<PAGE>
As Filed with the Securities and Exchange Commission on January 10, 1997
Registration No. 333- ______
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
STATE FARM LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
(Exact name of trust)
STATE FARM LIFE INSURANCE COMPANY
(Name of depositor)
One State Farm Plaza
Bloomington, Illinois 61710-0001
(Complete address of depositor's principal executive offices)
(Name and complete address
of agent for service) Copy to:
Laura P. Sullivan, Esq. Stephen E. Roth, Esq.
State Farm Life Insurance Company Sutherland, Asbill & Brennan, L.L.P.
One State Farm Plaza 1275 Pennsylvania Avenue, N.W.
Bloomington, Illinois 61710-0001 Washington, DC 20004-2404
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Securities Being Offered: Variable Universal Life Insurance Policies
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite amount of the securities being
offered.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
STATE FARM LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
STATE FARM LIFE INSURANCE COMPANY
Cross Reference to Items Required by form N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Not applicable
4 Sale of the Policies
5 The Variable Account
6 The Variable Account
7 Not applicable
8 The Variable Account
9 Litigation
10 Summary and Diagram of the Policy; Premiums; Allocation
Options; Death Benefits; Other Policy Benefits and
Provisions; Surrender Benefits; Loan Benefits; The Variable
Account and State Farm Fund; Voting of Fund Shares
11 The Variable Account and State Farm Fund; Allocation Options
12 The Variable Account and State Farm Fund; Allocation Options
13 Charges and Deductions
14 Premiums
15 Premiums; Allocation Options
16 Allocation Options
17 Premiums; Surrender Benefits; Loan Benefits; Requesting
Payments and Telephone Transactions
18 The Variable Account and State Farm Fund; Other Policy
Benefits and Provisions
19 Reports to Policy Owners
20 The Variable Account
21 Loan Benefits
22 Not applicable
23 State Farm and the Fixed Account
24 Not applicable
25 State Farm and the Fixed Account
26 Charges and Deductions
27 State Farm and the Fixed Account
28 State Farm and the Fixed Account
29 State Farm and the Fixed Account
30 Not applicable
31 Not applicable
<PAGE>
32 Not applicable
33 Not applicable
34 Not applicable
35 State Farm and the Fixed Account
36 Not applicable
37 Not applicable
38 Sale of the Policies
39 Sale of the Policies
40 Not Applicable
41 Sale of the Policies
42 Not applicable
43 Not applicable
44 How Your Policy Account Values Vary
45 Not applicable
46 How Your Policy Account Values Vary
47 Allocation Options
48 State Farm and the Fixed Account; The Variable Account and
State Farm Fund
49 Not applicable
50 The Variable Account and State Farm Fund
51 Premiums; Allocation Options; Charges and Deductions;
Surrender Benefits
52 The Variable Account and State Farm Fund; Other Policy
Benefits and Provisions
53 Tax Considerations
54 Not applicable
55 Hypothetical Illustrations
56 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
<PAGE>
PART I
<PAGE>
PROSPECTUS DATED __________, 1997
Variable Universal Life Insurance Policy
STATE FARM LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
OF STATE FARM LIFE INSURANCE COMPANY
One State Farm Plaza
Bloomington, Illinois 61710-0001
Telephone (800) XXX-XXXX
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This prospectus describes a variable universal life insurance policy (the
"Policy") offered by State Farm Life Insurance Company ("State Farm," "we,"
"us," or "our"). The Policy is designed to provide lifetime insurance
protection on the insured named in the Policy (the "Insured") and at the same
time provide flexibility to vary the amount and timing of premiums and to change
the amount of death benefits payable under the Policy. This flexibility allows
the purchaser of a Policy (the "Owner," "you," or "your") to provide for
changing insurance needs under a single insurance policy.
The Owner may allocate net premiums and Policy Account Value to the State
Farm Life Insurance Company Variable Life Separate Account (the "Variable
Account") and also to State Farm's general account (the "Fixed Account"), within
certain limits. The Variable Account is divided into subaccounts (each, a
"Subaccount"). Each Subaccount invests in a corresponding investment portfolio
(each, a "Fund") of State Farm Variable Product Trust (the "State Farm Fund").
The Funds currently available are the Large Cap Equity Index Fund, Small Cap
Equity Index Fund, Stock and Bond Balanced Fund, Bond Fund, Money Market Fund,
and International Equity Index Fund. The accompanying prospectus for the State
Farm Fund describes each of the Funds, including the risks of investing in each
Fund, and provides other information about the State Farm Fund.
An Owner can select from two death benefit options available under the
Policy: a level insurance amount or "Basic Amount" ("Option 1"), and a level
insurance amount (or Basic Amount) plus Policy Account Value ("Option 2").
State Farm guarantees that the death benefit will never be less than the Basic
Amount (less any unrepaid Policy loans and past due charges) so long as the
Policy is in force.
The Policy provides for a Cash Surrender Value. Because this value is
based on the performance of the Funds, to the extent of allocations to the
Variable Account, there is no guaranteed Cash Surrender Value or guaranteed
minimum Cash Surrender Value. On any given day, the Cash Surrender Value could
be more or less than the premiums paid. If the Cash Surrender Value is
insufficient to cover the charges due under the Policy, the Policy will lapse
without value. However, the Policy will not lapse during the Death Benefit
Guarantee Period, regardless of the sufficiency of the Cash Surrender Value, so
long as the minimum premiums for the Death Benefit Guarantee have been paid.
The Policy also provides for Policy loans and permits withdrawals within limits.
In addition, Owners can elect dollar-cost averaging or portfolio rebalancing
programs.
This prospectus should be read carefully and retained for future reference. A
prospectus for State Farm Variable Product Trust must accompany this prospectus
and should be read in conjunction with this prospectus.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY AND DIAGRAM OF THE
POLICY................................................................ 3
INDEX OF TERMS............................................................. 6
PREMIUMS................................................................... 8
Applying for a Policy................................................. 8
Free Look Right to Cancel Policy...................................... 8
Premiums.............................................................. 8
Planned Premiums...................................................... 8
Premiums to Prevent Lapse............................................. 9
Death Benefit Guarantee............................................... 9
Crediting Premiums to the Policy...................................... 9
ALLOCATION OPTIONS......................................................... 9
Net Premium Allocations............................................... 9
Subaccount Options.................................................... 10
Fixed Account Option.................................................. 11
Transfers............................................................. 11
Dollar-Cost Averaging................................................. 11
Portfolio Rebalancing Program......................................... 12
CHARGES AND DEDUCTIONS..................................................... 12
HOW YOUR POLICY ACCOUNT VALUES
VARY.................................................................. 14
Policy Account Value.................................................. 14
Cash Value............................................................ 14
Cash Surrender Value.................................................. 14
Subaccount Policy Value............................................... 14
Fixed Policy Account Value............................................ 15
DEATH BENEFITS............................................................. 15
Amount of Death Benefit Payable....................................... 15
Death Benefit Options................................................. 16
Changing the Death Benefit Option..................................... 17
Changing the Basic Amount............................................. 17
Effect of Withdrawals on the Death
Benefit....................................................... 18
Changing the Beneficiary.............................................. 18
LOAN BENEFITS.............................................................. 18
Loan Policy Account................................................... 18
Interest.............................................................. 18
Loan Repayment........................................................ 18
Effect of Policy Loan................................................. 19
SURRENDER BENEFITS......................................................... 19
Full Surrender........................................................ 19
Withdrawals........................................................... 19
HYPOTHETICAL ILLUSTRATIONS................................................. 20
REQUESTING PAYMENTS and
TELEPHONE TRANSACTIONS................................................ 22
Requesting Payments................................................... 22
Telephone Transactions................................................ 22
OTHER POLICY BENEFITS AND
PROVISIONS............................................................ 23
Exchange Provision.................................................... 23
Other Policy Provisions............................................... 23
Beneficiary........................................................... 23
Reinstatement......................................................... 23
Other Changes......................................................... 23
Reports to Policy Owners.............................................. 24
Assignment and Change of Owner........................................ 24
Supplemental Benefits................................................. 24
STATE FARM AND THE FIXED
ACCOUNT............................................................... 25
THE VARIABLE ACCOUNT AND STATE
FARM FUND............................................................. 29
TAX CONSIDERATIONS......................................................... 31
ADDITIONAL INFORMATION..................................................... 33
APPENDIX A................................................................. 35
</TABLE>
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not be lawfully made.
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<PAGE>
SUMMARY AND DIAGRAM OF THE POLICY
The following summary of prospectus information and diagram of the important
features of the Policy should be read in conjunction with the more detailed
information appearing elsewhere in this prospectus. Unless otherwise indicated,
the description of the Policy in this prospectus assumes that the Policy is in
force and there is no outstanding Loan Amount. Definitions of certain terms used
in this prospectus may be found by referring to the Index of Terms immediately
following the diagram.
Purpose of the Policy. The Policy is designed to provide insurance
benefits with a long-term investment element. The Policy should be considered in
conjunction with other insurance owned by the Owner. It may not be advantageous
to replace existing insurance with the Policy.
Comparison with Universal Life Insurance. The Policy is similar in many
ways to universal life insurance. As with universal life insurance: the Owner
pays premiums for insurance coverage on the Insured; the Policy provides for the
accumulation of a Cash Surrender Value that is payable if the Policy is
surrendered during the Insured's lifetime; and the Cash Surrender Value may be
substantially lower than the premiums paid. However, the Policy differs from
universal life insurance in that the Policy Account Value may decrease if the
investment performance of the Subaccounts to which Policy Account Value is
allocated is sufficiently adverse. If the Cash Surrender Value becomes
insufficient to cover charges when due and the Death Benefit Guarantee is not in
effect, the Policy will lapse without value after a grace period. See "Premiums
to Prevent Lapse," page _____.
Tax Considerations. State Farm intends for the Policy to satisfy the
definition of a life insurance contract under section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code"). Under certain circumstances, a
Policy could be treated as a "modified endowment contract." State Farm will
monitor Policies and will attempt to notify an Owner on a timely basis if his or
her Policy is in jeopardy of becoming a modified endowment contract. For further
discussion of the tax status of a Policy and the tax consequences of being
treated as a life insurance contract or a modified endowment contract, see "Tax
Considerations," page _____.
Free Look Right to Cancel. For a limited time after the Policy is
issued, you have the right to cancel your Policy and receive a full refund of
all premiums paid. See "Free Look Right to Cancel Policy," page _____. During
this limited period, Net Premiums paid will be allocated to the Fixed Account.
See "Net Premium Allocations," page _____.
Owner Inquiries. If you have any questions, you may write or call our
Home Office at One State Farm Plaza, Bloomington, IL 61710-0001, (800) XXX-XXXX.
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DIAGRAM OF POLICY
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PREMIUMS
* You select a payment plan but are not required to pay premiums according to
the plan. You can vary the frequency and amount, within limits, and can skip
planned premiums. See "Planned Premiums," page ___.
* Minimum initial premium and planned premium depend on the Insured's Age,
sex, rate class, Basic Amount selected, and any supplemental riders. See
"Premiums," page ____.
* Unplanned premiums may be made, within limits. See "Premiums," page ____.
* Under certain circumstances, extra premiums may be required to prevent
lapse. See "Premiums to Prevent Lapse," page ___.
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ALLOCATION OF NET PREMIUMS
* A 5% premium charge is deducted from each premium before allocation
resulting in a net premium.
* You direct the allocation of Net Premiums among six Subaccounts and the
Fixed Account. See "Net Premium Allocations" for rules and limits.
* Interest is credited on amounts allocated to the Fixed Account at a rate
determined by State Farm, but not less than an annual effective rate of 4%.
See "Transfers" for rules and limits on Fixed Account allocations.
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FUNDS AVAILABLE THROUGH SUBACCOUNTS
* The Subaccounts invest in corresponding portfolios of State Farm Variable
Product Trust. See "The State Farm Fund."
* The current Funds available and their fees and expenses are as follows:
<TABLE>
<CAPTION>
Large Cap Small Cap Stock and Money International
Equity Index Equity Index Bond Balanced Bond Market Equity Index
------------ ------------ ------------- ---- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fees % % % % % %
Expenses % % % % % %
--------- -------- -------- ---- ------ -----------
Total % % % % % %
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</TABLE>
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DEDUCTIONS FROM ASSETS
* A monthly deduction is made for cost of insurance, $6 current monthly expense
charge (maximum of $8 per month), and supplemental benefit charges. See
"Charges and Deductions -- Monthly Deduction."
* A daily charge at a current effective annual rate of 0.80% (maximum effective
annual rate of 0.90%) is deducted from assets in the Subaccounts. See
"Charges Deducted From the Subaccounts." This charge is not deducted from
Fixed Policy Account Value.
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<PAGE>
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POLICY ACCOUNT VALUE
* Policy Account Value is the amount in the Subaccounts and in the Fixed
Account credited to your Policy plus the value held in the general account to
secure the Loan Amount. See "Policy Account Value," "Fixed Policy Account
Value," and "Subaccount Policy Value."
* Policy Account Value varies from day to day to reflect Subaccount investment
experience, interest credited on any Fixed Account allocations, charges
deducted and other Policy transactions (such as Policy loans, transfers and
withdrawals).
* Policy Account Value can be transferred among the Subaccounts and the Fixed
Account. A $25 transfer processing fee may apply to transfers made after
the 12th transfer in a Policy Year. See "Transfers" for rules and limits.
Policy loans reduce the amount available for allocations and transfers.
* Policy Account Value serves as the starting point for calculating certain
values under a Policy, such as the Cash Surrender Value and the Death Benefit.
* There is no minimum guaranteed Policy Account Value. The Policy may lapse
on a Deduction Date if the Cash Surrender Value is insufficient to cover the
Monthly Deduction then due and the Death Benefit Guarantee is not in effect.
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CASH BENEFITS DEATH BENEFITS
* Loans may be taken for * Death Benefits are available as
amounts up to 90% of Cash lump sum or under a variety of
Value, at a net interest payment options.
rate of 2%. See "Policy
Loans" and "Tax Treatment * The minimum Basic Amount available
of Policy Benefits." is $50,000.
* Withdrawals generally * Death Benefits are available in
can be made up to 4 times two death benefit options: Option 1
each Policy Year provided (greater of Basic Amount plus any Net
there is sufficient Premium payment received since the
remaining Cash Surrender last Deduction Date, or a specified
Value. A withdrawal percentage of Policy Account Value);
processing fee equal to or Option 2 (greater of Basic Amount
the lesser of $25 or 2% plus the Policy Account Value, or a
of the amount requested specified percentage of Policy
for withdrawal will apply Account Value). See "Death Benefits."
to each withdrawal. See
"Withdrawals" for rules * There is flexibility to change the
and limits. Basic Amount and to change the Death
Benefit option. See "Changing the
* The Policy can be Basic Amount" and "Changing the Death
surrendered at any time Benefit Option" for rules and limits.
for its Cash Surrender
Value (Policy Account * The Death Benefit Guarantee keeps
Value minus Loan Amount the Policy in force regardless of
and minus any applicable sufficiency of Cash Surrender Value
surrender charge). See so long as cumulative premiums paid
"Full Surrender." on the Policy, less any withdrawals
and less the Loan Amount, are at
* A surrender charge will least equal to the Minimum Premium.
be deducted from the See "Death Benefit Guarantee."
Policy Account Value upon
a full surrender of the * The Death Benefit should be
Policy during the first excludable from the gross income of
10 Policy Years or the the Beneficiary. See "Tax Treatment
first 10 years after an of Policy Benefits."
increase in Basic Amount.
See "Surrender Charge."
* A variety of payment
options are available.
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<PAGE>
INDEX OF TERMS
Age - Age means the age on the Insured's last birthday as of the Policy Date and
each Policy Anniversary. If the Policy Date falls on the birthday of the
Insured, the Age will be the age attained by the Insured on the Policy Date.
Cash Value - Policy Account Value less any applicable surrender charge.
Cash Surrender Value - Cash Value less any Loan Amount.
Death Benefit - The amount of insurance provided under the Policy determined by
the Death Benefit Option and any insurance amounts provided by riders. The
amount payable on the death of the Insured will be reduced by any Loan Amount
and any unpaid Monthly Deductions.
Deduction Date - The Policy Date and each monthly anniversary of the Policy
Date.
Fixed Policy Account Value - The Policy Account Value in the Fixed Account.
Issue Date - The date the Policy is issued.
Loan Policy Account - A part of our general account to which Variable Policy
Account Value is transferred to provide collateral for any loan taken under the
Policy.
Loan Policy Account Value - The Policy Account Value in the Loan Account.
Loan Amount - The sum of all outstanding Policy loans including both principal
plus accrued interest.
Minimum Premium - For any Policy Month during the first 10 Policy Years the
cumulative minimum monthly premium required to keep the Death Benefit Guarantee
in effect.
Policy - The Policy contains the Basic Plan, any amendments, endorsements, and
riders, and a copy of the application. The Policy is the entire contract.
Policy Anniversary - The same day and month as the Policy Date each year that
the Policy remains in force.
Policy Date - If the Policy is issued as applied for and we receive the initial
premium before the Issue Date, the Policy Date is the later of the application
date or the date we receive the initial premium. Otherwise, the Policy Date is
the Issue Date. Policy Months, Years and Anniversaries are measured from the
Policy Date. The Policy Date cannot be the 29th, 30th, or 31st day of any
month.
Policy Account Value - The sum of the Variable Policy Account Value, the Fixed
Policy Account Value, and the Loan Policy Account Value.
Policy Year - Any period of twelve months starting with the Policy Date or a
Policy Anniversary.
Home Office - One State Farm Plaza, Bloomington, IL 61710-0001, 1-800-XXX-XXXX.
Subaccount Policy Value - The Variable Policy Account Value in a Subaccount.
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<PAGE>
Valuation Day - Each day on which both the New York Stock Exchange and the Home
Office are open for business except for a day that a Subaccount's corresponding
Fund does not value its shares. The New York Stock Exchange is currently closed
on weekends and on the following holidays: New Year's Day; Presidents' Day; Good
Friday; Memorial Day; July Fourth; Labor Day; Thanksgiving Day; and Christmas
Day. During 1997, the Home Office is closed on the Friday after Thanksgiving and
the day after Christmas Day.
Valuation Period - The period of time commencing at the close of business on one
Valuation Day and ending at the close of business on the next succeeding
Valuation Day.
Variable Policy Account Value - The sum of all Subaccount Policy Values.
-7-
<PAGE>
PREMIUMS
Applying for a Policy. To purchase a Policy, you must complete an
application and submit it to an authorized State Farm agent. You also must pay
an initial premium of a sufficient amount. See "Premiums," below. Your initial
premium can be submitted with your application or at a later date. Coverage
becomes effective as of the date we receive the initial premium, but is limited
to $300,000 until the application is approved.
Generally, State Farm will issue a Policy covering an Insured up to age 80
if evidence of insurability satisfies our underwriting rules. Evidence of
insurability may include, among other things, a medical examination of the
Insured. State Farm may, in its sole discretion, issue a Policy covering an
Insured over age 80. We reserve the right not to accept an application for any
lawful reason.
Free Look Right to Cancel Policy. During your "free-look" period, you may
cancel your Policy and receive a refund of all premiums paid. The free look
period expires 10 days after you receive your Policy. Some states may require a
longer period. If you decide to cancel the Policy, you must return it by mail or
other delivery to State Farm or to an authorized State Farm agent. Immediately
after mailing or delivery, the Policy will be deemed void from the beginning.
Premiums. The premium amounts sufficient to fund a Policy depend on a
number of factors, such as the Age, sex and rate class of the proposed Insured,
the desired Basic Amount, and any supplemental benefits. After the initial
premium is paid, additional premiums may be paid in any amount (of at least $25)
and at any time. However, total premiums paid in a Policy Year may not exceed
guideline premium limitations for life insurance set forth in the Code. We
reserve the right to reject any premium that would result in the Policy being
disqualified as life insurance under the Code and will refund any rejected
premium. In addition, we will monitor Policies and will attempt to notify the
Owner on a timely basis if his or her Policy is in jeopardy of becoming a
modified endowment contract under the Code. See "Tax Considerations," page
_____.
Planned Premiums. When you apply for a Policy, you select a monthly or
annual premium payment plan. You may arrange for monthly premiums to be paid via
automatic deduction from your checking account. You are not required to pay
premiums in accordance with this premium plan; rather, you can pay more or less
than planned (subject to the $25 minimum) or skip a planned premium entirely.
You can change the amount of planned premiums and payment arrangements, or
switch between monthly and annual frequencies, whenever you want by providing
satisfactory written or telephone instructions to the Home Office, which will be
effective upon our receipt of the instructions. Depending on the Policy Account
Value at the time of an increase in the Basic Amount and the amount of the
increase requested, a change in the amount of planned premiums may be advisable.
See "Changing the Basic Amount," page ___.
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<PAGE>
Premiums to Prevent Lapse. Failure to pay planned premiums will not
necessarily cause a Policy to lapse. Rather, whether a Policy lapses depends on
whether its Cash Surrender Value is insufficient to cover the Monthly Deduction
when due. If the Cash Surrender Value on a Deduction Date is less than the
Monthly Deduction to be deducted on that date and the Death Benefit Guarantee is
not in effect, the Policy will be in default and a grace period will begin. See
"Monthly Deduction," page ___ and "Death Benefit Guarantee," below. This could
happen if the Cash Surrender Value has decreased due to insufficient investment
experience or because premiums paid have been insufficient to offset the Monthly
Deduction.
You will have a 61-day grace period to pay a premium sufficient to cover
the Monthly Deductions for the grace period and any increase in the surrender
charges during the grace period. State Farm will send notice of the amount
required to be paid during the grace period to your last known address and to
any assignee of record. The grace period will begin when the notice is sent and
your Policy will remain in effect during the grace period. If the Insured should
die during the grace period before the grace period premium is paid, the Death
Benefit will still be payable to the Beneficiary, although the amount paid will
reflect a reduction for the Monthly Deduction(s) due on or before the date of
the Insured's death. See "Amount of Death Benefit Payable," page _____. If the
grace period premium has not been paid before the grace period ends, your Policy
will lapse. It will have no value and no benefits will be payable. But see
"Other Policy Benefits and Provisions," page _____ for a discussion of your
reinstatement rights.
A grace period also may begin if the Cash Surrender Value is insufficient
to cover charges due to the outstanding Loan Amount. See "Effect of Policy
Loan," page _____.
Death Benefit Guarantee. During the first 10 Policy Years, so long as
cumulative premiums paid, less withdrawals and the Loan Amount, are at least
equal to the Minimum Premium amount for your Policy, the Policy will remain in
force, regardless of the sufficiency of Cash Surrender Value to cover Monthly
Deductions.
Crediting Premiums to the Policy. Your initial premium will be credited to
the Policy on the Policy Date. Any premium received during the free look period
will be credited to the Policy on the date it is received at our Home Office.
Any premium received after the free look period ends (see "Net Premium
Allocations," below) will be credited to the Policy on the Valuation Day it is
received at our Home Office.
ALLOCATION OPTIONS
Net Premium Allocations. When you apply for a Policy, you specify the
percentage of Net Premium to be allocated to each Subaccount and the Fixed
Account. You can change the allocation percentages at any time by sending
satisfactory written or telephone instructions to the Home Office. The change
will apply to all premiums received with or after we receive your instructions.
