<PAGE>
File No. 33-11084
811-2188
As filed with the Securities and Exchange Commission on May 2, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
-------
Post-Effective Amendment No. 3 / X /
-------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 / X /
Amendment No. 13
-------
JEFFERSON-PILOT SEPARATE ACCOUNT A
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
JEFFERSON-PILOT LIFE INSURANCE COMPANY
100 North Greene Street
Greensboro, North Carolina 27401
---------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code 1-800-458-4498
J. Gregory Poole
Jefferson-Pilot Life Insurance Company
100 North Greene Street
Greensboro, North Carolina 27401
---------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
J. Gregory Poole
Jefferson-Pilot Life Insurance Company
100 North Greene Street
Greensboro, NC 27401
Approximate Date of Proposed Public Offering
-----------------------
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a) (1) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-----------------------------------------
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 in connection with File No. 33-11084. Its Rule 24f-2
Notice for the fiscal year ended December 31, 1996 was filed on or about
March 3, 1997.
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
Registration Statement on Form N-4
CROSS REFERENCE SHEET
Pursuant to Rule 481 (a)
N-4
Item No. Caption
- -------- -------
1 . . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . . "Definitions"
3 . . . . . . . . . . . . . . "Summary of Contract
Expenses"; "Summary"
4 . . . . . . . . . . . . . . "Condensed Financial
Information"
5 . . . . . . . . . . . . . . "The Insurance Company";
"Jefferson-Pilot Separate
Account A"; and "Sub-Accounts
of the Separate Account and
Available Funds"
6 . . . . . . . . . . . . . . "Deductions under the
Contracts"
7 . . . . . . . . . . . . . . "Contract Benefits"
8 . . . . . . . . . . . . . . "The Annuity Period"
9 . . . . . . . . . . . . . . "Payment on or after Death of
Annuitant"
10 . . . . . . . . . . . . . "Certain Minimum Amounts";
"The Accumulation Period"
11 . . . . . . . . . . . . . "Redemptions"
12 . . . . . . . . . . . . . "Federal Tax Status"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents
Statement of Additional
Information"
<PAGE>
N-4
Item No. Caption
- -------- -------
15 . . . . . . . . . . . . . Cover Page
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information"
18 . . . . . . . . . . . . . Not Applicable
19 . . . . . . . . . . . . . "Distribution of the
Contracts"
20 . . . . . . . . . . . . . "Distribution of the
Contracts"
21 . . . . . . . . . . . . . "Standardized Computation of
Performance"
22 . . . . . . . . . . . . . "Determination of Annuity
Payments"
23 . . . . . . . . . . . . . "Financial Statements"
Part C - Information required in Part C is set forth under each appropriate
item, as numbered, in Part C to this Registration Statement.
<PAGE>
JEFFERSON-PILOT
SEPARATE
ACCOUNT A
Individual
Variable Annuity
Contracts
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
DEFINITIONS......................................................................................... 2
SUMMARY OF CONTRACT EXPENSES........................................................................ 5
CONDENSED FINANCIAL INFORMATION..................................................................... 10
SUMMARY............................................................................................. 11
THE INSURANCE COMPANY............................................................................... 12
JEFFERSON-PILOT SEPARATE ACCOUNT A.................................................................. 13
SUB-ACCOUNTS OF THE SEPARATE ACCOUNT AND AVAILABLE FUNDS............................................ 13
INVESTMENT OBJECTIVES OF THE FUNDS.................................................................. 15
Substitution of Other Securities or Funds......................................................... 18
DEDUCTIONS UNDER THE CONTRACTS...................................................................... 18
Contingent Deferred Sales Charge.................................................................. 18
Waiver of Surrender Charge Rider.................................................................. 19
Premium Tax....................................................................................... 19
Contract Administration Charges................................................................... 19
Annual Contract Fee............................................................................... 19
Administrative Expense Fee........................................................................ 19
Deduction for Assuming Mortality and Expense Risks................................................ 19
Expenses of the Funds............................................................................. 20
TRANSFERS BETWEEN SUB-ACCOUNTS...................................................................... 20
REDEMPTIONS......................................................................................... 20
Reinvestment Privilege............................................................................ 21
OTHER SERVICES...................................................................................... 21
Dollar Cost Averaging............................................................................. 21
Systematic Withdrawal Plan........................................................................ 22
Reports to the Owner.............................................................................. 22
FIXED ACCOUNT....................................................................................... 22
General Description............................................................................... 22
Fixed Account Accumulation Value.................................................................. 23
Fixed Account Transfers, Total, and Partial Surrenders............................................ 23
CONTRACT BENEFITS................................................................................... 23
CERTAIN MINIMUM AMOUNTS............................................................................. 24
THE ACCUMULATION PERIOD............................................................................. 25
The Accumulation Value and Accumulation Units..................................................... 25
Accumulation Unit Values.......................................................................... 25
Valuation Date and Valuation Period............................................................... 25
Net Investment Factor............................................................................. 25
Example of Calculation of Accumulation Unit Value................................................. 25
THE ANNUITY PERIOD.................................................................................. 26
Payment Provisions................................................................................ 26
SETTLEMENT OPTIONS.................................................................................. 26
Annuity Purchase Rates............................................................................ 28
Annuity Unit Values............................................................................... 28
Number of Annuity Units........................................................................... 28
Time of Payment................................................................................... 28
Amount of Payment................................................................................. 28
PAYMENT ON OR AFTER DEATH OF ANNUITANT.............................................................. 28
THE DISTRIBUTION OF THE CONTRACTS................................................................... 29
VOTING RIGHTS....................................................................................... 29
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
------------
FEDERAL TAX STATUS.................................................................................. 30
<S> <C>
Federal Tax Status of the Separate Account........................................................ 30
Federal Tax Status of Qualified Contracts......................................................... 30
Federal Tax Status of Non-Qualified Contracts..................................................... 31
Federal Tax Penalties and Withholding............................................................. 32
LEGAL MATTERS....................................................................................... 32
SPECIAL CONSIDERATIONS.............................................................................. 32
Restrictions Upon Transfer of Ownership and Assignment............................................ 32
AVAILABLE INFORMATION............................................................................... 33
STATE REGULATION.................................................................................... 33
EXPERTS............................................................................................. 33
FINANCIAL STATEMENTS................................................................................ 33
TABLE OF CONTENTS--STATEMENT OF ADDITIONAL INFORMATION.............................................. 34
INVESTMENT FUND PROSPECTUSES
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUNDS (VIPF)............................................... VIPF-1
OPPENHEIMER VARIABLE ACCOUNT FUNDS................................................................ OVAF-1
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (AASAP)............................................. AASAP-1
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (AAMGP).................................................... AAMGP-1
MFS RESEARCH SERIES............................................................................... MFS-1
MFS UTILITIES SERIES.............................................................................. MFS-1
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST....................................................... AHVIT-1
</TABLE>
ii
<PAGE>
PROSPECTUS
MAY 1, 1997
JEFFERSON-PILOT SEPARATE ACCOUNT A
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
SOLD BY
JEFFERSON-PILOT LIFE INSURANCE COMPANY
P.O. BOX 22086
GREENSBORO, NORTH CAROLINA 27420
TELEPHONE (910) 691-3448
This Prospectus offers two forms of individual variable annuity contracts,
Alpha and Alphaflex, that are designed (i) to fund benefits under annuity
purchase, pension or profit-sharing plans qualified for special tax treatment
under the Internal Revenue Code and (ii) for sale to individuals for retirement
planning where no special tax treatment is available (the "Contract(s)"). The
Contracts are offered on a flexible payment basis.
Under the Contracts, annuity payments may commence on a preselected future
date (presumably at retirement) under one of the annuity options provided in the
Contracts. Prior to the time annuity payments begin, the Contracts are partially
or totally redeemable based on their current value and subject to applicable
contingent deferred sales charges.
Jefferson-Pilot Life Insurance Company ("Company") provides for variable
accumulations and variable benefits under the Contracts by crediting net
purchase payments to one or more Sub-Accounts ("Sub-Accounts") within
Jefferson-Pilot Separate Account A ("Separate Account") as directed by the owner
of the Contract ("Owner"). Net purchase payments to Contracts may be invested in
any combination of the sixteen available Sub-Accounts or in the Fixed Account.
The Sub-Accounts invest in corresponding investment portfolios of six separate
mutual funds ("Funds"). The Funds are currently Oppenheimer Variable Account
Funds, which are managed by OppenheimerFunds, Inc.; the Variable Insurance
Products Fund and the Variable Insurance Products Fund II, which are managed by
Fidelity Management & Research Company of Boston, Massachusetts; The Alger
American Fund, which is managed by Fred Alger Management, Inc. of New York, New
York; the MFS Variable Insurance Trust, managed by Massachusetts Financial
Services Company of Boston, Massachusetts; and the Alexander Hamilton Variable
Insurance Trust, managed by Alexander Hamilton Capital Management, a
wholly-owned subsidiary of Alexander Hamilton Life Insurance Company, a wholly-
owned subsidiary of Jefferson-Pilot Corporation.
Generally, within ten days after the Contract is received, an Owner may
cancel it by returning it to the Home Office or the representative that sold it.
Free look provisions may vary based on the state of issue. The state of issue is
based on the address of the Payor.
A prospectus for each of the Funds accompanies this Prospectus or may be
obtained from Jefferson-Pilot Investor Services, Inc., Post Office Box 22086,
Greensboro, North Carolina 27420. An investor should read those prospectuses
carefully before buying a Contract described in this Prospectus or investing in
any Sub-Account.
This Prospectus sets forth concisely the information about the Contracts and
the Separate Account that a prospective investor should know before investing
and should be retained for future reference. Additional information about the
Contracts and the Separate Account is contained in a Statement of Additional
Information dated May 1, 1997 which is incorporated herein by reference. The
Statement of Additional Information is available upon written or oral request
and without charge from Jefferson-Pilot Investor Services, Inc., Post Office Box
22086, Greensboro, North Carolina 27420, Telephone Number (910) 691-3448. The
table of contents for the Statement of Additional Information is shown on page
34 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
EACH OF THE FOLLOWING MUTUAL FUNDS: OPPENHEIMER VARIABLE ACCOUNT FUNDS; VARIABLE
INSURANCE PRODUCTS FUND; VARIABLE INSURANCE PRODUCTS FUND II, ALGER AMERICAN
SMALL CAPITALIZATION PORTFOLIO; ALGER AMERICAN MIDCAP GROWTH PORTFOLIO; ALGER
AMERICAN MIDCAP GROWTH PORTFOLIO; MFS RESEARCH SERIES; MFS UTILITIES SERIES; AND
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST.
<PAGE>
DEFINITIONS
Some of the technical expressions and names frequently used in this
Prospectus are defined below for ready reference:
1. ACCUMULATION UNIT--the unit of measure of each Sub-Account of the
Separate Account used in determining the value of the respective Sub-Accounts,
and of the Contract, prior to the Annuity Date.
2. ACCUMULATION VALUE--the value in the Sub-Accounts and the Fixed Account
(Fixed Account Accumulation Value) on any valuation date during the accumulation
period.
3. AHVIT FUNDS--the portfolios of the Alexander Hamilton Variable
Insurance Trust which are available under the Contracts--AHVIT Growth Fund and
AHVIT Emerging Growth Fund.
4. ALEXANDER HAMILTON VARIABLE INSURANCE TRUST (AHVIT)--an open-end
management investment company registered under the 1940 Act.
5. ALGER AMERICAN FUNDS--the portfolios of The Alger American Fund which
are available under the Contracts--Alger American Small Capitalization Portfolio
and Alger American MidCap Growth Portfolio.
6. ALPHA--the Contract offered on a flexible premium basis with a minimum
initial purchase payment of $5,000 and a minimum additional payment of $1,000.
7. ALPHAFLEX--the Contract offered on a flexible premium basis with
minimum initial purchase payment of $2,000 for a Qualified Contract and $5,000
for a Non-Qualified Contract and a minimum additional payment of $100.
8. ANNUITANTM--the natural person upon whose life annuity payments depend
or will depend.
9. ANNUITY DATE--the date on which the first variable annuity payment is
payable.
10. ANNUITY UNIT--the unit of measure of each Sub-Account of the Separate
Account used in determining the amount of each variable annuity payment.
11. BENEFICIARY (OR BENEFICIARIES)--the person (or persons) designated to
receive the death benefit in the case of the death of the Annuitant.
12. CODE--the Internal Revenue Code of 1986, as amended.
13. COMMUTED VALUE--the value, in a single sum, of a series of payments
discounted from their respective due dates to the date of determination, such
value being determined using the Company's current commute rate, which rate may
be different from the assumed rate of interest used in calculating the payments.
14. COMPANY--the Jefferson-Pilot Life Insurance Company.
15. CONTRACT VALUE--the Accumulation Value in the Sub-Accounts and the
Fixed Account less any contingent deferred sales charge, annual contract fee,
and premium tax deducted at the time of surrender or annuitization.
16. FIXED ANNUITY--an annuity with payments which do not vary in accordance
with the net investment results of the Separate Account.
17. FIXED ACCOUNT--Contract Values allocated to the Company's General
Account under the Contract.
18. FUNDS--the Oppenheimer Funds, VIP Funds, AHVIT Funds, Alger American
Funds, and MFS Funds available under the Contract.
2
<PAGE>
19. FUND SHARE--a share of the capital stock of any of the JP Funds and a
share of beneficial interest in any of the VIP Funds, AHVIT Funds, Alger
American Funds, and MFS Funds.
20. GENERAL ACCOUNT--the General Account of the Company in which are held
all the assets other than those held in the Separate Account or in any other
separate account established or maintained by the Company.
21. HOME OFFICE--the principal office of the Company at Greensboro, North
Carolina.
22. MFS FUNDS--mutual fund series of the MFS Variable Insurance Trust which
are available under the Contracts--MFS Research Series and MFS Utilities Series.
23. MFS VARIABLE INSURANCE TRUST--an open-end management investment company
registered under the 1940 Act.
24. NET INVESTMENT FACTOR--a factor which reflects the net investment
experience of each Sub-Account less the charges for the mortality and expense
risk and administrative expenses during a valuation period.
25. NON-QUALIFIED CONTRACT--a Contract issued in connection with a
retirement plan which does not receive favorable tax treatment under Section
401, 403, 408, or 457 of the Code.
26. OPPENHEIMER FUNDS--mutual fund series of the Oppenheimer Variable
Account Funds which are available under the Contracts--Oppenheimer Bond Fund and
Oppenheimer Growth Fund.
27. OPPENHEIMER VARIABLE ACCOUNT FUNDS--a diversified open-end investment
company registered under the 1940 Act.
28. OWNER--The person(s) (or entity) that, while living, controls all
rights and benefits under the Contract.
29. PAYOR--The person(s) (or entity) that makes the initial purchase
payment and any subsequent payments.
30. QUALIFIED CONTRACT--an annuity contract that has been issued to fund
benefits:
(i) under a pension or profit sharing plan qualifying, or designed to
qualify, for tax deferment under Code Section 401, including a plan covering
self-employed individuals (HR-10 plans);
(ii) under an annuity purchase plan qualifying, or intended to qualify,
for tax deferment under Code Section 403(b), including plans adopted by
public school systems and certain tax-exempt organizations specified in Code
Section 501(c)(3);
(iii) under an Individual Retirement Account or Annuity qualifying, or
intended to qualify, for tax deferment under Code Section 408; or
(iv) to a government unit under an employee benefit plan which does in
fact result in tax deferment under Code Section 457.
31. SEPARATE ACCOUNT--the separate account designated as Jefferson-Pilot
Separate Account A.
32. SUB-ACCOUNT(S)--a sub-account of the Separate Account investing in
shares of one of the Funds.
33. THE ALGER AMERICAN FUND--a diversified, open-end management investment
company registered under the 1940 Act.
34. VALUATION DATE--any date on which the assets of the Separate Account
are valued. Each day on which the New York Stock Exchange is open for trading is
a valuation date, as is any other day (other than a day on which no purchase
payments are made and no redemptions effected) on which there is a
3
<PAGE>
sufficient degree of trading in the portfolio securities of any of the Funds
that the value of an Accumulation Unit or Annuity Unit might be materially
affected.
35. VALUATION PERIOD--the period from the time the accumulation unit value
and the annuity unit value are determined as of one valuation date to the time
such values are determined as of the next valuation date.
36. VARIABLE ANNUITY--an annuity with payments varying in accordance with
the net investment results of the Separate Account.
37. VIP FUNDS--the portfolios of the VIP Trusts which are available under
the Contracts--Money Market Portfolio, High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio, Overseas Portfolio, Asset Manager Portfolio, Index
500 Portfolio and Contrafund Portfolio.
38. TRUSTS--the Variable Insurance Products Fund ("VIPF") and the Variable
Insurance Products Fund II ("VIPF-II"), which are open-end diversified
management investment companies registered under the 1940 Act.
39. 1940 ACT--the Investment Company Act of 1940, as amended.
4
<PAGE>
SUMMARY OF CONTRACT EXPENSES
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Purchases.................................................. None
Deferred Sales Charge for the Alpha*............................................... 6.00%
(as a percentage of the amount withdrawn at the time of surrender or partial
surrender)
Deferred Sales Charge for the AlphaFLEX**.......................................... 8.00%
(as a percentage of the amount withdrawn at the time of surrender or partial
surrender)
Surrender Fees..................................................................... None
Exchange Fee....................................................................... None
* The Deferred Sales Charge declines over time and is 0% beginning in the seventh
policy year. For more information on the contingent Deferred Sales Charge, see
page 18 ("Contingent Deferred Sales Charge").
**The Deferred Sales Charge declines over time and is to 0% beginning in the ninth
policy year. For more information on the Deferred Sales Charge, see page 18
("Contingent Deferred Sales Charge").
ANNUAL CONTRACT FEE................................................................ $ 35*
*$30 in the State of Washington
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge.................................................. 1.25%
Administrative Expense Fee......................................................... 0.15%
Account Fees and Expenses.......................................................... None
Total Separate Account Annual Expenses........................................... 1.40%
</TABLE>
ANNUAL PORTFOLIO COMPANY EXPENSES
(as a percentage of portfolio company average net assets)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT COMPANY ANNUAL
FEES OTHER EXPENSES EXPENSES
------------ --------------- -------------------
<S> <C> <C> <C>
Oppenheimer Growth Fund.......................................... 0.75% 0.04% 0.79%(1)
Oppenheimer Bond Fund............................................ 0.74% 0.04% 0.78%
VIPF Money Market Portfolio...................................... 0.21% 0.09% 0.30%
VIPF High Income Portfolio....................................... 0.59% 0.12% 0.71%
VIPF Equity-Income Portfolio..................................... 0.51% 0.07% 0.58%(2)
VIPF Growth Portfolio............................................ 0.61% 0.08% 0.69%(2)
VIPF Overseas Portfolio.......................................... 0.76% 0.17% 0.93%(2)
VIPF-II Asset Manager Portfolio.................................. 0.64% 0.10% 0.74%(2)
VIPF-II Index 500 Portfolio...................................... 0.13% 0.15% 0.28%(3)
VIPF-II Contrafund Portfolio..................................... 0.61% 0.13% 0.74%(2)
AHVIT Growth Fund................................................ 0.75% 0.25% 1.00%(4)
AHVIT Emerging Growth Fund....................................... 0.80% 0.25% 1.05%(4)
MFS Research Series.............................................. 0.75% 0.25% 1.00%(5)
MFS Utilities Series............................................. 0.75% 0.25% 1.00%(5)
Alger American Small Capitalization Portfolio.................... 0.85% 0.03% 0.88%
Alger American MidCap Growth Portfolio........................... 0.80% 0.04% 0.84%
</TABLE>
- ------------------------
(1) The expense ratio would have been .06% and .81% for Other and Total
Expenses, respectively, absent the reimbursement made by the Manager for
non-recurring expenses incurred in connection with the Jefferson-Pilot
Capital Appreciation Fund, Inc. acquisition.
5
<PAGE>
(2) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been .56% for VIPF Equity Income Portfolio, .67% for
VIPF Growth Portfolio, .92% for VIPF Overseas Portfolio, .73% for VIPF-II
Asset Manager Portfolio, and .71% for VIPF-II Contrafund Portfolio.
(3) The manager of the VIPF-II Index 500 Portfolio agreed to reimburse a
portion of the VIPF-II Index 500 Portfolio's expenses during the period.
Without this reimbursement, the fund's management fee, other expenses and
total expenses would have been .28%, .15%, and .43%, respectively, for
VIPF-II Index 500 Portfolio on an annualized basis.
(4) The adviser of the AHVIT funds voluntarily agreed to temporarily limit the
fund's operating expenses (as a percentage of each fund's average daily net
assets on an annualized basis) to 1.00% for AHVIT Growth and 1.05% for AHVIT
Emerging Growth.
(5) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into such other
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses." The Adviser has agreed to bear expenses
for each Series, subject to reimbursement by each Series, such that each
Series' "Other Expenses" shall not exceed 0.25% of the average daily net
assets of the Series during the current fiscal year. Otherwise, "Other
Expenses" for the Research Series and the Utilities Series would be 0.73%
and 2.00%, respectively, and "Total Operating Expenses" would be 1.48% and
2.75%, respectively, for these Series.
6
<PAGE>
EXAMPLE 1
If you surrender the Alpha, you would pay the following expenses on a $1,000
investment assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ----------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Oppenheimer Growth Fund............ $ 85 $ 129 $ 180 $ 325
Oppenheimer Bond Fund.............. $ 85 $ 129 $ 179 $ 324
VIPF Money Market Portfolio........ $ 80 $ 114 $ 154 $ 261
VIPF High Income Portfolio......... $ 84 $ 126 $ 176 $ 315
VIPF Equity-Income Portfolio....... $ 83 $ 123 $ 169 $ 298
VIPF Growth Portfolio.............. $ 84 $ 126 $ 175 $ 312
VIPF Overseas Portfolio............ $ 86 $ 133 $ 187 $ 343
VIPF-II Asset Manager Portfolio.... $ 84 $ 127 $ 177 $ 319
VIPF-II Index 500 Portfolio........ $ 80 $ 113 $ 153 $ 259
VIPF-II Contrafund Portfolio....... $ 84 $ 127 $ 177 $ 319
AHVIT Growth Fund.................. $ 87 $ 135 $ 191 $ 351
AHVIT Emerging Growth Fund......... $ 87 $ 137 $ 194 $ 357
MFS Research Series................ $ 87 $ 135 $ 191 $ 351
MFS Utilities Series............... $ 87 $ 135 $ 191 $ 351
Alger American Small Capitalization
Portfolio......................... $ 86 $ 132 $ 185 $ 336
Alger American MidCap Growth
Portfolio......................... $ 85 $ 130 $ 183 $ 331
</TABLE>
EXAMPLE 2
If you surrender the AlphaFLEX, you would pay the following expenses on a
$1,000 investment assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ----------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Oppenheimer Growth Fund............ $107 $ 147 $ 193 $ 355
Oppenheimer Bond Fund.............. $107 $ 147 $ 192 $ 354
VIPF Money Market Portfolio........ $103 $ 132 $ 167 $ 293
VIPF High Income Portfolio......... $107 $ 144 $ 189 $ 345
VIPF Equity-Income Portfolio....... $106 $ 141 $ 182 $ 329
VIPF Growth Portfolio.............. $107 $ 144 $ 187 $ 343
VIPF Overseas Portfolio............ $109 $ 151 $ 200 $ 372
VIPF-II Asset Manager Portfolio.... $107 $ 145 $ 190 $ 349
VIPF-II Index 500 Portfolio........ $103 $ 132 $ 166 $ 290
VIPF-II Contrafund Portfolio....... $107 $ 145 $ 190 $ 349
AHVIT Growth Fund.................. $109 $ 153 $ 204 $ 381
AHVIT Emerging Growth Fund......... $110 $ 154 $ 206 $ 387
MFS Research Series................ $109 $ 153 $ 204 $ 381
MFS Utilities Series............... $109 $ 153 $ 204 $ 381
Alger American Small Capitalization
Portfolio......................... $108 $ 149 $ 198 $ 366
Alger American MidCap Growth
Portfolio......................... $108 $ 148 $ 195 $ 361
</TABLE>
7
<PAGE>
EXAMPLE 3
If you annuitize or do not surrender the Alpha, you would pay the following
expenses on a $1,000 investment assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ----------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Oppenheimer Growth Fund............ $23 $ 75 $ 134 $ 325
Oppenheimer Bond Fund.............. $23 $ 74 $ 134 $ 324
VIPF Money Market Portfolio........ $18 $ 59 $ 107 $ 261
VIPF High Income Portfolio......... $22 $ 72 $ 130 $ 315
VIPF Equity-Income Portfolio....... $21 $ 68 $ 123 $ 298
VIPF Growth Portfolio.............. $22 $ 72 $ 129 $ 312
VIPF Overseas Portfolio............ $24 $ 79 $ 142 $ 343
VIPF-II Asset Manager Portfolio.... $23 $ 73 $ 132 $ 319
VIPF-II Index 500 Portfolio........ $18 $ 59 $ 106 $ 259
VIPF-II Contrafund Portfolio....... $23 $ 73 $ 132 $ 319
AHVIT Growth Fund.................. $25 $ 81 $ 146 $ 351
AHVIT Emerging Growth Fund......... $26 $ 83 $ 149 $ 357
MFS Research Series................ $25 $ 81 $ 146 $ 351
MFS Utilities Series............... $25 $ 81 $ 146 $ 351
Alger American Small Capitalization
Portfolio......................... $24 $ 78 $ 139 $ 336
Alger American MidCap Growth
Portfolio......................... $24 $ 76 $ 137 $ 331
</TABLE>
EXAMPLE 4
If you annuitize or do not surrender the AlphaFLEX, you would pay the
following expenses on a $1,000 investment assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ----------------------------------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Oppenheimer Growth Fund............ $25 $ 82 $ 148 $ 355
Oppenheimer Bond Fund.............. $25 $ 82 $ 147 $ 354
VIPF Money Market Portfolio........ $21 $ 67 $ 120 $ 293
VIPF High Income Portfolio......... $25 $ 80 $ 143 $ 345
VIPF Equity-Income Portfolio....... $23 $ 76 $ 136 $ 329
VIPF Growth Portfolio.............. $25 $ 79 $ 142 $ 343
VIPF Overseas Portfolio............ $27 $ 87 $ 155 $ 372
VIPF-II Asset Manager Portfolio.... $25 $ 81 $ 145 $ 349
VIPF-II Index 500 Portfolio........ $20 $ 66 $ 119 $ 290
VIPF-II Contrafund Portfolio....... $25 $ 81 $ 145 $ 349
AHVIT Growth Fund.................. $28 $ 89 $ 159 $ 381
AHVIT Emerging Growth Fund......... $28 $ 90 $ 162 $ 387
MFS Research Series................ $28 $ 89 $ 159 $ 381
MFS Utilities Series............... $28 $ 89 $ 159 $ 381
Alger American Small Capitalization
Portfolio......................... $26 $ 85 $ 153 $ 366
Alger American MidCap Growth
Portfolio......................... $26 $ 84 $ 150 $ 361
</TABLE>
The purpose of the preceding examples is to assist an Owner or prospective
Owner in understanding the various costs and expenses an Owner will bear
directly or indirectly. The above examples reflect expenses of the Separate
Account as well as the Funds. The above examples reflect the $35 Annual Contract
Fee as an annual charge of (i) with respect to the Alpha, 0.117% of assets based
on an average expected Contract Value of $30,000, and (ii) with respect to the
AlphaFLEX, 0.35% of assets based on an average expected Contract Value of
$10,000.
8
<PAGE>
THE EXAMPLES SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
The deferred sales charge shown in the examples is the maximum sales load:
see "Contingent Deferred Sales Charge" on page 18 of this Prospectus which
describes the range of contingent deferred sales loads over time and limits on
the contingent deferred sales charge as a percentage of total account value. The
examples do not reflect premium taxes which are levied by some states. (See
"Premium Tax" on page 19.) All premium taxes are the responsibility of the Owner
of the policy and are charged to the policy whenever the state requires that the
Company pay such tax.
The examples reflect Owner transaction expenses, administrative fees, and
other Separate Account charges during the accumulation period (which is
described beginning on page 25 of this Prospectus). The annual contract fee is
not applicable during the annuity period; all other charges and expenses,
including those of the Funds, do apply during the annuity period. See the
prospectuses of the Funds for a fuller description of their expenses.
The Examples assume that purchase payments are allocated to each Fund which
may have different expenses.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Separate Account. The data should be read in conjunction with
the financial statements, related notes, and other financial information
included in the Statement of Additional Information.
The table below contains certain information regarding the Subaccounts for a
Contract for the period from commencement of business operations on December 1,
1994 through December 31, 1996, except for these subaccounts with inception
dates of May 1, 1996: Alger American Small Capitalization, Alger American MidCap
Growth, VIPF-II Contrafund, VIPF-II Index 500, AHVIT Emerging Growth, MFS
Research Series, MFS Utilities Series, and AHVIT Growth.
The Variable Accumulation Unit values and the number of Variable
Accumulation Units outstanding for each Subaccount for the periods shown are as
follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END OF UNITS AT END OF
INVESTMENT DIVISION OF PERIOD PERIOD PERIOD
- ------------------------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
JP Capital Appreciation
1994 (1)........................................................... 10.000000 10.214259 0.000
1995............................................................... 10.214259 13.437239 391,754.878
1996 (3)........................................................... 13.437239 -- 0.000
JP Investment Grade Bond
1994 (1)........................................................... 10.000000 10.073995 0.000
1995............................................................... 10.073995 11.868974 173,431.827
1996 (3)........................................................... 11.868974 -- 0.000
Oppenheimer Growth
1996 (3)........................................................... 15.746434 15.687352 878,079.948
Oppenheimer Bond
1996 (3)........................................................... 12.100810 12.105651 382,152.103
VIPF Money Market
1994 (1)........................................................... 10.000000 10.032676 0.000
1995............................................................... 10.032676 10.475795 399,412.037
1996............................................................... 10.475795 10.888553 537,961.454
VIPF Equity Income
1994 (1)........................................................... 10.000000 10.106754 0.000
1995............................................................... 10.106754 13.464371 603,168.264
1996............................................................... 13.464371 15.171936 1,304,875.863
VIPF Growth
1994 (1)........................................................... 10.000000 10.396331 0.000
1995............................................................... 10.396331 13.878009 438,581.445
1996............................................................... 13.878009 15.695218 1,060,714.091
VIPF Overseas
1994 (1)........................................................... 10.000000 9.976153 0.000
1995............................................................... 9.976153 10.789882 43,953.495
1996............................................................... 10.789882 12.044844 154,758.327
VIPF High Income
1994 (1)........................................................... 10.000000 10.063711 0.000
1995............................................................... 10.063711 11.969023 104,752.796
1996............................................................... 11.969023 13.457366 264,542.163
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END OF UNITS AT END OF
INVESTMENT DIVISION OF PERIOD PERIOD PERIOD
- ------------------------------------------------------------------- ------------ ------------ ---------------
VIPF-II Asset Manager
<S> <C> <C> <C>
1994 (1)........................................................... 10.000000 9.804023 0.000
1995............................................................... 9.804023 11.307468 170,574.471
1996............................................................... 11.307468 12.777286 489,609.928
Alger American Small Capitalization
1996 (2)........................................................... 10.000000 9.190108 148,145.855
Alger American MidCap Growth
1996 (2)........................................................... 10.000000 9.808937 94,789.642
VIPF-II Contrafund
1996 (2)........................................................... 10.000000 11.145245 75,713.038
VIPF-II Index 500
1996 (2)........................................................... 10.000000 11.367158 83,694.452
AHVIT Emerging Growth
1996 (2)........................................................... 10.000000 9.579577 67,553.245
MFS Research Series
1996 (2)........................................................... 10.000000 10.970831 104,801.503
MFS Utilities Series
1996 (2)........................................................... 10.000000 11.602401 24,307.215
AHVIT Growth Fund
1996 (2)........................................................... 10.000000 10.415742 100,221.341
</TABLE>
- ------------------------
(1) Period from December 1, 1994 through December 31, 1994
(2) Period from May 1, 1996 through December 31, 1996
(3) On December 19, 1996, the balance of the Jefferson-Pilot Capital
Appreciation Fund, Inc. was exchanged for the Oppenheimer Growth Fund, and
the Jefferson-Pilot Investment Grade Bond Fund, Inc. was exchanged for the
Oppenheimer Bond Fund. The beginning Accumulation Unit Value shown for the
Oppenheimer funds are the values at the date of conversion.
SUMMARY
Jefferson-Pilot Investor Services, Inc. ("Investor Services"), the
distributor of the Contracts, does not deduct a sales charge from purchase
payments. However, if any part of the value of the Contracts is surrendered
Investor Services will, with certain exceptions, deduct from the value of the
Contract, a contingent deferred sales charge equal to the maximum of (i) with
respect to the Alpha, 6% of the amount withdrawn; or (ii) with respect to the
Alphaflex, 8% of the amount withdrawn, but in no event under either Contract
more than 9% of gross purchase payments. This charge when made is imposed to
permit Investor Services or the Company to recover sales expenses which they
have advanced. (See "Contingent Deferred Sales Charge.")
In addition, on each Contract anniversary date or at full surrender, the
Company will deduct from the Contract an annual contract fee of $35 from the
Accumulation Value. The administrative expense fee of .0004110% of daily net
assets per day, which is approximately equal to an annual rate of .15% for a 365
day year, is charged both during the accumulation period and the annuity period.
This charge is collected to further defray administrative costs. These charges
are to reimburse Investor Services or the Company for administrative expenses
related to the issue, maintenance and administration of the contract. These
charges have been set at a level that will recover no more than the actual costs
associated with
11
<PAGE>
administering the contracts, and the Company does not expect to recover from
these charges an amount in excess of accumulated administrative expenses. (See
"Contract Administration Charges" on page 19.)
The Company deducts a mortality and expense risk charge from the assets of
the Separate Account, as a daily asset charge of .0034247% of daily net assets,
which is approximately equal to an annual rate of 1.25% for a 365 day year,
during the accumulation period and the annuity period.
The minimum initial purchase payment under the Alpha is $5,000. The minimum
initial purchase payment under the AlphaFLEX is $2,000 for a Qualified Contract
and $5,000 for a Non-Qualified Contract. The minimum additional purchase payment
is $1,000 for the Alpha and $100 for the AlphaFLEX under both a Non-Qualified
and Qualified Contract. The minimum subsequent payment made into a particular
Sub-Account is $50.00.
