As filed with the Securities and Exchange Commission on April 30, 1999
Registration Nos. 033-22925
and 811-5279
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. _____ / /
Post -Effective Amendment No. 19 /X/
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 21 /X/
CHARTER NATIONAL VARIABLE
ANNUITY ACCOUNT
(Exact Name of Registrant)
Charter National Life Insurance Company
(Name of Depositor)
8301 Maryland, Ave., St. Louis, MO 63105
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: (800) 242-4402
Name and Address of Agent for Service: Copy to:
Richard G. Petitt Stephen E. Roth, Esq.
Charter National Life Insurance Company Sutherland Asbill & Brennan LLP
8301 Maryland Ave. 1275 Pennsylvania Avenue, N.W.
St. Louis, MO 63105 Washington, D.C. 20004-2415
Approximate Date of Proposed Public Offering:
As soon as practicable after effectiveness of the Registration Statement
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It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1999, pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/ / On _________, pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Units of Interest in the Separate Account under flexible payment deferred
variable annuity contracts.
<PAGE>
Scudder Horizon Plan
Prospectus May 1, 1999
A No-Load Flexible Premium Deferred Variable Annuity
offered by
Charter National Life Insurance Company
through the
Charter National Variable Annuity Account
This prospectus describes the Scudder Horizon Plan Contract ("Contract"). The
Contract has 10 investment alternatives -- a general account (paying a
guaranteed minimum fixed rate of interest) and 9 subaccounts of the Charter
National Variable Annuity Account. Money you direct to a subaccount is invested
exclusively in a single portfolio of the Scudder Variable Life Investment Fund.
The 9 mutual fund portfolios we offer through the subaccounts under this
Contract are:
Scudder Variable Life Investment Fund
Money Market Portfolio
Bond Portfolio
Capital Growth Portfolio
Balanced Portfolio
Growth and Income Portfolio
oInternational Portfolio
oGlobal Discovery Portfolio
Large Company Growth Portfolio
Small Company Growth Portfolio
Variable annuity contracts involve certain risks, including possible loss of
principal.
o The investment performance of the portfolios in which the subaccounts
invest will vary.
o We do not guarantee how any of the portfolios will perform.
o The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the contract.
o Neither the U.S. Government nor any Federal agency insures your investment
in the Contract.
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about the Scudder Horizon Plan
variable annuity contract.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
The Contract is designed to aid you in long-term financial planning.
To learn more about the Contract, you may want to look at the Statement of
Additional Information dated May 1, 1999, (the "SAI"). For a free copy of the
SAI, contact us at:
Scudder Horizon Plan
Customer Service Center
8301 Maryland Ave.
St. Louis, MO 63105
(800) 242-4402
Charter has filed the SAI with the U.S. Securities and Exchange Commission (the
"SEC") and has incorporated it by reference into this prospectus. The SAI's
table of contents appears at the end of this prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information. You may also
read and copy any of these documents at the SEC's public reference room in
Washington, D.C. Please call 1-800-SEC-0330 for further information on the
operation of the public reference room.
<PAGE>
Table of Contents
Definitions 1
Summary 4
Fee Table 9
Example 10
Financial Statements 11
Calculation of Yields and Total Returns 12
Other Performance Data 13
Charter and the Variable Account 14
Charter National Life Insurance Company 14
Purchase Agreement with Allstate 14
Charter National Variable Annuity Account 14
Services Agreements with Allstate 15
Scudder Variable Life Investment Fund 15
Addition, Deletion, or Substitution of Investments 17
The Contract 18
Contract Application and Issuing the Contract 18
Examination Period 19
Return of Premium Plus or Minus Investment Experience 19
Return of Premium 20
Payments 20
Initial Payment 20
Additional Payments 21
Automatic Investment Plan. 21
Limitations on Payments 21
Allocating Payments 22
Transfers 23
Asset Rebalancing Option 23
Dollar Cost Averaging 25
Account Value 26
Unit Value 27
Investment Experience Factor 28
Contract Ownership 29
Assignment of Contract 29
State Exceptions 30
Access to Your Money 31
Full and Partial Surrenders 31
Systematic Withdrawals 32
Annuity Payments 33
Annuity Income Options 34
Maturity Date 36
Death Benefit 36
Beneficiary Provisions 37
Death of Owner 37
Employment-Related Benefit Plans 38
Charges and Deductions 38
Mortality and Expense Risk Charge 39
Contract Administration Charge 40
Records Maintenance Charge 40
Premium Taxes 40
Other Taxes 41
Transfer Charges 41
Portfolio Charges 41
Certain Federal Income Tax Consequences 42
Tax Status of the Contract 42
Taxation of Nonqualified Contracts 42
Diversification Requirements 42
Owner Control 43
Required Distributions 43
Non-Natural Person 43
Withdrawals 44
Penalty Tax on Certain Withdrawals 44
Annuity Payments 44
Taxation of Death Benefit Proceeds 45
Transfers, Assignments or Exchanges of a Contract 45
Withholding 45
Multiple Contracts 45
Taxation of Qualified Contracts 45
Other Tax Issues 46
Our Income Taxes 46
Possible Tax Law Changes 47
General Provisions 47
The Contract 47
Delay of Payment and Transfers 48
Contract Expiration 48
Misstatement of Age or Sex 48
Nonparticipating Contract 49
Notices and Inquiries 49
Records and Reports 49
Year 2000 Disclosure 49
Services Agreement 50
Distribution of the Contract 51
The General Account 52
Voting Rights 53
Legal Proceedings 54
<PAGE>
Additional Information 54
Table of Contents for Statement of Additional Information 55
Condensed Financial Information A-1
This Contract is not available in all states.
<PAGE>
Definitions
account value -- Your Contract's total value in the subaccounts and the
general account. The Contract refers to account value as "Accumulated Value."
age -- The annuitant's age on his or her birthday nearest to the Contract
Anniversary.
annuitant -- The person whose life is used to determine the duration and
amount of any annuity payments. If the annuitant dies before the Maturity Date,
we will pay a death benefit.
annuity payments -- After the Maturity Date, we promise to pay you an
income in the form of regular fixed annuity payments. The amount of the annuity
payments depends on the amount of money you accumulate in the Contract before
the Maturity Date and on the annuity income option you choose.
beneficiary -- The person(s) you select to receive the benefits of the
Contract if no Owner is living.
Contract Date --The date listed in the Contract that we use to determine
Contract years, Contract months, and Contract anniversaries. The Contract Date
is usually the same date as the Effective Date.
death benefit -- An amount we pay if the annuitant dies before the Maturity
Date. The death benefit is the greater of the account value or the Guaranteed
Death Benefit.
Declaration Period -- A period of time between 1 and 10 3 years during
which we will credit specified rates of interest on payments you allocate to the
general account.
Effective Date -- A date within two business days after we have received a
completed application and the full initial payment.
Fund -- The Scudder Variable Life Investment Fund, an open-end, diversified
management investment company in which the subaccounts invest.
general account -- The account containing all of Charter's assets, other
than those held in its separate accounts. Guaranteed Death Benefit -- The sum of
the payments you made, less any partial surrenders.
Home Office -- The principal office of Charter, located at 8301 Maryland
Avenue. Ave., St. Louis, Missouri MO 63105.
joint annuitant -- If you select annuity income option 2, you may designate
a joint annuitant. We will use the joint annuitant's life, in addition to the
annuitant's life, to determine the duration of the annuity payments.
joint owner -- A person sharing the privileges of ownership as stated in
the Contract. If a joint owner is named, Charter will presume ownership to be as
joint tenants with right of survivorship.
Maturity Date -- The date on which we will begin to pay annuity payments if
the annuitant is living.
monthly anniversary -- The same date in each month as the Contract Date.
net payment -- A payment less any applicable premium taxes.
Nonqualified Contract -- A Contract other than a Qualified Contract.
Owner (you, your) -- The person having the privileges of ownership stated
in the Contract, including the right to receive annuity payments if the
annuitant is living on the Maturity Date and the Contract is in force.
portfolio -- A separate investment portfolio of the Fund in which a
subaccount of the Variable Account invests.
Proof of Death -- One of the following: (i) a certified copy of a death
certificate, (ii) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death, or (iii) any other proof satisfactory
to Charter.
Qualified Contract -- A Contract issued in connection with a retirement
plan that qualifies for special Federal income tax treatment.
subaccount -- An investment division of the Variable Account. Each
subaccount invests exclusively in a single portfolio of the Fund. Unit Value --
The value of each unit of a subaccount. It is calculated each Valuation Period.
It is similar to the net asset value of a mutual fund.
Valuation Date -- Each day on which we value the assets in the subaccounts,
which is each day on which the New York Stock Exchange (NYSE) is open for
trading. We are open for business on each day the NYSE is open.
Valuation Period -- The period that begins at the close of one Valuation
Date and ends at the close of the next Valuation Date.
Variable Account -- Charter National Variable Annuity Account, a separate
account composed of subaccounts which we established to receive and invest the
portion of net payments under the Contract that you do not allocate to our
general account.
we, us, our, Charter, the Company: Charter National Life Insurance Company.
<PAGE>
Summary
This summary answers certain basic questions you may have about the
Contract. More detailed information about the Contract appears later in this
Prospectus. Please read this Prospectus carefully.
1. Why should I purchase this Contract?
The Contract provides a way for you to invest on a tax-deferred basis in
the subaccounts of the Variable Account and in the general account. The Contract
is designed to enable you to accumulate money for retirement and other long-term
investment purposes. "Tax-deferred" means that earnings and appreciation on the
assets in your Contract are not taxed until you take money out by a full or
partial cash surrender or by annuitizing the Contract, or until we pay the death
benefit.
2. How can I purchase the Contract?
You may purchase the Contract from us (Charter National Life Insurance
Company) for a minimum payment of $2,500 ($2,000 for certain Qualified
Contracts). We do not deduct a commission or sales charge from any payment you
make. You may make additional payments under the Contract, subject to certain
conditions. Send your payments to:
Scudder Horizon Plan
Customer Service Center
8301 Maryland Avenue
St. Louis, Missouri 63105
3. Can I use this Contract as an IRA?
Yes, the Contract is available to most individuals who wish to purchase an
IRA. It is also available to certain retirement plans and retirement accounts
that qualify for special Federal income tax treatment. We require that if you
desire to invest monies that qualify for different annuity tax treatment, then
you must purchase separate Contracts.
4. What annuity benefits are offered under the Contract?
The Contract allows you to receive fixed annuity payments under one of
three annuity income options. Annuity payments begin after the Maturity Date
provided the annuitant is living. The three annuity income options currently
available are: (i) life annuity with installment refund; (ii) joint and survivor
life annuity with installment refund; and (iii) installments for life.
Other annuity income options may be available on the Maturity Date. The
dollar amount of each annuity payment will be fixed on the Maturity Date and
guaranteed by us.
5. What investments are available under the Contract?
You may invest your money in any of the following portfolios of the Scudder
Variable Life Investment Fund by directing your payments into the corresponding
subaccounts:
Money Market
o Bond
Capital Growth
o Balanced
Growth and Income
o International
Global Discovery
o Large Company Growth
Small Company Growth
Each subaccount invests in Class A shares of its corresponding portfolio.
The assets of each portfolio are held separately from the assets of other
portfolios and each has separate investment objectives and policies. The
attached prospectus for the Fund more fully describes the portfolios. Scudder
Kemper Investments Inc. is the investment adviser for the portfolios.
Your investment in the subaccounts will fluctuate daily based on the
investment results of the portfolios in which you invest, and on the fees and
charges deducted. You bear the investment risk for amounts you invest in the
subaccounts.
6. What fixed rate options are available under the Contract?
You may allocate funds to the general account and receive a specified rate
of return. We will credit interest to your payments for the length of the
Declaration Period you choose at a guaranteed rate we specify in advance. We
offer Declaration Periods of 1 and 3 years. At the end of the Declaration
Period, you have the option to move funds into any available subaccount or into
another Declaration Period that has a new specified rate of interest that we
guarantee will be no less than 3.5%.
We guarantee interest, as well as principal, on money placed in the general
account.
7. What is the purpose of the Variable Account?
We established the Variable Account to invest the payments we receive under
our variable annuities, including this Contract. The Variable Account is divided
into subaccounts. Each subaccount invests exclusively in a portfolio of the
Fund. Under Missouri law, the assets in the Variable Account associated with the
Contract are not affected by, nor chargeable with, liabilities arising out of
any other business we conduct.
8. Can I transfer assets within the Contract?
Yes. You have the flexibility to transfer assets within the Contract. You
may transfer amounts among the subaccounts and from the subaccounts to the
general account at any time. You may also transfer amounts from the general
account to the subaccounts or within the general account at the end of a
Declaration Period.
We do not impose a charge for any transfers. In the future, we may impose a
transfer charge of $10 for the third and subsequent transfer requests made
during a Contract Year.
9. What are my expenses under the Contract?
On each Valuation Date, we deduct an administrative fee at an annual rate
of .30%, and a mortality and expense fee at an annual rate of .40%, from the
amount you have invested in each subaccount. These charges are not deducted from
the general account. We do not charge an annual maintenance fee, although the
Contract permits us to deduct a maximum fee of $40 in the future.
We will deduct state premium taxes, which currently range from 0% to 3.5%,
if your state requires us to pay premium taxes. We will deduct the taxes either
when we incur the tax or at a later time.
We do not deduct any surrender charges on full or partial surrenders.
The portfolios also deduct investment charges from amounts you have
invested in the portfolios through the subaccounts. These charges range from
0.44% to 1.72% annually, depending on the portfolio. See the prospectus for the
Fund and the Fee Table in this Prospectus.
10. Do I have access to my money in the Contract?
Yes. You may make a full or partial surrender of the Contract at any time
before the Maturity Date or the annuitant's death. No surrender charges apply.
For Qualified Contracts issued under Code Section 403(b), certain
restrictions will apply. You may also have to pay Federal income taxes and a
penalty tax on any money you take out of the Contract.
11. What is the death benefit?
If the annuitant dies before the Maturity Date, we pay you, the owner, the
greater of the account value or the Guaranteed Death Benefit. If the owner of a
Nonqualified Contract dies before the Maturity Date and before the annuitant's
death, then we will pay the account value in a lump sum to the joint owner no
later than 5 years following the owner's death (if there is no joint owner, then
we will pay the beneficiary).
12. What are the Federal income tax consequences of investing in the Contract?
The Contract's earnings are generally not taxed until you take them out.
For Federal tax purposes, if you take money out before the Maturity Date,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% Federal penalty tax on the
earnings. The annuity payments you receive after the Maturity Date are
considered partly a return of your original investment; that part of each
payment is not taxable as income. Different tax consequences may apply for a
Contract used in connection with a qualified plan.
13. Can the Contract be returned after I receive it?
Yes. You may return the Contract for a refund by returning the Contract to
our home office within 10 days after you receive it. The amount of the refund,
will generally be the initial payment, plus (or minus) gains (or losses) from
investing the payment in the subaccounts you selected on your application, plus
interest earned on amounts you allocated to the general account. In some states
you may have more than 10 days, or receive a different refund amount. See
"Examination Period" and "State Exceptions."
<PAGE>
Fee Table
This Fee Table illustrates the current charges and deductions under the
Contract, as well as the Fund's fees and expenses for the 1998 calendar year.
The purpose of this table is to assist you in understanding the various cost and
expenses that you will bear directly and indirectly. The Fund has provided the
information pertaining to the Fund.
Contract Owner Transaction Expenses
Sales Load Imposed on Payments None
Deferred Sales Load None
Surrender Fee None
Transfer Charge (transfers made between subaccounts
and/or to the general account during a Contract Year) None
Annual Records Maintenance Charge None
Variable Account Annual Expenses (as a
percentage of your average net assets in the Variable Account)
Mortality and Expense Risk Charge 0.40%
Contract Administration Charge 0.30%
-----
Total Variable Account Annual Expenses 0.70%
Scudder Variable Life Investment Fund Annual Expenses (as a percentage of
average net assets for the 1998 calendar year)
Management Total
Fees Expenses
After Fee Other After Fee
Portfolio Waiver* Expenses Waiver*
- --------- --------- ------------ -------- -------
Money Market 0.37% 0.07% 0.44%
Bond 0.48% 0.09% 0.57%
Capital Growth 0.46% 0.04% 0.50%
Balanced 0.48% 0.08% 0.56%
Growth and Income 0.47% 0.09% 0.56%
International 0.87% 0.17% 1.04%
Global Discovery* 0.91% 0.81% 1.72%
Large Company Growth** 0.58% 0.67% 1.25%
Small Company Growth** 0.88% 0.62% 1.50%
*Until April 30, 1998, Scudder Kemper (the Adviser) agreed to waive a portion of
its management fee to the extent necessary to limit the expenses of the Global
Discovery Portfolio to 1.50% of average daily net assets. As a result, actual
1998 expenses without giving effect to the expense limitation were: management
fee 0.97% and total expenses 1.78%.
**Until April 2000, the Adviser has agreed to waive all or a portion of its
management fee to limit the expenses of the Large Company Growth Portfolio and
the Small Company Growth Portfolio to 1.25% and 1.50% respectively of average
daily net assets. Without these limitations the Fund estimates that total
expenses for the Large Company Growth Portfolio and the Small Company Growth
Portfolio would be 1.09% and 1.90%,
respectively.
Example
The following example illustrates the expenses that you would pay on a $1,000
investment, assuming 5% annual return on assets, if you continued the Contract,
surrendered or annuitized at the end of each period:
Subaccount 1 Year 3 Years 5 Years 10 Years
- ---------- ------ ------- ------- --------
Money Market $12 $36 $63 $139
Bond $13 $40 $70 $153
Capital Growth $12 $38 $66 $145
Balanced $13 $40 $69 $152
Growth and Income $13 $40 $69 $152
International $18 $55 $94 $205
Global Discovery $25 $75 $129 $276
Large Company Growth $20 $61 --- ---
Small Company Growth $22 $69 --- ---
The fee table and example above are based upon the current level of charges
deducted under the Contract. In the future, we may increase the Mortality and
Expense Risk Charge to .70% per year, establish a Records Maintenance Charge of
up to $40 per year and impose a transfer charge of $10 for the third and each
subsequent transfer request made during a Contract Year. We currently have no
intention of changing our charges.
Neither the fee table nor the example reflects the deduction of any premium
tax.
You should not consider this example to represent past or future expenses,
performance or return. Actual expenses may be greater or less than those shown.
The assumed 5% annual return is hypothetical. Past or future annual returns may
be greater or less than the assumed return.
A financial history of each subaccount is included in Appendix A to this
Prospectus.
Financial Statements
The financial statements of Charter and the Variable Account are included
in the SAI.
<PAGE>
Calculation of Yields and Total Returns
We may periodically advertise yields and standard total returns for the
subaccounts and the portfolios. These figures will be based on historical
earnings and are not intended to indicate future performance.
Yields and standard total returns include all charges and expenses you
would pay under the Contract -- the mortality and expense risk charge (0.40%)
and the administrative expense charge (0.30%).
The yield of the Money Market subaccount refers to the annualized
investment income that an investment in the subaccount generates over a
specified seven-day period. The effective yield of the Money Market subaccount
is calculated in a similar way but, when annualized, we assume that the income
earned by the investment has been reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of the assumed
reinvestment.
The yield of a subaccount (except the Money Market subaccount) refers to
the annualized income that an investment in the subaccount generates over a
specified thirty-day period.
The average annual total return of a subaccount assumes that an investment
has been held in the subaccount for certain periods of time including the period
measured from the date the subaccount began operations. We will provide the
average annual total return for each subaccount that has been in operation for
1, 5, and 10 years. The total return quotations will represent the average
annual compounded rates of return that an initial investment of $1,000 would
earn as of the last day of the 1, 5 and 10 year periods.
The yield and total return calculations are not reduced by any premium
taxes. Applying premium taxes will reduce the yield and total return of a
Contract.
For additional information regarding yield and total return calculations,
please refer to the SAI.
Other Performance Data
We may disclose other performance data, such as cumulative total return and
nonstandard total returns. This means that the data may be presented for
different time periods and different dollar amounts.
We may also present historic performance data for the portfolios since
their inception that is reduced by some or all of the fees and charges under the
Contract. Such adjusted historic performance data includes data that precedes
the inception dates of the subaccounts, but is designed to show the performance
that would have resulted if the Contract had been available during that time.
We will only disclose non-standard performance data if we also disclose the
standard performance data. For additional information regarding the calculation
of other performance data, please refer to the SAI.
Advertising, sales literature, and other communications may compare the
expense and performance data for the Contract and each subaccount with other
variable annuities tracked by independent services such as Lipper Analytical
Services, Inc., Morningstar and the Variable Annuity Research Data Service.
These services monitor and rank the performance and expenses of variable annuity
issuers on an industry-wide basis. We may also make comparisons using other
indices that measure performance, such as Standard & Poor's 500 Composite or the
Dow Jones Industrial Average. Unmanaged indices may assume reinvestment of
dividends but do not deduct administrative and management costs and expenses.
We may report other information including the effect of tax-deferred
compounding on a subaccount's returns, illustrated by tables, graphs, or charts.
Tax-deferred compounding can lead to substantial long-term accumulation of
assets, if the portfolio's investment experience is positive. Sales literature,
advertisements or other reports may refer to A.M. Best's rating of Charter as an
insurance company.
Charter and the Variable Account
Charter National Life Insurance Company
Charter is a stock life insurance company incorporated under the laws of
the State of Missouri on December 7, 1955. Charter, with assets of $748 million
as of December 31, 1998, principally engages in the offering of insurance
products. We are authorized to conduct business in 49 states, the District of
Columbia and Puerto Rico. Our principal offices are located at: 8301 Maryland
Ave., St. Louis, MO 63105, (800) 242-4402.
Charter is currently a wholly owned subsidiary of Leucadia National
Corporation ("Leucadia"), a New York corporation.
Purchase Agreement with Allstate
On December 21, 1998, Allstate Life Insurance Company ("Allstate")
announced that it has entered into an agreement with Leucadia to purchase
Charter. The transaction is subject to regulatory approvals and is expected to
close before July 1, 1999.
CNL, Inc. ("CNL") is the principal underwriter of the Contract. On
September 2, 1998, Leucadia, then sole owner of all of the stock of CNL, sold
all of its CNL stock to Allstate.
