<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-45805
811-08639
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 /X/
FARM BUREAU LIFE VARIABLE ACCOUNT II
(Exact Name of Registrant)
FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
5400 University Avenue
West Des Moines, Iowa 50266
(Address of Principal Executive Office)
------------------------
STEPHEN M. MORAIN, ESQUIRE
5400 University Avenue
West Des Moines, Iowa 50266
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
------------------------
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
Securities being offered: Flexible Premium Variable 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.
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<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of Form N-8B-2 Caption in Prospectus
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<C> <S>
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution Policies
5. Farm Bureau Life Insurance Company; The Variable Account
6. The Variable Account
7. Not Required
8. Not Required
9. Legal Proceedings
10. Summary; The Variable Account; Investment Options; Charges and Deductions; Policy Benefits; Voting
Rights; General Provisions
11. Summary; Investment Options
12. Summary; Investment Options
13. Summary; Charges and Deductions; Investment Options
14. Summary; Premiums
15. Premiums
16. Premiums; Investment Options
17. Summary; Charges and Deductions; Policy Benefits; Investment Options
18. Investment Options; Premiums
19. General Provisions; Voting Rights
20. Not Applicable
21. Policy Benefits; General Provisions
22. Not Applicable
23. Safekeeping of the Variable Account's Assets
24. General Provisions
25. Farm Bureau Life Insurance Company
26. Not Applicable
27. Farm Bureau Life Insurance Company
28. Executive Officers and Directors of Farm Bureau Life Insurance Company
29. Farm Bureau Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policies
36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policies
39. Summary; Distribution of the Policies
40. Not Applicable
41. Farm Bureau Life Insurance Company; Distribution of the Policies
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Item No. of Form N-8B-2 Caption in Prospectus
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<C> <S>
42. Not Applicable
43. Not Applicable
44. Premiums
45. Not Applicable
46. Policy Benefits
47. Investment Options
48. Not Applicable
49. Not Applicable
50. The Variable Account
51. Cover Page; Summary; Charges and Deductions; Policy Benefits; Premiums
52. Investment Options
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Not Required
</TABLE>
ii
<PAGE>
[Logo]
VARIABLE UNIVERSAL LIFE
[LOGO]
July 1, 1998
Prospectus for:
Flexible Premium Variable
Life Insurance Policies
issued by
Farm Bureau Life
Insurance Company
-------------------------------------------
Call Toll-Free
1-800-247-4170
225-5810 (Des Moines)
<PAGE>
PROSPECTUS
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Farm Bureau Life Variable Account II
Flexible Premium Variable Life Insurance Policy
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This Prospectus describes a flexible premium variable life insurance policy (the
"Policy") issued by Farm Bureau Life Insurance Company (the "Company"). This
type of life insurance is also commonly called variable universal life. The
Policy is designed to provide lifetime insurance protection to age 115. The
Policy permits the policyowner to vary premium payments and adjust the death
proceeds payable under the Policy. The Policy has been designed for maximum
flexibility in meeting changing insurance needs.
The minimum specified amount for which a Policy will be issued is normally
$50,000. The Policy provides for the payment of the death proceeds upon the
death of the insured and for a net surrender value or net accumulated value that
can be obtained upon surrender or partial withdrawal of the Policy. Death
proceeds may, and accumulated value will, vary with the investment experience of
Farm Bureau Life Variable Account II (the "Variable Account"). THE POLICYOWNER
BEARS THE ENTIRE INVESTMENT RISK; THERE IS NO GUARANTEED MINIMUM ACCUMULATED
VALUE. The Policy also provides for loans using the Policy as collateral. The
Policy will remain in force so long as net accumulated value or net surrender
value is sufficient to pay certain monthly charges imposed in connection with
the Policy.
A policyowner may allocate net premiums under a Policy to one or more of the
subaccounts of the Variable Account. Each Subaccount invests exclusively in
shares of the corresponding Investment Options of EquiTrust Variable Insurance
Series Fund: Value Growth Portfolio, High Grade Bond Portfolio, High Yield Bond
Portfolio, Money Market Portfolio and Blue Chip Portfolio; T. Rowe Price Equity
Series, Inc.: Equity Income Portfolio, Mid-Cap Growth Portfolio, New America
Growth Portfolio and Personal Strategy Balanced Portfolio; T. Rowe Price
International Series, Inc.: International Stock Portfolio or Dreyfus Variable
Investment Fund: Capital Appreciation Portfolio, Disciplined Stock Portfolio,
Growth and Income Portfolio, International Equity Portfolio and Small Cap
Portfolio. The accompanying prospectus for each Fund describes the investment
objectives and attendant risks of each Investment Option.
A policyowner may also allocate net premiums to the Declared Interest Option.
The Declared Interest Option is supported by the Company's General Account.
Accumulated value allocated to the Declared Interest Option is credited with
interest at a declared annual rate guaranteed to be at least 4.0%.
This Prospectus generally describes only the portion of the Policy involving the
Variable Account. For a brief summary of the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
A Policy may be treated as a modified endowment contract depending upon the
amount of premiums paid in relation to the death benefit provided under such
Policy. If a Policy is a modified endowment contract, any loan, partial
withdrawal, surrender and/or assignment of the Policy could result in adverse
tax consequences and/or penalties. (See "FEDERAL TAX MATTERS.")
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
FUND'S INVESTMENT OPTIONS.
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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.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
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Issued By
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
1-800-247-4170
THE DATE OF THIS PROSPECTUS IS JULY 1, 1998.
<PAGE>
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TABLE OF CONTENTS
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PAGE
DEFINITIONS............................................................... 3
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SUMMARY OF THE POLICY..................................................... 5
The Policy...................................................... 5
The Variable Account............................................ 5
The Declared Interest Option.................................... 5
Premiums........................................................ 5
Policy Benefits................................................. 6
Charges......................................................... 7
Distribution of the Policies.................................... 8
Other Policies.................................................. 8
Tax Treatment................................................... 8
Cancellation Privilege.......................................... 8
Illustrations................................................... 8
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FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT............... 9
Farm Bureau Life Insurance Company.............................. 9
Iowa Farm Bureau Federation..................................... 10
The Variable Account............................................ 10
Investment Options.............................................. 10
Addition, Deletion or Substitution of Investments............... 13
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THE POLICY................................................................ 13
Purpose of the Policy........................................... 13
Purchasing the Policy........................................... 14
Premiums........................................................ 14
Policy Lapse and Reinstatement.................................. 16
Examination of Policy (Cancellation Privilege).................. 16
Special Transfer Privilege...................................... 17
Exchange Privilege.............................................. 17
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POLICY BENEFITS........................................................... 18
Accumulated Value Benefits...................................... 19
Transfers....................................................... 21
Loan Benefits................................................... 21
Death Proceeds.................................................. 23
Accelerated Payments of Death Proceeds.......................... 26
Benefits at Maturity............................................ 26
Payment Options................................................. 26
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CHARGES AND DEDUCTIONS.................................................... 28
Premium Expense Charge.......................................... 28
Monthly Deduction............................................... 28
Transfer Charge................................................. 30
Partial Withdrawal Fee.......................................... 30
Surrender Charge................................................ 30
Variable Account Charges........................................ 30
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THE DECLARED INTEREST OPTION.............................................. 31
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GENERAL PROVISIONS........................................................ 32
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DISTRIBUTION OF THE POLICIES.............................................. 34
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FEDERAL TAX MATTERS....................................................... 35
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ADDITIONAL INFORMATION.................................................... 39
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FINANCIAL STATEMENTS...................................................... 47
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APPENDIX A................................................................ A-1
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APPENDIX B................................................................ B-1
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APPENDIX C................................................................ C-1
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The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO AN INVESTMENT IN A MUTUAL FUND.
2
<PAGE>
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DEFINITIONS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ACCUMULATED VALUE............ The total amount invested under the Policy. It is the sum of the values of
the Policy in each subaccount of the Variable Account, the value of the
Policy in the Declared Interest Option and any outstanding Policy Debt.
ATTAINED AGE................. The Insured's age on his or her last birthday on the Policy Date plus the
number of Policy Years since the Policy Date.
BENEFICIARY.................. The person or entity named by the Policyowner in the application or by
later designation to receive the death proceeds upon the death of the
Insured.
BUSINESS DAY................. Each day that the New York Stock Exchange is open for trading, except the
day after Thanksgiving, the day before Christmas (in 1998) and any day on
which the Home Office is closed because of a weather-related or comparable
type of emergency and is unable to segregate orders and redemption requests
received on that day.
COMPANY...................... Farm Bureau Life Insurance Company.
