<PAGE>
As Filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 333-19521
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-Effective Amendment No. 1 to
-----------------------------
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 LLP
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
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
<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
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<S> <C>
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 Trust; Voting of Fund Shares
11 The Variable Account and The Trust; Allocation Options
12 The Variable Account and The Trust; 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 The Trust; 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
Trust
49 Not applicable
50 The Variable Account and The Trust
51 Premiums; Allocation Options; Charges and Deductions;
Surrender Benefits
52 The Variable Account and The Trust; 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
</TABLE>
<PAGE>
PROSPECTUS DATED __________, 1998
Variable Universal Life Insurance Policy
STATE FARM LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
OF STATE FARM LIFE INSURANCE COMPANY
P.O. Box 2307
Bloomington, Illinois 61702-2307
Telephone (888) 702-2307
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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 "Trust"). The Funds
currently available are the Large Cap Equity Index Fund, Small Cap Equity Index
Fund, International Equity Index Fund, Stock and Bond Balanced Fund, Bond Fund,
and Money Market Fund. The accompanying prospectus for the Trust describes each
of the Funds, including the risks of investing in each Fund, and provides other
information about the Trust.
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.
THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THE POLICIES ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
<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
Exchanges from State Farm Universal Life and State Farm Traditional
Ordinary Whole Life...................................................
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 Account.......................................................... 18
Interest.............................................................. 18
Loan Repayment........................................................ 18
Effect of Policy Loan................................................. 19
SURRENDER BENEFITS......................................................... 19
Full Surrender........................................................ 19
Withdrawals........................................................... 19
HYPOTHETICAL ILLUSTRATIONS of
ACCUMULATED PREMIUMS, POLICY
ACCOUNT VALUES, CASH SURRENDER
VALUES AND DEATH BENEFITS............................................. 20
REQUESTING PAYMENTS and
TELEPHONE TRANSACTIONS................................................ 29
Requesting Payments................................................... 29
Telephone Transactions................................................ 29
OTHER POLICY BENEFITS AND
PROVISIONS............................................................ 30
Exchange Provision.................................................... 30
Other Policy Provisions............................................... 30
Beneficiary........................................................... 30
Reinstatement......................................................... 30
Other Changes......................................................... 30
Reports to Policy Owners.............................................. 30
Assignment and Change of Owner........................................ 30
Supplemental Benefits................................................. 30
STATE FARM AND THE FIXED
ACCOUNT............................................................... 32
THE VARIABLE ACCOUNT AND
THE TRUST............................................................. 36
TAX CONSIDERATIONS......................................................... 38
ADDITIONAL INFORMATION..................................................... 40
APPENDIX A................................................................. 42
</TABLE>
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not be lawfully made.
-2-
<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
significantly 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 Policy. 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 P.O. Box 2307, Bloomington, IL 61702-2307, (888) 702-2307
-3-
<PAGE>
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," page ___, 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," page ___, 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 Trust,'' page ___.
* The current Funds available and their investment advisory fees and other
expenses are as follows:
<TABLE>
<CAPTION>
Large Cap Small Cap International Stock and Money
Equity Index Equity Index Equity Index Bond Balanced Bond Market
------------ ------------ ------------ ------------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees /1/ .26% .40% .55% .36% .50% .40%
Other Expenses
(after expense
limitation)/2/ .10% .10% .20% .10% .10% .10%
--------- -------- -------- -------- ------ ------
Total Annual Expenses
(after expense
limitation) .36% .50% .75% .46% .60% .50%
- --------------------------------------------------------------------------------
</TABLE>
/1/ For each of the Funds other than the Stock and Bond Balanced Fund, the
investment advisory fees shown above are the actual amounts expected to be
incurred in the current fiscal year for such Funds. The Stock and Bond Balanced
Fund, which invests in the Large Cap Equity Index Fund and the Bond Fund, will
not pay investment advisory fees directly, but will indirectly bear its share of
the investment advisory fees incurred by the Large Cap Equity Index Fund and the
Bond Fund. Therefore, the investment results of the Stock and Bond Balanced
Fund will be net of these fees. The relative amounts that the Stock and Bond
Balanced Fund invests in the Large Cap Equity Index Fund and the Bond Fund at
any one time will fluctuate, but under normal circumstances, the Stock and Bond
Balanced Fund will attempt to maintain approximately 60% of its net assets in
shares of the Large Cap Equity Index Fund and approximately 40% of its net
assets in the Bond Fund. Based on these percentages, an approximate investment
advisory fee can be derived for the Stock and Bond Balanced Fund. This derived
fee is used for the purpose of showing the Stock and Bond Balanced Fund's annual
expenses in the table above.
/2/ For each of the Funds other than the Stock and Bond Balanced Fund, "other
expenses" are based on estimated amounts for the current fiscal year. The
amounts shown for such Funds' "other expenses" reflect the fact that the
investment adviser to the Funds has agreed to bear the expenses incurred by each
Fund (other than the International Equity Index Fund), other than the investment
advisory fee, that exceed 0.10% of such Fund's average daily net assets. The
investment adviser to the Funds has agreed to bear the expenses incurred by the
International Equity Index Fund, other than the investment advisory fee, that
exceed 0.20% of that Fund's average daily net assets. By investing in the Large
Cap Equity Index Fund and the Bond Fund, the Stock and Bond Balanced Fund will
indirectly bear its share of those underlying Funds' "other expenses" and will
incur its own "other expenses." The amount shown for the Stock and Bond Balanced
Fund's "other expenses" reflects the fact that the investment adviser to the
Funds has agreed to bear the expenses incurred by each underlying Fund, other
than the investment advisory fee, that exceed 0.10% of each such Fund's average
daily net assets, and that the investment adviser to the Funds has agreed to
bear all of the Stock and Bond Balanced Fund's own "other expenses." These
expense limitation arrangements are voluntary and can be eliminated by the
investment adviser at any time. Absent these expense limitations, estimated
"other expenses" for the Large Cap Equity Index Fund, Small Cap Equity Index
Fund, International Equity Index Fund, Stock and Bond Balanced Fund, Bond Fund,
and Money Market Fund would have been 0.11%, 0.13%, 0.28%, 0.43%, 0.25%, and
0.35%, respectively.
-4-
<PAGE>
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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," page ___.
* 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
and Deductions -- Mortality and Expense Risk Charge," page ___. This charge is
not deducted from assets in the Fixed Account.
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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," page ___, "Fixed Policy
Account Value," page ___, and "Subaccount Policy Value," page ___.
* 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 a
amounts up to 90% of Cash lump sum or under a variety of
Value, at a net interest payment options.
rate of 2%. See "Loan
----- * The minimum Basic Amount available
Benefits," page ___, and is $50,000.
- --------
"Tax Treatment of Policy
Benefits," page ___. * Death Benefits are available in
two death benefit options: Option 1
* Withdrawals generally (greater of Basic Amount plus any Net
can be made up to 4 times Premium payment received since the
each Policy Year provided last Deduction Date, or a specified
there is sufficient percentage of Policy Account Value);
remaining Cash Surrender or Option 2 (greater of Basic Amount
Value. A withdrawal plus the Policy Account Value, or a
processing fee equal to specified percentage of Policy
the lesser of $25 or 2% Account Value). See "Death Benefits,"
of the amount requested page ___.
for withdrawal will apply
to each withdrawal. See * There is flexibility to change the
"Withdrawals," page ____, Basic Amount and to change the Death
for rules and limits. Benefit option. See "Changing the
Basic Amount" and "Changing the Death
* The Policy can be Benefit Option," page ___, for rules
surrendered at any time and limits.
for its Cash Surrender
Value (Policy Account
Value minus Loan Amount
and minus any applicable * The Death Benefit Guarantee keeps
surrender charge). See the Policy in force regardless of
"Full Surrender," page ___. sufficiency of Cash Surrender Value
so long as cumulative premiums paid
* A surrender charge will on the Policy, less any withdrawals
be deducted from the and less the Loan Policy Account Value, are
Policy Account Value upon at least equal to the Minimum Premium.
a full surrender of the See "Death Benefit Guarantee," page ___.
Policy during the first
10 Policy Years or the * The Death Benefit should be
first 10 years after an excludable from the gross income of
increase in Basic Amount. the Beneficiary. See "Tax Treatment
See "Surrender Charge," of Policy Benefits," page ___.
page ___.
* A variety of payment
options are available.
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-5-
<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.
Home Office - P.O. Box 2307, Bloomington, IL 61702-2307,
1-888-702-2307.
Issue Date - The date the Policy is issued.
Loan Account - A part of our general account to which Policy Account
Value in the Variable Account and the Fixed Account is transferred to provide
collateral for any loan taken under the Policy.
Loan Policy Account Value - The value of the Loan Account for this Policy.
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
premium before the Issue Date, the Policy Date is the later of the application
date or the date we receive the 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 combined value of your Policy in all of the
Subaccounts of the Variable Account, the Fixed Account, and the values held in
our general account to secure Policy loans.
Policy Year - Any period of twelve months starting with the Policy Date or a
Policy Anniversary.
-6-
<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; Reverend Dr. Martin
Luther King, Jr. Holiday; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. During 1998,
the Home Office is closed on the Friday after Thanksgiving and the day before
Christmas Day.
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.
-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 premium, but is limited to
$300,000 (unless the Insured is under 15 days old in which case coverage will
not exceed $3,000) 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 and an initial
premium of sufficient amount has been received. This amount must be at least
equal to the minimum monthly premium if the mode of the Policy is monthly, and
12 times the minimum monthly premium if the mode of the Policy is annual.
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.
Exchanges from State Farm Universal Life and State Farm Traditional
Ordinary Whole Life. State Farm will permit the owner of a State Farm Universal
Life policy or a State Farm Traditional Ordinary whole life policy to exchange
such policy for a Policy subject to the following conditions: (1) the initial
Basic Amount for the Policy must equal or exceed the Basic Amount less any
policy loan and accrued loan interest for the original policy; (2) State Farm
will waive evidence of insurability where the initial Basic Amount of the Policy
is equal to the Basic Amount less any policy loan and accrued loan interest for
the original policy, and where the death benefit options are the same for
exchanges from a Universal Life policy or where the death benefit option is
Option 1 for exchanges from a Traditional Ordinary whole life policy; and (3)
the original policy must be terminated. State Farm can change this program at
any time.
On exchanges from a Universal Life policy to a Policy, State Farm will
waive the surrender charge on the Universal Life policy and will waive the 5%
premium charge on the Policy for the amount transferred from the Universal Life
policy to the Policy.
On exchanges from a Traditional Ordinary whole life policy to a Policy,
State Farm will waive the 5% premium charge on the Policy for the amount
transferred from the Traditional Ordinary whole life policy to the Policy.
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
_____.
State Farm allows a credit on conversions of eligible State Farm term
insurance to the Policy. The amount of the credit is based on the premiums paid
on the term coverage during the 12 months prior to conversion. The amount of the
credit will be added to the premium, if any, submitted by the Owner converting
the term coverage, and will be treated as part of the initial premium for the
Policy (except for purposes of the free look provision). Therefore, the credit
will be included in the premiums for purposes of calculating and deducting the
premium charge. See "Charges and Deductions -- Premium Charge," page___. If the
Policy is surrendered, the credit will not be recaptured by State Farm. The
amount of the credit will not be included for purposes of calculating agent
compensation. See "Additional Information -- Sale of the Policies," 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 (if we have
your telephone authorization on file), 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 ___.
-8-
<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 have until the end of the grace period to pay the required premium. If
the grace period ends prior to the end of the Death Benefit Guarantee (See
"Death Benefit Guarantee"), the required premium must be large enough to provide
the lesser 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
sufficient to cover the Monthly Deductions for the grace period and any increase
in the surrender charges. If the grace period ends after the end of the Death
Benefit Guarantee, the required premium must be large enough to provide an
increase in the Cash Surrender Value sufficient to cover the Monthly Deductions
for the grace period and any increase in the surrender charges. 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 end 61
days after 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
required 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 required 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 Policy Account Value,
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 additional premium received after the Policy
Date will be credited to the Policy as of the Valuation Day on which it is
received at our Home Office. Premiums received on a non-Valuation Day will be
deemed received on the next succeeding Valuation Day.
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 (if we have
your telephone authorization on file). 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.
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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 effect at the time of the transfer. 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 Trust. The Trust is a series-type fund
registered with the Securities and Exchange Commission ("SEC") as an 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.
The Large Cap Equity Index Fund seeks to match the performance of the
Standard & Poor's Composite Index of 500 Stocks(R)/1/. This Fund will pursue its
objective by investing primarily on a capitalization-weighted basis in the
securities comprising the index.
The Small Cap Equity Index Fund seeks to match the performance of the
Russell 2000 Small Stock Index(R)/2/. This Fund will pursue its objective by
investing primarily in a representative sample of stocks found in the
index.
The International Equity Index Fund seeks to match the performance of the
Morgan Stanley Capital International Europe, Australia and Far East Free
Index(R)/3/. This Fund will pursue its objective by investing primarily in a
representative sample of stocks found in the index.
The Stock and Bond Balanced Fund seeks long-term growth of capital,
balanced with current income. This Fund will pursue its objective by investing
primarily in the Large Cap Equity Index Fund and the Bond Fund.
The Bond Fund seeks to realize over a period of years the highest yield
consistent with prudent investment management through current income and capital
gains. This Fund will pursue its objective by investing primarily in high
quality debt securities.
The 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. This Fund will attempt to maintain a
stable net asset value of $1.00 per share, BUT THERE CAN BE NO ASSURANCE THAT
THE FUND WILL BE ABLE TO DO SO.
Further information about the Funds is contained in the accompanying prospectus
for the Trust, which you should read in conjunction with this
prospectus. See also "The Trust," page ___.
/1/ Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500(R) and
500(R) are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by State Farm and the Trust. The Policy and the Trust are
not sponsored, endorsed, sold or promoted by Standard & Poor's, and
Standard & Poor's makes no representation regarding the advisability of
investing in the Policy or the Trust.
/2/ The Russell 2000 Index(R) is a trademark/service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company. The
Policy and the Trust are not sponsored, endorsed, sold or promoted by the
Frank Russell Company, and the Frank Russell Company makes no
representation regarding the advisability of investing in the Policy or
the Trust.
/3/ The Morgan Stanley Capital International Europe, Australia, and Far East
Free (EAFE(R) Free) Index is the exclusive property of Morgan Stanley & Co.
Incorporated ("Morgan Stanley"). Morgan Stanley Capital International is a
service mark of Morgan Stanley and has been licensed for use by the
Trust. The Policy and the Trust are not sponsored, endorsed, sold or
promoted by Morgan Stanley and Morgan Stanley makes no representation
regarding the advisability of investing in the Policy or the Trust.
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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, page ____. 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. Policy
Account Value held in the Fixed Account 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 Policy Account Value held in the Fixed Account 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
(if we have your telephone authorization on file). 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. If the Money Market Subaccount or the Bond Subaccount is the Subaccount
from which the transfer is made, it cannot also be used as one of the
Subaccounts in this combination. 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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<PAGE>
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) the value of your Policy in the Subaccounts 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. Subsequent changes to your percentage allocations may be made
at any time by written or telephone instructions to the Home Office (if we have
your telephone authorization on file). 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. Amounts in the Fixed Account may not be used in
connection with the portfolio rebalancing program. 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, therefore 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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<PAGE>
. 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. State Farm reserves the right to impose a $25 transfer
processing fee on each transfer in a Policy Year in excess of 12. See
"Transfers," page ___, for a discussion of the transfer processing
fee. On each withdrawal, State Farm will assess a withdrawal
processing fee equal to the lesser of $25 or 2% of the amount
withdrawn. See "Withdrawals," page ___, for a discussion of the
withdrawal processing fee. There are Fund expenses that range on an
annual basis from 0.36% to 0.75% of the average daily value of your
money invested in the Funds. See "Diagram of Policy," page ____, and
the prospectus for the Trust 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 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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<PAGE>
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 where appropriate under applicable law (currently including
the state of Montana); 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, for issue ages 20 and over, 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 of Accumulated Premiums, Policy Account Values, Cash
Surrender Values, and Death Benefits" page___ 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 value
of your Policy in all of the Subaccounts of the Variable Account, the Fixed
Account, and values held in our general account to secure Policy loans. 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
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, for each Subaccount 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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Valuation 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 dollar 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 due 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," "Limited
Death Benefit" 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,
unless the insured is under 15 days old in which case the Death Benefit payable
will not exceed $3,000.
Death Benefit Options. The Policy Account Value on the date of death of the
Insured is used in determining the amount of insurance. 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 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. 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 change. 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 change. 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, contact 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, page ____. 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 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. The surrender charge will increase upon an
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 (if we have your telephone authorization on file). See
"Requesting Payments and Telephone Transactions," page ___. Outstanding Policy
loans, including accrued interest, reduce the amount available for new loans.
Loan 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
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 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. On each Policy Anniversary, any
unpaid amount of loan interest accrued since the last Policy Anniversary becomes
part of the outstanding loan. An amount equal to the unpaid amount of interest
is transferred to the Loan Account from each Subaccount and the Fixed Account on
a pro-rata basis according to the respective values in each Subaccount and the
Fixed Account. On each Deduction Date, the amount in the Loan Account will be
credited with interest at a minimum guaranteed annual effective rate of 6.0%. On
each Deduction Date, the interest so 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 Valuation Day received. 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, page ____, 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
be in default. We will send you, and any assignee of record, notice of the
default. You will have a 61-day grace period to submit a sufficient payment to
avoid lapse.
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 (if we have your telephone authorization on file). See "Requesting
Payments and Telephone Transactions," page ___. The minimum withdrawal amount
is $500. A withdrawal must be less than the Cash Surrender Value on the day the
request for withdrawal is effective. 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.
-19-
<PAGE>
HYPOTHETICAL ILLUSTRATIONS OF ACCUMULATED PREMIUMS, POLICY ACCOUNT VALUES, CASH
SURRENDER VALUES, AND DEATH BENEFITS
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 at the
beginning of each Policy Year 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 .53% of the
average daily net assets of the Funds available under the Policies, based on the
estimated expense ratios for the Fund expenses and fees for the first year of
operations, as shown in the table on page _____. For information on Fund
expenses and fees, see the prospectus for the Funds accompanying this
prospectus. The current charge illustrations also reflect the 0.80% mortality
and expense risk charge to the Variable Account. The maximum charge
illustrations reflect the maximum 0.90% mortality and expense risk charge to the
Variable Account. After deduction of Fund expenses and fees 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 -1.32%, 4.60% and 10.52%, respectively, for the current
charge illustrations, and -1.42%, 4.49%, and 10.41% respectively, for the
maximum charge illustrations.
The illustrations also reflect the Monthly Deduction for the hypothetical
Insured. Our current charges and the higher maximum 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.