Charter National Variable Annuity Account
Charter established the Variable Account as a separate investment account
under the laws of the State of Missouri on May 15, 1987. The Variable Account
receives and invests the payments under the Contracts. We may offer other
variable annuities for which the Variable Account may receive and invest
payments.
Under Missouri law, that portion of the assets of the Variable Account
equal to the reserves and other contract liabilities connected with the account
shall not be chargeable with liabilities arising out of any other business we
may conduct. However, the assets of the Variable Account will be available to
cover the liabilities of our general account to the extent that Variable Account
assets exceed its liabilities arising under the variable annuity contracts it
supports. The obligations under the Contracts are obligations of Charter.
The Variable Account is divided into subaccounts. Each subaccount invests
exclusively in shares of one of the Fund's portfolios. Income, gains and losses
from each subaccount's assets are credited to or charged against such subaccount
without regard to income, gains or losses of any other subaccount or income,
gains, or losses arising out of our other business.
The Variable Account is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the 1940 Act and meets the
definition of a "separate account" under the Federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the Variable Account or Charter by the SEC.
Services Agreements with Allstate
On September 2, 1998, Charter and Leucadia entered into a coinsurance
agreement with Allstate reinsuring all of Charter's rights, liabilities and
obligations with respect to the Variable Account under the Contracts. On the
same date, Charter and Allstate entered into an administrative services
agreement under which Allstate or an affiliate will administer the Contracts.
Neither of these agreements will change the fact that Charter is primarily
liable to you under your Contract. At this time there have been no changes to
the address or phone numbers that you are currently using.
Scudder Variable Life Investment Fund
The Variable Account invests exclusively in shares of the Scudder Variable
Life Investment Fund (the "Fund"). The Fund is registered with the SEC under the
1940 Act as an open-end, diversified management investment company. Scudder
Kemper Investments, Inc. is the investment adviser to the mutual fund portfolios
available under the Contract.
In addition to the Variable Account, the Fund's shares are sold to variable
life insurance and variable annuity separate accounts of other insurance
companies, including an insurance company affiliated with us. Someday, it may be
disadvantageous for variable annuity separate accounts of other life insurance
companies, or for both variable life insurance separate accounts and variable
annuity separate accounts, to invest simultaneously in the Fund. But, currently
neither the Fund nor Charter foresees any such disadvantages to either variable
annuity owners or variable life insurance owners. The Fund's management intends
to monitor events in order to identify any material conflicts between or among
variable annuity owners and variable life insurance owners and to determine what
response, if any, they should take. In addition, if we believe that the Fund's
response to any of those events or conflicts insufficiently protects our Owners,
then we will take appropriate action.
The subaccounts invest exclusively in the Class A shares of following
portfolios of the Fund:
Money Market
Bond
Capital Growth
Balanced
Growth and Income
International
Global Discovery
Large Company Growth
Small Company Growth
Each portfolio represents, in effect, a separate mutual fund with its own
distinct investment objectives and policies. The income or losses of one
portfolio have no effect on another portfolio's investment performance.
Scudder Kemper Investments. Inc. (the "Adviser"), an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, as amended,
manages daily investments and business affairs of the Fund, subject to the
policies that the Funds' Trustees established. See the Fund's prospectus for
information regarding the Adviser's fees.
The general public may not purchase these underlying portfolios. Their
investment objectives and policies may be similar to other portfolios and mutual
funds managed by the same investment adviser that are sold directly to the
public. You should not expect that the investment results of the other
portfolios would be similar to those of the underlying portfolios.
There is no assurance that any portfolio will achieve its objective. The
Scudder Variable Life Investment Fund prospectus contains more detailed
information, including a description of the risks involved in investing in each
portfolio and a description of each portfolio's investment objective. A copy of
the Fund's prospectus is attached to this Prospectus. You should carefully read
the Fund's prospectus before investing in a Contract.
Addition, Deletion, or Substitution of Investments
From time to time, we may make certain changes in the Variable Account and
its investments. We may substitute shares of any portfolio for shares of another
portfolio of the Fund or another registered open-end management investment
company. We may do so if the shares of the portfolio are no longer available for
investment or if we decide that investment in any portfolio would be
inappropriate in view of the purposes of the Variable Account. We will not
substitute or eliminate the shares of a portfolio in which your Contract is
invested without prior approval of the SEC and we will notify you of our intent.
This will be done to the extent required by the 1940 Act.
We may add or delete subaccounts in our discretion when we decide that
marketing, tax, investment, or other conditions warrant such additions or
deletions. Each additional subaccount will purchase shares in a portfolio of the
Fund or in another mutual fund or investment vehicle. If we eliminate a
subaccount, then we will notify you and request that you reallocate the amounts
you have invested in the eliminated subaccount. If you do not provide us with
your desired reallocations, then we will reinvest the amounts in the eliminated
subaccount into the subaccount that invests in the Money Market Portfolio.
In the event of any such substitution, change, or elimination, we may, by
appropriate endorsement, change the Contracts as may be necessary or appropriate
to reflect such substitution, change, or elimination. Furthermore, if we deem it
to be in the best interests of persons having voting rights under the Contracts,
then the Variable Account may be: (i) operated as a management company under the
1940 Act or any other form permitted by law, (ii) de-registered under the 1940
Act, in the event such registration is no longer required, or (iii) combined
with one or more other separate accounts. To the extent applicable law permits,
we may transfer the assets of the Variable Account associated with the Contracts
to another separate account.
The Contract
The description of the Contract contained in this prospectus is qualified
in its entirety by reference to the contract for the Flexible Premium Variable
Deferred Annuity. We have filed a copy of the Contract as an exhibit to this
Registration Statement. It is available upon request from us.
Contract Application and Issuing the Contract
The Contract is available to individuals, certain retirement plans and
individual retirement accounts (IRA) that qualify for special Federal income tax
treatment. The Contract is not available for use as a "Tax-Sheltered Annuity"
qualifying under Section 403(b) of the Code.
If you purchase a Contract which qualifies as an IRA under Section 408(b),
you should be aware that the Code imposes certain restrictions on those
Contracts.
Before we issue a Contract, we must receive your properly completed
application and a minimum payment of $2,500 ($2,000 in the case of some
Qualified Contracts). We will mail you a Premium Receipt form if you request
one. You must name the annuitant in the Contract application. If the Contract
qualifies as an IRA under Section 408(b), then you must be the annuitant. We
reserve the right to decline an application for any reason. If we decline an
application, then we will refund the full initial payment.
After underwriting is completed and the Contract is delivered to you, the
Contract will be deemed to have commenced as of the Effective Date. The
Effective Date is a date within two business days after we receive a completed
application and the full initial payment. The Contract Date will be the same as
the Effective Date unless the Effective Date is the 29th, 30th, or 31st of the
month, in which case the Contract Date will be the 28th day of the same month.
We use the Contract Date to determine Contract Years, Contract Months, and
Contract Anniversaries.
Examination Period
You may cancel the Contract for a refund within 10 to 30 days after you
receive the Contract. Depending on the laws of the state of issue and your age,
we will refund the initial payment in one of the following methods. See your
Contract and the "State Exceptions" section of this prospectus for details.
Return of Premium Plus or Minus Investment Experience . In most states, if
you return the Contract, we will refund the initial payment, plus or minus gains
or losses from investing the payment in the subaccounts you chose on your
application, plus any interest earned on the amount you allocated to the general
account. We will calculate these refunds as of the date that we receive the
Contract. If you allocate all or part of the payment to the subaccounts, then
the amount of your refund may be more or less than the initial payment,
depending on the investment performance of your selected subaccounts. If you
allocate all of the payment to the general account, then we will always refund
an amount equal to or greater than the payment.
Return of Premium . If your state requires us to refund your premium to
you, then we will refund the greater of: (1) the initial payment, or (2) the
account value plus any amount deducted for taxes or charges from the initial
payment. We will calculate your refund as of the date we receive the Contract.
During the Examination Period, the portion of the initial payment you allocated
to the Variable Account will be invested in the Money Market subaccount. Once
the Examination Period expires, we will reallocate the account value to the
subaccounts you select.
Payments
You should make all checks or drafts payable as directed on the
application. You can also make payments by requesting on your application that
Scudder Investor Services, Inc. redeem shares in an existing Scudder mutual fund
account and apply the proceeds toward a payment.
Initial Payment . The minimum initial payment you must pay to purchase a
Contract is $2,500 ($2,000 in the case of some Qualified Contracts). The initial
payment is the only payment we require you to make under the Contract. When you
make the initial payment, you must specify whether it is for a purchase of a
Nonqualified or Qualified Contract.
If the initial payment is derived from an exchange or surrender of another
annuity contract, then we may require that you provide information about the
Federal income tax status of the previous annuity contract. If you desire to
invest monies qualifying for different annuity tax treatment under the Code,
then we will require you to purchase separate Contracts. Each separate Contract
requires a minimum initial payment of $2,500 ($2,000 in the case of some
Qualified Contracts). We reserve the right to waive the minimum initial payment
amount and accept less than $2,500.
If we receive a properly completed application with the initial payment,
then we will credit that payment to the Contract within two business days of
receiving the payment. We may deduct premium taxes from the payment before we
credit it to the Contract. If we receive an incomplete application, then we will
credit the payment within two business days of receiving the completed
application. If, for any reason, we do not credit the payment to your account
within five business days, then we will immediately return the payment to you.
You may, after receiving notice of our delay, specifically request that we do
not return the payment.
Additional Payments. You may make additional payments while the annuitant
is living and before the Maturity Date. Currently, there is no minimum
additional payment amount or maximum number of additional payments per Contract
Year. In the future, we may require that each additional payment be at least
$1,000 and limit the frequency of additional payments to a maximum of four per
Contract Year.
Additional payments must qualify for the same Federal income tax treatment
as the initial payment made under the Contract. If the Federal income tax
treatment of a payment will be different from that of the initial payment, then
we will not accept it. We will credit any additional payments to the Contract
upon receiving them at our home office.
Automatic Investment Plan. You may arrange to make regular investments ($50
minimum) into any of the subaccounts through automatic deductions from your
checking account. The Automatic Investment Plan cannot be used to allocate money
to the general account. Please call (800) 242-4402 for more information.
Limitations on Payments . We reserve the right to reject any initial
payment. We may require you to complete a financial questionnaire for payments
in excess of $250,000. If any additional payments would cause your total
payments to exceed $1,000,000, we may reject those payments. We will reject any
payment that would cause the account value in the general account to exceed
$500,000.
For Contracts that qualify as IRAs under Section 408(b) of the Code, the
total payments (including the initial payment) in any calendar year may not
exceed $2,000, unless the portion in excess of $2,000 qualifies as a rollover
amount or contribution under Section 402(c), 403(b)(8), or 408(d)(3) or other
applicable provisions of the Code.
Allocating Payments
You may allocate payments to one or more of the subaccounts, to the general
account, or to both. If you allocate any portion of a payment to the general
account, then you must specify the Declaration Period(s) to which you are
allocating those funds. You must specify the payment allocations in your
application. We will allocate the initial payment according to your
specifications, once we receive it at our home office.
You must make all allocations in whole percentages and they must total
100%. If the allocations do not total 100%, then we will recompute the
allocations proportionately by dividing the percentage in each subaccount you
selected, by the sum of the percentages you indicated. We will apply this new
percentage to the payment. The following example illustrates how we make this
recomputation:
Example
Indicated Actual
Allocation Allocation
Subaccount#1 25% 25% / 105% = 24%
Subaccount#2 40% 40% / 105% = 38%
Subaccount#3 40% 40% / 105% = 38%
----- ------ ---
Total 105% 100%
We will allocate all payments at the time we credit such payments to your
Contract.
We will allocate any additional payments you make to the subaccounts and/or
the general account in the same proportion as the initial payment. You may
change the allocation percentages by sending us written notice. Once you make a
change in allocation, we will allocate all future payments in accordance with
your new allocation percentages. This will continue until you send us written
notice of any changes. However, if you have funds deducted from a checking
account under the Automatic Investment Plan option, then you must provide us
with written notice to change the allocation of future additional payments.
Transfers
Before the Maturity Date, you may transfer amounts among the subaccounts,
between the subaccounts and the general account, and between different
Declaration Periods in the general account.
You may transfer amounts from the general account to any of the subaccounts
and to different Declaration Periods in the general account only at the end of
the Declaration Period to which you allocated that amount. You may transfer
amounts from a subaccount to the general account at any time, as long as that
transfer would not cause your Contract's value in the general account to exceed
$500,000.
We do not impose a charge for any transfers. In the future, if you request
more than two transfers during a Contract Year, we may deduct $10 from each
subaccount from which you transfer funds.
You must request a transfer by sending us written notice or by telephone
(if you have a currently valid telephone transfer request form on file with us).
We employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If we follow such procedures, then we will not be liable
for any losses due to unauthorized or fraudulent instructions. If we do not
follow those reasonable procedures, then we may be liable for such losses. The
procedures we follow for telephone transfers include confirming the correct
name, the contract number and the personal code for each telephone transfer.
We will deem transfers effective and determine values in connection with
transfers at the end of the Valuation Period during which we receive the
transfer request.
Asset Rebalancing Option . You may select the Asset Rebalancing Option if
you wish to maintain a particular percentage allocation among the subaccounts.
With Asset Rebalancing, we automatically reallocate the account value in the
subaccounts quarterly to your selected allocations. Over a period of time, this
method of investing may help you buy low and sell high although there can be no
assurance of this. This investment method does not assure profits and does not
protect against a loss in declining markets.
To elect the Asset Rebalancing Option, the account value in your Contract
must be at least $2,500 and we must receive a completed Asset Rebalancing Option
form at our home office. You must designate the subaccounts and the percentage
allocations that you want us to rebalance each quarter. The percentages must
total 100%. If you elect the Asset Rebalancing Option, then all the new money
you direct into the subaccounts will be included in the Asset Rebalancing
Option. You may not participate in Dollar Cost Averaging and Asset Rebalancing
at the same time. The general account is not available for the Asset Rebalancing
Option.
Selecting Asset Rebalancing will result in the transfer of funds to one or
more of the subaccounts on the date you specify. If you have specified, or we
receive the form on, the 29th, 30th or 31st, then we will consider the effective
date to be the first Valuation Date of the following month. If you do not
specify a date or if we receive the request after your specified date, then we
will transfer funds on the date we receive the Asset Rebalancing Option form and
on the quarterly anniversary of the applicable date thereafter. We will execute
the rebalancing and determine all values in connection with the rebalancing at
the end of the Valuation Date on which the transfers occur. If the effective
date is not a Valuation Date, then the transfer will occur on the next Valuation
Date.
You may terminate this option at any time by sending us written notice. We
will automatically terminate this option if you request any transfers outside
the Asset Rebalancing program. If you wish to resume the Asset Rebalancing
Option after it has been canceled, then you must complete a new Asset
Rebalancing Option form and send it to our home office. We may discontinue,
modify, or suspend the Asset Rebalancing Option at any time.
Dollar Cost Averaging . Dollar Cost Averaging is a systematic method of
investing by which you purchase units in fixed dollar amounts so that the cost
is averaged over time. You may begin dollar cost averaging by authorizing us to
make periodic transfers from any one subaccount to one or more other
subaccounts. Amounts transferred will purchase units in those subaccounts at
that subaccount's Unit Value as of the Valuation Date on which the transfer
occurs. Since the value of the units will vary, the amounts transferred to a
subaccount will purchase more units when the Unit Value is low and fewer units
when the Unit Value is high. Similarly, the amounts transferred to a subaccount
will result in the liquidation of more units when the Unit Value is low and
fewer units when the Unit Value is high. Dollar Cost Averaging does not assure a
profit or protect against a loss in declining markets.
You may elect Dollar Cost Averaging if the account value in your Contract
is at least $2,500 and you send our home office a completed Dollar Cost
Averaging form. You must designate the frequency of the transfers, the
expiration date for the program, the subaccount from which to take the
transfers, the subaccounts to receive the funds, and the allocation percentages.
You may not participate in Dollar Cost Averaging and Asset Rebalancing at
the same time. The general account is not available for the Dollar Cost
Averaging Option.
After we receive a completed Dollar Cost Averaging form, we will transfer
your designated amounts from the subaccount from which you wish to make
transfers to your chosen subaccounts. $50 is the minimum amount that you may
transfer. Each transfer occurs on your specified date. If you specify, or we
receive the form on the 29th, 30th or 31st, then we will consider the effective
date to be the first Valuation Date of the following month. If you do not
specify a date, then we will transfer the funds on the monthly, quarterly,
semiannual or annual anniversary (whichever corresponds to your selected
frequency) of the date that we received your completed Dollar Cost Averaging
form. The amounts transferred will receive the Unit Values for the affected
subaccounts at the end of the Valuation Date on which the transfers occur. If
the anniversary is not a Valuation Date, then the transfer will occur on the
next Valuation Date. Dollar Cost Averaging will terminate when we have
transferred the total amount elected, or when the value in the subaccount from
which transfers are made is insufficient to support the requested transfer
amount.
You may terminate this option at any time by sending us written notice.
When we receive written notice that you want to terminate Dollar Cost Averaging,
then we will stop all transfers, unless you instruct otherwise. You must
complete a new Dollar Cost Averaging option form and send it to our home office
if you wish to continue Dollar Cost Averaging after the expiration date you
specified, or the amount in the elected subaccount is depleted, or you canceled
the Dollar Cost Averaging option.
We may discontinue, modify, or suspend the Dollar Cost Averaging option at
any time.
Account Value
On the Effective Date, your account value equals your initial payment minus
any amounts we deducted for premium taxes. On any other day, your account value
equals:
your account value from the previous Valuation Date
increased by:
(1) any additional net payments we receive,
(2) any increase in the account value due to
positive investment results of the
subaccounts you selected, and
(3) any interest earned on your account value
held in the general account;
and reduced by:
(1) any decrease in the account value due to
negative investment results of the
subaccounts you selected,
(2) a daily charge to cover our assumed
mortality and expense risks and
the cost of administering the Contract, and
(3) any amounts you withdrew from the Contract.
If we charge a records maintenance fee or transfer fee in the future, we will
deduct those amounts from your account value.
A Valuation Period is the period between successive Valuation Dates. It
begins at the close of business on each Valuation Date and ends at the close of
business on the next Valuation Date. A Valuation Date is each day that the New
York Stock Exchange (NYSE) is open for business.
You should expect your account value to change between the Valuation
Periods to reflect the investment experience of the subaccounts in which you
invest, any interest earned in the general account, and the deduction of
charges. Your Contract stops accumulating value after the Maturity Date.
Unit Value . Each subaccount has a distinct value ("Unit Value"). When you
allocate a payment or transfer an amount to a subaccount, we base the number of
units you purchase on the Unit Value of the subaccount at the end of the
Valuation Period during which you make the allocation. Units are redeemed in a
similar manner when you transfer amounts out of, or withdraw amounts from, a
subaccount.
For each subaccount, the Unit Value on a given Valuation Date is based on
the net asset value of a share of the corresponding portfolio in which such
subaccount invests. Each Valuation Period has a single Unit Value that applies
to each day in the Valuation Period and which is calculated as of the end of the
Valuation Period. The Unit Value for each subsequent Valuation Period is the
Investment Experience Factor (described below) for that Valuation Period
multiplied by the Unit Value for the immediately preceding Valuation Period.
Investment Experience Factor . The Investment Experience Factor measures a
subaccount's investment performance during a Valuation Period. An Investment
Experience Factor is calculated separately for each of the subaccounts. A
subaccount's Investment Experience Factor for a Valuation Period equals (a)
divided by (b), minus (c), where:
(a) is (i) the value of the net assets held in the
subaccount at the end of the Valuation Period; plus
(ii) the investment income and capital gains (realized or
unrealized) credited to the net assets of that
subaccount during the Valuation Period for which we
determine the Investment Experience Factor; minus
(iii)the capital losses (realized or unrealized) charged
against those assets during the Valuation Period; minus
(iv) any amount charged against the subaccount for taxes or
any amount that we set aside during the Valuation
Period as a provision for taxes attributable to the
operation or maintenance of that subaccount; and
(b) is the value of the net assets of that subaccount at
the end of the preceding Valuation Period; and
(c) is a charge to compensate us for certain administrative
expenses and mortality and expense risks that we assume
in connection with the Contracts.
Contract Ownership
You may designate a new Owner or joint owner at any time during the
annuitant's life. If you name a joint owner, then we will presume the ownership
to be as joint tenants with right of survivorship, unless you otherwise specify.
If any Owner dies before the annuitant and before the Maturity Date, then the
Owner's rights will belong to the joint owner, if any, or otherwise to the
beneficiary. The interest of any Owner or joint owner may be subject to the
rights of any assignee.
A new Owner or a joint owner may not be designated under a Contract that
qualifies as an individual retirement annuity under Section 408(b) of the Code.
An Owner's designation of a new Owner may be subject to Federal income tax.
Please consult a qualified tax adviser before you designate a new Owner.
You may designate a new Owner by sending us written notice. The change will
take effect as of the date you sign the written notice. We will not be liable
for any payment made or other action taken before we receive and record the
written notice.
Assignment of Contract
Except in the case of a Contract that qualifies as an individual retirement
annuity under Section 408(b) of the Code, you may assign all or a portion of
your right to receive annuity payments under the Contract or assign the Contract
as collateral security. If you assign any portion of the right to receive
annuity payments before the Maturity Date, then the assignee is entitled to
receive the assigned annuity payments in a lump sum, as of the Maturity Date. If
you assign any portion of the right to receive the assigned annuity payments,
after the Maturity Date, then the assignee will receive the assigned annuity
payments in accordance with the annuity income option in effect on the Maturity
Date. The assignee may not select an annuity income option or change an existing
annuity income option.
For a Qualified Contract, certain assignments may adversely affect the
qualification for special Federal income tax treatment of the underlying
retirement plan or individual retirement account. We urge potential purchasers
of Qualified Contracts to consult their tax advisers.
If you assign the right to receive annuity payments or assign the Contract
as collateral security, then your rights and those of any beneficiary will be
subject to the assignment. We are not responsible for the adequacy of any
assignment and will not be bound by the assignment until we receive satisfactory
written evidence of the assignment. In certain circumstances, an assignment will
be subject to Federal income tax.