DECLARED INTEREST OPTION..... A part of the Company's General Account Net Premiums may be allocated, and
Accumulated Value may be transferred, to the Declared Interest Option.
Accumulated Value in the Declared Interest Option is credited with interest
at a declared annual rate guaranteed to be at least 4.0%.
DUE PROOF OF DEATH........... Proof of death that is satisfactory to the Company. Such proof may consist
of the following if acceptable to the Company:
(a) A certified copy of the death certificate;
(b) A certified copy of a court decree reciting a finding of death; or
(c) Any other proof satisfactory to the Company.
FUND......................... An open-end diversified management investment company in which the Variable
Account invests.
GENERAL ACCOUNT.............. The assets of the Company other than those allocated to the Variable
Account or any other separate account.
GRACE PERIOD................. The 61-day period beginning on the date the Company sends notice to the
Policyowner that Net Accumulated Value or Net Surrender Value is
insufficient to cover the monthly deduction.
HOME OFFICE.................. The principal offices of the Company at 5400 University Avenue, West Des
Moines, Iowa 50266.
INSURED...................... The person upon whose life the Policy is issued.
INVESTMENT OPTION............ A separate investment portfolio of a Fund.
ISSUE DATE................... The date which the Policy is issued and mailed to the Policyowner.
MATURITY DATE................ The Insured's Attained Age 115. It is the date on which the Policy
terminates and the Policy's Accumulated Value less Policy Debt becomes
payable to the Policyowner or the Policyowner's estate.
MONTHLY DEDUCTION DAY........ The same date in each month as the Policy Date. The monthly deduction is
made on the Business Day coinciding with or immediately following the
Monthly Deduction Day. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.")
NET ASSET VALUE.............. The total current value of each Subaccount's securities, cash, receivables
and other assets less liabilities.
NET ACCUMULATED VALUE........ The Accumulated Value of the Policy reduced by any outstanding Policy Debt
and increased by any unearned loan interest.
NET PREMIUM.................. The amount of premium remaining after the premium expense charge (see
"CHARGES AND DEDUCTIONS--Premium Expense Charge") has been deducted. This
amount will be allocated, according to the Policyowner's instructions,
among the Subaccounts of the Variable Account and the Declared Interest
Option.
NET SURRENDER VALUE.......... The Surrender Value minus any Policy Debt plus any unearned loan interest.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
PARTIAL WITHDRAWAL FEE....... A fee assessed at the time of any partial withdrawal, equal to the lesser
of $25 or 2% of the amount withdrawn.
POLICY....................... The flexible premium variable life insurance policy offered by the Company
and described in this Prospectus, which term includes the Policy described
in this Prospectus, the Policy application, any supplemental applications
and any endorsements.
POLICY ANNIVERSARY........... The same date in each year as the Policy Date.
POLICY DATE.................. The date set forth on the Policy data page which is used to determine
Policy Years, Policy Months and Policy Anniversaries. The Policy Date may,
but will not always, coincide with the effective date of insurance coverage
under the Policy. (See "THE POLICY--Purchasing the Policy.")
POLICY DEBT.................. The sum of all outstanding Policy Loans and any due and unpaid Policy Loan
interest.
POLICY LOAN.................. An amount borrowed by the Policyowner from the Company for which the Policy
serves as the sole security. Interest on Policy Loans is payable in advance
(for the remainder of the Policy Year) upon taking a Policy Loan and upon
each Policy Anniversary thereafter (for the following Policy Year) until
the Policy Loan is repaid.
POLICY MONTH................. A one-month period beginning on a Monthly Deduction Day and ending on the
day immediately preceding the next Monthly Deduction Day.
POLICYOWNER.................. The person who owns a Policy. The original Policyowner is named in the
application.
POLICY YEAR.................. A twelve-month period that starts on the Policy Date or on a Policy
Anniversary.
SPECIFIED AMOUNT............. The minimum death benefit payable under a Policy so long as the Policy
remains in force. The Specified Amount as of the Policy Date is set forth
on the data page in each Policy.
SUBACCOUNT................... A subdivision of the Variable Account which invests exclusively in shares
of a designated Investment Option of a Fund.
SURRENDER CHARGE............. A charge assessed at the time of any surrender during the first six Policy
Years and for six years following an increase in Specified Amount.
SURRENDER VALUE.............. The Accumulated Value minus the Surrender Charge.
TARGET PREMIUM............... A premium amount specified by the Company. It is used to calculate the
premium expense charge during time periods when the Company has declared a
premium expense charge less than the 7.0% guaranteed premium expense
charge. The Company may declare a lower percentage of premium expense
charge on premiums paid in excess of the Target Premium during a Policy
Year. It is also used to calculate compensation to registered
representatives.
UNIT VALUE................... The value determined by dividing each Subaccount's Net Asset Value by the
number of units outstanding at the time of calculation.
VALUATION PERIOD............. The period between the close of business (3:00 p.m. central time) on a
Business Day and the close of business on the next Business Day.
VARIABLE ACCOUNT............. Farm Bureau Life Variable Account II, a separate investment account
established by the Company to receive and invest the Net Premiums paid
under the Policies.
</TABLE>
4
<PAGE>
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SUMMARY OF THE POLICY
- - --------------------------------------------------------------------------------
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND
THAT THERE IS NO OUTSTANDING POLICY DEBT.
- - --------------------------------------------------------------------------------
THE POLICY Under the Policy, subject to certain limitations, the
Policyowner has flexibility in determining the frequency
and amount of premiums. (See "THE POLICY-- Premiums.")
The amount and/or duration of the life insurance coverage
and the Accumulated Value of the Policy is not guaranteed
and may increase or decrease, depending upon the
investment experience of the assets supporting the
Policy. Accordingly, the Policyowner bears the investment
risk of any depreciation of, but reaps the benefit of any
appreciation in, the value of the underlying assets. As
long as the Policy remains in force, the Policy will
provide for death proceeds payable to the Beneficiary
upon the Insured's death, the accumulation of Accumulated
Value, withdrawal and surrender options and policy loan
privileges. The minimum Specified Amount for which a
Policy will be issued is normally $50,000, although the
Company may in its discretion issue Policies with
Specified Amounts of less than $50,000.
- - --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT Net Premiums will first be allocated to the Declared
Interest Option as of the Issue Date. Once the Company
Receives a signed notice from the Policyowner that the
Policy has been received and accepted, the Accumulated
Value in the Declared Interest Option automatically will
be allocated, without charge, among the Subaccounts and
the Declared Interest Option in accordance with the
Policyowner's allocation instructions. Net Premiums
received after the Company receives the signed notice are
allocated, in accordance with the instructions of the
Policyowner, to the Variable Account, the Declared
Interest Option, or both. (See "THE POLICY--
Premiums--ALLOCATIONS OF NET PREMIUMS.") The Variable
Account consists of fifteen Subaccounts: the Value Growth
Subaccount, the High Grade Bond Subaccount, the High
Yield Bond Subaccount, the Money Market Subaccount, the
Blue Chip Subaccount, the Equity Income Subaccount, the
Mid-Cap Growth Subaccount, the New America Growth
Subaccount, the Personal Strategy Balanced Subaccount,
the International Stock Subaccount, the Capital
Appreciation Subaccount, the Disciplined Stock
Subaccount, the Growth and Income Subaccount, the
International Equity Subaccount and the Small Cap
Subaccount. Each Subaccount invests exclusively in shares
of the corresponding Investment Option.
Accumulated Value will, and death proceeds may, vary with
the investment experience of the Subaccounts, as well as
with the frequency and amount of premium payments, any
partial withdrawals and any charges imposed in connection
with the Policy. (See "POLICY BENEFITS--Accumulated Value
Benefits.")
- - --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
As an alternative to the Variable Account, the
Policyowner may allocate or transfer all or a portion of
the Accumulated Value to the Declared Interest Option,
which guarantees a specified minimum rate of return. (See
"THE DECLARED INTEREST OPTION.")
- - --------------------------------------------------------------------------------
PREMIUMS The Company may require the Policyowner to pay an initial
premium that, when reduced by the premium expense charge
(see "CHARGES AND DEDUCTIONS-- Premium Expense Charge"),
will be sufficient to pay the monthly deduction for the
first Policy Month. Each Policyowner will determine a
planned periodic premium schedule. The Policyowner is not
required to pay premiums in accordance with the planned
periodic premium schedule. (See "THE
POLICY--Premiums--PLANNED PERIODIC PREMIUMS.") The
schedule will provide for a premium payment of a level
amount at a fixed interval over a specified period of
time. Failure to pay premiums in accordance with the
schedule will not itself cause the Policy to lapse. (See
"THE POLICY--Policy Lapse and Reinstatement--LAPSE.")