-20-
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $1,250 ANNUAL PREMIUM
DEATH BENEFIT OPTION 1
VALUES BASED ON CURRENT CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net) (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 1,313 961 1,024 1,088 703 766 830
2.00 2,691 1,904 2,091 2,286 1,388 1,575 1,770
3.00 4,138 2,829 3,201 3,604 2,313 2,685 3,088
4.00 5,657 3,734 4,355 5,053 3,218 3,839 4,537
5.00 7,252 4,619 5,553 6,648 4,103 5,037 6,132
6.00 8,928 5,483 6,798 8,401 4,967 6,282 7,885
7.00 10,686 6,325 8,090 10,331 5,912 7,677 9,918
8.00 12,533 7,143 9,430 12,453 6,834 9,120 12,144
9.00 14,472 7,939 10,821 14,790 7,732 10,614 14,584
10.00 16,508 8,709 12,262 17,363 8,606 12,159 17,260
15.00 28,322 12,161 20,307 34,765 12,161 20,307 34,765
20.00 43,399 14,844 29,941 63,434 14,844 29,941 63,434
25.00 62,642 16,437 41,433 110,673 16,437 41,433 110,673
30.00 87,201 16,238 55,107 187,484 16,238 55,107 187,484
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C>
1.00 100,000 100,000 100,000
2.00 100,000 100,000 100,000
3.00 100,000 100,000 100,000
4.00 100,000 100,000 100,000
5.00 100,000 100,000 100,000
6.00 100,000 100,000 100,000
7.00 100,000 100,000 100,000
8.00 100,000 100,000 100,000
9.00 100,000 100,000 100,000
10.00 100,000 100,000 100,000
15.00 100,000 100,000 100,000
20.00 100,000 100,000 100,000
25.00 100,000 100,000 148,302
30.00 100,000 100,000 228,730
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY
YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE
ABSENCE OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $1,250 ANNUAL PREMIUM
DEATH BENEFIT OPTION 1
VALUES BASED ON MAXIMUM CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net) (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 1,313 906 968 1,030 648 710 772
2.00 2,691 1,792 1,971 2,159 1,276 1,455 1,643
3.00 4,138 2,655 3,010 3,396 2,139 2,494 2,880
4.00 5,657 3,495 4,085 4,752 2,979 3,569 4,236
5.00 7,252 4,312 5,197 6,238 3,796 4,681 5,722
6.00 8,928 5,103 6,345 7,865 4,587 5,829 7,349
7.00 10,686 5,868 7,531 9,649 5,455 7,118 9,236
8.00 12,533 6,606 8,755 11,606 6,297 8,445 11,297
9.00 14,472 7,317 10,018 13,754 7,111 9,812 13,547
10.00 16,508 7,999 11,321 16,111 7,895 11,218 16,008
15.00 28,322 10,915 18,445 31,905 10,915 18,445 31,905
20.00 43,399 12,763 26,573 57,582 12,763 26,573 57,582
25.00 62,642 12,907 35,536 99,781 12,907 35,536 99,781
30.00 87,201 10,227 45,105 167,671 10,227 45,105 167,671
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C>
1.00 100,000 100,000 100,000
2.00 100,000 100,000 100,000
3.00 100,000 100,000 100,000
4.00 100,000 100,000 100,000
5.00 100,000 100,000 100,000
6.00 100,000 100,000 100,000
7.00 100,000 100,000 100,000
8.00 100,000 100,000 100,000
9.00 100,000 100,000 100,000
10.00 100,000 100,000 100,000
15.00 100,000 100,000 100,000
20.00 100,000 100,000 100,000
25.00 100,000 100,000 133,707
30.00 100,000 100,000 204,559
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY
YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE
ABSENCE OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $1,250 ANNUAL PREMIUM
DEATH BENEFIT OPTION 2
VALUES BASED ON CURRENT CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net) (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 1,313 959 1,023 1,086 701 765 828
2.00 2,691 1,899 2,086 2,280 1,383 1,570 1,764
3.00 4,138 2,820 3,191 3,592 2,304 2,675 3,076
4.00 5,657 3,719 4,336 5,032 3,203 3,820 4,516
5.00 7,252 4,596 5,524 6,612 4,080 5,008 6,096
6.00 8,928 5,450 6,755 8,346 4,934 6,239 7,830
7.00 10,686 6,279 8,028 10,248 5,866 7,615 9,835
8.00 12,533 7,082 9,344 12,335 6,772 9,035 12,026
9.00 14,472 7,859 10,706 14,625 7,653 10,499 14,419
10.00 16,508 8,609 12,111 17,137 8,505 12,008 17,034
15.00 28,322 11,897 19,824 33,876 11,897 19,824 33,876
20.00 43,399 14,281 28,683 60,564 14,281 28,683 60,564
25.00 62,642 15,357 38,454 103,059 15,357 38,454 103,059
30.00 87,201 14,294 48,323 170,442 14,294 48,323 170,442
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C>
1.00 100,959 101,023 101,086
2.00 101,899 102,086 102,280
3.00 102,820 103,191 103,592
4.00 103,719 104,336 105,032
5.00 104,596 105,524 106,612
6.00 105,450 106,755 108,346
7.00 106,279 108,028 110,248
8.00 107,082 109,344 112,335
9.00 107,859 110,706 114,625
10.00 108,609 112,111 117,137
15.00 111,897 119,824 133,876
20.00 114,281 128,683 160,564
25.00 115,357 138,454 203,059
30.00 114,294 148,323 270,442
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 35 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $1,250 ANNUAL PREMIUM
DEATH BENEFIT OPTION 2
VALUES BASED ON MAXIMUM CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net) (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 1,313 904 966 1,028 646 708 770
2.00 2,691 1,787 1,966 2,153 1,271 1,450 1,637
3.00 4,138 2,644 2,998 3,382 2,128 2,482 2,866
4.00 5,657 3,477 4,064 4,726 2,961 3,548 4,210
5.00 7,252 4,285 5,163 6,195 3,769 4,647 5,679
6.00 8,928 5,063 6,294 7,799 4,547 5,778 7,283
7.00 10,686 5,813 7,457 9,551 5,401 7,045 9,139
8.00 12,533 6,534 8,654 11,466 6,224 8,344 11,156
9.00 14,472 7,223 9,882 13,557 7,017 9,676 13,351
10.00 16,508 7,880 11,142 15,842 7,777 11,039 15,739
15.00 28,322 10,604 17,874 30,849 10,604 17,874 30,849
20.00 43,399 12,093 25,061 54,102 12,093 25,061 54,102
25.00 62,642 11,619 31,877 89,811 11,619 31,877 89,811
30.00 87,201 8,034 36,770 144,300 8,034 36,770 144,300
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C>
1.00 100,904 100,966 101,028
2.00 101,787 101,966 102,153
3.00 102,644 102,998 103,382
4.00 103,477 104,064 104,726
5.00 104,285 105,163 106,195
6.00 105,063 106,294 107,799
7.00 105,813 107,457 109,551
8.00 106,534 108,654 111,466
9.00 107,223 109,882 113,557
10.00 107,880 111,142 115,842
15.00 110,604 117,874 130,849
20.00 112,093 125,061 154,102
25.00 111,619 131,877 189,811
30.00 108,034 136,770 244,300
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 50 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $2,500 ANNUAL PREMIUM
DEATH BENEFIT OPTION 1
VALUES BASED ON CURRENT CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net) (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 2,625 1,893 2,020 2,146 1,257 1,384 1,510
2.00 5,381 3,742 4,112 4,499 2,470 2,840 3,227
3.00 8,275 5,542 6,279 7,077 4,270 5,007 5,805
4.00 11,314 7,292 8,519 9,903 6,020 7,247 8,631
5.00 14,505 8,990 10,836 13,003 7,718 9,564 11,731
6.00 17,855 10,633 13,232 16,406 9,361 11,960 15,134
7.00 21,373 12,217 15,705 20,144 11,199 14,687 19,126
8.00 25,066 13,742 18,261 24,255 12,979 17,498 23,492
9.00 28,945 15,204 20,902 28,781 14,695 20,393 28,272
10.00 33,017 16,599 23,628 33,770 16,344 23,374 33,515
15.00 56,644 22,313 38,590 67,871 22,313 38,590 67,871
20.00 86,798 25,187 56,200 125,325 25,187 56,200 125,325
25.00 125,284 23,604 78,177 218,977 23,604 78,177 218,977
30.00 174,402 15,037 108,719 372,707 15,037 108,719 372,707
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C>
1.00 100,000 100,000 100,000
2.00 100,000 100,000 100,000
3.00 100,000 100,000 100,000
4.00 100,000 100,000 100,000
5.00 100,000 100,000 100,000
6.00 100,000 100,000 100,000
7.00 100,000 100,000 100,000
8.00 100,000 100,000 100,000
9.00 100,000 100,000 100,000
10.00 100,000 100,000 100,000
15.00 100,000 100,000 100,000
20.00 100,000 100,000 145,377
25.00 100,000 100,000 234,306
30.00 100,000 114,155 391,342
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 50 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $2,500 ANNUAL PREMIUM
DEATH BENEFIT OPTION 1
VALUES BASED ON MAXIMUM CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net) (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 2,625 1,748 1,869 1,992 1,112 1,233 1,356
2.00 5,381 3,435 3,786 4,154 2,163 2,514 2,882
3.00 8,275 5,056 5,749 6,502 3,784 4,477 5,230
4.00 11,314 6,606 7,753 9,050 5,334 6,481 7,778
5.00 14,505 8,082 9,797 11,817 6,810 8,525 10,545
6.00 17,855 9,479 11,879 14,825 8,207 10,607 13,553
7.00 21,373 10,792 13,998 18,101 9,775 12,980 17,083
8.00 25,066 12,021 16,155 21,675 11,258 15,392 20,912
9.00 28,945 13,159 18,348 25,582 12,650 17,839 25,073
10.00 33,017 14,198 20,574 29,858 13,943 20,319 29,604
15.00 56,644 17,532 32,025 58,633 17,532 32,025 58,633
20.00 86,798 16,338 43,595 107,663 16,338 43,595 107,663
25.00 125,284 6,620 54,641 187,779 6,620 54,641 187,779
30.00 174,402 0.00 64,183 317,834 0.00 64,183 317,834
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C>
1.00 100,000 100,000 100,000
2.00 100,000 100,000 100,000
3.00 100,000 100,000 100,000
4.00 100,000 100,000 100,000
5.00 100,000 100,000 100,000
6.00 100,000 100,000 100,000
7.00 100,000 100,000 100,000
8.00 100,000 100,000 100,000
9.00 100,000 100,000 100,000
10.00 100,000 100,000 100,000
15.00 100,000 100,000 100,000
20.00 100,000 100,000 124,889
25.00 100,000 100,000 200,923
30.00 0.00 100,000 333,726
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 50 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $2,500 ANNUAL PREMIUM
DEATH BENEFIT OPTION 2
VALUES BASED ON CURRENT CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net) (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 2,625 1,885 2,011 2,137 1,249 1,375 1,501
2.00 5,381 3,717 4,085 4,469 2,445 2,813 3,197
3.00 8,275 5,491 6,220 7,010 4,219 4,948 5,738
4.00 11,314 7,204 8,415 9,779 5,932 7,143 8,507
5.00 14,505 8,854 10,668 12,796 7,582 9,396 11,524
6.00 17,855 10,436 12,978 16,081 9,164 11,706 14,809
7.00 21,373 11,943 15,338 19,654 10,926 14,320 18,637
8.00 25,066 13,375 17,749 23,545 12,612 16,986 22,782
9.00 28,945 14,725 20,206 27,777 14,216 19,698 27,269
10.00 33,017 15,986 22,704 32,380 15,731 22,449 32,126
15.00 56,644 20,589 35,408 61,972 20,589 35,408 61,972
20.00 86,798 21,271 47,149 105,993 21,271 47,149 105,993
25.00 125,284 16,042 55,124 170,903 16,042 55,124 170,903
30.00 174,402 3,105 55,851 267,371 3,105 55,851 267,371
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.32% Net) (4.60% Net) (10.52% Net)
<S> <C> <C> <C>
1.00 101,885 102,011 102,137
2.00 103,717 104,085 104,469
3.00 105,491 106,220 107,010
4.00 107,204 108,415 109,779
5.00 108,854 110,668 112,796
6.00 110,436 112,978 116,081
7.00 111,943 115,338 119,654
8.00 113,375 117,749 123,545
9.00 114,725 120,206 127,777
10.00 115,986 122,704 132,380
15.00 120,589 135,408 161,972
20.00 121,271 147,149 205,993
25.00 116,042 155,124 270,903
30.00 103,105 155,851 367,371
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
MALE ISSUE AGE 50 STANDARD NON-TOBACCO
$100,000 INITIAL DEATH BENEFIT $2,500 ANNUAL PREMIUM
DEATH BENEFIT OPTION 2
VALUES BASED ON MAXIMUM CHARGES
<TABLE>
<CAPTION>
Premiums POLICY ACCOUNT VALUE CASH SURRENDER VALUE
Accumulated --------------------------------------- ----------------------------
at 5% Interest Assuming Hypothetical Assuming Hypothetical
Per Year Gross (and Net) Gross (and Net)
-------------- Annual Investment Return of Annual Investment Return of
--------------------------------------- ----------------------------
End of 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net) (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C> <C> <C> <C> <C>
1.00 2,625 1,737 1,858 1,980 1,101 1,222 1,344
2.00 5,381 3,403 3,752 4,116 2,131 2,480 2,844
3.00 8,275 4,992 5,675 6,417 3,720 4,403 5,145
4.00 11,314 6,496 7,620 8,892 5,224 6,348 7,620
5.00 14,505 7,910 9,582 11,552 6,638 8,310 10,280
6.00 17,855 9,227 11,553 14,408 7,955 10,281 13,136
7.00 21,373 10,442 13,526 17,471 9,425 12,509 16,453
8.00 25,066 11,551 15,496 20,759 10,788 14,733 19,996
9.00 28,945 12,545 17,453 24,284 12,036 16,944 23,775
10.00 33,017 13,414 19,382 28,057 13,159 19,128 27,803
15.00 56,644 15,395 27,990 51,022 15,395 27,990 51,022
20.00 86,798 11,850 32,524 81,613 11,850 32,524 81,613
25.00 125,284 0.00 27,737 119,912 0.00 27,737 119,912
30.00 174,402 0.00 4,095 162,555 0.00 4,095 162,555
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
----------------------------
Assuming Hypothetical
Gross (and Net)
Annual Investment Return of
----------------------------
End of 0% Gross 6% Gross 12% Gross
Pol Yr (-1.42% Net) (4.49% Net) (10.41% Net)
<S> <C> <C> <C>
1.00 101,737 101,858 101,980
2.00 103,403 103,752 104,116
3.00 104,992 105,675 106,417
4.00 106,496 107,620 108,892
5.00 107,910 109,582 111,552
6.00 109,227 111,553 114,408
7.00 110,442 113,526 117,471
8.00 111,551 115,496 120,759
9.00 112,545 117,453 124,284
10.00 113,414 119,382 128,057
15.00 115,395 127,990 151,022
20.00 111,850 132,524 181,613
25.00 0.00 127,737 219,912
30.00 0.00 104,095 262,555
</TABLE>
(1) ASSUMES ANNUAL PREMIUMS ARE PAID AT THE BEGINNING OF EACH POLICY YEAR.
(2) ASSUMES NO POLICY LOANS OR WITHDRAWALS ARE MADE.
(3) ZERO VALUES INDICATE TERMINATION OF INSURANCE COVERAGE IN THE ABSENCE
OF ADDITIONAL PREMIUM PAYMENTS.
THE HYPOTHETICAL RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE ACTUAL EXPERIENCE OF THE
ACCOUNTS. THE POLICY ACCOUNT VALUE, CASH SURRENDER VALUE, AND DEATH BENEFIT FOR
A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN
AVERAGED 0.00%, 6.00%, AND 12.00% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS
CAN BE MADE BY STATE FARM OR ANY OF THE FUNDS THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
VALUES ILLUSTRATED ARE NET OF ANY APPLICABLE CHARGES, SUCH AS PREMIUM CHARGES,
MORTALITY AND EXPENSE RISK CHARGES, MONTHLY EXPENSE CHARGES, COST OF INSURANCE
CHARGES, AND CHARGES FOR FUND EXPENSES AND FEES.
<PAGE>
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 or, for surrenders and withdrawals, on
a later date if you so request. 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 or, for
surrenders and withdrawals, on a later date if you so request. 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). Interest will
be paid 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. We reserve
the right to place limits, including dollar limits, on telephone transactions.
-29-
<PAGE>
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 (or the
first two years after an increase in Basic Amount), 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, for reasons of 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.
. Limited Death Benefit. 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 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. 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
-30-
<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 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.
-31-
<PAGE>
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 and principal occupations
during the past five years of each of State Farm's directors. Each person's
address is One State Farm Plaza, Bloomington, Illinois 61710-0001.
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.; President,
CEO and Director - State Farm VP Management Corp.;
President, CEO and Trustee - State Farm Variable
Product Trust (1997 - present)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Roger B. Tompkins Director; Executive Director and Executive Vice President - State
Vice President Farm Life Insurance Company, State Farm Annuity
and Life Insurance Company, and State Farm Life
and Accident Assurance Company (1997 - present);
Vice President - California - State Farm
Mutual Automobile Insurance Company,
State Farm Fire and Casualty Company, State
Farm General Insurance Company; Vice President
and Director (1997 - present), - State Farm VP
Management Corp.
- -------------------------------------------------------------------------------------------------------------
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; Vice President and
Director (1997-present) - State Farm VP
Management Corp.
- -------------------------------------------------------------------------------------------------------------
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; Vice President,
Treasurer and Director (1997-present) - State
Farm VP Management Corp.; Vice President,
Treasurer and Trustee (1997-present) - State
Farm Variable Product Trust
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<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 Senior 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.; Director - State
Farm VP Management Corp.; Vice President -
State Farm Variable Product Trust (1997 - present)
- -------------------------------------------------------------------------------------------------------------
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 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). Each person's
address is One State Farm Plaza, Bloomington, Illinois 61710-0001.
-34-
<PAGE>
<TABLE>
<CAPTION>
Senior Officers
Name and Address Position with State Farm Principal Occupation During Past Five Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mary Rebecca Blakeslee Vice President - Vice President - Life/Health Underwriting -
Life/Health Underwriting State Farm Life Insurance Company; Executive
Assistant, Regional Liaison, Division Manager,
Underwriting Superintendent, Underwriting
Supervisor - Life Underwriting - State
Farm Insurance Companies (1974-1997)
- -------------------------------------------------------------------------------------------------------------
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 Senior Vice President Senior Vice President and General Counsel -
and General Counsel State 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 since 1997 (Vice
President and General Counsel from 1993-1997);
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 Vice President and Vice President and Controller - Life - State
Controller - Life Farm Life Insurance Company, State Farm Annuity
and Life Insurance Company, and State Farm Life
and Accident Assurance Company (1997-present);
Controller - State Farm Life Insurance Company,
State Farm Annuity and Life Insurance Company,
and State Farm Life and Accident Assurance
Company (through 1997)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE>
<TABLE>
<S> <C> <C>
Robert Myer Vice President - Vice President - Marketing Development
Life/Health Field Services (1996 - 1997) - State Farm Life Insurance
Company; Executive Assistant (1995 - 1996),
Agency Director (1992 - 1995) and Agency
Manager (1990 - 1992) -State Farm Insurance
Companies
- -------------------------------------------------------------------------------------------------------------
</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 THE TRUST
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.
-36-
<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 Trust. State Farm Investment Management Corp. ("SFIM"), a wholly
owned subsidiary of State Farm Mutual Automobile Insurance Company, serves as
investment adviser to the Trust. SFIM has engaged 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 Trust.
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
-37-
<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.
-38-
<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.
-39-
<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,
-40-
<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 (as defined in agreements between State Farm
VP Management Corp. and its registered representatives) 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 Senior Vice
President and General Counsel of State Farm. Sutherland, Asbill & Brennan
LLP of Washington, D.C. has provided advice on matters relating to the
federal securities laws.
Experts. The statutory basis statements of admitted assets, liabilities
and surplus of State Farm Life Insurance Company as of December 31, 1996 and
1995, and the related statutory basis statements of income and changes in
surplus, and cash flows for the years then ended, appearing in this prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants, with
offices in Chicago, Illinois, whose report thereon is set forth elsewhere
herein, and are included in reliance upon the authority of such firm as experts
in accounting and auditing. As stated in their report, these financial
statements were prepared by State Farm in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Illinois (statutory basis), which practices differ from generally accepted
accounting principles (GAAP). The effect on the financial statements of the
variances between the statutory basis of accounting and GAAP, although not
reasonably determinable, are presumed to be material. Therefore, their report
contains a qualified opinion on the financial statements of State Farm in
conformity with GAAP, but an unqualified opinion in conformity with statutory
basis accounting. Actuarial matters included in this prospectus have been
examined by Gerry Brogla, F.S.A., Actuary of State Farm, whose opinion is filed
as an exhibit to the registration statement.
Financial Statements. The audited statutory basis statements of admitted
assets, liabilities and surplus of State Farm Life Insurance Company as of
December 31, 1996 and 1995, and the related statutory basis statements of income
and changes in surplus, and cash flows for the years then ended, as well as the
Report of the Independent Accountants, plus unaudited interim statutory basis
statements of admitted assets, liabilities and surplus of State Farm Life
Insurance Company as of March 31, June 30, and September 30, 1997, appear on
the following pages. The financial statements of State Farm should be
considered only as bearing on our ability to meet our obligations under the
Policies. THEY SHOULD NOT BE CONSIDERED AS BEARING ON THE INVESTMENT
PERFORMANCE OF THE ASSETS HELD IN THE VARIABLE ACCOUNT. No financial statements
are presented in this prospectus for the Variable Account because it has yet
to commence operations.
-41-
<PAGE>
* Surrender charges for other Policy Months may differ depending on the
particular Policy Year.
Appendix A
Example of Surrender Charges
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Beginning Policy issued to Male age 35 Policy issued to Male age 50
- --------------------------------------------------------------------------------------------------------------
$50,000 Increase $50,000 Increase
in Basic Amount, in Basic Amount,
Policy Policy $100,000 Initial Beginning of $100,000 Initial Beginning of
Year Month Basic Amount Year 16 (Age 50) Basic Amount Year 16 (Age 65)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 1 $ 21.50* $ 0.00 $ 53.00* $ 0.00
- --------------------------------------------------------------------------------------------------------------
1 6 129.00 0.00 318.00 0.00
- --------------------------------------------------------------------------------------------------------------
1 12 258.00 0.00 636.00 0.00
- --------------------------------------------------------------------------------------------------------------
2 6 387.00 0.00 954.00 0.00
- --------------------------------------------------------------------------------------------------------------
2 12 516.00 0.00 1,272.00 0.00
- --------------------------------------------------------------------------------------------------------------
3 1 516.00 0.00 1,272.00 0.00
- --------------------------------------------------------------------------------------------------------------
4 1 516.00 0.00 1,272.00 0.00
- --------------------------------------------------------------------------------------------------------------
5 1 516.00 0.00 1,272.00 0.00
- --------------------------------------------------------------------------------------------------------------
6 1 516.00 0.00 1,272.00 0.00
- --------------------------------------------------------------------------------------------------------------
7 1 412.80 0.00 1,017.60 0.00
- --------------------------------------------------------------------------------------------------------------
8 1 309.60 0.00 763.20 0.00
- --------------------------------------------------------------------------------------------------------------
9 1 206.40 0.00 508.80 0.00
- --------------------------------------------------------------------------------------------------------------
10 1 103.20 0.00 254.40 0.00
- --------------------------------------------------------------------------------------------------------------
11 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
12 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
13 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
14 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
15 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
16 1 0.00 26.50* 0.00 40.42*
- --------------------------------------------------------------------------------------------------------------
16 6 0.00 159.00 0.00 242.50
- --------------------------------------------------------------------------------------------------------------
16 12 0.00 318.00 0.00 485.00
- --------------------------------------------------------------------------------------------------------------
17 6 0.00 477.00 0.00 727.50
- --------------------------------------------------------------------------------------------------------------
17 12 0.00 636.00 0.00 970.00
- --------------------------------------------------------------------------------------------------------------
18 1 0.00 636.00 0.00 970.00
- --------------------------------------------------------------------------------------------------------------
19 1 0.00 636.00 0.00 970.00
- --------------------------------------------------------------------------------------------------------------
20 1 0.00 636.00 0.00 970.00
- --------------------------------------------------------------------------------------------------------------
21 1 0.00 636.00 0.00 970.00
- --------------------------------------------------------------------------------------------------------------
22 1 0.00 508.80 0.00 776.00
- --------------------------------------------------------------------------------------------------------------
23 1 0.00 381.60 0.00 582.00
- --------------------------------------------------------------------------------------------------------------
24 1 0.00 254.40 0.00 388.00
- --------------------------------------------------------------------------------------------------------------
25 1 0.00 127.20 0.00 194.00
- --------------------------------------------------------------------------------------------------------------
26 1 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* In this example, the Surrender Charge increases by approximately this amount
each month through the first 2 years after issue or increase. The Surrender
Charge then remains level through the end of the 6th year. Starting at the
beginning of the 7th year after issue or increase, the surrender charge
decreases by 1/5 at the beginning of each year, until it is zero in the 11th
year.
