<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 20, 1998
REGISTRATION NO. 33-75714
811-8374
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. ____ / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 6 /X/
ALEXANDER HAMILTON VARIABLE ANNUITY
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
(NAME OF DEPOSITOR)
100 N. Greene St., Greensboro, NC 27401
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE
(336) 691-3000
NAME AND ADDRESS OF
AGENT FOR SERVICE: COPY TO:
Shari J. Lease, Esquire Joan E. Boros, Esquire
Alexander Hamilton Life Insurance Jorden Burt Boros Cicchetti Berenson &
Company of America Johnson LLP
One Granite Place 1025 Thomas Jefferson Street, N.W.
Concord, NH 03301 Suite 400 East
Washington, D.C. 20007
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
immediately upon filing pursuant to paragraph (b)
--
X on May 1, 1998 pursuant to paragraph (b)
--
60 days after filing pursuant to paragraph (a)(i)
--
on May 1, 1998 pursuant to paragraph (a)(i)
--
75 days after filing pursuant to paragraph (a)(ii)
--
on _______ pursuant to paragraph (a)(ii) of Rule 485
--
IF APPROPRIATE CHECK THE FOLLOWING BOX:
__ this Post-Effective Amendment designates a new effective
date for a new effective date for a previously filed
Post-Effective Amendment.
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after effectiveness of the Registration Statement
TITLE OF SECURITIES BEING REGISTERED:
Variable Portion of Contracts issued by the Separate Account
No filing fee is due because an indefinite number of shares is deemed to have
been registered in reliance on Section 24(f) of the Investment Company Act of
1940.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus)
Part B (Statement of Additional Information) and Part C
of Registration Statement Information Required by Form N-4
PART A
------
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
1. Cover Page. . . . . . . . . . Cover Page
2. Definitions . . . . . . . . . Definitions
3. Synopsis. . . . . . . . . . . Summary; Historical
Performance Data
4. Condensed Financial Information Condensed Financial
Information
5. General
(a) Depositor. . . . . . . . Alexander Hamilton Life
Insurance Company of America;
Additional Information about
the Company
(b) Registrant . . . . . . . Alexander Hamilton Variable
Annuity Separate Account
(c) Portfolio Company. . . . The Subaccounts
(d) Fund Prospectus. . . . . The Subaccounts
(e) Voting Rights. . . . . . Voting Rights
6. Deductions and Expenses
(a) General. . . . . . . . . Charges and Deductions
(b) Sales Load % . . . . . . Surrender Charge
(c) Special Purchase Plan... Not Applicable
(d) Commissions. . . . . . . Distributor of the Contracts
(e) Fund Expenses. . . . . . Other Expenses Including
. . . . . . . . . . . . Investment Advisory Fees
(f) Expenses - Registrant... Not Applicable
7. Contracts
(a) Persons with Rights. . . The Alexander Hamilton Life
Insurance Company of America
Variable Annuity Contract;
Distributions Under The
Contract; Voting Rights
<PAGE>
(b)(i) Allocation of Premium
Payments . . . . . . . Premium Payments
(ii) Transfers. . . . . . . Transfers
(iii) Exchanges. . . . . . . Not Applicable
(c) Changes. . . . . . . . Addition, Deletion or
. . . . . . . . . . . . Substitution of Investments
(d) Inquiries. . . . . . . Summary; Annuity Payments;
Annuity Payment Options;
Benefit; General Provisions
8. Annuity Period. . . . . . . . Annuity Payment Options
9. Death Benefit . . . . . . . . Death Benefit
10. Purchase and Contract Balances
(a) Purchases. . . . . . . . Contract Application and
Issuance of Contracts
(b) Valuation. . . . . . . . Contract Value
(c) Daily Calculation. . . . The Separate Account Value
(d) Underwriter. . . . . . . Distributor of the Contracts
11. Redemptions
(a) By Contract Owners . . . Surrenders
By Annuitant . . . . . . Not Applicable
(b) Texas ORP. . . . . . . . Restrictions Under the Texas
ORP Retirement Program
(c) Check Delay. . . . . . . Surrenders
(d) Lapse. . . . . . . . . . Lapse
(e) Free Look. . . . . . . . Summary; Right to Examine the
Contract
12. Taxes . . . . . . . . . . . . Certain Federal Income Tax
Consequences
13. Legal Proceedings . . . . . . Legal Proceedings
14. Table of Contents for the
Statement of Additional Information Statement of Additional
Information Table of Contents
PART B
------
Statement of
Additional
Item of Form N-4 Information Caption
- ---------------- -------------------
15. Cover Page. . . . . . . . . . Cover Page
16. Table of Contents . . . . . . Table of Contents
17. General Information
and History. . . . . . . . (Prospectus) Alexander
Hamilton Life Insurance
Company of America; Additional
Information About the Company
<PAGE>
18. Services
(a) Fees and Expenses
of Registrant. . . . . Not Applicable
(b) Management Contracts . . Not Applicable
(c) Custodian. . . . . . . . Records, Reports and Services
Independent
Auditors . . . . . . . . Financial Statements
(d) Assets of Registrant . . Not Applicable
(e) Affiliated Person. . . . Not Applicable
(f) Principal Underwriter. . Not Applicable
19. Purchase of Securities
Being Offered . . . . . . . . (Prospectus) The Alexander
Hamilton Life Insurance
Company of America Variable
Annuity Contract
Offering Sales Load . . . . . (Prospectus) Surrender Charge
20. Underwriters. . . . . . . . . (Prospectus) Distributor of
the Contracts
21. Calculation of Performance
Data . . . . . . . . . . . . (Prospectus) Performance Data;
Performance Data and
Calculations
22. Annuity Payments. . . . . . . (Prospectus) Annuity Income
Payments; Annuity Payment
Options
23. Financial Statements. . . . . Financial Statements
PART C - - OTHER INFORMATION
----------------------------
Item of Form N-4 Part C Caption
- ---------------- --------------
24. Financial Statements
and Exhibits. . . . . . . . . Financial Statements and
Exhibits
(a) Financial Statements . . Financial Statements
(b) Exhibits . . . . . . . . Exhibits
25. Directors and Officers of . . The Company's Directors
the Depositor . . . . . . . . and Officers
26. Persons Controlled By or
Under Common Control. . . . . Persons Controlled By or Under
Common Control with the
Depositor or Registrant
<PAGE>
27. Number of Contract Owners . . Number of Contract Owners
28. Indemnification . . . . . . . Indemnification
29. Principal Distributor of the
Underwriters. . . . . . . . . Contracts
30. Location of Accounts
and Records . . . . . . . . . Location of Accounts and
Records
31. Management Services . . . . . Management Services
32. Undertakings. . . . . . . . . Undertakings
Signature Page. . . . . . . . Signatures
<PAGE>
THE ALLEGIANCE VARIABLE ANNUITY
ISSUED BY
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
100 N. GREENE ST.
PROSPECTUS GREENSBORO, NC 27401 MAY 1, 1998
This Prospectus describes The Allegiance Variable Annuity (the
"Contract"), an individual flexible premium multi-funded deferred variable
annuity offered by Alexander Hamilton Life Insurance Company of America (the
"Company"). The Contract provides for the accumulation of capital on a
tax-deferred basis for retirement or other long-term purposes. A minimum
initial Premium Payment of only $2,000 is required to purchase a Contract
(although a lower minimum may apply to certain tax-qualified Contracts). You
generally may make additional Premium Payments of at least $50 each at any
time before the Maturity Date. Additional limitations on Premium Payments
apply.
You may allocate Premium Payments to one or more Variable
Sub-accounts of the Alexander Hamilton Variable Annuity Separate Account (the
"Separate Account"), in which the Contract Value varies to reflect investment
performance, or to one or more Interest Rate Guarantee Periods of the Capital
Developer Account, in which a specified rate of interest is credited to the
Contract Value (subject to a Market Value Adjustment), or to a combination of
these Variable Sub-accounts and Interest Rate Guarantee Periods. The Separate
Account currently has 18 different Variable Sub-accounts (the "Variable
Sub-accounts"). Assets of each Variable Sub-account are invested in a
corresponding portfolio (each, a "Fund") of the Jefferson Pilot Variable
Fund, Inc., the Fidelity's Variable Insurance Products Funds ("VIP" and "VIP
II"), the MFS Variable Insurance Trust, or the Oppenheimer Variable Account
Funds. Each Fund is described in separate prospectuses that accompany this
Prospectus. Certain Fund options may not be available in all states. The
Contract Value allocated to the Separate Account will vary up or down in
accordance with the investment performance of the Fund(s) you select.
Therefore, you bear the entire investment risk for all amounts allocated to
the Separate Account. The Capital Developer Account currently has two
Interest Rate Guarantee Periods: one year and seven years. The Market Value
Adjustment could decrease the value of amounts prematurely surrendered,
withdrawn, transferred, or annuitized from the Capital Developer Account, but
amounts invested in the Capital Developer Account are guaranteed to earn
interest at an annual rate of at least 3% per year before any applicable
Surrender Charges. The Capital Developer Account may not be available in all
states. There is no guaranteed or minimum Surrender Value for the Variable
Sub-accounts, so the Surrender Value with respect to amounts allocated to the
Variable Sub-accounts could be less than the Premium Payments allocated
thereto.
The Contract provides for annuity payments to be made by the
Company on a fixed or a variable basis for the life of the Annuitant or for
some other period, beginning on the Maturity Date that you select. Prior to
the Maturity Date, you can transfer amounts among the 20 allocation options
including the two fixed Interest Rate Guarantee Periods of the Capital
Developer Account and the 18 Variable Sub-accounts of the Separate Account
(collectively, the "Investment Options"). After the Maturity Date, transfers
are permitted among the Variable Sub-accounts. Prior to the Maturity Date,
you can also Surrender the Contract or withdraw a portion of the Surrender
Value in exchange for a cash payment; however, Surrenders and Withdrawals may
be taxable, subject to a Surrender Charge, a Market Value Adjustment, an
Annual Administrative Fee, and/or a tax penalty, and payment of Surrenders
from the Capital Developer Account may be delayed.
This Prospectus sets forth your rights under the Contract, and
information regarding the Investment Options that you should know before
investing. A Statement of Additional Information dated May 1, 1998, has been
filed with the Securities and Exchange Commission ("SEC") and is available
without charge, upon Request by calling the Variable Annuity Service Center
at 1-800-289-1776. The Table of Contents of the Statement of Additional
Information is included at the end of this Prospectus. The Statement of
Additional Information, as supplemented from time to time, is incorporated
herein by reference.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR EACH OF THE FOLLOWING FUNDS: JEFFERSON PILOT VARIABLE FUND,
INC., VARIABLE INSURANCE PRODUCTS FUND; VARIABLE INSURANCE PRODUCTS FUND II;
MFS VARIABLE INSURANCE TRUST, AND THE OPPENHEIMER VARIABLE ACCOUNT FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES DIVISION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES DIVISION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
CONTRACTS AND SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF OR GUARANTEED BY ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. INVESTING IN THE CONTRACTS INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA . . . . . . . . . 12
Year 2000 Matter . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The Separate Account . . . . . . . . . . . . . . . . . . . . . . . . 13
The Sub-Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Capital Developer Account. . . . . . . . . . . . . . . . . . . . 17
THE ALLEGIANCE VARIABLE ANNUITY CONTRACT . . . . . . . . . . . . . . . 18
Contract Application and Issuance of Contracts . . . . . . . . . . . 18
Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Initial Premium Payment . . . . . . . . . . . . . . . . . . . . . 19
Additional Premium Payments . . . . . . . . . . . . . . . . . . . 19
Allocation of Premium Payments. . . . . . . . . . . . . . . . . . 19
Payment Not Honored by Bank . . . . . . . . . . . . . . . . . . . 19
Contract Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Separate Account Value. . . . . . . . . . . . . . . . . . . . 19
The Capital Developer Account Value . . . . . . . . . . . . . . . 20
Minimum Contract Value. . . . . . . . . . . . . . . . . . . . . . 20
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Telephone Transfers and Reallocations . . . . . . . . . . . . . . 21
Dollar Cost Averaging. . . . . . . . . . . . . . . . . . . . . . . . 21
Automatic Rebalancing. . . . . . . . . . . . . . . . . . . . . . . . 22
DISTRIBUTIONS UNDER THE CONTRACT . . . . . . . . . . . . . . . . . . . 22
Surrenders and Partial Withdrawals . . . . . . . . . . . . . . . . . 22
Systematic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . 23
Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Election of Annuity Payment Option. . . . . . . . . . . . . . . . 24
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Annuity Payment Options. . . . . . . . . . . . . . . . . . . . . . . 24
Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Death of Contract Owner Prior to Maturity Date. . . . . . . . . . 26
IRS Required Distribution . . . . . . . . . . . . . . . . . . . . 27
Death of Annuitant Prior to Maturity Date . . . . . . . . . . . . 27
Death of Annuitant on or After Maturity Date. . . . . . . . . . . 27
Death of Contract Owner on or After Maturity Date . . . . . . . . 27
Contract Owner's Spouse as Beneficiary. . . . . . . . . . . . . . 27
Payment of Death Benefit to Beneficiary . . . . . . . . . . . . . 28
Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Change of Contract Owner . . . . . . . . . . . . . . . . . . . . . . 28
Restrictions Under the Texas Optional Retirement Program . . . . . . 28
Restrictions Under Qualified Contracts . . . . . . . . . . . . . . . 28
Restrictions Under Section 403(b) Plans. . . . . . . . . . . . . . . 28
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . 28
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Market Value Adjustment. . . . . . . . . . . . . . . . . . . . . . . 30
Reduction in Charges for Certain Groups. . . . . . . . . . . . . . . 30
Mortality and Expense Risk Charge. . . . . . . . . . . . . . . . . . 30
Administrative Expense Charge. . . . . . . . . . . . . . . . . . . . 31
Annual Administrative Fee. . . . . . . . . . . . . . . . . . . . . . 31
Transfer Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Federal, State and Local Taxes . . . . . . . . . . . . . . . . . . . 31
Other Expenses Including Investment Advisory Fees. . . . . . . . . . 31
i
<PAGE>
TABLE OF CONTENTS -- (CONTINUED)
Page
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . 32
Taxation of Annuities. . . . . . . . . . . . . . . . . . . . . . . . 32
In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Possible Changes in Taxation. . . . . . . . . . . . . . . . . . . 33
Surrenders and Partial Withdrawals from Qualified Contracts . . . 33
Surrenders and Partial Withdrawals from Non-Qualified Contracts . 33
Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . 33
Penalty Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Death Benefit Proceeds. . . . . . . . . . . . . . . . . . . . . . 33
Gifts, Transfers, Assignments, or Exchanges of the Contract . . . 34
Generation-Skipping Transfers . . . . . . . . . . . . . . . . . . 34
Multiple Contracts. . . . . . . . . . . . . . . . . . . . . . . . 34
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Other Tax Consequences. . . . . . . . . . . . . . . . . . . . . . 34
Qualified Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Qualified Pension and Profit Sharing Plans. . . . . . . . . . . . 35
Individual Retirement Annuities and Individual Retirement Accounts 35
Tax-Sheltered Annuities . . . . . . . . . . . . . . . . . . . . . 35
Section 457 Deferred Compensation ("Section 457") Plans . . . . . 36
DISTRIBUTOR OF THE CONTRACTS . . . . . . . . . . . . . . . . . . . . . 36
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT. . . . . . . . . . . 37
Addition, Deletion, or Substitution of Investments . . . . . . . . . 37
Performance Data . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Company Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
GENERAL CONTRACT PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 39
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 41
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS. . . . . . . . . 42
APPENDIX I - SURRENDER CHARGE CALCULATION . . . . . . . . . . . . . . I-1
APPENDIX II - MARKET VALUE ADJUSTMENT CALCULATION AND
EXAMPLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
FUND PROSPECTUSES
Jefferson Pilot Variable Fund, Inc.. . . . . . . . . . . . . . . . . JPVF-l
Fidelity's Variable Insurance Products Funds (VIP and VIP II). . . . VIP-I
MFS Variable Insurance Trust . . . . . . . . . . . . . . . . . . . . MFSRS-1
Oppenheimer Variable Account Funds (OVAF). . . . . . . . . . . . . . OVAF-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
ii
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD -- The period from the Contract Date to the date
preceding the Maturity Date.
ACCUMULATION UNIT -- A unit of measure used to determine the Separate
Account Value during the Accumulation Period.
ANNUITANT(S) -- The person(s) upon whose life the Annuity Payments are to
be based. You will be deemed the Annuitant unless you name another to be the
Annuitant in the Contract Application. An Annuitant must be a natural person.
The Annuitant(s) named in the Application cannot be changed.
ANNUITY PAYMENTS -- The payments from the Company to the Payee that will
begin on the Maturity Date. The amount of Annuity Payments will be based on the
Contract Value and the age of the Annuitant on the Maturity Date, as well as on
the Annuity Payment Option and payment frequency selected.
ANNUITY PAYMENT OPTIONS -- Options available for methods of receiving
Annuity Payments.
ANNUITY PERIOD -- The period which begins on the Maturity Date and ends
with the last Annuity Payment.
ANNUITY UNIT -- A unit of measure used to determine the amount of each
Variable Annuity Payment.
APPLICATION - The document you signed that evidences your application for
the Contract.
BENEFICIARY - The persons or entities designated by you in the Application
(or as subsequently changed by you) to receive the Death Benefit provided by the
Contract.
CAPITAL DEVELOPER ACCOUNT -- An allocation alternative under the Contract
that provides a Guaranteed Interest Rate for a specified Interest Rate Guarantee
Period. This rate will never be less than 3% per year. The Capital Developer
Account is guaranteed by the Company and is not part of the Separate Account.
CAPITAL DEVELOPER ACCOUNT VALUE -- The portion of Contract Value held in
the Capital Developer Account.
CODE -- The Internal Revenue Code of 1986, as amended.
COMPANY (OUR, WE, US) - Alexander Hamilton Life Insurance Company of
America.
CONTRACT -- The Allegiance Variable Annuity, an individual flexible premium
multi-funded variable annuity contract that is described in this Prospectus.
CONTRACT DATE - The effective date of coverage under the Contract and the
date from which the Company measures Contract Years, quarters, months, and
anniversaries.
CONTRACT OWNER (you, your) - The person or entity entitled to the ownership
rights of the Contract. The Contract Owner is the person in whose name the
Contract is issued. It is the person or entity named in the Application, unless
otherwise changed. Joint Contract Owners are permitted only if they are spouses.
CONTRACT VALUE - The value of all of the Accumulation Units held under the
Contract in the Separate Account plus the value of all amounts held under the
Contract in the Capital Developer Account.
CONTRACT YEAR - The first Contract Year is the annual period which begins
on the Contract Date. Subsequent Contract Years begin on each anniversary of the
Contract Date.
DEATH BENEFIT -- The amount payable upon the death of any Contract Owner.
DUE PROOF OF DEATH -- Information required by the Company to process a
claim for a Death Benefit, including a death certificate and a death claim form
acceptable to the Company.
1
<PAGE>
FIXED ANNUITY OPTIONS -- Annuity Payment Options under the Contract that
provide for scheduled and fixed payments.
FUNDS -- the Jefferson Pilot Funds, VIP Portfolios, MFS Funds and
Oppenheimer Funds.
GUARANTEED INTEREST RATE -- The applicable effective annual interest rate
which the Company will credit and compound annually on the Capital Developer
Account Value during each Interest Rate Guarantee Period. The rate is guaranteed
to be at least three percent per year.
INTEREST RATE GUARANTEE PERIOD -- A specified period which begins on the
date that a Premium Payment is allocated to (or a portion of Contract Value is
transferred to) the Capital Developer Account to accumulate at a Guaranteed
Interest Rate. Currently, the Company offers one and seven-year Interest Rate
Guarantee Periods.
INVESTMENT OPTION -- Each Interest Rate Guarantee Period of the Capital
Developer Account and each Variable Sub-account of the Separate Account.
ISSUE AGE -- The age of the Contract Owner on the Contract Date.
JEFFERSON PILOT VARIABLE FUND, INC. ("JPVF") -- an open-end diversified
management investment company registered under the 1940 Act. JPVF was previously
known as Chubb America Fund, Inc. and changed its name as part of the
acquisition of Chubb Life and its affiliates by Jefferson-Pilot Corporation.
JEFFERSON PILOT FUNDS -- the portfolios of the Jefferson Pilot Variable
Fund, Inc. which are available under the Contracts -- Domestic Growth Stock
Portfolio, World Growth Stock Portfolio, International Equity Portfolio, Growth
Portfolio, Growth and Income Portfolio, Emerging Growth Portfolio, Capital
Growth Portfolio, High Yield Bond Portfolio, Money Market Portfolio, and
Balanced Portfolio.
MARKET VALUE ADJUSTMENT -- A positive or negative adjustment applied to the
Capital Developer Account Value in the event of a premature full Surrender,
Partial Withdrawal, Transfer, or annuitization that is requested prior to the
end of an Interest Rate Guarantee Period. The Market Value Adjustment does not
apply during the last 30 days of the Interest Rate Guarantee Period.
MATURITY DATE -- The date on which the Company makes the first Annuity
Payment under the Contract. The latest Maturity Date that may be elected is the
Annuitant's 85th birthday or 10 years from the Contract Date, whichever is
later.
MFS FUNDS -- mutual fund series of the MFS Variable Insurance Trust which
are available under the Contracts -- MFS Research Series and MFS Utilities
Series.
MFS VARIABLE INSURANCE TRUST -- an open-end management investment company
registered under the 1940 Act.
NET PREMIUM PAYMENT -- A Premium Payment less any applicable Premium Tax.
OPPENHEIMER FUNDS -- the Portfolios of the Oppenheimer Variable Account
Funds which are available under the Contract -- Oppenheimer Strategic Bond Fund
and Oppenheimer Bond Fund.
OPPENHEIMER VARIABLE ACCOUNT FUNDS ("OVAF") -- an open-end management
investment company registered under the 1940 Act.
PAYEE -- The person or entity who will receive Annuity Payments under the
Contract.
PREMIUM PAYMENT -- A payment to the Company under the Contract.
PREMIUM TAX -- A tax imposed by certain states when a Premium Payment is
made, when Annuity Payments begin, when a partial withdrawal is made, or when
the Contract is surrendered.
REQUEST -- A request in a form satisfactory to the Company, which is
received by the Company's Variable Annuity Service Center.
2
<PAGE>
SEPARATE ACCOUNT -- The Alexander Hamilton Variable Annuity Separate
Account, a separate account of Alexander Hamilton Life Insurance Company of
America, which consists of assets set aside by the Company, the investment
performance of which is kept separate from that of the general assets and all
other separate account assets of the Company. The Separate Account is registered
as a unit investment trust under the Investment Company Act of 1940.
SEPARATE ACCOUNT VALUE -- The portion of Contract Value held in the
Separate Account. There is no guaranteed or minimum Separate Account Value.
SURRENDER VALUE -- Proceeds payable upon a surrender of the Contract, equal
to (a) the Contract Value (b) plus or minus any applicable Market Value
Adjustment, (c) minus any applicable Surrender Charge, (d) minus the Annual
Administrative Fee, and (e) minus any applicable Premium Tax.
THE VIP FUNDS -- the Variable Insurance Products Fund ("VIP") and the
Variable Insurance Products Fund II ("VIP II"), which are open-end diversified
management investment companies registered under the 1940 Act.
TREASURY RATE -- The applicable effective annual U.S. Treasury Rate used by
the Company for determining the Market Value Adjustment applicable to a
surrender, withdrawal, transfer, or annuitization from the Capital Developer
Account at any given time.
VALUATION DAY -- Any day on which the New York Stock Exchange is open for
trading except for normal federal holiday closing or when the Securities and
Exchange Commission has determined that a state of emergency exists. In
addition, the Company will be closed on the following local or regional business
holidays which shall not constitute a Valuation Day: Good Friday, the Friday
following Thanksgiving and the day before or following Christmas Day.
VALUATION PERIOD -- The period of time beginning at the close of business
on the New York Stock Exchange on any Valuation Day and ending at the close of
business on the next Valuation Day. A Valuation Period may be more than one day.
VARIABLE ANNUITY OPTIONS -- Annuity Payment Options under the Contract that
provide for payments which vary as to dollar amount in relation to the
investment performance of specified Variable Sub-accounts.
VARIABLE ANNUITY SERVICE CENTER -- P.O. Box 515, Concord, NH 03302-0515.
Notices, Requests, and Premium Payments under the Contract must be sent to the
Company's Variable Annuity Service Center.
VARIABLE SUB-ACCOUNT -- Separate Account assets are divided into Variable
Sub-accounts. Assets of each Variable Sub-account will be invested in shares of
any of the corresponding Funds. The Company reserves the right to eliminate or
add Variable Sub-accounts and to change investment companies or to substitute
other investments for Fund shares.
VIP PORTFOLIOS -- the portfolios of the VIP Funds which are available under
the Contracts -- VIP Equity-Income Portfolio, VIP II Index 500 Portfolio, VIP
Growth Portfolio and VIP II Contrafund Portfolio.
3
<PAGE>
THE ALLEGIANCE VARIABLE ANNUITY
SUMMARY
THE CONTRACT
The Allegiance Variable Annuity Contract is an individual flexible premium
multi-funded deferred variable annuity which can be purchased on a non-qualified
basis ("Non-qualified Contract") or in connection with certain plans qualifying
for favorable federal income tax treatment ("Qualified Contract"). The Contract
may be issued as a group contract in certain states. Persons covered under a
group contract are issued certificates as evidence of their participation under
a group contract. The description of the Contract in this Prospectus applies
to any certificate that may be issued under a group contract unless otherwise
described. A Contract may be purchased with an initial Premium Payment of at
least $2,000 (although a lower minimum may apply to certain Qualified
Contracts).
You may make additional Premium Payments of at least $50 each at any time
before the Maturity Date. (See "Premium Payments," p. 17.) You may allocate
Premium Payments to any combination of the 20 Investment Options under the
Contract. However, over the life of your Contract, you are currently limited to
allocating your Premium Payments to no more than 16 of the Variable Sub-accounts
in existence now or added in the future. The Company reserves the right to
modify this limitation in the future. The Investment Options currently available
are the 18 Variable Sub-accounts of the Alexander Hamilton Variable Annuity
Separate Account (the "Separate Account"), and the two Interest Rate Guarantee
Periods of the Capital Developer Account. (See "Investment Options.") These
Investment Options may not be available in all states.
THE INVESTMENT OPTIONS
THE ALEXANDER HAMILTON VARIABLE ANNUITY SEPARATE ACCOUNT. The Separate
Account, a separate account of the Company, invests in shares of five separate
Funds. They currently are the Jefferson Pilot Variable Fund, Inc., managed by
Jefferson Pilot Investment Advisory Corporation; the Variable Insurance Products
Fund and the Variable Insurance Products Fund II, managed by Fidelity Management
& Research Company; the MFS Variable Insurance Trust, managed by Massachusetts
Financial Services Company and the Oppenheimer Variable Account Funds, managed
by OppenheimerFunds, Inc. Each of the 18 Variable Sub-accounts of the Separate
Account invests solely in a corresponding Portfolio of a Fund. Because the
Separate Account Value will increase or decrease depending on the investment
experience of the selected Variable Sub-accounts, you bear the entire investment
risk with respect to Premium Payments allocated to, and amounts transferred to,
the Separate Account. (See "The Separate Account.")
THE CAPITAL DEVELOPER ACCOUNT. The Company currently offers two different
Interest Rate Guarantee Periods in the Capital Developer Account, lasting for
one and seven years (not all periods are available in all states). The Capital
Developer Account provides for fixed accumulations at a specified Guaranteed
Interest Rate. Amounts allocated to the Capital Developer Account may be subject
to a Market Value Adjustment upon a premature Surrender, Partial Withdrawal,
transfer, or annuitization requested 31 days or more prior to the end of the
Interest Rate Guarantee Period. Because of this adjustment and for other
reasons, the amount payable upon Partial Withdrawal or Surrender or applied to a
transfer or annuitization may be more or less than the Capital Developer Account
Value at the time of the transaction. However, the Market Value Adjustment will
never reduce the earnings on amounts allocated to the Capital Developer Account
to less than three percent per year before any applicable Surrender Charges.
(See "The Capital Developer Account.")
TRANSFERS
You may transfer Contract Value during the Accumulation Period (I.E., prior
to the Maturity Date) among the Investment Options subject to certain
limitations. The minimum transfer amount is $250 for transfers from any Variable
Sub-account and $1,000 for transfers from the Capital Developer Account.
Transfers from Interest Rate Guarantee Periods may be subject to a Market Value
Adjustment. (See "Transfers.")
4
<PAGE>
During the Annuity Period (I.E., after the Maturity Date), if a Variable
Annuity Option is chosen then a portion of the Separate Account Value may be
transferred from one Variable Sub-account to any other Variable Sub-account. No
transfers are permitted when a Fixed Annuity Option is chosen. (See
"Transfers.")
A fee equal to $10 may be imposed for each transfer in excess of 15 during
any Contract Year. Although the Company reserves the right to impose a $10 fee,
it currently has no plans to do so.
SURRENDERS AND PARTIAL WITHDRAWALS
You may elect to Surrender all or withdraw a portion of the Surrender Value
in exchange for a cash payment at any time prior to the Maturity Date. The
minimum Partial Withdrawal amount is $250 from a Variable Sub-account and $1,000
from the Capital Developer Account. Following any Partial Withdrawal, the
Contract Value must be at least $2,000. Partial Withdrawals and Full Surrenders
are subject to any applicable Surrender Charge, Market Value Adjustment, Annual
Administrative Fee, and state Premium Taxes. (See "Surrenders and Partial
Withdrawals.") Federal income taxes and a tax penalty may be applicable. (See
"Certain Federal Income Tax Consequences") After the Maturity Date, Surrenders
and Partial Withdrawals generally are not permitted.
The Separate Account Value remaining in any Variable Sub-account
immediately following a Partial Withdrawal must be at least $250, and the
Capital Developer Account Value remaining in an Interest Rate Guarantee Period
immediately following a Partial Withdrawal must be at least $1,000. If the
processing of a Partial Withdrawal request would result in a remaining Variable
Sub-account value of less than $250 or a remaining Interest Rate Guarantee
Period value of less than $1,000, the Company will treat the Partial Withdrawal
request as a request for withdrawal of the entire Contract amount in the
relevant Variable Sub-account or Interest Rate Guarantee Period.
THERE IS NO GUARANTEED OR MINIMUM SURRENDER VALUE WITH RESPECT TO AMOUNTS
ALLOCATED TO THE SEPARATE ACCOUNT, SO THE SURRENDER VALUE COULD BE LESS THAN THE
TOTAL PREMIUM PAYMENTS ALLOCATED TO THAT ACCOUNT. AMOUNTS ALLOCATED TO THE
CAPITAL DEVELOPER ACCOUNT ARE GUARANTEED TO EARN INTEREST AT A MINIMUM RATE OF
THREE PERCENT PER YEAR BEFORE ANY APPLICABLE SURRENDER CHARGES. AFTER THE
APPLICATION OF SURRENDER CHARGES THE SURRENDER VALUE WITH RESPECT TO AMOUNTS
ALLOCATED TO THE CAPITAL DEVELOPER ACCOUNT COULD BE LESS THAN THE TOTAL PREMIUM
PAYMENTS ALLOCATED TO IT.
DEATH BENEFIT
In the event that any Contract Owner dies prior to the Maturity Date, a
Death Benefit is payable to the Beneficiary upon receipt of Due Proof of Death,
an election of the Death Benefit Option, and return of the Contract. The Death
Benefit will at least equal the Contract Value at the time of payment. No
Surrender Charge, Market Value Adjustment, or Annual Administrative Fee is
imposed upon amounts paid as a Death Benefit. (See "Death Benefit.")
CHARGES AND DEDUCTIONS
SURRENDER CHARGE. A declining Surrender Charge will be deducted from the
amount of any Partial Withdrawal or Full Surrender during the first seven
Contract Years to help defray sales expenses. The Surrender Charge in the first
three Contract Years is 6% of the Contract Value withdrawn or surrendered, and
declines by one percentage point for each of the next four Contract Years. The
Surrender Charge percentages are as follows:
YEAR 1 2 3 4 5 6 7 8+
---- - - - - - - - --
PERCENTAGE 6 6 6 5 4 3 2 0
The Surrender Charge will also be imposed on the Maturity Date if it occurs
during the first seven Contract Years and you choose an annuity option of less
than five years. (The Contract may not be annuitized during the first Contract
Year.)
The Surrender Charge will not apply to certain distributions. (See
"Surrender Charge.")
5
<PAGE>
Each Contract Year, a Free Withdrawal Amount, equal to 10% of the Contract
Value at the time of the Surrender or Partial Withdrawal, will not be subject to
any Surrender Charge. THE COMPANY GUARANTEES THAT THE AGGREGATE SURRENDER CHARGE
WILL NEVER EXCEED 8.5% OF THE TOTAL PREMIUM PAYMENTS. (See "Surrender Charge.")
MARKET VALUE ADJUSTMENT. A positive or negative Market Value Adjustment
will be applied to any Full Surrender, Partial Withdrawal, transfer, or
annuitization of Capital Developer Account Value 31 days or more prior to the
end of the Interest Rate Guarantee Period. The Market Value Adjustment does not
apply to amounts transferred from the one year Interest Rate Guarantee Period
pursuant to the Dollar Cost Averaging Option.
The Market Value Adjustment may be positive or negative depending on the
Guaranteed Interest Rate credited and the Treasury Rate for the remainder of the
Interest Rate Guarantee Period, so it could increase or decrease the amount of a
Full Surrender, Partial Withdrawal, transfer, or annuitization. The adjustment
is based on a comparison of the Guaranteed Interest Rate applicable to the
Interest Rate Guarantee Period and the Treasury Rate for the Term to Maturity
that most closely approximates the remaining duration of the Interest Rate
Guarantee Period from which the Partial Withdrawal, Surrender, transfer, or
annuitization is made. In general, if the Guaranteed Interest Rate does not
exceed the applicable Treasury Rate by at least 0.4%, then a negative Market
Value Adjustment may be applied, and YOU COULD RECEIVE AN AMOUNT LOWER THAN THE
AMOUNT OF CAPITAL DEVELOPER ACCOUNT VALUE ON THE DATE OF THE SURRENDER, PARTIAL
WITHDRAWAL, TRANSFER, OR ANNUITIZATION. However, you will never receive less
than the amount allocated to the Capital Developer Account, accumulated at an
annual interest rate of three percent less any applicable Surrender Charges. If
the Guaranteed Interest Rate exceeds the applicable Treasury Rate by more than
0.4%, then a positive Market Value Adjustment may be applied, and you could
receive an amount higher than the Capital Developer Account Value. No Market
Value Adjustment will be applied to any Surrender, Partial Withdrawal, transfer,
or annuitization from an Interest Rate Guarantee Period made during the last 30
days of the Interest Rate Guarantee Period. (See "Market Value Adjustment.")
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a daily charge equal
to a percentage of the net assets in the Separate Account for the mortality and
expense risks assumed by the Company. The effective annual rate of this charge
is 1.25% of the Separate Account Value. The Mortality and Expense Risk Charge
does not apply to the Capital Developer Account. (See "Mortality and Expense
Risk Charge.")
ADMINISTRATIVE EXPENSE CHARGE. The Company deducts a daily charge equal to
a percentage of the net assets in the Separate Account for administering the
Separate Account. The effective annual rate of this charge is 0.15% of the
Contract Value. The amount of the fee is guaranteed not to increase. The
Administrative Expense Charge does not apply to the Capital Developer Account.
(See "Administrative Expense Charge.")
ANNUAL ADMINISTRATIVE FEE. An Annual Administrative Fee is imposed each
year for Contract maintenance and related administrative expenses. This charge
is the lesser of $30 per Contract Year or 2% of Contract Value. The amount of
the fee is guaranteed not to increase. It will be deducted from the Contract
Value on the last day of each Contract Year and upon Full Surrender of the
Contract before a Contract Anniversary. The Annual Administrative Fee will not
be deducted if 100% of Contract Value is held in the Capital Developer Account,
and it will not be deducted for a Contract Year if, on the last day of that
Contract Year, the Contract Value is $30,000 or greater. (See "Annual
Administrative Fee.")
TRANSFER CHARGE. A fee equal to $10 may be imposed for each transfer in
excess of 15 during any Contract Year. Although the Company reserves the right
to impose a $10 fee, it currently has no plans to do so.
TAXES. The Company may incur Premium Taxes relating to the Contracts.
Depending upon applicable state law, the Company will deduct any Premium Taxes
related to a particular Contract from Premium Payments, from the Contract Value
upon Partial Withdrawal or Surrender, or on the Maturity Date. (See "Premium
Taxes.")
6
<PAGE>
No charges are currently made against the Variable Sub-accounts or the
Capital Developer Accounts for federal, state, or local taxes other than state
Premium Taxes. However, the Company may deduct charges for such taxes in the
future. (See "Federal, State and Local Taxes.")
FUND EXPENSES. The Separate Account Value will reflect the investment
advisory fee and other expenses incurred by the Funds.
