,762,207
Shareholders' equity:
Common stock $0.01 par value; 30,000,000 shares authorized, 10,315,785
shares issued at December 31, 1999 and 1998 103 103
Additional paid-in capital 200,440 201,255
Retained earnings 33,238 33,962
Treasury stock, at cost (978,274 and 1,087,124 shares at December 31, 1999
and 1998, respectively) (22,695) (25,054)
Accumulated other comprehensive income, net (28,144) 19,776
----------- -----------
Total shareholders' equity 182,942 230,042
Commitments and contingencies -- --
----------- -----------
Total liabilities and shareholders' equity $ 1,814,438 $ 1,992,249
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Insurance premiums and policyholder assessments:
Life $ 123,118 $ 116,811 $ 76,260
Accident and health 296,206 246,056 179,700
Policyholder assessments 46,329 37,020 30,476
Reinsurance premiums (72,214) (77,881) (55,508)
--------- --------- ---------
393,439 322,006 230,928
Investment income, net 85,258 74,651 58,449
Realized investment gains (381) 1,978 1,270
Ceding commissions and other income 25,970 22,124 15,558
Contribution from Closed Block 3,132 4,723 4,071
--------- --------- ---------
Total revenues 507,418 425,482 310,276
Policyholder benefits:
Benefits:
Life 56,925 96,046 62,749
Accident and health 278,397 184,691 113,335
Reinsurance recoveries (60,717) (67,082) (35,752)
--------- --------- ---------
274,605 213,655 140,332
Interest credited to policyholder account balances:
Annuity contracts 14,473 16,059 10,624
Universal contracts 27,635 20,353 15,028
--------- --------- ---------
Total policyholder benefits 316,713 250,067 165,984
Expenses:
Policy acquisition costs 79,677 77,964 57,364
Other insurance operating expenses 108,649 83,055 61,191
--------- --------- ---------
Total expenses 188,326 161,019 118,555
Income from continuing operations before income taxes 2,379 14,396 25,737
Income tax expense 833 5,039 9,098
--------- --------- ---------
Net income from continuing operations 1,546 9,357 16,639
Net income (loss) from discontinued operations 374 (328) (195)
--------- --------- ---------
Net income $ 1,920 $ 9,029 $ 16,444
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
--------------------------------------------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income $ 1,920 $ 9,029 $ 16,444
Other comprehensive income, net of tax:
Unrealized appreciation (depreciation) of invested assets (48,640) 4,773 7,843
Less reclassification adjustment for gains included in net income 720 1,978 1,270
-------- -------- --------
(47,920) 6,751 9,113
-------- -------- --------
Comprehensive income (loss) $(46,000) $ 15,780 $ 25,557
======== ======== ========
</TABLE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Common stock, beginning of year $ 103 $ 99 $ 99
Issuance of common stock, 371,402 shares -- 4 --
--------- --------- ---------
Common stock, end of year 103 103 99
--------- --------- ---------
Additional paid in capital, beginning of year 201,255 191,123 191,226
Issuance of common stock (815) 9,996 --
Options exercised and stock awards granted -- 136 (103)
--------- --------- ---------
Additional paid in-capital, end of year 200,440 201,255 191,123
--------- --------- ---------
Retained earnings, beginning of year 33,962 27,463 13,435
Net income 1,920 9,029 16,444
Shareholder dividends declared ($0.28/share in 1999
and 1998, $0.26/share in 1997) (2,644) (2,530) (2,416)
--------- --------- ---------
Retained earnings, end of year 33,238 33,962 27,463
--------- --------- ---------
Treasury stock, beginning of year (25,054) (22,512) --
Purchases of treasury stock (None in 1999, 119,722 shares
in 1998, 1,069,011 shares in 1997) -- (3,150) (23,603)
Options exercised (106,862 shares in 1999; 42,730 shares in 1998,
1,496 shares in 1997) and stock awards granted, (2,017 shares in 1999,
7,392 shares in 1998, 49,991 shares in 1997) 2,359 608 1,091
--------- --------- ---------
Treasury stock, end of year (22,695) (25,054) (22,512)
--------- --------- ---------
Accumulated other comprehensive income:
Beginning of year 19,776 13,025 3,912
Unrealized appreciation (depreciation) of invested assets (47,920) 6,751 9,113
--------- --------- ---------
End of year (28,144) 19,776 13,025
--------- --------- ---------
Total shareholders' equity $ 182,942 $ 230,042 $ 209,198
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 1,546 $ 9,357 $ 16,639
Adjustments to reconcile net income from continuing
operations to net cash provided by continuing operating
activities:
Policyholder assessments (46,329) (37,020) (30,476)
Interest credited to policyholder account balances 42,108 36,412 25,652
Realized investment (gains) losses 381 (1,978) (1,270)
Change in: (net of amounts acquired)
Ceded reinsurance recoverables 3,720 (12,358) (2,918)
Deferred policy acquisition costs (10,766) 1,907 4,799
Liabilities for future policy benefits 15,856 13,695 13,745
Policy and contract claims 6,104 13,863 (6,586)
Other liabilities (7,337) 4,908 6,492
Deferred income taxes (29,245) 3,077 (2,996)
Closed Block assets and liabilities, net 2,269 (2,475) (2,377)
Other, net (5,614) 10,902 10,200
--------- --------- ---------
Net cash provided by continuing operating activities (27,307) 40,290 30,904
Net cash provided (used) by discontinued operations 919 (251) (11,560)
--------- --------- ---------
Net cash provided (used) by operating activities (26,388) 40,039 19,344
--------- --------- ---------
Cash flows from investing activities:
Purchase of fixed maturities (224,406) (329,247) (226,294)
Proceeds from sale of fixed maturities:
Available-for-sale 204,272 358,102 144,607
Maturities, calls and principal reductions of fixed maturities 51,758 29,392 82,751
Purchases of equity securities and short-term investments (3,514) (32,924) (3,121)
Purchase of mortgage loans (18,415) (25,900) (27,670)
Proceeds from repayment of mortgage loans 9,138 7,806 11,431
Acquisitions, net of cash acquired -- (90,863) (30,913)
Dispositions, net of cash surrendered 3,900 -- --
Change in Closed Block invested assets, net 24,313 (4,331) (4,206)
Other, net 30,633 (3,848) 1,127
--------- --------- ---------
Net cash used by investing activities 77,679 (91,813) (52,288)
--------- --------- ---------
Cash flows from financing activities:
Deposits to policyholder account balances 77,967 76,715 77,153
Withdrawals from policyholder account balances (83,327) (77,183) (52,752)
Purchase of treasury stock -- (3,150) (23,603)
Options exercised 2,359 608 1,091
Proceeds from issuance of long term debt -- 90,000 40,000
Principal payments on debt obligations (21,250) (17,500) --
Shareholder dividends (2,644) (2,530) (2,416)
--------- --------- ---------
Net cash provided (used) by financing activities (26,895) 66,960 39,473
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 24,396 15,186 6,529
Cash and cash equivalents at beginning of year $ 23,794 $ 8,608 $ 2,079
--------- --------- ---------
Cash and cash equivalents at end of year $ 48,190 $ 23,794 $ 8,608
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
--------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
(a) Organization and Principles of Consolidation
At December 31, 1999 the consolidated financial statements include The
Guarantee Life Companies Inc. (Holding Company) and its direct and indirect
wholly owned subsidiaries, all of which are collectively referred to hereinafter
as "Guarantee Life". Guarantee Life Insurance Company (Guarantee Life Insurance)
is an insurance subsidiary domiciled in Nebraska.
On December 30, 1999, Jefferson Pilot Corporation (A North
Carolina-domiciled insurance holding company) acquired 100% of the outstanding
common stock of the Holding Company.
These financial statements have been prepared on an historical GAAP basis
of accounting which reflects the cost of the assets acquired and owned by
Guarantee Life. These financial statements do not reflect the adjustments
necessary to record the purchase of Guarantee Life by Jefferson Pilot
Corporation on the December 31, 1999 consolidated balance sheet.
Until October 31, 1999, PFG, Inc.'s wholly owned subsidiaries included AGL
Life Assurance Company (AGL) and "Philadelphia Financial Group" which consists
of Philadelphia Financial Group, Inc., PFG Distribution Company, Philadelphia
Financial Group Agency of Ohio, Inc., PFG Insurance Agency of Texas, Inc., and
Philadelphia Financial Insurance Agency of Massachusetts, Inc., which were owned
by Guarantee Life.
On October 31, 1999, the common stock of AGL and the other minor
subsidiaries of PFG, Inc. was sold to a group of unrelated investors. Concurrent
with the spin-off transaction, Guarantee Life Insurance assumed, through a
coinsurance agreement and an assumption reinsurance agreement, 100% of the
policies of AGL, excluding the variable life and annuities. As part of this
transaction the company sold the separate accounts business with assets and
liabilities for $109.4 million recording proceeds of $3.9 million. No gain or
loss resulted on the sale.
