Registration Statement for a Separate Account (Unit Investment Trust) — Form N-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-4 Separate Account B N-4 107± 475K
6: EX-8 Amendment to Fpa 2± 11K
2: EX-8 Exhibit 8.3 Amendment to Fpa 2± 9K
3: EX-8 Exhibit 8.4 Fund Participation Agreement 14± 68K
4: EX-8 Exhibit 8.5 First Amendment to Fpa 1 8K
5: EX-8 Exhibit 8.6 Shareholder Services Agreement 12± 62K
7: EX-8 Exhibit 8.8 Fund Participation Agreement 18± 74K
8: EX-8 Exhibit 8.9 Fund Participation Agreement 19± 83K
9: EX-9 Exhibit - Opinion and Consent of Counsel 2± 10K
10: EX-10 Exhibit 10 Consent of Independent Auditors 1 6K
11: EX-13 Calculation of Performance Info 65± 199K
12: EX-99 Organizational Chart 4± 27K
As Filed with the Securities and Exchange Commission on April 30, 2001
Registration Nos. 333 - 25663
811 - 08178
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[x] Post Effective Amendment No. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 6
AMERICAN FIDELITY SEPARATE ACCOUNT B
(Exact Name of Registrant)
AMERICAN FIDELITY ASSURANCE COMPANY
(Name of Depositor)
2000 N. CLASSEN BOULEVARD, OKLAHOMA CITY, OKLAHOMA 73106
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, Including Area Code (405) 523-2000
Stephen P. Garrett Copies to:
Senior Vice President
Law and Government Affairs Jerry A. Warren, Esq.
American Fidelity Assurance Company McAfee & Taft
2000 N. Classen Boulevard A Professional Corporation
Oklahoma City, Oklahoma 73106 10th Floor, Two Leadership Square
(Name and Address of Agent for Service) Oklahoma City, OK 73102-7103
Approximate Date of Proposed Public
Offering: As soon as practicable after effectiveness
of the Registration Statement
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 2001 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485
[ ] on (date) pursuant to paragraph (a) (1) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Individual variable annuity contracts
--------------------------------------------------------------------------------
AFAdvantage Variable Annuity(R)
from
American Fidelity
Assurance Company
A member of the American Fidelity Group
May 1, 2001
AFAdvantage Variable Annuity(R)
issued by
American Fidelity Separate Account B
and
American Fidelity Assurance Company
PROSPECTUS
May 1, 2001
American Fidelity Assurance Company is offering individual variable annuity
contracts. This prospectus describes the individual contracts available under
the AFAdvantage Variable Annuity policy(R). Our home office is 2000 N. Classen
Boulevard, Oklahoma City, Oklahoma 73106.
AFAdvantage Variable Annuity(R) is a fixed and variable deferred annuity
policy. You have 19 investment options in the annuity -- the Guaranteed Interest
Account option and the following portfolios:
American Fidelity Dual Strategy Fund, Inc.(R)
American Century Variable Portfolios
VP Balanced
VP Capital Appreciation
VP Income & Growth
VP Ultra
VP International
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund
Growth and Income Portfolio
Small Company Stock Portfolio
International Value Portfolio
Dreyfus Investment Portfolios
Technology Growth Portfolio
Federated Insurance Series Trust
Federated Fund For U.S. Government Securities II
Federated Large Cap Growth Fund II
Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund
Small Cap Value Focus Fund
(formerly Merrill Lynch Special Value Focus Fund)
Neuberger Berman Advisers Management Trust
AMT Balanced Portfolio
AMT Growth Portfolio
This prospectus contains important information about American Fidelity
Separate Account B that you should know before investing. We filed a Statement
of Additional Information with the Securities and Exchange Commission dated May
1, 2001 that provides more information about the annuity we are offering. You
can get a copy of our Statement of Additional Information at no charge from us
or from the SEC. The SEC maintains a web site (http://www.sec.gov) that contains
our Statement of Additional Information, material incorporated by reference in
this prospectus and other material that we file electronically with the SEC. For
a free copy of the Statement of Additional Information, call us at (800)
662-1106 or write us at P.O. Box 25520, Oklahoma City, Oklahoma 73125-0520 or
e-mail us at va.help@af-group.com.
Our Statement of Additional Information is incorporated by reference in
this prospectus. The table of contents of the Statement of Additional
Information is on the last page of this prospectus.
The Securities and Exchange Commission has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Please read this prospectus carefully and
keep it for future reference.
GLOSSARY OF TERMS
Some of the terms used in this prospectus are technical. To help you
understand these terms, we have defined them below.
Account value: The value of your policy during the accumulation phase.
Accumulation phase: The period of time between purchasing a policy and
receiving annuity payments. Until you decide to begin receiving annuity
payments, your annuity is in the accumulation phase.
Accumulation unit: The unit of measurement we use to keep track of the
value of your policy invested in the portfolios during the accumulation phase.
During the annuity phase, we call this unit of measurement an annuity unit.
Annuitant: The person on whose life annuity payments are based.
Annuity date: The date annuity payments begin.
Annuity options: The various methods available to select as pay-out plans
for your annuity payments.
Annuity payments: Regular income payments you may receive from your policy
during the annuity phase.
Annuity phase: The period during which we make annuity payments.
Guaranteed Interest Account option: An investment option within our general
account which earns interest credited by us.
Investment options: The portfolios and the Guaranteed Interest Account
option.
Policy: The AFAdvantage Variable Annuity(R).
Policy owner: The person or entity entitled to ownership rights under a
policy.
Portfolios: The 18 investment options available under the policy other than
the Guaranteed Interest Account option. Each portfolio (sometimes called a fund)
has its own investment objective.
Portfolio companies: American Fidelity Dual Strategy Fund, Inc.(R),
American Century Variable Portfolios, The Dreyfus Socially Responsible Growth
Fund, Inc., Dreyfus Stock Index Fund, Dreyfus Variable Investment Fund, Dreyfus
Investment Portfolios, Federated Insurance Series Trust, Merrill Lynch Variable
Series Funds, Inc. and Neuberger Berman Advisers Management Trust.
Purchase payment: The money you invest to buy the policy.
Qualified Policy: Policies purchased under special tax qualification rules
(examples: Individual Retirement Annuities, 403(b) Tax-Deferred Annuities, HR.
10 and Corporate Pension and other qualified retirement plans). If you do not
purchase the policy under a qualified plan, your policy is referred to as a
non-qualified policy.
TABLE OF CONTENTS
Page
----
Summary...........................................................1
Fee Table.........................................................2
Condensed Financial Information...................................6
The AFAdvantage Variable Annuity(R)...............................8
How to Purchase an AFAdvantage Variable Annuity(R) Policy.........9
Receiving Payments from the Annuity..............................10
Investment Options...............................................12
Expenses.........................................................14
Withdrawals......................................................15
Loans............................................................16
Death Benefit....................................................17
Performance......................................................18
Taxes............................................................19
Other Information................................................21
Table of Contents of the Statement of Additional Information.....22
SUMMARY
In this summary, we discuss some of the important features of your annuity
policy. You should read the entire prospectus for more detailed information
about your policy and Separate Account B.
The AFAdvantage Variable Annuity(R). In this prospectus, we described the
AFAdvantage Variable Annuity(R) flexible premium variable and fixed deferred
annuity policy that we offer. The annuity policy is a contract between you, as
the policy owner, and us, American Fidelity, as the insurance company. Through
the annuity policy, we are able to provide a means for you to invest, on a tax
deferred basis, in the portfolios and in our Guaranteed Interest Account. We
designed the AFAdvantage Variable Annuity(R) for people seeking long-term
tax-deferred earnings, generally for retirement or other long-term purposes. The
tax deferred feature is most attractive to people in high federal and state tax
brackets. You should not buy the policy if you are looking for a short-term
investment or if you cannot afford to lose some or all of your investment.
Like all deferred annuities, the AFAdvantage Variable Annuity(R) has two
phases: the accumulation phase and the annuity phase. During the accumulation
phase, you invest money in your annuity, at which point your earnings accumulate
on a tax deferred basis and are taxed as income only when you make a withdrawal.
Similarly, during the annuity phase, your earnings are taxed as income only when
you receive an annuity payment or otherwise make a withdrawal. A federal tax
penalty may apply if you make withdrawals before you are 59 1/2.
The annuity phase begins when you start receiving regular payments from
your policy. Among other factors, the amount of the payments you may receive
during the annuity phase will depend on the amount of money you invest in your
policy during the accumulation phase and on the investment performance of your
investment options.
Investment Options. When you invest in the annuity, you may allocate your
money to our Guaranteed Interest Account or to one or more of the following
portfolios:
American Fidelity Dual Strategy Fund, Inc.(R)
American Century Variable Portfolios - VP Balanced
American Century Variable Portfolios - VP Capital Appreciation
American Century Variable Portfolios - VP Income & Growth
American Century Variable Portfolios - VP Ultra
American Century Variable Portfolios - VP International
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Dreyfus Variable Investment Fund - Growth and Income Portfolio
Dreyfus Variable Investment Fund - Small Company Stock Portfolio
Dreyfus Variable Investment Fund - International Value Portfolio
Dreyfus Investment Portfolios - Technology Growth Portfolio
Federated Insurance Series Trust - Federated Fund For U.S. Government
Securities II
Federated Insurance Series Trust - Federated Large Cap Growth Fund I
Merrill Lynch Variable Series Funds, Inc.- Basic Value Focus Fund
Merrill Lynch Variable Series Funds, Inc.- Small Cap Value Focus Fund
Neuberger Berman Advisers Management Trust - AMT Balanced Portfolio
Neuberger Berman Advisers Management Trust - AMT Growth Portfolio
These portfolios offer professionally managed investment choices. You can
find a complete description of each of the portfolios in the prospectus for that
particular portfolio. You can make or lose money in the portfolios, depending
upon market conditions. Please see the information on page 12 describing how you
can obtain a copy of the portfolios' prospectuses.
Our Guaranteed Interest Account option offers an interest rate that is
guaranteed by us. While your money is in the Guaranteed Interest Account, we
guarantee the interest your money will earn. You may still be subject to a
withdrawal charge on any withdrawals.
Taxes. The earnings you accumulate as a result of your investments under
the policy are not taxed until you make a withdrawal or receive an annuity
payment. In most cases, if you withdraw money from the portfolios, earnings come
out first and are taxed as income. If you withdraw any money before you are 59
1/2 , you may be charged a federal tax penalty on the taxable amounts withdrawn.
In most cases, the penalty is 10% on the taxable amounts. Part of the payments
you receive during the annuity phase of your policy is considered a return of
your original investment. That part of each payment is not taxable as income. If
the policy is issued pursuant to a qualified plan under special tax
qualification rules, the entire payment may be taxable.
Withdrawals. You may withdraw money at any time during the accumulation
phase. A withdrawal charge may apply. Restrictions exist under federal tax law
concerning when you can withdraw money from a qualified plan, and you may have
to pay income tax and a tax penalty on any money you withdraw. The minimum
partial withdrawal is $250 (there are exceptions for withdrawals allowed under
403(b) and 401 hardship provisions), but a withdrawal must not reduce the value
of your policy to less than $100.
Free Look. If you cancel your policy within 20 days after receiving it, you
will get a refund of either the amount you paid for your policy or the value of
your policy, whichever is more. In the event of a refund, we determine the value
of your policy on either the day we receive the policy at our home office or the
day our agent receives the policy, whichever occurs earlier.
Questions. If you have any questions about your AFAdvantage Variable
Annuity(R) policy or need more information, please contact us at:
American Fidelity Assurance Company
Annuity Services Department
P.O. Box 25520
Oklahoma City, Oklahoma 73125-0520
Telephone: (800) 662-1106
E-mail: va.help@af-group.com
FEE TABLE
Contract Owner Transaction Expenses
Withdrawal Charge (as a percentage of the amount withdrawn in excess of the
free withdrawal amount)
Policy Withdrawal
Year Charge
---- ------
1................................................. 8%
2................................................. 7%
3................................................. 6%
4................................................. 5%
5................................................. 4%
6................................................. 3%
7................................................. 2%
8................................................. 1%
9+................................................ 0%
Transfer Fee There is no charge for the
first 12 transfers in a policy
year during the accumulation
phase and no charge for one
transfer allowed each policy
year during the annuity phase;
thereafter, the fee is the
lesser of $25 or 2% of the
amount transferred.
Policy Maintenance Charge $30 per policy per policy year.
Separate Account Annual Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge.......................... 1.25%
Account Fees and Expenses
Administrative Charge................................... .15%
Distribution Expense Charge............................. .10%
Total Separate Account Annual Expenses..................... 1.50%
Portfolio Annual Expenses (as a percentage of the portfolio's average daily net
assets)
[Enlarge/Download Table]
Management Other Total Annual
Fees Expenses Expenses
---- -------- --------
(after waivers and expense reimbursement)
-----------------------------------------
American Fidelity Dual Strategy Fund, Inc.(R)..................... 0.50% -- 0.50%
American Century Variable Portfolios
VP Balanced....................................................... 0.90% -- 0.90%
VP Capital Appreciation........................................... 0.98% -- 0.98%
VP Income & Growth................................................ 0.70% -- 0.70%
VP Ultra.......................................................... 1.00%(1) -- 1.00%
VP International.................................................. 1.23% -- 1.23%
The Dreyfus Socially Responsible Growth Fund, Inc. (2)............ 0.75% 0.03% 0.78%
Dreyfus Stock Index Fund (2)...................................... 0.25% 0.01% 0.26%
Dreyfus Variable Investment Fund
Growth and Income Portfolio(2).................................... 0.75% 0.03% 0.78%
Small Company Stock Portfolio(2).................................. 0.75% 0.18% 0.93%
International Value Portfolio(2).................................. 1.00% 0.39% 1.39%
Dreyfus Investment Portfolios
Technology Growth Portfolio(2).................................... 0.75% 0.09% 0.84%
Federated Insurance Series Trust
Federated Fund For U.S. Government Securities II.................. 0.60% 0.49% 1.09%
Federated Large Cap Growth Fund II(3)............................. 0.85%(4) 0.05%(5)(6)(7) 0.90%(7)
Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund(8)......................................... 0.60% 0.05% 0.65%
Small Cap Value Focus Fund(8)..................................... 0.75% 0.06% 0.81%
Neuberger Berman Advisers Management Trust
AMT Balanced Portfolio............................................ 0.85% 0.14% 0.99%
AMT Growth Portfolio.............................................. 0.82% 0.08% 0.90%
----------------------
<FN>
(1) A stepped fee applies - 1.00% of the first $20 billion of average net
assets, and 0.95% of average net assets over $20 billion.
(2) Dreyfus Initial Share Class - The expenses shown in the Portfolio Annual
Expenses table are for the Initial Share Class for the fiscal year ended
December 31, 2000. Expenses in future years may be higher or lower than the
fees listed in the Portfolio Annual Expenses table.
(3) Before Waivers and Reimbursements: Although not contractually obligated to
do so, the adviser, distributor and shareholder services provider waived
and reimbursed certain amounts. These are shown below along with the net
expenses the fund actually paid for the fiscal year ended December 31,
2000. Total Waivers and Reimbursements of Fund Expenses - 4.81%. Total
Actual Annual Fund Operating Expenses (after waivers and reimbursements) -
0.90%.
(4) Management Fee - 0.85%: The adviser voluntarily waived its management fee.
The adviser can terminate this voluntary waiver at any time. The management
fee paid by the fund (after the voluntary waiver) was 0.00% for the fiscal
year ended December 31, 2000.
(5) Distribution (12b-1) Fee - 0.25%: The fund did not pay or accrue the
distribution (12b-1) fee during the fiscal year ended December 31, 2000.
The fund has no present intention of paying or accruing the distribution
(12b-1) fee during the fiscal year ending December 31, 2001.
(6) Shareholder Service Fee - 0.25%: The fund did not pay or accrue the
shareholder services fee during the fiscal year ended December 31, 2000.
The fund has no present intention of paying or accruing the shareholder
services fee during the fiscal year ending December 31, 2001.
(7) Other Expenses - 4.36%: The adviser voluntarily reimbursed certain expenses
of the fund. The adviser can terminate this voluntary reimbursement at any
time. Total other expenses paid by the fund (after voluntary reimbursement)
was 0.90% for the fiscal year ended December 31, 2000.
(8) Merrill Lynch Variable Series Funds, Inc.: Class A Shares.
</FN>
The purpose of the fee table is to show you the various costs and expenses
that you will bear directly or indirectly. The table reflects expenses of
Separate Account B for the year ended December 31, 2000 and the expenses of the
portfolios available under the separate account. We have provided information
about withdrawal charges and other transaction-related expenses in the fee table
under the heading "Contract Owner Transaction Expenses." Under certain
circumstances, you may make a withdrawal without incurring a withdrawal charge.
For more information about withdrawal expenses, see "Expenses -- Withdrawal
Charge" on page 14. Although premium taxes are not reflected in the fee table,
they may apply.
The following portfolios will not be included in the Separate Account B
prospectus effective May 1, 2001. These portfolios are no longer available as
eligible investment options.
[Enlarge/Download Table]
Other Expenses Total
(after expense Annual
Management Fees reimbursement) Expenses
--------------- -------------- --------
Merrill Lynch Core Bond Focus Fund(1)
(formerly Prime Bond Fund).............................. 0.43% 0.06% 0.49%
Merrill Lynch Balanced Capital Focus Fund(1)
(formerly American Balanced Fund)....................... 0.60% 0.15% 0.75%
Merrill Lynch High Current Income Fund(1) ................... 0.48% 0.06% 0.54%
International Equity Focus Fund ............................. 0.75% 0.14% 0.89%
---------------------
<FN>
(1) Merrill Lynch Variable Series Funds, Inc.: Class A Shares
</FN>
Additionally, as of May 1, 1999, the Merrill Lynch International Equity
Focus Fund is no longer available as an eligible investment option. If you have
already invested in any of these portfolios, you must select one or more
alternative eligible investment options to which you want to transfer your
current investment in the terminated portfolios. You must transfer the entire
amount invested in any of the terminated portfolios.
We will contact you separately to inform you of the date by which you must
notify us of the eligible investment option or options to which you want us to
transfer your current investment in the terminated portfolios. Any investments
which have not been transferred to an eligible investment option before the
deadline we establish will be transferred for you to the Guaranteed Interest
Account. We will send notice of the transfer deadline at least 60 days before
the deadline date.
Examples
This chart shows the expenses you would pay on a $1,000 investment (a) if
you surrender your policy at the end of each time period or (b) if you do not
surrender your policy or if you annuitize. This chart assumes a 5% annual return
on your money.
[Enlarge/Download Table]
Time Periods
------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
American Fidelity Dual Strategy Fund, Inc(R)....................(a) 130.29 206.31 288.21 502.12
(b) 50.29 150.82 251.28 502.12
American Century Variable Portfolios
VP Balanced.....................................................(a) 134.30 217.34 306.43 537.26
(b) 54.30 162.54 270.27 537.26
VP Capital Appreciation.........................................(a) 135.10 219.53 310.02 544.09
(b) 55.10 164.86 274.02 544.09
VP Income & Growth..............................................(a) 132.30 211.84 297.37 519.89
(b) 52.30 156.70 260.83 519.89
VP Ultra........................................................(a) 135.30 220.08 310.92 545.79
(b) 55.30 165.44 274.96 545.79
VP International................................................(a) 137.59 226.34 321.16 565.05
(b) 57.59 172.09 285.64 565.05
The Dreyfus Socially Responsible Growth Fund, Inc...............(a) 133.10 214.05 301.00 526.89
(b) 53.10 159.04 264.62 526.89
Dreyfus Stock Index Fund........................................(a) 127.88 199.62 277.10 480.24
(b) 47.88 143.72 239.69 480.24
Dreyfus Variable Investment Fund
Growth and Income Portfolio.....................................(a) 133.10 214.05 301.00 526.89
(b) 53.10 159.04 264.62 526.89
Small Company Stock Portfolio...................................(a) 134.60 218.17 307.78 539.83
(b) 54.60 163.41 271.68 539.83
International Value Portfolio...................................(a) 139.19 230.67 328.21 578.14
(b) 59.19 176.69 292.99 578.14
Dreyfus Investment Portfolios
Technology Growth Portfolio.....................................(a) 133.70 215.70 303.72 532.09
(b) 53.70 160.79 267.45 532.09
Federated Insurance Series Trust
Federated Fund For U.S. Government Securities II................(a) 136.20 222.54 314.94 553.39
(b) 56.20 168.05 279.15 553.39
Federated Large Cap Growth Fund II..............................(a) 134.30 217.34 306.43 537.26
(b) 54.30 162.54 270.27 537.26
Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund..........................................(a) 131.80 210.46 295.09 515.49
(b) 51.80 155.23 258.45 515.49
Small Cap Value Focus Fund......................................(a) 133.40 214.87 302.36 529.49
(b) 53.40 159.91 266.04 529.49
Neuberger Berman Advisers Management Trust
AMT Balanced Portfolio..........................................(a) 135.20 219.81 310.47 544.94
(b) 55.20 165.15 274.49 544.94
AMT Growth Portfolio............................................(a) 134.30 217.34 306.43 537.26
(b) 54.30 162.54 270.27 537.26
We based annual expenses of the portfolios on data provided by the funds
for the year ended December 31, 2000. Except for American Fidelity Dual Strategy
Fund, Inc.(R), we did not independently verify the data provided. However, we
did prepare the examples.
The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. Similarly,
the 5% annual rate of return assumed in the examples is not an estimate or
guarantee of future performance.
CONDENSED FINANCIAL INFORMATION
During the accumulation phase, we calculate the value of each policy
owner's share of different accounts with a unit of measurement called an
accumulation unit. The table below sets forth the accumulation unit values as of
January 1 and December 31 for each of the years 1998, 1999 and 2000. Separate
Account B began operating in January 1998.
An explanation of how we calculate the value of an accumulation unit is
located on page 9.
[Enlarge/Download Table]
Number of
Unit Value at Unit Value at Units at
January 1, December 31, December 31,
---------------- ---------------- -------------
AMERICAN FIDELITY DUAL STRATEGY FUND, INC.(R)
1998............................................... $ - $ - -
1999............................................... $10.000 $10.827 117,520
2000............................................... $10.827 $10.705 395,899
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
1998............................................... $10.000 $13.216 45,112
1999............................................... $13.216 $16.935 138,362
2000............................................... $16.935 $14.842 394,034
DREYFUS STOCK INDEX FUND
1998............................................... $10.000 $12.881 132,663
1999............................................... $12.881 $15.303 426,172
2000............................................... $15.303 $13.676 835,502
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
1998............................................... $10.000 $11.423 55,399
1999............................................... $11.423 $13.153 140,249
2000............................................... $13.153 $12.467 250,767
Small Company Stock Portfolio
1998............................................... $10.000 $ 9.733 38,646
1999............................................... $ 9.733 $10.605 78,432
2000............................................... $10.605 $11.338 118,262
International Value Portfolio
1998............................................... $ - $ - -
1999............................................... $10.000 $11.925 6,860
2000............................................... $11.925 $11.314 26,819
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
Merrill Lynch Basic Value Focus Fund
1998............................................... $ - $ - -
1999............................................... $10.000 $ 9.973 4,710
2000............................................... $ 9.973 $11.067 17,180
Merrill Lynch Small Cap Value Focus Fund
1998............................................... $10.000 $ 9.379 8,913
1999............................................... $ 9.379 $12.368 23,027
2000............................................... $12.368 $13.981 49,990
The table above does not include information for the following portfolios
which became available as investment options on May 1, 2001:
[Enlarge/Download Table]
American Century Variable Portfolios Dreyfus Technology Growth Portfolio
VP Balanced Federated Insurance Series Trust
VP Capital Appreciation Federated Fund for U.S. Government Securities II
VP Income & Growth Federated Large Cap Growth Fund II
VP Ultra Neuberger Berman Advisers Management Trust
VP International AMT Balanced Portfolio
AMT Growth Portfolio
The following portfolios will no longer be available as investment options
as of May 1, 2001: Core Bond Focus Fund (formerly Prime Bond Fund), Balanced
Capital Focus Fund (formerly American Balanced Fund), and High Current Income
Fund. Effective May 1, 1999, the International Equity Focus Fund is no longer
available as an investment option.
THE AFADVANTAGE VARIABLE ANNUITY(R)
Owning an AFAdvantage Variable Annuity(R) Policy
As the owner of an AFAdvantage Variable Annuity(R) policy, you have all the
rights under the policy; however, you can name a new policy owner. A change of
owner will revoke any prior designation of owner. Ownership changes must be sent
to our home office on an acceptable form. The change will go into effect at the
time the form is signed, subject to any payments we make or other actions we
take before we record it. We will not be liable for any payment made or action
taken before we record a change in ownership. The policy owner designated at the
time the policy is issued will remain the owner unless changed. A change of
ownership may be a taxable event.
Spouses may own a policy jointly. Upon the death of either owner, the
surviving spouse will be the primary beneficiary. If a non-spouse is designated
as the beneficiary of a jointly owned policy, the designation will be treated as
creating a contingent beneficiary unless otherwise indicated in a form we
accept.