EXPENSE DATA. The charges and deductions explained above are summarized in
the following tables. This tabular information regarding expenses assumes that
the entire Contract Value is in the Separate Account.
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load on Premium Payments. . . . . . . . none
Maximum Surrender Charge
(as a % of Contract Value Surrendered)(1) . 6%
- -------------------------------------------------------------------------------
Annual Administrative Fee . . . . . . . . . . The lesser of $30 per
. . . . . . . . . . . . . . . . . . . . . . Contract or 2% of
. . . . . . . . . . . . . . . . . . . . . . Contract Value
- -------------------------------------------------------------------------------
Transfer Fee. . . . . . . . . . . . . . . . . No Fee for First 15 each
. . . . . . . . . . . . . . . . . . . . . . year; $10 for each
. . . . . . . . . . . . . . . . . . . . . . additional transfer
. . . . . . . . . . . . . . . . . . . . . . (currently not assessed)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of account value)
Mortality and Expense Risk Charge . . . . . . 1.25%
Administrative Expense Charge . . . . . . . . 0.15%
Total Separate Account Annual Expenses. . . 1.40%
- ---------------
(1) The Surrender Charge is not applicable after the seventh Contract Year or
to the first 10% of Contract Value withdrawn or surrendered during each
Contract Year. (See "Free Surrender Amount.")
7
<PAGE>
FUND ANNUAL EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES EXPENSES EXPENSES
(After Expense (After Expense (After Expense
Reimbursements) Reimbursements) Reimbursements)
-------------- -------------- --------------
<S> <C> <C> <C>
JPVF Growth Portfolio . . . . . . . 0.75% 0.65% 1.40%(1)
JPVF High Yield Bond Portfolio. . . 0.75% 0.65% 1.40%(1)
JPVF International Equity Portfolio 1.00% 0.60% 1.60%(1)
JPVF Balanced Portfolio . . . . . . 0.75% 0.22% 0.97%
JPVF Capital Growth Portfolio . . . 1.00% 0.09% 1.09%
JPVF Domestic Growth Stock Portfolio 0.75% 0.08% 0.83%
JPVF Emerging Growth Portfolio. . . 0.80% 0.20% 1.00%
JPVF Growth and Income Portfolio. . 0.75% 0.10% 0.85%
JPVF Money Market Portfolio . . . . 0.50% 0.10% 0.60%
JPVF World Growth Stock Portfolio . 0.75% 0.16% 0.91%
MFS Research Series . . . . . . . . 0.75% 0.13% 0.88%(2)
MFS Utilities Series. . . . . . . . 0.75% 0.25% 1.00%(2)
Oppenheimer Bond Fund . . . . . . . 0.73% 0.05% 0.78%
Oppenheimer Strategic Bond Fund . . 0.75% 0.08% 0.83%
VIP Equity-Income Portfolio . . . . 0.50% 0.08% 0.58%(3)
VIP Growth Portfolio. . . . . . . . 0.60% 0.09% 0.69%(3)
VIP II Contrafund Portfolio . . . . 0.60% 0.11% 0.71%(3)
VIP II Index 500 Portfolio. . . . . 0.24% 0.04% 0.28%(4)
</TABLE>
- ---------------
(1) Total Fund Annual Expenses for these Portfolios are based on estimated
"Other Expenses" for the fiscal year ending December 31, 1998.
(2) The Series has an expense offset arrangement which reduces the Series'
custodian fees based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses." The Adviser has agreed to bear expenses
for the Series, subject to reimbursement by the Series, such that the
Series' "Other Expenses" shall not exceed 0.25% during the current fiscal
year. Otherwise, "Other Expenses" for the Utilities Series would be 0.45%
and "Total Fund Annual Expenses" would be 1.20%.
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been .57% for VIP Equity-Income Portfolio, .67% for the VIP Growth
Portfolio, and .68% for VIP II Contrafund Portfolio.
(4) FMR agreed to reimburse a portion of VIP II Index 500 Portfolio's expenses
during the period. Without this reimbursement, the funds' management fee,
other expenses and total expenses would have been .27%, .13%, and .40%
respectively.
8
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets (and assuming the entire Contract Value is allocated to
the applicable Variable Sub-account):
1. If you surrender the Allegiance Contract, you would pay the
following expenses on a $1,000 investment assuming a 5%
annual return on assets.*
<TABLE>
<CAPTION>
SUB-ACCOUNTS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
JPVF Growth Portfolio . . . . . . . . $ 90 $157
JPVF High Yield Bond Portfolio. . . . $ 90 $157
JPVF International Equity Portfolio . $ 92 $163
JPVF Balanced Portfolio . . . . . . . $ 86 $145 $189 $345
JPVF Capital Growth Portfolio . . . . $ 87 $148 $195 $360
JPVF Domestic Growth Stock Portfolio. $ 85 $140 $181 $328
JPVF Emerging Growth Portfolio. . . . $ 87 $145 $190 $349
JPVF Growth and Income Portfolio. . . $ 85 $141 $182 $330
JPVF Money Market Portfolio . . . . . $ 83 $134 $169 $298
JPVF World Growth Stock Portfolio . . $ 86 $143 $185 $338
MFS Research Series . . . . . . . . . $ 85 $142 $184 $334
MFS Utilities Series. . . . . . . . . $ 87 $145 $190 $349
Oppenheimer Bond Fund . . . . . . . . $ 84 $139 $179 $321
Oppenheimer Strategic Bond Fund . . . $ 85 $140 $181 $328
VIP Equity-Income Portfolio . . . . . $ 83 $133 $168 $296
VIP II Contrafund Portfolio . . . . . $ 84 $137 $175 $312
VIP II Index 500 Portfolio. . . . . . $ 80 $124 $152 $256
VIP Growth Portfolio. . . . . . . . . $ 84 $136 $174 $310
</TABLE>
- ---------------
* These expense figures also apply if the Contract is annuitized for
less than five years.
9
<PAGE>
2. If you annuitize for a period of five years or greater, or do not
surrender the Allegiance Contract, you would pay the following
expenses on a $1,000 investment assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
SUB-ACCOUNTS: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
JPVF Growth Portfolio . . . . . . . . $ 29 $ 93
JPVF High Yield Bond Portfolio. . . . $ 29 $ 93
JPVF International Equity Portfolio . $ 31 $100
JPVF Balanced Portfolio . . . . . . . $ 25 $ 80 $143 $345
JPVF Capital Growth Portfolio . . . . $ 26 $ 84 $150 $360
JPVF Domestic Growth Stock Portfolio. $ 23 $ 75 $136 $328
JPVF Emerging Growth Portfolio. . . . $ 25 $ 81 $145 $349
JPVF Growth and Income Portfolio. . . $ 24 $ 76 $137 $330
JPVF Money Market Portfolio . . . . . $ 21 $ 68 $123 $298
JPVF World Growth Stock Portfolio . . $ 24 $ 78 $140 $338
MFS Research Series . . . . . . . . . $ 24 $ 77 $138 $334
MFS Utilities Series. . . . . . . . . $ 25 $ 81 $145 $349
Oppenheimer Bond Fund . . . . . . . . $ 23 $ 74 $133 $321
Oppenheimer Strategic Bond Fund . . . $ 23 $ 75 $136 $328
VIP Equity-Income Portfolio . . . . . $ 21 $ 68 $122 $296
VIP II Contrafund Portfolio . . . . . $ 22 $ 72 $129 $312
VIP II Index 500 Portfolio. . . . . . $ 18 $ 58 $105 $256
VIP Growth Portfolio. . . . . . . . . $ 22 $ 71 $128 $310
</TABLE>
The above tables are intended to assist you in understanding the costs and
expenses that will be borne, directly or indirectly, by Premium Payments
allocated to the Separate Account. These include the expenses of the underlying
Funds. (See "Charges and Deductions." and the prospectus for each underlying
Fund.) In addition to the expenses listed above, Premium Taxes may be
applicable.
These examples reflect the Annual Administrative Fee as an annual charge of
.01% of assets, based on an anticipated average Contract Value of $30,000.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Separate Account. The data should be read in conjunction with
the financial statements, related notes, and other financial information
included in the Statement of Additional Information.
The following table sets forth certain information regarding the Variable
Subaccounts for a Contract since the commencement of business operations on
February 28, 1996.
10
<PAGE>
THE ACCUMULATION UNIT VALUES AND THE NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUBACCOUNT FOR EACH OF THE PERIODS INDICATED ARE
AS FOLLOWS:
1997 1996
- --------------------------------------------------------------------------------
JPVF Money Market Sub-account*
Accumulation unit value
- - Beginning of period $ 1.027 1.000
- - End of period $ 1.062 1.027
Number of accumulation units
- - End of period 1,052,017 480,732
- --------------------------------------------------------------------------------
JPVF Balanced Sub-account*
Accumulation unit value
- - Beginning of period $ 10.801 10.000
- - End of period $ 12.910 10.801
Number of accumulation units
- - End of period 104,890 27,907
- --------------------------------------------------------------------------------
JPVF Growth & Income Sub-account*
Accumulation unit value
- - Beginning of period $ 9.975 10.000
- - End of period $ 12.477 9.975
Number of accumulation units
- - End of period 105,759 40,125
- --------------------------------------------------------------------------------
JPVF Capital Growth Sub-account*
Accumulation unit value
- - Beginning of period $ 11.844 10.000
- - End of period $ 14.527 11.844
Number of accumulation units
- - End of period 142,456 53,999
- --------------------------------------------------------------------------------
JPVF Emerging Growth Sub-account*
Accumulation unit value
- - Beginning of period $ 10.344 10.000
- - End of period $ 12.469 10.344
Number of accumulation units
- - End of period 132,236 88,358
- --------------------------------------------------------------------------------
JPVF World Growth Stock Sub-account*
Accumulation unit value
- - Beginning of period $ 10.985 10.000
- - End of period $ 11.179 10.985
Number of accumulation units
- - End of period 123,760 101,024
- --------------------------------------------------------------------------------
Oppenheimer Bond Sub-account*
Accumulation unit value
- - Beginning of period $ 10.223 10.000
- - End of period $ 10.915 10.223
Number of accumulation units
- - End of period 151,322 10,568
- --------------------------------------------------------------------------------
Note: No condensed financial information is available for the eleven new
Sub-accounts added to the Contract as of January 1, 1998.
* On December 5, 1997, the Company substituted shares of various Portfolios of
the Jefferson Pilot Variable Fund, Inc. and the Oppenheimer Bond Fund for the
then existing shares of the Alexander Hamilton Variable Insurance Trust
("AHVIT") and the Federated Prime Money Fund II. The above numbers reflect
the performance of AHVIT and the Federated Prime Money Fund II for the period
prior to the date of the substitution and reflect the performance of the
Jefferson Pilot Variable Fund, Inc. and the Oppenheimer Bond Fund for the
period after the date of the substitution. In the substitution, the Oppenheimer
Bond Fund was substituted for two of the AHVIT Funds and the pre-substitution
performance numbers for the Oppenheimer Bond Sub-account reflect the performance
of only one of such AHVIT Funds.
11
<PAGE>
RIGHT TO EXAMINE CONTRACT
You have a limited time period in which to return a Contract for
cancellation and a refund as set forth in your Contract. The applicable period
will depend on the state in which the Contract is issued. In most states it is
10 days after the Contract is delivered to you. For a Contract issued as a
replacement for another contract, the period is 20 days. The Company will
refund, as provided in the Contract and depending on the state in which the
Contract is issued, either (i) the Contract's Accumulation Value without
reduction for the contingent deferred sales charge or administrative charges
that would otherwise apply or (ii) all Premium Payments less any Partial
Withdrawals.
For Contracts requiring a refund of Premium Payments, the Company will
allocate any Premium Payments made prior to the expiration of the free look
period (plus 5 days to allow for mailing time) to the JPVF Money Market
Sub-account. Five days after the expiration of the free look period, the Premium
Payments will be allocated to the Variable Sub-accounts in accordance with the
directions set forth in your application.
In order to cancel the Contract you must deliver or mail a written notice
to the Company's Variable Annuity Service Center or the registered
representative from whom it was purchased and return the Contract. Notice of
cancellation given by mail and return of the Contract are effective upon being
postmarked, properly addressed and postage paid. The Contract will then be void
as if it had never been issued.
FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE CONTRACT
If you are a natural person, there should be no federal income tax on
increases in the Contract Value (if any) until a distribution under the Contract
occurs (E.G., a Partial Withdrawal, Surrender, or Annuity Payment) or is deemed
to occur (E.G., a pledge or assignment of a Contract). Generally, a portion of
any distribution or deemed distribution will be taxable as ordinary income. The
taxable portion of certain distributions may be subject to withholding. In
addition, a penalty tax may apply to certain distributions or deemed
distributions under the Contract. (See "Certain Federal Income Tax
Consequences.") You should consult your tax advisor before initiating a
distribution.
INQUIRIES AND WRITTEN NOTICES AND REQUESTS
Any questions about procedures or the Contract, or any Request required to
be directed to the Company, should be sent to the Company's Variable Annuity
Service Center: P.0. Box 515, Concord, New Hampshire 03302-0515 or faxed to
603-226-5123. Telephone requests and inquiries may be made by calling
1-800-289-1776. All inquiries and Requests should include the Contract number,
your name and the Annuitant's name and should be signed by you.
VARIATIONS IN CONTRACT PROVISIONS
Certain provisions of the contracts may vary from the descriptions in this
Prospectus in order to comply with different state laws. Any such variations
will be included in the Contract itself or in riders or endorsements.
* * *
NOTE: THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION IN THE REMAINDER OF THIS PROSPECTUS, IN THE STATEMENT OF ADDITIONAL
INFORMATION, IN THE PROSPECTUS FOR EACH OF THE UNDERLYING FUNDS AND IN THE
CONTRACT, ALL OF WHICH SHOULD BE REFERRED TO FOR MORE DETAILED INFORMATION. THIS
PROSPECTUS GENERALLY DESCRIBES ONLY THE CONTRACT AND THE SEPARATE ACCOUNT.
SEPARATE PROSPECTUSES ATTACHED HERETO DESCRIBE EACH FUND.
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
The Company, 100 N. Greene St., Greensboro, North Carolina 27401, is a
stock life insurance company. It was incorporated under the laws of Michigan on
October 31, 1963. It is principally engaged in the sale of life insurance and
annuities, and is licensed in Canada, the District of Columbia, and all states
except New York. As of December 31, 1997, the Company had assets of over $9.3
billion on a GAAP basis. The Company is wholly-owned by Jefferson-Pilot
Corporation, a $23.1 billion asset company based in Greensboro, North Carolina.
Jefferson-Pilot Corporation is in the insurance business through Jefferson-Pilot
Life Insurance Company and Jefferson Pilot Financial Insurance Company ("JP
Financial"), and in the communications business through television and radio
stations. The obligations under the Contracts are obligations of the Company.
For more information about the Company, see "Additional Information About
the Separate Account."
12
<PAGE>
YEAR 2000 MATTER
Certain computer programs have been written using two digits rather than
four to define the applicable year. As a result, any of Jefferson-Pilot
Corporation's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000 (the "Year 2000
Matter"). This could result in a system failure which may disrupt operations,
including an inability to accurately process or calculate new or in-force
business.
Jefferson-Pilot Corporation (the Company's parent company) has completed an
assessment and has determined that it will have to modify or replace portions of
the software and hardware utilized by Jefferson-Pilot Corporation affiliates,
including the Company, so that the computer systems will function properly with
respect to dates in the year 2000 and thereafter.
Jefferson-Pilot Corporation will utilize both internal and external
resources to reprogram, replace, convert and test software and hardware for any
necessary Year 2000 modifications. The project is estimated to be completed not
later than the third quarter of 1999. Jefferson-Pilot Corporation believes that
with modifications to its existing software and hardware and conversions to new
software, the Year 2000 Matter will not pose significant operational problems
for its computer systems. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 Matter could have a
material impact on operations of the Company.
Jefferson-Pilot Corporation has initiated formal communications with all of
its significant suppliers to determine the extent to which the Company's
systems, policies, procedures and contracts are vulnerable to those third
parties' failure to remediate their own Year 2000 issues. There is no guarantee
that the systems of other companies on which the Company relies will be in
compliance on a timely basis; nor is there any guarantee that non-compliance
would not have an adverse affect on the Company's systems and business.
The costs of the project and the date on which the Jefferson-Pilot
Corporation believes it will be compliant are based on management's best
estimates, which were derived utilizing various assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved.
Jefferson-Pilot Corporation has not yet allocated the costs of compliance
among its subsidiaries, including the Company. To the best of Jefferson-Pilot
Corporation and the Company's knowledge, it is currently anticipated that any
future allocation is unlikely to have a material financial impact on the
Company.
INVESTMENT OPTIONS
Premium Payments paid under a Contract may be allocated to the 18 Variable
Sub-accounts of the Separate Account, to the two Interest Rate Guarantee Periods
of the Capital Developer Account, or to a combination of these Investment
Options. These Investment Options may not be available in all states. However,
over the life of your Contract, you are currently limited to allocating your
Premium Payments to no more than 16 of the Variable Sub-accounts in existence
now or in the future. The Company reserves the right to modify this limitation
in the future. THERE IS NO GUARANTEED OR MINIMUM SURRENDER VALUE FOR ANY PREMIUM
PAYMENTS OR AMOUNTS ALLOCATED TO ANY VARIABLE SUB-ACCOUNT.
THE SEPARATE ACCOUNT
ALEXANDER HAMILTON VARIABLE ANNUITY SEPARATE ACCOUNT. The Alexander
Hamilton Variable Annuity Separate Account of Alexander Hamilton Life Insurance
Company of America (the "Separate Account") was established as a separate
investment account under the laws of the State of Michigan on January 24, 1994.
The Separate Account receives and invests the Net Premium Payments under the
Contracts that are allocated to it for investment in shares of one or more
mutual fund portfolios.
The Separate Account currently is divided into 18 Variable Sub-accounts.
Additional Variable Sub-accounts may be established in the future at the
discretion of the Company, and the Company reserves the right to add or
remove Variable Sub-accounts. Currently, each Variable Sub-account invests in
corresponding shares of the Jefferson Pilot Funds, VIP Portfolios, the MFS
Funds, and the Oppenheimer Funds. On December 5, 1997, the Company and the
Separate Account, pursuant to an Order issued by the Securities and Exchange
Commission, substituted shares of the various investment portfolios of the
Jefferson Pilot Funds and of the Oppenheimer Bond Fund of Oppenheimer
Variable Account Funds for shares of various investment funds of the
Alexander Hamilton Variable Insurance Trust and the Federated Prime Money
Fund II of Federated Insurance Series. The assets of the Separate Account are
owned by the Company. Under Michigan
13
<PAGE>
insurance regulations, an insurer issuing contracts on a variable basis shall
maintain in each separate account assets having a value equal to the reserves
and other reasonable liabilities and obligations with respect to the account,
and a separate account shall not be charged with liabilities arising out of
other separate accounts or out of other business of the insurer unless the
liabilities have a specific and determinable relation to or dependence upon the
separate account. The Company reserves the right to transfer assets of the
Separate Account in excess of the reserves and other Contract liabilities with
respect to the Separate Account to the Company's general account. The income, if
any, and gains or losses realized or unrealized on each Variable Sub-account are
credited to or charged against that Variable Sub-account without regard to other
income, gains or losses of the Company. Therefore, the investment performance of
any Variable Sub-account should be entirely independent of the investment
performance of the Company's general account assets or any other separate
account maintained by the Company. You bear the entire investment risk with
respect to the Contract Value allocated to the Separate Account, and the
Separate Account Value could be more or less than the Net Premium Payments
allocated to and transfers into the Separate Account.
The Separate Account is registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940 (the "1940 Act")
as a unit investment trust. It meets the definition of a "separate account"
under the Federal securities laws. However, the SEC does not supervise the
management or the investment practices or policies of the Separate Account or of
the Company.
When required by law or regulation, an investment objective of the Separate
Account may be changed. It will only be changed if approved by the appropriate
insurance official of the State of Michigan or deemed approved in accordance
with such law or regulation. If so required, the request to obtain such approval
will be filed with the insurance official of the state or the district in which
the Contract is delivered.
THE SUB-ACCOUNTS
Eighteen Variable Sub-accounts, each of which reflects the investment
performance of a specific underlying Fund, are available under the Contracts.
All Sub-accounts may not be available in all states. Ten Sub-accounts invest in
shares of the Jefferson Pilot Funds, four Sub-accounts invest in shares of the
VIP Portfolios, two Sub-accounts invest in shares of the MFS Funds and two
Sub-accounts invest in shares of the Oppenheimer Funds. JPVF, the VIP Funds,
MFS Variable Insurance Trust and Oppenheimer Variable Account Funds are open-end
management investment companies and, with the exception of the MFS Utilities
Fund, all of the Funds available under the Contracts are diversified. Each Fund
is managed by a registered investment adviser.
The investment adviser for JPVF is Jefferson Pilot Investment Advisory
Corporation (formerly known as "Chubb Investment Advisory Corporation"), One
Granite Place, Concord, New Hampshire, 03301. Jefferson Pilot Investment
Advisory Corporation has contracted with eight unaffiliated companies, Templeton
Global Advisors, Limited, Pioneering Management Corporation, Janus Capital
Corporation, Warburg Pincus Asset Management Inc. (formerly known as "Warburg,
Pincus Counsellors, Inc."), Lombard Odier International Portfolio Management,
Limited, J.P. Morgan Investment Management Inc., Strong Capital Management, Inc.
and Massachusetts Financial Services Company to act as sub-investment managers
to the Jefferson Pilot Funds.
The investment adviser for the VIP Funds is Fidelity Management & Research
Company ("FMR"), 82 Devonshire Street, Boston, Massachusetts. For certain of
the VIP Portfolios FMR has entered into sub-advisory agreements with affiliated
companies.
The investment adviser for the MFS Variable Insurance Trust is
Massachusetts Financial Services Company ("MFS").
The investment adviser for the Oppenheimer Variable Account Funds is
OppenheimerFunds, Inc.
14
<PAGE>
The investment objective of each Fund is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO CHOICES
- ------------------------------------------------------------------------------------------------------------------
Fund Name Objective Manager
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JPVF Growth Capital growth by investing primarily in equity securities Strong Capital
Portfolio that the Sub-Investment Manager believes have above- Management, Inc.
average growth prospects.
- ------------------------------------------------------------------------------------------------------------------
JPVF Long-term growth of capital through investments in Lombard Odier
International securities whose primary trading markets are outside the International
Equity Portfolio United States. Portfolio
Management Limited
- ------------------------------------------------------------------------------------------------------------------
JPVF Capital Seeks capital growth. Realization of income is not a Janus Capital
Growth significant investment consideration and any income Corporation
Portfolio realized will be incidental.
- ------------------------------------------------------------------------------------------------------------------
JPVF Domestic Reasonable income and growth of capital by investing Pioneering
Growth Stock primarily in a diversified portfolio of equity securities Management
Portfolio issued by companies organized in the U.S. and considered Corporation
by the Sub-Investment Manager to be undervalued in light
of the company's earning power and growth potential.
- ------------------------------------------------------------------------------------------------------------------
JPVF Emerging Long-term growth of capital. Dividend and interest MFS
Growth income from portfolio securities, if any, is incidental to
Portfolio the Portfolio's investment objective of long-term growth.
- ------------------------------------------------------------------------------------------------------------------
JPVF World Long-term capital growth through a policy of investing Templeton Global
Growth primarily in stocks of companies organized in the U.S. or Advisors, Limited
Stock Portfolio in any foreign nation. A portion of the Portfolio may also
be invested in debt obligations of companies and
governments of any nation. Any income realized will be
incidental.
- ------------------------------------------------------------------------------------------------------------------
MFS Research Seeks to provide long-term growth of capital and future MFS
income.
- ------------------------------------------------------------------------------------------------------------------
MFS Utilities Seeks capital growth and current income (income above MFS
that available from a portfolio invested entirely in equity
securities).
- ------------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio Seeks to achieve capital appreciation. FMR
- ------------------------------------------------------------------------------------------------------------------
VIP II Seeks long-term capital appreciation. FMR
Contrafund Portfolio
- ------------------------------------------------------------------------------------------------------------------
VIP II Index 500 Seeks investment results that correspond to the total FMR
Portfolio return of common stocks publicly traded in the United
States, as represented by the S&P 500.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
EQUITY AND FIXED-INCOME PORTFOLIO CHOICES
- ------------------------------------------------------------------------------------------------------------------
Fund Name Objective Manager
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JPVF Balanced Reasonable current income and long-term capital growth, J.P. Morgan
Portfolio consistent with conservation of capital, by investing Investment
primarily in common stocks and fixed income securities. Management Inc.
- ------------------------------------------------------------------------------------------------------------------
JPVF Growth and Long-term growth of capital by investing primarily in a Warburg Pincus Asset
Income Portfolio wide range of equity issues that may offer capital Management, Inc.
appreciation and, secondarily, to seek a reasonable level
of current income.
- ------------------------------------------------------------------------------------------------------------------
VIP Equity- Seeks reasonable income by investing primarily in FMR
Income Portfolio income-producing equity securities. In choosing these
securities the fund will also consider the potential for
capital appreciation. The fund's goal is to achieve a yield
which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of
500 Stocks (S&P 500).
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FIXED-INCOME PORTFOLIO CHOICES
- ------------------------------------------------------------------------------------------------------------------
Fund Name Objective Manager
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JPVF High High level of current income by investing primarily in MFS
Yield Bond corporate obligations with emphasis on higher yielding,
Portfolio higher risk, lower-rated or unrated securities.
- ------------------------------------------------------------------------------------------------------------------
JPVF Money Seeks to achieve as high a level of current income as is MFS
Market consistent with preservation of capital and liquidity.
Portfolio
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Seeks a high level of current income. OppenheimerFunds, Inc.
Bond Fund
As a secondary objective, seeks capital growth when
consistent with its primary objective.
- ------------------------------------------------------------------------------------------------------------------
Oppenheimer Seeks a high level of current income principally derived OppenheimerFunds, Inc.
Strategic Bond from interest on debt securities and to enhance such
Fund income by writing covered call options on debt securities.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
AN INVESTMENT IN THE JPVF MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR THE FDIC OR ANY OTHER AGENCY.
* * *
THERE IS NO ASSURANCE THAT ANY FUND WILL ACHIEVE ITS STATED OBJECTIVE. More
detailed information, including a description of each Fund's investment
objective and policies and a description of risks involved in investing in each
of the Funds and of each Fund's fees and expenses is contained in the prospectus
for each Fund. With regard to the JPVF High Yield Bond Portfolio and other Funds
investing in higher yielding, higher risk, lower-rated or unrated securities,
please consult the appropriate section of the corresponding prospectus for a
description of the risks associated with such investments.
16
<PAGE>
Current copies of such prospectuses are attached to this Prospectus. INFORMATION
CONTAINED IN EACH FUND'S PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ALLOCATING
PREMIUM PAYMENTS OR TRANSFERRING CONTRACT VALUE TO A VARIABLE SUB-ACCOUNT OF THE
SEPARATE ACCOUNT.
THE CAPITAL DEVELOPER ACCOUNT
PREMIUM PAYMENTS ALLOCATED TO THE CAPITAL DEVELOPER ACCOUNT AND TRANSFERS
TO THE CAPITAL DEVELOPER ACCOUNT ARE NOT PART OF THE SEPARATE ACCOUNT. RATHER,
THE CAPITAL DEVELOPER ACCOUNT IS GUARANTEED BY THE GENERAL ACCOUNT OF THE
COMPANY, WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE
AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE CAPITAL DEVELOPER ACCOUNT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1993 ACT") NOR IS THE CAPITAL
DEVELOPER ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT
COMPANY ACT OF 1940 (1940 ACT"). ACCORDINGLY, NEITHER THE CAPITAL DEVELOPER
ACCOUNT NOR ANY INTERESTS THEREIN GENERALLY ARE SUBJECT TO THE PROVISIONS OF THE
1933 OR 1940 ACTS AND THE COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS
PROSPECTUS WHICH RELATE TO THE CAPITAL DEVELOPER ACCOUNT. DISCLOSURES REGARDING
THE CAPITAL DEVELOPER ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY
APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY
AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
Within the Capital Developer Account, the Company currently offers two
Interest Rate Guarantee Periods, lasting for one and seven years. Both provide
for fixed accumulations at a specified Guaranteed Interest Rate on Premium
Payments allocated to, and amounts transferred to, the Capital Developer
Account. Amounts allocated to the Capital Developer Account may be subject to a
Market Value Adjustment upon a Surrender, Partial Withdrawal, Transfer or
annuitization requested more than 30 days prior to the end of the Interest Rate
Guarantee Period. The Market Value Adjustment will never reduce the return on
amounts allocated to the Capital Developer Account to less than 3% per year
before any applicable Surrender Charge. Because of this adjustment and for other
reasons, the amount payable upon Partial Withdrawal or Surrender or applied to a
transfer or annuitization may be more or less than the Capital Developer Account
Value at the time of transaction.
Premium Payments will be allocated to the Interest Rate Guarantee Periods
to the extent elected by the Contract Owner at the time of the initial Premium
Payment or as subsequently elected. In addition, all or part of the Separate
Account Value may be transferred to one or more of the Interest Rate Guarantee
Periods prior to Maturity Date.
Contract Value in the Interest Rate Guarantee Periods will not share in the
investment performance of the Company's general account or any portion thereof.
Instead, the Company will pay a specified rate of interest, the Guaranteed
Interest Rate, for each Interest Rate Guarantee Period. The interest rate
credited to each Interest Rate Guarantee Period will vary in the sole discretion
of the Company, but it will never be less than 3% annually. There is no specific
formula for the determination of the Guaranteed Interest Rate. Some of the
factors that the Company may consider in determining the Guaranteed Interest
Rate are: general economic trends; rates of return currently available and
anticipated on the Company's investments; expected investment yields; regulatory
and tax requirements; and competitive factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE INTEREST RATE GUARANTEE PERIODS WILL BE DETERMINED IN THE SOLE
DISCRETION OF THE COMPANY. The Company resets this rate periodically. It
currently resets the rate bi-weekly, but in the future the rate may be reset
more or less frequently. Due to the Market Value Adjustment and Surrender
Charge, the Contract Owner assumes the risk that the Surrender Value of amounts
allocated to the Capital Developer Account (or the proceeds of a transfer or
amount annuitized) will be less than the Capital Developer Account Value.
The Company is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Company's Board of Directors has set no
limitations.
SURRENDERS, PARTIAL WITHDRAWALS, TRANSFERS, AND ANNUITIZATIONS OF CAPITAL
DEVELOPER ACCOUNT VALUE FROM AN INTEREST RATE GUARANTEE PERIOD MAY BE SUBJECT TO
A MARKET VALUE ADJUSTMENT (AS WELL AS A SURRENDER CHARGE). THEREFORE, THE NET
AMOUNT YOU RECEIVE MAY BE LESS THAN THE AMOUNT REQUESTED FOR WITHDRAWAL,
TRANSFER OR SURRENDER. (SEE "SURRENDER CHARGE," AND "MARKET VALUE ADJUSTMENT.")
17
<PAGE>
The Company will invest the assets that support the Capital Developer
Account in those assets chosen by the Company and allowed by applicable state
laws regarding the nature and quality of investments that may be made by life
insurance companies and the percentage of their assets that may be committed to
any particular type of investment. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal, state
and municipal obligations, corporate bonds, preferred and common stocks, real
estate mortgages, real estate and certain other investments.
THE ALLEGIANCE VARIABLE ANNUITY CONTRACT
The Allegiance Variable Annuity Contract (the "Contract") is an individual
Flexible Premium Multi-Funded Deferred Variable Annuity Contract. The Contract
may be purchased on a non-qualified basis ("Non-qualified Contract"). The
Contract may also be purchased in connection with retirement plans or individual
retirement accounts that qualify for favorable federal income tax treatment
("Qualified Contract").
THERE IS NO GUARANTEED OR MINIMUM SURRENDER VALUE UNDER THE CONTRACT, SO
THE AMOUNT RECEIVED ON SURRENDER COULD BE LESS THAN THE AMOUNT OF PREMIUM
PAYMENTS. HOWEVER, AMOUNTS ALLOCATED TO THE CAPITAL DEVELOPER ACCOUNT ARE
GUARANTEED TO EARN A MINIMUM RATE OF INTEREST OF AT LEAST THREE PERCENT PER YEAR
BEFORE ANY APPLICABLE SURRENDER CHARGE.
CONTRACT APPLICATION AND ISSUANCE OF CONTRACTS
Before it will issue a Contract, the Company must receive a completed
Application and an initial Premium Payment of at least $2,000 (although a lower
minimum may apply to certain Qualified Contracts). The initial Premium Payment
can be made in a single payment or by twelve equal systematic payments over the
first 12 Contract Months. The systematic payments must be made via automatic
debits or automated clearing house transfers from a checking or savings account.
The Company reserves the right to reject any Application or Premium Payment. For
a Non-qualified Contract, the Contract Owner (or the Annuitant, if different
than the Contract Owner) must be age 90 or younger. The Contract Owner (who
generally must also be the Annuitant for Qualified Contracts) must be age 80 or
younger for certain types of Qualified Contracts. The Contract is not available
in all states.
If the Application is properly completed and can be accepted in the form
received, the initial Net Premium Payment will be credited to the Contract Value
within 2 business days after the later of receipt of the Application or receipt
of the initial Premium Payment at the Company's Administrative Service Center.
(The Net Premium Payment is the total Premium Payment less any applicable
Premium Tax.) If the initial Net Premium Payment allocated to the Separate
Account cannot be credited because the Application or other issuing requirements
are incomplete, the applicant will be contacted within 5 business days and given
an explanation for the delay, and the initial Premium Payment will be returned
at that time unless the applicant consents to the Company's retaining the
initial Premium Payment and crediting it as soon as the necessary requirements
are fulfilled. In that event, the initial Net Premium Payment will be credited
to the Contract Value within 2 business days of the Application's completion.
The Contract will become effective on the date the initial Net Premium
Payment is credited to the Contract Value.
PREMIUM PAYMENTS
All Premium Payments, checks, or electronic fund transfers should be made
payable to Alexander Hamilton Life Insurance Company of America and sent to the
Company's Variable Annuity Service Center. Receipts will be provided upon
request. A confirmation of each transaction will be provided. Premium Payments
may be made directly by the Contract Owner on a flexible basis, through the
systematic investment program, on a monthly or quarterly basis, or through a
group billing or payroll deduction arrangement on a periodic basis.
18
<PAGE>
INITIAL PREMIUM PAYMENT. The minimum initial Premium Payment is currently
$2,000 (although a lower minimum may apply to certain Qualified Contracts).
However, the minimum initial premium can be made in 12 equal monthly payments
when a Contract Owner has elected the systematic investment program for
additional premiums to be automatically withdrawn monthly from the Contract
Owner's bank account or when an applicant is part of a periodic group billing or
payroll deduction arrangement. The Company reserves the right to increase or
decrease this amount for Contracts issued after some future date. The initial
Premium Payment is the only Premium Payment required to be paid under a
Contract. The maximum initial Premium Payment that the Company will currently
accept without its prior approval is $1,000,000.
ADDITIONAL PREMIUM PAYMENTS. Prior to the Maturity Date and before a Death
Benefit has become payable, you may make additional Premium Payments at any
interval. The minimum additional Premium Payment under the Contract is $50. The
Company reserves the right to limit the dollar amount of any additional Premium
Payments. Cumulative Premium Payments under the Contract may not exceed
$1,000,000 without the prior approval of the Company. Additional Premium
Payments will be credited to Contract Value as of the Valuation Period during
which they are received by the Company at its Variable Annuity Service Center.
ALLOCATION OF PREMIUM PAYMENTS. Premium Payments will be allocated among
the 18 Variable Sub-accounts as specified by you in the Application. (If you
fail to specify how Premium Payments are to be allocated, the Application cannot
be accepted). You must allocate Premium Payments to one or more Variable
Sub-accounts of the Separate Account or to one or more Interest Rate Guarantee
Periods, or some combination thereof in whole percentages (totaling 100%). Any
allocation to a Variable Sub-account must be at least $50 and in increments of
5% of a Premium Payment. Any allocation to an Interest Rate Guarantee Period of
the Capital Developer Account must be at least $1,000. Premium Payments
allocated to an Interest Rate Guarantee Period will be credited with interest
from the day after they are received.
The allocation specified in the Application will continue to be used for
additional Premium Payments unless you request a change of allocation. You may
change the allocation instructions for Net Premium Payments any time before the
Maturity Date by Request to the Company's Variable Annuity Service Center. You
must specify your new allocation choices. The allocation change will apply to
Premium Payments received with or after the Request.
PAYMENT NOT HONORED BY BANK. Any payment due under the Contract which is
derived, all or in part, from any amount paid to the Company by check or draft
may be postponed until such time as the Company determines that such instrument
has been honored.
CONTRACT VALUE
On the Contract Date, the Contract Value equals the initial Net Premium
Payment. Thereafter, on any day on or before the Maturity Date, the Contract
Value equals the sum of the Separate Account Value and the Capital Developer
Account Value. The Contract Value will increase by (1) any additional Premium
Payments received by the Company; (2) any increases in the Contract Value due to
investment results of the selected Variable Sub-accounts; (3) interest credited
to the Capital Developer Account; and (4) any positive Market Value Adjustments.