The unaudited pro forma consolidated results of operations, which assume
that AGL had been sold as of January 1, 1999 is as follows:
For the Year Ended
December 31, 1999
------------------
(in millions)
Total Revenue $ 495.7
Net Income from Continuing Operations $ 0.2
Net Income $ 0.5
Effective May 31, 1998, Guarantee Life acquired the Westfield Life
Insurance Company from Ohio Farmers Insurance Company for $100.0 million,
consisting of $90.0 million in cash and 371,402 restricted shares of Guarantee
Life common stock valued at $10.0 million. In addition, approximately $2.0
million of expenses were capitalized as part of this transaction. Guarantee Life
acquired $396.9 million in assets and assumed $294.5 million in liabilities in
this transaction. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair value at the date of acquisition. No goodwill was recorded in
this transaction. The results of operations, since the date of acquisition, have
been included in the accompanying consolidated financial statements.
6
<PAGE>
The unaudited pro forma consolidated results of operations, which assume
that PFG and Westfield had been acquired as of January 1, 1997 are as follows:
For the Years Ended
December 31,
-----------------------
(in millions)
1998 1997
------- -------
Total Revenue $ 450.0 $ 389.2
Net Income from Continuing Operations $ 12.1 $ 14.2
Net Income $ 11.7 $ 14.0
Pro forma presented herein related to acquisition and disposal data does
not purport to be indicative of the results that would have been obtained had
this acquisition occurred at the beginning of the periods presented and is not
intended to be indicative of future results.
All significant intercompany transactions have been eliminated in
consolidation.
(b) Investments in Fixed Maturities and Equity Securities
Categorization of fixed maturities and equity securities
Fixed maturity and equity securities are carried at fair value unless
Guarantee Life demonstrates that it has the positive intent and ability to hold
these investments to maturity. Fixed maturity and equity securities must be
classified into one of three categories: 1) held-to-maturity, 2)
available-for-sale, or 3) trading securities.
Management determines the appropriate classification of fixed maturities
and equity securities at the time of purchase and reevaluates such designation
at each balance sheet date. When changes in condition cause a fixed maturity
investment to be transferred to a different category, the security is
transferred to the new category at its fair value at the date of transfer. In
1999 and 1998 there were no such transfers. In 1997, Guarantee Life transferred
one security with an amortized cost of $0.5 million from the held-to-maturity
category due to deterioration in the issuers' credit quality. The credit was
sold during 1997 realizing a loss of $80,000.
Available-for-sale fixed maturities and equity securities
Available-for-sale fixed maturities and equity securities (common and
nonredeemable preferred stocks) are carried at fair value. After adjusting
related balance sheet accounts as if the unrealized gains had been realized, the
net adjustment is recorded within other accumulated comprehensive income on
securities within shareholders' equity. If the fair value of a security
classified as available-for-sale declines below its cost and this decline is
considered to be other than temporary, the security is reduced to its net
realizable value, and the reduction is recorded as a realized loss.
Held-to-maturity fixed maturities
Fixed maturities for which Guarantee Life has both the ability and the
intent to hold to maturity are stated at amortized cost adjusted for other than
temporary fair value decline. Amortized cost reflects actual cost adjusted for
amortization of premium and accretion of discount.
Mortgage Loans
Mortgage loans on real estate are stated at unpaid principal balance, net
of unamortized discounts and valuation allowances. The valuation allowances on
mortgage loans are based on losses expected by management to be realized on
transfers of mortgage loans to real estate, on the disposition or settlement of
mortgage loans and on mortgage loans which management believes may not be
collectible in full.
Policy loans, investment real estate and other invested assets
Policy loans are carried at unpaid balances. Investment real estate is
generally stated at depreciated cost, including development costs, less
allowances for other than temporary decline in value. Investment real estate
acquired in satisfaction of debt is valued at the lower of cost or estimated
fair value at date of acquisition and is periodically revalued. Other invested
assets are recorded at amortized cost less allowances.
7
<PAGE>
Investment income
Bond premium and discounts are amortized into income using the scientific
yield method over the term of the security. Premiums and discounts on
mortgage-backed securities are amortized using the interest method over the
expected life of each security. In addition, a pro rata portion of premiums and
discounts is recognized when unscheduled principal payments are received and is
included in net investment income. Realized gains and losses on sales of
investments are recognized in net income on the specific identification basis.
Changes in fair values of available-for-sale fixed maturities and equity
securities are reflected as a component of accumulated comprehensive income
directly in shareholders' equity and, accordingly, have no effect on net income.
Interest is recognized as earned on the accrual basis of accounting. Dividends
are recognized on the ex-dividend date.
Invested asset impairment and valuation allowances
Invested assets are considered impaired when Guarantee Life determines
that collection of all amounts due under the contractual terms is doubtful.
Guarantee Life adjusts invested assets to their estimated net realizable value
at the point at which it determines an impairment is other than temporary.
Guarantee Life has also established valuation allowances for mortgage loans and
other invested assets. Valuation allowances for other than temporary impairments
in value are netted against the asset categories to which they apply, and
additions to valuation allowances are included in total investment results.
(c) Deferred Policy Acquisition Costs
For limited payment and other traditional life insurance policies, certain
commissions, expenses of the policy issue and underwriting departments and other
variable expenses have been deferred. These deferred policy acquisition costs
are being amortized in proportion to the ratio of the expected annual premium
revenue to the expected total premium revenue. Expected premium revenue was
estimated with the same assumptions used for computing liabilities for future
policy benefits for these policies.
For universal life and annuity type contracts, the deferred policy
acquisitions costs are amortized over a period of not more than twenty years in
relation to the present value of estimated gross profits arising from estimates
of mortality, interest, expense and surrender experience. The estimates of
expected gross profits are evaluated regularly and are revised if actual
experience or other evidence indicates that revision is appropriate. Upon
revision, total amortization recorded to date is adjusted by a charge or credit
to current earnings. Deferred policy acquisition costs are adjusted for the
impact on estimated gross profits of net unrealized gains and losses on
securities.
For short duration contracts, certain acquisition costs have been deferred
and are amortized over the life of the related insurance policies. Deferred
policy acquisition costs are reviewed for recoverability from future income,
including investment income, and costs which are deemed unrecoverable are
expensed in the period in which the determination is made. No such costs have
been deemed unrecoverable during the three years in the period ending December
31, 1999.
(d) Recognition of Insurance Premium Revenue and Related Expenses
For limited payment contracts, net premiums are recorded as revenue, and
the difference between the gross premium and the net premium is deferred and
recognized in income in a constant relationship to insurance in force. For other
traditional life policies, premiums are recognized when due, less allowances for
estimated uncollectible balances.
For universal life and annuity policies, contract charges for mortality,
surrender and expense, other than front-end expense charges, are reported as
income when charged to policyholder accounts. Expenses consist primarily of
benefit payments in excess of policyholder account values and interest credited
to policyholder accounts. Profits are recognized over the life of universal life
type contracts through the amortization of deferred policy acquisition costs in
relation to estimated gross profits from mortality, interest, surrender and
expense.
8
<PAGE>
For accident and health policies, premium income is earned pro rata over
the term of the contracts. Premiums received but not earned are recorded as
liabilities.
(e) Future Policy Benefits and Policyholder Account Balances
For traditional life insurance policies, future policy benefits and
dividend liabilities are computed using a net level premium method on the basis
of actuarial assumptions as to mortality, persistency and interest established
at policy issue. Assumptions established at policy issue as to mortality and
persistency are based on industry standards and Guarantee Life's historical
experience, which, together with interest and expense assumptions, provide a
margin for adverse deviation. Interest rate assumptions principally range from
2.5% to 4.5%. When the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses, unrecoverable deferred policy acquisition
costs are written off and thereafter a premium deficiency reserve is established
through a charge to earnings.
Accident and health benefits for active lives are calculated using the net
level premium method and assumptions as to future morbidity, withdrawals and
interest which provide a margin for adverse deviation. Benefit liabilities for
disabled lives are calculated using the present value of benefits method and
experience assumptions as to claim termination, expense and interest which also
provide a margin for adverse deviation.
Policyholders' account balances for universal life and annuity policies
are equal to the policy account value before deduction of any surrender charges.
The policy account value represents an accumulation of gross premium payments
plus credited interest less expense and mortality charges and withdrawals. An
additional liability is established for deferred front-end expense charges on
universal life type policies. These expense charges are recognized in income as
policyholder assessments using the same assumptions as are used to amortize
deferred policy acquisition costs. Weighted average interest crediting rates for
universal life policies were 5.61%, 5.77% and 5.68%; and for annuity policies,
were 4.73%, 5.28% and 5.38% for 1999, 1998 and 1997, respectively.