Net Premium allocations must be in percentages totaling 100%, and each
allocation percentage must be a whole number of at least 1%.
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<PAGE>
Until the free look period expires, all Net Premiums will be allocated to
the Fixed Account. At the end of this period, the Policy Account Value is
transferred to the Subaccounts and/or remains in the Fixed Account based on the
net premium allocation percentages in the application. See "How Your Policy
Account Values Vary," page __. For this purpose, we assume your free look period
starts 10 days after we issue your Policy.
Subaccount Options. The Variable Account has six Subaccounts, each
investing in a specific Fund of the State Farm Fund. The State Farm Fund is a
series-type fund registered with the Securities and Exchange Commission ("SEC")
as a diversified open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective(s) of
each of the Funds in which Subaccounts invest are summarized below. There is no
assurance that these objectives will be met.
Large Cap Equity Index Fund seeks to match the performance of the Standard
& Poor's Composite Index of 500 Stocks. This Fund will pursue its objective by
investing in a representative sample of stocks found in the index.
Small Cap Equity Index Fund seeks to match the performance of the Russell
2000 Small Stock Index. This Fund will pursue its objective by investing in a
representative sample of stocks found in the index.
Stock and Bond Balanced Fund seeks long-term growth of capital, balanced
with current income. This Fund will pursue its objective by investing
approximately 60% of its assets in the Large Cap Equity Index Fund and
approximately 40% of its assets in the Bond Fund.
Bond Fund seeks to realize over a period of years the highest yield through
current income and capital gains. This Fund will pursue its objective by
investing in high quality debt securities with primarily intermediate-term (five
to fifteen years) maturities.
Money Market Fund seeks to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. This Fund will
pursue its objective by investing exclusively in high quality money market
instruments. An investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. Government.
International Equity Index Fund seeks to match the performance of the
Morgan Stanley Capital International Europe, Australia and Far East Index. This
Fund will pursue its objective by investing in a representative sample of stocks
found in that index.
Further information about the Funds is contained in the accompanying prospectus
for the State Farm Fund, which you should read in conjunction with this
prospectus. See also "The State Farm Fund," page ___.
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<PAGE>
Fixed Account Option. The Fixed Account is part of our general account. It
is not a separate account. Amounts allocated to the Fixed Account are credited
with interest for the period of allocation at rates determined in our sole
discretion, but in no event will interest credited on these amounts be less than
an effective annual rate of 4%. The current interest rate is the guaranteed
interest rate plus any excess interest rate. The current interest rate is
determined periodically. You assume the risk that interest credited may not
exceed the guaranteed minimum rate of 4% per year. See "State Farm's Fixed
Account Option," below. There are significant limits on your right to transfer
Policy Account Value from the Fixed Account. See "Transfers," below.
Transfers. You may transfer Policy Account Value from and among the
Subaccounts at any time after the end of the free look period. The minimum
amount of Policy Account Value that may be transferred from a Subaccount is
$250, or, if less, the Policy Account Value held in the Subaccount. Fixed Policy
Account Value may be transferred from the Fixed Account to a Subaccount or
Subaccounts only once each Policy Year and only during the 30-day period
following the end of each Policy Year. Unused transfers do not carry over to the
next year. The maximum transfer amount is the greater of 25% of the Fixed Policy
Account Value on the date of the transfer or $1,000, unless waived by us. The
amount transferred must be at least $250, or, if less, the Policy Account Value
held in the Fixed Account.
Transfer requests may be made by satisfactory written or telephone request.
A transfer will take effect on the date the request is received at the Home
Office. State Farm may, however, defer transfers under the same conditions that
we may delay paying proceeds. See "Requesting Payments," page _____. There is no
limit on the number of transfers from and among the Subaccounts. However, State
Farm reserves the right to impose a $25 per transfer processing fee on each
transfer in a Policy Year in excess of 12. For purposes of assessing this fee,
each transfer request is considered one transfer, regardless of the number of
Subaccounts affected by the transfer. Any unused "free" transfers do not carry
over to the next year. State Farm reserves the right to modify, restrict,
suspend or eliminate the transfer privileges, including telephone transfer
privileges, at any time, for any reason.
Dollar-Cost Averaging. The dollar-cost averaging program permits you to
systematically transfer on a monthly, quarterly, semi-annual or annual basis a
set dollar amount from either the Subaccount investing in the Money Market Fund
(the "Money Market Subaccount") or the Subaccount investing in the Bond Fund
(the "Bond Subaccount") to any combination of Subaccounts and/or the Fixed
Account. The dollar-cost averaging method of investment is designed to reduce
the risk of making purchases only when the price of units is high, but you
should carefully consider your financial ability to continue the program over a
long enough period of time to purchase units when their value is low as well as
when it is high. Dollar-cost averaging does not assure a profit or protect
against a loss.
You may elect to participate in the dollar-cost averaging program at any
time by sending us a written request. To use the dollar-cost averaging program,
you must transfer at least $100
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from the Money Market Subaccount or Bond Subaccount, as applicable. Once
elected, dollar-cost averaging remains in effect from the date we receive your
request until the value of the Subaccount from which transfers are being made is
depleted, or until you cancel the program by written request or by telephone if
we have your telephone authorization on file. There is no additional charge for
dollar-cost averaging. A transfer under this program is not considered a
transfer for purposes of assessing a transfer processing fee. We reserve the
right to discontinue offering the dollar-cost averaging program at any time and
for any reason. Dollar-cost averaging is not available while you are
participating in the portfolio rebalancing program.
Portfolio Rebalancing Program. Once your money has been allocated among the
Subaccounts, the performance of each Subaccount may cause your allocation to
shift. You may instruct us to automatically rebalance (on a monthly, quarterly,
semi-annual or annual basis) your Policy Account Value to return to the
percentages specified in your allocation instructions. You may elect to
participate in the portfolio rebalancing program at any time by sending us a
written request at the Home Office. Your percentage allocations must be in whole
percentages and be at least 1% per allocation. Subsequent changes to your
percentage allocations may be made at any time by written or telephone
instructions to the Home Office. Once elected, portfolio rebalancing remains in
effect from the date we receive your written request until you instruct us to
discontinue portfolio rebalancing. There is no additional charge for using
portfolio rebalancing, and a portfolio rebalancing transfer is not considered a
transfer for purposes of assessing a transfer processing fee. We reserve the
right to discontinue offering the portfolio rebalancing program at any time and
for any reason. Portfolio rebalancing does not guarantee a profit or protect
against loss. Portfolio rebalancing is not available while you are participating
in the dollar-cost averaging program.
CHARGES AND DEDUCTIONS
State Farm deducts the charges described below. Certain of the charges
depend on a number of variables, and are illustrated in the hypothetical
illustrations beginning on page ____. The charges are for the services and
benefits provided, costs and expenses incurred and risks assumed by State Farm
under or in connection with the Policies. Services and benefits provided by
State Farm include: the death, cash and loan benefits provided by the Policy;
investment options, including Net Premium allocations, dollar-cost averaging and
portfolio rebalancing programs; administration of various elective options under
the Policy; and the distribution of various reports to Owners. Costs and
expenses incurred by State Farm include those associated with underwriting
applications, increases in Basic Amount, and riders, various overhead and other
expenses associated with providing the services and benefits provided by the
Policy, sales and marketing expenses, and other costs of doing business, such as
federal, state and local premium and other taxes and fees. Risks assumed by
State Farm include the risks that Insureds may live for a shorter period of time
than estimated resulting in the payment of greater death benefits than expected,
and that the costs of providing the services and benefits under the Policies
will exceed the charges deducted.
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. Premium Charge. State Farm deducts a 5% charge from each premium
before allocating the resulting Net Premium to the Policy Account
Value.
. Mortality and Expense Risk Charge. State Farm currently deducts a
daily charge from assets in the Subaccounts attributable to the
Policies at an effective annual rate of 0.80% of net assets. This
charge is guaranteed not to exceed an effective annual rate of 0.90%
of net assets. This charge does not apply to Fixed Account assets
attributable to the Policies. This charge is factored into the net
investment factor (see page ____).
. Monthly Deduction. State Farm deducts the Monthly Deduction on each
Deduction Date from Policy Account Value in the Variable Account and
the Fixed Account on a pro rata basis. The Monthly Deduction for each
Policy consists of (1) the cost of insurance charge discussed below,
(2) a current monthly expense charge of $6 (it cannot exceed $8 per
month), and (3) any charges for additional benefits added by riders to
the Policy (see "Supplemental Benefits").
. Surrender Charge. If the Policy is surrendered during the first 10
Policy Years or the first 10 years after an increase in Basic Amount,
State Farm will deduct a surrender charge based on the Basic Amount at
issue, or increase, as applicable. The surrender charge will be
deducted before any surrender proceeds are paid. The surrender charge
depends on the Insured's Age at issue, or on the Policy Anniversary
preceding an increase. It is calculated based on an amount per $1,000
of the Basic Amount at issue (or increase). During the 10-year period
a surrender charge is in effect, it increases monthly in the first two
years, remains level for the next four years, then decreases by 1/5
each year for the next five years to zero. See Appendix A for sample
surrender charges. The surrender charge for your Policy will be stated
in your Policy.
. Other Charges. See "Transfers," page ___, for a discussion of the
transfer processing fee, "Withdrawals," page ___, for a discussion of
the withdrawal processing fee, and the prospectus for the State Farm
Fund for a description of the investment advisory fees and other
expenses incurred by the Funds.
Comment on Cost of Insurance. The cost of insurance is a significant charge
under your Policy because it is the primary charge for the death benefit
provided by your Policy. The cost of insurance charge depends on a number of
variables that cause the charge to vary from Policy to Policy and from Deduction
Date to Deduction Date. It is calculated separately for the Basic Amount at
issue and for any increase in the Basic Amount. The cost of insurance charge is
equal to the Company's current monthly cost of insurance rate for the Insured
multiplied by the net amount at risk under the Policy for the Basic Amount at
issue or as increased. The net amount at risk is equal to the difference between
(1) the amount of insurance attributable to the Basic Amount at issue or as
increased, as applicable, on the Deduction Date at the start of the month
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divided by 1.0032737, and (2) the Policy Account Value attributable to the Basic
Amount at issue or as increased, as applicable, on the Deduction Date at the
start of the month after the deduction of the part of the Monthly Deduction that
does not include the cost of insurance and the monthly charge for any Waiver of
Monthly Deduction rider. Your Policy describes more specifically how this amount
is calculated.
The cost of insurance rate for the Insured is based on his or her Age, sex
and applicable rate class. We currently place Insureds in the following rate
classes when we issue the Policy, based on our underwriting: a male or female or
unisex rate class; and a tobacco or non-tobacco rate class. Juveniles are placed
in a male or female or unisex rate class. The original rate class applies to the
initial Basic Amount. If an increase in Basic Amount is approved, a different
rate class may apply to the increase, based on the Insured's circumstances at
the time of the increase. We guarantee that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the maximum cost
of insurance rates set forth in the Policy. The maximum cost of insurance rates
are based on the Insured's age last birthday at the start of the Policy Year,
sex, and tobacco use. If the Insured is age 20 and over on the Policy Date or
the effective date of any increase in Basic Amount, the Commissioners 1980
Standard Ordinary Non-Smoker Table applies if the Insured is classified as non-
tobacco; otherwise, the Commissioners 1980 Standard Ordinary Smoker Mortality
Table applies. If the Insured is under age 20 on the Policy Date or the
effective date of any increase in Basic Amount, the Commissioners 1980 Standard
Ordinary Mortality Table applies. Modifications are made for rate classes other
than standard. See "Hypothetical Illustrations" for examples showing the effects
of the cost of insurance charge.
HOW YOUR POLICY ACCOUNT VALUES VARY
Policy Account Value. The Policy Account Value serves as a starting point
for calculating certain values under a Policy. It is the aggregate of the
Subaccount Policy Values, the Fixed Policy Account Value and Loan Policy Account
Value credited to the Policy. See "Loan Benefits," page ___. The Policy Account
Value is determined first on the Policy Date and thereafter on each Valuation
Day. The Policy Account Value will vary to reflect the performance of the
Subaccounts to which amounts have been allocated, interest credited on amounts
allocated to the Fixed Account and Loan Policy Account, charges, transfers,
withdrawals, Policy loans, Policy loan interest, and Policy loan repayments. It
may be more or less than premiums paid.
Cash Value. The Cash Value on a Valuation Day is the Policy Account Value
reduced by any surrender charge that would be deducted if the Policy were
surrendered that day.
Cash Surrender Value. The Cash Surrender Value on a Valuation Day is the
Cash Value reduced by any Loan Amount.
Subaccount Policy Value. On any Valuation Day, the Subaccount Policy Value
is equal to the number of Subaccount units credited to the Policy multiplied by
their unit value for that
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day. When you allocate an amount to a Subaccount, either by Net Premium
allocation, transfer of Policy Account Value or repayment of a Policy loan, your
Policy is credited with units in that Subaccount. The number of units is
determined by dividing the amount allocated, transferred or repaid to the
Subaccount by the Subaccount's unit value for the Valuation Day when the
allocation, transfer or repayment is effected. The number of Subaccount units
credited to a Policy will decrease when the allocated portion of the Monthly
Deduction is taken from the Subaccount, a Policy loan is taken from the
Subaccount, an amount is transferred from the Subaccount, a withdrawal is taken
from the Subaccount, or the Policy is surrendered.
Unit Values. A Subaccount's unit value varies to reflect the investment
experience of the underlying Fund, and may increase or decrease from one
Valuation Day to the next. The unit value for each Subaccount was
arbitrarily set at $10 when the Subaccount was established. For each
Valuation Period after the date of establishment, the unit value is
determined by multiplying the value of a unit for a Subaccount for the
prior Valuation Period by the net investment factor for the Subaccount for
the current valuation period.
Net Investment Factor. The net investment factor is an index used to
measure the investment performance of a Subaccount from one Valuation
Period to the next. The net investment factor for any Subaccount for any
Valuation Period reflects the change in the net asset value per share of
the Fund held in the Subaccount from one Valuation Period to the next,
adjusted for the daily deduction of the mortality and expense risk charge
from assets in the Subaccount. If any "ex-dividend" date occurs during the
Valuation Period, the per share amount of any dividend or capital gain
distribution is taken into account. Also, if any taxes need to be reserved,
a per share charge or credit for any taxes reserved for, which is
determined by us to have resulted from the operations of the Subaccount, is
taken into account.
Fixed Policy Account Value. The Fixed Policy Account Value on any date on
or after the Issue Date is equal to: (1) the sum of the following amounts in the
Fixed Account: Net Premium allocations, Policy Account Value transfers, and
interest accruals (if the date is a Policy Anniversary it also includes any
dividend payments); minus (2) the sum of any Monthly Deductions attributed to
the Fixed Account, any withdrawals or transfers (including any transfer
processing fee or withdrawal processing fee) from the Fixed Account, and Policy
loans taken from the Fixed Account.
DEATH BENEFITS
As long as the Policy remains in force, we will pay the death benefit upon
receipt at our Home Office of satisfactory proof of the Insured's death. See
"Requesting Payment," page ___. The death benefit will be paid to the
Beneficiary.
Amount of Death Benefit Payable. The amount of death benefit payable is the
amount of insurance determined under the Death Benefit Option in effect on the
date of the Insured's
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death, plus any supplemental death benefit provided by riders, minus any Loan
Amount on that date and, if the date of death occurred during a grace period,
minus the past due Monthly Deductions. Under certain circumstances, the amount
of the death benefit may be further adjusted. See "Incontestability" and
"Misstatement of Age or Sex," page _____. If the Insured dies before a Policy is
issued, the death benefit payable is limited to $300,000.
Death Benefit Options. Under Option 1, the Death Benefit is the greater of
(1) the Basic Amount plus any Net Premiums received since the last Deduction
Date, or (2) the applicable percentage amount of the Policy Account Value based
on the Insured's Age at the start of the current Policy Year, as determined
using the table of percentages prescribed by federal income tax law. Under
Option 2, the Death Benefit is the greater of (1) the Basic Amount plus the
Policy Account Value, or (2) the applicable percentage amount of the Policy
Account Value, on the date of the Insured's death, as determined using the table
of percentages prescribed by federal income tax law. The percentage is 250% to
Age 40 and declines thereafter as the Insured's Age increases. The table of
percentages is shown below. If the table of percentages currently in effect
becomes inconsistent with any federal income tax laws and/or regulations, we
reserve the right to change the table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Table of Percentages of Policy Account Value
- ------------------------------------------------------------
Age Percentage Age Percentage Age Percentage
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0 - 40 250% 54 157% 68 117%
41 243% 55 150% 69 116%
42 236% 56 146% 70 115%
43 229% 57 142% 71 113%
44 222% 58 138% 72 111%
45 215% 59 134% 73 109%
46 209% 60 130% 74 107%
47 203% 61 128% 75 - 90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94 101%
52 171% 66 119% 95+ 100%
53 164% 67 118%
- ------------------------------------------------------------
</TABLE>
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Under Option 1, the Death Benefit ordinarily will not change. Under
Option 2, the Death Benefit will vary directly with the investment performance
of the Policy Account Value. To see how and when investment performance may
begin to affect the Death Benefit, please see the hypothetical illustrations
beginning on page _____.
Changing the Death Benefit Option. You select the Death Benefit Option
when you apply for the Policy. You may change the Death Benefit Option on
your Policy subject to the following rules. Each change must be submitted by
written request received by our Home Office and no more than one change in the
Death Benefit Option may be made in any Policy Year. The effective date of
the change will be the date when we receive the request for the change. We
will send you revised Policy schedule pages reflecting the new Death Benefit
Option and the effective date of the change. If you request a change from
Option 1 to Option 2, the Basic Amount will be decreased by the Policy Account
Value on the effective date of the decrease. When a change from Option 2 to
Option 1 is made, the Basic Amount after the change will be increased by the
Policy Account Value on the effective date of the increase. The minimum
monthly premium for the Death Benefit Guarantee will also change when a Death
Benefit Option change is made.
Changing the Basic Amount. You select the Basic Amount when you apply
for the Policy. You may change the Basic Amount, subject to the following
conditions. No change will be permitted that may result in your Policy being
disqualified as a life insurance contract under Section 7702 of the Code.
Only one change (increase or decrease) may be made during a Policy Year. To
increase the Basic Amount, see an authorized State Farm agent. To decrease
the Basic Amount, submit a written request to our Home Office. Any increase
in the Basic Amount must be at least $25,000 and an application must be
submitted, along with evidence of insurability satisfactory to State Farm.
There must be enough Cash Surrender Value to make a Monthly Deduction that
includes the cost of insurance for the increase.
A change in planned premiums may be advisable based on the increase in
Basic Amount. See "Planned Premiums," above. Also, the minimum monthly
premium for the Death Benefit Guarantee will increase. The increase in Basic
Amount, if approved by us, will become effective on the date the increase is
applied for and the Policy Account Value will be adjusted to the extent
necessary to reflect a pro-rata portion of the Monthly Deduction attributable
to the increase as of the effective date and any intervening Deduction Date
based on the increase in Basic Amount. No increases will be allowed after the
Policy Anniversary when the Insured is age 80.
Any decrease in the Basic Amount must be at least $10,000, and the Basic
Amount after the decrease must be at least $50,000. A decrease in Basic
Amount will become effective on the date we receive a written request at our
Home Office. Also, the minimum monthly premium for the Death Benefit
Guarantee will decrease. Any decrease will first be used to reduce the most
recent increase, then the next most recent increases, then the initial Basic
Amount. No surrender charge will be deducted upon a decrease in Basic Amount.
The surrender charge will not be reduced upon a decrease in Basic Amount.
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Effect of Withdrawals on the Death Benefit. A withdrawal will affect
your Death Benefit in the following respects. If Death Benefit Option 1 is in
effect, the Basic Amount will also be reduced by the withdrawal amount dollar-
for-dollar. If the Basic Amount reflects increases in the Initial Basic
Amount, the withdrawal will reduce first the most recent increase, and then
the next most recent increase, if any, in reverse order, and finally the
Initial Basic Amount. If Death Benefit Option 2 is in effect, the Basic
Amount is unaffected by the withdrawal.
Changing the Beneficiary. You designate the Beneficiary(ies) when you
apply for the Policy. You may change the designated Beneficiary by submitting
a satisfactory written request received by our Home Office. If the Insured
dies and there is no surviving Beneficiary, the Insured's estate will be the
Beneficiary.
LOAN BENEFITS
You may borrow an amount(s) up to 90% of your Cash Value at any time.
See "Requesting Payment," page ___. Requests for Policy loans may be made in
writing or by telephone. See "Requesting Payments and Telephone
Transactions," page ___. Outstanding Policy loans, including accrued
interest, reduce the amount available for new loans.
Loan Policy Account. The Policy Account Value is not affected when a
loan is made. However, an amount equal to the loan proceeds is transferred
from the Policy Account Value in the Variable Account and Fixed Account to the
Loan Policy Account, and is held as "collateral" for the loan. If you do not
direct an allocation for this transfer when requesting the loan we will take
it on a pro rata basis. When a loan is repaid, an amount equal to the
repayment is transferred from the Loan Policy Account to the Variable Account
and Fixed Account and allocated as you direct when submitting the repayment.
If you provide no direction, the amount will be allocated in accordance with
your standing instructions for Net Premium allocations.
Interest. We will charge interest daily on any outstanding Policy loan
at an effective annual rate of 8.0%. Interest is due and payable at the end
of each Policy Year while a Policy loan is outstanding. If, on any Policy
Anniversary, interest accrued since the last Policy Anniversary has not been
paid, the amount of the interest is added to the loan and becomes part of the
outstanding Loan Amount. Capitalized interest that results in taking Policy
Account Value from the Subaccounts and Fixed Account to transfer to the Loan
Policy Account will be allocated annually on a pro-rata basis according to the
respective Subaccount Policy Values and the Fixed Policy Account Value. On
each Deduction Date, the amount in the Loan Policy Account will be credited
with interest at a minimum guaranteed annual effective rate of 6.0%. On each
Deduction Date, the interest earned is transferred to the Subaccounts and the
Fixed Account in accordance with the instructions for Net Premium allocations
then in effect.
Loan Repayment. You may repay all or part of your Loan Amount at any
time while the Insured is living and the Policy is in force. Loan repayments
must be sent to our Home Office
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and will be credited as of the date received. Loan repayments received during
the first 35 days after a Policy Anniversary will be credited first to interest
then to principal. Loan repayments received after the first 35 days following a
Policy Anniversary will be credited solely to principal. A Policy loan
repayment is not treated as a premium payment and is not subject to the 5%
premium charge.
Effect of Policy Loan. A Policy loan, whether or not repaid, will affect
Policy values over time because the investment results of the Subaccounts and
current interest rates credited on Policy Account Value in the Fixed Account
will apply only to the non-loaned portion of the Policy Account Value. The
longer the loan is outstanding, the greater the effect is likely to be.