If the Contract Value at the Annuity Date is less than $2,000, the Contract
Value may be distributed in one lump sum in lieu of annuity payments. If any
annuity payment from any Sub-Account would be less than $100, the Company shall
have the right to change the frequency of payments to such intervals as will
result in payments of at least $100 from such Sub-Account(s). (See "The Annuity
Period" on page 26.)
Premium taxes payable to any governmental entity ranging between 0% and 5%
will be charged against the Contracts. (See "Premium Tax" on page 19.)
An individual for whom a Contract is purchased under an individual
retirement account may revoke the Contract at any time within seven days after
the later of the date on which (i) the account is established, or (ii) the
individual receives a disclosure statement notifying him of his right of
revocation by giving written notice of revocation to the Home Office. Upon such
revocation, the full purchase payment made will be refunded if such payment is
invested in the VIPF Money Market Portfolio Sub-Account, and the Accumulation
Value will be refunded (unless otherwise required by applicable law) if such
payment is invested in any Sub-Account other than the VIPF Money Market
Portfolio Sub-Account. Purchase payments received on an individual retirement
account contract are immediately invested in the Separate Account.
The Owner of a Contract generally may, within 10 days after the date on
which the Contract is issued, revoke the Contract, in which event the Owner will
be paid the Contract's Accumulation Value without reduction for the contingent
deferred sales or administrative charges that would otherwise apply. Also, any
fees and charges previously collected would be refunded. However, in those
states where the free look provision requires the full refund of purchase
payments (less prior surrender), all purchase payments must be placed in the
VIPF Money Market Sub-Account until the end of the free look period. Free look
provisions may vary based on the Owner's state of residence.
This Prospectus describes in detail how a Contract may be purchased and
redeemed. (See "The Distribution of the Contracts" on page 29 and "Redemptions"
on page 20.)
Premature payments of benefits under a Contract may cause a penalty tax to
be incurred. (See "Federal Tax Status" on page 30.)
THE INSURANCE COMPANY
The Company was known as Pilot Life Insurance Company prior to the close of
business on December 31, 1986, at which time Jefferson Standard Life Insurance
Company was merged into Pilot Life Insurance Company. Simultaneously with the
merger, Pilot Life Insurance Company changed its name to Jefferson-Pilot Life
Insurance Company. The Company is a stock life insurance company organized under
the insurance laws of North Carolina in 1890. The Company commenced business
operations in 1903 and is primarily engaged in the writing of whole life, term,
endowment and annuity policies on an individual ordinary basis, plus industrial
and group insurance. It is authorized to write insurance and annuities in 49
states, the District of Columbia, the Virgin Islands, and Puerto Rico. Its Home
Office is located at 100 North Greene Street, Greensboro, North Carolina. The
Company is a wholly-owned subsidiary of Jefferson-Pilot Corporation, organized
in January 1968. Jefferson-Pilot Corporation is publicly held.
12
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
Jefferson-Pilot Separate Account A's (the "Separate Account") predecessor
was established pursuant to a resolution of the Board of Directors of the
Company dated May 13, 1969. The Separate Account was established under the laws
of the State of North Carolina and registered on May 3, 1971 as a unit
investment trust under the 1940 Act. Such registration does not involve
supervision of the investments or investment policies of the Separate Account
and does not imply that the Contract has been approved or disapproved by the
Securities and Exchange Commission ("Commission").
Under North Carolina insurance law the income, gains or losses of the
Separate Account are credited to or charged against the assets of the Separate
Account without regard to the other income, gains or losses of the Company.
These assets are held with relation to the Contracts described in this
Prospectus and such other variable annuity contracts as may be issued by the
Company and designated by it as participating in the Separate Account.
Although the assets maintained in the Separate Account will not be charged
with any liabilities arising out of any other business conducted by the Company,
all obligations arising under the Contracts, including the promise to make
annuity payments, are general corporate obligations of the Company. Accordingly,
all of the Company assets are available to meet its obligations and expenses
under the Contracts participating in the Separate Account.
SUB-ACCOUNTS OF THE SEPARATE ACCOUNT
AND AVAILABLE FUNDS
Sixteen Sub-Accounts of the Separate Account, each of which reflects the
investment performance of a specific underlying Fund, are available under the
Contracts. Subject to the limitations stated on page 19 and any restrictions by
an applicable retirement plan, the Owner may elect to have net purchase payments
credited to any of the sixteen Sub-Accounts.
Two of the Sub-Accounts invest in shares of the Oppenheimer Funds, eight of
the Sub-Accounts invest in shares of the VIP Funds, two Sub-Accounts invest in
shares of Alger American Funds, two Sub-Accounts invest in shares of AHVIT
Funds, and two Sub-Accounts invest in shares of MFS Funds.
The Oppenheimer Variable Account Funds was organized in 1984 as a
Massachusetts business trust. The Oppenheimer Variable Account Funds is an
open-end, diversified management investment company consisting of nine separate
funds, including the Oppenheimer Growth Fund and the Oppenheimer Bond Fund, both
organized in 1984.
The Oppenheimer Variable Account Fund is governed by a Board of Trustees,
which is responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the year to oversee
the funds' activities, review performance, and review the actions of the manager
of the funds, OppenheimerFunds, Inc.
OppenheimerFunds, Inc., which has operated as an investment adviser since
1959, manages the funds, is responsible for selecting the funds' investments,
and handles its day-to-day business. OppenheimerFunds, Inc. carries out its
duties, subject to the policies established by the Board of Trustees, under
investment advisory agreements for each fund which state the manager's
responsibilities. OppenheimerFunds, Inc. (including subsidiaries) currently
manages investment companies, including other Oppenheimer funds, with assets of
more than $60 billion. OppenheimerFunds, Inc. is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by senior officers of
OppenheimerFunds, Inc. and controlled by Massachusetts Mutual Life Insurance
Company.
13
<PAGE>
The VIP Trusts also are open-end diversified management investment
companies. The VIP Trusts are organized as series type investment companies with
diversified portfolios, the VIP Funds. The VIP Funds are designed to serve as
investment vehicles for variable annuity and variable life insurance contracts
of various insurance companies. Shares of the VIP Funds currently are available
to the separate accounts of a number of insurance companies, both affiliated and
unaffiliated with Fidelity Management and Research Company ("Fidelity
Management"), and Jefferson-Pilot.
Fidelity Management, the adviser to each VIP Fund, whose principal address
is 82 Devonshire Street, Boston, Massachusetts, is a wholly-owned subsidiary of
FMR Corp. and is part of Fidelity Investments, one of the largest investment
management organizations in the United States. Fidelity Investments includes a
number of different companies, which provide a variety of financial services and
products to individuals and corporations.
Fidelity Management provides investment research and portfolio management
services to mutual funds and other clients. At February 28, 1997, Fidelity
Management advised funds having more than 30 million shareholder accounts with a
total value of more than $437 billion. For certain of the VIP Funds, Fidelity
Management has entered into subadvisory agreements with affiliated companies
that are part of the Fidelity Investments organization. Fidelity Management, not
the VIP Funds, pays the sub-advisers for their services. The highest annual rate
at which any of the VIP Funds paid advisory fees in 1996 was 0.76% of average
daily net assets (SEE "Summary").
The Boards of Trustees of the VIP Funds are responsible for monitoring the
VIP Funds for the existence of any material irreconcilable conflict between the
interests of the policyowners of all separate accounts investing in the VIP
Funds and determining what action, if any, should be taken if a material
irreconcilable conflict should occur. See the prospectuses of the VIP Funds for
further discussion of the risks associated with the offering of VIP Fund shares
to our Separate Account and the separate accounts of other insurance companies.
Also see the Statement of Additional Information regarding the terms of the
Participation Agreements relating to the Separate Account's investment in the
VIP Funds.
The Alger American Fund was organized on April 6, 1988 as a multi-series
Massachusetts Business Trust. The Alger American Fund is an open-end diversified
management investment company which offers an unlimited number of shares of six
series, representing shares of the fund's portfolios, including the Alger
American Funds. The Alger American Funds are offered as a pooled vehicle for
insurance companies writing all types of variable annuity contracts and variable
life policies that are also offered directly to qualified pension and retirement
plans.
Fred Alger Management, Inc. ("Alger Management") is The Alger American
Fund's investment manager and is responsible for the overall supervision of the
fund, subject to the supervision of the Board of Trustees. Alger Management has
been in the business of providing investment advisory services since 1964 and,
as of March 31, 1997, had approximately $6.4 billion under management, $4.9
billion in mutual fund accounts and $1.5 billion in other advisory accounts.
Alger Management is owned by Fred Alger & Company, Incorporated ("Alger, Inc.")
which in turn is owned by Alger Associates, Inc., a financial services holding
company. Fred M. Alger, III and his brother, David D. Alger, are the majority
shareholders of Alger Associates, Inc. and may be deemed to control that company
and its subsidiaries.
The Alger American Fund is governed by a Board of Trustees which is
responsible for protecting the interests of shareholders under Massachusetts
law.
See the Prospectuses of the Alger American Funds for further discussion of
the risks associated with the offering of Alger American Fund shares to our
Separate Account and other accounts of insurance companies. Also see Statement
of Additional Information regarding the terms of the Participation Agreements
relating to the Separate Account's investment in Alger American Funds.
MFS Variable Insurance Trust is an open end management investment company
offering insurance company separate accounts a selection of investment vehicles
for variable annuity and variable life contracts. Currently the Trust offers
shares beneficial interest to twelve separate mutual fund series, including the
MFS Funds.
14
<PAGE>
MFS manages the MFS Funds, and provides the MFS Funds with overall
investment advisory and administrative services, as well as general office
facilities. Subject to such policies as the Trustees of the MFS Funds may
determine, MFS makes investment decisions for each of the MFS Funds. For its
services and facilities, MFS receives a management fee, computed and paid
monthly, in an amount equal to .75% of the average daily net assets of each MFS
Fund.
MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Investors
Trust. Net assets under the management of the MFS organization were
approximately $52.8 billion on behalf of approximately 2.3 million investor
accounts as of February 28, 1997. As of such date, the MFS organization managed
approximately $28.9 billion of assets invested in equity securities and
approximately $19.9 billion of assets invested in fixed income securities.
Approximately $4.0 billion of the assets managed by MFS were invested in
securities of foreign issuers and non-U.S. dollar-denominated securities of U.S.
issuers. MFS is a subsidiary of Sun Life of Canada (US) which in turn is a
wholly-owned subsidiary of Sun Life Assurance Company of Canada ("Sun Life").
Sun Life, a mutual life insurance company, is one of the largest international
life insurance companies and has been operating in the United States since 1895,
establishing headquarters office in Boston, Massachusetts in 1973.
The Board of Trustees of the MFS Funds, as a part of its overall management
responsibility, oversees various organizations responsible for each funds'
day-to-day management. See Prospectuses of the MFS Funds for further discussion
of the risks associated with the offering of MFS Fund shares to our Separate
Account and the separate accounts of other insurance companies. ALSO SEE the
Statement of Additional Information regarding the terms of the Participation
Agreements relating to the Separate Account's investment in the MFS Funds.
The Alexander Hamilton Variable Insurance Trust is an open-end management
investment company established as a Massachusetts business trust. The Alexander
Hamilton Variable Insurance Trust consists of seven separate investment
portfolios or funds, each of which is, in effect, a separate mutual fund. The
AHVIT Funds are designed to serve as investment vehicles for variable annuity
and variable life insurance contracts set up with various insurance companies.
Alexander Hamilton Capital Management, the adviser to the AHVIT Funds, is a
wholly-owned subsidiary of Alexander Hamilton Life Insurance Company of America.
Alexander Hamilton Life Insurance Company of America is a wholly-owned
subsidiary of Jefferson-Pilot Corporation, insurance holding company. The AHVIT
Funds pay a monthly management fee to Alexander Hamilton Capital Management,
Inc. at an annual rate of .75% of the AHVIT Growth Fund's average daily net
assets and .80% of the AHVIT Emerging Growth Fund's average daily net assets.
The Board of Trustees of the AHVIT Funds are responsible for protecting the
interests of shareholders. SEE the Prospectus of the Alexander Hamilton Variable
Insurance Trust for further discussion of the risks associated with the offering
of AHVIT Fund shares to our Separate Account and the separate accounts of other
insurance companies. ALSO SEE the Statement of Additional Information regarding
the terms of the Participation Agreements relating to the Separate Account's
investment in the AHVIT Funds.
INVESTMENT OBJECTIVES OF THE FUNDS
Set forth below is a summary of the investment objectives of the Funds.
There can be no assurance that these objectives will be achieved. The Funds'
prospectuses are attached to this Prospectus; you should read them carefully
before investing.
OPPENHEIMER GROWTH FUND (OPPENHEIMER GROWTH SUB-ACCOUNT). Oppenheimer
Growth Fund seeks to achieve capital appreciation by investing in securities of
well-known and established companies. Such securities generally have a history
of earnings and dividends and are issued by seasoned companies (having an
operating history of at least five years, including predecessors). Current
income is a secondary consideration in the selection of its portfolio
securities.
15
<PAGE>
OPPENHEIMER BOND FUND (OPPENHEIMER BOND SUB-ACCOUNT). Oppenheimer Bond
Fund's primary objective is to seek a high level of current income by primarily
investing in a diversified portfolio of high yield fixed-income securities.
Oppenheimer Bond Fund seeks capital growth when consistent with its primary
objective. As a matter of fundamental policy, under sound market conditions,
Oppenheimer Bond Fund will invest at least 65% of its total assets in bonds. The
fund will invest only in securities rated "Baa" or better by Moody's or "BBB" or
better by Standard & Poor's. However, the fund is not obligated to dispose of
securities if the rating is reduced, and therefore may from time to time hold
securities rated lower then "Baa" by Moody's or "BBB" by Standard & Poor's.
VIPF MONEY MARKET PORTFOLIO (VIPF MONEY MARKET PORTFOLIO SUB-ACCOUNT). VIPF
Money Market Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. It invests only in
high-quality, U.S. dollar denominated money market securities of domestic and
foreign issuers, such as certificates of deposit. obligations of governments and
their agencies, and commercial paper and notes.
VIPF HIGH INCOME PORTFOLIO (VIPF HIGH INCOME PORTFOLIO SUB-ACCOUNT). VIPF
High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated, fixed-income securities,
while also considering growth of capital. It normally invests at least 65% of
its total assets in income-producing debt securities and preferred stocks,
including convertible securities, and up to 20% in common stocks and other
equity securities. In view of the types of securities in which this VIP Fund
invests, you should read the complete risk disclosure in the Prospectus for this
VIP Fund before investing in it.
VIPF EQUITY-INCOME PORTFOLIO (VIPF EQUITY-INCOME PORTFOLIO
SUB-ACCOUNT). VIPF Equity-Income Portfolio seeks reasonable income by investing
primarily in income producing equity securities, with the potential for capital
appreciation as a consideration. It normally invests at least 65% of its assets
in income-producing common or preferred stock and the remainder in debt
securities.
VIPF GROWTH PORTFOLIO (VIPF GROWTH PORTFOLIO SUB-ACCOUNT). VIPF Growth
Portfolio seeks to achieve capital appreciation, normally by purchase of common
stocks, although investments are not restricted to any one type of security.
Capital appreciation may also be found in other types or securities, including
bonds and preferred stocks.
VIPF OVERSEAS PORTFOLIO (VIPF OVERSEAS PORTFOLIO SUB-ACCOUNT). VIPF
Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. It normally invests at least 65% of its
assets in securities from at least three countries outside North America.
VIPF-II ASSET MANAGER PORTFOLIO (VIPF-II ASSET MANAGER PORTFOLIO
SUB-ACCOUNT). VIPF-II Asset Manager Portfolio seeks high total return with
reduced risk over the long-term by allocating its assets among stocks, bonds and
short-term fixed-income instruments. The expected "neutral" mix of assets, which
will occur when the investment adviser concludes there is minimal relative
difference in value between the three asset classes, is 40% in intermediate to
long-term bonds and 20% in short-term fixed income instruments.
VIPF-II INDEX 500 PORTFOLIO (VIPF-II INDEX 500 PORTFOLIO
SUB-ACCOUNT). VIPF-II Index 500 Portfolio seeks to match the total return of
the S&P 500 while keeping expenses low. FMR normally invests at least 80% (65%
if fund assets are below $ 20 million) of the Fund's assets in equity securities
of companies that compose the S&P 500. The S&P 500 is an index 500 stocks, most
of which trade on New York Stock Exchange. It is generally acknowledged that S&P
500 broadly represents the performance of publicly traded stocks in the U.S.
VIPF-II CONTRAFUND PORTFOLIO (VIPF-II CONTRAFUND PORTFOLIO
SUB-ACCOUNT). VIPF-II Contrafund Portfolio seeks capital appreciation by
investing mainly in equity securities of companies that FMR believes to be
undervalued due to an overly pessimistic appraisal by the public. The fund
usually invests primarily in common stocks and securities convertible into
common stocks, but it has the flexibility to invest in any type of security that
may produce capital appreciation.
16
<PAGE>
The Fund's strategy can lead to investments in small or medium sized
companies, which carry more risks then larger ones. Generally, these companies,
especially small sized ones, rely on limited product lines and markets,
financial resources, or other factors. This may make them more susceptible to
setbacks or downturns.
MFS RESEARCH SERIES (MFS RESEARCH SERIES SUB-ACCOUNT). MFS Research Series
seeks to provide long-term growth for capital and future income. The Research
Series' policy is to invest a substantial portion of its assets in the common
stocks or securities convertible into common stocks of companies believed to
possess better than average prospects for long-term growth. A small portion of
the assets may be invested in bonds, short-term obligations, preferred stocks or
common stocks whose principle characteristic is income production rather than
growth. Such securities may also offer opportunities for growth of capital as
well as income. In the case of both growth stocks and income issues, emphasis is
placed on the selection of progressive, well managed companies.
MFS UTILITIES SERIES (MFS UTILITIES SERIES SUB-ACCOUNT). MFS Utilities
Series seeks capital growth and current income (income above that available from
a portfolio invested entirely in equity securities). The Utilities Series will
seek to achieve its objective by investing, under normal circumstances, at least
65% (but up to a 100% at the discretion of its adviser) of its assets in equity
and debt securities of both domestic and foreign companies in the utilities
industry. The Series may also invest in debt and equity securities of issuers in
other industries, although under normal circumstances not more then 35% of the
Series assets will be so invested. In addition, the Series may hold a portion of
its assets in cash and money market instruments.
AHVIT GROWTH FUND (AHVIT GROWTH SUB-ACCOUNT). AHVIT Growth Fund seeks
capital growth. It invests primarily in equity securities that have
above-average growth prospects. Under normal market conditions, the Growth Fund
will invest at least 65% of its total assets in equity securities, including,
common stocks, preferred stocks and securities convertible into common or
preferred stocks such as warrants and convertible bonds. All the emphasis of the
Growth Fund is clearly on equity securities. The Growth Fund may also invest in
debt obligations when it perceives that they are more attractive then stocks on
a long-term basis.
AHVIT EMERGING GROWTH FUND (AHVIT EMERGING GROWTH SUB-ACCOUNT). AHVIT
Emerging Growth Fund seeks capital appreciation through investment in a
diversified portfolio of equity securities selected for their growth potential;
it does not seek current income. The AHVIT Emerging Growth Fund pursues its
investment objective by investing primarily in smaller and medium sized
companies which the Fund's sub-adviser, Massachusetts Financial Services
Company, believes possess above-average potential for appreciation. Under normal
market conditions, at least 80% of the Fund's net assets will be invested in the
securities of such issuers. Securities in which the fund invest may be
speculative and may involve a substantial risk. In view of the types of
securities in which the Emerging Growth Fund invests, you should read the
complete risk disclosure in the Prospectus for this AHVIT Fund before investing.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO (ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO SUB-ACCOUNT). Alger American Small Capitalization
Portfolio seeks long-term capital appreciation. Except during temporary
defensive periods, the portfolio invests at least 65% of its total assets in
equity securities of companies that, at the time of purchase of the securities,
have total market capitalization within the range of companies included in the
Russell 2000 Growth Index or the S&P Small Cap 600 Index, updated quarterly.
Both indexes are broad indexes of small capitalization stocks. The Portfolio may
invest up to 35% of its total assets in equity securities of companies that, at
the time of purchase, have total market capitalization outside this combined
range and in excess of that amount (up to 100% of its assets) during temporary
defensive periods.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO (ALGER AMERICAN MIDCAP GROWTH
PORTFOLIO SUB-ACCOUNT). Alger American MidCap Growth Portfolio seeks long term
capitalization. Except during temporary defensive periods, the portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase, have total market capitalization--present market value per
share multiplied by the
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total number of shares outstanding--within the range of companies included in
the S&P MidCap 400 Index, updated quarterly. The S&P MidCap 400 Index is
designed to track the performance of medium capitalization companies. The
Portfolio may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization
outside the range of companies included in the S&P MidCap 400 Index and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods.
The values of the investments held in the Funds fluctuate daily and are
subject to the risk of changing economic conditions as well as the risks
inherent in the ability of management to anticipate changes in such investments
necessary to meet changes in economic conditions. Additional information
concerning the Funds, including information as to the expenses paid by the
Funds, is given in the Funds' prospectuses which accompany and should be read in
conjunction with this Prospectus.
SUBSTITUTION OF OTHER SECURITIES OR FUNDS. If the shares of any Funds
should no longer be available for investment by the Separate Account or, if in
the judgment of the Company further investment in such Funds' shares should
become inappropriate, the Company may substitute shares of some other investment
company for Fund shares already purchased or to be purchased in the future by
purchase payments under the Contract. Any substitution will be made pursuant to
any prior approval of the Commission and compliance with all applicable rules
and regulations. In the event of any substitution or change, the Company will
endorse the Contract if necessary to reflect the substitution or change.
DEDUCTIONS UNDER THE CONTRACTS
CONTINGENT DEFERRED SALES CHARGE. The Company makes no deduction from
purchase payments for sales expenses, but does impose the contingent deferred
sales charge. The Company incurs sales expenses upon the issuance of the
Contracts. Such expenses include commissions, costs of advertising and sales
promotion, costs of the Prospectuses allocable to new sales, and sales
administration and related costs. Because the Contracts are normally purchased
for the long term, the Company expects to recover these costs over time. If,
however, a Contract is totally or partially surrendered (value withdrawn), or if
the Accumulation Value is applied under an annuity option to provide an annuity
certain for a period of less than 120 months, a contingent deferred sales charge
is imposed at that time as a means for the Company to recover sales expenses.
The contingent deferred sales charge is assessed on withdrawals based on the
then Accumulation Value during (i) with respect to Alpha, the first six Contract
years, and (ii) with respect to the Alphaflex, the first eight Contract years.
With respect to the Alpha, the charge is 6% of the amount withdrawn during the
first and second Contract years. The percentage will scale downward by 1/12 of
one percent each month during the third Contract year so that at the end of the
third Contract year the charge is 5%. The charge is 5% during the fourth
Contract year. The charge will scale downward by 1/12 of one percent each month
during the fifth Contract year so that at the end of the fifth Contract year the
charge is 4%. The charge will scale downward by 1/6 of one percent each month
during the sixth Contract year so that at the end of the sixth Contract year the
charge is 2%. Beginning in the seventh Contract year there will be no charge.
With respect to the Alphaflex, the charge is 8% of the amount withdrawn during
the first Contract year. The percentage will scale downward by 1/12 of one
percent each month during the second through eighth Contract years so that at
the end of the eighth Contract year the charge will be 1%. Beginning in the
ninth Contract year there will be no charge. In no event will the aggregate
contingent deferred sales charges exceed 9% of the aggregate purchase payments
made under the Contracts.
Each year after the first year of the Contract, (i) up to 10% of
Accumulation Value may be withdrawn without the imposition of any charge from
the Alpha, and (ii) up to 10% of the Accumulation Value may be withdrawn without
the imposition of any charge from the AlphaFLEX if the account value is at least
$20,000 under that Contract. The 10% amount that can be withdrawn without
penalty applies only to the first withdrawal in each policy year. Upon a full
surrender, the entire Accumulation Value will be subject to the deferred sales
charge, and any charges waived on partial withdrawals during the previous twelve
months will be recovered.
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No contingent deferred sales charge will be deducted from any Accumulation
Value which is paid due to the death of an Annuitant.
A contingent deferred sales charge may be deducted from the Accumulation
Value which is paid due to the death of an Owner who is not the Annuitant.
WAIVER OF SURRENDER CHARGE RIDER. If the Waiver of Surrender Charge Rider
("Rider") is attached to your Contract, we may waive the contingent deferred
sales charge described above provided that the conditions described in the Rider
are met including (a) the Annuitant is confined to a hospital or "eligible
nursing home" (as defined in the Rider) (b) such confinement has lasted for a
continuous period of 60 days or longer; and (c) certification of Annuitant's
medical condition from a licensed physician stating that in the physician's
opinion the Annuitant's confinement is medically required. We will waive only
the contingent deferred sales charges which are applicable to purchase payments
received prior to the date the first confinement began. Waiver of withdrawal
charges is subject to all of the conditions and provisions of the Rider (See
your Contract.). The Rider is not available in all states.
PREMIUM TAX. Deduction for premium taxes will be made only in those
instances and at such time as the laws and regulations of the various states (or
other jurisdictions) assess such a tax. Premium tax assessments are based on the
address of record of the Payor at the time a premium tax may be payable. It is
the Company's practice to make the applicable deduction for premium taxes when
the annuity payment begins in those states (or other jurisdictions) so
permitting. Otherwise, premium taxes will be deducted from purchase payments.
Premium taxes presently range from 0% to 5% of total consideration or of the
total Accumulation Value of amounts annuitized.
CONTRACT ADMINISTRATION CHARGES. The Company performs or delegates all
administrative functions relative to the Contracts. Except as noted below,
deductions are made under each Contract for the expenses associated with such
functions. Such expenses may include salaries, rent, office equipment,
communications, postage, legal, actuarial, and auditing fees. Pursuant to an
agreement with the Company, Investor Services performs certain recordkeeping and
other administrative functions for which it receives compensation from the
Company.
ANNUAL CONTRACT FEE. The contract fee is $35, which will be allocated
proportionately among all accounts under the Contract. The annual contract fee
is deducted by canceling the number of Accumulation Units equal in value to the
charge. This is done on the last valuation date of each Contract year prior to
the commencement of annuity payments and, without proration, on the date the
Contract is totally redeemed. The annual contract fee will be deducted
proportionately from all Sub-Accounts and the Fixed Account in the current
policy year. The annual contract fee deducted from the Fixed Account can not
exceed the interest earned in excess of the guaranteed rate in the Fixed Account
in the current policy year. To the extent there is not sufficient excess
interest earned in the Fixed Account, the proportional amount charged to the
Sub-Accounts will be increased. (SEE "Fixed Account") The annual contract fee
will not be deducted if, on the last valuation date of that Contract year, the
Contract Value is $40,000 or greater.
ADMINISTRATIVE EXPENSE FEE. To further defray the cost of the
administrative functions described above, the Company deducts a charge of
.0004110% of the net assets of the Separate Account per day, which is
approximately equal to an annual rate of .15% for a 365 day year.
The Company guarantees that the Contract administration charges will never
be increased.
DEDUCTION FOR ASSUMING MORTALITY AND EXPENSE RISKS. The Company assumes a
risk by its contractual obligation to pay a death benefit to the Beneficiary if
the Annuitant dies prior to the Annuity Date. The Company also assumes the risk
that annuity payments will continue for a longer period than anticipated and
assumes the risk that the deductions for sales and administration charges may
prove to be insufficient to cover the actual expenses incurred. The Company
assumes these risks for the duration of the Contract. As consideration for
assuming these risks and risks associated with expenses exceeding the Company's
expected expenses, the Company imposes a charge based on assets.
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The charge, together with the administrative expense fee, is applied at the
end of each valuation period through a factor in the determination of the net
investment results of the Separate Account (SEE "Net Investment Factor"). The
charge is .0017808% per day of net daily assets for assuming mortality risks,
including the step-up death benefit, and .0016439% for assuming expense risks.
These charges, when combined, are approximately equal to 1.25% (which includes
the mortality risk charge of .65% and the expense risk charge of .60%) on an
annual basis for a 365 day year. The Company reserves the right to decrease or
increase this charge annually, but in no event may it exceed the amounts
described above.
EXPENSES OF THE FUNDS. There are deductions from and expenses paid out of
the assets of the Funds that are described in the prospectuses for those Funds.
These deductions and expenses and the investment performance of the Funds affect
the value of Accumulation Units which are discussed in this Prospectus under the
caption "The Accumulation Period."
TRANSFERS BETWEEN SUB-ACCOUNTS
At any time prior to the commencement of annuity payments, the Owner may
elect by written notice to the Home Office to transfer Accumulation Units
between the Sub-Accounts. The number of Accumulation Units to be credited will
be adjusted to reflect the respective current values of the units in the
respective Sub-Accounts. Each such transfer must involve a minimum of $100, and
a partial transfer will not be permitted if the value of any Sub-Account after
transfer would be less than $500. The Company may waive the $500 minimum where
the Owner indicates he intends to continue making periodic payments to that
Sub-Account.
During the accumulation period an Owner may make up to twelve transfers each
Contract year at no charge. A charge of $25 per transfer will be charged for
transfers in excess of these limitations. Transfers effected pursuant to a
dollar cost averaging program will not be counted towards these limitations.
After the commencement of annuity payments which do not involve life
contingencies (I.E., Options 1 and 4), the Owner may similarly elect to transfer
Annuity Units between the available Sub-Accounts, subject to the same minimum
amounts and charges. During the annuity period, the Owner may make up to four
transfers each Contract year at no charge. A charge of $25 per transfer will be
charged for transfers in excess of these limitations.
REDEMPTIONS
Subject to any retirement plan requirements, Contracts may be redeemed in
full or in part at any time prior to the commencement of annuity payments,
except that a partial redemption of an amount less than $250 will not be
permitted (although the Contract could be redeemed in full), and a partial
redemption will not be permitted if the value of the Sub-Account being partially
redeemed after such redemption would be less than $500. The Company may waive
the $500 minimum where the Owner indicates he intends to continue making
periodic payments to that Sub-Account. The redemption will be affected by
cancelling a number of Accumulation Units equal in value to the amount
requested. Accumulation Units will be cancelled at the accumulation unit value
as of the end of the valuation period in which the request for redemption is
received at the Home Office.
Any applicable contingent deferred sales charge, (SEE that caption under
"Deductions Under the Contracts") will be deducted from the redemption value
determined as described above and below. The annuitant has no redemption right
under the Contracts subsequent to the commencement of annuity payments except
when payments are being made pursuant to the Option 1 (payments for a specified
period) or Option 4 (payments of a specified dollar amount). Under Option 1, the
value of the Contract for purposes of redemption shall be commuted at the
Company's current commute rate for any remaining certain payments based on the
dollar amount of an annuity payment determined as of the end of the valuation
period in which the request for redemption is received at the Home Office. Under
Option 4, the value of the Contract for purposes of redemption shall be the
remaining balance of proceeds under the option as of the end of the valuation
period in which the request for redemption is received (SEE "Option 4"). Any
partial redemption under Option 1 or 4 of an amount less than $250 will not be
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permitted and a partial redemption will not be permitted if the value of the
Sub-Account being partially redeemed after such partial redemption would be less
than $500. If as a result of a partial redemption the next monthly payment under
Option 1 from the applicable Sub-Account would be less than $100, the Company
may change the frequency of payments so that such next payment would be at least
$100.
Payment of a redemption request will be made within seven days of receipt of
such request in proper and complete form, except that payment may be deferred as
permitted under provisions of the 1940 Act. Deferment is currently permissible
during any period when (a) trading on the New York Stock Exchange ("Exchange")
is restricted as determined by the Commission or the Exchange is closed for
other than weekends and holidays; (b) an emergency exists as determined by the
Commission as a result of which disposal by a Fund of securities held by it is
not reasonably practicable, or it is not reasonably practicable for a Fund
fairly to determine the value of its net assets; or (c) the Commission by order
so permits for the protection of security holders.
A Contract sold to a participant of the Texas Optional Retirement Program is
subject to restrictions on withdrawals except upon the termination of employment
in the Texas public institution of public education or the retirement, death, or
total disability of such participant. Contracts sold pursuant to Section 403(b)
of the Code are subject to certain restrictions on cash withdrawals prior to
termination of employment.
The tax consequences, including the tax withholding requirements, of a
redemption should be carefully considered (SEE "Federal Tax Status of Qualified
Contracts" and "Federal Tax Status of Non-Qualified Contracts").
REINVESTMENT PRIVILEGE. An annuitant who has redeemed his Contract in part
or in full may within 30 calendar days of the redemption reinvest all or part of
the redemption proceeds, including the contingent deferred sales charge, if any,
at the net asset value next determined following timely receipt by the Company
at its Home Office of the written reinvestment order. The privilege may be
exercised by an annuitant only one time. If the annuitant has realized a gain on
the redemption, the transaction is taxable and reinvestment will not alter any
capital gains tax payable. If there has been a loss on the redemption and a
subsequent reinvestment, some or all of the loss will not be allowed as a tax
deduction depending on the amount reinvested.
OTHER SERVICES
DOLLAR COST AVERAGING. The Company offers a dollar cost averaging program
during the accumulation period whereby an Owner may predesignate a portion of
VIPF Money Market Portfolio Sub-Account's Accumulation Value to be automatically
transferred on a monthly basis to one or more of the other Sub-Accounts.
The dollar cost averaging program is available for purchase payments and for
Accumulation Value transferred into the VIPF Money Market Portfolio Sub-Account.
An Owner may enroll in this program at the time the Contract is issued or
anytime thereafter by properly completing the Dollar Cost Averaging enrollment
form and returning it to the Company at its Home Office at least five (5)
business days prior to the second Tuesday of a month which is the date that all
dollar cost averaging transfers will be made ("Transfer Date"). This program
must be elected for at least a 3 month period, but can not be elected for more
than 36 months.
Under the program, transfers will be made in the amounts designated by the
Owner and must be at least $500 per SubAccount. The total Accumulation Value in
the VIPF Money Market Portfolio Sub-Account at the time dollar cost averaging is
elected must be at least $10,000. Dollar cost averaging will cease automatically
if the Accumulation Value in the VIPF Money Market Portfolio Sub-Account does
not equal or exceed the amount designated to be transferred on each Transfer
Date and the remaining amount will be transferred.
Dollar cost averaging will terminate when (i) the number of designated
monthly transfers has been completed, (ii) the value of the Accumulation Units
attributable to the VIPF Money Market Portfolio Sub-Account is insufficient to
complete the next transfer, (iii) the Owner requests termination in writing and
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such writing is received by the Company at its Home Office at least five (5)
business days prior to the next scheduled Transfer Date in order to cancel the
transfer scheduled to take effect on such date, or (iv) the Contract is
surrendered.