(f) Policy and Contract Claims
Guarantee Life establishes a liability for unpaid claims based on
estimates of the ultimate cost of claims incurred, which is comprised of
aggregate case basis estimates and average claim costs for reported claims and
estimates of incurred but unreported losses based on past experience. Guarantee
Life's policy and contract claims liability includes a provision for both life
and accident and health claims.
The liability for unreported losses is established using various
statistical and actuarial techniques reflecting historical patterns of
development of paid and reported losses adjusted for current trends. The
liability is continually reviewed and updated as new information becomes
available. Resulting adjustments are reflected in income currently. Adjustments
related to claims incurred in prior periods have not been material for all
periods presented in the accompanying consolidated statements of income.
Management believes the liabilities for unpaid claims are adequate to
cover the ultimate liability; however, due to the underlying risks and the high
degree of uncertainty associated with the determination of the liability for
unpaid claims, the amounts which will ultimately be paid to settle these
liabilities cannot be determined precisely and may vary from the estimated
amount included in the consolidated balance sheets.
(g) Property, Plant, and Equipment
Property, plant, and equipment is presented at cost less accumulated
depreciation. Expenditures resulting in significant betterment or improvement of
the buildings are included in the cost of the building. Maintenance, repairs,
and renewals of a minor nature are charged to operations as incurred. Guarantee
Life uses the straight-line method of depreciation based upon the estimated
useful lives of the buildings and improvements.
9
<PAGE>
(h) Guaranty Fund Assessments
As a condition of doing business, states and jurisdictions in which
Guarantee Life does business have adopted laws requiring membership in life and
health insurance guaranty funds, which are organized to pay contractual
obligations under insurance policies issued by insolvent and failed life and
health insurers. Member companies are subject to assessments each year based on
life, health, or annuity premiums collected in the state. In some states these
assessments may be applied against premium taxes.
In accordance with estimates provided by the National Organization of Life
and Health Guaranty Associations, Guarantee Life has established a liability of
$1.3 million in the accompanying consolidated financial statements for amounts
due for actual and potential insurance company failures in the states where
Guarantee Life writes business. Guarantee Life capitalizes the assessments which
are deductible when they are paid and generally amortizes the payments over not
more than five years. Guaranty fund assessments capitalized are reviewed
quarterly to determine that the unamortized portion of such costs does not
exceed recoverable amounts. At December 31, 1999 and 1998, Guarantee Life had
$1.0 million and $1.5 million, respectively, of unamortized guaranty fund
assessments which are included in other assets.
(i) Pension and Other Post Retirement Benefits
Guarantee Life has a defined benefit pension plan which covers
substantially all of its employees. Current pension costs are funded at the
maximum deductible amount allowed by the Internal Revenue Service (IRS).
Periodic net pension expense is based on the cost of incremental benefits for
employee service during the period, interest on the projected benefit
obligation, actual return on plan assets and amortization of actuarial gains and
losses. In addition to providing pension benefits, Guarantee Life provides life
insurance benefits to retired employees. Substantially all of Guarantee Life's
employees may become eligible for the life benefits. Guarantee Life recognizes
the cost of these post retirement benefits as they are earned by the employees
and accrues for the expected cost of providing those benefits to employees and
their beneficiaries during the years the employees render service.
(j) Federal Income Taxes
Deferred 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. Deferred tax assets and liabilities are measured using enacted tax rates
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.
(k) Fair Value of Financial Instruments
Fair values for all fixed securities are determined by independent
valuation procedures. The fair values for mortgage loans and policy loans are
estimated using discounted cash flow analyses and using interest rates currently
being offered for similar loans to borrowers with similar credit ratings. Loans
with similar characteristics are aggregated for purposes of the calculations.
Prepayments are assumed to occur at the same rate as in previous periods when
interest rates were at levels similar to current levels. The fair value of
investment real estate is based on market values for comparable local real
estate. The fair values of Guarantee Life's other invested assets are based on
current market prices and discounted expected future cash flows for related
investments.
Fair values for Guarantee Life's liabilities under investment type
reinsurance contracts (those contracts without significant mortality risks) are
estimated using discounted cash flow calculations, based on interest rates
currently being offered for similar contracts with maturities consistent with
those remaining for the contracts being valued. The intangible value of
long-term relationships with policyholders is not taken into account in
estimating fair values disclosed. Fair values for Guarantee Life's insurance
contracts other than investment type contracts are not required to be disclosed.
However, the fair values of liabilities under all insurance contracts are taken
into consideration in Guarantee Life's overall management of interest rate risk,
which minimizes exposure to changing interest rates through the matching of
investment maturities with amounts due under insurance contracts.
10
<PAGE>
(l) Separate Accounts
Separate account assets, carried at market value, and liabilities
represent variable annuity and universal life contract funds invested primarily
in equity securities. The investment income, gains and losses of these accounts
accrue directly to the policyholders and are not included in the operations of
Guarantee Life.
(m) Cash Equivalents
For purposes of the consolidated statements of cash flows, Guarantee Life
considers cash equivalents to be all highly liquid debt instruments with
original maturities of three months or less when purchased. The carrying amounts
reported in the consolidated balance sheets for these instruments approximates
their fair value.
(n) Earnings Per Share
Earnings per share data has not been presented because Guarantee Life
ceased being a public company on December 30, 1999.
(o) Comprehensive Income
The Company classifies items of other comprehensive income by their nature
and displays the accumulated balance of other comprehensive income separately
from retained deficit and additional paid-in capital in the equity section of
the consolidated balance sheets.
(p) Discontinued Operations
In 1994, Guarantee Life decided to withdraw from the alternate workers'
compensation benefit program segment. The operations of this segment have been
reflected on a net basis and classified as discontinued operations in the
accompanying consolidated financial statements. See also note 15.
(q) Risks and Uncertainties
Certain risks and uncertainties are inherent to the Company's day-to-day
operations and to the process of preparing its consolidated financial
statements. The more significant of those risks and uncertainties, as well as
the Company's method for mitigating the risks, are presented below and
throughout the notes to the consolidated financial statements:
Consolidated Financial Statements - The preparation of consolidated
financial statements required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Reinsurance - Reinsurance contracts do not relieve the Company from its
obligations to reinsureds. Failure of reinsurers to honor their obligations
could result in losses to the Company; consequently, allowances are established
for amounts deemed uncollectible. The Company evaluates the financial condition
of its reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. Management believes that any liability arising from this
contingency would not be material to the Company's financial position.
Investments - The Company is exposed to risks that issuers of securities
owned by the Company will default, or that interest rates will change and cause
a decrease in the value of its investments. Management mitigates these risks by
conservatively investing in high-grade securities and by matching maturities of
its invesment with the anticipated payouts of its liabilities.
11
<PAGE>
(r) Reclassifications
Certain reclassifications have been made to the prior consolidated
financial statements to conform with the most current presentation.
(2) Investments
Fixed maturities at December 31, 1999 (in thousands) are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 87,768 $ 125 $ (2,754) $ 85,139
Obligations of states and political subdivisions 14,385 7 (475) 13,917
Debt securities issued by foreign governments 8,400 -- (452) 7,948
Corporate securities 485,996 11,638 (37,390) 460,244
Mortgage-backed securities 273,866 3,873 (14,164) 263,575
--------- --------- --------- ---------
$ 870,415 $ 15,643 $ (55,235) $ 830,823
Equity Securities 25,154 3,646 (3,915) 24,885
--------- --------- --------- ---------
$ 895,569 $ 19,289 $ (59,150) $ 855,708
========= ========= ========= =========
Held-to-maturity:
Corporate securities $ 103,361 $ 3,855 $ (6,222) $ 100,994
Mortgage-backed securities 25,650 404 (3,829) 22,225
--------- --------- --------- ---------
$ 129,011 $ 4,259 $ (10,051) $ 123,219
========= ========= ========= =========
</TABLE>
Guarantee Life manages its credit risk associated with fixed maturities by
diversifying its portfolio. At December 31, 1999, Guarantee Life held no
corporate debt securities or foreign government debt securities of a single
issuer which had a carrying value in excess of 5% of shareholders' equity.
At December 31, 1999, Guarantee Life held $132.0 million of
mortgage-backed securities issued by U.S. Government agencies and $157.2 million
of mortgage-backed securities issued by Guarantee Life. At December 31, 1999,
Guarantee Life held no other mortgage-backed securities of a single issuer which
had a carrying value in excess of 5% of shareholders' equity. Guarantee Life's
non-income earning investments in fixed maturities are not material.