Depending on the investment results of the Subaccounts or credited interest
rates for the Fixed Account while the Policy loan is outstanding, the effect
could be favorable or unfavorable. Policy loans, particularly if not repaid,
could make it more likely than otherwise for a Policy to terminate. See "Tax
Considerations," below, for a discussion of adverse tax consequences if a Policy
lapses with Policy loans outstanding. If the Death Benefit becomes payable
while a Policy loan is outstanding, the Loan Amount will be deducted in
calculating the Death Benefit. If the Loan Amount exceeds the Cash Value on any
Deduction Date and the Death Benefit Guarantee is not in effect, the Policy will
lapse. We will send you, and any assignee of record, notice of the lapse. You
will have a 61-day grace period to submit a sufficient payment to avoid
termination.
SURRENDER BENEFITS
Full Surrender. You may surrender your Policy at any time for its Cash
Surrender Value. See "Requesting Payments," page ___. A surrender charge may
apply. See "Surrender Charge," page ___. Your Policy will terminate and cease
to be in force if it is surrendered for a lump sum. It cannot later be
reinstated.
Withdrawals. You may make withdrawals under your Policy. See "Requesting
Payments," page ___. Requests for withdrawals may be made in writing or by
telephone. See "Requesting Payments and Telephone Transactions," page ___. The
minimum withdrawal amount is the lesser of $500 or the Cash Surrender Value if
less than $500. A withdrawal must be less than the Cash Surrender Value on the
day the request for withdrawal is received at our Home Office. No more than
four withdrawals may be made during a Policy Year. A withdrawal processing fee
equal to the lesser of $25 or 2% of the amount withdrawn will be assessed on a
withdrawal. This charge will be deducted from your Policy Account Value along
with the amount requested to be withdrawn. When you request a withdrawal, you
can direct how the withdrawal will be deducted from your Policy Account Value.
If you provide no directions, the withdrawal will be deducted from your Policy
Account Value in the Subaccounts and Fixed Account on a pro-rata basis.
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HYPOTHETICAL ILLUSTRATIONS
The following illustrations show how certain values under a sample Policy
change with assumed investment performance over an extended period of time.
In particular, they illustrate how Policy Account Values, Cash Surrender
Values and Death Benefits under a Policy covering an Insured of a given Age on
the Policy Date, would vary over time if planned premiums were paid annually
and the return on the assets in the Subaccounts were a uniform gross annual
rate of 0%, 6% or 12%, before deduction of any fees and charges, including
Fund fees and charges. The tables also show planned premiums accumulated at
5% interest. The values under a Policy would be different from those shown if
the returns averaged 0%, 6% or 12% but fluctuated over and under those
averages throughout the years shown. The hypothetical investment rates of
return are illustrative only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return for a particular
Policy may be more or less than the hypothetical investment rates of return
used in the illustrations.
The illustrations assume an average annual expense ratio of _____% of the
average daily net assets of the Funds available under the Policies, based on
the estimated expense ratios of each of the Funds for the first year of
operations. For information on Fund expenses, see the prospectus for the
Funds accompanying this prospectus. The current illustrations also reflect
the 0.80% mortality and expense risk charge to the Variable Account. The
guaranteed illustrations reflect the maximum 0.90% mortality and expense risk
charge to the Variable Account. After deduction of estimated Fund expenses
and the mortality and expense risk charge, the illustrated gross annual
investment rates of return of 0%, 6% and 12% would correspond to approximate
net annual rates of return for the Subaccounts of _____%, _____% and _____%,
respectively.
The illustrations also reflect the Monthly Deduction for the hypothetical
Insured. Our current charges and the higher guaranteed charges we have the
contractual right to charge are reflected in separate illustrations on each of
the following pages. All the illustrations reflect the fact that no charges
for Federal or state income taxes are currently made against the Variable
Account and assume no Loan Amount or charges for supplemental benefits.
The illustrations are based on our sex distinct rates for non-tobacco
users. Upon request, we will furnish a comparable illustration based upon the
proposed Insured's individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the following
tables.
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[Hypothetical Illustrations to be included in pre-effective amendment]
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REQUESTING PAYMENTS and TELEPHONE TRANSACTIONS
Requesting Payments. Written requests for payment (except where telephone
requests are authorized by us) must be sent to our Home Office or given to an
authorized State Farm agent for forwarding to our Home Office. We will
ordinarily pay any Death Benefit, loan proceeds or surrender or withdrawal
proceeds in a lump sum within seven days after receipt at our Home Office of
all the documents required for such a payment. Other than the Death Benefit,
which is determined as of the date of the Insured's death, the amount will be
determined as of the date our Home Office receives all required documents. The
Death Benefit generally will be paid through the State Farm Benefit Management
Account(R), an interest bearing checking account. We will send the State Farm
Benefit Management Account(R) checkbook to you within seven days after we
receive all required documents. A Beneficiary will have immediate access to
the proceeds by writing a check on the State Farm Benefit Management
Account(R). We pay interest on the amount in the State Farm Benefit Management
Account(R) from the date of the Insured's death to the date the State Farm
Benefit Management Account(R) is closed. Amounts in the State Farm Benefit
Management Account(R) are not insured by the Federal Deposit Insurance
Corporation or any other agency.
We may delay making a payment or processing a transfer request if: (1)
the disposal or valuation of the Variable Account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists; or (2) the SEC by order permits
postponement of payment to protect State Farm's Policy Owners. We also may
defer making payments attributable to a check that has not cleared, and we may
defer payment of proceeds from the Fixed Account for a withdrawal, surrender
or Policy loan request for up to six months from the date we receive the
request. However, we will not defer payment of a withdrawal or Policy loan
requested to pay a premium due on a State Farm policy.
The Policy offers a wide variety of optional ways of receiving proceeds
payable under the Policy other than in a lump sum. An authorized State Farm
agent can explain these options upon request. None of these options vary with
the investment performance of a Variable Account because they are all forms of
fixed-benefit annuities.
Telephone Transactions. You may make certain requests under the Policy by
telephone provided we have your written authorization on file at the Home
Office. These include requests for transfers, withdrawals, Policy loans,
changes in premium allocation designations, dollar-cost averaging changes and
changes in the portfolio rebalancing program. Our Home Office will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by
telephone, providing written confirmation of such transactions, and/or tape
recording of telephone instructions. Your request for telephone transactions
authorizes us to record telephone calls. If reasonable procedures are not
employed, we may be liable for any losses due to unauthorized or fraudulent
instructions. However, if reasonable procedures are employed, we will not be
liable for any losses due to unauthorized or fraudulent instructions.
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OTHER POLICY BENEFITS AND PROVISIONS
Exchange Provision. You have the right to transfer all of your Policy
Account Value to the Fixed Account. During the first two Policy Years, such
transfers are not counted for purposes of determining whether a transfer
processing fee applies.
Other Policy Provisions. The Policy contains provisions addressing the
following matters:
. Dividends. The Policy is participating. However, we do not
anticipate that any dividends will be paid on the Policy.
. Incontestability. The Policy limits our right to contest the
Policy as issued or as increased, except for material
misstatements contained in the application, after it has been in
force during the Insured's lifetime for a minimum period,
generally for two years from the Issue Date of the Policy or
effective date of the increase.
. Suicide Exclusion. The Policy limits the Death Benefit if the
Insured dies by suicide generally within two years after the Issue
Date of the Policy or effective date of the increase.
. Misstatement of Age or Sex. The Death Benefit will be adjusted if
the Insured's Age or sex has been misstated in the application.
Beneficiary. You may name the Beneficiary(ies) when you apply for the
Policy. The Beneficiary is entitled to the insurance benefits under the
Policy. You may change the Beneficiary or the order of payment during the
Insured's lifetime by providing a written request to the Home Office. Your
change will be effective on the date we receive your request. When the
Insured dies, we will make payment in equal shares to the primary
Beneficiary(ies) living when payment is made. If no Beneficiary is living
when the Insured dies, we will make a one sum payment to you, if you are alive
when payment is made. Otherwise, we will make a one sum payment to the estate
of the last survivor of you and all Beneficiaries.
Reinstatement. If the Policy has not been surrendered, the Policy may
be reinstated within five years after lapse, subject to compliance with
certain conditions, including the payment of a necessary premium and
submission of satisfactory evidence of insurability. See your Policy for
further information.
Other Changes. At any time we may make such changes in the Policy as
are necessary to assure compliance at all times with the definition of life
insurance prescribed by the Code; to make the Policy, our operations, or the
operation of the Variable Account conform with any law or regulation issued by
any government agency to which they are subject; or to reflect a change in the
operation of the Variable Account, if allowed by the Policy. Only an officer
of the
-23-
<PAGE>
Company has the right to change the Policy. No agent has the authority to
change the Policy or waive any of its terms. All endorsements, amendments, or
riders must be signed by an officer to be valid.
Reports to Policy Owners. State Farm maintains records and accounts of
all transactions involving the Policy, the Variable Account, the Fixed Account
and the Loan Account. Each year, or more often if required by law, you will
be sent a report showing information about your Policy for the period covered
by the report. You will also be sent an annual and a semi-annual report for
each Fund underlying a Subaccount to which you have allocated Policy Account
Value, as required by the 1940 Act. In addition, when you pay premiums (other
than by pre-authorized checking account deduction), or if you take out a
Policy loan, make transfers or make withdrawals, you will receive a written
confirmation of these transactions.
Assignment and Change of Owner. You may assign the Policy subject to
its terms. We will not be deemed to know of an assignment unless we receive a
written copy of it at our Home Office. We assume no responsibility for the
validity or effect of any assignment. In certain circumstances, an assignment
may be a taxable event. See "Tax Considerations" below. You may change the
Owner of the Policy by sending a written request to our Home Office while the
Insured is alive and the Policy is in force. The change will take effect the
date you sign the Written Request, but the change will not affect any action
we have taken before we receive the Written Request. A change of Owner does
not change the Beneficiary designation.
Supplemental Benefits. The following supplemental benefits are available
and may be added to your Policy by rider. Monthly charges for these benefits
will be deducted from your Policy Account Value as part of the Monthly
Deduction (see page _____).
Guaranteed Insurability Option Rider. Allows you to increase the Basic
Amount on the specific option dates without evidence of insurability.
Disability Waiver of Monthly Deduction Rider. Provides for the waiver of
the Monthly Deductions upon total disability of the Insured for as long
as the disability continues.
Additional Insured Rider. Provides level term insurance coverage for the
spouse of the Insured to spouse's age 85.
Accidental Death Benefit Rider. Provides additional death benefit if
accidental death occurs prior to age 70.
Children's Term Rider. Provides term life insurance on your eligible
children.
Additional Deposit Rider. Only available on certain tax-qualified
Policies. Enables the Insured to make a single deposit at the time he or
she places his or her Policy under one
-24-
<PAGE>
of the optional methods of payment in order to increase the amount of
monthly payments under a settlement option. There is an additional charge
deducted from the single deposit.
Additional rules and limits apply to these supplemental benefits. Please
ask your authorized State Farm agent for further information or contact our
Home Office.
STATE FARM AND THE FIXED ACCOUNT
State Farm Life Insurance Company. State Farm is an Illinois stock life
insurance company that is wholly-owned by State Farm Mutual Automobile Insurance
Company, an Illinois mutual insurance company. State Farm's home office is
located at One State Farm Plaza, Bloomington, Illinois 61710. State Farm was
incorporated in 1929 and has been continuously engaged in the life insurance
business since that year. State Farm is subject to regulation by the Insurance
Department of the State of Illinois as well as by the insurance departments of
all other states and jurisdictions in which it does business. State Farm sells
insurance in 46 states and the District of Columbia. State Farm also sells
insurance in the Canadian provinces of Alberta, New Brunswick, and Ontario.
State Farm submits annual statements on its operations and finances to insurance
officials in such states and jurisdictions. The Policy described in this
prospectus has been filed with and, where required, approved by, insurance
officials in those jurisdictions where it is sold.
State Farm Directors and Officers. State Farm is managed by a board of
directors. The following table sets forth the name, address and principal
occupations during the past five years of each of State Farm's directors.
Board of Directors
<TABLE>
<CAPTION>
Name and Address Position with State Farm Principal Occupation During Past Five Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marvin D. Bower Chairman of the Board and Retired
Director
- -------------------------------------------------------------------------------------------------------------
Edward B. Rust, Jr. Director; President Chairman of the Board, President and CEO -
State Farm Mutual Automobile Insurance
Company; President and CEO - State Farm Fire
and Casualty Company; President and CEO -
State Farm General Insurance Company;
President - State Farm County Mutual Insurance
Company of Texas; Director -State Farm
Lloyds, Inc.; Chairman of the Board, President
and Treasurer - State Farm Companies
Foundation; Director - State Farm International
Services, Inc.; President and Director -
State Farm Life Insurance Company, State
Farm Annuity and Life Insurance Company, State
Farm Life and Accident Assurance Company, State
Farm Investment Management Corp., State
Farm Growth Fund, Inc., State Farm Balanced
Fund, Inc., State Farm Interim Fund, Inc., and
State Farm Municipal Bond Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Glenn A. Britt Director Vice President - Health - State Farm Mutual
Automobile Insurance Company; Director and
Executive Vice President - State Farm Life
Insurance Company, State Farm Annuity and Life
Insurance Company, and State Farm Life and
Accident Assurance Company
- -------------------------------------------------------------------------------------------------------------
Darrell W. Beernink Director; Vice President and Vice President and Actuary - Health - State
Actuary Farm Mutual Automobile Insurance Company;
Director, Vice President and Actuary - State
Farm Life Insurance Company; Vice President
and Actuary - State Farm Annuity and Life
Insurance Company, and State Farm Life and
Accident Assurance Company
- -------------------------------------------------------------------------------------------------------------
Charles R. Wright Director; Agency Vice Director (1995 - present) and Agency Vice
President President (1992 - present) - State Farm
Mutual Automobile Insurance Company; -
State Farm Fire and Casualty Company, State
Farm General Insurance Company, State Farm
International Services, Inc., State Farm Life
Insurance Company, State Farm Annuity and Life
Insurance Company, and State Farm Life and
Accident Assurance Company
- -------------------------------------------------------------------------------------------------------------
Robert S. Eckley Director Retired
- -------------------------------------------------------------------------------------------------------------
Wendy L. Gramm Director Director (1994 - present) - State Farm
Mutual Automobile Insurance Company;
Director (1993 - present) - State Farm Life
Insurance Company; Director (1993 -
present) Enron Corp.; Self-employed
consultant (1993 - present)
- -------------------------------------------------------------------------------------------------------------
Roger S. Joslin Director Director, Senior Vice President and Treasurer
- State Farm Mutual Automobile Insurance
Company; Director, Chairman of the Board
and Treasurer - State Farm Fire and Casualty
Company; Director, Vice President and Treasurer
- State Farm General Insurance Company;
Treasurer - State Farm County Mutual Insurance
Company of Texas; Director, Vice President
and Treasurer - State Farm Lloyds, Inc.;
Assistant Treasurer - State Farm Companies
Foundation; Director, Vice President and
Treasurer - State Farm International Services,
Inc., State Farm Investment Management
Corp., State Farm Growth Fund, Inc., State Farm
Balanced Fund, Inc., State Farm Interim Fund,
Inc., and State Farm Municipal Bond Fund,
Inc.; Director - State Farm Life Insurance
Company, State Farm Annuity and Life
Insurance Company, and State Farm Life and
Accident Assurance Company
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Kurt G. Moser Director; Vice President - Vice President - Investments - State Farm
Investments Mutual Automobile Insurance Company;
Director and Vice President - Investments
- State Farm Fire and Casualty Company, State
Farm General Insurance Company, State Farm Life
Insurance Company, State Farm Annuity and Life
Insurance Company, and State Farm Life and
Accident Assurance Company; Vice President
- Investments - State Farm County Mutual
Insurance Company of Texas, State Farm
Lloyds, Inc., and State Farm International
Services, Inc.; Investment Officer -
State Farm Indemnity Company; Underwriter -
State Farm Lloyds; Director and Vice
President - State Farm Investment Management
Corp.; Vice President - State Farm Growth Fund,
Inc., State Farm Balanced Fund, Inc.,
State Farm Interim Fund, Inc., and State Farm
Municipal Bond Fund, Inc.
- -------------------------------------------------------------------------------------------------------------
George L. Perry Director Director (1973 - present) - State Farm
Mutual Automobile Insurance Company;
Director (1986 - present) - State Farm Life
Insurance Company; Senior Fellow (1970 -
present) - Brookings Institute
- -------------------------------------------------------------------------------------------------------------
Don D Rood Director Retired
- -------------------------------------------------------------------------------------------------------------
Curtis W. Tarr Director Director (1986 - present) - State Farm
Mutual Automobile Insurance Company;
Director (1982 - present) - State Farm Life
Insurance Company; Director (1986 -
present) - Intermet Corp.; Director (1975 -
1995) - George Banta Co.
- -------------------------------------------------------------------------------------------------------------
Vincent J. Trosino Director Director, Vice Chairman of the Board, Executive
Vice President and Chief Operating Officer -
State Farm Mutual Automobile Insurance
Company; Director and Vice President - State
Farm Fire and Casualty Company, State Farm
General Insurance Company; Director -
State Farm Lloyds, Inc.; Assistant Secretary -
State Farm Companies Foundation; Director -
State Farm International Services, Inc., State
Farm Life Insurance Company, State Farm
Annuity and Life Insurance Company, State
Farm Life and Accident Assurance Company, State
Farm Investment Management Corp.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the names, addresses and principal
occupations during the past five years of the senior officers of State Farm
(other than officers listed above who are members of State Farm's Board of
Directors).
-27-
<PAGE>
<TABLE>
<CAPTION>
Senior Officers
Name and Address Position with State Farm Principal Occupation During Past Five Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas E. Deighan Vice President - Vice President - Life/Health Underwriting -
Life/Health Underwriting State Farm Life Insurance Company
- -------------------------------------------------------------------------------------------------------------
James G. Fisher Vice President - Vice President - Operations (1995 -
Operations present) - State Farm Life Insurance Company;
Executive Assistant (1994 - 1995), and
Agency Director (1988 - 1994) - State Farm
Insurance Companies
- -------------------------------------------------------------------------------------------------------------
James A. Malay Vice President - Vice President - Policyholder Systems -
Policyholder Systems State Farm Mutual Automobile Insurance
Company, State Farm Fire and Casualty
Company, State Farm General Insurance
Company, and State Farm Life Insurance Company
- -------------------------------------------------------------------------------------------------------------
William A. Montgomery Vice President and Vice President and General Counsel - State
General Counsel Farm Mutual Automobile Insurance Company,
State Farm Fire and Casualty Company, State
Farm General Insurance Company, State Farm
Life Insurance Company, State Farm Annuity and
Life Insurance Company, and State Farm Life and
Accident Assurance Company; Law Firm
Partner (through 1993) - Schiff, Hardin & Waite
- -------------------------------------------------------------------------------------------------------------
Danny L. Scott, M.D. Vice President and Vice President and Medical Director -
Medical Director State Farm Life Insurance Company,
State Farm Annuity and Life Insurance Company,
and State Farm Life and Accident Assurance
Company
- -------------------------------------------------------------------------------------------------------------
Laura P. Sullivan Vice President - Counsel; Vice President - Counsel and Secretary
and Secretary of the Board - State Farm Mutual Automobile
Insurance Company, State Farm Fire and
Casualty Company; Director - Vice President -
Counsel and Secretary of the Board - State Farm
General Insurance Company; Assistant Secretary -
Treasurer - State Farm County Mutual Insurance
Company of Texas; Director and Assistant
Secretary - State Farm Indemnity Company;
Director, Vice President - Secretary -
State Farm Companies Foundation; Assistant
Secretary - State Farm International Services,
Inc.; Vice President - Counsel and Secretary
of the Board - State Farm Life Insurance
Company, State Farm Annuity and Life
Insurance Company, State Farm Life and
Accident Insurance Company
- -------------------------------------------------------------------------------------------------------------
Dale R. Egeberg Controller Controller - State Farm Life Insurance Company,
State Farm Annuity and Life Insurance Company,
and State Farm Life and Accident Assurance
Company
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE>
<TABLE>
<S> <C> <C>
Robert Myer Vice President - Vice President - Marketing Development
Marketing Development (1996 -present) - State Farm Life Insurance
Company; Executive Assistant (1995 - 1996),
Agency Director (1992 - 1995) and Agency
Manager (1990 - 1992) -State Farm Insurance
Companies
- -------------------------------------------------------------------------------------------------------------
Roger Tompkins Vice President Vice President - California - State Farm
Mutual Automobile Insurance Company,
State Farm Fire and Casualty Company, State
Farm General Insurance Company
- -------------------------------------------------------------------------------------------------------------
James J. O'Donnell Vice President - Vice President - Compliance (1996),
Compliance Assistant Vice President - State Farm
Life Insurance Company
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A fidelity bond in the amount of $5 million covering State Farm's
directors, officers and employees has been issued by National Union Fire
Insurance Company.
State Farm's Fixed Account Option. The Fixed Account is part of State
Farm's general account assets. State Farm's general account assets are used to
support our insurance and annuity obligations other than those funded by
separate accounts. Subject to applicable law, State Farm has sole discretion
over the investment of the assets of the Fixed Account.
Because of exemptive and exclusionary provisions, interests in the Fixed
Account have not been registered under the Securities Act of 1933 nor has the
Fixed Account been registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed Account nor any interests therein are subject to
the provisions of these Acts and, as a result, the staff of the Securities and
Exchange Commission has not reviewed the disclosure in this prospectus relating
to the Fixed Account. The disclosure regarding the Fixed Account may, however,
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in a
prospectus.
THE VARIABLE ACCOUNT AND STATE FARM FUND
The Variable Account. State Farm established the Variable Account as a
separate investment account under Illinois law on December 9, 1996. State Farm
owns the assets in the Variable Account and is obligated to pay all benefits
under the Policies. The Variable Account is used to support the Policies as well
as for other purposes permitted by law. The Variable Account is registered with
the SEC as a unit investment trust under the 1940 Act and qualifies as a
"separate account" within the meaning of the federal securities laws. Such
registration does not involve any supervision by the SEC of the management of
the Variable Account or State Farm. State Farm has established other separate
investment accounts, of which State Farm Life Insurance Company Variable Annuity
Separate Account is registered with the SEC under the 1940 Act.
-29-
<PAGE>
The Variable Account is divided into Subaccounts, each of which currently
invests in shares of a specific Fund of State Farm Variable Product Trust. These
Subaccounts buy and redeem Fund shares at net asset value without any sales
charge. Any dividend from net investment income and distribution from realized
gains from security transactions of a Fund is reinvested at net asset value in
shares of the same Fund. Income, gains and losses, realized or unrealized, of a
Subaccount are credited to or charged against that Subaccount without regard to
any other income, gains or losses of State Farm. Assets equal to the reserves
and other contract liabilities with respect to each Subaccount are not
chargeable with liabilities arising out of any other business or account of
State Farm. If the assets exceed the required reserves and other liabilities,
State Farm may transfer the excess to its general account.
The Variable Account may include other Subaccounts that are not available
under the Policy and are not otherwise discussed in this prospectus. State Farm
may substitute another subaccount or insurance company separate account under
the Policy if, in State Farm's judgment, investment in a Subaccount should no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of Owners. No substitution may take place without notice to
Owners and prior approval of the SEC and insurance regulatory authorities, to
the extent required by the 1940 Act and applicable law.