The Contract Value will decrease by (1) any Partial Withdrawals or Full
Surrenders, including applicable charges; (2) any decreases in the Contract
Value due to investment results of the selected Variable Sub-accounts; (3) the
Mortality and Expense Risk Charge, the Administrative Expense Charge, any
applicable Transfer Charge, and, on the last day of any Contract Year, the
Annual Administrative Fee; (4) any negative Market Value Adjustment; and (5)
taxes, when applicable. The Company will inform you of your Contract Value upon
request.
The Contract Value is expected to change from Valuation Period to Valuation
Period. A Valuation Period is the period between successive Valuation Days. A
Valuation Day is any day that the New York Stock Exchange is open for trading.
Holidays are generally not Valuation Days.
THE SEPARATE ACCOUNT VALUE. When a Net Premium Payment is allocated or an
amount is transferred to a Variable Sub-account, it is credited to the Separate
Account Value in the form of Accumulation Units. Each Variable Sub-account has a
distinct Accumulation Unit value. The number of units credited is determined by
dividing the portion of the Net Premium Payment or amount transferred by the
dollar value of one Accumulation Unit of the Variable Sub-account as of the end
of the Valuation Period during which the allocation or transfer is made. When
amounts are transferred out of, or withdrawn or surrendered from, a Variable
Sub-account, Accumulation Units are cancelled or redeemed in a similar manner.
19
<PAGE>
The Separate Account Value will be determined on every Valuation Day. For
each Variable Sub-account, the Accumulation Unit value for a given Valuation
Period is based on the net asset value of a share of the corresponding Fund.
Therefore, the Accumulation Units will fluctuate in value from day to day based
on the investment experience of the corresponding Fund and the Separate Account
Value will increase or decrease to reflect the investment performance of the
corresponding Fund. The Separate Account Value also reflects expenses borne by
the Fund(s) and the deduction of certain charges. The determination of Variable
Sub-account Accumulation Unit values is described in detail in the Statement of
Additional Information.
THE CAPITAL DEVELOPER ACCOUNT VALUE. When a Net Premium Payment is
allocated or an amount is transferred to an Interest Rate Guarantee Period, it
is credited to a new Interest Rate Guarantee Period. (See "The Capital Developer
Account.") In addition, interest at specified interest rates is credited to the
Capital Developer Account Value. When amounts are surrendered or withdrawn from,
transferred out of, or annuitized from an Interest Rate Guarantee Period, the
Capital Developer Account Value is reduced accordingly, and it may also be
increased or decreased by any Market Value Adjustment. (See "Market Value
Adjustment.") Unlike the Separate Account, there are no Accumulation Units in
the Capital Developer Account.
MINIMUM CONTRACT VALUE. A minimum Contract Value of $2,000 for
Non-qualified Contracts must be maintained during the Accumulation Period. If
you fail to maintain the minimum Contract Value and no Premium Payments have
been made in the past two years, then the Company may, upon ninety (90) days
notice forwarded to your most current address given us, cancel the Contract and
return the Contract Value less any applicable fees to you in one lump sum. If
you make sufficient Premium Payments to restore the Contract Value to at least
the minimum Contract Value within 90 days of the date of notice, the Contract
will not be cancelled.
TRANSFERS
You can transfer Contract Value to or from Interest Rate Guarantee Periods
of the Capital Developer Account and/or any Variable Sub-account of the Separate
Account, within certain limits, as described below. The Company reserves the
right to restrict the transfer privilege in any way. A Request for a transfer,
made by you, must be received at the Company's Variable Annuity Service Center
before a transfer will be effected.
The Company reserves the right to defer transfers among Variable
Sub-accounts or to the Capital Developer Account as permitted by the Investment
Company Act of 1940, as amended. Such delay may occur because (i) the New York
Stock Exchange is closed for trading (other than usual weekend or holiday
closing); (ii) the SEC determines that a state of emergency exists; or (iii) an
order or pronouncement of the SEC permits a delay for your protection.
TRANSFERS DURING THE ACCUMULATION PERIOD are subject to the following
provisions:
- There is no limit to the number of transfers that can be made. No fee
is imposed on the first 15 transfers in each Contract Year during the
Accumulation Period, but a fee equal to $10 may be imposed for each
transfer in excess of 15 during any Contract Year. Although the
Company reserves the right to impose the $10 fee, it currently has no
plans to do so.
- Transfers from an Interest Rate Guarantee Period that are made within
30 days of the end of the Interest Rate Guarantee Period are not
subject to a Market Value Adjustment. All other transfers from
Interest Rate Guarantee Periods are subject to a Market Value
Adjustment.
- If, after a transfer, the remaining Contract Value in the Variable
Sub-account from which the transfer was made would be less than $250,
the Company may include that remaining Contract Value as part of the
transfer.
- The minimum amount you may transfer among the Variable Sub-accounts is
$250 or the entire Contract Value remaining in the Investment Option.
The minimum amount that may be transferred to or from an Interest Rate
Guarantee Period of the Capital Developer Account is $1,000.
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DURING THE ANNUITY PERIOD, under any Variable Annuity Option, you (whether
you are the Annuitant or not) may transfer Separate Account Value among Variable
Sub-accounts, subject to the following provisions:
- There is no limit to the number of transfers that can be made. No fee
is imposed on the first 15 transfers in each Contract Year during the
Annuity Period, but there may be a charge of $10 for each transfer in
excess of 15 during any Contract Year. The Company reserves the right
to charge the fee, however, it currently has no plans to do so. The
Company will provide at least 30 days notice of its intention to
impose such fee.
- If, after a transfer, the remaining Separate Account Value in the
Variable Sub-account from which the transfer was made is less than
$250, the Company may include that remaining Separate Account Value as
part of the transfer.
- The minimum amount you may transfer from a Variable Sub-account is
$250 or the entire Contract Value remaining in the Variable
Sub-account.
Transfers between Variable Sub-accounts during the Annuity Period will be
processed based on the formula outlined in the Statement of Additional
Information (see "Annuity Period Transfer Formulas").
NO TRANSFERS OF AMOUNTS APPLIED TO A FIXED ANNUITY OPTION ARE PERMITTED.
TELEPHONE TRANSFERS AND REALLOCATIONS. You or your authorized
representative may request transfers by telephone of Contract Value or
reallocation of Premium Payments (including allocation changes pursuant to
existing Dollar Cost Averaging and Automatic Rebalancing programs), provided
that the appropriate authorization form is on file with the Company. You will be
asked to provide the Company with personal identification information, such as
social security number and date of birth, at the time of such request for
verification purposes. Although procedures have been established that are
reasonably designed to reduce the risk of unauthorized telephone transfers or
allocation changes, there still exists some risk. Neither the Company, Jefferson
Pilot Variable Corporation, nor any of their affiliates are liable for any loss
resulting from unauthorized telephone transfers or allocation changes if the
procedures have been followed, and you bear the risk of loss in such situation.
DOLLAR COST AVERAGING
Under the Dollar Cost Averaging program, if elected, you can instruct the
Company to automatically transfer a specified dollar amount from any Variable
Sub-account or the One Year Interest Rate Guarantee Period of the Capital
Developer Account to the Variable Sub-accounts or the One Year Interest Rate
Guarantee Period. The program is not available in connection with the Seven Year
Interest Rate Guarantee Period of the Capital Developer Account. The automatic
transfers can occur monthly or quarterly, and the amount transferred each time
must be at least $50. At the time the program begins, there must be a minimum
value of $5,000 in the Contract. Automatic transfers from the One Year Interest
Rate Guarantee Period of the Capital Developer Account taken under the Dollar
Cost Averaging program will not be subject to a Market Value Adjustment.
Dollar Cost Averaging, a long-term investment method which provides for
regular, level investments over time, results in the purchase of more
Accumulation Units when the Accumulation Unit Value is low, and fewer
Accumulation Units when the Accumulation Unit Value is high. However, there is
no guarantee that the Dollar Cost Averaging program will result in a higher
Contract Value, protect against loss, or otherwise be successful.
The Dollar Cost Averaging program can be elected when purchasing the
Contract or at a later date. The election can specify that only a certain number
of transfers will be made, in which case the program will terminate when that
number of transfers has been made. Otherwise, the program will terminate when
the amount in the Variable Sub-account or the One Year Interest Rate Guarantee
Period of the Capital Developer Account, as applicable, equals $250 or less.
There is no charge for this program. Transfers made as part of the Dollar Cost
Averaging program do not count toward the 15 free transfers that are permitted
annually under the Contract.
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AUTOMATIC REBALANCING
An automatic rebalancing program is also available to you. This program
provides a method for re-establishing fixed proportions between selected
Variable Sub-accounts on a systematic basis. Under this program, the allocation
between Variable Sub-accounts will be automatically readjusted to the desired
allocation, subject to a minimum of 5% per Variable Sub-account, on a quarterly
or annual basis. Transfers made as a result of this program do not count toward
the 15 free transfers that are permitted annually under the Contract. There is
currently no fee charged for participation in this program. This program does
not guarantee profits nor protect against losses.
You may not elect to have Dollar Cost Averaging and Automatic Rebalancing
at the same time. The applicable authorization form must be on file at the
Company before either program may begin. The Company reserves the right to
modify the terms and conditions of these programs upon 30 days advance notice to
contract owners.
DISTRIBUTIONS UNDER THE CONTRACT
SURRENDERS AND PARTIAL WITHDRAWALS
Prior to the Maturity Date, you may surrender all (a "Surrender" or "Full
Surrender") or withdraw a portion (a "Partial Withdrawal") of the Surrender
Value in exchange for a cash payment from the Company by sending a Request,
signed by you, to the Company's Variable Annuity Service Center. The Surrender
Value is the Contract Value plus or minus any Market Value Adjustment minus any
applicable Surrender Charge, Annual Administrative Fee, and any applicable
Premium Taxes. THERE IS NO MINIMUM OR GUARANTEED SURRENDER VALUE FOR AMOUNTS
ALLOCATED OR TRANSFERRED TO THE VARIABLE SUB-ACCOUNTS OF THE SEPARATE ACCOUNT.
The proceeds payable upon a Partial Withdrawal will be the Partial
Withdrawal amount requested, increased or decreased by applicable Market Value
Adjustment and then decreased by any applicable Surrender Charge. For Partial
Withdrawals, you must specify the Investment Option from which the withdrawal
should be taken; otherwise we will prorate the amount based on your current
Contract Value allocation.
No Market Value Adjustment is imposed on Surrenders or Partial Withdrawals
made from an Interest Rate Guarantee Period during the last 30 days of the
Interest Rate Guarantee Period.
The minimum amount that can be withdrawn is $250 ($1,000 from any
Guaranteed Interest Period of the Capital Developer Account) unless the Company
agrees otherwise or unless a smaller amount is required to comply with the Code.
Qualified Contracts may be subject to required minimum distribution
requirements. (See "Certain Federal Income Tax Consequences.") In addition,
following any Partial Withdrawal, the remaining Contract Value must be at least
$2,000. If the processing of a Partial Withdrawal request would result in a
remaining Contract Value of less than $2,000, the Company may treat the Partial
Withdrawal request as a request for a Full Surrender of the Contract, and you
will receive the Surrender Value. Following payment of the Surrender Value, the
Contract will be cancelled. If the amount requested to be withdrawn or
surrendered from an Investment Option is greater than the Contract Value of that
Investment Option, the Company will pay you the entire Contract Value of that
Investment Option, plus or minus any Market Value Adjustment, minus any
Surrender Charge and minus any Annual Administrative Fee and any charge for
applicable Premium Taxes that may apply.
The Separate Account Value remaining in any Variable Sub-account
immediately following a Partial Withdrawal must be at least $250. The Capital
Developer Account Value remaining in an Interest Rate Guarantee Period
immediately following a Partial Withdrawal must be at least $1,000. If the
processing of a withdrawal request would result in Separate Account Value
remaining in a Variable Sub-account of less than $250 or Capital Developer
Account Value remaining in an Interest Rate Guarantee Period of less than
$1,000, the Company may treat the withdrawal request as a request for withdrawal
of the entire Separate Account Value remaining in the relevant Variable
Sub-account or the entire Capital Developer Account Value remaining in the
relevant Interest Rate Guarantee Period.
You may Surrender the Contract at any time prior to the Maturity Date by
sending a Request to the Company at its Variable Annuity Service Center. After
the Maturity Date, no Surrenders or Partial Withdrawals are permitted. (See
"Annuity Payment Options.")
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Withdrawals and Surrenders will be processed using the Separate Account
Value for the Valuation Period during which the Request for Withdrawal or
Surrender is received by the Company at its Variable Annuity Service Center.
The Company will pay all Partial Withdrawals and Full Surrender requests to
you or to any other Payee that you designate within 5 business days (unless
you choose a later date) following receipt by the Company at its Variable
Annuity Service Center of your Request and all requirements necessary to
process the request, except as follows:
- CAPITAL DEVELOPER ACCOUNT -- The Company reserves the right, when
permitted by law, to defer payment of any Partial Withdrawal or Full
Surrender from the Interest Rate Guarantee Periods for up to 6 months.
Interest will be paid on any amount deferred for 30 days or more at a
rate of at least 3.0% per year.
- SEPARATE ACCOUNT - The Company reserves the right to defer the payment
of any Partial Withdrawal or Full Surrender from the Separate Account
as permitted by the Investment Company Act of 1940, as amended. Such
delay may occur because (i) the New York Stock Exchange is closed for
trading (other than usual weekend or holiday closing); (ii) the SEC
determines that a state of emergency exists; or (iii) an order or
pronouncement of the SEC permits a delay for your protection.
In addition, a Premium Payment amount is not available to satisfy a
Partial Withdrawal or Full Surrender until the check or other instrument by
which such Premium Payment was made has been honored.
Since you assume the entire investment risk with respect to Premium
Payments and transfers allocated to the Separate Account, and because Partial
Withdrawals and Surrenders are subject to a Surrender Charge, an Annual
Administrative Fee, and possibly Premium Taxes, THE TOTAL AMOUNT PAID UPON FULL
SURRENDER MAY BE MORE OR LESS THAN THE TOTAL PREMIUM PAYMENTS ALLOCATED TO THE
SEPARATE ACCOUNT (taking any prior Partial Withdrawals into account). Following
a Full Surrender, or at any time Partial Withdrawals reduce the Contract Value
to zero, all of your rights and those of the Annuitant will terminate.
PARTIAL WITHDRAWALS (INCLUDING SYSTEMATIC WITHDRAWALS DESCRIBED BELOW) AND
SURRENDERS MAY BE TAXABLE AND A PENALTY TAX MAY APPLY PRIOR TO AGE 59 1/2. (SEE
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES.")
SYSTEMATIC WITHDRAWAL PLAN
Under the Systematic Withdrawal Plan, you can instruct the Company to make
automatic withdrawal payments to you monthly, quarterly, semi-annually or
annually from a specified Variable Sub-account. The minimum monthly payment is
$250, the minimum quarterly payment is $750, the minimum semi-annual payment is
$1,500, and the minimum annual payment is $3,000, or the amounts can be the
minimum required amounts to comply with qualified plan requirements. The request
for systematic withdrawal must specify a date for the first payment, which must
be at least 30 but not more than 90 days after the form is submitted. The
Surrender Charge will not apply to the first 10% of Contract Value (determined
at the time of the Withdrawal) that is withdrawn during a Contract Year. Amounts
withdrawn in excess of 10% will be subject to any applicable Surrender Charge.
After the seventh Contract Year, amounts withdrawn will no longer be subject to
a Surrender Charge. Systematic Withdrawals may not be taken from the Interest
Rate Guarantee Periods. Systematic Withdrawals may result in certain tax
consequences. (See "Certain Federal Income Tax Consequences.")
ANNUITY PAYMENTS
The Company will make Annuity Payments beginning on the Maturity Date,
provided that the Contract is in force on that date. The Annuity Payment Option
and frequency of Annuity Payments may not be changed after Annuity Payments
begin. Unless you specify otherwise, the Payee of the Annuity Payments is the
Annuitant. The dollar amount of the payments will depend on numerous factors
including the Contract Value on the Maturity Date, the type of Annuity and
Annuity Payment Option you elected, the frequency of payments you elected, and
possibly the age of the Annuitant on the Maturity Date.
MATURITY DATE. Initially, you select the Maturity Date at the time the
Application is completed. You may change the Maturity Date from time to time, by
submitting a Request to the Company, provided that notice of each change is
received by the Company's Variable Annuity Service Center at least 30 days prior
to the then-current Maturity Date along with the written consent of any
irrevocable Beneficiaries. The latest Maturity Date which may be elected for a
Non-qualified Contract, unless otherwise consented to by the Company, is the
Annuitant's 85th birthday or the tenth Contract
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anniversary (whichever is later) and for a Qualified Contract, the date the
Annuitant attains age 70 1/2, unless you demonstrate that the minimum required
distribution under the Code is being made. If you do not select a Maturity Date,
the Maturity Date will be the Annuitant's 85th birthday (for a Non-qualified
Contract) or the date the Annuitant attains age 70 1/2 (for a Qualified
Contrast).
ELECTION OF ANNUITY PAYMENT OPTION. During your lifetime and that of the
Annuitant and prior to the Maturity Date, you may choose an Annuity Payment
Option. You may change the option, but a Request specifying a change of option
and the written consent of any irrevocable Beneficiary must be received by the
Company's Variable Annuity Service Center at least 30 days prior to the Maturity
Date. If no election is made at least 30 days prior to the Maturity Date,
Annuity Payments will be made as an annuity for the Annuitant's life with
Annuity Payments guaranteed for 10 years. (See "Annuity Payment Options,"
below.) You may not change the Annuity Payment Option after the Maturity Date.
If the Maturity Date is in the first seven Contract Years and if an Annuity
Payment Option of less than five years is elected, then the surrender charge
will be deducted.
If any Contract Owner or the Annuitant (if the owner is a non-natural
person) dies prior to the Maturity Date, the Beneficiary may receive a Death
Benefit. (See "Death Benefit.")
TAXES. All or part of each Annuity Payment will be taxable. (See "Certain
Federal Income Tax Consequences.") The Company may be required by state law to
pay a Premium Tax on the amount of Premiums, on Partial Withdrawals or
Surrenders or on the amount applied to an Annuity Payment Option. The Company
will deduct a charge for the amount of any Premium Taxes when it is required by
law to pay such Premium Taxes.
ANNUITY PAYMENT OPTIONS
The Contract provides four Annuity Payment Options which are described
below. Three of these are offered as EITHER a fixed annuity or a variable
annuity (Option I is only available as a fixed annuity). You may elect a fixed
annuity, a variable annuity, or a combination of both. If you elect a
combination, you must specify what part of the Contract Value is to be applied
to the Fixed and Variable Payment Options. Unless specified otherwise, the
Capital Developer Account Value will be used to provide a fixed annuity and the
Separate Account Value will be used to provide a variable annuity. Variable
Annuity Payments will be based on the Variable Sub-account(s) that you select,
or on the allocation of the Separate Account Value among the Variable
Sub-accounts.
If the amount of the Annuity Payments will depend on the age of the
Annuitant, the Company reserves the right to ask for satisfactory proof of the
Annuitant's age. If Annuity Payments are contingent upon the survival of the
Annuitant, the Company may require evidence satisfactory to it that such
Annuitant is living. The Company may delay making Annuity Payments until
satisfactory proof is received.
On the Maturity Date, the sum of (i) the Capital Developer Account Value
and (ii) the Separate Account Value, plus or minus (iii) any Market Value
Adjustment, minus (iv) any applicable Surrender Charge, minus (v) any Premium
Tax, will be applied to provide for Annuity Payments under the selected Annuity
Payment Option.
The Contract's annuity purchase rates are based on the 1983 Individual
Annuity Mortality Table a with Projection Scale G, with 10 years' projected
mortality improvement and with interest compounded annually at 3%. (The
projection of mortality improvement results in smaller Annuity Payments than you
would receive without this projection.) Unisex tables will be used for Qualified
Contracts (other than IRAs), and sex-distinct tables will be used, where
permitted, for Non-qualified Contracts and IRAs. If you ask, the Company will
provide you with a copy of those annuity purchase rate tables.
A FIXED ANNUITY provides for Annuity Payments which will remain constant
pursuant to the terms of the Annuity Payment Option elected. The effect of
choosing a fixed annuity is that the amount of each payment will be set on the
Maturity Date and will not change. If a fixed annuity is selected, the Separate
Account Value used to provide the fixed annuity will be transferred to the
general assets of the Company, and may become subject to the claims of the
Company's third party creditors. The Annuity Payments will be fixed in amount by
the fixed annuity provisions selected and, for some options, the age of the
Annuitant. The fixed annuity payment amounts are determined by applying the
annuity purchase rate specified in the Contract to the portion of the Contract
Value allocated to the Fixed Annuity Option that you select. However, if the
Company's annuity purchase rates in effect on the Maturity Date would result in
higher Annuity Payments, then those more favorable rates will be used.
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A VARIABLE ANNUITY provides for payments that fluctuate or vary in dollar
amount, based on the investment performance of your selected allocations to one
or more Variable Sub-accounts. The variable annuity purchase rate tables in the
Contract reflect an assumed interest rate of 3.0%, so if the actual net
investment performance of the Variable Sub-account is less than this rate, then
the dollar amount of the actual Variable Annuity Payments will decrease. If the
actual net investment performance of the Variable Sub-account is higher than
this rate, then the dollar amount of the actual Variable Annuity Payments will
increase. If the net investment performance exactly equals the 3.0% rate, then
the dollar amount of the actual Variable Annuity Payments will remain constant.
- - ANNUITY UNITS AND PAYMENTS. The dollar amount of each Variable Annuity
Payment depends on the number of Annuity Units credited to that Annuity
Payment Option and the value of those units. The number of Annuity Units is
determined as follows:
1. The dollar amount of the first payment with respect to each Variable
Sub-account is determined by multiplying the portion of the Contract
Value to be applied to the Variable Sub-account by the variable
annuity purchase rate specified in the Settlement Option table in the
Contract.
2. The number of Annuity Units credited in each Variable Sub-account is
then determined by dividing the dollar amount of the first payment by
the value of one Annuity Unit in that Variable Sub-account on the
Maturity Date.
3. The amount of each subsequent Annuity Payment equals the product of
the Annuitant's number of Annuity Units and the Annuity Unit values on
the payment date. The amount of each payment may vary.
- - ANNUITY UNIT VALUE. The value of the Annuity Units will increase or
decrease on a daily basis to reflect the investment performance of the
applicable Fund. The value of an Annuity Unit in a Variable Sub-account on
any Valuation Day is determined as follows:
1. The value of the Annuity Unit for the Variable Sub-account on the
preceding Valuation Day is multiplied by the Net Investment Factor for
the Valuation Period.
2. The result in (1) is then multiplied by a factor (slightly less than
one) to compensate for the interest assumption built into the variable
annuity purchase rates.
The Net Investment Factor reflects the investment experience of the
applicable Fund and certain charges (See the Statement of Additional Information
for a detailed description of the Net Investment Factor).
You may choose to receive Annuity Payments under any one of the Annuity
Payment Options described below. The Company may consent to other plans of
payment before the Maturity Date. Additionally, you may also elect to receive
the Contract Value less any applicable Surrender Charge as of the Maturity Date
in a lump sum payment.
NOTE CAREFULLY: UNDER ANNUITY PAYMENT OPTIONS II AND III IT WOULD BE
POSSIBLE FOR ONLY ONE ANNUITY PAYMENT TO BE MADE IF THE ANNUITANT(S) WERE TO DIE
BEFORE THE DUE DATE OF THE SECOND ANNUITY PAYMENT; ONLY TWO ANNUITY PAYMENTS IF
THE ANNUITANT(S) WERE TO DIE BEFORE THE DUE DATE OF THE THIRD ANNUITY PAYMENT;
AND SO FORTH.
The following Annuity Options are available:
ANNUITY PAYMENT OPTION I -- INCOME FOR SPECIFIED PERIOD (AVAILABLE AS A
FIXED ANNUITY PAYMENT OPTION ONLY) -- Payments will be made for a specified
period. The specified period must be at least 5 years and cannot be more
than 30 years.
ANNUITY PAYMENT OPTION II - LIFE INCOME -- Payments will be made as long as
the Annuitant lives with optional guaranteed periods (Life Income with
Period Certain).
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ANNUITY PAYMENT OPTION III -- (1) JOINT AND LAST SURVIVOR LIFE INCOME
PAYMENTS -- Payments will be made during the joint lifetime of two
Annuitants, continuing in the same amount during the lifetime of the
surviving Annuitant; or (2) Joint and 50% or 75% Survivor Annuity --
Payments will be made during the joint lifetime of two Annuitants,
continuing during the lifetime of the surviving Annuitant and will be
computed on the basis of one-half or three-fourths of the Annuity Payment
(or units) in effect during the joint lifetime.
ANNUITY PAYMENT OPTION IV -- SPECIAL INCOME SETTLEMENT AGREEMENT -- The
Company will pay the proceeds in accordance with terms agreed upon in
writing by you and the Company.
During the Annuity Period, you may (whether or not you are the Annuitant),
upon Request, transfer a portion of any Variable Sub-account to another Variable
Sub-account within the Separate Account. (See "Transfers.") However, during the
Annuity Period, no Partial Withdrawals or Surrenders are permitted.
A portion or the entire amount of the Annuity Payments may be taxable as
ordinary income. If, at the time the Annuity Payments begin, the Company has not
received a proper written election not to have federal income taxes withheld,
the Company must by law withhold such taxes from the taxable portion of such
annuity payments and remit that amount to the federal government. (See "Certain
Federal Income Tax Consequences.")
Except as otherwise agreed to by you and the Company, Annuity Payments will
be payable monthly. If the Contract Value is less than $2,000 (or an amount that
would provide monthly Annuity Payments of less than $20 under any Annuity
Payment Option) on the Maturity Date, the Company will make payment in a lump
sum. The Company may require proof from the Payee of the Annuitant's survival as
a condition of future payments.
DEATH BENEFIT
DEATH OF CONTRACT OWNER PRIOR TO MATURITY DATE. If any Contract Owner dies
before the Maturity Date, a Death Benefit will be paid to the Beneficiary, if
living. The Death Benefit is payable upon the Company's receipt of Due Proof of
Death, as well as proof that the death occurred during the Accumulation Period.
Upon the Company's receipt of this proof and an election of a Death Benefit
Option and return of the Contract, the Death Benefit generally will be payable
after the Company has sufficient information to make the Death Benefit
payment(s). If an election by the Beneficiary to receive Annuity Payments as
described below under "Payment of Death Benefit to Beneficiary" is not received
by the Company within 90 days following the date Due Proof of Death of the
Contract Owner is received by the Company, the Beneficiary will be deemed to
have elected to receive the Death Benefit in the form of a single cash payment
on such 90th day.
The determination of the Death Benefit depends upon the Contract Owner's
Issue Age (age when the Contract was issued). If any Contract Owner dies and his
or her Issue Age is less than or equal to age 75, the amount of the Death
Benefit is equal to the greatest of:
(A) the sum of all Premium Payments less any "Adjusted Partial
Withdrawals," with interest compounded at 4% per year (compounding
continues up to the date of death but in any event ends at the
Contract Owner's age 75);
(B) the Contract Value as of the most recent fifth Contract Anniversary
occurring while the Contract Owner was living and before the Contract
Owner's age 75, plus any Premium Payments and minus any 'Adjusted
Partial Withdrawals" made since that Contract Anniversary; and
(C) the Contract Value as of the date the Company has sufficient
information to make the Death Benefit payment.
(For purposes of (A) and (B), above, the Death Benefit will be calculated as of
the date of the Contract Owner's death but will never be greater than 200% of
all Premium Payments, less any Partial Withdrawals.)
The "Adjusted Partial Withdrawal" for each Partial Withdrawal is the
product of (a) times (b) where:
(a) is the ratio of the amount of the Partial Withdrawal to the Contract
Value on the date of (but immediately prior to) the Partial
Withdrawal; and
(b) is the Death Benefit on the date of (but immediately prior to) the
Partial Withdrawal.
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If any Contract Owner dies and his or her Issue Age is greater than age 75,
the amount of the Death Benefit is equal to the Contract Value on the date the
Company has received Due Proof of Death, election of a payment option, and
return of the Contract.
If the Contract Owner is deemed a non-natural person (i.e., a trust or
corporation) under Section 72 of the Code, the Death Benefit is payable upon the
death of the primary Annuitant. (The "primary Annuitant" is that individual
whose life affects the timing or amount of Annuity Payments under the Contract.)
The Death Benefit in such situation is equal to the Contract Value on the date
the Company has received Due Proof of Death of the primary Annuitant, election
of a payment option, and return of the Contract.
Payment of the Death Benefit will be in full settlement of the Company's
liability under the Contract, and the Contract will be cancelled on the date the
Death Benefit is determined and paid.
Death Benefit payments will be made in a lump sum or in accordance with the
Contract Owner's or Beneficiary's election, as described below. The Contract
Value will be calculated as of the date the Company receives at its
Administrative Service Center Due Proof of Death and all requirements necessary
to make the payment. The Contract will end on such date.
IRS REQUIRED DISTRIBUTION. Federal tax law requires that if any Contract
Owner dies before the Maturity Date, then the entire value of the Contract must
generally be distributed within five years of the date of the Contract Owner's
death. Special rules may apply to the Contract Owner's spouse. See "Federal Tax
Matters," in the Statement of Additional Information, for a detailed description
of these rules. Other rules apply to Qualified Contracts. (See "Certain Federal
Income Tax Consequences.")
DEATH OF ANNUITANT PRIOR TO MATURITY DATE. If the Annuitant is not the
Contract Owner and the Annuitant dies prior to the Maturity Date, you may name a
new Annuitant. If no new Annuitant is named, the Contract Owner becomes the new
Annuitant.
If the Contract Owner is a non-natural person (i.e., a trust or
corporation) for purposes of Code Section 72, then the primary Annuitant's death
will be treated as the death of the Contract Owner and will result in payment of
the Contract Value. (No enhanced Death Benefit will apply.)
DEATH OF ANNUITANT ON OR AFTER MATURITY DATE. If the Annuitant dies while
there are remaining guaranteed Annuity Payments to be made, the Company will
continue to make the remaining guaranteed Annuity Payments to only one of the
following, in this order: (1) the named Payee, if any and if living, (2) the
Contract Owner, if living, (3) the Beneficiary, if any and if living, and (4)
the Contract Owner's estate. Annuity Payments will be paid at least as rapidly
as under the Annuity Payment Option in effect at the time of death. However, the
recipient of the remaining Annuity Payments can elect to accelerate payment of
the remaining Annuity Payments. No amount will be payable to a Beneficiary under
any Annuity Payment Option if the Annuitant dies after all guaranteed Annuity
Payments have been made.
DEATH OF CONTRACT OWNER ON OR AFTER MATURITY DATE. If any Contract Owner
dies after the Maturity Date and before the Annuitant, the Company will pay any
remaining guaranteed Annuity Payments to only one of the following, in this
order: (1) any named Payee, if living, (2) any joint Contract Owner, if living,
(3) any Beneficiary, if living, (4) the deceased Contract Owner's estate.
Annuity Payments will be paid at least as rapidly as under the Annuity Payment
Option in effect at the time of death.
CONTRACT OWNER'S SPOUSE AS BENEFICIARY. If the Beneficiary is the deceased
Contract Owner's surviving spouse, the Contract Owner's spouse may choose not to
receive the Death Benefit and may continue the Contract and become the Contract
Owner. If the deceased Contract Owner is also the Annuitant, the Contract
Owner's spouse will be the new Annuitant. If the Contract Owner's spouse chooses
to continue the Contract, no Death Benefit will be paid because of the Contract
Owner's death.
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PAYMENT OF DEATH BENEFIT TO BENEFICIARY. Instead of accepting the Death
Benefit, the Beneficiary (after any Contract Owner's death) can choose by
Request to receive Annuity Payments based on his or her life expectancy. Payment
under any payment option must be for the life of the Beneficiary or for a number
of years that is not more than the life expectancy of the Beneficiary, at the
time of any Contract Owner's death (as determined for federal tax purposes), and
must begin within one year of any Contract Owner's death.
BENEFICIARY. You may name more than one Beneficiary in the Application. You
may change a Beneficiary by sending a Request, signed by you, to the Company's
Variable Annuity Service Center. When the Variable Annuity Service Center
records the change, it will take effect as of the date the Company received your
Request at its Variable Annuity Service Center. You may designate the amount or
percentage of the Death Benefit that each Beneficiary receives, either in the
Application or by a Request, signed by you. If you do not make such a
designation, the Death Benefit will be paid in equal shares to each Beneficiary.
The Company will comply with all state and federal laws requiring notification
of the change in Beneficiary.
CHANGE OF CONTRACT OWNER. You may change the Contract Owner while the
Annuitant is alive by sending a Request to the Company. The change will be
effective on the date the Request is recorded by the Company, but will be
subject to any payment made or action taken by the Company before recording the
change. When the change takes effect, all rights of ownership in the Contract
will pass to the new Contract Owner. Changing the Contract Owner does not change
the Annuitant, or the Beneficiary. Changing the Contract Owner may have tax
implications (See "Certain Federal Income Tax Considerations.") The Company will
comply with all state and federal laws requiring notification of the change in
Contract Owner. The Annuitant named in the Application can not be changed unless
that Annuitant dies prior to the Maturity Date.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program ("ORP") to withdraw their interest in a
variable annuity contract issued under the ORP only upon: (1) termination of
employment in the Texas public institutions of higher education; (2) retirement;
or (3) death. Accordingly, a participant in the ORP (or the participant's estate
if the participant has died) will be required to obtain a certificate of
termination from the employer or a certificate of death before the Contract can
be surrendered.
RESTRICTIONS UNDER QUALIFIED CONTRACTS
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plan in respect of which Qualified Contracts are issued.
RESTRICTIONS UNDER SECTION 4O3(b) PLANS
Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Contract used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
CHARGES AND DEDUCTIONS
The Company will make certain charges and deductions under the Contract in
order to compensate it for incurring expenses in distributing the Contract,
bearing mortality and expense risks under the Contract, and administering the
Separate Account and the Contracts. The Company may also deduct charges for
transfers, Premium Taxes, and other federal, state or local taxes. Charges and
expenses are also deducted from the Funds.
SURRENDER CHARGE
The Company will incur expenses relating to the sale of Contracts,
including commissions to registered representatives and other promotional
expenses. In connection with a Partial Withdrawal, Full Surrender, or an Annuity
Payment Option of less than five years during the first seven Contract Years,
the Company will impose a Surrender Charge on the amount withdrawn or
surrendered net of any Market Value Adjustment, and, before any deductions for
the Annual Administrative Fee or Premium Taxes. The Surrender Charge is
calculated as a percentage of the Contract Value withdrawn, surrendered, or
annuitized. The Surrender Charge schedule is as follows:
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<TABLE>
<CAPTION>
CONTRACT YEAR 1 2 3 4 5 6 7 8+
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Surrender Charge 6% 6% 6% 5% 4% 3% 2% 0%
</TABLE>
The Surrender Charge may not be applied under the following circumstances:
1. If you cancel the Contract during the "Right to Examine Contract"
period.
2. If you choose to annuitize the Contract after the first Contract Year
and you choose an Annuity Payment Option of longer than five years.
3. Payment of the Death Benefit.
4. On any Free Surrender Amount. (See below.)
5. To comply with the minimum distribution requirements of the Internal
Revenue Code.
6. If, subsequent to the Contract Date, you become confined to a hospital
or a state-licensed inpatient nursing care facility ("nursing care
facility") and meet all of the following conditions:
(a) You were not confined to a nursing care facility at any time on
or before the Contract Date;
(b) You have been confined to a nursing care facility for at least 30
consecutive days;
(c) It is medically necessary for you to be confined to the nursing
care facility; and
(d) You send the Company a Request for a Surrender or Partial
Withdrawal along with the Request for waiver of Surrender Charges
while you are confined or within 90 days after your discharge
from such facility.
7. If You are diagnosed as suffering from an illness that reduces your
life expectancy to 12 months or less from the date of diagnosis, the
Company reserves the right to require, at the Company's expense, a
second opinion from a physician acceptable to both you and the
Company.
The Company will tell you the amount of Surrender Charge that would be
assessed upon a Withdrawal or Surrender upon request. More information about how
the Surrender Charge is calculated for Partial Withdrawals and Full Surrenders
is in Appendix I. The Company may waive or reduce the Surrender Charge for
Contracts sold to certain groups (See "Reduction in Charges for Certain
Groups.")
The Company anticipates that the Surrender Charge will not generate
sufficient funds to pay the cost of distributing the Contracts.
THE COMPANY GUARANTEES THAT THE AGGREGATE SURRENDER CHARGE WILL NEVER
EXCEED 8.5% OF THE TOTAL PREMIUM PAYMENTS MADE UNDER THE CONTRACT.