12
<PAGE>
Fixed maturities at December 31, 1998 (in thousands) are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 101,338 $ 2,603 $ 89 $ 103,852
Obligations of states and political subdivisions 13,081 1,524 -- 14,605
Debt securities issued by foreign governments 15,394 1,290 4 16,680
Corporate securities 506,911 21,571 5,527 522,955
Mortgage-backed securities 228,873 3,515 2,117 230,271
--------- --------- --------- ---------
$ 865,597 $ 30,503 $ 7,737 $ 888,363
Equity Securities 20,643 4,176 984 23,835
--------- --------- --------- ---------
$ 886,240 $ 34,679 $ 8,721 $ 912,198
========= ========= ========= =========
Held-to-maturity:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 3,627 $ 55 $ -- $ 3,682
Obligations of states and political subdivisions 7,654 634 -- 8,288
Corporate securities 133,203 11,103 658 143,648
Mortgage-backed securities 2,696 27 -- 2,723
--------- --------- --------- ---------
$ 147,180 $ 11,819 $ 658 $ 158,341
========= ========= ========= =========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. The amortized cost and estimated fair value of fixed
maturities by contractual maturity (in thousands) are as follows:
December 31, 1999
------------------------
Amortized Estimated
Cost Fair Value
--------- ----------
Due in one year or less $ 34,944 $ 35,089
Due after one year through five years 169,858 167,503
Due after five years through ten years 279,549 265,606
Due after ten years 215,559 200,044
-------- --------
699,910 668,242
Mortgage-backed securities 299,516 285,800
-------- --------
$999,426 $954,042
======== ========
Guarantee Life had fixed maturities, mortgage loans, preferred stocks and
common stocks with carrying values aggregating $11 million as of December 31,
1999 on deposit with regulatory authorities.
A summary of realized investment gains (losses) (in thousands) is as
follows:
Years Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
Fixed maturities:
Gross gains $ 1,677 $ 4,669 $ 1,883
Gross losses (2,208) (1,419) (1,851)
Equity securities:
Gross gains 654 1,944 --
Gross losses (467) -- --
Sale of Guarantee American -- -- 785
Other investments (37) (3,007) 1,401
Change in investment valuation allowances -- (209) (948)
------- ------- -------
Realized investment gains/(losses) $ (381) $ 1,978 $ 1,270
======= ======= =======
13
<PAGE>
A summary of consolidated net investment income (in thousands) is as
follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Fixed maturities $ 69,494 $ 65,313 $ 51,450
Equity securities 971 229 394
Mortgage loans 8,674 7,682 6,929
Policy loans 2,206 1,984 1,420
Investment real estate 1,032 990 1,415
Other 7,192 3,672 3,955
-------- -------- --------
89,569 9,870 65,563
Less investment expenses (2,313) (2,443) (5,510)
-------- -------- --------
Net investment income from invested assets 87,256 77,427 60,053
Less discontinued operations (note 15) (1,998) (2,776) (1,604)
-------- -------- --------
Net investment income $ 85,258 $ 74,651 $ 58,449
======== ======== ========
Investment expenses include depreciation and depletion of $0.7 million,
$0.7 million and $0.6 million in 1999, 1998 and 1997, respectively.
A summary of the components of the net unrealized appreciation on invested
assets, including Closed Block, carried at fair value (in thousands) is as
follows:
Years Ended December 31,
------------------------
1999 1998
-------- --------
Unrealized appreciation/(depreciation):
Fixed maturities available-for-sale $(49,820) $ 32,568
Equity securities (270) 3,485
Deferred policy acquisition costs 6,499 (5,629)
Deferred income taxes 15,447 (10,648)
-------- --------
Net unrealized appreciation/(depreciation) $(28,144) $ 19,776
======== ========
(3) Mortgage Loans
Investments in mortgage loans consist almost entirely of commercial
mortgage loans which are primarily fixed-rate first mortgages on completed
properties. The following table sets forth additions, reductions from payments
and other charges and foreclosures related to the mortgage loan portfolio (in
thousands):
Years Ended December 31,
--------------------------
1999 1998
--------- ---------
Commercial loans:
Beginning Balance $ 105,208 $ 86,166
Additions 18,415 25,900
Payments and other charges (9,138) (7,759)
--------- ---------
Ending Balance 114,485 104,307
Other mortgage loans -- 904
Valuation allowance (1,475) (1,475)
--------- ---------
$ 113,010 $ 103,736
========= =========
Guarantee Life manages its credit risk associated with these loans by
diversifying its mortgage portfolio by property type and geographic location. As
of December 31, 1999, Guarantee Life had no single mortgage loan out-
14
<PAGE>
standing which had a carrying value in excess of 5% of shareholders' equity. As
of December 31, 1999, all commercial mortgage loans bore a fixed interest rate
and Guarantee Life had no material loans over 60 days past due. Guarantee Life
had no outstanding commitments to fund mortgage loans as of December 31, 1999.
(4) Deferred Policy Acquisition Costs
A summary of the policy acquisition costs deferred and amortized (in
thousands) is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period $ 144,844 $ 102,696 $ 77,968
Policy acquisition costs deferred 102,571 80,048 55,848
Policy acquisition costs amortized (79,677) (77,964) (57,364)
Policy acquisition costs acquired in purchase -- 40,198 29,525
--------- --------- ---------
167,738 144,978 105,977
Change in deferred policy acquisition costs relating to unrealized
appreciation of invested assets carried at fair value (12,128) (134) (3,281)
--------- --------- ---------
Total reflected in consolidated balance sheet $ 155,610 $ 144,844 $ 102,696
========= ========= =========
</TABLE>
(5) Reinsurance
In the ordinary course of business, Guarantee Life assumes business from
and cedes business to other insurers under a variety of contracts. The existence
of ceded reinsurance constitutes a means by which Guarantee Life has
underwritten a portion of its business.
Amounts paid or deemed to have been paid for reinsurance contracts are
recorded as reinsurance receivables. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account for
the underlying policies.
Guarantee Life's retention limit on its life insurance business in 1999
was generally $150,000 on a life risk in the Employee Benefits and Group Special
Markets Divisions, $250,000 on a life risk for individual business originally
written through Guarantee Life. Certain reinsurers have agreed to reinsure
automatically all amounts on any one life in excess of the retention amount not
to exceed eight times Guarantee Life's retention in 1999. Amounts in excess of
the automatic acceptance limits of Guarantee Life's retention may be applied for
facultatively. As of December 31, 1999 and 1998, the amount of ceded life
insurance in force was approximately $5.5 billion and $5.3 billion,
respectively.
Guarantee Life cedes 70% of an equity indexed annuity block on a true
coinsured basis. The policyholder deposits ceded on this block amounted to $28.5
million as of December 31, 1999.
Guarantee Life cedes 100% of its individual accident and health business.
Guarantee Life's retention level on group accident and health business varies by
product. On its excess loss insurance program, Guarantee Life retains 30% on the
first $300,000 of eligible expenses per claim with 100% reinsurance coverage on
expenses in excess of that amount.
Effective January 1, 1995, AGL entered into a reinsurance agreement to
assume $50,000,000 in existing single premium deferred annuity business from
Phoenix Home Mutual Life Insurance Company ("Phoenix"). Pursuant to the terms of
the reinsurance agreement, assets equal to policyholder liabilities assumed are
maintained in a trust account. As of December 31, 1999, policyholder deposits
related to this business amounted to $24.2 million.
In a separate reinsurance agreement, AGL assumed 80% quota share in all
production of a single deferred annuity product which was jointly developed with
Phoenix. Pursuant to the terms of the reinsurance agreement, assets equal to
policyholder liabilities assumed are maintained in a trust account. This
reinsurance agreement can be terminated by either party with respect to new
business with 90 days notice. As of December 31, 1999, policyholder deposits
related to this business amounted to $4.4 million. These blocks of business were
included in the business Guarantee Life Insurance assumed from AGL on October
31, 1999.
15
<PAGE>
Guarantee Life generally strives to diversify its credit risks related to
reinsurance ceded; however, certain concentrations of credit risk related to
reinsurance recoverables (including unearned premiums) exist with the insurance
organizations listed in the table below (in thousands):
December 31,
1999
-----------
RGA Reinsurance Company $ 31,623
Cologne Life Reinsurance Company 11,772
Lonestar Life Insurance Company 10,347
Phoenix Home Life Mutual Insurance Company 6,204
Swiss RE Life & Health America, Inc. 5,150
ESG (European Specialty Limited) 4,849
UNUM Life Insurance Company of America 4,674
Lincoln National Life Insurance Company 4,600
Indianapolis Life Insurance Company 3,555
Security Life of Denver 2,195
London Life Reinsurance 2,147
Business Men's Assurance Company 2,108
Life Reassurance Corp. of America 2,012
John Hancock Mutual Life Insurance Company 1,678
Great Midwest 1,000
All Others 8,036
---------
Total before discontinued operations 101,950
Less discontinued operations (note 15) (12,629)
---------
Total reflected in accompanying consolidated balance sheet $ 89,321
=========
This underwriting activity subjects Guarantee Life to certain risks. To
the extent that reinsurers who are underwriting Guarantee Life's business become
unable to meet their contractual obligations, Guarantee Life retains the primary
obligation to its direct policyholders because the existence of this reinsurance
does not discharge Guarantee Life from its obligation to its policyholders.