-42-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
REPORT ON AUDIT OF FINANCIAL STATEMENTS - STATUTORY BASIS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
State Farm Life Insurance Company
Bloomington, Illinois
We have audited the accompanying statements of admitted assets, liabilities,
capital and surplus - statutory basis of State Farm Life Insurance Company as of
December 31, 1996 and 1995, and the related statements of operations and changes
in capital and surplus - statutory basis and cash flows - statutory basis for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described more fully in Note 2, these financial statements were prepared by
the Company in conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Illinois (statutory-basis), which
practices differ from generally accepted accounting principles. When statutory-
basis financial statements are presented for purposes other than for filing with
a regulatory agency, generally accepted auditing standards require that an
auditor's report on them state whether they are presented fairly in conformity
with generally accepted accounting principles. The effects on the financial
statements of the variances between the statutory basis of accounting and
generally accepted accounting principles, although not reasonably determinable,
are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of State Farm Life Insurance Company as of December 31, 1996 and 1995, or the
results of its operations or its cash flows for the years then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus of
State Farm Life Insurance Company as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended, on the
basis of accounting described in Note 2.
Our audit was conducted for the purpose of expressing an opinion on the
statutory financial statements taken as a whole. The Supplemental Schedule of
Assets and Liabilities is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic statutory financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic statutory financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 18, 1997
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual
Automobile Insurance Company)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL
AND SURPLUS - STATUTORY BASIS
<TABLE>
<CAPTION>
December 31, 1996 and 1995
ADMITTED ASSETS
1996 1995
---- ----
<S> <C> <C>
Bonds:
United States Government $ 6,860,623,000 $ 6,515,198,370
Canadian Government and subdivisions 379,881,699 363,854,322
Other governmental units 1,158,967,461 434,770,091
Public utilities 2,758,841,298 2,685,227,901
Industrial and other 5,758,389,561 5,681,259,956
--------------- ---------------
$16,916,703,019 $15,680,310,640
Stocks:
Preferred 2,242,844 2,289,969
Unaffiliated common 193,409,806 131,668,698
Affiliated common 6,418,240 6,228,323
--------------- ---------------
202,070,890 140,186,990
--------------- ---------------
Mortgage loans 1,740,788,533 1,668,173,228
--------------- ---------------
Real estate:
Held for investment 11,922,963 12,541,645
--------------- ---------------
Policy loans 1,774,279,034 1,630,193,391
Cash 13,538,051 26,659,775
Short-term investments 357,607,839 363,005,489
Other invested assets 362,587,340 332,998,579
--------------- ---------------
Total cash and invested assets 21,379,497,669 19,854,069,737
Premiums deferred and uncollected 101,923,216 107,359,413
Investment income due and accrued 378,330,344 358,672,696
Federal income tax recoverable
(including from affiliates) 673,112 1,574,254
Other assets 19,170,462 21,264,939
--------------- ---------------
Total admitted assets $21,879,594,803 $20,342,941,039
=============== ===============
<CAPTION>
LIABILITIES
1996 1995
---- ----
<S> <C> <C>
Aggregate reserves for life policies and contracts $14,484,460,302 $13,500,396,672
Reserve for contracts without life contingencies 901,529,520 798,544,863
Policy and contract claims 67,641,434 64,949,107
Policyholders' dividend accumulations 2,734,155,442 2,524,922,896
Dividends to policyholders payable in the following year 612,205,250 589,097,732
Advance premiums, deposits and other policy and
contract liabilities 244,645,952 245,800,822
Interest maintenance reserve 14,485,937 18,593,739
Commissions payable 29,545,491 31,724,749
Federal income taxes (payable to affiliates) 66,267,037 65,053,120
Federal income taxes due or accrued 3,891,909 1,700,622
Other liabilities 146,175,777 132,527,202
Asset valuation reserve 179,808,221 159,408,833
--------------- ---------------
Total Liabilities 19,484,812,272 18,132,720,357
--------------- ---------------
<CAPTION>
CAPITAL AND SURPLUS
Common stock, $100 par value; 30,000 shares
authorized, issued and outstanding 3,000,000 3,000,000
Paid-in surplus 21,846,419 21,846,419
Unassigned surplus 2,369,936,112 2,185,374,263
--------------- ---------------
Total capital and surplus 2,394,782,531 2,210,220,682
--------------- ---------------
Total liabilities, capital and surplus $21,879,594,803 $20,342,941,039
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF OPERATIONS - STATUTORY BASIS
for the years ended December 31, 1996 and 1995
-------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income:
Premiums and annuity considerations $2,355,457,573 $2,370,508,675
Net investment income 1,547,424,397 1,459,422,136
Considerations for supplementary contracts and dividend accumulations 560,830,376 516,286,483
Other 1,741,434 1,440,506
-------------- --------------
4,465,453,780 4,347,657,800
-------------- --------------
Benefits and other expenses:
Death benefits 422,531,096 383,051,488
Surrender benefits and other fund withdrawals 591,718,769 457,394,012
Other benefits and claims 144,693,150 122,342,813
Payments on supplementary contracts and dividend accumulations 540,037,211 494,584,567
Increase in policy and contract reserves 1,271,972,866 1,450,860,892
Commissions 176,118,214 216,945,641
General insurance expenses 271,396,836 251,871,575
Taxes, licenses and fees 56,230,565 50,760,753
-------------- --------------
3,474,698,707 3,427,811,741
-------------- --------------
Net gain from operations before dividends to policyholders
and federal income taxes 990,755,073 919,846,059
Dividends to policyholders 600,978,261 577,950,900
-------------- --------------
Net gain from operations after dividends to policyholders and
before federal income taxes 389,776,812 341,895,159
Federal and foreign income taxes incurred (excluding capital gains) 186,631,211 173,547,098
-------------- --------------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized gains 203,145,601 168,348,061
Net realized capital gains or (losses) less capital gains tax of
$387,878 and $763,542 (excluding ($3,593,909) and
$5,821,383 transferred to the IMR) (15,264,507) (6,786,711)
-------------- --------------
Net income $ 187,881,094 $ 161,561,350
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
for the years ended December 31, 1996 and 1995
-------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Common stock:
Balance at beginning and end of year $ 3,000,000 $ 3,000,000
-------------- --------------
Paid-in surplus:
Balance at beginning and end of year 21,846,419 21,846,419
-------------- --------------
Unassigned surplus:
Balance at beginning of year 2,185,374,263 2,019,610,890
Net income 187,881,094 161,561,350
Net unrealized capital gains 29,049,906 30,325,928
Change in nonadmitted assets (485,675) 2,231,889
Change in asset valuation reserve (20,399,388) (27,155,103)
Dividends to stockholder (parent company) (480,000) (480,000)
Change in voluntary investment reserve 8,258,253 (720,691)
Change in reserve on account of change in valuation basis (19,262,341) 0
-------------- --------------
Balance at end of year 2,369,936,112 2,185,374,263
-------------- --------------
Total capital and surplus $2,394,782,531 $2,210,220,682
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
for the years ended December 31, 1996 and 1995
--------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash from operations:
Premiums and annuity considerations $2,371,362,482 $2,379,986,546
Other premiums, considerations and
deposits, allowances and reserve
adjustments, and other income 562,058,203 517,197,511
Investment income received (excluding
realized gains/losses and net of
investment expenses) 1,550,920,836 1,451,810,879
Life and accident and health
benefits paid (443,355,755) (400,558,369)
Surrender benefits and other fund
withdrawals paid (591,718,769) (457,394,012)
Other benefits to policyholders paid (662,294,112) (594,463,187)
Commissions, other expenses and taxes paid
(excluding federal income taxes) (502,124,919) (513,766,712)
Dividends to policyholders paid (577,870,743) (543,867,712)
Federal income taxes paid (excluding tax
on capital gains) (178,577,250) (256,454,656)
Other operating expenses paid (233,124) (190,783)
-------------- --------------
Net cash from operations 1,528,166,849 1,582,299,505
-------------- --------------
Cash from investments:
Proceeds from investments sold, matured
or repaid:
Bonds 1,242,543,086 1,096,682,510
Stocks 6,712,066 425,524
Mortgage loans 221,661,198 154,518,097
Other invested assets 38,587,669 34,502,131
Net gains on cash and short-term
investments 29,114 25,688
-------------- --------------
Total investment proceeds 1,509,533,133 1,286,153,950
Tax on capital gains 4,135,492 (21,437,819)
-------------- --------------
Total cash from investments 1,505,397,641 1,307,591,769
-------------- --------------
Cost of investments acquired (long-term
only):
Bonds 2,510,563,797 2,334,276,726
Stocks 33,987,140 25,519,509
Mortgage loans 328,347,558 309,612,823
Other invested assets 45,710,481 16,101,056
-------------- --------------
Total investments acquired 2,918,608,976 2,685,510,114
-------------- --------------
Increase (decrease) in policy loans and
premium notes 144,134,406 133,373,747
-------------- --------------
Net cash from investments (1,557,345,741) (1,511,292,092)
-------------- --------------
Cash from financing and miscellaneous
sources:
Other cash provided 16,652,380 23,221,397
Dividends to stockholders paid (480,000) (480,000)
Other applications (net) (5,512,862) (11,082,179)
-------------- --------------
Net cash from financing and miscellaneous
sources 10,659,518 11,659,218
Net change in cash and short-term
investments (18,519,374) 82,666,631
Cash and short-term investments, beginning
of year 389,665,264 306,998,633
-------------- --------------
Cash and short-term investments, end of year $ 371,145,890 $ 389,665,264
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
1. Nature of Business Operations
-----------------------------
State Farm Life Insurance Company (the Company) is a wholly-owned
subsidiary of State Farm Mutual Automobile Insurance Company (SFMAIC). The
Company is licensed in 46 states, the District of Columbia and Canada for
the provinces of Alberta, New Brunswick and Ontario, and primarily markets
individual life and annuity products through an independent contractor
agency force. The Company's individual life insurance products include
traditional whole life, universal life and term insurance which together
account for approximately 83% of premium revenue. Individual annuity
products account for an additional 15%. The Company also writes small
amounts of group credit life and employee group life.
2. Summary of Significant Accounting Practices
-------------------------------------------
The accompanying financial statements have been prepared on a statutory
basis in accordance, in all material respects, with accounting practices
prescribed in the National Association of Insurance Commissioners (NAIC)
Annual Statement Instructions and Accounting Practices and Procedures
manuals, as well as state laws, regulations, and general administrative
rules. Statutory basis accounting also permits the use of accounting
practices which differ from those prescribed in the sources referred to
above, when such practices are approved by the insurance department of the
insurer's state of domicile. State Farm Life Insurance Company has used no
such permitted accounting practices in the preparation of these financial
statements that would be deemed to have a material effect on the
determination of its financial position as of December 31, 1996 and
December 31, 1995, or the results of its operations for the years then
ended.
Statutory basis accounting is a comprehensive basis of accounting other
than generally accepted accounting principles (GAAP).
The preparation of financial statements in conformity with statutory
accounting practices requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Significant accounting practices include:
A. Investments
-----------
Bonds and stocks are stated at values prescribed by the NAIC. In
general, bonds are stated at amortized cost, preferred stocks at cost
unless the stock is of lower quality, then stated at the lower of
cost or market value, and common stocks, other than investment in
subsidiary, at market value. Under GAAP, equity securities that have
readily determinable fair values and debt securities would be
classified into three categories: held-to-maturity, trading and
available-for-sale. Held-to-maturity securities would be reported at
amortized cost. Trading securities would be reported at fair value,
with unrealized gains and losses included in earnings. Available-for-
sale securities would be reported at fair value, with unrealized
gains and losses, net of applicable taxes, reported in a separate
component of equity.
6
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
2. Summary of Significant Accounting Practices, continued
------------------------------------------------------
A. Investments, continued
----------------------
Prepayment assumptions for loan-backed bonds are internal estimates
based on historical prepayment patterns. Prepayment assumptions for
structured securities are based on estimates from various data
reporting services. These assumptions are consistent with the current
interest rate and economic environment. The retrospective adjustment
method is used to value all securities.
Mortgage loans on real estate, all of which are first liens, are
carried at the aggregate unpaid principal balances. The Company had
voluntary reserves for mortgage loans, in excess of those established
for the asset valuation reserve, in the amount of $0 and $8,258,253
at December 31, 1996 and 1995, respectively.
Real estate is carried at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets. Accumulated depreciation on
such real estate is $13,065,538 and $12,446,856 at December 31, 1996
and 1995, respectively.
Policy loans are stated at the aggregate of unpaid loan balances
which are not in excess of cash surrender values of related policies.
Short-term investments are stated at cost which approximates market.
Other invested assets consist principally of investments in limited
partnerships and are recorded under the equity method of accounting.
Investment in a wholly-owned subsidiary is carried at its statutory
net equity. Under GAAP reporting, all majority-owned subsidiaries
would be consolidated. The net change in the unrealized gain or loss
of the wholly-owned subsidiary for the years ended December 31, 1996
and 1995, as reflected in surplus, is $189,917 and $199,073,
respectively.
Investment income is recorded when earned. Realized gains and losses
on sale or maturity of investments are determined on the basis of
specific identification. Aggregate unrealized capital gains and
losses are credited or charged directly to unassigned surplus.
B. Premiums Deferred and Uncollected
---------------------------------
Premiums deferred and uncollected represent modal premiums, either
due and uncollected or not yet due, where policy reserves have been
provided on the assumption that the full premium for the current
policy year has been collected. Also, where policy reserves have been
provided on a continuous premium assumption, premiums uncollected are
similarly defined.
7
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
2. Summary of Significant Accounting Practices, continued
------------------------------------------------------
C. Aggregate Reserves for Life Policies and Contracts
--------------------------------------------------
Policy reserves on life insurance are based on statutory mortality
and interest requirements and are computed using principally net
level and modified preliminary term methods with interest rates
ranging primarily from 2.5% to 5.5%. The use of a modified reserve
basis partially offsets the effect of immediately expensing policy
acquisition costs. Policy reserves on annuities are based on
statutory mortality and interest requirements with interest rates
ranging primarily from 2.5% to 8%. GAAP reserves are based on
mortality, lapse, withdrawal and interest rates that are based on
Company experience.
D. Policyholders' Dividends
------------------------
All of the Company's life insurance business is written on the
participating basis. Policyholders' dividends are determined annually
by the Board of Directors. Amounts declared and estimated to be
payable to policyholders in the forthcoming year have been included
in the accompanying financial statements as a liability based on
approved dividend scales. Under GAAP, dividends are anticipated and
may be considered as a planned contractual benefit when computing the
value of future policy benefits.
E. Federal and Foreign Income Taxes
--------------------------------
The Company's federal income tax return is consolidated with SFMAIC
and its affiliates.
The consolidated federal income tax liability is apportioned to each
entity in accordance with a written agreement. The allocation is
based upon separate return calculations with current credit for net
losses and tax credits. Intercompany federal income tax balances are
settled as follows: 1) intercompany federal income tax receivables
and payables which relate to the current tax year will be settled
within ninety (90) days; 2) any refunds of federal income tax will be
settled within ninety (90) days of receipt of the refund; and 3) any
payments of federal income tax due will be settled within ninety (90)
days of payment of the tax due.
The Company's provision for federal income taxes is computed in
accordance with those sections of the Internal Revenue Code
applicable to life insurance companies and is based on income which
is currently taxable. Under GAAP, deferred federal income taxes would
be provided for temporary differences between the tax basis and
financial statement basis of assets and liabilities.
8
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
2. Summary of Significant Accounting Practices, continued
------------------------------------------------------
F. Pension Plans and Other Postretirement Benefits
-----------------------------------------------
Pension Plans
The Company and affiliated insurers sponsor two defined benefit plans
covering substantially all of its employees. One plan is for the
United States employees and the other is for Canadian employees. For
the United States plan, the Company's funding policy is to contribute
(1) at least the current service cost on a current basis and to fund
any unfunded liabilities over the appropriate period and (2) not more
than the maximum amount that may be deducted for federal income tax
purposes.
For the Canadian plan, the Company's funding policy is to comply with
the funding requirements in Canada and to comply with the United
States requirements for foreign plans.
Contributions are allocated among participating companies based on
ratios of annual compensation rates.
Under GAAP, periodic net pension expense would be based on the cost
of incremental benefits for employee service during the period,
interest on the projected benefit obligation, actual return on plan
assets and amortization of actuarial gains and losses rather than the
funding policy.
Other Postretirement Benefits
The Company and its affiliated insurers currently provide certain
health care and life insurance benefits pursuant to plans sponsored
by its parent, SFMAIC. Eligible former employees, eligible former
agents, and their eligible dependents currently may participate in
these plans. For United States employees and agents, health care
benefits generally include comprehensive medical coverage. For
Canadian employees and agents, the health care benefits provided by
the Company supplement those provided by the Canadian government.
As a result of the policy promulgated by the NAIC concerning the
treatment of certain postretirement benefits, beginning in 1993, the
Company changed its method of accounting for the costs of the
potential health care and life insurance benefits provided to post-
career associates to the accrual method, and elected to amortize its
transition obligation attributable to these potential benefits over
twenty years.
GAAP accounting for postretirement benefits requires an additional
accrual for the estimated cost of the potential benefit obligation
under the plans for active, but not yet eligible, employees and their
dependents.
9
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
2. Summary of Significant Accounting Practices, continued
------------------------------------------------------
G. Interest Maintenance Reserve and Asset Valuation Reserve
--------------------------------------------------------
Interest Maintenance Reserve (IMR) - Realized capital gains and
losses, due to interest rate fluctuations, net of tax on short-term
and long-term fixed income investments are applied in this
calculation. These gains and losses are amortized into income over
the approximate remaining life of the investment sold. The IMR is not
calculated under GAAP.
Asset Valuation Reserve (AVR) - Realized gains and losses due to
credit risk fluctuations and unrealized gains and losses on
applicable invested assets are reflected in the calculation of this
reserve. Changes in the AVR are charged or credited directly to
unassigned surplus and include a voluntary contribution in 1996 of $0
and $943,808 in 1995. The AVR is not calculated under GAAP.
H. Recognition of Premiums and Annuity Considerations and Related
--------------------------------------------------------------
Expenses
--------
Premiums and annuity considerations are recognized over the premium
paying period of the policies, whereas acquisition costs such as
commissions and other costs related to new business are expensed as
incurred. Under GAAP, certain of the Company's premium and annuity
considerations and initial reserves (e.g. on universal life policies)
would be excluded from income and the change in reserves.
Additionally, acquisition costs under GAAP are capitalized and
amortized over the policy period.
The discussion above highlights the significant variances between the
statutory accounting practices followed by the Company and GAAP. The effect
of these differences has not been determined but is presumed to be
material.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
10
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
----------------
3. Bonds and Other Debt Securities
-------------------------------
The amortized cost and estimated market values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US government
corporations and agencies $ 8,096,425,157 $ 531,907,891 ($27,458,222) $ 8,600,874,826
Obligations of states and
political subdivisions 42,570,677 2,427,503 (64) 44,998,116
Debt securities issued by
foreign governments 396,886,866 33,910,579 (70,117) 430,727,328
Corporate securities 8,738,428,158 291,083,163 (60,606,944) 8,968,904,377
--------------- -------------- ------------ ---------------
Totals $17,274,310,858 $ 859,329,136 ($88,135,347) $18,045,504,647
=============== ============== ============ ===============
</TABLE>
<TABLE>
December 31, 1995
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US government
corporations and agencies $ 6,970,727,109 $ 839,830,662 ($6,631,793) $ 7,803,925,978
Obligations of states and
political subdivisions 56,521,044 5,129,125 (8,814) 61,641,355
Debt securities issued by
foreign governments 372,250,495 24,592,536 (58,609) 396,784,422
Corporate securities 8,643,817,482 529,224,549 (19,560,792) 9,153,481,239
--------------- -------------- ------------ ---------------
Totals $16,043,316,130 $1,398,776,872 ($26,260,008) $17,415,832,994
=============== ============== ============ ===============
</TABLE>
11
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
-------------
3. Bonds and Other Debt Securities, continued
------------------------------------------
The amortized cost and estimated market value of debt securities, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturity because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Estimated
Amortized Market
Cost Value
--------------- ---------------
<S> <C> <C>
Due in one year or less $ 1,545,473,243 $ 1,562,406,972
Due after one year through five years 5,665,388,673 5,820,013,957
Due after five years through ten years 7,859,356,966 8,314,775,985
Due after ten years 2,204,091,976 2,348,307,733
--------------- ---------------
Totals $17,274,310,858 $18,045,504,647
=============== ===============
</TABLE>
Gross proceeds and realized gains and losses on bonds sold at the discretion
of the Company for the year ended December 31, were:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Proceeds $273,806,295 $226,475,143
Gross gains 42,275 4,009,992
Gross losses 10,137,892 56,594
</TABLE>
At December 31, 1996, bonds carried at amortized cost of $419,084,758 were
on deposit with regulatory authorities.