State Exceptions
Contracts may vary according to the requirements of state insurance
departments. At the time of this prospectus' printing, the following state
variations were in effect:
Massachusetts and Montana Residents:
Massachusetts and Montana prohibit the use of actuarial tables that
distinguish between men and women in determining annuity benefits for annuity
contracts issued on the lives of residents. Therefore, Contracts offered on the
lives of Montana and Massachusetts residents will have annuity income options
which are based on actuarial tables that do not differentiate on the basis of
sex.
Iowa, Missouri, North Carolina, Oklahoma, South Carolina and Utah:
An Owner of a Contract issued in Iowa, Missouri, North Carolina, Oklahoma,
South Carolina and Utah who cancels the Contract within the Examination Period
will receive the greater of:
a full refund of the initial payment, or
the account value plus any amount deducted for taxes or charges
from the initial payment.
Washington:
An Owner of a Contract issued in Washington who cancels the Contract within
the Examination Period will receive a refund of the initial payment.
Access to Your Money
Full and Partial Surrenders
At any time before the Maturity Date, you may fully or partial surrender
the Contract, subject to certain conditions. If you surrender the Contract, you
will receive the full account value.
We do not deduct surrender charges from full or partial surrenders of the
Contract.
The minimum amount of a partial surrender is $500. The Contract must have
an account value of at least $2,500 after the partial surrender.
Your partial surrender request must specify the amount you want withdrawn
from each of the subaccounts and/or the general account. If you withdraw value
from the general account, we will deduct the requested amount proportionately
from each Declaration Period on a first-in, first-out basis within the
Declaration Period(s).
You must provide us with specific instructions about how we should withdraw
value from the subaccounts and/or the general account.
To make a partial surrender, you should send us a written request or call
us, if you have a valid telephone transfer request form on file with us. You may
make a full surrender only by sending us a written request. We will calculate
the account value payable to you upon a full or partial surrender at the price
next computed after we receive your surrender request.
If, when you make a surrender request, you have not provided us with a
written election, not to have Federal income taxes withheld, then we, by law,
must withhold taxes from the taxable portion of the surrender. A Federal penalty
tax may be assessed.
Systematic Withdrawals. We offer an option under which you may take partial
surrenders of the Contract by systematic withdrawals. You may elect to receive
systematic withdrawals before the Maturity Date by sending us a completed
Systematic Withdrawal form at our home office that includes the written consent
of any assignee or irrevocable beneficiary. You may designate the systematic
withdrawal amount as either a percentage of the account value or as a specified
dollar amount. You may designate that systematic withdrawals be made monthly,
quarterly, semiannually, or annually on a specific date. If you do not specify a
date, then the systematic withdrawal option will begin on the date we receive
the form. We will consider the effective date to be the first Valuation Date of
the following month if we receive the form on the 29th, 30th or 31st or if you
specify one of those dates.
Each systematic withdrawal must be at least $250. The systematic withdrawal
option will terminate if the amount to be withdrawn exceeds the account value or
would cause the account value to be below $2,500. If any portion of the
systematic withdrawal is to be withdrawn from the general account, then we will
deduct the requested amount proportionately from each Declaration Period on a
first-in, first-out basis within the Declaration Period(s).
Each systematic withdrawal will occur at the end of the Valuation Period
during which you scheduled a withdrawal. We deduct the systematic withdrawal
from your account value in the subaccounts and/or the general account, according
to your specifications.
You may terminate this option at any time by sending us written notice. We
will terminate this option if the amount to be withdrawn has caused the account
value to be below $2,500. If you wish to resume systematic withdrawals, then you
must send us a new Systematic Withdrawal form at our home office. We may
discontinue, modify, or suspend the systematic withdrawal option at any time.
You should carefully consider the tax consequences of a systematic withdrawal,
including a 10% penalty tax imposed on withdrawals made before you attain age 59
1/2.
Annuity Payments
If the annuitant is living on the Maturity Date and the Contract is in
force, then we will make fixed annuity payments to you under the annuity income
option you select. We will make the first annuity payment within seven days
after the Maturity Date.
The amount of the periodic annuity payments you receive depends upon:
(i) the account value you have accumulated on the Maturity Date,
(ii) the annuitant's age and sex (or, in the case of Annuity
Income Option 2, the age and sex of the annuitant and the joint
annuitant) on the Maturity Date, and
(iii) the annuity income option you selected.
On the Maturity Date, we determine the dollar amount of each annuity
payment. That amount is fixed and will not change.
After the Maturity Date, the Contract no longer participates in the
Variable Account. If, at the time of an annuity payment, you have not provided
us with a written election not to withhold Federal income taxes, then we, by
law, must withhold such taxes from the taxable portion of such Annuity payment.
In addition, the Code provides that a Federal penalty tax may be imposed on
certain premature annuity payments.
We determine the amount of the monthly annuity payments under annuity
income options 1, 2, and 3, described below, by dividing the account value on
the Maturity Date by 1,000 and multiplying the result by the appropriate factor
contained in your Contract on the table for your selected annuity income option.
The appropriate factor is based on a guaranteed minimum annual interest rate of
3.5%. We determine this factor at the time of maturity, subject to current
market conditions.
Annuity Income Options
At any time before the Maturity Date, you may designate the annuity income
option under which we will pay annuity payments. If you do not select an annuity
income option by the Maturity Date, then we will make monthly annuity payments
to you under annuity income option 1.
If the account value is less than $2,500 or if it is insufficient to
produce monthly payments of at least $100, then no annuity income options will
be available unless we consent or as otherwise required by state law. In such
cases, we will pay the account value in a lump sum.
We may offer other annuity income options on the Maturity Date. We will
provide you with information concerning the availability of any additional
annuity income options before the time that you have to select an annuity income
option.
We currently offer the following annuity income options:
Option 1. Life Annuity with Installment Refund - We will make monthly
annuity payments to you for the longer of:
(i) the annuitant's life; or
(ii) until the sum of the monthly annuity payments equals
the account value on the Maturity Date.
If the Owner dies before the sum of the monthly annuity payments we paid
equals the account value on the Maturity Date, then we will pay the
remaining annuity payments to your designated beneficiary.
Option 2. Joint and Survivor Life Annuity with Installment Refund - We will
make monthly annuity payments to you for the longer of:
(i) either the annuitant's or the joint annuitant's life;
or
(ii) until the sum of the monthly annuity payments made
under the Contract equals the account value on the
Maturity Date.
If all Owners die before the sum of the monthly annuity payments we paid
equals the account value on the Maturity Date, then we will pay the
remaining annuity payments to your designated beneficiary.
If you select annuity income option 2, then you must designate a joint
annuitant. We will use the joint annuitant's life to determine the duration
of annuity payments under annuity income option 2. The age and sex of both
the annuitant and the joint annuitant determine the amount of the monthly
annuity payments under annuity income option 2. At any time before the
Maturity Date, you may select a different joint annuitant by sending us
written notice. You may not select a new joint annuitant after the Maturity
Date.
Option 3. Installments for Life - We will make monthly annuity payments to
you for as long as the annuitant lives. Payments under this option will end
with the last payment made before the annuitant's death. Under this option
it is possible that you will receive only one annuity payment if the
annuitant died before the date of the second payment, two if he or she dies
before the third annuity payment date, etc.
For a Contract qualifying as an individual retirement annuity under Section
408(b) of the Code, you may not select an annuity income option with a Period
Certain that will guarantee annuity payments beyond the annuitant's life (or
life expectancy).
Maturity Date
The Maturity Date is the date on which annuity payments begin. You may
specify the Maturity Date in your application. You may change the Maturity Date
at any time during the annuitant's life by sending us a written request before
the currently scheduled Maturity Date.
The Maturity Date must be a Contract Anniversary that is not later than:
(i) the Contract Anniversary nearest the annuitant's 80th
birthday; or
(ii) ten years from the next Contract Anniversary, whichever
is later.
If you do not specify a Maturity Date, then the Maturity Date will be the later
of: (a) the 10th Contract Anniversary; or (b) the Contract Anniversary nearest
the annuitant's 80th birthday.
For a Qualified Contract, other than an IRA that satisfied Section 408(b)
of the Code, the selection of certain Maturity Dates may adversely affect
qualifying the underlying retirement plan for special Federal income tax
treatment. We urge potential purchasers of such Qualified Contracts to consult
their tax advisers.
For a Qualified Contract that is an IRA under Section 408(b) of the Code,
other than a Roth IRA, the minimum required distribution must be no later than
April 1 of the calendar year following the calendar year in which the annuitant
attains age 70 1/2.
Death Benefit
If the annuitant dies before the Maturity Date, then we will pay you, the
Owner, a death benefit as specified in the Contract. We do not pay a death
benefit if the annuitant dies on or after the Maturity Date.
If the annuitant dies before the Maturity Date, then we will pay you a lump
sum death benefit equal to the greater of:
(i) the account value; or
(ii) the sum of the payments you made, minus the sum of any
partial surrenders.
If the Owner is a natural person, then the Owner may elect to continue the
Contract and become the annuitant if the deceased annuitant was not an Owner. We
calculate the amount of the death benefit at the price next computed after we
receive Proof of Death for the annuitant. We will pay you within seven days of
receiving the Proof of Death, or as soon as we have sufficient information to
make the payment. If the deceased annuitant was an Owner, then we will in all
events pay the Death Benefit within five years of the date of the deceased
annuitant's death.
Beneficiary Provisions
If the beneficiary survives the Owner(s), then the beneficiary will receive
amounts payable under the Contract. If you do not specify a beneficiary, or if
no beneficiary survives you by 30 days, then your estate will receive any
remaining amounts payable under the Contract.
While the annuitant is living, you may change the beneficiary or
beneficiaries by sending us written notice. Once we receive the notice, we will
initiate the change as of the date you signed the written notice. We will not be
liable for any payment made or other action taken before we receive and record
such written notice at our home office. A beneficiary named irrevocably may not
be changed without written consent of such beneficiary. Any beneficiary's
interest is subject to the rights of any assignee.
Death of Owner
For a Nonqualified Contract in which any owner is a natural person, is not
the annuitant, and dies before the Maturity Date and before the annuitant's
death, the death benefit provisions described above do not apply.
In such circumstances, we will pay to the joint owner the account value in
a lump sum no later than five years following the date of the Owner's death. If
there is no joint owner, then we will pay the beneficiary. We calculate the
account value at the price next computed after we receive the Owner's Proof of
Death. If the joint owner or the beneficiary is the Owner's surviving spouse,
then he or she may elect to continue the Contract as if he or she were the
original Owner.
Employment-Related Benefit Plans
In 1983, the Supreme Court held in, Arizona Governing Committee v. Norris,
that optional annuity payments provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. This Contract contains annuity
payment rates for certain annuity income options that distinguish between men
and women. Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of Norris, and Title VII generally,
on any employment-related insurance or benefit program for which they may
purchase a Contract.
Charges and Deductions
We do not deduct commissions or sales charges from your payments when you
invest in the Contract. Nor do we not take surrender charges upon full or
partial surrender of the Contract. We pay distribution expenses out of our own
funds.
We will deduct certain charges and deductions from your account value to
compensate us for providing the annuity payments, assuming certain risks in
connection with the Contract, and administering the Contract.
If there are profits from the fees and charges that we deduct under the
Contract, including but not limited to mortality and expense risk charges, then
we may use such profits to finance the distribution of the Contracts.
Mortality and Expense Risk Charge
We deduct a daily charge from your Contract's value in the subaccounts for
certain mortality and expense risks in connection with the Contracts. We
currently charge a daily rate of .000010997 of the value you have in each
subaccount. That charge corresponds to an annual rate of .40%. We reserve the
right to increase the Mortality and Expense Risk Charge to .70%. That charge
corresponds to a daily rate of .000019245, the maximum set forth in the
Contract.
The mortality and expense risk charge only applies during the period from
the Effective Date to the Maturity Date and is not imposed against the general
account. The Investment Experience Factor for each subaccount reflects this
charge.
Changes in actual mortality experience or actual expense do not affect the
account value or annuity payments. The mortality risks arise from the
contractual obligations to pay death benefit before the Maturity Date and to
make annuity payments for the annuitant's entire life (or, in the case of
annuity income option 2, the entire life of the annuitant and the joint
annuitant). Thus, we assure you that neither the annuitant's longevity (or, in
the case of annuity income option 2, the annuitant's and the joint annuitant's
longevity) nor a greater than expected improvement in life expectancy, will
adversely affect the annuity payments. This eliminates the risk of outliving the
funds accumulated for retirement in instances in which the Contract is purchased
to provide funds for retirement.
The expense risk is the risk that the actual expenses involved in
administering the Contracts, including Contract maintenance costs,
administrative costs, mailing costs, data processing costs, and costs of other
services may exceed the amount recovered from any administrative charges.
Contract Administration Charge
The Contract's administrative expenses include processing applications,
Contract changes, tax reporting, full and partial surrenders, death claims, and
initial and subsequent payments; preparing annual and semiannual reports to
Owners and regulatory compliance reports; and overhead costs.
We deduct a daily charge from your Contract's value in the subaccounts for
the administrative expenses we incur in connection with the Contract and the
Variable Account. We charge a daily rate of .000008248 of the value of net
assets you have in each subaccount. This charge corresponds to an annual rate of
.30%. The Contract Administration Charge only applies during the period from the
Effective Date to the Maturity Date and is not imposed against the general
account. The Investment Experience Factor for each subaccount reflects this
charge.
Records Maintenance Charge
Currently, we do not charge for records maintenance. The Contract permits
us to deduct a maximum amount of $40 from your account value at the beginning of
each Contract Year to reflect the cost of performing records maintenance for the
Contracts. If we imposed this charge, then we would deduct it proportionately
from each subaccount and each of the Declaration Period(s) in the general
account (on a first-in, first-out basis within each Declaration Period) in which
you have allocated funds. If we deducted a Records Maintenance Charge, then it
would apply only during the period from the Effective Date to the Maturity Date.
If you surrender the Contract during a Contract Year, then we would not prorate
it.
Premium Taxes
Most states and political subdivisions do not assess premium taxes. Where
state premium taxes are assessed, we will deduct the amount of tax due from each
payment at rates ranging from a minimum of 0.5% to a maximum of 3.5%. We will
deduct any premium taxes levied by political subdivisions from payments. Such
taxes are generally at rates of less than 1%.
If the premium tax exceeds 3.5% of the payment, we will accept the payment
only if you provide written authorization allowing us to deduct the applicable
premium tax from the account value.
Other Taxes
We currently do not charge the Variable Account for any Federal, state, or
local taxes other than premium taxes. If we decide to impose any such taxes on
the Variable Account, then we may deduct such taxes from amounts you have
invested in the Variable Account.
Transfer Charges
We do not charge for transfers among subaccounts. However, the Contract
permits us to deduct $10 from each subaccount for each transfer you make in
excess of two in a Contract Year.
We do not consider the following to be transfers: (i) initial allocations
of payments, (ii) reallocations among the Declaration Periods within the general
account, or (iii) reallocations from the general account to any subaccounts at
the end of a Declaration Period.
We treat all transfer requests, made at the same time, as one request. We
may impose the transfer charge at any time.
Portfolio Charges
The portfolios deduct investment charges from amounts you have invested in
the portfolios. These charges range from 0.44% to 1.72% annually, depending on
the portfolio. For more information, see the Fund's prospectus.
Certain Federal Income Tax Consequences
The discussion set forth below is included for general purposes only.
Before making any payment you should consult your own tax adviser with any
questions regarding your own situation and as to the consequences of investment
in a contract under Federal and applicable state, local, and foreign tax laws.
The following is provided as general information. It is based on our
understanding of current Federal income tax laws and no representation is made
as to the likelihood that such laws, or their interpretation by the Internal
Revenue Service (IRS) will continue. The following is not intended as tax advice
to any individual or Qualified Plan.
The Statement of Additional Information (SAI) contains additional
information regarding the possible tax consequences of exchanges or surrenders.
Tax Status of the Contract
If you invest in a variable annuity as part of a pension plan or
employer-sponsored retirement program, your contract is called a Qualified
Contract. If your annuity is independent of any formal retirement or pension
plan, it is termed a Nonqualified Contract. The tax rules applicable to
Qualified Contracts vary according to the type of retirement plan and the terms
and conditions of the plan.
Taxation of Nonqualified Contracts
Diversification Requirements . The Code requires that the investments of
each investment division of the separate account underlying the contracts be
"adequately diversified" in order for the contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that the Variable
Account, through the Fund and its portfolios, will satisfy these diversification
requirements.
Owner Control . In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the separate account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the Variable Account assets. There is little guidance in this area, and some
features of the Contract, such as the flexibility of an owner to allocate
premium payments and transfer amounts among the investment divisions of the
separate account, have not been explicitly addressed in published rulings. While
we believe that the Contract does not give an Owner investment control over
separate account assets, we reserve the right to modify the Contract as
necessary to prevent an Owner from being treated as the owner of the separate
account assets supporting the Contract.
Required Distributions . In order to be treated as an annuity contract for
Federal income tax purposes, section 72(s) of the Internal Revenue Code requires
any Nonqualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of the death of a
holder of the Contract. The Nonqualified Contracts contain provisions that are
intended to comply with these Code requirements, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
applicable requirements, when such requirements are clarified by regulation or
otherwise.
Non-Natural Person . If a non-natural person (e.g., a corporation or a
trust) owns a Nonqualified Contract, the taxpayer generally must include, in
income, any increase in the excess of the accumulation value over the investment
in the Contract (generally, the premiums or other consideration paid for the
Contract) during the taxable year. There are some exceptions to this rule and a
prospective owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by natural
persons.
Withdrawals . When a withdrawal from a Nonqualified Contract occurs, the
amount received will be treated as ordinary income, subject to tax up to an
amount equal to the excess (if any) of the accumulation value immediately before
the distribution over the Owner's investment in the Contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Nonqualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the Contract.
Penalty Tax on Certain Withdrawals . In the case of a distribution from a
Nonqualified Contract, there may be imposed a Federal tax penalty equal to ten
percent of the amount treated as income. In general, however, there is no
penalty on distributions:
made on or after the taxpayer reaches age 59 1/2;
made on or after the death of an Owner;
attributable to the taxpayer's becoming disabled;
or
made as part of a series of substantially equal periodic
payments for the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special
rules may be applicable in connection with the exceptions enumerated above. You
should consult a tax adviser with regard to exceptions from the penalty tax.
Annuity Payments . Although tax consequences may vary depending on the
payout option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the Contract has
been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
Taxation of Death Benefit Proceeds . Amounts may be distributed from the
Contract because of your death or the death of the Annuitant. Generally, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a surrender of
the Contract, or (ii) if distributed under a payout option, they are taxed in
the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract . A transfer or
assignment of ownership of a Contract, the designation of an annuitant, the
selection of certain maturity dates, or the exchange of a Contract may result in
certain tax consequences to you that are not discussed herein. An owner
contemplating any such transfer, assignment or exchange, should consult a tax
advisor as to the tax consequences.
Withholding . Annuity distributions are generally subject to withholding
for the recipient's Federal income tax liability. Recipients can generally
elect, however, not to have tax withheld from distributions.
Multiple Contracts . All annuity contracts that are issued by us (or our
affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in such
owner's income when a taxable distribution occurs.
Taxation of Qualified Contracts
Your rights under a Qualified Contract may be subject to the terms of the
retirement plan itself, regardless of the terms of the qualified contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions with respect to the contract comply with
the law.
Individual Retirement Accounts (IRAs), as defined in Sections 219 and 408
of the Internal Revenue Code ("the Code"), permit individuals to make annual
contributions of up to the lesser of $2,000 or 100% of their adjusted gross
income. The contributions may be deductible in whole or in part, depending on
the individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless certain exceptions apply.
Corporate pension and profit-sharing plans under Section 401(a) of the Code
allow corporate employers to establish various types of retirement plans for
employees, and self-employed individuals to establish qualified plans for
themselves and their employees. Adverse tax consequences to the retirement plan,
the participant or both may result if the Contract is transferred to any
individual as a means to provide benefit payments, unless the plan complies with
all the requirements applicable to such benefits prior to transferring the
Contract.
Other Tax Issues. Qualified Contracts have minimum distribution rules that
govern the timing and amount of distributions. You should refer to your
retirement plan, adoption agreement, or consult a tax advisor for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to withholding
for the Owner's Federal income tax liability. The withholding rate varies
according to the type of distribution and the Owner's tax status. The Owner will
be provided the opportunity to elect not to have taxes withheld from
distributions.
"Eligible rollover distributions" from section 401(a) plans are subject to
a mandatory Federal income tax withholding of 20%. An eligible rollover
distribution is the taxable portion of any distribution from such a plan, except
certain distributions such as distributions required by the Code or
distributions in a specified annuity form. The 20% withholding does not apply,
however, if the Owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
Our Income Taxes
At the present time, we make no charge for any Federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment divisions of the separate account or
to the contracts. We do have the right in the future to make additional charges
for any such tax or other economic burden resulting from the application of the
tax laws that we determine is attributable to the investment divisions of the
separate account or the contracts.
Under current laws in several states, we may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, we may deduct charges for
such taxes.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contract could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative changes
that could otherwise diminish the favorable tax treatment that annuity contract
owners currently receive. We make no guarantee regarding the tax status of any
contact and do not intend the above discussion as tax advice.
General Provisions
The Contract
The Contract, its endorsements, riders, and the Contract application
constitute the entire contract between Charter and the Owner. Only the
President, a Vice President, the Secretary, or an Assistant Secretary of Charter
is authorized to change or waive the terms of a Contract. Any change or waiver
must be in writing and signed by one of those persons.
Delay of Payment and Transfers
We will pay any amount due from the Variable Account for a full or partial
surrender, the death benefit, or the death of the owner of a Nonqualified
Contract, generally within seven days from the date we receive written notice.
We may be permitted to defer such payment, and transfers, if:
the NYSE is closed for other than usual weekends or holidays, or
trading on the Exchange is otherwise restricted;
an emergency exists as defined by the SEC or the SEC requires
that trading be restricted; or
the SEC permits a delay for the protection of Owners.