The State Farm Fund. State Farm Investment Management Corp. ("SFIM"), a
wholly owned subsidiary of State Farm Mutual Automobile Insurance Company,
serves as investment adviser to the State Farm Fund. SFIM has engaged BZW
Barclays Global Fund Advisors as the investment sub-adviser to provide day-to-
day portfolio management for the Large Cap Equity Index Fund, the Small Cap
Equity Index Fund, and the International Equity Index Fund. For more information
concerning the investment adviser and investment sub-adviser, please see the
accompanying prospectus for the State Farm Fund.
Voting of Fund Shares. State Farm is the legal owner of shares held by
the Subaccounts and as such has the right to vote on all matters submitted to
shareholders of the Funds. However, as required by law, State Farm will vote
shares held in the Subaccounts at regular and special meetings of shareholders
of the Funds in accordance with instructions received from Owners with Policy
Account Value in the Subaccounts. To obtain voting instructions from Owners,
before a meeting of shareholders of the Funds State Farm will send Owners voting
instruction material, a voting instruction form and any other related material.
Shares held by a Subaccount for which no timely instructions are received will
be voted by State Farm in the same proportion as those shares for which voting
instructions are received. Should the applicable federal securities laws,
regulations or interpretations thereof change so as to permit State Farm to vote
shares of the Funds in its own right, State Farm may elect to do so. State Farm
may, if required by state insurance officials, disregard Owner voting
instructions if such instructions would require shares to be voted so as to
cause a change in sub-classification or investment objectives of one or more of
the Funds, or to approve or disapprove an investment advisory agreement. In
addition, State Farm may under certain circumstances disregard voting
instructions that would
-30-
<PAGE>
require changes in the investment policy or investment adviser of one or more of
the Funds, provided that State Farm reasonably disapproves of such changes in
accordance with applicable federal regulations. If State Farm ever disregards
voting instructions, Owners will be advised of that action and of the reasons
for such action in the next report to Owners.
TAX CONSIDERATIONS
Introduction. The following summary provides a general description of
the Federal income tax considerations associated with the Policy and does not
purport to be complete or to cover all tax situations. This discussion is not
intended as tax advice. Counsel or other competent tax advisors should be
consulted for more complete information. This discussion is based upon State
Farm's understanding of the present Federal income tax laws. No representation
is made as to the likelihood of continuation of the present Federal income tax
laws or as to how they may be interpreted by the Internal Revenue Service (the
"IRS").
Any qualified plan contemplating the purchase of a life policy should
consult a tax advisor.
Tax Status of the Policy. In order to qualify as a life insurance
contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts under Federal tax law, a Policy must
satisfy certain requirements which are set forth in the Internal Revenue Code.
Guidance as to how these requirements are to be applied is limited.
Nevertheless, State Farm believes that a Policy issued on the basis of a
standard risk class should satisfy the applicable requirements. There is less
guidance with respect to Policies issued on a substandard basis (i.e., a premium
class involving higher than standard mortality risk), and it is not clear
whether such a Policy would satisfy the applicable requirements, particularly if
the Owner pays the full amount of premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, State Farm may take appropriate steps to bring the Policy into
compliance with such requirements and reserves the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance contracts
have been considered for Federal income tax purposes to be the owners of the
assets of the Variable Account supporting their contracts due to their ability
to exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the Variable Account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and Policy Account Values, have not been explicitly addressed
in published rulings. While State Farm believes that the Policies do not give
Owners investment control over Variable Account assets, State Farm reserves the
right to modify the Policies as necessary to prevent an Owner from being treated
as the owner of the Variable Account assets supporting the Policy.
-31-
<PAGE>
In addition, the Code requires that the investments of the Variable
Account be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for Federal income tax purposes. It is intended that
the Variable Account, through the Funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Policy Benefits
In General. State Farm believes that the Death Benefit under a Policy
should be excludible from the gross income of the Beneficiary. Federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or Beneficiary. A tax advisor
should be consulted on these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value until there is a distribution. When distributions from
a Policy occur, or when loans are taken out from or secured by (e.g., by
assignment), a Policy, the tax consequences depend on whether the Policy is
classified as a "Modified Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy Years. Certain changes in a Policy after it is issued could also cause it
to be classified as a Modified Endowment Contract. A current or prospective
Owner should consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be classified as a Modified Endowment
Contract. State Farm will monitor the Policies, however, and will attempt to
notify an Owner on a timely basis if it believes that such Owner's Policy is in
jeopardy of becoming a Modified Endowment Contract.
Distributions from Modified Endowment Contracts. Policies classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All distributions, including distributions upon surrender and
withdrawals, will be treated as ordinary income subject to tax up
to an amount equal to the excess (if any) of the unloaned Policy
Account Value (Cash Surrender Value for surrenders) immediately
before the distribution plus prior distributions over the Owner's
total investment in the Policy at that time. "Total investment in
the Policy" means the aggregate amount of any premiums or other
considerations paid for a Policy, plus any previously taxed
distributions, minus any credited dividends.
-32-
<PAGE>
(2) Loans taken from or secured by (e.g., by assignment), such a Policy
are treated as distributions and taxed accordingly.
(3) A 10 percent additional income tax is imposed on the amount
included in income except where the distribution or loan is made
when the Owner has attained age 59 1/2 or is disabled, or where the
distribution is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the
joint lives (or joint life expectancies) of the Owner and the
Owner's Beneficiary or designated Beneficiary.
Distributions from Policies that are not Modified Endowment Contracts.
Distributions from a Policy that is not a Modified Endowment Contract are
generally treated first as a recovery of an Owner's investment in the Policy and
only after the recovery of all investment in the Policy as taxable income.
However, certain distributions which must be made in order to enable the Policy
to continue to qualify as a life insurance contract for Federal income tax
purposes if Policy benefits are reduced during the first 15 Policy Years may be
treated in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment
Contract are not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional tax.
Policy Loans. In general, interest on a loan from a Policy will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by
State Farm (or its affiliates) to the same Owner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Owner's income when a taxable distribution occurs.
ADDITIONAL INFORMATION
Sale of the Policies. State Farm VP Management Corp., a subsidiary of
State Farm Mutual Automobile Insurance Company, acts as the principal
underwriter of the Policies. State Farm VP Management Corp. also acts as
principal underwriter for State Farm Life Insurance Company Variable Annuity
Separate Account, a separate account also established by State Farm, and may act
as principal underwriter for other separate accounts established by affiliates
of State Farm. State Farm VP Management Corp. is a corporation organized under
the laws of the state of Delaware in 1996, is registered as a broker-dealer
under the Securities Exchange Act of 1934,
-33-
<PAGE>
and is a member of the National Association of Securities Dealers, Inc. (the
"NASD"). The Policies may not be available in all states. The Policies are sold
by certain registered representatives of State Farm VP Management Corp. who are
also appointed and licensed as State Farm insurance agents. Commissions are
payable to the broker-dealer under two alternative commission schedules,
depending on which schedule is elected by the registered representatives. Under
the first schedule, commissions will not exceed 40% of the premiums received up
to the Primary Compensation Premium ([definition to be inserted in pre-effective
amendment]) and 3 1/2% of all other premiums received. Under the second
schedule, commissions will not exceed 30% of the premiums received up to the
first Primary Compensation Premium, 15% of the premiums received up to the next
two Primary Compensation Premiums, and 4% of all other premiums received. In
addition, State Farm may pay incentive bonuses or expense reimbursements.
Other Information. A registration statement under the Securities Act of
1933 has been filed with the SEC relating to the offering described in this
prospectus. This prospectus does not include all the information set forth in
the registration statement. The omitted information may be obtained at the SEC's
principal office in Washington, D.C. by paying the SEC's prescribed fees.
Litigation. No legal or administrative proceeding is pending that would
have a material effect upon the Variable Account.
Legal Matters. The legal matters in connection with the Policy described
in this prospectus have been passed on by William A. Montgomery, the Vice
President and General Counsel of State Farm. Sutherland, Asbill & Brennan,
L.L.P. of Washington, D.C. has provided advice on matters relating to the
federal securities laws.
Experts. The financial statements of State Farm included in this
prospectus have been audited by Coopers & Lybrand LLP, independent accountants,
with offices in Chicago, Illinois, whose report thereon is set forth elsewhere
herein. Actuarial matters included in this prospectus have been examined by
_________________________________________________, Senior Actuary of State Farm,
whose opinion is filed as an exhibit to the registration statement.
Financial Statements. The financial statements of State Farm appear on
the following pages. No financial statements are presented for the Variable
Account because it has yet to commence operations. The financial statements of
State Farm should be distinguished from financial statements of the Variable
Account (once the Variable Account's financial statements are presented) and
should be considered only as bearing upon State Farm's ability to meet its
obligations under the Policies.
[Financial statements to be included in pre-effective amendment.]
-34-
<PAGE>
APPENDIX A
Sample Surrender Charges per $1,000 of Coverage
Age 35 $50,000 Policy
<TABLE>
<CAPTION>
Beginning Surrender Beginning Surrender
Policy Year Policy Month* Charge Policy Year Policy Month* Charge
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1 $ 10.75 5 1 $258.00
- ---------------------------------------------------------------------------------------------------------
1 6 64.50 6 1 258.00
- ---------------------------------------------------------------------------------------------------------
1 12 129.00 7 1 206.40
- ---------------------------------------------------------------------------------------------------------
2 1 139.70 8 1 154.80
- ---------------------------------------------------------------------------------------------------------
2 6 193.50 9 1 103.20
- ---------------------------------------------------------------------------------------------------------
2 12 258.00 10 1 51.60
- ---------------------------------------------------------------------------------------------------------
3 1 258.00 11 1 0.00
- ---------------------------------------------------------------------------------------------------------
4 1 258.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
[Examples to be included]
* Surrender charges for other Policy Months may differ depending on the
particular Policy Year.
-35-
<PAGE>
Part II
1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer 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.
Illinois Business Corporation Act Chapter 805 Section 5/8.75 is a
comprehensive provision that defines the power of Illinois corporations to
provide for the indemnification of its officers, directors, employees and
agents. This Section also authorizes Illinois corporations to purchase and
maintain insurance on behalf of directors, officers, employees or agents of the
corporation.
The Articles of Incorporation , as amended, and the Bylaws of State Farm
Life Insurance Company do not provide for the indemnification of officers,
directors, employees or agents of the Company.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
[The representation required by Section 26(e)(2)(A) of the Investment
Company Act of 1940 will be included in a pre-effective amendment.]
2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of ___ pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons: ________________________________
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1.
A.
(1) Resolution of the Board of Directors of State Farm Life Insurance
Company establishing State Farm Life Insurance Company Variable
Life Separate Account
(2) Not Applicable
(3) (a) Form of Underwriting Agreement @
(b) Form of Distribution Agreement @
(c) Schedule of Sales Commissions @
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Universal Life
Insurance Policy
(b) Policy Riders and Endorsements
(6) (a) Articles of Incorporation of State Farm Life Insurance
Company
(b) By-laws of State Farm Life Insurance Company
(7) Not applicable
(8) Form of participation agreement @
(9) Not applicable
(10) Application form @
(11) Description of issuance, transfer and redemption procedures @
B. Not applicable
C. Not applicable
3
<PAGE>
2. Opinion and consent of __________________ as to the legality of the
securities being registered @
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of ________________________, as to actuarial
matters pertaining to the securities being registered @
7. (a) Consent of Independent Accountants @
(b) Consent of Sutherland, Asbill & Brennan, L.L.P. @
- -----------------------------
@ To be filed by amendment.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
State Farm Life Insurance Company Variable Life Separate Account, has duly
caused this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Bloomington and the State of Illinois, on this 9th day of
December, 1996.
State Farm Life Insurance Company
Variable Life Separate Account
(SEAL) (Registrant)
By: State Farm Life Insurance Company
(Depositor)
Attest: /s/ Laura P. Sullivan By: /s/ Edward B. Rust, Jr.
------------------------ ----------------------------------
Vice President-Counsel President
and Secretary, Secretary State Farm Insurance Company
of the Board
Pursuant to the requirements of the Securities Act of 1933, State Farm Life
Insurance Company has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to be
hereunto affixed and attested, all in the City of Bloomington and the State of
Illinois, on the 9th day of December, 1996.
State Farm Life Insurance Company
(SEAL)
Attest: /s/ Laura P. Sullivan By: /s/ Darrell W. Beernink
----------------------- ---------------------------------
Vice President-Counsel Vice President and Actuary
and Secretary, Secretary State Farm Insurance Company
of the Board
5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on the date(s) set forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Edward B. Rust, Jr. President and Director December 9, 1996
- -------------------------- (Principal Executive Officer)
Edward B. Rust, Jr.
/s/ Darrell W. Beernink Vice President and Actuary; December 9, 1996
- -------------------------- Director
Darrell W. Beernink (Principal Financial Officer)
/s/ Dale R. Egeberg Controller
- -------------------------- (Principal Accounting Officer) December 10, 1996
Dale R. Egeberg
/s/ Marvin D. Bower Director December 9, 1996
- --------------------------
Marvin D. Bower
/s/ Glenn A. Britt Director December 9, 1996
- --------------------------
Glenn A. Britt
/s/ Robert S. Eckley Director December 9, 1996
- --------------------------
Robert S. Eckley
/s/ Wendy L. Gramm Director December 9, 1996
- --------------------------
Wendy L. Gramm
/s/ Roger S. Joslin Director December 9, 1996
- --------------------------
Roger S. Joslin
/s/ Kurt G. Moser Director December 9, 1996
- --------------------------
Kurt G. Moser
/s/ George L. Perry Director December 9, 1996
- --------------------------
George L. Perry
/s/ Don D Rood Director December 9, 1996
- --------------------------
Don D Rood
/s/ Curtis W. Tarr Director December 9, 1996
- --------------------------
Curtis W. Tarr
/s/ Vincent J. Trosino Director December 9, 1996
- --------------------------
Vincent J. Trosino
/s/ Charles R. Wright Director December 9, 1996
- --------------------------
Charles R. Wright
</TABLE>
6
<PAGE>
Exhibit Index
1.A.(1) Resolution of the Board of Directors of State Farm Life Insurance
Company establishing State Farm Life Insurance Company Variable
Life Separate Account
1.A.(5)(a) Specimen Flexible Premium Variable Universal Life Insurance
Policy
1.A.(5)(b) Policy Riders and Endorsements
1.A.(6)(a) Articles of Incorporation of State Farm Life Insurance Company
1.A.(6)(b) By-laws of State Farm Life Insurance Company
7
<PAGE>
Exhibit 1.A.(1)
STATE FARM LIFE INSURANCE COMPANY
BOARD OF DIRECTORS RESOLUTIONS
FOR VARIABLE LIFE SEPARATE ACCOUNT
BE IT RESOLVED, That the Board of Directors of State Farm Life Insurance Company
(the "Company"), hereby establishes a separate account, pursuant to the
provisions of 215 ILCS 5/245.21 of the Illinois Insurance Laws, designated the
State Farm Life Insurance Company Variable Life Separate Account (hereinafter
the "Variable Account"), for the following use and purposes, and subject to such
conditions as hereinafter set forth; and
FURTHER RESOLVED, That the Variable Account is established for the purpose of
providing for the issuance by the Company of certain variable life insurance
policies (the "Policies"), and shall constitute a funding medium to support
reserves under such Policies issued by the Company; and
FURTHER RESOLVED, That the income, gains and losses, realized or unrealized,
from assets allocated to the Variable Account shall be credited to or charged
against the Variable Account, without regard to other income, gains or losses of
the Company; and
FURTHER RESOLVED, That the assets of the Variable Account equal to the reserves
and other liabilities under the Policies and any other policies issued through
the Variable Account may not be charged with liabilities arising out of any
other business the Company may conduct; and
FURTHER RESOLVED, That the Variable Account shall be divided into investment
subaccounts (the "Subaccounts"), each of which shall invest in the shares of a
mutual fund portfolio, and net premiums under the Policies shall be allocated in
accordance with instructions received from owners of the Policies; and
FURTHER RESOLVED, That the President, Executive Vice President, and Vice
President - Investments are jointly authorized to add or remove any Subaccount
of the Variable Account or add or remove any mutual fund as may hereafter be
deemed necessary or appropriate; and
FURTHER RESOLVED, That the income, gains and losses, realized or unrealized,
from assets allocated to each Subaccount of the Variable Account shall be
credited to or charged against such Subaccount of the Variable Account, without
regard to other income, gains or losses of any other Subaccount of the Variable
Account; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, be, and they hereby
<PAGE>
are, severally authorized to invest such amount or amounts of the Company's cash
in the Variable Account or in any Subaccount thereof or in any mutual fund as
may be deemed necessary or appropriate to facilitate the commencement of the
Variable Account's and/or the fund's operations and/or to meet any minimum
capital requirements under the Investment Company Act of 1940 (the "1940 Act");
and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, be, and they hereby are, severally authorized to transfer cash from
time to time from the Company's general account to the Variable Account, or from
the Variable Account to the general account, as deemed necessary or appropriate
and consistent with the terms of the Policies; and
FURTHER RESOLVED, That the Board of Directors of the Company reserves the right
to change the designation of the Variable Account hereafter to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, with such assistance from the Company's independent certified public
accountants, legal counsel and independent consultants or others as they may
require, be, and they hereby are, severally authorized and directed to take all
action necessary to: (a) register the Variable Account as a unit investment
trust under the 1940 Act; (b) register the Policies in such amounts, which may
be an indefinite amount, as such officers of the Company shall from time to time
deem appropriate under the Securities Act of 1933 (the "1933 Act"); and (c) take
all other actions that are necessary in connection with the offering of the
Policies for sale and the operation of the Variable Account in order to comply
with the 1940 Act, the Securities Exchange Act of 1934, the 1933 Act, and other
applicable Federal laws, including the filing of any registration statements,
any undertakings, no-action requests, consents, and any applications for
exemptions from the 1940 Act or other applicable federal laws and any amendments
to the foregoing as the officers of the Company shall deem necessary or
appropriate; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, are severally authorized and empowered to prepare, execute and cause
to be filed with the Securities and Exchange Commission on behalf of the
Variable Account, and by the Company as sponsor and depositor, a Notification of
Registration on Form N-8A, a registration statement registering the Account as
an investment company under the 1940 Act, and a registration statement
- 2 -
<PAGE>
registering the Policies under the 1933 Act, and any and all amendments to the
foregoing on behalf of the Variable Account and the Company and on behalf of and
as attorneys-in-fact for the principal executive officer and/or the principal
financial officer and/or the principal accounting officer and/or any other
officer of the Company; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President-
Counsel and Secretary, Vice President and Actuary, and Controller are duly
appointed as agents for service under any such registration statement and are
duly authorized to receive communications and notices from the Securities and
Exchange Commission with respect thereto; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, are severally authorized on behalf of the Variable Account and on
behalf of the Company to take any and all action that each of them may deem
necessary or advisable in order to offer and sell the Policies, including any
registrations, filings and qualifications both of the Company, its officers,
agents and employees, and of the Policies, under the insurance and securities
laws of any of the states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver and file
all such applications, requests, undertakings, reports, covenants, resolutions,
applications for exemptions, consents to service of process and other papers and
instruments as may be required under such laws, and to take any and all further
action which such officers or legal counsel of the Company may deem necessary or
desirable (including entering into whatever agreements and contracts may be
necessary) in order to maintain such registrations or qualifications for as long
as the officers or legal counsel deem it to be in the best interests of the
Variable Account and the Company; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, be, and they hereby are, severally authorized in the names and on
behalf of the Variable Account and the Company to execute and file irrevocable
written consents on the part of the Variable Account and of the Company to be
used in such states wherein such consents to service of process may be required
under the insurance or securities laws therein in connection with the
registration or qualification of the Policies and to appoint the appropriate
state official, or such other person as may be allowed by insurance or
securities laws, agent of the Variable Account and of the Company for the
purpose of receiving and accepting process; and
- 3 -
<PAGE>
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, be, and hereby are, severally authorized to establish procedures
under which the Company will provide voting rights for owners of the Policies
with respect to securities owned by the Variable Account; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, are hereby severally authorized to execute such agreement or
agreements as deemed necessary and appropriate (i) with State Farm VP Management
Corp. or other qualified entity under which State Farm VP Management Corp. or
such other entity will be appointed principal underwriter and distributor for
the Policies, (ii) with one or more qualified banks or other qualified entities
to provide administrative and/or custody services in connection with the
establishment and maintenance of the Variable Account and the design, issuance,
and administration of the Policies, and (iii) with the designated mutual funds
and/or the principal underwriter and distributor of those funds for the purchase
and redemption of fund shares; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice President
and Actuary, and Controller, and each of them, with full power to act without
the others, are hereby severally authorized to execute and deliver such
agreements and other documents and do such acts and things as each of them may
deem necessary or desirable to carry out the foregoing resolutions and the
intent and purposes thereof; and
FURTHER RESOLVED, That the Company hereby adopts and establishes the following
Standards of Suitability for its officers, employees, and agents with respect to
the suitability of the Policies for applicants:
1. No recommendation shall be made to an applicant to purchase a Policy,
and no Policy shall be issued, in the absence of reasonable grounds to
believe that the purchase of the Policy is suitable for the applicant
on the basis of information furnished after reasonable inquiry of the
applicant concerning the applicant's insurance and investment
objectives, financial situation and needs, and any other information
known to the Company or to the agent making the recommendation;
2. A good faith, reasonable inquiry shall be made as to the facts and
circumstances concerning a prospective contractowner's insurance and
financial needs and no recommendation shall be
- 4 -
<PAGE>
made that the prospective contractowner purchase a Policy when such a
purchase is not reasonably consistent with the information that is
known or reasonably should be known to the Company or its agents. In
making such recommendation, factors which may be considered are: age,
earnings, marital status, number and age of dependents, the value of
savings or other assets, and current life insurance program.
Additionally, the Company's agents, as registered representatives, will be
subject to supervision by a registered broker-dealer with respect to suitability
and other sales practices under the rules of the National Association of
Securities Dealers, Inc.; and
FURTHER RESOLVED, that the Company hereby adopts and establishes the following
Standards of Conduct for itself and its officers, directors, and employees
(each, an "Employee") with respect to the purchase or sale of investments of the
Variable Account:
No Employee shall:
1. Employ any device, scheme or artifice to defraud the Variable Account
or the owners of the Policies;
2. Make any untrue statement of a material fact with respect to the
investments of the Variable Account or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading;
3. Engage in any act, practice or course of business that operates or
would operate as a fraud or deceit upon the Variable Account or the
owners of the Policies;
4. Engage in any manipulative practice with respect to the Variable
Account or the owners of the Policies;
5. Sell to, or purchase from, the Variable Account any securities or other
property, except as permitted under applicable laws, rules,
regulations, order, or other interpretation of any government, agency,
or self-regulatory organization;
6. Purchase or allow to be purchased for the Variable Account any
securities of which the Company or an
- 5 -
<PAGE>
affiliated company is the issuer, except as permitted under applicable
laws, rules, regulations, order, or other interpretation of any
government, agency, or self-regulatory organization;
7. Accept any compensation other than a regular salary or wages from the
Company or an affiliated company for the sale or purchase of investment
securities to or from the Variable Account except as permitted under
applicable laws, rules, regulations, orders, or other interpretations
of any government, agency or self-regulatory organization;
8. Engage in any joint transaction, participation or common undertaking
whereby the Company or an affiliated company participates with the
Variable Account in any transaction in which the Company or an
affiliated company obtains an advantage in the price or quality of the
item purchased, the service received or in the cost of such service,
and the Variable Account or the owners of the Policies are
disadvantaged in any of these respects by the same transaction; or
9. Borrow money or securities from the Variable Account other than under a
policy loan provision.