12
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
4. Equity Investments
------------------
The cost of investments in preferred and common stocks and gross unrealized
gains and losses from those investments are as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
Gross Gross
Unrealized Unrealized
Cost Gains Losses
------------ ----------- ----------
<S> <C> <C> <C>
Preferred $ 2,402,781 $ 0 $ 159,937
Unaffiliated common 112,700,098 83,168,541 2,458,833
Affiliated common 3,500,000 2,918,240 0
December 31, 1995
-----------------
Preferred $ 2,455,156 $ 0 $ 165,188
Unaffiliated common 83,599,178 48,626,612 557,092
Affiliated common 3,500,000 2,728,323 0
</TABLE>
Gross realized gains and losses consist of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
Gains Losses Gains Losses
----- ------ ----- ------
<S> <C> <C> <C> <C>
Preferred $ 18,789 $0 $54,195 $74,811
Unaffiliated common 1,754,686 4 1 26,411
</TABLE>
13
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
5. Investment in Subsidiary
------------------------
State Farm Annuity and Life Insurance Company (SFAL), a company authorized
to sell life and health insurance, is an affiliate of the Company through
direct 100% ownership. To date however, SFAL has conducted no insurance
business. Summary financial position and operating results are noted below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Admitted assets $6,463,414 $6,260,393
Liabilities 44,958 32,164
Capital and surplus 6,418,456 6,228,229
Net income 191,801 200,546
</TABLE>
6. Net Investment Income
---------------------
The components of net investment income earned by type of investment for
the years ended December 31, 1996 and 1995, were as follows
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bonds $1,248,460,909 $1,179,531,113
Mortgage loans 151,689,415 146,782,359
Policy loans 113,871,892 106,382,488
Short-term investments 21,799,607 20,470,410
Other 23,225,880 18,811,147
-------------- --------------
Gross investment income 1,559,047,703 1,471,977,517
Investment expenses (11,004,624) (11,936,699)
Depreciation (618,682) (618,682)
-------------- --------------
Net investment income $1,547,424,397 $1,459,422,136
============== ==============
</TABLE>
14
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
7. Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used to estimate the fair value
of each significant class of financial instruments for which it is
practicable to estimate that value:
Bonds and Short-term Investments
Fair values for issues traded on public exchanges are based on the market
price in such exchanges at year end. For issues that are not traded on
public exchanges, fair values were estimated based on market comparables
or internal analysis.
Mortgage Loans
Fair values were estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Preferred Stocks and Unaffiliated Common Stocks
Fair values were determined by the Securities Valuation Office (SVO) of
the NAIC and approximate the values determined in public exchanges or
comparable values. For issues that were not evaluated by the SVO, fair
values were estimated based on market comparables or internal analysis.
Cash
The carrying amount is a reasonable estimate of fair value.
Structured Annuity Reserves and other similar items
Fair values were estimated by discounting future annuity payments at the
interest rates in effect for similar contracts at year end.
Deferred Annuities
Fair values were approximated by the amount due to the annuity holder as
if the annuity contract was surrendered at year end.
Advance Premiums
Fair values were approximated by the amount due to the policyholder as if
the policy was surrendered at year end.
Settlement Options Without Life Contingencies
Settlement options without life contingencies are similar to demand
deposits. The fair value is the amount payable on demand at year end.
15
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
--------------
7. Fair Value of Financial Instruments, continued
----------------------------------------------
The estimated fair values and statement values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Fair Statement Fair Statement
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial assets:
Bonds $17,688,083,312 $16,916,703,019 $17,052,655,435 $15,680,310,641
Bond reserves 0 82,797,270 0 81,961,420
--------------- --------------- --------------- ---------------
$17,688,083,312 $16,833,905,749 $17,052,655,435 $15,598,349,221
=============== =============== =============== ===============
Mortgage loans $ 1,746,961,499 $ 1,740,788,533 $ 1,740,347,531 $ 1,668,173,228
Mortgage loan reserves 0 8,818,835 0 17,737,208
--------------- --------------- --------------- ---------------
$ 1,746,961,499 $ 1,731,969,698 $ 1,740,347,531 $ 1,650,436,020
=============== =============== =============== ===============
Preferred stock $ 1,731,383 $ 2,242,844 $ 1,782,230 $ 2,289,969
Preferred stock reserves 0 67,150 0 79,664
--------------- --------------- --------------- ---------------
$ 1,731,383 $ 2,175,694 $ 1,782,230 $ 2,210,305
=============== =============== =============== ===============
Unaffiliated common stock $ 193,409,806 $ 193,409,806 $ 131,668,699 $ 131,668,699
Unaffilited common stock reserves 0 58,022,941 0 39,500,610
--------------- --------------- --------------- ---------------
$ 193,409,806 $ 135,386,865 $ 131,668,699 $ 92,168,089
=============== =============== =============== ===============
Cash $ 13,538,051 $ 13,538,051 $ 26,659,775 $ 26,659,775
Short-term investments $ 357,421,335 $ 357,607,839 $ 363,177,559 $ 363,005,489
Short-term reserves 0 1,785,221 0 2,424,216
--------------- --------------- --------------- ---------------
$ 357,421,335 $ 355,822,618 $ 363,177,559 $ 360,581,273
=============== =============== =============== ===============
Financial liabilities:
Structured annuity reserves
and other similar items $ 316,103,692 $ 314,935,733 $ 294,946,081 $ 269,951,731
Deferred annuity reserves 3,500,004,263 3,505,031,240 3,459,658,569 3,465,810,423
Advance premiums 74,418,449 75,352,648 79,366,680 80,619,602
Settlement options without life
contingencies 586,593,787 586,593,787 528,593,132 528,593,132
</TABLE>
8. Federal Income Taxes
--------------------
The difference between the Company's effective income tax rate and the
statutory rate for both 1996 and 1995 is primarily due to the non-
deductible policyholder dividends, gross deferred premiums, unamortized
deferred acquisition costs, tax reserves, and investment income associated
with other invested assets.
The examination of the Company's federal income tax returns through 1987
has been closed by the Internal Revenue Service. Returns for 1988, 1989 and
1990 have been examined. Although several issues remain open, no open issue
would have a material effect on unassigned surplus. Returns for 1991, 1992
and 1993 are currently under examination. At this time, there have been no
issues raised that would require adjustments which would have a material
effect on unassigned surplus.
16
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
------------
9. Pension Plans and Other Postretirement Benefits
-----------------------------------------------
Pension Plans
Plan benefits are based on years of credited service up to 35 years and the
employee's rate of annual compensation during the 5 consecutive years of
highest compensation for both the United States and Canadian plans.
For the United States Plan, the pension cost allocated to the Company for
its employees amounted to $5,004,649 and $5,065,602 in 1996 and 1995,
respectively. A comparison of accumulated plan benefits, determined in
accordance with Statement of Financial Accounting Standards No. 35, and
plan net assets for the noncontributory defined benefit pension plan of the
Company and its parent and other affiliates as of August 31, 1996 (the most
recent actuarial valuation date) and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Actuarial present value of accumulated
plan benefits:
Vested $2,620,702,754 $2,374,429,130
Nonvested 56,123,860 54,312,168
-------------- --------------
$2,676,826,614 $2,428,741,298
============== ==============
Net assets available for plan benefits $5,235,032,043 $4,514,976,310
============== ==============
</TABLE>
The assumed rate of return used in determining the actuarial present value
of vested and nonvested accumulated plan benefits was 7% as of August 31,
1996 and 1995.
For the Canadian Plan, pension cost allocated to the Company amounted to
$99,300 and $96,392 in 1996 and 1995, respectively. A comparison of
accumulated plan benefits and net assets of the non-contributory defined
benefit pension plan as of August 31, 1996 (the most recent actuarial
valuation date), and 1995 is presented below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated
plan benefits $34,439,874 $31,575,750
=========== ===========
Net assets available for plan benefits $69,278,013 $57,750,656
=========== ===========
</TABLE>
17
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
---------------
9. Pension Plans and Other Postretirement Benefits, continued
----------------------------------------------------------
Pension Plans, continued
The Company participates with its affiliates in a qualified defined
contribution plan for which substantially all employees are eligible.
Contributions are based on the performance of the Company and its
affiliates as well as matching a percentage of employee contributions (up
to specified limits). Such contributions for the years ended December 31,
1996 and 1995, were $1,199,686 and $1,213,322, respectively. Benefits,
generally available upon retirement, are paid from net assets available for
plan benefits.
Other Postretirement Benefits
The Company's share of the net post-career benefit cost for the year ended
December 31, 1996, was $8,193,662 and included paid benefits, the expected
cost of the potential health care and life insurance benefits for newly
eligible post-career associates, interest cost and amortization of the
transition obligation.
At December 31, 1996 and 1995 respectively, the Company's share of the
recorded unfunded post-career benefit obligation attributable to the
potential health care and life insurance benefits for post-career
associates was $25,324,027 and $18,431,865. The transition obligation for
these potential benefits is being amortized over twenty years, beginning in
1993. The Company's share of the remaining transition obligation was
$47,574,926 and $51,393,712 at December 31, 1996, and 1995 respectively.
The Company's share of unrecognized net gains or losses, resulting from
experience different from that assumed and/or changes in actuarial
assumptions was $5,850,177. The Company's share of the estimated cost of
the potential benefit obligation under the plans for active, but not yet
eligible employees, agents, and their qualifying dependents, at January 1,
1996, was $62,193,498 which is not accrued in these financial statements.
The discount rate used in determining the accumulated post-career benefit
obligation attributable to these potential benefits is 7%, and the health
care cost trend rate is 12%, graded to 6% over the following 6 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
Company's share of the post-career benefit obligation attributable to the
potential health care insurance benefits for post career associates by
$6,087,178 as of January 1, 1996 and the estimated eligibility and interest
cost components of the net periodic post-career benefit cost for 1996 by
$472,916.
The Company participates with its affiliates in an unfunded deferred
compensation plan for highly compensated employees and independent
contractor agents. The established liabilities reflected in these
statements were $1,367,353 and $1,379,176 for 1996 and 1995, respectively.
18
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
----------------
10. Related Party Transactions
--------------------------
The Company, its parent, and its affiliates share certain administrative,
occupancy and marketing expenses. Such expenses are allocated to the
Company based on time and usage studies and totaled approximately
$139,469,237 and $110,066,000 in 1996 and 1995, respectively.
At December 31, 1996, and 1995, total amounts owed to the parent company,
exclusive of federal income taxes, were approximately $59,517,000, and
$57,131,000, respectively. Total amounts owed to other affiliates were
approximately $24,000 and $65,000, respectively.
11. Contingent Liabilities
----------------------
The Company is subject to liabilities of a contingent nature which may from
time to time arise. Such liabilities could result from income tax matters,
guaranty fund assessments or other occurrences that take place in the
normal course of doing business. In addition, the life insurance industry
has not been exempt from the impact of an increasingly litigious
environment which is being experienced in the United States. Liabilities
arising as a result of these factors, or other such contingencies, that are
not provided for elsewhere in these financial statements are not reasonably
estimable and are not considered by management to be material in relation
to the financial position of the Company.
12. Dividend Restrictions
---------------------
The maximum amount of dividends which can be paid to shareholders of
insurance companies domiciled in Illinois without prior approval of the
Insurance Commissioner is subject to restrictions related to statutory
surplus and net income.
19
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
Supplemental Schedule of Assets and Liabilities
Schedule 1 - Selected Financial Data
December 31, 1996 and 1995
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Investment Income Earned
US government bonds $ 526,222,953 $ 530,370,735
Other bonds (unaffiliated) 722,237,956 649,160,378
Preferred stocks (unaffiliated) 133,756 150,028
Common stocks (unaffiliated) 2,654,918 1,858,728
Mortgage loans 151,689,415 146,782,359
Real estate 2,419,973 2,419,973
Premium notes, policy loans and liens 113,871,892 106,382,488
Cash on hand and on deposit 381,271 284,642
Short-term investments 21,799,607 20,470,410
Other invested assets 17,635,963 14,097,776
-------------- --------------
Gross investment income $1,559,047,703 $1,471,977,517
============== ==============
Real Estate Owned - Book Value less Encumbrances $ 11,922,963 $ 12,541,645
============== ==============
Mortgage Loans - Book Value
Residential mortgages $ 61,970,068 $ 77,178,594
Commercial mortgages 1,678,818,465 1,590,994,634
-------------- --------------
Total mortgage loans $1,740,788,533 $1,668,173,228
============== ==============
Mortgage Loans By Standing - Book Value
Good standing $1,674,419,922 $1,540,752,912
============== ==============
Good standing with restructured terms $ 65,507,684 $ 74,122,559
============== ==============
Overdue more than three months, not in
foreclosure $ 117,142 $ 0
============== ==============
Foreclosure in process $ 743,785 $ 53,297,758
============== ==============
</TABLE>
20
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
Supplemental Schedule of Assets and Liabilities
Schedule 1 - Selected Financial Data
December 31, 1996 and 1995
(cont.)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Other Long Term Assets - Statement Value $ 362,566,588 $ 332,000,513
=============== ===============
Bonds and Stocks of Parents, Subsidiaries
and Affiliates -
Book Value
Common stocks $ 3,500,000 $ 3,500,000
=============== ===============
Bonds and Short-Term Investments by Class
and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less $ 1,545,473,243 $ 1,353,529,467
Over 1 year through 5 years 5,665,388,673 4,921,657,600
Over 5 years through 10 years 7,859,356,966 7,490,031,716
Over 10 years through 20 years 2,142,286,717 2,208,744,124
Over 20 years 61,805,259 69,353,223
--------------- ---------------
Total by Maturity $17,274,310,858 $16,043,316,130
=============== ===============
Bonds by Class - Statement Value
Class 1 $16,782,010,348 $15,574,776,151
Class 2 398,415,262 372,208,191
Class 3 50,639,729 51,865,916
Class 4 43,106,036 44,465,872
Class 5 139,483 0
Class 6 0 0
--------------- ---------------
Total by Class $17,274,310,858 $16,043,316,130
=============== ===============
Total Bonds Publicly Traded $16,195,677,203 $14,955,364,286
=============== ===============
Total Bonds Privately Placed $ 1,078,633,655 $ 1,087,951,844
=============== ===============
Preferred Stocks - Statement Value $ 2,242,844 $ 2,289,969
=============== ===============
Common Stocks - Market Value $ 199,828,046 $ 137,897,021
=============== ===============
Short Term Investments - Book Value $ 357,607,839 $ 363,005,489
=============== ===============
Cash on Deposit $ 13,538,051 $ 24,843,116
=============== ===============
</TABLE>
21
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
Supplemental Schedule of Assets and Liabilities
Schedule 1 - Selected Financial Data
December 31, 1996 and 1995
(cont.)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Life Insurance In Force
Ordinary $289,668,061,000 $272,642,931,000
================ ================
Credit life $ 1,627,843,000 $ 1,438,251,000
================ ================
Group life $ 10,687,281,000 $ 10,397,714,000
================ ================
Amount of Accidental Death Insurance In
Force Under Ordinary Policies $ 8,680,207,000 $ 8,635,791,000
================ ================
Life Insurance Policies with Disability
Provisions in Force:
Ordinary 4,651,198 4,558,531
================ ================
Group life (certificates) 115,674 115,584
================ ================
Supplementary Contracts in Force:
Ordinary - not involving life contingencies
Amount on deposit $ 430,414,898 $ 408,002,563
================ ================
Income payable $ 2,490,316 $ 2,343,956
================ ================
Ordinary - involving life contingencies
Income payable $ 5,078,079 $ 4,760,377
================ ================
Annuities:
Ordinary
Immediate - amount of income payable $ 80,315,611 $ 70,432,775
================ ================
Deferred - fully paid account balance $ 3,480,300,066 $ 3,440,441,081
================ ================
Deferred - not fully paid - account
balance $ 798,077 $ 1,061,282
================ ================
Deposit Funds and Dividend Accumulations:
Deposit funds - account balance $ 100,153,807 $ 105,613,220
================ ================
Dividend accumulations - account balance $ 2,734,155,442 $ 2,524,922,896
================ ================
</TABLE>
22
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS -
STATUTORY BASIS
UNAUDITED
As of September 30, 1997
<TABLE>
<CAPTION>
Admitted Assets
Liabilities
Bonds: 1997
----
<S> <C>
United States Government 6,809,645,979
Canadian Government and subdivisions 393,905,268
Other governmental units 1,396,276,327
Public utilities 2,752,652,081
Industrial and other 6,188,286,677
-------------
17,540,766,332
Stocks:
Preferred 2,251,281
Unaffiliated common 236,342,731
Affiliated common 6,418,240
---------
245,012,252
-----------
Mortgage Loans 1,912,255,808
-------------
Real estate:
Held for investment 11,458,951
----------
Policy loans 1,882,069,038
Cash -6,525,895
Short-term investments 558,983,612
Other invested assets 333,071,979
-----------
Total cash and invested assets 22,477,092,077
Premiums deferred and uncollected 98,863,662
Investment income due and accrued 413,245,632
Federal income tax recoverable
(including from affiliates) 613,837
Other assets 25,648,030
----------
Total admitted assets 23,015,463,238
==============
<CAPTION>
1997
----
<S> <C>
Aggregate reserves for life policies
and contracts 15,174,233,109
Reserve for contracts without life
contingencies 949,223,205
Policy and contract claims 71,999,676
Policyholders' dividend accumulations 2,896,701,176
Dividends to policyholders payable in
the following year 633,022,104
Advance premiums, deposits and other
policy and contract liabilities 262,907,544
Interest maintenance reserve 15,303,695
Commissions payable 36,088,629
Federal income taxes (payable to
affiliates) 57,386,726
Federal income taxes due or accrued 4,458,079
Other liabilities 136,666,284
Asset valuation reserve 201,696,515
-----------
Total Liabilities 20,439,686,742
--------------
CAPITAL
AND SURPLUS
Common stock, $100 par value; 30,000
shares authorized,
issued and outstanding 3,000,000
Paid-in surplus 21,846,419
Unassigned surplus 2,550,930,076
-------------
Total capital and surplus 2,575,776,496
-------------
Total liabilities, capital and surplus 23,015,463,238
==============
</TABLE>
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
UNAUDITED
for the quarter ended September 30, 1997
------------
<TABLE>
<CAPTION>
September 30, 1997
------------------
Common stock:
<S> <C>
Balance at beginning and end of period 3,000,000
-------------
Paid-in surplus:
Balance at beginning and end of period 21,846,419
-------------
Unassigned surplus:
Balance at beginning of year 2,369,936,112
Net income 178,691,489
Net unrealized capital gains 25,908,125
Change in nonadmitted assets -1,357,355
Change in asset valuation reserve -21,888,294
Dividends to stockholder (parent company) -360,000
-------------
Balance at end of period 2,550,930,077
-------------
Total capital and surplus 2,575,776,496
=============
</TABLE>
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CASH FLOWS - STATUTORY BASIS - UNAUDITED
for the quarter ended September 30, 1997
------------
<TABLE>
<CAPTION>
September 30, 1997
-------------------
Cash from operations:
<S> <C>
Premiums and annuity considerations 1,826,082,284
Other premiums, considerations and deposits, allowances and reserve adjustments, and other 423,480,686
income income
Investment income received (excluding realized gains/losses and net of investment expenses) 1,205,196,110
Life and accident and health benefits paid -327,658,224
Surrender benefits and other fund withdrawals paid -500,728,720
Other benefits to policyholders paid -538,865,339
Commissions, other expenses and taxes paid (excluding federal income taxes) -397,068,183
Dividends to policyholders paid -452,211,461
Federal income taxes paid (excluding tax on capital gains) -152,819,262
Other operating expenses paid -136,232
--------
Net cash from operations 1,085,271,659
-------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 916,018,667
Stocks 3,797,074
Mortgage loans 156,422,037
Other invested assets 32,214,738
Net gains on cash and short-term investments -243
Miscellaneous proceeds 888
---
Total investment proceeds 1,108,453,161
Tax on capital gains 387,869
-------
Total cash from investments 1,108,065,292
-------------
Cost of investments acquired (long-term only):
Bonds 1,558,202,185
Stocks 17,861,624
Mortgage loans 325,617,353
Other invested assets 2,339,939
---------
Total investements acquired 1,904,021,101
-------------
Increase (decrease) in policy loans and premium notes 107,790,003
Net cash from investments -903,745,812
-------------
Cash from financing and miscellaneous sources:
Other cash provided 12,444,172
Dividends to stockholders paid -360,000
Other applications (net) -12,298,192
-------------
Net cash from financing and miscellaneous sources -214,020
Net change in cash and short-term investments 181,311,827
Cash and short-term investments, beginning of year 371,145,889
-------------
Cash and short-term investments, end of period 552,457,716
=============
</TABLE>
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF OPERATIONS - STATUTORY BASIS - UNAUDITED
for the quarter ended September 30, 1997
-------------
<TABLE>
<CAPTION>
September 30, 1997
-------------------
Income:
<S> <C>
Premiums and annuity considerations 1,814,478,527
Net investment income 1,219,538,954
Considerations for supplementary contracts and dividend accumulations 423,480,686
Other 815,440
-------
3,458,313,607
-------------
Benefits and other expenses:
Death benefits 331,749,851
Surrender benefits and other fund withdrawals 500,728,720
Other benefits and claims 110,833,905
Payments on supplementary contracts and dividend accumulations 428,581,106
Increase in policy and contract reserves 898,765,091
Commissions 145,842,104
General insurance expenses 209,446,597
Taxes, licenses and fees 36,297,259
----------
2,662,244,633
-------------
Net gain from operations before dividends to policyholders and
federal income taxes 796,068,974
Dividends to policyholders 473,028,315
-----------
Net gain from operations after dividends to policyholders and before
federal income taxes 323,040,659
Federal and foreign income taxes incurred (excluding capital gains) 143,315,082
-----------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized gains 179,725,577
Net realized capital gains or (losses) less capital gains tax of
$1,637,182 (excluding ($892,792) transferred to the IMR) (1,034,088)
----------
Net income 178,691,489
===========
</TABLE>
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
NOTE TO FINANCIAL STATEMENTS
The statement of admitted assets, liabilities, capital and surplus--statutory
basis as of September 30, 1997 and the statement of changes in capital and
surplus, operations, and cash flows--statutory basis for the nine-month period
ended September 30, 1997 are unaudited. The interim financial statements
reflect all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for the fair presentation of the
financial position, changes in capital and surplus, results of operations and
cash flows for the interim periods. The results of operations for the interim
period should not be considered indicative of results to be expected for the
full year.