FREE SURRENDER AMOUNT. A Surrender Charge is imposed on partial withdrawals
and full surrenders (and certain annuitizations) in the first seven Contract
Years. However, you are entitled to withdraw up to 10% of the Contract Value
each year without Surrender Charge. The penalty-free withdrawal is equal to 10%
of the Contract Value as of the date of the withdrawal, less the sum of the
penalty-free withdrawals previously taken during the Contract Year, and will not
be less than zero. Because the Contract Value may change from day to day, the
Free Surrender Amount or any remaining portion thereof may increase or decrease
on any day. Any cumulative amount surrendered or withdrawn in excess of the
annual Free Surrender Amount during one of the first seven Contract Years is
subject to the Surrender Charge, as applicable. Unused Free Surrender Amounts
cannot be accumulated and carried from one Contract Year to the next. The Free
Surrender Amount does not apply to amounts applied to an Annuity Payment Option.
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MARKET VALUE ADJUSTMENT
The proceeds of a Partial Withdrawal, Full Surrender, or Transfer made from
an Interest Rate Guarantee Period of the Capital Developer Account 31 days or
more prior to the end of the Interest Rate Guarantee Period will be increased or
decreased by the application of the Market Value Adjustment. Where applicable,
the Market Value Adjustment is applied to the Capital Developer Account Value.
NO MARKET VALUE ADJUSTMENT IS APPLIED TO ANY PARTIAL WITHDRAWAL, SURRENDER OR
TRANSFER FROM AN INTEREST RATE GUARANTEE PERIOD MADE DURING THE LAST 30 DAYS OF
THE INTEREST RATE GUARANTEE PERIOD. IN ADDITION, NO MARKET VALUE ADJUSTMENT WILL
APPLY TO TRANSFERS FROM THE ONE YEAR INTEREST RATE GUARANTEE PERIOD OF THE
CAPITAL DEVELOPER ACCOUNT UNDER THE DOLLAR COST AVERAGING PROGRAM.
The Market Value Adjustment will reflect the relationship between (a) the
Treasury Rate for the period, the term to maturity of which most closely
approximates the duration remaining in the Interest Rate Guarantee Period from
which the Partial Withdrawal, Surrender, or transfer is made, and (b) the
Guaranteed Interest Rate applicable to the Interest Rate Guarantee Period from
which the Partial Withdrawal, Surrender, or Transfer is made at the time of the
transaction.
Generally, if your Guaranteed Interest Rate does not exceed the applicable
Treasury Rate by at least 0.4%, then the application of the Market Value
Adjustment will reduce the proceeds of a Partial Withdrawal, Surrender or
transfer. Similarly, if your Guaranteed Interest Rate exceeds the applicable
Treasury Rate by more than 0.4%, the application of the Market Value Adjustment
will increase the proceeds of a Partial Withdrawal, Surrender, or transfer.
For example, assume that a Contract Owner selects an initial Interest Rate
Guarantee Period of seven years and the Guaranteed Interest Rate for that
duration is 8% per annum, and, at the end of four years, the Contract Owner
makes a Partial Withdrawal. If the three year Treasury Rate is then 6%, the
Market Value Adjustment will be positive and will increase the proceeds. On the
other hand, if the Treasury Rate is higher than the Guaranteed Interest Rate,
for example 10%, the application of the Market Value Adjustment will cause a
decrease in the amount payable.
The formula for calculating the Market Value Adjustment is set forth in
Appendix II to this Prospectus, which contains illustrations of the application
of the Market Value Adjustment.
The Market Value Adjustment will never reduce the return on amounts
allocated to the Capital Developer Account below three percent per year.
REDUCTION IN CHARGES FOR CERTAIN GROUPS
The Company may reduce or eliminate the Annual Administrative Fee or
Surrender Charge on Contracts that have been sold to (1) employees and sales
representatives of the Company or its affiliates; (2) customers of the Company
or distributors of the Contracts who are transferring existing contract values
to a Contract; (3) individuals or groups of individuals when sales of the
Contract result in savings of sales or administrative expenses; or (4)
individuals or groups of individuals where Premium Payments are to be made
through an approved group payment method and where the size and type of the
group results in savings of administrative expenses.
In no event will reduction or elimination of the Annual Administrative Fee
or Surrender Charge be permitted where such reduction or elimination will be
unfairly discriminatory to any person.
MORTALITY AND EXPENSE RISK CHARGE
The Company imposes a daily charge as compensation for bearing certain
mortality and expense risks in connection with the Contracts. This charge is
1.25% annually (equal to a daily rate of .003427%) of the daily value of net
assets in the Separate Account. (Approximately 0.50% is estimated to be
attributable to mortality risks, and approximately 0.75% is estimated to be
attributable to expense risks.) The Mortality and Expense Risk Charge is
reflected in the Accumulation Unit value or Annuity Unit value for each Variable
Sub-account. The Mortality and Expense Risk Charge will not be deducted with
respect to amounts held in the Capital Developer Account.
Contract Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by the Company. The
mortality risks assumed by the Company arise from its contractual obligations to
make Annuity Payments determined in accordance with the annuity tables and other
provisions contained in the Contract. Thus, you are assured that neither the
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the Annuity Payments that the Annuitant will
receive under the Contract.
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<PAGE>
The Company also bears substantial risk in connection with the Death
Benefit. During the Accumulation Period, if the Contract Owner's Issue Age is
less than 75, the Company will pay a Death Benefit that could be greater than
the Contract Value. Otherwise, the Death Benefit is based on the Contract Value.
The Death Benefit is paid without imposition of a Surrender Charge or
application of the Market Value Adjustment.
The expense risk assumed by the Company is the risk that the Company's
actual expenses in administering the Contract and the Separate Account will
exceed the amount recovered through the Annual Administrative Fee and the
Administrative Expense Charge.
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts a daily charge equal to a percentage of the net assets
in the Separate Account for administering the Separate Account. The effective
annual rate of this charge is 0.15% (equal to a daily rate of .000411%) of the
Contract Value. The amount of this charge is guaranteed not to increase. The
Administrative Expense Charge does not apply to any amounts held in the Capital
Developer Account.
ANNUAL ADMINISTRATIVE FEE
In order to cover the costs of administering the Contracts, the Company
deducts an Annual Administrative Fee from the Contract Value of each Contract on
the last day of each Contract Year and upon Full Surrender of the Contract. This
Annual Administrative Fee is the lesser of $30 or 2% of Contract Value on the
last day of the applicable Contract Year. It is guaranteed not to increase. The
Company does not anticipate realizing any profit from this charge. The Annual
Administrative Fee will be deducted pro rata from the Investment Options in the
same proportion that the amount of Contract Value in each Investment Option
bears to the total Contract Value. The Annual Administrative Fee will be waived
if, on the last day of that Contract Year, the Contract Value is $30,000 or
greater or if 100% of Contract Value is allocated to the Capital Developer
Account. No Annual Administrative Fee is deducted after the Maturity Date.
The Company may waive or reduce the Annual Administrative Fee for the
Contracts sold to certain groups (See "Reduction in Charges for Certain
Groups.")
TRANSFER CHARGE
A fee equal to $10 may be imposed for each Transfer in excess of 15 during
any Contract Year. Although the Company reserves the right to impose a $10 fee,
it currently has no plans to do so.
PREMIUM TAXES
The Company may pay Premium Taxes in connection with Premium Payments under
the Contracts. Depending upon applicable state law, the Company will deduct the
Premium Taxes paid with respect to a particular Contract when it is required to
pay them. This deduction may be made from the Premium Payments, from the
Contract Value on the Maturity Date (thus reducing the Contract Value), upon a
Partial Withdrawal, or upon the Full Surrender of a Contract. Premium Taxes may
range from 0% to 3.5% of Premium Payments or of Contract Value.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state, or local taxes other than
state Premium Taxes. However, the Company reserves the right to deduct charges
in the future for such taxes or other economic burden resulting from the
application of any tax laws that the Company determines to be attributable to
the Contracts.
OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES
Each Fund is responsible for all of its expenses. In addition, charges will
be made against each Fund for investment advisory services provided to the Fund.
The net assets of each Fund will reflect deductions in connection with the
investment advisory fee and other expenses.
For more information concerning the investment advisory fee and other
charges against the Funds, see the prospectuses for each Fund, current copies of
which accompany this Prospectus.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION IS A GENERAL DESCRIPTION OF FEDERAL TAX
CONSIDERATIONS RELATING TO THE CONTRACT AND IS NOT INTENDED AS TAX ADVICE. THIS
DISCUSSION IS NOT INTENDED TO ADDRESS THE TAX CONSEQUENCES RESULTING FROM ALL OF
THE SITUATIONS IN WHICH A PERSON MAY BE ENTITLED TO OR MAY RECEIVE A
DISTRIBUTION UNDER THE CONTRACT. ANY PERSON CONCERNED ABOUT THESE TAX
IMPLICATIONS SHOULD CONSULT A COMPETENT TAX ADVISOR BEFORE INITIATING ANY
TRANSACTION. THIS DISCUSSION IS BASED UPON THE COMPANY'S UNDERSTANDING OF THE
PRESENT FEDERAL INCOME TAX LAWS AS THEY ARE CURRENTLY INTERPRETED BY THE
INTERNAL REVENUE SERVICE. NO REPRESENTATION IS MADE AS TO THE LIKELIHOOD OF THE
CONTINUATION OF THE PRESENT FEDERAL INCOME TAX LAWS OR OF THE CURRENT
INTERPRETATION BY THE INTERNAL REVENUE SERVICE. MOREOVER NO ATTEMPT HAS BEEN
MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
The Contract may be purchased on a non-qualified basis ("Non-qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). Qualified Contracts are designed
for use by individuals whose Premium Payments are comprised solely of proceeds
from and/or contributions under retirement plans which are intended to qualify
as plans entitled to special income tax treatment under Sections 401, 403(b),
408 (Traditional IRA), 408A (Roth IRA), or 457 of the Internal Revenue Code of
1986, as amended (the "Code"). Information regarding the tax treatment of a
Traditional IRA or a Roth IRA is contained in a separate IRA Disclosure
Statement available from the Company. The ultimate effect of Federal income
taxes on the amounts held under a Contract, on Annuity Payments, and on the
economic benefit to you, the Annuitant, or the Beneficiary depends on the type
of retirement plan, on the tax and employment status of the individual concerned
and, in some cases on the employer's tax status. In addition, certain
requirements must be satisfied in purchasing a Qualified Contract with proceeds
from a tax qualified plan and receiving distributions from a Qualified Contract
in order to continue receiving favorable tax treatment. Therefore, purchasers of
Qualified Contracts should seek competent legal and tax advice regarding the
suitability of the Contract for their situation, the applicable requirements,
and the tax treatment of the rights and benefits of the Contract. The following
discussion assumes that a Qualified Contract is purchased with proceeds from
and/or contributions under retirement plans that qualify for the intended
special Federal income tax treatment.
If this Contract is purchased as a Non-Qualified Contract, it is intended
that the Contract will be owned and administered to satisfy the requirements of
Section 72 of the Code. If this Contract is purchased as a Qualified Contract,
it is intended that the Contract will be owned and administered to satisfy the
requirements of the provisions of the Code that apply to that type of Qualified
Contract. The following discussion is based on the assumption that the Contract
satisfies whichever Federal income tax rules apply to the Contract.
At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether a Non-Qualified Contract or a Qualified Contract is being
purchased. If the initial Premium Payment is derived from an exchange or
surrender of another annuity contract, the Company may require that the
prospective purchaser provide information with regard to the Federal income tax
status of the previous annuity contract. The Company will require that persons
purchase separate Contracts if they desire to invest monies qualifying for
different annuity tax treatment under the Code. Each such separate Contract
would require the minimum initial Premium Payment stated above. Additional
Premium Payments under a Contract must qualify for the same Federal income tax
treatment as the initial Premium Payment under the Contract; the Company will
not accept an additional Premium Payment under a Contract if the Federal income
tax treatment of such Premium Payment would be different from that of the
initial Premium Payment.
TAXATION OF ANNUITIES
IN GENERAL. Section 72 of the Code governs taxation of annuities in
general. The Company believes that if you are an individual (a "natural" person
under the tax rules), you will not be taxed on increases in the value of a
Contract until a distribution occurs (E.G., Partial Withdrawals, Full Surrenders
or Annuity Payments under the Annuity Payment Option elected). Any change in
ownership, assignment, pledge, or agreement to assign or pledge any portion of
the Contract Value (and in the case of a Qualified Contract, any portion of an
interest in the qualified plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a single lump sum payment or
an annuity) is taxable as ordinary income.
If the owner of any Non-qualified annuity contract is not an individual or
other "natural" person (e.g., a corporation or a certain type of trust), the
owner generally must include in income any increase in the excess of the
contract's value over the "investment in the contract" (discussed below) during
the taxable year. There are some exceptions to this rule, and a prospective
Contract Owner that is not a natural person may wish to discuss these with a
competent tax advisor.
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<PAGE>
POSSIBLE CHANGES IN TAXATION. In past years, legislation has been proposed
that would have adversely modified the Federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of
nonqualified variable annuities by taxing the owner on the gain in any
sub-account if the owner transferred funds between various investment options.
Although as of the date of this prospectus Congress has not passed any
legislation regarding the taxation of annuities, there is always the possibility
that the tax treatment of annuities could change by legislation or other means
(such as IRS regulations, revenue rulings, judicial decisions, etc.). Moreover,
it is also possible that any change could apply to your Contract even though it
was purchased prior to the change in the tax laws or rules.
SURRENDERS AND PARTIAL WITHDRAWALS FROM QUALIFIED CONTRACTS. In the case of
a Surrender or Partial Withdrawal under a QUALIFIED CONTRACT, under Section
72(e) of the Code a ratable portion of the amount received is taxable, generally
based on the ratio of the "investment in the contract" to the individual's total
account balance under the retirement plan. The "investment in the contract"
generally equals the amount of any premium payments paid by or on behalf of any
individual with after tax contributions. For a Contract issued in connection
with qualified plans, the "investment in the contract" can be zero. As explained
in the separate Disclosure Statement for Roth IRAs, special tax rules apply to
distributions from Roth IRAs and Roth Conversion IRAs.
SURRENDERS AND PARTIAL WITHDRAWALS FROM NON-QUALIFIED CONTRACTS. With
respect to NON-QUALIFIED CONTRACTS, Partial Withdrawals (including systematic
withdrawals) are generally treated as taxable income to the extent that the
Contract Value immediately before the Partial Withdrawal exceeds the "investment
in the contract" at that time. The Contract Value immediately before a Partial
Withdrawal is before any surrender charge, and includes any positive Market
Value Adjustment which results from such a Partial Withdrawal. Full Surrenders
are treated as taxable income to the extent that the amount received exceeds the
"investment in the contract."
ANNUITY PAYMENTS. If you elect to receive payments over a period of years,
over your life expectancy, or over the life expectancies of yourself and another
individual, part of each payment you receive will be a return of your
"investment in the contract" and part of each payment will be taxable income. In
general, the amount of each payment that is a return of your "investment in the
contract" is calculated by dividing your total "investment in the contract" by
the total number of expected payments. For example, if your "investment in the
contract" is $6,000, and you elect to receive 60 monthly annuity payments, $100
of each payment will be a return of your "investment in the contract" and will
not be subject to Federal income taxes ($6,000 / 60 = $100). If payments are
being made over your life expectancy, or the joint life expectancy of you and
your spouse, there are IRS tables which are used to determine how many annuity
payments are expected to be made. After you have received the expected number of
payments, you will have received tax-free your entire "investment in the
contract." Any additional payments will be fully taxable. If you die before you
have received your entire "investment in the contract" and there are no
additional payments after you die, there is a special tax rule that allows you a
deduction for the unrecovered "investment in the contract" on your last income
tax return. If some payments continue to your beneficiary after your death, your
beneficiary can recover any remaining "investment in the contract" over the
additional payments being made.
PENALTY TAX. For Non-Qualified Contracts and for most Qualified
Contracts (there are special rules for Roth IRAs) there may be a 10% Federal
penalty tax on any premature distributions. The 10% penalty applies only to
the portion of the distribution that is treated as taxable income. In
general, however, there is no penalty tax on distributions from a
Non-Qualified Contract: (1) made on or after the date on which you attain age
59 1/2; (2) made as a result of your death or disability; (3) received in
substantially equal periodic payments as a life annuity or a joint and
survivor annuity for the lives or life expectancies of you and a "designated
beneficiary"; (4) resulting from the direct rollover of the Contract into
another qualified contract or individual retirement annuity; (5) allocable to
investment in the Contract before August 14, 1982; (6) under a qualified
funding asset (as defined in Code Section 130(d)); (7) under an immediate
annuity (as defined in Code Section 72(u)(4)); or (8) which are purchased by
an employer on termination of certain types of qualified plans and which are
held by the employer until the employee separates from service. For
distributions from Qualified Contracts, in addition to all of the above
exceptions to the 10% penalty tax, the following additional exceptions to the
penalty may apply: (1) made to an employee after separation from service
after age 55 from a retirement plan other than an IRA; (2) made to pay
certain uninsured medical expenses; (3) made to certain unemployed
individuals to pay health insurance premiums; (4) made to pay for certain
higher education expenses; or (5) made to a first-time home buyer ($10,000
lifetime limit).
DEATH BENEFIT PROCEEDS. The Code requires that both Qualified and
Non-Qualified Contracts make certain distributions if the owner of the Contract
dies. If the owner dies before periodic annuity payments have started, the
entire value of the annuity must either (i) be paid out, in full, within five
years of the death of the owner, or (ii) annuity
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payments must start within one year of the death of the owner. If the surviving
spouse becomes the owner of the Contract, the spouse has the option of
continuing the Contract as if he or she had been the original purchaser. If the
owner dies after periodic annuity payments have started, payments must continue
to be made under a method that will distribute the balance in the Contract at
least as rapidly as the method being used prior to death. A non-spousal
beneficiary may not elect, or continue to use, a settlement option unless that
settlement option will result in distributions that comply with the Code.
Amounts may be distributed because of the death of a Contract Owner.
Generally, such amounts are includable in the income of the recipient as
follows:
(1) if distributed in a lump sum, such amounts are taxed in the same
manner as a Full Surrender as described above, or
(2) if distributed under an Annuity Payment Option, such amounts are taxed
in the same manner as Annuity Payments as described above.
For these purposes, the investment in the Contract is not affected by the
owner's death. That is, the investment in the Contract remains the amount of any
purchase payments paid which were not excluded from gross income.
GIFTS, TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF THE CONTRACT. A transfer of
ownership of a Contract, the designation of an Annuitant or Beneficiary other
than yourself, or the exchange of a Contract may result in certain tax
consequences to you, including the immediate taxation of the entire gain in the
Contract. If you are thinking about any such gift, transfer, assignment. or
exchange of a Contract, you should contact a competent tax adviser to discuss
the potential tax effects of such transaction.
GENERATION-SKIPPING TRANSFERS. The Company may be required to determine
whether the Death Benefit or any other payment constitutes a "direct skip" that
may be subject to the Generation-Skipping Transfer Tax, as defined in Section
2612 of the Code. A direct skip occurs, for example, if you make a gift to your
grandchild instead of your living child. If the Generation-Skipping Transfer Tax
applies to a distribution, the Company is required to calculate and withhold
from any payment the amount of such tax and pay it to the IRS.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts that are
issued by the Company (or its affiliates) to you during any calendar year are
treated as one annuity contract for purposes of determining the amount
includable in gross income under Section 72(e) of the Code. In addition, the
Treasury Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts or
otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract and
separate deferred annuity contract as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws. A prospective purchaser of more than one annuity contract in a
calendar year should consult with a competent tax advisor before making such a
purchase.
WITHHOLDING. Pension and annuity distributions generally are subject to
withholding for the recipient's Federal income tax liability at rates that vary
according to the type of distribution and the recipient's tax status. If you
have provided the Company with your taxpayer identification number (i.e., your
Social Security number), you may elect not to have tax withheld from
distributions (withholding is mandatory for certain distributions from certain
types of Qualified Contracts).
OTHER TAX CONSEQUENCES. As noted above, the foregoing discussion of the
Federal income tax consequences under the Contract is not exhaustive and special
rules are provided with respect to other tax situations not discussed in this
Prospectus. Further, the Federal income tax consequences discussed herein
reflect the Company's understanding of current law, and the law may change.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of distributions under the Contract depend
on your individual circumstances or those of the recipient of the distribution.
A competent tax advisor should be consulted for further information.
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QUALIFIED PLANS
The Contract is designed for use with several types of qualified plans. The
tax rules applicable to Contract Owners in qualified plans. including
restrictions on contributions and benefits, taxation of distributions, and any
tax penalties, vary according to the type of plan and the terms and conditions
of the plan itself. Various tax penalties may apply to contributions in excess
of specified limits, distributions that do not satisfy specified requirements,
and certain other transactions with respect to qualified plans. Therefore, no
attempt is made to provide more than general information about the use of the
Contract with the various types of qualified plans. Contract Owners, Annuitants
and Beneficiaries are cautioned that the rights of any person to any benefits
under Qualified Contracts may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract. Some
retirement plans are subject to distribution and other requirements that are not
incorporated into our Contract administration procedures. Contract Owners,
Participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. Following are brief descriptions of the
various types of qualified plans in connection with which the Company will issue
the Contract. Contracts for all types of qualified plans may not be available in
all states. When issued in connection with a qualified plan, the Contract will
be amended as necessary to conform to the requirements of the Code.
QUALIFIED PENSION AND PROFIT SHARING PLANS. Sections 401(a) of the Code
permits corporate employers to establish various types of retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "HR. 10," permits self-employed individuals to
establish qualified plans for themselves and their employees. These retirement
plans may permit the purchase of the Contracts to accumulate retirement savings
under the plans. Adverse tax or other legal consequences to the plan, to the
participant or to both may result if the Contract is assigned or transferred to
any individual as a means to provide benefit payments, unless the plan complies
with all legal requirements applicable to such benefits prior to transfer of the
Contract. Purchasers of a Contract for use with such plans should seek competent
advice regarding the suitability of the proposed plan documents and the Contract
to their specific needs.
INDIVIDUAL RETIREMENT ANNUITIES AND INDIVIDUAL RETIREMENT ACCOUNTS. Section
408 of the Code permits eligible individuals to contribute to an individual
retirement program known as an Individual Retirement Annuity or Individual
Retirement Account (each hereinafter referred to as "Traditional IRA").
Traditional IRAs are subject to limitations on the amount which may be
contributed and deducted and the time when distributions may commence. Also,
distributions from certain other types of qualified plans may be "rolled over"
on a tax-deferred basis into a Traditional IRA. The sale of a Contract for use
with a Traditional IRA may be subject to special disclosure requirements of the
Internal Revenue Service. Purchasers of a Contract for use with Traditional IRAs
will be provided with supplemental information required by the Internal Revenue
Service or other appropriate agency. Such purchasers will have the right to
revoke their purchase within 7 days of the earlier of the establishment of the
Traditional IRA or their purchase. Purchasers should seek competent advice as to
the suitability of the Contract for use with Traditional IRAs. The Internal
Revenue Service has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with
Traditional IRA qualification requirements.
Section 408A of the Code permits eligible individuals to contribute to a
Roth IRA. Purchasers of a Contract for use with Roth IRAs will be provided
with supplemental information required by the Internal Revenue Service or
other appropriate agency. Such purchasers will have the right to revoke their
purchase within 7 days of the earlier of the establishment of the Roth IRA or
their purchase. Purchasers should seek competent advice as to the suitability
of the Contract for use with Roth IRAs. The Internal Revenue Service has not
addressed in a ruling of general applicability whether a death benefit
provision such as the provision in the Contract comports with Roth IRA
qualification requirements.
TAX-SHELTERED ANNUITIES. Section 403(b) of the Code permits public school
employees and employees of certain types of religious, charitable, educational,
and scientific organizations specified in Section 501(c)(3) of the Code to
purchase annuity contracts and, subject to certain limitations, exclude the
amount of premiums from gross income for tax purposes. However, these payments
may be subject to FICA (Social Security) taxes. These annuity contracts are
commonly referred to as "Tax-Sheltered Annuities." Subject to certain
exceptions, withdrawals under Tax-Sheltered Annuities which are attributable to
contributions made pursuant to salary reduction agreements are prohibited unless
made after you attain age 59 1/2, upon your separation from service, upon your
death or disability, or for an amount not greater than the total of such
contributions in the case of hardship.
35
<PAGE>
SECTION 457 DEFERRED COMPENSATION ("SECTION 457") PLANS. Under Section 457
of the Code, employees of (and independent contractors who perform services for)
certain state and local governmental units or certain tax-exempt employers may
participate in a Section 457 plan of their employer allowing them to defer part
of their salary or other compensation. The amount deferred and any income on
such amount will not be taxable until paid or otherwise made available to the
employee. The maximum amount that can be deferred under a Section 457 plan in
any tax year is ordinarily one-third of the employee's includable compensation,
up to $7,500. Includable compensation means earnings for services rendered to
the employer which is includable in the employee's gross income, but excluding
any contributions under the Section 457 plan or a Tax-Sheltered Annuity. During
the last three years before an individual attains normal retirement age,
additional "catch-up" deferrals are permitted.
The deferred amounts will be used by the employer to purchase the Contract.
The Contract will be issued to the employer, and all Contract Values will be
subject to the claims of the employer's creditors. The employee has no rights or
vested interest in the Contract and is only entitled to payment in accordance
with the Section 457 plan provisions. The plans may permit participants to
specify the form of investment for their deferred compensation account.
Depending on the terms of the particular plan, the employer may be entitled to
draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. Present federal income tax law does not allow tax-free transfers or
rollovers for amounts accumulated in a Section 457 plan, except for transfers to
other Section 457 plans in certain limited cases.
DISTRIBUTOR OF THE CONTRACTS
Jefferson Pilot Variable Corporation (formerly Jefferson-Pilot Investor
Services, Inc.) is the principal underwriter of the Contracts. Jefferson Pilot
Variable Corporation will enter into one or more contracts with various
broker-dealers for the distribution of the Contracts. Commissions of up to 8.5%
of Premium Payments may be paid on Contract sales as currently permitted by
National Association of Securities Dealers, Inc. ("NASD") rules and regulations.
In certain circumstances, commissions may be paid in installments over time.
Jefferson Pilot Variable Corporation, a wholly owned subsidiary of
Jefferson-Pilot Corporation, is a member of the NASD. Its mailing address is One
Granite Place, Concord, NH 03301. There may be other underwriters in the future.
In addition to the payment of commissions, the Company may from time to
time pay or allow additional promotional incentives, in the form of cash or
other compensation, to broker-dealers that sell variable annuity contracts. In
some instances, such other incentives may be offered only to certain
broker-dealers that sell or are expected to sell during specified time periods
certain minimum amounts of variable annuity contracts. The Company's payment of
promotional incentives is subject to applicable state insurance law and
regulation.
VOTING RIGHTS
There are no voting rights associated with the Capital Developer Account
Value.
With respect to the Separate Account Value, the Company will be the
"shareholder" of the Funds and as such, the Company will have certain voting
rights. However, to the extent required by law, the Company will vote shares of
the Funds held by the Separate Account at regular and special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the Funds. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, and as a result the Company determines that it is
permitted to vote the Funds' shares in its own right, it may elect to do so. The
Company reserves the right, when permitted by law, to restrict or eliminate any
of the voting rights of Contract Owners or other persons who have voting rights
as to the Separate Account.
Before the Maturity Date, you hold the voting interest in the selected
Funds. The number of votes that you have the right to instruct will be
calculated separately for each Variable Sub-account. The number of votes that
you have the right to instruct for a particular Variable Sub-account will be
determined by dividing your Contract Value in the Variable Sub-account by the
net asset value per share of the corresponding Fund in which the Variable
Sub-account invests. Fractional shares will be counted.
36
<PAGE>
After the Maturity Date, the person receiving Annuity Payments has the
voting interest, and the number of votes decreases as Annuity Payments are made
and as the reserves for the Contract decrease. The person's number of votes will
be determined by dividing the reserve for the Contract allocated to the
applicable Variable Sub-account by the net asset value per share of the
corresponding Fund. Fractional shares will be counted.
The number of votes that you or the person receiving income payments
has the right to instruct will be determined as of the date established by the
Funds for determining shareholders eligible to vote at the meeting. The Company
will solicit voting instructions by sending you or other persons entitled to
vote written requests for instructions prior to that meeting in accordance with
procedures established by the Funds, as applicable. Fund shares as to which no
timely instructions are received may be voted in proportion to the voting
instructions that are received with respect to all Contracts participating in
the same Variable Sub-account. Shares held by the Company or its affiliates in
which you or other persons entitled to vote have no beneficial interest may be
voted by the shareholder thereof (the Company or its affiliates) in its sole
discretion.
Each person having a voting interest in a Variable Sub-account will receive
proxy material, reports, and other materials relating to the appropriate Fund.
It should be noted that the Funds are not required to, and do not intend
to, hold annual or other regular meetings of shareholders.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right to transfer assets of the Separate Account,
which it determines to be associated with the class of policies to which the
Contract belongs, to another separate account. If this type of transfer is made,
the term "Separate Account," as used herein shall then mean the separate account
to which the assets were transferred.
The Company further reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Separate Account or that the Separate Account may purchase. If the shares of
a Fund are no longer available for investment or if in the Company's judgment
further investment in any Fund should become inappropriate in view of the
purposes of the Separate Account, the Company may redeem the shares, if any, of
that Fund and substitute shares of another Fund or of another registered
open-end management investment company. The Company will not substitute any
shares attributable to a Contract's interest in a Variable Sub-account of the
Separate Account without notice and prior approval of the SEC and state
insurance authorities, if required by law.
The Company also reserves the right to establish additional Variable
Sub-accounts of the Separate Account, each of which would invest in shares
corresponding to a new investment portfolio of the existing Funds or in shares
of another investment company. Subject to applicable law and any required SEC
approval, the Company, may, in its sole discretion, establish new Variable
Sub-accounts or eliminate one or more Variable Sub-accounts if marketing needs,
tax considerations or investment conditions warrant. Any new Variable
Sub-accounts may be made available to existing Contract Owners on a basis to be
determined by the Company.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change. If the Company deems it to be in the best interest of Contract Owners
and Annuitants, and subject to any approvals that may be required under
applicable law, the Separate Account may be operated as a management investment
company under the 1940 Act; it may be deregistered under the Act if registration
is no longer required; or it may be combined with other separate accounts of the
Company. Further, the Company reserves the right, when permitted by law, to
manage the Separate Account under the direction of a committee at any time. The
Company will notify you of its intent to exercise any such reserved rights with
respect to the Separate Account. You will have thirty-one (31) days after you
receive any such notification to accept or reject the change(s) described
therein. If you choose not to accept such change(s), you may request to cancel
your Contract and receive the Surrender Value.
37
<PAGE>
PERFORMANCE DATA
From time-to-time the company may use the yield of the JPVF Money Market
Variable Sub-account and total returns of other Variable Sub-accounts in
advertisements and sales literature. In addition, total returns for all of the
Variable Sub-accounts may be advertised. These figures will be based on
historical performance for the Funds and are not intended to and do not indicate
future performance.
JPVF MONEY MARKET VARIABLE SUB-ACCOUNT YIELD. The yield of the JPVF Money
Market Variable Sub-account refers to the annualized income generated by an
investment in that Variable Sub-account over a specified seven-day period. The
yield is "annualized" by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of that investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment in that Variable
sub-account is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
OTHER VARIABLE SUB-ACCOUNT YIELD. The Company may from time to time
advertise or disclose the current annualized yield of one or more of the
Variable Sub-accounts of the Separate Account (except the JPVF Money Market
Variable Sub-account) for 30-day periods. The annualized yield of a Variable
Sub-account refers to income generated by the Variable Sub-account over a
specific 30-day period. Because the yield is annualized, the yield generated by
a Variable Sub-account 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 Variable Sub-account less Variable Sub-account
expenses 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, (iii) compounding that yield for a 6-month period, and (iv) multiplying
that result by 2. Expenses attributable to the Variable Sub-account include (i)
the Annual Administrative Fee, (ii) the Mortality and Expense Risk Charge and
(iii) the Administrative Expense Charge.
Because of the charges and deductions imposed by the Separate Account, the
yield for a Variable Sub-account of the Separate Account will be lower than the
yield for its corresponding Fund. The yield calculations do not reflect the
effect of any Surrender Charge or Premium Taxes that may be applicable to a
particular Contract. The yield on amounts held in the Variable Sub-accounts of
the Separate Account 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. A Variable Sub-account's actual yield is affected by
the types and quality of its investments and its operating expenses.
TOTAL RETURN. Total returns for the Sub-accounts may be calculated pursuant
to a standardized formula or in non-standardized manners. The standardized total
return of the Variable Sub-accounts refers to return quotations assuming an
investment has been held in the Variable Sub-account for various periods of time
including, but not limited to. one year, five years, and ten years (if the
Variable Sub-account has been in operation for those periods), and a period
measured from the date the Variable Sub-account commenced operations. The total
return quotations will represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods for which total return
quotations are provided. Accordingly, the total return quotations will reflect
not only income but also changes in principal value (that is, changes in the
Accumulation Unit values), whereas the yield figures will only reflect income.
In addition, the standardized total return quotations will reflect the Surrender
Charge imposed on Partial Withdrawals and Full Surrenders, but the standardized
yield figures will not.
In addition, the Company may from time to time also disclose total return
in non-standard formats and cumulative total return for the Variable
Sub-accounts. The non-standard average annual total return and cumulative total
return would not reflect the Surrender Charge, which if reflected would lower
the performance figures for periods of less than seven years.
The Company may from time to time also disclose standard total returns and
non-standard total returns for the Variable Sub-accounts based on or covering
periods of time other than those indicated above. All non-standard performance
data will only be disclosed if the standard total return is also disclosed. For
additional information regarding the calculation of performance data, please
refer to the Statement of Additional Information.
38
<PAGE>
PERFORMANCE COMPARISONS. From time to time, in advertisements, sales
literature, or in reports to you, the Company may compare the performance of the
Variable Sub-accounts to that of other variable accounts or investment vehicles
with similar investment objectives or to relevant indices published by
recognized mutual fund or variable annuity statistical rating services or
publications of general variable annuity statistical rating services or
publications of general interest such as Forbes or Money magazines. For example,
a Variable Sub-account's performance might be compared to that of other accounts
or investments with a similar investment objective as compiled by Lipper
Analytical Services, Inc., VARDs, Morningstar, Inc., or by others. In addition,
a Variable Sub-account's performance might be compared to that of recognized
stock market indicators including, but not limited to, the Standard & Poor's 500
Stock Index (which is a group of unmanaged securities widely regarded by
investors as representative of the stock market in general) and the Dow Jones
Industrial Average (which is a price-weighted average of 30 large, well-known
industrial stocks that are generally the leaders in their industry). Performance
comparisons should not be considered representative of the future performance of
a Variable Sub-account.
GENERAL. Performance data may also be calculated for shorter or longer base
periods. The Separate Account may use various base periods as may be deemed
necessary or appropriate to provide investors with the most informative
performance data information, depending on the then-current market conditions.
Performance will vary from time to time, and historical results will not be
representative of future performance. Performance information may not provide a
basis for comparison with other investments or other investment companies using
a different method of calculating performance. Current yield is not fixed and
varies with changes in investment income and Accumulation Unit values. The JPVF
Money Market Variable Sub-account yield will be affected if it experiences a net
inflow of new money which it invested at interest rates different from those
being earned on its then-current investments. An investor's principal in a
Variable Sub-account and a Variable Sub-account's return are not guaranteed and
will fluctuate according to market conditions. Also, as noted above, advertised
performance data figures will be historical figures for a Contract during the
Accumulation Period.
COMPANY RATINGS
The Company may from time to time publish (in advertisements, sales
literature and reports to you) the ratings and other information assigned to it
by one or more independent rating organizations such as A.M. Best Company,
Standard & Poor's, Duff & Phelps, and Fitch Investors Services. The purpose of
the ratings is to reflect the financial strength and/or claims-paying ability of
the Company and should not be considered as bearing on the investment
performance of assets held in the Separate Account. Each year the A.M. Best
Company reviews the financial status of thousands of insurers, culminating in
the assignment of Best's Ratings. These ratings reflect A.M. Best Company's
current opinion of the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. In addition, the claims-paying ability of the Company as measured by
Standard and Poor's Insurance Ratings Services, Duff & Phelps, or Fitch
Investors Services may be referred to in such advertisements, sales literature,
or reports. These ratings are opinions regarding an operating insurance
company's financial capacity to meet the obligations of its insurance and
annuity policies in accordance with their terms. Such ratings do not reflect the
investment performance of the Separate Account or the degree of risk associated
with an investment in the Separate Account.
GENERAL CONTRACT PROVISIONS
ENTIRE CONTRACT
The entire contract consists of the Contract, any attached riders and
endorsements, and the attached copy of the Application. Only the Company's
President, or one of its Executive Vice Presidents may change the Contract. The
change must be in writing. No change will be made in the Contract unless you
agree to it in writing. No agent is authorized to change the Contract or to
change or waive any provisions of the Contract.