FURTHER RESOLVED, that the Company shall require any third party providing
administrative services to the Variable Account to adopt Standards of Conduct
encompassing the standards set forth above.
- 6 -
<PAGE>
Exhibit 1.A.(5)(a)
- --------------------------------------------------------------------------------
STATE FARM LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
HOME OFFICE: ONE STATE FARM PLAZA, BLOOMINGTON, ILLINOIS 61710-0001
INSURED JOHN J DOE
Male
AGE 35
[LOGO OF STATE FARM
INSURANCE APPEARS HERE] POLICY NUMBER LF-0000-0000
POLICY DATE October 15, 1997
INITIAL BASIC AMOUNT $50,000
This policy is based on the application and the payment of premiums, as
specified in the policy, while the Insured lives. State Farm Life Insurance
Company will pay the proceeds to the beneficiary when due proof of the Insured's
death is received.
Free Look Period.This policy may be returned within 10 days of its receipt for a
refund of all premiums paid. Return may be made to State Farm Life Insurance
Company or one of its authorized agents. If returned, this policy will be void
from the Policy Date.
Read this policy with care. This is a legal contract between the Owner and
State Farm Life Insurance Company.
THE AMOUNT OF THE PROCEEDS OR THE LENGTH OF TIME THIS POLICY REMAINS IN FORCE,
OR BOTH, MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT PERFORMANCE OF THE
SUBACCOUNTS. A DEATH BENEFIT GUARANTEE IS PROVIDED UNTIL THE DEATH BENEFIT
GUARANTEE PERIOD EXPIRATION DATE IF MINIMUM MONTHLY PREMIUMS ARE PAID AS DEFINED
IN THE POLICY.
THE POLICY ACCOUNT VALUE MAY INCREASE OR DECREASE DAILY DEPENDING ON THE
INVESTMENT PERFORMANCE OF THE SUBACCOUNTS. THE PART OF THE POLICY ACCOUNT VALUE
IN THE SUBACCOUNTS IS NOT GUARANTEED.
/s/ Laura P. Sullivan /s/ Edward B. Rust, Jr.
Secretary President
- --------------------------------------------------------------------------------
BASIC PLAN DESCRIPTION
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE. A death benefit is payable
when the Insured dies. Flexible premiums are payable while the Insured is alive.
The basic plan is eligible for annual dividends.
- --------------------------------------------------------------------------------
PAGE 1
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Policy Identification................................................................ 3
Schedule of Benefits................................................................. 3
Schedule of Premiums................................................................. 3
Investment Options................................................................... 3
Allocation of Net Premium Payments................................................... 3
Charges and Fees..................................................................... 3
Guaranteed Interest Rates............................................................ 3
Cost of Insurance Rates and Monthly Charges.......................................... 4
Definitions.......................................................................... 5
Ownership............................................................................ 7
Owner. Change of Owner/Successor Owner.
Successor Owner.
Death Benefit and Death Benefit Options.............................................. 7
Death Benefit. Change in Basic Amount.
Death Benefit Guarantee. Change of Death Benefit Option.
Death Benefit Options.
Payment of Benefits.................................................................. 9
Beneficiary Designation. Minimum Payment.
Change of Beneficiary Designation. Basis of Computation for Payments.
Order of Payment on the Insured's Death. Additional Amounts Payable.
Methods of Payment.
Premiums............................................................................. 11
Payment of Premiums. Grace Period.
Premium Charge. Reinstatement.
Rejection of Premium Payments for Tax
Purposes.
Variable Account..................................................................... 12
Variable Account. Units.
Subaccounts. Unit Value.
Changes to the Variable Account. Net Investment Factor.
Variable Policy Account Value.
Fixed Account........................................................................ 14
Fixed Policy Account Value. Interest Credited.
Fees and Charges..................................................................... 15
Monthly Deduction. Surrender Charge.
Cost of Insurance. Withdrawal Processing Fee.
Monthly Cost of Insurance Rates. Transfer Processing Fee.
Monthly Expense Charge.
Allocation and Transfers............................................................. 16
Allocation of Net Premium Payments. Fixed Account Transfer Restrictions.
Transfer Right. Exchange of Policy.
Surrender and Withdrawal............................................................. 17
Surrenders. Withdrawals.
Policy Loan.......................................................................... 17
Loan. Interest Credit for the Loan Account.
Interest Charge for the Loan Account. Loan Repayment.
Loan Collateral.
General.............................................................................. 18
The Contract. Changes in Rates and Charges.
Transaction Delay. Assignment.
Minimum Values. Error in Age or Sex.
Annual Report. Incontestability.
Annual Dividends. Limited Death Benefit.
</TABLE>
The Application and any Riders and Endorsements follow page 20.
PAGE 2
<PAGE>
P O L I C Y I D E N T I F I C A T I O N
Insured JOHN J DOE Age 35
(Male)
Policy Number LF-0000-0000 Initial Basic Amount $50,000
Policy Date October 15, 1997
Issue Date October 15, 1997
Additional Insured Jane A Doe Age 35
(Female)
S C H E D U L E O F B E N E F I T S
Variable Universal Life Basic Plan:
Death Benefit Option 1 (Basic Amount includes the Policy Account Value)
Basic Amount (Standard rate class-male nontobacco): $50,000
Basic Amount Minimum: $50,000
Minimum Withdrawal: $500
Death Benefit Guarantee Period Expiration Date: October 15, 2007
Minimum Monthly Premium for Death Benefit Guarantee Period:
Beginning: Monthly Premium
October 15, 1997 $32.00
S C H E D U L E O F P R E M I U M S
Initial premium: $32.00
Planned premium: $32.00 Monthly
Total Premiums
Beginning: For Policy Year
October 15, 1997 $ 384.00
A L L O C A T I O N O P T I O N S
Fixed Account
State Farm Life Insurance Company Variable Life Separate Account
Subaccounts that invest in Funds of the State Farm Variable Product Trust:
Large Cap Equity Index Subaccount
Small Cap Equity Index Subaccount
Stock and Bond Balanced Subaccount
Bond Subaccount
Money Market Subaccount
International Equity Index Subaccount
Continued on Next Page
Page 3
<PAGE>
Continued from Page 3
A L L O C A T I O N O F N E T P R E M I U M P A Y M E N T S
To the end of the day on November 3, 1997 (presumed end of free-look period):
Fixed Account 100%
Starting at the end of the day on November 3, 1997 (presumed end of free-look
period):
Large Cap Equity Index Subaccount 15%
Small Cap Equity Index Subaccount 15%
Stock and Bond Balanced Subaccount 15%
Bond Subaccount 15%
Money Market Subaccount 15%
International Equity Index Subaccount 15%
Fixed Account 10%
Minimum percent of Net Premium Payment allocated to a Subaccount or to the
Fixed Account: 1%.
Minimum Transfer Amount: $250
I N T E R E S T R A T E S
Guaranteed Interest Rate credited to the Fixed Account: 4%
Guaranteed Interest Rate credited to the Loan Account: 6%
C H A R G E S A N D F E E S
Deduction Date: 15th of each month
Maximum Premium Charge Percentage: 5%
Maximum Monthly Expense Charge: $8
Maximum Transfer Processing Fee per transfer after first 12 transfers in a
policy year: $25
Withdrawal Processing Fee: Lesser of $25 or 2% of the amount withdrawn
Continued on Next Page
Page 3
<PAGE>
Continued from Page 3
S C H E D U L E O F S U R R E N D E R C H A R G E S
<TABLE>
<CAPTION>
Beginning Beginning
Policy Policy Surrender Policy Policy Surrender
Year Month Charge Year Month Charge
<S> <C> <C> <C> <C> <C>
1 1 $ 10.75 2 6 $193.50
1 2 21.50 2 7 204.25
1 3 32.25 2 8 215.00
1 4 43.00 2 9 225.75
1 5 53.75 2 10 236.50
1 6 64.50 2 11 247.25
1 7 75.25 2 12 258.00
1 8 86.00 3 1 258.00
1 9 96.75 4 1 258.00
1 10 107.50 5 1 258.00
1 11 118.25 6 1 258.00
1 12 129.00 7 1 206.40
2 1 139.70 8 1 154.80
2 2 150.50 9 1 103.20
2 3 161.25 10 1 51.60
2 4 172.00 11 1 0.00
2 5 182.75
</TABLE>
Additional surrender charges will apply for each increase in Basic Amount for 10
years starting on the effective date of the increase.
Page 3 Continued
<PAGE>
C O S T O F I N S U R A N C E R A T E S A N D M O N T H L Y C H A R G E S
Maximum Monthly Cost of Insurance Rates
Per $1000
(Standard rate class - male non-tabacco)
<TABLE>
<CAPTION>
Age Rate Age Rate Age Rate Age Rate
<S> <C> <C> <C> <C> <C> <C> <C>
35 .1443 52 .5134 69 2.7986 86 15.5651
36 .1518 53 .5654 70 3.0982 87 17.0023
37 .1618 54 .6234 71 3.4416 88 18.4864
38 .1727 55 .6881 72 3.8400 89 20.0413
39 .1844 56 .7587 73 4.2933 90 21.6937
40 .1986 57 .8337 74 4.7945 91 23.4886
41 .2136 57 .9171 75 5.3337 92 25.5043
42 .2295 58 1.0108 76 5.9074 93 27.9619
43 .2471 60 1.1155 77 6.5116 94 31.3839
44 .2663 61 1.2323 78 7.1507 95 36.7983
45 .2880 62 1.3671 79 7.8459 96 46.5890
46 .3115 63 1.5199 80 8.6209 97 67.0439
47 .3366 64 1.6901 81 9.4989 98 75.1886
48 .3642 65 1.8769 82 10.5014 99 83.3333
49 .3942 66 2.0795 83 11.6282 & over
50 .4287 67 2.2973 84 12.8621
51 .4681 68 2.5346 85 14.1789
</TABLE>
The maximum cost of insurance rates are based on the Insured's age last birthday
at the start of the policy year, sex, and tobacco use as shown above. The
Commissioners 1980 Standard Ordinary Non-Smoker Mortality Table applies.
Modifications are made for rate classes other than standard.
PAGE 4
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
We, us, and our refer to State Farm Life Insurance Company.
You and your refer to the Owner.
Application. Includes any life insurance application, any application for change
in the policy, medical history, questionnaire, and other documents from you or
any other person proposed for insurance which are made a part of this policy.
Basic Amount. Shown on page 3. The Initial Basic Amount plus any increases less
any decreases.
Basic Amount Minimum. Shown on page 3.
Benefit Period Ends. For any rider, the policy anniversary in the year shown
under this heading on page 3 is the date the rider terminates.
Cash Value. The Policy Account Value less any applicable Surrender Charge.
Cash Surrender Value. Cash Value less any Loan Amount.
Code. The U.S. Internal Revenue Code, as amended.
Deduction Date. The Policy Date and each monthly anniversary of the Policy Date.
Death Benefit Guarantee. Basic Amount shown on page 3.
Death Benefit Guarantee Period. Starts on the Policy Date and ends on the
expiration date shown on page 3.
Dollars. Any money we pay, or which is paid to us, must be in United States
dollars.
Effective Date. Coverage starts on this date.
Fixed Account. Part of our General Account to which the Policy Account Value may
be transferred or Net Premium Payments may be allocated under a policy.
Fixed Policy Account Value. The Policy Account Value in the Fixed Account.
Fund. Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series, thereof, in which a Subaccount
invests.
General Account. Our assets not allocated to the Variable Account or any other
separate account.
Initial Basic Amount. Shown on page 3. The amount of coverage on the Insured
provided by the Basic Plan on the Policy Date.
Initial Premium Payment. The amount shown on page 3 that you must pay before
this policy becomes effective.
Insurance Amount. The amount of coverage on the effective date of each rider
shown on page 3.
Issue Date. The date the policy is issued.
Loan Account. A part of our General Account to which Variable Policy Account
Value or Fixed Policy Account Value is transferred to provide collateral for any
loan taken under this policy.
Loan Amount. On a policy anniversary, the Loan Policy Account Value. On any
other date, the Loan Policy Account Value plus any interest charge accrued to
that date.
Loan Policy Account Value. The Policy Account Value in the Loan Account.
Minimum Monthly Premium. This amount is shown on page 3.
Minimum Premium. On each Deduction Date, the sum of the Minimum Monthly Premium
for each Deduction Date from the Policy Date through such Deduction Date.
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (CONTINUED)
- --------------------------------------------------------------------------------
Monthly Charge Deductible. A monthly charge for any rider is deducted as part of
the monthly deduction until the policy anniversary in the year shown on page 3.
Net Asset Value Per Share. The value per share of any Fund during any Valuation
Period. The method of computing the Net Asset Value Per Share is described in
the prospectus for the Funds.
Net Premium Payment. Your premium payment less any premium charge.
Officer. The president, a vice president, the secretary, or an assistant
secretary of State Farm Life Insurance Company.
Payee. On the Insured's death, the beneficiaries shown in the application,
unless changed. If you cash surrender this policy, the persons that you have
named. A payee can be other than a natural person only if we agree.
Planned Premium. The premium amount that you have chosen. This amount is shown
on page 3 for the payment period that you have chosen.
Policy Account Value. The sum of the Variable Policy Account Value, the Fixed
Policy Account Value, and the Loan Policy Account Value.
Policy Date. The effective date of this policy.
Policy Month, Year, or Anniversary. A policy month, year, or anniversary is
measured from the Policy Date.
Proceeds. The amounts payable on the death of the Insured.
Rate Class. The underwriting class of the person insured. A rate class will be
determined for the Initial Basic Amount and each increase in the Basic Amount.
Request. A written request signed by the person making the request. Such
request must be sent to and be in a form acceptable to us. We may, in our sole
discretion, accept telephone requests in connection with certain transactions.
We may also, in our sole discretion, adopt rules and procedures from time to
time for telephone requests.
Rider. Any benefit, other than the Basic Plan, made a part of this policy.
SEC. The U.S. Securities and Exchange Commission.
Subaccount. A subdivision of the Variable Account, the assets of which are
invested in a corresponding Fund.
Subaccount Policy Value. The Variable Policy Account Value in a Subaccount as
defined in the Unit Value provision.
Unit. A unit of measure used to calculate the Variable Policy Account Value in a
Subaccount.
Valuation Day. For each Subaccount, each day on which the New York Stock
Exchange is open for business except for certain holidays listed in the
Prospectus for the policy and days that a Subaccount's corresponding Fund does
not value its shares.
Valuation Period. The period that starts at the close of regular trading on the
New York Stock Exchange on any Valuation Day and ends at the close of regular
trading on the next succeeding Valuation Day.
Variable Account. Our separate account named on page 3.
Variable Policy Account Value. The sum of all Subaccount Policy Values.
PAGE 6
<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
Owner. You, as the Owner, are named in the application, unless changed. You may
exercise any policy provision only by request and while the Insured is alive.
Successor Owner. Your Successor Owner is named in the application if you are not
the Insured. The Successor Owner will become the Owner of this policy if you
die while this policy is in force.
Change of Owner/Successor Owner. You may change the Owner or Successor Owner by
sending us a request while the Insured is alive and the policy is in force. We
have the right to request this policy to make the change on it. The change will
take effect the date you sign the request, but the change will not affect any
action we have taken before we receive the request. A change of owner or
successor owner does not change the beneficiary designation.
- --------------------------------------------------------------------------------
DEATH BENEFIT AND DEATH BENEFIT OPTIONS PROVISIONS
- --------------------------------------------------------------------------------
Death Benefit. The amount of death benefit is an amount of insurance based on
the death benefit option plus any insurance amounts payable under any riders on
the Insured less any Loan Amount less, if the Insured dies during the grace
period, the monthly deductions from the start of the grace period.
Death Benefit Guarantee. On any Deduction Date before the end of the Death
Benefit Guarantee Period and prior to the Insured's death, the Death Benefit
Guarantee is in effect if the Minimum Premium, as of that Deduction Date, is
less than or equal to the total of all premiums paid on the policy less any
withdrawals and less the Loan Amount.
Death Benefit Options. There are two death benefit options. If you do not
choose an option, we will use option 2. The Policy Account Value on the
Insured's date of death is used in determining the amount of insurance.
Option 1. The amount of insurance will be the greater of:
(1) the Basic Amount plus any Net Premium Payment received since the last
Deduction Date or
(2) a percentage of the Policy Account Value.
Such percentage is based on the Insured's age at the start of the current policy
year, as indicated in the table shown below.
Option 2. The amount of insurance will be the greater of:
(1) the Basic Amount plus the Policy Account Value or
(2) a percentage of the Policy Account Value.
Such percentage is based on the Insured's age at the start of the current policy
year, as indicated in the table shown below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage of Policy Account Value Table
- --------------------------------------------------------------------------------
Age Percentage Age Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
0-40 250% 61 128%
41 243% 62 126%
42 236% 63 124%
43 229% 64 122%
44 222% 65 120%
45 215% 66 119%
46 209% 67 118%
47 203% 68 117%
48 197% 69 116%
49 191% 70 115%
50 185% 71 113%
51 178% 72 111%
52 171% 73 109%
53 164% 74 107%
54 157% 75-90 105%
55 150% 91 104%
56 146% 92 103%
57 142% 93 102%
58 138% 94 101%
59 134% 95 & up 100%
60 130%
- --------------------------------------------------------------------------------
</TABLE>
The percentages in the table are those in effect on the Policy Date. We reserve
the right to change the percentages if the table becomes inconsistent with any
federal income tax law or regulation.
PAGE 7
<PAGE>
- --------------------------------------------------------------------------------
DEATH BENEFIT AND DEATH BENEFIT OPTIONS PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
Change in Basic Amount. You may request a change in the Basic Amount once each
policy year. The minimum amount of change is $25,000 for an increase and
$10,000 for a decrease. For any change in Basic Amount, we will send you
revised policy pages 3 and 4 to be placed with this policy.
If you request an increase, an application must be completed, evidence of
insurability satisfactory to us must be furnished, and there must be enough Cash
Surrender Value to make a monthly deduction which includes the cost of insurance
for the increase. No increases will be allowed after the policy anniversary
when the Insured is age 80. Each increase will be subject to additional
surrender charges. A revised page 3 and page 4 will show the amount of the
increase, its effective date, maximum monthly cost of insurance rates for the
increase, if the rate class is different, additional surrender charges, and any
changes in premiums.
If you request a decrease, the Basic Amount remaining after the decrease cannot
be less than the Basic Amount Minimum shown on page 3. We reserve the right to
not accept a request for a decrease in the Basic Amount if such decrease could
result in this policy being disqualified as a life insurance contract under any
section of, regulation or ruling under, the Code, as amended from time to time.
Any decrease will first be used to reduce the most recent increase. Then, the
next most recent increases will be reduced. Finally, the Initial Basic Amount
will be reduced. The decrease will take effect on the date we receive the
request. The revised page 3 will show the amount of decrease and its effective
date and any changes in premiums.
Change of Death Benefit Option. You may request a change of death benefit option
once each policy year. The change will take effect on the date we receive the
request. For a change in death benefit option, we will send you a revised page
3 to be placed with this policy. The revised page will show the new death
benefit option and the effective date of the change.
If the change is to option 1, the Basic Amount will be increased by the Policy
Account Value on the effective date of the change. We reserve the right to not
accept a request for a change to option 1 if such change could result in this
policy being disqualified as a life insurance contract under any section of,
regulation or ruling under, the Code, as amended from time to time.
If the change is to option 2, the Basic Amount will be decreased by the Policy
Account Value on the effective date of the change.
PAGE 8
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT OF BENEFITS PROVISIONS
- --------------------------------------------------------------------------------
Beneficiary Designation. This is as shown in the application, unless you have
made a change. It includes the name of the beneficiary and the order and method
of payment. If you name "estate" as a beneficiary, it means the executors or
administrators of the last survivor of you and all beneficiaries. If you name
"children" of a person as a beneficiary, only children born to or legally
adopted by that person as of the Insured's date of death will be included.
We may rely on an affidavit as to the ages, names, and other facts about all
beneficiaries. We will incur no liability if we act on such affidavit.
Change of Beneficiary Designation. You may make a change while the Insured is
alive by sending us a request. The change will take effect the date the request
is signed or on any later date specified in the request, but the change will not
affect any action we have taken before we receive the request. We have the
right to request your policy to make the change on it.
Order of Payment on the Insured's Death. When the Insured dies, we will make
payment in equal shares to the primary beneficiaries living when payment is
made. If a primary dies after the first payment is made, we will pay that
primary's unpaid share in equal shares to the other primaries living when
payment is made. If the last primary dies, we will make payment in equal shares
to the successor beneficiaries living when payment is made. If a successor dies
while receiving payments, we will pay that successor's unpaid share in equal
shares to the other successors living when payment is made. If, at any time, no
primary or successor is alive, we will make a one sum payment in equal shares to
the final beneficiaries. If, at any time, no beneficiary is living, we will make
a one sum payment to you, if living when payment is made. Otherwise, we will
make a one sum payment to the estate of the last survivor of you and all
beneficiaries. "When payment is made" means (1) the date that a periodic payment
is due or (2) the date that a request is signed for a cash withdrawal or a one
sum payment. You may change this order of payment by sending us a request while
the Insured is alive.
Methods of Payment. We will pay the proceeds under the One Sum Method unless you
choose another method. If the payee is other than a natural person, we will
make payment under the One Sum method.
All payment intervals are measured from the date the policy is surrendered or
from the date the Insured dies. No part of any payment can be assigned before
the payment is made.
After the Insured's death, anyone who has the right to make a withdrawal may
change the method of payment and may name a successor to their interest. The
successor payee may be their estate.
Method 1 (Interest Method). We will pay interest at the end of each monthly
interval. The interest rate will be at least 3 1/2% a year. If chosen, we will
pay interest at the end of 3, 6, or 12 month intervals. Withdrawals may be made
at any time, but any withdrawal must be at least $500. We will pay interest to
the date of withdrawal on the amount withdrawn.
Method 2 (Fixed Years Method). We will make equal payments at the end of each
monthly interval for a fixed number of years. These payments include interest.
The guaranteed interest rate is 3 1/2% a year. The present value of any unpaid
payments may be withdrawn at any time.
- --------------------------------------------------------------------------------
FIXED YEARS TABLE
- --------------------------------------------------------------------------------
Monthly payments that $1000 will provide for the number of years chosen.