<PAGE>
- -------------------
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES,
CAPITAL AND SURPLUS - STATUTORY BASIS - UNAUDITED
As of June 30, 1997
<TABLE>
<CAPTION>
Admitted Assets
1997
---------------
<S> <C>
Bonds:
United States Government $ 6,840,960,050
Canadian Government and subsidiaries 387,737,808
Other governmental units 1,321,824,485
Public utilities 2,756,931,379
Industrial and other 6,006,467,237
---------------
$17,313,920,595
Stocks:
Preferred 2,242,844
Unaffiliated common 222,570,381
Affiliated common 6,418,240
---------------
231,231,465
---------------
Mortgage Loans 1,894,099,970
---------------
Real estate:
Held for investment 11,613,621
---------------
Policy loans 1,843,095,179
Cash (6,165,698)
Short-term investments 455,468,674
Other invested assets 359,460,106
---------------
Total cash and invested assets 22,102,724,276
Premiums deferred and uncollected 104,451,778
Investment income due and accrued 391,571,406
Federal income tax recoverable
(including from affiliates) 880,514
Other assets 25,221,633
---------------
Total admitted assets $22,624,849,607
===============
Liabilities
Aggregate reserves for life policies and contracts $14,975,461,894
Reserve for contracts without life contingencies 934,893,614
Policy and contract claims 68,598,297
Policyholders' dividend accumulations 2,843,525,883
Dividends to policyholders payable in the following year 628,281,437
Advance premiums, deposits and other policy and contract
liabilities 247,813,537
Interest maintenance reserve 14,398,268
Commissions payable 27,381,106
Federal income taxes (payable to affiliates) 32,850,121
Federal income taxes due or accrued 2,619,893
Other liabilities 162,676,659
Asset valuation reserve 195,533,467
---------------
Total Liabilities 20,134,034,176
---------------
CAPITAL AND SURPLUS
Common stock, $100 par value: 30,000 shares authorized,
issued and outstanding 3,000,000
Paid-in surplus 21,846,419
Unassigned surplus 2,465,969,012
---------------
Total capital and surplus 2,490,815,431
---------------
Total liabilities, capital and surplus $22,624,849,607
===============
</TABLE>
-1-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS - UNAUDITED
for the quarter ended June 30, 1997
------------
<TABLE>
<CAPTION>
June 30, 1997
---------------
<S> <C>
Common stock:
Balance at beginning and end of period $ 3,000,000
--------------
Paid-in surplus:
Balance at beginning and end of period 21,846,419
--------------
Unassigned surplus:
Balance at beginning of year 2,369,936,112
Net income 96,058,365
Net unrealized capital gains 17,840,135
Change in nonadmitted assets (1,900,354)
Change in asset valuation reserve (15,725,246)
Dividends to stockholder (parent company) (240,000)
--------------
Balance at end of period 2,465,969,012
--------------
Total capital and surplus $2,490,815,431
==============
</TABLE>
-2-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CASH FLOWS - STATUTORY BASIS - UNAUDITED
for the quarter ended June 30, 1997
------------
<TABLE>
<CAPTION>
June 30, 1997
---------------
<S> <C>
Cash from operations:
Premiums and annuity considerations 1,245,987,617
Other premiums, considerations and deposits, allowances and reserve adjustments, and other income income 288,590,594
Investment income received (excluding realized gains/losses and net of investment expenses) 806,868,313
Life and accident and health benefits paid (225,340,316)
Surrender benefits and other fund withdrawals paid (343,109,309)
Other benefits to policyholders paid (352,787,352)
Commissions, other expenses and taxes paid (excluding federal income taxes) (273,663,391)
Dividends to policyholders paid (315,785,963)
Federal income taxes paid (excluding tax on capital gains) (125,308,408)
Other operating expenses paid (100,431)
--------------
Net cash from operations 705,351,354
--------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 600,563,169
Stocks 3,793,904
Mortgage loans 75,980,243
Other invested assets 5,611,094
Net gains on cash and short-term investments 959
Miscellaneous proceeds 888
--------------
Total investment proceeds 685,950,257
Tax on capital gains 387,868
--------------
Total cash from investments 685,526,389
--------------
Cost of investments acquired (long-term only):
Bonds 1,010,759,874
Stocks 12,877,279
Mortgage loans 228,621,270
Other invested assets 2,339,939
--------------
Total investments acquired 1,254,598,362
--------------
Increase (decrease) in policy loans and premium notes 68,816,144
Net cash from investments (637,852,117)
--------------
Cash from financing and miscellaneous sources:
Other cash provided 23,626,129
Dividends to stockholders paid (240,000)
Other applications (net) (12,728,279)
--------------
Net cash from financing and miscellaneous sources 10,657,850
Net change in cash and short-term investments 78,157,086
Cash and short-term investments, beginning of year 371,145,889
--------------
Cash and short-term investments, end of period $ 449,302,976
==============
</TABLE>
-3-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF OPERATIONS - STATUTORY BASIS - UNAUDITED
for the quarter ended June 30, 1997
------------
<TABLE>
<CAPTION>
June 30, 1997
---------------
<S> <C>
Income:
Premiums and annuity considerations $1,240,187,470
Net investment income 805,329,473
Considerations for supplementary contracts and dividend accumulations 288,399,265
Other 252,192
--------------
2,334,168,400
--------------
Benefits and other expenses:
Death benefits 215,749,920
Surrender benefits and other fund withdrawals 343,109,308
Other benefits and claims 73,051,989
Payments on supplementary contracts and dividend accumulations 290,847,699
Increase in policy and contract reserves 632,061,426
Commissions 98,117,249
General insurance expenses 138,270,982
Taxes, licenses and fees 24,351,708
--------------
1,815,560,281
--------------
Net gain from operations before dividends to policyholders and
federal income taxes 518,608,119
Dividends to policyholders 331,862,150
--------------
Net gain from operations after dividends to policyholders and before
federal income taxes 186,745,969
Federal and foreign income taxes incurred (excluding capital gains) 89,915,755
--------------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized gains 96,830,214
Net realized capital gains or (losses) less capital gains tax of
$884,187 (excluding ($27,092) transferred to the IMR) (771,849)
--------------
Net income $ 96,058,365
==============
</TABLE>
STATE FARM LIFE INSURANCE COMPANY
NOTE TO FINANCIAL STATEMENTS
The statement of admitted assets, liabilities, capital and surplus--statutory
basis as of June 30, 1997 and the statement of changes in capital and surplus,
operations, and cash flows--statutory basis for the six-month period ending
June 30, 1997 are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for fair presentation of the financial
position, changes in capital and surplus, results of operations and cash flows
for the interim periods. The results of operations for the interim period should
not be considered indicative of results to be expected for the full year.
-4-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES,
CAPITAL AND SURPLUS - STATUTORY BASIS - UNAUDITED
As of March 31, 1997
<TABLE>
<CAPTION>
Admitted Assets 1997
---------------
<S> <C>
Bonds:
United States Government $ 6,871,361,744
Canadian Government and subdivisions 385,802,391
Other governmental units 1,257,549,838
Public utilities 2,755,074,704
Industrial and other 5,927,839,623
---------------
$17,197,628,300
Stocks:
Preferred 2,245,150
Unaffiliated common 187,927,075
Affiliated common 6,418,240
---------------
196,590,465
---------------
Mortgage Loans 1,826,715,389
---------------
Real estate:
Held for investment 11,768,292
---------------
Policy loans 1,805,922,862
Cash 1,327,104
Short-term investments 295,202,369
Other invested assets 366,255,488
---------------
Total cash and invested assets 27,701,410,269
Premiums deferred and uncollected 108,218,140
Investment invome due and accrued 402,392,346
Federal income tax recoverable (including
from affiliates) 417,145
Other assets 24,493,885
---------------
Total admitted assets $22,236,931,785
===============
Liabilities
Aggregate reserves for life policies and contracts $14,749,602,137
Reserve for contracts without life contingencies 920,731,877
Policy and contract claims 68,543,611
Policyholders' dividend accumulations 2,792,772,032
Dividends to policyholders payable in the following year 621,311,134
Advance premiums, deposits and other policy and contract
liabilities 251,213,590
Interest maintenance reserve 14,230,951
Commissions payable 20,701,168
Federal income taxes (payable to affiliates) 35,595,289
Federal income taxes due or accrued 2,460,449
Other liabilities 165,601,674
Asset valuation reserve 175,089,850
---------------
Total liabilities 19,817,853,762
---------------
CAPITAL AND SURPLUS
Common stock, $100 par value; 30,000 shares authorized,
issued and outstanding 3,000,000
Paid-in surplus 21,846,419
Unassigned surplus 2,394,231,604
---------------
Total capital and surplus 2,419,078,023
---------------
Total liabilities, capital and surplus $22,236,931,785
===============
</TABLE>
-5-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS - UNAUDITED
for the quarter ended March 31, 1997
----------
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
Common Stock:
Balance at beginning and end of period $ 3,000,000
--------------
Paid-in surplus:
Balance at beginning and end of period 21,846,419
--------------
Unassigned surplus:
Balance at beginning of year 2,369,936,112
Net income 31,551,358
Net unrealized capital gains (10,062,830)
Change in nonadmitted assets (1,791,408)
Change in asset valuation reserve 4,718,371
Dividends to stockholder (parent company) (120,000)
--------------
Balance at end of period 2,394,231,604
--------------
Total capital and surplus $2,419,078,023
==============
</TABLE>
-6-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Mutual Automobile Insurance Company)
STATEMENTS OF CASH FLOWS - STATUTORY BASIS - UNAUDITED
for the quarter ended March 31, 1997
----------
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
Cash from operations:
Premiums and annuity considerations $ 630,314,432
Other premiums, considerations and deposits, allowances and reserve adjustments, and other income 150,096,527
Investment income received (excluding realized gains/losses and net of investment expenses) 383,067,137
Life and accident and health benefits paid (112,533,535)
Surrender benefits and other fund withdrawals paid (171,442,403)
Other benefits to policyholders paid (175,399,432)
Commissions, other expenses and taxes paid (excluding federal income taxes) (138,917,337)
Dividends to policyholders paid (169,455,177)
Federal income taxes paid (excluding tax on capital gains) (69,301,049)
Other operating expenses paid (3,053)
-------------
Net cash from operations 326,426,110
-------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 279,245,356
Stocks 985,105
Mortgage loans 37,712,614
Other invested assets 0
Net gains on cash and short-term investments (3,481)
-------------
Total investment proceeds 317,939,594
Tax on capital gains 387,869
-------------
Total cash from investments 317,551,725
-------------
Cost of investments acquired (long-term only):
Bonds 567,683,863
Stocks 3,987,766
Mortgage loans 123,315,766
Other invested assets 2,339,939
-------------
Total investments acquired 697,327,413
-------------
Increase (decrease) in policy loans and premium notes 31,643,828
Net cash from investments (411,419,515)
-------------
Cash from financing and miscellaneous sources:
Other cash provided 22,427,767
Dividends to stockholders paid (120,000)
Other applications (net) (11,930,778)
-------------
Net cash from financing and miscellaneous sources 10,376,989
Net change in cash and short-term investments (74,616,416)
Cash and short-term investments, beginning of year 371,145,890
-------------
Cash and short-term investments, end of period $ 296,529,473
=============
</TABLE>
STATE FARM LIFE INSURANCE COMPANY
-7-
<PAGE>
STATE FARM LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of State Farm Automobile Insurance Company)
STATEMENTS OF OPERATIONS - STATUTORY BASIS - UNAUDITED
for the quarter ended March 31, 1997
----------
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
Income:
Premiums and annuity considerations $ 629,602,751
Net investment income 399,086,298
Considerations for supplementary contracts and dividend accumulations 149,991,465
Other 147,813
--------------
$1,178,828,327
--------------
Benefits and other expenses:
Death benefits 105,903,116
Surrender benefits and other fund withdrawals 171,442,403
Ohter benefits and claims 38,683,185
Payments on supplementary contracts and dividend accumulations 145,644,466
Increase in policy and contract reserves 343,483,189
Commissions 49,419,035
General insurance expense 64,613,723
Taxes, licenses and fees 11,571,607
--------------
930,760,724
--------------
Net gain from operations before dividends to policyholders and
federal income taxes 248,067,602
Dividends to policyholders 178,561,061
--------------
Net gain from operations after dividends to policyholders and before
federal income taxes 69,506,542
Federal and foreign income taxes incurred (excluding capital gains) 37,337,659
--------------
Net gain from operations after dividends to policyholders and
federal income taxes and before realized gains 32,168,882
Net realized capital gains of (losses) less capital gains tax of
$504,015 (excluding ($211,767) transferred to the IMR) (617,524)
--------------
Net income $ 31,551,358
==============
</TABLE>
NOTE TO FINANCIAL STATEMENTS
The statement of admitted assets, liabilities, capital and surplus--statutory
basis as of March 31, 1997 and the statement of changes in capital and surplus,
operations, and cash flows--statutory basis for the three-month period ending
March 31, 1997 are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for fair presentation of the financial
position, changes in capital and surplus, results of operations and cash flows
for the interim periods. The results of operations for the interim period should
not be considered indicative of results to be expected for the full year.
-8-
<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)
State Farm Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by State Farm Life Insurance Company.
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: William A. Montgomery, Esq.,
Gerry Brogla, F.S.A., Coopers & Lybrand L.L.P., and Sutherland, Asbill &
Brennan LLP
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 1
(2) Not Applicable
(3) (a) Not Applicable
(b) Form of Distribution Agreement 2
(c) Not Applicable
(4) Not applicable
(5) (a) Specimen Flexible Premium Variable Universal Life
Insurance Policy 1
(b) Policy Riders and Endorsements 1
(6) (a) Articles of Incorporation of State Farm Life Insurance
Company 1
(b) By-laws of State Farm Life Insurance Company 1
(7) Not applicable
(8) Form of participation agreement 2
(9) Not applicable
(10) Application form
(11) Description of issuance, transfer and redemption procedures
(12) Powers of Attorney 2
B. Not applicable
C. Not applicable
3
<PAGE>
2. Opinion and consent of William A. Montgomery, Esq. as to the legality
of the securities being registered
3. Not applicable
4. Not applicable
5. Not applicable
6. Opinion and consent of Gerry Brogla, F.S.A. as to actuarial matters
pertaining to the securities being registered
7. (a) Consent of Independent Accountants
(b) Consent of Sutherland, Asbill & Brennan LLP
- -----------------------------
1. Incorporated herein by reference to the initial registration statement on
Form S-6 (File No. 333-19521), filed on behalf of State Farm Life Insurance
Company Variable Life Separate Account on January 10, 1997.
2. Incorporated herein by reference to Pre-Effective Amendment No. 1 to a
Registration Statement on Form N-4 (File No. 333-19189), filed on behalf of
State Farm Life Insurance Company Variable Annuity Separate Account with the
Securities and Exchange Commission on October 10, 1997.
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 27th day of
January, 1998.
State Farm Life Insurance Company
Variable Life Separate Account
(SEAL) (Registrant)
By: State Farm Life Insurance Company
(Depositor)
Attest: /s/ Patricia L. Dysart By: *
------------------------ ----------------------------------
Patricia L. Dysart Edward B. Rust, Jr.
President
State Farm Life Insurance Company
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 27th day of January, 1998.
State Farm Life Insurance Company
(SEAL)
Attest: /s/ Patricia L. Dysart By: *
----------------------- ---------------------------------
Patricia L. Dysart Edward B. Rust, Jr.
President
State Farm Life Insurance Company
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>
* President and Director
- -------------------------- (Principal Executive Officer)
Edward B. Rust, Jr.
* Vice President and Actuary;
- -------------------------- Director
Darrell W. Beernink (Principal Financial Officer)
* Vice President and Controller
- -------------------------- - Life
Dale R. Egeberg (Principal Accounting Officer)
* Director
- --------------------------
Marvin D. Bower
Director
- --------------------------
Roger B. Tompkins
* Director
- --------------------------
Robert S. Eckley
* Director
- --------------------------
Wendy L. Gramm
* Director
- --------------------------
Roger S. Joslin
* Director
- --------------------------
Kurt G. Moser
* Director
- --------------------------
George L. Perry
* Director
- --------------------------
Don D. Rood
* Director
- --------------------------
Curtis W. Tarr
* Director
- --------------------------
Vincent J. Trosino
* Director
- --------------------------
Charles R. Wright
* By /s/ Terry Huff January 27, 1998
---------------------- ----------------
Terry Huff (Date)
Pursuant to Power of
Attorney
</TABLE>
6
<PAGE>
Exhibit Index
1.A.(10) Application Form
1.A.(11) Description of issuance, transfer and redemption procedures
2. Opinion and consent as to the legality of securities being
registered
6. Opinion and consent as to actuarial matters
7.(a) Consent of Independent Accountants
(b) Consent of Sutherland, Asbill & Brennan LLP
7
<PAGE>
Exhibit 1.A.(10)
STATE FARM LIFE INSURANCE COMPANY, Bloomington, Illinois
VARIABLE UNIVERSAL LIFE INSURANCE APPLICATION PAGE 1
================================================================================
1 If the application is for a change in a State Farm policy, give the number:
================================================================================
2 PROPOSED INSURED 1 (Print name in full)
- --------------------------------------------------------------------------------
Mr. [_] LAST NAME FIRST NAME MIDDLE INITIAL
a Ms. [_]
------------------------------------------------------------------------------
MAILING ADDRESS
------------------------------------------------------------------------------
CITY STATE ZIP CODE
------------------------------------------------------------------------------
IN YES NO SOCIAL SECURITY OR TAX ID NUMBER DRIVERS LICENSE NUMBER STATE
CITY [_] [_]
------------------------------------------------------------------------------
SEX BIRTH DATE MO-DAY-YR AGE MARITAL STATUS
c
------------------------------------------------------------------------------
HEIGHT WEIGHT STATE OF BIRTH UNITED STATES OR YES NO
CANADIAN CITIZEN? [_] [_]
------------------------------------------------------------------------------
d OCCUPATION (GIVE EXACT DUTIES)
------------------------------------------------------------------------------
EMPLOYERS NAME AND ADDRESS
================================================================================
3 PROPOSED INSURED 2 (Print name in full)
- --------------------------------------------------------------------------------
Mr. [_] LAST NAME FIRST NAME MIDDLE INITIAL
a Ms. [_]
------------------------------------------------------------------------------
SOCIAL SECURITY OR TAX ID NUMBER DRIVERS LICENSE NUMBER STATE
------------------------------------------------------------------------------
SEX BIRTH DATE MO-DAY-YR AGE MARITAL STATUS
b
------------------------------------------------------------------------------
HEIGHT WEIGHT STATE OF BIRTH UNITED STATES OR YES NO
CANADIAN CITIZEN? [_] [_]
------------------------------------------------------------------------------
c OCCUPATION (GIVE EXACT DUTIES)
------------------------------------------------------------------------------
EMPLOYERS NAME AND ADDRESS
================================================================================
4 APPLICANT/OWNER (If not Proposed Insured 1, print name in full)
- --------------------------------------------------------------------------------
a LAST NAME FIRST NAME MIDDLE INITIAL
------------------------------------------------------------------------------
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
------------------------------------------------------------------------------
b MAILING ADDRESS CITY STATE ZIP CODE IN YES NO
CITY [_] [_]
------------------------------------------------------------------------------
Successor Owner (Required unless Applicant/Owner is a TRUST or Corporation)
------------------------------------------------------------------------------
c LAST NAME FIRST NAME MIDDLE INITIAL
------------------------------------------------------------------------------
Complete: if Proposed a Is Proposed Insured 1 to be Yes No
Insured is under age 16 Owner at and after age 21 ? [_] [_]
---------------------------------------------------------------------------
b Give amount of insurance in force on: (If none, so indicate)
Father $ Mother $
================================================================================
5 Variable Universal life
- --------------------------------------------------------------------------------
a Initial Basic Amount: $
------------------------------------------------------------------------------
b Death Benefit: [_] Option 1- [_] Option 2 - Basic Amount
(COMPLETE FOR NEW Basic Amount plus Account Value
POLICY ONLY) If option not chosen, policy provisions determined option.