39
<PAGE>
RELIANCE ON INFORMATION PROVIDED IN APPLICATION
In issuing the Contract, the Company will rely on the statements made in
the Application. The Company deems all such statements to be representations and
not warranties. The Company assumes that these statements are true and complete
to the best of the knowledge and belief of those who made them. The Company will
not use any statement made in connection with the Application to void the
Contract unless that statement is a material misrepresentation and is part of
the Application.
THE COMPANY'S ABILITY TO CONTEST THE CONTRACT
The Company will not contest the Contract from the Contract Date.
MEASUREMENT OF DATES
Contract Years, Quarters, Months, and Anniversaries are measured from the
Contract Date, except where otherwise specified.
CALCULATION OF AGE
References in the Contract to a person's age on any date refer to his or
her age on that person's last birthday.
MISSTATEMENT OF AGE
If the age of the Annuitant has been misstated, any amount payable under
the Contract will be what would have been purchased at the correct age. If
payments were made based on incorrect age, the Company will increase or reduce a
later payment or payments to adjust for the error. Any adjustment will include
interest, at 6.0% per year, from the date of the wrong payment to the date the
adjustment is made.
ASSIGNMENT OF THE CONTRACT
While the Annuitant is living, and except for Qualified Contracts, you may
assign the Contract or any interest you have in it. Any irrevocable Beneficiary
must agree to the assignment. If there is a joint Contract Owner, the joint
Contract Owner must agree to any assignment. Your interest, and anyone else's,
will then be subject to that assignment. As Contract Owner, you still have the
rights of ownership that you have not assigned.
An assignee cannot change the Contract Owner, Annuitant or Beneficiary, and
may not elect an alternative payment option. Any amount payable to the assignee
will be made in one lump sum.
To assign the Contract, you must provide the Company with a copy of the
assignment. The Company is not responsible for the validity of any assignment.
An assignment will be subject to any payment previously made by the Company or
any other action the Company may take before recording the assignment.
State law such as those governing marital property may affect your ability
to encumber the Contract.
NONPARTICIPATING
The Contract is nonparticipating and will not share in any surplus earnings
of the Company. No dividends are payable on the contract.
NON-BUSINESS DAYS
If the due date for any activity required by the Contract falls on a
non-business day for the Company, performance will be rendered on the first
business day following the due date.
REGULATORY REQUIREMENTS
All interest guarantees, surrender benefits, and amounts payable at death
will not be less than the minimum benefits approved under the laws and
regulations of the state in which the Contract is delivered.
The Company will administer the Contract in accordance with the U.S. tax
laws and regulations in order to retain its status as an annuity contract.
The Contract is deemed to include all state and federal laws that apply.
40
<PAGE>
LEGAL PROCEEDINGS
The Company is not involved in any litigation that is of material
importance in relation to its general account assets. In addition, there are no
legal proceedings to which the Separate Account is a party.
AVAILABLE INFORMATION
The Company has filed a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933 relating to the Contracts offered by this Prospectus.
This Prospectus has been filed as part of the Registration Statement and does
not contain all of the information set forth in the Registration Statement.
Reference is hereby made to such Registration Statement for further information
relating to the Company and the Contracts. The Registration Statement may be
inspected and copied at the public reference facilities of the SEC at Room 1024,
450 Fifth Street, N.W, Washington, D.C. 20549. Copies of such materials also can
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W, Washington, D.C. 20549, at prescribed rates.
41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus. The
following is the Table of Contents for that Statement:
TABLE OF CONTENTS
PAGE
----
More Information About the Contract . . . . . . . . . . . . . . . . . B-3
Determination of Variable Sub-account Accumulation Unit Values . . B-3
Annuity Period Transfer Formulas . . . . . . . . . . . . . . . . . B-4
Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . B-5
Custody of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . B-5
Performance Data and Calculations . . . . . . . . . . . . . . . . . . B-6
Money Market Variable Sub-account Yields . . . . . . . . . . . . . B-6
Other Variable Sub-account Yield . . . . . . . . . . . . . . . . . B-6
Variable Sub-account Total Return Calculations: Standardized . . . B-7
Other Performance Data: Non-Standardized . . . . . . . . . . . . . B-8
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . B-11
Federal Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . B-11
Taxation of the Company. . . . . . . . . . . . . . . . . . . . . . B-12
Tax Status of the Contracts. . . . . . . . . . . . . . . . . . . . B-12
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . B-14
42
<PAGE>
APPENDIX I
SURRENDER CHARGE CALCULATION
A Surrender Charge, which will not exceed 8.5% of total Premiums paid, is
deducted from the Contract Value upon Partial Withdrawal or Full Surrender of
the Contract, unless certain conditions apply. (See "Surrender Charge.")
The Surrender Charge is calculated as follows:
(S -- FREE) x X% = SC, but not less than zero.
Where:
(S) is the gross Surrender or Partial Withdrawal Amount.
(FREE) is the 10% Free Surrender Amount (net of any other
applicable withdrawals that may have been taken and applied
toward the current Contract Year).
(SC) is the Surrender Charge Amount.
(X) is the following Surrender Charge percentage:
<TABLE>
<CAPTION>
CONTRACT YEAR PERCENTAGE
------------- ----------
<S> <C>
1 6
2 6
3 6
4 5
5 4
6 3
7 2
8 0
</TABLE>
EXAMPLE.
Assume a Contract Value of $50,000 at the end of the third Contract Year.
Also assume that no Market Value adjustment has been taken and no previous
partial surrenders were made.
1) If there is a Full Surrender at the end of the third Contract Year:
Surrender Charge = ($50,000 - $5,000) x .06 = $2,700.00
Thus, the Surrender proceeds would be $50,000 - $2,700.00 = $47,300.00.
Premium Taxes may also be applicable.
NOTE: The Annual Administrative Fee ($30) applies to Full Surrenders only
when Contract Value is less than $30,000.
2) If there is a Partial Surrender of $10,000 at the end of the third Contract
Year:
Surrender Charge = ($10,000 - $5000) x .06 = $300.00
Thus, the Contract Value would be reduced by $10,000 and you would receive
$9,700. Premium Taxes may also be applicable.
I-1
<PAGE>
APPENDIX II
MARKET VALUE ADJUSTMENT
The formula which will be used to determine the Market Value Adjustment is:
__ __
| __ __ |
|| |(N/12) |
|| 1 + I | -1 | X A
|| ------------ | |
|| 1 + J + .004 | |
||__ __| |
|__ __|
NOTE: The Market Value Adjustment will be limited so that it does not
reduce the return on the Capital Developer Account below 3.0% per
year.
I = The Guaranteed Interest Rate in effect for the current Interest Rate
Guarantee Period (expressed as a decimal, (E.G., 1% = .01).)
J = The Current U.S. Treasury Bill, Note or Bond rate (as quoted by the
Wall Street Journal and expressed as a decimal (E.G., 1% = .01)) in
effect for the period most closely approximating the duration
remaining in the current Interest Rate Guarantee Period (Fractional
years will be rounded to the nearest month and the interest rate will
be calculated using interpolation). If the period is less than 1 year
then the Company will use the 1 year Treasury Bill rate.
N = The number of complete months from the Surrender or Partial Withdrawal
to the end of the current Interest Rate Guarantee Period.
A = The amount surrendered, withdrawn or transferred.
The ".004" in the formula is a factor designed to cover anticipated costs of
liquidating investments. Thus, the Guaranteed Interest Rate ("I") must be at
least 0.04% higher than the Treasury Rate ("J") for there to be a positive
market value adjustment. If I is lower than J or higher but less than 0.04%
higher, the Market Value Adjustment is negative.
EXAMPLES OF MARKET VALUE ADJUSTMENT
Assume a Capital Developer Account Value of $50,000, a seven year guarantee
period with a Guaranteed Interest Rate of 6%, and an original payment of $43,000
at the beginning of the current guarantee period.
1) If there is a Full Surrender at the beginning of the fourth Contract
Year with four years remaining in the interest rate guarantee period:
(a) if the current rate for a four year Treasury Note is 5%:
__ __
Market Value Adjustment $50,000 x | (48/12) |
| 1.06 -1 | = $1,148.28
| (-------) |
| 1.054 |
|__ __|
Free Surrender Amount = ($51,148.28 x .10) = $5,114.83
Surrender Charge = ($51,148.28-$5,114.83) x .05 = $2,301.67
Thus, the surrender proceeds = $51,148.28 - $2,301.67
= $48,846.61 - any applicable Premium
Taxes;
(b) if the current rate for the three year Treasury Note is 7%:
__ __
Market Value Adjustment $50,000 x | (48/12) |
| 1.06 -1 | = -$2,556.54
| (-------) |
| 1.074 |
|__ __|
Minimum Market Value Adjustment with 3% guaranteed return =
43,000 x (1.03)3 - 50,000 = -3,012.74
Since - 2,556.54 is greater than - 3,012.74, the actual Market Value
Adjustment is - 2,556.54
II-1
<PAGE>
Free Surrender Amount = ($47,443.46 x .10) = $4,744.35
Surrender Charge = ($47,443.46 - $4,744.35) x .05 = $2,134.96
Thus, the Surrender proceeds = $47,443.46 - $2,134.96
= $45,308.50 - any applicable Premium Taxes
2) If there is a Full Surrender at the beginning of the tenth Policy Year
(thus, no Surrender Charge applies) with three years remaining in the
interest rate guarantee period:
(a) if the current rate for a three year Treasury Note is 5%:
__ __
Market Value Adjustment $50,000 x | (36/12) |
| 1.06 -1 | = $858.76
| (-------) |
| 1.054 |
|__ __|
Free Surrender Amount = $50,858.76
Surrender Charge = 0
Thus, the surrender proceeds = $50,858.76 - any applicable Premium
Taxes;
(b) if the current rate for a three year Treasury Note is 7%:
__ __
Market Value Adjustment $50,000 x | (36/12) |
| 1.06 -1 | = -$1,929.93
| (-------) |
| 1.074 |
|__ __|
Minimum Market Value Adjustment with 3% guaranteed return =
43,000 x (1.03)4 - 50,000 = -1,603.12
Since -1,929.93 is less than -1,603.12, the actual Market Value
Adjustment is -1,603.12
Free Surrender Amount = $48,396.88
Surrender Charge = 0
Thus, the surrender proceeds = $48,396.88 - any applicable Premium
Taxes
3) If there is a partial surrender of $10,000 at the beginning of the fourth
Contract Year with four years remaining in the interest rate guarantee
period:
(a) if the current rate for a four year Treasury Note is 5%:
__ __
Market Value Adjustment $10,000 x | (48/12) |
| 1.06 -1 | = $229.66
| (-------) |
| 1.054 |
|__ __|
Free Surrender Amount = ($50,229.66 x .10) = $5,022.97
Surrender Charge = ($10,000 - $5,022.97) x .05 = $248.85
Thus, the Surrender proceeds = $10,000 + $229.66 - $248.85
= $9,980.81 - any Applicable Premium
Taxes;
(b) if the current rate for a three year Treasury Note is 7%:
__ __
Market Value Adjustment $10,000 x | (48/12) |
| 1.06 -1 | = -$511.31
| (-------) |
| 1.074 |
|__ __|
Minimum Market Value Adjustment with 3% guaranteed return =
43,000 x (1.03)3 - 50,000 = -3,012.74
Since -511.31 is less than -3,012.74, the actual Market Value
Adjustment is -511.31
Free Surrender Amount = ($49,488.69 x .10) = $4,948.87
II-2
<PAGE>
Surrender Charge = ($10,000 - $4,948.87) x .05 = $252.56
Thus, the surrender proceeds = $10,000 - $511.31 - $252.56
= $9,236.13 - any applicable Premium
Taxes.
4) If there is a partial surrender of $10,000 at the beginning of the tenth
Contract Year (thus no Surrender Charge applies) with three years remaining
in the interest rate guarantee period:
(a) if the current rate for a two year Treasury Note is 5%:
__ __
Market Value Adjustment $10,000 x | (36/12) |
| 1.06 -1 | = $171.75
| (-------) |
| 1.054 |
|__ __|
Free Surrender Amount = $10,171.75
Surrender Charge = 0
Thus, the Surrender proceeds = $10,171.75 - any Applicable Premium
Taxes;
(b) if the current rate for a two year Treasury Note is 7%:
__ __
Market Value Adjustment $10,000 x | (36/12) |
| 1.06 -1 | = -$385.99
| (-------) |
| 1.074 |
|__ __|
Minimum Market Value Adjustment with 3% guaranteed return =
43,000 x (1.03)4 - 50,000 = -1,603.12
Since -385.99 is greater than -1,603.12, the actual Market Value
Adjustment is -385.99
Free Surrender Amount = $9,614.01
Surrender Charge = 0
Thus, the surrender proceeds = $10,000 - $385.99
= $9,614.01 - any applicable Premium
Taxes.
II-3
<PAGE>
ALEXANDER HAMILTON ALLEGIANCE VARIABLE ANNUITY
Offered by
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
100 N. GREENE ST.
GREENSBORO, NORTH CAROLINA 27401
------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information expands upon certain subjects discussed
in the current Prospectus for the Alexander Hamilton Life Insurance Company of
America Variable Annuity Contract (the "Contract") offered by Alexander Hamilton
Life Insurance Company of America. You may obtain a copy of the Prospectus
dated May 1, 1998 by calling 1-800-289-1776, or by writing to the Company at its
Variable Annuity Service Center, One Granite Place, P.O. Box 515, Concord, New
Hampshire 03302-0515. 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 PROSPECTUSES FOR THE CONTRACT, THE JEFFERSON PILOT
VARIABLE FUND, INC.; THE VARIABLE INSURANCE PRODUCTS FUND; THE VARIABLE
INSURANCE PRODUCTS FUND II; THE MFS VARIABLE INSURANCE TRUST; AND THE
OPPENHEIMER VARIABLE ACCOUNT FUNDS.
Dated: May 1, 1998
1
<PAGE>
TABLE OF CONTENTS
Page
----
More Information About the Contract......................... 3
Determination of Variable Sub-account
Accumulation Unit Values................................... 3
Annuity Period Transfer Formulas............................ 4
Administration.............................................. 5
Records and Reports......................................... 5
Custody of Assets........................................... 5
Principal Underwriter....................................... 5
Performance Data and Calculations........................... 6
Money Market Variable Sub-account Yield................... 6
Other Variable Sub-account Yields......................... 6
Variable Sub-account Total Return Calculations:
Standardized............................................. 7
Other Performance Data: Non-Standardized................. 8
Other Information......................................... 11
Federal Tax Matters..........................................11
Taxation of the Company...................................12
Tax Status of the Contracts...............................12
Legal Matters................................................13
Other Information............................................13
Experts......................................................13
Financial Statements.........................................14
In order to supplement the description in the Prospectus, the following provides
additional information about the Company and the Contract which may be of
interest to you.
2
<PAGE>
MORE INFORMATION ABOUT THE CONTRACT
DETERMINATION OF VARIABLE SUB-ACCOUNT ACCUMULATION UNIT VALUES
ACCUMULATION UNITS. Accumulation Units are used to account for all amounts
allocated to or withdrawn from the Separate Account. The Company will determine
the number of Accumulation Units of a Variable Sub-account by dividing the Net
Premium Payment allocated to (or the amount withdrawn from) the Variable
Sub-account by the dollar value of one Accumulation Unit on the date of the
transaction. The Separate Account Value will consist of the sum of the value of
all Accumulation Units in all Variable Sub-accounts credited to the Contract on
the applicable Valuation Day.
ACCUMULATION UNIT VALUE. The value of an Accumulation Unit in a Variable
Sub-account on any Valuation Day is the product of (a) the value on the
preceding Valuation Day and (b) the Net Investment Factor for the Variable
Sub-account for the Valuation Period just ended. The value of an Accumulation
Unit in each of the initial seven Variable Sub-accounts was arbitrarily
established at the inception of the Separate Account's operation. The value was
established at $10 for each of the eighteen Variable Sub-accounts except the
Money Market Variable Sub-account, for which the value was established at $1,
the JPVF Growth Sub-account, for which the value was established at $14.655, the
JPVF High Yield Bond Sub-account, for which the value was established at
$11.909, and the JPVF International Equity Sub-account, for which the value was
established at $11.371.
A VALUATION DAY is every day on which the Company and the New York Stock
Exchange ("NYSE") are open for business, but shall not include any day on which
trading on the NYSE is restricted, or on which an emergency exists, as
determined by the Securities and Exchange Commission and/or respective governing
bodies of the NYSE so that valuation or disposal of securities is not
practicable.
A VALUATION PERIOD is the period of time beginning at the close of trading
of the New York Stock Exchange on any Valuation Day and ending at the close of
business on the next Valuation Day. A Valuation Period may be one day or more
than one day.
NET INVESTMENT FACTOR. The Company calculates the Net Investment Factor
for a Valuation Period for each Variable Sub-account by dividing (a) by (b) and
subtracting (c) from the result, where:
(a) is the sum of:
(1) the net asset value of a Fund share held in the Separate Account
for that Variable Sub-account determined at the end of the
current Valuation Period, plus
(2) the per share amount of any dividend or capital gain
distributions made for shares held in the Separate Account for
that Variable Sub-account if the ex-dividend date occurs during
the Valuation Period.
3
<PAGE>
(b) is the net asset value of a Fund share held in the Separate Account
for that Variable Sub-account determined as of the end of the
preceding Valuation Period.
(c) is a factor representing the Mortality and Expense Risk Charge and the
Administrative Expense Charge. This factor is equal, on an annual
basis, to 1.40% (1.25% + 0.15%) of the daily net asset value of Fund
shares held in the Separate Account for that Variable Sub-account.
The Net Investment Factor may be greater or less than one; therefore, the
Accumulation Unit value may increase or decrease.
ANNUITY PERIOD TRANSFER FORMULAS
During the Annuity Period, you may transfer Separate Account Value from one
Variable Sub-account to another, subject to certain limitations. Interest Rate
Guarantee Periods are not available during the Annuity Period, thus none will be
available for transfers. (See "Transfers,"
p. 16 of the Prospectus.)
Transfers during the Annuity Period are implemented according to the
following formula:
1. Determine the number of units to be transferred from the Variable
Sub-account as follows:
= D/AUV1
2. Determine the number of Annuity Units remaining in such Variable
Sub-account (after the transfer):
= UNIT1 - D/AUV1
3. Determine the number of Annuity Units in the transferee Variable
Sub-account (after the transfer):
= UNIT2 + D/AUV2
4. Subsequent Annuity Payments will reflect the changes in Annuity Units in
each Variable Sub-account as of the next Annuity Payment's due date.
Where:
(AUV1) is the Annuity Unit value of the Variable Sub-account that
the transfer is being made from.
(AUV2) is the Annuity Unit value of the Variable Sub-account that
the transfer is being made to.
(UNIT1) is the number of units in the Variable Sub-account that the
transfer is being made from, before the transfer.
(UNIT2) is the number of units in the Variable Sub-account that the
transfer is being made to, before the transfer.
(D) is the dollar amount being transferred.
4
<PAGE>
ADMINISTRATION
The Company or its affiliates will be providing administrative services.
The services provided by the Company or its affiliates include issuance and
redemption of the Contract, maintenance of records concerning the Contract and
certain Contract Owner services.
If the Company or its affiliates do not continue to provide these services,
the Company will attempt to secure similar services from such sources as may
then be available. Services will be purchased on a basis which, in the Company's
sole discretion, affords the best service at the lowest cost. The Company,
however, reserves the right to select a provider of services which the Company,
in its sole discretion, considers best able to perform such services in a
satisfactory manner even though the costs for the service may be higher than
would prevail elsewhere.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be
maintained by the Company. As presently required by the Investment Company Act
of 1940 and regulations promulgated thereunder, the Company will mail to you at
your last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law or
regulation. You will also receive confirmation of each financial transaction
and any other reports required by law or regulation.
CUSTODY OF ASSETS
The assets of each of the Variable Sub-accounts of the Separate Account are
held in the custody of Citibank,N.A. The assets of each of the Variable
Sub-accounts of the Separate Account are segregated and held separate and apart
from the assets of the other Variable Sub-accounts and from the Company's
general account assets. The Administrator maintains records of all purchases
and redemptions of Fund shares by each of the Variable Sub-accounts.
PRINCIPAL UNDERWRITER
During the year ended December 31, 1996 Jefferson Pilot Variable
Corporation ("JPVC") (formerly Jefferson-Pilot Investor Services, Inc.) was paid
$25,128.35 in brokerage commissions, and FMG Distributors, the principal
underwriter until being replaced by JPVC, was paid $25,367.11 in brokerage
commissions. FMG Distributors were also paid $41,666.67 for underwriting
activities for 1996. During the year ended December 31, 1997, JPVC received
$341,003 in brokerage commissions, of which it retained $66,407.
The Company, on its own behalf and on behalf of the Separate Account,
entered into a Principal Underwriter Agreement with JPVC dated November 1, 1996.
JPVC is a wholly-owned subsidiary of Jefferson-Pilot Corporation and is an
affiliate of the Company.
5
<PAGE>
PERFORMANCE DATA AND CALCULATIONS
MONEY MARKET VARIABLE SUB-ACCOUNT YIELD
The Yield of the Money Market Variable Sub-account for a seven-day period
is calculated by a standardized method prescribed by rules of the Securities and
Exchange Commission. Under this method, the yield quotation is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit of
the Money Market Variable Sub-account at the beginning of such seven-day period,
subtracting a hypothetical charge reflecting deductions from contract owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7) with the resulting yield figure carried to at
least the nearest hundredth of one percent. The Separate Account may also
compute the Money Market Variable Sub-account's yield on an annualized basis.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one Accumulation Unit of the Money Market Variable Sub-account at the
beginning of such seven-day period, dividing such net change in account value by
the value of the account at the period to determine the base period return, and
annualizing this quotient on a 365-day basis.
The SEC also permits the Separate Account to disclose the effective yield
of the Money Market Variable Sub-account for the same seven-day period,
determined on a compounded basis. The effective yield is calculated by
compounding the unannualized base period return by adding one to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result.
The yield on amounts held in the Money Market Variable Sub-account 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 Variable Sub-account's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the JPVF Money Market Portfolio, the types and quality of portfolio
securities held by the JPVF Money Market Portfolio, and its operating expenses.
The yield figures do not reflect Surrender Charges or Premium Taxes.
OTHER VARIABLE SUB-ACCOUNT YIELDS
The yield of Variable Sub-accounts other than the Money Market Variable
Sub-account based on a thirty-day period is calculated by a standardized method
prescribed by rules of the Securities and Exchange Commission. The yield is
computed by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price per unit on the last day of the
period, according to the following formula:
YIELD = 2[(a-b+1)6 -1]
cd
6
<PAGE>
Where:
a = net inves-TM-ent income earned during the period by the portfolio company
attributable to shares owned by the Sub-account.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding during the
period.
d = the maximum offering price per Accumulation Unit on the last day of the
period.
The Company may from time to time advertise or disclose the current
annualized yield of one or more of the Variable Sub-accounts of the Separate
Account (except the Money Market Variable Sub-account) for 30-day periods. The
annualized yield of a Variable Sub-account refers to income generated by the
Variable Sub-account over a specific 30-day period. Because the yield is
annualized, the yield generated by a Variable Sub-account during the 30-day
period is assumed to be generated each 30-day period over a 12-month period.
The 30-day yield is calculated according to the following formula:
Yield = 2 (a-b)6
cd + 1 -1
Where:
a = Net investment income of the Variable Sub-account for the 30-day period
attributable to the Variable Sub-account's unit.
b = Expenses of the Variable Sub-account for the 30-day period.
c = The average number of units outstanding.
d = The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions imposed by the Separate Account, the
yield for a Variable Sub-account of the Separate Account will be lower than the
yield for its corresponding Fund. The yield calculations do not reflect the
effect of any Premium Taxes or Surrender Charge that may be applicable to a
particular Contract. Surrender Charges range from 6% to 2% of the amount
withdrawn based on the Contract Year of Surrender. The yield on amounts held in
the Variable Sub-accounts of the Separate Account 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. A Variable
Sub-account's actual yield is affected by the types and quality of the Funds'
investments and its operating expenses.
VARIABLE SUB-ACCOUNT TOTAL RETURN CALCULATIONS: STANDARDIZED
The Company may from time to time also disclose average annual total
returns for one or more of the Variable Sub-accounts for various periods of
time. Average annual total return quotations are computed by finding the average
annual compounded rates of return over one, five and ten year periods and for
the life of the Variable Sub-account that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1 + T)n = ERV
7
<PAGE>
WHERE:
P = hypothetical initial Premium Payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = ending redeemable value at the end of the one, five or
ten-year period (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
one, five, or ten-year period.
The Surrender Charge on Contracts and all recurring fees that are charged
to all shareholder accounts (the Annual Administrative Fee) are recognized in
the ending redeemable value for standard total return figures. These figures
will not reflect any Premium Taxes.
The following table shows the Standardized Average Annual Total Return for
the Allegiance Variable Annuity sub-accounts for the period ended December 31,
1997.
<TABLE>
<CAPTION>
Since
1997 Inception
------ ---------
<S> <C> <C>
JPVF Money Market Sub-account* -5.61% -3.22%
JPVF Balanced Sub-account* 9.54% 8.01%
JPVF Growth and Income account* 14.76% 5.89%
JPVF Capital Growth Sub-account* 12.48% 15.52%
JPVF Domestic Growth Stock Sub-account** N/A N/A
JPVF Emerging Growth Sub-account* 10.50% 5.89%
JPVF World Growth Stock Sub-account* -7.16% -0.36%
JPVF Growth Sub-account** N/A N/A
JPVF High Yield Bond Sub-account** N/A N/A
JPVF International Equity Sub-account** N/A N/A
MFS Research Series Sub-account** N/A N/A
MFS Utilities Series Sub-account** N/A N/A
Oppenheimer Bond Sub-account* -2.46% -1.76%
Oppenheimer Strategic Bond Sub-account** N/A N/A
VIP Equity-Income Sub-account** N/A N/A
VIP Growth Sub-account** N/A N/A
VIP II Contrafund Sub-account** N/A N/A
VIP II Index 500 Sub-account** N/A N/A
</TABLE>
* Performance information reflects the substitution of the funds in which
these Variable Sub-accounts invest which occurred on December 5, 1997. The
above numbers reflect the performance of the Alexander Hamilton Variable
Insurance Trust ("AHVIT") and the Federated Prime Money Fund II for the
period prior to the date of the substitution and reflect the performance
of the Jefferson Pilot Variable Fund, Inc. and the Oppenheimer Bond Fund
for the period after the date of the substitution. In the substitution,
the Oppenheimer Bond Fund was substituted for two of the AHVIT Funds and
the pre-substitution performance numbers for the Oppenheimer Bond
Sub-account reflect the performance of only one of such AHVIT Funds. The
inception date for these Variable Sub-accounts was February 27, 1996.
** These Sub-accounts were added to the Contract as of January 1, 1998, and
therefore, no standardized performance information is available as of
December 31, 1997.
OTHER PERFORMANCE DATA: NON-STANDARDIZED
The Company may from time to time also disclose average annual total
returns in non-standardized formats in conjunction with the standard format
described above. The non-standard format calculation varies from the standard
format calculation described above in that it will NOT
8
<PAGE>
take any Surrender Charges or the Annual Administrative Fee into account and
will be based on an average contract size of $30,000.
The standardized performance calculation described above is based on the
inception date of each Variable Sub-account. However, for the non-standardized
performance calculation, if a Fund was in existence prior to the inception date
of the corresponding Variable Sub-account, the performance for the Variable
Sub-account will be calculated on a hypothetical basis by applying the Mortality
and Expense Risk Charge and the Administrative Expense Charge to the historical
performance of the corresponding Fund as if the Contract has been in existence
back to the inception date of the Fund.
The following table shows the non-standardized average annual total return
for the Allegiance Variable Annuity Sub-accounts for the periods ended December
31, 1997.
<TABLE>
<CAPTION>
Since
Sub-Accounts 1 Year 3 Years 5 Years 10 Years Inception*
- ------------ ------ ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
JPVF Money Market 3.40% 3.39% 2.58% 3.45% 3.61%(8/1/85)
JPVF Balanced 14.71% 14.68% 9.60% N/A 9.80%(5/1/92)
JPVF Growth and Income 27.13% 26.57% 16.77% N/A 16.06%(5/1/92)
JPVF Capital Growth 27.61% 27.97% 19.72% N/A 22.09%(5/1/92)
JPVF Domestic Growth
Stock*** 21.88% 21.40% 16.77% 15.39% 14.19%(4/18/86)
JPVF Emerging Growth 18.79% N/A N/A N/A 25.25%(5/1/95)
JPVF World Growth Stock 13.72% 15.31% 14.09% 11.80% 11.43%(8/1/85)
JPVF Growth** N/A N/A N/A N/A N/A (1/1/98)
JPVF High Yield Bond** N/A N/A N/A N/A N/A (1/1/98)
JPVF International
Equity** N/A N/A N/A N/A N/A (1/1/98)
MFS Research Series*** 16.92% N/A N/A N/A 19.72%(7/26/95)
MFS Utilities Series*** 29.87% N/A N/A N/A 26.11%(1/3/95)
Oppenheimer Bond 7.38% 8.54% 6.63% 7.73% 8.20%(4/3/85)
Oppenheimer Strategic
Bond*** 5.56% 9.84% N/A N/A 5.78%(5/3/93)
VIP Equity-Income*** 24.49% 22.58% 17.81% 14.77% 12.79%(10/9/86)
VIP Growth*** 20.13% 21.85% 16.00% 15.37% 13.80%(10/9/86)
VIP II Contrafund*** 22.47% N/A N/A N/A 26.40%(1/3/95)
VIP II Index 500*** 30.84% 28.91% 18.29% N/A 18.25%(8/27/92)
</TABLE>
* The date listed next to each performance figure in this column is the
inception date of the Fund underlying each corresponding Variable
Sub-account.
** These Sub-accounts and their corresponding Funds were established and added
to the Contract as of January 1, 1998, and therefore, no performance
information is available as of December 31, 1997.
*** These Sub-accounts were added to the Contract as of January 1, 1998, and
therefore, while non-standardized performance figures are available, no
standardized performance figures are available as of December 31, 1997.
9
<PAGE>
The Company may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. Cumulative total return
figures represent the cumulative change in value of an investment in a
Sub-account over the indicated periods. The cumulative returns will be
calculated using the following formula, assuming no Surrender Charge or Annual
Administrative Fee.
CTR = ERV - P
-------
P
Where:
CTR = the cumulative total return net of a Variable Sub-account's
recurring charges for the period;
ERV = ending redeemable value at the end of the one, five or ten-
year (or other) period (or fractional portion thereof) of a
hypothetical $30,000 Premium Payment made at the beginning
of the one, five, or ten-year (or other) period.
P = a hypothetical initial Premium Payment of $30,000.
The following table shows the Non-Standardized Cumulative Total Return for
the Allegiance Variable Annuity Sub-accounts for the period ended December 31,
1997.
<TABLE>
<CAPTION>
Since
Sub-Accounts 1 Year Inception*
- ------------ ------ ----------
<S> <C> <C>
JPVF Money Market 3.40% 55.36%(8/1/85)
JPVF Balanced 14.71% 69.97%(5/1/92)
JPVF Growth and Income 27.13% 132.76%(5/1/92)
JPVF Capital Growth 27.61% 210.18%(5/1/92)
JPVF Domestic Growth Stock*** 21.88% 373.25%(4/18/86)
JPVF Emerging Growth 18.79% 82.46%(5/1/95)
JPVF World Growth Stock 13.72% 283.83%(8/1/85)
JPVF Growth** N/A N/A (1/1/98)
JPVF High Yield Bond** N/A N/A (1/1/98)
JPVF International Equity** N/A N/A (1/1/98)
MFS Research Series*** 16.92% 55.02%(7/26/95)
MFS Utilities Series*** 29.87% 100.31%(1/3/95)
Oppenheimer Bond 7.38% 173.11%(4/3/85)
Oppenheimer Strategic Bond*** 5.56% 29.97%(5/3/93)
VIP Equity-Income*** 24.49% 286.69%(10/9/86)
VIP Growth*** 20.13% 327.29%(10/9/86)
VIP II Contrafund*** 22.47% 101.71%(1/3/95)
VIP II Index 500*** 30.84% 145.09%(8/27/92)
</TABLE>
* The date listed next to each performance figure in this column is the
inception date of the Fund underlying each corresponding Variable
Sub-account.
** These Sub-accounts and their corresponding Funds were established and added
to the Contract as of January 1, 1998, and therefore, no performance
information is available as of December 31, 1997.
*** These Sub-accounts were added to the Contract as of January 1, 1998, and
therefore, while non-standardized performance figures are available, no
standardized performance figures are available as of December 31, 1997.
10
<PAGE>
All non-standard performance data will only be advertised if the standard
total return performance data is also included in the advertisement.
OTHER INFORMATION
The following is a partial list of those publications which may be cited in
advertising or sales literature describing investment results or other data
relative to one or more of the Variable Sub-accounts. Other publications may
also be cited.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
FEDERAL TAX MATTERS
The Allegiance Variable Annuity Contract is designed for use by individuals
as either a non-qualified annuity contract or as an annuity contract purchased
for a qualified retirement plan under Section 401, 403(b), 408, 408A or 457 of
the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect
of Federal income taxes on the Contract Value will depend on numerous factors
that are explained in the Prospectus (See "Certain Federal Income Tax
Consequences"). THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX
ADVICE. Any person concerned about these tax implications should consult a
competent tax advisor. This discussion is based upon the Company's
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to
the likelihood of continuation of these present federal income tax laws or of
the current interpretations by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
11
<PAGE>
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Code. The following discussion assumes that the Company is taxed as a
life insurance company under Part I of Subchapter L. Since the Separate Account
is not an entity separate from the Company, and its operations form a part of
the Company, it will not be taxed separately as a "regulated investment company"
under Subchapter M of the Code. Investment income and realized capital gains
are automatically applied to increase reserves under the Contract. Under
existing federal income tax law, the Company believes that the Separate Account
investment income and realized net capital gains will not be taxed to the extent
that such income and gains are applied to increase the reserves under the
Contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account, and therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Separate Account, then the
Company may impose a charge against the Separate Account (with respect to some
or all contracts) in order to set aside provisions to pay such taxes.
TAX STATUS OF THE CONTRACTS
Section 817(h) of the Code requires that with respect to Non-Qualified
Contracts, the investments of the Trust be "adequately diversified" in
accordance with Treasury regulations in order for the Contracts to qualify as
annuity contracts under federal tax law. The Separate Account, through the
Funds, intends to comply with the diversification requirements prescribed by the
Treasury in Reg. sec. 1.817-5, which affect how a Fund's assets may be invested.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., you),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which policyholders may direct
their investments to particular sub-accounts without being treated as owners of
the underlying assets."
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, you have additional flexibility in allocating premium payments and
policy values. These differences could result in your being treated as the
owner of a pro rata portion of the assets of the Separate Account. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the
12
<PAGE>
Contract as necessary to attempt to prevent you from being considered the owner
of a pro rata share of the assets of the Separate Account or to otherwise
qualify the Contract for favorable tax treatment.
Both non-qualified and qualified annuity contracts are required to comply
with certain minimum distribution requirements in order to be treated as annuity
contracts under the Code. Owners of non-qualified annuity contracts are
generally not required to commence distributions under the annuity contract
prior to the maturity date of the contract. However, if the Owner of a
non-qualified annuity dies before the contract matures, the beneficiary is
required to either (i) annuitize the contract within one year of the Owner's
death, or (ii) totally withdraw all funds from the annuity within five years of
the Owner's death. Owners of qualified annuity contracts (other than Roth IRAs)
are, however, generally required to commence distributions from the annuity
contract when they attain age 70 1/2, and to receive distributions over the
Owner's life expectancy (or over the joint life expectancy of the Owner and the
Owner's spouse). There are special rules that allow a surviving spouse to take
over the annuity contract at the Owner's death and treat the contract as if it
had originally been purchased by the surviving spouse. If the Owner dies once
distributions have begun (for both qualified and non-qualified annuities), the
beneficiary must continue to receive distributions at least as rapidly as the
Owner was receiving them. Further details regarding the minimum distribution
rules are contained in the Prospectus (See "Death Benefits").
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Contracts has been provided to the
Company by Jorden Burt Boros Cicchetti Berenson & Johnson of Washington D.C.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus for the Contracts or this Statement
of Additional Information. Statements contained in the Prospectus and this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, reference should be made to the instruments
filed with the Securities and Exchange Commission.
EXPERTS
The financial statements of The Alexander Hamilton Variable Annuity
Separate Account of Alexander Hamilton Life Insurance Company of America as of
December 31, 1997, and for the year then ended, appearing in this Statement of
Additional Information and this Registration Statement have been audited by
Ernst & Young, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
13
<PAGE>
The statutory basis financial statements of Alexander Hamilton Life
Insurance Company of America as of December 31, 1997, and for each of the years
in the two-year period ended December 31, 1997, appearing in this Statement of
Additional Information and this Registration Statement have been audited by
Ernst & Young, LLP, independent auditors, as set forth in their report thereon
(which contains an adverse opinion with respect to conformity with generally
accepted accounting principles) appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statutory basis financial statements of the Alexander Hamilton Life
Insurance Company of America for the year ended December 31, 1995, included
in this Statement of Additional Information, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report. Reference is
made to said report which includes an adverse opinion with respect to conformity
with generally accepted accounting principles.