Payments for years not shown will be given, if requested.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Years Payments Years Payments
1 $84.90 8 $11.93
2 43.18 9 10.78
3 29.28 10 9.86
4 22.33 15 7.12
5 18.17 20 5.77
6 15.39 25 4.98
7 13.41 30 4.46
- --------------------------------------------------------------------------------
</TABLE>
PAGE 9
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT OF BENEFITS PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
Method 3 (Life Income Method). We will make equal payments at the end of each
monthly interval as long as the payee is alive. We base the amount of each
payment on the payee's age and sex at the start of the first monthly interval.
We may require proof of the payee's age and sex. The payee may not withdraw the
present value of the payments. If the payee dies during a certain period, we
will continue the payments to the successor payee to the end of the certain
period; or the successor payee may have the present value of any remaining
payments paid in one sum.
- --------------------------------------------------------------------------------
LIFE INCOME TABLE
- --------------------------------------------------------------------------------
Monthly payments for life that $1000 will provide. Payments for ages not shown
will be given, if requested.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Life with
Age Last Life 10 Years Certain
Birthday Male Female Male Female
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
50 $4.34 $4.02 $4.30 $4.01
55 4.70 4.31 4.64 4.28
60 5.17 4.69 5.07 4.64
65 5.82 5.20 5.63 5.11
70 6.73 5.90 6.34 5.73
75 8.01 6.92 7.17 6.52
- --------------------------------------------------------------------------------
</TABLE>
Method 4(Fixed Amount Method). We will make equal payments at the end of 1, 3,
6, or 12 month intervals. We will continue payments until the amount put under
this method together with compound interest has been paid. The interest rate
will be at least 3 1/2% a year. The payment interval chosen must provide a total
annual payment of at least $100 for each $1000 put under this method. The unpaid
balance may be withdrawn at any time.
Method 5 (Joint Life Income Method). We will make equal payments at the end of
each monthly interval as long as at least one of the two payees is alive. We
will base each payment on the age and sex of both payees at the start of the
first monthly interval. We may require proof of the age and sex of each payee.
The payees may not withdraw the present value of any payments.
- --------------------------------------------------------------------------------
JOINT LIFE INCOME TABLE
- --------------------------------------------------------------------------------
Monthly payments that $1000 will provide as long as at least one of the two
payees is alive. Payments for age combinations not shown will be given, if
requested.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Age Last Female
Birthday 60 65 70 75
Male
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
60 $4.27 $4.47 $4.66 $4.82
65 4.39 4.66 4.93 5.19
70 4.49 4.82 5.20 5.58
75 4.56 4.95 5.42 5.95
- --------------------------------------------------------------------------------
</TABLE>
Method 6 (One Sum Method). We will pay the Cash Surrender Value or the proceeds
in one sum. Interest at the rate of at least 3 1/2% a year will be paid from the
date of the Insured's death to the date of payment.
Method 7 (Other Method). Payment by any other method may be made if we agree.
Minimum Payment. If any payment, except the last, under a method of payment
would be less than $100 per payee, we will pay the present value of any unpaid
payments in one sum.
Basis of Computation for Payments. The monthly payments shown for methods 3 and
5 are guaranteed payments based on an interest rate of 3 1/2% a year and the
1983a Individual Annuity Mortality Table with ages set back 4 years.
Any present values will be based on the interest rate used in determining the
payments for the method.
Additional Amounts Payable. Each year we may apportion and pay dividends or
additional interest under any method of payment.
PAGE 10
<PAGE>
Payment of Premiums. You may pay premiums at our Home Office, a regional office,
or to one of our authorized agents. We will give you a receipt signed by one of
our officers, if you request one. The initial premium is shown on page 3 and is
due on the Policy Date. All other premiums may be paid at any time and must be
at least $25.
Premium Charge. The premium charge percentage times the amount of the premium
received is the premium charge. The actual premium charge percentage will be
determined as described in the Change in Rates and Charges provision. Such
percentage cannot exceed the maximum premium charge percentage shown on page 3.
Rejection of Premium Payments for Tax Purposes. We reserve the right to reject
any premium paid if such premium amount would result in this policy being
disqualified as a life insurance contract under any section of, regulation or
ruling under, the Code, as amended from time to time. We will promptly return
any rejected premium. No premium charge will be deducted from any rejected
premium.
Grace Period. If, on any Deduction Date, the Death Benefit Guarantee is not in
effect and the Cash Surrender Value is not enough to cover the monthly
deduction, the policy will stay in force until the end of the grace period. The
grace period starts on that Deduction Date and ends 61 days after we mail a
notice to you and to any assignee of record. The notice will state:
(1) the policy will remain in force until the end of the grace period,
(2) the date the grace period ends, and
(3) the policy will terminate unless the required premium is paid prior to
the date.
If the grace period ends prior to the Death Benefit Guarantee Period Expiration
Date, the required premium must be large enough to provide the lessor of:
(1) the Minimum Premium required at the end of the grace period or
(2) an amount large enough to provide an increase in the Cash Surrender
Value to cover the monthly deductions for the grace period and any
increase in the surrender charges.
If the grace period ends after the Death Benefit Guarantee Period Expiration
Date, the required premium must be large enough to provide an increase in the
Cash Surrender Value to cover the monthly deductions for the grace period and
any increase in the surrender charges.
If the required premium is not paid before the end of the grace period, this
policy will lapse and terminate without value.
Reinstatement. If the policy is terminated at the end of the grace period, you
may apply to reinstate it within 5 years after lapse. You must give us proof of
the Insured's insurability that is satisfactory to us. You must pay a premium
as specified below:
(1) If reinstatement is requested prior to the Death Benefit Guarantee
Period Expiration Date, that premium must be large enough to provide the
lessor of:
(a) the Minimum Premium required on the deduction date on or next
following the date reinstatement takes effect or
(b) an increase in the Policy Account Value over the amount we
reinstate so that the Cash Surrender Value will cover the monthly
deductions for the grace period and for the 2 months following the
date the reinstatement takes effect.
(2) If reinstatement is requested after the Death Benefit Guarantee Period
Expiration Date, that premium must be large enough to provide an
increase in the Policy Account Value over the amount we reinstate so
that the Cash Surrender Value will cover the monthly deductions for the
grace period and the 2 months following the date the reinstatement takes
effect.
Reinstatement will take effect on the date we approve the application for
reinstatement. The amount of any Loan Amount on the date of lapse will be
reinstated when reinstatement takes effect. No interest from the date of lapse
to date of reinstatement is included in that amount. We will reinstate the
amount of the Policy Account Value equal to the Policy Account Value on the date
of lapse less any decrease in the amount of any surrender charge between the
date of lapse and the date of reinstatement.
FORM 97035 PAGE 11 961115
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT PROVISIONS
- --------------------------------------------------------------------------------
Variable Account. The Variable Account is registered with the SEC as a unit
investment trust under the Investment Company Act of 1940, as amended (the
"Act"). The Variable Account is also subject to the laws of the state of
Illinois, our state of domicile.
We own the assets of the Variable Account; however, these assets are held
separately from our other assets and are not part of our General Account. The
assets of the Variable Account are used to support the operation of and provide
the variable values and benefits for this policy and similar policies. The part
of the assets of the Variable Account equal to the reserves and other policy
liabilities of the Variable Account are not chargeable with liabilities from any
other business in which we take part. We have the right to transfer to our
General Account any assets of the Variable Account that are in excess of such
reserves and other liabilities.
Subaccounts. The Variable Account consists of Subaccounts. The income, gains
and losses, realized and unrealized, from the assets allocated to a Subaccount
are credited to or charged against such Subaccount, without regard to our other
income, gains or losses.
Those Subaccounts currently available under this policy are shown on page 3.
Each Subaccount invests exclusively in shares of a corresponding Fund. Shares
of a Fund are bought and redeemed for a Subaccount at their net asset value.
Any amounts of income, dividends, and gains distributed from the shares of a
Fund are reinvested in additional shares of that Fund at net asset value.
The dollar amounts of values and benefits of this policy provided by the
Variable Account depend on the investment performance of the Subaccounts
selected by you. We do not guarantee the investment performance of the
Subaccounts. You bear the full investment risk for the Subaccount Policy Value
in the Subaccounts you have chosen.
Changes to the Variable Account. Where permitted by applicable law, we may:
(1) create new separate accounts;
(2) combine separate accounts, including the Variable Account;
(3) add new Subaccounts to or remove existing Subaccounts from the Variable
Account or combine Subaccounts;
(4) make any Subaccount available to such classes of policies as we may
determine;
(5) add new Funds or remove existing Funds;
(6) substitute new Funds for any existing Fund if shares of the Fund are no
longer available for investment or if we determine investment in a Fund
is no longer appropriate in light of the purposes of the Variable
Account;
(7) deregister the Variable Account under the Act if such registration is no
longer required; and
(8) operate the Variable Account as a management investment company under
the Act or in any other form permitted by law.
The investment policy of the Variable Account will only be changed with the
approval of the insurance supervisory official of the state of Illinois, our
state of domicile. The investment policy of the Variable Account is to invest in
one or more investment companies. The process for such approval is on file.
Variable Policy Account Value. The Variable Policy Account Value reflects:
(1) the investment experience of the Subaccounts to which it is allocated;
(2) any Net Premium Payments allocated to the Subaccounts;
(3) transfers of Policy Account Value in or out of the Subaccounts;
(4) any dividends transferred to the Subaccounts;
(5) any deduction of the monthly deduction, withdrawal processing fee, or
transfer processing fee; or
(6) any withdrawals of the Variable Policy Account Value.
Transfers of Policy Account Value include any loan repayments allocated to the
Subaccounts. There is no guaranteed minimum Variable Policy Account Value.
FORM 97035 PAGE 12 961115
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
Units. For each Subaccount, Net Premium Payments allocated to a Subaccount or
amounts of Policy Account Value or dividend transferred to a Subaccount are
converted into Units. The number of Units credited to a policy equals the
dollar amount directed to each Subaccount divided by the value of the Unit for
that Subaccount for the Valuation Period as of which the dollar amount is
invested in the Subaccount. Any dollar amount directed to a Subaccount
increases the number of Units of that Subaccount credited to the policy.
Certain events will cancel an appropriate number of Units of a Subaccount
credited to a policy:
(1) withdrawals or transfers of Subaccount Policy Value from a Subaccount,
including any applicable withdrawal processing fee or transfer
processing fee deducted;
(2) surrender of the policy;
(3) payment of the proceeds; and
(4) deduction of the monthly deduction.
Units are cancelled as of the end of the Valuation Period in which the event
occurs.
Unit Value. The Unit values for each Subaccount were arbitrarily set initially
at $10 when that Subaccount began operation. Thereafter, the Unit value for
every Valuation Period is the Unit value for the previous Valuation Period times
the Net Investment Factor. The Subaccount Policy Value on any day equals the
number of Units attributable to the policy times the Unit Value for that
Subaccount on that day.
Net Investment Factor. The Net Investment Factor is an index applied to measure
the investment performance of a Subaccount from one Valuation Period to the
next. The Net Investment Factor for any Subaccount for any Valuation Period is
equal to (1) divided by (2) and subtracting (3) from the result, where:
(1) is the result of:
(a) the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the current Valuation Period; plus
(b) the per share amount of any dividend or capital gain distribution
made by the Fund held in the Subaccount, if the "ex-dividend" date
occurs during the Valuation Period; plus or minus
(c) a per share charge or credit for any taxes reserved for, which is
determined by us to have resulted from the operations of the
Subaccount.
(2) is the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the prior Valuation Period.
(3) is a daily factor representing the mortality and expense risk charge
deducted from the Subaccount adjusted for the number of days in the
Valuation Period. The actual charge will be determined as described in
the Changes in Rates and Charges provision. Such charge will not exceed
an annual rate of .90% of the daily net asset value of the Variable
Account.
FORM 97035 PAGE 13 961115
<PAGE>
- --------------------------------------------------------------------------------
FIXED ACCOUNT PROVISIONS
- --------------------------------------------------------------------------------
Fixed Policy Account Value. The Fixed Policy Account Value on any Deduction Date
is the Fixed Policy Account Value on the prior Deduction Date (zero if prior to
the Policy Date):
(1) plus any Net Premium Payments allocated to the Fixed Account since the
prior Deduction Date; plus
(2) any Policy Account Value transferred to the Fixed Account since the
prior Deduction Date; plus
(3) any loan repayment transferred to the Fixed Account since the prior
Deduction Date; plus
(4) interest accrued to the Fixed Account since the prior Deduction Date;
plus
(5) any dividend paid and allocated to the Fixed Account on the current
Deduction Date, if the current Deduction Date is a policy anniversary;
less
(6) any withdrawals, transfers, any applicable withdrawal processing fee, or
any applicable transfer processing fees deducted from the Fixed Account
since the prior Deduction Date; less
(7) transfers to the Loan Account from the Fixed Account since the prior
Deduction Date; less
(8) the part of the following amounts allocated to the Fixed Account:
(a) the deduction for the cost of insurance for any increase in the
Basic Amount since the prior Deduction Date ;
(b) the monthly charges for any riders that became effective since the
prior Deduction Date; and
(c) the current monthly deduction.
The Fixed Policy Account Value on any other date is the Fixed Policy Account
Value on the prior Deduction Date:
(1) plus any Net Premium Payments allocated to the Fixed Account since the
prior Deduction Date; plus
(2) any Policy Account Value transferred to the Fixed Account since the
prior Deduction Date; plus
(3) any loan repayment transferred to the Fixed Account since the prior
Deduction Date; plus
(4) interest accrued to the Fixed Account since the prior Deduction Date;
less
(5) any withdrawals, transfers, any applicable withdrawal processing fees,
or any applicable transfer processing fees deducted from the Fixed
Account since the prior Deduction Date; less
(6) transfers to the Loan Account from the Fixed Account since the prior
Deduction Date; less
(7) the part of the following amounts allocated to the Fixed Account:
(a) the deduction for the cost of insurance for any increase in the
Basic Amount since the prior Deduction Date; and
(b) the monthly charges for any riders that became effective since the
prior Deduction Date.
Any Net Premium allocated to the Fixed Account is added to the Fixed Policy
Account Value on the date allocated.
Interest Credited. We guarantee to credit interest to the Fixed Policy Account
Value. The actual effective annual rate will be determined as described in the
Changes in Rates and Charges provision. Such rate will not be less than the
Guaranteed Interest Rate shown on page 3.
PAGE 14
<PAGE>
- --------------------------------------------------------------------------------
FEES AND CHARGES PROVISIONS
- --------------------------------------------------------------------------------
Monthly Deduction. The monthly deduction is a charge made by us on the Policy
Date and on every Deduction Date thereafter by reducing Subaccount Policy Values
(liquidating Units) and Fixed Policy Account Value. We will deduct the charge
from each Subaccount and the Fixed Account on a pro-rata basis. The monthly
deduction consists of the monthly cost of insurance, the monthly expense charge,
and the cost of any riders.
Cost of Insurance. This cost is calculated at the start of each Policy Month.
The cost is determined separately for the Initial Basic Amount and each increase
in Basic Amount.
The cost of insurance is the monthly cost of insurance rate times the difference
between (1) and (2), where:
(1) is the amount of insurance attributable to the Initial Basic Amount or
increase, as applicable, on the Deduction Date at the start of the month
divided by 1.0032737, and
(2) is the Policy Account Value attributable to the Initial Basic Amount or
increase, as applicable, on the Deduction Date at the start of the month
after the deduction of the part of the monthly deduction that does not
include the cost of insurance and the monthly charge for any waiver of
monthly deduction benefit rider.
Until the Policy Account Value exceeds the Initial Basic Amount, the Policy
Account Value is part of the Initial Basic Amount. Once the Policy Account
Value exceeds that amount, if there have been any increases in Basic Amount, the
excess will be part of the increases in order in which the increases occurred.
Monthly Cost of Insurance Rates. These rates for each policy year are based on
the Insured's age on the policy anniversary, sex, and applicable rate class. A
rate class will be determined for the Initial Basic Amount and for each increase
in Basic Amount. The rates shown on page 4 are the maximum monthly cost of
insurance rates for the Initial Basic Amount. Maximum monthly cost of insurance
rates will be provided for each increase in the Basic Amount. The actual
monthly cost of insurance rates will be determined as described in the Change in
Rates and Charges provision. Such rates cannot exceed the maximum monthly cost
of insurance rates and cannot be changed more than once a calendar year.
Monthly Expense Charge. The actual monthly expense charge will be determined as
described in the Changes in Rates and Charges provision. The charge cannot
exceed the maximum monthly expense charge shown on page 3.
Surrender Charge. The surrender charges are shown on page 3. We will deduct any
applicable surrender charge if you surrender the policy. The surrender charge
is deducted from Policy Account Value.
The surrender charge shown on page 3 is the sum of the surrender charge for the
Initial Basic Amount and any increase in Basic Amount.
Withdrawal Processing Fee. If you request a withdrawal, we will deduct a
withdrawal processing fee in addition to the amount of the withdrawal. The
withdrawal processing fee is shown on page 3.
Transfer Processing Fee. A number of transfers during each policy year are free
as shown on page 3. We reserve the right to assess a transfer fee for each
transfer in excess of that number during a policy year. The amount of the fee
cannot exceed the amount shown on page 3. For the purpose of assessing this fee,
each request is considered one transfer, regardless of the number of Subaccounts
affected by the transfer. This fee is deducted on a pro-rata basis from any
Subaccount and the Fixed Account from which the transfer is made. All transfers
involving the Loan Account are not subject to this provision.
PAGE 15
<PAGE>
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ALLOCATION AND TRANSFERS PROVISIONS
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Allocation of Net Premium Payments. You may allocate Net Premium Payments among
the Subaccounts and the Fixed Account.
The allocation for the Initial Net Premium Payment and any Net Premium Payments
we receive prior to the end of the free-look period is shown on page 3. For
purposes of this provision, we presume your free-look period will end on the
date shown on page 3. On that date, any Policy Account Value will be
transferred to the Subaccounts and the Fixed Account on a pro-rata basis using
your allocation instructions for Net Premium Payments in effect at that time.
Any additional Net Premium Payments received will be allocated according to your
allocation instructions for Net Premium Payments in the application or in a
subsequent request.
Allocation instructions must be in whole percentages. The minimum amount we can
allocate to any Subaccount or the Fixed Account is shown on page 3 as a
percentage of any Net Premium Payment. We reserve the right to set additional
limitations on premium payment allocations.
Transfer Right. While the Insured is alive and the policy is in force, you may
request to transfer all or part of any Subaccount Policy Value to another
Subaccount(s) (subject to availability) or to the Fixed Account, or transfer all
or part of the Fixed Policy Account Value to any Subaccount(s), (subject to
availability). Transfers are subject to the lesser of:
(1) the minimum transfer amount shown on page 3; and
(2) the entire Subaccount Policy Value or Fixed Policy Account Value,
and the additional restrictions on transfers from the Fixed Account.
We reserve the right to modify, restrict, suspend, or eliminate the transfer
right at any time, for any reason.
Fixed Account Transfer Restrictions. You may transfer all or part of the Fixed
Policy Account Value to a Subaccount, subject to the following:
(1) You may make only one transfer each policy year from the Fixed Account
to one or more Subaccounts. Such a transfer must be made within 30 days
after the policy anniversary. An unused transfer does not carry over to
the next year; and
(2) The maximum transfer amount is the greater of 25% of the Fixed Policy
Account Value on the date of the transfer or $1,000, unless waived by
us.
Exchange of Policy. During the first 24 months after the Policy Date or the
effective date of any increase in Basic Amount, you have the right to exchange
this policy for a flexible premium adjustable life policy that provides for
benefits that do not vary with investment return of the Subaccounts. You do
this by requesting a transfer of the entire Variable Policy Account Value to the
Fixed Account. The Transfer Processing Fee provision does not apply to this
request.
PAGE 16
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SURRENDERS AND WITHDRAWALS PROVISIONS
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Surrenders. You may request surrender of this policy at any time. This policy
will terminate on the date we receive your request or later date if you so
request it. See the Surrender Charge provision regarding the surrender charges
applicable.
Withdrawals. You may request to withdraw part of the Cash Surrender Value while
this policy is in force. No more than 4 withdrawals can be made in any Policy
Year. Any withdrawal must be at least the minimum withdrawal amount shown on
page 3. The withdrawal is effective on the date we receive your request or a
later date, if you so request it. As of that date, the Policy Account Value is
reduced by the amount of the withdrawal and the withdrawal processing fee.
Unless specified by you, we will deduct the amount withdrawn and the fee from
each Subaccount and the Fixed Account on a pro-rata basis.
If death benefit option 1 is in effect, then the Basic Amount will be reduced by
the amount of any withdrawal. The effective date of the reduction will be the
date of the withdrawal. The reduction will be made as if a decrease in the
Basic Amount had been requested.
If you request a Basic Amount decrease or a death benefit option change at the
same time you request a withdrawal, we will process withdrawal before processing
either the Basic Amount decrease or the death benefit option change.
We reserve the right to reject a withdrawal request if the request would reduce
the Basic Amount below the Basic Amount Minimum shown on page 3. We reserve the
right to reject a withdrawal request if the withdrawal would result in this
policy being disqualified as a life insurance contract under any section of,
regulation or ruling under, the Code, as amended from time to time.
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POLICY LOAN PROVISIONS
- --------------------------------------------------------------------------------
Loan. You may request to borrow against this policy. This policy is the sole
security for such loan if you have signed the loan agreement and made a
satisfactory assignment of the policy to us. The amount requested when added to
the Loan Amount cannot exceed 90% of the Cash Value as of the date of the loan.
Interest Charge for the Loan Account. Interest accrues and is payable each day
at a rate of 8% a year. If, on any Policy Anniversary, any interest accrued
since the last Policy Anniversary is not paid, then that interest is added to
the Loan Account on that date.
Loan Collateral. When you borrow against this policy, we transfer an amount of
Policy Account Value sufficient to secure the loan out of the Subaccounts and
the Fixed Account into the Loan Account. Unless specified by you, we will
allocate the amount transferred from each Subaccount and the Fixed Account on a
pro-rata basis. If unpaid interest is due from you on a Policy Anniversary and
is added to the Loan Account, an amount equal to the unpaid interest is
transferred to the Loan Account on that Policy Anniversary. We will allocate
the amount of unpaid interest transferred from each Subaccount and the Fixed
Account on a pro-rata basis.
Interest Credit for the Loan Account. Interest will be credited at an effective
annual rate of interest shown on page 3. On each Deduction Date, interest earned
on the Loan Account since the preceding Deduction Date is transferred to each
Subaccount and the Fixed Account based on your allocation instructions for Net
Premium Payments.
PAGE 17
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POLICY LOAN PROVISIONS(CONTINUED)
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Loan Repayment. You may repay all or part of a loan at any time before the
Insured dies or the policy is surrendered or terminated. On the date we receive
the repayment, Loan Policy Account Value equal to the repayment is transferred
to the Subaccounts and the Fixed Account. Unless specified by you, the amount
transferred is allocated to each Subaccount and the Fixed Account based on your
allocation instructions for Net Premium Payments.
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GENERAL PROVISIONS
- --------------------------------------------------------------------------------
The Contract. The policy contains the Basic Plan, any amendments, endorsements,
and riders, and a copy of the application. A copy of any application for a
change to this policy will be sent to you to be placed with the policy. Such
applications become part of this policy. The policy is the entire contract. We
have relied on the statements in the application in issuing this policy. We
reserve the right to investigate the truth and completeness of those statements.