Naming a Beneficiary
The beneficiary is the person or entity you, the policy owner, name to
receive the benefit of your policy upon the death of the person upon whose life
the annuity payments are based. Annuity payments may be based on your life, as
the owner of the policy, or on the life of another natural person. The person
upon whose life the annuity payments are based is called the annuitant, even if
the owner is that person. The beneficiary is named at the time the policy is
issued but may be changed at a later date. If the beneficiary and the annuitant
die at the same time, we will assume that the beneficiary died first for
purposes of paying any death benefits.
You can change the beneficiary of your policy at any time during the
annuitant's life unless you name that person as an irrevocable beneficiary. The
interest of an irrevocable beneficiary cannot be changed without his or her
consent.
To change a beneficiary, you must send a request to our home office on a
form we accept. The change will go into effect when signed, subject to any
payments we make or action we take before we record the change. A change cancels
all prior beneficiaries, except a change will not cancel any irrevocable
beneficiary without his or her consent. The interest of the beneficiary will be
subject to any assignment of the policy which is binding on us, and any annuity
option in effect at the time of the annuitant's death.
Assigning the Policy
During the annuitant's life, you can assign some or all of your rights
under the policy to someone else. A signed copy of the assignment must be sent
to our home office on a form we accept. The assignment will go into effect when
it is signed, subject to any payments we make or other actions we take before we
record it. We are not responsible for the validity or effect of any assignment.
If there are irrevocable beneficiaries, you need their consent before assigning
your ownership rights in the policy. Any assignment made after the death benefit
has become payable will be valid only with our consent. If the policy is
assigned, your rights may only be exercised with the consent of the assignee of
record. An assignment may be a taxable event.
If the policy is issued pursuant to a qualified plan, your ability to
assign it may be limited.
Voting Rights
Although we legally own the portfolios' shares, we believe that we must get
instructions from you and the other policy owners about how to vote the shares
when a fund solicits proxies in conjunction with a shareholder vote. When we
receive your instructions, we will vote all of the shares we own in proportion
to those instructions. If we determine that we are no longer required to seek
the policy owners' instructions, we will vote the shares in our own right.
HOW TO PURCHASE AN AFADVANTAGE VARIABLE ANNUITY(R) POLICY
Purchase Payments
A purchase payment is the money you give us when you invest to buy a
policy. Once we receive your initial purchase payment and application, we will
issue your policy and allocate your initial purchase payment within two business
days. We will contact you if you do not provide all of the required information
in your application. If we are unable to complete the initial application
process within five business days, we will either return your money or get your
permission to keep it until we get all of the necessary information. If we
receive your purchase payment by 3:00 p.m., Central Time, we will apply same day
pricing to determine the number of accumulation units to credit to your account.
We reserve the right to reject any application or purchase payment. At the time
you buy the policy, the annuitant cannot be older than 85 years old, or the
maximum age permitted under state law.
After your initial purchase payment, you may make purchase payments at any
time during the accumulation phase of your annuity. These payments will be
credited to your policy within one business day. The minimum amount of each
purchase payment, including your initial payment, is $25. All payment
allocations must be in whole percentages.
Accumulation Units
If you allocate the money you invest to any of the portfolios, the value of
that portion of your policy will go up or down depending upon the investment
performance of the portfolio(s) you choose. (The same thing is not true if you
invest solely in the Guaranteed Interest Account.) The value of your policy will
also depend on the expenses of the policy. In order to keep track of the value
of your policy during the accumulation phase, we use a measurement called an
accumulation unit. During the annuity phase, we call the unit of measurement an
annuity unit.
Every business day, we determine the value of an accumulation unit for one
share of each portfolio by multiplying the accumulation unit value for the
previous period by a factor for each portfolio for the current period. The
factor for each portfolio is determined by:
o dividing the value of the underlying portfolio share at the end of the
current period, including the value of any dividends or gains per share for
the current period, by the value of an underlying portfolio share for the
previous period; and
o subtracting from that amount any mortality and expense risk, administrative
and distribution expense charges.
The value of an accumulation unit relating to any portfolio may go up or
down from day to day.
When you make a purchase payment, we credit your policy with accumulation
units using the accumulation unit value next determined after we receive the
purchase payment. The number of accumulation units credited is determined by
dividing the amount of the purchase payment allocated to a portfolio by the
value of the accumulation unit for that portfolio.
We calculate the value of an accumulation unit for each portfolio after the
New York Stock Exchange closes on each day we are open and then credit your
policy accordingly.
Example
On Thursday, we receive an additional purchase payment of $100 from you.
You allocate this amount to the Dreyfus Stock Index Fund. When the New York
Stock Exchange closes on that Thursday, we determine that an accumulation unit
for the Dreyfus Stock Index Fund is valued at $10.75. To determine the increased
value of your policy, we divide $100 by $10.75 and credit your policy on
Thursday night with 9.30 accumulation units for the Dreyfus Stock Index Fund.
RECEIVING PAYMENTS FROM THE ANNUITY
Annuity Date
Any time after you invest in a policy, you can select an annuity date,
which is the month and year in which you will begin receiving regular monthly
income payments from the annuity. You must notify us of your desired annuity
date at least 30 days before you want to begin receiving annuity payments. You
may change the annuity date by written request any time before the original
annuity date. Any change must be requested at least 30 days before the new
annuity date. The annuity date may not be later than the annuitant's 85th
birthday or the maximum date permitted under state law, whichever is earlier. If
your policy is issued pursuant to a qualified plan, you are generally required
to select an annuity date that occurs by April 1 following either the date you
retire or the date you turn 70 1/2, whichever comes later (or age 70 1/2 if the
policy is issued pursuant to an Individual Retirement Annuity). In addition, the
annuity date is subject to the limitation described under "Tax Treatment of
Withdrawals -- Tax-Deferred Annuities and 401(k) Plans" on page 21 if the policy
is issued pursuant to such an annuity or plan.
Selecting an Annuity Option
We offer various income plans for your annuity payments. We call these
annuity options. In order to receive annuity payments under an annuity option,
you must give us notice of the annuity option of your choice at least 30 days
before the annuity date. If no option is selected, we will make annuity payments
to you in accordance with Option 2 below and the full value of your policy will
be paid out in 120 monthly payments. Prior to the annuity date, you may change
the annuity option selected by written request. Any change must be requested at
least 30 days prior to the annuity date. If an option is based on life
expectancy, we will require proof of the payee's date of birth. If a policy is
issued pursuant to a qualified plan, you may be required to obtain spousal
consent to elect an annuity option other than a joint and survivor annuity.
You can choose one of the following annuity options or any other annuity
option acceptable to us. After annuity payments begin, you cannot change your
annuity option.
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OPTION 1 Lifetime Only We will make monthly payments during the life of the
Annuity annuitant. If this option is elected, payments will stop when the
annuitant dies.
OPTION 2 Lifetime Annuity We will make monthly payments for the guaranteed period
with Guaranteed selected during the life of the annuitant. When the annuitant dies,
Periods any amounts remaining under the guaranteed period selected will be
distributed to the beneficiary at least
as rapidly as they were being paid as
of the date of the annuitant's death.
The guaranteed period may be 10 years
or 20 years.
OPTION 3 Joint and Survivor We will make monthly payments during the joint lifetime of
Annuity two people whose lives are the subject of the policy. Payments
will continue during the lifetime of the survivor of those two people
and will be computed on the basis of 100%, 662/3% or 50% of the annuity
payment in effect during the joint lifetime.
OPTION 4 Period Certain We will make monthly payments for a specified period. The
specified period must be at least five years and cannot be more
than 30 years. This option is available as a fixed annuity only.
Annuity Payments
Annuity payments are paid in monthly installments. Annuity payments can be
made on a variable basis (which means they will be based on the investment
performance of the portfolios) and/or on a fixed basis (which means they will
come from the Guaranteed Interest Account). However, payments under Option 4 can
only come from the Guaranteed Interest Account (fixed annuity). Depending on
your election, the value of your policy (adjusted for the policy maintenance
charge and any taxes) will be applied to provide the annuity payment. If no
election has been made 30 days prior to the annuity date, amounts in the
Guaranteed Interest Account will be used to provide a fixed annuity and amounts
in the portfolios will be used to provide a variable annuity.
If you choose to have any portion of your annuity payments come from the
portfolio(s), the dollar amount of each of your monthly payments will depend
upon three things:
o the value of your policy in the portfolios on the annuity date,
o the assumed investment rate used in the annuity table for the policy, and
o the performance of the portfolios you selected.
You can choose either a 3%, 4% or 5% assumed investment rate. If you do not
choose an assumed investment rate, the assumed investment rate will be 3%. If
the actual performance exceeds your chosen assumed investment rate, your annuity
payments will increase. Similarly, if the actual rate is less than your chosen
assumed investment rate, your annuity payments will decrease. If you choose a
higher assumed investment rate, your initial annuity payment will be higher.
Subsequent payments will be only slightly higher when actual performance (less
any deductions and expenses) is more than the assumed rate and will decrease
more rapidly when actual performance (less any deductions and expenses) is less
than the assumed rate. The amount of the first annuity payment will depend on
the annuity option elected and the age of the annuitant at the time the first
payment is due.
INVESTMENT OPTIONS
When you buy an AFAdvantage Variable Annuity(R) policy, you can allocate
the money you invest under the policy to any one or more of the portfolios
listed below and to our Guaranteed Interest Account.
Interests in the Guaranteed Interest Account are not registered under the
Securities Act of 1933 because of certain exemptive and exclusionary provisions.
The Guaranteed Interest Account also is not registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the Guaranteed
Interest Account nor any interests in it are subject to the provisions of these
Acts. We understand that the SEC staff has not reviewed the disclosure in this
prospectus relating to the Guaranteed Interest Account. Disclosures regarding
the Guaranteed Interest Account may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
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CALL TO REQUEST
PORTFOLIO
NAME TYPE OF PORTFOLIO COMPANY INVESTMENT ADVISOR SUB-ADVISOR PROSPECTUS
---- ------------------------- ------------------ ----------- ----------
American Fidelity Dual Strategy Open-end, diversified, American Fidelity Lawrence W. Kelley 800-662-1106
Fund, Inc.(R) management investment Assurance Company & Associates, Inc.
company and Todd Investment
Advisors, Inc.
American Century Variable Portfolios Open-end, management American Century None 800-345-8765
Portfolios available under AFAdvantage investment company Investment
Variable Annuity(R) policy: offering ten portfolios, Management, Inc.
o VP Balanced five of which are
o VP Capital Appreciation available under the
o VP Income & Growth AFAdvantage Variable
o VP Ultra Annuity(R).
o VP International
The Dreyfus Socially Responsible Open-end, diversified, The Dreyfus NCM Capital 800-554-4611
Growth Fund, Inc. management investment Corporation Management
company Group, Inc.
Dreyfus Stock Index Fund Open-end management The Dreyfus Mellon Equity 800-554-4611
investment company Corporation Associates
(affiliate of
The Dreyfus
Corporation)
Dreyfus Variable Investment Fund Open-end, management The Dreyfus None 800-554-4611
Portfolios available under AFAdvantage investment company Corporation
Variable Annuity(R) policy: offering 12 portfolios,
o Growth and Income Portfolio three of which are
o Small Company Stock Portfolio available under the
o International Value Portfolio AFAdvantage Variable
Annuity(R)
Dreyfus Investment Portfolios Open-end, management The Dreyfus None 800-554-4611
Portfolios available under AFAdvantage investment company Corporation
Variable Annuity(R) policy: offering 12 portfolios,
o Technology Growth Portfolio one of which is
available under the
AFAdvantage Variable
Annuity(R)
Federated Insurance Series Trust Open-end, management Federated None 800-341-7400
o Federated Fund For U.S. Government investment company Investment
Securities II offering 14 portfolios, Management
o Federated Large Cap Growth Fund II two of which are Company
available under the
AFAdvantage Variable
Annuity(R).
Merrill Lynch Variable Series Funds, Inc. Open-end, management Merrill Lynch None 800-MER-FUND
Portfolios available under AFAdvantage investment company Investment (637-3863)
Variable Annuity(R) policy: offering 23 separate Managers, L.P.
o Basic Value Focus Fund funds, two of which are
o Small Cap Value Focus Fund available under the
AFAdvantage Variable
Annuity
Neuberger Berman Advisers Management Trust Open-end diversified Neuberger Berman None 800-877-9700
o AMT Balanced Portfolio management investment Management, Inc.
o AMT Growth Portfolio company offering nine
portfolios, two of which
are available under the
AFAdvantage Variable(R)
Annuity.
Additional portfolios may be available in the future.
Shares of each of the portfolio companies are issued and redeemed in
connection with investments in and payments under certain variable annuity
contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated. None of the portfolio companies
believe that offering its shares in this manner will be disadvantageous to you.
Nevertheless, the board of trustees or the board of directors, as applicable, of
each portfolio company intends to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and in order to
determine what action, if any, should be taken. If such a conflict were to
occur, one or more insurance company separate accounts might withdraw their
investments from a portfolio company. An irreconcilable conflict might result in
the withdrawal of a substantial amount of a portfolio's assets which could
adversely affect such portfolio's net asset value per share.
You should read the prospectuses for the portfolios carefully before
investing. The prospectuses contain detailed information about the investment
options. You may get copies of the prospectuses by calling the telephone numbers
set forth in the table above. You can also get a copy of the Statement of
Additional Information for any of the portfolios by calling the telephone
numbers above or by contacting us at the address and phone number on the cover
of this prospectus.
Substitution
At our discretion, we may substitute another eligible investment option for
any one of the portfolios available under the AFAdvantage Variable Annuity(R)
policy. If we decide to make a substitution, we will give you notice of our
intention.
Transfers
At your direction, we will make transfers between any of the investment
options to which you have allocated money. We reserve the right to limit the
number of transfers that may be made. All of the transfers you make in any one
day count as one transfer. If you transfer funds between investment options, we
will not be liable for transfers we make at your direction. All transfers must
be in whole percentages. We reserve the right, at any time and without prior
notice, to end, suspend or change the transfer privilege.
Transfers During the Accumulation Phase. If you make more than 12 transfers
in a policy year, we will deduct a transfer fee. The fee is $25 per transfer or
2% of the amount transferred, whichever is less. In order to make a transfer,
you must at least transfer $500 from the investment option from which you are
making the transfer, unless the full amount is valued at less than $500, in
which case you must transfer the entire amount. All transfers must be in whole
percentages.
Transfers During the Annuity Phase. During the annuity phase, you may only
make one transfer in each policy year. You may also make transfers from the
portfolios to the Guaranteed Interest Account option to provide for a fixed
annuity. There is no transfer fee charged for the one transfer. You cannot make
a transfer from your fixed annuity to a portfolio.
Automatic Dollar Cost Averaging
Our automatic dollar cost averaging system allows you to transfer an
established amount of money each quarter from one investment option to another.
The minimum amount that may be transferred from each investment option in this
way is $500. By transferring the same amount on a regular schedule instead of
transferring the entire amount at one time, you may be less susceptible to the
impact of market fluctuations. Automatic dollar cost averaging is only available
during the accumulation phase.
If you participate in automatic dollar cost averaging, the transfers made
under the program are taken into account in determining any transfer fee.
Asset Rebalancing
After you allocate your money to different investment options, the
performance of the different investment options may cause the allocation of your
total investment to shift. At your direction, we will automatically rebalance
your policy to return it to your original percentage allocations. If you request
our asset rebalance service, we will make any necessary transfers on the first
day after the end of your policy year. Asset rebalancing is only available
during the accumulation phase. If you participate in the asset rebalancing
program, the transfers we make for you are taken into account in determining any
transfer fee.
EXPENSES
Some charges and expenses that exist in connection with the policy will
reduce your investment return. You should carefully read this section for
information about these expenses.
Insurance Charges
We deduct insurance charges each day. We include the insurance charge
deduction in our calculation of the value of the accumulation and annuity units.
The insurance charges include:
o mortality and expense risk;
o administrative expense; and
o distribution expense.
Mortality and Expense Risk Charge. The mortality and expense risk charge is
equal, on an annual basis, to 1.25% of the average daily value of the policy
invested in a portfolio, after expenses are deducted. This charge also
compensates us for all the insurance benefits provided by your policy, including
the guarantee of annuity rates, the death benefits, and certain other expenses,
related to the policy, and for assuming the risk that the current charges will
not be sufficient in the future to cover the cost of administering the policy.
Administrative Charge. The administrative charge is equal, on an annual
basis, to .15% of the average daily value of the policy invested in a portfolio,
after expenses are deducted. We may increase this charge, but it will never be
more than .25% of the average daily value of the policy invested in a portfolio.
This charge, together with the policy maintenance charge described below, is for
all the expenses associated with the policy's administration. Some examples of
these expenses include: preparing the policy, confirmations, annual reports and
statements, maintaining policy records, personnel costs, legal and accounting
fees, filing fees, and computer and systems costs.
Distribution Expense Charge. The distribution expense charge is equal, on
an annual basis, to .10% of the average daily value of the policy invested in a
portfolio, after expenses are deducted. We may increase this charge, but it will
never be more than .25% of the average daily value of the policy invested in a
portfolio. This charge compensates us for the costs associated with distributing
the policies.
Withdrawal Charge
Any withdrawals you make may be subject to a withdrawal charge. The
withdrawal charge compensates us for expenses associated with selling the
policy. During the accumulation phase, you can make withdrawals from your policy
in the manner described in "Withdrawals." During the first policy year, we
charge a withdrawal fee for each withdrawal. After the first policy year, you
may withdraw up to 10% of the value of your policy one time during each policy
year without incurring a withdrawal charge. The free withdrawal cannot be
carried forward from one policy year to the next. The withdrawal charge is a
percentage of the amount withdrawn in excess of the free withdrawal amount as
shown in the Fee Table on pages 2-3.
We calculate the withdrawal charge at the time of each withdrawal. The
withdrawal charge will never exceed 8% of the total purchase payments. The
charge for partial withdrawals will be deducted from the value of your policy
remaining. No withdrawal charge will be applied when a death benefit is paid or
we make a payment under any annuity option providing at least seven annual
payments or 72 monthly payments.
NOTE: For tax purposes, withdrawals are considered to have come from the
last money you put into the policy. Accordingly, for tax purposes, earnings are
considered to come out of your policy first. There are restrictions on when you
can withdraw from a qualified plan known as a Section 403(b) tax-deferred
annuity or a 401(k) plan. For more information, you should read "Taxes"
beginning on page 19 and the related discussion in our Statement of Additional
Information.
We may reduce or eliminate the withdrawal charge if we sell the policy
under circumstances which reduce its sales expenses. These circumstances might
include a large group of individuals that intend to purchase the policy or a
prospective purchaser who already has a relationship with us. We do not deduct
withdrawal charges for policies issued to our officers, directors or employees
or to any of our affiliates. Any circumstances resulting in the reduction or
elimination of the withdrawal charge requires our prior approval.
Transfer Charge
There is no charge for the first 12 transfers in a policy year during the
accumulation phase and no charge for one transfer allowed each policy year
during the annuity phase; thereafter, the fee is the lesser of $25 or 2% of the
amount transferred, whichever is less. Systematic transfers occurring under
Automatic Dollar Cost Averaging or Asset Rebalancing are taken into account when
determining any transfer fees assessed.
Policy Maintenance Charge and Fund Expenses
We deduct $30 from your policy every year as a policy maintenance charge.
Although we reserve the right to change the policy maintenance charge, it will
never be more than $36 per year. The charge will be deducted pro-rata from the
accounts. During the accumulation phase, the policy maintenance charge will be
deducted each year on your policy anniversary date. During the annuity phase, we
will deduct the charge pro-rata from your annuity payments. If you make a total
withdrawal any time other than on a policy anniversary date, the full policy
maintenance charge will be deducted.
There are also deductions from and expenses paid out of the assets of the
various portfolios which are described in the prospectuses for the portfolios.
Taxes
If we have to pay state or other governmental entity (e.g., municipalities)
premium taxes or similar taxes relating to your policy, we will deduct the
amount of the tax from your policy. Some of these taxes are due when the policy
is issued; others are due when your annuity payments begin. We pay any premium
taxes when they become payable to the states. Premium taxes generally range from
0% to 4.0%, depending on the state.
We will also deduct from the policy any income taxes which we incur as a
result of the policy. Currently, we are not making any such deductions.
WITHDRAWALS
You may withdraw cash from the annuity by redeeming all or part of the
accumulation units in your participant account at any time before we begin
making annuity payments to you. You can make partial and total withdrawals only
during the accumulation phase of your policy. Any partial withdrawal must be at
least $250, although we may make exceptions for hardship. The redemption value
of your account is equal to the value of the accumulation units in your account
next computed after we receive the request for withdrawal. The withdrawal
charge, the policy maintenance charge and any taxes due will be deducted from
the amount withdrawn before you receive it. We will deduct an equal dollar
amount of the money you withdraw pro-rata from each of your investment options.
If you do not want the withdrawal to come from each of your investment options
equally, you must tell us using a form we accept. After a withdrawal, the value
of your policy cannot be less than $100. Income taxes, tax penalties and certain
restrictions may apply to any withdrawal you make.
Restrictions exist concerning when you can withdraw money from a qualified
plan referred to as a 403(b) Tax-Deferred Annuity or 401(k) plan. For a more
complete explanation, see "Taxes" and the discussion in our Statement of
Additional Information.
Systematic Withdrawal Program
After you have owned your policy for one year, you can participate in our
systematic withdrawal program. If you participate in this program you cannot
exercise the 10% free withdrawal option discussed on page 14. If you withdraw
more than the 10% free withdrawal amount using the systematic withdrawal
program, you will incur a withdrawal charge. During the policy year in which
systematic withdrawals begin, the 10% free withdrawal amount will be based on
the value of your policy on the business day before you request systematic
withdrawals. After your first year in the withdrawal program, the free
withdrawal amount will be based on the value of your policy on the most recent
policy anniversary. Systematic withdrawals can be made monthly, quarterly or
semi-annually. The $250 minimum withdrawal discussed above does not apply to
withdrawals made under the systematic withdrawal program. We reserve the right
to limit the terms and conditions under which systematic withdrawals can be
elected and to stop offering any or all systematic withdrawals at any time.
Income taxes and tax penalties may apply to systematic withdrawals.
Suspension of Payments or Transfers
We may be required to suspend or postpone payments or withdrawals or
transfers for any period when:
o the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
o trading on the New York Stock Exchange is restricted;
o an emergency exists as a result of which disposal of the fund shares is not
reasonably practicable or we cannot reasonably value the fund shares;
o during any other period when, by order, the Securities and Exchange
Commission permits such suspension or postponement for the protection of
owners.
We reserve the right to defer payment for a withdrawal or transfer from the
Guaranteed Interest Account for the period permitted by law but not for more
than six months.
LOANS
If you purchased your policy under a 403(b) tax-deferred annuity qualified
plan, we may make a loan to you at any time before you begin receiving annuity
payments. However, we will not make any loans during your first policy year. The
value of your policy in the Guaranteed Interest Account serves as the security
for the loan. The loan cannot be more than $50,000 or one-half of the value of
your policy in the Guaranteed Interest Account, whichever amount is less. Under
certain circumstances, the $50,000 limit may be reduced. The minimum loan we
will make is $2,500. We can change this amount at our discretion.
If you fail to make a loan payment before the end of the calendar quarter
following the calendar quarter in which the payment was due, the outstanding
balance of your loan will become due and payable. If the loan payment is not
paid within the required time period, the loan balance plus interest will be
considered to be in default and will be treated as taxable income to you for the
tax year of the default. Satisfaction of any unpaid loan balance plus interest
from the Guaranteed Interest Account will only occur when you qualify for a plan
distribution under the federal tax guidelines. If the loan is in default and you
do not yet qualify for a distribution to satisfy the outstanding loan balance,
the loan will continue to accrue interest (but such interest accruals will not
result in additional deemed distributions). Any amounts which may become taxable
will be reported as plan distributions and will be subject to income tax and tax
penalties, if applicable.
Upon your death, the beneficiary will receive the death benefit reduced by
the loan balance. If annuity payments begin while there is an outstanding loan,
the value of the Guaranteed Interest Account will be reduced by the loan
balance.
DEATH BENEFIT
Death Benefit Amount
The death benefit will be the greater of: (1) the purchase payments you
have made, less any money you have taken out and any applicable withdrawal
charges; or (2) the value of your policy minus the policy maintenance charge and
taxes, if any, determined on the business day we receive proof of death and an
election for the payment period.
Death of Owner Before Annuity Date
If you or any joint owner dies before the annuity date, the death benefit
will be paid to your beneficiary. When any joint owner dies, the surviving joint
owner, if any, will be treated as the primary beneficiary. Any other person
chosen as a beneficiary at the time of death will be treated as a contingent
beneficiary. The death benefit will be paid under one of the death benefit
options discussed below.
Death Benefit Options
If you or any joint owner dies before the annuity date, a beneficiary who
is not your spouse must elect the death benefit to be paid under one of the
following options:
o lump sum payment;
o payment of the entire death benefit within five years of the date of your
death or the death of any joint owner; or
o payment of the death benefit under any annuity option. If this option is
chosen, the annuity must be distributed over the lifetime of the
beneficiary or over a period not extending beyond the life expectancy of
the beneficiary. The distribution must begin within one year of the date of
your death or any joint owner's death.