------------------------------------------------------------------------------
c Riders/Benefits applied for: Waiver of Monthly Yes No
(Check Ratebook For Deduction(For Disability) [_] [_]
availability of riders.)
------------------------------------------------------------------------------
[_] AD AMOUNT [_] GIO AMOUNT 1-COMPLETE 8 & 9
------------------------------------------------------------------------------
[_] CTR/1/ UNITS [_] A1 2 TERM AMOUNT 2-COMPLETE QUESTIONS
FOR PROPOSED INSURED ?
------------------------------------------------------------------------------
d Dividend Option: [_] Addition to Account Value [_] Cash Payment
If option not chosen, policy provisions determined option.
------------------------------------------------------------------------------
e Planned Premium: Agents Employees
Existing Payroll Payroll Salary
Annual SFPP Life PAC Deduction Deduction Allotment
Mode: [_] [_] [_] [_] [_] [_]
(Check one)
------------------------
Existing Special Monthly
Account Number:
------------------------
--------------------
Amount to be billed each payment date $
--------------------
------------------------------------------------------------------------------
f Increase in Basic Amount:
(DO NOT COMPLETE FOR NEW POLICY) $
------------------------------------------------------------------------------
g Initial Account and Payment Allocation: COMPLETE FOR NEW POLICY ONLY
(During the free look period, all net premiums %
will be allocated to the Fixed Account.) (Must Be Whole %
with 1% Minimum)
[_] Large Cap Equity Index Subaccount
[_] Small Cap Equity Index Subaccount ---------------
[_] International Equity Index Subaccount ---------------
[_] Stock and Bond Index Subaccount ---------------
[_] Bond Subaccount ---------------
[_] Money Market Subaccount ---------------
[_] Fixed Account ---------------
---------------
TOTAL = 100%
------------------------------------------------------------------------------
h Check the appropriate box if you wish to have:
Only one may be in effect at one time.
[_] Dollar Cost Averaging -OR- [_] Portfolio Rebalancing
Complete separate form if either checked.
------------------------------------------------------------------------------
i Premium submitted with application $
================================================================================
6 Beneficiary Designation - Proposed Insured 1
- --------------------------------------------------------------------------------
Completion of this section will replace all previous rider and policy
designations for this policy. If a Change of Plan, this will replace previous
designations.
------------------------------------------------------------------------------
PRIMARY BENEFICIARY - FULL NAME AGE RELATIONSHIP
[_] Interest Option or [_] One Sum or [_] Other-Explain*
------------------------------------------------------------------------------
SUCCESSOR BENEFICIARY - FULL NAME AGE RELATIONSHIP
[_] Interest Option or [_] One Sum or [_] Other-Explain*
------------------------------------------------------------------------------
FULL BENEFICIARY - FULL NAME AGE RELATIONSHIP
One Sum Settlement Only
------------------------------------------------------------------------------
* If additional space is needed, use the explanation section on Page 2.
If a beneficiary survives the Insured, any payment to successor will be one
sum, unless changed.
================================================================================
7 Beneficiary Designation - Proposed Insured 2
- --------------------------------------------------------------------------------
(Complete for Additional Insured's rider only if Beneficiary provision in the
rider is NOT desired.) If a Change of Plan this will replace previous
designations. If this section is completed, the Payment of Benefit Provisions
of the policy will control rather than the Beneficiary provision of such
rider. "Additional Insured" would be used in place of "Insured."
------------------------------------------------------------------------------
PRIMARY BENEFICIARY - FULL NAME AGE RELATIONSHIP
[_] Interest Option or [_] One Sum or [_] Other-Explain*
------------------------------------------------------------------------------
SUCCESSOR BENEFICIARY - FULL NAME AGE RELATIONSHIP
[_] Interest Option or [_] One Sum or [_] Other-Explain*
------------------------------------------------------------------------------
FULL BENEFICIARY - FULL NAME AGE RELATIONSHIP
One Sum Settlement Only
------------------------------------------------------------------------------
* If additional space is needed, use the explanation section on Page 2.
If a beneficiary survives the Additional Insured, any payment to successor
will be one sum, unless changed.
================================================================================
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE APPLICATION PAGE 2
- --------------------------------------------------------------------------------
CHILDREN'S TERM RIDER JUVENILE APPLICATIONS (AGES 0-15)
Complete 8 & 9 OR Complete 9 & 10
- --------------------------------------------------------------------------------
8 List children under age 18; (only if CTR applied for) (If None, so state)
------------------------------------------------------------------------------
LAST NAME, FIRST NAME, MI RELATIONSHIP TO BIRTH DATE AMOUNT NOW
(LAST NAME DIFFERENT EXPLAIN) PROPOSED INSURED 1 ------------ INSURED FOR
MO DAY YR.
------------
$
- --------------------------------------------------------------------------------
ALL Applications Complete 10
- --------------------------------------------------------------------------------
Proposed Insured
1 2
YES NO YES NO
10a Do you have personal and business life insurance
of more than $200,000? (If yes, give amounts and details) [_] [_] [_] [_]
b Do you have any accidental death insurance
excluding group? (If yes, and AD applied for, [_] [_] [_] [_]
give amount )
--------------
c Will this policy replace or change insurance or
annuities you now have? (If yes, explain) [_] [_] [_] [_]
d Are you now applying for life or health insurance
with any other company? (If yes, state companies and amount)[_] [_] [_] [_]
e Do you plan to leave or travel from the United
States or Canada in the next 6 months? (If yes, explain) [_] [_] [_] [_]
- ----------------------------------------------------------------
Applications (Ages 16 & Up):
If NO Medical Exam required
complete 10-16
If Medical Exam required
completed 11, 12, 14a, & 14e.
- ----------------------------------------------------------------
11 Have you used tobacco in any form in the
last 12 months? [_] [_] [_] [_]
- ----------------------------------------------------------------
12 Have you, in the last 3 years: (If yes, explain)
a flown as a pilot, crew member, or a student pilot in
aircraft such as an airplane, helicopter, glider, or
ultralight? Or, is any such activity planned in the
next 6 months? [_] [_] [_] [_]
b engaged in avocations such as mountain or rock
climbing, auto, motorcycle, or powerboat racing,
scuba or sky diving, hang gliding, or ballooning?
Or, is any such activity planned in the next 6
months? [_] [_] [_] [_]
c had your driver's license suspended or revoked,
had any moving violations, had 2 or more
accidents, or been charged with driving under the
influence of alcohol or drugs? [_] [_] [_] [_]
- --------------------------------------------------------------------------------
9 Has juvenile or have any children named in question 8:
(If yes, explain)
YES NO
a had a birth defect, mental disorder, or impairment of sight,
hearing, or speech? [_] [_]
b had asthma, seizure, diabetes, or kidney disease? [_] [_]
c had heart murmur, anemia, leukemia, or cancer? [_] [_]
d in the last 3 years, for any reason not previously explained,
been a patient in a hospital, clinic, or emergency room? [_] [_]
e in the last 10 years, had or been treated for Acquired
Immune Deficiency Syndrome (AIDS)? [_] [_]
- --------------------------------------------------------------------------------
Proposed Insured
1 2
13 Have you ever: (If yes, explain) YES NO YES NO
a applied for or received disability benefits? [_] [_] [_] [_]
b had an impairment or loss of sight or hearing, or an
impairment of neck, back, or limb? [_] [_] [_] [_]
- ----------------------------------------------------------------
14 Have you, in the last 10 years, had or been treated
for: (If yes, circle and explain)
*a high blood pressure, stroke, heart murmur, chest
pain, heart attack, tumor, cancer, or lymph gland
disorder? [_] [_] [_] [_]
b mental, nervous, or convulsive disorder; or epilepsy? [_] [_] [_] [_]
c pneumonia, emphysema, asthma; ulcer, colitis,
liver, or intestinal disorder; anemia or blood disorder? [_] [_] [_] [_]
d diabetes, arthritis, sexually transmitted disease, or
kidney disease? [_] [_] [_] [_]
*e Acquired Immune Deficiency Syndrome (AIDS)? [_] [_] [_] [_]
f chronic diarrhea, unexplained weight loss, recurrent
fever, fatigue, or night sweats? [_] [_] [_] [_]
- ----------------------------------------------------------------
15 Have you, in the last 5 years: (If yes, explain)
a used cocaine, marijuana, hallucinogenic drugs, or
narcotics not prescribed by a physician? [_] [_] [_] [_]
b been treated or counseled, or advised to seek
treatment or counsel, for alcohol or drug use? [_] [_] [_] [_]
- ----------------------------------------------------------------
16 Have you, in the last 5 years, for any reason not
previously explained: (If yes, explain)
a had treatment or a test in any medical facility such
as a lab, clinic, emergency room, or hospital? [_] [_] [_] [_]
b had treatment or advice from any physician or
psychologist? [_] [_] [_] [_]
c taken prescribed medication? (If yes, list & explain) [_] [_] [_] [_]
d had surgery or been told surgery was necessary? [_] [_] [_] [_]
- --------------------------------------------------------------------------------
* AGENT - If yes, it may be advisable not to collect money or give a Binding
Receipt - Consult Agents Service for specific instructions.
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE APPLICATION PAGE 3
- --------------------------------------------------------------------------------
17 SUITABILITY INFORMATION
Complete for new policy, an increase in Basic Amount, or addition of an
Additional Insured's level term rider.
- --------------------------------------------------------------------------------
Applicants are urged to supply information in order that the agent may make an
informed judgment as to the suitability of a particular purchase of a Variable
Universal Life Policy. If the Applicant chooses not to, the agent must complete
the following items to the best of his/her knowledge.
YES NO
Did the applicant provide the suitability information? [_] [_] (If no, explain)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
a. Annual Income from Occupation $ f. Tax Bracket: g. Score from Risk Profiler:
- ------------------------------------------------------------------------------------------------------------------------------------
b. Annual Income from other sources $ [_] Death Benefit
Indicate other sources: h. Purpose for [_] Personal Retirement Planning
Purchasing Years to Retirement: ________________
this Policy:
- ---------------------------------------------------- [_] Other (specify) ____________________________
c. Projected Income for next 12 months $ -------------------------------------------------------------------------------
- ---------------------------------------------------- i. Which best approximates your experience with the following
d. Estimated Net Worth (excluding home) $ ________ types of investments:
Liquid Assets included in Net Worth $ ________ NONE UP TO 5 YRS 5 YRS OR MORE
- ----------------------------------------------------
e. No. and Age of Dependent Children: Mutual Funds [_] [_] [_]
(If none, so state) Individual Common Stocks [_] [_] [_]
Annuities [_] [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
18 TELEPHONE AUTHORIZATION
- --------------------------------------------------------------------------------
The owner may make certain requests under the Policy by telephone if we have a
written telephone authorization on file. These include requests for transfers,
withdrawals, changes in premium allocation instructions, dollar-cost averaging
changes, and changes in 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
other 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. If reasonable procedures are employed, we will not be liable for
any losses due to unauthorized or fraudulent instructions.
This authorization will continue in force until the earlier of a) the date we
receive a revocation request from the Owner, b) the date we restrict or
discontinue all Telephone Authorizations, or c) the date we receive an ownership
change.
YES NO
Do you elect to have telephone authorization? [_] [_]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
If space is insufficient, use additional sheets, which will be part of this application. Sheets must
19 EXPLANATIONS be signed & dated by Proposed Insured(s), and/or Applicant, and witnessed by Agent.
- ------------------------------------------------------------------------------------------------------------------------------------
QUESTION NAME OF PERSON NATURE AND SEVERITY OF CONDITION DATES NAMES & ADDRESSES OF
NUMBER FREQUENCY OF ATTACKS - TREATMENT RECEIVED ONSET RECOVERY MEDICAL ATTENDANTS AND HOSPITALS
- ------------------------------------------------------------------------------------------------------------------------------------
MO. YR. MO. YR.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE APPLICATION PAGE 4
- --------------------------------------------------------------------------------
20 AGREEMENTS AND ACKNOWLEDGMENTS
- --------------------------------------------------------------------------------
YES NO
a. Do you believe that this policy will meet your needs and financial [_] [_]
objectives?
b. Do you understand that the amount and duration of the death
benefit may vary, depending on the investment performance of the
variable accounts in the separate account? [_] [_]
c. Do you understand that the policy values may increase or
decrease, depending on the investment experience of the
separate account? [_] [_]
d. Did you receive the separate account prospectus and the
fund prospectus for the policy applied for? If yes, give
date shown on the prospectus: ________________________________ [_] [_]
e. Are you associated with an NASD member broker dealer? [_] [_]
Coverage will be effective as of the policy date if the following conditions
are met: the first premium is paid when the policy is delivered; the Proposed
Insureds are living on the delivery date; and, on that delivery date, the
information given to State Farm Life is true and complete without material
changes.
For changes in Basic Amount, the change will be effective on the deduction
date on or next following acceptance of the change by State Farm Life if on such
deduction date the following conditions are met; there is enough cash surrender
value to make the required deduction; the Proposed Insureds are all living; and
the information given to State Farm Life is true and complete without material
changes.
However, if a binding receipt has been given and is in effect, its terms
apply.
All Proposed Insureds and the Applicant state that the information in this
application and any medical history is true and complete. It is agreed that
State Farm Life can investigate the truth and completeness of such information
while the policy is contestable.
By accepting the policy, the Owner agrees to the beneficiaries named,
method of payment, and corrections made. No change in plan, amount, benefits, or
age at issue may be made on the application unless the Owner agrees in writing.
Only an authorized company officer may change the policy provisions. Neither the
agent nor a medical examiner may pass on insurability.
- --------------------------------------------------------------------------------
Social Security or Tax Identification Number (TIN) Certification - By
signing this application, I certify under penalties of perjury that (1) the TIN
shown above is correct, and (2) that I am not subject to backup withholding
either because I have not been notified that I am subject to backup withholding
as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding. (If you are subject to backup withholding, cross out item 2.) The
Internal Revenue Service does not require your consent to any provision of this
document other than the certifications required to avoid backup withholding.
- --------------------------------------------------------------------------------
Any policy issued on this application will be owned by Proposed Insured 1 or
the Applicant, if other than Proposed Insured 1.
DATED ON________Month_______Day________YEAR______
Signature of Proposed Insured 1 X
---
NOT REQUIRED IF PROPOSED INSURED IS UNDER AGE 16
AT_________CITY________________STATE_____________
Signature of Proposed Insured 2 X
------------------------------------------
Signature of Agent as
Witness to all Signatures X
------------------------------------------------
Signature of Applicant X
---------------------------------------------------
Not required unless applicant is other than Proposed Insured 1. If a firm or
corporation is to be the owner, give its name and signature of authorized
officer.
- --------------------------------------------------------------------------------
[LOGO OF STATE FARM LIFE INSURANCE COMPANY APPEARS HERE]
ACKNOWLEDGMENT
I have received the Notices and the Acknowledgment and Authorization.
AUTHORIZATION
I authorize any source having information about me or my children to give to
State Farm Life, its reinsurers, or its representatives all such information as
to health history, diagnosis, treatment, or prognosis with respect to any
physical or mental condition, and as to other non-medical information. "Source"
includes any doctor, hospital, clinic, U.S. Veterans Administration Hospital,
mental health facility, or any other medically related facility, MIB, Inc.,
insurance company, or consumer reporting agency. Any information obtained will
be used to determine eligibility for insurance. This information may be released
to another insurance company or MIB, Inc.; however, no MIB, Inc. information
will be released to a consumer reporting agency. This authorization is valid for
2 years. A photocopy is as valid as the original.
I elect to be interviewed if an investigative consumer report is prepared and
indicate this preference by a "checkmark" in the following box. [_]
DATE SIGNED
-----------------------------------
SIGNATURE OF
PROPOSED INSURED 1 X
----------------------------------------------------------
(PARENTS OR GUARDIAN SIGNATURE IF JUVENILE APPLICATION)
SIGNATURE OF
PROPOSED INSURED 2 X
----------------------------------------------------------
Maiden or Former Name
---------------------------------------------
Maiden or Former Name
---------------------------------------------
<PAGE>
AGENT'S STATEMENT
- --------------------------------------------------------------------------------
YES NO
1 Do you know the Proposed Insureds? [_] [_]
- --------------------------------------------------------------------------------
2 Who is to pay premiums? (Full name and relationship
if other than Proposed Insureds)
- --------------------------------------------------------------------------------
YES NO
3 Was a Binding Receipt issued? [_] [_]
- --------------------------------------------------------------------------------
4 Indicate other State Farm insurance in family.
[_] Auto [_] Life [_] Fire [_] Health
- --------------------------------------------------------------------------------
5 Is this policy a replacement or change of existing YES NO
insurance or annuities? (If yes, explain) [_] [_]
- --------------------------------------------------------------------------------
6 Is State Farm Health YES NO
Insurance being applied for? [_] [_]
- --------------------------------------------------------------------------------
7 Did you give Proposed Insureds the Notices YES NO
and the Acknowledgement and Authorization? [_] [_]
- --------------------------------------------------------------------------------
8 Personal History Interview Telephone Information
DAYTIME
PHONE NO. ( ) -
-------------------------------
- --------------------------------------------------------------------------------
9 If applicable, has an oral specimen YES NO
test been completed or an exam been [_] [_]
scheduled? (show date and physician or
paramedical facility)
- --------------------------------------------------------------------------------
Agent's Code Stamp
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF STATE FARM LIFE BINDING RECEIPT
INSURANCE COMPANY APPEARS
HERE]
State Farm Life has received $___________. This money is part of the
application for life insurance on ___________________________ (Proposed Insured
1) and any others named in the application. Any check received must be honored
for payment when presented. Otherwise this Receipt is void.
As of the application date, life insurance and any additional benefits will be
payable according to the terms of the application and the policy applied for,
subject to the terms of this Receipt. No benefits are provided by this Receipt
unless Death or Total Disability results from an accident that occurs or an
illness that first manifests itself after the application date. THE TOTAL
INSURANCE BENEFIT FOR A PROPOSED INSURED UNDER THIS OR ANY OTHER RECEIPTS AND
APPLICATIONS WILL NOT EXCEED $300,000. IF THAT PROPOSED INSURED IS UNDER THE AGE
OF 15 DAYS AT DEATH, THE TOTAL INSURANCE BENEFIT WILL NOT EXCEED $3,000.
Coverage under this Receipt will end when the first of the following occurs:
(a) The application is approved; (b) Notice of disapproval of the application is
given; (c) 60 days have expired starting with the application date.
State Farm Life reserves the right to disapprove the application by (a)
offering to issue a policy other than as applied for, or (b) declining to issue
a policy. If the application is disapproved, the notice of disapproval will be
given to Proposed Insured 1 or to the Applicant, if other than Proposed Insured
1. The notice will be given either (a) in person to, or (b) by mailing it to the
last known address of Proposed Insured 1 or the Applicant. If mailed, coverage
will end upon mailing of that notice.
The money received will be refunded if (a) the policy is not accepted, or (b)
State Farm Life declines to issue a policy, or (c) the 60-day period has
expired.
There is no coverage under this Receipt if the application contains any
material misrepresentation.
NO AGENT OR COMPANY REPRESENTATIVE MAY WAIVE OR CHANGE THE ANSWER TO ANY
QUESTION IN THE APPLICATION OR CHANGE THE TERMS OF THIS RECEIPT.
<TABLE>
<S> <C>
DATE OF APPLICATION SIGNATURE OF AGENT X
-------------------------------- ----------------------------------
</TABLE>
Note: Do not use this Receipt for a change on a Variable Universal Life policy.
---
See reverse side.
- --------------------------------------------------------------------------------
[LOGO OF STATE FARM LIFE Detach and leave with Proposed Insured
INSURANCE COMPANY APPEARS HERE] when Application is written:
NOTICES
Notice of Information Practices
The life insurance application requests personal information about the persons
proposed for coverage. Occasionally, we may need to collect additional personal
information from other sources. All such personal information is treated as
confidential. In certain cases, however, that information might be disclosed to
others without authorization. A right of access and correction exists as to the
personal information we may collect. A more detailed notice, including a
description of our information practices and your rights, is available upon
request.
MIB, Inc. (Medical Information Bureau) Notice
Information regarding your insurability will be treated as confidential. State
Farm Life or its reinsurers may, however, make a brief report to MIB, Inc. This
is a non-profit membership organization of life insurance companies which
operates an information exchange on behalf of its members. If you apply to
another MIB, Inc., member company for life or health insurance coverage, or a
claim for benefits is submitted to such a company, MIB, Inc., upon request, will
supply such a company with the information it may have in its file.
Upon receipt of a request from you, MIB, Inc. will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the MIB, Inc. file, you may contact MIB, Inc. and seek a
correction in accordance with the procedures set forth in the federal Fair
Credit Reporting Act. The address of the MIB, Inc. information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone number
(617) 426-3660.