In the absence of fraud, they are representations and not warranties. Only
statements in the application will be used to rescind this policy or deny a
claim.
Only an officer has the right to change this policy. No agent has the authority
to change the policy or to waive any of its terms. All endorsements,
amendments, and riders must be signed by an officer to be valid.
We may modify this policy as follows after we notify you:
(1) to conform the policy or our operations or the operation of the
Variable Account to the requirements of any law (or regulation issued
by a government agency) to which we, this policy, or the Variable
Account is subject.
(2) to assure continued qualification of this policy as a life insurance
policy under the Code; or
(3) to reflect a change in the operation of the Variable Account, if
allowed by this policy.
If we modify this policy, we will make the appropriate endorsement to this
policy. If any provision of this policy conflicts with the law of a
jurisdiction that governs this policy, the provision is deemed to be amended to
conform with such law.
Transaction Delay. We usually make any payments from the Subaccounts within 7
business days of our receipt of the request for payment; however, we may
postpone:
(1) payment of Cash Surrender Value or a withdrawal,
(2) making a policy loan,
(3) payment of any part of the proceeds in excess of the Basic Amount, and
(4) transfer from a Subaccount
if:
(1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings); or
(2) the SEC permits, by an order, the postponement for the protection of
owners;
(3) the SEC requires that trading be restricted or declares an emergency;
or
(4) the SEC determines an emergency exists that would make the disposal of
securities held in the Variable Account or the determination of their
value not reasonably practicable.
We may defer payment from the Fixed Account of any Cash Surrender Value,
withdrawal, transfer, or policy loan for up to 6 months from the date we receive
your request. However, a withdrawal or a policy loan to pay a premium on other
policies with us will not be deferred.
If we defer any such payment for 30 days or more, we will pay interest in
addition to such payment. Such interest accrues from the date the payment
becomes payable to the date of payment at 3 1/2% per year or the rate and time
required by law, if greater.
PAGE 18
<PAGE>
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GENERAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
Minimum Values. The Cash Surrender Values are at least as large as those
required by law in the state where this policy is delivered. The insurance
authority there has a statement of how these values are calculated. We base
minimum Cash Surrender Values, maximum monthly cost of insurance rates, and
reserves on the Insured's age last birthday, sex and tobacco use, if applicable.
The guaranteed interest rate for the Fixed Account is shown on page 3. The
mortality table used is shown on page 4.
Annual Report. Each year, or more often if required by law, we will send you a
report. This report will show:
(1) the period covered by the report;
(2) the current Policy Account Value, the Cash Value, and the Cash
Surrender Value;
(3) the current Variable Policy Account Value showing each Subaccount
Policy Value, Fixed Policy Account Value, and the Loan Policy Account
Value;
(4) the amount of the death benefit as of the date of the report;
(5) any premiums paid, any deductions made, any withdrawals made, and any
dividends paid since the last report;
(6) current Net Premium allocations; and
(7) any other information required by law.
You may request additional copies of reports from us, but we reserve the right
to charge a fee for additional copies.
Annual Dividends. We do not expect to pay dividends on this policy; however, we
may apportion and pay dividends each year. All dividends apportioned will be
derived from the divisible surplus of our participating business. Any such
dividends will be paid only at the end of the Policy Year. There is no right to
a partial or pro rated dividend prior to the end of the Policy Year.
You may choose to have your dividend used under one of these options:
1. Cash. We will pay it to you in cash.
2. Addition to Policy Account Value. We will transfer it to the Policy
Account Value at the end of the Policy Year. Unless specified by you,
the amount transferred is allocated to each Subaccount and the Fixed
Account on a pro-rata basis.
If you do not choose an option or the option you choose is not available, we
will use option 2. You may request to change the option. The change will apply
only to dividends paid after we receive the request.
Changes in Rates and Charges. Monthly cost of insurance rates, monthly charges
for any additional insured's level term life insurance benefit rider, the
premium charge percentage, the monthly expense charge, the mortality and expense
risk charge, and the interest rate applicable to the Fixed Account are subject
to change. We will determine each based on future expectations as to investment
earnings, mortality, expenses, and persistency.
Assignment. You may assign this policy or any interest in it. We will recognize
an assignment only if it is in writing and filed with us. We are not
responsible for the validity or effect of any assignment. An assignment may
limit the interest of any beneficiary.
Error in Age or Sex. If the Insured's date of birth or sex is not as stated in
the application, we will adjust each benefit on the Insured to the benefit
payable had the Insured's age and sex been stated correctly. Such adjustment
will be based on the ratio of the correct deduction for the cost of insurance or
monthly charge for the most recent Deduction Date for that benefit to the
deduction for the cost of insurance or monthly charge that was made. For the
Basic Plan, the adjustment is made to the amount of insurance less the Policy
Account Value.
PAGE 19
<PAGE>
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GENERAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
Incontestability. We will not contest the Basic Plan after it has been in force
during the Insured's lifetime for 2 years from the issue date of the policy. We
will not contest any increase in Basic Amount or reinstatement after it has been
in force during the lifetime of the Insured for 2 years from the effective date
of the increase in Basic Amount or reinstatement. We will not contest an
increase due to a change to Death Benefit Option 1. Any contest of any increase
in Basic Amount or reinstatement will be limited to material statements
contained in the application for such increase or reinstatement.
Each rider has its own incontestability provision.
Limited Death Benefit. If the Insured dies by suicide while sane or by self-
destruction while insane within 2 years from the issue date of the policy, the
Basic Amount will not be paid. The proceeds in this case will be limited to the
premiums paid on the Basic Plan less any Loan Amount, any withdrawals and
applicable surrender charges from the Policy Account Value, and any dividends
paid on the Basic Plan.
Any increase in Basic Amount will not be paid if the Insured's death results
from suicide while sane or self-destruction while insane within 2 years from the
effective date of such increase. The proceeds of the increase will be limited
to the monthly cost of insurance deductions for such increase. This does not
apply to an increase due to a change to Death Benefit Option 1.
Each rider has its own limited death benefit provision.
PAGE 20
<PAGE>
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BASIC PLAN DESCRIPTION
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE. A death benefit is payable
when the Insured dies. Flexible premiums are payable while the Insured is
alive. The basic plan is eligible for annual dividends.
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<PAGE>
Exhibit 1.A.(5)(b)
- --------------------------------------------------------------------------------
ADDITIONAL INSURED'S LEVEL TERM LIFE INSURANCE BENEFIT RIDER
- --------------------------------------------------------------------------------
General. This rider is part of your policy. It is based on the application for
this rider and the deduction of the monthly charges for this rider. Only certain
policy provisions are a part of this rider. They are "Definitions,"
"Ownership," "Payment of Benefits," "Grace Period," "Reinstatement," "Monthly
Deduction," "The Contract," "Annual Dividends," "Changes in Rates and Charges,"
"Assignment," and "Error in Age or Sex." The Additional Insured is named on
page 3. "Ownership" is modified by "Ownership Modification." "Additional
Insured" is used in place of "Insured" in the Reinstatement and Error in Age or
Sex provisions when they apply to this rider. The Additional Insured is named
on page 3. This rider does not increase the Policy Account Value.
Additional Insured's Level Term Life Insurance Benefit. The amount is shown on
page 3 of the policy. This amount will be paid when due proof is received that
the Additional Insured died before this rider terminated.
Monthly Charges for This Rider. The charges for each policy year are based on
the Additional Insured's age on the policy anniversary, sex, and rate class for
this rider. The actual monthly charges for this rider will be determined as
described in the Changes is Rates and Charges provision. Such charges cannot
exceed the maximum monthly charges for this rider shown per $1000 on page 4 and
cannot be changed more than once a calendar year.
Ownership Modification. If the Insured is the Owner, the Additional Insured will
become the Owner when the Insured dies.
Beneficiary. When the Additional Insured dies, we will make payment to you, if
then living. Otherwise, we will make payment in equal shares to any surviving
children born to or legally adopted by the Insured and Additional Insured if
they were husband and wife. Otherwise, we will make payment to the Additional
Insured's estate. We will make the payment in one sum. You may request that
this provision be changed.
Conversion. You may request to convert this rider to a new policy on the
Additional Insured without evidence of insurability subject to the following:
(1) This rider must be in force.
(2) The conversion must occur on or before the policy anniversary when the
Additional Insured is age 75.
(3) The request must include this policy and the first premium for the new
policy.
If the Insured dies while this rider can be converted, the request to convert
must be received within 90 days after the Insured dies. The effective date of
the new policy will be the day after the end of the 90-day period. Coverage
continues until the end of that period.
The new policy becomes effective when we receive that request. Coverage under
this rider will terminate when the conversion occurs. Pages 3 and 4 of this
policy will then be revised.
The new policy will be subject to the following conditions at the time of
conversion:
(1) It must be a whole life plan then available. At least one plan will be
made available.
(2) The amount of insurance can be no more than the amount then provided by
this rider.
(3) The premium will be based on the Additional Insured's attained age, sex,
and rate class. The rate class will be the same as for this rider.
(4) All limitations of this rider will be part of the new policy.
(5) The Incontestability and Limited Death Benefit provisions in the new
policy will not extend beyond the period set by this rider.
<PAGE>
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ADDITIONAL INSURED'S LEVEL TERM LIFE INSURANCE BENEFIT RIDER
(CONTINUED)
- --------------------------------------------------------------------------------
Termination. This rider will terminate on the earlier of the policy anniversary
shown under Benefit Period Ends on page 3 or the policy anniversary when the
Additional Insured is age 85. We will terminate this rider before either of
those dates:
(1) when this rider is converted,
(2) when the policy is terminated by surrender or lapse, or
(3) 90 days after the Insured's death.
You may request termination of this rider. You must send us the request and the
policy. This rider will terminate on the date the request and the policy are
received. We will revise pages 3 and 4 of the policy to show this change.
Incontestability. We will not contest this rider after it has been in force
during the lifetime of the Additional Insured for 2 years from its issue date.
Limited Death Benefit. If the Additional Insured dies by suicide while sane or
self-destruction while insane within 2 years from the issue date of this rider,
the benefit will be limited to the monthly charges deducted for this rider.
Effective Date of This Rider. This is the policy date unless a different date
for this rider is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust, Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
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WAIVER OF MONTHLY DEDUCTION BENEFIT RIDER
- --------------------------------------------------------------------------------
General. This rider is part of your policy. It is based on the application for
this rider and the deduction of the monthly charges for this rider. Only
certain policy provisions are a part of this rider. They are "Definitions,"
"Ownership," "Death Benefit and Death Benefit Options," "Grace Period,"
"Reinstatement," "Monthly Deduction," "The Contract," "Assignment," and "Error
in Age or Sex." This rider does not increase the Policy Account Value.
Monthly Charge for This Rider. The monthly charge is (1) times (2) where:
(1) is the total monthly deduction to which this benefit applies before the
monthly charge for this rider is added and
(2) is the monthly charge for this rider per dollar of monthly deduction.
The charges per dollar of monthly deduction are shown on page 4 and are not
subject to change.
Waiver of Monthly Deduction Benefit. We will waive monthly deductions for this
policy as defined below if the Insured becomes totally disabled and such total
disability has existed for 6 continuous months during the lifetime of the
Insured. We will waive those monthly deductions as long as the total disability
continues. We will only waive monthly deductions on deduction dates on and
after total disability starts. Any monthly deductions taken after the total
disability starts will be reallocated to the Subaccounts and the Fixed Account
in the same manner as they were deducted; however, no monthly deduction will be
included which was deductible more than one year prior to the date we receive
notice of the claim. If Death Benefit Option 1 is in effect, it will be
automatically changed to Death Benefit Option 2. The effective date of the death
benefit option change will be the date we start to waive monthly deductions.
The monthly deduction that will be waived includes only those portions of the
total monthly deduction for which a charge for this rider was deducted on the
deduction date on or just prior to the date total disability starts.
If part of the monthly deduction that is being waived is for the cost of
insurance on the Basic Amount, any increase in its surrender charges that would
occur while the total disability continues will be waived.
If we are waiving the monthly deduction on any Deduction Date during the first
10 policy years, the minimum monthly premium for that Deduction Date is zero.
Total Disability Defined. Total disability is a condition caused by injury or
disease. During the first 24 months after total disability starts, this
condition must prevent the Insured from performing substantially all of the work
of the Insured's regular occupation. After the first 24 months, the condition
must prevent the Insured from performing substantially all of the work in any
occupation for which the Insured is, or becomes, reasonably qualified based upon
education, training, or experience. The Insured's total and irrecoverable loss,
caused by injury or disease, of any of the following will be considered total
disability even if the Insured is able to work:
(1) sight in both eyes.
(2) use of both hands.
(3) use of both feet.
(4) use of one hand and one foot.
Disabilities Not Covered. We will not waive monthly deductions if total
disability:
(1) starts before the issue date of this rider unless such disability was
disclosed in the application,
(2) starts before the policy anniversary when the Insured is age 5,
(3) results from an intended self-injury, or
(4) results from any act due to war whether or not the Insured is in the
military service. "War" means declared or undeclared war or conflict
involving the armed forces of one or more countries, governments, or
international organizations.
Notice and Proof of Total Disability. We must receive notice of a claim and due
proof of total disability while the Insured is alive and totally disabled. If
this is not done, you should submit such notice and proof as soon as reasonably
possible. We may also require you to submit proof of the Insured's continuing
total disability at reasonable intervals. If you do not submit proof when we
require it, no further monthly deductions will be waived. We will not require
proof more than once a year after the total disability has lasted more than 2
years.
<PAGE>
WAIVER OF MONTHLY DEDUCTION BENEFIT RIDER (CONTINUED)
Premium Payments. If the Insured's total disability starts during a grace
period, before we will approve a claim, a premium must be paid which is large
enough to cover the monthly deductions plus any increase in the surrender charge
from the start of the grace period through the policy month in which total
disability starts.
Premiums, sufficient to keep the policy in force until we approve the claim, are
payable.
Termination. This rider will terminate on the policy anniversary shown on page 3
under Benefit Period Ends. We will terminate this rider before that date when
the policy terminates by surrender or lapse.
You may request termination of this rider. You must send us the request and the
policy. This rider will terminate on the date the request and the policy are
received. We will revise pages 3 and 4 of the policy to show this change.
Termination will not affect any claim for total disability which starts before
termination.
Incontestability. We will not contest this rider after it has been in force
during the lifetime of the Insured for 2 years from its issue date unless the
Insured becomes totally disabled within that period.
Issue Date of This Rider. This is the date coverage starts. It is the same as
the issue date of the policy unless a different date for this rider is shown on
page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
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CHILDREN'S TERM LIFE INSURANCE BENEFIT RIDER
- ------------------------------------------------------------------------------
General. This rider is part of your policy. It is based on the application for
this rider and the deduction of the monthly charges for this rider. The monthly
charges per $1000 are shown on page 4. Only certain policy provisions are a
part of this rider. They are "Definitions," "Ownership," "Grace Period,"
"Reinstatement," "Monthly Deduction," "Annual Dividends," "The Contract,"
and "Assignment." "Ownership" is modified by "Ownership Modification." Each
"Eligible Child" is used in place of "Insured" in the Reinstatement provision
when it applies to this rider. This rider does not increase the Policy Account
Value.
Children's Term Life Insurance Benefit. The amount is shown on page 3 of the
policy. This amount will be paid when due proof is received that an Eligible
Child died before this rider terminated, after that child was 15 days old, and
before that child was age 25.
Ownership Modification. If the Insured is the Owner, the Eligible Children under
age 25 will become Joint Owners of this rider when the Insured dies.
Eligible Children Defined. A child, stepchild, or legally adopted child of the
Insured and named on the application who is under age 18 on this rider's
effective date. After the effective date, any newborn child of the Insured will
be an Eligible Child. After the effective date, any stepchild or legally
adopted child of the Insured will be an Eligible Child if the child is under age
18 at the time of the Insured's marriage or of the adoption.
Paid-up Rider. If the Insured dies while this rider is in force, even if such
death results from suicide while sane or self-destruction while insane, the
rider benefit becomes paid-up.
The paid-up rider has cash values. When paid up, a table of cash values will be
given, if requested. The cash values are at least as large as those required by
law in the state where this rider is delivered. The cash value is the net
level reserve for the paid-up term insurance. The age last birthday and sex of
each Eligible Child is used for calculating such reserve. The Commissioners
1980 Standard Ordinary Mortality Table is used. The interest rate is 5% a year.
It is assumed that claims are paid immediately. Cash values will not decrease
during the 31 days after a policy anniversary. There is no loan value. No
dividends will be paid on the paid-up rider.
You may request to surrender the paid-up rider at any time. All coverage ceases
when we receive this request. We will promptly pay you the cash value in one
sum.
Beneficiary. When an Eligible Child dies, we will make payment to you, if then
living. Otherwise, we will make payment to the child's estate. The payment
will be in one sum. If more than one Owner is living at that time, we will make
payment in equal shares. You may request that this provision be changed.
Conversion. When the insurance on an Eligible Child terminates on that child's
twenty-fifth birthday or on the policy anniversary shown on page 3 under Benefit
Period Ends, such child may request to convert such insurance to a new policy
without evidence of insurability. We must receive that request before that
child dies and no later than 31 days after the insurance terminates. If that
child dies within the 31-day period and before the conversion becomes effective,
the benefit will be paid as though the insurance had not terminated. The
effective date of the new policy on that child will be the day after the end of
the 31-day period.
The new policy will be subject to the following conditions at the time of
conversion:
(1) It must be a plan then available. At least one plan will be made
available.
(2) The amount of insurance can be no more than five times the amount then
provided by this rider.
(3) The premium will be based on that child's attained age, sex, and rate
class. The rate class will be the same as for this rider.
(4) All limitations of this rider will be part of the new policy.
(5) The Incontestability and Limited Death Benefit provisions in the new
policy will not extend beyond the time period specified for the new
policy but starting on this rider's issue date.
<PAGE>
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CHILDREN'S TERM LIFE INSURANCE BENEFIT RIDER (CONTINUED)
- ------------------------------------------------------------------------------
Termination. This rider will terminate on the policy anniversary shown on page 3
under Benefit Period Ends. We will terminate this rider before that date when
the policy is terminated by surrender or lapse.
You may request termination of this rider. You must send us the request and the
policy. This rider will terminate on the date the request and the policy are
received. We will revise pages 3 and 4 of the policy to show this change.
Incontestability. We will not contest this rider after it has been in force
during the lifetime of each Eligible Child for 2 years from its issue date.
Effective Date of This Rider. This is the policy date unless a different date
for this rider is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
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ACCIDENTAL DEATH BENEFIT RIDER
- ------------------------------------------------------------------------------
General. This rider is part of your policy. It is based on the application for
this rider and the deduction of the monthly charges for this rider. The monthly
charges per $1000 are shown on page 4 and are not subject to change. Only
certain policy provisions are a part of this rider. They are "Definitions,"
"Ownership," "Payment of Benefit," "Grace Period," "Reinstatement," "Monthly
Deduction," "The Contract," "Assignment," and "Error in Age or Sex." This rider
does not increase the Policy Account Value.
Accidental Death Benefit. The amount is shown on page 3. We will pay this
amount when we receive due proof that the Insured's death:
(1) resulted, directly and independently of all other causes, from an
accidental bodily injury;
(2) occurred within 180 days of that injury; and
(3) occurred while this rider was in force.
We will pay this amount as part of the proceeds.
We will pay double the amount of accidental death benefit if death results from
travel as a fare-paying rider on a public conveyance licensed for passenger
service.
Risks Not Assumed. We will not pay a benefit if the Insured's death
results from any of the following:
(1) Suicide while sane or self-destruction while insane.
(2) The voluntary taking of a drug or drug-containing substance unless
taken as prescribed by a physician.
(3) The voluntary taking of a poison.
(4) The voluntary inhaling of a gas, fume, or vapor.
(5) Any disease of mind or body.
(6) Committing an assault or felony.
(7) Taking part in a riot.
(8) Flight in an aircraft:
(a) while the Insured has duties on such aircraft,
(b) as an instructor or student, or
(c) for the purpose of descent from such aircraft.
(9) Descent from an aircraft while in flight.
(10) Operating or riding in an aircraft controlled or chartered by a
military service.
(11) Any act due to war whether or not the Insured is in the military
service. "War" means declared or undeclared war or conflict involving
the armed forces of one or more countries, governments, or
international organizations.
We will not pay a benefit if death occurs before the Insured's first birthday.
Termination. This rider will terminate on the policy anniversary when the
Insured is age 70. This rider will terminate before that date when the policy
terminates by surrender or lapse.
You may request termination of this rider. You must send us the request and the
policy. This rider will terminate on the date the request and policy are
received. We will revise pages 3 and 4 of the policy to show this change.
Incontestability. We will not contest this rider after it has been in force
during the lifetime of the Insured for 2 years from its issue date.
Effective Date of This Rider. This is the policy date unless a different date
for this rider is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
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GUARANTEED INSURABILITY OPTION BENEFIT RIDER
- ------------------------------------------------------------------------------
General. This rider is part of your policy. It is based on the application for
this rider and the deduction of the monthly charges for this rider. The monthly
charges per $1000 are shown on page 4 and are not subject to change. Only
certain policy provisions are a part of this rider. They are "Definitions,"
"Ownership," "Payment of Benefits," "Grace Period," "Reinstatement," "Monthly
Deduction," "The Contract," "Assignment," and "Error in Age or Sex." This rider
does not increase the Policy Account Value.
Guaranteed Insurability Option Benefit. Option years for this benefit are shown
on page 3 of the policy. An option date is the policy anniversary in the option
year. On each option date before termination, you may increase the Basic
Amount. We must receive an application for the increase within the 60 day
period that ends on the option date. No evidence of insurability is required.
The increase in Basic Amount will become effective on the option date.
The increase in Basic Amount will be subject to the following conditions on the
option date.
(1) The amount of increase must be at least $10,000 but can be no more than
the initial amount for this rider as shown on page 3 of the policy.
(2) The monthly cost of insurance rates will be based on the Insured's
attained age, sex, and rate class. The rate class shown on page 3 for
this rider will be used.
(3) All limitations that apply to the policy on this rider's effective date
will apply to the increase. Any limitations that we would place on such
policies then being issued will apply to the increase.
(4) We will not contest the increase after this rider has been in force
during the lifetime of the Insured for 2 years from this rider's issue
date.
(5) If the waiver of monthly deduction benefit is then a part of the policy
and monthly deductions are then being waived, the monthly deduction for
the increase will be waived while the Insured's total disability
continues.
There is a 90-day period of term life insurance on the Insured. It starts when
a named event occurs. A "named event" is:
(1)the Insured's marriage,
(2)a live birth of a child of the Insured, or
(3)the effective date of a legal adoption of a child by the Insured.
The term life insurance provided is equal to the initial amount of this rider.
If a multiple birth occurs, this amount is multiplied by the number of live
children born at that time. The amount will be paid when due proof is received
that a named event occurred and the Insured died within the 90-day period and
before this rider terminated. The amount will be paid as part of the proceeds.