We anticipate that payments and transfers from the general account will
occur within seven business days after receipt of written notice. Pursuant to
state insurance law requirements, we reserve the right to defer payments to be
made from the general account for up to six months.
We may postpone any payment that is derived, all or in part, from any
amount paid to us by check or draft until we determine that such instrument has
been honored.
Contract Expiration
The Contract will expire and be of no effect when the account value is
insufficient to cover deductions for the mortality and expense risk charge, the
contract administration charge, any records maintenance charge, or transfer
charges.
Misstatement of Age or Sex
If the annuitant's age or sex (and/or the joint annuitant's age or sex, if
annuity income option 2 is selected) has been misstated on the application, then
we will recalculate the annuity payments to reflect the calculations that would
have been made had the annuitant's (and/or joint annuitant's) age and sex been
correctly stated.
Nonparticipating Contract
The Contract does not participate in our divisible surplus. The Contract
does not pay dividends.
Notices and Inquiries
Please send any written notice or request to:
Scudder Horizon Plan
Customer Service Center
8301 Maryland Ave.
St. Louis, MO 63105.
Any notice or request must be on the form and contain the information we
require. This includes the Contract number and your full name and signature. Any
notice that we send you will be sent to the address shown in the application
unless we have on file a written notice of an address change. All inquiries
should include your Contract number and full name. If you need additional
information, you may call us at (800) 242-4402.
Records and Reports
At the end of each calendar quarter, Allstate, or its designee, on our
behalf, will send you, at your last known address of record, statements listing
the account value, additional payments, transfers, any charges, and any partial
surrenders made during the year. You will also be sent the Fund's annual and
semiannual reports.
Year 2000 Disclosure
Like all financial services providers, Charter, Allstate and Allstate's
affiliates (we) are heavily dependent upon complex computer systems for all
phases of our operations, including customer service and contract
administration. Since many of our older computer software programs recognize
only the last two digits of the year in any date, some software may fail to
operate properly in or after the year 1999, if software is not reprogrammed,
remediated or replaced ("Year 2000 Issue"). We believe that many of our
counterparties and suppliers also have Year 2000 Issues that could affect us. In
1995, Allstate commenced a plan intended to mitigate and/or prevent the adverse
effects of Year 2000 Issues. These strategies include normal development and
enhancement of new and existing systems, upgrades to operating systems already
covered by maintenance agreements and modifications to existing systems to make
them Year 2000 compliant. The plan also includes us actively working with our
major external counterparties and suppliers to assess their compliance efforts
and our exposure to them. Allstate is currently in the process of identifying
key processes and developing contingency plans in the event that the systems
supporting its key processes are not Year 2000 compliant at the end of 1999.
Management believes these contingency plans should be completed by mid-1999.
Until these plans are complete, management is unable to determine an estimate of
the most reasonably possible worst case scenario due to issues relating to the
Year 2000. We presently believe that we will resolve the Year 2000 Issue in a
timely manner, and the financial impact will not materially affect the results
of our operations, liquidity or financial position. Allstate's Year 2000 costs
are and will be expensed as incurred.
Services Agreement
On September 2, 1998, we entered into an administrative services agreement
("Services Agreement") with Allstate under which Allstate, or its designee,
provides the administrative services in connection with the Contracts and the
Variable Account on our behalf. Included among the services are premium payment
processing, all transfer, withdrawal or surrender requests, preparation of
records (including records of all purchases and redemption of the shares of each
portfolio) and reports relating to the Variable Account and the Contracts. In
addition Allstate is responsible for payment of all expenses in connection with
the Contract and Separate Account. Allstate's principal address is: 3100 Sanders
Road, Northbrook, Illinois 60062.
At this time you should continue to use the addresses and phone numbers set
forth in this prospectus.
Distribution of the Contract
The principal underwriter of the Contracts is CNL. CNL is wholly-owned by
Allstate. CNL is registered with the SEC as a broker-dealer under the Securities
Exchange Act of 1934, as amended (the " 1934 Act"), and is a member of the
National Association of Securities Dealers, Inc. The principal address of CNL is
8301 Maryland Avenue, St. Louis, Missouri 63105.
For its services as principal underwriter, we pay CNL, on a monthly basis,
.50% of new and additional payments for the Contracts. We have also entered into
a general expense reimbursement agreement with CNL for expenses incurred by CNL
in connection with distribution expenses relating to the offering of the
Contracts and other variable annuity and variable life insurance contracts that
we issue. We paid commissions to CNL for the sale of the Contracts totaling
$189,889 in 1998, $238,447.78 in 1997, and $230,970.90 in 1996.
CNL has contracted with Scudder Investor Services, Inc. ("Scudder") for
Scudder's services in connection with the distribution of the Contracts. Scudder
is registered with the SEC as a broker-dealer under the 1934 Act and is a member
of the National Association of Securities Dealers, Inc. Individuals directly
involved in the sale of the Contracts are registered representatives of Scudder
and our licensed agents. The principal address of Scudder is Two International
Place, Boston, Massachusetts 02110-4103.
CNL is doing business under the following names in the states indicated:
CNL Insurance Marketing, Inc. in California, Florida, Minnesota, Montana, New
Hampshire, and New Jersey; CNL Insurance & Financial Services, Inc. in Illinois,
Kentucky, Maine, Maryland, Nevada, Rhode Island, and Utah; and CNL, Inc. of
Missouri in Vermont.
The Contracts will be offered to the public on a continuous basis. Both CNL
and Scudder reserve the right to discontinue the offering at any time.
The General Account
Payments you allocate or transfer to the general account become part of our
general account assets that support our annuity and insurance obligations. The
general account includes all of our assets, except those assets segregated in
separate accounts. According to the coinsurance agreement executed on September
2, 1998, between Charter and Allstate, the assets of the general account
attributable to the Contracts were transferred to Allstate. This agreement makes
it Allstate's responsibility to invest the assets of the general account,
subject to applicable law.
Because of exemptive and exclusionary provisions in the Federal securities
laws, we have not registered interests in the general account under the
Securities Act of 1933 (the "1933 Act"), and the general account is not
registered as an investment company under the 1940 Act. Accordingly, neither the
general account nor any interest therein is subject to the provisions of such
statutes, and, as a result, the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the general account. However,
disclosures about the general account may be subject to certain generally
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
We guarantee that we will credit interest to amounts you allocate to the
general account at an effective annual rate of at least 3.5% compounded monthly.
We may declare higher interest rates from time to time at our discretion. We
will credit the declared interest rate for a specific period of time called a
Declaration Period. A Declaration Period will not be less than one year or more
than 3 years. You may elect one or more Declaration Periods currently offered
when you allocate or transfer funds to the general account. At any one time,
your money held in a Declaration Period may be earning different declared
interest rates, if you allocated funds to that Declaration Period at different
times.
We cannot accept allocations to the general account that would increase
your Contract's value in the general account to over $500,000. We guarantee that
the value held in the general account will equal all amounts that you allocated
or transferred to the general account, plus any interest credited, less any
amounts that you surrendered or transferred from the general account, and less
any applicable charges. Amounts you allocate to the general account do not share
in the investment experience of the general account.
You may not allocate or transfer an amount from or within the general
account to the general account before the end of that amount's Declaration
Period. We will send notice to you 30 days before the expiration of a
Declaration Period and ask you how to reallocate the amounts in the expiring
Declaration Period. If we do not receive your instructions before the end of the
Declaration Period, then we will transfer your value in the expiring Declaration
Period to the Money Market Subaccount.
Voting Rights
We will vote the Fund's shares held in the Variable Account at regular and
special shareholder meetings of the Fund in accordance with instructions we
received from persons having voting interests in the subaccounts. If we
determine that the law permits us to vote the Fund's shares in our own right,
then we may elect to do so.
We will separately calculate the number of votes that you have the right to
instruct for each subaccount. We will determine the number of votes for each
subaccount, that you have the right to instruct, by dividing your Contract's
value in a subaccount by the net asset value per share of the corresponding
portfolio in which the subaccount invests. We count fractional shares. The
number of votes of a portfolio, that you have the right to instruct, will be
determined as of the date coincident with the date established by the Fund for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited by written communications before that meeting in
accordance with procedures established by the Fund.
We will vote the Fund's shares, for which we do not receive timely
instructions, in proportion to the voting instructions which we receive for all
of the variable annuity contracts (including the Contracts) that we issue and
are participating in that portfolio. We will also vote our shares that are not
attributable to variable annuity contracts in the same proportion.
Separate accounts of other insurance companies, including insurance
companies affiliated with us, may also invest premiums for variable life and
variable annuity contracts in the Fund. It is to be expected that Fund shares
held by those separate accounts will be voted according to the instructions of
the owners of those variable life and variable annuity contracts. This will
dilute the effect of the your voting instructions. We do not see any
disadvantages to this dilution.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
Legal Proceedings
The Company and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe that at the present
time there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the Variable Account or us.
Additional Information
A registration statement has been filed with the SEC under the Securities
Act of 1933, as amended, and the 1940 Act with respect to the Contract offered
hereby. This prospectus does not contain all of the information set forth in the
full registration statement. For instance, this prospectus only summarizes the
contents of the Contract and other legal instruments contained in the full
registration statement. For a complete statement of the terms of those
documents, please refer to the full registration statement as filed.
<PAGE>
Table of Contents for Statement of Additional Information
State Regulation of Charter 1
Certain Federal Income Tax Consequences of Certain
Exchanges and Surrenders 1
Safekeeping of the Variable Accounts Assets 1
Purchase and Services Agreement 2
Calculation of Yields And Total Returns 2
Money Market Subaccount Yields 3
Other Subaccount Yields 4
Total Returns 5
Effect of the Records Maintenance Charge on
Performance Data 6
Other Performance Data 7
Cumulative Total Returns 7
Adjusted Historic Portfolio Performance 8
Comparison of Performance and Expense Information 8
Legal Matters 9
Independent Accountants 9
Financial Statements 9
<PAGE>
Condensed Financial Information
The following condensed financial information is derived from the financial
statements of the Variable Account. You should read the data along with the
financial statements, related notes, and other financial information included in
the Statement of Additional Information.
The following table sets forth information regarding the subaccounts for a
Contract for the period from the commencement of business operations through
December 31, 1998.
Money Market Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 19.749 3,438,822
1997 18.890 2,521,329
1996 18.074 2,615,942
1995 17.316 2,260,561
1994 16.507 3,197,824
1993 16.030 1,491,258
1992 15.740 1,380,156
1991 15.341 972,042
1990 14.606 989,667
1989 13.683 344,621
<PAGE>
Bond Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 26.344 1,338,386
1997 24.894 951,724
1996 22.979 764,803
1995 22.508 896,538
1994 19.181 690,782
1993 20.287 755,914
1992 18.179 631,581
1991 17.109 406,545
1990 14.653 210,921
1989 13.697 182,698
Capital Growth Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 55.857 3,421,630
1997 45.649 2,923,166
1996 33.863 2,729,711
1995 28.388 2,884,663
1994 22.222 2,683,112
1993 24.773 2,351,022
1992 20.638 1,798,119
1991 19.514 933,120
1990 14.096 400,044
1989 15.389 227,343
<PAGE>
Balanced Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 42.735 1,895,133
1997 34.936 1,527,371
1996 28.326 1,490,127
1995 25.496 1,603,656
1994 20.270 1,426,280
1993 20.840 1,477,645
1992 19.531 1,243,891
1991 18.389 779,317
1990 14.592 492,406
1989 15.029 399,068
International Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 39.486 2,282,222
1997 33.560 2,251,880
1996 30.987 2,593,037
1995 27.188 2,869,930
1994 24.641 3,543,387
1993 25.027 2,767,700
1992 18.287 785,559
1991 19.003 446,099
1990 17.174 370,916
1989 18.830 107,751
Growth and Income Subaccount
Accumulation Unit Value Number of Accumulation
At End of Year Units at End of Year
1998 28.485 3,836,652
1997 26.835 4,225,162
1996 20.713 3,491,709
1995 17.075 2,659,025
1994* 13.053 1,311,518
Global Discovery Subaccount
Accumulation Unit Value Number of Accumulation
at End of Year Units at End of Year
1998 16.937 1,004,053
1997 14.648 986,445
1996* 13.126 1,025,244
* The Growth and Income Subaccount commenced operations on May 1, 1994. The
Global Discovery Subaccount commenced operations on May 1, 1996. The Unit
Value at commencement was 12.500.
<PAGE>
Because the Large Company Growth and Small Company Growth subaccounts did not
begin operations until May 1, 1999, there is no condensed financial information
for these subaccounts for the year ended December 31, 1998.
<PAGE>
Statement of Additional Information
For the
Scudder Horizon Plan
a Flexible Premium Variable Deferred Annuity
Issued Through
Charter National Variable Annuity Account
Offered by
Charter National Life Insurance Company
(A Missouri Stock Company)
Customer Service Center
8301 Maryland Avenue Ave.
St. Louis, MO 63105
1-800-242-4402
-----------
This Statement of Additional Information expands upon subjects discussed
in the current Prospectus for the Scudder Horizon Plan, a flexible premium
variable deferred annuity (the "Contract") offered by Charter National Life
Insurance Company.
You may obtain a copy of the Prospectus dated May 1, 1999, by calling (800)
225-2470 or writing to:
Scudder Investment Services, Inc.
Two International Place
Boston, Massachusetts 02110-4103
Terms used in the current Prospectus for the Contract are incorporated in
this Statement.
This Statement of Additional Information is not a prospectus and should be
read only in conjunction with the Prospectus for the Contract.
Dated May 1, 1999
<PAGE>
Table of Contents
State Regulation of Charter...............................................1
Certain Federal Income Tax Consequences of................................1
Certain Exchanges and Surrenders..........................................1
Safekeeping of the Variable Account's Assets..............................1
Purchase and Services Agreements..........................................2
Calculation of Yields and Total Returns...................................2
Money Market Subaccount Yields.........................................3
Other Subaccount Yields................................................4
Total Returns..........................................................5
Effect of the Records Maintenance Charge on Performance Data...........6
Other Performance Data....................................................7
Cumulative Total Returns...............................................7
Adjusted Historic Portfolio Performance................................8
Comparison of Performance and Expense Information......................9
Legal Matters.............................................................9
Independent Accountants..................................................10
Financial Statements.....................................................10
<PAGE>
In order to supplement the description in the Prospectus, this document
provides additional information about Charter and the Contract that may be of
interest to you.
State Regulation of Charter
We are a stock life insurance company organized under the laws of Missouri,
and is are subject to regulation by the Missouri State Department of Insurance.
We file quarterly statements covering the operations and reporting on the
financial condition of Charter with the Missouri Director of Insurance.
Periodically, the Missouri Director of Insurance examines the financial
condition of Charter, including the liabilities and reserves of the Variable
Account and other separate accounts of which Charter is we are the depositor.
In addition, we are subject to the insurance laws and regulations of all
the states in which we are licensed to operate. The availability of the Contract
and certain contract rights and provisions depend on state approval and/or
filing and review processes. Where required by state law or regulation, the
Contract will be modified accordingly.
Certain Federal Income Tax Consequences of
Certain Exchanges and Surrenders
Under Section 1035 of the Code, generally no gain or loss is recognized on
a qualifying exchange of an annuity contract for another annuity contract. A
direct exchange of an annuity contract for a Contract should qualify as an
exchange under Section 1035 of the Code. There are, however, certain exceptions
to this rule. Moreover, although the issue is not free from doubt, certain
surrenders under an annuity contract followed by an investment in the Contract
also may qualify as exchanges under Section 1035 of the Code. Due to the
uncertainty of the rules regarding the determination of whether a transaction
qualifies under Section 1035 of the Code, prospective purchasers are urged to
consult their own tax advisers.
In addition to being nontaxable events, certain exchanges qualifying under
Section 1035 of the Code may also result in a carry-over of the federal income
tax treatment of the old annuity contract to the new annuity contract. Due to
the complexity of the rules regarding the proper treatment of an exchange
qualifying under Section 1035 of the Code, however, prospective purchasers are
urged to consult their own tax advisers.
Safekeeping of the Variable Account's Assets
We hold the assets of the Variable Account. The assets are kept segregated
and held separate and apart from Charter's general funds of Charter. We maintain
records of all purchases and redemptions of the shares of each Portfolio. A
blanket fidelity bond in the amount of $10,000,000 covers all of the officers
and employees of Charter.
<PAGE>
Purchase and Services Agreements
On September 2, 1998 Charter and Leucadia entered into a coinsurance
agreement ("the Agreement") with Allstate Life Insurance Company ("Allstate")
reinsuring all of Charter's rights, liabilities and obligations with respect to
the Variable Account under the Contract. On the same date, Charter and Allstate
entered into an administrative services agreement ("Services Agreement") under
which Allstate, or its designee, has agreed to provide the administrative
services in connection with the Contract and the Variable Account on behalf of
Charter. Included among such services are premium payment processing, all
transfer, withdrawal or surrender requests, prepare all records (including
records of all purchases and redemption of the shares of each portfolio) and
reports relating to the Variable Account and the Contract. As compensation for
its services, Allstate retains the charges deducted from Separate Account or
Contract Values. Allstate is responsible for payment of all expenses in
connection with the Contract and the Separate Account. Allstate's principal
address is 3100 Sanders Rd., Northbrook, Illinois 60062.
On December 21, 1998, Allstate announced that it has entered into an
agreement with Leucadia National Corporation, Charter's parent company, to
purchase Charter. The transaction is subject to regulatory approvals and is
expected to close by July 1, 1999.
CNL, Inc. ("CNL") is the principal underwriter of the Contract. On
September 2, 1998, Leucadia, then the sole owner of all of CNL's stock, sold all
of its CNL stock to Allstate. Allstate is now sole owner of CNL.
Calculation of Yields and Total Returns
From time to time, we may disclose yields, total returns and other
performance data pertaining to the Contracts for the Subaccounts in accordance
with the standards deemed by the Securities and Exchange Commission. Because of
the charges and deductions imposed under the Contract the yield for the
Subaccounts will be lower than the yield for their respective Portfolios. Also,
because of differences in Variable Account charges for different variable
annuity contracts invested in the Variable Account, the yields, total returns
and other performance data for the Subaccounts will be different for the
Contract than for such other variable annuity contracts. The calculations of
yields, total returns and other performance data do not reflect the effect of
any premium tax that may be applicable to a particular Contract. Most states and
political subdivisions do not assess premium taxes. Where state premium taxes
are assessed, Charter will deduct the amount of tax due from each payment at
rates ranging from a minimum of .5% to a maximum of 3.5%. Any premium taxes
levied by political subdivisions will likewise be deducted from payments; such
taxes are generally at rates of less than 1%.
The yields and total returns for periods prior to the date the Subaccounts
commenced operations, when disclosed, are based on the performance of the
Scudder Variable Life Investment Fund's Portfolios and the assumption that the
Subaccounts were in existence for the same periods as the Fund's Portfolios with
the level of Contract charges equal to those currently assessed against the
Subaccounts. The Subaccounts and Portfolios commenced operations as indicated:
Subaccount/Portfolio Subaccount Portfolio
-------------------- ---------- ---------
Money Market October, 1988 July, 1985
Bond October, 1988 July, 1985
Balanced October, 1988 July, 1985
Capital Growth October, 1988 July, 1985
International October, 1988 May, 1987
Growth and Income May, 1994 May, 1994
Global Discovery May, 1996 May, 1996
Large Company Growth May, 1999 May, 1999
Small Company Growth May, 1999 May, 1999
Money Market Subaccount Yields
We compute the Current Yield by determining the net change (exclusive of
realized gains and losses on the sale of securities and unrealized appreciation
and depreciation) at the end of the seven-day period in the value of a
hypothetical under a Contract having a balance of 1 unit of the Money Market
Subaccount at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the period to determine
the base period return, and annualizing this quotient on a 365-day basis. The
net change in account value reflects (i) net income from the Portfolio
attributable to the hypothetical account and (ii) charges and deductions imposed
under the Contract which are attributable to the hypothetical account. The
charges and deductions include the per unit charges for the hypothetical account
for the Administration Charge and the Mortality and Expense Risk Charge. The
Current Yield is calculated according to the following formula:
Current Yield = ((NCS - ES) / UV) x (365 / 7)
We may also disclose the Effective Yield of the Money Market Subaccount for
the same seven-day period, determined on a compounded basis. The seven-day
Effective Yield is calculated by compounding the unannualized base period return
according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))(365 / 7) -1
Where, for both formulas:
NCS = The net change in the value of the Portfolio (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation and exclusive of income other than investment income) for the
seven-day period attributable to a hypothetical account having a balance of
one Subaccount unit under a Contract.
ES = Per unit expenses of the Subaccount for the Contracts for the seven-day
period.
UV = The unit value for a Contract on the first day of the seven-day period.
The Current and Effective Yield on amounts held in the Money Market
Subaccount normally will fluctuate on a daily basis. Therefore, the disclosed
yield for any given past period is not an indication or representation of future
yields or rates of return. The Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity, the types and quality of portfolio securities held, and the
operating expenses.
Other Subaccount Yields
The 30-Day Yield refers to income generated by the Bond Subaccount over a
specific 30-day period. Because the yield is annualized, the yield generated
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the Portfolio attributable to the Subaccount units less Subaccount
expenses attributable to the Contracts for the period, by (ii) the maximum
offering price per unit on the last day of the period times the daily average
number of units outstanding for the period, by (iii) compounding that yield for
a 6-month period, and by (iv) multiplying that result by 2. Expenses
attributable to the Bond Subaccount for the Contracts include the Administration
Charge and the Mortality and Expense Risk Charge. The 30-Day Yield is calculated
according to the following formula:
30-Day Yield = 2 x ((((NI -ES) / (U x UV)) + 1)(to the power of 6)- 1)
Where:
NI = Net income of the portfolio for the 30-day period attributable to the
Subaccount's units.
ES = Expenses of the Subaccount for the Contracts for the 30-day period.
U = The average daily number of units outstanding attributable to the
Contracts.
UV = The unit value for a Contract at the close (highest) of the last day in
the 30-day period.
The 30-Day Yield on amounts held in the Bond Subaccount normally will
fluctuate over time. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. The
Bond Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio, and its operating expenses.