Any portion of the death benefit not applied under an annuity option within
one year of the date of death must be distributed within five years of the date
of death.
If the beneficiary is your spouse, he or she may:
o choose to continue the policy in his or her own name at the current value
of the policy;
o choose a lump sum payment of the death benefit; or
o apply the death benefit to an annuity option.
If the deceased owner was also the annuitant and the spousal beneficiary
continues the policy or applies the death benefit to an annuity option, the
spousal beneficiary will become the new annuitant.
If a lump sum payment is requested, we will pay the amount within seven
days of receipt of proof of death and the election, unless the suspension or
deferral payments provision is in effect. Payment to the beneficiary (other than
a lump sum payment) may only be elected during the 60 day period beginning with
the date we receive proof of death. If the beneficiary does not select a payment
method during the 60 day period after we receive proof of death, the death
benefit will be paid in a lump sum.
Death of Annuitant Before the Annuity Date
If you are not the annuitant and the annuitant dies before the annuity
date, the death benefit will be paid to the beneficiary. The death benefit will
be paid in a lump sum and must be paid in full within five years of the date of
death. If the owner is a non-individual (e.g., a corporation), the death of the
annuitant will be treated as the death of the owner.
Death of Owner After the Annuity Date
If you, or any joint owner who is not the annuitant, dies during the
annuity period, any remaining payments under the annuity option elected will
continue at least as rapidly as they were being paid at your death or such joint
owner's death. When any owner dies during the annuity period, the beneficiary
becomes the owner. Upon the death of any joint owner during the annuity period,
the surviving joint owner, if any, will be treated as the primary beneficiary.
Any other beneficiary designation on record at the time of death will be treated
as a contingent beneficiary.
Death of Annuitant After the Annuity Date
If the annuitant dies on or after the annuity date, the death benefit, if
any, will be as set forth in the annuity option elected. Death benefits will be
paid at least as rapidly as they were being paid at the annuitant's death.
PERFORMANCE
We may periodically advertise performance based on the historical
performance of the various portfolios. All performance advertising will include
quotations of standardized average annual total return (including withdrawal
charges), calculated in accordance with standard methods prescribed by the rules
of the Securities and Exchange Commission, to facilitate comparison with
standardized average annual total return advertised by other variable annuity
separate accounts.
Standardized average annual total return (including withdrawal charges)
advertised for a specific period is found by first taking a hypothetical $1,000
investment in a portfolio on the first day of the period at the offering price,
which is the accumulation unit value per unit (initial investment) and computing
the ending redeemable value (redeemable value) of that investment at the end of
the period. The average annual total return (T) is computed by equating the
ending redeemable value (ERV) with the initial hypothetical $1,000 investment
(P) over a period of years (n) according to the following formula: ERV = P (1+
T)**n (where "**n" means to the nth power).
Standardized average annual total return (including withdrawal charges)
reflects the expenses of the portfolio, the deduction of a policy maintenance
charge, mortality and expense risk, distribution expense and administrative
charges. The redeemable value also reflects the effect of any applicable
withdrawal charge that may be imposed at the end of the period. No deduction is
made for premium taxes which may be assessed by certain states.
We may also advertise non-standardized average annual total return
information (NOT including withdrawal charges). We determine non-standardized
average annual total return (NOT including withdrawal charges) in the same way
we determine standardized average annual total return performance including
withdrawal charges, except that results do not reflect the deduction of
withdrawal charges and may include performance information for time periods
prior to October 1997 (Separate Account B's inception date) for portfolios then
in existence. Results calculated without the withdrawal charge will be higher
than if the withdrawal charge were included. All non-standardized performance
advertisements will include standardized average annual total return figures.
At times, we calculate performance during a time period that is before the
date on which we offered some of the portfolios for the first time. In such
instances, we base performance on the historical performance of the portfolio,
modified to reflect the charges and expenses of the AFAdvantage Variable
Annuity(R). Accordingly, we evaluate a portfolio's performance as if the
portfolio was an eligible investment option during the period stated in the
advertisement. These figures should not be interpreted to reflect actual
historic performance. Past performance does not guarantee future results of the
portfolios. Performance will also include the actual performance since addition
of the portfolio to the separate account.
We have included additional information about calculating performance in
the Statement of Additional Information.
TAXES
The following general tax discussion is not intended as tax advice. You
should consult your own tax adviser about your own circumstances. We have
included additional information regarding taxes in the Statement of Additional
Information.
Annuity Policies in General
The rules of the Internal Revenue Code which relate to annuities generally
provide that you will not be taxed on any increase in the value of your policy
until a distribution occurs -- either as a withdrawal or as annuity payments.
Different rules exist regarding how you will be taxed depending on the
distribution and the type of policy.
You will be taxed on the amount of any withdrawal that is attributable to
earnings. Different rules apply to annuity payments. A portion of each annuity
payment you receive will be treated as a partial return of the money you
invested to buy the policy. This amount will not be taxed (unless you paid for
the policy on a pre-tax basis under a qualified plan). The remaining portion of
the annuity payment will be treated as ordinary income. The amount of each
annuity payment that is considered taxable or non-taxable depends upon the
period over which the annuity payments are expected to be made. The entire
amount of annuity payments received after you have received the full amount of
the money you invested to buy the policy is considered income.
Tax Treatment of Withdrawals
If you purchase a policy under a qualified plan, your policy is referred to
as a qualified policy. Examples of qualified plans are Individual Retirement
Annuities, including Roth IRAs; Tax Deferred Annuities (sometimes referred to as
403(b) Policies); H.R. 10 Plans (sometimes referred to as Keogh plans); and
Corporate Pension and Profit-Sharing/401(k) Plans.
If you do not purchase the policy under a qualified plan, your policy is
referred to as a non-qualified policy.
Non-Qualified Policies
If you own a non-qualified policy and you make a withdrawal from the
policy, the Internal Revenue Code treats the withdrawal as coming first from any
earnings and then from the money you invested to pay for your policy, which we
call your purchase payments. In most cases, withdrawn earnings are considered
income.
Any amount you receive which is considered income may be subject to a 10%
tax penalty. Some distributions that are excepted from the 10% penalty are
listed below:
o on or after the date on which the taxpayer reaches age 59 1/2;
o after the policy holder dies;
o if the taxpayer becomes totally disabled (as that term is defined in the
Code);
o in a series of substantially equal payments made annually (or more
frequently) for the life or life expectancy of the taxpayer or the joint
lives (or joint life expectancies) of the taxpayer and his or her
beneficiary;
o under an immediate annuity; or
o from amounts which come from purchase payments made before August 14, 1982.
Certain other exemptions may also be available.
When a non-natural person, such as a corporation or certain other entities
other than tax-qualified trusts, owns the policy, it will generally not be
treated as an annuity for tax purposes. This means that any increase in the
value of such a policy may be taxed as ordinary income every year.
The policy provides that when the annuitant dies prior to the annuity date,
a death benefit will be paid to the person designated as the beneficiary. If the
owner of the policy is not the annuitant, such payments made when the annuitant
dies do not qualify for the death of owner exception described above, and will
be subject to the 10% tax penalty unless the beneficiary is 59 1/2 years old or
one of the other exceptions to the penalty applies.
Qualified Policies
The information above describing the taxation of non-qualified policies
does not apply to qualified policies. If you make a withdrawal under a qualified
policy, a ratable portion of the amount received is taxable, generally based on
the ratio of your cost basis to your total accrued benefit under the retirement
plan. The Internal Revenue Code imposes a 10% penalty tax on the taxable portion
of any distribution from qualified retirement plans, including policies issued
and qualified under Code Sections 403(b) (Tax-Deferred Annuities), 408 and 408A
(Individual Retirement Annuities) and 401 (H.R. 10 and Corporate Pension and
Profit-Sharing/401(k) Plans). To the extent amounts are not includible in gross
income because they have been properly rolled over to an IRA or to another
eligible qualified plan, no tax penalty will be imposed. The tax penalty will
not apply to distributions:
o if the distribution is made on or after the date on which the owner or
annuitant (as applicable) reaches age 59 1/2;
o following the death or disability of the owner or annuitant (as applicable)
(for this purpose disability is was defined in Section 72(m)(7) of the
Code);
o made after separation from service (in the case of an Individual Retirement
Annuity, a separation from service is not required), distributions that are
part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the owner or annuitant (as
applicable) or the joint lives (or joint life expectancies) of such person
and his designated beneficiary;
o to an owner or annuitant (as applicable) who has separated from service
after he has turned 55, except in the case of an Individual Retirement
Annuity;
o made to the owner or annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the owner or annuitant (as applicable) for amounts paid
during the taxable year for medical care;
o distributions made to an alternate payee pursuant to a qualified domestic
relations order, except in the case of an Individual Retirement Annuity;
o distributions from an IRA for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the owner or annuitant
(as applicable) and his or her spouse and dependents if the owner or
annuitant (as applicable) has received unemployment compensation for at
least 12 weeks (this exception will no longer apply after the owner or
annuitant (as applicable) has been re-employed for at least 60 days);
o from an IRA made to the owner or annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses
(as defined in Section 72(t) (7) of the Code) of such person for the
taxable year; and
o from an IRA made to the owner or annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)
(8) of the Code).
The Statement of Additional Information contains a more complete discussion
of withdrawals from qualified policies.
Tax-Deferred Annuities and 401(k) Plans
The Internal Revenue Code limits the withdrawal of purchase payments made
by owners from certain tax-deferred annuities. Withdrawals can only be made when
an owner:
o reaches age 59 1/2;
o leaves his/her job;
o dies; or
o becomes disabled (as that term is defined in the Code).
A withdrawal may also be made in the case of hardship; however, the owner
can only withdraw purchase payments and not any earnings. Similar limitations
apply to a policy issued pursuant to a 401(k) Plan.
Diversification
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity contract. We believe that all of the portfolios are
being managed in such a way that they comply with the requirements.
Neither the Internal Revenue Code nor the Internal Revenue Service
Regulations issued to date provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, and not American Fidelity, would be considered the owner of the
shares of the portfolios. If you are considered the owner of the portfolios'
shares, it will result in the loss of the favorable tax treatment for the
policy. It is unknown to what extent under federal tax law owners are permitted
to select portfolios, to make transfers among the portfolios or the number and
type of portfolios for which owners may select. If any guidance is provided
which is considered a new position, then the guidance would generally be applied
prospectively. However, if such guidance is a position which is not new, it may
be applied retroactively and you, as the owner of the policy, could be treated
as the owner of the portfolios.
Due to the uncertainty in this area, we reserve the right to modify the
policy in an attempt to maintain favorable tax treatment.
OTHER INFORMATION
American Fidelity Assurance Company
We are an Oklahoma stock life insurance company organized in 1960. We are
licensed to conduct life, annuity and accident and health insurance business in
forty-nine states and the District of Columbia.
Our office is located at 2000 N. Classen Boulevard, Oklahoma City, Oklahoma
73106. We have been a wholly-owned subsidiary of American Fidelity Corporation
since 1974. The stock of American Fidelity Corporation is controlled by a family
investment partnership, Cameron Enterprises, A Limited Partnership, an Oklahoma
limited partnership. William M. Cameron, an individual, and Lynda L. Cameron, an
individual, each own 50% of the common stock of Cameron Associates, Inc., the
sole general partner of Cameron Enterprises, A Limited Partnership. The address
of both American Fidelity Corporation and Cameron Enterprises, A Limited
Partnership, is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
Separate Account B
We established Separate Account B under Oklahoma insurance law in 1996 to
hold the assets that underlie the AFAdvantage Variable Annuity(R) policies. The
inception date for Separate Account B was October 27, 1997 when its registration
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 became effective. The Separate Account is divided
into 18 sub-accounts.
We hold Separate Account B's assets in our name on behalf of Separate
Account B, and those assets legally belong to us. Under Oklahoma law, however,
those assets cannot be charged with liabilities that arise out of any other
business that we conduct. All of the income, gains and losses (realized or
unrealized) that result from the separate account's assets are credited to or
charged against Separate Account B without regard to our other income, gains and
losses. We are obligated to pay all benefits and make all payments under the
AFAdvantage Variable Annuity(R).
Underwriter
American Fidelity Securities, Inc., a wholly-owned subsidiary of American
Fidelity, is the principal underwriter for the annuity policies and acts as the
distributor of the policies. The principal business address of American Fidelity
Securities, Inc. is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
Legal Proceedings
There are no pending material legal proceedings affecting us, Separate
Account B or American Fidelity Securities, Inc.
Financial Statements
Our financial statements and Separate Account B's financial statements are
included in our Statement of Additional Information. The cover of this
prospectus contains information about how to obtain our Statement of Additional
Information.
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
Page
----
General Information and History of American Fidelity Assurance Company...1
Calculation of Performance Data..........................................2
Federal Tax Status.......................................................6
Annuity Provisions......................................................14
Legal Opinions..........................................................15
Underwriter.............................................................15
Custodian and Independent Accountants...................................15
Financial Statements....................................................16
------------------------ PLACE
------------------------ STAMP
------------------------ HERE
American Fidelity Assurance Company
P.O. Box 25520
Oklahoma City, OK 73125-0520
Attention: Annuity Services Department
Please send me the Statement of Additional Information for the following:
[ ] AFAdvantage Variable Annuity(R) [ ] Dreyfus Variable Investment Fund
[ ] American Fidelity Dual Strategy Fund
Fund, Inc.(R) [ ] Dreyfus Investment Portfolios
[ ] American Century Variable [ ] Federated Insurance Series Trust
Portfolios [ ] Merrill Lynch Variable Series
[ ] The Dreyfus Socially Responsible Funds, Inc.
Growth Fund, Inc. [ ] Neuberger Berman Advisers
[ ] Dreyfus Stock Index Fund Management Trust
Name ----------------------------------------------------------------
(please print)
Address ----------------------------------------------------------------
(please print)
----------------------------------------------------------------
(please print)
----------------------------------------------------------------
(please print)
AFAdvantage Variable Annuity(R)
issued by
American Fidelity Separate Account B
and
American Fidelity Assurance Company
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2001
This is not a prospectus. This Statement of Additional Information should
be read in conjunction with the Prospectus dated May 1, 2001 for the AFAdvantage
Variable Annuity(R).
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus,
write to us at: call us at: e-mail us at:
P.O. Box 25520 (800) 662-1106 va.help@af-group.com
Oklahoma City, Oklahoma 73125-0520
AFAdvantage Variable Annuity(R)
issued by
American Fidelity Separate Account B
and
American Fidelity Assurance Company
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2001
TABLE OF CONTENTS
Page
----
General Information and History of American Fidelity Assurance Company...1
Calculation of Performance Data..........................................2
Federal Tax Status.......................................................6
Annuity Provisions......................................................14
Legal Opinions..........................................................15
Underwriter.............................................................15
Custodian and Independent Accountants...................................15
Financial Statements....................................................16
AFAdvantage Variable Annuity(R)
issued by
American Fidelity Separate Account B
and
American Fidelity Assurance Company
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2001
GENERAL INFORMATION AND HISTORY OF
AMERICAN FIDELITY ASSURANCE COMPANY
American Fidelity Assurance Company was organized in Oklahoma in 1960.
Neither the sales of variable annuity contracts nor the sales of any other
insurance product by American Fidelity Assurance Company have ever been
suspended by any state where we have done or are presently doing business.
American Fidelity Assurance Company is a wholly-owned subsidiary of
American Fidelity Corporation, an insurance holding company. The stock of
American Fidelity Corporation is controlled by a family investment partnership,
Cameron Enterprises, A Limited Partnership, an Oklahoma limited partnership.
William M. Cameron, an individual, and Lynda L. Cameron, an individual, each own
50% of the common stock of Cameron Associates, Inc., the sole general partner of
Cameron Enterprises, A Limited Partnership.
CALCULATION OF PERFORMANCE DATA
From time to time, American Fidelity Assurance Company may advertise
performance data as described in the Prospectus. All performance advertising
will include quotations of standardized average annual total return (including
withdrawal charges), calculated in accordance with standard methods prescribed
by the rules of the Securities and Exchange Commission, to facilitate comparison
with standardized average annual total return advertised by other variable
annuity separate accounts. Standardized average annual total return (including
withdrawal charges) advertised for a specific period is found by first taking a
hypothetical $1,000 investment in a portfolio on the first day of the period at
the offering price, which is the accumulation unit value per unit (initial
investment) and computing the ending redeemable value (redeemable value) of that
investment at the end of the period. The average annual total return (T) is
computed by equating the ending redeemable value (ERV) with the initial
hypothetical $1,000 investment (P) over a period of years (n) according to the
following formula: ERV = P (1+T)**n (where "**n" means to the nth power).
Standardized average annual total return (including withdrawal charges) reflects
the expenses of the portfolio, the deduction of a policy maintenance charge,
mortality and expense risk, distribution expense and administrative charges. The
redeemable value also reflects the effect of any applicable withdrawal charge
that may be imposed at the end of the period. No deduction is made for premium
taxes which may be assessed by certain states.
Non-standardized average annual total return (NOT including withdrawal
charges) may also be advertised. Non-standardized average annual total return
(NOT including withdrawal charges) is calculated the same way as average annual
total return (including withdrawal charges) except the results do not reflect
the deduction of withdrawal charges and may include performance information for
time periods prior to October 1997 (Separate Account B's inception date) for
portfolios then in existence.
The standardized average annual total return quotations (including
withdrawal charges) will be current to the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication. The
standardized average annual total return (including withdrawal charges) will be
based on calendar quarters and will cover at least periods of one, five, and ten
years, or a period covering the time Separate Account B has been in existence,
if it has not been in existence for one of the prescribed periods. Standardized
average annual total return (including withdrawal charges) will also include
performance since addition of the portfolio to the separate account. If the time
period since addition to the separate account is less than one year, this
performance number is not annualized. Performance information of the portfolios
which occurred prior to October 1997 (Separate Account B's inception date) is
not included in the standardized average annual total return performance
calculations regardless of whether a portfolio has been in existence for a
longer period of time than Separate Account B.
Quotations of standardized average annual total return (including
withdrawal charges) and nonstandardized average annual total returns (NOT
including withdrawal charges) are based upon historical earnings and will
fluctuate. Past performance does not guarantee future results.
Factors affecting the performance of a portfolio include general market
conditions, operating expenses and investment management. An owner's value upon
a withdrawal of a policy may be more or less than the original purchase payment.
Performance Information
The accumulation units of Separate Account B have a limited performance
history despite the fact that some of the portfolios available as eligible
investment options have been in existence for a longer period of time than
Separate Account B and have a longer history of investment performance.
Performance information of the portfolios which occurred prior to October 1997
(Separate Account B's inception date) is not included in the standardized
average annual total return performance calculations regardless of whether a
portfolio has been in existence for a longer period of time than Separate
Account B.
In order to demonstrate how the historical investment experience of the
portfolios affects accumulation unit values, the following performance
information was developed. The information is based upon the historical
experience of the portfolios and is for the periods shown. All calculations
reflect the deduction of insurance charges, the policy maintenance charge and
the expenses of the portfolio. However, chart 1 reflects the deduction of the
withdrawal charge and chart 2 does not reflect the deduction of the withdrawal
charge.
ACTUAL PERFORMANCE WILL VARY AND THE HYPOTHETICAL RESULTS SHOWN ARE NOT
NECESSARILY REPRESENTATIVE OF FUTURE RESULTS. Performance for periods ending
after those shown may vary substantially from the examples shown below. Chart 1
shows the standardized average annual total return (including withdrawal
charges) of the accumulation units calculated for a specified period of time
assuming an initial purchase payment of $1,000 allocated to each portfolio and a
deduction of all charges and deductions (see "Expenses" in the Prospectus).
Chart 2 is identical to Chart 1 except that it does not reflect the deduction of
the withdrawal charge. The performance figures in both charts also reflect the
actual fees and expenses paid by each portfolio. Neither of the calculations
reflect the deduction of any premium taxes.
[Enlarge/Download Table]
HISTORICAL PERFORMANCE FOR PERIODS ENDED DECEMBER 31, 2000
CHART 1 - AVERAGE ANNUAL TOTAL RETURN (including withdrawal charges)
(Standardized Performance)
SINCE ADDITION DATE PORTFOLIO BECAME PORTFOLIO
SINCE TO SEPARATE AVAILABLE AS AN INCEPTION
1 YEAR INCEPTION(1)(2) ACCOUNT(2) INVESTMENT OPTION DATE
------ --------------- ---------- ----------------- ----
American Fidelity Dual Strategy Fund, Inc.(R) -11.80% 10.34% -3.20% 05/01/99 01/01/70
American Century Variable Portfolios
VP Balanced -14.54% 1.70% N/A 05/01/01 05/01/91
VP Capital Appreciation -3.59% 11.85% N/A 05/01/01 11/20/87
VP Income & Growth -21.76% 5.73% N/A 05/01/01 10/30/97
VP Ultra N/A N/A N/A 05/01/01 05/01/01
VP International -27.38% 11.14% N/A 05/01/01 05/01/94
The Dreyfus Socially Responsible Growth Fund,
Inc. -22.13% 8.31% 8.31% 10/27/97 10/07/93
Dreyfus Stock Index Fund -20.54% 5.40% 5.40% 10/27/97 09/29/89
Dreyfus Variable Investment Fund
Growth and Income Portfolio -15.56% 2.08% 2.08% 10/27/97 05/02/94
Small Company Stock Portfolio -4.09% -1.35% -1.35% 10/27/97 05/01/96
International Value Portfolio -15.47% 2.64% 0.32% 05/01/99 05/01/96
Dreyfus Investment Portfolios
Technology Growth Portfolio -36.59% -0.36% N/A 05/01/01 08/31/99
Federated Insurance Series Trust
Federated Fund For U.S.
Government Securities II -1.68% -0.83% N/A 05/01/01 03/01/94
Federated Large Cap Growth
Fund II N/A -32.77% N/A 05/01/01 06/16/00
Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund -0.03% 7.56% -1.34% 05/01/99 07/01/93
Small Cap Value Focus Fund 2.04% 5.66% 5.66% 10/27/97 04/20/82
Neuberger Berman Advisers Management Trust
AMT Balanced Portfolio -16.26% 6.86% N/A 05/01/01 02/28/89
AMT Growth Portfolio -22.70% 10.52% N/A 05/01/01 09/10/84
---------------
<FN>
(1) Amounts shown are "since inception" of the most recent to come into
existence of Separate Account B or the underlying portfolio. Separate
Account B's inception date was October 27, 1997.
(2) If less than one year, reflects total return for the period and is not
annualized.
</FN>
[Enlarge/Download Table]
CHART 2 - AVERAGE ANNUAL TOTAL RETURN (NOT including withdrawal
charges) (Non-Standardized Performance)
DATE PORTFOLIO
10 YEARS OR SINCE ADDITION BECAME AVAILABLE PORTFOLIO
SINCE PORTFOLIO TO SEPARATE AS AN INCEPTION
1 YEAR 5 YEARS INCEPTION ACCOUNT(1) INVESTMENT OPTION DATE
------ ------- --------- ---------- ----------------- ----
American Fidelity Dual Strategy Fund, Inc.(R) -4.13% 15.83% 12.69% 0.65% 05/01/99 01/01/70
American Century Variable Portfolios
VP Balanced -7.11% 5.85% 5.84% N/A 05/01/01 05/01/91
VP Capital Appreciation 4.41% 5.30% 8.70% N/A 05/01/01 11/20/87
VP Income & Growth -14.95% N/A 7.27% N/A 05/01/01 10/30/97
VP Ultra N/A N/A N/A N/A 05/01/01 05/01/01
VP International -21.07% 13.03% 9.17% N/A 05/01/01 05/01/94
The Dreyfus Socially Responsible Growth
Fund, Inc. -15.36% 14.59% 14.37% 9.89% 10/27/97 10/07/93
Dreyfus Stock Index Fund -13.63% 14.15% 13.42% 6.94% 10/27/97 09/29/89
Dreyfus Variable Investment Fund
Growth and Income Portfolio -8.22% 7.99% 12.98% 3.57% 10/27/97 05/02/94
Small Company Stock Portfolio 3.91% N/A 4.44% 0.09% 10/27/97 05/01/96
International Value Portfolio -8.12% N/A 4.52% 4.30% 05/01/99 05/01/96
Dreyfus Investment Portfolios
Technology Growth Portfolio -31.07% N/A 4.59% N/A 05/01/01 08/31/99
Federated Insurance Series Trust
Federated Fund For U.S.
Government Securities II 6.32% 1.57% 1.58% N/A 05/01/01 03/01/94
Federated Large Cap Growth
Fund II N/A N/A -26.92% N/A 05/01/01 06/16/00
Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund 7.97% 12.72% 11.89% 2.58% 05/01/99 07/01/93
Small Cap Value Focus Fund 10.04% 7.22% 11.75% 7.20% 10/27/97 04/20/82
Neuberger Berman Advisers Management Trust
AMT Balanced Portfolio -8.98% 8.58% 8.05% N/A 05/01/01 02/28/89
AMT Growth Portfolio -15.98% 12.60% 11.49% N/A 05/01/01 09/10/84
---------------
<FN>
(1) If less than one year, reflects total return for the period and is not
annualized.