Advance of Option Date. When such term insurance is in effect, the next
available option date may be advanced to the day after the end of the 90-day
period. The amount of increase can be no more than the amount of term insurance
then provided. If an increase becomes effective, the option date that is
advanced will be canceled. To advance the option date, we must receive due proof
that a named event occurred.
Termination. This rider will terminate on the policy anniversary shown on page 3
under Benefit Period Ends. We will terminate this rider before that date when
the policy is terminated by surrender or lapse.
You may request to terminate this rider. You must send us the request and the
policy. This rider will terminate the later of the date we receive your request
and the policy or the termination date you choose. We will revise pages 3 and 4
of the policy to show this change.
Incontestability. We will not contest this rider after it has been in force
during the lifetime of the Insured for 2 years from its issue date.
<PAGE>
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GUARANTEED INSURABILITY OPTION BENEFIT RIDER (CONTINUED)
- --------------------------------------------------------------------------------
Limited Death Benefit. If the Insured dies by suicide while sane or self-
destruction while insane within 2 years from the issue date of this rider, the
benefit will be limited to the charges paid for this rider.
Effective Date of This Rider. This is the policy date unless a different date
for this rider is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
AVIATION LIMITATION ENDORSEMENT
- --------------------------------------------------------------------------------
Limited Death Benefit. If the Risks Not Assumed provision applies when the
Insured dies, the proceeds will be limited to the greater of (1) or (2):
(1) This amount will be the total premiums paid less the total dividends
paid less any withdrawals. Any loan and accrued loan interest that
exists when the Insured dies will be deducted from this amount.
(2) This amount will be the reserve on the Basic Plan. The reserve is based
on the Commissioners 1980 Standard Ordinary mortality table. It is
assumed that deaths during any policy year occur evenly during that
year. The interest rate is 4%. The reserve is calculated using the
Commissioners Reserve Valuation Method. Any loan and accrued loan
interest that exists when the Insured dies will be deducted from this
amount.
General. This endorsement does not affect any Accidental Death Benefit Rider.
Any policy issued in exchange for this policy will contain a similar
endorsement.
Risks Not Assumed. This endorsement will apply if the Insured's death results
from any of the following:
(1) Flight in an aircraft while the Insured has duties on such aircraft.
(2) Flight in an aircraft as an instructor or student.
(3) Flight in an aircraft for the purpose of descent from such aircraft.
(4) Descent from an aircraft while in flight.
(5) Operating or riding in an aircraft controlled or chartered by a
military service.
Effective Date of This Endorsement. This is the policy date unless a different
date is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
AVIATION LIMITATION ENDORSEMENT (5 YEAR)
- --------------------------------------------------------------------------------
Limited Death Benefit. If the Risks Not Assumed provision applies when the
Insured dies, the proceeds will be limited to the greater of (1) or (2):
(1) This amount will be the total premiums paid less the total dividends
paid less any withdrawals. Any loan and accrued loan interest that
exists when the Insured dies will be deducted from this amount.
(2) This amount will be the reserve on the Basic Plan. The reserve is based
on the Commissioners 1980 Standard Ordinary mortality table. It is
assumed that deaths during any policy year occur evenly during that
year. The interest rate is 4%. The reserve is calculated using the
Commissioners Reserve Valuation Method. Any loan and accrued loan
interest that exists when the Insured dies will be deducted from this
amount.
General. This endorsement does not affect any Accidental Death Benefit Rider.
Any policy issued in exchange for this policy will contain a similar
endorsement.
Risks Not Assumed. This endorsement will apply if the
Insured's death occurs within 5 years from the effective date of this
endorsement and results from any of the following:
(1) Flight in an aircraft while the Insured has duties on such aircraft.
(2) Flight in an aircraft as an instructor or student.
(3) Flight in an aircraft for the purpose of descent from such aircraft.
(4) Descent from an aircraft while in flight.
(5) Operating or riding in an aircraft controlled or chartered by a
military service.
Effective Date of This Endorsement. This is the policy date unless a different
date is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INSURED'S AVIATION LIMITATION ENDORSEMENT
- --------------------------------------------------------------------------------
Limited Death Benefit. If the Risks Not Assumed provision applies when the
Additional Insured dies, the benefit payable will be limited to the monthly
charges deducted for any Additional Insured's rider less the total dividends
paid on such rider.
General. Any policy or rider issued in exchange for any rider on the Additional
Insured will contain a similar endorsement.
Risks Not Assumed. This endorsement will apply if the Additional Insured's death
results from any of the following:
(1) Flight in an aircraft while the Additional Insured has duties on such
aircraft.
(2) Flight in an aircraft as an instructor or student.
(3) Flight in an aircraft for the purpose of descent from such aircraft.
(4) Descent from an aircraft while in flight.
(5) Operating or riding in an aircraft controlled or chartered by a
military service.
Effective Date of This Endorsement. This is the policy date unless a different
date is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INSURED'S AVIATION LIMITATION ENDORSEMENT (5 YEAR)
- --------------------------------------------------------------------------------
Limited Death Benefit. If the Risks Not Assumed provision applies when the
Additional Insured dies, the benefit payable will be limited to the monthly
charges deducted for any Additional Insured's rider less the total dividends
paid on such rider.
General. Any policy or rider issued in exchange for any rider on the Additional
Insured will contain a similar endorsement.
Risks Not Assumed. This endorsement will apply if the Additional Insured's death
occurs within 5 years from the effective date of this endorsement and results
from any of the following:
(1) Flight in an aircraft while the Additional Insured has duties on such
aircraft.
(2) Flight in an aircraft as an instructor or student.
(3) Flight in an aircraft for the purpose of descent from such aircraft.
(4) Descent from an aircraft while in flight.
(5) Operating or riding in an aircraft controlled or chartered by a
military service.
Effective Date of This Endorsement. This is the policy date unless a different
date is shown on page 3.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
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ADDITIONAL DEPOSIT BENEFIT RIDER
- --------------------------------------------------------------------------------
General. This rider is a part of your policy.
Only certain policy provisions are a part of this
rider. They are "Definitions," "Ownership," "The
Contract," and "Assignment."
Benefit. You may make an additional deposit to
this policy when it is surrendered. The deposit
less the expense charge will be added to the Cash
Surrender Value. This total will then be paid
under the method of payment chosen.
Deposit Limit. The deposit less the expense
charge plus the Cash Surrender Value may not
provide more than $20 per month per $1000 of
Basic Plan under the life income with 10 years
certain method of payment.
Expense Charge. The expense charge is 3% of
the deposit plus the lesser of 2% of the deposit or
$100.
Effective Date of This Rider. This is the
policy date.
State Farm Life Insurance Company
/s/ Edward B. Rust Jr.
President
/s/ Laura P. Sullivan
Secretary
<PAGE>
EXHIBIT 1.A(6)(a)
ARTICLES OF AMENDMENT
of
STATE FARM LIFE INSURANCE COMPANY
The Articles of Incorporation, as amended, of STATE FARM LIFE INSURANCE
COMPANY, a stock company organized under the laws of the State of Illinois, are
as follows:
ARTICLES OF INCORPORATION OF STATE FARM LIFE INSURANCE COMPANY
ARTICLE I
The name of the Corporation shall be State Farm Life Insurance Company.
ARTICLE II
The principal office of the Corporation for transacting business shall be
located at Bloomington, McLean County, Illinois.
ARTICLE III
The period of duration of the Corporation shall be perpetual.
ARTICLE IV
The kinds of insurance in which the Corporation proposes to engage are: (a)
Insurance on the lives of persons and every insurance appertaining thereto or
connected therewith and granting, purchasing or disposing of annuities as
provided in Subsection (a) of Class 1 of Section 4 of Article I of the Illinois
Insurance Code; (b) Insurance against bodily injury, disablement or death by
accident and against disablement resulting from sickness or old age and every
insurance appertaining thereto as provided in Subsection (b) of Class 1 of
Section 4 of Article I of the Illinois Insurance Code.
ARTICLE V
The Corporation also proposes to engage in the rendering of services
related to functions involved in the operation of its insurance business,
including but not limited to, actuarial, data processing, accounting, claims,
risk appraisal, collection services, financial services and any other business
activity reasonably complementary or supplementary to its authorized insurance
business.
ARTICLE VI
The corporate powers shall be exercised by a Board of Directors, the number
of whom, within the minimum and maximum limits authorized by
<PAGE>
law shall be as provided in the Bylaws. All Directors shall be at least
twenty-one years of age and at least three Directors shall be residents and
citizens of Illinois. All Directors shall be elected annually in the manner
provided by law. Vacancies in the Board of Directors may be filled by the
shareholders for the balance of the term at a special meeting of shareholders
called for that purpose. Shareholders may vote in person or by proxy at all
meetings of shareholders as provided in Bylaws.
ARTICLE VII
The amount of the capital stock of the Corporation shall be Three Million
Dollars ($3,000,000) divided into thirty thousand (30,000) shares of the par
value of One Hundred Dollars ($100.00) each.
ARTICLE VIII
The corporate powers shall be exercised by and its business and affairs
shall be under the control of the Board of Directors which shall have the power
to make, alter, amend and repeal Bylaws and regulations for the government of
the officers and the general conduct of the business and affairs of the
Corporation.
Dated this 10th day of December, 1979.
STATE FARM LIFE INSURANCE COMPANY
By /s/ Edward B. Rust
-------------------------------
Edward B. Rust, President
ATTEST:
/s/ C.R. Charlson Jr.
- -----------------------------------
C.R. Charlson, Jr., Secretary
(Corporate Seal) APPROVED this 28th day of
----
December A.D., 1979.
--------
/s/ Philip R.O'Connor
---------------------------------
Philip R.O'Connor
Acting Director of Insurance
<PAGE>
Exhibit 1.A(6)(b)
B Y L A W S
of the
STATE FARM LIFE INSURANCE COMPANY
(Amended as of March 9, 1992)
ARTICLE I
NAME, LOCATION, PURPOSE, AND PLAN
Section 1. The name of the Company shall be State Farm Life Insurance
Company.
Section 2. The principal office and principal place of business of
the Company shall be located at Bloomington, McLean County, Illinois.
Section 3. The objects and purposes of the Company are to transact
life, accident and health insurance and related services, as set forth in the
Articles of Incorporation.
Section 4. The Company shall be conducted upon the stock plan and may
issue insurance policies and annuity contracts upon either the participating or
non-participating plan as may be determined from time to time by the Board of
Directors.
ARTICLE II
CORPORATE SEAL
A seal with the words "State Farm Life Insurance Company, Corporate
Seal, Bloomington, Illinois" upon it shall be the corporate seal of the Company,
which shall be in the custody of the Secretary of the Board of Directors.
ARTICLE III
OFFICERS, THEIR ELECTION OR APPOINTMENT,
TERMS AND POWERS
Section 1. (a) The elective officers of the Company shall consist of
a Chairman of the Board of Directors, a President and an Executive Vice
President. Such officers shall be elected at the Annual Meeting of the Board of
Directors. All such officers shall be Directors. Any such office becoming vacant
may be filled for the unexpired term by the Board of Direc-
<PAGE>
tors. In its discretion, the Board of Directors, by a vote of the majority
thereof, may leave unfilled for any period it may fix by resolution, any office,
except that of President and Executive Vice President. Any Director may be an
officer, and two or more offices, except those of President and Executive Vice
President, may be held by the same person.
(b) The Board of Directors shall appoint a Secretary of
the Board of Directors and a Secretary of the Company, and in addition, may
appoint a Treasurer of the Company, one or more Senior Vice Presidents, Vice
Presidents, Counsel, Actuaries, Controllers, Medical Directors, Mathematicians,
Statisticians, Auditors, Secretaries, Assistant Secretaries, Assistant
Treasurers, and other officers, and fix the title, duties, and term of
appointment of each. Such appointive officers may be appointed or removed by the
Board of Directors at any meeting.
Section 2. The Chairman of the Board of Directors shall preside at
all meetings of the Stockholders and of the Board of Directors, and by virtue of
his office shall be a member of the Executive Committee and of the Investment
Committee. In the absence of the President, he shall act as the chief executive
officer.
Section 3. The President shall be the chief executive officer of the
Company and by virtue of his office, shall be a member of the Executive
Committee and of the Investment Committee. In the absence of the Chairman of the
Board, the President shall preside at all meetings of the Stockholders and of
the Board of Directors. He may sign and execute all authorized bonds, checks,
contracts or other obligations in the name of the Company, and shall have such
other powers and perform such other duties as may be from time to time assigned
to him by the Board of Directors.
Section 4. The Executive Vice President shall be the chief
administrative officer and shall have such other powers and perform such other
duties as may be assigned to him by the Board of Directors. In the absence of
the Chairman of the Board and the President, the Executive Vice President shall
preside at all meetings of the Stockholders and of the Board of Directors. In
the absence of the President and the Chairman of the Board, the Executive Vice
President shall act as the chief executive officer.
Section 5. The Secretary of the Board of Directors shall keep
accurate minutes of all Meetings of the Stockholders and of all Meetings of the
Board of Directors, and shall give notice of all meetings requiring notice and
shall perform all other usual duties incident to the office.
Section 6. The Chairman of the Board of Directors and such other
officers and persons as may be designated by the Board of Directors shall
furnish, at the expense of the Company, surety bonds in such amount and form as
may be required by the
-2-
<PAGE>
Board of Directors.
Section 7. Subject to the requirements and limitations of Section 245
of the Illinois Insurance Code, the officers of the Company shall receive such
salary or compensation as shall be fixed by the Board of Directors.
ARTICLE IV
BOARD OF DIRECTORS, THEIR ELECTION, TERMS AND POWERS
Section 1. The corporate powers of the Company shall be exercised by
a Board of Directors consisting of thirteen natural persons.
Section 2. The total number of Directors shall be elected by a
majority vote of the Stockholders at each Annual Meeting of the Stockholders,
and all Directors shall serve until the next succeeding Annual Meeting of the
Stockholders, or until their successors are elected and qualified. Any vacancy
in the Board of Directors may be filled for the unexpired term by a majority
vote of the Stockholders at a Special Meeting of Stockholders called for that
purpose.
Section 3. Each Director shall be at least twenty-one years of age.
All nominations for Directors shall be filed in writing with the Secretary of
the Board of Directors at least fifteen days prior to the date of election. If
nominations are not so filed, consent of the owners of two-thirds of the Shares
of stock represented at the meeting shall be required to consider the same.
Section 4. All regular elections of Directors shall be held at Annual
Meetings of the Stockholders. In all elections of Directors, each share of stock
shall be entitled to as many votes as there are Directors to be elected and each
shareholder shall be entitled to cumulate his votes for one candidate or to so
distribute them among two or more candidates as he deems appropriate.
Section 5. At least three of the Directors shall be residents and
citizens of the State of Illinois.
Section 6. (a) The Board of Directors shall have the general control
and management of the business and affairs of the Company. They shall have power
to make, alter, amend and repeal Bylaws and rules and regulations and to take
all other action necessary or desirable for the proper transaction and conduct
of the business and affairs of the Company.
(b) The Board of Directors at its Annual Meeting may by
resolution adopted by a majority of the whole Board,
-3-
<PAGE>
appoint an Executive Committee consisting of the Chairman of the Board of
Directors, the President and three other Directors who may be officers. Such
Executive Committee shall serve until the next Annual Meeting of the Board of
Directors. Vacancies on such committee may be filled by the Board of Directors
at any meeting. A majority of the Executive Committee shall be residents of
Illinois. Meetings of the Committee may be called by the Chairman of the Board
of Directors, the President, or any three members of the committee. Three
members shall constitute a quorum for the transaction of business. The Executive
Committee shall have and exercise between meetings of the Board of Directors the
authority of the Board of Directors in the management of the Company but shall
not have power to amend the Articles of Incorporation or the Bylaws. The
Executive Committee shall keep a written record of their transactions and shall
report the same to the Board of Directors at regular meetings of the Board.
(c) There shall be an Investment Committee consisting of
the Chairman of the Board of Directors, the President and two other Directors
who may be officers. Such other Directors shall be chosen at the Annual Meeting
of the Board of Directors to serve until the next Annual Meeting of the same.
Vacancies on such Committee may be filled by the Board of Directors at any
meetings. Meetings of the Investment Committee may be called by the Chairman of
the Board of Directors, the President, or any two members of the committee. Two
members of the committee shall constitute a quorum for the transaction of
business. The Investment Committee shall have power to invest the assets of the
Company in investments authorized by law and shall have power to sell or
exchange the same. The Investment committee shall keep a written record of their
transactions and shall report the same to the Board of Directors at regular
meetings of the Board.
Section 7. The Board of Directors shall approve the terms and
conditions of all agency agreements, but agency appointments shall be made by
or under the direction of the officers of the Company.
Section 8. Subject to the requirements and limitations of Section 245
of the Illinois Insurance Code, the members of the Board of Directors, except
such members as may also be officers of the Company, shall receive their actual
expenses and such per diem or compensation as fixed by the Board of Directors
for attending meetings of the Board or meetings of the Committees of the Board.
ARTICLE V
ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
Section 1. The Annual Meeting of Stockholders shall
-4-
<PAGE>
be held the Second Monday in March at the hour of 1:00 p.m. at the Home Office
of the Company unless the Directors shall elect to change the date or the time
or the place of such meeting. Notice of the Annual Meeting stating the time and
place thereof shall be mailed or delivered personally to each Stockholder at his
last known address at least ten days prior thereto. Annual Meetings of
Stockholders may be held without such notice when all Stockholders are present
and sign waiver of notice.
Section 2. Special meetings of the Stockholders may be called by the
Chairman of the Board or by the President and shall be called upon either
written request of a majority of the total number of Directors or written
request of persons holding a majority of the stock outstanding. Notice of such
special meetings, stating the time, place and purpose thereof, shall be mailed
or delivered personally to each Stockholder at his last known address at least
ten days prior thereto and no business shall be transacted at any such special
meeting except that stated in the written notice thereof. Special meetings of
Stockholders may be held without such notice when all are present and sign
waiver of notice.
Section 3. Stockholders representing a majority of the stock
outstanding, present in person or by proxy, in any meetings of Stockholders
shall constitute a quorum but a lesser number may adjourn to another time. A
majority of the quorum present in person or by proxy at any meeting of
Stockholders shall govern any proceeding not herein or by law requiring a
different vote. Proxies shall be in writing and shall be filed with the
Secretary of the Board of Directors at least ten days prior to the date of
meeting at which such proxies are to be voted.
ARTICLE VI
ANNUAL AND SPECIAL MEETINGS
OF THE BOARD OF DIRECTORS
Section 1. The Annual Meeting of the Board of Directors shall be held
at the Home Office of the Company immediately following the adjournment of the
Annual Meeting of the Stockholders or as soon thereafter as practicable unless
the Directors shall elect to change the date or the time or the place of such
meeting, in which case, but not otherwise, due notice shall be mailed to each
Director as in the case of Special Meetings of the Directors. Regular quarterly
meetings shall be held at such place and at such times as may be fixed by the
Board. Notice of such Regular meetings shall not be required.
Section 2. Special Meetings of the Board of Directors may be called
by the Chairman of the Board or by the President and shall be called by either
of them upon written request of a majority of the total number of Directors.
Notice of Special
-5-
<PAGE>
Meetings, stating the time and place thereof, shall be mailed or delivered
personally to each Director at least five days prior thereto but neither the
business to be transacted nor the purpose of such meetings need be stated in the
notice. Special Meetings may be held without such notice when all Directors
are present and sign waiver of notice which need not state the business to be
transacted or the purpose of the meeting. Attendance of a Director at any such
meeting shall constitute a waiver of notice except where a Director appears for
the express purpose of objecting that the meeting is not lawfully called or
convened.
Section 3. A majority of the total number of Directors shall
constitute a quorum at all meetings but a lesser number may adjourn to another
time. A majority vote of the quorum present at any meeting shall govern all
proceedings not herein or by law requiring a different vote.
ARTICLE VII
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 1. The Company shall cause to be issued to each Stockholder a
certificate representing the number of shares of capital stock owned in the
Company. The certificates shall be numbered consecutively and be in such form,
not inconsistent with the laws of the State of Illinois, as may be adopted by
the Board of Directors. The certificates shall be signed by the President or the
Executive Vice President and the Secretary of the Board of Directors and shall
have affixed thereto the corporate seal. No certificate shall be issued without
a knowledge of the apparent title of the person to whom it is issued.
Section 2. The shares of the capital stock of the Company shall be
transferable only upon the books of the Company by the owner in person or by the
legal representative of such owner, and, upon any such transfer being made, the
old certificate shall be surrendered to the person in charge of the stock and
transfer books and ledger or to such other person as the Board of Directors may
designate, who shall cancel the same and thereupon issue a new certificate or
certificates therefor.
Section 3. The transfer books shall be closed for a period of fifteen
days prior to the date set for any Annual Meeting and for such period of time
prior to the date set for the payment of dividends to Stockholders as the Board
of Directors may, from time to time, determine and during such period no stock
shall be transferred.
Section 4. The Board of Directors may appoint a transfer agent or
registrar of transfers and thereafter may require all stock certificates to bear
the signature of such transfer agent or registrar of transfers. Until otherwise
changed by the
-6-
<PAGE>
Board of Directors the Secretary of the Board of Directors shall act as transfer
agent and registrar of transfers.
Section 5. The Company shall be entitled to treat the registered
holder of any share as the absolute holder thereof and accordingly, shall not be
bound to recognize any equitable or any other claim thereto or interest therein,
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the statutes of the state of
Illinois.
Section 6. The Board of Directors shall also have the power and
authority to make any rules and regulations they may deem expedient concerning
the issue, transfer and registration of the certificates for the shares of the
capital stock of the Company.
Section 7. Any person, claiming a certificate of stock of the Company
to be lost or destroyed, shall make affidavit of the fact and file the same with
the Secretary of the Board of Directors, accompanied by a signed application for
a new certificate. Such person shall also advertise such lost certificate if the
Board of Directors shall so require and shall give the Company a bond of
indemnity with one or more sureties satisfactory to the Board of Directors and
in an amount, which in their judgment, shall be sufficient to save the Company
from loss, and thereupon the proper officers may cause to be issued a new
certificate of like tenor with the one alleged to be lost or destroyed, but the
Board of Directors may refuse the issuance of such new certificate.
Section 8. Each certificate, representing a share or shares of the
capital stock, shall have stamped or printed thereon, when and as issued, the
amount actually received therefor or the words "Fully Paid and Non-Assessable."
ARTICLE VIII
DIVIDENDS
Subject to the limitations provided by law, the Board of Directors may
set apart from time to time, such part of the net earnings, savings or profits
of the Company as they in their discretion may deem proper for any or all of the
following purposes:
(a) For a reserve fund to meet contingencies; (b) For dividends to participating
policyholders; (c) For dividends to Stockholders. The Board of Directors shall
fix the time or times when any such amounts set apart for dividends to
participating policyholders or Stockholders shall be due and payable. Any
amounts set apart for dividends to participating policyholders shall be
equitably apportioned among such policyholders.
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<PAGE>
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall begin on the first day of January
and terminate on the thirty-first day of December of each year.
ARTICLE X
AMENDMENT OF BYLAWS
These Bylaws may be amended by the Board of Directors at any regular
or special meeting by a two-thirds vote of the entire number of Directors.
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