Subject to certain restrictions, unscheduled premium
payments may also be made. (See "THE POLICY--
Premiums--UNSCHEDULED PREMIUMS.")
5
<PAGE>
A Policy will lapse during the first three Policy Years
when Net Accumulated Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction, or after
three Policy Years when Net Surrender Value is
insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction"), and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"). With respect to premiums,
therefore, the Policy differs in two important ways from
a conventional life insurance policy. First, the failure
to pay a planned periodic premium will not in itself
automatically cause the Policy to lapse. Second, a Policy
can lapse even if planned periodic premiums or premiums
in other amounts have been paid.
- - --------------------------------------------------------------------------------
POLICY BENEFITS ACCUMULATED VALUE BENEFITS. The Policy provides for an
Accumulated Value. The Accumulated Value will reflect the
amount and frequency of premium payments, the investment
experience of the chosen subaccounts of the Variable
Account, the interest earned on the Accumulated Value in
the Declared Interest Option, any Policy Loans, any
partial withdrawals and the charges imposed in connection
with the Policy. The entire investment risk for amounts
allocated to the Variable Account is borne by the
Policyowner; the Company does not guarantee a minimum
Accumulated Value. (See "POLICY BENEFITS--Accumulated
Value Benefits--CALCULATION OF ACCUMULATED VALUE.")
The Policyowner may, at any time, surrender a Policy and
receive the Net Surrender Value. Subject to certain
limitations, the Policyowner may also obtain a partial
withdrawal of Net Accumulated Value (minimum $500) at any
time prior to the Maturity Date. Partial withdrawals will
reduce both the Accumulated Value and death proceeds
payable under the Policy. (See "POLICY
BENEFITS--Accumulated Value Benefits--SURRENDER AND
WITHDRAWAL PRIVILEGES.") A charge will be assessed upon
surrender or partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.")
TRANSFERS. A Policyowner may transfer amounts (minimum
$100) among the subaccounts of the Variable Account an
unlimited number of times in a Policy Year; however, only
one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account. The
first transfer in a Policy Year is free; subsequent
transfers in that Policy Year will be assessed a charge
of $25. The transfer charge, unless paid in cash, will be
deducted from the amount transferred. (See "POLICY
BENEFITS--Transfers.") A transfer from the Variable
Account to the Declared Interest Option requested in
connection with the exercise of the special transfer
privilege under the Policy (see "THE POLICY--Special
Transfer Privilege") will not be considered a transfer
for purposes of the one-transfer limit or the $25 charge.
POLICY LOANS. So long as a Policy is in force and has a
positive Net Surrender Value, the Policyowner may borrow
up to 90% of the Policy's Net Surrender Value as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Home Office, less any
previously outstanding Policy Debt. (See "POLICY
BENEFITS-- Loan Benefits.") A loan taken from, or secured
by, a Policy may have federal income tax consequences.
(See "FEDERAL TAX MATTERS--Policy Proceeds.")
DEATH PROCEEDS. The Policies provide for the payment of
death proceeds following receipt by the Company (at its
Home Office) of Due Proof of Death of the Insured. The
Policy contains two death benefit options. Under Option
A, the death benefit is the greater of the sum of the
Specified Amount and the Policy's Accumulated Value, or
the Accumulated Value multiplied by the specified amount
factor for the Insured's Attained Age, as set forth in
the Policy. Under Option B, the death benefit is the
greater of the Specified Amount, or the Accumulated Value
multiplied by the specified amount factor for the
Insured's Attained Age, as set forth in the Policy. For
this purpose, all calculations are made as of the end of
the Business Day coinciding with or immediately following
the date of death.
6
<PAGE>
Under either death benefit option, so long as the Policy
remains in force, the death benefit will not be less than
the Specified Amount of the Policy on the date of death.
The death benefit may, however, exceed the Specified
Amount. The amount by which the death benefit exceeds the
Specified Amount depends upon the death benefit option
chosen and the Accumulated Value of the Policy. (See
"POLICY BENEFITS-- Death Proceeds.") To determine the
death proceeds, the death benefit will be reduced by any
outstanding Policy Debt and increased by any unearned
loan interest and any premiums paid after the date of
death. The proceeds may be paid in a lump sum or in
accordance with a payment option. (See "POLICY
BENEFITS--Payment Options.")
Anytime after the first Policy Year, the Policyowner may,
subject to certain restrictions, adjust the death benefit
payable under the Policy by increasing or decreasing the
Specified Amount. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN EXISTING COVERAGE.") In addition, the
Policyowner may, at any time, change the death benefit
option in effect. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN DEATH BENEFIT OPTION.")
BENEFITS AT MATURITY. If the Insured is alive and the
Policy is in force on the Maturity Date, the Policyowner
will be paid the Accumulated Value of the Policy as of
the end of the Business Day coinciding with or
immediately following the Maturity Date, reduced by any
outstanding Policy Debt.
- - --------------------------------------------------------------------------------
CHARGES PREMIUM EXPENSE CHARGE. The Net Premium equals the
premium paid less a premium expense charge. The premium
expense charge is equal to a maximum charge of 7% of each
premium up to the Target Premium, and 2% of each premium
in excess of the Target Premium. The premium expense
charge is used to compensate the Company for expenses
incurred in connection with the distribution of the
Policies and for premium taxes imposed by various states
and subdivisions thereof. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ACCUMULATED VALUE CHARGES. Accumulated Value will be
reduced each Policy Month on the Monthly Deduction Day by
a monthly deduction equal to the sum of a cost of
insurance charge, the cost of any additional insurance
benefits added by rider and a policy expense charge of
$5.00 per month (guaranteed not to exceed $7.00 per
month). In addition, during the first twelve Policy
Months and during the twelve Policy Months immediately
following an increase in Specified Amount, the monthly
deduction will include a first year monthly
administrative charge. This charge is $0.05 per $1,000 of
Specified Amount or increase in Specified Amount, and is
guaranteed not to exceed $0.07 per $1,000 of Specified
Amount. Also, during the first twelve Policy Months, the
monthly deduction will include a first year monthly
expense charge of $5.00 per month (guaranteed not to
exceed $7.00 per month). The monthly deduction will vary
in amount from month to month. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.")
Upon partial withdrawal of a Policy, a fee of the lesser
of $25 or 2% of the amount withdrawn will be assessed. At
the time of surrender, a charge will apply during the
first six Policy Years, as well as during the first six
Policy Years following an increase in Specified Amount.
The surrender charge is an amount per $1,000 of Specified
Amount which varies by age, sex, underwriting category
and Policy Year. The surrender charge applicable to each
Policyowner will be listed in the Policy. (See "CHARGES
AND DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") During a Policy Year, a $25 charge may be
assessed for the second and subsequent transfers of
assets among the Subaccounts and between the Variable
Account and the Declared Interest Option. (See "CHARGES
AND DEDUCTIONS--Transfer Charge.")
CHARGES AGAINST THE VARIABLE ACCOUNT. A daily charge at
the rate of .0024548% of the average daily net assets of
each Subaccount will be imposed to compensate the Company
for certain mortality and expense risks incurred in
connection with the Policies. (See "CHARGES AND
DEDUCTIONS--Variable Account Charges.") This corresponds
to an effective annual rate of 0.90%. (This charge is
guaranteed not to exceed .0028618% of the average daily
net assets of each Subaccount, which corresponds to an
effective annual rate of 1.05%.)
7
<PAGE>
Currently, no charge is made to the Variable Account for
federal income taxes that may be attributable to the
Variable Account. The Company may, however, make such a
charge in the future.
INVESTMENT OPTION EXPENSES. In addition, because the
Variable Account purchases shares of the selected
Investment Options, the value of the net assets of the
Variable Account will reflect the investment advisory fee
and other expenses incurred by each Investment Option.
The fees and expenses for 1997 were as indicated in the
table below. (See "CHARGES AND DEDUCTIONS--Variable
Account Charges--INVESTMENT OPTION EXPENSES.")
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
ADVISORY (AFTER WAIVER OR (AFTER WAIVER OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
--------------------------- -------- --------------------- ---------------------
<S> <C> <C> <C>
EquiTrust Variable
Insurance
Series Fund*
Value Growth 0.45% 0.10% 0.55%(1)
High Grade Bond 0.30% 0.22% 0.52%
High Yield Bond 0.45% 0.12% 0.57%(1)
Money Market 0.25% 0.33% 0.48%(1)
Blue Chip 0.20% 0.13% 0.33%
T. Rowe Price Equity
Series, Inc.