State Farm Life or its reinsurers, may also release information in its file to
other life insurance companies to whom you may apply for life or health
insurance, or to whom a claim for benefits may be submitted.
<PAGE>
BINDING RECEIPT
(USE ONLY FOR A CHANGE. "CHANGE" INCLUDES AN INCREASE IN BASIC AMOUNT OR THE
ADDITION OF AN ADDITIONAL INSURED'S LEVEL TERM RIDER, A CHILDREN'S TERM RIDER,
OR AN ACCIDENTAL DEATH BENEFIT RIDER.)
State Farm Life has received funds as part of the application for life
insurance on _____________ (Proposed Insured 1) and any others named in the
application. "Funds" means (a) the receipt of money or (b) collection of a
deduction on the application date, as applicable. If the application date is a
deduction date, the required deduction will be made as of that date. If the
application date is not the deduction date, the required deduction will be
prorated from the application date to the next deduction date. There must be
enough cash surrender value to make the required deduction and any check
received must be honored for payment when presented. Otherwise this Receipt is
void.
As of the application date, life insurance and any additional benefits will
be payable according to the terms of the application and the policy applied for,
subject to the terms of this Receipt. No benefits are provided by this Receipt
unless Death or Total Disability results from an accident that occurs or an
illness that first manifests itself after the application date. THE TOTAL
INSURANCE BENEFIT FOR A PROPOSED INSURED UNDER THIS OR ANY OTHER RECEIPTS AND
APPLICATIONS WILL NOT EXCEED $300,000. IF THAT PROPOSED INSURED IS UNDER THE AGE
OF 15 DAYS AT DEATH, THE TOTAL INSURANCE BENEFIT WILL NOT EXCEED $3,000.
Coverage under this Receipt will end when the first of the following occurs:
(a) The application is approved; (b) Notice of disapproval of the application is
given; (c) 60 days have expired starting with the application date.
State Farm Life reserves the right to disapprove the application by (a)
offering to approve a change other than as applied for, or (b) declining to
approve a change applied for. If the application is disapproved, the notice of
disapproval will be given to Proposed Insured 1 or to the Applicant, if other
than Proposed Insured 1. The notice will be given either (a) in person to, or
(b) by mailing it to the last known address of Proposed Insured 1 or the
Applicant. If mailed, coverage will end upon mailing of that notice.
The funds will be refunded or recredited if (a) the change offered is not
accepted, or (b) State Farm Life declines to approve the change, or (c) the 60-
day period has expired.
There is no coverage under this Receipt if the application contains any
material misrepresentation.
NO AGENT OR COMPANY REPRESENTATIVE MAY WAIVE OR CHANGE THE ANSWER TO ANY
QUESTION IN THE APPLICATION OR CHANGE THE TERMS OF THIS RECEIPT.
<TABLE>
<S> <C> <C>
Funds Received (If applicable): $ DATE OF APPLICATION SIGNATURE OF AGENT X
------------ ----------------- -------------------------
</TABLE>
- --------------------------------------------------------------------------------
Pre-Notice of Investigative Consumer Report
In accordance with the provisions of the federal Fair Credit Reporting Act, this
is to inform you that as a part of our procedure for processing your application
for life insurance, an investigative consumer report may be prepared whereby
information is obtained through personal interviews with your neighbors,
friends, or others with whom you are acquainted. This inquiry includes
information as to your character, general reputation, personal characteristics,
and mode of living, except as may be related directly or indirectly to your
sexual orientation. You have the right to make a written request within a
reasonable period of time to receive additional detailed information about the
nature and scope of this investigation. You may also request to be interviewed
during the preparation of such a report and if an investigative consumer report
is prepared, you are entitled to request and receive a copy of the report.
ACKNOWLEDGMENT AND AUTHORIZATION
In connection with the application to State Farm Life for life insurance on your
life, you have signed the following Acknowledgment and Authorization.
Acknowledgment. I have received the Notices and the Acknowledgment and
Authorization.
Authorization. I authorize any source having information about me or my children
to give to State Farm Life, its reinsurers, or its representatives all such
information as to health history, diagnosis, treatment, or prognosis with
respect to any physical or mental condition, and as to other non-medical
information. "Source" includes any doctor, hospital, clinic, U.S. Veterans
Administration Hospital, mental health facility, or any other medically related
facility, MIB, Inc., insurance company, or consumer reporting agency. Any
information obtained will be used to determine eligibility for insurance. This
information may be released to another insurance company or MIB, Inc.; however,
no MIB, Inc. information will be released to a consumer reporting agency. This
authorization is valid for 2 years. A photocopy is as valid as the original.
<PAGE>
Exhibit 1.A.(11)
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY
STATE FARM LIFE INSURANCE COMPANY
This document sets forth the administrative procedures that will be
followed by State Farm Life Insurance Company (the "Company" or "State Farm") in
connection with the issuance of its variable universal life insurance policy
("Policy" or "Policies") and acceptance of payments thereunder, the transfer of
assets held thereunder, and the redemption by owners of the Policy ("Owners") of
their interests in those Policies. Capitalized terms used herein have the same
definition as in the prospectus for the Policy that is included in the current
registration statement on Form S-6 for the Policy (File No. 333-19521) as filed
with the Securities and Exchange Commission ("Commission" or "SEC").
I. Procedures Relating to Purchase and Issuance of the Policies and Acceptance
of Premiums
---------------------------------------------------------------------------
A. Offer of the Policies, Application, Initial Premiums, and Issuance
------------------------------------------------------------------
i. Offer of the Policies. The Policies are offered and issued
---------------------
for premiums pursuant to underwriting standards in accordance
with state insurance laws. Premiums for the Policies are not the
same for all Owners selecting the same Basic Amount. Insurance is
based on the principle of pooling and distribution of mortality
risks, which assumes that each Owner pays premiums commensurate
with the Insured's mortality risk as actuarially determined
utilizing factors such as Age, sex, and rate class of the
Insured. Uniform premiums for all Insureds would discriminate
unfairly in favor of those Insureds representing greater risk.
Although there is no uniform premium for all Insureds, there is a
uniform premium for all Insureds of the same rate class, age, and
sex and same Basic Amount.
ii. Application. Persons wishing to purchase a Policy must
-----------
complete an application and submit it to the Company through an
authorized agent of the Company. The application must specify the
name of the Insured and provide certain required information
about the Insured. The application also must specify a premium
payment plan, which contemplates level premiums at specified
intervals (e.g., monthly or annually), designate Net Premium
allocation percentages, select the initial Basic Amount, and name
the Beneficiary. Before an application
<PAGE>
will be deemed complete so that underwriting will proceed, the
application must include the applicant's signature and the
Insured's date of birth, a signed authorization, a valid
authorized agent's state code, and suitability information. The
premium and Basic Amount selected must meet certain minimums for
the Policy.
iii. Receipt of Application and Underwriting. Upon receipt of a
---------------------------------------
completed application in good order from an applicant, the
Company will follow its established insurance underwriting
procedures for life insurance designed to determine whether the
proposed Insured is insurable. This process may involve such
verification procedures as medical examinations and may require
that further information be provided about the proposed Insured
before a determination can be made.
The underwriting process determines the rate class to which the
Insured is assigned if the application is accepted. The Company
currently places Insureds in the following rate classes, based on the
Company's underwriting: a male or female or unisex rate class, and a
tobacco or nontobacco rate class. Juveniles (persons under age 20) are
placed in a male or female or unisex rate class. This original rate
class applies to the initial Basic Amount. The rate class may change
upon an increase in Basic Amount.
The Company reserves the right to reject an application for any
reason permitted by law. If an application is rejected, any premium
received will be returned, without interest.
4. Exchange Privilege. The Company will permit the owner of a
------------------
State Farm Universal Life policy or a State Farm Traditional Ordinary
whole life policy to exchange such policy for a Policy subject to
certain conditions as follows: (1) the initial Basic Amount for the
Policy must equal or exceed the Basic Amount less any policy loan and
accrued loan interest of the original policy; (2) the Company will
waive evidence of insurability where the initial Basic Amount of the
Policy is equal to the Basic Amount less any policy loan and accrued
loan interest of the original policy, and where the death benefit
options are the same for exchanges from a Universal Life policy or
where the death benefit option is Option 1 for exchanges from a
Traditional Ordinary whole life policy; and (3) the original policy
must be terminated. The Company can change this program at any time.
On exchanges from a Universal Life policy to a Policy, the Company
will waive the surrender charge on the Universal Life policy and will
waive the 5% premium charge on the Policy for the amount transferred
from the Universal Life policy to the Policy.
On exchanges from a Traditional Ordinary whole life policy to a
Policy, the
<PAGE>
Company will waive the 5% premium charge on the Policy for the amount
transferred from the Traditional Ordinary whole life policy to the
Policy.
5. Issuance of Policy. When the underwriting procedure has been
------------------
completed, the application has been approved, and an initial premium
of sufficient amount has been received, the Policy is issued.
6. Initial Premium. An applicant must pay an initial premium of
---------------
sufficient amount which, if not submitted with the application or
during the underwriting period, must be submitted before the Policy
will be issued. This amount must be at least equal to the minimum
monthly premium if the mode of the Policy is monthly, and 12 times the
minimum monthly premium if the mode of the Policy is annual. The
minimum monthly premium for a Policy depends on a number of factors,
such as the Age, sex, and rate class of the proposed Insured, the
requested Basic Amount, and any supplemental benefits. Coverage
becomes effective as of the date State Farm receives the premium, but
is limited to $300,000 until the application is approved. Moreover, if
the proposed Insured is under the age of 15 days at death, the total
insurance will not exceed $3,000. The Policy Date is used to measure
Policy Months, Policy Years, and Policy Anniversaries. If the Policy
is issued as applied for and the Company receives the premium in good
order before the Issue Date, the Policy Date is the later of the
application date or the date the Company receives the premium.
Otherwise the Policy Date is the Issue Date. If the Policy Date would
have occurred on the 29th, 30th or 31st day of any month, the Company
will designate the 28th day of the month as the Policy Date. For a
premium to be received in "good order," it must be received in cash
(U.S. currency) or by check payable in U.S. currency, and must clearly
identify the purpose for the payment.
The Company allows a credit on conversions of eligible Company term
insurance to the Policy. The amount of the credit is based on the
premiums paid on the term coverage during the 12 months prior to
conversion. The amount of the credit will be added to the initial
premium, if any, submitted by the Owner converting the term coverage,
and will be treated as part of the initial premium for the Policy
(except for purposes of the free-look provision). Therefore, the
credit will be included in the premiums for purposes of calculating
and deducting the premium charge. If the Policy is surrendered, the
credit will not be recaptured by the Company. The amount of the credit
will not be included for purposes of calculating agent compensation.
B. Additional Premiums
-------------------
iv. Additional Premiums Permitted. Additional premiums may be
-----------------------------
paid in any amount, and at any time, subject to the following
limits:
. A premium must be at least $25.
. Total premiums paid in a Policy Year may not exceed guideline
premium limitations for life insurance set forth in the Internal
Revenue Code.
<PAGE>
v. Refund of Excess Premium Amounts. If at any time a premium
--------------------------------
is paid that would result in total premiums exceeding limits
established by law to qualify a Policy as a life insurance
policy, the Company will only accept premium that would make
total premiums equal at most the maximum amount that may be paid
under the Policy. The Company may either refuse the entire
premium, or refund the excess premium.
The Company will also monitor Policies and will attempt to notify an
Owner on a timely basis if the Owner's Policy is in jeopardy of
becoming a modified endowment contract under the Internal Revenue
Code.
vi. Planned Premiums. At the time of application, each Owner
----------------
will select a plan for paying premiums at specified monthly or
annual intervals. The Owner may change the planned premium
frequency (between monthly and annually) and amount by providing
a written notice or telephone instructions (if the Company has an
authorization for telephone instructions on file) to the Home
Office. Any such change must comply with the premium limits for
additional premiums discussed above.
vii. Crediting Premiums
------------------
(1) Initial Premium. The initial premium will be credited
---------------
to the Policy on the Policy Date.
(2) Additional Premiums. Any additional premiums received by
-------------------
the Company after the Policy Date will be credited to the
Policy as of the Valuation Day on which it is received at the
Home Office. Premiums received on a non-Valuation Day will be
deemed received on the next succeeding Valuation Day.
(3) Electronic Funds Transfer. An Owner may arrange with the
-------------------------
Company to have monthly premiums paid via pre-authorized,
automatic deductions from the Owner's checking account. The
Company will notify the Owner's bank of the automatic
deduction, and funds will be deducted from the Owner's
checking account and credited to the Owner's Policy on the
next Valuation Day.
C. Overpayments and Underpayments In accordance with industry practice,
------------------------------
the Company will establish procedures to handle errors in initial and
additional premium payments to refund overpayments and collect
underpayments, except for de minimis amounts. The Company will issue a
refund check for any
<PAGE>
minimal overpayment in excess of the Guideline Premium amount. For
larger overpayments, the Company will place the premium in a suspense
account to determine whether the premium actually is in excess of the
Guideline Premium or whether the premium was intended for another
policy issued by the Company. In the case of an underpayment, if the
Cash Surrender Value on a Deduction Date is less than the Monthly
Deduction to be made on that date and the Death Benefit Guarantee is
not in effect, the Policy will be in default and a grace period will
begin. The Company will notify Owners of the required premium that
must be paid prior to the end of the grace period.
D. Premiums Upon Increase in Basic Amount, Premiums During a Grace
---------------------------------------------------------------
Period, and Premiums Upon Reinstatement
---------------------------------------
viii. Premiums Upon Increase in Basic Amount. Generally, no
--------------------------------------
premium is required for an increase in Basic Amount. However,
depending on the Policy Account Value at the time of an increase
in the Basic Amount and the amount of the increase requested, an
additional premium or change in the amount of planned premiums
may be advisable. Also, the minimum monthly premium for the Death
Benefit Guarantee will increase. See "Changing the Basic Amount."
ix. Premiums During a Grace Period. If the Cash Surrender Value
------------------------------
on a Deduction Date is less than the amount of the Monthly
Deduction due on that date, and the Death Benefit Guarantee is
not in effect, the Policy will be in default and a grace period
will begin. During the Death Benefit Guarantee Period, the Policy
will remain in force, regardless of the sufficiency of the Cash
Surrender Value, if the total premiums paid less any withdrawals
and the Loan Policy Account Value, is greater than or equal to
the Minimum Premium for the Policy. The Minimum Premium is a
cumulative minimum amount that is required to keep the Death
Benefit Guarantee in effect. The Minimum Premium is based in part
on the sex, Age, and rate class of the Insured, the requested
Basic Amount and any supplemental benefits.
. The grace period will end 61 days after the date on which the
Company sends a grace period notice stating the amount required
to be paid during the grace period to the Owner's last known
address and to any assignee of record. The Policy does not lapse,
and the insurance coverage continues, until the expiration of
this grace period.
. If the grace period ends prior to the end of the Death Benefit
Guarantee Period, the required premium must be large enough to
provide the lesser 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
<PAGE>
and any increase in the surrender charges. If the grace period
ends after the end of the Death Benefit Guarantee Period, 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.
. Failure to make a sufficient payment within the grace period will
result in lapse of the Policy without value or benefits payable.
x. Premiums Upon Reinstatement. A Policy that lapses without
---------------------------
value may be reinstated at any time within five years after lapse
by submitting: evidence of the Insured's insurability
satisfactory to the Company; and payment of a required premium.
If reinstatement is requested prior to the end of the Death
Benefit Guarantee Period, the required premium must be large
enough to provide the lesser of (1) the Minimum Premium required
on the deduction date on or next following the date reinstatement
takes effect, or (2) an increase in the Policy Account Value over
the amount the Company reinstates 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. Otherwise, the necessary premium must be large enough to
provide an increase in the Policy Account Value over the amount
the Company reinstates 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.
. Upon reinstatement, the Policy Account Value will be the Policy
Account Value at the date of lapse minus any decrease in the
amount of any surrender charges between the date of lapse and the
date of 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 the date of reinstatement is included in that
amount.
E. Allocations of Net Premiums Among the Variable Account and the Fixed
--------------------------------------------------------------------
Account
-------
1. Net Premium. The Net Premium is equal to the premium paid less
-----------
the premium charge.
2. The Variable Account. An Owner may allocate Net Premiums to one
--------------------
or more of the Subaccounts of State Farm Life Insurance Company
Variable Life Separate Account (the "Variable Account"). The Variable
Account currently consists of six Subaccounts, the assets of which are
used to purchase shares of a designated corresponding investment
portfolio of State Farm Variable Product
<PAGE>
Trust (the "Fund"). The Fund is registered under the Investment
Company Act of 1940 as an open-end management investment company.
Additional Subaccounts may be added from time to time to invest in any
of the portfolios of the Fund or any other investment company.
When an Owner allocates an amount to a Subaccount (either by Net
Premium allocation, transfer of Policy Account Value or repayment of a
Policy loan) the 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. A Subaccount's unit value is determined for each Valuation
Period after the date of establishment (the unit value for each
Subaccount was arbitrarily set at $10 when the Subaccount was
established) 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. The net investment factor
is an index used to measure the investment performance of a Subaccount
from one Valuation Period to the next.
3. The Fixed Account. Owners also may allocate Net Premiums to the
-----------------
Fixed Account, which guarantees a minimum fixed rate of interest.
4. Allocations Among the Variable Account and the Fixed Account.
------------------------------------------------------------
Net Premiums are allocated to the Subaccounts and the Fixed Account in
accordance with the following procedures:
(1) General. In the application for the Policy, the Owner
-------
will specify the percentage of Net Premium to be allocated to
each Subaccount of the Variable Account and/or the Fixed
Account. The percentage of each Net Premium that may be
allocated to any Subaccount or the Fixed Account must be a
whole number, and the sum of the allocation percentages must
be 100%. Such allocation percentages may be changed at any
time by the Owner submitting a written notice or telephone
instructions to the Home Office (provided the Company has
telephone authorizations on file), provided that the
requirements described above are met.
(2) Allocation During Free-Look Period. Until the free-look
----------------------------------
period expires, all Net Premiums will be allocated to the
Fixed Account. The free-look period is a period expiring 10
days after an Owner receives a Policy (some states may
require a longer period), during which an Owner may cancel
the Policy and receive a refund of premiums paid. At the end
of the free-look period, the Policy Account Value is
transferred to and allocated to the Subaccounts and/or
remains in the Fixed Account based on the Net Premium
allocation percentages then in effect. For
<PAGE>
this purpose, the Company assumes the free-look period starts
10 days after the Policy is issued.
(3) Allocation After Free-Look Period. Additional Net
---------------------------------
received after the free-look period expires will be credited
to the Policy and allocated to the Subaccounts or Fixed
Account in accordance with the allocation percentages in
effect on the Valuation Day that the premium is received at
the Home Office. Allocation percentages can be changed at any
time.
F. Loan Repayments and Interest Payments
-------------------------------------
1. Repaying Loan Amount. The Owner may repay all or part of the
--------------------
Loan Amount at any time while the Policy is in force and the Insured
is living. The Loan Amount is equal to the sum of all outstanding
Policy loans including both principal plus any accrued interest. Loan
repayments must be sent to the Home Office and will be credited as of
the date received. Loan repayments will not be subject to a premium
charge. If the Death Benefit becomes payable while a Policy loan is
outstanding, the Loan Amount will be deducted in calculating the Death
Benefit.
2. Allocation for Repayment of Policy Loans. On the date the
----------------------------------------
Company receives a repayment of all or part of a loan, an amount equal
to the repayment will be transferred from the Loan Account to the
Subaccounts and the Fixed Account and allocated as directed by the
Owner when submitting the repayment. If no direction is provided, the
amount will be allocated in accordance with the Owner's current Net
Premium allocation percentages.
3. Interest on Loan Account. On each Deduction Date, the amount
------------------------
in the Loan Account will be credited with interest at a minimum
guaranteed annual effective rate of 6%. See "Policy Loans" below. 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.
4. Notice of Excessive Loan Amount. If the Loan Amount exceeds the
-------------------------------
Cash Value on any Deduction Date and the Death Benefit Guarantee is
not in effect, the Policy will be in default. The Company will send
Owners and any assignee of record, notice of the default. The notice
will specify the amount that must be paid to prevent lapse. This
amount must be paid to the Home Office within a 61-day grace period to
avoid lapse. A Policy that lapses due to excessive Loan Amount can be
reinstated.
<PAGE>
II. Transfers
---------
A. Transfers Among the Subaccounts and the Fixed Account
-----------------------------------------------------
After the free-look period, by written or telephone request to
the Home Office (if the Company has the Owner's telephone
authorization on file), the Owner may transfer Policy Account Value
between and among the Subaccounts of the Variable Account and, subject
to certain special rules, to and from the Fixed Account. For this
purpose, the Company assumes the free-look period starts 10 days after
the Policy is issued.
In any Policy Year, the Owner may make an unlimited number of
transfers; however, the Company reserves the right to impose an excess
transfer processing fee of $25 for each transfer in excess of 12
during any Policy Year. For purposes of the transfer processing 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.
The minimum amount that may be transferred from each Subaccount
or the Fixed Account is $250 or, if less, the balance in the
Subaccount or the Fixed Account. There is no minimum amount that must
remain in a Subaccount or the Fixed Account following a transfer. If a
transfer request does not conform to this provision, the transfer will
be rejected.