Guarantee Life has policies and procedures to approve reinsurers prior to
entering into an agreement and also to monitor financial stability on a
continuous basis. As of December 31, 1999 and 1998 Guarantee Life had no
significant overdue reinsurance balances. As of December 31, 1999 Guarantee Life
held funds and other collateral of $8.9 million related to the above
recoverables.
The effect of reinsurance on premiums and amounts earned is as follows (in
thousands):
Direct premiums and policyholder assessments $ 459,600
Reinsurance assumed 6,053
Reinsurance ceded (72,214)
---------
Net premiums and amounts earned $ 393,439
=========
16
<PAGE>
(6) Property, Plant, and Equipment
A summary of property, plant, and equipment (in thousands) is as follows:
December 31,
-----------------------
1999 1998
-------- --------
Home office building $ 19,928 $ 19,928
Plant and equipment 14,007 12,767
Less accumulated depreciation (15,212) (12,766)
-------- --------
$ 18,723 $ 19,929
======== ========
(7) Closed Block
On December 15, 1994, Guarantee Life Insurance's Board of Directors
adopted a plan to convert Guarantee Life Insurance from its mutual form to a
stock life insurance company (demutualization). The Holding Company, a Delaware
corporation, was formed to act as the holding company for the demutualization of
Guarantee Life Insurance.
The plan of conversion contained an arrangement, known as a Closed Block,
to provide for dividends on policies that were in force on the effective date
and are within the classes of individual policies for which Guarantee Life
Insurance had a dividend scale in effect for 1994. Guarantee Life has maintained
a book of individual life policies which are participating policies and entitle
the policyholders to receive dividends based on actual interest, mortality,
morbidity, and expense experience for the related policies. These dividends are
distributed to the policyholders through an annual dividend using current
dividend scales which are approved by the Board of Directors. These policies are
now included in the Closed Block. The Company has no other participating
policies.
The Closed Block is designed to give reasonable assurance to holders of
affected policies that assets will be available to support such policies,
including maintaining dividend scales in effect for 1994 if the experience
underlying such scales continues. The assets, including revenue therefrom,
allocated to the Closed Block will accrue solely to the benefit of the holders
of policies included in the block until the block is no longer in effect.
Guarantee Life will not be required to support the payment of dividends on
Closed Block policies from its general funds.
The Closed Block includes only those revenues, benefits, expenses, and
dividends considered in funding it. The pre-tax income of the Closed Block is
reported as a single line item of total revenues from continuing operations in
Guarantee Life's consolidated statements of income. Income tax expense
applicable to the Closed Block, which was funded, is reflected as a component of
income tax expense.
The excess of Closed Block liabilities over Closed Block assets as of
December 31, 1999, 1998 and 1997 represents the total estimated future
contribution from the Closed Block expected to emerge from operations in the
Closed Block after income taxes. The contribution from the Closed Block will be
recognized in income over the period the policies and contracts in it remain in
force.
If, over the period the Closed Block remains in existence, the actual
cumulative contribution is greater than the expected cumulative contribution,
only such expected contribution would be recognized in income. The excess of the
actual cumulative contribution over such expected cumulative contribution would
be paid to Closed Block policyholders as additional policyholder dividends. If
over such period, the actual cumulative contribution is less than expected, only
such actual contribution would be recognized in income. However, dividends could
be changed in the future, which would increase future actual contributions until
the actual cumulative contributions equal the expected cumulative contributions.
Therefore, management believes that over time the actual cumulative
contributions from the Closed Block will approximately equal the expected
cumulative contributions due to the effect of dividend changes.
17
<PAGE>
Summarized financial information of the Closed Block (in thousands) is as
follows:
December 31,
--------------------
1999 1998
-------- --------
Assets
------
Invested assets:
Fixed maturities:
Available-for-sale, at fair value (amortized cost
$223,695 and $210,935) $213,810 $220,603
Held-to-maturity, at amortized cost (fair value:
$29,464 and $48,460) 31,495 44,595
-------- --------
245,305 265,198
Policy loans 44,490 46,217
Other invested assets, net -- 2,693
-------- --------
Total invested assets 289,795 314,108
Cash and cash equivalents (3,224) 2,000
Accrued investment income 1,984 2,367
Deferred policy acquisition costs 8,638 10,476
Other assets 997 1,381
-------- --------
Total Closed Block assets $298,190 $330,332
======== ========
Liabilities
-----------
Life future policy benefits $297,171 $300,254
Policyholder account balances for annuity contracts 939 885
Policy and contract claims 755 839
Other policyholder funds 72,009 71,966
Dividends payable to policyholders 7,131 7,052
Deferred income taxes 2,750 3,384
Other liabilities 618 2,553
-------- --------
Total Closed Block liabilities $381,373 $386,933
======== ========
Condensed statements of income for the Closed Block (in thousands) is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Insurance premiums and policyholder assessments, net of reinsurance $ 18,603 $ 20,142 $ 20,933
Investment income, net 21,300 21,918 21,894
Realized investment (losses) 942 1,465 (155)
Other income 18 46 86
-------- -------- --------
Total revenues $ 40,863 $ 43,571 $ 42,758
-------- -------- --------
Policyholder benefits and expenses:
Total policyholder benefits $ 21,243 $ 22,162 $ 22,244
Policy acquistion costs 2,096 2,071 1,983
Other insurance operating expenses 4,103 4,189 3,404
-------- -------- --------
Total benefits and expenses 27,442 28,422 27,631
Dividends to policyholders 10,289 10,426 11,056
-------- -------- --------
Contribution from Closed Block $ 3,132 $ 4,723 $ 4,071
======== ======== ========
</TABLE>
18
<PAGE>
(8) Liability for Unpaid Accident and Health Claims and Claim Adjustment
Expenses
The change in the liability for unpaid EBD and GSM accident and health
claims and claim adjustment expenses is summarized (in thousands) as follows:
Years Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Balance at January 1 $ 123,186 $ 98,233 $ 93,881
Less reinsurance recoverables (39,201) (31,781) (38,468)
--------- --------- ---------
Net balance at January 1 83,985 66,452 55,413
Incurred related to:
Current year 184,731 125,296 79,739
Prior years 3,712 5,936 1,151
--------- --------- ---------
Total incurred 188,443 131,232 80,890
Paid related to:
Current year 129,160 74,045 48,590
Prior years 28,638 39,654 21,261
--------- --------- ---------
Total paid 157,798 113,699 69,851
--------- --------- ---------
Balance at December 31 114,630 83,985 66,452
Plus reinsurance recoverables 27,451 39,201 31,781
--------- --------- ---------
Balance at December 31 $ 142,081 $ 123,186 $ 98,233
========= ========= =========
The liability for unpaid accident and health claims and claim adjustment
expenses is included in policy and contract claims and future policy benefits:
accident and health, on the consolidated balance sheet. As a result of a change
in the estimate of insured events in prior years, the provision for claims and
claim adjustment expenses increased (net of reinsurance) by approximately
$3,700, $6,000 and $1,000 in 1999, 1998 and 1997, respectively.
(9) Federal Income Taxes
The actual federal income tax expense attributable to income from
continuing operations differs from the amounts computed by applying the U.S.
federal income tax rate of 35% to income from continuing operations before
income taxes as a result of the following (in thousands):
Years Ended December 31,
----------------------------
1999 1998 1997
------ ------ ------
Computed "expected" tax expense $ 833 $5,039 $9,008
Increase in income taxes resulting from:
Other, net -- -- 90
------ ------ ------
Total $ 833 $5,039 $9,098
====== ====== ======
Total income taxes, substantially all of which are federal, are recorded
in the consolidated statements of income and directly in certain shareholders'
equity accounts. Income tax expense (benefit) was allocated as follows: (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statements of Income:
Current $ 8,254 $ 11,356 $ 12,094
Deferred (7,421) (6,317) (2,996)
-------- -------- --------
Total income taxes from continuing operations 833 5,039 9,098
Income tax expense (benefit) in discontinued operations 202 (177) (107)
-------- -------- --------
Income taxes included in the statements of income $ 1,035 $ 4,862 $ 8,991
Shareholders' Equity:
Deferred income taxes related to unrealized appreciation (depreciation) of
invested securities within accumulated other comprehensive income
carried at fair value, net (26,095) 3,635 4,906
-------- -------- --------
Total income taxes $(25,060) $ 8,497 $ 13,897
======== ======== ========
</TABLE>
19
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities (included in
other liabilities) are presented below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Policy liabilities $47,344 $29,828 $30,707
Unrealized loss on investments available for sale 15,447 -- --
Net operating loss carryovers 7,638 7,739 5,122
Other 15,115 10,162 10,110
------- ------- -------
Net deferred tax assets $85,544 $47,729 $45,939
Deferred tax liabilities:
Deferred policy acquisition costs 46,055 31,923 35,475
Unrealized gain on investments available for sale -- 10,648 7,013
Other 3,106 2,291 3,266
------- ------- -------
Total gross deferred tax liabilities 49,161 44,862 45,754
------- ------- -------
Net deferred tax assets $36,383 $ 2,867 $ 185
======= ======= =======
</TABLE>
As discussed in note 1, Guarantee Life carries its invested securities
classified as available-for-sale at fair value. For federal income tax purposes,
Guarantee Life believes it is not a dealer with respect to these investment
securities and, therefore, recognizes gains and losses on such investment
securities only when they are sold.