Equity Income 0.85% 0.00% 0.85%(2)
Mid-Cap Growth 0.85% 0.00% 0.85%(2)
New America Growth 0.85% 0.00% 0.85%(2)
Personal Strategy
Balanced 0.90% 0.00% 0.90%(2)
T. Rowe Price International
Series, Inc.
International Stock 1.05% 0.00% 1.05%(2)
Dreyfus Variable Investment
Fund
Capital Appreciation 0.75% 0.05% 0.80%(3)
Disciplined Stock 0.75% 0.27% 1.02%(3)
Growth and Income 0.75% 0.05% 0.80%(3)
International Equity 0.75% 0.31% 1.06%(3)
Small Cap 0.75% 0.03% 0.78%(3)
</TABLE>
* The annual investment option expenses for each
Investment Option of the Fund are net of certain
reimbursements by the Fund's investment adviser.
Operating expenses (including the investment
advisory fee but excluding brokerage, interest,
taxes and extraordinary expenses) of an
Investment Option that exceed 1.50% of the
Investment Option's average daily net assets for
any fiscal year are reimbursed by the Fund's
investment adviser up to the amount of the
advisory fee. In addition, the investment
adviser has voluntarily agreed to reimburse each
Portfolio for expenses that exceed 0.65%. Absent
the reimbursements, the total expenses for the
Investment Options for the 1997 fiscal year
would have been: Value Growth 0.58%, High Grade
Bond 0.57%, High Yield Bond 0.65% and Money
Market 0.55%.
(1) Total annual investment option expenses have
been restated for the reduction in management
fees from 0.50% to 0.45% for the Value Growth
and High Yield Bond Investment Options and 0.30%
to 0.25% for the Money Market Investment Option,
effective May 1, 1997.
(2) Total annual investment option expenses are an
all-inclusive fee and pay for investment
management services and other operating costs.
(3) The investment adviser may waive receipt of its
fees and/or voluntarily assume certain expenses.
Total expenses were not reduced for the 1997
fiscal year.
8
<PAGE>
- - --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
The Policies will be distributed by registered
representatives of EquiTrust Marketing Services, Inc.,
("EquiTrust Marketing") a broker-dealer having a selling
agreement with EquiTrust Marketing or a broker-dealer
having a selling agreement with such broker-dealer.
EquiTrust Marketing Services, Inc. (formerly FBL
Marketing Services, Inc.), a wholly-owned indirect
subsidiary of FBL Financial Group, Inc., is registered as
a broker-dealer with the Securities and Exchange
Commission and is a member of the National Association of
Securities Dealers, Inc.
- - --------------------------------------------------------------------------------
OTHER POLICIES The Company offers other variable life insurance policies
that invest in the same Investment Options of the Funds.
These policies may have different charges that could
affect Subaccount performance, and may offer different
benefits more suitable to a person's needs. To obtain
more information about these policies, contact the
Company.
- - --------------------------------------------------------------------------------
TAX TREATMENT If a Policy is issued on the basis of a standard premium
class, while there is some uncertainty, the Company
believes that the Policy should qualify as a life
insurance contract for federal income tax purposes. If a
Policy is issued on a substandard basis, it is not clear
whether or not the Policy would qualify as a life
insurance contract for federal income tax purposes.
Assuming that a Policy qualifies as a life insurance
contract for federal income tax purposes, the Accumulated
Value under a Policy should be subject to the same
federal income tax treatment as accumulated value under a
conventional fixed-benefit Policy. Under existing tax
law, the Policyowner is not deemed to be in constructive
receipt of Accumulated Values under a Policy until there
is a distribution from the Policy. Like death benefits
payable under conventional life insurance policies, death
proceeds payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a
result, the Beneficiary generally will not be taxed on
these proceeds. (See "FEDERAL TAX MATTERS.")
- - --------------------------------------------------------------------------------
CANCELLATION PRIVILEGE The Policyowner is granted a 20-day period following
receipt of the Policy in which to examine and return the
Policy. The Policyowner will receive the greater of
premiums paid or the Policy's Accumulated Value plus an
amount equal to any charges which have been deducted from
premiums, Accumulated Value and the Variable Account.
(See "THE POLICY--Examination of Policy (Cancellation
Privilege).")
- - --------------------------------------------------------------------------------
ILLUSTRATIONS Sample projections of hypothetical Policy values are
included starting at page A-1 of this Prospectus. These
projections of hypothetical values may be helpful in
understanding the long-term effects of different levels
of investment performance, charges and deductions,
electing one or the other death benefit option and
generally in comparing this Policy to other life
insurance policies. NONETHELESS, THE ILLUSTRATIONS ARE
BASED ON HYPOTHETICAL INVESTMENT RATES OF RETURN AND ARE
NOT A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual
values will be different from those illustrated.
This Prospectus describes only those aspects of the
Policy that relate to the Variable Account, except where
Declared Interest Option matters are specifically
mentioned. For a brief summary of the aspects of the
Policy relating to the Declared Interest Option, see "THE
DECLARED INTEREST OPTION."
- - --------------------------------------------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
- - --------------------------------------------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY
The Company is a stock life insurance company which was
incorporated in the State of Iowa on October 30, 1944.
One hundred percent of the outstanding voting shares of
the Company are owned by FBL Financial Group, Inc. At
December 31, 1997, 66.36% of the outstanding voting
shares of FBL Financial Group, Inc. was owned by Iowa
Farm Bureau Federation. The Company is principally
engaged in the offering of life insurance policies,
disability income insurance policies and annuity
contracts and is admitted to do business in fifteen
states--Arizona, Colorado, Idaho, Iowa, Kansas,
Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Oklahoma, South Dakota, Utah, Wisconsin and Wyoming. The
principal offices of the Company are at 5400 University
Avenue, West Des Moines, Iowa 50266.
9
<PAGE>
- - --------------------------------------------------------------------------------
IOWA FARM BUREAU FEDERATION
Iowa Farm Bureau Federation is an Iowa not-for-profit
corporation, the members of which are county Farm Bureau
organizations and their individual members. Iowa Farm
Bureau Federation is primarily engaged, through various
divisions and subsidiaries, in the formulation, analysis
and promotion of programs (at local, state, national and
international levels) that are designed to foster the
educational, social and economic advancement of its
members. The principal offices of Iowa Farm Bureau
Federation are at 5400 University Avenue, West Des
Moines, Iowa 50266.
- - --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT The Variable Account was established by the Company as a
separate account on January 6, 1998. The Variable Account
will receive and invest the Net Premiums paid under the
Policies. In addition, the Variable Account may receive
and invest net premiums for any other variable life
insurance policies issued in the future by the Company.
Although the assets in the Variable Account are the
property of the Company, the assets in the Variable
Account attributable to the Policies generally are not
chargeable with liabilities arising out of any other
business which the Company may conduct. The assets of the
Variable Account are available to cover the general
liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising
under the Policies and any other policies supported by
the Variable Account. The Company has the right to
transfer to the General Account any assets of the
Variable Account which are in excess of such reserves and
other Policy liabilities.
The Variable Account currently is divided into fifteen
Subaccounts but may, in the future, include additional
subaccounts. Each Subaccount invests exclusively in
shares of a single corresponding Investment Option.
Income and realized and unrealized gains or losses from
the assets of each Subaccount are credited to or charged
against, that Subaccount without regard to income, gains
or losses from any other Subaccount.
The Variable Account has been registered as a unit
investment trust under the Investment Company Act of 1940
and meets the definition of a separate account under the
federal securities laws. Registration with the Securities
and Exchange Commission does not involve supervision of
the management or investment practices or policies of the
Variable Account or the Company by the Commission. The
Variable Account is also subject to the laws of the State
of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
- - --------------------------------------------------------------------------------
INVESTMENT OPTIONS The Variable Account invests in shares of the Investment
Options. The Investment Options currently include the
Value Growth Portfolio, High Grade Bond Portfolio, High
Yield Bond Portfolio, Money Market Portfolio and Blue
Chip Portfolio of EquiTrust Variable Insurance Series
Fund; the Equity Income Portfolio, Mid-Cap Growth
Portfolio, New America Portfolio and Personal Strategy
Balanced Portfolio of T. Rowe Price Equity Series, Inc.
and International Stock Portfolio of T. Rowe Price
International Series, Inc.; and the Capital Appreciation
Portfolio, Disciplined Stock Portfolio, Growth and Income
Portfolio, International Equity Portfolio and Small Cap
Portfolio of Dreyfus Variable Investment Fund. The
Variable Account may, in the future, provide for
additional investment options. Each Investment Option has
its own investment objectives and the income and losses
for each Investment Option will be determined separately.