</FN>
FEDERAL TAX STATUS
NOTE: The following description is based upon American Fidelity Assurance
Company's understanding of current federal income tax law applicable to
annuities in general. American Fidelity Assurance Company cannot predict the
probability that any changes in such laws will be made. Purchasers are cautioned
to seek competent tax advice regarding the possibility of such changes. American
Fidelity Assurance Company does not guarantee the tax status of the policies.
Purchasers bear the complete risk that the policies may not be treated as
"annuity contracts" under federal income tax laws. It should be further
understood that the following discussion is not exhaustive and that special
rules not described herein may be applicable in certain situations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
General
Section 72 of the Internal Revenue Code of 1986, as amended ("Code")
governs taxation of annuities in general. An owner (other than a corporation or
other non-natural person) is not taxed on increases in the value of a policy
until distribution occurs, either in the form of a lump sum payment or as
annuity payments under the annuity option elected. For a lump sum payment
received as a total surrender (total redemption) or death benefit, the recipient
is taxed on the portion of the payment that exceeds the cost basis of the
policy. For non-qualified policies, this cost basis is generally the purchase
payments, while for qualified policies there may be no cost basis. The taxable
portion of the lump sum payment is taxed at ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a fixed annuity option is determined by multiplying the payment by the ratio
that the cost basis of the policy (adjusted for any period certain or refund
feature) bears to the expected return under the policy. The exclusion amount for
payments based on a variable annuity option is determined by dividing the cost
basis of the policy (adjusted for any period certain or refund feature) by the
number of years over which the annuity is expected to be paid. The exclusion
amount for payments made from a policy issued pursuant to a qualified plan is
generally determined by dividing the cost-basis of the policy by the anticipated
number of payments to be made under the policy. Payments received after the
investment in the policy has been recovered (i.e. when the total of the
excludable amounts equal the investment in the policy) are fully taxable. The
taxable portion is taxed at ordinary income rates. For certain types of
qualified plans there may be no cost basis in the policy within the meaning of
Section 72 of the Code. Owners, annuitants and beneficiaries under the policies
should seek competent financial advice about the tax consequences of any
distributions.
American Fidelity Assurance Company is taxed as a life insurance company
under the Code. For federal income tax purposes, Separate Account B is not a
separate entity from American Fidelity Assurance Company, and its operations
form a part of American Fidelity Assurance Company.
Diversification
Section 817 (h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the policy as
an annuity contract would result in imposition of federal income tax to the
policy owner with respect to earnings allocable to the policy prior to the
receipt of payments under the policy. The Code contains a safe harbor provision
which provides that annuity contracts such as the policies meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the policies. The regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
American Fidelity Assurance Company intends that all funds underlying the
policies will be managed by the investment advisers in such a manner as to
comply with these diversification requirements.
The Treasury Department has indicated that the diversification regulations
do not provide guidance regarding the circumstances in which owner control of
the investments of Separate Account B will cause the owner to be treated as the
owner of the assets of Separate Account B, thereby resulting in the loss of
favorable tax treatment for the policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of owner control which may be exercised under the policy is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as the owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the owner to be considered as the owner of the assets of Separate Account
B resulting in the imposition of federal income tax to the owner with respect to
earnings allocable to the policy prior to receipt of payments under the policy.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the owner
being retroactively determined to be the owner of the assets of Separate Account
B.
Due to the uncertainty in this area, American Fidelity Assurance Company
reserves the right to modify the policy in an attempt to maintain favorable tax
treatment.
Multiple Policies
The Code provides that multiple non-qualified annuity contracts which are
issued within a calendar year period to the same contract owner by one company
or its affiliates are treated as one annuity contract for purposes of
determining the tax consequences of any distribution. Such treatment may result
in adverse tax consequences, including more rapid taxation of the distributed
amounts from such combination of contracts. Owners should consult a tax adviser
prior to purchasing more than one non-qualified annuity contract in any calendar
year period.
Policies Owned By Other Than Natural Persons
Under Section 72 (u) of the Code, the investment earnings on purchase
payments for the policies will be taxed currently to the owner if the owner is a
non-natural person, e.g., a corporation or certain other entities. Such policies
generally will not be treated as annuities for federal income tax purposes.
However, this treatment is not applied to policies held by a trust or other
entity as an agent for a natural person nor to policies held by qualified plans.
Purchasers should consult their own tax counsel or other tax adviser before
purchasing a policy to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a policy may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their policies.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross
income of the owner are subject to federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code, which are not
directly rolled over to another eligible retirement plan or individual
retirement account or individual retirement annuity, are subject to a mandatory
20% withholding for federal income tax. The 20% withholding requirement
generally does not apply to: (a) a series of substantially equal payments made
at least annually for the life or life expectancy of the participant or joint
and last survivor expectancy of the participant and a designated beneficiary, or
for a specified period of 10 years or more; (b) distributions which are required
minimum distributions; or (c) the portion of the distributions not includible in
gross income (i.e. returns of after-tax contributions). Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals -- Non-Qualified Policies
The following discussion in this section explains how the general
principles of tax-deferred investing apply to a non-qualified policy when the
owner of such policy is a natural person. As described above, different rules
may apply to an owner of a non-qualified policy that is not a natural person,
such as a corporation. The discussion assumes at all times that the
non-qualified policy will be treated as an "annuity policy" under the Code.
Tax Treatment of Withdrawals, Surrenders and Distributions
The cost basis of a non-qualified policy is generally the sum of the
purchase payments for the policy. The taxpayer will generally have to include in
income the portion of any payment from a non-qualified policy that exceeds the
portion of the cost basis (or principal) of the policy which is allocable to
such payment. The difference between the cost basis and the value of the
non-qualified policy represents the increase in the value of the policy. The
taxable portion of a payment from a non-qualified policy is generally taxed at
the taxpayer's marginal income tax rate.
Partial Withdrawals. A partial withdrawal refers to a withdrawal from a
non-qualified policy that is less than its total value and that is not paid in
the form of an annuity. Usually, a partial withdrawal of the value of a
non-qualified policy will be treated as coming first from earnings (which
represent the increase in the value of the policy). This portion of the
withdrawal will be included in the taxpayer's income. After the earnings portion
is exhausted, the remainder of the partial withdrawal will be treated as coming
from the taxpayer's principal in the policy (generally the sum of the purchase
payments). This portion of the withdrawal will not be included in income. If the
non-qualified policy contains investments made prior to August 14, 1982, a
partial withdrawal from the policy will be treated, to the extent it is
allocable to such pre-August 14, 1982 investments, as coming first from
principal and then, only after the principal portion is exhausted, from
earnings.
Surrenders. If a taxpayer surrenders a non-qualified policy and receives a
lump sum payment of its entire value, the portion of the payment that exceeds
the taxpayer's then remaining cost basis in the policy will be included in
income. The taxpayer will not include in income the part of the payment that is
equal to the cost basis.
Tax Treatment of Annuity Payments
If a taxpayer receives annuity payments from a non-qualified policy, a
fixed portion of each payment is generally excludable from income as a tax-free
recovery of cost basis in the policy and the balance is included in income. The
portion of the payment that is excludable from income is determined under
detailed rules provided in the Code (which in general terms determine such
excludable amount by dividing the cost basis in the policy at the time the
annuity payments begin by the expected return under the policy). If the annuity
payments continue after the cost basis has been recovered, the additional
payments will generally be included in full in income.
Penalty Tax on Distributions
Generally, a penalty equal to 10% of the amount of any payment that is
includable in the taxpayer's income will apply to any distribution received from
a non-qualified policy in addition to ordinary income tax. This 10% penalty will
not apply, however, if the distribution meets certain conditions. Some of the
distributions that are excepted from the 10% penalty are listed below:
o A distribution that is made on or after the date the taxpayer reaches age
59 1/2;
o A distribution that is made on or after the death of the owner;
o A distribution that is made when the taxpayer is totally disabled;
o A distribution that is made as part of a series of substantially equal
periodic payments which are made at least annually for the taxpayer's life
(or life expectancy) or the joint lives (or joint life expectancies) of the
taxpayer and his joint beneficiary;
o A part of a distribution that is attributable to investment in the policy
prior to August 14, 1982; and
o A distribution that is paid as an immediate annuity (within the meaning of
Section 72(u)(4) of the Code).
Required Distributions
To qualify as an "annuity policy" under the Code, a non-qualified policy
must meet certain distribution requirements. Generally, if the owner/annuitant
dies before annuity payments begin, the amounts accumulated under the
non-qualified policy either must be distributed within 5 years of death or must
begin to be paid within one year of death under a method that will pay the
entire value of the policy over the life (or life expectancy) of the beneficiary
under the policy. Special rules apply, however, if the beneficiary under the
policy is the surviving spouse of the owner. If the owner's spouse is the
beneficiary under the policy, these rules involving required distributions in
the event of death will be applied as if the surviving spouse had been the
original owner of the policy. If the owner/annuitant dies after annuity payments
have begun, payments generally must continue at least as rapidly as under the
method in effect at death (unless such method provides that payments stop at
death). Payments made upon the death of the annuitant who is not the owner of
the policy do not qualify for the death of the owner exception to the 10%
penalty tax described above, unless another exception applies.
The above information does not apply to qualified policies. However,
separate tax withdrawal penalties and restrictions apply to such qualified
policies. (See "Tax Treatment of Withdrawals - Qualified Policies.")
Qualified Plans
The policies offered by the prospectus are designed to be suitable for use
under various types of qualified plans. Because of the minimum purchase payment
requirements, the policies may not be appropriate for some periodic payment
retirement plans. Taxation of participants in each qualified plan varies with
the type of plan and terms and conditions of each specific plan. Owners,
annuitants and beneficiaries are cautioned that benefits under a qualified plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the policies issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into American Fidelity Assurance's administrative procedures.
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the policies
comply with applicable law. Following are general descriptions of the types of
qualified plans with which the policies may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding qualified plans are very complex and will have differing applications,
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a policy issued under a qualified plan.
Policies issued pursuant to qualified plans include special provisions
restricting policy provisions that may otherwise be available and described in
this Statement of Additional Information. Generally, policies issued pursuant to
qualified plans are not transferable except upon surrender or annuitization.
Various penalty and excise taxes may apply to contributions or distributions
made in violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from qualified policies. (See
"Tax Treatment of Withdrawals - Qualified Policies.")
Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the policies for the benefit of their
employees. Such contributions are not includable in the gross income of the
employee until the employee receives distributions from the policy. The amount
of contributions to the tax-sheltered annuity is limited to certain maximums
imposed by the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions, nondiscrimination and
withdrawals. (See "Tax Treatment of Withdrawals - Qualified Policies" and
"Tax-Sheltered Annuities and 401(k) Plans - Withdrawal Limitations.") Employee
loans are allowed under these policies. Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment and the tax
consequences of loans.
Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which may be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals -Qualified Policies.") Under
certain conditions, distributions from other IRAs and other qualified plans may
be rolled over or transferred on a tax-deferred basis into an IRA. Sales of
policies for use with IRAs are subject to special requirements imposed by the
Code, including the requirement that certain informational disclosure be given
to persons desiring to establish an IRA. Purchasers of policies to be qualified
as Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
Beginning in 1998, individuals may purchase a new type of non-deductible
IRA, known as a Roth IRA. Purchase payments for a Roth IRA are limited to a
maximum of $2,000 per year. Lower maximum limitations apply to individuals with
adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and traditional IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2; on the individual's death or disability; or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA.
Furthermore, an individual may make a rollover contribution from a non-Roth IRA
to a Roth IRA, unless the individual has adjusted gross income over $100,000 or
the individual is a married taxpayer filing a separate return. The individual
must pay tax on any portion of the IRA being rolled over that represents income
or a previously deductible IRA contribution. However, for rollovers in 1998, the
individual may pay that tax ratably over the four taxable year periods beginning
with tax year 1998.
Purchasers of policies to be qualified as a Roth IRA should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
qualified plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" plans. Contributions made to the plan for the benefit of
the employees will not be included in the gross income of the employees until
distributed from the plan. The tax consequences to participants may vary
depending upon the particular plan design. However, the Code places limitations
and restrictions on all plans including on such items as: amount of allowable
contributions; form, manner and timing of distributions; transferability of
benefits; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. (See "Tax Treatment of Withdrawals - Qualified
Policies.") Purchasers of policies for use with an H.R. 10 Plan should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
Corporate Pension and Profit-Sharing/401(k) Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the policies to provide benefits under the
plan. Contributions to the plan for the benefit of employees will not be
includible in the gross income of the employees until distributed from the plan.
The tax consequences to participants may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all plans
including on such items as: amount of allowable contributions; form, manner and
timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Policies.")
Purchasers of policies for use with Corporate Pension or Profit Sharing/401(k)
Plans should obtain competent tax advice as to the tax treatment and suitability
of such an investment.
Tax Treatment of Withdrawals -- Qualified Policies
The following discussion explains how the general principles of
tax-deferred investing apply to policies issued pursuant to qualified plans.
Special Tax Treatment for Lump Sum Distributions from a Corporate Pension or
Profit-Sharing/401(k) or H.R. 10 Plan
If the taxpayer receives an amount from a Policy issued pursuant to a
Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan and the distribution
qualifies as a lump sum distribution under the Code, the portion of the
distribution that is included in income may be eligible for special tax
treatment. The plan administrator should provide the taxpayer with information
about the tax treatment of a lump sum distribution at the time the distribution
is made.
Special Rules for Distributions that are Rolled Over
In addition, special rules apply to a distribution from a Policy that
relates to a Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan or a
Section 403(b) Tax-Sheltered Annuity if the distribution is properly rolled over
in accordance with the provisions of the Code. These provisions contain various
requirements, including the requirement that the rollover be made directly from
the distributing plan or within 60 days of receipt:
o To a traditional individual retirement arrangement under Section 408 of the
Code;
o To another Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan or an
annuity plan under Section 403(a) of the Code (if the distribution is from
such a plan); or
o To a Section 403(b) Tax-Sheltered Annuity (if the distribution is from a
Section 403(b) Tax-Sheltered Annuity).
These special rules only apply to distributions that qualify as "eligible
rollover distributions" under the Code. In general, a distribution from a
Corporate Pension or Profit-Sharing/401(k) or H.R. 10 Plan or Section 403(b)
Tax-Sheltered Annuity will be an eligible rollover distribution EXCEPT to the
extent:
o It represents the return of "after-tax" contributions or is not otherwise
includable in income;
o It is part of a series of payments made for the taxpayer's life (or life
expectancy) or the joint lives (or joint life expectancies) of the taxpayer
and his Beneficiary under the plan or for a period of more than ten years;
o It is a required minimum distribution under Section 401(a)(9) of the Code
as described below; or o It is made from a Corporate Pension or
Profit-Sharing/401(k) or H.R. 10 Plan by reason of a hardship.
Required minimum distributions under Section 401(a)(9) include the
following required payments:
o If the plan is an Individual Retirement Annuity, required payments for the
calendar year in which the taxpayer reaches age 70 1/2 or any later
calendar year; and
o If the plan is a Corporate Pension or Profit-Sharing/401(k), H.R. 10, or
Tax-Sheltered Annuity (and if the taxpayer does not own more than 5% of the
employer maintaining the applicable plan), required payments for the later
of the calendar year in which the taxpayer reaches age 70 1/2 or the
calendar year the taxpayer terminates employment with the employer or for
any later calendar year. The above rule for IRAs applies to taxpayers who
are more than 5% owners.
The administrator of the applicable qualified plan should provide
additional information about these rollover tax rules when a distribution is
made.
Distributions in the Form of Annuity Payments
If any distribution is made from a qualified policy issued pursuant to a
qualified plan and is made in the form of annuity payments (and is not eligible
for rollover or is not in any event rolled over), a fixed portion of each
payment is generally excludable from income for federal income tax purposes to
the extent it is treated as allocable to the taxpayer's "after-tax"
contributions to the policy (and any other cost basis in the Policy). To the
extent the payment exceeds such portion, it is includable in income. The portion
of the annuity payment that is excludable from income is determined under
detailed rules provided in the Code. In very general terms, these detailed rules
determine such excludable amount by dividing the "after-tax" contributions and
other cost basis in the policy at the time the annuity payments begin by the
anticipated number of payments to be made under the policy. If the annuity
payments continue after the number of anticipated payments has been made, such
additional payments will generally be included in full in income.
Penalty Tax on Withdrawals
Generally, there is a penalty tax equal to 10% of the portion of any
payment from a qualified policy that is included in income. This 10% penalty
will not apply if the distribution meets certain conditions. Some of the
distributions that are excepted from the 10% penalty are listed below:
o A distribution that is made on or after the date the taxpayer reaches age
59 1/2;
o A distribution that is properly rolled over to a traditional IRA or to
another eligible employer plan or account;
o A distribution that is made on or after the death of the owner;
o A distribution that is made when the taxpayer is totally disabled (as
defined in Section 72(m)(7) of the Code);
o A distribution that is made as part of a series of substantially equal
periodic payments which are made at least annually for the taxpayer's life
(or life expectancy) or the joint lives (or joint life expectancies) of the
taxpayer and his joint beneficiary under the qualified policy (and, with
respect to qualified policies issued pursuant to Corporate Pension and
Profit-Sharing/401(k) or H.R. 10 Plans, which begin after the taxpayer
separates from service with the employer maintaining the plan);
o A distribution that is made by reason of separation from service with the
employer maintaining the applicable plan during or after the calendar year
in which the taxpayer reaches age 55;
o A distribution that is made to the taxpayer to the extent it does not
exceed the amount allowable as a deduction for medical-care under Section
213 of the Code (determined without regard to whether the taxpayer itemizes
deductions);
o A distribution that is made to an alternate payee pursuant to a qualified
domestic relations order (that meets the conditions of Section 414(p) of
the Code) (not applicable to Individual Retirement Annuities);
o Distributions from an Individual Retirement Annuity for the purchase of
medical insurance (as described in Section 213(d)(1)(D) of the Code) for
the owner or annuitant (as applicable) and his or her spouse and dependents
if the owner or annuitant (as applicable) has received unemployment
compensation for at least 12 weeks (this exception will no longer apply
after the owner or annuitant (as applicable) has been re-employed for at
least 60 days);
o Distributions from an Individual Retirement Annuity made to the owner or
annuitant (as applicable) to the extent such distributions do not exceed
the qualified higher education expenses (as defined in Section 72(t)(7) of
the Code) of the owner or annuitant (as applicable) for the taxable year;
and
o Distributions from an Individual Retirement Annuity made to the owner or
annuitant (as applicable) which are qualified first-time home buyer
distributions (as defined in Section 72(t)(8) of the Code).
Required Distributions
Distributions from a policy issued pursuant to a qualified plan (other than
a Roth IRA) must meet certain rules concerning required distributions that are
set forth in the Code. Such rules are summarized below:
o Required distributions generally must start by April 1 of the calendar year
following the calendar year in which the taxpayer reaches age 70 1/2; and
o If the qualified plan is a Corporate Pension or Profit-Sharing/401(k), H.R.
10, or 403(b) Tax-Sheltered Annuity Plan and the taxpayer does not own more
than 5% of the employer maintaining the plan, the required distributions
generally do not have to start until April 1 of the calendar year following
the later of the calendar year in which the taxpayer reaches age 70 1/2 or
the calendar year in which the taxpayer terminates employment with the
employer and
o When distributions are required under the Code, a certain minimum amount,
determined under the Code, must be distributed each year.
In addition, other rules apply under the Code to determine when and how
required minimum distributions must be made in the event of the taxpayer's
death. The applicable plan documents will contain such rules.
Tax-Sheltered Annuities and 401(k) Plans -- Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
or 401(k) of the Code) to circumstances only when the Owner: (1) attains age 59
1/2; (2) separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, withdrawals for hardship are restricted to the portion of the owner's
policy value which represents contributions by the owner and does not include
any investment results. The limitations on withdrawals apply only to salary
reduction contributions made after the end of the plan year beginning in 1988,
and to income attributable to such contributions and to income attributable to
amounts held as of the end of the plan year beginning in 1988.
The limitations on withdrawals do not affect rollovers and transfers
between certain qualified plans. Owners should consult their own tax counsel or
other tax adviser regarding any distributions.
Tax-Sheltered Annuities/Loans
If a policy is issued pursuant to a 403(b) Tax-Sheltered Annuity, the owner
may take a loan under the policy at any time before annuity payments begin.
However, no loans will be made during the first policy year. The security for
the loan will be the value of the policy invested in the guaranteed interest
account. The loan cannot be more than the lesser of $50,000 or one-half of the
value of the policy in the guaranteed interest account. Under certain
circumstances, the $50,000 limit may be reduced. The minimum loan amount is
$2,500 (which can be changed at our discretion).
If a loan payment is not made before the end of the calendar quarter
following the calendar quarter in which the payment was due, the outstanding
loan balance (principal plus interest) will become due and payable. If the loan
payment is not repaid within such time period, the loan balance plus interest
will be considered in default and will be treated as taxable income for the tax
year of the default. Satisfaction of any unpaid loan balance plus interest from
the guaranteed interest account will only occur when the taxpayer qualifies for
a plan distribution under the Code. If the loan is in default and the taxpayer
does not yet qualify for a distribution to satisfy the outstanding loan balance,
the loan will continue to accrue interest (but such interest accruals will not
result in additional deemed distributions). A loan is treated as a distribution
for tax purposes to the extent the loan amount exceeds the lesser of: (1) the
greater of 50% of the Owner's vested account balance or $10,000; or (2) $50,000,
reduced by the Owner's highest outstanding loan balance during the preceding
12-month period. If all or a portion of a loan is treated as a distribution, any
amounts which are treated as distributions may become taxable and will be
subject to income tax and penalties, if applicable.
ANNUITY PROVISIONS
Variable Annuity Payout
An owner may elect a variable annuity payout. Variable annuity payments
reflect the investment performance of the portfolios in accordance with the
allocation of the value of the policy to the portfolios during the annuity
period. Variable annuity payments are not guaranteed as to dollar amount.
American Fidelity Assurance Company will determine the number of annuity
units payable for each payment by dividing the dollar amount of the first
annuity payment by the annuity unit value for each applicable portfolio on the
annuity date. This sets the number of annuity units for each applicable
portfolio. The number of annuity units payable remains the same unless an owner
transfers a portion of the annuity benefit to another portfolio or to a fixed
annuity. The dollar amount is not fixed and will change from month to month.
The dollar amount of the variable annuity payments for each applicable
portfolio after the first payment is determined by multiplying the fixed number
of annuity units per payment in each portfolio by the annuity unit value for the
last valuation period of the month preceding the month for which the payment is
due. This result is the dollar amount of the payment for each applicable
portfolio. The total dollar amount of each variable annuity payment is the sum
of all variable annuity payments reduced by the applicable portion of the policy
maintenance charge.
Variable Annuity Unit
The value of any annuity unit for each portfolio was arbitrarily set
initially at $10. The annuity unit value at the end of any subsequent valuation
period is determined as follows:
o The net investment factor for the current valuation period is multiplied by
the value of the annuity unit for the fund for the immediately preceding
valuation period; and
o The result is then divided by the assumed investment rate factor which
equals 1.00 plus the assumed investment rate for the number of days since
the preceding valuation date.
An owner can choose either a 3%, 4%, or 5% assumed investment rate. If one
is not chosen, the assumed investment rate will be 3%.
The assumed investment rate is the assumed rate of return used to determine
the first annuity payment for a variable annuity option. A higher assumed
investment rate will result in a higher first payment. Choice of a lower assumed
investment rate will result in a lower first payment. Payments will increase
whenever the actual return exceeds the chosen rate. Payments will decrease
whenever the actual return is less than the chosen rate.
Fixed Annuity Payout
The dollar amount of each fixed annuity payment will be at least as great
as that determined in accordance with the 3% annuity table. The fixed annuity
provides a 3% annual guaranteed interest rate on all annuity options. American
Fidelity Assurance Company may pay or credit excess interest on a fixed annuity
at its discretion.
LEGAL OPINIONS
McAfee & Taft A Professional Corporation, Oklahoma City, Oklahoma, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the policies.
UNDERWRITER
American Fidelity Securities, Inc., a wholly-owned subsidiary of American
Fidelity Assurance Company, is the principal underwriter for the annuity
policies and acts as the distributor of the policies. The policies are offered
on a continuous basis. The aggregate underwriting commissions paid to and
retained by American Fidelity Securities in connection with Separate Account B
for 1998, 1999 and 2000 were $8,737, $88,294 and $238,388, respectively.
CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The name and address of the person who maintains physical possession of the
accounts, books and other documents of American Fidelity Separate Account B
required by Section 31(a) of the Investment Company Act of 1940 is David R.
Carpenter, Senior Vice President and Treasurer, American Fidelity Assurance
Company, 2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106.
The financial statements of American Fidelity Separate Account B included
in this Statement of Additional Information have been audited by KPMG LLP,
independent auditors, as set forth in its report appearing below. KPMG LLP's
address is 700 Oklahoma Tower, Oklahoma City, Oklahoma 73102.