As of December 31, 1999, Guarantee Life does not believe any valuation
allowance with respect to the gross deferred tax assets is necessary as it is
more likely than not that these deferred tax assets will be realized due to the
expected reversal of existing temporary differences attributable to gross
deferred tax liabilities and the carryback potential of prior year income taxes
paid.
Prior to 1984, a portion of Guarantee Protective's current income was not
subject to current income tax but was accumulated for income tax purposes in a
memorandum account designated as "policyholders' surplus." The total of the life
companies' balances in their respective "policyholders' surplus" accounts at
December 31, 1983 was frozen by the Tax Reform Act of 1984 and, accordingly,
there have been no additions to the accounts after that date. Certain triggering
events will cause a recapture of all or part of the "policyholders' surplus"
account. Any amounts recaptured must be included in taxable income and may not
be offset by any existing NOL carryovers. As of December 31, 1999, the balance
of Guarantee Protective's "policyholders' surplus" account was approximately
$2.4 million. In addition, the accumulated amount of income subject to current
taxation, less certain adjustments, is set aside in another special memorandum
tax account called a "shareholders' surplus" account. Dividends paid by
Guarantee Protective in excess of the balance in the "shareholders' surplus"
account cannot be paid without a portion of the "policyholders' surplus"
becoming taxable. The balance of Guarantee Protective's "shareholders' surplus"
account was $1.2 million as of December 31, 1999.
During the years ended December 31, 1999, 1998, and 1997, Guarantee Life's
cash payments for federal income taxes were $11.6 million, $8.7 million, and
$10.1 million, respectively.
Guarantee Life has net operating loss carryovers (NOL) as of December 31,
1999 of approximately $21.8 million. These NOLs, if not utilized, will expire in
the years 2000 to 2018. A majority of these NOLs relate to non-life members.
(10) Employee Benefit Plans
Pension Plans
Guarantee Life Insurance has a noncontributory defined benefit cash
balance pension plan (qualified plan) covering substantially all home office
employees. Contributions credited to a participant based on a percentage
(determined by the participation age) times eligible compensation. Interest
credited rates are also applied annually.
20
<PAGE>
It is Guarantee Life Insurance's policy to fund pension costs in accordance with
the requirements of the Employee Retirement Income Security Act of 1974 and,
based on such standards, no funding was required for each of the years
presented. Substantially all of the plan assets are invested in the general and
separate investment accounts of two life insurance companies. The plan will be
merged into the Jefferson Pilot defined benefit pension plan at December 31,
2000.
Net periodic benefit cost related to the qualified plan included the
following components (in thousands):
Years Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
Service cost-benefits earned during the year $ 2,188 $ 1,682 $ 1,752
Interest cost on projected benefit obligations 2,034 1,939 1,811
Actual return on plan assets (3,314) (2,951) (5,479)
Net amortization and deferral (617) (523) 2,450
------- ------- -------
Net periodic benefit cost $ 291 $ 147 $ 534
======= ======= =======
The changes in benefit obligation and plan assets for the qualified plan
included in the consolidated balance sheets are as follows (in thousands):
December 31,
---------------------
1999 1998
-------- --------
Change in projected benefit obligation:
Projected benefit obligation at beginning of year $ 32,620 $ 30,866
Service cost 2,188 1,682
Interest cost 2,034 1,939
Plan amendments -- (1,597)
Actuarial loss (4,880) 1,490
Benefits paid (3,822) (1,760)
-------- --------
Projected benefit obligation at end of year $ 28,140 $ 32,620
-------- --------
Change in fair value of plan assets:
Plan assets at beginning of year $ 42,066 $ 37,528
Actual return on plan assets 2,612 6,298
Benefits paid (3,822) (1,760)
-------- --------
Plan assets at end of year $ 40,856 $ 42,066
-------- --------
Funded status $ 12,716 $ 9,446
Unrecognized net actuarial gain (12,002) (8,141)
Unrecognized prior service cost (1,349) (1,473)
Unrecognized net asset at transition (527) (703)
-------- --------
Accrued pension benefit cost $ (1,162) $ (871)
======== ========
The assumptions used in determining pension information were as follows:
Years Ended December 31,
--------------------------
1999 1998 1997
---- ---- ----
Discount rate assumed 7.50% 6.50% 6.75%
Rate of compensation progression 5.50 5.50 5.50
Expected return on assets 8.00 8.00 8.00
Guarantee Life maintained two nonqualified pension plans to provide equal
retirement benefits for employees whose benefits would otherwise be restricted
due to Internal Revenue Code restrictions or the deferral of compensation. As of
December 31, 1999 and 1998, Guarantee Life's unfunded liability for these plans
was approximately $1.5 million and $2.1 million, respectively, which has been
accrued for in these statements. As a result of the change in control, these two
plans were terminated.
21
<PAGE>
Retiree Benefit Plans
In addition to providing pension benefits, Guarantee Life provides certain
life insurance benefits for retired employees. Substantially all employees may
become eligible for those benefits if they reach normal retirement age while
working for Guarantee Life. The benefits are determined at retirement and are
based upon retirement age, length of service and amount of group term life
insurance in force at retirement, subject to a maximum amount of $50,000.
Guarantee Life has established a liability in the amount of $250 thousand and
$1.1 million as of December 31, 1999 and 1998, respectively. The liability is
based upon the present value (including mortality and persistency) of the amount
required to fund the obligation. Guarantee Life recognizes the cost of providing
these benefits as earned. Guarantee Life does not have a separate plan for
retiree medical benefits. No significant medical benefits have been paid for
retirees for the years presented. No formal decision has been made regarding the
future of this plan.
Incentive Compensation, Deferred Compensation, Phantom Stock and 401(k)
Plans
Guarantee Life maintains the 1994 Long-Term Incentive Plan (Incentive
Plan), which includes incentive and nonqualified stock options, performance
shares and, under limited circumstances, restricted stock to officers and key
employees of Guarantee Life. The maximum number of shares of common stock that
could be issued under the Incentive Plan was increased by 600,000 in May 1997 to
1,345,828. The options vest in annual increments of 25% beginning on the second
anniversary of the grant date. Guarantee Life also maintains the Directors Stock
Incentive Plan (Directors Plan) which includes nonqualified stock options for
the members of the Board of Directors of the Holding Company. The maximum number
of shares of common stock that could be issued under the Directors Plan is
90,000. The options vest six months after grant date. Under both plans, the
exercise price of each option equaled the market price of the Holding Company's
stock on the date of grant, and an option's maximum term is ten years.
In February 1997, Guarantee Life's Board of Directors approved the 1997
Associate Stock Incentive Plan (Associate Plan). Under this plan, nonqualified
stock options could be granted to employees and agents. The maximum number of
shares of common stock that could be issued under the Associate Plan is 120,000.
These three plans (Incentive Plan, Directors Plan and Associate Plan) were
terminated December 31, 1999, due to the change in control.
Guarantee Life applies APB Opinion No. 25 and related interpretations in
accounting for the Incentive Plan, Associate Plan and the Directors Plan.
Accordingly, no compensation cost has been recognized for the three plans since
the exercise price of the options was equal to the fair value of the company's
common stock on the date of grant. Had compensation cost been determined using a
fair value based method, Guarantee Life's net income would have been reduced to
the pro forma amounts indicated below. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for the grants during the years ended December
31, 1999, 1998 and 1997, respectively: dividend yield of 1.3%, 1.4% and 1.4%;
expected volatility of 35%, 35% and 33%; risk-free interest rate of 5.50%, 5.50%
and 5.87%; for expected lives of six years for the Incentive Plan options and
two years for the Directors Plan option. The weighted average fair values of
stock options granted in 1999, 1998 and 1997 were $17.31, $24.75 and $20.71,
respectively.