FINANCIAL STATEMENTS
The financial statements of the Company included in this Statement of
Additional Information should be considered only as bearing on the ability of
the Company to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Separate Account, nor do they necessarily bear on the Guaranteed Interest Rates
declared from time to time for the Capital Developer Account Interest Rate
Guarantee Periods.
14
<PAGE>
Audited Financial Statements
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton Life Insurance Company of America
Year ended December 31 ,1997
with Report of Independent Auditors
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Audited Financial Statements
Year ended December 31, 1997
CONTENTS
Report of Independent Auditors............................................1
Audited Financial Statements
Statement of Assets and Liabilities.......................................2
Statement of Operations...................................................4
Statements of Changes in Net Assets.......................................5
Notes to Financial Statements.............................................6
<PAGE>
Report of Independent Auditors
Contractholders of The Alexander Hamilton Variable Annuity
Separate Account of Alexander Hamilton Life Insurance Company of America
Board of Directors, Alexander Hamilton Life Insurance Company of America
We have audited the accompanying statement of assets and liabilities of The
Alexander Hamilton Variable Annuity Separate Account of Alexander Hamilton Life
Insurance Company of America as of December 31, 1997, and the related statement
of operations and the changes in net assets for year then ended, and the
statement of changes in net assets for the period from February 8, 1996
(inception of business) to December 31,1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1997, by
correspondence with the fund managers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton Life Insurance Company of America
at December 31, 1997, and the results of its operations and the changes in its
net assets for the year then ended, and the changes in its net assets for the
period from February 8, 1996 to December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Greensboro, North Carolina
April 6, 1998
1
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Statement of Assets and Liabilities
Year ended December 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Securities of investment companies:
JPVF Money Market Fund at net asset value (106,343.633 shares
at $10.23 per share) (Cost - $1,136,356) $1,087,895
Oppenheimer Bond Fund at net asset value (138,661.027 shares
at $11.91 per share) (Cost - $1,618.834) 1,651,453
JPVF Balanced Fund at net asset value (115,238.906 shares
at $11.75 per share) (Cost - $1,396,321) 1,354,057
JPVF Growth & Income Fund at net asset value (77,132.434 shares
at $17.11 per share) (Cost - $1,415,639) 1,319,736
JPVF Capital Growth Fund at net asset value (97,473.527 shares
at $21.23 per share) (Cost - $1,863,516) 2,069,363
JPVF Emerging Growth Fund at net asset value (94,365.406 shares
at $17.47 per share) (Cost - $1,504,239) 1,648,564
JPVF World Growth Fund at net asset value (59,408.253
shares at $23.29 per share) (Cost - $1,521,231) 1,383,618
Net premiums receivable (payable)
JPVF Money Market Fund 31,341
Oppenheimer Bond Fund 202
JPVF Balanced Fund 100
JPVF Growth & Income Fund (151)
JPVF Capital Growth Fund 143
JPVF Emerging Growth Fund 347
JPVF World Growth Fund (101)
------------
Total net assets $10,546,567
------------
------------
</TABLE>
2
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Statement of Assets and Liabilities (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
NET ASSETS
<S> <C>
JPVF Money Market Fund 1,119,236
Oppenheimer Bond Fund 1,651,655
JPVF Balanced Fund 1,354,157
JPVF Growth & Income Fund 1,319,585
JPVF Capital Growth Fund 2,069,506
JPVF Emerging Growth Fund 1,648,911
JPVF World Growth Fund 1,383,517
------------
Total net assets $10,546,567
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividend income $281,583
Capital gain distribution from investment companies 692,193
--------
973,776
--------
Expenses:
Mortality and expense fee (Note 3) (122,723)
Administrative charges (1,390)
--------
Net investment income 849,663
--------
Realized and unrealized gains on investments:
Net realized gain on investments 142,844
Unrealized appreciation of investments 66,507
--------
Net gain on investments 209,351
--------
Net increase in net assets from operations $1,059,014
-----------
-----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED FEBRUARY 8, 1996 TO
DECEMBER 31, 1997 DECEMBER 31,1996
----------------- --------------------
<S> <C> <C>
Increase (decrease) in net assets
from operations
Net investment income $849,663 $101,068
Net realized gain on investments 142,844 23,618
Net unrealized appreciation (depreciation)
on investments 66,507 (7,957)
----------------- --------------------
Net increase in net assets resulting
from operations 1,059,014 116,729
Changes from principal transactions:
Net contract purchase payment 5,307,789 4,022,456
Benefits paid (177,442) (10,070)
Net transfer of reserves from (to)
sponsor 229,614 (1,523)
Increase in net assets derived from ---------------- ---------------------
principal transactions 5,359,961 4,010,863
---------------- ---------------------
Total increase (decrease) 6,418,975 4,127,592
Net asset at beginning of year 4,127,592 -
----------------- ---------------------
Net assets at end of year $10,546,567 $4,127,592
----------------- ---------------------
----------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Notes to Financial Statements
December 31, 1997
1. HISTORY
The Alexander Hamilton Variable Annuity Separate Account ("Account") was
established by resolution of the Board of Directors of Alexander Hamilton Life
Insurance Company of America ("Sponsor") on January 24, 1994. The Account has
been registered as a unit investment trust under the Investment Company Act of
1940 to receive and invest payments made by purchasers of variable annuity
contracts. The fund began conducting business on February 8, 1996.
Each sub-account reflects the investment performance of a specific underlying
mutual fund. Subject to certain limitations and restrictions, a variable
annuity contractholder may elect to have net purchase payments credited to any
of the sub-accounts. Prior to the commencement of annuity payments, a
contractholder may elect to transfer accumulation units among sub-accounts,
subject to certain minimum transfer amounts. Contractholders may also transfer
accumulation units after payments begin under a variable annuity payment option.
No transfers are permitted under a fixed annuity payment option.
Contractholders may also allocate purchase payments or transfer amounts into or
out of the "Fixed Account", which is maintained in the general account of the
sponsor. The sponsor guarantees that the fixed account accumulation value will
accrue interest at an annual effective rate of not less than 3%, although the
sponsor may, at its sole discretion, credit interest in excess of the guaranteed
rate. The fixed account accumulation values are not charged a mortality and
expense fee or an administrative fee.
On December 4, 1997, the sponsor exchanged the shares in the various
sub-accounts of the Alexander Hamilton Variable Insurance Trust ("AHVIT") and
Federated Money Market Fund II for shares in sub-accounts of the Jefferson-Pilot
Variable Fund ("JPVF"), formerly Chubb America Fund ("CAF") and the Oppenheimer
Bond Fund. The conversion ratios were based on the net asset values of the
funds at the conversion date. The number of shares and the net asset value
("NAV") for the original and replacement funds at conversion are presented
below.
<TABLE>
<CAPTION>
ORIGINAL # OF REPLACEMENT # OF
FUND SHARES NAV FUND SHARES NAV
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AHVIT Investment Grade Bond Fund 49,349.713 $9.93 Oppenheimer Bond Fund 1,558,347.10 $12.00
AHVIT High Yield Bond Fund 109,107.000 10.68 Oppenheimer Bond Fund 97,105.23 12.00
AHVIT Balanced Fund 101,055.650 12.42 JPVF Balanced Fund 1,255,231.43 13.46
AHVIT Growth and Income Fund 97,051.670 12.37 JPVF Growth and Income Fund 1,200,426.19 21.35
AHVIT Growth Fund 134,027.685 14.71 JPVF Capital Growth Fund 1,971,782.60 22.12
AHVIT Emerging Growth 117,516.589 12.83 JPVF Emerging Growth Fund 1,507,634.83 18.91
AHVIT International Fund 123,498.164 11.34 JPVF America World Growth Fund1, 406,615.93 26.78
Federated Money Market Fund II 1,280,051.380 1.00 JPVF Money Market 1,280,051.38 10.70
</TABLE>
6
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Notes to Financial Statements (continued)
In accordance with the terms of the contracts, the payments are invested
in shares of the Jefferson-Pilot Variable Fund (JPVF) Balanced Fund, Growth &
Income Fund, Capital Growth Fund, Emerging Growth Fund, World Growth Fund,
Money Market Fund, Growth Fund, High Yield Bond Fund, International Equity
Fund, and the Domestic Growth Fund; or the MFS Variable Insurance Trust
Research Fund and Utilities Fund; or the Fidelity Variable Insurance Products
Fund (VIP) Equity-Income Fund, Growth Fund, Contrafund Fund, and Index 500
Fund; or the Oppenheimer Variable Account Fund Bond Fund and Strategic Bond
Fund at the net asset value of such shares on the date payments are received.
The accumulation of net asset values at the date shares are acquired
represents cost. The investments in the eighteen sub-accounts are carried in
the Statement of Assets and Liabilities at net asset value, which is market
value at December 31, 1997. At December 31, 1997, seven of the eighteen
available variable funds contained invested assets.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
The investments in the sub-accounts are carried in the Statement of Assets and
Liabilities at net asset value, which is market value at December 31, 1997.
Investment transactions are accounted for on the date the order to buy or sell
is executed (trade date).
INVESTMENT INCOME
Investment income consists of dividend income (both ordinary and capital gains)
and is recognized on the ex-dividend date. All distributions received are
reinvested in the respective sub-accounts. The aggregate costs of purchases and
proceeds from sales of investments (other than short-term securities) for the
year ended December 31, 1997, were $15,262,380 and $9,084,637 respectively.
Realized investment gains and losses on investments are determined using average
cost.
RECLASSIFICATIONS
Certain 1996 amounts in the financial statements have been reclassified to
confirm to the 1997 presentation. The reclassification had no effect on
previously reported net assets.
3. FEES
In accordance with the provisions of the variable annuity contracts, specified
amounts are set aside for the Sponsor to cover the assumption of mortality and
expense risks, sales and administrative expenses, and state premium taxes. The
mortality and expense fee is 1.25%, and the administrative expense charge is
.15% annually. There is also an annual administration fee which is the lesser
of $30 or 2% of the contract value on the last day of the year.
7
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES
Operations of the Account are taxed with those of the Sponsor. Under existing
federal income tax law, no taxes are payable on the transactions of the Account.
5. USE OF ESTIMATES
The accompanying financial statements of the Account have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates that affect amounts
reported in the financial statements and accompanying notes. Such estimates
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
6. REMUNERATION
The Account pays no remuneration to directors, advisory boards, officers, or
such other persons who may from time to time perform services for the Account.
7. ACCUMULATION UNITS
Changes in the number of accumulation units are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
JPVF MONEY MARKET
Units outstanding at beginning of period 480,731.823 0.000
Units purchased 7,287,822.529 5,484,943.240
Redemptions and charges (6,716,537.514) (5,004,211.417)
--------------------------------
Units outstanding at end of period 1,052,016.838 480,731.823
--------------------------------
--------------------------------
AHVIT INVESTMENT GRADE BOND FUND
Units outstanding at beginning of period 10,567.972 0.000
Units purchased 38,767.585 10,675.871
Redemptions and charges (49,335.557) (107.899)
--------------------------------
Units outstanding at end of period 0.000 10,567.972
--------------------------------
--------------------------------
AHVIT HIGH YIELD FUND
Units outstanding at beginning of period 14,869.390 0.000
Units purchased 95,797.412 19,754.905
Redemptions and charges (110,666.802) (4,885.515)
--------------------------------
Units outstanding at end of period 0.000 14,869.390
--------------------------------
--------------------------------
</TABLE>
8
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Notes to Financial Statements (continued)
7. ACCUMULATION UNITS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
OPPENHEIMER BOND FUND
Units outstanding at beginning of period 0.000 0.000
Units purchased 155,740.418 0.000
Redemptions and charges (4,417.777) 0.000
----------------------------
Units outstanding at end of period 151,322.641 0.000
----------------------------
----------------------------
JPVF BALANCED FUND
Units outstanding at beginning of period 27,907.033 0.000
Units purchased 111,975.225 38,090.687
Redemptions and charges (34,991.790) (10,183.654)
----------------------------
Units outstanding at end of period 104,890.468 27,907.033
----------------------------
----------------------------
JPVF GROWTH & INCOME
Units outstanding at beginning of period 40,124.651 0.000
Units purchased 98,594.509 57,722.822
Redemptions and charges (32,960.679) (17,598.171)
----------------------------
Units outstanding at end of period 105,758.481 40,124.651
----------------------------
----------------------------
JPVF CAPITAL GROWTH
Units outstanding at beginning of period 53,999.122 0.000
Units purchased 103,157.417 74,303.386
Redemptions and charges (14,700.718) (20,304.264)
----------------------------
Units outstanding at end of period 142,455.821 53,999.122
----------------------------
----------------------------
JPVF EMERGING GROWTH
Units outstanding at beginning of period 88,358.431 0.000
Units purchased 119,576.383 147,820.559
Redemptions and charges (75,698.324) (59,462.128)
----------------------------
Units outstanding at end of period 132,236.490 88,358.431
----------------------------
----------------------------
JPVF WORLD GROWTH STOCK
Units outstanding at beginning of period 101,024.252 0.000
Units purchased 166,600.224 127,401.544
Redemptions and charges (143,864.361) (26,377.292)
----------------------------
Units outstanding at end of period 123,760.115 101,024.252
----------------------------
----------------------------
</TABLE>
9
<PAGE>
The Alexander Hamilton Variable
Annuity Separate Account of Alexander Hamilton
Life Insurance Company of America
Notes to Financial Statements (continued)
8. VARIABLE ANNUITY CONTRACTS
Net asset values for variable annuity contracts are based on the following
accumulation units, unit values and annuity funds:
<TABLE>
<CAPTION>
ACCUMULATION UNIT TOTAL
UNITS VALUE VALUE
----------------------------------------
<S> <C> <C> <C>
JPVF MONEY MARKET FUND
DECEMBER 31, 1997
Qualified/non-qualified units 1,053,458.803 $1.062439 $1,119,236
----------
$1,119,236
----------
----------
OPPENHEIMER BOND FUND
DECEMBER 31, 1997
Qualified/non-qualified units 151,322.641 $10.914792 $1,651,655
----------
$1,651,655
----------
----------
JPVF BALANCED FUND
DECEMBER 31, 1997
Qualified/non-qualified units 104,890.468 $12.910202 $1,354,157
----------
$1,354,157
----------
----------
JPVF GROWTH & INCOME FUND
DECEMBER 31, 1997
Qualified/non-qualified units 105,758.481 $12.477347 $1,319,585
----------
$1,319,585
----------
----------
JPVF CAPITAL GROWTH FUND
DECEMBER 31, 1997
Qualified/non-qualified units 142,455.821 $14.527352 $2,069,506
----------
$2,069,506
----------
----------
JPVF EMERGING GROWTH FUND
DECEMBER 31, 1997
Qualified/non-qualified units 132,236.490 $12.469409 $1,648,911
----------
$1,648,911
----------
----------
JPVF WORLD GROWTH FUND
DECEMBER 31, 1997
Qualified/non-qualified units 123,760.115 $11.179025 $1,383,517
----------
$1,383,517
----------
----------
</TABLE>
10
<PAGE>
Audited Financial Statements-
Statutory - Basis
Alexander Hamilton Life Insurance Company of America
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Alexander Hamilton Life Insurance Company of America
Audited Financial Statements - Statutory - Basis
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .1
Audited Financial Statements - Statutory - Basis
Statements of Admitted Assets, Liabilities, Capital and Surplus. . . . . .3
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . .4
Statements of Capital and Surplus. . . . . . . . . . . . . . . . . . . . .5
Statements of Cash Flow. . . . . . . . . . . . . . . . . . . . . . . . . .6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . .8
<PAGE>
Report of Independent Auditors
Board of Directors
Alexander Hamilton Life Insurance Company of America
We have audited the accompanying statutory-basis statements of admitted assets,
liabilities, capital and surplus of Alexander Hamilton Life Insurance Company of
America as of December 31, 1997 and 1996, and the related statutory-basis
statements of operations, capital and surplus, and cash flow for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The statutory-basis financial statements for
the year ended December 31, 1995 were audited by predecessor auditors, whose
report dated April 25, 1996 expressed an adverse opinion as to conformity with
generally accepted accounting principles and an unqualified opinion as to
conformity with accounting practices prescribed or permitted by the Michigan
Insurance Bureau as described in Note 1.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Bureau, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles also are described in Note 1. The
effects on the financial statements of these variances are not reasonably
determinable but are presumed to be material.
1
<PAGE>
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Alexander Hamilton Life Insurance Company of America at December 31, 1997 and
1996, or the results of its operations or its cash flows for the years then
ended.
Also, in our opinion, the financial statements, referred to above present
fairly, in all material respects, the financial position of Alexander Hamilton
Life Insurance Company of America at December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended in conformity with
accounting practices prescribed or permitted by the Michigan Insurance Bureau.
Greensboro, North Carolina /s/ Ernst & Young LLP
February 9, 1998
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Alexander Hamilton Life Insurance Company of America
We have audited the accompanying statements of operations - statutory basis of
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA (a Michigan Corporation)
for the year ended December 31, 1995, and the related statements of capital and
surplus - statutory basis and cash flows - statutory basis for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
As more fully described in Note 1, the Company prepares these financial
statements using accounting practices prescribed or permitted by the Michigan
Insurance Bureau (statutory basis), which differ from generally accepted
accounting principles. The effects on the financial statements of the variances
between the statutory basis of accounting and generally accepted accounting
principles, although not reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matters discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the results
of operations of Alexander Hamilton Life Insurance Company of America for the
year ended December 31, 1995, or its cash flows for the year then ended.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the statutory basis results of operations of
Alexander Hamilton Life Insurance Company of America for the year ended December
31, 1995, and its cash flow for the year then ended in conformity with
accounting practices prescribed or permitted by the Michigan Insurance Bureau as
described in Note 1.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
April 25, 1996
3
<PAGE>
Alexander Hamilton Life Insurance Company of America
Statements of Admitted Assets, Liabilities,
Capital and Surplus - Statutory - Basis
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------
<S> <C> <C>
ADMITTED ASSETS
Bonds $4,712,314 $4,662,300
Stocks, including subsidiaries 75,072 103,136
Mortgage loans 409,477 277,425
Real estate 29,152 35,453
Policy loans 110,875 96,932
Cash and short-term investments (1,932) 39,455
Due and uncollected premiums 1,885 (782)
Investment income due and accrued 73,734 72,138
Federal income tax recoverable - 16,791
Receivable from parent, subsidiaries and affiliates 9,654 27,311
Separate account assets 10,806 4,128
Other assets 76,183 81,382
---------- ----------
Total admitted assets $5,507,220 $5,415,669
---------- ----------
---------- ----------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserve for life policies $4,829,913 $4,746,814
Aggregate reserve for accident and health
policies - 1,993
Policy and contract claims 29,272 34,779
Interest maintenance reserve 39,076 30,607
Asset valuation reserve 58,616 72,705
Remittances and items not allocated 9,286 26,477
Borrowed money with accrued interest 23,285 63,266
Net adjustment in assets and liabilities due
to foreign exchange rates - 33
Payable to parent, subsidiaries and
affiliates 5,985 14,336
Separate account liabilities 10,806 4,128
Federal income tax payable 5,014 -
Other liabilities 93,448 97,175
---------- ----------
Total liabilities 5,104,701 5,092,313
Capital and Surplus:
Common capital stock 2,500 2,500
Preferred capital stock 50,000 50,000
Surplus note 51,220 51,220
Gross paid-in and contributed surplus 94,987 94,987
Unassigned surplus 203,812 124,649
---------- ----------
Total capital and surplus 402,519 323,356
---------- ----------
Total liabilities and capital and surplus $5,507,220 $5,415,669
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Alexander Hamilton Life Insurance Company of America
Statements of Operations - Statutory - Basis
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C>
Income:
Premiums and other considerations $494,702 $ 506,126 $1,088,923
Net investment income 392,219 395,791 567,417
Consideration for recaptured reserves - - 64,907
Other income 11,849 19,589 13,514
-------------------------------------------------------
Total income 898,770 921,506 1,734,761
Policy benefits:
Death benefits 65,783 72,247 79,806
Annuity benefits 79,926 66,808 169,064
Disability benefits 328 3,048 9,739
Surrender and other fund withdrawals 476,012 444,540 526,965
Increase (decrease) in aggregate reserves 88,152 (181,885) 704,015
(Decrease) increase in liability for premium and other
deposit funds (138) (143) 3,920
Other policy benefits 10,100 2,748 5,219
-------------------------------------------------------
Total benefits 720,163 407,363 1,498,728
Commissions and other expenses:
Commissions on premiums and annuity considerations 36,950 52,719 74,337
General insurance expenses 24,767 35,560 51,045
Insurance taxes, licenses and fees 9,409 14,009 20,595
Consideration for reinsurance - 319,294 -
Other expenses 4,946 9,717 2,116
-------------------------------------------------------
Total commissions and other expenses 76,072 431,299 148,093
Income before dividends to policyholders, federal income tax and net
realized capital gains (losses) 102,535 82,844 87,940
Dividends to policyholders 43 39 51
-------------------------------------------------------
Income before federal income tax and net realized capital gains
(losses) 102,492 82,805 87,889
Federal income tax (excluding capital gains tax) 30,990 24,432 32,419
-------------------------------------------------------
Income before net realized capital gains (losses) 71,502 58,373 55,470
Net realized capital gains (losses) - net of tax expense and after-tax
IMR transfer 1,540 (9,948) (6,328)
-------------------------------------------------------
Net income $ 73,042 $ 48,425 $ 49,142
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Alexander Hamilton Life Insurance Company of America
Statements of Capital and Surplus - Statutory - Basis
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
COMMON PREFERRED PAID-IN AND
CAPITAL CAPITAL SURPLUS CONTRIBUTED UNASSIGNED
STOCK STOCK NOTE SURPLUS SURPLUS TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 3,750 - $51,230 $39,649 $ 244,946 $ 339,575
Net income - - - - 49,142 49,142
Change in net unrealized capital gains - - - - 4,076 4,076
Change in non-admitted assets - - - - 5,913 5,913
Change in asset valuation reserve - - - - 10,561 10,561
Paid-in and contributed surplus - - - 54,088 - 54,088
Paid-in and contributed capital - $50,000 - - - 50,000
Transferred to surplus (1,250) - - 1,250 - -
Change in surplus due to loss on
transfer of subsidiaries to Household
International - - - - (180,192) (180,192)
Change in surplus due to consideration
received for reinsurance - - - - 121,352 121,352
Change in surplus due to IMR transfer
related to reinsurance - - - - 30,401 30,401
Change in surplus due to
reinsurance - - - - (5,234) (5,234)
Dividends to stockholder - - - - (197,961) (197,961)
------------------------------------------------------------------------------
Balance at December 31, 1995 2,500 50,000 51,230 94,987 83,004 281,721
Net income - - - - 48,425 48,425
Change in net unrealized capital gains - - - - 6,249 6,249
Change in non-admitted assets - - - - 1,537 1,537
Change in asset valuation reserve - - - - 2,591 2,591
Change in surplus note - - (10) - 10 -
Other surplus adjustments - - - - (1,729) (1,729)
Change in surplus due to reinsurance - - - - (10,519) (10,519)
Dividends to stockholder - - - - (4,919) (4,919)
------------------------------------------------------------------------------
Balance at December 31, 1996 2,500 50,000 51,220 94,987 124,649 323,356
Net income - - - - 73,042 73,042
Change in net unrealized capital gains - - - - (4,561) (4,561)
Change in non-admitted assets - - - - 98 98
Change in asset valuation reserve - - - - 14,089 14,089
Dividends to stockholder - - - - (3,505) (3,505)
------------------------------------------------------------------------------
Balance at December 31, 1997 $ 2,500 $50,000 $51,220 $94,987 $ 203,812 $402,519
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
Alexander Hamilton Life Insurance Company of America
Statements of Cash Flow - Statutory - Basis
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Premiums, policy proceeds and other considerations received, net of
reinsurance paid $ 491,129 $ 513,506 $1,087,678
Net investment income received 399,875 407,051 599,864
Commission and expense allowances received on reinsurance ceded 2,292 14,332 7,910
Benefits paid (632,101) (594,961) (807,601)
Insurance expenses paid (80,257) (109,560) (150,701)
Net transfers to separate accounts (5,496) (4,011) -
Dividends paid to policyholders (43) (39) (51)
Federal income taxes paid (9,920) (38,643) (46,578)
Other revenues received less other expenses (paid) 9,086 (317,638) (2,106,616)
------------------------------------------------------
Net cash provided by (used in) operations 174,565 (129,963) (1,416,095)
INVESTMENT ACTIVITIES
Proceeds from sales, maturities, or repayments of investments:
Bonds 983,516 1,164,669 2,784,093
Stocks 27,591 15,910 1,610,688
Mortgage loans 34,098 28,978 82,346
Real estate 5,661 2,778 8,311
Other invested assets 4,851 1,493 49,109
Miscellaneous proceeds (432) 66 771
------------------------------------------------------
Total investment proceeds 1,055,285 1,213,894 4,535,318
Taxes (paid) recovered on capital gains or losses - (196) 6,402
------------------------------------------------------
Net proceeds from sales, maturities, or repayments of investments 1,055,285 1,213,698 4,541,720
Cost of investments acquired:
Bonds (1,045,602) (981,207) (1,783,459)
Stocks (3,000) (43,063) (1,756,454)
Mortgage loans (165,542) (148,622) (75,722)
Real estate (66) (343) (1,014)
Other invested assets (10,405) (2,122) -
Miscellaneous applications (270) (4,586) (4,744)
------------------------------------------------------
Total cost of investments acquired (1,224,885) (1,179,943) (3,621,393)
Net (increase) decrease in policy loans (13,943) (11,283) 458,296
------------------------------------------------------
Net cash (used in) provided by investment activities (183,543) 22,472 1,378,623
</TABLE>
7
<PAGE>
Alexander Hamilton Life Insurance Company of America
Statements of Cash Flow - Statutory - Basis (continued)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
FINANCING AND MISCELLANEOUS ACTIVITIES
<S> <C> <C> <C>
Other cash provided:
Capital and surplus paid-in $ - $ (10) $ 105,338
Borrowed money (repaid) received (21,297) 44,959 18,307
Other sources 25,101 59,251 35,738
--------------------------------------------------
Total other cash provided 3,804 104,200 159,383
Other cash applied:
Dividends paid to stockholder (3,477) (4,058) (197,961)
Interest on indebtedness (6,924) (8,940) (6,043)
Other applications, net (25,812) (26,887) (163,322)
--------------------------------------------------
Total other cash applied (36,213) (39,885) (367,326)
Net cash (used in) provided by financing and miscellaneous activities (32,409) 64,315 (207,943)
--------------------------------------------------
Net decrease in cash and short-term investments (41,387) (43,176) (245,415)
Cash and short-term investments at beginning of year 39,455 82,631 328,046
--------------------------------------------------
Cash and short-term investments at end of year $ (1,932) $ 39,455 $ 82,631
--------------------------------------------------
--------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
8
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OWNERSHIP
Alexander Hamilton Life Insurance Company of America (the Company) is
wholly-owned by Jefferson-Pilot Corporation. The Company is principally engaged
in the life insurance business and has a diversified base of policyholders in
all states except New York. The Company primarily writes ordinary life,
universal life, fixed annuity and variable annuity products through several
distribution channels.
Effective October 1, 1995, the Company was acquired by Jefferson-Pilot
Corporation from Household Group, Inc., a wholly-owned subsidiary of Household
International, Inc. Consideration given for the Company and its subsidiaries,
First Alexander Hamilton Life Insurance Company (FAHL) and Alexander Hamilton
Capital Management, Inc. (AHCMI) consisted of $475.0 million in cash and $50.0
million in redeemable preferred stock to Household Group, Inc., and $50.0
million paid to Household International, Inc. by GARCO Capital Corp., a
subsidiary of Jefferson-Pilot Corporation, for the outstanding $50.0 million
surplus note of the Company. In consummation of the acquisition, under an
Agreement and Plan of Merger, Alexander Hamilton Life Insurance Company of
America (Old AHL) was merged into Jefferson-Pilot Pension Life Insurance Company
(JP Pension), a Michigan domiciled life insurance company and a wholly-owned
subsidiary of Jefferson-Pilot Corporation. JP Pension was immediately renamed
Alexander Hamilton Life Insurance Company of America (New AHL). The 1,041,700
authorized and issued shares of common stock, par value $2.40 per share, of JP
Pension and the 375,000 authorized and issued shares of common stock, par value
$10 per share, of Old AHL, which were outstanding before the merger, were
exchanged for the respective merger considerations.
The full year of 1995 business activity of the Company is presented herein,
consisting of nine months of activity of Old AHL and three months of activity of
New AHL. JP Pension is reflected as acquired by the Company on the acquisition
effective date. The Company received written approval from the Michigan
Insurance Bureau for this accounting practice, which differs from prescribed
statutory accounting practices. Statutory accounting practices prescribed by
the Michigan Insurance Bureau require prior year's amounts reported for assets,
liabilities, surplus, revenues and expenses to be reported on a merged basis
consistent with the current year's post-merger reporting basis. Statutory
surplus as of December 31, 1994 would be increased by $4.7 million under the
prescribed statutory accounting practice.
9
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Substantially all of the life and single premium deferred annuity business of
the Company and FAHL was included in the acquisition. Certain credit life and
accident and health insurance, Periodic Payment Annuity (PPA) business and
Corporate Owned Life Insurance business written by the Company and FAHL has been
fully reinsured back to affiliates of Household International, Inc. through
coinsurance agreements. Related trust agreements for the assets retained for
this business were also established.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses for the reporting
period. Those estimates are inherently subject to change and actual results
could differ from those estimates. Included among the material (or potentially
material) reported amounts and disclosures that require extensive use of
estimates are asset valuation allowances, policy liabilities and the potential
effects of resolving litigated matters.
BASIS OF PRESENTATION
The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the Michigan
Insurance Bureau, which practices differ from generally accepted accounting
principles ("GAAP").
The accompanying 1995 statutory-basis financial statements include the combined
results of operations for the nine month period that the Company was owned by
Household International, Inc. and the three month period that it was owned by
Jefferson-Pilot Corporation. Under GAAP, the periods of different ownership
would not be combined in the Company's financial statements.
The more significant variances from GAAP are as follows:
INVESTMENTS: Investments in bonds and mandatorily redeemable preferred
stocks are reported at amortized cost or market value based on their National
Association of Insurance Commissioners ("NAIC") rating; for GAAP, such fixed
maturity investments are designated at purchase as held-to-maturity, trading,
or available-for-sale. Held-to-maturity fixed investments are
10
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported at amortized cost, and the remaining fixed maturity investments are
reported at fair value with unrealized holding gains and losses reported in
operations for those designated as trading and as a separate component of
shareholder's equity for those designated as available-for-sale.
Investments in real estate are reported net of related obligations rather than
on a gross basis. Real estate owned and occupied by the Company is included in
investments rather than reported as an operating asset. Changes between cost
and admitted asset investment amounts are credited or charged directly to
unassigned surplus rather than to a separate surplus account.
Valuation allowances, if necessary, are established for mortgage loans based on
the difference between the unpaid loan balance and the estimated fair value of
the underlying real estate when such loans are determined to be in default as to
scheduled payments. Such allowances are based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, if
foreclosure is probable, on the estimated fair value of the underlying real
estate. Under GAAP, valuation allowances are established when the Company
determines it is probable that it will be unable to collect all amounts (both
principal and interest) due according to the contractual terms of the loan
agreement. For statutory reporting, the initial valuation allowance and
subsequent changes in the allowance for mortgage loans are charged or credited
directly to unassigned surplus, rather than being included as a component of
earnings as required under GAAP.
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and, consistent with the prior year, amortizes those
deferrals over the remaining period to maturity based on groupings of individual
securities sold in five-year bands. That net deferral is reported as the
interest maintenance reserve (IMR) in the accompanying Statements of Admitted
Assets, Liabilities, Capital and Surplus. Realized capital gains and losses are
reported in income net of federal income tax and transfers to the interest
maintenance reserve. Under GAAP, realized capital gains and losses are reported
in the income statement on a pretax basis in the period that the asset giving
rise to the gain or loss is sold. The IMR balance at December 31, 1997 includes
1997 net capital gains (net of tax) of $11.8 million transferred to the IMR,
less 1997 amortization of $3.3 million. The IMR balance at December 31, 1996
includes 1996 net capital gains (net of tax) of $4.6 million transferred to IMR,
less 1996 amortization of $1.5 million.
11
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The asset valuation reserve is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, valuation
allowances are provided when there has been a decline in value deemed other than
temporary, in which case, the provision for such declines are charged to
earnings.
SUBSIDIARIES: The accounts and operations of the Company's subsidiaries are
not consolidated with the accounts and operations of the Company as required
under GAAP (see Note 4). Investments in subsidiaries are classified as
"stocks" at amounts which are equal to statutory capital and surplus for
insurance companies and GAAP equity for non-insurance companies. Dividends
from subsidiaries are included in net investment income. The remaining net
change in the subsidiaries' equity is included in the change in net
unrealized capital gains in the Statements of Capital and Surplus amounts.
POLICY ACQUISITION COSTS: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to traditional
life, to the extent recoverable from future policy revenues, are deferred
and amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves. For
universal life insurance and annuity products, to the extent recoverable from
future gross profits, deferred policy acquisition costs are amortized generally
in proportion to the present value of expected gross profits from surrender
charges and investment, mortality, and expense margins.
NON-ADMITTED ASSETS: Certain assets designated as "non-admitted," principally
capitalized organizational costs, computer software, agents' debit balances and
furniture and equipment, are excluded from the accompanying Statements of
Admitted Assets, Liabilities, Capital and Surplus and are charged directly to
unassigned surplus.
UNIVERSAL LIFE POLICIES: Revenues for universal life policies consist of the
entire premium received and benefits represent the death benefits paid and the
change in policy reserves. Under GAAP, premiums received in excess of policy
charges would not be recognized as premium revenue and benefits would represent
the excess of benefits paid over the policy account value and interest credited
to the account values.
BENEFIT RESERVES: Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as required under GAAP.
12
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as
required under GAAP. Commissions allowed by reinsurers on business ceded are
reported as income when received rather than being deferred and amortized with
deferred policy acquisition costs.
EMPLOYEE BENEFITS: For purposes of calculating the Company's postretirement
benefit obligation, only vested participants and current retirees are included
in the valuation. Under GAAP, active participants not currently eligible are
also included. The Company follows the provisions of FASB Statement No. 87,
EMPLOYER'S ACCOUNTING FOR PENSIONS.
FEDERAL INCOME TAXES: Deferred federal income taxes are not provided for
differences between the financial statement amounts and tax bases of assets and
liabilities.
POLICYHOLDER DIVIDENDS: Policyholder dividends are recognized when declared
rather than over the term of the related policies.
SURPLUS NOTES: Surplus notes are reported as surplus rather than as
liabilities.
CASH FLOWS: For purposes of the Statements of Cash Flow, cash is combined
with short-term investments which includes investments with maturities of
less than one year at the date of acquisition. Under GAAP, cash is combined
with cash equivalents which includes only investments with maturities of
three months or less at the date of acquisition.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are presumed
to be material.
Other significant accounting practices are as follows:
INVESTMENTS
Bonds, preferred stocks, common stocks, short-term investments and derivative
instruments are stated at values prescribed by the NAIC, as follows:
Bonds not backed by other loans are principally stated at amortized
cost using the interest method.
Loan-backed bonds and structured securities are valued at amortized
cost using the interest method including anticipated prepayments.
Prepayment assumptions are obtained from dealer surveys or internal
estimates and are based on the current interest rate and economic
environment. The retrospective adjustment method is used to value all
such securities.
13
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term investments include investments with maturities of less
than one year at the date of acquisition.
Redeemable preferred stocks are reported at cost or amortized cost and
nonredeemable preferred stocks are reported at market value as
determined by the Securities Valuation Office of the NAIC.
Common stocks are reported at market value as determined by the
Securities Valuation Office of the NAIC and the related unrealized
capital gains or losses are reported directly in unassigned surplus
without any adjustment for federal income taxes.
The Company uses interest rate swaps as part of its overall interest
rate risk management strategy for certain investments. The Company
values all derivative instruments on a consistent basis with the
hedged item. Upon termination, gains and losses on those instruments
are included in the carrying values of the underlying hedged items and
are amortized over the remaining lives of the hedged items as
adjustments to investment income or benefits from the hedged items.
Any unamortized gains or losses are recognized when the underlying
hedged items are sold.
Interest rate swap contracts are used to convert the interest rate
characteristics of certain liabilities to match those of the related
investments supporting those liabilities. The net interest effect of
such swap transactions is reported as an adjustment of interest
credited on the hedged liabilities as incurred.
Mortgage loans are reported at unpaid principal balances, less allowance for
impairments.