FINANCIAL STATEMENTS
Following are the financial statements of the Separate Account and American
Fidelity Assurance Company. The financial statements of American Fidelity
Assurance Company included herein should be considered only as bearing upon the
ability of American Fidelity Assurance Company to meet its obligations under the
policies.
AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Statements
December 31, 2000
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
American Fidelity Assurance Company, and
Contractholders
American Fidelity Separate Account B:
We have audited the accompanying statements of assets and
liabilities of the Socially Responsible Growth, Stock Index,
Growth and Income, Small Company Stock, International Value, Dual
Strategy Fund, Prime Bond, American Balanced, High Current Income,
Small Cap Value Focus (formerly Special Value Focus),
International Equity Focus and Basic Value Focus Segregated Sub-
Accounts of American Fidelity Separate Account B as of December
31, 2000, the related statements of operations for the year then
ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial
highlights for each of the years in the three-year period then
ended. These financial statements and financial highlights are
the responsibility of Account B's management. Our responsibility
is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and
the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Investments
owned at December 31, 2000 were verified by confirmation with the
underlying funds. 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
Socially Responsible Growth, Stock Index, Growth and Income, Small
Company Stock, International Value, Dual Strategy Fund, Prime
Bond, American Balanced, High Current Income, Small Cap Value
Focus (formerly Special Value Focus), International Equity Focus
and Basic Value Focus Segregated Sub-Accounts of American Fidelity
Separate Account B as of December 31, 2000, the results of their
operations for the year then ended, the changes in their net
assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the three-
year period then ended, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Oklahoma City, Oklahoma
January 19, 2001
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Assets and Liabilities
December 31, 2000
Segregated Sub-Accounts
----------------------------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Assets Growth Index Income Stock Value Fund
___________ ___________ ___________ __________ _____________ ___________
Investments:
Dreyfus Socially Responsible
Growth Fund, Inc. (169,680 shares
at net asset value of $34.47
per share) (cost $6,192,669) $ 5,848,860 - - - - -
Dreyfus Stock Index Fund
(336,100 shares at net asset value
of $34.00 per share) (cost $11,839,105) - 11,427,401 - - - -
Dreyfus Variable Investment Funds:
Growth and Income Portfolio (133,163
shares at net asset value of $23.48
per share)(cost $3,174,622) - - 3,126,678 - - -
Small Company Stock Portfolio (74,167
shares at net asset value of $18.08
per share) (cost $1,169,303) - - - 1,340,932 - -
International Value Portfolio (22,445
shares at net asset value of $13.52
per share) (cost $324,777) - - - - 303,450 -
American Fidelity Dual Strategy Fund, Inc.
(361,862 shares at net asset value of
$11.71 per share) (cost $4,145,492) - - - - - 4,238,494
__________ __________ __________ __________ __________ __________
Total assets 5,848,860 11,427,401 3,126,678 1,340,932 303,450 4,238,494
Liabilities
Accounts payable 480 937 257 110 25 347
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 480 937 257 110 25 347
Net assets $ 5,848,380 11,426,464 3,126,421 1,340,822 303,425 4,238,147
========== ========== ========== ========== ========== ==========
Accumulation units outstanding 394,034 835,502 250,767 118,262 26,819 395,899
========== ========== ========== ========== ========== ==========
Net asset value per unit $ 14.842 13.676 12.467 11.338 11.314 10.705
========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Assets and Liabilities
December 31, 2000
Segregated Sub-Accounts
--------------------------------------------------------------------------------------
High Small Cap International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
Assets ---------- ---------- ---------- ---------- ------------- ---------
Investments:
Merrill Lynch Variable Series
Funds, Inc.:
Merrill Lynch Prime Bond Fund
(45,569 shares at net asset value
of $11.49 per share) (cost
$528,859) $ 523,592 - - - - -
Merrill Lynch American Balanced
Fund (116,127 shares at net asset
value of $12.49 per share) (cost
$1,718,629) - 1,340,432 - - - -
Merrill Lynch High Current Income
Fund (12,899 shares at net asset
value of $8.06 per share) (cost
$123,672) - - 103,963 - - -
Merrill Lynch Small Cap Value Focus
Fund, formerly MerrillLynch Special
Value Focus Fund (33,636 shares at
net asset value of $20.78 per share)
(cost $743,190) - - - 698,949 - -
Merrill Lynch International Equity
Focus Fund(6,273 shares at net asset
value of $10.86 per share)(cost
$64,197) - - - - 68,130 -
Merrill Lynch Basic Value Focus Fund
(13,869 shares at net asset value of
$13.71 per share)(cost $188,939) - - - - - 190,144
---------- ---------- ---------- ---------- ------------- ----------
Total assets 523,592 1,450,432 103,963 698,949 68,130 190,144
Liabilities
Accounts payable 43 119 9 57 6 16
---------- ---------- ---------- ---------- ------------- ----------
Total liabilities 43 119 9 57 6 16
---------- ---------- ---------- ---------- ------------- ----------
Net assets $ 523,549 1,450,313 103,954 698,892 68,124 190,128
========== ========== ========== ========== ============= ==========
Accumulation units outstanding 48,106 123,674 11,451 49,990 5,529 17,180
========== ========== ========== ========== ============= ==========
Net asset value per unit $ 10.883 11.727 9.078 13.981 12.321 11.067
========== ========== ========== ========== ============= ==========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Operations
Year ended December 31, 2000
Segregated Sub-Accounts
-----------------------------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Growth Index Income Stock Value Fund
----------- ---------- ---------- ---------- ------------- ----------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 46,771 92,948 15,713 1,747 1,154 42,697
----------- ---------- ---------- ---------- ------------- ----------
Less expenses (note 2):
Mortality and risk 51,463 116,190 31,354 13,794 2,334 35,500
Administration 6,175 13,943 3,762 1,655 280 4,260
Distribution 4,117 9,295 2,508 1,104 187 2,840
----------- ---------- ---------- ---------- ------------- ----------
Total expenses 61,755 139,428 37,624 16,553 2,801 42,600
----------- ---------- ---------- ---------- ------------- ----------
Net investment income (loss) (14,984) (46,480) (21,911) (14,806) (1,647) 97
Realized gains (losses) on investments:
Realized gains distributions from
underlying mutual fund -- 179,654 111,866 -- 25,984 17,079
----------- ---------- ---------- ---------- ------------- ----------
Proceeds from sales 104,061 31,180 39,205 92,323 2,977 67,948
Cost of investments sold 107,749 30,343 36,797 77,587 2,994 66,774
----------- ---------- ---------- ---------- ------------- ----------
(3,688) 837 2,408 14,736 (17) 1,174
----------- ---------- ---------- ---------- ------------- ----------
Net realized gains (losses) on
investments (3,688) 180,491 114,274 14,736 25,967 18,253
----------- ---------- --------- ---------- ------------- ----------
Unrealized appreciation (depreciation)
on investments:
End of year (343,809) (411,704) (47,944) 171,629 (21,327) 93,002
Beginning of year 380,738 873,185 193,531 103,118 2,651 87,521
----------- ---------- --------- ---------- ------------- ----------
Change in unrealized appreciation
(depreciation) (724,547) (1,284,889) (241,475) 68,511 (23,978) 5,481
----------- ---------- --------- ---------- ------------- ----------
Net increase (decrease) in net
assets resulting from operations $ (743,219) (1,150,878) (149,112) 68,441 342 23,831
=========== ========== ========== ========== ============= ==========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Operations
Year ended December 31, 2000
Segregated Sub-Accounts
--------------------------------------------------------------------------------------
High Small Cap International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
---------- ---------- ---------- ---------- ------------- ---------
Investment income (loss):
Investment income distributions from
underlying mutual fund $ 29,807 38,475 8,898 1,954 682 3,056
---------- ---------- ---------- ---------- ------------- ---------
Less expenses (note 2):
Mortality and risk 5,843 16,774 1,116 5,849 1,016 1,695
Administration 701 2,013 134 702 122 204
Distribution 468 1,342 89 468 81 136
---------- ---------- ---------- ---------- ------------- ---------
Total expenses 7,012 20,129 1,339 7,019 1,219 2,035
---------- ---------- ---------- ---------- ------------- ---------
Net investment income (loss) 22,795 18,346 7,559 (5,065) (537) 1,021
---------- ---------- ---------- ---------- ------------- ---------
Realized gains (losses) on investments:
Realized gains distributions from
underlying mutual fund -- 166,978 -- 144,117 3,491 15,012
---------- ---------- ---------- ---------- ------------- ---------
Proceeds from sales 146,269 171,324 6,049 17,449 11,265 19,179
Cost of investments sold 157,763 177,257 6,331 16,186 9,311 18,402
---------- ---------- ---------- ---------- ------------- ---------
(11,494) (5,933) (282) 1,263 1,954 777
---------- ---------- ---------- ---------- ------------- ---------
Net realized gains (losses) on
investments (11,494) 161,045 (282) 145,380 5,445 15,789
Unrealized appreciation (depreciation)
on investments:
End of year (5,267) (268,197) (19,709) (44,241) 3,933 1,205
Beginning of year (29,394) (34,966) (4,112) 48,892 25,056 (2,125)
---------- ---------- ---------- ---------- ------------- ---------
Change in unrealized appreciation
(depreciation) 24,127 (233,231) (15,597) (93,133) (21,123) 3,330
---------- ---------- ---------- ---------- ------------- ---------
Net increase (decrease) in net
assets resulting from operations $ 35,428 (53,840) (8,320) 47,182 (16,215) 20,140
========== ========== ========== ========== ============= =========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 2000
Segregated Sub-Accounts
------------------------------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Growth Index Income Stock Value Fund
------------ ---------- ---------- ---------- ------------- ----------
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ (14,984) (46,480) (21,911) (14,806) (1,647) 97
Net realized gains (losses)
on investments (3,688) 180,491 114,274 14,736 25,967 18,253
Change in unrealized appreciation
(depreciation) on investments (724,547) (1,284,889) (241,475) 68,511 (23,978) 5,481
------------ ---------- ---------- ---------- ------------- ----------
Net increase (decrease) in net
assets resulting from operations (743,219) (1,150,878) (149,112) 68,441 342 23,831
------------ ---------- ---------- ---------- ------------- ----------
Changes from principal transactions:
Net purchase payments received
(note 3) 4,350,557 6,082,997 1,468,600 531,307 224,143 3,008,271
Withdrawal of funds (note 3) (102,171) (27,474) (37,787) (90,694) (2,862) (66,398)
------------ ---------- ---------- ---------- ------------- ----------
Increase in net assets derived
from principal transactions 4,248,386 6,055,523 1,430,813 440,613 221,281 2,941,873
------------ ---------- ---------- ---------- ------------- ----------
Increase in net assets 3,505,167 4,904,645 1,281,701 509,054 221,623 2,965,704
Net assets:
Beginning of year 2,343,213 6,521,819 1,844,720 831,768 81,802 1,272,443
------------ ---------- ---------- ---------- ------------- ----------
End of year $ 5,848,380 11,426,464 3,126,421 1,340,822 303,425 4,238,147
============ ========== ========== ============= ============= ==========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 2000
Segregated Sub-Accounts
---------------------------------------------------------------------------------------
High Small Cap International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
---------- ---------- ---------- ---------- ------------- ----------
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ 22,795 18,346 7,559 (5,065) (537) 1,021
Net realized gains (losses) on
investments (11,494) 161,045 (282) 145,380 5,445 15,789
Change in unrealized appreciation
(depreciation) on investments 24,127 (233,231) (15,597) (93,133) (21,123) 3,330
---------- ---------- ---------- ---------- ------------- -----------
Net increase (decrease) in net
assets resulting from operations 35,428 (53,840) (8,320) 47,182 (16,215) 20,140
---------- ---------- ---------- ---------- ------------- -----------
Changes from principal transactions:
Net purchase payments received
(note 3) 189,032 645,229 46,678 383,979 25 141,979
Withdrawal of funds (note 3) (145,625) (169,560) (5,815) (17,077) (10,052) (18,958)
---------- ---------- ---------- ---------- ------------- -----------
Increase (decrease) in net assets
derived from principal transactions 43,407 475,669 40,863 366,902 (10,027) 123,021
---------- ---------- ---------- ---------- ------------- -----------
Increase (decrease) in net assets 78,835 421,829 32,543 414,084 (26,242) 143,161
Net assets:
Beginning of year 444,714 1,028,484 71,411 284,808 94,366 46,967
---------- ---------- ---------- ---------- ------------- -----------
End of year $ 523,549 1,450,313 103,954 698,892 68,124 190,128
========== ========== ========== ========== ============= ===========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1999
Segregated Sub-Accounts
-----------------------------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Growth Index Income Stock Value Fund
------------- ------------ ------------ ----------- ------------- ------------
Increase (decrease) in net assets from
operations:
Net investment income (loss) $ (18,028) (10,956) (10,543) (8,490) (172) (4,646)
Net realized gains on investments 79,118 44,990 56,639 558 5,112 37
Increase in unrealized appreciation
on investments 319,965 694,547 150,895 84,438 2,651 87,521
------------ ------------ ------------ ----------- ------------- ------------
Net increase in net assets resulting
from operations 381,055 728,581 196,991 76,506 7,591 82,912
------------ ------------ ------------ ----------- ------------- ------------
Changes from principal transactions:
Net purchase payments received (note 3) 1,381,089 4,126,312 1,030,016 406,042 74,243 1,200,164
Withdrawal of funds (note 3) (15,119) (41,852) (15,125) (26,932) (32) (10,633)
------------ ------------ ------------ ----------- ------------- ------------
Increase in net assets derived from
principal transactions 1,365,970 4,084,460 1,014,891 379,110 74,211 1,189,531
------------ ------------ ------------ ----------- ------------- ------------
Increase in net assets 1,747,025 4,813,041 1,211,882 455,616 81,802 1,272,443
Net assets:
Beginning of year 596,188 1,708,778 632,838 376,152 -- --
------------ ------------ ------------ ----------- ------------- ------------
End of year $ 2,343,213 6,521,819 1,844,720 831,768 81,802 1,272,443
============ ============ ============ =========== ============= ============
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Statements of Changes in Net Assets
Year ended December 31, 1999
Segregated Sub-Accounts
----------------------------------------------------------------------------------
High Special International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
---------- ----------- ----------- ----------- ------------- ---------
Increase (decrease) in net assets
from operations:
Net investment income (loss) $ 18,958 27,786 4,601 (1,310) 2,798 510
Net realized gains (losses) on investments (610) 89,473 -- 15,296 4,659 3,036
Increase (decrease) in unrealized
appreciation on investments (30,319) (55,992) (2,636) 47,558 20,891 (2,125)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations (11,971) 61,267 1,965 61,544 28,348 1,421
Changes from principal transactions:
Net purchase payments received (note 3) 255,241 622,724 45,959 141,647 40,979 45,546
Withdrawal of funds (note 3) (15,500) (7,682) (155) (1,976) (56,913) --
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets derived
from principal transactions 239,741 615,042 45,804 139,671 (15,934) 45,546
---------- ---------- ---------- ---------- ---------- ----------
Increase in net assets 227,770 676,309 47,769 201,215 12,414 46,967
Net assets:
Beginning of year 216,944 352,175 23,642 83,593 81,952 --
---------- ---------- ---------- ---------- ---------- ----------
End of year $ 444,714 1,028,484 71,411 284,808 94,366 46,967
========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
-----------------------------------------------------------------------------
Segregated Sub-Accounts
-----------------------------------------------------------------------------
Socially Responsible Growth Stock Index
--------------------------------------- ----------------------------------
2000 1999 1998 2000 1999 1998
----------- ---------- --------- ---------- --------- --------
Investment income and expenses:
Investment income $ 0.182 0.003 0.049 0.145 0.163 0.182
Operating expenses 0.240 0.211 0.160 0.217 0.202 0.161
----------- ---------- --------- ---------- --------- --------
Net investment income (loss) (0.058) (0.208) (0.111) (0.072) (0.039) 0.021
Capital changes:
Net realized and unrealized gains
(losses) from securities (2.035) 3.927 3.327 (1.555) 2.461 2.860
----------- ---------- --------- ---------- --------- --------
Net increase (decrease) in
accumulation unit value (2.093) 3.719 3.216 (1.627) 2.422 2.881
Accumulation unit value, beginning
of period 16.935 13.216 10.000 15.303 12.881 10.000
----------- ---------- --------- ---------- --------- --------
Accumulation unit value, end of
period $ 14.842 16.935 13.216 13.676 15.303 12.881
=========== ========== ========= ========== ========= ========
Number of accumulation units
outstanding, end of period 394,034 138,362 45,112 835,502 426,172 132,663
=========== ========== ========= ========== ========= ========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
-----------------------------------------------------------------------------------
Segregated Sub-Accounts
-----------------------------------------------------------------------------------
Growth and Income Small Company Stock
------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
----------- --------- --------- ---------- ----------- ----------
Investment income and expenses:
Investment income $ 0.079 0.073 0.123 0.018 -- 0.063
Operating expenses 0.190 0.176 0.147 0.167 0.141 0.124
----------- --------- --------- ---------- ----------- ----------
Net investment income (loss) (0.111) (0.103) (0.024) (0.149) (0.141) (0.061)
Capital changes:
Net realized and unrealized gains
(losses) from securities (0.575) 1.833 1.447 0.882 1.013 (0.206)
----------- --------- --------- ---------- ----------- ---------
Net increase (decrease) in
accumulation unit value (0.686) 1.730 1.423 0.733 0.872 (0.267)
Accumulation unit value,
beginning of period 13.153 11.423 10.000 10.605 9.733 10.000
----------- --------- --------- ---------- ----------- ---------
Accumulation unit value,
end of period $ 12.467 13.153 11.423 11.338 10.605 9.733
=========== ========= ========= ========== =========== =========
Number of accumulation units
outstanding, end of period 250,767 140,249 55,399 118,262 78,432 38,646
=========== ========= ========= ========== =========== =========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
---------------------------------------------------------------------------------
Segregated Sub-Accounts
---------------------------------------------------------------------------------
International Value Dual Strategy Fund
--------------------------------------- --------------------------------------
2000 1999 1998 2000 1999 1998
------------ ---------- ---------- --------- ---------- -------------
Investment income and expenses:
Investment income $ 0.066 0.053 -- 0.154 -- --
Operating expenses 0.159 0.100 -- 0.154 0.090 --
-------------- ----------- ---------- ----------- ---------- ------------
Net investment income (loss) (0.093) (0.047) -- -- (0.090) --
Capital changes:
Net realized and unrealized gains
from securities (0.518) 1.972 -- (0.122) 0.917 --
-------------- ------------- ---------- ------------ ----------- ------------
Net increase (decrease) in accumulation
unit value (0.611) 1.925 -- (0.122) 0.827 --
Accumulation unit value, beginning
of period 11.925 10.000 -- 10.827 10.000 --
-------------- ------------- ---------- ------------ ------------ ------------
Accumulation unit value, end of period $ 11.314 11.925 -- 10.705 10.827 --
============== ============= ========== ============ ============ ============
Number of accumulation units outstanding,
end of period 26,819 6,860 -- 395,899 117,520 --
============== ============= ========== ============ ============ ============
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
------------------------------------------------------------------------
Segregated Sub-Accounts
------------------------------------------------------------------------
Prime Bond American Balanced
---------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
Investment income and expenses:
Investment income $ 0.655 0.706 0.503 0.346 0.622 --
Operating expenses 0.154 0.149 0.133 0.181 0.168 0.149
----------- ------------ ---------- ------------ ---------- ----------
Net investment income (loss) 0.501 0.557 0.370 0.165 0.454 (0.149)
Capital changes:
Net realized and unrealized gains
(losses) from securities 0.340 (0.955) 0.070 (0.546) 0.329 1.474
----------- ------------ ---------- ------------ ----------- ---------
Net increase (decrease) in accumulation
unit value 0.841 (0.398) 0.440 (0.381) 0.783 1.325
Accumulation unit value,
beginning of period 10.042 10.440 10.000 12.108 11.325 10.000
----------- ------------ ---------- ------------ ----------- ---------
Accumulation unit value,
end of period $ 10.883 10.042 10.440 11.727 12.108 11.325
=========== ============ ========== ============ ========== =========
Number of accumulation units
outstanding, end of period 48,106 44,285 20,781 123,674 84,943 31,096
=========== ============ ========== ============ ========== =========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
----------------------------------------------------------------------------
Segregated Sub-Accounts
----------------------------------------------------------------------------
Small Cap Value Focus
High Current Income (formerly Special Value Focus)
--------------------------------- --------------------------------------
2000 1999 1998 2000 1999 1998
----------- --------- --------- ---------- ---------- ---------
Investment income and expenses:
Investment income $ 0.945 1.035 0.821 0.055 0.073 --
Operating expenses 0.142 0.142 0.136 0.198 0.149 0.123
----------- --------- --------- ---------- ---------- ---------
Net investment income (loss) 0.803 0.893 0.685 (0.143) (0.076) (0.123)
Capital changes:
Net realized and unrealized gains
(losses) from securities (1.643) (0.477) (1.183) 1.756 3.065 (0.498)
----------- --------- --------- ---------- ---------- ---------
Net increase (decrease) in
accumulation unit value (0.840) 0.416 (0.498) 1.613 2.989 (0.621)
Accumulation unit value,
beginning of period 9.918 9.502 10.000 12.368 9.379 10.000
----------- --------- --------- ---------- ---------- ---------
Accumulation unit value,
end of period $ 9.078 9.918 9.502 13.981 12.368 9.379
=========== ========= ========= ========== ========== =========
Number of accumulation units
outstanding, end of period 11,451 7,200 2,488 49,990 23,027 8,913
=========== ========= ========= ========== ========== =========
See accompanying notes to financial statements.
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AMERICAN FIDELITY SEPARATE ACCOUNT B
Financial Highlights
Years ended December 31
Per accumulation unit income and capital changes
-----------------------------------------------------------------------------------------
Segregated Sub-Accounts
-----------------------------------------------------------------------------------------
International Equity Focus Basic Value Focus
-------------------------------------------- -----------------------------------------
2000 1999 1998 2000 1999 1998
---------- ------------- ----------- ----------- ------------ ------------
Investment income and expenses:
Investment income $ 0.117 0.552 0.001 0.225 0.412 --
Operating expenses 0.209 0.186 0.145 0.150 0.073 --
---------- ------------ ----------- ----------- ------------ ------------
Net investment income (loss) (0.092) 0.366 (0.144) 0.075 0.339 --
Capital changes:
Net realized and unrealized gains
(losses) from securities (2.708) 3.604 1.295 1.019 (0.366) --
---------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in
accumulation unit value (2.800) 3.970 1.151 1.094 (0.027) --
Accumulation unit value,
beginning of period 15.121 11.151 10.000 9.973 10.000 --
---------- ------------ ----------- ----------- ------------ ------------
Accumulation unit value,
end of period $ 12.321 15.121 11.151 11.067 9.973 --
========== ============ =========== =========== ============ ============
Number of accumulation units
outstanding, end of period 5,529 6,241 7,349 17,180 4,710 --
========== ============ =========== =========== ============ ============
See accompanying notes to financial statements.
AMERICAN FIDELITY SEPARATE ACCOUNT B
Notes to Financial Statements
December 31, 2000
(1) Summary of Significant Accounting Policies
(a) General
American Fidelity Separate Account B (Account B) is a
separate account of American Fidelity Assurance Company
(AFA), and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The
inception date of Account B was October 27, 1997; however,
no purchases occurred until operations commenced in
January 1998.
The assets of each of the twelve segregated sub-accounts
are held for the exclusive benefit of the variable annuity
contract owners and are not chargeable with liabilities
arising out of the business conducted by any other account
or by AFA. Contract owners allocate their variable
annuity purchase payments to one or more of the twelve
segregated sub-accounts. Such payments are then invested
in the various funds underlying the sub-accounts
(collectively referred to as the Funds).
One of Account B's sub-accounts, the American Fidelity
Dual Strategy Fund, Inc. is a mutual fund sponsored by
AFA.
(b) Investments
Investments in shares of the Funds are stated at fair
value, which is the net asset value per share as
determined daily by the Funds. Transactions are recorded
on a trade-date basis by the Funds. Income from
dividends, and gains from realized gain distributions, are
recorded on the ex-distribution date.
Realized gains and losses from investment transactions and
unrealized appreciation or depreciation of investments are
determined on the average cost basis.
(c) Income Taxes
Account B is not taxed separately because the operations
of Account B are part of the total operations of AFA. AFA
files its federal income tax returns under sections of the
Internal Revenue Code applicable to life insurance
companies. Account B's net increase in net assets from
operations is not expected to result in taxable income
under present regulations. Account B will not be taxed as
a "regulated investment company" under subchapter "M" of the
Internal Revenue Code.
(d) Annuity Reserves
Annuity reserves are computed for currently payable
contracts according to the Progressive Annuity Mortality
Table. The assumed interest rate is 3.5 % unless the
annuitant elects otherwise, in which case the rate may
vary from zero to 5 % as regulated by the laws of the
respective states. Charges to annuity reserves for
mortality and expense risks experience are reimbursed to
AFA if the reserves required are less than originally
estimated.
If additional reserves are required, AFA reimburses
Account B. At December 31, 2000, there were no contract
owners who had elected the variable annuity method of
payout. Accordingly, Account B held no annuity reserves
at December 31, 2000.