22
<PAGE>
Year Ended December 31,
-------------------------------
1999 1998 1997
------- ------- -------
Net income (in thousands)
As reported $ 1,920 $ 9,029 $16,444
======= ======= =======
Pro forma -- 8,127 $15,924
======= ======= =======
A summary of the status of Guarantee Life's stock option plans as of
December 31, 1999, 1998, and 1997, and changes for the years ended is presented
below:
Years Ended December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
Outstanding, beginning of year 976,433 898,102 512,878
Granted 88,517 248,514 415,057
Exercised (106,862) (42,730) (1,496)
Forfeited (35,890) (127,453) (28,337)
Cancelled due to change in control (922,198) -- --
-------- -------- --------
Outstanding, end of year -- 976,433 898,102
======== ======== ========
Options exercisable at year-end -- 209,607 143,917
======== ======== ========
Guarantee Life maintains the Guarantee Life Insurance Company Incentive
Compensation Plan (Incentive Compensation Plan) which provides short-term
incentives to eligible employees based upon financial and other performance
measures. As of December 31, 1999, 1998 and 1997, benefits in the amount of $5.1
million, $0.4 million and $1.7 million had been expensed and accrued for the
years then ended. Certain amounts awarded under the Incentive Compensation Plan
may be deferred under the Management Deferred Plan. Due to the change in
control, the Incentive Compensation Plan was cancelled at December 30, 1999.
Accrued amounts were paid subsequent to year-end.
Guarantee Life maintained the Guarantee Life Insurance Company Phantom
Stock Plan (Phantom Stock Plan) for certain management employees. The amounts
awarded under the Phantom Stock Plan are based on long-term improvements in
Guarantee Life's capital performance. At December 31, 1998, the accrued benefits
of the plan included in other liabilities was $754,000. As of December 31, 1999,
the Phantom Stock Plan has terminated due to a change in control. All vested
benefits were paid to participants in full.
Guarantee Life maintains the Guarantee Life Insurance Company Deferred
Compensation Plan (Management Deferred Plan) and Guarantee Life Insurance
Company Board of Directors Deferred Compensation Plan (Director Deferred Plan)
that allow management and directors to defer compensation into an
interest-bearing account, which earns interest at a rate equal to that received
by employees for a Guarantee Life Insurance Company IRA, or into a separate
phantom stock account. Under this phantom stock account option, contributions
are deemed to have been used to purchase shares in the Holding Company at
current quoted market rates. Concurrent with the declaration and payment of
shareholder dividends, similar per share amounts are contributed to accounts in
the Management Deferred Plan and Director Deferred Plan. At December 31, 1998,
compensation in the amount of $1.9 million was accrued in these plans which
fully funded the amounts due to participants. As of December 31, 1999, the
Deferred Compensation Plans were terminated due to change in control. All vested
benefits were paid to participants in full. Guarantee Life charged approximately
$1,300,000 and $314,000 to expense relating to this plan in 1999 and 1998,
respectively.
Guarantee Life maintains the Guarantee Life Insurance Company Thrift
Savings Plan (401(k) Plan) for eligible salaried employees. Effective January 1,
1999, the PFG qualified 401(k) plan was merged into the Guarantee Life Insurance
Company Thrift Savings Plan. All employee contributions are vested immediately
and all Company contributions are vested after three years. Guarantee Life
charged $719,000, $686,000 and $594,000 to expense relating to this plan in
1999, 1998 and 1997, respectively. This plan will be merged into Jefferson
Pilot's 401(k) Plan at December 31, 2000.
23
<PAGE>
PFG maintains a nonqualified, unfunded deferred compensation plan for
certain key management personnel and certain directors which provides for
payments upon retirement, death, or disability. Under the plan, management
personnel receive retirement payments equal to a portion of the average prior
five years' base compensation. Directors receive retirement payments based upon
the amount of years of service at PFG and their age at retirement. These
payments are to be made to the individuals or their designated beneficiary for a
maximum period of fifteen years for management personnel and five years for
directors. The plan also provides for reduced benefits upon early retirement,
disability, or termination of employment/service. The plan provided for full
vesting immediately upon a change in control of PFG, as occurred with the
acquisition by Guarantee Life. At December 31, 1999 and 1998, the accrued
benefits of the plan included in other liabilities were $2.5 million and $4.1
million, respectively. Due to the change in control, the plan will be terminated
in 2000, with all vested amounts to be paid to participants.
(11) Fair Value Information
The carrying value and estimated fair value of Guarantee Life's invested
assets and investment type insurance contracts (without material mortality risk)
were as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Fixed maturities $ 959,834 $ 954,042 $1,035,543 $1,046,704
Equity securities 24,885 24,885 23,835 23,835
Mortgage loans 113,010 109,901 103,736 109,438
Policy loans 32,527 32,527 31,767 29,730
Investment real estate 3,162 7,904 3,211 7,800
Other invested assets 14,236 14,236 54,970 54,970
Liabilities:
Annuity contracts $ 324,255 $ 317,001 $ 349,834 $ 336,326
Other policyholder funds 51,475 51,475 43,751 43,751
========== ========== ========== ==========
</TABLE>
(12) Regulatory Matters
A reconciliation of statutory net income determined for Guarantee Life
under statutory accounting practices to that reflected herein (in thousands and
including Closed Block and discontinued operations) is as follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
Net gain from operations as reported to
regulatory authorities $ 17,958 $ 26,035 $ 15,078
Pre-acquisition statutory earning -- (10,131) --
Change in deferred acquisition costs 10,776 (3,437) (3,210)
Deferred federal income taxes 7,421 6,317 2,996
Differences in statutory and GAAP reserves (26,540) (1,332) 1,074
Other, net (7,695) (8,423) 506
-------- -------- --------
Net income as reported herein $ 1,920 $ 9,029 $ 16,444
======== ======== ========
24
<PAGE>
A reconciliation of statutory surplus for Guarantee Life determined under
statutory accounting practices to shareholders' equity reflected herein (in
thousands and including Closed Block and discontinued operations):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Statutory surplus as reported to regulatory authorities $ 157,477 $ 165,650
Deferred policy acquisition costs 155,610 144,844
Deferred federal income taxes 36,383 6,251
Asset valuation and interest maintenance reserves 28,310 29,175
Fixed maturities available-for-sale unrealized appreciation (49,820) 32,568
Insurance reserves (71,733) (45,193)
Shareholders' equity in Holding Company (95,764) (110,016)
Other, net 22,479 6,763
--------- ---------
Shareholders' equity as reported herein $ 182,942 $ 230,042
========= =========
</TABLE>
Under the NAIC solvency monitoring program known as Risk-Based Capital
(RBC), Guarantee Life's insurance subsidiaries are required to measure its
solvency against certain parameters. As of December 31, 1999, Guarantee Life
Insurance exceeded the established minimums in the RBC program. In addition,
Guarantee Life Insurance exceeded the minimum statutory capital and surplus
requirements of its state of domicile, Nebraska.
The payment of dividends by Guarantee Life Insurance is subject to
restrictions set forth in the insurance laws and regulations of Nebraska. Under
state law, Guarantee Life Insurance may pay, within a twelve-month period,
dividends only from the earned surplus arising from its business and must
receive the prior approval of the state departments to pay a dividend, if such
dividend would exceed the greater of (i) 10% of statutory capital and surplus as
of the preceding year end or (ii) the net gain from operations for the previous
calendar year. State law gives the broad discretion to disapprove requests for
dividends in excess of these limits.
The Board of Directors of Guarantee Life Insurance declared a $15 million
extraordinary dividend to the Holding Company in November 1997, which was paid
in January 1998. In December 1998, the Board of Directors of Westfield declared
and paid a $20 million extraordinary distribution of excess capital to the
Holding Company. The State of Nebraska approved both of these transactions. In
September 1998, AGL's Board of Directors declared and paid a $2.4 million
dividend to PFG, Inc. No dividends were paid in 1999. In 2000, Guarantee Life
Insurance can declare a dividend of up to $18.0 million without permission from
the Nebraska Department of Insurance.
(13) Commitments and Contingencies
Guarantee Life is party to certain claims and legal actions arising during
the ordinary course of business. In the opinion of management, after consulting
with legal counsel, these matters will not have a material adverse effect on the
operations or financial condition of Guarantee Life. Guarantee Life has accrued
$5 million as its best estimate of the cost to settle its outstanding
litigation.
At December 31, 1998, Guarantee Life had debt obligations outstanding
totaling $112.5 million from available credit totaling $132.5 million. This debt
consisted of a six-year Senior Secured Term Loan Facility with a balance of
$82.5 million and a five-year Senior Secured Revolving Credit Facility with a
balance of $30 million. These Facilities are part of a credit agreement dated
May 28, 1998 with eleven banks including Chase Manhattan Bank who acts as lender
and administrative agent. The interest rate is computed as LIBOR plus a margin
based upon Guarantee Life's leverage ratio and AM Best Rating. This rate was
6.75% at December 31, 1998. As a result of the change in control, the debt
obligation was paid off.