Policy loans are reported at unpaid principal balances.
Real estate occupied by the Company is reported at depreciated cost and other
real estate is reported at the lower of depreciated cost or fair value.
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the properties.
Realized capital gains and losses are determined using a specific identification
method. Changes in admitted asset carrying amounts of bonds, mortgage loans,
common and nonredeemable preferred stocks are credited or charged directly to
unassigned surplus.
14
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
The Company's electronic data processing equipment is reported at cost, less
accumulated depreciation and is included in other assets in the Statements of
Admitted Assets, Liabilities, Capital and Surplus. Electronic data processing
equipment and other furniture and equipment is depreciated on a straight-line
basis. Asset balances, accumulated depreciation balances, and depreciation
expense are not significant.
PREMIUMS
Ordinary and credit insurance premiums are recognized as revenue when due.
Universal life and annuity premiums are recognized as revenue when collected.
Accident and health premiums are earned pro-rata over the terms of the policy.
BENEFITS
Life and annuity benefit reserves are developed by actuarial methods and are
determined based on published tables using statutorily specified interest rates
and valuation methods that will provide, in the aggregate, reserves that are
greater than or equal to the minimum or guaranteed policy cash values or the
amounts required by the Michigan Insurance Bureau. The Company waives deduction
of deferred fractional premiums on the death of life and annuity policy insureds
and returns any premium beyond the date of death. Surrender values on policies
do not exceed the corresponding benefit reserves. Additional reserves are
established when the results of cash flow testing under various interest rate
scenarios indicate the need for such reserves or the net premiums exceed the
gross premiums on any insurance in force. For 1997 and 1996, all additional
reserves were ceded, as they related to blocks of business covered by
reinsurance agreements.
For substandard table ratings, mean reserves are based on 125% to 500% of
standard mortality rates. For flat extra ratings, mean reserves are based on
the standard or substandard mortality rates increased by one to twenty-five
deaths per thousand. As of December 31, 1997, reserves of $27.6 million are
recorded on inforce amounts of $3,102.3 million for which gross premiums are
less than the net premiums according to the standard of valuation required by
the state of Michigan. Tabular interest, tabular less actual reserve released,
and tabular cost have been
15
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BENEFITS (CONTINUED)
determined by formula. Tabular interest on funds not involving life
contingencies is calculated as one-hundredth of the product of such valuation
rate of interest times the mean of the amount of funds subject to such valuation
rate of interest held at the beginning and end of the year of valuation.
The liabilities related to policyholder funds left on deposit with the Company
generally are equal to fund balances less applicable surrender charges.
POLICY AND CONTRACT CLAIMS
Policy and contract claims are accrued for based on estimated unpaid settlement
costs for reported losses and for incurred but not reported losses. These
accruals are determined through a combination of historical experience and
estimates based on management's judgment with regard to the ultimate exposure to
the Company. For accident and health policies, those estimates are subject to
the effects of trends in claim severity and frequency.
Although considerable variability is inherent in such estimates, management
believes that the reserves for unpaid claims are adequate. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current operations.
BORROWED MONEY
At December 31, 1997, the Company has short-term notes payable of $23.2 million
with its Parent company, Jefferson-Pilot Corporation. The notes, which are for
short-term cash management purposes, mature within 30 days of issuance at
interest rates of 5.9% to 6.5%.
At December 31, 1996, the Company had an outstanding liability for borrowed
money in the amount of $18.3 million payable in Canadian dollars. The note bore
interest at 6% annually. Also, at December 31, 1996, the Company had
$44.5 million outstanding under a reverse repurchase agreement, plus accrued
interest. The agreement matured February 18, 1997. Interest expense was $1.5
million, $3.3 million and $1.1 million in 1997, 1996 and 1995, respectively.
16
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
Reinsurance premiums and benefits paid or provided are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts.
NET ADJUSTMENT DUE TO FOREIGN EXCHANGE RATES
For statutory purposes for 1996 and prior, United States dollars and Canadian
dollars are combined in the accompanying financial statements. Foreign currency
translation adjustments are not made to each individual asset and liability
balance, rather, such translation is performed in aggregate as prescribed by
statutory accounting principles and reflected in the net adjustment in assets
and liabilities due to foreign exchange rates in the accompanying Statements of
Admitted Assets, Liabilities, Capital and Surplus. The Company had no
foreign operations in 1997.
GUARANTY-FUND ASSESSMENTS
Guaranty-fund assessments are accrued when the Company receives notice that an
insolvency has occurred for which the Company will be assessed.
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying Statements
of Admitted Assets, Liabilities, Capital and Surplus represent funds that are
separately administered, principally for annuity contracts, and for which the
contractholder, rather than the Company, bears the investment risk. Separate
account contractholders have no claim against the assets of the general account
of the Company. Separate account assets are reported at market value. The
operations of the separate accounts are not included in the accompanying
financial statements. Fees charged on separate account policyholder deposits are
included in other income.
17
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Michigan Insurance
Bureau. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project will likely change, to some extent, prescribed statutory accounting
practices, and may result in changes to the accounting practices that the
Company uses to prepare its statutory basis financial statements. The impact of
any such changes on the Company's statutory surplus cannot be determined at this
time and could be material.
2. INVESTMENT SECURITIES
The statement value and NAIC market value of investments in bonds are presented
in the following tables (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------------
NAIC
STATEMENT VALUE UNREALIZED GAINS UNREALIZED (LOSSES) MARKET
VALUE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Bonds:
U.S. Treasuries $ 9,221 $ 257 $ (5) $ 9,473
Agency Mortgage-Backed/CMOs 785,044 - - 785,044
State & Municipal 352 2 - 354
Other Government Bonds 85,690 1,570 (442) 86,818
Corporate Bonds:
Asset-Backed Securities 248,474 - - 248,474
CMOs 601,506 - - 601,506
Other Corporate Bonds 2,946,777 68,447 (1,138) 3,014,086
Affiliate bonds 35,250 - - 35,250
------------------------------------------------------------------------------
Total $4,712,314 $70,276 $(1,585) $4,781,005
------------------------------------------------------------------------------
------------------------------------------------------------------------------
18
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
2. INVESTMENT SECURITIES (CONTINUED)
<CAPTION>
DECEMBER 31,1996
------------------------------------------------------------------------------
NAIC
Statement Value Unrealized Gains Unrealized (Losses) Market
Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government Bonds:
U.S. Treasuries $ 20,164 $ 175 $ (90) $ 20,249
Agency Mortgage - Backed/CMOs 874,113 - - 874,113
State & Municipal 476 15 - 491
Other Government Bonds 147,543 2,921 (56) 150,408
Corporate Bonds:
Asset-Backed Securities 281,930 - - 281,930
CMOs 414,611 - - 414,611
Other Corporate Bonds 2,892,213 50,631 (6,477) 2,936,367
Affiliate Bonds 31,250 - - 31,250
------------------------------------------------------------------------------
Total $4,662,300 $53,742 $(6,623) $4,709,419
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
The carrying amount of bonds in the balance sheets at December 31, 1997 and 1996
reflects NAIC adjustments of $0 and $199 thousand, respectively, to decrease
amortized cost.
The statement value and NAIC market value of bonds at December 31, 1997, by
contractual maturity, is as follows (in thousands):
<TABLE>
<CAPTION>
NAIC
STATEMENT MARKET
VALUE VALUE
------------------------
<S> <C> <C>
Due in one year or less $ 136,392 $ 136,857
Due after one year through five years 997,570 1,016,861
Due after five years through ten years 1,095,999 1,133,658
Due after ten years 265,406 274,864
------------------------
2,495,367 2,562,240
Amounts not due at a single maturity 2,216,947 2,218,765
------------------------
Total $4,712,314 $4,781,005
------------------------
------------------------
</TABLE>
19
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
2. INVESTMENT SECURITIES (CONTINUED)
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Proceeds from the sales of investments in bonds during 1997, 1996 and 1995 were
$620.9 million, $972.7 million and $2,455.8 million. Gross gains of $14.9
million and gross losses of $4.8 million were realized on 1997 sales; gross
gains of $14.1 million and gross losses of $16.0 million were realized on 1996
sales. Gross gains of $24.1 million and gross losses of $33.6 million were
realized on 1995 sales.
Bonds with a par value of $7.8 million and $21.3 million were on deposit
pursuant to regulatory requirements at December 31, 1997 and 1996, respectively.
At December 31, 1997, the Company held unrated or less-than-investment grade
corporate bonds of $379.4 million with an aggregate fair value of $397.1
million. Those holdings amounted to approximately 8.1% of the Company's
investments in bonds and less than 6.9% of the Company's total admitted assets.
The gross unrealized gains and losses on, and the cost and NAIC market value of,
investments in common stocks and redeemable preferred stocks are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS NAIC
UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 31, 1997
Redeemable preferred
stocks $15,050 $ 1,298 $ - $ 16,348
Common stocks 51,788 15,758 (7,524) 60,022
--------------------------------------------------------------------
Total $66,838 $17,056 $(7,524) $ 76,370
--------------------------------------------------------------------
--------------------------------------------------------------------
At December 31, 1996
Redeemable preferred
stocks $29,550 $ 1,008 $(3,275) $ 27,283
Common stocks 60,792 14,464 (1,670) 73,586
--------------------------------------------------------------------
Total $90,342 $15,472 $(4,945) $100,869
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
The Company's mortgage loan portfolio is comprised primarily of conventional
real estate mortgages collateralized by apartment (24%), industrial (17%),
retail (28%), office (19%) and other commercial properties (8%). The remaining
mortgages are collateralized by residential properties. Mortgage loan
underwriting standards emphasize the credit status of a prospective
20
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
2. INVESTMENT SECURITIES (CONTINUED)
borrower, quality of the underlying collateral and conservative loan-to-value
relationships. Approximately 36%, 25% and 10% of the stated mortgage loan
balances as of December 31, 1997 are due from borrowers in West South Central
states, South Atlantic states and East North Central states, respectively. No
other geographic region represents as much as 10% of mortgage loans at December
31, 1997.
During 1997, the maximum and minimum lending rates for new mortgage loans were
9.30% and 7.28% for commercial loans. No residential loans were originated in
1997. At the issuance of a loan, the percentage of loan-to-value on any one
loan, exclusive of insured or guaranteed or purchase money mortgages, does not
exceed 75% for commercial loans or 80% for residential loans. At December 31,
1997, the Company held mortgages aggregating $1.1 million with interest overdue
beyond one year. Non-admitted interest due on those mortgages was $156 thousand
at December 31, 1997. Total non-admitted interest due at December 31, 1997 was
$257 thousand and related entirely to mortgage loans. At December 31, 1997,
there were no liens, and no mortgage loans had been converted to loans that
require principle or interest payments be made based upon the cash flows
generated by the property serving as collateral for the loans or that have a
diminutive payment requirement.
All properties covered by mortgage loans have fire insurance at least equal to
the excess of the loan over the maximum loan that would be allowed on the land
without the building.
The components of the Company's real estate are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-----------------------
<S> <C> <C>
Occupied by the Company:
Buildings and land $ 8,493 $ 18,588
Accumulated depreciation (1,939) (7,095)
-----------------------
Total real estate occupied by the Company 6,554 11,493
Other:
Buildings and land 39,705 40,195
Accumulated depreciation (17,107) (16,235)
-----------------------
Total other real estate 22,598 23,960
-----------------------
Total real estate $29,152 $ 35,453
-----------------------
-----------------------
</TABLE>
21
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
2. INVESTMENT SECURITIES (CONTINUED)
Major categories of the Company's net investment income are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Income:
Bonds $359,219 $376,753 $448,845
Preferred stocks 2,681 2,815 3,169
Common stocks 349 592 24,295
Mortgage loans 29,153 18,229 19,077
Real estate 4,896 4,754 7,511
Derivative investments (418) (260) -
Policy loans 6,456 5,942 64,335
Short-term investments and cash 1,603 1,550 7,526
Other 2,623 1,207 5,741
-------------------------------------
Total investment income 406,562 411,582 580,499
Expenses:
Depreciation 1,453 1,634 1,931
Other 12,890 14,157 11,151
-------------------------------------
Total investment expenses 14,343 15,791 13,082
-------------------------------------
Net investment income $392,219 $395,791 $567,417
-------------------------------------
-------------------------------------
</TABLE>
The Company does not include amounts for the occupancy of Company-owned
properties in real estate income. Non-admitted accrued investment income
amounted to $257 thousand and $245 thousand at December 31, 1997 and 1996,
respectively.
22
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
2. INVESTMENT SECURITIES (CONTINUED)
Realized capital gains (losses) are reported net of federal income taxes and
amounts transferred to the IMR for the year ended December 31 as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Realized capital gains (losses) $13,296 $ (5,165) $(13,112)
Less amount transferred to IMR 11,756 7,057 (588)
------------------------------------------
1,540 (12,222) (12,524)
Less federal income taxes on realized
capital gains (losses) before effect
of transfer to IMR - 196 (6,402)
Plus federal income taxes on realized
capital gains (losses) on amounts
transferred to IMR - 2,470 (206)
------------------------------------------
Net realized capital gains (losses) $ 1,540 $ (9,948) $ (6,328)
------------------------------------------
------------------------------------------
</TABLE>
3. USE OF DERIVATIVES
The Company's investment policy permits the use of derivative financial
instruments such as interest rate swaps in certain circumstances. The following
summarizes open interest rate swaps (notional amounts in millions):
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------
<S> <C> <C>
Receive-fixed swaps held as hedges of
direct investments:
Notional amount $114.1 $ 208.7
Average rate received 6.59% 5.66%
Average rate paid 5.88% 5.55%
Receive-fixed swaps held to modify
annuity crediting rates:
Notional amount $ 12.5 $ 12.5
Average rate received 6.78% 6.78%
Average rate paid 5.75% 5.56%
</TABLE>
23
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
3. USE OF DERIVATIVES (CONTINUED)
Interest rate swaps are used to reduce the impact of interest rate fluctuations
on specific floating-rate direct investments. Interest is exchanged
periodically on the notional value, with the Company receiving the fixed rate
and paying various short-term LIBOR rates on a net exchange basis. The net
amount received or paid under these swaps is reflected as an adjustment to
investment income.
Interest rate swaps are also used to modify the interest characteristics of
certain blocks of annuity contract deposits. Interest is exchanged periodically
on the notional value, with the Company receiving a fixed rate and paying a
short-term LIBOR rate on a net exchange basis. The net amount received or paid
under this swap is reflected as an adjustment to annuity benefits.
The Company is exposed to credit risk in the event of non-performance by
counterparties to swap agreements. The Company limits this exposure by entering
into swap agreements with counterparties having high credit ratings and by
regularly monitoring the ratings. The Company's credit exposure on swaps is
limited to the fair value of swap agreements that are favorable to the Company.
The Company does not expect any counterparty to fail to meet its obligation;
however, non-performance would not have a material adverse effect on the
Company's financial position or results of operations. The Company's exposure to
market risk is mitigated by the offsetting effects of changes in the value of
swap agreements and the related credited interest on annuities.
Futures contracts were entered into and terminated during 1995 to hedge existing
and anticipated investment transactions. No significant gain or loss was
recognized on the 1995 contracts.
4. SUBSIDIARIES
The Company wholly-owns two insurance subsidiaries. First Alexander Hamilton
Life Insurance Company is domiciled in the state of New York and writes
primarily universal life and annuity business solely in that state. AH
(Michigan) Life Insurance Company (AH(M)) is domiciled in the state of Michigan.
AH(M) was formed in September 1996 by issuing $2.0 million in common stock.
Shortly thereafter, AH(M) reinsured a block of PPA business initially ceded by
the Company to Household affiliates and a block of annuity business ceded to it
by the Company. The Company also wholly-owns a capital management
subsidiary, Alexander Hamilton Capital Management, Inc. (AHCMI).
24
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
4. SUBSIDIARIES (CONTINUED)
Statutory-basis financial information of the Company's two insurance company
subsidiaries is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SUMMARY STATUTORY - BASIS FIRST ALEXANDER HAMILTON AH (MICHIGAN) LIFE
BALANCE SHEETS LIFE INSURANCE COMPANY INSURANCE COMPANY
-------------------------------------------------------
DECEMBER 31 DECEMBER 31
1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Investments $491,549 $477,546 $759,445 $799,980
Other assets 8,085 7,785 10,987 11,833
-------------------------------------------------------
Total admitted assets $499,634 $485,331 $770,432 $811,813
-------------------------------------------------------
-------------------------------------------------------
Insurance reserves $457,320 $449,357 $725,909 $768,229
Other liabilities 6,890 7,328 17,479 18,947
Capital and surplus 35,424 28,646 27,044 24,637
-------------------------------------------------------
Total liabilities and capital
and surplus $499,634 $485,331 $770,432 $811,813
-------------------------------------------------------
-------------------------------------------------------
<CAPTION>
AH (MICHIGAN)
SUMMARY STATUTORY - BASIS FIRST ALEXANDER HAMILTON LIFE INSURANCE
STATEMENTS OF INCOME LIFE INSURANCE COMPANY COMPANY
-------------------------------------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $89,544 $130,821 $58,702 $794,818
Expenses 83,415 129,394 56,290 798,926
-------------------------------------------------------
Net income (loss) $ 6,129 $ 1,427 $ 2,412 $ (4,108)
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
The cost of the Company's investment in the common stock of its subsidiaries was
$51.8 million at December 31, 1997 and 1996. None of the Company's insurance
subsidiaries paid dividends to the Company in any year presented.
The operations and net worth of AHCMI are not significant.
25
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
5. POLICY LIABILITIES
The liability for future contract benefits for universal life products is
computed using the Model Regulation reserve method, using the 1980
Commissioner's Standard Ordinary (CSO) mortality table, and interest rates from
4.00% to 6.00%.
The policy reserves for immediate annuities issued prior to 1986 are calculated
using the 1971 Individual Annuity Mortality Table and interest rates between
7.50% and 11.25%. For immediate annuities issued 1986 and forward, the reserves
are calculated using the 1983 Annuity Mortality Table and interest rates from
5.00% to 9.25%. For deferred annuities, the Commissioner's Annuity Reserve
Valuation Method (CARVM) is used with a 4.00% to 8.75% interest rate assumption.
Policy reserves applicable to ordinary life policies are calculated on either
the net level basis or preliminary term basis. The effect of using a
preliminary term reserve basis is to partially offset the effect of immediately
charging the costs of acquiring business against income. For policies issued
prior to 1989, the statutory interest and mortality assumptions used are from
the 1958 CSO Table, with interest rates ranging from 2.50% to 6.00%. For
policies issued after 1988, the 1980 CSO Table with 4.00% to 5.50% interest
rates is used.
Credit life policy liabilities are calculated on the net level basis using both
the 1958 Commissioner's Extended Term (CET) and the 1941 and 1980 CSO Tables.
Interest rates for these tables range from 3.00% to 5.50%.
26
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
6. ANNUITY RESERVES
The Company's annuity reserves and deposit fund liabilities that are subject to
discretionary withdrawal (with adjustment), subject to discretionary withdrawal
(without adjustment), and not subject to discretionary withdrawal provisions are
summarized as of December 31 as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
Amount Percent Amount Percent
----------------- -----------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
(with adjustment):
At book value less current
surrender charge $1,009.5 23.9% $1,149.4 26.3%
At market value 10.8 0.3 4.1 0.1
----------------- -----------------
Total with adjustment or at market value 1,020.3 24.2 1,153.5 26.4
Subject to discretionary withdrawal
(without adjustment):
At book value with minimal or no
charge or adjustment 1,805.8 42.8 1,792.8 41.0
Not subject to discretionary withdrawal 1,393.0 33.0 1,423.7 32.6
----------------- -----------------
Total annuity reserves and deposit fund
liabilities--before reinsurance 4,219.1 100.0% 4,370.0 100.0%
------ ------
------ ------
Less reinsurance ceded 1,694.5 1,748.7
-------- --------
Total annuity actuarial reserves and
deposit fund liabilities (net) $2,524.6 $2,621.3
-------- --------
-------- --------
</TABLE>
The annuity reserves not subject to discretionary withdrawal are comprised
primarily of Periodic Payment Annuities.
27
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
7. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claims adjustment expenses for
the accident and health business is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 8,274 $6,457 $22,607
Less reinsurance recoverables 5,697 3,875 240
-----------------------------------
Net balance at January 1 2,577 2,582 22,367
Plus claims incurred:
Current - 2,931 6,949
Prior (2,571) (157) (2,127)
-----------------------------------
(2,571) 2,774 4,822
Less claims paid:
Current - 946 5,081
Prior 6 1,833 19,526
-----------------------------------
6 2,779 24,607
Net balance at December 31 - 2,577 2,582
Plus reinsurance recoverables 332 5,697 3,875
-----------------------------------
Balance at December 31 $ 332 $8,274 $ 6,457
-----------------------------------
-----------------------------------
</TABLE>
The year end liability for unpaid claims and claim adjustment expenses for
accident and health insurance is included in the aggregate reserve for accident
and health policies and policy and contract claims in the Statements of Admitted
Assets, Liabilities, Capital and Surplus. The Company began to exit the
accident and health line of business in 1996. No additional premiums or return
premiums have been accrued as a result of the changes to the prior year's unpaid
claim liability.
The liability for unpaid claims and claim adjustment expenses for credit life
insurance amounted to $0 and $295 thousand as of December 31, 1997 and 1996,
respectively.
28
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
8. REINSURANCE
The Company attempts to reduce its exposure to significant individual claims by
reinsuring portions of certain individual life insurance policies and annuity
contracts written. The Company reinsures the portion of an individual life
insurance risk that exceeds amounts ranging from $250 thousand to $1.0 million
based on the year of policy issue. The Company assumes portions of the life
risks underwritten by certain other insurers on a limited basis, but amounts
related to assumed reinsurance are not material to the financial statements.
The principal effects of these transactions with the assuming companies are
summarized as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------
<S> <C> <C> <C>
Premiums $ 94.5 $264.4 $172.9
Consideration for recaptured reserves - - 64.9
(Decrease) increase in aggregate
reserves ceded (53.8) 416.5 (26.6)
Policy benefits 179.3 200.1 58.6
Commissions 1.9 11.7 9.5
</TABLE>
The principal effects of the reinsurance activity associated with the
acquisition of the Company by Jefferson-Pilot Corporation in 1995, as discussed
in Note 1, was to decrease reserves by $2,280.5 million and to increase surplus
by $121.4 million for the excess of reserves ceded over consideration paid.
Amounts payable or recoverable for reinsurance on policy and contract
liabilities are not subject to periodic or maximum limits. At December 31, 1997,
the Company's reinsurance recoverables are not material and no individual
reinsurer owed the Company an amount that was equal to or greater than 2% of the
Company's surplus.
In 1997, 1996, and 1995 the Company did not commute any ceded reinsurance. In
1997, the Company did not enter into any new agreements that reinsured policies
or contracts that were in-force or had existing reserves as of the effective
date of such agreements. In 1996 and 1995, the Company entered into such
transactions. The reserve credits as a result of those transactions were
$344.4 million and $1,617.3 million, respectively.
29
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
8. REINSURANCE (CONTINUED)
The Company, nor any of its related parties, control, either directly or
indirectly, any reinsurers with which the Company conducts business other than
AH(M). As discussed in Note 4, certain annuity business was reinsured in
September 1996 in which the Company transferred $319.3 million in assets and
$349.2 million in reserves to AH(M). No policies issued by the Company have
been reinsured with a foreign company which is controlled, either directly or
indirectly, by a party not primarily engaged in the business of insurance.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits. The Company does not have any
reinsurance agreements in effect in which the amount of losses paid or accrued
through December 31, 1997 would result in a payment to the reinsurer of amounts
which, in the aggregate and allowing for offset of mutual credits from other
reinsurance agreements with the same reinsurer, exceed the total direct premiums
collected under the reinsured policies.
Reinsurance contracts do not relieve the Company from its primary obligation to
policyholders. Therefore, the failure of a reinsurer to discharge its
reinsurance obligations could result in a loss to the Company. The Company
regularly evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk related to reinsurance activities. No significant
credit losses resulted from the Company's reinsurance activities during the
three years ended December 31, 1997.
9. SEPARATE ACCOUNTS
In 1996, the Company began issuing nonguaranteed individual annuity contracts.
Separate accounts, primarily for those individual policyholders, do not have any
minimum guarantees and the investment risks associated with market value changes
are borne entirely by the policyholder. The assets in the accounts, carried at
estimated fair value, consist of investments in unit investment trusts.
30
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
9. SEPARATE ACCOUNTS (CONTINUED)
Information regarding the separate accounts of the Company as of and for the
year ended December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
NON-INDEXED
NONGUARANTEED GUARANTEED
SEPARATE ACCOUNTS >4% TOTAL
-------------------------------------------------------
<S> <C> <C> <C>
Premiums, deposits and other
considerations $ 5,308 $ 7 $ 5,315
-------------------------------------------------------
-------------------------------------------------------
Reserves for accounts with
assets at market value $10,547 $255 $10,802
-------------------------------------------------------
-------------------------------------------------------
Reserves by withdrawal
characteristics:
Subject to discretionary
withdrawal at market value $10,547 $ - $10,547
Subject to discretionary
withdrawal with market
value adjustment - 255 255
-------------------------------------------------------
$10,547 $255 $10,802
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Transfers as reported in the Summary of Operations
of the Separate Accounts Statement:
Transfers to separate accounts $5,315
Transfers from separate accounts 176
----------
Transfers to separate accounts as reported in the
Summary of Operations of the Life, Accident &
Health Annual Statement $5,491
----------
----------
</TABLE>
31
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
10. BENEFIT PLANS
PENSION PLANS
Prior to October 1, 1995, the Company participated in Household International,
Inc.'s defined benefit pension plans which covered all eligible employees. The
benefits under this plan were based primarily on years of service. These plans
were administered by Household International, Inc. which assessed an annual
pension income or expense to the Company based on the Company's pro-rata
participation. Effective October 1, 1995, the Company's employees participate
in the Jefferson-Pilot Corporation defined benefit pension plans covering
substantially all Company employees. The plans are noncontributory and are
funded through group annuity contracts with Jefferson-Pilot Life Insurance
Company (JP Life), an affiliate. The assets of the plans are those of the
related contracts, and are primarily held in the separate accounts of JP Life.
The plans provide benefits based on annual compensation and years of service.
The funding policy is to contribute annually no more than the maximum amount
deductible for federal income tax purposes. The plan is administered by
Jefferson-Pilot Corporation.
The pension benefit credited to the Company by Jefferson-Pilot Corporation
was $620 thousand and $29 thousand in 1997 and 1996, respectively. No pension
expense was allocated to the Company in 1995 as the plans were over-funded.
The Company's portion of prepaid pension cost totaled $3.9 million and $3.3
million at December 31, 1997 and 1996, respectively.
DEFINED CONTRIBUTION PLAN
Prior to October 1, 1995, the Company participated in Household International,
Inc.'s defined contribution plan. Effective October 1, 1995, the Company
participates in Jefferson Pilot Corporation's defined contribution plan. Under
both plans, each participant's contribution was matched in whole or in part by
the Company up to a maximum of 6% of the participant's compensation. In 1997,
these costs totaled $23 thousand. In 1996, there was an $86 thousand benefit
due to excess accruals in 1995. These costs totaled approximately $1 million in
1995.
32
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
10. BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFIT PLANS
Effective October 1, 1997, the Company participates in contributory health
care and life insurance benefit plans sponsored by Jefferson-Pilot
Corporation. Nonpension postretirement benefits expense was $386 thousand and
$267 thousand for the years ended December 31, 1997 and 1996, respectively.
Net postretirement benefit cost for the year ended December 31, 1995 was $1.0
million, and included the expected cost of such benefits for newly eligible
or vested employees, interest cost, gains and losses arising from differences
between actuarial assumptions and actual experience, and amortization of the
transition obligation. The company's accrued postretirement benefit cost was
$2.8 million at December 31, 1997 and 1996.
DEFERRED AGENT COMPENSATION
The Company sponsors a contributory deferred compensation plan and a major
producer's incentive plan for certain qualified agents. The accumulated
value of both the Company and agent contributions was $48.7 million and $43.9
million at December 1997 and 1996, respectively, and is included with other
liabilities. In 1991, the Company established a Rabbi Trust supporting the
deferred compensation plan liability which is recorded at the market value of
the underlying assets of $40.9 million and $39.0 million at December 31, 1997
and 1996, respectively. The trust is included with other assets.
11. STOCK OPTION PLAN
Jefferson-Pilot Corporation sponsors a Long Term Incentive Plan of which
officers of Jefferson-Pilot Corporation and its subsidiaries may qualify for
participation. A committee of directors awards nonqualified or incentive stock
options and stock appreciation rights, and makes grants of the Company's stock
to the employees of Jefferson-Pilot Corporation and certain full-time life
insurance agents. Stock grants may be either restricted stock or unrestricted
stock distributed upon the achievement of performance goals established by the
committee.
33
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
12. FEDERAL INCOME TAXES
The AHL Group (the Company and its wholly-owned subsidiaries) was acquired
from Household International, Inc. on September 30, 1995. For the period
October 1 to December 31, 1995, and for the years ended December 31, 1997 and
1996, the Company was included in the consolidated life/non-life federal
income tax return with its subsidiaries FAHL, AH(M) and AHCMI. The
consolidated tax provision is allocated to each separate company in amounts
generally equivalent to those determinable if each company filed a separate
return.
Amounts due from the subsidiaries for federal income taxes were $914 thousand
and $451 thousand at December 31, 1997 and 1996, respectively.
Income before federal income taxes differs from taxable income principally due
to dividends-received tax deductions, policy acquisition costs, and differences
in reserves for policy and contract liabilities for tax and financial reporting
purposes.
The AHL Group had tax capital loss carryforwards of $6 million and $15 million
in the 1997 and 1996 tax years, respectively, which can be carried forward into
the next five tax years.
The AHL Group paid federal income taxes in the 1997, 1996, and October 1 through
December 31, 1995 tax years of $31 million, $24 million, and $47 million,
respectively.
13. CAPITAL AND SURPLUS
The Company has the following shares authorized (and outstanding): 60,000,000
shares Series A Common Shares (2,000,000 shares outstanding), par value $1 per
share, 600,000 shares Series B Common Shares (500,000 shares outstanding), par
value $1 per share, and 500,000 shares Floating Rate Preferred Shares (500,000
shares outstanding), par value $100 per share. Dividends on the preferred stock
are cumulative and are payable quarterly in arrears at the rate of LIBOR plus
1.25% per annum. The preferred stock is redeemable by the Company at any time
after October 5, 2000, to the extent that funds are legally available, at a
redemption price of $100 per share plus accrued and unpaid dividends.
Under the Michigan Insurance Code, the Company is required at all times to
maintain a minimum capital and surplus of $1 million. Additionally, dividend
payments can be made only from the unassigned surplus and must be approved by
the Insurance Commissioner if they exceed certain statutory limitations. As of
December 31, 1997, the maximum dividend amount payable by the Company without
the Commissioners approval is $71.5 million.
34
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
13. CAPITAL AND SURPLUS (CONTINUED)
In 1994, the Company issued a surplus note to Household International, Inc. for
cash. In 1995, the surplus note was purchased by GARCO Capital Corp., an
affiliate, as discussed in Note 1. The note calls for the Company to pay
interest semiannually on March 31 and September 30. The Company has the right
to prepay the note on any March 31 or September 30 after September 30, 2004.
Any payment of interest or repayment of principal may be paid out only if the
Company has obtained the prior written approval of the Michigan Insurance
Bureau, has adequate earned surplus funds for such payment, and if such payment
would not cause the Company to violate the statutory capital requirements as set
forth in the Michigan Insurance Code. A summary of the terms of this surplus
note follows:
<TABLE>
<CAPTION>
INTEREST
PAID
DATE INTEREST AMOUNT OF CURRENT CURRENT TOTAL ACCRUED DATE OF
ISSUED RATE NOTES VALUE YEAR INTEREST PAID INTEREST MATURITY
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/29/94 9.76% $50,000,000 $50,000,000 $4,880,000 $14,653,656 $1,220,000 9/30/24
</TABLE>
The Company accrues interest as an increase to the note balance in surplus.
Life insurance companies are subject to certain Risk-Based Capital ("RBC")
requirements as specified by the NAIC. Under those requirements, the amount of
capital and surplus maintained by a life insurance company is to be determined
based on the various risk factors related to it. At December 31, 1997, the
Company meets the RBC requirements.
14. TRANSACTIONS WITH AFFILIATED COMPANIES
At December 31, 1997 and 1996, the Company held in its investment portfolio
bonds with a par value of $35.3 and $31.3 million, respectively, issued by
Jefferson-Pilot Communications Company, an affiliate. Interest earned on these
bonds totaled $2.0 million in 1997 and $768 thousand in 1996.
As discussed in Note 8, the Company reinsured certain annuity business with
AH(M), an affiliate, in 1996.
35
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
14. TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
The Company wrote credit insurance policies covering loans originated by
Household Finance Company's consumer finance subsidiaries and Household
International, Inc.'s banking subsidiaries. Transactions with these companies
which occurred prior to October 1, 1995 are deemed to be transactions with
affiliates. As a result of the acquisition, transactions with these companies
occurring after September 30, 1995 were not deemed to be transactions with
affiliates. The principal affiliate transactions and balances included in the
accompanying financial statements for 1995 are summarized as follows (in
millions):
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Premiums $43.8
Policy benefits 26.6
Increase (decrease) in aggregate reserves (4.0)
</TABLE>
Prior to October 1, 1995, the Company paid Household Finance for administrative
expenses incurred on the Company's behalf. Effective October 1, 1995, all
employees were transferred to Jefferson-Pilot Life Insurance Company, and the
Company began paying Jefferson-Pilot Corporation and/or Jefferson-Pilot Life
Insurance Company for certain expenses incurred on the Company's behalf. The
total amounts paid for these expenses were $32.4 million, $17.7 million and
$2.9 million in 1997, 1996, and 1995 respectively. Costs are allocated to the
Company based on cost allocations arrangements based on GAAP.
The Company leased two office buildings to Household Finance and one building to
Household Credit Services, Inc., which were considered affiliates prior to
October 1, 1995. The investment in these buildings was $26.8 million at
December 31, 1995. The building leases had combined rentals of $3.4 million for
the nine months ended September 30, 1995.
Effective October 1, 1994, the Company entered into a reinsurance ceded treaty
with Hamilton National Life Insurance Company (HNLIC), a wholly-owned
subsidiary, consisting of a block of annuity contracts. The funds backing the
reserves, amounting to $64.0 million, were payable to HNLIC as of December 31,
1994. During 1995 these annuities were recaptured by the Company prior to the
acquisition.
36
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
14. TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
Prior to the acquisition, the stock of subsidiary companies Alexander Hamilton
Insurance Company of America, Alexander Hamilton Insurance Agency, Inc.,
Hamilton National Life Insurance Company, Alexander Hamilton Life Insurance
Company of Arizona, Prospect Life Insurance Company, and Investment Holdings
Company was transferred through a dividend payment to Household Group. The
combined statutory equity of these subsidiaries was $138.0 million at the time
of the dividend payment. Additionally, a cash dividend of $60 million was paid
to Household International, Inc.
Dividends of $24.0 million were received from HNLIC during 1995. All dividends
are reflected in investment income in the accompanying Statements of Operations.
During 1995, preceding the sale, the Company contributed $73.7 million, $112.0
million, $17.1 million and $78.0 million to its subsidiaries Investment Holdings
Company, Alexander Hamilton Life Insurance Company of Arizona, Hamilton National
Life Insurance Company, and Prospect Life Insurance Company, respectively. In
addition, Household International, Inc. contributed $46.7 million to the
Company.
15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values and fair values of financial instruments as of December 31
are summarized as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------------ -------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Bonds $ 4,712 $ 4,781 $ 4,662 $ 4,709
Stocks 75 76 103 101
Mortgage loans 409 411 277 273
Policy loans 111 111 97 97
FINANCIAL LIABILITIES
Annuity contract liabilities
in accumulation phase (2,479) (2,444) (2,591) (2,549)
Borrowed money (23) (23) (63) (63)
OFF-BALANCE-SHEET
FINANCIAL INSTRUMENTS
Interest rate swaps - 3 - (1)
</TABLE>
37
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of cash, short-term investments, balances due on account from
agents, reinsurers and others, and accounts payable approximate their carrying
amounts as reflected in the Statements of Assets, Liabilities, Capital and
Surplus due to their short-term maturity or availability. Assets and
liabilities related to the Company's separate accounts are reported at fair
value in the accompanying Statements of Assets, Liabilities, Capital and
Surplus.
The fair values of bonds and stocks securities have been determined primarily
from values published by the NAIC Securities Valuation Office (SVO). In some
instances, the SVO's fair value for certain bonds are deemed to equal amortized
cost. These fair values are disclosed together with carrying amounts in Note 2.
The fair value of the mortgage loan portfolio has been estimated by discounting
expected future cash flows using the interest rate currently offered for similar
loans.
The fair values of policy loans on universal life-type and annuity products
approximate carrying values due to the variable interest rates charged on those
loans.