Total Returns
We may disclose Standard Average Annual Total Returns ("Total Returns") for
one or more of the Subaccounts for various periods of time. One of the periods
of time will include the period measured from the date the Subaccount commenced
operations. When a Subaccount has been in operation for one, five and ten years,
respectively, the Total Returns for these periods will be provided. Total
Returns for other periods of time may, from time to time, also be disclosed.
Based on the method of calculation described below, the Average Annual Total
Returns for the Subaccounts were as follows:
<TABLE>
<CAPTION>
One Year Period Five Year Period Ten Year Period Subaccount
Subaccount Ending 12/31/98 Ending 12/31/98 Ending 12/31/98 or Inception Dates
Since Inception
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Money Market* 4.55 4.26 4.52 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Bond 5.82 5.36 7.83 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Balanced 22.32 15.44 12.89 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Capital Growth 22.36 17.65 15.98 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
International 17.66 9.54 11.10 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Growth and Income** 6.15 N/A 19.28 5/--/94
- ----------------------- --------------------- -------------------- --------------------- --------------------
Global Discovery*** 15.63 N/A 12.06 5/--/96
- ----------------------- --------------------- -------------------- --------------------- --------------------
Large Company N/A N/A N/A 5/--/99
Growth****
- ----------------------- --------------------- -------------------- --------------------- --------------------
Small Company N/A N/A N/A 5/--/99
Growth****
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
* The Yield quotations for the Money Market Subaccount quoted above more closely
reflect the current earnings of this subaccount than the total return
quotations.
** Five- and Ten-Year Average Annual Total Returns are not available for the
Growth and Income Subaccount as it began operations on May 1, 1994.
*** Five- and Ten-Year Average Annual Total Returns are not available for the
Global Discovery Subaccount as it began operations on May 1, 1996.
**** One-, Five- and Ten-Year Average Annual Total Returns are not available for
the Large Company Growth and Small Company Growth Subaccounts as they began
operations on May 3, 1999.
Total Returns represent the average annual compounded rates of return that
would equate a single investment of $1,000 to the redemption value of that
investment as of the last day of each of the periods. The ending date for each
period for which Total Return quotations are provided will be for the most
recent month end practicable, considering the type and media of the
communication, and will be stated in the communication.
We will calculate Total Returns using Subaccount Unit Values which Charter
calculates on each Valuation Date based on the performance of the Subaccount's
underlying Portfolio, and the deductions for the Mortality and Expense Risk
Charge of 0.40%, the Contract Administration Charge of 0.30% and (for periods
prior to January 25, 1991) the Records Maintenance Charge. The Records
Maintenance Charge of $35 per year per Contract was deducted at the beginning of
each Contract Year. The Total Return is calculated according to the following
formula:
TR = (ERV / P )(to the power of 1/N) - 1
Where:
TR = The average annual total return net of Subaccount recurring charges for
the Contracts.
ERV = The ending redeemable value of the hypothetical account at the end of the
period.
P = A hypothetical single payment of $1,000.
N = The number of years in the period.
Effect of the Records Maintenance Charge on Performance Data
While the Contract provides for a $40 Records Maintenance Charge to be
deducted annually at the beginning of each Contract Year, we are not deducting
the Records Maintenance Charge at this time. On performance information prior to
January 25, 1991, $35 was deducted annually at the beginning of each Contract
Year proportionately from each Subaccount based on the value of the amounts in
each Subaccount. For purposes of reflecting the Records Maintenance Charge in
yield and total return quotations, we converted the $35 annual charge into a per
dollar per day charge based on the average Account Value of all Contracts on the
last day of the period for which quotations were provided and assumed that the
charge would be applied to all Contracts. The per dollar per day average charge
was then adjusted to reflect the basis upon which the particular quotation was
calculated.
The assumed average Records Maintenance Charge did not, except in rare
instances, reflect its actual effect on a particular Contract.
Other Performance Data
Cumulative Total Returns
Based on the method of calculation described below, the Cumulative Total
Returns for the Subaccounts for the periods ending December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
One Year Period Five Year Period Ten Year Period Subaccount
Ending 12/31/98 Ending 12/31/98 Ending 12/31/98 or Inception Dates
Subaccount Since Inception
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Money Market* 4.55 23.20 55.61 10/__/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Bond 5.82 29.86 112.59 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Balanced 22.32 105.06 236.39 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Capital Growth 22.36 125.47 341.08 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
International 17.66 57.77 186.72 10/--/88
- ----------------------- --------------------- -------------------- --------------------- --------------------
Growth and Income** 6.15 N/A 127.88 5/--/94
- ----------------------- --------------------- -------------------- --------------------- --------------------
Global Discovery*** 15.63 N/A 35.50 5/--/96
- ----------------------- --------------------- -------------------- --------------------- --------------------
Large Company N/A N/A N/A 5/--/99
Growth****
- ----------------------- --------------------- -------------------- --------------------- --------------------
Small Company N/A N/A N/A 5/--/99
Growth****
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
* The Yield quotations for the Money Market Subaccount quoted above more closely
reflect the current earnings of this subaccount than the total return
quotations.
** Five- and Ten-Year Average Annual Total Returns are not available for the
Growth and Income Subaccount as it began operations on May 1, 1994.
*** Five- and Ten-Year Cumulative Average Annual Total Returns are not available
for the Global Discovery Subaccount as it began operations on May 1, 1996.
**** One-, Five- and Ten-Year Average Annual Total Returns are not available for
the Large Company Growth and Small Company Growth Subaccounts as they began
operations on May 3, 1999.
The Cumulative Total Returns are calculated using the following formula:
CTR = (ERV / P) - 1
Where:
CTR = The Cumulative Total Return net of Subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical single payment of $1,000.
All non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed.
Adjusted Historic Portfolio Performance
We may also disclose yield and total return for the Fund's portfolios,
including for periods before the date that the Variable Account began
operations. For periods prior to the date the Variable Account commenced
operations, adjusted historical portfolio performance information will be
calculated based on the performance of the underlying portfolios and the
assumption that the subaccounts were in existence for the same periods as those
of the underlying Funds, with some or all of the charges equal to those
currently assessed against the subaccounts.
In the tables below, average annual total returns for the Portfolios were
reduced by all current fees and charges under the Contract, including the
Mortality and Expense Risk Charge of 0.40% and an Administrative Expense Charge
of 0.30%.
<TABLE>
<CAPTION>
Ten Year Period Portfolio
One Year Period Five Year Period Ending 12/31/98 or Inception
Portfolio Ending 12/31/98 Ending 12/31/98 Since Inception Dates
- ----------------------- --------------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Money Market 4.55 4.26 4.52 7/16/85
- ----------------------- --------------------- -------------------- --------------------- --------------------
Bond 5.82 5.36 7.83 7/16/85
- ----------------------- --------------------- -------------------- --------------------- --------------------
Balanced 22.32 15.44 12.89 7/16/85
- ----------------------- --------------------- -------------------- --------------------- --------------------
Capital Growth 22.36 17.65 15.98 7/16/85
- ----------------------- --------------------- -------------------- --------------------- --------------------
International 17.66 9.54 11.10 5/1/87
- ----------------------- --------------------- -------------------- --------------------- --------------------
Growth and Income 6.15 N/A 19.28 5/2/94
- ----------------------- --------------------- -------------------- --------------------- --------------------
Global Discovery 15.63 N/A 12.06 5/1/96
- ----------------------- --------------------- -------------------- --------------------- --------------------
Large Company Growth N/A N/A N/A 5/1/99
- ----------------------- --------------------- -------------------- --------------------- --------------------
Small Company Growth N/A N/A N/A 5/1/99
- ----------------------- --------------------- -------------------- --------------------- --------------------
</TABLE>
Comparison of Performance and Expense Information
Expenses and performance information for the Contract and each Subaccount
may be compared in advertising, sales literature, and other communications to
expenses and performance information of other variable annuity products
investing in mutual funds (or investment portfolios of mutual funds) with
investment objectives similar to each of the Subaccounts tracked by independent
services such as Lipper Analytical Services, Inc. ("Lipper"), Morningstar and
the Variable Annuity Research Data Service ("V.A.R.D.S."). Lipper, Morningstar
and V.A.R.D.S. monitor and rank the performance and expenses of variable annuity
issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers
as well as variable annuity issuers. V.A.R.D.S. rankings only compare variable
annuity issuers. The performance analyses prepared by Lipper and V.A.R.D.S. each
rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges or certain expense deductions at
the separate account level into consideration. The performance analyses prepared
by Morningstar rate subaccount performance relative to its investment class
based on total returns. Morningstar deducts front-end loads from total returns
and deducts half of the surrender charge, if applicable, for the relevant time
period when calculating performance figures. In addition, Morningstar and
V.A.R.D.S. prepare risk adjusted rankings, which consider the effects of market
risk on total return performance. This type of ranking provides data as to which
funds provide the highest total return within various categories defined by the
degree of risk inherent in their investment objectives.
From time to time, we may also compare using other indices that measure
performance, such as Standard & Poors 500 Composite ("S & P 500") or the Dow
Jones Industrial Average ("Dow"). Unmanaged indices such as these may assume
reinvestment of dividends that generally do not reflect deductions for the
expenses of operating and managing an investment portfolio.
Legal Matters
Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided advice on
certain legal matters relating to the Federal Securities Laws. All matters of
Missouri law pertaining to the Contracts, including the validity of the Contract
and Charter's authority to issue the Contract under Missouri Insurance Law, have
been passed upon by John R. Petrowski, General Counsel of Charter National Life
Insurance Company.
Independent Accountants
The consolidated financial statements of Charter National Life Insurance
Company and Subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 and the financial statements
of the Charter National Variable Annuity Account as of December 31, 1998 and for
each of the two years in the period ended December 31, 1998 included in this
Statement of Additional Information have been included herein in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
Financial Statements
The financial statements of Charter, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of Charter to meet its obligation under the Contract. They should not be
considered as bearing on the investment performance of the assets held in the
Variable Account.
<PAGE>
Report of Independent Accountants
To the Board of Directors
of Charter National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in stockholder's equity, and cash
flows present fairly, in all material respects, the financial position of
Charter National Life Insurance Company (the Company) (a wholly-owned subsidiary
of Leucadia National Corporation) and its subsidiaries at December 31, 1998 and
1997, and the results of their operations and cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
February 17, 1999
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands except par and share values)
<TABLE>
<CAPTION>
1998 1997
------------ -------------
ASSETS
Investments
<S> <C> <C>
Available for sale (aggregate cost of $45,526 $46,224 $515,849
and $515,328)
Held to maturity (aggregate fair value of 2,971 6,838
$3,040 and $6,838)
Policyholder loans - 5,050
Preferred stock of affiliate - 40,000
Common stock of affiliate 155 -
Other investments, including accrued interest income 767 3,358
------------ -------------
Total investments 50,117 571,095
Cash and cash equivalents 747 379,481
Reinsurance receivable, net 124,024 145,740
Premiums and other receivables, net 413,365
Deferred income taxes recoverable (payable) 9,269 (7,387)
Other assets 25 202
Assets held in separate and variable accounts 564,040 541,546
------------ -------------
Total assets $748,222 $2,044,042
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits $122,445 $189,325
Policy and contract claims 1,301 2,052
Accounts payable and accrued expenses 604 14,711
Current income taxes payable 733 15,638
Deferred gain on reinsurance 21,516 16,664
Other liabilities 415 16,649
Liabilities related to separate and variable accounts 564,040 541,546
Surplus note 25,000 25,000
------------ -------------
Total liabilities 736,054 821,585
------------ -------------
Stockholder's equity:
Common stock, $31 par value per share, 110,000 shares
authorized, issued and outstanding 3,410 3,410
Additional paid-in capital 4,907 6,159
Accumulated other comprehensive income, net of
deferred taxes of $244 and $183 454 339
Retained earnings 3,397 1,212,549
------------ -------------
Total stockholder's equity 12,168 1,222,457
------------ -------------
Total liabilities and stockholder's equity $748,222 $2,044,042
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Insurance revenues $ - $1,253 $1,140
Net investment income 24,051 26,066 9,481
Net securities gains (losses) 411 (532) 624
Surrender and other administrative charges 275 3,714 3,076
Gain on reinsurance 4,464 - -
Other - 590 731
---------- ---------- ---------
Total revenues 29,201 31,091 15,052
---------- ---------- ---------
Benefits and expenses:
Policyholder benefits and change in future
policy benefits (646) 1,898 1,587
Administrative and general expenses 8,404 7,218 3,900
Salaries and bonuses 724 444 1,328
Provision for doubtful receivable (158) (85) (32)
Commissions 17 127 248
Interest 1,976 1,975 2,070
---------- ---------- ---------
Total benefits and expenses 10,317 11,577 9,101
---------- ---------- ---------
Income from continuing operations before income taxes 18,884 19,514 5,951
---------- ---------- ---------
Income taxes:
Current 18,126 14,189 1,047
Deferred (9,331) (8,818) (315)
---------- ---------- ---------
Total provision for income taxes 8,795 5,371 732
---------- ---------- ---------
Net income from continued operations 10,089 14,143 5,219
---------- ---------- ---------
Income from discontinued operations, net of taxes - 54,398 68,676
Gain on disposal of discontinued operations, net - 606,897 -
of taxes of $246,799 ---------- ---------- ---------
Net income $ 10,089 675,438 73,895
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
Common Accumulated
Stock, Additional Other
$31 Par Paid-in Comprehensive Retained
Value Capital Income Earnings Total
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $3,410 $6,140 $12,968 $528,996 $551,514
Comprehensive income
Net change in unrealized gain on investments
(net of deferred tax of $7,124) (13,230) (13,230)
Net income 73,395 73,395
------------
Comprehensive income 60,665
------------
Dividend paid to parent (30,000) (30,000)
---------- ---------- ------------- ------------ ------------
Balance, December 31, 1996 3,410 6,140 (262) 572,891 582,179
Comprehensive income
Net change in unrealized loss on investments
(net of deferred tax of $324) 601 601
Net income 675,438 675,438
------------
Comprehensive income 676,039
------------
Contribution from parent 19 19
Dividend paid to parent (35,780) (35,780)
---------- ---------- ------------- ------------ ------------
Balance, December 31, 1997 3,410 6,159 339 1,212,549 1,222,457
Other comprehensive income, net of tax
Unrealized holding gains arising during the period
(net of deferred tax of $120) 222 222
Less: reclassification adjustment for gains included
in net income (net of deferred tax of $58) (107) (107)
Net income 10,089 10,089
------------
Comprehensive income 10,204
------------
Comprehensive income
Dividend paid/return of capital to parent (1,252) (1,219,241) (1,220,493)
---------- ---------- ------------- ------------ ------------
Balance, December 31, 1998 $3,410 $4,907 $454 $3,397 $ 12,168
========== ========== ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income 10,089 675,438 $73,895
Adjustments to reconcile net income to net cash provided by
(used for) operations:
Gain on disposal of discontinued operations - (606,897) -
Income taxes provided on disposal of discontinued operations - (246,799) -
Benefit from deferred income taxes (9,331) (8,818) (315)
Depreciation and amortization (7,976) (2,974) (541)
Net securities (gains) losses (411) 532 (624)
Loss/(gain) on sale of property - 261 (80)
Net change in:
Accrued investment income (2,734) (1,557) (180)
Reinsurance receivable (33,832) 1,358 20,152
Premiums and other receivables, net 3,527 (7,163) 968
Net assets of discontinued operations - - (41,737)
Future policy benefits, unearned premiums, and policy
and contract claims (12,291) (2,468) (23,093)
Deferred gain on reinsurance, accounts payable, accrued
expenses, and other liabilities 1,516 28,021 (3,136)
Current income taxes payable (10,023) 13,808 3,730
Proceeds from reinsurance, net - 19,517 -
Other (71) 469 3,597
---------- ---------- ----------
Net cash (used for)/provided by operating activities (61,537) (137,272) 32,636
---------- --------- ----------
</TABLE>
Continued
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the years ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Net cash flows from investing activities:
Purchases of investments (other than short-term) (354,674) (577,934) (97,633)
Proceeds from maturities of investments 2,223 45,621 52,744
Proceeds from sales of investments 44,374 70,670 46,236
Purchases of installment loans - - (3)
Principal collections on installment and policy loans 6,062 1,846 3,666
Proceeds from disposal of discontinued operations - 998,099 -
Net acquisitions of property and equipment 89 (42) -
Net change in equity in separate and variable accounts - 1,055 (1,000)
---------- ---------- ---------
Net cash provided by investing activities (301,926) 539,315 4,010
---------- ---------- ---------
Net cash flows from financing activities:
Dividend paid to parent (15,271) (35,780) (30,000)
Revolving credit note repayments - - (3,000)
Contribution from parent - 19 -
---------- ---------- ---------
Net cash used for financing activities (15,271) (35,761) (33,000)
---------- ---------- ---------
Net (decrease)/increase in cash and cash equivalents (378,734) 366,282 3,646
Cash and cash equivalents at January 1, 379,481 13,199 9,553
---------- ---------- ---------
Cash and cash equivalents at December 31, $ 747 $ 379,481 $ 13,199
============ ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,975 $ 4,738 $ 2,090
Income tax payments, net of refunds $ 18,780 $ 192,408 $ 2,005
Non-cash proceeds from disposal of discontinued $ - $ 400,000 $ -
operations
Non-cash dividend to parent $ 1,205,222 $ - $ -
</TABLE>
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Charter National Life Insurance Company ("Charter") is a wholly-owned
subsidiary of Leucadia National Corporation ("Leucadia"), a publicly traded
holding company domiciled in the state of New York. Charter's principal
product is a variable annuity product.
In 1997, Charter sold substantially all of its insurance operations and
classified as discontinued operations the property and casualty insurance
operations of Colonial Penn Insurance Company and its subsidiaries (the
"Colonial Penn P&C Group") and the life and health insurance operations of
Colonial Penn Life Insurance Company ("Colonial Penn Life").
On September 2, 1998, Charter reinsured all remaining life insurance and
annuity operations to Allstate Life Insurance Company ("Allstate")
effective January 1, 1998.
On December 21, 1998, Leucadia announced it had signed an agreement to sell
Charter to Allstate. The transaction is subject to regulatory approvals and
customary closing conditions and is expected to close during the second
quarter of 1999. The transaction is not expected to have a material effect
on the financial condition of the Company.
During 1998, Charter declared and paid two dividends to Leucadia totaling
$1,220,493,000. The dividends were paid with cash, securities and the
common stock of LUK-CPG Inc. ("LUK-CPG") (Charter's direct subsidiary). The
common stock of LUK-CPG was paid to Leucadia on December 30, 1998.
2. Significant Accounting Policies:
a. Use of Estimates in Preparing Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial
statements and disclosures of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from
those estimates.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, continued:
b. Principles of Consolidation:
The Statements of Income, Changes in Stockholder's Equity and Cash
Flows are consolidated and include the accounts of Charter National
Life Insurance Company and its subsidiaries for the years ended
December 31, 1998, 1997 and 1996. Charter's major subsidiary was
LUK-CPG, which was dividended to Leucadia on December 30, 1998. LUK-CPG
owns 98% of Intramerica Life Insurance Company ("Intramerica") and
several non-insurance companies. Charter owns the remaining 2% of
Intramerica directly. Charter's 1998 Balance Sheet includes a 2% equity
investment in Intramerica Life Insurance Company. In 1997, the
financial statements are presented on a consolidated basis and include
LUK-CPG and 100% of Intramerica.
Certain amounts for prior periods have been reclassified to be
consistent with the 1998 presentation.
c. Statements of Cash Flows:
Charter considers short-term investments, which have maturities of less
than three months at the time of acquisition, to be cash equivalents.
Cash and cash equivalents include short-term investments of
approximately $241,000 and $377,679,000 at December 31, 1998 and 1997,
respectively.
d. Investments:
At acquisition, marketable debt and equity securities are designated as
either i) held to maturity, which are carried at amortized cost, ii)
trading, which are carried at estimated fair value with unrealized
gains and losses reflected in results of operations, or iii) available
for sale, which are carried at estimated fair value with unrealized
gains and losses reflected as a separate component of stockholder's
equity, net of taxes. Held to maturity investments are made with the
intention of holding such securities to maturity, which Charter has the
ability to do. Estimated fair values are principally based on quoted
market prices.
Carrying values for the following other investments are as follows:
preferred stock of affiliate is carried at cost, policy loans are
carried at unpaid principal balance, and cash equivalents are carried
at amortized cost (which approximates market value).
Gains or losses on sales of investments are determined on a specific
cost identification basis.
Charter is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities.
Charter believes it manages this risk through modeling of the cash
flows under reasonable scenarios. Charter's assets are also subject to
credit risk, but this is minimized through a significant concentration
in U. S. government securities.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, continued:
e. Insurance Revenues and Surrender and Other Administrative Charges:
Premiums for investment oriented insurance ("IOP") products are
reflected in a manner similar to a deposit; revenues reflect only
mortality charges and other amounts assessed against the holder of the
insurance policies and annuity contracts. The principal IOP product
offered during the three year period ended December 31, 1998 was a
variable annuity ("VA") product.
Premiums for the VA product are directed by the policyholder to be
invested generally in a unit investment trust solely for the benefit
and risk of the policyholder. Such investments are considered a
"separate account". Policyholders' accounts are charged for the cost of
insurance provided, administrative and certain other charges.
f. Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements are stated at cost, net
of accumulated depreciation and amortization. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the assets (2 - 10 years on furniture and
equipment) and the term of the lease for leasehold improvements. All
property, equipment and leasehold improvements were sold in 1998 in
conjunction with the Allstate reinsurance transaction.
g. Separate and Variable Account Assets and Liabilities:
Separate and variable account assets and liabilities relate to funds
received from Charter's VA and variable life products. Separate and
variable account assets are carried at fair market value and
liabilities are carried at policyholder account balance.
h. Liabilities for Future Policy Benefits, Unearned Premiums and Policy
and Contract Claims:
Benefit reserves for IOP products are determined following a deposit
method and consist principally of policy values before any surrender
charges. Liabilities for future policy benefits on ordinary life and
health insurance are generally calculated on a net level premium
method, using modifications of various industry and company mortality,
morbidity and withdrawal studies, and interest assumptions
approximating investment yields existing at the time the policies were
issued. Such liabilities include provisions for adverse deviation in
experience.