An Owner may initiate, reinstate or change the dollar cost averaging terms
by properly completing the new enrollment form and returning it to the Home
Office at least five (5) business days prior to the next scheduled Transfer Date
such transfer is to be made.
When utilizing Dollar cost Averaging an Owner must be invested in the VIPF
Money Market Portfolio Sub-Account and may be invested in any other Sub-Accounts
at any given time. Election of dollar cost averaging is not available during the
annuity period or when an Owner has entered into a Systematic Withdrawal Plan
Agreement as described below.
SYSTEMATIC WITHDRAWAL PLAN. The Company administers a systematic withdrawal
plan ("SWP") which allows certain Owners to pre-authorize periodic withdrawals
during the accumulation period. Owners entering into a SWP agreement instruct
the Company to withdraw selected amounts from any of the Sub-Accounts on a
monthly, quarterly, semi-annual or annual basis. Currently the SWP is available
to Owners who have a minimum Accumulation Value of $25,000 at the time the SWP
is initiated and who elect a period over which withdrawals shall occur of no
less than 6 and no more than 24 months. Owners also must request a minimum $100
periodic payment. The amounts distributed under the SWP can not exceed the
amount free of the contingent deferred sales charge ( (i) 10% of Accumulation
Value under the Alpha, and (ii) 10% of the Accumulation Value under the
AlphaFLEX if the Accumulation Value is at least $20,000). Owners interested in
SWP may obtain an application from their representative or the Home Office.
Election of a SWP is not available during the time an Owner is participating in
the dollar cost averaging program described above. The Company reserves the
right to amend the SWP on thirty (30) days' notice. The SWP may be terminated at
any time by the Owner or the Company.
Withdrawals taken under the SWP or changes of an SWP election may cause the
10% Federal tax penalty on early withdrawals to apply. Withdrawals taken under
an SWP may represent taxable income and may be subject to 20% Federal income tax
withholding. (SEE "Federal Income Taxes.")
REPORTS TO THE OWNER. There will be sent to the Owner periodic reports
containing such information as may be required by applicable state law and the
1940 Act and rules thereunder. Such reports shall include the investment results
of the Funds at least semi-annually and, for Contracts still in the accumulation
period, an annual report of the number of Accumulation Units to the credit of
the Contract and the then current accumulation unit value.
FIXED ACCOUNT
OWNERS MAY ALLOCATE PURCHASE PAYMENTS TO THE FIXED ACCOUNT. IN ADDITION,
OWNERS MAY TRANSFER AMOUNTS IN OR OUT OF THE FIXED ACCOUNT. SUCH FIXED AMOUNTS
ARE HELD IN THE GENERAL ACCOUNT OF THE COMPANY. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, AMOUNTS IN THE FIXED ACCOUNT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND THE FIXED ACCOUNT HAS NOT BEEN REGISTERED
AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY, NEITHER THE FIXED
ACCOUNT NOR ANY INTERESTS THEREIN ARE SUBJECT TO THE PROVISIONS OF THESE ACTS
AND, AS A RESULT, THE STAFF OF THE COMMISSION HAS NOT REVIEWED THE DISCLOSURES
IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. DISCLOSURES REGARDING THE
FIXED ACCOUNT MAY, HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES. THIS PROSPECTUS IS GENERALLY
INTENDED TO SERVE AS A DISCLOSURE DOCUMENT ONLY FOR THE ASPECTS OF THE CONTRACT
INVOLVING THE SEPARATE ACCOUNT AND CONTAINS ONLY SELECTED INFORMATION REGARDING
THE FIXED ACCOUNT. MORE INFORMATION REGARDING THE FIXED ACCOUNT MAY BE OBTAINED
FROM THE HOME OFFICE OR FROM YOUR SALES REPRESENTATIVE.
GENERAL DESCRIPTION. Our obligations with respect to the Fixed Account are
supported by our General Account. Subject to applicable law, we have sole
discretion over the investment of the assets in our General Account.
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The Company guarantees that Fixed Account Accumulation Value will accrue
interest at an annual effective rate of 3 1/2%, independent of the actual
investment experience of the General Account. We may, at our sole discretion,
credit higher rates of interest, although we are not obligated to credit
interest in excess of the guaranteed rate. Any interest rate in excess of the
guaranteed rate with respect to any premium payment or interest credit will not
be modified more often than once per year. Any higher rate of interest will be
quoted at an annual effective rate. The rate of any excess interest initially or
subsequently credited to any amount can in many cases vary, depending on when
that amount was originally allocated to the Fixed Account. Once credited, such
interest will be guaranteed and will become part of the Accumulation Value in
the Fixed Account from which deductions for fees and charges may be made.
Charges under the Contract are the same as when the Separate Account is
being used, except that the 1.40% per annum charged for mortality and expense
risk and administrative expenses is not imposed on amounts of Fixed Account
Accumulation Value.
FIXED ACCOUNT ACCUMULATION VALUE. The Fixed Account Accumulation Value on
any Valuation Date is the sum of the Purchase Payments allocated to the Fixed
Account, plus any transfers from the Separate Account, plus interest credited to
the Fixed Account, less any surrenders, contingent deferred sales charges, or
annual administrative charges allocated to the Fixed Account or transfers to the
Separate Account.
FIXED ACCOUNT TRANSFERS, TOTAL, AND PARTIAL SURRENDERS. Amounts in the
Fixed Account are generally subject to the same rights and limitations and will
be subject to the same charges as are amounts allocated to the Sub-Accounts with
respect to total and partial surrenders. (See "Transfers Between Sub-Accounts.")
Transfers out of the Fixed Account have special limitations. Prior to the
Annuity Date, and after the first Contract anniversary, Owners may transfer part
or all of the Accumulation Value from the Fixed Account to the Sub-Accounts,
provided that (1) no more than one such transfer is made each Contract year, (2)
no more that 20% of the Fixed Account Accumulation Value is transferred during
any 12 month period (unless the balance in the Fixed Account after the transfer
would be less than $1,000, in which case the entire balance may be transferred),
and (3) at least $500 is transferred at any one time (or, if less, the entire
amount in the Fixed Account). Irrespective of the above, we may, in our
discretion, permit a continuing request for transfer of lesser amounts
automatically on a periodic basis. However, we reserve the right to discontinue
or modify any such arrangements at our discretion.
Without the Company's prior approval, no purchase payments or transfers may
be allocated to the Fixed Account if the amount allocated to the Fixed Account
having the same Owner or Annuitant would thereupon exceed $500,000. The Company
reserves the right to modify this provision at any time.
The Company reserves the right to limit the sum of purchase payments to the
Fixed Account and transfers to the Fixed Account to $25,000 in any 12 month
period. However, we reserve the right to discontinue or modify any such
arrangements at our discretion.
CONTRACT BENEFITS
The objective of the Contracts is to provide Accumulation Values and
payments which will tend to reflect changes in the cost of living subsequent to
the date of issue of the Contract. There is no assurance that this objective
will be met. The Company seeks to accomplish this objective by allocating net
purchase payments, as directed by the Owner, to one or more of the Sub-Accounts.
Each Contract is issued to the Owner. The Annuitant named in the Contract
will be the Owner unless another Annuitant is specified in the application for,
or amendment to, the Contract.
Subject to the minimum and maximum initial and subsequent purchase payment
limitations, an Owner may continue to make purchase payments prior to the
commencement of annuity payments. The Contracts provide for a variable monthly
life annuity to begin at some future selected date, called the Annuity Date,
with a provision that variable annuity payments will be made for at least 120
months, unless the Owner elects one of the other Settlement Options. The Owner
may elect one of the other Settlement Options provided by the Contracts (SEE
"Settlement Options").
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Each Contract contains a guaranteed death benefit upon the death of the
Annuitant prior to commencement of annuity payments or age 75, whichever occurs
first, equal to the greatest of: (i) the purchase payments made (less partial
withdrawals and any contingent deferred sales and partial withdrawal transaction
charges taken); (ii) the Accumulation Value at the end of the valuation period
during which due proof of death is received (the "basic death benefit"); and
(iii) the step-up benefit plus purchase payments made, less partial withdrawals
and any contingent deferred sales and partial withdrawal transaction charges
taken since the last step-up anniversary.
The step-up death benefit at issue is the initial purchase payment. At each
step-up anniversary, the current Accumulation Value is compared to the prior
determination of the step-up death benefit, increased by purchase payments made
and reduced by partial withdrawals and any CONTINGENT deferred sales and partial
withdrawal transaction charges taken since that anniversary. The greater of
these becomes the new step-up benefit. The step-up anniversaries are (i) with
respect to the Alpha, the Contract date and every sixth Contract anniversary
thereafter (I.E., sixth, twelfth, eighteenth, etc., Contract anniversaries), and
(ii) with respect to the AlphaFLEX, the Contract date and every eighth Contract
anniversary thereafter (I.E., eighth, sixteenth, twenty-fourth, etc. Contract
anniversaries) (except in Texas, where the step-up anniversaries are the
Contract date and every sixth year thereafter). The death benefit for attained
age 75 and older will be the Accumulation Value. In the event of the Annuitant's
death prior to the Annuity Date, the Beneficiary may elect, if the Owner has not
specified otherwise, to have the value of the Contract paid to him in a lump sum
or applied to effect a variable annuity under the Settlement Options (SEE
"Payment on or After Death of Annuitant"). In the event that the Beneficiary is
a surviving spouse, the Contract can be continued.
Upon the death of an Owner who is not the Annuitant, the Beneficiary will
receive the Owner's interest in the Contract.
With respect to Non-Qualified Contracts, the Owner may select the date
variable annuity payments are to begin, except that payments may not begin later
than the Annuitant's 85th birthday or earlier than the Annuitant's 50th
birthday. For Qualified Contracts, the Owner may select the date variable
annuity payments are to begin, except that, generally, payments may not begin
later than April 1 of the year following the year in which the purchaser reaches
age 70 1/2. (SEE "Federal Tax Status of Qualified Contracts" for limitation of
the Annuity Date under certain Qualified Contracts). Upon election, at least 45
days prior to the Annuity Date, the Owner may change the Annuity Date (SEE
"Payment Provisions"), elect a different form of variable annuity (SEE
"Settlement Options"), or elect that all or a portion of the Accumulation Value
be applied to effect a fixed-dollar annuity (SEE "Settlement Options"). An Owner
may, subject to certain restrictions (SEE "Redemption"), elect to redeem all or
a portion of the value of the Contract. However, certain tax consequences may
result from any such election (SEE "Federal Tax Status of Qualified Contracts"
and "Federal Tax Status of Non-Qualified Contracts").
CERTAIN MINIMUM AMOUNTS
The minimum initial purchase payment under the Alpha is $5,000. The minimum
initial purchase payment for the AlphaFLEX is $2,000 for a Qualified Contract
and $5,000 for a Non-Qualified Contract. For the AlphaFLEX, the minimum initial
purchase payment must accompany the application. (There may be exceptions for
Qualified Contracts on an automatic premium mode). The minimum additional
purchase payment is $1,000 for the Alpha and $100 for the AlphaFLEX under both a
Non-Qualified and Qualified Contract. The minimum amount that may be applied
under a Settlement Option is $2,000; provided, however, if the total amount
applied is less than $15,000, a totally fixed settlement option must be
selected. Also, any election must provide an initial payment of at least $100
per Sub-Account (SEE "The Annuity Period").
Subject to retirement plan requirements, Contracts may be redeemed in full
or in part at any time prior to the Annuity Date, except that a partial
redemption of less than $500 from any Sub-Account will not be permitted, and the
value of any Sub-Account after such partial redemption must be at least $500.
The Company may waive the $500 minimum where the Owner indicates he intends to
continue making periodic payments on his Contract and allocating payment to that
Sub-Account (SEE "Redemptions").
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THE ACCUMULATION PERIOD
THE ACCUMULATION VALUE AND ACCUMULATION UNITS. During the period prior to
the commencement of annuity payments, referred to herein as the accumulation
period, a separate accumulation account is maintained under the Contracts for
each Sub-Account into which purchase payments are directed. Each net purchase
payment is credited to each Sub-Account or the Fixed Account, or allocated among
the Sub-Accounts, as directed by the Owner, in the form of Accumulation Units.
Accumulation Units are credited separately to each Sub-Account. The number of
Accumulation Units of each type credited to the Contract is determined by
dividing the designated portion of the net purchase payment by the applicable
accumulation unit value as of the end of the valuation period in which the
purchase payment is received at the Home Office. The initial purchase payment
will be credited to the Contract not later than two (2) business days following
the date the properly completed application which accompanies the purchase
payment is received by the Company at its Home Office. If an application is
incomplete or incorrect, the applicant will be informed of the reasons for the
delay, and the purchase payment will be returned to the applicant within five
(5) days of receipt unless the applicant specifically authorizes the Company to
retain the purchase payment until the application is completed or corrected. Any
part of a purchase payment that is to be applied to the VIPF Money Market
Portfolio Sub-Account will not be considered received unless the Company has
received the payment in cash at its Home Office or in Federal funds. If remitted
in other than the foregoing manner, such as by money order or personal check,
payment will not be considered received until the close of business on the
second business day after actual receipt. This is because the money market
instruments in which the VIPF Money Market Portfolio invests normally require
immediate settlement in Federal funds. The VIPF Money Market Portfolio intends
at all times to be fully invested in order to maximize its earnings.
Information on how to procure a Federal Reserve Draft or to transmit Federal
funds by wire is available at your bank. The bank may charge for these services.
The value of any Sub-Account at any time is equal to the total number of
Accumulation Units credited to that Sub-Account multiplied by the applicable
then current accumulation unit value.
ACCUMULATION UNIT VALUES. On December 1, 1994, the value of an Accumulation
Unit in each Sub-Account was set at $10.00. The value of an Accumulation Unit is
redetermined on each valuation date and is equal to the accumulation unit value
determined on the immediately preceding valuation date multiplied by the
applicable net investment factor (described below) for the current valuation
period. The accumulation unit value for a valuation period is the value
determined at the end of such period.
VALUATION DATE AND VALUATION PERIOD. Each date on which the assets of the
Sub-Accounts are valued is a valuation date. The assets of the Sub-Accounts are
valued as of 4:00 p.m. on each valuation date. The period from the time the
accumulation unit value is determined as of one valuation date to the time such
value is determined as of the next valuation date is called a valuation period.
NET INVESTMENT FACTOR. The net investment factor is a device for measuring
the change in accumulation unit value over a valuation period. It is determined
for any valuation period by dividing (a) the net asset value of a Fund share as
of the end of such valuation period less capital gains tax per share, if
applicable, plus the per share amount of any distributions made by the Fund
during such valuation period, by (b) the net asset value of a Fund share
determined as of the end of the preceding valuation period, and then subtracting
from this result the charges for mortality and expense risks and for
administrative expenses for the current valuation period.
EXAMPLE OF CALCULATION OF ACCUMULATION UNIT VALUE. Suppose (a) the
accumulation unit value for the preceding valuation period was $10.532614000;
(b) the net asset value of a Fund share as of the end of the current valuation
period is $11.44; (c) the per-share amount of a distribution from the Fund
during such valuation period was $.19; (d) the per-share amount of a tax
liability was $00.00; (e) the net asset value of a Fund share as of the end of
the previous valuation period was $11.61; (f) the number of days in the current
valuation period is one; (g) the daily deduction for assuming mortality and
expense risks is .000034247; and (h) the daily deduction for the administrative
expense fee is .000004110. The net investment factor for the current valuation
period is calculated as follows:
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$11.44_+_.19_-_$00.00 - (1 X .000034247) - (1 X .000004110) = 1.001684296
$11.61
The accumulation unit value for the preceding valuation period
($10.532614000) is then multiplied by the net investment factor for the current
valuation period (1.001684296), which produces an accumulation
unit value of $10.550354040 for the current valuation period.
THE ANNUITY PERIOD
PAYMENT PROVISIONS. The variable annuity payments under the Contracts will
vary in amount, either up or down, to reflect the investment performance of the
available Funds, as elected by the Owner, at least 45 days prior to the Annuity
Date. All of the Sub-Accounts, except the VIPF High Income and the corresponding
VIPF High Income Portfolio, are available during the annuity periods. Variable
annuity payments will commence on the Annuity Date selected by the Owner. The
Annuity Date may be changed provided written election to change is received at
the Home Office at least 45 days prior to the old Annuity Date and provided the
new Annuity Date is at least 45 days after such election and, except by consent
of the Company, not later than the Annuitant's 85th birthday or earlier than the
Annuitant's 50th birthday (SEE "Federal Tax Status of Qualified Contracts" for
limitations of the Annuity Date under certain Qualified Contracts). Variable
annuity payments are made monthly on the same day of the month as the Annuity
Date.
At the time of election, the Owner should consider the question of
allocation of Contract value between the available Sub-Accounts or the Fixed
Account for the purchase of a fixed-dollar annuity. Allocation between the Fixed
Account and the Sub-Accounts may be altered by the Owner at any time within 45
days prior to the Annuity Date. If the Owner does not elect otherwise,
Sub-Account Accumulation Units, after reduction for any applicable premium tax,
will be applied to provide annuity payments that reflect the investment
experience of such applicable Sub-Accounts. However, no such election will be
allowed which would provide an initial payment from any available Sub-Account of
less than $100.
The Owner may elect any one of the Settlement Options described below by
filing a written notice 45 days prior to the Annuity Date (SEE "Settlement
Options" below for limitations under Qualified Contracts). If the Annuitant dies
before the Annuity Date, the Beneficiary may elect, if the Owner has not already
done so, to apply any part of the Accumulation Value under the Settlement
Options.
The person electing a Settlement Option may elect, in lieu of monthly
payments, to receive payments on a quarterly, semi-annual, or annual basis. In
such case, an actuarially equivalent number of Annuity Units will be determined.
Upon annuitization, the Contract Value may be allocated between the
available Sub-Accounts for the purchase of variable settlement options on
Contracts that have a value of at least $15,000. To annuitize contracts with
values less than $15,000, a totally fixed settlement option must be elected. If
the amount to be applied under a Settlement Option is less than $2,000, the
Company reserves the right to pay such amount in one sum instead. Also, no
election will be allowed which would provide an initial payment from any
Sub-Account of less than $100.
The Company continues to deduct the mortality and expense risk charge
(1.25%) and the administrative expense fee (0.15%), which are assessed during
the accumulation period. The annual contract fee will not be deducted during the
annuity period.
SETTLEMENT OPTIONS
OPTION 1--Payments for a Specified Period--This is an annuity payable
monthly for a selected number of years, which may be 1 to 30 years.
OPTION 2--Life Income--This is an annuity payable in monthly installments,
with such installments being paid as elected under a, b, c, or d, below.
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a. Life Annuity--This is an annuity which provides monthly payments during
the lifetime of the Annuitant with no monthly payments or other benefits
payable after the date of his death. This Option offers a slightly higher
level of monthly payments than Options 2b, 2c, or 2d because no further
payments are payable after the death of the Annuitant. It would be
possible under this Option for only one annuity payment to be made if the
Annuitant died before the due date of the second annuity payment, two if
he died before the third annuity payment, etc.
b. Life Annuity with 60, 120, 180, or 240 Monthly Payments Certain--This is
an annuity which provides monthly payments during the lifetime of the
Annuitant and further provides that if, at the death of the Annuitant,
payments have been made for less than the elected period certain, which
may be 60, 120, 180, or 240 months, the annuity payments will be
continued during the remainder of such period to the named Beneficiary.
c. Installment Refund Life Annuity--This is an annuity payable monthly
during the lifetime of the Annuitant with payments made for a period
certain not less than the number of months found by dividing the amount
applied under the Option by the first monthly payment.
d. Joint and Survivor Life Annuity--This is an annuity that provides
monthly payments during the joint lifetime of the Annuitant and one other
person, called the Joint Annuitant, and thereafter during the lifetime of
the survivor with no monthly payments or other benefits payable after the
death of the survivor. It would be possible under this Option for only
one annuity payment to be made if the Annuitant and Joint Annuitant died
before the due date of the second annuity payment, two if they died
before the third annuity payment, etc.
OPTION 3--Interest--This Option is only available under a fixed dollar
annuity. (See the third succeeding paragraph below.)
OPTION 4--Payments of a Specified Dollar Amount--This is an annuity payable
in equal annual, semi-annual, quarterly, or monthly installments of a designated
dollar amount until the remaining balance is less than the amount of one
installment. The designated amount may not be less than $100 per year from any
Sub-Account per $1,000 of the amount applied under the Option. To determine the
remaining balance payable at the end of any valuation period, such balance at
the end of the previous valuation period is decreased by the amount of any
installment paid during the valuation period and the result multiplied by the
net investment factor for the valuation period. If the remaining balance is less
than the amount of one installment, such balance will be paid and will be the
final payment under the Option.
Variable annuity payments payable to a Beneficiary under Options 1, 2b, 2c,
or 4 may, upon proper election, be commuted and paid in one sum (SEE "Payment on
or after Death of Annuitant").
In lieu of variable payments, an election may be made to apply a portion, or
all, of the proceeds of the Contract to purchase a fixed dollar annuity. Fixed
dollar annuities are not described in this Prospectus. Information concerning a
fixed dollar annuity can be obtained from the Company or any of its sales
representatives. Once a fixed dollar annuity is elected, it can not be converted
to a variable annuity.
In lieu of the above options, an election may be made to have the proceeds
of the Contract placed on deposit with the Company in its General Account, and a
sum will be paid annually, semi-annually, quarterly, or monthly, as selected,
which shall be equal to the fixed interest rate for the period multiplied by the
amount remaining on deposit. Proceeds on deposit may be withdrawn or applied at
any time under one of the Settlement Options as a Fixed Annuity only.
At any time while Option 1 or Option 4 is in effect the person having made
such election may elect to change payments under that option to payments under
Option 2 or to redeem all or part of the value of the Contract. The number of
Annuity Units added or subtracted because of any such change or redemption will
be determined in accordance with the annuity unit value for the date on which
the change or redemption is effected. (SEE "Annuity Unit Values" and
"Redemptions").
Under Qualified Contracts Options 1 and 4, Option 2b with 240 monthly
payments certain, and any other option that would impair the Qualified tax
status of the Contract may not be available.
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If the Alpha contract is annuitized and then surrendered within 6 years, the
contingent deferred sales charge would still apply, and if the Alphaflex is
annuitized and then surrendered within 8 years, the contingent deferred sales
charge would still apply.
ANNUITY PURCHASE RATES. The Contracts contain a schedule of annuity rates
based upon an assumed investment return of 3 1/2% for each of Option 1 and
Option 2. The annuity rates show how much the first monthly variable annuity
payment will be for each $1,000 applied to effect the annuity. Except as noted
below, the rates vary with the form of annuity, the date of birth and sex of the
Annuitant and the Joint Annuitant, if any, and the date on which the annuity is
effected.
Subject to consent of the Company and applicable state law, annuity rates
based upon an assumed investment return of 5% may also be available.
The annuity rates for the Contracts are based on, among other things, an
annual interest rate, referred to as the assumed investment return. The assumed
investment return selected affects both the amount of the first annuity payment
and the pattern of subsequent payments. If the actual investment return should
exceed the assumed investment return, the variable annuity payments would
increase and, conversely, if the actual investment return should be less than
the assumed investment return the payments would decrease. The selection of a
higher assumed investment return would produce a higher initial payment but more
slowly rising subsequent payments (or more rapidly falling subsequent payments)
than the selection of a lower assumed investment return.
The United States Supreme Court has ruled that under certain
employer-sponsored employee benefit plans, annuity options may not be based on
sex-distinct actuarial tables. All Qualified Contracts described in this
Prospectus other than those issued to fund Individual Retirement Accounts or
Annuities, which are not employer-sponsored annuity benefits, will be based on
the unisex annuity rates set forth in the amendments to the Contracts after
approval of the Company's unisex annuity rates by the insurance department of
the state in which the Contract is sold.
ANNUITY UNIT VALUES. The value of an Annuity Unit was set at $10.00 on
December 1, 1994 for each Sub-Account. On each valuation date thereafter the
annuity unit value is redetermined by multiplying (i) the annuity unit value
determined at the end of the immediately preceding valuation period, times (ii)
the net investment factor for the applicable Sub-Account for the current
valuation period, times (iii) a factor to adjust for the assumed investment
return described under "Annuity Purchase Rates" above.
NUMBER OF ANNUITY UNITS. To determine the number of Annuity Units for each
Sub-Account, the number of Accumulation Units credited to the Sub-Account on the
annuitization date is multiplied by the applicable accumulation unit value for a
valuation period preceding the Annuity Date by not more than 10 days. The amount
so determined, reduced by any applicable contingent deferred sales charge and
premium tax, is multiplied by the appropriate Settlement Option factor, as shown
in the Contract, and the result divided by 1,000. The resulting amount is
divided by the applicable annuity unit value for a valuation period preceding
the Annuity Date by not more than 10 days to determine the number of annuity
units for each Sub-Account to be credited to the Contract (except under Option
4; SEE "Option 4"). The number of Annuity Units so computed will remain fixed
and is used to compute each annuity payment.
TIME OF PAYMENT. The first annuity payment is made on the Annuity Date .
AMOUNT OF PAYMENT. The amount of each annuity payment is the sum of
payments of each Sub-Account determined by multiplying the number of Annuity
Units credited to the Contract, as computed above, by the annuity unit value for
a valuation period preceding the due date of the payment by not more than 10
days (except under Option 4, where the Contract Value is applied to provide
annuity payments as specified under that option; SEE "Option 4").
PAYMENT ON OR AFTER DEATH OF ANNUITANT
Upon receipt at the Home Office of due proof that the death of the Annuitant
has occurred before the Annuity Date and while the Contract was in force and
before the Annuitant's seventy-fifth birthday, the Company will pay to a
designated Beneficiary the greatest of: (i) the purchase payments made (less
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partial withdrawals and any surrender and partial withdrawal transaction charges
taken); (ii) the Accumulation Value at the end of the valuation period during
which due proof of death is received; and (iii) the step-up benefit plus
purchase payments made, less partial withdrawals and any contingent deferred
sales charge and partial withdrawal transaction charges taken since the last
step-up anniversary. The step-up death benefit at issue is the initial purchase
payment. At each step-up anniversary, the current Accumulation Value is compared
to the prior determination of the step-up death benefit, increased by purchase
payments made and reduced by partial withdrawals and any contingent deferred
sales charge and partial withdrawal transaction charges taken since that
anniversary. The greater of these becomes the new step-up death benefit. The
step-up anniversaries are (i) with respect to the Alpha, the Contract date and
every sixth Contract anniversary thereafter (I.E., sixth, twelfth, eighteenth,
etc., Contract anniversaries), and (ii) with respect to the AlphaFLEX, the
Contract date and every eighth Contract anniversary thereafter (I.E., eighth,
sixteenth, twenty-fourth, etc., Contract anniversaries) (except in Texas, where
the step-up anniversaries are the Contract date and every sixth year
thereafter). The death benefit for attained age 75 will be the Accumulation
Value.
Before the Annuity Date, the Beneficiary may elect, if the Owner shall not
have done so, either to receive such value in one sum or to apply it under any
of the Settlement Options contained in the Contracts. If the value is applied
under the Settlement Options, any reference in the description of the options to
"Annuitant" will be construed to mean "Beneficiary. " If the Beneficiary of a
Contract is the Owner's spouse, then upon the Owner's death the Contract may be
continued without any of the following restrictions on distribution.
After the Annuity Date, no payments on death are made except as may be
provided by the form of annuity in effect. In such cases the Owner may, prior to
the Annuitant's death, elect that any variable annuity payments to which the
Beneficiary may become entitled will be commuted and paid in one sum; or in
absence of such election and unless the Owner is then living, a Beneficiary who
becomes entitled to variable annuity payments may elect that the remainder of
such payments be commuted and paid in one sum. Any such commutation will be
equal to the value, in a single sum, of the remaining variable annuity payments,
discounted from their respective due dates to the date of determination of the
single sum commuted at the Company's current commute rate, assuming that the
annuity unit value applicable to the payments on the date of termination will
remain unchanged thereafter.
With respect to the Contracts (other than Individual Retirement Annuities
and those issued in connection with Individual Retirement Accounts and corporate
pension plans), if the Owner dies on or after the Annuity Date and before the
entire value of the Contract has been distributed, the remaining value must be
distributed at least as rapidly as the method of distribution in effect.
THE DISTRIBUTION OF THE CONTRACTS
The Contracts are sold primarily by individuals who are associated persons
of Jefferson-Pilot Investor Services, Inc. ("Investor Services"), a
broker-dealer registered under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc. ("NASD").
Investor Services is organized under the laws of North Carolina and is a
wholly-owned subsidiary of Jefferson-Pilot Corporation. Contracts may be sold
through other broker-dealers registered under the Exchange Act and who are
members of NASD and whose representatives are authorized by applicable law to
sell variable annuities. Such other broker-dealers will be allowed a maximum
commission of (i) with respect to the Alpha, 7% of purchase payments on such
Contract, and (ii) with respect to the AlphaFLEX,
5% of purchase payments on such Contract.
VOTING RIGHTS
The Company, as the sponsor of the Separate Account, shall vote Fund shares
held in the Separate Account at regular and special meetings of shareholders of
the Funds, but will follow voting instructions received from the person having
the right to give such instruction.
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The number of Fund shares for which a person has the right to give
instructions will be determined as of a date to be chosen by the Company not
more than 90 days prior to any meeting, and voting instructions will be
solicited by written communication at least ten days prior to such meeting.
Except as specified below, the Owner has the right to instruct the voting of
Fund shares prior to the Annuity Date. Under Contracts issued in connection with
plans qualified under Section 403(b) or 408 of the Code or in connection with
HR-10 Plans, the Annuitant has the right to instruct the voting of shares prior
to the Annuity Date. Under Contracts issued in connection with plans qualified
under either Section 401 or 403(a) of the Code, other than HR 10 Plans, the
Owner has the right to instruct the voting of shares prior to the Annuity Date,
except that the Annuitant is entitled to instruct with respect to votes
attributable to his purchase payments (if any) and, to the extent authorized by
the terms of the plan, with respect to any additional votes under the Contract.
The number of shares attributable to a Contract prior to the Annuity Date is
determined by dividing the value of the Accumulation Value for such Contract by
the net asset value of one share of the respective Funds. The number of shares
attributable to a Contract on and after the Annuity Date is determined by
dividing the reserve (which generally will decrease) held by the Company in the
Separate Account for such Contract by the net asset value of one share.
All Fund proxy material, together with an appropriate form to be used to
give voting instructions, will be mailed to each person having such voting
instruction rights. Neither the Funds nor the Company is under a duty to inquire
as to the instructions received or the authority of Owners or others to instruct
the voting of shares. Shares for which no instructions are received, including
shares owned by the Company, will be voted in the same proportion as the shares
for which instructions are received from persons entitled to give such
instructions by reason of all contracts participating in the Separate Account.
FEDERAL TAX STATUS
It should be recognized that the rules governing the tax treatment of
annuity contracts are very complex, and cannot be easily summarized. The
following discussion is not intended to be exhaustive, and it does not cover
numerous special rules for annuities issued or contributions paid in past years
if such annuities are exchanged for the Contract. A qualified tax adviser should
be consulted for complete information.
FEDERAL TAX STATUS OF THE SEPARATE ACCOUNT. The Company is taxed as a life
insurance company under the Code. The operations of the Separate Account are
part of the total operations of the Company and are not taxed separately,
although the operations of the Separate Account are treated separately for
accounting and financial statement purposes and must be considered separately in
computing the Company's tax liability. Currently, no taxes are payable by the
Separate Account on the investment income and capital gains of the Separate
Account. The Company reserves the right to deduct a charge from Separate Account
assets if such tax treatment should change.
FEDERAL TAX STATUS OF QUALIFIED CONTRACTS. The comments in this section
apply only to Contracts described in this Prospectus which are Qualified
Contracts, as defined herein. The rules governing the eligibility to
participate, limitations on permissible contributions, and the treatment of
distributions from Qualified Contracts are extremely complex. Purchasers of
Qualified Contracts should seek competent tax advice on the tax rules governing
their eligibility to participate, the limitations on contributions, and the
treatment of distributions.
If this Contract is purchased as a "tax-sheltered annuity" under Section
403(b) of the Code, it is subject to certain restrictions on redemption imposed
by Section 403(b)(11) of the Code. Briefly, these restrictions are as follows:
Unless the purchaser reaches age 59 1/2 , separates from service, dies, or
becomes disabled, the purchaser may not surrender amounts attributable to salary
reduction contributions made or income earned, except in the case of hardship.
Hardship withdrawals will not include income earned, and are subject to tax
penalties and contingent deferred sales charges.
Although plans under Section 457 of the Code are not treated as "qualified"
plans for certain purposes, they do receive favorable treatment for purposes
most relevant to this Prospectus, in that
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Contracts issued to Section 457 Plans need not comply with the investment
diversification rules of Code Section 817(h), and the Contracts issued to such
plans are treated as Qualified Contracts.
Benefits received from a Qualified Contract will often be paid from
contributions that have never been included in the gross income of the
participant. Benefits received from such a plan will be taxable as ordinary
income whether received upon surrender, withdrawal, or death or disability of
the Annuitant. If the participant made contributions to the Qualified Contract
with funds that have previously been included in gross income, special rules
provide for the return of the contributions over the period that payments are
received. Under certain circumstances, a ten percent (10%) penalty tax may be
imposed on distributions. The rules governing the imposition of this penalty are
discussed in a later part of this section.
The Code requires that Federal income taxes be withheld, at a twenty percent
(20%) rate, from any "eligible rollover distribution" which is not transferred
directly to another qualified plan. All qualified plans are required to notify
participants of the IRS rules before an "eligible rollover distribution" is
made. The Separate Account has adopted procedures that will enable it to make or
receive trustee to trustee transfers, which will exempt eligible distributions
from the withholding requirements. Purchasers should also be aware that the Code
generally requires that certain minimum distributions from Qualified Contracts
be made following the date when the purchaser reaches age 70 1/2, or following
the death of the purchaser (a special rule applies for surviving spouses). The
minimum distribution rules generally require that the purchaser of a Qualified
Contract receive distributions over his or life expectancy, or the joint life
expectancy of the purchaser and his or her spouse.
FEDERAL TAX STATUS OF NON-QUALIFIED CONTRACTS. The comments in this section
apply only to Non-Qualified Contracts described in this Prospectus which are not
Qualified Contracts. The Federal income tax treatment of the Owner, Annuitant,
or Beneficiary of a variable annuity contract is determined under the rules of
Section 72 of the Code. Under the existing provisions of the Code, an increase
in the Accumulation Value is not taxable to an individual Owner until received
by him, either as a cash redemption or as annuity payments. Under the rules
explained below, any taxable gain on payments or redemption from the Contract
are taxable as ordinary income. No payments by the Company under the Contracts
are eligible for capital gains treatment.