The investment objectives and policies of each Investment
Option are summarized below. There is no assurance that
any Investment Option will achieve its stated objectives.
More detailed information, including a description of
risks, may be found in the prospectus for each Investment
Option, which must accompany or precede this Prospectus
and which should be read carefully and retained for
future reference.
10
<PAGE>
EQUITRUST VARIABLE INSURANCE SERIES FUND
EquiTrust Investment Management Services, Inc. is the
investment adviser to the Fund. The Fund is comprised of
six portfolios, the following five of which are available
under the Contract:
VALUE GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation. The Portfolio pursues
its objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
equity and/or in equity securities that the
investment adviser believes are undervalued by the
market place. Such equity securities may include
common stock, preferred stock and securities
convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
a high grade portfolio of debt securities. The
Portfolio will pursue this objective by investing
primarily in debt securities rated AAA, AA or A by
Standard & Poor's Corporation and/or Aaa, Aa or A by
Moody's Investors Service, Inc., and in securities
issued or guaranteed by the United States government
or its agencies or instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a
primary objective, as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standard & Poor's Corporation, or in
unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus
"PRINCIPAL RISK FACTORS--Special Considerations--High
Yield Bonds.")
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Associates, Inc. is the investment adviser
to the Fund.
EQUITY INCOME PORTFOLIO. This Portfolio seeks to
provide substantial dividend income and long-term
capital appreciation by investing primarily in
established companies considered by the adviser to
have favorable prospects for both increasing
dividends and capital appreciation.
MID-CAP GROWTH PORTFOLIO. This Portfolio seeks
long-term capital appreciation by investing primarily
in common stocks of medium-sized (mid-cap) growth
companies which offer the potential for above-average
earnings growth.
NEW AMERICA GROWTH PORTFOLIO. This Portfolio seeks
long-term capital growth by investing primarily in
common stocks of U.S. growth companies operating in
service industries.
PERSONAL STRATEGY BALANCED PORTFOLIO. This Portfolio
seeks the highest total return over time consistent
with an emphasis on both capital appreciation and
income.
11
<PAGE>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
Rowe Price-Fleming International, Inc. is the investment
adviser to the Fund.
INTERNATIONAL STOCK PORTFOLIO. This Portfolio seeks
to provide capital appreciation through investments
primarily in established companies based outside the
United States.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Corporation serves as the investment adviser
to the Fund. Fayez Sarofim and Co. serves as the
sub-investment adviser to the Capital Appreciation
Portfolio. The Fund consists of thirteen portfolios, the
following of which are available under the Contract.
CAPITAL APPRECIATION PORTFOLIO. This Portfolio seeks
long-term capital growth, consistent with the
preservation of capital; current income is a
secondary investment objective. This Portfolio
invests primarily in the common stocks of domestic
and foreign companies.
DISCIPLINED STOCK PORTFOLIO. This Portfolio seeks to
provide investment results that are greater than the
total return performance of publicly-traded common
stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
GROWTH AND INCOME PORTFOLIO. This Portfolio seeks to
provide long-term capital growth, current income and
growth of income, consistent with reasonable
investment risk by investing in stocks, bonds and
money market instruments of domestic and foreign
issuers.
INTERNATIONAL EQUITY PORTFOLIO. This Portfolio seeks
to maximize capital growth through investments in
equity securities of foreign issuers.
SMALL CAP PORTFOLIO. This Portfolio seeks maximum
capital appreciation by investing in companies, both
domestic and foreign, considered by the adviser to be
emerging smaller-sized companies which are believed
to be characterized by new or innovative products,
services or processes which should enhance prospects
for growth in future earnings.
The Funds currently sell shares: (a) to the Variable
Account as well as to separate accounts of insurance
companies that may or may not be affiliated with the
Company or each other; and (b) to separate accounts to
serve as the underlying investment for both variable
insurance policies and variable annuity contracts. The
Company currently does not foresee any disadvantages to
Policyowners arising from the sale of shares to support
variable annuity contracts and variable life insurance
policies, or from shares being sold to separate accounts
of insurance companies that may or may not be affiliated
with the Company. However, the Company intends to monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise. In that event, it
would determine what action, if any, should be taken in
response to those events or conflicts. In addition, if
the Company believes that a Fund's response to any of
those events or conflicts insufficiently protects
Policyowners, it will take appropriate action on its own,
including withdrawing the Variable Account's investment
in that Fund. (See the Fund prospectuses for more
detail.)
The Company may receive compensation from an affiliate(s)
of one or more of the Funds based upon an annual
percentage of the average assets held in the Investment
Options by the Company. These amounts are intended to
compensate the Company for administrative and other
services provided by the Company to the Funds and/or
affiliate(s).
Each Fund is registered with the Securities and Exchange
Commission as an open-end, diversified management
investment company. Such registration does not involve
supervision of the management or investment practices or
policies of the Fund by the Securities and Exchange
Commission.
- - --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to compliance
with applicable law, to make additions to, deletions from
or substitutions for the shares of the Investment Options
12
<PAGE>
that are held by the Variable Account or that the
Variable Account may purchase. If the shares of an
Investment Option are no longer available for investment
or if, in its judgment, further investment in any
Investment Option should become inappropriate in view of
the purposes of the Variable Account, the Company
reserves the right to dispose of the shares of any
Investment Option and to substitute shares of another
Investment Option. The Company will not substitute any
shares attributable to a Policyowner's Accumulated Value
in the Variable Account without notice to and prior
approval of the Securities and Exchange Commission, to
the extent required by the Investment Company Act of 1940
or other applicable law. Nothing contained in this
Prospectus shall prevent the Variable Account from
purchasing other securities for other series or classes
of policies, or from permitting a conversion between
series or classes of policies on the basis of requests
made by Policyowners.
The Company also reserves the right to establish
additional subaccounts of the Variable Account, each of
which would invest in shares of a new Investment Option
with a specified investment objective. New subaccounts
may be established when, in the sole discretion of the
Company, marketing, tax or investment conditions warrant,
and any new subaccounts may be made available to existing
Policyowners on a basis to be determined by the Company.
Subject to obtaining any approvals or consents required
by applicable law, the assets of one or more Subaccounts
may be transferred to any other Subaccount(s), or one or
more Subaccounts may be eliminated or combined with any
other Subaccount(s) if, in the sole discretion of the
Company,
marketing, tax or investment conditions warrant.
In the event of any such substitution or change, the
Company may, by appropriate endorsement, make such
changes in these and other policies as may be necessary
or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of
persons having voting rights under the Policies, the
Variable Account may be operated as a management company
under the Investment Company Act of 1940, may be
deregistered under that Act in the event such
registration is no longer required, or, subject to
obtaining any approvals or consents required by
applicable law, may be combined with other Company
separate accounts. To the extent permitted by applicable
law, the Company may also transfer the assets of the
Variable Account associated with the Policies to another
separate account. In addition, the Company may, when
permitted by law, restrict or eliminate any voting rights
of Policyowners or other persons who have voting rights
as to the Variable Account. (See "ADDITIONAL
INFORMATION--Voting Rights.")
- - --------------------------------------------------------------------------------
THE POLICY
- - --------------------------------------------------------------------------------
PURPOSE OF THE POLICY The Policy is designed to provide the Policyowner with
both lifetime insurance protection and significant
flexibility in connection with the amount and frequency
of premium payments and the level of death proceeds
payable under a Policy. Unlike conventional life
insurance, the Policyowner is not required to pay
scheduled premiums to keep a Policy in force, but may,
subject to certain limitations, vary the frequency and
amount of premium payments. Moreover, the Policy allows a
Policyowner to adjust the level of death proceeds payable
under a Policy, without having to purchase a new policy,
by increasing or decreasing the Specified Amount. Thus,
as insurance needs or financial conditions change, the
Policyowner has the flexibility to adjust death proceeds
and vary premium payments.
The Policy varies from conventional fixed-benefit life
insurance in a number of additional respects. Because the
death proceeds may, and the Accumulated Value will, vary
with the investment experience of the chosen Subaccounts,
the Policyowner bears the investment risk of any
depreciation of, but reaps the benefit of any
appreciation in, the value of the underlying assets. As a
result, whether or not a Policy continues in force may
depend in part upon the investment experience of the
chosen Subaccounts. The failure to pay a planned periodic
premium will not necessarily cause the Policy to lapse,
but the Policy could lapse even if planned periodic
premiums have been paid, depending upon the investment
experience of the Variable Account.