(e) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net
assets from operations during the period. Actual results
could differ from those estimates.
(2) Variable Annuity Contracts
AFA manages the operations of Account B and assumes certain
mortality and expense risks under the variable annuity
contracts. Administrative fees are equal to .0004110 of the
Funds' daily net assets (.15% per annum). Distribution fees
are equal to .0002740 (.10% per annum). Mortality and expense
fees are equal to .0034247% of the Funds' daily net assets
(1.25% per annum). Policy maintenance charges, which are
deducted from contract owners' accounts, are equal to $30 per
policy per year. Policy maintenance charges are reflected as
withdrawal of funds in the accompanying statements of changes
in net assets and were as follows for the years ended
December 31:
[Download Table]
2000 1999
--------- ------
Socially Responsible Growth $ 31,869 8,932
Stock Index 75,186 28,495
Growth and Income 20,266 12,647
Small Company Stock 7,111 5,027
International Value 1,237 171
Dual Strategy Fund 19,805 126
Prime Bond 10,990 3,346
American Balanced 8,351 5,304
High Current Income 995 769
Small Cap Value Focus 2,976 2,305
International Equity Focus 637 1,113
Basic Value Focus 435 1
All such fees were paid to AFA.
During the accumulation period, contract owners may partially
or totally withdraw from Account B by surrendering a portion
or all of their accumulation units. The Internal Revenue Code
may limit certain withdrawals based upon age, disability, and
other factors. When contract owners withdraw, they receive
the current value of their accumulation units, less applicable
withdrawal charges.
(3) Unit Activity From Contract Transactions
Transactions in units for each segregated sub-account for the
years ended December 31, 2000 and 1999 were as follows:
[Enlarge/Download Table]
December 31, 2000
Segregated Sub-Accounts
-----------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Growth Index Income Stock Value Fund
----------- ------ ------ ------- ------------- --------
Accumulation units:
Outstanding,
beginning of year 138,362 426,172 140,249 78,432 6,860 117,520
Increase for purchase
payments received 262,225 411,138 113,367 47,546 20,213 284,654
Decrease for
withdrawal of funds (6,553) (1,808) (2,849) (7,716) (254) (6,275)
-------- -------- -------- -------- -------- --------
Outstanding, end of
year 394,034 835,502 250,767 118,262 26,819 395,899
======== ======== ======== ======== ======== ========
[Enlarge/Download Table]
December 31, 2000
Segregated Sub-Accounts
-------------------------------------------------------------------
High Small Cap International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
----- -------- ------- --------- ------------- -----
Accumulation units:
Outstanding,
beginning of year 44,285 84,943 7,200 23,027 6,241 4,710
Increase for purchase
payments received 18,460 52,930 4,846 28,241 2 14,273
Decrease for withdrawal
of funds (14,639) (14,199) (595) (1,278) (714) (1,803)
-------- -------- -------- -------- -------- --------
Outstanding, end of year 48,106 123,674 11,451 49,990 5,529 17,180
======== ======== ======== ======== ======== ========
[Enlarge/Download Table]
December 31, 1999
Segregated Sub-Accounts
---------------------------------------------------------------------
Socially Growth Small Dual
Responsible Stock and Company International Strategy
Growth Index Income Stock Value Fund
----------- ----- ------ ------- ------------- --------
Accumulation units:
Outstanding,
beginning of year 44,112 132,663 55,399 38,646 -- --
Increase for purchase
payments received 94,301 296,535 86,108 42,648 6,863 118,572
Decrease for withdrawal
of funds (1,051) (3,026) (1,258) (2,862) (3) (1,052)
-------- -------- -------- -------- -------- --------
Outstanding, end of year 138,362 426,172 140,249 78,432 6,860 117,520
======== ======== ======== ======== ======== ========
[Enlarge/Download Table]
December 31, 1999
Segregated Sub-Accounts
--------------------------------------------------------------
High Special International Basic
Prime American Current Value Equity Value
Bond Balanced Income Focus Focus Focus
----- -------- ------- ------- ------------- -----
Accumulation units:
Outstanding,
beginning of year 20,781 31,096 2,488 8,913 7,349 --
Increase for purchase
payments received 25,032 54,512 4,728 14,304 3,589 4,710
Decrease for withdrawl
of funds (1,528) (665) (16) (190) (4,697) --
------- ------- ------- ------- ------- -------
Outstanding, end of year 44,285 84,943 7,200 23,027 6,241 4,710
======= ======= ======= ======= ======= =======
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Financial Statements
As of December 31, 2000 and 1999 and for
Each of the Years in the Three-Year
Period ended December 31, 2000
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
Board of Directors
American Fidelity Assurance Company:
We have audited the accompanying consolidated balance sheets of American
Fidelity Assurance Company and subsidiaries (the Company) as of December 31,
2000 and 1999, and the related consolidated statements of income, stockholder's
equity and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Fidelity
Assurance Company and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Oklahoma City, Oklahoma
March 14, 2001
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands, except per share amounts)
Assets 2000 1999
---- ----
Investments:
Fixed maturities available-for-sale, at fair value
(amortized cost of $1,272,843 and $942,689
in 2000 and 1999, respectively) $1,261,447 912,589
Equity securities, at fair value:
Preferred stock (cost $17,659 and $725 in 2000
and 1999, respectively) 17,853 703
Common stocks (cost $7,884 and $22,808 in
2000 and 1999, respectively) 8,025 25,047
Mortgage loans on real estate, net 159,240 145,507
Investment real estate, at cost (less accumulated
depreciation of $1,090 and $954 in 2000
and 1999, respectively) 16,431 9,404
Policy loans 25,485 11,234
Short-term and other investments 32,899 52,480
--------- ---------
1,521,380 1,156,964
--------- ---------
Cash 17,769 16,158
Accrued investment income 20,554 15,185
Accounts receivable:
Uncollected premiums 45,933 21,753
Reinsurance receivable 541,558 79,087
Other 65,479 7,436
--------- ---------
652,970 108,276
--------- ---------
Deferred policy acquisition costs 242,238 215,221
Other assets 5,671 7,088
Separate account assets 258,764 242,952
--------- ---------
Total assets $2,719,346 1,761,844
========== =========
[Enlarge/Download Table]
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands, except per share amounts)
Liabilities and Stockholder's Equity 2000 1999
---- ----
Policy liabilities:
Reserves for future policy benefits:
Life and annuity $ 639,355 133,188
Accident and health 189,388 185,338
Unearned premiums 3,441 3,866
Benefits payable 44,887 39,116
Funds held under deposit administration contracts 537,835 564,028
Other policy liabilities 106,528 102,298
--------- ---------
1,521,434 1,027,834
--------- ---------
Other liabilities:
Funds withheld under reinsurance contract (notes 11 and 12) 400,170 -
Net deferred income tax liability 46,825 49,120
General expenses, taxes, licenses and fees payable
and other liabilities 62,712 43,060
--------- ---------
509,707 92,180
--------- ---------
Notes payable 149,113 146,393
Separate account liabilities 258,764 242,952
--------- ---------
Total liabilities 2,439,018 1,509,359
--------- ---------
Stockholder's equity:
Common stock, par value $10 per share. 250,000
shares authorized, issued and outstanding 2,500 2,500
Additional paid-in capital 23,244 23,244
Accumulated other comprehensive loss (7,195) (18,129)
Retained earnings 261,779 244,870
--------- ---------
Total stockholder's equity 280,328 252,485
Commitments and contingencies (notes 9, 11, 12 and 14)
--------- ---------
Total liabilities and stockholder's equity $ 2,719,346 1,761,844
=========== =========
See accompanying notes to consolidated financial statements.
[Enlarge/Download Table]
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2000, 1999 and 1998
(in thousands, except per share amounts)
2000 1999 1998
---- ---- ----
Revenues:
Premiums:
Life and annuity $ 31,950 29,286 26,901
Accident and health 227,466 215,301 206,821
------- ------- -------
259,416 244,587 233,722
Net investment income 73,311 66,352 70,479
Other 21,007 19,237 14,757
------- ------- -------
Total revenues 353,734 330,176 318,958
------- ------- -------
Benefits:
Benefits paid or provided:
Life and annuity 25,134 25,875 18,790
Accident and health 117,467 123,551 116,908
Interest credited to funded contracts 28,558 27,199 29,208
Increase in reserves for future policy benefits:
Life and annuity (net of increase (decrease) in
reinsurance reserves ceded of $791, $(783),
and $1,362 in 2000, 1999 and 1998, respectively) 3,905 2,477 1,179
Accident and health (net of (decrease) increase in
reinsurance reserves ceded of $(10,239), $16,583,
and $9,316 in 2000, 1999 and 1998, respectively) 16,580 6,264 13,588
------- ------- -------
191,644 185,366 179,673
------- ------- -------
Expenses:
Selling costs 77,835 71,258 64,931
Other operating, administrative and general expenses 59,399 52,442 49,258
Taxes, other than federal income taxes, and licenses
and fees 10,754 8,561 7,644
Increase in deferred policy acquisition costs (27,017) (21,480) (16,004)
------- ------- -------
120,971 110,781 105,829
------- ------- -------
Total benefits and expenses 312,615 296,147 285,502
------- ------- -------
Income before income tax expense (benefit) 41,119 34,029 33,456
------- ------- -------
Income tax expense (benefit):
Current 21,256 5,390 10,482
Deferred (8,183) 6,375 508
------- ------- -------
13,073 11,765 10,990
------- ------- -------
Net income $ 28,046 22,264 22,466
========= ======= =======
Basic net income per share $ 112.18 89.06 89.86
========= ======= =======
See accompanying notes to consolidated financial statements.
[Enlarge/Download Table]
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
Years ended December 31, 2000, 1999 and 1998
(in thousands)
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings income (loss) equity
------ ---------- -------- ------------- -------------
Balance at December 31, 1997 $ 2,500 23,244 220,346 13,371 259,461
Comprehensive income:
Net income - - 22,466 - 22,466
Net change in unrealized holding
gain on investments available-
for-sale, net of reclassification adjustment - - - 6,404 6,404
-------
Comprehensive income 28,870
Dividends - - (12,706) - (12,706)
-------- ------ ------- ------ -------
Balance at December 31, 1998 2,500 23,244 230,106 19,775 275,625
Comprehensive income:
Net income - - 22,264 - 22,264
Investments transferred to
available-for-sale, net of deferred taxes - - - 6,885 6,885
Net change in unrealized holding
loss on investments available-
for-sale, net of reclassification adjustment - - - (44,789) (44,789)
-------
Comprehensive loss (15,640)
Dividends - - (7,500) - (7,500)
-------- ------ ------- ------ -------
Balance at December 31, 1999 2,500 23,244 244,870 (18,129) 252,485
Comprehensive income:
Net income - - 28,046 - 28,046
Net change in unrealized holding
gain on investments available-
for-sale, net of reclassification adjustment - - - 10,934 10,934
-------
Comprehensive income 38,980
Dividends - - (11,137) - (11,137)
-------- ------ ------- ------ -------
Balance at December 31, 2000 $ 2,500 23,244 261,779 (7,195) 280,328
See accompanying notes to consolidated financial statements.
[Enlarge/Download Table]
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income $ 28,046 22,264 22,466
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation on investment real estate 152 142 212
Accretion of discount on investments (538) (281) (793)
Realized (gains) losses on investments (199) 1,683 (2,053)
Increase in deferred policy acquisition costs (27,017) (21,480) (16,004)
(Increase) decrease in accrued investment income (257) 338 (1,166)
Increase in accounts receivable (15,057) (16,143) 1,189
Increase in policy liabilities 29,064 26,643 32,450
Interest credited on deposit and other investment-type
contracts 28,558 27,199 29,208
Charges on deposit and other investment-type contracts (10,047) (7,276) (3,255)
Increase in general expenses, taxes, licenses and
fees payable and other liabilities 12,689 3,192 3,769
Deferred income taxes (8,183) 6,375 508
Decrease in other assets 2,283 1,409 (2,737)
------ ------ ------
Total adjustments 11,448 21,801 41,328
------ ------ ------
Net cash provided by operating activities 39,494 44,065 63,794
------ ------ ------
Cash flows from investing activities:
Sale, maturity or repayment of investments:
Fixed maturities held-to-maturity - - 24,305
Fixed maturities available-for-sale 208,148 186,806 122,675
Equity securities 18,821 6,930 160
Mortgage loans on real estate 24,225 21,974 29,244
Real estate 7 2,350 3,244
Net change in short-term and
other investments, net of realized gains 19,566 (33,299) 1,589
Purchase of investments:
Fixed maturities held-to-maturity - - (492)
Fixed maturities available-for-sale (217,001) (227,892) (191,017)
Equity securities (1,784) (18,746) (409)
Mortgage loans on real estate (37,740) (34,171) (27,415)
Real estate (6,086) (1,599) (3,263)
Net change in policy loans (63) (87) (2,479)
Cash received in assumption reinsurance agreement (note 12) 1,756 - 18,747
------ ------ ------
Net cash provided by (used in) investing activities 9,849 (97,734) (25,111)
------ ------ ------
[Enlarge/Download Table]
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
---- ---- ----
Cash flows from financing activities:
Dividends paid to parent $ (11,137) (7,500) (12,706)
Proceeds from notes payable 105,434 240,208 25,000
Repayment of notes payable (102,714) (151,673) (17,861)
Deposits from deposit and other investment-type
contracts 55,983 57,780 60,269
Withdrawals from deposit and other investment-type
contracts (95,298) (86,233) (84,567)
------- ------- -------
Net cash (used in) provided by financing
activities (47,732) 52,582 (29,865)
------- ------- -------
Net increase (decrease) in cash 1,611 (1,087) 8,818
Cash at beginning of year 16,158 17,245 8,427
------- ------- -------
Cash at end of year $ 17,769 16,158 17,245
========= ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on notes payable $ 8,724 4,263 3,073
========= ====== ======
Federal income taxes $ 8,850 4,400 6,600
========= ====== ======
Supplemental disclosure of noncash investing activities:
Change in unrealized holding gain (loss) on investments
available-for-sale, net of deferred tax expense
(benefit) of $5,888, ($20,410) and $3,449 in 2000,
1999 and 1998, respectively $ 10,934 (37,904) 6,404
========= ====== ======
See accompanying notes to consolidated financial statements.
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Significant Accounting Policies
(a) Business
American Fidelity Assurance Company (AFA or the Company) and subsidiaries
provide a variety of financial services. AFA is a wholly owned subsidiary
of American Fidelity Corporation (AFC), a Nevada insurance holding company.
The Company is subject to state insurance regulations and periodic
examinations by state insurance departments.
AFA is licensed in 49 states and the District of Columbia with
approximately 34% of direct premiums written in Oklahoma, Texas, and
California. AFA is represented by approximately 300 salaried managers and
agents, and over 7,900 brokers. Activities of AFA are largely concentrated
in the group disability income, group and individual annuity, and
individual medical markets. In addition, individual and group life business
is also conducted. The main thrust of AFA's sales is worksite marketing of
voluntary products through the use of payroll deduction. The Company sells
these voluntary products through a salaried sales force that is broken down
into two divisions: the Association Worksite Division (AWD) and American
Fidelity Educational Services (AFES). AWD specializes in voluntary
disability income insurance programs aimed at selected groups and
associations whose premiums are funded by employees through payroll
deductions. AFES focuses on marketing to public school employees with
voluntary insurance products such as disability income, tax sheltered
annuities, life insurance, dread disease, and accidental death and
dismemberment. These premiums are also funded by employees through payroll
deductions. The expertise gained by the Company in worksite marketing of
voluntary products is used by the Strategic Alliance Division in developing
products to meet special situations and focusing on marketing to a broad
range of employers through independent broker agencies and agents
interested in getting into or enhancing their payroll deduction capability.
A significant portion of the Company's business consists of group and
individual annuities. The Company's earnings related to these products are
impacted by conditions in the overall interest rate environment.
(b) Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which vary in some respects from statutory accounting practices prescribed
or permitted by state insurance departments (see note 2). The consolidated
financial statements include the accounts and operations of AFA and its
wholly owned subsidiaries, except where control is expected to be
temporary. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
(c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in
the United States of America. Actual results could differ from those
estimates. Principal estimates that could change in the future are the
actuarial assumptions used in establishing deferred policy acquisition
costs and policy liabilities.
(d) Investments
Management determines the appropriate classification of investments at the
time of purchase. If management has the intent and the Company has the
ability at the time of purchase to hold the investments until maturity,
they are classified as held-to-maturity and carried at amortized cost.
Investments to be held for indefinite periods of time and not intended to
be held-to-maturity are classified as available-for-sale and carried at
fair value. Fair values of investments available-for-sale are based on
quoted market prices.
The effects of any unrealized holding gains or losses on securities
available-for-sale are reported as accumulated other comprehensive income,
a separate component of stockholder's equity, net of deferred taxes.
Transfers of securities between categories are recorded at fair value at
the date of transfer.
Short-term investments are reported at cost. Equity securities (common and
nonredeemable preferred stocks) are reported at current fair value.
Mortgage loans on real estate are reported at the unpaid balance less an
allowance for possible losses. Investment in real estate is carried at cost
less accumulated depreciation. Investment in real estate, excluding land,
is depreciated on a straight-line basis using the estimated life of 39
years. Policy loans are reported at the unpaid balance.
Realized gains or losses on disposal of investments are determined on a
specific-identification basis and are included in the accompanying
consolidated statements of income.
Because the Company's primary business is in the insurance industry, the
Company holds a significant amount of assets that is matched with its
liabilities in relation to maturity and interest margin. In order to
maximize earnings and minimize risk, the Company invests in a diverse
portfolio of investments. The portfolio is diversified by geographic
region, investment type, underlying collateral, maturity, and industry.
Management does not believe the Company has any significant concentrations
of credit risk in its investments.
The investment portfolio includes fixed maturities, equity securities,
mortgage loans, real estate, policy loans, and short-term investments. The
Company's portfolio does not include any fixed maturities that are low
investment-grade and have a high-yield (junk bonds). The Company limits its
risks by investing in fixed maturities and equity securities of rated
companies; mortgage loans adequately collateralized by real estate;
selective real estate supported by appraisals; and policy loans
collateralized by policy cash values. In addition, the Company performs due
diligence procedures prior to making mortgage loans. These procedures
include evaluations of the creditworthiness of the mortgagees and/or
tenants and independent appraisals. Certain fixed maturities are guaranteed
by the United States government.
The Company periodically reviews its investment portfolio to determine if
allowances for possible losses are necessary. In connection with this
determination, management reviews published market values, credit ratings,
independent appraisals, and other valuation information. While management
believes that the allowances are adequate, adjustments may be necessary in
the future due to changes in economic conditions. In addition, regulatory
agencies periodically review investment valuation as an integral part of
their examination process. Such agencies may require the Company to
recognize adjustments to the allowance for losses based upon available
information and judgments of the regulatory examiners at the time of their
examination.
(e) Recognition of Premium Revenue and Costs
Revenues from life, payout annuity (with life contingencies), and accident
and health policies represent premiums recognized over the premium-paying
period and are included in life, annuity, and accident and health premiums.
Expenses are associated with earned premiums to result in recognition of
profits over the life of the policies. Expenses include benefits paid to
policyholders and the change in the reserves for future policy benefits.
Revenues from accumulation policies, which are included in other revenues,
represent amounts assessed against policyholders. Such assessments are
principally surrender charges. Policyholder account balances for
accumulation annuities consist of premiums received, plus credited
interest, less accumulated policyholder assessments. Policyholder account
balances are reported in the consolidated balance sheets as funds held
under deposit administration contracts. Expenses for accumulation annuities
represent interest credited to policyholder account balances.
Revenues from universal life policies, which are included in other
revenues, represent amounts assessed against policyholders. Such
assessments are principally mortality charges, surrender charges, and
policy service fees. Policyholder account balances consist of premiums
received plus credited interest, less accumulated policyholder assessments.
Policyholder account balances are reported in the consolidated balance
sheets as other policy liabilities. Expenses include interest credited to
policyholder account balances and benefits in excess of account balances
returned to policyholders.
(f) Policy Acquisition Costs
The Company defers costs which vary with and are primarily related to the
production of new business. Deferred costs associated with life, annuity,
universal life, and accident and health insurance policies consist
principally of field sales compensation, direct response costs,
underwriting and issue costs, and related expenses. Deferred costs
associated with life policies are amortized (with interest) over the
anticipated premium paying period of the policies using assumptions that
are consistent with the assumptions used to calculate policy reserves.
Deferred costs associated with annuities and universal life policies are
amortized over the life of the policies at a constant rate based on the
present value of the estimated gross profit to be realized. Deferred costs
related to accident and health insurance policies are amortized over the
anticipated premium paying period of the policies based on the Company's
experience. Deferred policy acquisition costs are subject to recoverability
testing at the time of policy issue and at the end of each accounting
period, and are written off if determined to be unrecoverable.
(g) Policy Liabilities
Life and annuity and accident and health policy benefit reserves are
primarily calculated using the net level reserve method. The net level
reserve method includes assumptions as to future investment yields,
withdrawal rates, mortality rates, and other assumptions based on the
Company's experience. These assumptions are modified as necessary to
reflect anticipated trends and include provisions for possible unfavorable
deviation.
Reserves for benefits payable are determined using case-basis evaluations
and statistical analyses. These reserves represent the estimate of all
benefits incurred but unpaid. The estimates are periodically reviewed and,
as adjustments become necessary, they are reflected in current operations.
Although such estimates are the Company's best estimate of the ultimate
value, the actual results may vary from these values in either direction.
(h) Reinsurance
The Company accounts for reinsurance transactions as prescribed by
Statement of Financial Accounting Standards No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts"
(Statement 113). Statement 113 requires the reporting of reinsurance
transactions relating to the balance sheet on a gross basis and precludes
immediate gain recognition on reinsurance contracts.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(j) Equipment
Equipment, which is included in other assets, is stated at cost and is
depreciated on a straight-line basis using estimated lives of 3 to 10
years. Additions, renewals, and betterments are capitalized. Expenditures
for maintenance and repairs generally are expensed. The costs associated
with internally developed software are capitalized. Upon retirement or
disposal of an asset, the asset and related accumulated depreciation are
eliminated and any related gain or loss is included in income.
(k) Separate Accounts
The Company maintains a separate account under Oklahoma insurance law
designated as American Fidelity Separate Account A (Account A). Account A
was formerly known as American Fidelity Variable Annuity Fund A, and
operated as an open-end diversified management investment company from 1968
to December 31, 1998. Effective January 1, 1999, it was converted to a unit
investment trust separate account, and it transferred its investment
portfolio to the American Fidelity Dual Strategy Fund (the Fund), an open-
end investment company sponsored by AFA, in exchange for shares of the
Fund. Under Oklahoma law, the assets of Account A are segregated from the
Company's assets, are held for the exclusive benefit of the variable
annuity contract owners and are not chargeable with liabilities arising out
of the business conducted by any other account or by the Company.
The Company also maintains a separate account under Oklahoma insurance law
designated as American Fidelity Separate Account B (Account B). Account B
is registered as a unit investment trust under the Investment Company Act
of 1940, as amended. Under Oklahoma law, the assets of each of the twelve
segregated sub-accounts are held for the exclusive benefit of the variable
annuity contract owners and are not chargeable with liabilities arising out
of the business conducted by any other account or by the Company.
(l) Basic Net Income Per Share
Basic net income per share is based on the weighted average number of
shares outstanding. During the years ended December 31, 2000, 1999 and
1998, the weighted average number of shares outstanding was 250,000. There
are no dilutive securities outstanding.
(m) Reclassifications
Certain prior year amounts have been reclassified to be consistent with the
current year presentation.
(n) Comprehensive Income
The Company accounts for comprehensive income as prescribed by Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and presentation
of comprehensive income and its components in a full set of financial
statements. Comprehensive income (loss) consists of net income and net
unrealized gains (losses) on securities available-for-sale, net of
reclassification adjustment, and is presented in the consolidated
statements of stockholder's equity. SFAS No. 130 requires only additional
disclosures in the consolidated financial statements; it does not affect
the Company's financial position or results of operations.
(o) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that a company recognize
all derivatives as either assets or liabilities in the statement of
financial condition and measure those instruments at fair value. This
statement is required to be adopted by the Company in 2001. Management has
determined that this statement will not have a material adverse impact on
the consolidated financial position or the future results of operations of
the Company.
In 2000, the Company adopted Statement of Position 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts that do not
Transfer Insurance Risk" (SOP 98-7). This statement provides that insurance
and reinsurance contracts for which the deposit method is appropriate
should be classified and accounted for as one of the following, those that
(1) transfer only significant timing risk, (2) transfer only significant
underwriting risk, (3) transfer neither significant timing nor underwriting
risk, or (4) have an indeterminate risk. SOP 98-7 does not address when
deposit accounting should be applied. The adoption of SOP 98-7 did not have
a material adverse impact on the consolidated financial position or the
future results of operations of the Company.