Annuity contracts issued by the Company do not generally have defined
maturities. Therefore, fair values of the Company's liabilities under annuity
contracts, the carrying amounts of which are included with the aggregate
reserve for life policies in the accompanying Statements of Admitted Assets,
Liabilities, Capital and Surplus, are estimated to equal the cash surrender
values of the underlying contracts.
The fair value of the liability for borrowed money approximates its carrying
amounts, which amounts include accrued interest.
The fair value of interest rate swaps have been estimated based on prices
provided by the counterparties.
The determination of the fair value of the surplus note is not practicable due
to the restrictions on repayment of principal and interest amounts.
38
<PAGE>
Alexander Hamilton Life Insurance Company of America
Notes to Financial Statements - Statutory - Basis (continued)
16. COMMITMENTS AND CONTINGENT LIABILITIES
The Company routinely enters into commitments to extend credit in the form of
mortgage loans and to purchase certain debt instruments for its investment
portfolio in private placement transactions. The fair value of outstanding
commitments to fund mortgage loans and to acquire bonds in private placement
transactions, which are not reflected in the balance sheets, approximates $42.8
million as of December 31, 1997.
In the normal course of business, the Company is involved in various lawsuits.
Because of the considerable uncertainties that exist, the Company cannot
predict the outcome of pending or future litigation. However, management
believes that the resolution of pending legal proceedings will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company leases electronic data processing equipment and field office space
under noncancelable operating lease agreements. The lease terms generally range
from three to five years. Annual rent and future rental commitments are not
significant.
39
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(b) Exhibits:
(1) Resolution of the Board of Directors of Alexander Hamilton Life
Insurance Company of America authorizing establishment of the
Separate Account.1 /
(2) Not Applicable.
(3) Principal Underwriting Agreement by and between Alexander Hamilton
Life Insurance Company of America, on its own behalf and on the behalf
of the Separate Account, and Jefferson-Pilot Investor Services, Inc.
3/
(4) (a) Form of Contract for the Alexander Hamilton Life Insurance
Company of America Variable Annuity.2/
(b) Form of IRA Endorsement.2/
(c) Form of IRA Disclosure and Financial Disclosure Endorsement.2/
(d) Form of TSA Endorsement.2/
(e) Form of 401(a) Endorsement.2/
(5) (a) Form of Application for the Alexander Hamilton Life Insurance
Company of America Variable Annuity Contract.4/
(b) Form of Application Supplement for 1035 Exchange.2/
(6) (a) Charter of Alexander Hamilton Life Insurance Company of
America.1/
(b) By-Laws of Alexander Hamilton Life Insurance Company of America
1/
(7) Not Applicable.
(8) (a) Participation Agreement by and between Alexander Hamilton Life
Insurance Company of America, Fidelity Distributors Corporation
and Variable Insurance Products Fund.4/
C-1
<PAGE>
(b) Participation Agreement by and between the Alexander Hamilton
Life Insurance Company of America, Fidelity Distributors
Corporation and Variable Insurance Products Fund II.4/
(c) Participation Agreement by and between Alexander Hamilton Life
Insurance Company of America, Massachusetts Financial Services
Company and MFS Variable Insurance Trust.4/
(d) Participation Agreement by and between Alexander Hamilton Life
Insurance Company of America, OppenheimerFunds, Inc. and
Oppenheimer Variable Account Funds.5/
(9) Opinion and Consent of Counsel.2/
(10) (a) Consent of Ernst & Young, LLP.5/
(10) (b) Consent of Arthur Andersen LLP.5/
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule of Computation of Performance.4/
(14) Financial Data Schedule.5/
1/ Incorporated by reference to the initial Registration Statement on Form N-4
for the Alexander Hamilton Variable Annuity Separate Account filed on
February 24, 1994 (Registration No. 33-75714).
2/ Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 for the Alexander Hamilton Variable
Annuity Separate Account filed on September 8, 1995 (Registration
No. 33-75714).
3/ Incorporated by reference to the Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 for the Alexander Hamilton Variable
Annuity Separate Account filed on May 2, 1997 (Registration
No. 33-75714).
4/ Incorporated by reference to the Post-Effective Amendment No. 4 to the
Registration Statement on Form N-4 for the Alexander Hamilton Variable
Annuity Separate Account filed on February 26, 1998 (Registration No.
33-75714).
5/ Filed herewith
C-2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Position and Offices
Business Address with Depositor
- ---------------- --------------
David A. Stonecipher Director; Chairman of the
Board and President
Dennis R. Glass Director; Executive Vice
President and Treasurer
John D. Hopkins Director; Executive Vice
President and General Counsel
Kenneth C. Mlekush Director; Executive Vice
President
James T. Ponder Director; Executive
Vice President
E. Jay Yelton Director; Executive Vice
President
Reggie D. Adamson Senior Vice President-
Finance
Charles P. Elam Senior Vice President and
Annuity Actuary
John C. Ingram Senior Vice President-
Securities
Hal B. Phillips Senior Vice President and
Life Actuary
Dale E. Cooper Vice President-Variable
Products
Russell C. Simpson Vice President
Robert A. Reed Vice President and
Secretary
Donna L. Drew Second Vice President
32991 Hamilton Court
Farmington Hills, MI 48334
*/ Except as otherwise noted, the Principal business address for each officer
and director is 100 N. Greene St., Greensboro, North Carolina, 27401.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
C-3
<PAGE>
The Company owns the assets comprising each Variable Subaccount of the
Registrant. The Company is an wholly-owned subsidiary of Jefferson-Pilot
Corporation.
Separate financial statements are filed for the Registrant.
The following is a list of corporations controlled by Jefferson-Pilot
Corporation:
Organized % Voting
Under Stock
Names of Subsidiaries Laws of: Owned by
- --------------------- -------- Parent
------
Jefferson-Pilot Life Insurance Company North Carolina 100%
Jefferson Pilot Variable Corporation North Carolina 100%
Jefferson-Pilot Communications Company North Carolina 100%
Alexander Hamilton Life Insurance Company
of America Michigan 100%
Alexander Hamilton Capital Management, Inc. Michigan 100%
AH (Michigan) Life Insurance Company Michigan 100%
First Alexander Hamilton Life Insurance Company New York 100%
Jefferson Pilot Financial Insurance Company New Hampshire 100%
Jefferson Pilot LifeAmerica Insurance Company New Jersey 100%
Sovereign Life Insurance Company New Hampshire 100%
Jefferson Pilot Securities Corporation New Hampshire 100%
Omitted from the list are subsidiaries of Jefferson-Pilot Corporation and the
other companies listed which, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary. Since none of the
companies listed is a subsidiary of the registrant, only the financial
statements of the registrant are filed.
C-4
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 13, 1998, there were 246 Owners of the Contracts, 133 of which
owned non-qualified Contracts and 113 of which owned qualified Contracts.
ITEM 28. INDEMNIFICATION
The following provisions regarding the Indemnification of Directors and Officers
of the Depositor are applicable:
Section 450.1562 of Michigan Compiled Laws allows a corporation to indemnify a
person who was or is party or is threatened to be made a party to a threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he or she is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or not, against
expenses, including attorneys' fees, and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action or suit, if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation or its shareholders,
Indemnification shall not be made for a claim, issue, or matter in which the
person has been found liable to the corporation. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the '1933 Act') may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company
C-5
<PAGE>
has been advised that in the opinion of the Securities and Exchange Commission
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 the Company of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered), the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Jefferson Pilot Variable Corporation also acts as principal underwriter for
the following:
- Jefferson-Pilot Separate Account A of Jefferson-Pilot Life Insurance
Company
- JPF Separate Account A of Jefferson Pilot Financial Insurance Company
- JPF Separate Account C of Jefferson Pilot Financial Insurance Company
- JPF Separate Account B of Jefferson Pilot LifeAmerica Insurance
Company
- JPF Separate Account D of Jefferson Pilot LifeAmerica Insurance
Company
- Jefferson Pilot Variable Fund, Inc.
(b) The Directors and Officers of Jefferson Pilot Variable Corporation, the
principal underwriter for the Registrant, are as follows:
NAME AND PRINCIPAL POSITIONS AND
BUSINESS ADDRESS OFFICES WITH UNDERWRITER
- ---------------- ------------------------
Ronald R. Angarella Director and President
David K. Booth Vice President, Marketing
W. Thomas Boulter Chief Compliance Officer
Charles C. Cornelio Director
Kevin Haddad Compliance Officer
100 N. Greene Street
Greensboro, NC 27401
Carol R. Hardiman Director
Shari J. Lease Secretary
John A. Weston Chief Financial Officer
Stafford Moser Assistant Vice President, Marketing
100 N. Greene Street
Greensboro, NC 27401
Address (except as otherwise noted):
One Granite Place
Concord, NH 03301
(c)
(1) (2) (3) (4) (5)
NAME OF NET UNDERWRITING
PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
----------- ----------- ------------- ----------- ------------
1997 Jefferson Pilot $ 0 $ 0 $ 66,407 $ 0
Variable
Corporation
C-6
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by the Company, at 100 North Green St., Greensboro, North Carolina
27401 and One Granite Place, Concord, New Hampshire 03301.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as Premium Payments under the Contract may be accepted
(except in accordance with SEC staff no-action correspondence)
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included
C-7
<PAGE>
in the Prospectus that the applicant can remove to send for a Statement of
Additional Information or (ii) a space in the Contract Application that an
applicant can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request to the Company at the address or
phone number listed in the Prospectus.
(d) Alexander Hamilton Life Insurance Company of America 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 Alexander Hamilton Life
Insurance Company of America.
SECTION 403(b) REPRESENTATIONS
The Company represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88), regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment
Company Act of 1940, in connection with redeemability restrictions on Section
403(b) Contracts, and that paragraphs numbered (1) through (4) of that letter
will be complied with.
STATEMENT PURSUANT TO RULE 6c-7: TEXAS OPTIONAL RETIREMENT PROGRAM
The Company and the Separate Account rely on 17 C.F.R. Section 270.6c-7, and
represent that the provisions of that Rule have been or will be complied with.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for effectiveness of this registration statement pursuant to paragraph (b) of
rule 485 under the Securities Act of 1933, and has duly caused this
Post-Effective Amendment No. 5 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greensboro,
State of North Carolina on this 13th day of April, 1998.
ALEXANDER HAMILTON VARIABLE ANNUITY
SEPARATE ACCOUNT
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF
AMERICA
Depositor
/s/ David A. Stonecipher
----------------------------------------
David A. Stonecipher
Chairman of the Board, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ David A. Stonecipher
Director; Chairman of the Board, April 13, 1998
President
David A. Stonecipher
/s/ Dennis R. Glass
Director; Executive Vice President April 13, 1998
Dennis R. Glass and Treasurer
/s/ John D. Hopkins
Director; Executive Vice President April 13, 1998
John D. Hopkins and General Counsel
/S/ Kenneth C. Mlekush
Director; Executive Vice President April 13, 1998
Kenneth C. Mlekush
C-9
<PAGE>
Signatures Title Date
- ---------- ----- ----
/s/ James T. Ponder
Director; Executive Vice President April 13, 1998
James T. Ponder
/s/ E. Jay Yelton
Director; Executive Vice President April 13, 1998
E. Jay Yelton
/s/ Donna L. Drew
Director; Second Vice President April 13, 1998
Donna L. Drew
C-10
<PAGE>
EXHIBIT INDEX
Exhibit Description of Page
No. Exhibit No.
--- ------- ---
(8)(d) Participation Agreement by and
between Alexander Hamilton Life
Insurance Company of America,
OppenheimerFunds, Inc. and
Oppenheimer Variable Account Funds...............
(10)(a) Consent of Ernst & Young, LLP....................
(10)(b) Consent of Arthur Andersen LLP...................
(14) Financial Data Schedule..........................
<PAGE>
EXHIBIT 8(d)
PARTICIPATION AGREEMENT
By and Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
ALEXANDER HAMILTON LIFE INSURANCE COMPANY OF AMERICA
and
OPPENHEIMERFUNDS, INC.
THIS AGREEMENT, made and entered into this 1st day of December,
1997 by and among Alexander Hamilton Life Insurance Company of America, a
Michigan Corporation (hereinafter the "Company") on its own behalf and on behalf
of each separate account of the Company named in Schedule 1 to this Agreement,
as may be amended from time to time by mutual consent (each account referred to
as the "Account"), Oppenheimer Variable Account Funds, an open-end diversified
management investment company organized under the laws of the State of
Massachusetts (hereinafter the "Fund") and OppenheimerFunds, Inc., a Colorado
Corporation (hereinafter the "Adviser").
WHEREAS, the Fund engages in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts to be offered by insurance companies
(hereinafter "Participating Insurance Companies"); and
WHEREAS, beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular managed
portfolio (collectively the "Portfolios") of securities and other assets (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be amended from time to time by mutual consent); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated July 16, 1986 (File No. 812-6234), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Mixed and Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940 and serves as the investment adviser to the
Fund;
<PAGE>
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts (hereinafter "Contracts") under
the 1933 Act (unless an exemption from registration is available); and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company under the insurance laws of the State of Michigan, to set aside and
invest assets attributable to the Contracts. (The Contract(s) and the Account(s)
covered by the Agreement are specified in Schedule 2 attached hereto, as may be
amended from time to time by mutual consent); and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act (unless an exemption from registration is
available); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts named in Schedule 3
and the Fund is authorized to sell such shares to unit investment trusts such as
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire or by
a credit for any shares redeemed.
1.3. The Fund agrees to make an indefinite number of Fund
shares available for purchase at the applicable net asset value per share by the
Company for their separate Accounts listed in Schedule 2, on those days on which
the Fund calculates its net asset value pursuant to rules of the SEC; provided,
however, that the Board of Trustees of the Fund (hereinafter the "Trustees") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
1.4. The Fund agrees that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts, qualified
pension and retirement plans or such other
2
<PAGE>
persons as are permitted under applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), and regulations
promulgated thereunder, the sale of which will not impair the tax treatment
currently afforded the contracts.
1.5. The Fund shall not sell Fund shares to any insurance
company or separate account unless a contractual obligation is in effect with
respect to such sales to abide by the conditions of the Mixed and Shared Funding
Exemptive Order that are addressed in Section 3.4 and Article VII of this
Agreement.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.6, the Company shall be the designee of the Fund for
receipt of requests for redemption and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such request for redemption by 9:30 a.m. New York time on the next
following Business Day. Payment shall be made within the time period specified
in the Fund's prospectus or statement of additional information, in federal
funds transmitted by wire to the Company's account as designated by the Company
in writing from time to time.
1.7. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.6 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.8. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
1.9. Issuance and transfer of the Funds' shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.10. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income, dividends or capital gain
distributions payable on the Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company reserves the right to
revoke this election on 10 business days notice and thereafter to receive all
such dividends and distributions in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and distributions.
1.11. The Fund shall make the net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m. New
York time.
3
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts
are or will be registered under the 1933 Act (unless an exemption from
registration is available) and, that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable state law and that it has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding. The Company shall
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company shall register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. Subject to Article VI hereof, the Company represents
that it believes that the Contracts are currently and at the time of issuance
will be treated as annuity contracts under applicable provisions of the Internal
Revenue Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall take all reasonable steps to remain, registered under the 1940 Act for
as long as the Fund shares are sold. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
2.5. If the Fund considers the adoption of one or more plans
under Rule 12b-1 under the 1940 Act to finance distribution expenses (a "12b-1
Plan"), the Company agrees to provide the Trustees any information as may be
reasonably necessary for the Trustees to determine whether to adopt a 12b-l Plan
or Plans. The Fund shall notify the Company upon commencing to finance
distribution expenses pursuant to Rule 12b- 1.
2.6. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and intends to continue to comply with applicable provisions of the 1940
Act.
4
<PAGE>
2.7. The Adviser represents and warrants that it is and
intends to remain duly registered under all applicable federal and state
securities laws and that it shall perform its obligations for the Fund in
compliance with any applicable state and federal securities laws.
2.8. The Fund and Adviser each represent and warrant that
all of its respective Directors, Trustees, officers, employees, investment
advisers, and transfer agent of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond (which may, at the Fund's election, be
in the form of a joint insured bond) or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Section 17(g) and Rule 1 7g- 1 of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable insurance company.
2.9. The Company represents and warrants that all of its
directors, officers, employees, agents, investment advisers, and other
individuals and entities dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not less
than $3 million. The aforesaid includes coverage for larceny and embezzlement
and is issued by a reputable insurance company. The Company agrees that any
amount received under such bond in connection with claims that derive from
arrangements described in this Agreement will be paid by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Adviser in the event that such coverage no
longer applies.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS: VOTING
3.1. The Fund or the Adviser, at its expense, shall provide
a typewritten copy of the Fund's current prospectus and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is supplemented or amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense). Upon request, the
Adviser shall be permitted to review and approve the typeset form of the Fund's
prospectus prior to such printing.
3.2. The Fund's prospectus shall state that the statement of
additional information for the Fund is available from the Fund (or its transfer
agent) and shall print and provide such Statement to the Company and to any
owner of a Contract or prospective owner who requests such Statement at the
Fund's expense.
3.3. The Fund or the Adviser, at its expense, shall provide
the Company with a typewritten copy of the Fund's communications to shareholders
for printing and distributing to Contract owners and with copies of the Fund's
proxy material and semi-annual and annual reports to shareholders (or may, at
the Fund or the Adviser's option, reimburse the Company for the pro rata cost of
printing such reports) in such quantities as the Company shall reasonably
require, for distributing to Contract owners at the Company's expense. Upon
request, the Adviser shall be permitted to review and approve the typeset form
of such proxy material, communications and shareholder reports prior to such
printing.
3.4. If and to the extent required by law (or the Mixed and
Shared Funding Exemptive Order) the Company shall:
5
<PAGE>
(i) solicit voting instructions from Contract
owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners or
participants; and
(iii) vote Fund shares for which no instructions
have been received in the same proportion as
Fund shares of such Portfolio for which
instructions have been received from the
Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable Contract owners. The Company
reserves the right to vote Fund shares held in any Account in its own right, to
the extent permitted by law.
3.5. The Fund will comply with all applicable provisions of
the 1940 Act requiring voting by shareholders.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least fifteen
business days prior to its use. No such material shall be used if the Fund or
its designee reasonably objects in writing to such use within fifteen business
days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or the Adviser concerning
either of them in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee, except with the permission of the Fund.
The Fund agrees to respond to any request for approval in a prompt and timely
basis.
4.3. The Adviser or Fund shall furnish or cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material which the Adviser or Fund prepared or caused to be
prepared, in which the Company or its separate account is named, at least
fifteen business days prior to its use. No such material shall be used if the
Company or its designee reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4. The Adviser and the Fund shall not give any information
or make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than information or representations
contained in (i) the registration statement or prospectus for the Contracts, as
such registration statement and prospectus may be amended or supplemented from
time to time, (ii) reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners or participants, or
(iii) sales literature or other promotional material approved by the Company or
its designee, except with the permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.
6
<PAGE>
4.5. The Fund will provide to the Company at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and other
promotional materials in which the Company or its separate account is named,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to any Portfolio or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6. The Company will provide to the Fund at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, electronic media, or
other public media), sales literature (I.E., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees of
the Adviser, registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under NASD rules, the 1940 Act or
the 1933 Act.
4.8. The Company agrees and acknowledges that the Adviser is
the sole owner of the OppenheimerFunds, Inc. clasped hands mark and that all use
of any designation comprised in whole or part of such mark under this Agreement
shall inure to the benefit of the Adviser or the Fund. The Company shall not use
such mark on its own behalf or on behalf of each Account in connection with
marketing the Contracts without prior written consent of the Adviser, which
consent shall not be unreasonably withheld, delayed or conditioned. Upon
termination of this Agreement for any reason, the Company shall cease all use of
any such mark.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this Agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein or
in any other written agreement.
5.2. All expenses incident to performance by each party of
its respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, the preparation of all
7
<PAGE>
statements and notices required by any federal or state law, and all applicable
taxes on the issuance and transfer of the Fund's shares to the Company.
5.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus to Contract owners and
prospective Contract owners issued by the Company and of distributing the Fund's
proxy materials, communications and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will comply
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other modifications
to such Section or Regulations. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify the Company of such
breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance Contract owners; or (f) a decision by an insurer to disregard the
voting instructions of Contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company agrees to assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructioa2 are disregarded and by confirming in writing,
at the Fund's request, that the Company is unaware of any such potential or
existing material irreconcilable conflicts.
8
<PAGE>
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company and the relevant Participating Insurance Companies shall, at
their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected Contract owners and, as appropriate, segregating the assets
of any appropriate group (I.E., variable annuity Contract owners or life
insurance Contract owners, of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of Contract owners voting instructions, and if the
Company and/or the Fund and the Adviser reasonably determine that a material
irreconcilable conflict (as set forth in the Mixed and Shared Funding Exemptive
Order) may arise as a result, then the Company may be required, at the Fund's
election, to withdraw the Account's investment in the Fund and terminate this
Agreement. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented. Until such withdrawal and termination is implemented, the Fund
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Fund. Such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six (6) months after the Fund informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict.
Until such withdrawal and termination is implemented, the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
shares of the Fund, subject to applicable regulatory limitation. Such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any
9
<PAGE>
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. Upon request, the Company shall at least annually
submit to the Board such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Mixed and Shared Funding Exemptive Order)
on ter2~s and conditions materially different from those contained in the Mixed
and Shared Funding Exemptive Order, the (a) the Fund and/or the Participating
Insurance Companies (including the Company), as appropriate, shall take such
reasonable steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and
(b) Sections 3.4, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a). The Company agrees to indemnify and hold
harmless the Fund and the Adviser, each member of their Board of Trustees or
Board of Directors, each of their officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including reasonable legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition l)f the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in the registration
statement, prospectus or statement of
additional information for the Contracts or
contained in the Contracts or sales
literature or other promotional material for
the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or
are based upon the omission or the alleged
omission to state therein a material fact
required to be stated therein or necessary to
make the statements therein not misleading in
light of the circumstances which they were
made; provided that this agreement to
indemnify shall not apply as to any
Indemnified Party if such statement or
omission or such alleged statement or
omission was made in reliance upon and in
conformity with information furnished to the
Company by or on
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<PAGE>
behalf of the Fund or the Adviser for use in
the registration statement, prospectus or
statement of additional information for the
Contracts or in the Contracts or sales
literature (or any amendment or supplement)
or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the
Company (other than statements or
representations contained in the Fund
registration statement, Fund prospectus or
sales literature or other promotional
material of the Fund not supplied by the
Company or persons under its control) or
wrongful conduct of the Company or persons
under its control, with respect to the sale
or distribution of the Contracts or Fund
shares, provided any such statement or
representation or such wrongful conduct was
not made in reliance upon and in conformity
with information furnished to the Company by
or on behalf of the Advisor or the Fund; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained
in the Fund registration statement, Fund
prospectus, statement of additional
information or sales literature or other
promotional material of the Fund or any
amendment thereof or supplement thereto or
the omission or alleged omission to state
therein a material fact required to be stated
therein or necessary to make the statements
therein not misleading in light of the
circumstances in which they were made, if
such statement or omission was made in
reliance upon information furnished to the
Fund or the Adviser by or on behalf of the
Company or persons under its control; or
(iv) arise out of or result from any material
breach of any representation and/or warranty
made by the Company in this Agreement or
arise out of or result from any other
material breach of this Agreement by the
Company.
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2. INDEMNIFICATION BY ADVISER AND FUND
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8.2(a)(1). The Adviser agrees to indemnify and hold harmless
the Company and each of its directors and. officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in the registration
statement, prospectus, statement of
additional information or sales literature of
the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are
based upon the omission or the alleged
omission to state therein a material fact
required to be stated therein or necessary to
make the statements therein not misleading in
light of the circumstances in which they were
made; provided that this agreement to
indemnify shall not apply as to any
Indemnified Party if such statement or
omission or such alleged statement or
omission was made in reliance upon and in
conformity with information furnished to the
Adviser or the Fund by or on behalf of the
Company for use in the Contracts, the
Contract or Fund registration statement,
prospectus or statement of additional
information, or sales literature or other
promotional material for the Contracts or of
the Fund; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or
in the Contract or Fund registration
statement, the Contract or Fund prospectus,
statement of additional information, or sales
literature or other promotional material for
the Contracts or of the Fund not supplied by
the Adviser or the Fund or persons under the
control of the Adviser or the Fund
respectively) or wrongful conduct of the
Adviser or persons under its control, with
respect to the sale or distribution of the
Contracts, provided any such statement or
representation or such wrongful conduct was
not made in reliance upon and in conformity
with information furnished to the Adviser or
the Fund by or on behalf of the Company; or
(iii) arise out of any untrue statement or
allegedly untrue statement of a material fact
contained in a registration statement,
prospectus, statement of additional
information or sales literature covering the
Contracts (or any amendment thereof or
supplement thereto), or the omission or
alleged omission to state
12
<PAGE>
therein a material fact required to be stated
therein or necessary to make the statement or
statements therein not misleading in light of
the circumstances in which they were made, if
such statement or omission was made in
reliance upon information furnished to the
Company by or on behalf of the Fund or
persons under the control of the Adviser; or
(iv) arise out of or result from any material
breach of any representation and/or warranty
made by the Adviser in this Agreement or
arise out of or result from any other
material breach of this Agreement by the
Adviser;
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof. This
indemnification shall be in addition to any liability which the Adviser may
otherwise have.
8.2(a)(2) The Fund agrees to indemnify and hold harmless the
Indemnified Parties [as defined in Section 8.2(a)(l)] against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the operations of the Fund and:
(i) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any
material fact or (h) the omission or the
alleged omission to state therein a material
fact required to be stated therein or
necessary to make the statements made
therein, in light of the circumstances in
which they were made, not misleading, if such
fact, statement or omission is contained in
the Contracts, or m the registration
statement for the Fund or the Contracts, or
in the prospectus or statement of additional
information for the Contracts or the Fund, or
in any amendment to any of the foregoing, or
in sales literature or other promotional
material for the Contracts or of the Fund,
provided, however, that this agreement to
indemnify shall not apply as to any
Indemnified Party if such statement, fact or
omission or such alleged statement, fact or
omission was made in reliance upon and in
conformity with information furnished to the
Adviser or the Fund by or on behalf of the
Indemnified Party; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or
in the Contract or Fund registration
statement, the Contract or Fund prospectus,
statement of additional information, or sales
literature or other promotional material for
the Contracts or of the Fund not supplied by
the Adviser or the Fund or persons under the
control of the Adviser or the Fund
respectively) or
13
<PAGE>
wrongful conduct of the Fund or persons under
its control with respect to the sale or
distribution of Contracts, provided any such
statement or representation or such wrongful
conduct was not made in reliance upon and in
conformity with information furnished to the
Adviser or the Fund by or on behalf of the
Company; or
(iii) arise out of or result from any material
breach of any representation and/or warranty
made by the Fund in this Agreement or arise
out of or result from any other material
breach of this Agreement by the Fund
(including a failure, whether unintentional
or in good faith or otherwise, to comply with
the diversification requirements specified in
Article VI of this Agreement);
except to the extent provided in Section 8.2(b) and 8.3 hereof. This
indemnification shall be in additional to any liability which the Fund may
otherwise have.
(b). The Fund and Adviser shall not be liable under
this indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
8.3 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this
Article VIII ("indemnifying party" for the purpose of this Section 8.3) shall
not be liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under this
Article VIII ("indemnified party" for the purpose of this Section 8.3) unless
such indemnified party shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provisions of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
14
<PAGE>
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
9.2. This Agreement shall be subject to the provisions of
the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant (including, but not limited to, the Mixed and Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and construed
in accordance therewith.
ARTICLE X. TERMINATION
10. 1 This Agreement shall terminate:
(a) at the option of any party upon six month's
advance written notice to the other parties unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Company to the extent that
shares of Portfolios are not reasonably available to meet the requirements of
the Contracts as determined by the Company reasonably and in good faith; or
(c) at the option of the Fund or the Adviser upon
institution of formal proceedings against the Company by the NASD, the SEC. the
insurance commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the Contracts,
the administration of the Contracts, the operation of the Account, or the
purchase of the Fund shares, which would have a material adverse effect on the
Company's ability to perform its obligations under this Agreement; or
(d) at the option of the Company upon institution of
formal proceedings against the Fund or the Adviser by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Adviser's or the Fund's ability to
perform its obligations under this Agreement; or
15
<PAGE>
(e) at the option of the Company or the Fund upon
receipt of any necessary regulatory approvals or the vote of the Contract owners
having an interest in the Account (or any subaccount) to substitute the shares
of another investment company for the corresponding Portfolio shares of the Fund
in accordance with the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media. The Company will
give 45 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Board. or a majority of the disinterested
Board members, that an irreconcilable material conflict exists among the
interests of (i) all Contract owners of variable insurance products of all
separate accounts or (ii) the interests of the Participating Insurance Companies
investing in the Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to
meet the diversification requirements specified in Article VI hereof or if the
Company reasonably believes that the Fund will fail to meet such requirements;
or
(i) at the option of any party to this Agreement, upon
another party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company
determines in its sole judgment exercised in good faith, that either the Fund or
the Adviser has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or the Adviser, if the
Fund or Adviser respectively, shall determine in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this Agreement or
is the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Fund or the Adviser; or
(1) subject to the Fund's compliance with Article VI
hereof, at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable requirements of federal and/or
state law. Termination shall be effective immediately upon notice by the Fund to
terminate the Agreement.
10.2 NOTICE REQUIREMENT.
(a) In the event that any termination of this
Agreement is based upon the provisions of Article VII, such prior written notice
shall be given in advance of the effective date of termination as required by
such provisions.
16
<PAGE>
(b) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(b) - (d) or 10.1(g) -
(i), prompt written notice of the election to terminate this Agreement for cause
shall be furnished by the party terminating the Agreement to the non-terminating
parties, with said termination to be effective upon receipt of such notice by
the non-terminating parties.
(c) In the event that any termination of this
Agreement is based upon the provisions of Sections 10.1(j) or 10.1(k), prior
written notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating this Agreement to the non-terminating
parties. Such prior written notice shall be given by the party terminating this
Agreement to the non-terminating parties at least 30 days before the effective
date of termination.
10.3 It is understood and agreed that the right to terminate
this Agreement pursuant to Section 10. 1(a) may be exercised for any reason or
for no reason.
10.4. EFFECT OF TERMINATION.
(a) Notwithstanding any termination of this Agreement
pursuant to Section 10.1 of this Agreement and subject to Section 1.3 of this
Agreement, the Company may require the Fund to continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement as provided in paragraph (b) below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made
available after termination of this Agreement pursuant to this Section 10.4, the
provisions of this Agreement shall remain in effect except for Section 10.1(a)
and thereafter the Fund, the Adviser, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice to
the other party, such notice to be for a period that is reasonable under the
circumstances but need not be for more than 90 days.
10.5 Except as necessary to implement Contract owner
initiated or approved transactions, or as required by state insurance laws or
regulations, the Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account), and the Company shall not prevent Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts, until 90 days after the Company shall have notified the Fund or the
Adviser of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given on the date received or rejected by the addressee.
17
<PAGE>
If to the Fund:
Oppenheimer Variable Account Funds
68035. Tucson Way
Englewood, CO 80112
Attn: George Bowen, Vice President, Secretary &
Treasurer
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0669
Attn: Andrew J. Donohue, Esq.
Executive Vice President and General Counsel
If to the Company:
Alexander Hamilton Life Insurance Company of America
One Granite Place
Concord, NH 03301
Attn: Shari J. Lease, Esq.
ARTICLE XII. MISCELLANEOUS
12.1. The Company and the Adviser each understand and agree
that the obligations of the Fund under this Agreement are not binding upon any
shareholder or Trustee of the Fund personally, but bind only the Fund and the
Fund's property; the Company and the Adviser each represent that it has notice
of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder and Trustee liability for acts or obligations of the Fund
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat ~s confidential and all
information reasonably identified as confidential in writing by any other party
hereto (including without limitation the names and addresses of the owners of
the Contracts) and, except as contemplated by this Agreement, shall not
disclose, disseminate or utilize such confidential information until such time
as it may come into the public domain without the express written consent of the
affected party
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
18
<PAGE>
12.6. This Agreement shall not be assigned by any party
hereto without the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery
of this Agreement and the consummation of the transactions contemplated herein
have been duly authorized by all necessary corporate or trust action, as
applicable, by such party and when so executed and delivered this Agreement will
be the valid and binding obligation of such party enforceable in accordance with
its terms.
12.9. Except as may otherwise be required under Article VII,
the rights, remedies and obligations contained in this Agreement are cumulative
and are in addition to any and all rights, remedies and obligations, at law or
in equity, which the parties hereto are entitled to under state and federal
laws.
12.10. It is understood by the parties that this Agreement is
not an exclusive arrangement in any respect.
12.11. The foregoing constitutes the entire Agreement between
the parties hereto, and shall not be modified, amended or assigned except by an
Agreement in writing signed by an authorized representative of each such party.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
ALEXANDER HAMILTON LIFE INSURANCE
COMPANY OF AMERICA
By its authorized officer
By: /s/
-------------------------------------
Title: Vice President
----------------------------------
Date: 3/12/98
-----------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By its authorized officer,
By: /s/ Andrew J. Donohue
-------------------------------------
Title: Vice President & Secretary
----------------------------------
Date: 3/17/98
-----------------------------------
OPPENHEIMERFUNDS, INC.
By its authorized officer,
By: /s/ Andrew J. Donohue
-------------------------------------
Title: Executive Vice President
----------------------------------
Date: 3/17/98
------------------------------------
20
<PAGE>
SCHEDULE 1
Alexander Hamilton Variable Annuity Separate Account
21
<PAGE>
SCHEDULE 2
Portfolios of Oppenheimer Variable Account Funds:
Oppenheimer Bond Fund
Oppenheimer Strategic Bond Fund
22
<PAGE>
SCHEDULE 3
Allegiance
23
<PAGE>
EXHIBIT 10(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports on the Alexander Hamilton Variable Annuity Separate
Account dated April 6, 1998, and the Alexander Hamilton Life Insurance
Company of America dated February 9, 1998, in Post-Effective Amendment No. 5
(Form N-4, No. 33-75714) under the Securities Act of 1933 and Amendment No. 6
(Form N-4, No. 811-8374) under the Investment Company Act of 1940 and related
Statement of Additional Information of The Allegiance Variable Annuity issued
by Alexander Hamilton Life Insurance Company of America.
/s/ Ernst & Young LLP
Greensboro, North Carolina
April 13, 1998
<PAGE>
EXHIBIT 10(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement (File Nos. 33-75714 and 811-8374).
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
------------------------------
Detroit, Michigan
April 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000919555
<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
<SERIES>
<NUMBER> 1
<NAME> JPVF MONEY MARKET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,136,356
<INVESTMENTS-AT-VALUE> 1,087,895
<RECEIVABLES> 31,341
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,119,236
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,167,697
<SHARES-COMMON-STOCK> 106,344
<SHARES-COMMON-PRIOR> 493,895
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (48,461)
<NET-ASSETS> 1,119,236
<DIVIDEND-INCOME> 99,146
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 14,033
<NET-INVESTMENT-INCOME> 85,113
<REALIZED-GAINS-CURRENT> 707
<APPREC-INCREASE-CURRENT> (46,461)
<NET-CHANGE-FROM-OPS> 37,359
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,287,823
<NUMBER-OF-SHARES-REDEEMED> 6,716,538
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 625,341
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 806,566
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<PAGE>
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<NAME> JEFFERSON-PILOT SEPARATE ACCOUNT A
<SERIES>
<NUMBER> 2
<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,618,833
<INVESTMENTS-AT-VALUE> 1,651,453
<RECEIVABLES> 202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,651,655
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,619,035
<SHARES-COMMON-STOCK> 138,661
<SHARES-COMMON-PRIOR> 26,977
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,619
<NET-ASSETS> 1,651,655
<DIVIDEND-INCOME> 84,288
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 16,132
<NET-INVESTMENT-INCOME> 68,156
<REALIZED-GAINS-CURRENT> 3,252
<APPREC-INCREASE-CURRENT> 41,273
<NET-CHANGE-FROM-OPS> 112,681
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 290,305
<NUMBER-OF-SHARES-REDEEMED> 164,420
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,382,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 960,232
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
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<CIK> 0000919555
<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
<SERIES>
<NUMBER> 3
<NAME> JPVF BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,396,321
<INVESTMENTS-AT-VALUE> 1,354,057
<RECEIVABLES> 100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,354,157
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,396,421
<SHARES-COMMON-STOCK> 115,239
<SHARES-COMMON-PRIOR> 28,570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42,264)
<NET-ASSETS> 1,354,157
<DIVIDEND-INCOME> 202,325
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 15,120
<NET-INVESTMENT-INCOME> 187,205
<REALIZED-GAINS-CURRENT> 31,704
<APPREC-INCREASE-CURRENT> (46,973)
<NET-CHANGE-FROM-OPS> 171,937
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<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
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<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
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<NAME> JPVF EMERGING GROWTH FUND
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<NAME> ALEXANDER HAMILTON SEPARATE ACCOUNT A
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