Interest rate assumptions are 4.0% to 8.25% for individual annuities
and 4% to 11.25% for individual life policies.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, continued:
i. Reinsurance:
Charter has entered into reinsurance transactions in connection with
dispositions of blocks of business. Reinsurance contracts do not
relieve Charter from its obligations to policyholders.
Reinsurance receivables are reported as assets net of provisions for
uncollectible amounts. Premiums earned, losses incurred, loss
adjustment expenses and other underwriting expenses are stated net of
reinsurance in the Consolidated Statements of Income.
j. Pension Plans and Other Postemployment and Postretirement Benefits:
Charter participated in a non-contributory trusteed pension plan held
at LUK-CPG, covering certain employees, which generally provided for
retirement benefits based on salary and length of service. The plans
were funded in amounts sufficient to satisfy minimum ERISA funding
requirements.
Certain former subsidiaries, principally Intramerica, provided health
care and other benefits to certain eligible retired employees. The
plans, (most of which require employee contributions) were unfunded.
Liabilities for the plan were assumed by LUK-CPH in conjunction with
the Conseco transaction. The plan liabilities of LUK-CPH were included
in the dividend of LUK-CPG (the parent of LUK-CPH) to Leucadia.
k. Income Taxes:
Charter files a consolidated federal income tax return with Leucadia.
Charter pays to, or receives from Leucadia the amount of tax they would
have paid or received as computed on a separate return basis.
Charter provides for income taxes using the liability method. The
future benefit of certain tax loss carryforwards and future deductions
is recorded as an asset, and the provisions for income taxes are not
reduced for the benefit from utilization of such deductions. A
valuation allowance is provided if deferred tax assets are not
considered more likely than not to be realized.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Insurance Operations:
The principal product is IOP, which is a no-load VA product. The VA product
is marketed as an investment vehicle to individuals seeking to defer, for
federal income tax purposes, the annual increase in their account balance.
Premiums from this VA product either are invested at the policyholders'
election in unaffiliated mutual funds where the policyholder bears the
entire investment risk or in a fixed account where the funds earn interest
at rates determined by Charter. Charter's VA product is currently marketed
in conjunction with a mutual fund manager. Premiums received on IOP
products amounted to approximately $42,177,000, $53,178,000 and $47,265,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Charter received surrender and administrative charges of approximately
$275,000, $3,714,000 and $3,076,000, net of reinsurance, for the years
ended December 31, 1998, 1997 and 1996, respectively.
In 1993, Charter reinsured substantially all of its existing block of
single premium whole life ("SPWL") business with a subsidiary of John
Hancock Mutual Life Insurance Company ("John Hancock"). For financial
reporting purposes, Charter will continue to reflect the policy liabilities
assumed by John Hancock (in future policy benefits), with an offsetting
receivable from John Hancock of the same amount (in reinsurance receivable,
net), until Charter is relieved of its legal obligation to the SPWL
policyholders.
As of December 31, 1998 and 1997, approximately $106,492,000 and
$114,433,000, respectively, of Charter's future policy benefits (net of
policy loans) related to ceded SPWL business for which Charter is not
relieved of its legal obligation to its policyholders.
Effective January 1, 1998, Charter reinsured all of its remaining variable
life and annuity business to Allstate. As a result, Charter has no
insurance business remaining net of reinsurance. Charter received a premium
of $27,700,000. This premium is being amortized over the remaining life of
the business ceded to Allstate.
4. Discontinued Operations:
In September 1997, Charter completed the sale of Colonial Penn Life to
Conseco, Inc. for $400,000,000 in notes maturing on January 2, 2003
collateralized by non-cancelable letters of credit. Colonial Penn Life is
principally engaged in the sale of graded benefit life insurance policies
through direct marketing. Charter reported a pre-tax gain of approximately
$274,817,000 on the sale. In connection with the sale of Colonial Penn
Life, Intramerica reinsured certain life insurance policies for a premium
of $25,000,000. The gain on this reinsurance will be deferred and amortized
into income based on actuarial estimates of the premium revenue of the
underlying insurance contracts, or will be recognized earlier if converted
to assumption reinsurance. As of December 31, 1997, approximately
$50,867,000 of Charter's future policy benefits related to life insurance
ceded to Conseco, Inc. As discussed in Note 1, 98% of Intramerica was
dividended with LUK-CPG to Leucadia in 1998.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Discontinued Operations, continued:
In November 1997, Charter completed the sale of the property and casualty
insurance business of the Colonial Penn P&C Group to General Electric
Capital Corporation for total cash consideration of $998,099,000, plus
$14,300,000 for retention of certain employee benefit liabilities. The
Group's primary business is providing private passenger automobile
insurance to the mature adult population through direct response marketing.
The Company reported a pre-tax gain of approximately $578,879,000 on the
sale.
A summary of the results of discontinued operations is as follows for 1997
(through the date of sale) and for the year ended December 31, 1996 (in
thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Colonial Penn P & C Group:
Revenues $ 514,626 $594,489
--------- --------
Expenses:
Provision for insurance losses and policy benefits 370,102 421,823
Other operating expenses 86,449 93,614
----------- ----------
456,551 515,437
Income before income taxes 58,075 79,052
Income taxes 20,279 27,837
--------- ---------
Income from discontinued operations, net of taxes $ 37,796 $ 51,215
========= ========
Colonial Penn Life:
Revenues $147,838 $212,582
-------- --------
Expenses:
Provision for insurance losses and policy benefits 89,086 128,648
Other operating expenses 35,206 58,802
--------- ---------- -
124,292 187,450
Income before income taxes 23,546 25,132
Income taxes 7,671 6,944
--------- -----------
Income from discontinued operations, net of taxes $ 16,602 $ 17,461
======== ========
</TABLE>
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Investments:
Net investment income was as follows for the years ended December 31, 1998,
1997 and 1996, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ---------
<S> <C> <C> <C>
Interest income:
Bonds and short-term investments $14,805 $14,952 $4,984
Policy loans 30 297 317
Other long-term investments 5,120 6,877 32
Dividends and other (1) 4,096 4,000 4,235
-------- ------- -------
Total investment income 24,051 26,126 9,568
Less: Investment expenses - 60 87
-------- ------- -------
Net investment income $24,051 $26,066 $9,481
======= ======= ======
</TABLE>
(1) Includes dividends on the 10% cumulative preferred stock of Leucadia
Financial Corporation, an affiliate, of $4,000,000 in each of the three
years in the period ended December 31, 1998.
The cost (amortized for bonds), gross unrealized gains and losses and estimated
fair value of investments classified as available for sale and held to maturity
at December 31, 1998 and 1997 were as follow, in thousands of dollars:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
1998 Cost Gains Losses Value
---- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
Bonds and notes:
U. S. Government agencies and authorities $41,028 $745 $85 $41,688
Other corporate debt 4,498 45 7 4,536
--------- ----- ---- --------
Total investments available for sale $45,526 $790 $92 $46,224
======= ==== === =======
Held to maturity:
Bonds and notes:
U. S. Government agencies and authorities $ 2,971 $ 69 $ - $ 3,040
======= ====== ===== =======
</TABLE>
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Investments, continued:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
1997 Cost Gains Losses Value
---- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale:
Bonds and notes:
U. S. Government agencies and authorities $514,777 $757 $251 $515,283
Other corporate debt 541 30 5 566
------------ ----- ------ -----------
Total fixed maturities 515,318 787 256 515,849
Equity Securities:
Common stocks - industrial and other 10 - 10 -
------------ ------- ----- -------------
Total investments available for sale $515,328 $787 $266 $515,849
========= ==== ==== ========
Held to maturity:
Bonds and notes:
U. S. Government agencies and authorities $ 6,838 $ 9 $ 9 $ 6,838
========== ===== ===== ========
</TABLE>
The amortized cost and estimated fair value of investments classified as
available for sale and held to maturity at December 31, 1998, by contractual
maturity are shown below, in thousands of dollars. Expected maturities are
likely to differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 4,739 $ 4,788 $ 425 $ 427
Due after one year through five years 26,305 26,519 2,546 2,613
Due after five years through ten years 9,605 9,997 - -
Mortgage-backed securities 4,877 4,920 - -
------- ------- ---------- ----------
Total $45,526 $46,224 $2,971 $3,040
======= ======= ====== ======
</TABLE>
At December 31, 1998 and 1997, Charter did not hold investments in
securities of a single issuer other than U.S. government securities which
exceeded, in the aggregate, 10% of Charter's stockholder's equity at that
date.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Investments, continued:
Net securities gains (losses) reflected in the accompanying Consolidated
Statements of Income for the years ended December 31, 1998, 1997 and 1996
were as follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Fixed maturities $421 ($571) $624
Equity securities (10) - -
Other - 39 -
------- ------ -------
Net securities gains (losses) $411 ($532) $624
==== ===== ====
</TABLE>
Gross gains and losses on sale of fixed maturities were approximately
$1,457,000 and $1,036,000, respectively in 1998, $251,000 and $822,000,
respectively, in 1997, and $666,000 and $42,000, respectively in 1996.
Gross gains and losses on sale of equity securities were approximately $0
and $10,000, respectively, in 1998. There were no sales of equity
securities in 1997 and 1996.
6. Reinsurance:
On September 2, 1998, Charter received from Allstate a premium of
$27,700,000 for reinsuring its variable annuity business. A gain of
$23,539,000, net of related assets, was deferred. Included in liabilities
as December 31, 1998 is approximately $21,516,000, net of cumulative
amortization of approximately $2,023,000. The deferred gain will continue
to be amortized into income based on actuarial estimates of the premium
revenue of the underlying insurance contracts, or will be recognized
earlier if converted to assumption reinsurance.
On September 2, 1998, Intramerica received from Allstate Life Insurance
Company of New York a premium of $525,000 for reinsuring its variable
annuity business. A gain of $474,000, net of related assets, was deferred.
Included in gain on reinsurance in 1998 is amortization of approximately
$26,000. Intramerica was dividended to Leucadia along with the LUK-CPG in
1998 as mentioned in Note 1.
In 1997, Intramerica received from Conseco a premium of $25,000,000 for
reinsuring its life insurance business. A gain on this reinsurance of
approximately $18,706,000, net of related assets, was deferred. Included in
liabilities at December 31, 1997 is approximately $16,664,000, net of
cumulative amortization of approximately $2,042,000. In addition, included
in gain on reinsurance in 1998 is amortization of approximately $1,818,000.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Reinsurance, continued:
The effect of reinsurance on life and health insurance in force for the
years ended December 31, 1998, 1997 and 1996, is as follows, in thousands
of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Direct $ 115,146 $310,508 $145,000
Ceded (115,146) (241,360) (72,000)
Assumed - - -
---------------- --------------- --------------
Net $ - $ 69,148 $ 73,000
================ =============== ==============
% of assumed to net 0.00% 0.00% 0.00%
-------- ----- -----
</TABLE>
The effect of reinsurance on life and health premiums written and earned
for the years ended December 31, 1998, 1997 and 1996, is as follows, in
thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
Written Earned Written Earned Written Earned
<S> <C> <C> <C> <C> <C> <C>
Direct Premiums $ 14,130 $ 15,378 $ 14,508 $ 15,065 $ 14,667 $ 15,048
Ceded (14,130) (15,378) (13,542) (13,812) (13,908) (13,908)
Assumed - - - - - -
-------------- ------------ ------------ ----------- -------- ----------
Net premiums $ - $ - $ 966 $ 1,253 $ 759 $ 1,140
============== ============ =========== =========== ======== ==========
% of assumed to net 0.00% 0.00% 0.00%
--------- ----- -----
</TABLE>
The effect of reinsurance on surrender and other administrative charges
earned for the years ended December 31, 1998, 1997 and 1996, is as follows,
in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Direct $ 4,400 $ 3,714 $ 3,076
Ceded (4,125) - -
Assumed - - -
---------- --------- --------
Net 275 $ 3,714 $ 3,076
========== ========= ========
% of assumed to net 0.00% 0.00% 0.00%
--------- ----- -----
</TABLE>
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Reinsurance, continued:
The effect of reinsurance on life and health premiums and surrender and
other administrative charges earned combined for the years ended December
31, 1998, 1997 and 1996, is as follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Direct $ 19,778 $ 18,779 $ 18,124
Ceded (19,503) (13,812) (13,908)
Assumed - - -
--------- -------- --------
Net $ 275 $ 4,967 $ 4,216
========= ======== ========
% of assumed to net 0.00% 0.00% 0.00%
--------- ----- -----
</TABLE>
The effect of reinsurance on policyholder benefits and future policy
benefits for the years ended December 31, 1998, 1997 and 1996 are as
follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Direct $ 23,635 $20,863 $10,533
Assumed (699) - -
Ceded (23,582) (18,965) (8,946)
-------- ---------- --------
Net policyholder benefits $ (646) $ 1,898 $ 1,587
========== ========= ========
</TABLE>
As discussed in Notes 3 and 4, at December 31, 1998 and 1997, reinsurance
receivables, net includes approximately $106,492,000 and $114,433,000,
respectively, due from a subsidiary of John Hancock, and approximately
$883,000 and $50,867,000 due from Conseco, Inc. at December 31, 1998 and
1997, respectively.
7. Premiums and Other Receivables, Net:
Premiums and other receivables, net at December 31, 1998 and 1997 were $0
and $413,365,000, respectively. A summary of the 1997 balances were as
follows, in thousands of dollars:
1997
Notes receivable from Conseco, Inc. $400,000
Accrued interest on Conseco, Inc. notes 6,233
Amounts due from affiliates 3,924
Installment loans (net of allowance for doubtful
accounts of $75) 998
Other 2,210
----------
Total premiums and other receivables, net $413,365
========
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Income Taxes:
The principal components of the deferred tax asset/(liability) at December
31, 1998 and 1997, are as follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Insurance reserves and unearned premiums $ 192 $ (381)
Deferred tax on installment sale - (12,523)
Unrealized (gain) loss on investments (244) (183)
Policy acquisition costs 457 1,741
Deferred reinsurance gain 7,531 5,832
Other, net 1,333 (1,873)
------- ---------
Net deferred tax asset (liability) $9,269 $ (7,387)
======= ==========
</TABLE>
The table below reconciles the "expected" statutory federal income tax
provision to the actual income tax provision, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
"Expected" federal income tax $6,609 $6,830 $2,083
Dividends received deduction (1,400) (1,400) (1,400)
Tax (benefit) applicable to prior years (1,978) (16) 24
Tax on distribution from policyholder's surplus 5,406 - -
Other 158 (43) 25
------- --------- --------
Total provision for income taxes $8,795 $ 5,371 $ 732
======= ======== ========
</TABLE>
At December 31, 1998 and 1997, Charter had no loss carryforwards for income
tax purposes.
9. Pension Plans and Other Postemployment and Postretirement Benefits:
In 1997 and prior, Charter participated in a noncontributory defined
benefit pension plan sponsored by LUK-CPG, a former subsidiary. Prior to
December 30, 1998, Charter transferred its remaining employees to Leucadia
and as such, all vested retirement benefits were assumed by LUK-CPG as part
of the assets and liabilities dividended to Leucadia on December 30, 1998.
Charter has no pension or postemployment benefit obligations as of December
31, 1998.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Pension Plans and Other Postemployment and Postretirement Benefits,
continued:
In prior years, Charter's participation in the noncontributory defined
benefit pension plan covered substantially all employees of its continuing
operations. Benefits were generally based on years of service and
employees' compensation during the last years of employment. LUK-CPG's
policy was to fund the pension cost calculated under the unit credit
funding method provided that this amount is at least equal to the Employee
Retirement Income Security Act minimum funding requirements and was not
greater than the maximum tax deductible amount for the year.
Plan participation was terminated for employees of the discontinued
operations as of the respective dates of the sales.
Pension expense charged to continuing operations was approximately
$387,000, $75,000 and $78,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
Pension expense charged to operations included the following components, in
thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 411 $ 2,255 $ 3,019
Interest cost 2,606 4,264 3,993
Expected return on plan assets (2,651) (3,610) (3,361)
Amortization of prior service cost 13 226 302
Recognized actuarial loss 8 4 81
----------- ----------- -----------
Net pension expense $ 387 $ 3,139 $ 4,034
======== ======= =======
</TABLE>
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Pension Plans and Other Postemployment and Postretirement Benefits,
continued:
The funded status of the defined benefit pension plans at December 31, 1998
and 1997 was as follows, in thousands of dollars:
<TABLE>
1998 1997
-------- ----------
<S> <C> <C>
Projected Benefit Obligation:
Projected benefit obligation at January 1, $ 57,149 $ 57,433
Service cost 411 2,255
Interest Cost 2,606 4,264
Actuarial loss 590 7,269
Benefits paid (1,864) (6,010)
Settlements (28,809) (114)
Curtailment (667) (7,948)
Dividend of LUK-CPG to Leucadia (29,416) -
-------- --------
Projected benefit obligation at December 31, $ - $ 57,149
========= ========
Change in Plan Assets: 1998 1997
--------- --------
Fair value of plan assets at January 1, $ 53,562 $ 49,025
Actual return of plan assets 2,421 4,643
Employer contributions 322 5,904
Benefits paid (1,864) (6,010)
Administrative expenses (539) -
Settlements (28,756) -
Dividend of LUK-CPG to Leucadia (25,146) -
-------- --------
Fair value of plan assets at December 31, $ - $ 53,562
========= ========
Funded Status: $ - ($3,587)
Unrecognized actuarial loss - 408
Unrecognized prior service cost - 161
--------- --------
Net pension expense $ - ($3,018)
========= ========
</TABLE>
The projected benefit obligation at December 31, 1997 was determined using
an assumed discount rate of 7.0%, a long-term rate of return on plan assets
of 7.5%, and salary increase rates of 5.0%. Plan assets consisted primarily
of U. S. Government and agency bonds and corporate bonds and notes.
Charter participated in certain deferred compensation (401(k)) and defined
contribution plans. Expenses related to the defined contribution retirement
and 401(k) plans were approximately $9,000, $7,000 and $5,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Pension Plans and Other Postemployment and Postretirement Benefits,
continued:
Charter provided health care and other benefits to certain eligible retired
employees. The plans (most of which require employee contributions) were
unfunded. SFAS 106 and SFAS 112 require companies to accrue the cost of
providing certain postretirement and postemployment benefits during the
employees' period of service. Periodic postretirement benefit costs were
approximately $0, $3,000 and $8,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
The liability for postretirement and postemployment benefits at December
31, 1998 and 1997, was as follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C> <C>
Accumulated postretirement benefit obligation at January 1, $ 4,725 $ 6,307
Interest cost 331 332
Contributions by plan participants 71 68
Actuarial loss/(gain) 56 (1,511)
Benefits paid (441) (471)
Dividend of LUK-CPG to Leucadia (4,742) -
------ -------
Accumulated postretirement benefit obligation at December 31, $ - $4,725
Unrecognized net actuarial gain - 2,345
------- -------
Accrued postretirement benefit obligation $ - $ 7,070
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1997. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 8.0% for 1997, declining to an ultimate rate of 6.0% by
2007.
If the health care cost trend rate were increased by 1.0%, the accumulated
postretirement obligation as of December 31, 1997 would have increased by
approximately $331,000. The effect of this change on the aggregate of
service and interest cost for 1997 would be immaterial.
10. Leases:
Charter rents equipment and office space under a non-cancelable operating
lease that expires in 1999. Rental expense (net of sublease rental income)
charged to operations was approximately $21,000 in 1998, $58,000 in 1997
and $154,000 in 1996.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Valuation and Qualifying Accounts:
Charter held allowances for doubtful receivables of $75,000 in 1997 in a
downstream finance subsidiary. The assets and liabilities of these
subsidiaries were included in the dividend of LUK-CPG to Leucadia at
December 30, 1998.
A summary of the change in this allowance for the years 1998, 1997 and
1996 are as follows, in thousands of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful receivables at January 1, $ 75 $ 209 $ 412
Additions:
Charged to cost and expense (158) (85) (32)
Recoveries made during the year 175 271 493
Deductions:
Amounts written off 75 320 664
Dividend of LUK-CPG to Leucadia 17 - -
----- ------- -------
Allowance for doubtful receivables at December 31, $ - $ 75 $ 209
====== ====== =====
</TABLE>
12. Commitments and Contingencies:
Charter is subject to various litigation which arise in the normal course
of its business. Based on discussions with counsel, management is of the
opinion that such litigation will have no material adverse effect on the
consolidated financial position of Charter or its consolidated results of
operations.
Charter National Life Insurance Company and Intramerica are members of
state insurance funds which provide certain protection to policyholders
of insolvent insurers doing business in those states. Due to insolvencies
of certain insurers in recent years, Charter has been assessed certain
amounts and is likely to be assessed additional amounts by the state
insurance funds. Charter has provided for all anticipated assessments and
does not expect any additional assessments to have a material effect on
results of operations.
13. Related Party Transactions:
As mentioned in Note 1, in 1998, Charter declared and paid a dividend to
Leucadia totaling $1,220,493,000. This dividend was paid in cash,
securities at market value on the date of transfer and the common stock
of LUK-CPG.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. Related Party Transactions, continued:
Charter incurred expenses for various management services and operating
expenses incurred on its behalf by Leucadia and other affiliated
companies. In a similar manner, Charter was reimbursed for salaries and
other expenses incurred for the benefit of Leucadia and other affiliates.
Charter also has general service and expense reimbursement agreements
with Leucadia and other affiliates. Under the terms of the agreements,
Leucadia and other affiliates provide certain services for the benefit of
Charter. These services include general legal advice and services,
accounting services, and strategic planning and investigation of proposed
business transactions.
Expenses incurred were approximately $4,937,000, $916,000 and $1,131,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
In addition, Charter has entered into agreements with Leucadia whereby
Leucadia provides certain investment advisory services related to the
management of the investment portfolio. Expenses incurred were
approximately $1,125,000, $594,000 and $383,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Charter received administrative and accounting services from an
affiliated property and casualty company during 1998 and 1997, for which
it paid approximately $302,000 and $90,000, respectively.
Charter has agreements with CNL, Inc., a former affiliate, for the
underwriting and distribution of its VA product. On September 2, 1998,
Leucadia sold CNL Inc. to Allstate. Expenses incurred were approximately
$176,000, $244,000 and $245,000 for the period ended September 2, 1998,
and for years the ended December 31, 1997, and 1996, respectively.