The Contracts will be taxed as an annuity as long as the diversification
requirements of Section 817(h) of the Code and the Treasury Regulations
thereunder are complied with. The Company intends to comply with such
requirements.
In applying the rules explained below, an individual's investment in the
Contract is equal to the sum of the purchase payments made by the individual on
the Contract, reduced by that portion of any previous partial redemption(s) that
were not treated as taxable income.
The Federal income taxation of distributions or payments from annuity
contracts may vary depending upon the type of distribution received. If the
distributions are received as a series of substantially equal payments, the gain
on the Contract is spread out over the payment period. Under the "exclusion
ratio" of Section 72 of the Code, a portion of each payment is excluded from
income as a return of the investment in the Contract. The portion of each
payment to be excluded is determined by dividing the investment in the Contract
by the expected return in the case of fixed payments, and by the payment period
in the case of variable payments. The total excludable amount is limited to the
individual's investment in the Contract. Once the individual's investment in the
Contract is returned under the exclusion ratio, all subsequent payments will be
included in income. If payments end by reason of the death of the Annuitant
before the investment in the Contract has been returned under the exclusion
ratio, the amount of the unrecovered investment in the Contract is a deduction
on the Annuitant's tax return for the last taxable year. In the event of a
complete redemption prior to the Annuity Date, any gain on the termination of
the Contract will be taxed as ordinary income, and the Owner may be subject to
the ten percent (10%) penalty tax provisions of the Code. The rules governing
the imposition of this penalty are explained in a later paragraph of this
section.
If amounts are received from partial redemption of the Contract prior to the
annuity starting date, any partial redemption will be taxable to the Owner to
the extent that the Contract's value at the time of the
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redemption exceeds the Owner's investment in the Contract, and the Owner may be
subject to the ten percent (10%) penalty provisions of the Code. The rules
governing the imposition of this penalty are explained in a later section.
If the Owner dies on or after the Annuity Date, the remaining portion of the
Contract's value must be distributed at least as rapidly as under the method of
distribution in effect at the Owner's death. If the Owner dies prior to the
Annuity Date, the entire Contract Value must (a) be distributed within five
years of the Owner's death, or (b) be distributed as annuity payments that do
not extend beyond the life or life expectancy of the Owner's beneficiary and
that begin within one year of the Owner's death. If the Owner's spouse is the
Beneficiary, the Contract may be continued in the name of the spouse as the
Owner.
The Code contains a special rule for non-qualified annuity contracts not
owned by individuals, such as Contracts purchased by corporate employers in
connection with deferred compensation plans.
In determining the amount of taxable income in a distribution from an
annuity contract, all annuity contracts issued by the Company to an individual
during any calendar year are treated as a single contract.
FEDERAL TAX PENALTIES AND WITHHOLDING. A ten percent (10%) penalty tax may
be imposed on certain partial or complete redemptions of a Contract. The ten
percent (10%) penalty tax will not be imposed in certain instances, including
those in which the redemption amount is received after the Annuitant reaches age
59 1/2, if the redemption amount is one of a series of substantially equal
periodic payments made over the Annuitant's life, is received following the
death of the Owner, or is attributable to the Owner's becoming disabled. For
distributions from Qualified Contracts, the penalty does not apply for the
reasons stated above or if the employee has separated from service after
attaining age 55.
Under a Qualified or Non-Qualified Contract the Company is required to
withhold Federal income taxes from any income payments to the Owner unless the
Owner elects, for any reason, to have no withholding made from the payments.
This withholding requirement also applies to Qualified Contracts, discussed
above. The Owner can change his election at any time by written notice to the
Home Office.
LEGAL MATTERS
Legal matters with respect to the organization of the Company, its authority
to issue annuity contracts and the validity of the Contract, have been passed
upon by its General Counsel, John D. Hopkins.
SPECIAL CONSIDERATIONS
The Company reserves the right to amend the Contract to meet the
requirements of any applicable Federal or state laws or regulations. The Company
will notify the Owner in writing of any such amendments.
RESTRICTIONS UPON TRANSFER OF OWNERSHIP AND ASSIGNMENT. An Owner's rights
under a Contract may be assigned as provided by applicable law. An assignment
will not be binding upon the Company until it receives a written copy of the
assignment. The Owner is solely responsible for the validity or effect of any
assignment. The Owner, therefore, should consult a qualified tax adviser
regarding the tax consequences, as an assignment may be a taxable event.
Ownership of a Contract issued to qualify under Section 403(b) or 408 of the
Code or the Self-Employed Individuals' Tax Retirement Act of 1962 ("HR-10 Plan")
may not be transferred, assigned or pledged except, with respect to a Contract
qualifying under 403(b) or an HR-10 Plan, the Contract may be assigned to the
Company.
32
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement (the "Registration
Statement") with the Commission under the Securities Act of 1933 relating to the
Contracts offered by this Prospectus. This Prospectus has been filed as a part
of the Registration Statement and does not contain all of the information set
forth in the Registration Statement, and reference is hereby made to such
Registration Statement for further information relating to the Company and the
Contracts. The Registration Statement may be inspected and copied, and copies
can be obtained at prescribed rates from the Commission.
STATE REGULATION
The Company is subject to the laws of the State of North Carolina governing
insurance companies and to regulation by the North Carolina Commissioner of
Insurance. An annual statement in a prescribed form must be filed with that
Commissioner on or before March 1 in each year covering the operations of the
Company for the preceding year and its financial condition on December 31 of
such year. Its books and assets are subject to review or examination by the
Commissioner or his agents at all times, and a full examination of its
operations is conducted by the National Association of Insurance Commissioners
at least once in every five years. North Carolina law also prescribes
permissible investments, but does not involve supervision of the investment
management or policy of the Company. The last such examination was conducted for
the five year period ended December 31, 1992.
EXPERTS
The financial statements of Jefferson-Pilot Separate Account A and
Jefferson- Pilot Life Insurance Company at December 31, 1996, and for the year
then ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Jefferson-Pilot Separate Account A and
Jefferson- Pilot Life Insurance Company as of December 31, 1995, and for each of
the years in the two-year period ended December 31, 1995 have been included
herein in reliance upon the report of McGladrey & Pullen, LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
Financial statements for the Company and the Separate Account may be found
in the Statement of Additional Information. Owners should direct their questions
concerning their Contracts to Jefferson-Pilot Investor Services, Inc., Post
Office Box 22086, Greensboro, North Carolina 27420.
33
<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DISTRIBUTION OF THE CONTRACTS............................................................................. B-2
DETERMINATION OF ANNUITY PAYMENTS......................................................................... B-2
Amount of Annuity Payments.............................................................................. B-2
Annuity Unit Value...................................................................................... B-3
Illustrations of Variable Annuity Payments.............................................................. B-3
STANDARDIZED COMPUTATION OF PERFORMANCE................................................................... B-4
Performance Information: Yields......................................................................... B-5
Performance Information: Total Returns.................................................................. B-6
TAX COMPARISON............................................................................................ B-6
VALUATION OF ASSETS OF THE ACCOUNT........................................................................ B-6
TRANSFERABILITY RESTRICTIONS.............................................................................. B-7
CONTINGENT DEFERRED SALES CHARGE.......................................................................... B-7
PARTICIPATION AGREEMENTS.................................................................................. B-7
GENERAL INFORMATION....................................................................................... B-8
TAX SUMMARY............................................................................................... B-8
Transfers Between Non-Qualified Annuities............................................................... B-8
Tax Sheltered Annuity Arrangements (TSAS)............................................................... B-9
Tax Qualified Retirement Plans (Qualified Plans): Contributions......................................... B-9
Individual Retirement Annuities (IRAs).................................................................. B-9
Simple IRA.............................................................................................. B-11
Public and Non-Profit Organization Employee Deferred Compensation Plans (EDC Plans)..................... B-11
Penalties for Excess Contributions and Excess Deferrals................................................. B-11
Distributions From Qualified Annuities.................................................................. B-11
Income Tax Withholding.................................................................................. B-12
Financial Statements.................................................................................... B-13
</TABLE>
34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ALPHA AND ALPHAFLEX
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
(for Tax-Qualified and Non-Qualified Plans)
JEFFERSON-PILOT SEPARATE ACCOUNT A
(the "Separate Account"), a separate account of
Jefferson-Pilot Life Insurance Company
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus but supplements and
should be read in conjunction with the prospectus for the Contracts. A copy of
the prospectus may be obtained from Jefferson-Pilot Investor Services, Inc.,
Post Office Box 22086, Greensboro, North Carolina 27420, telephone number
1-800-458-4498.
- --------------------------------------------------------------------------------
The Date of the Prospectus to which this Statement of Additional Information
Relates is May 1, 1997.
The Date of this Statement of Additional Information is May 1, 1997.
TABLE OF CONTENTS PAGE
Distribution of the Contracts. . . . . . . . . . . . . . . . . . . . .B-2
Determination of Annuity Payments. . . . . . . . . . . . . . . . . . .B-2
Standardized Computation of Performance. . . . . . . . . . . . . . . .B-4
Tax Comparison. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-6
Valuation of Assets of the Account. . . . . . . . . . . . . . . . . . B-6
Transferability Restrictions . . . . . . . . . . . . . . . . . . . . .B-7
Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . .B-7
Participation Agreements . . . . . . . . . . . . . . . . . . . . . . .B-7
General Information. . . . . . . . . . . . . . . . . . . . . . . . . .B-8
Tax Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-8
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . B-13
B-1
<PAGE>
DISTRIBUTION OF THE CONTRACTS
The Contracts are offered on a continuous basis primarily through individuals
who are registered representatives of Jefferson-Pilot Investor Services, Inc.
("Investor Services"), a wholly-owned subsidiary of Jefferson-Pilot Corporation,
a publicly-owned insurance holding company. Jefferson-Pilot Life Insurance
Company is a wholly-owned subsidiary of Jefferson-Pilot Corporation. Effective
after the close of business on December 31, 1986 and simultaneously with the
merger of Jefferson Standard Life Insurance Company into Pilot Life Insurance
Company, the Company's name changed to Jefferson-Pilot Life Insurance Company,
and Jefferson Standard Separate Account A merged into Pilot Separate Account A,
which simultaneously changed its name to Jefferson-Pilot Separate Account A.
Investor Services may be considered the underwriter of the Contracts for
purposes of the federal securities laws. The Contracts were first offered
January 13, 1995. Investor Services administers the Contracts. For fiscal year
1996, Investor Services received a concession allowance of $2,594,823 for
expenses relative to the sales and administration of the Contracts.
DETERMINATION OF ANNUITY PAYMENTS
The following discussion of the method for determining the amount of monthly
annuity payments under a variable payment plan is intended to be read in
conjunction with these sections of the prospectus for the Contracts:
"Deductions under the Contracts,"; "Sub-Accounts of the Separate Account and
Available Funds,"; "The Accumulation Period,"; and "The Annuity Period". This
discussion assumes there is no contingent deferred sales charge or premium tax
payable.
AMOUNT OF ANNUITY PAYMENTS. The amount of the first annuity payment under a
Contract will be determined on the basis of the particular payment plan
selected, the annuity purchase rate and, where permitted for plans involving
life contingencies, the Annuitant's adjusted age and sex. The amount of the
first payment is the sum of the payments from each Sub-Account determined by
applying the appropriate annuity purchase rate to the product of the number of
Accumulation Units in the Sub-account on the annuity date and the accumulation
unit value for the Sub-Account for a valuation period preceding the annuity date
by not more than 10 days. Annuity rates currently in use are based on the 1983
'a' table with age adjustment.
Variable annuity payments after the first will vary from month to month and will
depend upon the number and value of Annuity Units credited to the Annuitant. A
Contract will not share in the divisible surplus of the Company.
B-2
<PAGE>
The number of Annuity Units in each Sub-Account is determined by dividing the
amount of the first annuity payment from the Sub-Account by the value of an
Annuity Unit at the last valuation period preceding the annuity date by not more
than 10 days. The number of Annuity Units thus credited to the Annuitant in
each Sub-Account remains constant throughout the annuity period. However, the
value of Annuity Units in each division will fluctuate with the investment
experience of the Sub-Account.
The amount of each variable annuity payment after the first is the sum of
payments from each Sub-Account determined by multiplying this fixed number of
Annuity Units each payment date by the value of an Annuity Unit for a valuation
period preceding the due date of the payment by not more than ten days.
ANNUITY UNIT VALUE. The value of an Annuity Unit for each Sub-Account was
established at $10 as of the date sales of the Contracts commenced for that Sub-
Account. The value of an Annuity Unit on any later date varies to reflect the
investment experience of the Sub-Account, the assumed investment rate on which
the annuity rate tables are based, and the deduction for mortality and expense
risks assumed by the Company and the administrative expense fee.
The annuity unit value for each Sub-Account on any valuation date is determined
by multiplying the annuity unit value on the immediately preceding valuation
date by two factors: (a) the net investment factor for the current period for
the Sub-Account; and (b) an adjustment factor to neutralize the assumed
investment rate used in calculating the annuity rate tables.
ILLUSTRATIONS OF VARIABLE ANNUITY PAYMENTS. To illustrate the manner in which
variable annuity payments are determined consider this example. Item (4) in the
example shows the applicable monthly payment rate for a male, adjusted age 63,
who has elected a life annuity payment plan with a certain period of 120 months
with an assumed investment rate of 3 1/2%. (Option 2b, as described in the
prospectus).
(1) Assumed number of Accumulation Units in a
Sub-Account on maturity date . . . . . . . . . . . . . 25,000
(2) Assumed Value on an Accumulation Unit in a
Sub-Account at maturity. . . . . . . . . . . . . . . . $10.00
(3) Cash value of Contract at maturity,
(1) x (2) . . . . . . . . . . . . . . . . . . . . . $250,000
(4) Assumed applicable monthly payment rate
per $1,000 from annuity-rate table . . . . . . . . . . $5.80
B-3
<PAGE>
(5) Amount of first payment from a Sub-Account,
(3) x (4) divided by $1,000. . . . . . . . . . . . . . $1,450
(6) Assumed value of Annuity Unit in a
Sub-Account at maturity. . . . . . . . . . . . . . . . $10.00
(7) Number of Annuity Units credited in a
Sub-Account, (5) divided by (6). . . . . . . . . . . . . .145
The $10.00 value at maturity provides a first payment from the Sub-Account of
$1450, and payments thereafter of the varying dollar value of 145 Annuity Units.
The amount of subsequent payments from the Sub-Account is determined by
multiplying 145 units by the value of an Annuity Unit in the Sub-Account on the
applicable valuation date. For example, if that unit value is $11.00, the
monthly payment from the Sub-Account will be 145 multiplied by $11.00, or
$1595.00.
However, the value of the Annuity Unit depends entirely on the investment
experience of the Sub-Account. Thus in the example above, if the net investment
rate for the following month was less than the assumed investment rate of 3
1/2%, the Annuity Unit would decline in value. If the annuity unit value
declined to $9.00, the succeeding monthly payment would then be 145 x $9.00, or
$1305.
For the sake of simplicity, the foregoing example assumes that all of the
Annuity Units are in one Sub-Account. If there are Annuity Units in two or more
Sub-Accounts, the annuity payment from each Sub-Account is calculated
separately, in the manner illustrated, and the total monthly payment is the sum
of the payments from the Sub-Accounts.
STANDARDIZED COMPUTATION OF PERFORMANCE
PERFORMANCE COMPARISONS. Performance information for a Sub-Account may be
compared, in reports and advertising, to: (i) Standard & Poor's Stock Index (S&P
500), Dow Jones Industrial Average (DJIA), Donahue Money Market Institutional
Averages, or other unmanaged indices generally regarded as representative of the
securities markets; (ii) other variable annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or the Variable
Annuity Research and Data Service, which are widely used independent research
firms that rank mutual funds and other investment companies by overall
performance, investment objectives, and assets; and (iii) the Consumer Price
Index (measure of inflation) to assess the real rate of return from an
investment in a certificate. Unmanaged indices may assume the reinvestment of
dividends, but generally do not reflect deductions for annuity charges,
investment management costs, brokerage costs, and other transaction costs that
are normally paid when directly investing in securities.
B-4
<PAGE>
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising also may contain other information, including the ranking of any
Sub-Account derived from rankings of variable annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or by rating
services, companies, publications, or other persons which rank separate accounts
or other investment products on overall performance or other criteria.
Performance Information. YIELDS. Some Sub-Accounts may advertise yields.
Yields quoted in advertising reflect the change in value of a hypothetical
investment in the Sub-Account over a stated period of time, not taking into
account capital gains or losses or the imposition of any contingent deferred
sales charge. Yields are annualized and stated as a percentage.
Current yield is calculated for the VIPF Money Market Portfolio Sub-Account.
Current Yield is based on the change in the value of a hypothetical investment
(exclusive of capital changes) over a particular 7-day period, less a
hypothetical charge reflecting deductions from values during the period (the
base period), and stated as a percentage of the investment at the start of the
base period (the base period return). The base period return is then annualized
by multiplying by 365/7, with the resulting yield figure carried to at least the
nearest hundredth of one percent. Effective yield for Sub-Accounts assumes that
all dividends received during an annual period have been reinvested. This
compounding effect causes effective yield to be higher than current yield.
Calculation of effective yield begins with the same base period return used in
the calculation of current yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return) + 1)365/7] - 1
Yield for Sub-Accounts is based on all investment income (including dividends
and interest) per Accumulation Unit earned during a particular 30-day period,
less expenses accrued during the period (net investment income). Yield is
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period, according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
where a = net investment income earned during the period by the corresponding
Fund portfolio, b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Accumulation Units outstanding during the
period, and d = the value (maximum offering price) per Accumulation Unit on
the last day of the period.
B-5
<PAGE>
TOTAL RETURNS. Standardized total returns reflect all aspects of a
Sub-Account's return, including the automatic reinvestment by the Sub-Account
of all distributions and the deduction of all applicable charges to the
Sub-Account on an annual basis, including mortality and expense risk charges,
the annual contract charge, the administrative expense fee, and any other
charges against certificate values. Quotations also will assume a termination
(surrender) at the end of the particular period and reflect the deduction of
the contingent deferred sales charge, if applicable. Additional quotations
may be given that do not assume a termination (surrender) and do not take
into account deduction of the contingent deferred sales charge since the
Contracts are intended as long-term products. These quotations all referred
to as Non-Standardized total returns.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Sub-Account over certain
periods, including 1, 5, and 10 years (up to the life of the Sub-Account), and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. Investors should realize that the Sub-Account's
experience is not constant over time, but changes from year to year, and that
the average annual returns represent averaged figures as opposed to the year-to-
year performance of a Sub-Account. Average annual returns are calculated
pursuant to the following formula: P(1+T)n = ERV, where P is a hypothetical
initial payment of $1,000, T is the average annual total return, n is the number
of years, and ERV is the withdrawal value at the end of the period.
Cumulative total returns are unaveraged and reflect the simple change in value
of a hypothetical investment in the Sub-Account over a stated period of time.
The following table shows the Standardized Average Annual Total Return for the
Alpha Variable Annuity subaccounts for the period ended December 31, 1996.
<TABLE>
<CAPTION>
Annualized Cumulative
1996 12/1/94 - 12/31/96* 12/1/94 - 12/31/96*
---- ------------------- -------------------
<S> <C> <C> <C>
Oppenheimer Growth Portfolio ** 6.45 17.7 40.44
Oppenheimer Bond Portfolio ** -7.42 3.42 7.26
VIPF Money Market Portfolio -5.59 -2.08 -4.28
VIPF High Income Portfolio 2.40 8.96 19.56
VIPF Equity-Income Portfolio 2.63 15.97 35.73
VIPF Growth Portfolio 3.02 17.88 40.88
VIPF Overseas Portfolio 1.64 2.95 6.24
VIPF-II Asset Manager Portfolio 2.93 6.13 13.2
Annualized Cumulative
5/1/96 - 12/31/96* 5/1/96 - 12/31/96*
------------------- -------------------
<S> <C> <C>
VIPF-II Index 500 Portfolio 5.39 3.56
VIPF-II Contrafund Portfolio 2.22 4.48
AHVIT Growth -7.96 -5.38
AHVIT Emerging Growth -19.19 -13.24
MFS Research Series -0.25 -0.16
MFS Utilities Series 8.78 5.77
Alger American SmallCap Portfolio -24.25 -16.90
Alger American Midcap Growth Portfolio -16.16 -11.09
The Following table shows the Standardized Average Annual Total Return for the
AlphaFLEX Variable Annuity subaccounts for the period ended December 31, 1996.
Annualized Cumulative
1996 12/1/94 - 12/31/96* 12/1/94 - 12/31/96*
---- ------------------- -------------------
<S> <C> <C> <C>
Oppenheimer Growth Portfolio ** 4.19 17.1 38.95
Oppenheimer Bond Portfolio ** -9.39 2.89 6.12
VIPF Money Market Portfolio -7.60 -2.58 -5.29
VIPF High Income Portfolio 0.22 8.44 18.29
VIPF Equity-Income Portfolio 0.45 15.20 34.29
VIPF Growth Portfolio 0.83 17.28 39.89
VIPF Oversea Portfolio -0.52 2.42 5.11
VIPF-II Asset Manager Portfolio 0.74 5.59 12.00
Annualized Cumulative
5/1/96 - 12/31/96* 5/1/96 - 12/31/96*
------------------- -------------------
<S> <C> <C>
VIPF-II Index 500 Portfolio 2.04 1.36
VIPF-II Contrafund Portfolio -1.02 -0.68
AHVIT Growth -10.89 -7.40
AHVIT Emerging Growth -21.76 -15.09
MFS Research Series -3.41 -2.29
MFS Utilities Series 5.33 3.52
Alger American SmallCap Portfolio -26.66 -18.67
Alger American Midcap Growth Portfolio -18.82 -12.98
The following table shows the Non-Standardized Average Annual Total Return for the
Alpha/AlphaFLEX Variable Annuity subaccounts for the period ending December 31, 1996.
Annualized Cumulative
1996 12/1/94 - 12/31/96* 12/1/94 - 12/31/96*
---- ------------------- -------------------
<S> <C> <C> <C>
Oppenheimer Growth Portfolio ** 16.75 24.13 56.87
Oppenheimer Bond Portfolio ** 1.99 9.61 21.06
VIPF Money Market Portfolio 3.94 4.17 8.89
VIPF High Income Portfolio 12.43 15.32 34.57
VIPF Equity-Income Portfolio 12.68 22.15 51.72
VIPF Growth Portfolio 13.09 24.16 56.95
VIPF Overseas Portfolio 11.63 9.34 20.45
VIPF-II Asset Manager Portfolio 13.00 12.48 27.77
Annualized Cumulative
5/1/96 - 12/31/96* 5/1/96 - 12/31/96*
------------------- -------------------
<S> <C> <C>
VIPF-II Index 500 Portfolio 21.19 13.67
VIPF-II Contrafund Portfolio 17.66 11.47
AHVIT Growth 6.30 4.16
AHVIT Emerging Growth -6.24 -4.20
MFS Research Series 14.91 9.71
MFS Utilities Series 24.97 16.02
Alger American SmallCap Portfolio -11.90 -8.10
Alger American Midcap Growth Portfolio -2.85 -1.91
* Since Availability of Funds within the contract.
** Prior to 12/20/96 these funds were managed by Jefferson-Pilot Investment Management Company.
</TABLE>
TAX COMPARISON
Reports and advertising also may show the effect of tax deferred compounding on
a Sub-Account's investment returns, or returns in general, illustrated by
graphs, charts, or otherwise, which may include a comparison, at various points
in time, of the return from an investment in a Contract (giving effect to all
fees and charges), or returns in general, on a tax-deferred basis (assuming one
or more tax rates) with the return on a taxable basis, and which will disclose
the tax characteristics of the investments shown, including the impact of
withdrawals and surrenders.
VALUATION OF ASSETS OF THE ACCOUNT
The value of Fund shares held in each Sub-Account at the time of each valuation
is the redemption value of such shares at such time.
B-6
<PAGE>
TRANSFERABILITY RESTRICTIONS
Ownership of a Contract purchased as a tax-deferred annuity pursuant to Section
403(b) of the Internal Revenue Code of 1986, as amended (the "Code"), cannot be
changed and the Contract cannot be sold, assigned or pledged as collateral for a
loan, or for any other purpose, to any person other than the Company. Similar
restrictions are applicable to Contracts purchased in exchange transactions by
persons who have received fixed dollar policies as distributions of termination
benefits from tax-qualified corporate or HR-10 plans or trusts. Ownership of a
Contract purchased as an individual retirement annuity pursuant to Section
408(b) of the Code cannot be transferred except in limited circumstances
involving divorce.
CONTINGENT DEFERRED SALES CHARGE
The charge is made as a percentage of the amount withdrawn. For example, if an
Owner subject to a 6% contingent deferred sales charge wishes to net $100 on the
partial redemption of a Contract, he must make a total withdrawal of $106.38, of
which $6.38 will be deducted as a contingent deferred sales charge. An Owner
need only indicate the net amount he wishes to net on a partial redemption, and
the Company will determine the total or gross amount necessary to withdraw to
net the desired amount.
To the extent that the contingent deferred sales charge is insufficient to cover
all the distribution costs and related expenses, some portion of the proceeds
from the mortality and expense risk charge may be utilized by the Company to
meet such excess distribution expenses. The Company has represented in documents
filed with the Securities and Exchange Commission that the mortality and expense
risk charge is consistent with the risks assumed by the Company and is within
the range of industry practice, based on its review of its requirements and
industry practice. Moreover, the Company represented that use of any proceeds
from such charge to defray distribution expenses has a reasonable likelihood of
benefiting the Separate Account and Owners.
PARTICIPATION AGREEMENTS
Shares of the Funds are made available to the Separate Account under four
substantially similar Participation Agreements ("Participation Agreements").
The Participation Agreements regarding the VIP Funds and the Alger American
Funds are among the Alger American Fund or the Variable Insurance Products
Funds and Variable Insurance Products Fund II, as applicable, the distributor
of those funds (the "Distributor") and the Company. The Participation
Agreements regarding the MFS Funds, the Oppenheimer Funds, and the AHVIT
Funds are among the MFS Variable Insurance Trust, Oppenheimer Variable
Account Funds or the Alexander Hamilton Variable Insurance Trust, as
applicable, the adviser to the Trusts (the "Adviser") and the Company. If
state or federal law precludes the sale of Fund
B-7
<PAGE>
shares to the Separate Account, or in certain other circumstances, sales of
shares to the Separate Account may be suspended and/or the Participation
Agreement may be as to the Funds. Also, the Participation Agreement with the
Variable Insurance Products Fund and Variable Insurance Products Fund II may
be terminated by any party thereto on one year's written notice, while the
Participation Agreements regarding the MFS Funds, the Alger American Funds,
the Oppenheimer Funds and the AHVIT Funds may be terminated by any party
thereto on six month's, sixty day's, six month's, and six month's notice,
respectively. Notwithstanding termination of the Participation Agreement,
the Fund and the Distributor or Adviser, as applicable, are obligated to
continue to make the Funds' shares available for Contracts outstanding on the
date the Participation Agreement terminates, unless the Participation
Agreement was terminated due to an irreconcilable conflict among contract
owners of different separate accounts. If for any reason the shares of any
Fund are no longer available for purchase by the Separate Account for
outstanding Contracts, the parties to each Participation Agreement have
agreed to cooperate to comply with the 1940 Act in arranging for the
substitution of another funding medium as soon as reasonably practicable and
without disruption of sales of shares to the Separate Account or any
Sub-Account.
GENERAL INFORMATION
The financial statements of Jefferson-Pilot Separate Account A and
Jefferson-Pilot Life Insurance Company at December 31, 1996, and for the year
then ended, included in this Statement of Additional Information have been
audited by Ernst & Young, LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing. The address of Ernst & Young, LLP is 300 North Greene Street, Suite
1950, Greensboro, North Carolina 27401.
The financial statements of Jefferson-Pilot Separate Account A and Jefferson-
Pilot Life Insurance Company as of December 31, 1995, and for each of the years
in the two-year period ended December 31, 1995 have been included herein in
reliance upon the report of McGladrey & Pullen, LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
TAX SUMMARY
B-8
<PAGE>
TRANSFERS BETWEEN NON-QUALIFIED ANNUITIES. Under Section 1035 of the Code an
Owner may exchange one annuity contract for another annuity contract in a
tax-free exchange. To avoid recognizing income on the surrender of the
annuity contract, the Owner must absolutely assign the old contract to us.
We will surrender the contract and apply the proceeds to our certificate upon
receipt.
TAX SHELTERED ANNUITY ARRANGEMENTS (TSAS). An employer may make contributions to
a TSA, or alternatively, an employer may agree with its employee that, in return
for employer contributions to a TSA, the employee will accept a reduction in
salary or forego a salary increase. That agreement may be changed or revoked
during the year with respect to any salary of the employee not yet payable to
the employee.
The contributions that can be excluded from income in a tax year may not exceed
the smaller of (i) the employee's exclusion allowance, or (ii) the overall limit
the Code imposes on contributions to TSAs. The exclusion allowance is a
calculation that takes into consideration the employee's includable
compensation, number of years of service, and contributions in prior years. The
Contract (accompanied by the appropriate TSA rider) is designed to qualify under
the rules of Section 403(b) of the Code.
TAX-QUALIFIED RETIREMENT PLANS (QUALIFIED PLANS). CONTRIBUTIONS. The limit for
contributions on behalf of each participant to a defined contribution plan is
the lesser of (i) 25% of earned income or compensation, or (ii) $30,000. (The
$30,000 limit will eventually be indexed, on a 1 to 4 basis, to the defined
benefit plan limit once that limit exceeds $120,000. That limit is $120,000 in
1997, to be adjusted in subsequent years for inflation.) In the case of a
profit sharing plan, the employer's deduction for contributions may not exceed
15% of all participants' compensation. Salary reduction contributions to a
401(k) program in 1997 are limited to $9,500, to be adjusted in subsequent years
for cost-of-living increases. The employer may not consider compensation or
earned income in excess of $150,000 in 1997, to be adjusted in subsequent years
for cost of living increases, in calculating contributions to a qualified plan.
Special rules apply when an employer maintains two or more different types of
qualified plans.
Earned income for self-employed individuals is defined so as to exclude
deductible contributions made to qualified plans. Thus, the 25% deductible
limit is in effect a limit of 20% and the 15% deductible limit is a limit of 13%
of earned income including plan contributions for such persons.
INDIVIDUAL RETIREMENT ANNUITIES (IRAS). The Code permits deductible and non-
deductible contributions to be made under a Contract that qualifies as an IRA.
The Contract (accompanied by the appropriate IRA rider) is designed to qualify
as an IRA. The Code also
B-9
<PAGE>
allows a tax-free transfer (rollover) of certain distributions from qualified
plans and TSAs which are used to purchase an IRA.
If the Owner and the Owner's spouse are not currently covered by a retirement
plan (including a Qualified Plan, TSA, or SEP-IRA), then each working spouse may
make a deductible contribution of 100% of compensation up to $2,000 regardless
of their adjusted gross income (AGI). If either the Owner or, if married, the
Owner's spouse is covered by another retirement plan, the IRA deduction phases
out between $25,000 and $35,000 of AGI for a single person and $40,000 and
$50,000 of AGI for married persons filing jointly. If the Owner is married,
filing separately and covered by a retirement plan, the IRA deduction phases out
between $0 to $10,000 of AGI. In the case of spousal IRAs, an IRA certificate
is issued for each spouse and the working spouse may contribute a total of
$4,000 to both certificates (but no more than $2,000 to each certificate). For
these purposes, a working spouse can make an election to be treated as having no
compensation, thereby allowing the other working spouse to make a contribution
to a spousal IRA.
If the Owner is not eligible to deduct part or all of the IRA contribution, he
may still make nondeductible contributions. However, the deductible and
nondeductible contributions combined cannot exceed the $2,000 limit (or the
$4,000 spousal limit).
Deductible and non-deductible IRA contributions in excess of the lesser of (i)
100% of compensation or earned income, or (ii) $2,000 are subject to a 6% excise
tax for the year in which made and for each year thereafter until withdrawn.
No contributions are allowed for the tax year in which an individual becomes age
70 1/2 or any tax year after that year. A working spouse age 70 1/2 or over,
however, can contribute 100% or compensation up to $2,000 to a spousal IRA until
the year the non-working spouse reaches age 70 1/2.
An individual may elect for each IRA certificate or account to make a tax-free
rollover once a year among individual retirement arrangements (including
rollovers from individual retirement bonds purchased before 1983). An
individual may also make a rollover contribution into an IRA with the proceeds
from a TSA or qualified plan.
Distributions from an IRA must commence by April 1 of the calendar year
following the calendar year in which the Owner reaches age 70 1/2.
Distributions must generally be made over the life expectancy of the Owner (or
the joint life expectancies of the Owner and his or her spouse). Special rules
apply if the beneficiary is not the Owner's spouse. The amount required to be
distributed each year under this rule is referred to as the minimum distribution
amount.
B-10
<PAGE>
An Owner who does not receive the minimum distribution amount will be subject to
a 50% excise tax on the difference between the minimum distribution amount and
the amount actually distributed.
An Owner can revoke a Contract issued as an IRA by following the directions in
the cover of the prospectus. Because revocation may have adverse tax
consequences, the Owner should consult with a tax expert. If the Contract is
revoked, an Owner may contribute to a new IRA, provided that the eligibility
requirements for IRA contributions are met at that time.
SIMPLE IRA. Starting in 1997, an employer can establish a Simple IRA for its
employees. If the Employer adopts a Simple IRA using IRS Form 5304-SIMPLE, this
Contract can be used in connection with the Simple IRA.
PUBLIC AND NON-PROFIT ORGANIZATION EMPLOYEE DEFERRED COMPENSATION PLANS (EDC
PLANS). Employees and independent contractors who perform services for a state
(including any subdivision or agency of the state, and any tax-exempt rural
electric cooperative) or a tax-exempt employer may under Section 457 of the Code
exclude from federal gross income contributions made to a Contract by the
employer under an EDC Plan.
Generally, the maximum amount of contributions that can be excluded from gross
income under an EDC Plan in any tax year is 33 1/3% of the employee's includible
compensation, up to $7,500. Includible compensation means earnings for services
rendered to the employer which are includible in the employee's federal gross
income, but excluding contributions of the employee under the EDC Plan, any TSA
or 401(k) program for the taxable year. Any amount excluded from gross income
of the employee under a TSA or 401(k) program reduces the contributions under
the EDC Plan which can be excluded from the employee's gross income in a tax
year. Distributions under an EDC Plan must commence no later than April 1 of
the calendar year in which the Owner attains age 70 1/2, except that the Owners
in government plans may further defer distribution until 60 days after the later
of the close of the plan year in which the Owner attains (or would have
attained) normal retirement age or separates from service.