13
<PAGE>
Life Insurance is not a short-term investment.
Prospective policyowners should consider their need for
insurance coverage and the Policy's long-term investment
potential. A prospective policyowner who already has life
insurance coverage should consider whether or not
changing or adding to existing coverage would be
advantageous. Generally, it is not advisable to purchase
another policy to replace an existing policy.
- - --------------------------------------------------------------------------------
PURCHASING THE POLICY Before it will issue a Policy, the Company must receive a
completed application, including payment of the initial
premium, at its Home Office. A Policy ordinarily will be
issued only for Insureds who are 0 to 80 years of age at
their last birthday and who supply satisfactory evidence
of insurability to the Company. Acceptance is subject to
the Company's underwriting rules and the Company may, in
its sole discretion, reject any application or premium
for any reason. The minimum Specified Amount for which a
Policy will be issued is normally $50,000, although the
Company may, in its discretion, issue Policies with
Specified Amounts of less than $50,000.
The Policy Date will be the later of (i) the date of the
initial application, or (ii) if additional medical or
other information is required pursuant to the Company's
underwriting rules, the date all such additional
information is received by the Company at its Home
Office. The Policy Date may also be any other date
mutually agreed to by the Company and the Policyowner. If
the later of (i) and (ii) above is the 29th, 30th or 31st
of any month, the Policy Date will be the 28th of such
month. The Policy Date is the date used to determine
Policy Years, Policy Months and Policy Anniversaries. The
Policy Date may, but will not always, coincide with the
effective date of insurance coverage under the Policy.
The effective date of insurance coverage under the Policy
will be the later of (i) the Policy Date, (ii) if an
amendment to the initial application is required pursuant
to the Company's underwriting rules, the date the Insured
signs the last such amendment, or (iii) the date on which
the full initial premium is received by the Company at
its Home Office.
- - --------------------------------------------------------------------------------
PREMIUMS Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of
premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance
policies, the Policy frees the Policyowner from the
requirement that premiums be paid in accordance with a
rigid and inflexible premium schedule. The Company may
require the Policyowner to pay an initial premium that,
when reduced by the premium expense charge (see "CHARGES
AND DEDUCTIONS--Premium Expense Charge"), will be
sufficient to pay the monthly deduction for the first
Policy Month. Thereafter, subject to the minimum and
maximum premium limitations described below, a
Policyowner may also make unscheduled premium payments at
any time prior to the Maturity Date.
The Company offers a conversion program for its term
insurance or Executive Term policies. Under the program,
owners of a term policy issued by the Company can elect
to convert their term insurance policy to a permanent
insurance policy, including the Policy, at any time
between the first and sixth policy anniversaries of their
term policy. Upon conversion, the Company will credit to
the initial premium for the Policy an amount equal to the
annual premium paid on the term policy, up to a limit of
$5.00 per $1,000 of their term insurance face amount.
Custom Term II contains a Premium Credit Benefit that
allows the policy owner credit towards the purchase of a
Policy at any time between the first and sixth policy
anniversaries of their term policy. Upon exercise of this
benefit, the Company will credit to the initial premium
for the Policy an amount equal to the annual premium paid
on the term policy, up to a limit of $5.00 per $1,000 of
the term insurance face amount. The existing Custom Term
II policy need not be canceled to use this benefit. These
credits will be treated as a premium for purposes of
Policy provisions applicable to premiums, such as
deduction of the premium expense charge. Please see your
registered representative for more information. A
commission is paid to a registered representative upon a
conversion.
PLANNED PERIODIC PREMIUMS. Each Policyowner will
determine a planned periodic premium schedule that
provides for the payment of a level premium over a
specified period of time on a quarterly, semi-annual or
annual basis. The Company may, at its
14
<PAGE>
discretion, permit planned periodic payments to be made
on a monthly basis. Periodic reminder notices ordinarily
will be sent to the Policyowner for each planned periodic
premium. Depending on the duration of the planned
periodic premium schedule, the timing of planned payments
could affect the tax status of the Policy. (See "FEDERAL
TAX MATTERS.")
The Policyowner is not required to pay premiums in
accordance with the planned periodic premium schedule.
Furthermore, the Policyowner has considerable flexibility
to alter the amount, frequency and the time period over
which planned periodic premiums are paid; however, no
planned periodic payment may be less than $100 without
the Company's consent. Changes in the planned premium
schedule may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
The payment of a planned periodic premium will not
guarantee that the Policy remains in force. Instead, the
duration of the Policy depends upon the Policy's
Accumulated Value. Thus, even if planned periodic
premiums are paid by the Policyowner, the Policy will
nevertheless lapse if, during the first three Policy
Years, Net Accumulated Value or, after three Policy
Years, Net Surrender Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction") and a Grace
Period expires without a sufficient payment (see "THE
POLICY--Policy Lapse and Reinstatement--LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment
must be at least $100; however, the Company may, in its
discretion, waive this minimum requirement. The Company
reserves the right to limit the number and amount of
unscheduled premium payments. An unscheduled premium
payment may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
PREMIUM LIMITATIONS. In no event may the total of all
premiums paid, both planned periodic and unscheduled,
exceed the applicable maximum premium limitation imposed
by federal tax laws. Because the maximum premium
limitation is in part dependent upon the Specified Amount
for each Policy, changes in the Specified Amount may
affect this limitation. If at any time a premium is paid
which would result in total premiums exceeding the
applicable maximum premium limitation, the Company will
accept only that portion of the premium which will make
total premiums equal the maximum. Any part of the premium
in excess of that amount will be returned and no further
premiums will be accepted until allowed by the applicable
maximum premium limitation.
PAYMENT OF PREMIUMS. Payments made by the Policyowner
will be treated first as payment of any outstanding
Policy Debt unless the Policyowner indicates that the
payment should be treated otherwise. Where no indication
is made, any portion of a payment that exceeds the amount
of any outstanding Policy Debt will be treated as a
premium payment.
NET PREMIUMS. The Net Premium is the amount available for
investment. The Net Premium equals the premium paid less
the premium expense charge. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ALLOCATION OF NET PREMIUMS. In the application for a
Policy, the Policyowner can allocate Net Premiums or
portions thereof to the Subaccounts, to the Declared
Interest Option, or both. Notwithstanding the allocation
in the application, the Net Premiums will first be
allocated to the Declared Interest Option as of the Issue
Date. When the Company receives, at its Home Office, a
notice signed by the Policyowner that the Policy has been
received and accepted, the Policy's Accumulated Value in
the Declared Interest Option automatically will be
allocated, without charge, among the Subaccounts and the
Declared Interest Option in accordance with the
Policyowner's percentage allocation in the application.
The Policyowner does not waive his cancellation privilege
by sending the signed notice of receipt and acceptance of
the Policy to the Company (see "THE POLICY--Examination
of Policy (Cancellation Privilege)").
Net Premiums received after the date the Company receives
the signed notice will be allocated in accordance with
the Policyowner's percentage allocation in the
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<PAGE>
application or the most recent written instructions of
the Policyowner. The minimum percentage of each premium
that may be allocated to any subaccount of the Variable
Account or to the Declared Interest Option is 10%; no
fractional percentages will be permitted. The allocation
for future Net Premiums may be changed without charge, at
any time while the Policy is in force, by providing the
Company with written notice on a form acceptable to the
Company signed by the Policyowner. The change will take
effect on the date the written notice is received at the
Home Office and will have no effect on prior cash values.
- - --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Unlike conventional life insurance policies, the
failure to make a planned periodic premium payment will
not itself cause a Policy to lapse. Lapse will only occur
during the first three Policy Years when Net Accumulated
Value is insufficient on a Monthly Deduction Day to cover
the monthly deduction, or after three Policy Years when
Net Surrender Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction"), and a Grace
Period expires without a sufficient payment. Insurance
coverage will continue during the Grace Period, but the
Policy will be deemed to have no Accumulated Value for
purposes of Policy Loans and surrenders during such Grace
Period. The death proceeds payable during the Grace
Period will equal the amount of the death proceeds
payable immediately prior to the commencement of the
Grace Period, reduced by any due and unpaid monthly
deductions.
To avoid lapse and termination of the Policy without
value, the Company must receive from the Policyowner
during the Grace Period a premium payment that, when
reduced by the premium expense charge (see "CHARGES AND
DEDUCTIONS-- Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
A Grace Period of 61 days will commence on the date the
Company sends a notice of any insufficiency to the
Policyowner.