Guarantee Life's credit agreement contains certain restrictions and
covenants related to, among other, minimum net worth, leverage ratio, interest
coverage ratio and Risk-Based Capital ratio. Prior to the debt pay-off,
Guarantee Life was in compliance with these covenants.
25
<PAGE>
Guarantee Life has commitments under noncancelable operating leases for
facilities principally used by regional and district offices. Rental expense and
associated future minimum lease payments required under these leases are
insignificant.
(14) Related Party Transaction
On December 30, 1999, Jefferson Pilot Corporation advanced Guarantee Life
$91.3 million for the purpose of retiring their external credit facility. At
December 31, 1999, this liability was outstanding.
(15) Discontinued Operations
In November 1994, Guarantee Life made a decision to withdraw from its
alternative workers' compensation benefit program segment. To facilitate its
exit, Guarantee Life entered into a reinsurance arrangement whereby it cedes 80%
of all claims incurred after October 31, 1994. In addition, Guarantee Life
entered into a reinsurance arrangement to limit its exposure to $10,000 per
claim relating to its 20% retention.
Concurrent with the implementation of the reinsurance coverage, Guarantee
Life amended its agreement with the managing general agent which marketed this
product for Guarantee Life, whereby Guarantee Life agreed to write new or
renewal business for this line only until the earlier replacement by another
insurance carrier or November 1, 1995. In September 1995, a replacement carrier
began issuing policies in Louisiana and Georgia. Effective November 1, 1995,
Guarantee Life ceased writing Special Risk policies.
Guarantee Life intends to allow the liabilities related to this business
to run off, unless an appropriate sale can be made. Guarantee Life does not
believe the disposal of this segment will result in a loss which would be
significant. Any gain resulting from a potential disposition would be recognized
when realized using the installment method of accounting.
The composition of the assets (liabilities) classified as discontinued are
as follows:
December 31,
--------------------
1999 1998
-------- --------
Ceded reinsurance recoverables $ 12,629 $ 29,758
Policy and contract claims (34,435) (51,042)
Other liabilities 186 209
-------- --------
Net liabilities relating to discontinued operations $(21,620) $(21,075)
======== ========
The results of operations for the discontinued segment are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net premiums $ (21) $ 28 $ (581)
Investment income, net and realized investment gains 1,969 2,937 1,634
Ceding commissions -- 14 241
------- ------- -------
Total revenues 1,948 2,979 1,294
Net policyholder benefits 552 3,015 (1,307)
Policy acquisition costs and other operating expense 820 469 2,903
------- ------- -------
Income (loss) before income taxes 576 (505) (302)
Income tax expense (benefit) (202) (177) (107)
------- ------- -------
Net income (loss) from discontinued operations $ 374 $ (328) $ (195)
======= ======= =======
</TABLE>
26
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the SEC
such supplementary and periodic information, documents, and reports as may be
prescribed by any rule or regulation of the Securities and Exchange Commission
heretofore, or hereafter duly adopted pursuant to authority conferred in that
section.
UNDERTAKING REGARDING INDEMNIFICATION
Pursuant to Rule 484(b)(1) of the Securities Act of 1933, insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant, 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 of 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.
REPRESENTATIONS REGARDING THE REASONABLENESS OF FEES AND CHARGES
Jefferson Pilot Financial Insurance Company hereby represents that the fees and
charges deducted under the Flexible Premium Variable Life Insurance Policies
hereby registered by this Registration Statement in the aggregate are reasonable
in relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Jefferson Pilot Financial Insurance Company.
REPRESENTATION PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company Act of
1940, as amended (the "1940 Act").
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following pages and documents:
The facing sheet
The prospectus consisting of 63 pages
The undertaking to file reports
The undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933
regarding indemnification
The representation as to fees and charges.
The representation pursuant to Rule 6e-3(T)
The signatures
Written consents of the following persons:
(a) Richard Dielensnyder, FSA, MAAA, contained in Exhibit 6 below.
(b) Ernst & Young, LLP, contained in Exhibit 7 below.
The following exhibits:
<PAGE>
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
(a) (i) Certified Copy of Resolution of the Executive Committee of the Board
of Directors of JP Financial Insurance Company establishing Chubb Separate
Account A. (Incorporated by reference to Registrant's Registration Statement on
Form S-6, filed on December 10, 1993, File No. 33-72830).
(ii) Certified Copy of Resolution of the Board of Directors of JP Financial
Insurance Company authorizing the registration of a new policy offered through
the Chubb Separate Account A (Incorporated by reference to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form S-6, filed on
March 13, 1996, File No. 33-01781).
(b) Not Applicable
(c) (i) Form of Distribution Agreement among JP Financial Insurance Company,
Chubb Separate Account A, and Chubb Securities Corporation. (Incorporated by
reference to Registrant's Registration Statement on Form S-6, filed on December
10, 1993, File No. 33-72830).
(ii) Specimen Variable Contracts Selling Agreement between Jefferson Pilot
Variable Corporation and Selling Broker-Dealers (Incorporated by reference to
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6, filed
on April 21, 2000, File No. 333-93367).
(iii) Schedule of Sales Commissions (to be filed by Amendment)
(d) Not Applicable
(e)
(i) Specimen last survivor flexible premium variable life insurance policy
(ii) Forms of Riders (Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6, filed on April 21, 2000, File
No. 333-93367).
(f) (i) Amended and Restated Charter, with all amendments, of JP Financial
Insurance Company. Incorporated by reference to Exhibit 1(f)(i) of Registrant's
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6, filed
March 13, 1996, File No. 33-01781.
(ii) By-Laws of JP Financial Insurance Company. (Incorporated by reference to
Exhibit 1(f)(i) of Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6, filed March 13, 1996, File No. 33-01781).
(g) Not Applicable
(h) (i) Participation Agreement by and among Oppenheimer Variable Account
Funds, Chubb Life Insurance Company and Oppenheimer Funds Inc., dated January 8,
1998.*
(ii) Participation Agreement among MFS Variable Trust, Chubb Life Insurance
Company and Massachusetts Financial Services Company dated December 9, 1997.*
(iii) Participation Agreement among Templeton Variable Products Series Fund,
Franklin Templeton Distributors Inc., and Chubb Life Insurance Company, dated
May 1, 1995.*
(iv) Participation Agreement among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Chubb Life Insurance Company dated May 1, 1996.*
(v) Participation Agreement among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Chubb Life Insurance Company
dated May 1, 1996.*
* Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-6 dated December 1, 1998, File No. 33-01781.
<PAGE>
(i) Not applicable
(j) Specimen Application (Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6, filed on April 21, 2000, File
No. 333-93367).
2. Opinion of counsel as to securities being registered.
3. Not applicable.
4. Not applicable.
5. Actuarial opinions and consents of Richard Dielensnyder, FSA, MAAA.
6. N/A
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) under the 1940
Act (to be filed by Amendment).
8. Form of Reinsurance Agreement. (Incorporated by reference to Registrant's
Pre-effective Amendment No. 1 to the Registration Statement on Form S-6, filed
May 24, 1994, File No. 33-72830).
9. Memorandum regarding reliance on Order of the Commission to deduct the DAC
Tax Charge (Incorporated by reference to Pre-Effective Amendment No.1 to the
Registration Statement on Form S-6 filed on March 13, 1996, File No. 33-01781).
27. Financial Data Schedule. Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
JPF Separate Account A, has caused this Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in Concord, New Hampshire, on the 6th day of November, 2000.
(Seal) JPF Separate Account A
(Registrant)
Jefferson Pilot Financial Insurance Company
(Depositor)
By: /s/ Dennis R. Glass
---------------------------
Dennis R. Glass
Title: Chief Financial Officer
Attest: /s/ Reggie D. Adamson
---------------------------
Reggie D. Adamson
Chief Accounting Officer
II-58t
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Jefferson
Pilot Financial Insurance Company has caused this Pre-Effective Amendment No. 1
Registration Statement on Form S-6 to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in Concord, New Hampshire on the 6th day of November, 2000.
(Seal) Jefferson Pilot Financial Insurance Company
By: /s/ Dennis R. Glass
----------------------------
Dennis R. Glass
Title: Chief Financial Officer
Attest: /s/ Reggie D. Adamson
--------------------------------
Reggie D. Adamson
Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title
/s/ Dennis R. Glass November 6, 2000
----------------------------------- Date ------------------------
Dennis R. Glass Director
/s/ Kenneth C. Mlekosh November 6, 2000
----------------------------------- Date ------------------------
Kenneth C. Mlekosh Director
/s/ David A. Stonecipher November 6, 2000
----------------------------------- Date ------------------------
David A. Stonecipher Director
/s/ Robert D. Bates November 6, 2000
----------------------------------- Date ------------------------
Robert D. Bates Director
II-59t