(2) Statutory Financial Information
The Company is required to file statutory financial statements with state
insurance regulatory authorities. Accounting principles used to prepare
these statutory financial statements differ from financial statements
prepared on the basis of accounting principles generally accepted in the
United States of America. The Company reported statutory net income for the
years ended December 31, 2000, 1999 and 1998, of approximately $16,293,000,
$13,876,000 and $12,577,000, respectively. The Company reported statutory
capital and surplus at December 31, 2000 and 1999 of approximately
$133,520,000 and $132,194,000, respectively.
Retained earnings of the Company are restricted as to payment of dividends
by statutory limitations applicable to insurance companies. Without prior
approval of the state insurance department, dividends that can be paid by
the Company are generally limited to the greater of (a) 10% of statutory
capital and surplus, or (b) the statutory net gain from operations. These
limitations are based on the amounts reported for the previous calendar
year.
The Oklahoma Insurance Department has adopted risk based capital (RBC)
requirements for life insurance companies. These requirements are
applicable to the Company. The RBC calculation serves as a benchmark for
the regulation of life insurance companies by state insurance regulators.
RBC provides for surplus formulas similar to target surplus formulas used
by commercial rating agencies. The formulas specify various weighting
factors that are applied to statutory financial balances or various levels
of activity based on the perceived degree of risk, and are set forth in the
RBC requirements. The amount determined under such formulas is called the
authorized control level RBC (ACLC).
The RBC guidelines define specific capital levels based on a company's ACLC
that are determined by the ratio of the company's total adjusted capital
(TAC) to its ACLC. TAC is equal to statutory capital, plus the Asset
Valuation Reserve and any voluntary investment reserves, 50% of dividend
liability, and certain other specified adjustments. Companies where TAC is
less than or equal to 2.0 times ACLC are subject to certain corrective
actions, as set forth in the RBC requirements.
At December 31, 2000 and 1999, the statutory TAC of the Company
significantly exceeds the level requiring corrective action.
(3) Investments
Investment income for the years ended December 31 is summarized below (in
thousands):
2000 1999 1998
---- ---- ----
Interest on fixed maturities $ 67,579 64,891 64,207
Dividends on equity securities 691 137 7
Interest on mortgage loans 13,301 11,993 11,890
Investment real estate income 1,375 1,073 1,208
Interest on policy loans 1,775 1,408 1,468
Interest on short-term investments 1,927 800 267
Net realized gains (losses) on investments 199 (1,683) 2,053
Other 1,059 949 647
------- ------- -------
87,906 79,568 81,747
Less investment expenses (14,595) (13,216) (11,268)
------- ------- -------
Net investment income $ 73,311 66,352 70,479
======== ====== ======
Net realized gains (losses) and the changes in unrealized gains (losses) on
investments for the years ended December 31 are as follows (in thousands):
[Enlarge/Download Table]
2000 1999 1998
---- ---- ----
Realized Unrealized Realized Unrealized Realized Unrealized
-------- ---------- -------- ---------- -------- ----------
Fixed maturities held-
to-maturity $ - - - - 90 -
Fixed maturities
available-for-sale (1,793) 18,704 (2,135) (58,486) 534 8,521
Equity securities 2,215 (1,882) 445 172 - 1,332
Real estate - - 137 - 1,283 -
Mortgage loans (133) - (130) - 147 -
Short-term investments (15) - - - - -
Other assets (75) - - - (1) -
-------- ------ ------ ------- ----- -----
$ 199 16,822 (1,683) (58,314) 2,053 9,853
======== ====== ====== ======= ===== =====
Included in the above realized gains (losses) is the increase (decrease) in
the allowance for possible losses on mortgage loans of $133,000, $130,000
and $(147,000), in 2000, 1999 and 1998, respectively. In addition, the
Company realized net gains of approximately $95,000, $65,000 and $554,000
during 2000, 1999 and 1998, respectively, on investments in fixed
maturities that were called or prepaid.
(a) Held-to-Maturity
Effective January 1, 1999, management of the Company changed its intent to
hold securities to maturity. The Company transferred all of its
held-to-maturity securities to available-for-sale during 1999.
Proceeds from sales of investments in fixed maturities held-to-maturity
during 1998 were approximately $5,887,000. In 1998, gross losses of
approximately $124,000 were realized on those sales. In 1998, significant
deterioration in the issuers' creditworthiness caused the Company to change
its intent to hold these securities to maturity.
(b) Available-for-Sale
The gross unrealized holding gains on equity securities available-for-sale
were approximately $365,000 and $2,361,000 in 2000 and 1999, respectively.
Gross unrealized holding losses on equity securities available-for-sale
were approximately $30,000 and $144,000 in 2000 and 1999, respectively.
The amortized cost and estimated fair value of investments in fixed
maturities available-for-sale are as follows (in thousands):
December 31, 2000
-----------------
Gross Gross
unrealized unrealized Estimated
Amortized holding holding fair
cost gains losses value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 44,456 - (1) 44,455
Special revenue 98,853 659 (178) 99,334
Corporate securities 768,747 9,310 (23,124) 754,933
Mortgage-backed securities 360,787 4,149 (2,211) 362,725
---------- ------ ------- ---------
Totals $1,272,843 14,118 (25,514) 1,261,447
========== ====== ======= =========
December 31, 1999
-----------------
Gross Gross
unrealized unrealized Estimated
Amortized holding holding fair
cost gains losses value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 56,990 439 (1,326) 56,103
Corporate securities 597,725 1,984 (22,471) 577,238
Mortgage-backed securities 287,974 723 (9,449) 279,248
---------- ------ ------- ---------
Totals $942,689 3,146 (33,246) 912,589
========== ===== ======= =======
The amortized cost and estimated fair value of investments in fixed
maturities available-for-sale at December 31, 2000 are shown below (in
thousands) by contractual maturity. Expected maturities will differ from
contractual maturities because the issuers of such securities may have
the right to call or prepay obligations with or without call or
prepayment penalties.
Estimated
Amortized fair
cost value
---- -----
Due in one year or less $ 40,505 40,177
Due after one year through five years 233,548 230,182
Due after five years through ten years 265,400 264,428
Due after ten years 372,603 363,935
---------- ---------
912,056 898,722
Mortgage-backed securities 360,787 362,725
---------- ---------
Totals $1,272,843 1,261,447
========== =========
Proceeds from sales of investments in fixed maturities available-for-sale
were approximately $152,942,000, $96,932,000 and $37,058,000, in 2000,
1999 and 1998, respectively. Gross gains of approximately $2,387,000,
$481,000 and $206,000 and gross losses of approximately $4,275,000,
$2,681,000 and $12,000, were realized on those sales in 2000, 1999 and
1998, respectively.
At December 31, 2000 and 1999, investments with carrying values of
approximately $2,581,000 and $2,481,000, respectively, were on deposit with
state insurance departments as required by statute.
(4) Fair Value of Financial Instruments
A summary of the Company's financial instruments (in thousands) and the
fair value estimates, methods, and assumptions are set forth below:
[Enlarge/Download Table]
2000 1999
---- ----
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
Financial assets:
Cash $ 17,769 17,769 16,158 16,158
Short-term and other investments 32,899 32,899 52,480 52,480
Accounts receivable 111,412 111,412 29,189 29,189
Accrued investment income 20,554 20,554 15,185 15,185
income
Reinsurance receivables on
paid and unpaid benefits 541,558 541,558 79,087 79,087
Policy loans 25,485 25,485 11,234 11,234
Fixed maturities
available-for-sale 1,261,447 1,261,447 912,589 912,589
Equity securities 25,878 25,878 25,750 25,750
Mortgage loans 159,240 165,698 145,507 142,908
Financial liabilities:
Certain policy liabilities 597,363 588,002 624,853 612,730
Other liabilities 62,712 62,712 43,060 43,060
Notes payable 149,113 155,138 146,393 145,069
Cash, Short-term and Other Investments, Accounts Receivable, Accrued
Investment Income, Reinsurance Receivables on Paid and Unpaid Benefits, and
Other Liabilities
The carrying amount of these financial instruments approximates fair value
because they mature within a relatively short period of time and do not
present unanticipated credit concerns.
Policy Loans
Policy loans have average interest rates of 5.30% and 5.96% as of December
31, 2000 and 1999, respectively, and have no specified maturity dates. The
aggregate fair value of policy loans approximates the carrying value
reflected on the consolidated balance sheets. These loans typically carry
an interest rate that is tied to the crediting rate applied to the related
policy and contract reserves. Policy loans are an integral part of the life
insurance policies which the Company has in force and cannot be valued
separately.
Fixed Maturities Available-for-Sale
The fair value of fixed maturities available-for-sale is estimated based on
bid prices published in financial newspapers or bid quotations received
from securities dealers. The fair value of certain securities is not
readily available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar
instruments, adjusted for the differences between the quoted instruments
and the instruments being valued. Equity Securities The fair value of
equity securities investments of the Company is based on bid prices
published in financial newspapers or bid quotations received from
securities dealers.
Mortgage Loans
Fair values are estimated for portfolios of loans with similar
characteristics. Mortgage loans are segregated into either commercial or
residential categories, and have average net yield rates of 7.99% and 7.72%
for December 31, 2000 and 1999, respectively. The fair value of mortgage
loans was calculated by discounting scheduled cash flows to maturity using
estimated market discount rates of 7.56% and 8.45% for December 31, 2000
and 1999, respectively. These rates reflect the credit and interest rate
risk inherent in the loans. Assumptions regarding credit risk, cash flows,
and discount rates are judgmentally determined using available market
information and specific borrower information. The fair value of certain
residential loans is based on the approximate fair value of the underlying
real estate securing the mortgages.
Certain Policy Liabilities
Certain policies sold by the Company are investment-type contracts. These
liabilities are segregated into two categories: deposit administration
funds and immediate annuities which do not have life contingencies. The
fair value of the deposit administration funds is estimated as the cash
surrender value of each policy less applicable surrender charges. The fair
value of the immediate annuities without life contingencies is estimated as
the discounted cash flows of expected future benefits less the discounted
cash flows of expected future premiums, using the current pricing
assumptions. The carrying amount of all other policy liabilities
approximates fair value.
December 31, 2000 December 31, 1999
----------------- -----------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
------ ---------- ------ ----------
(in thousands) (in thousands)
Funds held under deposit
administration contracts $537,835 527,138 564,028 550,638
Annuities 59,528 60,864 60,825 62,092
Notes Payable
The fair value of the Company's notes payable is estimated by discounting
the scheduled cash flows of each instrument through the scheduled maturity.
The discount rates used are similar to those used for the valuation of the
Company's commercial mortgage loan portfolio, except for the Company's
notes payable to the Federal Home Loan Bank of Topeka, which are valued
using discount rates at or near the carried rates because the notes have
relatively short lives or carry the option of conversion to an adjustable
rate.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular financial instrument, nor do they reflect income taxes on
differences between fair value and tax basis of the assets. Because no
established exchange exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
(5) Deferred Policy Acquisition Costs
Deferred policy acquisition costs principally represent field sales
compensation, direct response costs, underwriting and issue costs, and
related expenses. Information relating to the increase in deferred policy
acquisition costs is summarized as follows (in thousands):
Life Accident
and annuity and health Total
----------- ---------- -----
Year ended December 31, 2000:
Deferred costs $ 8,728 45,710 54,438
Amortization (4,336) (23,085) (27,421)
------- ------ ------
Net increase $ 4,392 22,625 27,017
======= ====== ======
Year ended December 31, 1999:
Deferred costs $ 8,650 38,369 47,019
Amortization (7,202) (18,337) (25,539)
------- ------ ------
Net increase $ 1,448 20,032 21,480
======= ====== ======
Year ended December 31, 1998:
Deferred costs $ 7,260 33,371 40,631
Amortization (4,669) (19,958) (24,627)
------- ------ ------
Net increase $ 2,591 13,413 16,004
======= ====== ======
(6) Reserves for Future Policy Benefits
Reserves for life and annuity future policy benefits as of December 31 are
principally based on the interest assumptions set forth below (in
thousands):
Interest
2000 1999 assumptions
---- ---- -----------
Life and annuity reserves:
Issued prior to 1970 $3,120 3,195 4.75%
Issued 1970 through 1980 27,583 27,874 6.75% to 5.25%
Issued after 1982 (indeterminate
premium products) 580 587 10.00% to 8.50%
Issued through 1987
(SGLI acquisition) 1,258 1,296 11.00%
Issued 1981 - 1994 (all other) 30,246 29,560 8.50% to 7.00%
Issued after 1994 (all other) 7,827 5,487 7.00%
Life contingent annuities 34,513 33,250 Various *
Group term life waiver of premium
disabled lives 6,525 5,803 6.00%
Reserves acquired through assumption
reinsurance agreement (note 12) 522,640 20,673 5.50% to 2.25%
All other life reserves 5,063 5,463 Various
-------- -------
$639,355 133,188
======== =======
* These reserves are revalued as limited-pay contracts. As a result, the
reserve is somewhat greater than the present value of future benefits and
expenses at the assumed interest rates, i.e., the actual interest rates
required to support the reserves are somewhat lower than the rates assumed.
Assumptions as to mortality are based on the Company's prior experience.
This experience approximates the 1955-60 Select and Ultimate Table
(individual life issued prior to 1981), the 1965-70 Select and Ultimate
Table (individual life issued in 1981 and after) and the 1960 Basic Group
Table (all group issues). Assumptions for withdrawals are based on the
Company's prior experience. All assumptions used are adjusted to provide
for possible adverse deviations.
(7) Liability for Benefits Payable
The provision for benefits pertaining to prior years increased by
approximately $6,800,000 and $2,000,000 in 2000 and 1999, respectively, due
to higher than anticipated loss experience, primarily related to cancer and
group disability business.
(8) Notes Payable
Notes payable as of December 31 are summarized as follows:
2000 1999
---- ----
(in thousands)
6.66% line of credit, due in 2001, interest due monthly $ 10,000 -
6.07% line of credit, due in 2003, interest due monthly 25,000 -
5.80% line of credit, due in 2004, interest due monthly 5,000 5,000
5.05% line of credit, due in 2005, interest due monthly 3,571 4,286
5.55% line of credit, due in 2008, interest due monthly 6,500 6,500
5.03% line of credit, due in 2008, interest due monthly 5,000 5,000
5.60% line of credit, due in 2009, interest due monthly 5,000 5,000
6.19% line of credit, due in 2010, interest due monthly 10,000 -
6.61% line of credit, due in 2010, interest due monthly 10,000 -
6.33% line of credit, due in 2010, interest due monthly 15,000 -
6.87% line of credit, due in 2010, interest due monthly 15,000 -
6.31% line of credit, due in 2010, interest due monthly 15,000 -
5.87% line of credit, due in 2014, interest due monthly 15,000 15,000
7.50% construction loan due in 2010, interest due monthly
principal payments due monthly beginning in 2001 9,042 3,607
Various notes payable, paid in 2000 - 102,000
--------- ---------
$ 149,113 146,393
========= =========
AFA has a $140,071,000 and $142,786,000 line of credit with the Federal
Home Loan Bank of Topeka at December 31, 2000 and 1999, respectively. The
line of credit is secured by investment securities pledged as collateral by
AFA with a carrying value of approximately $167,010,000 and $157,562,000 at
December 31, 2000 and 1999, respectively. The collateral required for this
line of credit at December 31, 2000 and 1999, was $164,790,000 and
$148,323,000, respectively. The pledged securities are held in the
Company's name in a custodial account at InvesTrust, N.A., to secure
current and future borrowings. To participate in this available credit, AFA
has acquired 77,536 shares of Federal Home Loan Bank of Topeka common stock
with a total carrying value of approximately $7,753,600 at December 31,
2000.
The Company has unused lines of credit of approximately $20,018,000
available at December 31, 2000.
Interest expense for the years ended December 31, 2000, 1999 and 1998,
totaled approximately $8,738,000, $4,730,000 and $3,336,000, respectively.
Scheduled maturities (excluding interest) of the above indebtedness at
December 31, 2000, are as follows (in thousands):
2001 $ 10,790
2002 802
2003 25,809
2004 5,815
2005 825
Thereafter 105,072
--------
$149,113
========
(9) Income Taxes
Total income tax expense in the accompanying consolidated statements of
income differs from the federal statutory rate of 35% of income before
income taxes principally due to dividends paid to AFC in 2000 and 1999
treated as management fees for tax purposes.
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at December 31, are presented below (in
thousands):
2000 1999
---- ----
Deferred tax assets:
Fixed maturities $ 2,848 9,539
Other investments 744 284
Life and health reserves 23,183 16,800
Other liabilities 796 888
------- -------
Total gross deferred tax assets 27,571 27,511
------- -------
Deferred tax liabilities:
Equity securities (117) (775)
Deferred policy acquisition costs (67,037) (69,245)
Other assets (7,242) (6,611)
------- -------
Total gross deferred tax liabilities (74,396) (76,631)
------- -------
Net deferred tax liability $(46,825) (49,120)
======== =======
Management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize the deferred
tax assets reported on the consolidated balance sheets.
The Company and its subsidiaries are included in AFC's consolidated federal
income tax return. Income taxes are reflected in the accompanying
consolidated financial statements as if the Company and its subsidiaries
were separate tax paying entities. At December 31, 2000 and 1999, other
accounts payable include income taxes payable of approximately $14,268,000
and $1,862,000, respectively.
Under the provision of the Life Insurance Company Tax Act of 1959, certain
special deductions were allowed to life insurance companies for federal
income tax purposes. These special deductions were repealed by the Tax
Reform Act of 1984, and the untaxed balances were frozen at their December
31, 1983 levels. These balances, referred to as the "policyholders surplus
account" (PSA), were approximately $8,161,000 for AFA and are subject to
taxation if certain levels of premium income or life insurance reserves are
not maintained, or if the life insurance company makes excess distributions
to shareholders. As it is not currently considered likely that a tax would
become due on any such balance, no deferred income taxes have been
provided. However, if such tax were to become payable, it would amount to
approximately $2,856,000.
(10) Other Comprehensive Income (Loss)
The changes in the components of other comprehensive income (loss) are
reported net of income taxes for the periods indicated, as follows (in
thousands):
Year ended December 31, 2000
----------------------------
Pre-tax Tax Net
amount effect amount
------ ------ ------
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 17,244 (6,036) 11,208
Less: reclassification adjustment for gains
included in net income (422) 148 (274)
-------- ------ ------
Other comprehensive income $ 16,822 (5,888) 10,934
======== ====== ======
Year ended December 31, 1999
----------------------------
Pre-tax Tax Net
amount effect amount
------ ------ ------
Unrealized holding loss on investments:
Unrealized holding loss arising
during the period $(60,004) 21,002 (39,002)
Plus: reclassification adjustment for losses
included in net income 1,690 (592) 1,098
-------- ------ ------
Other comprehensive loss $(58,314) 20,410 (37,904)
======== ====== ======
Year ended December 31, 1998
----------------------------
Pre-tax Tax Net
amount effect amount
------ ------ ------
Unrealized holding gain on investments:
Unrealized holding gain arising
during the period $ 10,387 (3,635) 6,752
Less: reclassification adjustment for gains
included in net income (534) 186 (348)
-------- ------ ------
Other comprehensive income $ 9,853 (3,449) 6,404
======== ====== ======
(11) Reinsurance
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies. Management believes that all reinsurers
presently used are financially sound and will be able to meet their
contractual obligations; therefore, no allowance for uncollectible amounts
has been included in the consolidated financial statements. At December 31,
2000 and 1999, reinsurance receivables with a carrying value of
approximately $17,719,000 and $15,302,000, respectively were associated
with two reinsurers. In addition, reinsurance receivables and funds
withheld under reinsurance contract liability of approximately $400,170,000
are associated with one reinsurer (note 12).
Reinsurance agreements in effect for life insurance policies vary according
to the age of the insured and the type of risk. Retention amounts for life
insurance range from $500,000 on group life to $250,000 on individual life
coverages, with slightly lower limits on accidental death benefits. At
December 31, 2000 and 1999, the face amounts of life insurance in force
that are reinsured amounted to approximately $14,283,000,000 (approximately
73.1% of total life insurance in force) and $1,974,000,000 (approximately
22.8% of total life insurance in force), respectively.
Reinsurance agreements in effect for accident and health insurance policies
vary with the type of coverage. Retention limits range from $100,000 for
individual cancer coverage to $250,000 for major medical coverage.
The effects of reinsurance agreements on earned and written premiums, prior
to deductions for benefits and commission allowances, were approximately
$(149,747,000), $(148,231,000) and $(114,225,000), for life and accident
and health reinsurance ceded, and $1,092,000, $795,000 and $14,220,000, for
life and accident and health reinsurance assumed, for the years ended
December 31, 2000, 1999 and 1998, respectively.
Reinsurance agreements reduced benefits paid for life and accident and
health policies by approximately $104,660,000, $114,026,000 and $88,999,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
(12) Acquired Business
Mid-Continent Life Insurance Company
Effective December 31, 2000, the Company entered into an assumption
reinsurance agreement with the Commissioner of Insurance of the State of
Oklahoma, in his capacity as receiver of Mid-Continent Life Insurance
Company (MCL) of Oklahoma City, Oklahoma. Under this agreement, the Company
has assumed MCL's policies in force, with the exception of a small block of
annuity policies that was assumed effective January 1, 2001. In a
concurrent reinsurance agreement, the Company cedes 100% of the MCL
policies assumed to Hannover Life Reassurance Company of America (HLR). The
agreement with HLR is a funds withheld arrangement, with the Company ceding
net policy assets and liabilities of approximately $400,170,000 to HLR and
maintaining a funds withheld liability.
Under the terms of the agreement with the receiver, the Company has
guaranteed that the amount of premiums charged under the assumed
"Extra-Life" contracts will not increase during the seventeen-year period
beginning December 31, 2000. The Company has also guaranteed that the
current dividend scale on the assumed "Extra-Life" contracts shall not be
reduced or eliminated during the five-year period beginning December 31,
2000. Certain funds are being held by the receiver for the purpose of
paying the reasonable costs of MCL's operations after December 31, 2000 and
winding up the receivership proceedings. The remainder of these funds will
be remitted to the Company after all such costs have been paid.
Under the terms of the agreement with the reinsurer (HLR), the Company has
agreed to share future profits on a 50/50 basis with HLR, after HLR has
received a predetermined rate of return. As required by the terms of the
assumption reinsurance agreement with the Commissioner of Insurance of the
State of Oklahoma, the Company and HLR agreed that a Supplemental
Policyholder Reserve (SPR) would be established. The SPR is equal to the
net of the assets and liabilities received from MCL under the assumption
agreement, less amounts ceded to other reinsurance carriers. The SPR is
100% ceded to HLR.
The acquisition was accounted for as a purchase under Accounting Principles
Board Opinion No. 16, Business Combinations. Total assets and liabilities
were approximately $487,304,000, including the SPR, at the time of this
agreement, and are included in the accompanying consolidated balance
sheets. The assets and liabilities recorded consist of the following (in
thousands):
Assets:
Fixed maturities available-for-sale $322,556
Equity securities 16,832
Mortgage loans on real estate 351
Real estate, net 1,100
Policy loans 14,188
Cash 1,756
Accrued investment income 5,112
Accounts receivable 129,467
Other assets 941
--------
$492,303
========
Liabilities:
Policy liabilities $485,340
Other liabilities 6,963
--------
$492,303
========
Effective July 1, 1998, the Company entered into an assumption reinsurance
agreement with American Standard Life and Accident Insurance Company (ASL)
of Enid, Oklahoma, the National Organization of Life and Health Guaranty
Associations (NOLHGA) and the guaranty associations in the states where ASL
originally conducted its business. Under this agreement, the Company has
assumed the majority of ASL's policies in force, with the exception of
those policies issued in states where a guaranty association does not
exist. Effective July 1, 1998, the Company assumed approximately $24
million in life, annuity and health reserves under this agreement, of which
approximately $5 million were subsequently ceded to a third- party
reinsurer. ASL is an Oklahoma-domiciled company in receivership under the
oversight of the Oklahoma Insurance Department and NOLHGA.
The acquisition was accounted for as a purchase under Accounting Principles
Board Opinion No. 16, Business Combinations. The Company recorded an asset
for the value of the business acquired based on the present value of the
estimated future profits on the business (PVP), at a 6.75% discount rate.
The PVP was estimated to be $4,313,000 at July 1, 1998. Approximately
$504,000 and $578,000 of amortization was recorded in 2000 and 1999,
respectively, and is included in operating expenses in the accompanying
consolidated statements of income. The December 31, 2000 and 1999 balance
of the PVP asset approximates $2,920,000 and $3,424,000, respectively, and
is included in other assets in the accompanying consolidated balance
sheets.
An estimate of the amortization of the PVP for the next five years is as
follows:
2001 $437,000
2002 379,000
2003 328,000
2004 284,000
2005 246,000
(13) Employee Benefit Plans
The Company and its subsidiaries participate in a pension plan (the Plan)
covering all employees who have satisfied longevity and age requirements.
The Company's funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but
also for those expected to be earned in the future.