In 1992, Charter issued a 7.75% surplus note to Leucadia for $25,000,000.
The terms of the note provide for interest of 7.75% per annum on the
outstanding principal and interest, with a maturity date of July 31,
2004. Charter recorded the note at its face value of $25,000,000. Charter
paid interest on the note of approximately $1,975,000 in 1998, 1997 and
1996. Payments of both principal and interest on the note are subject to
the approval of the Missouri Department of Insurance. Related interest
charged to operations was approximately $1,975,000 in 1998, 1997 and
1996.
Charter purchased installment loans of approximately $3,000 from American
Investment Bank, an affiliate, in 1996, and paid related service fees of
approximately $46,000, $88,000 and $170,000 in 1998, 1997 and 1996,
respectively. Approximately $998,000 in installment loans were
outstanding at December 31, 1997, and were included in premiums and other
receivables.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Fair Value of Financial Instruments:
Following is information about certain financial instruments, whether or
not recognized on the Consolidated Balance Sheets. Where quoted market
prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. The fair value amounts presented
do not purport to represent and should not be considered representative
of the underlying "market" or franchise value of Charter.
The methods and assumptions used to estimate the fair values of each
class of the financial instruments described below are as follows:
(a) Investments: The estimated fair values of fixed maturity
securities and marketable equity securities are substantially
based on quoted market prices. It is not practicable to determine
the fair value of policyholder loans since such loans generally
have no stated maturity, are not separately transferable and are
often repaid by reductions to benefits and surrenders.
(b) Cash and cash equivalents: The carrying amount of cash
equivalents approximates fair value.
(c) Separate and variable accounts: Separate and variable accounts
assets and liabilities are carried at market value, which is a
reasonable estimate of fair value.
(d) Investment contract reserves: Single Premium Deferred Annuity
reserves are carried at account value, which is a reasonable
estimate of fair value. The fair value of other investment
contracts is estimated by discounting the future payments at
rates which would currently be offered for contracts with similar
terms.
(e) Surplus notes: Principal and interest payments on the surplus
notes are subject to regulatory approval. Consequently, the
timing and certainty of principal and interest payments are not
determinable. Therefore, the fair value of the surplus notes is
estimated to be the carrying value.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
14. Fair Value of Financial Instruments, continued:
The carrying amounts and estimated fair values of Charter's financial
instruments at December 31, 1998 and 1997 are as follows, in thousands of
dollars:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Investments:
Practicable to estimate fair value $49,962 $49,962 $526,045 $526,045
Preferred stocks of affiliate - - 40,000 40,000
Common Stock of Affiliates 155 155 - -
Policyholder loans - - 5,050 5,050
Cash and cash equivalents 747 747 379,481 379,481
Separate and variable accounts 564,040 564,040 541,546 541,546
Financial liabilities:
Investment contract reserves 8,252 8,252 8,107 8,107
Other liabilities:
Separate and variable accounts 564,040 564,040 541,546 541,546
Surplus notes 25,000 25,000 25,000 25,000
</TABLE>
15. Statutory Information:
Charter is subject to regulation based, in part, on accounting bases
prescribed by regulatory authorities.
Charter's statutory assets (on an unconsolidated basis) were
approximately $615,184,000 and $1,813,308,000 at December 31, 1998 and
1997, respectively, with statutory capital and surplus of approximately
$46,238,000 and $1,285,763,000 at those dates, respectively. Charter's
net statutory gains from operations (on an unconsolidated basis) were
approximately $18,004,000, $1,267,834,000 and $35,550,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, and included
dividends received from subsidiaries of approximately $1,268,836,000 and
$36,120,000 for the years ended December 31, 1997 and 1996, respectively.
Intramerica's net statutory gains from operations (on an unconsolidated
basis) for the years ended December 31, 1998, 1997 and 1996 was
approximately $3,287,000, $18,601,000 and $1,034,000, respectively.
Charter had securities on deposit with state insurance departments with
book values aggregating approximately $2,971,000 and $6,838,000 at
December 31, 1998 and 1997, respectively.
<PAGE>
CHARTER NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
15. Statutory Information, continued:
Statutory regulations restrict annual stockholder dividends paid within a
rolling twelve month period, without regulatory approval, to the higher
of gain from operations or 10% of statutory surplus of the preceding
year. Under this restriction, Charter would be permitted to pay
approximately $28,932,000 in dividends on December 31, 1999 without
regulatory approval.
The National Association of Insurance Commissioners has adopted model
laws incorporating the concept of a "risk based capital" ("RBC")
requirement for insurance companies. Generally, the RBC formula is
designed to measure the adequacy of an insurer's statutory capital in
relation to the risks inherent in its business. The RBC formula is used
by the states as an early warning tool to identify weakly capitalized
companies for the purpose of initiating regulatory action. The RBC ratios
of Charter as of December 31, 1998 and 1997 substantially exceeded
minimum requirements.
16. Concentration of Credit Risk
Financial instruments, which potentially subject Charter to concentration
of credit risk, consist principally of cash and U.S. Government and
Agency fixed maturity securities. Charter places its cash with high
quality financial institutions. At times, such amounts may be in excess
of the Federal Deposit Insurance Corporation insurance limits.
<PAGE>
To the Board of Directors of
Charter National Life Insurance Company:
In our opinion, the accompanying statements of net assets of the Charter
National Variable Annuity Account (the Money Market, Bond, Capital Growth,
Balanced, International, Growth and Income, and Global Discovery Subaccounts)
and the related statements of operations and changes in net assets present
fairly, in all material respects, the financial position of each of the
respective subaccounts comprising the Charter National Variable Annuity Account
at December 31, 1998, and the results of their operations for the year then
ended and the changes in net assets for the years ended December 31, 1998 and
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of the Charter
National Variable Annuity Account; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, evaluating the overall
financial statement presentation. We believe that our audits, which include
confirmation of securities held as of December 31, 1998 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
February 17, 1999
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
Money Capital
Total Market Bond Growth
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment in series mutual funds, at
net asset value (cost $457,137,543 in
total; and $60,619,920, $26,786,120,
$130,807,887, $52,021,790, $77,055,792,
$95,010,132 and $14,835,902 for
each portfolio, respectively.) $534,208,536 $60,619,920 $27,178,512 $165,726,041
------------- ------------- ------------- -------------
Total net assets $534,208,536 $60,619,920 $27,178,512 $165,726,041
============= ============= ============= =============
Net assets:
For variable annuity contracts $534,208,536 $60,619,920 $27,178,512 $165,726,041
------------- ------------- ------------- -------------
Total net assets $534,208,536 $60,619,920 $27,178,512 $165,726,041
============= ============= ============= =============
Growth and Global
Balanced International Income Discovery
------------- ------------- ------------- -------------
Investment in series mutual funds, at
net asset value (cost $457,137,543 in
total; and $60,619,920, $26,786,120,
$130,807,887, $52,021,790, $77,055,792,
$95,010,132 and $14,835,902 for
each portfolio, respectively.) $69,962,626 $83,868,728 $109,819,303 $17,033,406
------------- ------------- ------------- -------------
Total net assets $69,962,626 $83,868,728 $109,819,303 $17,033,406
============= ============= ============= =============
Net assets:
For variable annuity contracts $69,962,626 $83,868,728 $109,819,303 $17,033,406
------------- ------------- ------------- -------------
Total net assets $69,962,626 $83,868,728 $109,819,303 $17,033,406
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Money Capital
Total Market Bond Growth
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Dividend income $38,846,620 $3,027,573 $1,568,525 $8,576,960
Less: administrative expenses and
mortality and expense risk charges 3,629,983 422,949 187,126 1,060,341
------------- -------------- ------------- -------------
Net investment income 35,216,637 2,604,624 1,381,399 7,516,619
------------- -------------- ------------- -------------
Gains on investments:
Realized gains:
Proceeds from sales of fund share 408,656,163 153,248,978 18,211,116 83,082,154
Cost of fund shares sold 378,329,421 153,248,978 18,145,943 69,737,835
------------- -------------- ------------- -------------
Net realized gains 30,326,742 0 65,173 13,344,319
------------- -------------- ------------- -------------
Unrealized gains:
Beginning of year 73,523,344 0 237,896 25,630,895
End of year 77,070,993 0 392,392 34,918,154
------------- -------------- ------------- -------------
Change in unrealized gains and loss 3,547,649 0 154,496 9,287,259
------------- -------------- ------------- -------------
Net realized and unrealized
gains on investments 33,874,391 (0) 219,669 22,631,578
------------- -------------- ------------- -------------
Increase in net assets from operation $69,091,028 $2,604,624 $1,601,068 $30,148,197
============= ============== ============= =============
Growth and Global
Balanced International Income Discovery
------------- -------------- -------------- -------------
Investment income:
Dividend income $4,363,367 $10,669,359 $10,239,269 $401,567
Less: administrative expenses and
mortality and expense risk charges 448,811 595,105 802,895 112,756
------------- -------------- -------------- -------------
Net investment income 3,914,556 10,074,254 9,436,374 288,811
------------- -------------- -------------- -------------
Gains on investments:
Realized gains:
Proceeds from sales of fund share 11,597,623 81,820,836 48,871,945 11,823,511
Cost of fund shares sold 9,444,688 75,557,902 41,566,735 10,627,340
------------- -------------- -------------- -------------
Net realized gains 2,152,935 6,262,934 7,305,210 1,196,171
------------- -------------- -------------- -------------
Unrealized gains:
Beginning of year 11,568,226 9,578,621 25,129,738 1,377,968
End of year 17,940,836 6,812,936 14,809,171 2,197,504
------------- -------------- -------------- -------------
Change in unrealized gains and loss 6,372,610 (2,765,685) (10,320,567) 819,536
-------------- -------------- -------------- -------------
Net realized and unrealized
gains on investments 8,525,545 3,497,249 (3,015,357) 2,015,707
------------- -------------- -------------- -------------
Increase in net assets from operations $12,440,101 $13,571,503 $6,421,017 $2,304,518
============= ============== ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Money Capital
Total Market Bond Growth
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Changes in assets:
Operations:
Net investment income $35,216,637 $2,604,624 $1,381,399 $7,516,619
Net realized gains (losses) 30,326,742 (0) 65,173 13,344,319
Change in unrealized gains and losses 3,547,649 0 154,496 9,287,259
------------- ------------- ------------- -------------
Net change from operations 69,091,028 2,604,624 1,601,068 30,148,197
------------- ------------- ------------- -------------
Capital share transactions:
Premiums 36,003,724 9,533,579 1,818,775 7,818,317
Contract claims (3,699,263) (762,697) (170,311) (899,145)
Contract surrenders (34,131,674) (11,523,470) (1,896,705) (7,135,685)
Transfers (to) from general account and
portfolio transfers, net (289,346) 12,590,653 1,331,865 (177,519)
------------- ------------- ------------- -------------
Net change from capital share transaction (2,116,559) 9,838,065 1,083,624 (394,032)
------------- ------------- ------------- -------------
Total change in net assets $66,974,469 $12,442,689 $2,684,692 $29,754,165
============= ============= ============= =============
Net assets:
Beginning of year $467,234,067 $48,177,231 $24,493,820 $135,971,876
End of year 534,208,536 60,619,920 27,178,512 165,726,041
------------- ------------- ------------- -------------
Total change in net assets $66,974,469 $12,442,689 $2,684,692 $29,754,165
============= ============= ============= =============
Growth and Global
Balanced International Income Discovery
------------- ------------- ------------- --------------
Changes in assets:
Operations:
Net investment income $3,914,556 $10,074,254 $9,436,374 $288,811
Net realized gains (losses) 2,152,935 6,262,934 7,305,210 1,196,171
Change in unrealized gains and losses 6,372,610 (2,765,685) (10,320,567) 819,536
------------- ------------- ------------- --------------
Net change from operations 12,440,101 13,571,503 6,421,017 2,304,518
------------- ------------- ------------- --------------
Capital share transactions:
Premiums 3,751,507 2,029,556 9,733,619 1,318,371
Contract claims (559,121) (524,248) (748,389) (35,352)
Contract surrenders (2,871,722) (4,812,850) (5,266,784) (624,458)
Transfers (to) from general account and
portfolio transfers, net 2,791,361 (2,743,834) (13,702,764) (379,108)
------------- ------------- ------------- --------------
Net change from capital share transaction 3,112,025 (6,051,376) (9,984,318) 279,453
------------- ------------- ------------- --------------
Total change in net assets $15,552,126 $7,520,127 ($3,563,301) $2,583,971
============= ============= ============= ==============
Net assets:
Beginning of year $54,410,500 $76,348,601 $113,382,604 $14,449,435
End of year 69,962,626 83,868,728 109,819,303 17,033,406
-------------- ------------- ------------- --------------
Total change in net assets $15,552,126 $7,520,127 ($3,563,301) $2,583,971
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Money Capital
Total Market Bond Growth
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Changes in assets:
Operations:
Net investment income $20,047,864 $2,194,776 $1,051,559 $7,627,744
Net realized gains (losses) 28,384,281 0 (81,840) 11,582,258
Change in unrealized gains and losses 29,773,792 0 502,191 13,608,681
------------- ------------- ------------- -------------
Net change from operations 78,205,937 2,194,776 1,471,910 32,818,683
------------- ------------- ------------- -------------
Capital share transactions:
Premiums 47,487,583 10,336,923 1,528,875 9,079,795
Capital withdrawals (518,748)
Contract claims (1,511,626) (405,520) (75,279) (448,730)
Contract surrenders (28,850,270) (7,848,722) (1,480,123) (5,932,659)
Contract maintenance charges (2,169) (534) (90) (686)
Transfers (to) from general account and
portfolio transfers, net (112,741) (4,238,247) 4,641,993 5,632,341
------------- ------------- ------------- -------------
Net change from capital share transaction 16,492,029 (2,156,100) 4,615,376 8,330,061
------------- ------------- ------------- -------------
Total change in net assets $94,697,966 $38,676 $6,087,286 $41,148,744
============= ============= ============= =============
Net assets:
Beginning of year 372,536,101 48,138,555 18,406,534 94,823,132
End of year 467,234,067 48,177,231 24,493,820 135,971,876
------------- ------------- ------------- -------------
Total change in net assets $94,697,966 $38,676 $6,087,286 $41,148,744
============= ============= ============= =============
Growth and Global
Balanced International Income Discovery
------------- ------------- ------------- -------------
Changes in assets:
Operations:
Net investment income $3,252,112 $1,362,644 $4,589,737 ($30,708)
Net realized gains (losses) 1,350,636 9,302,533 5,540,987 689,707
Change in unrealized gains and losses 5,191,318 (3,210,925) 12,870,535 811,992
------------- ------------- ------------- -------------
Net change from operations 9,794,066 7,454,252 23,001,259 1,470,991
------------- ------------- ------------- -------------
Capital share transactions:
Premiums 4,089,100 5,663,171 14,772,184 2,017,535
Capital withdrawals (518,748)
Contract claims (122,603) (228,457) (200,548) (30,489)
Contract surrenders (2,370,707) (5,973,316) (3,854,601) (1,390,142)
Contract maintenance charges (383) (476)
Transfers (to) from general account and
portfolio transfers, net (99,683) (12,305,989) 7,341,124 (1,084,280)
------------- ------------- ------------- -------------
Net change from capital share transaction 1,495,724 (12,845,067) 18,058,159 (1,006,124)
------------- ------------- ------------- -------------
Total change in net assets $11,289,790 ($5,390,815) $41,059,418 $464,867
============= ============= ============= =============
Net assets:
Beginning of year 43,120,710 81,739,416 72,323,186 13,984,568
End of year 54,410,500 76,348,601 113,382,604 14,449,435
------------- ------------- ------------- -------------
Total change in net assets $11,289,790 ($5,390,815) $41,059,418 $464,867
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. Organization:
The Charter National Variable Annuity Account (the "Variable Account") is a unit
investment trust registered under the Investment Company Act of 1940, as
amended. The Variable Account was established by Charter National Life Insurance
Company ("Charter National"), a wholly-owned subsidiary of Leucadia National
Corporation ("Leucadia"), as a separate investment account on May 15, 1987. On
December 21, 1998, Leucadia and Allstate Life Insurance Company ("Allstate")
announced an agreement for Allstate to purchase Charter. The transaction is
subject to regulatory approvals and is expected to close before July 1, 1999.
The Variable Account receives funds representing premiums collected under the
variable annuity contracts (the "Contracts") offered by Charter National. The
funds are directed by the Contract owners into one or more subaccounts, each of
which, in turn, invests exclusively in the shares of up to seven portfolios of
the Scudder Variable Life Investment Fund (the "Fund"), an open-end, diversified
investment company managed by Scudder Kemper Investors, Inc. (the "Adviser").
The Fund, at December 31, 1998, consists of the Money Market Portfolio, the Bond
Portfolio, the Capital Growth Portfolio, the Balanced Portfolio, the
International Portfolio, the Growth and Income Portfolio and the Global
Discovery Portfolio (collectively referred to as the "Portfolios").
The Adviser receives compensation for its management and advisory services.
Total annual compensation received by the Adviser in 1998 and 1997 as a
percentage of average net assets was as follows:
1998 1997
---- ----
Money Market .440% .460%
Bond .570% .620%
Capital Growth .500% .510%
Balanced .560% .570%
International 1.040% 1.000%
Growth and Income .560% .580%
Global Discovery 1.720% 1.500%
Charter National has an agreement whereby it reimburses the Fund for its share
of the annual operating expenses incurred by the Adviser that exceed 1.50% of
the average daily net assets in the International and Global Discovery
Portfolios and .75% of the average daily net assets in the remaining Portfolios.
Charter National's share of such excess expenses are determined by the
proportion of its investment in the Fund to the total investment of all
companies participating in the Fund.
Each subaccount is denominated in units having a distinct value (the "Unit
Value"). For each subaccount, the Unit Value for the Contracts on a given date
is based on the net asset value of a share of the corresponding Portfolio in
which such subaccount invests. In addition, because of differences in Contracts
funded by the subaccounts, units in a subaccount attributable to certain
Contracts will have different Unit Values than those attributable to other
Contracts funded by the subaccount. When a payment is allocated or an amount is
transferred to a subaccount, a number of units is purchased based on the Unit
Value of the subaccount. When amounts are transferred out of or deducted from a
subaccount, units are redeemed in a similar manner.
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS, continued
1. Organization, continued:
Charter National is domiciled in the state of Missouri. Under Missouri insurance
regulations, the assets of the Variable Account are the property of Charter
National. The assets of each subaccount attributable to the Contracts, and the
income arising therefrom, may not be used to settle the liabilities arising from
any other subaccount or from any other business operations of Charter National.
The assets of each subaccount in excess of those attributable to the Contracts,
and the income arising therefrom, are available for Charter National's general
use.
2. Significant Accounting Policies:
Investment Valuation:
Investments made in the Portfolios of the Fund are valued at their respective
net asset values. Transactions are recorded on the trade date. Dividend income
is recognized when declared in all Portfolios except the Money Market Portfolio,
which recognizes income based upon a daily earnings rate. Gains and losses on
investments, both realized and unrealized, are determined on the basis of the
weighted average cost of the aggregate shares held in each of the Portfolios of
the Fund.
Federal Income Taxes:
Under current law, the net income and realized gains and losses attributable to
the Contracts are subject to taxation, under certain circumstances, upon the
withdrawal of such funds. The Variable Account makes no provision for such
future, potentially taxable events as any such taxes that would then become
payable would be the responsibility of the owners of the Contracts. Similar
items attributable to Charter National's capital contribution are included in
its federal income tax return, with provisions for such tax included in the
accounts of Charter National.
At the present time, Charter National makes no charge to the Variable Account
for any federal, state or local taxes that it incurs which may be attributable
to such Account or to the Contracts. Charter National, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be properly
attributable to the Variable Account or to the Contracts.
Use of Estimates in Preparing Financial Statements:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS, continued
3. Charges and Deductions:
Mortality and Expense Risk Charges and Administrative Expenses:
Charter National assumes certain mortality and expense risks related to the
operation of the Variable Account and deducts daily charges from the Contract's
values at an annual rate of .40% to .90%. Charter National reserves the right to
increase the mortality and expense risk charge to an annual rate of .70% to
.90%. In addition, similar deductions are made on a daily basis for
administrative expenses at an annual rate of .30% to .40%.
Records Maintenance:
On certain contracts, Charter National annually deducts an amount of $30 per
Contract for the cost of performing records maintenance. On certain other
Contracts, Charter National is permitted to, but did not in either 1998 or 1997,
deduct a records maintenance charge of up to $40 at the beginning of each
Contract year to reflect the cost of performing records maintenance.
Transfer Charges:
On certain Contracts, Charter National deducts a transfer charge of $10 for the
third and each subsequent transfer request made during a Contract year. On
certain other Contracts, Charter National is permitted to, but did not in either
1998 or 1997, deduct a transfer charge of $10 for the third and each subsequent
transfer request made during a Contract year.
4. Distribution of the Contracts:
CNL, Inc. ("CNL"), which acts as the principal underwriter for the Contracts, is
registered as a broker-dealer with the Securities and Exchange Commission (the
"SEC") and is a member of the National Association of Securities Dealers, Inc.
(the "NASD"). CNL receives commissions and underwriting fees directly from
Charter National. CNL and Charter National have contracted with Scudder Fund
Distributors, Inc. ("Scudder") for Scudder's services in connection with the
distribution of the Contracts. Scudder is registered with the SEC as a
broker-dealer and is a member of the NASD. On September 2, 1998, Leucadia, then
sole owner of CNL, sold all of the stock of CNL to Allstate.
<PAGE>
CHARTER NATIONAL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS, continued
5. Investments:
The following table presents selected data regarding the investments in each of
the Portfolios of the Fund at December 31, 1998.