PENALTIES FOR EXCESS CONTRIBUTIONS AND EXCESS DEFERRALS. In general, employer
contributions to a qualified plan, TSA, SEP-IRA, or EDC Plan, which are greater
than the amount currently deductible are subject to a 10% penalty tax, which is
paid by the employer. A penalty tax of 6% applies to any salary deferral amount
which exceeds the maximum permitted by the Code, and the excess amount
(including earnings) is also taxable as ordinary income in the year of deferral.
B-11
<PAGE>
DISTRIBUTIONS FROM QUALIFIED ANNUITIES. Distributions to a Owner in excess of
$155,000 per year from all qualified plans (except EDC Plans) will generally
be subject to a 15% excise tax in addition to the income tax due. In the
case of distributions from a qualified annuity (other than an EDC Plan) prior
to the annuity starting date, the Owner must recover his investment in the
certificate based on a ratio of his investment to the total value of the
Contract as of the date of the withdrawal.
INCOME TAX WITHHOLDING. An Owner receiving periodic payments which total $14,025
or more per year will generally be subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the Owner elects no withholding. When a Owner makes no withholding election
whatsoever, withholding will be made as if the Owner is married and claiming
three withholding exemptions.
An Owner receiving a non-periodic distribution (whether a total or partial
distribution) will generally be subject to withholding at a flat 10% rate. In
certain cases, if the distribution is a qualified total distribution (as defined
in the Code), a special withholding table will apply. In both cases, the Owner
will be permitted to elect not to have tax withheld.
All Owners receiving periodic and non-periodic payments will be further notified
of the withholding requirements and of their right to make withholding elections
affecting such payments. Special withholding rules apply to United States
citizens residing outside the United States.
Recently enacted mandatory withholding provisions apply to distributions made
from qualified plans after December 31, 1992. Mandatory withholding of 20% will
apply to any distribution eligible for a tax-free rollover if the distribution
is not transferred directly to an IRA.
B-12
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31
1996
-----------
ASSETS:
Securities of investment companies:
Oppenheimer Growth Fund at net asset value
(3,047,765.013 shares at $27.24 per share,
cost - $65,453,300)...................... $ 83,021,119
Oppenheimer Bond Fund at net asset value
(1,868,122.182 shares at $11.63 per share,
cost - $21,099,403)............................. 21,726,261
VIPF Money Market Portfolio at net asset value
(10,407,243.890 shares at $1.00 per share,
cost - $10,407,244)................................ 10,407,244
VIPF Growth Portfolio at net asset value
(541,204.577 shares at $31.14 per share,
cost - $15,528,271).................... 16,853,110
VIPF Equity-Income Portfolio at net asset value
(952,862.984 shares at $21.03 per share,
cost - $17,784,822).............................. 20,038,709
VIPF High Income Portfolio at net asset value
(284,694.487 shares at $12.52 per share,
cost - $3,310,755)........................ 3,564,375
VIPF Overseas Portfolio at net asset value
(99,062.346 shares at $18.84 per share,
cost - $1,715,091).............................. 1,866,335
VIPF II Asset Manager Portfolio at net asset value
(369,961.842 shares at $16.93 per share,
cost - $5,667,205).......................... 6,263,454
Alger American Small Capitalization Fund at net asset value
(33,319.202 shares at $40.91 per share,
cost - $1,350,756)................................. 1,363,089
Alger American MidCap Growth Fund at net asset value
(43,607.962 shares at $21.35 per share,
cost - $884,786)........................... 931,030
VIPF II Contrafund Portfolio at net asset value
(51,015.120 shares at $16.56 per share,
cost - $773,944)................... 844,810
VIPF II Index 500 Portfolio at net asset value
(11,240.898 shares at $89.13 per share,
cost - $928,715)............................... 1,001,901
B-13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
AHVIT Emerging Growth Fund at net asset value
(63,651.407 shares at $10.18 per share,
cost - $649,771)............................ 647,971
MFS Research Series at net asset value
(87,666.564 shares at $13.13 per share,
cost - $1,110,952).................. 1,151,062
MFS Utilities Series at net asset value
(20,698.091 shares at $13.66 per share,
cost - $280,876).............................. 282,736
AHVIT Growth Fund at net asset value
(88,850.783 shares at $11.76 per share,
cost - $1,052,303)........................... 1,044,885
--------------
Total Assets $ 171,008,091
--------------
--------------
SEE NOTES TO FINANCIAL STATEMENTS
B-14
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31
1996
-----------
NET ASSETS:
Variable annuity contracts (Note 8):
Oppenheimer Growth Fund........................... $ 81,702,334
Oppenheimer Bond Fund.................................. 21,289,942
VIPF Money Market Portfolio ................. 10,098,931
VIPF Growth Portfolio ................. 16,834,545
VIPF Equity-Income Portfolio................. 20,015,277
VIPF High Income Portfolio................. 3,560,041
VIPF Overseas Portfolio.................. 1,864,040
VIPF II Asset Manager Portfolio................. 6,255,886
Alger American Small Capitalization Fund....................... 1,361,476
Alger American MidCap Growth Fund............................. 929,786
VIPF II Contrafund Portfolio........................................ 843,840
VIPF II Index 500 Portfolio....................................... 1,001,251
AHVIT Emerging Growth Fund....................................... 647,131
MFS Research Series............................................... 1,149,760
MFS Utilities Series........................................... 282,022
AHVIT Growth Fund....................................... 1,043,880
Jefferson-Pilot Life Insurance Company - Sponsor:
Oppenheimer Growth Fund (3,847.208
accumulation units at $104.736142 per unit, 8,970.692
accumulation units at $100.489435 per unit and 916.936
accumulation units at $15.687352 per unit)..........................1,318,786
Oppenheimer Bond Fund (2,934.475
accumulation units at $41.427546 per unit, 7,799.141
accumulation units at $39.763392 per unit and 382.448
accumulation units at $12.105651 per unit)............................436,318
VIPF Money Market Portfolio (12,225.589 accumulation
units at $20.74535 per unit and 2,186.101 accumulation units
at $10.888553 per unit)........................................... 308,313
VIPF Growth Portfolio (1,182.829 accumulation units at
$15.695218 per unit)............................................ 18,564
VIPF Equity-Income Portfolio (1,544.415 accumulation units at
$15.171936 per unit).......................................... 23,432
VIPF High Income Portfolio (322.073 accumulation units at
$13.457366 per unit)............................................ 4,334
VIPF Overseas Portfolio (190.517 accumulation units at
$12.044844 per unit)............................................. 2,295
VIPF II Asset Manager Portfolio (592.295 accumulation units at
$12.777286)........................................................ 7,568
Alger American Small Capitalization Fund (175.422
accumulation units at $9.190108 per unit).......................... 1,612
Alger American MidCap Growth Fund (126.863
accumulation units at $9.808937 per unit)........................... 1,245
VIPF II Contrafund Portfolio (87.035 accumulation units
at $11.145245 per unit)........................................ 970
VIPF II Index 500 Portfolio (57.217 accumulation units
at $11.367158 per unit)..................................... 650
AHVIT Emerging Growth Fund (87.668 accumulation
units at $9.579577 per unit)....................................... 840
JEFFERSON-PILOT SEPARATE ACCOUNT A
B-15
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
MFS Research Series (118.713 accumulation
units at $10.970831 per unit).............................. 1,302
MFS Utilities Series (61.529 accumulation units
at $11.602401 per unit).................................... 714
AHVIT Growth Fund (96.546 accumulation units
at $10.415742 per unit).................................... 1,006
--------------
Total Net Assets $ 171,008,091
--------------
SEE NOTES TO FINANCIAL STATEMENTS
B-16
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
Year Ended
December 31
1996
-----------
Investment Income:
Dividend income.......................... $ 4,599,525
Capital gain distribution from investment
companies....................... 12,605,954
-----------
17,205,479
Expenses:
Mortality and expense risk charge (1,678,375)
Administrative charges (62,922)
-----------
Net investment income 15,464,182
Realized and Unrealized Gain
on Investments:
Net realized gain on investments..... 75,016
Net unrealized appreciation
of investments.............................. 1,849,583
-----------
Net gain on investments..................... 1,924,599
-----------
Net increase in net assets resulting
from operations....................................... $ 17,388,781
-----------
-----------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
-------------- --------------
<S> <C> <C>
Net assets at beginning of period........... $ 119,255,627 $ 86,817,239
Net increase in net assets resulting
from operations............................. 17,388,781 24,191,509
Net contract purchase payments.............. 49,960,458 32,162,039
Administrative charges...................... - (50,191)
Benefits paid............................... (13,977,989) (20,516,600)
Net transfer of reserves to sponsor......... (618,786) (466,558)
Transfer to sponsor......................... (1,000,000) (2,881,811)
-------------- --------------
Net assets at end of period................. $ 171,008,091 $ 119,255,627
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
B-17
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
1. HISTORY
Jefferson-Pilot Separate Account A ("Account") was established by resolution of
the Board of Directors of Jefferson-Pilot Life Insurance Company ("Sponsor") on
May 5, 1969. The Account has been registered as a unit investment trust under
the Investment Company Act of 1940 to receive and invest payments made by
purchasers of variable annuity contracts.
During 1996, eight new sub-accounts, each of which reflects the investment
performance of a specific underlying mutual fund, were established in connection
with the sale of new variable annuity products. Subject to certain limitations
and restrictions, a variable annuity contractholder may elect to have net
purchase payments credited to any of 16 sub-accounts. Prior to the commencement
of annuity payments, a contractholder may elect to transfer accumulation units
among sub-accounts, subject to certain minimum transfer amounts. After the
commencement of annuity payments which do not involve life contingencies,
contractholders may elect to transfer accumulation units among sub-accounts.
Contractholders may also allocate purchase payments or transfer amounts into or
out of the "Fixed Account", which is maintained in the general account of the
sponsor. The sponsor guarantees that the fixed account accumulation value will
accrue interest at an annual effective rate of 3.5%, although the sponsor may,
at its sole discretion, credit interest in excess of the guaranteed rate. Fixed
account accumulation values are not charged a mortality and expense fee or an
administrative fee.
On December 19, 1996, the Sponsor exchanged the balance of Jefferson-Pilot
Capital Appreciation Fund, Inc., consisting of 4,536,472.091 shares with a net
asset value of $18.69 per share, receiving 3,101,997.690 shares of the
Oppenheimer Growth Fund with a net asset value of $27.33 per share. The Sponsor
also exchanged 2,056,342.676 shares of Jefferson-Pilot Investment Grade Bond
Fund, Inc., having a net asset value of $10.93 per share, receiving
1,933,705.370 shares of the Oppenheimer Bond Fund, with a net asset value of
$11.62 per share. The conversion ratios were based on the net asset values of
the funds at the conversion date.
In accordance with the terms of the contracts, payments are invested in shares
of Oppenheimer Growth Fund, Oppenheimer Bond Fund, VIPF Money Market Portfolio,
VIPF Growth Portfolio, VIPF Equity-Income Portfolio, VIPF High Income Portfolio,
VIPF Overseas Portfolio, VIPF II Asset Manager Portfolio, Alger American Small
Capitalization Fund, Alger American MidCap Growth Fund, VIPF II Contrafund
Portfolio, VIPF II Index 500 Portfolio, AHVIT Emerging Growth Fund, MFS Research
Series, MFS Utilities Series and AHVIT Growth Fund at the net asset value of
such shares on the date payments are received. The accumulation of net asset
values at the date shares are acquired represents cost.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
The investments in the shares of the sub-accounts are carried in the Statements
of Assets and Liabilities at net asset value, which is market value at December
31, 1996. Investment transactions are accounted for on the date the order to
buy or sell is executed (trade date).
DIVIDEND INCOME
Investment income consists of dividend income (both ordinary and capital gains)
and is recognized on the ex-dividend date. All distributions received are
reinvested in the respective sub-accounts. Realized investment gains and losses
on investments are determined using the last-in-first-out method.
RECLASSIFICATIONS
The Account's policy is to reclassify certain amounts reported in prior year's
financial statements when necessary for conformity with classifications adopted
in the current year.
3. FEES
In accordance with the provisions of the variable annuity contracts, specified
amounts on contracts issued before 1983 are set aside for the Sponsor and
Jefferson-Pilot Investor Services Inc., to cover the assumption of mortality and
expense risks, sales and administrative expenses, and state premium taxes. The
charge for assuming the mortality and expense risks on these contracts is .6935%
annually. On contracts issued between 1982 and 1994, amounts are set aside to
cover only the assumption of mortality and expense risks at the rate of .9855%
annually. Contracts issued after 1994 have a mortality and expense fee of 1.25%
and an administrative fee of .15%.
B-18
<PAGE>
4. FEDERAL INCOME TAXES
Operations of the Account are taxed with those of the Sponsor. Under existing
federal income tax law, no taxes are payable on the transactions of the Account.
5. USE OF ESTIMATES
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements of insurance companies 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.
6. REMUNERATION
The Account pays no remuneration to directors, advisory boards or officers or
such other persons who may from time to time perform services for the Account.
7. ACCUMULATION UNITS
Changes in the number of accumulation units are as follows:
Year Ended December 31
1996 1995
-------------- ---------------
CAPITAL APPRECIATION DIVISION
Units outstanding at beginning of
period.............................. 1,051,871.585 789,103.105
Units purchased..................... 711,197.685 549,966.137
Redemptions and charges............. (283,647.805) (287,197.657)
-------------- --------------
Units outstanding at end of period.. 1,479,421.465 1,051,871.585
-------------- --------------
-------------- --------------
INVESTMENT GRADE BOND DIVISION
Units outstanding at beginning of
period.............................. 718,607.599 695,826.656
Units purchased..................... 323,390.644 259,333.287
Redemptions and charges............. (231,608.681) (236,552.344)
-------------- --------------
Units outstanding at end of period.. 810,389.562 718,607.599
-------------- --------------
-------------- --------------
MONEY MARKET DIVISION
Units outstanding at beginning of
period........................... 604,573.553 308,432.391
Units purchased.................. 1,686,143.385 1,058,289.647
Redemptions and charges.......... (1,534,206.023) (762,148.485)
-------------- --------------
Units outstanding at end of period 756,510.915 604,573.553
-------------- --------------
-------------- --------------
GROWTH DIVISION
Units outstanding at beginning of
period........................... 439,231.793 0.000
Units purchased.................. 865,935.194 507,035.009
Redemptions and charges.......... (243,270.067) (67,803.216)
-------------- --------------
Units outstanding at end of period 1,061,896.920 439,231.793
-------------- --------------
-------------- --------------
B-19
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
EQUITY INCOME DIVISION
Units outstanding at beginning of
period........................... 603,748.536 0.000
Units purchased.................. 1,030,677.532 748,847.746
Redemptions and charges.......... (328,005.790) (145,099.210)
-------------- --------------
Units outstanding at end of period 1,306,420.278 603,748.536
-------------- --------------
-------------- --------------
HIGH INCOME DIVISION
Units outstanding at beginning of
period........................... 104,906.955 0.000
Units purchased.................. 210,340.408 146,293.540
Redemptions and charges.......... (50,383.127) (41,386.585)
-------------- --------------
Units outstanding at end of period 264,864.236 104,906.955
-------------- --------------
-------------- --------------
OVERSEAS DIVISION
Units outstanding at beginning of
period........................... 44,023.734 0.000
Units purchased.................. 134,771.167 53,006.800
Redemptions and charges.......... (23,846.057) (8,983.066)
-------------- --------------
Units outstanding at end of period 154,948.844 44,023.734
-------------- --------------
-------------- --------------
ASSET MANAGER DIVISION
Units outstanding at beginning of
period........................... 170,765.634 0.000
Units purchased.................. 390,192.194 195,362.723
Redemptions and charges.......... (70,755.605) (24,597.089)
-------------- --------------
Units outstanding at end of period 490,202.223 170,765.634
-------------- --------------
-------------- --------------
ALGER AMERICAN SMALL CAPITALIZATION FUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 162,500.493 0.000
Redemptions and charges.......... (14,179.216) 0.000
-------------- --------------
Units outstanding at end of period 148,321.277 0.000
-------------- --------------
-------------- --------------
ALGER AMERICAN MIDCAP GROWTH FUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 113,068.110 0.000
Redemptions and charges.......... (18,151.605) 0.000
-------------- --------------
Units outstanding at end of period 94,916.505 0.000
-------------- --------------
-------------- --------------
VIPF CONTRAFUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 83,633.795 0.000
Redemptions and charges.......... (7,833.722) 0.000
-------------- --------------
Units outstanding at end of period 75,800.073 0.000
-------------- --------------
-------------- --------------
B-20
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
VIPF INDEX 500 FUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 94,257.747 0.000
Redemptions and charges.......... (10,506.078) 0.000
-------------- --------------
Units outstanding at end of period 83,751.669 0.000
-------------- --------------
-------------- --------------
AHVIT EMERGING GROWTH FUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 89,590.061 0.000
Redemptions and charges.......... (21,949.148) 0.000
-------------- --------------
Units outstanding at end of period 67,640.913 0.000
-------------- --------------
-------------- --------------
MFS RESEARCH SERIES
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 115,020.019 0.000
Redemptions and charges.......... (10,099.803) 0.000
-------------- --------------
Units outstanding at end of period 104,920.216 0.000
-------------- --------------
-------------- --------------
MFS UTILITIES SERIES
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 27,428.409 0.000
Redemptions and charges.......... (3,059.665) 0.000
-------------- --------------
Units outstanding at end of period 24,368.744 0.000
-------------- --------------
-------------- --------------
AHVIT GROWTH FUND
Units outstanding at beginning of
period........................... 0.000 0.000
Units purchased.................. 119,226.846 0.000
Redemptions and charges.......... (18,908.959) 0.000
-------------- --------------
Units outstanding at end of period 100,317.887 0.000
-------------- --------------
-------------- --------------
8. VARIABLE ANNUITY CONTRACTS
Net asset values for variable annuity contracts are based on the following
accumulation units, unit values and annuity funds:
<TABLE>
<CAPTION>
Accumulation Unit Total
Units Value Value
------------ ------------- -------------
<S> <C> <C> <C>
OPPENHEIMER GROWTH FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 604,991.684 $ 15.687352 $ 9,490,718
NON-QUALIFIED UNITS (a).......... 273,088.264 $ 15.687352 4,284,032
QUALIFIED UNITS (b).......... 394,329.194 $ 115.040657 45,363,890
NON-QUALIFIED UNITS (b).......... 102,192.917 $ 100.489435 10,269,308
QUALIFIED UNITS (c).......... 66,387.518 $ 119.862895 7,957,400
NON-QUALIFIED UNITS (c).......... 24,697.054 $ 104.736142 2,586,674
ANNUITY FUND .......... 1,750,312
------------
$ 81,702,334
------------
------------
</TABLE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
B-21
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<S> <C> <C> <C>
JP CAPITAL APPRECIATION FUND, INC.
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 317,320.795 $ 13.437239 $ 4,263,915
NON-QUALIFIED UNITS (a).......... 74,434.083 $ 13.437239 1,000,188
QUALIFIED UNITS (b).......... 427,257.294 $ 98.128982 41,926,323
NON-QUALIFIED UNITS (b).......... 115,004.557 $ 85.716878 9,857,832
QUALIFIED UNITS (c).......... 71,875.556 $ 101.941873 7,327,129
NON-QUALIFIED UNITS (c).......... 26,612.313 $ 89.076761 2,370,539
ANNUITY FUND .......... 1,408,624
------------
$ 68,154,550
------------
------------
OPPENHEIMER BOND FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 206,344.377 $ 12.105651 $ 2,497,933
NON-QUALIFIED UNITS (a).......... 175,807.726 $ 12.105651 2,128,267
QUALIFIED UNITS (b).......... 279,442.690 $ 38.818395 10,847,517
NON-QUALIFIED UNITS (b).......... 88,950.963 $ 39.763392 3,536,992
QUALIFIED UNITS (c).......... 31,174.177 $ 40.445409 1,260,852
NON-QUALIFIED UNITS (c).......... 17,553.565 $ 41.427546 727,201
ANNUITY FUND .......... 291,180
------------
$ 21,289,942
------------
------------
JP INVESTMENT GRADE BOND FUND, INC.
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 110,870.601 $ 11.868974 $ 1,315,920
NON-QUALIFIED UNITS (a).......... 62,561.226 $ 11.868974 742,538
QUALIFIED UNITS (b).......... 348,002.314 $ 37.900717 13,189,537
NON-QUALIFIED UNITS (b).......... 114,458.341 $ 38.823373 4,443,659
QUALIFIED UNITS (c).......... 49,056.142 $ 39.373178 1,931,496
NON-QUALIFIED UNITS (c).......... 18,289.528 $ 40.329278 737,603
ANNUITY FUND .......... 334,891
------------
$ 22,695,644
------------
------------
VIPF MONEY MARKET FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a)......... 537,961.454 $ 10.888553 $ 5,857,622
QUALIFIED UNITS (b).......... 187,052.578 $ 20.745350 3,880,471
NON-QUALIFIED UNITS (b)...... 17,085.193 $ 20.745350 354,438
ANNUITY FUND 6,400
------------
$ 10,098,931
------------
------------
VIPF MONEY MARKET FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a)......... 399,412.037 $ 10.475795 $ 4,184,159
QUALIFIED UNITS (b).......... 166,434.687 $ 19.875722 3,308,010
NON-QUALIFIED UNITS (b)...... 17,085.193 $ 19.875722 339,580
ANNUITY FUND 7,403
------------
$ 7,839,152
------------
------------
B-22
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
VIPF GROWTH FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 651,517.188 $ 15.695218 $ 10,225,704
NON-QUALIFIED UNITS (a).......... 409,196.903 $ 15.695218 6,422,435
ANNUITY FUND......... 186,406
------------
$ 16,834,545
------------
------------
VIPF GROWTH FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 277,718.899 $ 13.878009 $ 3,854,185
NON-QUALIFIED UNITS (a).......... 160,862.546 $ 13.878009 2,232,452
------------
$ 6,086,637
------------
------------
VIPF EQUITY-INCOME FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 742,097.035 $ 15.171936 $ 11,259,049
NON-QUALIFIED UNITS (a).......... 562,778.828 $ 15.171936 8,538,444
ANNUITY FUND......... 217,784
------------
$ 20,015,277
------------
------------
VIPF EQUITY-INCOME FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 334,408.519 $ 13.464371 $ 4,502,600
NON-QUALIFIED UNITS (a).......... 268,759.745 $ 13.464371 3,618,681
------------
$ 8,121,281
------------
------------
VIPF HIGH INCOME FUND
DECEMBER 31, 1996 143,311.536 $ 13.457366 $ 1,928,596
QUALIFIED UNITS (a). 121,230.627 $ 13.457366 1,631,445
------------
NON-QUALIFIED UNITS (a).......... $ 3,560,041
------------
------------
VIPF HIGH INCOME FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a). 79,150.583 $ 11.969023 $ 947,355
NON-QUALIFIED UNITS (a).......... 25,602.213 $ 11.969023 306,434
------------
$ 1,253,789
------------
------------
VIPF OVERSEAS FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 103,229.823 $ 12.044844 $ 1,243,387
NON-QUALIFIED UNITS (a).......... 51,528.504 $ 12.044844 620,653
------------
$ 1,864,040
------------
------------
VIPF OVERSEAS FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 33,625.064 $ 10.789882 $ 362,810
NON-QUALIFIED UNITS (a).......... 10,328.431 $ 10.789882 111,443
------------
$ 474,253
------------
------------
B-23
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
VIPF ASSET MANAGER FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 340,261.913 $ 12.777286 $ 4,347,624
NON-QUALIFIED UNITS (a).......... 149,348.015 $ 12.777286 1,908,262
------------
$ 6,255,886
------------
------------
VIPF ASSET MANAGER FUND
DECEMBER 31, 1995
QUALIFIED UNITS (a).......... 132,355.509 $ 11.307468 $ 1,496,605
NON-QUALIFIED UNITS (a).......... 38,218.962 $ 11.307468 432,160
------------
$ 1,928,765
------------
------------
ALGER AMERICAN SMALL CAPITALIZATION FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 88,628.875 $ 9.190108 $ 814,509
NON-QUALIFIED UNITS (a).......... 59,516.980 $ 9.190108 546,967
------------
$ 1,361,476
------------
------------
ALGER AMERICAN MIDCAP GROWTH FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 59,194.780 $ 9.808937 $ 580,638
NON-QUALIFIED UNITS (a).......... 35,594.862 $ 9.808937 349,148
------------
$ 929,786
------------
------------
VIPF CONTRAFUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 40,992.762 $ 11.145245 $ 456,874
NON-QUALIFIED UNITS (a).......... 34,720.276 $ 11.145245 386,966
------------
$ 843,840
------------
------------
VIPF INDEX 500 FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 43,614.925 $ 11.367158 $ 495,778
NON-QUALIFIED UNITS (a).......... 40,079.527 $ 11.367158 455,590
ANNUITY FUND......... 49,883
------------
$ 1,001,251
------------
------------
AHVIT EMERGING GROWTH FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 41,615.435 $ 9.579577 $ 398,658
NON-QUALIFIED UNITS (a).......... 25,937.810 $ 9.579577 248,473
------------
$ 647,131
------------
------------
MFS RESEARCH SERIES
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 74,784.207 $ 10.970831 $ 820,445
NON-QUALIFIED UNITS (a).......... 30,017.296 $ 10.970831 329,315
------------
$ 1,149,760
------------
------------
B-24
<PAGE>
JEFFERSON-PILOT SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MFS UTILITIES SERIES
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 13,428.328 $ 11.602401 $ 155,801
NON-QUALIFIED UNITS (a).......... 10,878.887 $ 11.602401 126,221
------------
$ 282,022
------------
------------
AHVIT GROWTH FUND
DECEMBER 31, 1996
QUALIFIED UNITS (a).......... 58,550.128 $ 10.415742 $ 609,843
NON-QUALIFIED UNITS (a).......... 41,671.213 $ 10.415742 434,037
------------
$ 1,043,880
------------
------------
</TABLE>
(a) - CONTRACTS ISSUED AFTER 1994.
(b) - CONTRACTS ISSUED 1983 - 1994.
(c) - CONTRACTS ISSUED BEFORE 1983.
B-25
<PAGE>
Report of Independent Auditors
Unitholders of Jefferson-Pilot Separate Account A
of Jefferson-Pilot Life Insurance Company
Board of Directors, Jefferson-Pilot Life Insurance Company
We have audited the accompanying statement of assets and liabilities of
Jefferson-Pilot Separate Account A of Jefferson-Pilot Life Insurance Company as
of December 31, 1996, and the related statements of operations and changes in
net assets for the year then ended. 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 audit. The statement of
changes in net assets of Jefferson-Pilot Separate Account A of Jefferson-Pilot
Life Insurance Company for the year ended December 31, 1995 was
audited by other auditors whose report dated February 23, 1996, expressed an
unqualified opinion on that statement.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, 1996, 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 that our
audit provides 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 Jefferson-Pilot Separate
Account A of Jefferson-Pilot Life Insurance Company at December 31, 1996, the
results of their operations for the year then ended, and the changes in their
net assets for the period then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
April 16, 1997 /S/Ernst & Young LLP
B-26
<PAGE>
Jefferson-Pilot Life Insurance Company
Balance Sheets
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Investments:
Debt securities available for sale, at fair value
(amortized cost 1996--$2,664,100; 1995--$2,561,083) $2,709,763 $2,731,024
Debt securities held to maturity, at amortized cost
(fair value 1996--$1,873,675; 1995--$1,846,212) 1,849,192 1,761,165
Equity securities available for sale, at fair value
(amortized cost 1996--$141,158; 1995--$157,848) 420,937 430,895
Equity securities trading portfolio, at fair value
(cost 1996--$23,238; 1995--$45,868) 22,580 46,406
Mortgage loans on real estate 1,013,689 894,005
Policy loans 235,443 237,553
Real estate 33,304 28,893
Other investments 9,003 8,264
-------------------------
Total investments 6,293,911 6,138,205
Cash and cash equivalents 10,220 16,819
Investment in affiliated companies, at equity 42,164 37,859
Due from affiliates 42,306 26,736
Accrued investment income 78,428 75,294
Accounts receivable and agents' balances 17,090 18,698
Due from reinsurers 47,700 33,231
Property and equipment 54,041 51,951
Deferred policy acquisition costs 612,435 531,341
Assets held in separate accounts 487,704 345,530
Other assets 38,599 30,860
-------------------------
$7,724,598 $7,306,524
-------------------------
-------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
B-27
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities:
Future policy benefits $1,478,105 $1,440,116
Policyholder contract deposits 3,307,589 2,984,919
Dividend accumulations and other policyholder
funds on deposit 180,697 181,078
Policy and contract claims 163,668 168,654
Dividends for policyholders 19,462 19,149
Deferred revenue and premiums collected in advance 33,505 32,486
Other 55,739 53,488
-------------------------
Total policy liabilities 5,238,765 4,879,890
Securities sold under repurchase agreements 198,608 196,040
Currently payable income taxes 14,074 11,476
Deferred income tax liabilities 110,695 141,353
Liabilities related to separate accounts 487,704 345,530
Accounts payable, accruals and other liabilities 116,853 202,664
-------------------------
Total liabilities 6,166,699 5,776,953
Commitments and contingent liabilities
Stockholder's equity:
Common stock, par value $100 per share; authorized
and issued 50,000 shares 5,000 5,000
Capital in excess of par value 30,567 30,567
Retained earnings 1,303,241 1,223,601
Net unrealized gains on securities, less deferred
income taxes 1996--$110,500; 1995--$144,046 219,091 270,403
-------------------------
1,557,899 1,529,571
-------------------------
$7,724,598 $7,306,524
-------------------------
-------------------------
</TABLE>
B-28
<PAGE>
Jefferson-Pilot Life Insurance Company
Statements of Income
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
REVENUE
Premiums and other considerations $ 861,505 $ 775,118 $ 655,143
Net investment income 469,099 420,917 365,301
Realized investment gains 30,411 35,036 41,083
----------------------------------------
1,361,015 1,231,071 1,061,527
BENEFITS AND EXPENSES
Insurance and annuity benefits 832,495 748,046 627,856
Insurance commissions 100,538 92,300 69,162
General and administrative 106,180 101,872 92,109
Insurance taxes, licenses and fees 28,109 25,855 22,784
Net deferral of policy acquisition costs (7,257) (35,914) (40,410)
----------------------------------------
1,060,065 932,159 771,501
Income before income taxes 300,950 298,912 290,026
Income taxes 101,310 97,443 95,524
----------------------------------------
Net income $ 199,640 $ 201,469 $ 194,502
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
B-29
<PAGE>
Jefferson-Pilot Life Insurance Company
Statements of Stockholder's Equity
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED NET
CAPITAL IN GAINS ON UNREALIZED TOTAL
COMMON EXCESS OF RETAINED EQUITY GAINS ON STOCKHOLDER'S
STOCK PAR VALUE EARNINGS SECURITIES SECURITIES EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $5,000 $30,567 $1,091,494 $308,037 $ - $1,435,098
Change in accounting principle
effective January 1, 1994 - - - (308,037) 363,652 55,615
Net income - - 194,502 - - 194,502
Dividends paid to parent company - - (94,500) - - (94,500)
Decrease during year - - - - (161,173) (161,173)
---------------------------------------------------------------------------------
Balance at December 31, 1994 5,000 30,567 1,191,496 - 202,479 1,429,542
Net income - - 201,469 - - 201,469
Dividends paid to parent company - - (169,364) - - (169,364)
Increase during year - - - - 67,924 67,924
---------------------------------------------------------------------------------
Balance at December 31, 1995 5,000 30,567 1,223,601 - 270,403 1,529,571
Net income - - 199,640 - - 199,640
Dividends paid to parent company - - (120,000) - - (120,000)
Decrease during year - - - - (51,312) (51,312)
---------------------------------------------------------------------------------
Balance at December 31, 1996 $5,000 $30,567 $1,303,241 $ - $219,091 $1,557,899
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
B-30
<PAGE>
Jefferson-Pilot Life Insurance Company
Statements of Cash Flow
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $199,640 $201,469 $194,502
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in policy liabilities other than deposits 63,633 18,405 (24,062)
Credits to policyholder accounts, net 15,320 17,173 26,537
Deferral of policy acquisition costs, net (7,257) (35,914) (40,410)
Depreciation, including amounts related to
real estate investments 4,523 5,766 5,800
Change in trading securities 23,826 (46,406) -
Change in receivables and asset accruals (17,339) (3,082) (5,163)
Change in payables and expense accruals (2,379) 42,215 (4,000)
Realized investment gains (29,991) (6,003) (41,083)
Other operating activities, net (8,287) (10,959) 2,384
----------------------------------------
Net cash provided by operating activities 241,689 182,664 114,505
Cash flows from investing activities:
Securities available for sale:
Sales 211,586 438,857 756,114
Maturities, calls and redemptions 145,496 152,792 93,756
Purchases (458,674) (799,230) (807,293)
Securities held to maturity:
Sales - - 7,431
Maturities, calls and redemptions 115,872 24,412 122,589
Purchases (205,127) (58,366) (577,121)
Repayments of mortgage loans 85,950 53,183 71,374
Mortgage loans originated (205,830) (291,000) (173,139)
Decrease of policy loans, net 2,110 5,385 8,242
Cash received in assumption reinsurance transaction - 164,488 -
Real estate and property and equipment sold 6,834 8,625 9,464
Purchases of real estate and property and equipment (15,468) (7,740) (10,778)
Other investing activities, net (927) 586 (13,570)
----------------------------------------
Net cash used in investing activities (318,178) (308,008) (512,931)
</TABLE>
B-31
<PAGE>
Jefferson-Pilot Life Insurance Company
Statements of Cash Flow (continued)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Policyholder contract deposits $573,999 $484,540 $361,991
Withdrawals of policyholder contract deposits (386,677) (188,666) (117,939)
Advances from parent company, net - (21,005) (15,497)
Proceeds from securities sold under repurchase
agreements 2,568 (70,799) 266,839
Cash dividends paid (120,000) (97,000) (94,500)
Other financing activities - 25,000 -
----------------------------------------
Net cash provided by financing activities 69,890 132,070 400,894
----------------------------------------
Net (decrease) increase in cash and cash equivalents (6,599) 6,726 2,468
Cash and cash equivalents:
Beginning 16,819 10,093 7,625
----------------------------------------
Ending $ 10,220 $ 16,819 $ 10,093
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
B-32
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements
December 31, 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a wholly-owned subsidiary of Jefferson-Pilot Corporation and
operates exclusively in the life insurance industry. Life insurance, accident
and health insurance and annuities are currently marketed to individuals and
businesses primarily in the United States. In May 1995, the Company assumed
certain life insurance and annuity business of Kentucky Central Life Insurance
Company ("KCL") in an assumption reinsurance transaction as disclosed in Note 2.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). The Company also submits
financial statements to insurance industry regulatory authorities. Those
financial statements are prepared on the basis of statutory accounting practices
("SAP") and are significantly different from financial statements prepared in
accordance with GAAP. See Note 7.