The Plan's funded status as of December 31, is summarized as follows (in
thousands):
2000 1999
---- ----
Actuarial present value of benefit obligation:
Vested benefits $ 17,144 14,446
Nonvested benefits 2,264 1,957
-------- ------
Total accumulated benefit obligation $ 19,408 16,403
======== ======
Change in benefit obligation:
Benefit obligation at beginning of period $ 20,141 22,257
Service cost 1,944 2,091
Interest cost 1,575 1,394
Actuarial loss (gain) 1,392 (2,959)
Benefits paid (1,159) (2,642)
-------- ------
Benefit obligation at end of period $ 23,893 20,141
======== ======
Change in plan assets:
Fair value of plan assets at
beginning of period $ 24,369 24,205
Actual return on plan assets 1,266 2,806
Benefits paid (1,159) (2,642)
-------- ------
Fair value of plan assets at end of period $ 24,476 24,369
======== ======
Funded status at end of year:
Plan assets in excess of projected benefit obligation 583 4,228
Unrecognized transition asset $ - (23)
Unrecognized net actuarial (gain) loss (1,697) (4,051)
Unrecognized prior service cost due to plan amendment 256 320
-------- ------
(Accrued) prepaid benefit cost $ (858) 474
======== ======
In determining the projected benefit obligation, the weighted average
assumed discount rate used was 7.75% in 2000 and 1999. The rate of increase
in future salary levels was 5.0% in 2000 and 1999. The expected long-term
rate of return on assets used in determining net periodic pension cost was
9.5% in 2000 and 1999. Plan assets are invested in fixed maturities, equity
securities and in short-term investments.
Net periodic pension cost for the years ended December 31, included the
following (in thousands):
2000 1999 1998
---- ---- ----
Service costs - benefits earned during period $ 1,944 2,091 1,662
Interest costs 1,575 1,394 1,391
Expected return on plan assets (2,202) (2,175) (1,962)
Net amortization and deferral 15 (73) (73)
------- ------- -------
Net periodic pension cost $ 1,332 1,237 1,018
======= ======= =======
The Company participates in a defined contribution thrift and profit
sharing plan as provided under section 401(a) of the Internal Revenue Code,
which includes the tax deferral feature for employee contributions provided
by section 401(k) of the Internal Revenue Code. The Company contributed
approximately $1,273,000, $1,150,000 and $1,023,000 to this plan during the
years ended December 31, 2000, 1999 and 1998, respectively.
(14) Commitments and Contingencies
Rent expense for office space and equipment for the years ended December
31, 2000, 1999 and 1998, was approximately $8,864,000, $8,404,000 and
$8,573,000, respectively. A portion of rent expense relates to leases that
expire or are cancelable within one year. The aggregate minimum annual
rental commitments as of December 31, 2000, under noncancellable long-term
leases are as follows (in thousands):
2001 $1,596
2002 1,305
2003 481
2004 377
2005 165
The Company has pledged approximately $14,969,000 of its treasury notes as
collateral on lines of credit held by affiliated companies.
The Company has outstanding mortgage loan commitments of approximately
$11,600,000 and $14,800,000 at December 31, 2000 and 1999, respectively.
In the normal course of business, there are various legal actions and
proceedings pending against the Company and its subsidiaries. In
management's opinion, the ultimate liability, if any, resulting from these
legal actions will not have a material adverse effect on the Company's
financial position.
(15) Related Party Transactions
The Company and its subsidiaries lease automobiles, furniture, and
equipment from a partnership that owns a controlling interest in AFC. These
operating leases are cancelable upon one month's notice. During the years
ended December 31, 2000, 1999 and 1998, rentals paid under these leases
were approximately $4,139,000, $3,995,000 and $3,989,000, respectively.
During the years ended December 31, 2000, 1999 and 1998, the Company paid
investment advisory fees to a partnership that owns a controlling interest
in AFC totaling approximately $3,519,000, $3,427,000 and $3,190,000,
respectively.
During the year ended December 31, 2000, the Company paid management fees
to AFC totaling approximately $1,863,000. During the years ended December
31, 1999 and 1998, the Company paid management fees and investment advisory
fees to AFC totaling approximately $4,588,000 and $4,523,000, respectively.
The Company leases office space from a subsidiary of AFC. The rent payments
associated with the lease will be approximately $2,200,000 per year for the
next 11 years.
During 2000, 1999 and 1998, the Company paid cash dividends to AFC of
approximately $11,137,000, $7,500,000 and $12,706,000, respectively.
During 2000, 1999 and 1998, the Company entered into three-year software
lease agreements with AFC. Lease expense related to this agreement was
approximately $2,914,000, $2,072,000 and $1,344,000 for the years ended
December 31, 2000, 1999 and 1998, respectively, and is included in selling
costs and other operating, administrative and general expenses.
An officer of AFC serves on the board of directors of a financial
institution in which the Company maintains cash balances.
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Schedule III - Business Segment Information
Years Ended December 31, 2000, 1999 and 1998
(In thousands)
The Company's reportable segments are its strategic business units. The
components of operations for the years ended December 31, 2000, 1999 and 1998
are included in the table below.
Assets and related investment income are allocated based upon related insurance
reserves which are backed by such assets. Other operating expenses are allocated
in relation to the mix of related revenues.
[Download Table]
2000 1999 1998
---- ---- ----
Total revenues:
American Fidelity Education Services Division $ 195,848 187,548 156,865
Association Worksite Division 113,573 108,342 102,389
Strategic Alliance Division 42,891 33,412 58,959
Mid-Continent Life Division (note 12) - - -
Non insurance operations 1,422 874 745
---------- --------- ----------
$ 353,734 330,176 318,958
========== ========= ==========
Pretax earnings:
American Fidelity Education Services Division $ 26,787 26,617 21,669
Association Worksite Division 8,684 8,314 10,287
Strategic Alliance Division 5,274 (940) 1,420
Mid-Continent Life Division (note 12) - - -
Non insurance operations 374 38 80
---------- --------- ----------
$ 41,119 34,029 33,456
========== ========= ==========
Total assets:
American Fidelity Education Services Division $1,357,577 1,273,329 1,156,565
Association Worksite Division 235,132 243,206 201,115
Strategic Alliance Division 232,561 241,953 274,732
Mid-Continent Life Division (note 12) 892,473 - -
Non insurance operations 1,603 3,356 2,536
---------- --------- ----------
$2,719,346 1,761,844 1,634,948
========== ========= =========
[Enlarge/Download Table]
Schedule
AMERICAN FIDELITY ASSURANCE COMPANY
AND SUBSIDIARIES
Schedule IV - Reinsurance
Years ended December 31, 2000, 1999 and 1998
(in thousands)
Percentage
Ceded Assumed of amount
Gross to other from other Net assumed
amount companies companies amount to net
------ --------- --------- ------ ------
Year ended December 31, 2000
Life insurance in force $9,256,897 14,282,890<F1> 10,285,475<F1> 5,259,482 195.56%
========== ========== ========== ========= ======
Premiums:
Life insurance $ 39,751 7,799 (2) 31,950 (0.01)%
Accident and health insurance 368,320 141,948 1,094 227,466 0.48%
---------- ---------- ---------- --------- ------
Total premiums $ 408,071 149,747 1,092 259,416 0.42%
========== ========== ========== ========= ======
Year ended December 31, 1999
Life insurance in force $8,666,056 1,973,599 10 6,692,467 -
========== ========== ========== ========= ======
Premiums:
Life insurance $ 32,295 2,991 (18) 29,286 (0.06)%
Accident and health insurance 359,728 145,240 813 215,301 0.38%
---------- ---------- ---------- --------- ------
Total premiums $ 392,023 148,231 795 244,587 0.33%
========== ========== ========== ========= ======
Year ended December 31, 1998
Life insurance in force $7,565,337 846,113 10 6,719,234 -
========== ========== ========== ========= ======
Premiums:
Life insurance $ 18,034 3,154 12,021 26,901 44.69%
Accident and health insurance 315,693 111,071 2,199 206,821 1.06%
---------- ---------- ---------- --------- ------
Total premiums $ 333,727 114,225 14,220 233,722 6.08%
========== ========== ========== ========= ======
<FN>
<F1> The ceded in force and the assumed in force include approximately
$10,285,000 in reinsurance related to the acquisition of a block of
business from Mid-Continent Life Insurance Company. This was effected
through a bulk assumption reinsurance treaty. This business is 100% ceded
to Hannover Life Reassurance Company. The percentage of amount assumed to
net is 0.00% with the arrangement removed (note 12).
</FN>
PART C
OTHER INFORMATION
ITEM 24 - FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
The following financial statements are included in Part B hereof:
American Fidelity Separate Account B
Independent Auditors' Report
Statements of Assets and Liabilities as of December 31, 2000 Statements
of Operations for the Year Ended December 31, 2000 Statements of
Changes in Net Assets for the Years Ended December 31, 2000 and 1999
Financial Highlights Notes to Financial Statements
American Fidelity Assurance Company
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the Years Ended December 31,
2000, 1999 and 1998 Consolidated Statements of Stockholder's Equity for
the Years Ended December 31, 2000, 1999 and 1998 Consolidated
Statements of Cash Flows for the Years Ended December 31, 2000, 1999
and 1998 Notes to Consolidated Financial Statements Schedule III -
Business Segment Information Schedule IV - Reinsurance
(b) EXHIBITS
1 Resolution adopted by the Board of American Fidelity Assurance Company
authorizing the establishment of Separate Account B. Incorporated herein by
reference to exhibit 99.B1 to the Registrant's registration statement on
Form N-4 filed on April 23, 1997 (No. 333-25663).
3 Principal Underwriter's Agreement dated July 14, 1997 between American
Fidelity Assurance Company, on behalf of the Registrant, and American
Fidelity Securities, Inc. Incorporated herein by reference to Exhibit 99B.3
to Pre-Effective Amendment No. 1 to Registrant's registration statement on
Form N-4 filed on October 10, 1997 (No. 333-25663).
4.1 Flexible Premium Variable and Fixed Deferred Annuity. Incorporated herein
by reference to Exhibit 99.B4(i) to Registrant's registration statement on
Form N-4 filed on April 23, 1997 (No. 333-25663).
4.2 Loan Rider. Incorporated herein by reference to Exhibit 99.B4(ii) to
Registrant's registration statement on Form N-4 filed on April 23, 1997
(No. 333-25663).
4.3 403(b) Annuity Rider. Incorporated herein by reference to Exhibit
99B.4(iii) to Registrant's registration statement on Form N-4 filed on
April 23, 1997 (No. 333-25663).
4.4 Individual Retirement Annuity Rider. Incorporated herein by reference to
exhibit 99.B4(iv) to Registrant's registration statement on Form N-4 filed
on April 23, 1997 (No. 333-25663).
5 Application Form. Incorporated herein by reference to Exhibit 99.B5 to
Registrant's registration statement on Form N-4 filed on April 23, 1997
(No. 333-25663).
6.1 Articles of Incorporation of American Fidelity Assurance Company.
Incorporated herein by reference to Exhibit 99.B6(i) to Pre-Effective
Amendment No. 1 to Registrant's registration statement on Form N-4 filed on
October 10, 1997 (No. 333-25663).
6.2 Amended and Restated Bylaws of American Fidelity Assurance Company dated
November 24, 1997. Incorporated herein by reference to Exhibit 99.B6(ii) to
Post-Effective Amendment No. 1 to Registrant's registration statement on
Form N-4 filed on April 24, 1998 (No. 333-25663).
8.1 Fund Participation Agreement dated April 18, 1997 between American Fidelity
Assurance Company and Merrill Lynch Variable Series Funds, Inc., as amended
by Exhibit 4 thereto dated January 20, 1999. Incorporated herein by
reference to Exhibit 8.1 to Post-Effective Amendment No. 2 to Registrant's
registration statement on Form N-4 on April 30, 1999 (No. 333-25663).
8.2 Fund Participation Agreement dated May 13, 1997 between American Fidelity
Assurance Company and each of Dreyfus Variable Investment Fund, The Dreyfus
Socially Responsible Growth Fund, Inc. and Dreyfus Life and Annuity Index
Fund, Inc. (d/b/a Dreyfus Stock Index Fund), as amended by Amendment
thereto effective January 1, 1999. Incorporated herein by reference to
Exhibit 8.2 to Post-Effective Amendment No. 2 to Registrant's registration
statement on Form N-4 on April 30, 1999 (No. 333-25663).
8.3* Amendment to Fund Participation Agreement dated May 13, 1997 between
American Fidelity Assurance Company and each of Dreyfus Variable Investment
Fund, The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life
and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund), as amended.
8.4* Fund Participation Agreement dated December 22, 1998 between Dual Strategy
Fund and American Fidelity Assurance Company.
8.5* First Amendment to Fund Participation Agreement dated December 22, 1998
between Dual Strategy Fund and American Fidelity Assurance Company.
8.6* Shareholder Services Agreement dated February 16, 2001 between American
Fidelity Assurance Company and American Century Investment Services, Inc.
8.7* Amendment No. 1 to Shareholder Services Agreement dated February 16, 2001
between American Fidelity Assurance Company and American Century Investment
Services, Inc.
8.8* Fund Participation Agreement dated April 10, 2001 between American Fidelity
Assurance Company, Neuberger Berman Advisers Management Trust and Neuberger
Berman Management, Inc.
8.9* Fund Participation Agreement dated April 20, 2001 between American Fidelity
Assurance Company and Federated Securities Corp.
9* Opinion and Consent of Counsel.
10* Consent of Independent Auditors.
13* Calculation of Performance Information.
99* Organizational Chart of American Fidelity Assurance Company.
------------------
* Filed herewith
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following are the executive officers and directors of American Fidelity
Assurance Company:
Name and Principal Business Address Positions and Offices with Depositor
----------------------------------- ------------------------------------
Lynda L. Cameron Director
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
William M. Cameron Chairman of the Board and Chief
2000 N. Classen Boulevard Executive Officer, Director
Oklahoma City, Oklahoma 73106
David R. Carpenter Senior Vice President, Treasurer
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
William E. Durrett Senior Chairman of the Board, Director
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
Stephen P. Garrett Senior Vice President, Secretary
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
William A. Hagstrom Director
204 N. Robinson, Suite 1300
Oklahoma City, Oklahoma 73102
Charles R. Eitel Director
One Concourse Parkway, Suite 600
Atlanta, Georgia 30328
Kenneth D. Klehm Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
Alfred L. Litchenburg Senior Vice President
2000 N. Classen Boulevard
Oklahoma City, Oklahoma 73106
David R. Lopez Director
1616 Guadalupe
Room 630
Austin, Texas 78701
Paula Marshall-Chapman Director
2727 East 11th Street
Tulsa, Oklahoma 74104
John W. Rex President, Chief Operating Officer,
2000 N. Classen Boulevard Director
Oklahoma City, Oklahoma 73106
Galen P. Robbins, M.D. Director
11901 Quail Creek Road
Oklahoma City, Oklahoma 73120
John D. Smith Director
P.O. Box 18832
Atlanta, Georgia
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The organizational chart of American Fidelity Assurance Company is included
as Exhibit 99. The subsidiaries of American Fidelity Assurance Company reflected
in the organization chart are included in the consolidated financial statements
of American Fidelity Assurance Company in accordance with generally accepted
accounting principles.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 2, 2001, there were 11,911 non-qualified contract owners and
721 qualified contract owners.
ITEM 28. INDEMNIFICATION
The Bylaws of American Fidelity Assurance Company (Article VIII, Section 3)
provide, in part, that:
(a) American Fidelity Assurance Company shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of American Fidelity
Assurance Company) by reason of the fact that he is or was a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses (including attorneys' fees), amounts paid in
settlement (whether with or without court approval), judgments, fines actually
and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of American Fidelity Assurance
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was not unlawful.
(b) American Fidelity Assurance Company shall indemnify every person who is
or was a party or is or was threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of American Fidelity
Assurance Company to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of American Fidelity
Assurance Company, or is or was serving at the request of American Fidelity
Assurance Company as a director, officer, employee, or agent or in any other
capacity of or in another corporation, or a partnership, joint venture, trust,
or other enterprise, or by reason of any action alleged to have been taken or
not taken by him while acting in such capacity, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such threatened, pending, or completed action or suit
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of American Fidelity Assurance Company. The
termination of any such threatened or actual action or suit by a settlement or
by an adverse judgment or order shall not of itself create a presumption that
the person did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of American Fidelity Assurance
Company. Nevertheless, there shall be no indemnification with respect to
expenses incurred in connection with any claim, issue, or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to American Fidelity Assurance Company, unless,
and only to the extent that the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as such court shall deem
proper.
(c) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in Subsections (a) and (b) hereof, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with such defense.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted directors and officers or controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling persons of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) American Fidelity Securities, Inc. is the principal underwriter for the
Registrant, American Fidelity Separate Account A and American Fidelity Dual
Strategy Fund, Inc.(R)
(b) The following persons are the officers and directors of American
Fidelity Securities. The principal business address for each of the following
officers and directors is 2000 N. Classen Boulevard, Oklahoma City, Oklahoma
73106.
Name and Principal Business Address Positions and Offices with Underwriter
----------------------------------- --------------------------------------
David R. Carpenter Director, Chairman, President, Chief
P.O. Box 25523 Executive Officer, Treasurer, Chief
Oklahoma City, Oklahoma 73125 Financial Officer and Investment Company
and Variable Contracts Products Principal
Marvin R. Ewy Director, Vice President, Secretary, Chief
P.O. Box 25523 Compliance Officer and Investment Company
Oklahoma City, Oklahoma 73125 and Variable Contracts Products Principal
Nancy K. Steeber Director, Vice President, Chief Operations
P.O. Box 25523 Officer and Investment Company and Variable
Oklahoma City, Oklahoma 73125 Contracts Products Principal
(c) The commissions received by American Fidelity Securities, Inc. in
connection with Separate Account B in 2000 were $238,388, representing the 0.10
Distribution Fee, withdrawal charges and policy maintenance charge to the
Registrant. It received no other compensation from or on behalf of the
Registrant during the year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
David R. Carpenter, Senior Vice President and Treasurer, whose address is
2000 N. Classen Boulevard, Oklahoma City, Oklahoma 73106, maintains physical
possession of the accounts, books or documents of the Separate Account required
to be maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
Form N-4 promptly upon written or oral request.
REPRESENTATIONS
American Fidelity Assurance Company hereby represents that the fees and
charges deducted under the policies described in the Prospectus, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by American Fidelity Assurance
Company.
American Fidelity Assurance Company hereby represents that it is relying
upon a No-Action Letter issued to the American Council of Life Insurance dated
November 28, 1988 (Commission ref. IP-6-88) and that the following provisions
have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants `to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements for
effectiveness under Rule 485(b) of the Securities Act and has caused this
Registration Statement to be signed on its behalf, in the City of Oklahoma City
and State of Oklahoma on this 16th day of April, 2001.
AMERICAN FIDELITY SEPARATE ACCOUNT B (Registrant)
By: American Fidelity Assurance Company (Depositor)
By: /s/ John W. Rex
-----------------------------------------------
John W. Rex, President
AMERICAN FIDELITY ASSURANCE COMPANY (Depositor)
By: /s/ John W. Rex
-----------------------------------------------
John W. Rex, President
Each of the undersigned officers and directors of American Fidelity
Assurance Company, hereby severally constitute and appoint John W. Rex, his true
and lawful attorney-in-fact with full power to him to sign for him, and in his
name as officer or director, or both, of American Fidelity Assurance Company, a
Registration Statement (and any and all amendments thereto, including
post-effective amendments) on Form N-4 to be filed with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and to perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, may lawfully do or cause to be done by
virtue hereof.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities indicated on April 16,
2001.
Signature Title
--------- -----
/s/ William M. Cameron Chairman, Chief Executive Officer and Director
William M. Cameron (Principal Executive Officer)
/s/ William E. Durrett Senior Chairman and Director
William E. Durrett
/s/ Lynda L. Cameron Director
Lynda L. Cameron
/s/ Theodore M. Elam Director
Theodore M. Elam
/s/ John W. Rex Director, President and Chief Operating Officer
John W. Rex
/s/ Charles R. Eitel Director
Charles R. Eitel
/s/ Galen P. Robbins, M.D. Director
Galen P. Robbins, M.D.
/s/ William A. Hagstrom Director
William A. Hagstrom
/s/ David R. Lopez Director
David R. Lopez
/s/ Paula Marshall-Chapman Director
Paula Marshall-Chapman
/s/ David R. Carpenter Senior Vice President and Treasurer (Principal
David R. Carpenter Financial and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER
1 Resolution adopted by the Board of Incorporated herein by reference
American Fidelity Assurance Company
authorizing the establishment of the
Separate Account.
3 Principal Underwriters Agreement dated Incorporated herein by reference
July 14, 1997 between American Fidelity
Assurance Company, on behalf of the
Registrant, and American Fidelity
Securities, Inc.
4.1 Individual Variable and Fixed Deferred Incorporated herein by reference
Annuity.
4.2 Loan Rider. Incorporated herein by reference
4.3 403(b) Annuity Rider. Incorporated herein by reference
4.4 Individual Retirement Annuity Rider. Incorporated herein by reference
5 Application Form. Incorporated herein by reference
6.1 Articles of Incorporation of American Incorporated herein by reference
Fidelity Assurance Company.
6.2 Amended and Restated Bylaws of American Incorporated herein by reference
Fidelity Assurance Company dated
November 24, 1997.
8.1 Fund Participation Agreement dated April Incorporated herein by reference
18, 1997 between American Fidelity
Assurance Company and Merrill Lynch
Variable Series Funds, Inc., as amended
by Exhibit 4 thereto dated January 20,
1999.
8.2 Fund Participation Agreement dated May Incorporated herein by reference
13, 1997 between American Fidelity
Assurance Company and each of Dreyfus
Variable Investment Fund, The Dreyfus
Socially Responsible Growth Fund, Inc.
and Dreyfus Life and Annuity Index Fund,
Inc. (d/b/a Dreyfus Stock Index Fund),
as amended by Amendment thereto
effective January 1, 1999.
8.3 Amendment to Fund Participation Filed herewith electronically
Agreement dated May 13, 1997 between
American Fidelity Assurance Company and
each of Dreyfus Variable Investment
Fund, The Dreyfus Socially Responsible
Growth Fund, Inc. and Dreyfus Life and
Annuity Index Fund, Inc. (d/b/a Dreyfus
Stock Index Fund), as amended.
8.4 Fund Participation Agreement and Filed herewith electronically
December 22, 1998 between Dual Strategy
Fund and American Fidelity Assurance
Company.
8.5 First Amendment to Fund Participation Filed herewith electronically
Agreement dated December 22, 1998
between Dual Strategy Fund and American
Fidelity Assurance Company.
8.6 Shareholder Services Agreement dated Filed herewith electronically
February 16, 2001 between American
Fidelity Assurance Company and American
Century Investment Services, Inc.
8.7 Amendment No. 1 to Shareholder Services Filed herewith electronically
Agreement dated February 16, 2001
between American Fidelity Assurance
Company and American Century Investment
Services, Inc.
8.8 Fund Participation Agreement dated April Filed herewith electronically
10, 2001 between American Fidelity
Assurance Company, Neuberger Berman
Advisers Management Trust and Neuberger
Berman Management, Inc.
8.9 Fund Participation Agreement dated April Filed herewith electronically
20, 2001 between American Fidelity
Assurance Company and Federated
Securities Corp.
9 Opinion and Consent of Counsel. Filed herewith electronically
10 Consent of Independent Auditors. Filed herewith electronically
13 Calculation of Performance Information. Filed herewith electronically
99 Organizational Chart of American Filed herewith electronically
Fidelity Assurance Company.
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘N-4’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 12/31/01 | | 1 | | | | | 24F-2NT, N-30D, NSAR-U |
| | 5/1/01 | | 1 | | | | | 485BPOS, RW |
| Filed on: | | 4/30/01 | | 1 |
| | 4/20/01 | | 23 |
| | 4/16/01 | | 23 |
| | 4/10/01 | | 23 |
| | 4/2/01 | | 23 |
| | 3/14/01 | | 20 |
| | 2/16/01 | | 23 |
| | 1/19/01 | | 3 |
| | 1/1/01 | | 22 |
| | 12/31/00 | | 1 | | 23 | | | 24F-2NT/A, N-30D, NSAR-U |
| | 12/31/99 | | 10 | | 23 | | | 24F-2NT, 24F-2NT/A, N-30D, NSAR-U |
| | 5/1/99 | | 1 |
| | 4/30/99 | | 23 | | | | | 485BPOS |
| | 1/20/99 | | 23 |
| | 1/1/99 | | 22 | | 23 |
| | 12/31/98 | | 21 | | 23 | | | 24F-2NT, N-30D, NSAR-U |
| | 12/22/98 | | 23 |
| | 7/1/98 | | 22 |
| | 4/24/98 | | 23 | | | | | 485BPOS |
| | 12/31/97 | | 21 | | | | | 24F-2NT, NSAR-U, NSAR-U/A |
| | 11/24/97 | | 23 |
| | 10/27/97 | | 1 | | 18 |
| | 10/10/97 | | 23 | | | | | N-4 EL/A |
| | 7/14/97 | | 23 |
| | 5/13/97 | | 23 |
| | 4/23/97 | | 23 | | | | | N-4 EL, N-8A |
| | 4/18/97 | | 23 |
| | 1/1/93 | | 1 |
| List all Filings |
6 Subsequent Filings that Reference this Filing
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