REINSTATEMENT. Prior to the Maturity Date, a lapsed
Policy may be reinstated at any time within five years of
the Monthly Deduction Day immediately preceding the Grace
Period which expired without payment of the required
premium. Reinstatement is effected by submitting the
following items to the Company:
1. A written application for reinstatement signed
by the Policyowner and the Insured;
2. Evidence of insurability satisfactory to the
Company;
3. A premium that, after the deduction of the
premium expense charge, is at least sufficient
to keep the Policy in force for three months;
and
4. An amount equal to the monthly cost of insurance
for the two Policy Months prior to lapse.
(State law may limit the premium to be paid on
reinstatement to an amount less than that described.) To
the extent that the first year monthly administrative
charge was not deducted for a total of twelve Policy
Months prior to lapse, such charge will continue to be
deducted following reinstatement of the Policy until such
charge has been assessed, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") The Company will not
reinstate a Policy surrendered for its Net Surrender
Value. The lapse of a Policy with loans outstanding may
have adverse tax consequences (see "FEDERAL TAX
MATTERS--Policy Proceeds").
The effective date of the reinstated Policy will be the
Monthly Deduction Day coinciding with or next following
the date the Company approves the application for
reinstatement.
- - --------------------------------------------------------------------------------
EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
The Policyowner may cancel the Policy by delivering or
mailing written notice or sending a telegram to the
Company at its Home Office, and returning the Policy to
the
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<PAGE>
Company at its Home Office before midnight of the
twentieth day after the Policyowner receives the Policy.
Notice given by mail and return of the Policy by mail are
effective on being postmarked, properly addressed and
postage prepaid.
With respect to all Policies, the Company will refund,
within seven days after receipt of satisfactory notice of
cancellation and the returned Policy at its Home Office,
the greater of premiums paid or the Policy's Accumulated
Value plus an amount equal to any charges which have been
deducted from premiums, Accumulated Value and the
Variable Account.
- - --------------------------------------------------------------------------------
SPECIAL TRANSFER PRIVILEGE
A Policyowner may, at any time prior to the Maturity Date
while the Policy is in force, convert the Policy to a
flexible premium fixed-benefit life insurance policy by
requesting that all of the Accumulated Value in the
Variable Account be transferred to the Declared Interest
Option. The Policyowner may exercise this special
transfer privilege once each Policy Year. Once a
Policyowner exercises the special transfer privilege, all
future premium payments automatically will be credited to
the Declared Interest Option, until such time as the
Policyowner requests a change in allocation. No charge
will be imposed for any transfers resulting from the
exercise of the special transfer privilege.
- - --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE The Company will permit the owner of a flexible premium
fixed-benefit life insurance policy ("fixed-benefit
policy") issued by the Company or Western Farm Bureau
Life Insurance Company (a company held by the same
holding company as the Company), within 12 months of the
policy date shown in such policy, to exchange his
fixed-benefit policy (forms #434-112 and #834-112 only)
for a Policy on the life of the Insured. After the first
12 months following the policy date shown in these fixed-
benefit policies (as well as certain other fixed benefit
policies issued by the Company or Western Farm Bureau
Life Insurance Company), the Company will permit the
owner of such policy to exchange his fixed-benefit policy
for a Policy when the owner applies for an increase of
$25,000 or more in Specified Amount.
The Policy Date will be the date the application for the
Policy is signed. If an exchange occurs in the first 12
months, the Policy will have a Specified Amount equal to
the specified amount of the fixed-benefit policy and will
require no evidence of insurability to exercise the
exchange privilege. The Insured will be placed in the
premium class applicable to the initial specified amount
under the fixed-benefit policy, unless there has been an
underwritten increase in specified amount, in which event
the Insured will be placed, with respect to the entire
Specified Amount under the Policy, in the premium class
applicable to such increase in specified amount.
If an exchange occurs after the first 12 months, the
Policy will have a Specified Amount equal to the
specified amount of the fixed-benefit policy plus the
increase to purchase a Policy, and the increase will
require underwriting to exercise the exchange privilege.
The Insured will be placed in the premium class
applicable to the initial specified amount under the
fixed-benefit policy, unless there has been an
underwritten increase in specified amount, in which event
the Insured will be placed, with respect to the entire
amount exchanged, in the premium class applicable to such
increase in specified amount. With regard to the increase
in Specified Amount, the Insured will be placed in the
premium class applicable to the increase.
The net cash value of the fixed-benefit policy will
initially be allocated to the Declared Interest Option.
When the Company receives, at its Home Office, a notice
signed by the Policyowner that the Policy has been
received and accepted, the Policy's accumulated value in
the Declared Interest Option automatically will be
allocated, without charge, among the Subaccounts and the
Declared Interest Option pursuant to the allocation
instructions set forth in the application for the Policy.
The Company will waive the premium expense charge (see
"CHARGES AND DEDUCTIONS--Premium Expense Charge") on the
net cash value of the fixed-benefit policy applied to the
Policy pursuant to an exchange. In addition, the Company
will assess the First Year Monthly Administrative Charge
(see "CHARGES AND DEDUCTIONS--Monthly Deduction--FIRST
YEAR MONTHLY ADMINISTRATIVE CHARGE") only to the extent
that 12 monthly per $1,000 charges under the fixed-
benefit policy have not been assessed. An increase in
Specified Amount related to a
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<PAGE>
fixed-benefit policy exchanged after the first 12 months
will be assessed the First Year Monthly Administrative
Charge. Otherwise, charges and deductions will be made in
the manner and amounts described elsewhere in the
Prospectus.
With regard to an exchange after the first 12 months of
the fixed-benefit policy, the incontestable and suicide
provisions of the Policy will apply only to the increased
amount of coverage, except for any period remaining on
the fixed-benefit policy.
An exchanging owner will not be permitted to carry over
an outstanding loan under his fixed-benefit policy. Any
outstanding loan and loan interest must be repaid prior
to the date of exchange. If not repaid prior to the date
of exchange, the amount of the outstanding loan and
interest thereon will be reflected in the net cash value
of the fixed-benefit policy. To the extent a
fixed-benefit policy with an outstanding loan is
exchanged for an unencumbered Policy, the exchanging
owner could recognize income at the time of the exchange
up to the amount of such loan (including any due and
unpaid interest on such loan). (See "FEDERAL TAX
MATTERS--Tax Treatment of Policy Benefits.")
Riders issued on the original fixed-benefit policy which
are not offered in the Policy will not be available on
the new Policy. Riders which are available may be
exchanged to the new Policy.
Registered representatives will receive commissions on
the increase in face amount only.
The Policy differs from a fixed-benefit policy in many
significant respects. Most importantly, the Accumulated
Value under this Policy may consist, entirely or in part,
of Subaccount value which fluctuates in response to the
net investment return of the Variable Account. In
contrast, the cash values under a fixed-benefit policy
always reflect interest credited by the Company. While a
minimum rate of interest is guaranteed, the Company in
the past has credited interest at higher rates.
Accordingly, cash values under a fixed-benefit policy
reflect changing current interest rates and do not vary
with the investment performance of the Variable Account.
Other significant differences between the Policy and a
fixed-benefit policy include: (1) additional charges
applicable under the Policy not found in a fixed-benefit
policy; (2) different surrender charges; (3) different
death benefits; and (4) differences in federal and state
laws and regulations applicable to each of the types of
policies.
Owners of a fixed-benefit policy should carefully
consider whether it will be advantageous to replace a
fixed-benefit policy with a Policy. It may not be
advantageous to exchange a fixed-benefit policy for a
Policy (or to surrender in full or in part a
fixed-benefit policy and use the surrender or partial
surrender proceeds to purchase a Policy).
The Company believes that an exchange of a fixed-benefit
policy for a Policy generally should be treated as a
nontaxable exchange within the meaning of Section 1035 of
the Internal Revenue Code of 1986, as amended. A Policy
purchased in exchange will generally be treated as a
newly issued contract as of the effective date of the
Policy. This could have various tax consequences. (See
"FEDERAL TAX MATTERS--Tax Treatment of Policy Benefits.")
If you surrender your fixed-benefit policy in whole or in
part and after receipt of the proceeds you use the
surrender proceeds or partial surrender proceeds to
purchase a Policy, it will not be treated as a
non-taxable exchange. The surrender proceeds will
generally be includible in income.
Owners of a fixed-benefit policy should consult their tax
advisers before exchanging a fixed-benefit policy for
this Policy, or before surrendering in whole or in part
their fixed-benefit policy and using the proceeds to
purchase a Policy.