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 revenue 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 and the potential effects of resolving litigated matters.
CASH AND CASH EQUIVALENTS
The Company includes with cash and cash equivalents its holdings of highly
liquid investments which mature within three months of the date of acquisition.
B-33
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT AND EQUITY SECURITIES
Debt and equity securities are classified as either 1) securities held to
maturity, stated at amortized cost; 2) trading securities, stated at fair value
with unrealized gains and losses reflected in income; or 3) securities available
for sale, stated at fair value with net unrealized gains and losses included in
a separate component of stockholder's equity, net of deferred income taxes and
adjustments to deferred policy acquisition costs.
Prior to adopting FASB Statement No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, as of January 1, 1994, all debt securities were
stated at amortized cost less allowances for other-than-temporary declines in
value. Upon adoption of Statement No. 115, debt securities classified as
available for sale were adjusted to aggregate fair value. Equity securities
were already stated at fair value prior to adoption of Statement No. 115, and
therefore were not adjusted.
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.
MORTGAGE AND POLICY LOANS
Mortgage loans on real estate are stated at unpaid balances, net of allowances
for unrecoverable amounts. Policy loans are stated at their unpaid balances.
REAL ESTATE AND OTHER INVESTMENTS
Real estate not acquired by foreclosure is stated at cost less accumulated
depreciation. Real estate acquired by foreclosure is stated at the lower of
depreciated cost or fair value minus estimated costs to sell. Real estate,
primarily buildings, is depreciated principally by the straight-line method over
estimated useful lives generally ranging from 30 to 40 years. Accumulated
depreciation was approximately $20.7 million and $20.8 million at December 31,
1996 and 1995, respectively. Other investments are stated at equity, or the
lower of cost or market, as appropriate.
DUE FROM AFFILIATES
Due from affiliates consists primarily of several bonds issued by Jefferson-
Pilot Communications Company (JPCC) which totaled $42.3 million and $22.6
million at December 31, 1996 and 1995, respectively. JPCC is also a wholly-
owned subsidiary of Jefferson-Pilot Corporation. The bonds
B-34
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
mature between 2003 and 2009 and bear interest at rates ranging from 5.5% to
8.0%, with the rate on one bond floating with the three-month LIBOR. Total
investment income from JPCC bonds, which is included in net investment income,
was $1.8 million, $1.5 million and $1.6 million in 1996, 1995 and 1994,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated principally by the
straight-line method over their estimated useful lives, generally 30 to 50 years
for buildings and approximately 10 years for other property and equipment.
Accumulated depreciation was $40.3 million and $35.0 million at December 31,
1996 and 1995, respectively.
DEFERRED POLICY ACQUISITION COSTS
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 annuity
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.
The carrying amounts of deferred policy acquisition costs are adjusted for the
effect of realized gains and losses and the effects of unrealized gains or
losses on debt securities classified as available for sale. Deferred policy
acquisition costs are reviewed periodically to determine that the unamortized
portion does not exceed expected recoverable amounts. No impairment adjustments
have been reflected in earnings for any year presented.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policyholders who bear the investment risk.
The separate account assets and liabilities, which are equal, are recorded at
fair value. Policyholder account deposits and withdrawals, investment income
and realized investment gains and losses are excluded from the amounts reported
in the Statements of Income. Fees charged on policyholders' deposits are
included in other revenue.
B-35
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF REVENUE
Premiums on traditional life insurance products are reported as revenue when
received unless received in advance of the due date.
Premiums on accident and health insurance are reported as earned over the
contract period. A reserve is provided for the portion of premiums written
which relate to unexpired coverage terms.
Revenue from universal life-type and annuity products include charges for the
cost of insurance, for initiation and administration of the policy, and for
surrender of the policy. Revenue from these products is recognized in the year
assessed to the policyholder, except that any portion of an assessment which
relates to services to be provided in future years is deferred and recognized
over the period during which services are provided.
RECOGNITION OF BENEFITS AND EXPENSES
Benefits and expenses, other than deferred policy acquisition costs, related to
traditional life, accident and health, and disability insurance products are
recognized when incurred in a manner designed to match them with related
premiums and spread income recognition over expected policy lives. For
universal life-type and annuity products, benefits include interest credited to
policyholders' accounts, which is recognized as it accrues.
FUTURE POLICY BENEFITS
Liabilities for future policy benefits on traditional life and disability
insurance are computed by the net level premium valuation method based on
assumptions about future investment yield, mortality, morbidity and persistency.
Estimates about future circumstances are based principally on historical
experience and provide for possible adverse deviations.
POLICYHOLDER CONTRACT DEPOSITS
Policyholder contract deposits consist of policy values that accrue to holders
of universal life-type contracts and annuities. The liability is determined
using the retrospective deposit method and consists of policy values that accrue
to the benefit of the policyholder, before deduction of surrender charges.
POLICY AND CONTRACT CLAIMS
The liability for policy and contract claims consists of the estimated amount
payable for claims reported but not yet settled, claims incurred during the year
but reported subsequent to the balance sheet date, 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.
B-36
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE BALANCES AND TRANSACTIONS
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.
PARTICIPATING POLICIES
Participating life policies approximate the following percentages of ordinary
life insurance in force and ordinary life insurance premium revenue as of
December 31 and for the years then ended, respectively:
1996 1995 1994
----------------------------------
Ordinary life insurance in force 6% 6% 12%
Ordinary life premium revenue 14% 21% 22%
----------------------------------
The amount of dividends to be paid on participating policies is determined
annually by the Board of Directors. Anticipated dividends are accounted for as
a planned contractual benefit in computing the value of future policy benefits.
INCOME TAXES
The Company is included in the consolidated life/nonlife federal income tax
return filed by its parent company. Income taxes reflected in the accompanying
financial statements have been determined on a separate-company basis.
Deferred income taxes 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.
RECLASSIFICATIONS
Certain amounts reported in prior years' financial statements have been
reclassified to conform with the presentations adopted in the current year.
These reclassifications have no effect on net income or stockholder's equity of
the prior years.
B-37
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which requires an entity to
recognize the financial and servicing assets it controls and the liabilities it
has incurred and to derecognize financial assets when control has been
surrendered in accordance with the criteria provided in the Statement. The
Company will apply the new rules prospectively to transactions beginning in the
first quarter of 1997. Based on current circumstances, the Company believes the
application of the new rules will not have a material impact on its financial
position or results of operations.
2. ASSUMPTION REINSURANCE TRANSACTION
On May 31, 1995, the Company assumed certain life insurance and annuity business
of Kentucky Central Life Insurance Company (KCL) in a transaction which was
accomplished through an assumption reinsurance agreement. Upon execution of the
agreement, assets consisting primarily of cash, debt securities, policy loans
and receivables with aggregate fair value of $872 million, including $164
million of cash, were transferred to the Company, and the Company assumed
liabilities with aggregate fair value of $1.096 billion. The difference between
the fair values of assets received and liabilities assumed was recorded as
deferred policy acquisition costs.
At December 31, 1995, further participation options in the assumption
reinsurance agreement remained available to approximately 4,000 KCL
policyholders. The Company had recorded a $78 million liability at December 31,
1995, pending resolution of the policyholder option process. Total assets
received on May 31, 1995 included $78 million of assets associated with these
additional policies.
On November 30, 1996, the Company completed the KCL transaction by assuming the
additional 4,000 policies. The Company established additional reserves of $112
million on these policies, released the $78 million liability established in
1995, and recorded an additional $40 million of deferred policy acquisition
costs.
B-38
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS
Aggregate amortized cost, aggregate fair value, and gross unrealized gains and
losses are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE CARRIED AT FAIR VALUE
U.S. Treasury obligations and direct obligations
of U.S. Government agencies $ 297,669 $ 16,094 $ - $ 313,763
Federal agency issued collateralized mortgage
obligations 1,106,140 20,336 (8,571) 1,117,905
Obligations of states and political subdivisions 4,690 21 (99) 4,612
Corporate obligations 960,562 13,072 (6,025) 967,609
Corporate private-labeled collateralized
mortgage obligations 284,311 15,604 (5,139) 294,776
Redeemable preferred stocks 10,728 518 (148) 11,098
-------------------------------------------------------
Subtotal, debt securities 2,664,100 65,645 (19,982) 2,709,763
Equity securities 141,158 282,398 (2,619) 420,937
-------------------------------------------------------
Securities available for sale $2,805,258 $ 348,043 $(22,601) $3,130,700
-------------------------------------------------------
-------------------------------------------------------
HELD TO MATURITY CARRIED AT AMORTIZED COST
Obligations of state and political subdivisions $ 15,396 $ 960 $ (50) $ 16,306
Corporate obligations 1,833,796 55,515 (31,942) 1,857,369
-------------------------------------------------------
Debt securities held to maturity $1,849,192 $ 56,475 $(31,992) $1,873,675
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
B-39
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE CARRIED AT FAIR VALUE
U.S. Treasury obligations and direct obligations
of U.S. Government agencies $ 302,678 $ 29,807 $ - $ 332,485
Federal agency issued collateralized mortgage
obligations 1,107,289 60,701 (189) 1,167,801
Obligations of states and political subdivisions 18,664 991 (46) 19,609
Corporate obligations 926,561 64,363 (2,182) 988,742
Corporate private-labeled collateralized mortgage
obligations 194,091 16,047 (3) 210,135
Redeemable preferred stocks 11,800 586 (134) 12,252
-------------------------------------------------------
Subtotal, debt securities 2,561,083 172,495 (2,554) 2,731,024
Equity securities 157,848 273,870 (823) 430,895
-------------------------------------------------------
Securities available for sale $2,718,931 $ 446,365 $ (3,377) $3,161,919
-------------------------------------------------------
-------------------------------------------------------
HELD TO MATURITY CARRIED AT AMORTIZED COST
Obligations of state and political subdivisions $ 23,537 $ 107 $ (184) $ 23,460
Corporate obligations 1,737,628 97,163 (12,039) 1,822,752
-------------------------------------------------------
Debt securities held to maturity $1,761,165 $ 97,270 $(12,223) $1,846,212
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
CONTRACTUAL MATURITIES
Aggregate amortized cost and aggregate fair value of debt securities as of
December 31, 1996, according to contractual maturity date, are as indicated
below (in thousands). 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 the Company, with or without penalty.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 110,768 $ 109,325 $ 2,183 $ 3,047
Due after one year through five years 287,456 289,941 56,584 59,862
Due after five years through ten years 470,575 483,351 416,254 418,137
Due after ten years through twenty years 210,242 217,535 276,441 266,611
Due after twenty years 121,550 122,113 16,135 16,089
Amounts not due at a single maturity date 1,452,781 1,476,400 1,081,595 1,109,929
-------------------------------------------------------
2,653,372 2,698,665 1,849,192 1,873,675
Redeemable preferred stocks 10,728 11,098 - -
-------------------------------------------------------
$2,664,100 $2,709,763 $1,849,192 $1,873,675
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
B-40
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
INVESTMENT CONCENTRATION, RISK AND IMPAIRMENT
Debt securities considered less than investment grade approximated 2.1% and 2.8%
of the total debt securities portfolio as of December 31, 1996 and 1995,
respectively.
The Company's mortgage loan portfolio is comprised primarily of conventional
real estate mortgages collateralized by retail (52%), apartment (12%), hotel
(11%), office (9%), and industrial (8%) properties. Mortgage loan underwriting
standards emphasize the credit status of a prospective borrower, quality of the
underlying collateral and conservative loan-to-value relationships.
Approximately 51%, 19% and 10% of the stated mortgage loan balances as of
December 31, 1996 are due from borrowers in South Atlantic states, West South
Central states and East South Central states, respectively. No other geographic
region represents as much as 10% of December 31, 1996 mortgage loans.
At December 31, 1996 and 1995, the recorded investment in mortgage loans that
are considered to be impaired was $81 million and $78 million, respectively.
Delinquent loans outstanding as of December 31, 1996 and 1995 totaled $9 million
and $4 million, respectively. The related allowance for credit losses was $27
million at December 31, 1996 and 1995. The average recorded investment in
impaired loans during the years ended December 31, 1996 and 1995 was $79 million
each year. For the years ended December 31, 1996 and 1995, the Company
recognized interest income on impaired loans of $8 million each year using the
cash basis method. Recorded investments in impaired loans and related interest
income in 1994 were less than the amounts as of and for the year ended December
31, 1995.
CHANGES IN NET UNREALIZED GAINS AND LOSSES ON SECURITIES
Changes during the three year period ended December 31, 1996 in amounts
affecting net unrealized gains and losses included in the separate component of
stockholder's equity, reduced by deferred income taxes, are as follows (in
thousands):
B-41
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
NET UNREALIZED GAINS (LOSSES)
----------------------------------------
DEBT EQUITY
SECURITIES SECURITIES TOTAL
----------------------------------------
<S> <C> <C> <C>
Net unrealized gains on equity securities
held by the Company as of January 1, 1994 $ - $308,037 $308,037
Effect of adopting Statement No. 115 as of
January 1, 1994:
Increase in stated amount of securities 100,797 - 100,797
Decrease in deferred policy acquisition costs (15,235) - (15,235)
Increase in deferred income tax liabilities (29,947) - (29,947)
----------------------------------------
Increase in net unrealized gains included
in stockholder's equity 55,615 - 55,615
Other changes during year ended December 31, 1994:
Decrease in stated amount of securities (169,540) (105,435) (274,975)
Increase in deferred policy acquisition costs 25,526 - 25,526
Decrease in deferred income tax liabilities 50,405 37,871 88,276
----------------------------------------
Decrease in net unrealized gains included
in stockholder's equity (37,994) (67,564) (105,558)
----------------------------------------
Net unrealized (losses) gains on securities available
for sale as of December 31, 1994 (37,994) 240,473 202,479
Change during year ended December 31, 1995:
Increase (decrease) in stated amount of securities 241,034 (92,748) 148,286
Decrease in deferred policy acquisition costs (41,180) - (41,180)
(Increase) decrease in deferred income tax liabilities (64,896) 25,714 (39,182)
----------------------------------------
Increase (decrease) in net unrealized gains
included in stockholder's equity 134,958 (67,034) 67,924
----------------------------------------
Net unrealized gains on securities available
for sale as of December 31, 1995 96,964 173,439 270,403
Change during year ended December 31, 1996:
(Decrease) increase in stated amount of securities (125,873) 6,732 (119,141)
Increase in deferred policy acquisition costs 34,283 - 34,283
Decrease (increase) in deferred income tax liabilities 35,960 (2,414) 33,546
----------------------------------------
(Decrease) increase in net unrealized gains
included in stockholder's equity (55,630) 4,318 (51,312)
----------------------------------------
Net unrealized gains on securities available
for sale as of December 31, 1996 $ 41,334 $177,757 $219,091
----------------------------------------
----------------------------------------
</TABLE>
B-42
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME
The details of investment income, net of investment expenses, follow (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Interest on debt securities $343,849 $311,676 $259,681
Dividends on preferred stocks 3,051 4,411 5,050
Dividends on common stocks 17,725 22,945 28,025
Interest on mortgage loans 90,466 74,009 62,599
Interest on policy loans 15,434 13,761 12,498
Real estate income 9,272 8,735 9,099
Other investment income 10,722 10,751 8,635
----------------------------------------
Investment income 490,519 446,288 385,587
Investment expenses (21,420) (25,371) (20,286)
----------------------------------------
Net investment income $469,099 $420,917 $365,301
----------------------------------------
----------------------------------------
</TABLE>
Investment expenses include salaries, taxes, interest, expenses of maintaining
and operating investment real estate, real estate depreciation and other
allocated costs of investment management and administration.
REALIZED GAINS AND LOSSES
The details of realized investment gains (losses) follow (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Debt securities $ (58) $(5,826) $(9,311)
Preferred stocks 1,947 (479) 844
Common stocks 25,901 59,549 45,146
Other 2,621 (18,208) 4,404
----------------------------------------
Realized investment gains $30,411 $35,036 $41,083
----------------------------------------
----------------------------------------
</TABLE>
B-43
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Information about gross realized gains and losses on available for sale
securities transactions follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Gross realized:
Gains $29,184 $39,814 $40,345
Losses (3,201) (14,336) (23,353)
----------------------------------------
Net realized gains on available for sale securities $25,983 $25,478 $16,992
----------------------------------------
----------------------------------------
</TABLE>
TRADING SECURITIES
In 1995, the Company established a portfolio of trading securities for the
primary purpose of writing covered call options in expectation of enhanced total
returns from option premiums, market appreciation and dividends received. The
change in net unrealized holding gains and losses on trading securities included
in 1996 and 1995 income was not significant.
OTHER INFORMATION
A held to maturity security with amortized cost of $5.0 million was transferred
to the available for sale category during 1995 and securities with amortized
cost of $7.8 million were sold during 1994, both due to significant declines in
the creditworthiness of the issuers. Related recognized losses were not
significant.
On November 30, 1995, the Company transferred certain debt securities between
the held to maturity and available for sale classifications concurrent with the
adoption of additional Statement No. 115 implementation guidance, which
permitted a one-time reassessment of the appropriateness of classification of
securities held. This reassessment resulted in available for sale debt
securities with fair value of $392.8 million and amortized cost of $380.0
million being transferred to the held to maturity classification. The excess of
transfer-date fair value of individual securities over their amortized cost, and
the related unrealized net holding gain, will be amortized over the period to
maturity. In addition, held to maturity debt securities with an amortized cost
of $620.0 million and a fair value of $633.0 million were transferred to the
available for sale classification, increasing unrealized net holding gains by
$13.0 million.
B-44
<PAGE>
Jefferson-Pilot Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
During 1996, 1995 and 1994, the Company transferred securities classified as
available for sale to the defined benefit pension plans of the Company and its
affiliates. Equity securities with cost of $5.1 million and fair value of $26.7
million were transferred during 1996, and gains of $21.6 million were
recognized. Equity securities with cost of $7.1 million and value of
$33.4 million were transferred during 1995, and gains of $26.3 million were
recognized. The transfer in 1994 included debt securities with amortized cost
of $48.9 million and equity securities with a cost of $7.8 million. The
securities transferred in 1994 had an aggregate value of $75.0 million on the
date of transfer and a gain of $18.3 million was recognized.
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, 1996, a single interest rate swap is being held to modify annuity crediting
rates. The notional amount is $12.5 million, with the Company receiving a fixed
rate of 6.78% and paying a floating rate based on LIBOR (5.56% as of
December 31, 1996). No interest rate swaps were held at December 31, 1995.
The interest rate swap is used to modify the interest characteristics of a
certain block of annuity contract deposits. 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 this swap is reflected as an adjustment to insurance and annuity benefits.
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 credited interest on
annuities.
B-45
<PAGE>
5. DEFERRED POLICY ACQUISITION COSTS
Information about deferred policy acquisition costs for the years ended
December 31 follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Balance, beginning $531,341 $323,015 $272,314
Deferral:
Commissions 67,135 61,810 43,369
Other 26,921 20,293 19,306
----------------------------------------
94,056 82,103 62,675
Amortization (86,799) (46,189) (22,265)
----------------------------------------
Net deferral reflected in expenses 7,257 35,914 40,410
Addition for KCL assumption 39,554 223,883 -
Adjustment related to unrealized losses
(gains) on certain securities 34,283 (51,471) 10,291
----------------------------------------
Balance, ending $612,435 $531,341 $323,015
----------------------------------------
----------------------------------------
</TABLE>
6. POLICY LIABILITIES INFORMATION
INTEREST RATE ASSUMPTIONS
The liability for future policy benefits associated with ordinary life insurance
policies issued by the Company has been determined using interest rate
assumptions which vary by year of issue and range from 3% to 9.9% for
participating policies, remaining level for all durations. For nonparticipating
policies, assumed interest rates grade uniformly over 20 to 30 years with
initial rates ranging from 3% to 9.75% and ultimate rates ranging from 3% to 6%.
Interest rate assumptions for weekly premium, monthly debit and term life
insurance products generally fall within the same ranges as those pertaining to
individual life insurance policies.
Credited interest rates for universal life-type products approximated 6.26% in
1996, 6.35% in 1995 and 6.5% in 1994. For annuity products, credited rates
generally ranged from 4.75% to 8.25% during 1996, 5.2% to 6.35% during 1995 and
5% to 6.5% during 1994.
B-46
<PAGE>
6. POLICY LIABILITIES INFORMATION (CONTINUED)
MORTALITY AND WITHDRAWAL ASSUMPTIONS
The Company's assumed mortality rates are generally based on experience
multiples applied to select and ultimate tables commonly used in the industry.
Withdrawal assumptions for individual life insurance policies are based on
historical Company experience and vary by issue age, type of coverage and policy
duration.
For immediate annuities issued prior to 1987, mortality assumptions are based on
blends of the 1971 Individual Annuity Mortality Table and the 1969-71 U.S. Life
Tables. For similar products issued after 1986, mortality assumptions are based
on blends of the 1983a and 1979-81 U.S. Life tables.
B-47
<PAGE>
6. POLICY LIABILITIES INFORMATION (CONTINUED)
ACCIDENT AND HEALTH, AND DISABILITY INSURANCE LIABILITIES ACTIVITY
Activity in the liabilities for accident and health, and disability insurance
benefits, including reserves for future policy benefits and unpaid claims and
claim adjustment expenses, is summarized below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Balance as of January 1 $273,659 $266,046 $262,164
Less reinsurance recoverables 14,262 12,524 11,312
----------------------------------------
Net balances as of January 1 259,397 253,522 250,852
Amount incurred, related to:
Current year 401,433 403,469 397,641
Prior years (62,979) (73,145) (88,692)
----------------------------------------
338,454 330,324 308,949
Amount paid, related to:
Current year 245,978 242,483 228,233
Prior years 91,431 81,966 78,046
----------------------------------------
337,409 324,449 306,279
Net balance as of December 31 260,442 259,397 253,522
Plus reinsurance recoverables 27,238 14,262 12,524
----------------------------------------
Balance as of December 31 $287,680 $273,659 $266,046
----------------------------------------
----------------------------------------
Balance as of December 31 included with:
Future policy benefits $156,016 $130,435 $116,558
Policy and contract claims 131,664 143,224 149,488
----------------------------------------
$287,680 $273,659 $266,046
----------------------------------------
----------------------------------------
</TABLE>
The Company uses conservative estimates for determining its liability for
accident and health, and disability benefits, which are based on historical
claim payment patterns and attempt to provide for potential adverse changes in
claim patterns and severity. Lower than anticipated claims resulted in
adjustments to the liability for accident and health, and disability benefits in
each of the years presented.
B-48
<PAGE>
7. STATUTORY FINANCIAL INFORMATION
The Company prepares financial statements on the basis of statutory accounting
practices (SAP) prescribed or permitted by the North Carolina 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 annuity 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.
Net income and capital and surplus of the Company on the basis of SAP is as
follows (in thousands):
<TABLE>
<CAPTION>
STATUTORY ACCOUNTING PRACTICES
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Statutory Accounting Practices:
Before gain recognized upon transfer
of subsidiary to parent company $204,874 $179,210 $158,298
Gain recognized upon transfer of
subsidiary to parent company in an
extraordinary dividend - 275,652 -
----------------------------------------
Reported net income for the year ended
December 31 $204,874 $454,862 $158,298
----------------------------------------
----------------------------------------
Statutory capital and surplus as of
December 31 $894,559 $830,236 $971,553
----------------------------------------
----------------------------------------
</TABLE>
B-49
<PAGE>
7. STATUTORY FINANCIAL INFORMATION (CONTINUED)
The General Statutes of North Carolina limit the amount of dividends that the
Company may pay annually without first obtaining regulatory approval.
Generally, the limitations are based on a combination of statutory net gain from
operations for the preceding year, 10% of statutory surplus at the end of the
preceding year, and dividends and distributions made within the preceding twelve
months. During 1995, the Company paid the parent company the maximum amount of
dividends permitted without approval. Also during 1995, the Company transferred
its interest in a wholly-owned subsidiary, the principal asset of which is
NationsBank Corporation common stock, to the parent company in an extraordinary
dividend approved by the North Carolina Department of Insurance. For SAP
reporting purposes, the Company carried the subsidiary at statutory equity value
of approximately $327 million on the transfer date with an unrealized gain of
$276 million included in surplus. Upon transfer, the Company recognized a gain
in its statutory statement of operations and a dividend equal to the carrying
amount. The dividend was recorded at cost in the Company's GAAP financial
statements and no gain was recognized. All dividends paid in 1996 required
regulatory approval. At December 31, 1996, regulatory approval would be
required for any dividends in 1997.
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 pertaining to its investments, insurance
risk, interest rate risk and general business risk. As of December 31, 1996,
the Company's adjusted capital and surplus exceeded its authorized control level
RBC.
8. INCOME TAXES
Income taxes as reported in the statements of income are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Current expense $ 98,422 $98,112 $88,905
Deferred expense (benefit) 2,888 (669) 6,619
----------------------------------------
Aggregate reported income taxes $101,310 $97,443 $95,524
----------------------------------------
----------------------------------------
</TABLE>
B-50
<PAGE>
8. INCOME TAXES (CONTINUED)
A reconciliation of the federal income tax rate to the Company's effective
income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Reconciling items:
Tax exempt interest and dividends
received deduction (2.7) (1.8) (2.3)
Other, net 1.4 (0.6) 0.2
-----------------------------------------
Effective income tax rate 33.7% 32.6% 32.9%
-----------------------------------------
-----------------------------------------
</TABLE>
The tax effects of temporary differences that result in significant deferred
income tax assets and deferred income tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
Deferred income tax assets:
Difference in policy liabilities $ 122,859 $ 170,891
Obligation for postretirement benefits other
than pensions 8,136 8,793
Other deferred income tax assets 20,730 11,448
-------------------------
Gross deferred income tax assets 151,725 191,132
Deferred income tax liabilities:
Net unrealized gains on securities available for sale 110,500 144,046
Deferral of policy acquisition costs 116,050 157,395
Deferred gain recognition for income tax purposes 16,357 15,474
Other deferred income tax liabilities 19,513 15,570
-------------------------
Gross deferred income tax liabilities 262,420 332,485
-------------------------
Net deferred income tax liabilities included in
balance sheets $(110,695) $(141,353)
-------------------------
-------------------------
</TABLE>
Federal income tax returns for all years through 1992 are closed. In the
opinion of management, recorded income tax liabilities adequately provide for
all remaining open years.
B-51
<PAGE>
8. 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 $91 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 Company
does not believe that any significant portion of the account will be taxed in
the foreseeable future and no related deferred tax liability has been
recognized. If the entire balance of the account became taxable under the
current federal rate, the tax would approximate $32 million.
9. RETIREMENT BENEFIT PLANS
PENSION PLANS
The Company has defined benefit pension plans covering substantially all
employees and full time life insurance agents. The plans provide benefits based
on annual compensation and years of service. The plans are noncontributory and
are funded through group annuity contracts issued by the Company. The assets of
the plans are those of the related contracts, and are primarily held in separate
accounts of the Company. The funding policy is to contribute annually no more
than the maximum amount deductible for federal income tax purposes.
The components of pension expense were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Service cost, benefits earned during the year $ 3,935 $ 3,961 $ 4,490
Interest cost on projected benefit obligation 9,954 9,542 10,084
Actual return on plan assets (20,564) (30,531) (11,016)
Net amortization and deferral 6,662 16,403 (2,825)
----------------------------------------
Pension (income) expense $ (13) $ (625) $ 733
----------------------------------------
----------------------------------------
</TABLE>
B-52
<PAGE>
9. RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in the balance sheets (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $162,127 $172,757
-------------------------
-------------------------
Accumulated benefit obligation $164,593 $174,469
-------------------------
-------------------------
Projected benefit obligation $184,604 $177,836
Plan assets at fair value 229,718 220,465
-------------------------
Plan assets in excess of projected benefit obligation 45,114 42,629
Unrecognized net gain (33,163) (30,106)
Unrecognized net asset (14,421) (16,747)
Unrecognized prior service cost 6,741 7,777
-------------------------
Prepaid pension cost $ 4,271 $ 3,553
-------------------------
-------------------------
</TABLE>
Certain assumptions used in determining the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Discount rate 7% 7% 7.75%
Expected long-term rate of return
on plan assets 8% 8% 8%
Rate of increase in compensation levels 5% 5% 5.75%
</TABLE>
The increase in projected benefit obligation attributable to the reduction in
discount rate in 1995 was offset primarily by the combined effects of reducing
the assumed rate of compensation increase and increasing the assumed turnover
rate.
Benefits provided to retirees by annuity contracts issued by the Company
approximated $11.3 million in 1996, $9.9 million in 1995 and $8.9 million in
1994.
B-53
<PAGE>
9. RETIREMENT BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors contributory health care and life insurance benefit plans
for eligible retired employees, qualifying retired agents and certain surviving
spouses. Substantially all of the Company's employees and qualifying agents may
become eligible for these benefits if they reach retirement age or become
disabled while employed by the Company and meet certain years-of-service
requirements. Most of the postretirement health care and life insurance
benefits are provided through the Company. The Company contributes to a welfare
benefit trust from which future benefits will be paid. The Company accrues the
cost of providing postretirement benefits other than pensions during the
employees' active service periods.
The components of nonpension postretirement benefits expense for 1996, 1995 and
1994 were as follows (in thousands):
<TABLE>
<CAPTION>
HEALTH CARE BENEFITS LIFE INSURANCE BENEFITS
--------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost, benefits earned
during the year $434 $321 $349 $268 $205 $227
Interest cost on accumulated
benefit obligation 757 783 760 691 660 662
Actual return on plan assets (175) (117) (47) (258) (151) (59)
Net amortization and deferral (787) (849) (786) (217) (234) (182)
--------------------------------------------------------------------------------
Nonpension postretirement benefits
expense $229 $138 $276 $484 $480 $648
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
B-54
<PAGE>
9. RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the Company's postretirement
health care and life insurance plans as of December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
HEALTH CARE BENEFITS LIFE INSURANCE BENEFITS
1996 1995 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 2,260 $ 1,756 $ 3,403 $ 2,509
Accumulated postretirement benefit obligation:
Retirees and surviving spouses 8,675 7,650 6,937 7,578
Fully eligible active 661 618 1,320 900
Other active participants 2,096 3,004 2,175 1,726
--------------------------------------------------------
11,432 11,272 10,432 10,204
Accumulated postretirement benefit
obligation in excess of plan assets (9,172) (9,516) (7,029) (7,695)
Unrecognized prior service benefit (6,256) (6,667) (1,962) (1,960)
Unrecognized net (gain) loss (467) (612) 1,867 1,327
--------------------------------------------------------
Accrued postretirement benefit cost $(15,895) $(16,795) $ (7,124) $ (8,328)
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
Certain assumptions used in determining the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7% 8%
Expected long-term rate of return on plan assets 9% 9% 9%
</TABLE>
Benefits do not take into consideration compensation increases. The Company's
postretirement health care plan limits annual benefit increases to a maximum
rate of 4%. Because future health care cost trend rates of 4% have been assumed
in determining the accumulated postretirement benefit obligation as of December
31, 1996, future health care cost increases exceeding 4% per year will have no
effect on the Company's obligation.
B-55
<PAGE>
9. RETIREMENT BENEFIT PLANS (CONTINUED)
DEFINED CONTRIBUTION PLANS
Effective January 1, 1995, the Company adopted defined contribution retirement
plans covering most employees and full-time agents. The Company matches a
portion of participant contributions and makes profit sharing contributions to a
fund which acquires and holds shares of Jefferson-Pilot Corporation's common
stock. Plan assets are invested under a group variable annuity contract issued
by the Company. The Company expensed approximately $2.3 and $1.0 million
related to the plan during 1996 and 1995, respectively.
10. REINSURANCE
The Company attempts to reduce its exposure to significant individual claims by
reinsuring portions of certain individual life insurance policies and annuity
contracts written. The Company reinsures the portion of an individual life
insurance risk that exceeds $1 million, with an additional $250,000 retention
for accidental death benefits. Individual life insurance risks assumed in the
KCL transaction that exceed $350,000 are also reinsured. The Company also
attempts to reduce exposure to losses that may result from unfavorable events or
circumstances by reinsuring certain levels and types of accident and health
insurance risks underwritten. The Company assumes portions of the life and
accident and health risks underwritten by certain other insurers on a limited
basis, but amounts related to assumed reinsurance are not material to the
financial statements.
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, 1996.
B-56
<PAGE>
10. REINSURANCE (CONTINUED)
The effects of reinsurance on total premiums and other considerations and total
benefits are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Premiums and other considerations,
before effect of reinsurance ceded $919,560 $807,076 $670,150
Less premiums and other considerations ceded 58,055 31,958 15,007
----------------------------------------
Net premiums and other considerations $861,505 $775,118 $655,143
----------------------------------------
----------------------------------------
Benefits, before reinsurance recoveries $884,806 $774,011 $641,767
Less reinsurance recoveries 52,311 25,965 13,911
----------------------------------------
Net insurance and annuity benefits $832,495 $748,046 $627,856
----------------------------------------
----------------------------------------
</TABLE>
11. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values and fair values of financial instruments as of December 31
are summarized as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Debt securities available for sale $2,710 $2,710 2,731 $2,731
Debt securities held to maturity 1,849 1,874 1,761 1,846
Equity securities available for sale 421 421 431 431
Equity securities trading portfolio 23 23 46 46
Mortgage loans 1,014 1,056 894 977
Policy loans 235 228 238 240
Due from affiliates 42 41 27 27
FINANCIAL LIABILITIES
Annuity contract liabilities
in accumulation phase 1,379 1,319 1,342 1,279
Securities sold under repurchase
agreements 199 199 196 196
</TABLE>
B-57
<PAGE>
11. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of cash, cash equivalents, balances due on account from agents,
reinsurers and others, and accounts payable approximate their carrying amounts
as reflected in the balance sheets due to their short-term maturity or
availability. Assets and liabilities related to the Company's separate accounts
are reported at fair value in the accompanying balance sheets.