<TABLE>
<CAPTION>
Portfolio Number of Cost Net Asset Value Net Asset Value Per
Shares Total Share
<S> <C> <C> <C> <C>
Money Market 60,619,920 $ 60,619,920 $ 60,619,920 $1.00
Bond 3,950,365 26,786,120 27,178,512 6.88
Capital Growth 6,919,668 130,807,887 165,726,041 23.95
Balanced 4,599,778 52,021,790 69,962,626 15.21
International 5,760,215 77,055,792 83,868,728 14.56
Growth and Income 9,761,716 95,010,132 109,819,303 11.25
Global Discovery 2,118,583 14,835,902 17,033,406 8.04
---------------- -----------------
Total $ 457,137,543 $ 534,208,536
================ =================
</TABLE>
The number and cost of Fund shares purchased and sold for the years ended
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
1998 Shares Cost Shares Cost
- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C>
Money Market 165,691,667 $165,691,667 153,248,978 $ 153,248,978
Bond 3,044,678 20,676,139 2,659,644 18,145,943
Capital Growth 4,185,611 90,204,740 3,856,921 69,737,835
Balanced 1,369,555 18,624,202 860,792 9,444,688
International 6,119,844 85,843,714 5,770,587 75,557,902
Growth and Income 4,273,578 48,324,001 4,388,395 41,566,735
Global Discovery 1,630,990 12,391,774 1,554,288 10,627,340
----------------- ----------------
Total $ 441,756,237 $ 378,329,421
================= ================
Portfolio Purchases Sales
1997 Shares Cost Shares Cost
- ---- ------ ---- ------ ----
Money Market 121,556,568 $121,556,568 121,517,892 $121,517,892
Bond 2,101,808 14,231,217 1,271,475 8,646,122
Capital Growth 4,652,306 86,351,192 3,808,184 58,811,129
Balanced 1,064,378 13,055,977 687,464 6,957,505
International 3,180,612 44,474,149 3,938,667 46,654,039
Growth and Income 4,978,875 51,616,031 2,820,932 23,427,148
Global Discovery 1,313,532 8,843,451 1,481,904 9,190,576
----------------- ----------------
Total $ 340,128,585 $ 275,204,411
================= ================
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) -- Resolutions of the Board of Directors of Charter
National Life Insurance Company authorizing establishment
of the Variable Annuity Account.1/
(2) -- Not Applicable.
(3) (a) -- Form of Principal Underwriting Agreement between
Charter National Life Insurance Company on its own behalf
and on behalf of Charter National Variable Annuity Account,
and CNL, Inc. 1/
(b) -- Form of Expense Reimbursement Agreement between Charter
National Life Insurance Company and CNL, Inc. 1/
(c) -- Marketing and Solicitation Agreement dated as of
September 30, 1988 among Scudder Investor Services, Inc.,
Charter National Life Insurance Company, Charter National
Variable Annuity Account, and CNL, Inc. 1/
(d) -- Principal Underwriting Agreement - Schedule A. 1/
(4) (a) -- Form of Contract for the Flexible Premium Variable
Deferred Annuity. 1/
(b) -- State Variations in Contract Form. 1/
(c) -- General Account Endorsement. 1/
(d) -- Individual Retirement Provision ontract Rider. 1/
(e) -- Change in Ownership and Annuitant Contract Rider. 1/
(f) -- Charges Endorsement. 1/
(5) (a) -- Form of Application for the Flexible Premium Variable
Deferred Annuity. 1/
(b) -- State Variations of Application Form. 1/
(6) (a) -- Articles of Incorporation of Charter National Life
Insurance Company. 1/
(b) -- By-Laws of Charter National Life Insurance Company. 1/
(7) -- Not Applicable.
(8) (a) -- Participation Agreement dated September 3, 1993 between
Scudder Variable Life Investment Fund and Charter
National Life Insurance Company. 1/
(b) -- Reimbursement Agreement dated June 9, 1986 between
Scudder, Stevens & Clark Inc. and Charter National Life
Insurance Company. 1/
(c) -- Participating Contract and Policy Agreement and
Amendments thereto dated June 4, 1986 between Scudder
Investor Services, Inc. and CNL, Inc. 1/
(d) -- Amendment to Participating Contract and Policy Agreement
dated February 20, 1996. 1/
(e) -- Purchase Agreement dated February 11, 1998 between
Charter National Life Insurance Company, Leucadia National
Corporation and Allstate Life Insurance Company.
2/
(f) -- Form of Coinsurance Agreement between Charter
National Life Insurance Company and Allstate Life
Insurance Company. 2/
(g) -- Form of Administrative Services Agreement between
Charter National Life Insurance Company and Allstate Life
Insurance Company. 2/
(9) -- Opinion and Consent of Counsel. 4/
(10) (a) -- Consent of Sutherland Asbill & Brennan LLP. 4/
(b) -- Consent of Independent Accountants. 4/
(11) -- Not Applicable.
(12) -- Not Applicable.
(13) -- Schedule for Computation of Performance Data. 1/
(14) -- Not Applicable.
(15) -- Powers of Attorney. 3/ 4/
1/ Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 15 to this Form N-4 Registration Statement filed with the
SEC via EDGARLINK on February 24, 1997 (File No. 33-22925).
2/ Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 17 to this Form N-4 Registration Statement filed with the
SEC via EDGARLINK on April 24, 1998 (File No. 33-22925).
3/ Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 18 to this Form N-4 Registration Statement filed with the
SEC via EDGARLINK on February 26, 1999 (File No. 33-22925).
4/ Filed herewith.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
-------------------------------------------------- ------------------------------------------
<S> <C>
Name and Principal Positions and Offices
Business Address With Depositor
-------------------------------------------------- ------------------------------------------
Richard G. Petitt* Chairman of the Board, President,
Director, Chief Executive Officer and
Chief Operating Officer
-------------------------------------------------- ------------------------------------------
John R. Petrowski** Vice President, General Counsel,
Corporate Secretary and Director
-------------------------------------------------- ------------------------------------------
Rocco Nittoli** Vice President, Treasurer, Controller
and Director
-------------------------------------------------- ------------------------------------------
Timothy C. Sentner *** Senior Vice President
-------------------------------------------------- ------------------------------------------
Mark Hornstein *** Vice President and Director
-------------------------------------------------- ------------------------------------------
James E. Jordan Director
9 West 57th St.
Suite 4000
New York, NY 10019
-------------------------------------------------- ------------------------------------------
Laura Ulbrandt *** Assistant Secretary
-------------------------------------------------- ------------------------------------------
Ian M. Cumming Director
Leucadia National Corporation
529 East South Temple
Salt Lake City, UT 84102
-------------------------------------------------- ------------------------------------------
Barbara Lowenthal *** Vice President
-------------------------------------------------- ------------------------------------------
Jesse Clyde Nichols III Director
Nichols Industries, Inc.
5001 E. 59th Street
Kansas City, MO 64130
-------------------------------------------------- ------------------------------------------
Joseph S. Steinberg *** Director
-------------------------------------------------- ------------------------------------------
Joseph A. Orlando *** Vice President and Director
-------------------------------------------------- ------------------------------------------
</TABLE>
* The principal business address is 3535 S.E. Doubleton Drive, Stuart, FL 34997.
** The principal business address is 335 Adams Street, Brooklyn, NY 11201.
*** The principal business address is Leucadia National Corporation, 315 Park
Avenue South, New York, NY 10010.
Item 26. Persons Controlled By or Under Common Control With the Depositor
or Registrant
Charter is the depositor of Charter National Variable Account, a separate
account formed in connection with the sale of variable life insurance policies
by Charter. Charter also is the depositor of the Charter National Variable
Annuity Account formed in connection with the sale of variable annuity contracts
by Charter.
As described in the Prospectus, Charter is engaged in the insurance business.
Intramerica Life Insurance Company, a Charter subsidiary, offers the Contract to
residents of New York. Charter is a wholly owned subsidiary of Leucadia National
Corporation ("Leucadia"), a New York corporation. On December 21, 1998 Allstate
Life Insurance Company ("Allstate") announced that it entered into an agreement
National Corporation to purchase Charter National Life Insurance Company. The
transaction is subject to regulatory approvals and is expected to close by July
1, 1999.
CNL, Inc. ("CNL") is the principal underwriter of the Contracts. On September 2,
1998, Leucadia, then sole owner of all of the stock of CNL, sold all of its CNL
stock to Allstate.
Set forth below is certain information concerning each of the active persons
under common control with Charter (other than CNL), including state of
organization, percentage of voting securities owned or other basis of control
and principal business.
<TABLE>
<CAPTION>
Percent of
Jurisdiction Voting
of Securities Principal
Name Incorporation Owned* Business
<S> <C> <C> <C>
Centurion Ins. Co. New York 100% Insurance
WMAC Investment Corp. Wisconsin 100% Holding Company
Bellpet, Inc. Delaware 100% Holding Company
Baldwin-CIS L.L.C. Delaware 100% Investments
Conwed Corporation Delaware 100% Real Estate
Leucadia Film Corporation Utah 100% Film Products
Neward Corporation Delaware 100% Owner and Operator of
Oil Wells
Rastin Investing Corp. Delaware 100% Investments
HSD Venture California 100% Real Estate
American Investment
Company Delaware 100% Holding Company
Leucadia Aviation, Inc. Delaware 100% Aviation
LNC Investments, Inc. Delaware 100% Investments
The Sperry and
Hutchinson Co., Inc. New Jersey 100% Trading Stamps
Leucadia, Inc. New York 100% Manufacturing &
Investments
College Life
Development Corp. Indiana 100% Real Estate
Phlcorp, Inc. Pennsylvania 100% Holding Company
Empire Insurance Co. New York 100% Insurance
American Investment
Bank, N.A. United States 100% Banking
Wedgewood Investments
L.L.C. Delaware 100% Investments
Leucadia Financial
Corporation Utah 100% Real Estate
</TABLE>
<TABLE>
<CAPTION>
Percent of
Jurisdiction Voting
of Securities Principal
Name Incorporation Owned* Business
<S> <C> <C> <C>
AIC Financial Corp. Delaware 100% Real Estate
Leucadia Cellars Ltd. Delaware 100% Investments
American Investment
Financial Utah 100% Thrift Loan
Allcity Insurance Co. New York 89.8% Insurance
Charter National Life
Insurance Company Missouri 100% Insurance
LUK-CP Administrative
Services, Inc. Delaware 100% Administrator
LUK-CPG, Inc. Delaware 100% Holding Company
LUK-CPH, Inc. Delaware 100% Holding Company
Intramerica Life
Ins. Co. New York 100% Insurance
Leucadia Properties, Inc. Utah 100% Real Estate
Terracor II Utah 100% Real Estate
CPAX, Inc. Delaware 100%
Holding Company
Rosemary Beach Land Co. Florida 100% Real Estate
Rosemary Beach Cottage
Rental Co. Delaware 100% Real Estate Rental
Professional Data
Management, Inc. Indiana 100% Real Estate
Leucadia Investors, Inc. New York 100% Investments
Silver Mountain
Industries, Inc. Utah 100% Real Estate
Telluride Properties
Acquisition, Inc. Utah 100% Real Estate
Baldwin Enterprises,
Inc. Colorado 100% Holding Company
Commercial Loan Insurance
Company Wisconsin 100% Insurance
NSAC, Inc. Colorado 100% Real Estate
RERCO, Inc. Delaware 100% Finance
330 MAD. PARENT CORP. Delaware 100% Investments
WMAC Credit Insurance
Corp. Wisconsin 100% Insurance
CDS Devco, Inc. California 80% Investments
San Elijo Ranch, Inc. California 68% Real Estate
RRP, Inc. Colorado 100% Real Estate
CDS Holding Corporation Delaware 100% Holding Company
International Bottlers
L.L.C. Delaware 71% Holding Company
Pepsi International
Bottlers L.L.C. Delaware 71% Holding Company
LUK-REN, Inc. New York 100% Real Estate
Pine Ridge Associates,
L.P. Texas 75% Winery
Leucadia Bottling L.L.C. Utah 100% Holding Company
Leucadia Power Holdings,
Inc. Utah 100% Holding Company
</TABLE>
* Unless otherwise noted, voting securities are owned by Leucadia. A number of
subsidiaries of Leucadia are not included on this list. Taken together and
considered as a single subsidiary, they would not constitute a significant
subsidiary of Leucadia. More detailed information will be supplied upon request.
In addition, inactive companies are not included on this list.
Item 27. Number of Contract Owners
As of April 13, 1999 there were 9,265 owners of the Contract, of which 9,063
were Non-qualified and 202 were Qualified.
Item 28. Indemnification
Currently, there are no provisions or arrangements for indemnification of any
individual either by the Registrant or by Charter pursuant to its Articles of
Incorporation or By-Laws. However, Section 351.355 of the Missouri General and
Business Corporation Law, in brief, allows a corporation to indemnify any person
who 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, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action if he acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interest of the
corporation. Where any person was or is a party or is threatened to be made a
party in an action or suit by or in the right of the corporation to procure a
judgment in its favor, indemnification may not be paid where such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation, unless a court determines that the person is
fairly and reasonably entitled to indemnity. A corporation has the power to give
any further indemnity, to any person who is or was a director, officer, employee
or agent, provided for in the Articles of Incorporation or as authorized by any
by-law which has been adopted by vote of the shareholders, provided that no such
indemnity shall indemnify any person whose action was finally adjudged to have
been knowingly fraudulent, deliberately dishonest of the result of willful
misconduct.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers, and controlling persons of Charter pursuant to
the foregoing statute, or otherwise, Charter has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Charter of
expenses incurred or paid by a director, officer or controlling person of
Charter in successful defense or any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, Charter will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriter
CNL is the principal underwriter of the Charter National Variable Annuity
Account. CNL is also the principal underwriter for the Charter National Variable
Account, a separate account of Charter formed in connection with the
distribution of variable life insurance policies issued by Charter. And CNL is
principal underwriter for variable annuity contracts issued through the
Intramerica Variable Annuity Account.
Commissions in the amount of $_____ were paid on the Contracts to CNL during
Registrant's fiscal year ending 12/31/98.
<PAGE>
The directors and officers of CNL are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------- ------------------------------------------
Name and Principal Positions and Offices
Business Address With Underwriter
-------------------------------------------------- ------------------------------------------
<S> <C>
John R. Hunter* Director
-------------------------------------------------- ------------------------------------------
Louis G. Lower, II* Director
-------------------------------------------------- ------------------------------------------
Michael J. Velotta* Director and Assistant Secretary
-------------------------------------------------- ------------------------------------------
Thomas J. Wilson, II* Director
-------------------------------------------------- ------------------------------------------
A. Sales Miller* President
-------------------------------------------------- ------------------------------------------
Karen C. Gardner* Vice President
-------------------------------------------------- ------------------------------------------
Kathleen A. Urbanowicz* Vice President, Secretary and Chief
Compliance Officer
-------------------------------------------------- ------------------------------------------
Terry R. Young* General Counsel and Assistant Secretary
-------------------------------------------------- ------------------------------------------
James P. Zils* Treasurer
-------------------------------------------------- ------------------------------------------
Robert N. Roeters* Assistant Vice President
-------------------------------------------------- ------------------------------------------
Emma M. Kalaidjian* Assistant Secretary
-------------------------------------------------- ------------------------------------------
Brenda D. Sneed* Assistant Secretary
-------------------------------------------------- ------------------------------------------
Nancy M. Bufalino* Assistant Treasurer
-------------------------------------------------- ------------------------------------------
</TABLE>
* The principal business address is Allstate Life Insurance Company, 3100
Sanders Road, Northbrook, Illinois 60062-7154.
Item 30. Location of Accounts and Records
All financial accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by Charter or an affiliate at
their respective home offices. All Contract Owner accounts and documents
required to be maintained by Section 31(a) of the 1940 Act and the rules under
it are maintained by Charter or by the Allstate, or by an affiliate of Charter
or Allstate, at their home offices or at the customer service center.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Charter National 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 Charter National Life Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this registration statement and has caused this
registration statement to be signed on its behalf in the City of St. Louis and
the State of Missouri, on the __ day of April, 1999.
Charter National Variable Annuity Account
(Registrant)
(Seal) By: Charter National Life Insurance Company
(Depositor)
Attest: /s/John R. Petrowski By: /s/Rocco Nittoli
-------------------- ----------------
John R. Petrowski Rocco Nittoli
Vice President and Vice President and
General Counsel Treasurer
As required by the Securities Act of 1933 this amended Registration
Statement has been signed by the following persons in their capacities on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*_____________________________ Chairman of the Board 4/__/99
Richard G. Petitt President and Director
(Chief Executive Officer)
(Chief Operating Officer)
*______________________________ Vice President, Treasurer, 4/__/99
Rocco Nittoli Controller and Director
*______________________________ Director 4/__/99
Ian M. Cumming
*_______________________________ Senior Vice President 4/__/99
Timothy C. Sentner
*______________________________ Vice President, General 4/__/99
John R. Petrowski Counsel, Corporate
Secretary and Director
*_____________________________ Assistant Secretary 4/__/99
Laura Ulbrandt
*_____________________________ Director 4/__/99
Jesse Clyde Nichols III
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
*_____________________________ Vice President and
Mark Hornstein Director 4/__/99
*_____________________________ Director 4/__/99
Joseph S. Steinberg
*_____________________________ Vice President 4/__/99
Barbara Lowenthal
*_____________________________ Vice President and 4/__/99
Joseph A. Orlando Director
*______________________________ Director 4/__/99
James E. Jordan
</TABLE>
*Pursuant to Power of Attorney
(Seal) Date: April 23, 1999
Attest: /s/John R. Petrowski By: /s/Rocco Nittoli
-------------------- ----------------
John R. Petrowski Rocco Nittoli
Vice President and Vice President and
General Counsel Treasurer
<PAGE>
Exhibit List
Exhibit 9 Opinion and Consent of Counsel
Exhibit 10(a) Consent of Sutherland Asbill & Brennan
Exhibit 10(b) Consent of Independent Accountants
Exhibit 15 Powers of Attorney
Ian M. Cumming
Timothy C. Sentner
James E. Jordan
[Letterhead of Charter National Life Insurance Company]
April 23, 1999
Board of Directors
Charter National Life Insurance Company
8301 Maryland Avenue
St. Louis, Missouri 63105
Gentlemen and Ladies:
Re: Charter National Variable Annuity Account
In my capacity as Vice President and General Counsel of Charter National
Life Insurance Company (the "Company"), I am rendering the following opinion in
connection with the filing with the Securities and Exchange Commission of
Post-Effective Amendment No. 19 to the Registration Statement on Form N-4 under
the Securities Act of 1933 and the Investment Company Act of 1940, filed with
respect to certain flexible variable annuity contracts (the "Contracts") issued
by Charter National Variable Annuity Account (the "Account").
In forming the following opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary and
appropriate.
It is my opinion that:
1. The Account is a separate investment account of the Company and is
duly created and validly existing pursuant to the laws of the State of
Missouri.
2. The Contracts, when issued in accordance with the Prospectus of the
Account and in compliance with applicable local law, are and will be
legal and binding obligations of the Company in accordance with their
terms.
3. Assets equal to the reserves and other contract liabilities and held
in the Account will not be chargeable with liabilities arising out of
any other business the Company may conduct.
I consent to the filing of this opinion as an exhibit to the
above-mentioned Registration Statement and to the inclusion of my name under the
caption "Legal Matters" in the Statement of Additional Information filed as part
of this Registration Statement on Form N-4.
Very truly yours,
/s/ John R. Petrowski
----------------------
John R. Petrowski
Vice President and General Counsel
[Letterhead of Sutherland Asbill & Brennan LLP]
April 23, 1999
VIA EDGARLINK
Board of Directors
Charter National Life Insurance Company
8301 Maryland Ave.
St. Louis, Missouri 63105
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 19 to the registration statement on Form N-4 for
Charter National Variable Annuity Account (File No. 33-22925). In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
Sutherland Asbill & Brennan LLP
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Charter National Life Insurance Company:
We consent to the inclusion of the following in Post-Effective Amendment No. 19
to the Registration Statement of the Charter National Variable Annuity Account
on Form N-4 (File No. 811-5279 and Registration No. 33-22925):
o Our report dated February 17, 1999, on our audits of the financial
statements of the Charter National Variable Annuity Account as of
December 31, 1998 and for each of the two years in the period ended
December 31, 1998.
o Our report dated February 17, 1999, on our audits of the consolidated
financial statements of Charter National Life Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998.
o The reference to our firm under the caption "Independent Accountants."
PricewaterhouseCoopers LLP
April 23, 1999
POWER OF ATTORNEY
We, the undersigned directors and officers of Charter National Life
Insurance Company, a Missouri stock life insurance company, hereby constitute
and appoint Richard G. Petitt, John R. Petrowski and Rocco Nittoli, and each of
them (with power to each of them to act alone), our true and lawful
attorneys-in-fact and agents, with full power to sign for us and in our names
and in the capacities indicated below, any and all amendments (including
post-effective amendments) to the Registration Statements filed with the
Securities and Exchange Commission for the purpose of registering Charter
National Variable Annuity Account, established by Charter National Life
Insurance Company on May 15, 1987 as a unit investment trust under the
Investment Company Act of 1940 and the variable annuity contracts issued by said
separate account under the Securities Act of 1933, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys-in-fact
and agents, to said Registration Statements and any and all amendments thereto.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Date Signature Date
- ------------------------------------ ---------------------- ------------------------------- ------------------------
<S> <C> <C> <C>
_____________________ 2/__/99 ____________________ 2/__/99
/s/ Richard G. Petitt /s/ Ian M. Cumming
- ------------------------------------ ---------------------- ------------------------------- ------------------------
_____________________ 2/__/99 ____________________ 2/26/99
/s/ Mark Hornstein /s/ James E. Jordan
- ------------------------------------ ---------------------- ------------------------------- ------------------------
_____________________ 2/__/99 ____________________ 2/26/99
/s/ John R. Petrowski /s/ Rocco Nittoli
- ------------------------------------ ---------------------- ------------------------------- ------------------------
_____________________ 2/__/99 ____________________ 2/__/99
/s/ Laura Ulbrandt /s/ Barbara Lowenthal
- ------------------------------------ ---------------------- ------------------------------- ------------------------
_____________________ 2/__/99 ____________________ 2/__/99
/s/ Jesse Clyde Nichols III /s/ Joseph S. Steinberg
- ------------------------------------ ---------------------- ------------------------------- ------------------------
_____________________ 2/__/99 ____________________ 2/26/99
/s/ Joseph A. Orlando /s/ Timothy C. Sentner
</TABLE>