Transfers from the Fixed Account are permitted only during the
30-day period following the end of each Policy Year, and only one such
transfer may be made in a Policy Year. The maximum transfer amount
from the Fixed Account to the Subaccounts in any Policy Year is the
greater of 25% of the Policy Account Value in the Fixed Account on the
date of the transfer, or $1,000, unless waived by the Company.
For any class of Policies, the Company reserves the right to
modify, restrict, suspend, or eliminate the transfer privileges
(including telephone transfer privileges) at any time and for any
reason.
B. Dollar Cost Averaging
---------------------
The dollar-cost averaging program permits Owners 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. If the Money Market
Subaccount or the Bond Subaccount is the Subaccount from which the
transfer is made, it cannot also be used as one of the Subaccounts in
this combination. Owners may elect to participate in the dollar-cost
averaging program at any time by sending the Company a written
<PAGE>
request. To use the dollar-cost averaging program, Owners must
transfer at least $100 from the Money Market Subaccount or Bond
Subaccount, as applicable. Once elected, dollar-cost averaging remains
in effect until the value of the Subaccount from which transfers are
being made is depleted, or until the Owner cancels the program by
written request or by telephone (if the Owner's telephone
authorization is 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. The
Company reserves the right to discontinue offering the dollar-cost
averaging program at any time and for any reason. Dollar-cost
averaging is not available while Owners are participating in the
portfolio rebalancing program.
C. Portfolio Rebalancing
---------------------
An Owner may instruct the Company to automatically rebalance (on
a monthly, quarterly, semi-annual or annual basis) the Policy Account
Value to return to the percentages specified in the Owner's allocation
instructions. An Owner may elect to participate in the portfolio
rebalancing program at any time by sending the Company a written
request at the Home Office. The percentage allocations must be in
whole percentages. Subsequent changes to the percentage allocations
may be made at any time by written or telephone instructions to the
Home Office (provided the Owner's telephone authorization is on file).
Once elected, portfolio rebalancing remains in effect until the Owner
instructs the Company 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. The Company reserves the right to
discontinue offering the portfolio rebalancing program at any time and
for any reason. Portfolio rebalancing is not available while an Owner
is participating in the dollar-cost averaging program.
D. Transfer Errors
---------------
In accordance with industry practice, the Company will establish
procedures to address and to correct errors in amounts transferred
among the Subaccounts and the Fixed Account, except for de minimis
amounts. The Company will correct non-de minimis errors it makes and
will assume any risk associated with the error. Owners will not be
penalized in any way for errors made by the Company. The Company will
take any gain resulting from the error.
<PAGE>
III. "Redemption" Procedures
-----------------------
A. "Free-Look" Rights
------------------
The Policy provides for an initial free-look right during which
an Owner may cancel the Policy by returning it to the Company or to an
agent of the Company before the end of 10 days after the Policy is
delivered. The free-look period may be longer in some states. Upon
returning the Policy to the Company or to an authorized agent for
forwarding to the Home Office, the Policy will be deemed void from the
beginning. Within seven days after the Company or the Home Office
receives the cancellation request and Policy, the Company or the Home
Office will pay a refund equal to the total premiums received.
B. Surrenders
----------
xi. Requests for Cash Surrender Value. The Owner may surrender
---------------------------------
the Policy at any time for its Cash Surrender Value. The Cash
Surrender Value on any Valuation Day is the Policy Account Value
less any applicable surrender charge minus any Loan Amount. The
Cash Surrender Value will be determined by the Company on the
Valuation Day the Home Office receives all required documents,
including a satisfactory written request signed by the Owner, or
on a later date if the Owner so requests. The written request
must include the Policy number, signature of the Owner, and clear
instructions regarding the request. The Company will cancel the
Policy as of the date the written request is received at the Home
Office, or on a later date if the Owner so requests. The Company
will ordinarily pay the Cash Surrender Value within seven days
following receipt of the written request and all other required
documents, or on the later date requested. The Policy cannot be
reinstated after it is surrendered.
xii. Surrender of Policy -- Surrender Charges. If the Policy
----------------------------------------
is surrendered during the first 10 Policy Years or the first 10
years after an increase in Basic Amount, the Company 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 is
set forth in each Policy and depends on the Insured's Age at
issue, or on the Policy Anniversary preceding an increase. It is
calculated as an amount per thousand 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.
C. Withdrawals
-----------
xiii. When Withdrawals are Permitted. At any time, the Owner may,
------------------------------
<PAGE>
by submitting a written or telephone request to the Home Office,
withdraw a portion of the Cash Surrender Value subject to the
following conditions:
. The minimum amount that may be withdrawn is $500.
. The amount withdrawn must be less than the then-current Cash
Surrender Value.
. No more than 4 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 each withdrawal made
during a Policy Year. The withdrawal processing fee will be
deducted from the Policy Account Value along with the amount
requested to be withdrawn.
. When the Owner requests a withdrawal, the Owner may direct how
the withdrawal will be deducted from the Policy Account Value. If
no directions are provided, the withdrawal will be deducted from
the Policy Account Value in the Subaccounts and the Fixed Account
on a pro-rata basis.
. The Company generally will pay a withdrawal request within seven
days after receipt by the Home Office of all the documents
required for such a payment, or on a later date if so requested
by the Owner.
. The Company may delay making a payment 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. The Company also may defer making payments
attributable to a check that has not cleared, and 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 the request is received. The Company will not defer payment
of a withdrawal or Policy loan requested to pay a premium due on
a policy issued by the Company.
. If Death Benefit Option 1 is in effect, a withdrawal will reduce
the Basic 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.
<PAGE>
D. Lapses
------
If a sufficient premium has not been received by the 61st day
after a grace period notice is sent, the Policy will lapse without
value and no amount will be payable to the Owner.
E. Monthly Deductions
------------------
On each Deduction Date, redemptions in the form of deductions
will be made from Policy Account Value for the Monthly Deduction,
which is a charge compensating the Company for the services and
benefits provided, costs and expenses incurred, and risks assumed by
the Company in connection with the Policy. The Monthly Deduction
consists of three components: (a) the cost of insurance charge; (b) a
monthly expense charge; and (c) any charges for additional benefits
added by riders to the Policy. The Monthly Deduction will be deducted
from the Subaccounts of the Variable Account and the Fixed Account on
a pro rata basis.
1. Cost of Insurance Charge. The cost of insurance charge is the
------------------------
primary charge for the death benefit provided by the Policy. The cost
of insurance charges are calculated monthly, and depend on a number of
variables, including the Age, sex and rate class of the Insured. The
charge varies from Policy to Policy and from Deduction Date to
Deduction Date. The charge 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
increase. 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 divided by 1.0032737, and (2) the Policy Account Value
attributable to the Basic Amount at issue 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
rider.
The Company's current cost of insurance rates may be less than
the guaranteed rates. Current cost of insurance rates will be
determined based on the Company's expectations as to future mortality,
investment earnings, expenses and persistency. These rates may change
from time to time, but they will never be more than the guaranteed
maximum rates set forth in the Owner's Policy. The Company can change
the rates without notice to Owners. The maximum cost of insurance
rates are based on the Insured's age last birthday at the start of the
Policy Year, sex, and, for issue ages 20 and over, tobacco use. If the
Insured is age 20 and over on the Policy Date or the effective date of
<PAGE>
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.
2. Monthly Expense Charge. The current monthly expense charge is
----------------------
$6 per month and is guaranteed never to exceed $8 a month. This charge
is designed to reimburse the Company for expenses 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.
3. Supplemental Benefit Charges. An Owner may add supplemental
----------------------------
benefits to the Policy. Such benefits are made available by the
Company through riders to the Policy. If any additional benefits are
added to a Policy, charges for these benefits will be deducted monthly
as part of the Monthly Deduction.
F. Death Benefits
--------------
1. Payment of Death Proceeds. As long as the Policy remains in
-------------------------
force, the Company will pay the death benefit to the Beneficiary upon
receipt at the Home Office of due proof of the Insured's death. The
death benefit is equal to the amount of insurance determined under the
Death Benefit Option in effect on the date of the Insured's 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. The death benefit will
be paid to the Beneficiary in a lump sum generally within seven days
after the Valuation Day by which the Company has received at the Home
Office all materials necessary to constitute due proof of death. If a
payment option is elected, the death benefit will be applied to the
option within seven days after the Valuation Day by which the Company
received due proof of death and payments will begin under that option
when provided by the option. The Death Benefit generally will be paid
through the State Farm Benefit Management Account(R), an interest
bearing checking account. The Company will send the State Farm Benefit
Management Account(R) checkbook to the Beneficiary within seven days
after the Company receives all required documents. A Beneficiary will
have immediate access to the proceeds by writing a check on the State
Farm Benefit Management Account(R). Interest will be paid 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
<PAGE>
Management Account(R) are not insured by the Federal Deposit Insurance
Corporation or any other agency.
2. Death Benefit Options. The Policy Account Value on the Insured's date
---------------------
of death is used in determining the amount of insurance. 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
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. The percentage is 250% to Age 40 and declines thereafter as the
Insured's Age increases. A table of percentages is shown in the prospectus
under "Death Benefit Options." The Company may change the table if the
table of percentages currently in effect becomes inconsistent with any
federal income tax laws and/or regulations.
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.
3. Changing the Death Benefit Option. The Death Benefit Option is
---------------------------------
selected in the application for the Policy. The Owner, by written request
submitted to, and received by, the Home Office, may change the Death
Benefit Option on the Policy subject to the following rules; however, no
change will be permitted that may result in the Policy being disqualified
as a life insurance policy under Section 7702 of the Code.
. The Death Benefit Option may be changed only once each Policy Year;
. The effective date of the change will be the date the Company receives
the request;
. When a change from Death Benefit Option 1 to Death Benefit Option 2 is
made, the Basic Amount will be decreased by the Policy Account Value on
the effective date of the change;
. When a change from Death Benefit Option 2 to Death Benefit Option 1 is
made, the Basic Amount after the change will be increased by the Policy
Account Value on the effective date of the change; and
<PAGE>
. Before approving a change in Death Benefit Option, the Company will
review the Guideline Annual Premiums.
4. Changing the Basic Amount. The initial Basic Amount is set at the time
-------------------------
the Policy is issued. The minimum initial Basic Amount is $50,000. The
Owner may increase or decrease the Basic Amount from time to time, subject
to the following conditions; however, no change will be permitted that may
result in the Policy being disqualified as a life insurance policy under
Section 7702 of the Code:
. Only one change (increase or decrease) may be made during a Policy
Year.
Rules for Increases
-------------------
. To increase the Basic Amount, the Owner must contact an agent
authorized by the Company.
. Any increase in the Basic Amount must be at least $25,000 and an
application on a prescribed form must be submitted. The Company may
require additional evidence of insurability. When an increase in Basic
Amount is requested, the Company conducts underwriting before approving
the increase to determine whether a different rate class will apply to
the increase. 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.
. There must be enough Cash Surrender Value to make a Monthly Deduction
that includes the cost of insurance for the increase.
. If approved, the increase in Basic Amount will become effective on the
date of application for the increase and the Policy Account Value will
be adjusted to the extent necessary to reflect a 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.
. The surrender charge will increase upon an increase in Basic Amount.
. No increases will be allowed after the Policy Anniversary when the
Insured is age 80.
. Revised pages to the Policy will be sent to the Owner indicating the
amount of the increase, the effective date of the increase, the maximum
monthly cost of insurance rates for the increase, the rate class for
the increase, the additional surrender charge, and any changes in
premium.
<PAGE>
Rules for Decreases
-------------------
. To decrease the Basic Amount, the Owner must submit a written request
to the Home Office.
. Any decrease in the Basic Amount must be at least $10,000.
. The Basic Amount after the decrease must be at least $50,000.
. The effective date of any decrease in Basic Amount will be the date the
written request is received by the Home Office.
. Any decrease will first be used to reduce the most recent increase,
then the next most recent increases, then the initial Basic Amount.
. The minimum monthly premium for the Death Benefit Guarantee will
decrease.
. 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.
G. Policy Loans
------------
1. Policy Loans. The Owner may obtain a Policy loan from the Company at
------------
any time by submitting a written or telephone request to the Home Office
(if the Owner's telephone authorization is on file). The maximum loan
amount is 90% of the Policy's Cash Value at the time of the loan. Policy
loans will be processed as of the Valuation Day the request is received and
loan proceeds generally will be sent to the Owner within seven days
thereafter. If loan proceeds are payable "on the spot" by authorized agents
of the Company, the Company imposes a limit of $2,000.
2. Collateral for Policy Loans. When a Policy loan is made, an amount
---------------------------
equal to the loan proceeds is transferred from the Policy Account Value in
the Subaccounts or Fixed Account to the Loan Account. This withdrawal is
made pro rata on the basis of Policy Account Value in each Subaccount and
the Fixed Account unless the Owner directs a different allocation when
requesting the loan.
3. Interest on Policy Loans. The Company charges interest daily on any
------------------------
outstanding Policy loan at an effective annual interest rate of 8%.
Interest is due and payable at the end of each Policy Year while a Policy
loan is outstanding. On each Policy Anniversary, any unpaid amount of loan
interest accrued since the last Policy Anniversary becomes part of the
outstanding loan.
<PAGE>
An amount equal to the unpaid amount of interest is transferred to the Loan
Account from each Subaccount and the Fixed Account on a pro-rata basis
according to the respective values in each Subaccount and the Fixed
Account.
4. Effect on Death Benefit. 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 be in default. The Company will send the Owner, and any assignee of
record, notice of the default. The Owner will have a 61-day grace period to
submit a sufficient payment to avoid lapse.
H. Payment Options
---------------
The Policy offers six methods of receiving proceeds payable under the
Policy. In addition to these methods, which are described below, payment
may be made by any other method to which the Company agrees. If proceeds
from a surrender or death benefits are to be applied to a payment option,
the proceeds will usually be applied within seven days of the Valuation Day
on which the Company receives the request and all required documentation at
the Home Office.
. Interest Method. The Company will pay interest at the end of 1, 3, 6,
----------------
or 12 month intervals. The interest rate will be at least 3 1/2% per
year. Withdrawals of at least $500 may be made at any time, and the
Company will pay interest to the date of withdrawal on the amount
withdrawn.
. Fixed Years Method. The Company will make equal payments, including
-------------------
interest at the rate of at least 3 1/2% per year, at the end of each
monthly interval for a fixed number of years. The present value of any
unpaid payments may be withdrawn at any time.
. Life Income Method. The Company will make equal payments at the end of
-------------------
each monthly interval for as long as the payee is alive. The amount of
each payment is based on the payee's Age and sex at the start of the
first monthly interval. The Company 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, the Company 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.
. Fixed Amount Method. The Company will make equal payments at the end
--------------------
of 1, 3, 6, or 12 month intervals until the amount put under this
method together with compound interest of at least 3 1/2% per year has
<PAGE>
been paid. The payment interval chosen must provide a total annual
payment of at least $100 for each $1,000 put under this method. The
unpaid balance may be withdrawn at any time.
. Joint Life Income Method. The Company will make equal payments at the
-------------------------
end of each monthly interval as long as at least one of the two payees
is alive. The Company will base each payment on the Age and sex of both
payees at the start of the first monthly interval, and may require
proof of the Age and sex of each payee. The payees may not withdraw the
present value of any payments.
. One Sum Method. The Company will pay the Cash Surrender Value or the
---------------
proceeds in one sum. Interest at the rate of at least 3 1/2% per year
will be paid from the date of the Insured's death to the date of
payment.
I. Lump Sum Payments by the Company
--------------------------------
Lump sum payments of withdrawals, surrenders or death benefits from the
Subaccounts will be ordinarily made within seven days of the Valuation Day
on which the Company receives the request and all required documentation at
the Home Office. The Company may postpone the processing of any such
transactions for any of the following reasons:
1. If the disposal or valuation of the Variable Account's assets is not
reasonably practicable because the New York Stock Exchange ("NYSE") is
closed for trading other than for customary holiday or weekend closings, or
trading on the NYSE is otherwise restricted, or an emergency exists, as
determined by the Securities and Exchange Commission ("SEC").
2. When the SEC by order permits a delay for the protection of Owners.
3. If the payment is attributable to a check that has not cleared.
The Company may defer for up to six months after the date the Company
receives the request, the payment of any proceeds from the Fixed Account
for a withdrawal, surrender or Policy loan request. The Company will not
defer payment of a withdrawal or Policy loan requested to pay a premium due
on a policy issued by the Company. If the Company defers any such payment
for 30 days or more, interest will be credited at 3 1/2% per year or the
rate required by law, if greater, from the date the payment becomes payable
to the date of payment, or the time required by law, if greater.
<PAGE>
J. Right to Exchange the Policy
----------------------------
The Owner has the right to transfer all of the Policy Account Value to
the Fixed Account. During the first two Policy Years (or the first two
years after an increase in Basic Amount), such transfers are not counted
for purposes of determining whether a transfer processing fee applies.
K. Redemption Errors
-----------------
In accordance with industry practice, the Company will establish
procedures to address and to correct errors in amounts redeemed from the
Subaccounts and the Fixed Account, except for de minimis amounts. The
Company will assume the risk of any non de minimus errors caused by the
Company.
L. Misstatement of Age or Sex
--------------------------
If the Insured's Age or sex has been misstated in the application, the
Death Benefit under the Policy will be the amount that would have been
provided by the correct Age and sex. The adjustment will be based on the
ratio of the correct cost of insurance for the most recent Deduction Date
for that benefit to the cost of insurance charge that was made.
M. Incontestability
----------------
The Policy limits the Company's right to contest the Policy as issued
or as increased, for reasons of 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.
N. Limited Death Benefit
---------------------
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.
<PAGE>
[LOGO OF STATE FARM LIFE INSURANCE COMPANY]
Exhibit 2
January 26, 1998
Ladies and Gentlemen;
As Senior Vice President and General Counsel of State Farm Life Insurance
Company (the "Company"), I have general supervision of the Company's legal
affairs. In connection with the proposed registration statement on Form S-6
under the Securities Act of 1933, as amended, of certain variable universal life
insurance policies (the "Contracts") to be issued by the Company through the
State Farm Life Insurance Company Variable Life Separate Account (the "Separate
Account") (File No. 333-19521) (the "Registration Statement"), I have been
advised by members of our legal staff concerning the establishment of the
Separate Account by the Board of Directors of the Company on December 9, 1996 as
a separate account for assets applicable to variable life insurance policies,
pursuant to the provisions of 215 ILCS 5/245.21 of the Illinois Insurance Laws.
I have further been advised by members of our legal staff concerning such other
documents and matters of law as I deem necessary and appropriate for this
opinion, and I therefore advise you that:
1. The Company was duly organized and is a validly existing corporation under
the laws of the State of Illinois.
2. The Company has been duly authorized by the Illinois Department of Insurance
to issue variable life insurance policies.
3. The Separate Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Illinois. The assets of
the Separate Account are owned by the Company. The income, gains and losses,
realized or unrealized, from assets allocated to the Separate Account must be
credited to or charged against the Separate Account, without regard to other
income, gains or losses of the Company.
4. The Contracts, when issued in accordance with the prospectus constituting a
part of the Registration Statement and upon compliance with applicable local
law, will be legal, validly issued and binding obligations of the Company in
accordance with their respective terms.
5. The portion of the assets held in the Separate Account equal to reserves
and other contract liabilities with respect to the Separate Account are not
chargeable with liabilities arising out of any other business the Company may
conduct.
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I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the heading "Legal Matters" in the
prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ William A. Montgomery
William A. Montgomery
Senior Vice President and
General Counsel
WAM:PD:bc
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Exhibit 6
GERRY BROGLA, F.S.A.
ACTUARY
PHONE (309) 766-7957
FAX (309) 766-1827
January 28, 1998
Gentlemen:
This opinion is furnished in connection with the registration by State Farm Life
Insurance Company of its Variable Universal Life Insurance Policy ("the
Policy"), under the Securities Act of 1933 (the "Registration Statement"). The
prospectus included in the Registration Statement of Form S-6 describes the
Policy. I have reviewed the Policy form and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of policy account values, cash surrender values, and
death benefits included in the section of the prospectus entitled,
"Hypothetical Illustrations of Accumulated Premiums, Policy Account
Values, Cash Surrender Values, and Death Benefits", based on the
assumptions stated in this section, are consistent with the provisions
of the Policy. The rate structure of the Policy has not been designed
so as to make the relationship between premiums and benefits, as shown
in the illustrations, appear more favorable to a prospective purchaser
of a Policy for males ages 35 and 50 than to prospective purchasers of
Policies on males of other ages or on females.
(2) The Example of Surrender Charges shown in Appendix A is consistent with
the provisions of the Policy.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely,
Gerry Brogla, F.S.A.
Actuary
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Exhibit 7.(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
State Farm Life Insurance Company
We consent to the inclusion in Pre-Effective Amendment No. 1 to the Registration
Statement of State Farm Life Insurance Company Variable Life Separate Account on
Form S-6 (File No. 333-19521) of our report dated February 18, 1997, on our
audits of the statutory financial statements of State Farm Life Insurance
Company. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
Coopers & Lybrand LLP
Chicago, Illinois
January 29, 1998
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Exhibit 7.(b)
[Letterhead of Sutherland, Asbill & Brennan LLP]
January 28, 1998
State Farm Life Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Pre-Effective Amendment No. 1 to the
Form S-6 registration statement for State Farm Life Insurance Company Variable
Life Separate Account (File No. 333-19521). In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
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Stephen E. Roth, Esq.