The fair values of debt and equity securities have been determined from
nationally quoted market prices and by using values supplied by independent
pricing services and discounted cash flow techniques. These fair values are
disclosed together with carrying amounts in Note 3. Fair values for affiliate
bonds discussed in Note 1 are determined using similar sources.
The fair value of the mortgage loan portfolio has been estimated by discounting
expected future cash flows using the interest rate currently offered for similar
loans.
The fair value of policy loans outstanding for traditional life products has
been estimated using a current risk-free interest rate applied to expected
future loan repayments projected based on historical repayment patterns. The
fair values of policy loans on universal life-type and annuity products
approximate carrying values due to the variable interest rates charged on those
loans.
Annuity contracts issued by the Company do not generally have defined
maturities. Therefore, fair values of the Company's liabilities under annuity
contracts, the carrying amounts of which are included with policyholder contract
deposits in the accompanying balance sheets, are estimated to equal the cash
surrender values of the underlying contracts.
The fair value of the liability for securities sold under repurchase agreements
approximates its carrying amounts, which amounts include accrued interest.
The fair value of interest rate swaps that hedge annuity contract deposits have
not been recorded on the balance sheet and are not significant.
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company routinely enters into commitments to extend credit in the form of
mortgage loans and to purchase certain debt instruments 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 balance sheets,
approximates $97 million as of December 31, 1996.
B-58
<PAGE>
12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company is a defendant in a proposed class action suit alleging deceptive
practices, fraudulent and negligent misrepresentation and breach of contract in
the sale of certain life insurance policies using policy performance
illustrations which used then current interest or dividend rates and insurance
charges and illustrated that some or all of the future premiums might be paid
from policy values rather than directly by the insured. The claimant's actual
policy values exceeded those illustrated on a guaranteed basis, but were less
than those illustrated on a then current basis due primarily to the interest
crediting rates having declined along with the overall decline in interest rates
in recent years. Unspecified compensatory and punitive damages, costs and
equitable relief are sought. While management is unable to make a meaningful
estimate of the amount or range of loss that could result from an unfavorable
outcome, management believes that it has made appropriate disclosures to
policyholders as a matter of practice and intends to vigorously defend its
position.
In the normal course of business, the Company is involved in various lawsuits.
Because of the considerable uncertainties that exist, the Company cannot
predict the outcome of pending or future litigations. However, management
believes that the resolution of pending legal proceedings will not have a
material adverse effect on the Company's financial position or liquidity, but
could have a material adverse effect on the results of operations for a specific
period.
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. Annual rent expense approximated $9 million in 1996
and $6 million in both 1995 and 1994. Future rental commitments are not
significant.
13. SUPPLEMENTAL CASH FLOW INFORMATION
The accompanying 1995 statement of stockholder's equity reflects a noncash
dividend in the amount of $72.4 million representing the Company's equity in a
wholly-owned subsidiary transferred to the Company's parent company during 1995
(see Note 7).
Cash payments for interest on financing arrangements totaled $11 million in
1996, $17 million in 1995 and $8 million in 1994. Interest expense totaled
$10.9 million, $15.7 million and $9.6 million in 1996, 1995 and 1994,
respectively. Cash payments for income taxes totaled $99 million, $74 million
(net of refunds of $5 million) and $98 million in 1996, 1995 and 1994,
respectively.
B-59
<PAGE>
Report of Independent Auditors
To the Board of Directors
Jefferson-Pilot Life Insurance Company
Greensboro, North Carolina
We have audited the accompanying balance sheet of Jefferson-Pilot Life Insurance
Company (a wholly-owned subsidiary of Jefferson-Pilot Corporation) as of
December 31, 1996, and the related statements of income, stockholder's equity
and cash flows for the year then ended. 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 audit. The financial
statements of Jefferson-Pilot Life Insurance Company for the years ended
December 31, 1995 and 1994 were audited by other auditors, whose report dated
February 6, 1996 expressed an unqualified opinion on those statements and
included an explanatory paragraph that related to the change in the Company's
method of accounting for certain investments in debt and equity securities
discussed in Notes 1 and 3 to these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Jefferson-Pilot Life
Insurance Company as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
March 14, 1997
B-60
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Jefferson-Pilot Life Insurance Company
Greensboro, North Carolina
We have audited the accompanying balance sheets of Jefferson-Pilot Life
Insurance Company as of December 31, 1995 and 1994, and the related statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1995. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson-Pilot Life Insurance
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
As disclosed in the notes to financial statements, the Company changed its
method of accounting for certain investments in debt and equity securities in
1994 and changed its method of accounting for postretirement benefits other
than pensions in 1993.
/s/ McGladrey & Pullen, LLP
Greensboro, North Carolina
February 6, 1996
35
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements.
Included in Part B of the Registration Statement:
Jefferson-Pilot Separate Account A
Statements of Assets and Liabilities at December 31, 1996
Statements of Operations for the Year Ended
December 31, 1996
Statements of Changes in Net Assets for
the Years Ended December 31, 1996 and 1995
Notes to Financial Statements
Report of Independent Certified Public
Accountant
Statements of Depositor - Jefferson-Pilot
Life Insurance Company
Balance Sheets at December 31, 1996 and
1995
Statements of Income for the Years
Ended December 31, 1996, 1995 and
1994
Statements of Stockholder's Equity for the
Years Ended December 31, 1996, 1995
and 1994
Statements of Cash Flows for the
Years Ended December 31, 1996, 1995
and 1994
Notes to Financial Statements
Report of Independent Auditors
C-1
<PAGE>
(b) Exhibits.
(1) Resolution of the Board of Directors of Depositor
authorizing the establishment of Registrant. (incorporated
by reference to the Form N-4 registration statement of
Jefferson-Pilot Separate Account A, (the "Registrant") filed
with the Securities and Exchange Commission (the
"Commission")) (File No. 33-11084).
(2) None
(3) Distribution Agreement between the Registrant and
Jefferson-Pilot Investor Services, Inc., dated June 29, 1994
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on July 1,
1994.) (File No. 33-11084).
(4) (a) Form of variable annuity contract ("AlphaFLEX").
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on
July 1, 1994.) (File No. 33-11084).
(b) Form of variable annuity contract ("Alpha").
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on
July 1, 1994.) (File No. 33-11084).
(5) Form of application used with variable annuity (incorporated
by reference to the Registrant's Form N-4 registration
statement filed with the Commission on July 1, 1994.) (File
No. 33-11084).
(6) (i) Articles of Incorporation. (incorporated by reference
to the Form N-4 registration statement of the
Registrant filed with the Commission (File No.
33-11084).
(6) (ii) By-Laws (incorporated by reference to Post Effective
Amendment No. 8 to the Registrant's Form N-4
registration statement filed with the Commission on
May 2, 1994.) (File No. 33-11084).
(6) (iii) Articles of Amendment to Restated Charter.
(incorporated by reference to Post Effective Amendment
No. 2 to the Registrant's Form N-4, filed with the
Commission on April 29, 1988.) (File No. 33-11084).
(7) None.
(8) None.
(9) Consent and Opinion of Counsel. (incorporated by reference
to the Registrant's Form N-4 registration statement filed
with the Commission on July 1, 1994.) (File No. 33-11084).
(10) (a) Consent of Ernst & Young LLP.
(b) Consent of McGladry & Pullen LLP.
(11) None.
(12) None.
(13) None.
C-2
<PAGE>
(14) Powers of Attorney (incorporated by reference to the
Registrant's Form N-4 registration statement filed with the
Commission on July 1, 1994.) (File No. 33-11084).
(15) (a) Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
Jefferson-Pilot Life Insurance Company. (incorporated
by reference to the Registrant's Form N-4 registration
statement filed with the Commission on July 1, 1994.)
(File No. 33-11084).
(b) Form of Participation Agreement Among Variable
Insurance Products Fund, II, Fidelity Distributors
Corporation and Jefferson-Pilot Life Insurance Company.
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on
July 1, 1994.) (File No. 33-11084).
(c) Form of Participation Agreement Among Alexander
Hamilton Variable Insurance Trust, Alexander Hamilton
Capital Management, Inc. and Jefferson-Pilot Life
Insurance Company.
(d) Form of Participation Agreement Among MFS Variable
Insurance Trust, Jefferson-Pilot Life Insurance Company
and Massachusetts Financial Services Company.
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on May
3, 1996.) (File No. 33-11084).
(e) Form of Participation Agreement Among The Alger
American Fund, Jefferson-Pilot Life Insurance Company
and Fred Alger and Company, Incorporated.
(incorporated by reference to the Registrant's Form N-4
registration statement filed with the Commission on May
3, 1996.) (File No. 33-11084).
(16) Schedule of Computation of Performance.
ITEM 25. DIRECTORS AND OFFICERS OF JEFFERSON-PILOT LIFE INSURANCE COMPANY*
DIRECTORS
William E. Blackwell
Robert G. Greer
Bank of Tanglewood
Edwin B. Borden 500 Chimney Rock
Borden Manufacturing Company Houston, TX 77056
PO Drawer P
Goldsboro, NC 27533 George W. Henderson, III
Burlington Industries, Inc.
William H. Cunningham 3330 W. Friendly Ave.
The University of Texas System Greensboro, NC 27410
601 Colorado, O'Henry Hall
Austin, TX 78701 Hugh L. McColl, Jr.
NationsBank Corporation
C. Randolph Ferguson NC 1-007-5801
100 North Tryon Street
Dennis R. Glass Charlotte, NC 28255
C-3
<PAGE>
E. S. Melvin
The Joseph M. Bryan Foundation of Robert H. Spilman
Greater Greensboro, Inc. Bassett Furniture Industries, Inc.
324 West Wendover Avenue, Suite 207 PO Box 626
Greensboro, NC 27408 Bassett, VA 24055
Kenneth C. Mlekush David A. Stonecipher
William Porter Payne Martha Ann Walls
NationsBank Corporation Southern Newspapers, Inc.
600 Peachtree Street, NE 1050 Wilcrest Drive
55th Floor Houston, TX 77042
Atlanta, GA 30308-2214
E. Jay Yelton
Donald S. Russell, Jr.
Attorney at Law
One Tiftgreen Circle
Columbia, SC 29223
OFFICERS*
David A. Stonecipher - President and Chief Executive Officer
C. Randolph Ferguson - Executive Vice President - Group
Dennis R. Glass - Executive Vice President, Chief Financial Officer and
Treasurer
John D. Hopkins - Executive Vice President and General Counsel
Kenneth C. Mlekush - Executive Vice President - Individual
E. Jay Yelton - Executive Vice President - Investments
Reggie D. Adamson - Senior Vice President - Finance
Darryl D. Andrews - Senior Vice President - Information Systems
Byron C. Burkehart - Senior Vice President - Group National Operations
Charles Phillip Elam II - Senior Vice President and Annuity Actuary
John C. Ingram - Senior Vice President - Securities
David B. Jarvis - Senior Vice President - Bank Assurance
Curtis R. Lashley, M.D. - Senior Vice President and Corporate Medical Director
Frank G. Mahoney - Senior Vice President - Annuity and Investment Products
Donna D. Newton - Senior Vice President - Group N.C. Operations
Edward W. O'Neil - Senior Vice President and Group Actuary
Hal B. Phillips, Jr. - Senior Vice President and Chief Actuary
Hoyt J. Phillips - Senior Vice President - Human Resources
James T. Ponder - Senior Vice President - Special Markets
Ronald H. Ridlehuber - Senior Vice President - Independent Marketing
William L. Seawell, II - Senior Vice President - Ordinary Marketing
Dale E. Cooper - Vice President - Variable Annuities
Valerie W. Loftin - Vice President - Annuity Operations
Robert A. Reed - Vice President, Secretary and Associate General Counsel
Donna L. Drew - Second Vice President - Annuity Processing
32991 Hamilton Court, Farmington Hills, MI 48334
Paul F. Warnock - Second Vice President and Associate Actuary
David Mattinson - Second Vice President Annuity Accounting
* The Principal Business Address for each Director and Officer of the
Depositor is, unless otherwise indicated, 100 North Greene Street, Greensboro,
North Carolina 27401
C-4
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
The Depositor established the Registrant by action of its Board
of Directors pursuant to North Carolina law. The Depositor is a
wholly-owned subsidiary of Jefferson-Pilot Corporation, which is
a publicly owned company. Both of these companies are North
Carolina companies.
Separate financial statements are filed for the Registrant. All
of Jefferson-Pilot Corporation's subsidiaries' financial
statements are included in Jefferson-Pilot Corporation's
consolidated financial statements.
The following is a list of corporations controlled by
Jefferson-Pilot Corporation.
Percent of
Voting Securities
State of Owned by Jefferson-
Name Incorporation Pilot Corporation
- ---- ------------- -------------------
Jefferson-Pilot Life North Carolina 100%
Insurance Company
Jefferson-Pilot Investor North Carolina 100%
Services, Inc.
Jefferson - Pilot North Carolina 100%
Communications Company
Alexander Hamilton Life Michigan 100%
Insurance Company of America
AH (Michigan) Life Insurance Michigan 100%
Company
First Alexander Hamilton New York 100%
Life Insurance Company
Chubb Life Insurance Company New Hampshire 100%
of America
Chubb Colonial Life Insurance New Jersey 100%
Company
Chubb Sovereign Life Insurance New Hampshire 100%
Company
Chubb Securities Corporation New Hampshire 100%
Omitted from the list are subsidiaries of Jefferson-Pilot
Corporation and the other companies listed which, considered in
the aggregate as a single subsidiary, would not constitute a
significant subsidiary. Because none of the companies listed is
a subsidiary of Registrant, only the financial statements of
Registrant are filed.
C-5
<PAGE>
ITEM 27. NUMBER OF CONTRACT HOLDERS
As of March 31, 1997, the number of contract owners of these
qualified contracts of Jefferson-Pilot Separate Account A was
4,525 and on that same date the number of contract holders of
these non-qualified contracts of Jefferson-Pilot Separate Account
A was 1,491.
ITEM 28. INDEMNIFICATION
The Jefferson-Pilot Corporation, pursuant to resolution of its
Board of Directors, agrees to indemnify the officers and
directors of Jefferson-Pilot Investor Services, Inc. and
Jefferson-Pilot Life Insurance Company against any liability to
the extent permitted by law. That resolution reads as follows:
1. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, including all
appeals, by reason of the fact that he/she is or was a director,
officer, or employee of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer,
employee, or agent of another Corporation, partnership, joint
venture, trust, or other enterprise, or as a committee member,
trustee or administrator under an employee benefit plan (all such
persons hereinafter sometimes referred to as "employee"), against
expenses (including attorneys' fees), judgments, decrees, fines,
penalties, and amounts paid in settlement actually and reasonably
incurred by such employee in connection with such action, suit or
proceeding, except that no indemnification shall be made in
respect of any liability or litigation expense which such
employee may incur on account of that employee's activities which
were at the time taken, known or believed by that employee to be
clearly in conflict with the best interests of the Corporation.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE
or its equivalent, shall not, of itself, create a presumption
that the employee knew or believed the activities were clearly in
conflict with the best interests of the Corporation.
2. Any indemnification under Section 1 (unless ordered by
a court) shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of
the employee is proper in the circumstances because the employee
did not know or believe, at the time, that the activities were
clearly in conflict with the best interests of the Corporation.
Such determination shall be made (a) by a majority vote of
directors acting at a meeting at which a quorum is present, or
(b) if such quorum is not obtainable (or even of obtainable), and
a majority of directors so direct, by independent legal counsel
(compensated by the Corporation) in a written opinion, or (c) by
the affirmative vote of the holders of a majority of the shares
entitled to vote in the election of directors.
3. Expenses of each employee indemnified hereunder
incurred in defending a civil, criminal, administrative, or
investigative action, suit, or proceeding (including all
appeals), or threat thereof, may be paid by the Corporation in
advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors, upon receipt
of an undertaking by or on behalf of the employee, to repay such
amount unless it shall ultimately be determined that the employee
is entitled to be indemnified by the Corporation.
C-6
<PAGE>
4. The indemnification provided by the Resolution shall
not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled as a matter of law, any
agreement, vote of shareholders, any insurance purchased by the
Corporation, or otherwise, both as to action in the employee's
official capacity and as to action in another capacity while
holding such office, and shall continue as to any employee who
has ceased to be director, officer, or employee and shall inure
to the benefit of the heirs, executors, and administrators of
such an employee.
5. The Corporation may purchase and maintain insurance on
behalf of any employee who is or was a director, officer, or
employee of the Corporation, or is or was serving at the request
of the Corporation as a director, trustee, officer, or employee
of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against the
employee and incurred by the employee in any such capacity, or
arising out of the employee's status as such, whether or not the
Corporation would have the power to indemnify the employee
against such liability under the provisions of this Resolution or
of the North Carolina Business Corporation Act.
The North Carolina law applicable to indemnification of directors and officers
reads as follows:
PART 5. INDEMNIFICATION
55-8-50 POLICY STATEMENT AND DEFINITIONS -- (a) It is the public policy of
this State to enable corporations organized under this Chapter to attract and
maintain responsible, qualified directors, officers, employees and agents, and,
to that end, to permit corporations organized under this Chapter to allocate the
risk of personal liability of directors, officers, employees and agents through
indemnification and insurance as authorized in this Part.
(b) Definitions in this Part:
(1) "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the corporation's request
if his duties to the corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate of
personal representatives of a director.
(3) "Expenses" means expenses of every kind incurred in defending a
proceeding, including counsel fees.
(4) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding.
C-7
<PAGE>
(5) "Official capacity" means (i) when used with respect to a director,
the office of director in a corporation: and (ii) when used with respect to an
individual other than a director, as contemplated in G.S. 55-8-56 the office in
a corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise.
(6) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means by threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
55-8-51 AUTHORITY TO INDEMNIFY -- (a) Except as provided in subsection (d), a
corporation may indemnify an individual made a party to a proceeding because he
is or was a director against liability incurred in the proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests; and
(ii) in all other cases, that his conduct was at least not opposed to its best
interests; and
(3) In the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest or its equivalent is not, of itself,
determinative that the director did not meet the standard of conduct described
under this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(2) In connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity, in
which he was adjudged liable on the basis that personal benefit was improperly
received by him.
(e) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation that is concluded without a
final adjudication on the issue of liability is limited to reasonable expenses
incurred in connection with the proceeding.
(f) The authorization, approval or favorable recommendations by the board
of directors of a corporation of indemnification, as permitted by this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such indemnification shall be void or voidable on
such ground.
C-8
<PAGE>
55-8-52 MANDATORY INDEMNIFICATION -- Unless limited by its articles of
incorporation, a corporation shall indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
55-8-53 ADVANCE FOR EXPENSES -- Expenses incurred by a director in defending a
proceeding may be paid by the corporation in advance of the final disposition of
such proceeding as authorized by the board of directors in the specific case or
as authorized or required under any provision in the articles of incorporation
or bylaws or by any applicable resolution or contract upon receipt of an
undertaking by or on behalf of the director to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation against such expenses.
55-8-54 COURT-ORDERED INDEMNIFICATION -- Unless a corporation's articles of
incorporation provide otherwise, a director of the corporation who is a party to
a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court after giving any notice the court considers necessary may
order indemnification if it determines:
(1) The director is entitled to mandatory indemnification under G.S.
55-8-52 in which case the court shall also order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
or
(2) The director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in G.S. 55-8-51 or was adjudged liable as described in G.S.
55-8-51(d), but if he was adjudged so liable his indemnification is limited to
reasonable expenses incurred.
55-8-55 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION -- (a) A
corporation may not indemnify a director under G.S. 55-8-51 unless authorized in
the specific case after a determination has been made that indemnification of
the director is permissible in the circumstances because he has met the standard
of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1), by majority vote
of a committee duly designated by the board of directors (in which designation
directors who are parties may participate), consisting solely of two or more
directors not at the time parties to the proceeding;
(3) By special legal counsel (i) selected by the board of directors or its
committee in the manner prescribed in subdivision (1) or (2): or (ii) if a
quorum of the board of directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by majority vote
of the full board of directors (in which selection directors who are parties may
participate); or
(4) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to reasonableness
of expenses
C-9
<PAGE>
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by those entitled under subsection (b)(3) to select counsel.
55-8-56 INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS -- Unless a
corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation is entitled to mandatory indemnification
under G.S. 55-8-52, and is entitled to apply for court-ordered indemnification
under G.S. 55-8-54, in each case to the same extent as a director:
(2) The corporation may indemnify and advance expenses under this Part to
an officer, employee, or agent of the corporation to the same extent as to a
director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
55-8-57 ADDITIONAL INDEMNIFICATION AND INSURANCE -- (a) In addition to and
separate and apart from the indemnification provided for in G.S. 55-8-51,
55-8-52, 55-8-54, 55-8-55 and 55-8-56, a corporation may in its articles of
incorporation or bylaws or by contract or resolution indemnify or agree to
indemnify any one or more of its directors, officers, employees, or agents
against liability and expenses in any proceeding (including without limitation a
proceeding brought by or on behalf of the corporation itself) arising out of
their status as such or their activities in any of the foregoing capacities;
provided, however, that a corporation may not indemnify or agree to indemnify a
person against liability or expenses he may incur on account of his activities
which were at the time taken known or believed by him to be clearly in conflict
with the best interests of the corporation. A corporation may likewise and to
the same extent indemnify or agree to indemnify any person who, at the request
of the corporation, is or was serving as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or as a trustee or administrator under
an employee benefit plan. Any provision in any articles of incorporation,
bylaw, contract, or resolution permitted under this section may include
provisions for recovery from the corporation of reasonable costs, expenses, and
attorneys' fees in connection with the enforcement of rights to indemnification
granted therein and may further include provisions establishing reasonable
procedures for determining and enforcing the rights granted therein.
(b) The authorization, adoption, approval, or favorable recommendation by
the board of directors of a public corporation of any provision in any articles
of incorporation, bylaw, contract or resolution, as permitted in this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such articles of incorporation or bylaw provision
or contract or resolution shall be void or voidable on such grounds. The
authorization, adoption, approval, or favorable recommendation by the board of
directors of a nonpublic corporation of any provision in any articles of
incorporation, bylaw, contract or resolution, as permitted in this section,
which occurred on or prior to July 1, 1990, shall not be deemed an act or
corporate transaction in which a director has a conflict of interest, and no
such articles of incorporation, bylaw provision, contract or resolution shall be
void or voidable on such grounds. Except as permitted in G.S. 55-8-31, no such
bylaw, contract, or resolution not adopted, authorized, approved or ratified by
shareholders shall be effective as to claims made or liabilities asserted
against any director prior to its adoption, authorization, or approval by the
board of directors.
C-10
<PAGE>
(c) A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner , trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have the power to indemnify him against the
same liability under any provision of this Chapter.
55-8-58 APPLICATION OF PART -- (a) If articles of incorporation limit
indemnification or advance for expenses, indemnification and advance for
expenses are valid only to the extent consistent with the articles.
(b) This Part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with his appearance as a witness
in a proceeding at a time when he has not been made a named defendant or
respondent to the proceeding.
(c) This Part shall not affect rights or liabilities arising out of acts
or omissions occurring before July 1, 1990.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Jefferson-Pilot Investor Services is the principal underwriter for the
Registrant.
(b)
Name and Principal Positions and Offices
Business Address* with Underwriter
- ------------------ --------------------
Ronald A. DeCicco Senior Vice President,
Principal and Director
Dennis J. Swanick Treasurer
J. Gregory Poole Secretary
Robert A. Reed Assistant Secretary
Frank G. Mahoney Director
Dennis R. Glass Director
E. Jay Yelton Director
*All of the addresses are 100 North Greene Street, Greensboro, North Carolina
27401.
C-11
<PAGE>
(c)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5)
Name of Net Compensation Brokerage Compensation
Principal Underwriting on Redemption Commissions
Underwriter Discounts and
Commissions
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Jefferson-Pilot $ 0 $ 0 $ 0 $2,594,823
Investor
Services, Inc.
- --------------------------------------------------------------------------------------------------------
</TABLE>
Jefferson-Pilot Investor Services administrators contracts sold by the
Registrant and receives a concession allowance to cover all the expenses
incurred by it relative to sales and administration of these contracts.
The amount shown in column (5) represents this concession allowance.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts and records required by the 1940 Act and the rules
promulgated thereunder are maintained at 100 North Greene Street,
Greensboro, North Carolina 27401.
ITEM 31. MANAGEMENT SERVICES
None
ITEM 32. UNDERTAKINGS
Registrant hereby represents that a no-action letter issued by the Commission
staff to the American Council of Life Insurance, available November 22, 1988, is
being relied upon and the provisions of paragraphs numbered (1) - (4) of that
letter have been complied with.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Jefferson-Pilot Life Insurance Company hereby represents that the fees
and charges deducted under the contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected
to be incurred, and the risks assumed by Jefferson-Pilot Life
Insurance Company.
C-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Jefferson-Pilot Separate Account
A, has duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Greensboro and State of North Carolina on the 30th
day of April, 1997.
JEFFERSON-PILOT SEPARATE ACCOUNT A
(Registrant)
BY: JEFFERSON-PILOT LIFE INSURANCE COMPANY
(Depositor)
By: /s/ David A. Stonecipher
-------------------------------------------------
David A. Stonecipher, President and CEO
ATTEST:
/s/ J. Gregory Poole
- -------------------------
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, the Depositor,
Jefferson-Pilot Life Insurance Company, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Greensboro and State of North Carolina on the 30th day of April, 1997.
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By: /s/ David A. Stonecipher
-------------------------------------------------
David A. Stonecipher, President and CEO
ATTEST:
/s/ J. Gregory Poole
- -------------------------
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities with the Depositor and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David A. Stonecipher
- ------------------------- President and Chief April 30, 1997
David A. Stonecipher Executive Officer
(Principal Executive Officer)
/s/ Dennis R. Glass
- ------------------------- Executive Vice President April 30, 1997
Dennis R. Glass and Chief Financial Officer
(Principal Financial and
Accounting Officer)
SIGNATURES
William E. Blackwell, Director*
Edwin B. Borden, Director*
William H. Cunningham, Director*
C. Randolf Ferguson, Director*
Dennis R. Glass, Director*
Robert G. Greer, Director*
A. Linwood Holton, Jr., Director*
Hugh L. McColl, Jr., Director*
E.S. Melvin, Director*
Kenneth C. Mlekush, Director*
William Porter Payne, Director*
Donald S. Russell, Jr., Director*
Robert H. Spilman, Director*
David A. Stonecipher, Director*
Martha Ann Walls, Director*
E.J. Yelton, Director*
* By his signature set forth below, J. Gregory Poole has signed this
Registration Statement as attorney for the persons noted above, in the
capacities above stated, pursuant to powers of attorney filed with the
Securities and Exchange Commission as Exhibit 14 to this Registration Statement.
Date: April 30th, 1997 /s/ J. Gregory Poole
------------------------------------------
J. Gregory Poole, Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Description of
No. Exhibit
- ------- ---------------
(3) Principal Underwriting and Service Agreement*
(4)(a) Form of Flexible Premium Deferred Annuity ("AlphaFLEX")*
(4)(b) Form of Flexible Premium Deferred Annuity ("Alpha")*
(5) Form of Application of Variable Annuity*
(9) Consent and Opinion of Counsel*
(10)(a) Consent of Independent Certified Public Accountants
(10)(b) Consent of Independent Certified Public Accountants
(14) Powers of Attorney*
(15)(a) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Jefferson-Pilot
Life Insurance Company*
(15)(b) Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Jefferson-Pilot Life Insurance Company*
(15)(c) Form of Participation Agreement Among Alger American Fund,
Alger Management, Inc. and Jefferson-Pilot Life Insurance
Company**
(15)(d) Form of Participation Agreement Among Alexander Hamilton
Variable Insurance Trust, Alexander Hamilton Capital
Management, Inc. and Jefferson-Pilot Life Insurance Company
(15)(e) Form of Participation Agreement Among MFS Variable Insurance
Trust, Massachusetts Financial Services Company and
Jefferson-Pilot Life Insurance Company**
_________________________
* Incorporated by reference to the Form N-4 registration statement of
Jefferson-Pilot Separate Account A filed with the Securities and
Exchange Commission on July 1, 1994 (File No. 33-11084).
** Incorporated by reference to Form N-4 registration statement of
Jefferson-Pilot Separate Account A filed with the Securities sand
Exchange Commission on May 3, 1996 (File No. 33-11084).
<PAGE>
EXHIBIT 10(a)
Consent of Ernst & Young LLP
We consent to the reference to our Firm under the caption "Experts" in the
Prospectus of Jefferson-Pilot Separate Account A, and under the caption
"General Information" in the Statement of Additional Information incorporated
by reference in the Prospectus of Jefferson-Pilot Separate Account A and to
the use of our reports on Jefferson-Pilot Separate Account A, dated April 16,
1997 and Jefferson-Pilot Life Insurance Company dated March 14, 1997, in
Post-Effective Amendment No. 3 under the Securities Act of 1933 (Form N-4
File No. 33-11084) and Post-Effective Amendment No. 13 under the Investment
Company Act of 1940 to the Registration Statement (Form N-4 File No.
811-2188) of Jefferson-Pilot Separate Account A.
Ernst & Young, LLP
/s/ Ernst & Young, LLP
Greensboro, NC
April 29, 1997
<PAGE>
EXHIBIT 10(b)
Consent of McGladry & Pullen, LLP
We consent to the reference to our Firm under the caption "General
Information"in the Statement of Additional Information and under the caption
"Experts" in the Prospectus of Jefferson-Pilot Separate Account A and to the
use of our reports on Jefferson-Pilot Separate Account A, dated February 23,
1996 and Jefferson-Pilot Life Insurance Company dated February 6, 1996,
respectively, in Post-Effective Amendment No. 3 under the Securities Act of
1933 and Post-Effective Amendment No. 13 under the Investment Company Act of
1940 to the Registration Statement (Form N-4) of Jefferson -Pilot Separate
Account A.
McGladry & Pullen, LLP
/s/ McGladry & Pullen, LLP
Greensboro, NC
April 29, 1997
<PAGE>
PARTICIPATION AGREEMENT
Among
ALEXANDER HAMILTON VARIABLE INSURANCE TRUST,
ALEXANDER HAMILTON CAPITAL MANAGEMENT, INC.
and
JEFFERSON-PILOT LIFE INSURANCE COMPANY
This Agreement, made and entered into effective May 1, 1996 by and among
JEFFERSON-PILOT LIFE INSURANCE COMPANY (hereinafter "Insurance Company"), a
North Carolina life insurance company, on its own behalf and on behalf of
Jefferson-Pilot Separate Account A (the "Account"), and the Alexander Hamilton
Variable Insurance Trust (hereinafter the "Fund"), a Business Trust organized
under the laws of the Commonwealth of Massachusetts and Alexander Hamilton
Capital Management, Inc. (hereinafter the "Adviser"), a Michigan corporation.
Whereas, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements similar to this
Agreement (hereinafter "Participating Insurance Companies"); and
Whereas, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
<PAGE>
Whereas, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
Whereas, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940, as amended, and is the Fund's
investment adviser; and
Whereas, Insurance Company has registered or will register certain variable
annuity contracts supported wholly or partially by the Account (the "Contracts")
under the 1933 Act and said Contracts are listed in Schedule A hereto, as it may
be amended from time to time by mutual written agreement; and
Whereas, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of Insurance
Company on May 13, 1969 to set aside and invest assets attributable to the
aforesaid variable annuity contracts; and
Whereas, Insurance Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
Whereas, to the extent permitted by applicable insurance laws and
regulations, Insurance Company intends to purchase shares in the Portfolios
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios") on behalf of the Account to
fund the aforesaid Contracts;
Now, therefore , in consideration of their mutual promises, Insurance
Company, the Fund and the Adviser agree as follows:
ARTICLE I. SALE OF FUND SHARES
-2-
<PAGE>
1.1. The Fund agrees to sell to Insurance Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, Insurance Company shall be the designee of the Fund for receipt of
such orders and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. eastern
standard time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2. The Fund agrees to make shares of the Designated Portfolios
available indefinitely for purchase at the applicable net asset value per share
by Insurance Company and the Account on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission,
and the Fund shall calculate such net asset value on each day which the New York
Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees or Directors of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolios to the
general public or to any other insurance company or separate account unless
agreed to by Insurance Company.
-3-
<PAGE>
1.4. The Fund agrees to redeem for cash, on Insurance Company's
request, any full or fractional shares of the Fund held by Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.4, Insurance Company shall be the designee of the
Fund for receipt of requests for redemption and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption by 10:00 a.m. on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
1.6. Insurance Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire and/or by a credit for any shares redeemed the same day as the purchase.
For purposes of Section 2.7 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of Insurance
Company and shall become the responsibility of the Fund.
1.7. The Fund shall pay and transmit the proceeds of redemptions of
Fund shares on the next Business Day after a redemption order is received in
accordance with Section 1.4 hereof. Payment shall be in federal funds
transmitted by wire and/or a credit for any shares purchased the same day as the
redemption.
-4-
<PAGE>
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Insurance Company or the
Account. Shares ordered from the Fund will be recorded in an appropriate title
for the Account or the appropriate subaccount of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to Insurance Company of any income, dividends
or capital gain distributions payable on the Designated Portfolios' shares.
Insurance Company hereby elects to receive all such income dividends and capital
gain distributions as are payable on the Portfolio shares in additional shares
of that Portfolio. Insurance Company reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify Insurance Company of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6 p.m.
eastern standard time. If the Fund provides incorrect share net asset value
information, Insurance Company shall be entitled to an adjustment to the number
of shares purchased or redeemed to reflect the correct net asset value per
share. Any error in the calculation or reporting of net asset value per share,
dividend or capital gains information greater than or equal to $.01 per share
shall be reported immediately upon discovery to Insurance Company. Any error of
a lesser amount shall be corrected in the next Business Day's net asset value
per share.
-5-
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. Insurance Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. Insurance Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under the insurance laws of the State of North Carolina and has
registered or, prior to any issuance or sale of the Contracts, will register the
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Portfolio shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The Commonwealth
of Massachusetts and all applicable federal and state securities laws including
without limitation the 1933 Act, the Securities Exchange Act of 1934 as amended
(hereinafter the "1934 Act"), and the 1940 Act and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states if and to the extent required by applicable law.
-6-
<PAGE>
2.3. The Fund undertakes to have a Board, a majority of whom are not
interested person of the Fund, formulate and approve any plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund represents and warrants that the investment policies,
fees and expenses of the Designated Portfolios are and shall at all times remain
in compliance with the insurance and other applicable laws of the State of North
Carolina and any other applicable state to the extent required to perform this
Agreement.
2.5. The Fund represents and warrants that it is lawfully organized
and validly existing under the laws of the Commonwealth of Massachusetts and
that it does and will comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Michigan and any applicable state and
federal securities laws.
2.7. The Fund represents and warrants that all of its directors,
officers, employees, and other individuals dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Section
17g-(1) of the 1940 Act or related provisions as may be promulgated from time to
time. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
-7-
<PAGE>
2.8. The Fund will provide Insurance Company with as much notice as is
reasonably practicable of any material change affecting the Fund (including, but
not limited to, any proxy solicitation and any material change in its
registration statement or prospectus) and consult with Insurance Company in
order to implement any such change in an orderly manner, recognizing the
expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectuses for the
Contracts. The Fund agrees to share equitably in expenses incurred by Insurance
Company as a result of actions taken by the Fund.
ARTICLE III. PROSPECTUSES AND SAIS; VOTING
3.1. For use in connection with marketing of the Contracts, the
Adviser (at its expense) at least annually, shall provide Insurance Company with
as many copies of the Fund's then current prospectus and Statement of Additional
Information ("SAI") for the Designated Portfolios as Insurance Company may
reasonably request. If requested by Insurance Company in lieu thereof, the
Adviser or Fund shall provide such documentation (including "camera-ready" copy
or a final copy of the Fund's prospectus for the Designated Portfolios set in
type at the Fund's expense) and such other assistance as is reasonably necessary
in order for Insurance Company once each year (or more frequently if the Fund's
prospectus is amended more frequently) to have the prospectuses for the
Contracts and the Designated Portfolios printed together in one document (the
cost of such printing to be born by the Adviser and Insurance company in
proportion to the size of the prospectuses for the Contracts and Designated
Portfolios).
-8-
<PAGE>
3.2. For use by Insurance Company in complying with regulatory
requirements regarding communications to existing Contract owners, the Fund (at
its expense), shall provide Insurance Company with copies of its Prospectus,
SAI, proxy materials, reports to stockholders and other communications to
stockholders for the Designated Portfolios in such quantities as Insurance
Company shall reasonably require for distributing to Contract owners (including
annual delivery of the prospectus for the Designated Portfolios to existing
contract owners). If the Contract and Fund prospectuses are printed together in
one document, the cost of such printing shall be borne by the Insurance Company
and fund in proportion to the size of the prospectuses for the Contract and the
Designated Portfolios.
3.3. It is understood and agreed that Insurance Company is not
responsible for the content of the prospectus or SAI for the Designated
Portfolios. It is also understood and agreed that, except with respect to
information regarding the Fund, Adviser or the Designated Portfolios, neither
the Fund nor Adviser are responsible for the content of the prospectus or SAI
for the Contracts.
3.4. If and to the extent required by law Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners: and
(iii) vote Fund shares for which no instruction have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received, so
long as and to the extent that the Securities and
Exchange Commission continues to interpret the 1940 Act
to require pass-
-9-
<PAGE>
through voting privileges for variable contract owners.
Insurance Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to
the extent permitted by law.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 Insurance Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other promotional
material that Insurance Company develops or uses and in which the Fund (or a
Portfolio thereof) or Adviser is named, at least fifteen (15) Business Days
prior to its use. No such material shall be used if the Fund or its designee
object to such use within seven (7) Business Days after receipt of such
material.
4.2. Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Adviser, except with the permission of the Fund
or the Adviser or the designee of either.
4.3. The Fund or Adviser shall furnish, or shall cause to be
furnished, to Insurance Company, each piece of sales literature or other
promotional material in which Insurance Company and/or its separate account(s),
is named at least fifteen (15) Business Days prior to its use. No such material
shall be used if Insurance Company objects to such use within seven (7) Business
Days after receipt of such material.
-10-
<PAGE>
4.4. The Fund and the Adviser shall not give any information or make
any representations on behalf of Insurance Company or concerning Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports for the Account, or in sales
literature or other promotional material approved by Insurance Company or its
designee, except with the permission of Insurance Company.
4.5. The Fund will provide to Insurance Company at least one complete
copy of all registration statements, prospectuses, SAI, reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Designated Portfolios, contemporaneously with the
filing of such document(s) with the Securities and Exchange Commission or other
regulatory authorities.
4.6. Insurance Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, SAI reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the Securities and
Exchange Commission.
4.7. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape
-11-
<PAGE>
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (I.E., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, Statements of Additional Information, shareholder
reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and the Adviser shall pay no fee or other compensation
to Insurance Company under this Agreement, and Insurance Company shall pay no
fee or other compensation to the Fund or Adviser under this Agreement, although
the parties hereto will bear certain expenses in accordance with Articles III,
V, and other provisions of this Agreement.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, printing
prospectuses for distribution to Contract owners, setting in type and printing
the proxy materials and reports to shareholders (including the costs of printing
a prospectus that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Fund's shares.
-12-
<PAGE>
5.3. Insurance Company shall bear the expenses of routine annual
distribution of the Fund's prospectus to owners of Contracts issued by Insurance
Company and of distributing the Fund's proxy materials and reports to such
Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1. The Fund and Adviser represent and warrant that the Fund will at
all times sell its shares and invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity contracts under the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations issued
thereunder (and any successor provisions). Without limiting the scope of the
foregoing, the Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio thereof will at all times comply with Section 817(h) of the
Code and Treasury Regulation Section 1.817-5, as amended from time to time, and
any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications or successor provisions to such Section or
Regulations. The Fund and the Adviser agree that shares of the Designated
Portfolios will be sold only to Participating Insurance Companies and their
separate accounts. No shares of any Designated Portfolio will be sold to the
general public.
6.2. The Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will maintain such qualification
(under Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
6.3. The Fund or Adviser will notify Insurance Company immediately
upon having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the
-13-
<PAGE>
aforesaid Section 817(h) diversification or Subchapter M qualification
requirements or might not so comply in the future.
6.4. The Fund and Adviser acknowledge that full compliance with the
requirements referred to in Sections 6.1 and 6.2 hereof is absolutely essential
because any failure to meet those requirements would result in the Contracts not
being treated as annuity contracts for federal income tax purposes, which would
have adverse tax consequences for Contract owners and could also adversely
affect Insurance Company's corporate tax liability. The Fund and Adviser also
acknowledge that it is solely within their power and control to meet those
requirements. Accordingly, without in any way limiting the effect of Section
7.2 hereof and without in any way limiting or restricting any other remedies
available to Insurance Company, the Adviser will pay all costs associated with
or arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Designated Portfolio to comply with Sections 6.1 or
6.2 hereof, including all costs associated with correcting or responding to any
such failure; such costs may include, but are not limited to, the costs involved
in creating, organizing, and registering a new investment company as a funding
medium for the Contracts and/or the costs of obtaining whatever regulatory
authorizations are required to substitute shares of another investment company
for those of the failed Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to include, but are
not limited to, fees and expenses of legal counsel and other advisors to
Insurance Company and any federal income taxes or tax penalties (or "toll
charges" or enactments or amounts paid in settlement) incurred by Insurance
Company in connection with any such failure or anticipated or reasonably
foreseeable failure.
-14-
<PAGE>
ARTICLE VII. INDEMNIFICATION
7.1. INDEMNIFICATION BY INSURANCE COMPANY
7.1(a) Insurance Company agrees to indemnify and hold harmless
the Fund and its officers and each member of its Board (collectively, the
"Indemnified Parties" for purposes of this Section 7.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Insurance Company) or litigation expenses (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or
contained in the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
Insurance Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by Insurance Company or persons under its
control) or wrongful conduct of Insurance Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the
-15-
<PAGE>
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the
Fund by or on behalf of Insurance Company; or
(iv) arise as a result of any material failure by Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Insurance Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by Insurance Company,
as limited by and in accordance with the provisions of Sections 7.1(b) and
7.1(c) hereof.
7.1(b) Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of its obligations or duties.
7.1.(c) Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Insurance Company
of any such claim shall not relieve Insurance Company from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Insurance Company shall be
entitled to participate, at its own expense, in the defense of such
-16-
<PAGE>
action. Insurance Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
Insurance Company to such party of Insurance Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Insurance Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.1(d) The Indemnified Parties will promptly notify Insurance
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
7.2. INDEMNIFICATION BY THE FUND
7.2(a) The Fund agrees to indemnify and hold harmless
Insurance Company and each of its directors and officers and each person, if
any, who controls Insurance Company within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 7.2)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
expenses (including legal and other expenses) to which the Indemnified Parties
may be required to pay or may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
-17-
<PAGE>
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund.
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
Insurance Company, the Fund, the Adviser or the Account, whichever is
applicable.
7.2(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than reasonable
costs of investigation.
7.2(d) Insurance Company agrees promptly to notify the Fund of
the commencement of any litigation or proceeding against it or any of its
respective officers
-18-
<PAGE>
or directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of the Account, or the sale or acquisition of shares of
the Fund.
ARTICLE VIII. APPLICABLE LAW
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Michigan.
8.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE IX. TERMINATION
9.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, with or without cause, with
respect to some or all Portfolios, by six (6) months'
advance written notice delivered to the other parties;
or
(b) termination by Insurance Company by written notice to
the other parties with respect to any Portfolio based
upon Insurance Company's determination that shares of
such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by Insurance Company by written notice to
the other parties with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and
or federal law or such law precludes the use of such
shares as the underlying
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<PAGE>
investment media of the Contracts issued or to be issued
by Insurance Company; or
(d) termination by the Fund in the event that formal
administrative proceedings are instituted against
Insurance Company by the National Association of
Securities Dealers, Inc. ("NASD"), the Securities and
Exchange Commission, the Insurance Commissioner or like
official of any state or any other regulatory body
regarding Insurance Company's duties under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the purchase of the Fund shares,
provided, however, that the Fund determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of Insurance Company to perform
its obligations under this Agreement; or
(e) termination by Insurance Company in the event that formal
administrative proceedings are instituted against the
Fund or Adviser by the NASD, the Securities and Exchange
Commission, or any state securities or insurance
department or any other regulatory body, provided,
however, that Insurance Company determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Adviser to perform
its obligations under this Agreement; or
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<PAGE>
(f) termination by Insurance Company by written notice to the
Fund and the Adviser with respect to any Portfolio in the
event that such Portfolio fails to meet the Section
817(h) diversification requirements or Subchapter M
qualifications specified in Article VI hereof or if
Insurance Company reasonably believes that the Portfolio
may fail to meet either of those requirements; or
(g) termination by either the Fund or the Adviser by written
notice to Insurance Company, if either one or both of the
Fund or the Adviser respectively, shall determine, in
their sole judgment exercised in good faith, that
Insurance Company has suffered a material adverse change
in its business operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by Insurance Company by written notice to the
Fund and the Adviser, if Insurance Company shall
determine, in its sole judgment exercised in good faith,
that the Fund or the Adviser has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement
or is the subject of material adverse publicity.
9.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Adviser shall, at the option of Insurance Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to
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<PAGE>
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts.
9.3. SURVIVING PROVISIONS. Notwithstanding any termination of this
Agreement, each party's obligation under Article VIII to indemnify other parties
shall survive and not be affected by any termination of this Agreement. In
addition, with respect to Existing Contracts, the provisions of Article I,
Article II, Sections 3.2, 3.3, 3.4, 5.4, 5.5, 5.6, Article VI and Sections 11.1
and 11.5 shall also survive and not be affected by any termination of this
Agreement.
ARTICLE X. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
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<PAGE>
If to the Fund:
Alexander Hamilton Variable Insurance Trust
100 North Greene St.
Greensboro, NC 27401
Attention: E. J. Yelton
If to Insurance Company:
Jefferson-Pilot Life Insurance Company
100 North Greene St.
Greensboro, NC 27401
Attention: Ronald DeCicco
If to the Adviser:
Alexander Hamilton Capital Management, Inc.
100 North Greene St.
Greensboro, NC 27401
Attention: W. Hardee Mills
ARTICLE XI. MISCELLANEOUS
11.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party reasonably considers to be proprietary.
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<PAGE>
11.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the North Carolina
Insurance Commissioner with any information or reports in connection with
services provided under this Agreement which such Commissioner may request in
order to ascertain whether the variable annuity operations of Insurance Company
are being conducted in a manner consistent with the North Carolina General
Statutes and Regulations and any other applicable law or regulations.
11.6. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
11.7. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
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<PAGE>
in Witness Whereof, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
Insurance Company:
JEFFERSON-PILOT LIFE INSURANCE COMPANY
SEAL By: /s/E. Jay Yelton
------------------------------------------
Title: Executive Vice President - Investments
------------------------------------------
Date: MAY 6, 1996
------------------------------------------
Fund:
ALEXANDER HAMILTON VARIABLE
INSURANCE TRUST
SEAL By: /s/E. Jay Yelton
------------------------------------------
Title: Director, President
------------------------------------------
Date: MAY 6, 1996
------------------------------------------
Adviser:
ALEXANDER HAMILTON CAPITAL
MANAGEMENT, INC.
SEAL By: /s/E. Jay Yelton
------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
Date: MAY 6, 1996
------------------------------------------
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<PAGE>
SCHEDULE A
CONTRACTS
Alpha
AlphaFLEX
-26-
<PAGE>
SCHEDULE B
DESIGNATED PORTFOLIOS
Growth
Emerging Growth
-27-
<PAGE>
EXHIBIT 16
ALPHA VARIABLE ANNUITY
SCHEDULE OF COMPUTATION OF PERFORMANCE
The following examples are calculated in accordance with the methods described
in the Prospectus and Statement of Additional Information:
1. NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
The formula for calculating non-standard average annual total return is as
follows:
n
/ ERV \
| --- | -1
\ P /
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial investment of $1,000
n = 1/number of years
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
1
1996 /$1,167.45\
|---------| -1 = 16.75%
\ 1,000 /
12/1/94 - 12/31/96
.48
/ $1,568 \
|---------| -1 = 24.13%
\ 1,000 /
OPPENHEIMER BOND
1
1996 /$1,019.94\
|---------| -1 = 1.99%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,210.57\
|---------| -1 = 9.61%
\ 1,000 /
VIPF MONEY MARKET PORTFOLIO
1
1996 /$1,039.40\
|---------| -1 = 3.94%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,088.86\
|---------| -1 = 4.17%
\ 1,000 /
<PAGE>
VIPF HIGH INCOME PORTFOLIO
1
1996 /$1,124.35\
|---------| -1 = 12.43%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,345.74\
|---------| -1 = 15.32%
\ 1,000 /
VIPF EQUITY INCOME PORTFOLIO
1
1996 /$1,126.82\
|---------| -1 = 12.68%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,517.19\
|---------| -1 = 22.15%
\ 1,000 /
VIPF GROWTH PORTFOLIO
1
1996 /$1,130.94\
|---------| -1 = 13.09%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,569.52\
|---------| -1 = 24.16%
\ 1,000 /
VIPF OVERSEAS PORTFOLIO
1
1996 /$1,116.31\
|---------| -1 = 11.63%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,204.48\
|---------| -1 = 9.34%
\ 1,000 /
VIPF-II ASSET MANAGER
1
1996 /$1,129.99\
|---------| -1 = 13.00%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,277.73\
|---------| -1 = 12.48%
\ 1,000 /
<PAGE>
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96 1.5
/$1,136.72\
|---------| -1 = 21.19%
\ 1,000 /
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96 1.5
/$1,114.52\
|---------| -1 = 17.66%
\ 1,000 /
AHVIT GROWTH FUND
5/1/96 - 12/31/96 1.5
/$1,041.57\
|---------| -1 = 6.30%
\ 1,000 /
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96 1.5
/$ 957.96\
|---------| -1 = -6.24%
\ 1,000 /
MFS RESEARCH SERIES
5/1/96 - 12/31/96 1.5
/$1,097.08\
|---------| -1 = 14.91%
\ 1,000 /
MFS UTILITIES SERIES
5/1/96 - 12/31/96 1.5
/$1,160.24\
|---------| -1 = 24.97%
\ 1,000 /
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96 1.5
/$ 919.01\
|---------| -1 = -11.90%
\ 1,000 /
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96 1.5
/$ 980.89\
|---------| -1 = -2.85%
\ 1,000 /
<PAGE>
2. NON-STANDARD CUMULATIVE TOTAL RETURNS FOR THE PERIODS ENDED 12/31/96:
THE FORMULA FOR CALCULATING THE NON-STANDARD CUMULATIVE TOTAL RETURN IS AS
FOLLOWS:
ERV-P
-----
P
WHERE:
ERV = ENDING REDEEMABLE VALUE OF A HYPOTHETICAL $1,000 PAYMENT MADE AT THE
BEGINNING OF THE PERIOD
P = HYPOTHETICAL INITIAL INVESTMENT OF $1,000
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
12/1/94 - 12/31/96
$1568.74 - 1,000 = 56.87%
-----------------
1,000
OPPENHEIMER BOND
12/1/94 - 12/31/96
$1,210.57 - 1,000 = 21.06%
------------------
1,000
VIPF MONEY MARKET PORTFOLIO
12/1/94 - 12/31/96
$1,088.86 - 1,000 = 8.89%
------------------
1,000
VIPF HIGH INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,345 - 1,000 = 34.67%
-------------
1,000
VIPF EQUITY-INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,517.19 - 1,000 = 51.72%
----------------
1,000
VIPF GROWTH PORTFOLIO
12/1/94 - 12/31/96
$1,569.52 - 1,000 = 56.95%
----------------
1,000
VIPF OVERSEAS PORTFOLIO
12/1/94 - 12/31/96
$1,204.48 - 1,000 = 20.45%
-----------------
1,000
VIPF-II ASSET MANAGER
12/1/94 - 12/31/96
$1,277.73 - 1,000 = 27.77%
----------------
1,000
<PAGE>
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
$1,136.72 - 1,000 = 13.67%
----------------
1,000
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
$1,114.52 - 1,000 = 11.45%
----------------
1,000
AHVIT GROWTH FUND
5/1/96 - 12/31/96
$1041.57 - 1,000 = 4.16%
---------------
1,000
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
$957.96 - 1,000 = -4.20%
--------------
1,000
MFS RESEARCH SERIES
5/1/96 - 12/31/96
$1097.08 - 1,000 = 9.71%
---------------
1,000
MFS UTILITIES SERIES
5/1/96 - 12/31/96
$1,160.24 - 1,000 = 16.02%
----------------
1,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
$919.01 - 1,000 = -8.10%
--------------
1,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
$980.89 - 1,000 = -1.91%
--------------
1,000
3. STANDARD AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
THE FORMULA FOR CALCULATING STANDARD AVERAGE ANNUAL TOTAL RETURN IS AS FOLLOWS:
n
/ERV\ -1
|---|
\ P /
WHERE:
ERV = ENDING REDEEMABLE VALUE OF A HYPOTHETICAL $1,000 PAYMENT MADE AT THE
BEGINNING OF THE PERIOD ASSUMING THE DEFERRED SALES LOAD WOULD HAVE BEEN 5.9%,
FOR THE TIME PERIODS STARTING 12/1/94. FOR THOSE TIME PERIODS OF 2 YEARS OR
LESS, THE DEFERRED SALES LOAD WOULD BE 6%. THE $35 ANNUAL ADMINISTRATIVE FEE IS
ALSO DEDUCTED FROM ALL EXAMPLES SHOWN.
P = HYPOTHETICAL INITIAL INVESTMENT OF $1,000
n = 1/NUMBER OF YEARS
<PAGE>
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
1996 1
/$1,064.51\
|---------| -1 = 6.45%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,404.38\
|---------| -1 = 17.70%
\ 1,000 /
OPPENHEIMER BOND
1
/ $925 \
1996 |---------| -1 = -7.42%
\ 1,000 /
12/1/94 - 12/31/96 .48
/$1,072.59\
|---------| -1 = 3.42%
\ 1,000 /
VIPF MONEY MARKET PORTFOLIO
1996
1
/ $944.14 \
|---------| -1 = -5.59%
\ 1,000 /
12/1/94 - 12/31/96
.48
/ $957.24 \
|---------| -1 = -2.08%
\ 1,000 /
VIFP HIGH INCOME PORTFOLIO
1996
1
/$1,023.99\
|---------| -1 = 2.40%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,195.64\
|---------| -1 = 8.96%
\ 1,000 /
VIPF EQUITY-INCOME PORTFOLIO
1996
1
/$1,026.31\
|---------| -1 = 2.63%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,357.32\
|---------| -1 = 15.79%
\ 1,000 /
<PAGE>
VIPF GROWTH PORTFOLIO
1
1996 /$1,030.19\
|---------| -1 = 3.02%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,408.76\
|---------| -1 = 17.88%
\ 1,000 /
VIPF OVERSEAS PORTFOLIO
1
1996 /$1,016.43\
|---------| -1 = 1.64%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,062.42\
|---------| -1 = 2.95%
\ 1,000 /
VIPF-II ASSET MANAGER
1
1996 /$1,029.29\
|---------| -1 =2.93%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,132.02\
|---------| -1 = 6.13%
\ 1,000 /
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
1.5
/$1,035.61\
|---------| -1 = 5.39%
\ 1,000 /
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
1.5
/$1,014.75\
|---------| -1 = 2.22%
\ 1,000 /
AHVIT GROWTH FUND
5/1/96 - 12/31/96
1.5
/ $946.18 \
|---------| -1 = -7.96%
\ 1,000 /
<PAGE>
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
1.5
/ $867.58 \
1996 |---------| -1 = -19.19%
\ 1,000 /
MFS RESEARCH SERIES
5/1/96 - 12/31/96
1.5
/ $998.36 \
|---------| -1 = -0.25%
\ 1,000 /
MFS UTILITIES SERIES
5/1/96 - 12/31/96
1.5
/$1,057.73\
|---------| -1 = 8.78%
\ 1,000 /
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $830.97 \
|---------| -1 = -24.25%
\ 1,000 /
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $889.14 \
|---------| -1 = -16.16%
\ 1,000 /
4. STANDARD CUMULATIVE TOTAL RETURNS FOR THE PERIODS ENDED 12/31/96:
The formula for calculating the standard cumulative total return is as follows:
ERV-P
------
P
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period assuming the deferred sales load would have been 5.9%,
for the time periods starting 12/1/94. For those time periods of 2 years or
less, the deferred sales load would be 6%. The $35 Annual Administrative Fee is
also deducted from all examples shown.
P = hypothetical initial investment of $1,000
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
12/1/94 - 12/31/96
$1,404.38 - 1,000
----------------- = 40.44%
1,000
<PAGE>
OPPENHEIMER BOND
12/1/94 - 12/31/96
$1,072.59 - 1,000
------------------ = 7.26%
1,000
VIPF MONEY MARKET PORTFOLIO
12/1/94 - 12/31/96
$957.24 - 1,000
----------------- = -4.28%
1,000
VIPF HIGH INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,195.64 - 1,000
----------------- = 19.56%
1,000
VIPF EQUITY-INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,357.32 - 1,000
----------------- = 35.73%
1,000
VIPF GROWTH PORTFOLIO
12/1/94 - 12/31/96
$1,408.76 - 1,000
----------------- = 40.88%
1,000
VIPF OVERSEAS PORTFOLIO
12/1/94 - 12/31/96
$1,062.42 - 1,000
----------------- = 6.24%
1,000
VIPF-II ASSET MANAGER
12/1/94 - 12/31/96
$1,132.02 - 1,000
----------------- = 13.20%
1,000
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
$1,035.61 - 1,000
----------------- = 3.56%
1,000
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
$1,014.79 - 1,000
----------------- = 1.48%
1,000
AHVIT GROWTH FUND
5/1/96 - 12/31/96
$946.18 - 1,000
----------------- = -5.38%
1,000
<PAGE>
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
$867.58 - 1,000
----------------- = -13.24%
1,000
MFS RESEARCH SERIES
5/1/96 - 12/31/96
$998.36 - 1,000
----------------- = -0.16%
1,000
MFS UTILITIES SERIES
5/1/96 - 12/31/96
$1,057.73 - 1,000
----------------- = 5.77%
1,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
$830.97 - 1,000
----------------- = -16.90%
1,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
$ 889.14 - 1,000
----------------- = -11.09%
1,000
<PAGE>
ALPHA FLEX VARIABLE ANNUITY
SCHEDULE OF COMPUTATION OF PERFORMANCE
The following examples are calculated in accordance with methods described in
the Prospectus and Statement of Additional Information.
1. NON-STANDARD AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
The formula for calculating non-standard average annual total return is as
follows:
n
/ ERV \
|--------| -1
\ P /
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial investment of $1,000
n = 1/number of years
EXAMPLES OF AUV:
OPPENHEIMER GROWTH
1
1996 /$1,167.45\
|---------| -1 = 16.75%
\ 1,000 /
12/1/94 - 12/31/96
.48
/ $1,508 \
|---------| -1 = 24.13%
\ 1,000 /
OPPENHEIMER BOND
1
1996 /$1,019.94\
|---------| -1 = 1.99%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,210.57\
|---------| -1 = 9.61%
\ 1,000 /
VIPF MONEY MARKET PORTFOLIO
1
1996 /$1,039.40\
|---------| -1 = 3.94%
\ 1,000 /
12/1/94 - 12/31/96
.48
/ 1,088.86\
|---------| -1 = 4.17%
\ 1,000 /
<PAGE>
VIPF HIGH INCOME PORTFOLIO
1
1996 /$1,124.35\
|---------| -1 = 12.43%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,345.74\
|---------| -1 = 15.32%
\ 1,000 /
VIPF EQUITY-INCOME PORTFOLIO
1
1996 /$1,126.82\
|---------| -1 = 12.68%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,517.19\
|---------| -1 = 22.15%
\ 1,000 /
VIPF GROWTH PORTFOLIO
1
1996 /$1,130.94\
|---------| -1 = 13.09%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,569.52\
|---------| -1 = 24.16%
\ 1,000 /
VIPF OVERSEAS PORTFOLIO
1
1996 /$1,116.31\
|---------| -1 = 11.63%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,204.48\
|---------| -1 = 9.34%
\ 1,000 /
VIPF-II ASSET MANAGER
1
1996 /$1,129.99\
|---------| -1 = 13.00%
\ 1,000 /
<PAGE>
12/1/94 - 12/31/96
.48
/$1,277.13\
|---------| -1 = 12.48%
\ 1,000 /
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
1.5
/$1,136.72\
|---------| -1 = 21.19%
\ 1,000 /
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
1.5
/$1,114.52\
|---------| -1 = 17.66%
\ 1,000 /
AHVIT GROWTH FUND
5/1/96 - 12/31/96
1.5
/$1,041.57\
|---------| -1 = 6.30%
\ 1,000 /
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
1.5
/ $957.96 \
|---------| -1 = -6.24%
\ 1,000 /
MFS RESEARCH SERIES
5/1/96 - 12/31/96
1.5
/$1,097.08\
|---------| -1 = 14.91%
\ 1,000 /
MFS UTILITIES SERIES
5/1/96 - 12/31/96
1.5
/$1,160.24\
|---------| -1 = 24.97%
\ 1,000 /
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $919.01 \
|---------| -1 = -11.90%
\ 1,000 /
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $980.89 \
|---------| -1 = -2.85
\ 1,000 /
<PAGE>
NON-STANDARD CUMULATIVE TOTAL RETURNS FOR THE PERIODS ENDED 12/31/96:
The formula for calculating the non-standard cumulative total return is as
follows:
ERV - P
-------
P
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial investment of $1,000
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
12/1/94 - 12/31/96
$1,568.74 - 1,000
----------------- = 56.87%
1,000
OPPENHEIMER BOND
12/1/94 - 12/31/96
$1,210.57 - 1,000
----------------- = 21.06%
1,000
VIPF MONEY MARKET PORTFOLIO
12/1/94 - 12/31/96
$1,088.86 - 1,000
----------------- = 8.89%
1,000
VIPF HIGH INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,345 - 1,000
----------------- = 34.57%
1,000
VIPF EQUITY-INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,517.19 - 1,000
----------------- = 51.72%
1,000
VIPF GROWTH PORTFOLIO
12/1/94 - 12/31/96
$1,569.52 - 1,000
----------------- = 56.95%
1,000
VIPF OVERSEAS PORTFOLIO
12/1/94 - 12/31/96
$1,204.48 - 1,000
----------------- = 20.45%
1,000
VIPF-II ASSET MANAGER
12/1/94 - 12/31/96
$1,277.73 - 1,000
----------------- = 27.77%
1,000
<PAGE>
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
$1,136.72 - 1,000
----------------- = 13.67%
1,000
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
1,114.52 - 1,000
----------------- = 11.45%
1,000
AHVIT GROWTH FUND
5/1/96 - 12/31/96
$1,041.57 - 1,000
----------------- = 4.16%
1,000
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
$957.96 - 1,000
----------------- = -4.20%
1,000
MFS RESEARCH SERIES
5/1/96 - 12/31/96
$1,097.08 - 1,000
----------------- = 9.71%
1,000
MFS UTILITIES SERIES
5/1/96 - 12/31/96
$1,160.24 - 1,000
----------------- = 16.02%
1,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
$919.01 - 1,000
----------------- = -8.10%
1,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
$980.89 - 1,000
----------------- = -1.91%
1,000
<PAGE>
3. STANDARD AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/96
The formula for calculating Standard average annual total return is as follows:
n
/ ERV \
|---------| - 1
\ P /
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period assuming the deferred sales load would have been 6.9%,
for time periods starting 12/1/94. For those time periods of 1 year or less,
the deferred sales load would be 8%. The $35 Annual Administrative Fee is also
deducted from all examples shown.
P = hypothetical initial investment of $1,000
n = 1/number of years
EXAMPLES AT AUV:
<PAGE>
OPPENHEIMER GROWTH
1
1996 /$1,041.86\
|---------| -1 = 4.19%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,389.46\
|---------| -1 = 17.10%
\ 1,000 /
OPPENHEIMER BOND
1
1996 / $906.15 \
|---------| -1 = -9.39%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,061.19\
|---------| -1 = 2.89%
\ 1,000 /
VIPF MONEY MARKET PORTFOLIO
1
1996 / $924.05 \
|---------| -1 = -7.60%
\ 1,000 /
12/1/94 - 12/31/96
.48
/ 947.06 \
|---------| -1 = -2.58%
\ 1,000 /
VIPF HIGH INCOME PORTFOLIO
1
1996 /$1,002.20\
|---------| -1 = 0.22%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,182.94\
|---------| -1 = 8.40%
\ 1,000 /
VIPF EQUITY-INCOME PORTFOLIO
1
1996 /$1,004.48\
|---------| -1 = 0.45%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,342.89\
|---------| -1 = 15.20%
\ 1,000 /
VIPF GROWTH PORTFOLIO
1
1996 /$1,008.27\
|---------| -1 = 0.83%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,393.79\
|---------| -1 = 17.28%
\ 1,000 /
<PAGE>
VIPF OVERSEAS PORTFOLIO
1
1996 / $994.8 \
|---------| -1 = -0.52%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,051.13\
|---------| -1 = 2.42%
\ 1,000 /
VIPF-II ASSET MANAGER
1
1996 /$1,007.39\
|---------| -1 = 0.74%
\ 1,000 /
12/1/94 - 12/31/96
.48
/$1,119.99\
|---------| -1 = 5.59%
\ 1,000 /
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
1.5
/$1,013.58\
|---------| -1 = 2.04%
\ 1,000 /
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $993.16 \
|---------| -1 = -1.02%
\ 1,000 /
AHVIT GROWTH FUND
5/1/96 - 12/31/96
1.5
/ $926.04 \
|---------| -1 = -10.89%
\ 1,000 /
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
1.5
/ $849.12 \
|---------| -1 = -21.76%
\ 1,000 /
<PAGE>
MFS RESEARCH SERIES
5/1/96 - 12/31/96
1.5
/ $977.12 \
|---------| -1 = -3.41%
\ 1,000 /
MFS UTILITIES SERIES
5/1/96 - 12/31/96
1.5
/$1,035.22\
|---------| -1 = 5.33%
\ 1,000 /
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $813.29 \
|---------| -1 = -26.66%
\ 1,000 /
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
1.5
/ $870.22 \
|---------| -1 = -18.82%
\ 1,000 /
4. STANDARD CUMULATIVE TOTAL RETURNS FOR THE PERIODS ENDED 12/31/96:
The formula for calculating the standard cumulative total return is as follows:
ERV - P
-------
P
WHERE:
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period assuming the deferred sales load would have been 5.9%,
for time periods starting 12/1/94. For those time periods of 1 year or less,
the deferred sales load would be 8%. The $35 Annual Administrative Fee is also
deducted from all examples shown.
P = hypothetical initial investment of $1,000
EXAMPLES AT AUV:
OPPENHEIMER GROWTH
12/1/84 - 12/31/96
$1,389.46 - 1000
----------------- = 38.95%
1,000
<PAGE>
OPPENHEIMER BOND
12/1/94 - 12/31/96
$1,061.19 - 1,000
----------------- = 6.12%
1,000
VIPF MONEY MARKET PORTFOLIO
12/1/94 - 12/31/96
$947.06 - 1,000
----------------- = -5.29%
1,000
VIPF HIGH INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,182.94 - 1,000
----------------- = 18.29%
1,000
VIPF EQUITY-INCOME PORTFOLIO
12/1/94 - 12/31/96
$1,342.89 - 1,000
----------------- = 34.29%
1,000
VIPF GROWTH PORTFOLIO
12/1/94 - 12/31/96
$1,393.79 - 1,000
----------------- = 39.38%
1,000
VIPF OVERSEAS PORTFOLIO
12/1/94 - 12/31/96
$1,051.13 - 1,000
----------------- = 5.11%
1,000
VIPF-II ASSET MANAGER
12/1/94 - 12/31/96
$1,119.99 - 1,000
----------------- = 12.00%
1,000
VIPF-II INDEX 500 PORTFOLIO
5/1/96 - 12/31/96
$1,013.58 - 1,000
----------------- = 1.36%
1,000
VIPF-II CONTRAFUND PORTFOLIO
5/1/96 - 12/31/96
$993.16 - 1,000
----------------- = -0.68%
1,000
AHVIT GROWTH FUND
5/1/96 - 12/31/96
$926.04 - 1,000
----------------- = -7.40
1,000
AHVIT EMERGING GROWTH FUND
5/1/96 - 12/31/96
$849.12 - 1,000
----------------- = -15.09%
1,000
MFS RESEARCH SERIES
5/1/96 - 12/31/96
$977.12 - 1,000
----------------- = -2.29%
1,000
MFS UTILITIES SERIES
5/1/96 - 12/31/96
$1,035.22 - 1,000
----------------- = 3.52%
1,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
5/1/96 - 12/31/96
$813.29 - 1,000
----------------- = -18.67%
1,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
5/1/96 - 12/31/96
$870.22 - 1,000
----------------- = -12.98%
1,000