- - --------------------------------------------------------------------------------
POLICY BENEFITS
- - --------------------------------------------------------------------------------
While a Policy is in force, it provides for certain
benefits prior to the Maturity Date. Subject to certain
limitations, the Policyowner may at any time obtain all
or a portion
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<PAGE>
of the Net Accumulated Value by surrendering or taking a
partial withdrawal from the Policy. (See "POLICY
BENEFITS--Accumulated Value Benefits--SURRENDER AND
WITHDRAWAL PRIVILEGES.") In addition, the Policyowner has
certain policy loan privileges under the Policies. (See
"POLICY BENEFITS--Loan Benefits--POLICY LOANS.") The
Policy also provides for the payment of death proceeds
upon the death of the Insured under one of two death
benefit options selected by the Policyowner (see "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS"), and
benefits upon the maturity of a Policy (see "POLICY
BENEFITS--Benefits at Maturity").
- - --------------------------------------------------------------------------------
ACCUMULATED VALUE BENEFITS
SURRENDER AND WITHDRAWAL PRIVILEGES. At any time prior to
the Maturity Date while the Policy is in force, a
Policyowner may surrender the Policy or make a partial
withdrawal by sending a written request to the Company at
its Home Office. A surrender charge will apply to any
surrender during the first six Policy Years, as well as
during the first six years following an increase in
Specified Amount. A Partial Withdrawal Fee equal to the
lesser of $25 or 2% of the amount withdrawn will be
payable upon each partial withdrawal to cover the cost of
processing a partial withdrawal. (See "CHARGES AND
DEDUCTIONS--Partial Withdrawal Fee, and --Surrender
Charge.") Surrender and withdrawal proceeds ordinarily
will be mailed to the Policyowner within seven days after
the Company receives a signed request for a surrender at
its Home Office, although payments may be postponed under
certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
SURRENDERS. The amount payable upon surrender of the
Policy is the Net Surrender Value at the end of the
Valuation Period during which the request is received.
This amount may be paid in a lump sum or under one of the
payment options specified in the Policy, as requested by
the Policyowner. (See "POLICY BENEFITS--Payment
Options.") Upon surrender, all insurance in force will
terminate. For a discussion of the tax consequences
associated with Surrenders, see "FEDERAL TAX MATTERS."
PARTIAL WITHDRAWALS. A Policyowner may obtain a portion
of the Policy's Net Surrender Value. The amount requested
for partial withdrawal must be at least $500 and cannot
exceed the lesser of (1) the Net Surrender Value less
$500, or (2) 90% of the Net Surrender Value. The Partial
Withdrawal Fee will be deducted from the remaining
Accumulated Value. The Policyowner may request that the
proceeds of a partial withdrawal be paid in a lump sum or
under one of the payment options specified in the Policy.
(See "POLICY BENEFITS--Payment Options.")
A partial withdrawal (together with the Partial
Withdrawal Fee) will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
written instructions of the Policyowner. If no such
instructions are received with the request for partial
withdrawal, the partial withdrawal will be allocated
among the Subaccounts and the Declared Interest Option in
the same proportion that the Accumulated Value in each of
the Subaccounts and the Accumulated Value in the Declared
Interest Option, reduced by any outstanding Policy Debt,
bear to the total Accumulated Value on the date the
request is received at the Home Office.
Partial withdrawals will affect both the Policy's
Accumulated Value and the death proceeds payable under
the Policy. The Policy's Accumulated Value will be
reduced by the amount of the partial withdrawal. If the
death benefit payable under either death benefit option
both before and after the partial withdrawal is equal to
the Accumulated Value multiplied by the specified amount
factor set forth in the Policy, a partial withdrawal will
result in a reduction in death proceeds equal to the
amount of the partial withdrawal, multiplied by the
specified amount factor then in effect. If the death
benefit is not so affected by the specified amount
factor, the reduction in death proceeds will be equal to
the partial withdrawal. (See "POLICY BENEFITS--Death
Proceeds.")
Partial withdrawals will reduce the Policy's Specified
Amount by the amount of Accumulated Value withdrawn if
Option B is in effect at the time of the withdrawal. If
Option A is in effect at the time of the withdrawal,
there will be no effect on Specified Amount. (See "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS.") The
Specified Amount remaining in force after a partial
withdrawal may not be less than the minimum Specified
Amount for the Policy in effect on the date of the
partial
19
<PAGE>
withdrawal, as published by the Company. As a result, the
Company will not process any partial withdrawal that
would reduce the Specified Amount below this minimum. If
increases in the Specified Amount previously have
occurred, a partial withdrawal will first reduce the
Specified Amount of the most recent increase, then the
next most recent increases successively, then the
coverage under the original application. Thus, a partial
withdrawal may either increase or decrease the amount of
the cost of insurance charge, depending upon the
particular circumstances. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction--COST OF INSURANCE.") For a
discussion of the tax consequences associated with
partial withdrawals, see "FEDERAL TAX MATTERS."
NET ACCUMULATED VALUE. Net Accumulated Value equals the
Policy's Accumulated Value reduced by any outstanding
Policy Debt and increased by any unearned loan interest.
CALCULATION OF ACCUMULATED VALUE. The Policy provides for
the accumulation of Accumulated Value. Accumulated Value
will be determined on each Business Day. A Policy's
Accumulated Value will reflect a number of factors,
including Net Premiums paid, partial withdrawals, Policy
Loans, charges assessed in connection with the Policy,
the interest earned on the Accumulated Value in the
Declared Interest Option and the investment performance
of the Subaccounts to which the Accumulated Value is
allocated. There is no guaranteed minimum Accumulated
Value. The Accumulated Value of the Policy is equal to
the sum of the Accumulated Values in each Subaccount,
plus the Accumulated Value in the Declared Interest
Option, including amounts transferred to the Declared
Interest Option to secure outstanding Policy Debt.
As of the Issue Date, the Policy's Accumulated Value
equals the initial Net Premium less the monthly deduction
made on the Policy Date.
On the Business Day coinciding with or immediately
following the date the Company receives notice that the
Policy has been received and accepted by the Policyowner,
the Policy's Accumulated Value (all of which is in the
Declared Interest Option) will be transferred
automatically among the Subaccounts and the Declared
Interest Option in accordance with such percentage
allocation instructions. At the end of each Valuation
Period thereafter, the Accumulated Value in a Subaccount
will equal:
(1) The total Subaccount units represented by
the Accumulated Value at the end of the
preceding Valuation Period, multiplied by
the Subaccount's unit value for the current
Valuation Period; PLUS
(2) Any Net Premiums received during the current
Valuation Period which are allocated to the
Subaccount; PLUS
(3) All Accumulated Values transferred to the
Subaccount from the Declared Interest Option
or from another Subaccount during the
current Valuation Period; MINUS
(4) All Accumulated Values transferred from the
Subaccount to another Subaccount or to the
Declared Interest Option during the current
Valuation Period, including amounts
transferred to the Declared Interest Option
to secure Policy Debt; MINUS
(5) All partial withdrawals (and any portion of
the Partial Withdrawal Fee) deducted from
the Subaccount during the current Valuation
Period; MINUS
(6) The portion of any monthly deduction charged
to the Subaccount during the current
Valuation Period to cover the Policy Month
following the Monthly Deduction Day.
The Policy's total Accumulated Value in the Variable
Account equals the sum of the Policy's Accumulated Value
in each Subaccount.
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<PAGE>
UNIT VALUE. Each Subaccount has a Unit Value. When Net
Premiums are allocated to, or other amounts are
transferred into, a Subaccount, a number of units are
purchased based on the Unit Value of the Subaccount as of
the end of the Valuation Period during which the transfer
is made. Likewise, when amounts are transferred out of a
Subaccount, units are redeemed on the same basis. On any
day, a Policy's Accumulated Value in a Subaccount is
equal to the number of units held in such Subaccount,
multiplied by the Unit Value of such Subaccount on that
date.
For each Subaccount, the Unit Value was initially set at
$10 when the Subaccount first purchased shares of the
designated Investment Option. The Unit Value for each
subsequent valuation period is calculated by dividing (a)
by (b) where:
(a) is (1) the Net Asset Value of the Subaccount
at the end of the preceding Valuation
Period, plus (2) the investment income and
capital gains, realized or unrealized,
credited to the net assets of that
Subaccount during the Valuation Period for
which the Unit Value is being determined,
minus (3) the capital losses, realized or
unrealized, charged against those assets
during the Valuation Period, minus (4) any
amount charged against the Subaccount for
taxes, or any amount set aside during the
Valuation Period by the Company as a
provision for taxes attributable to the
operation or maintenance of that Subaccount;
and minus (5) a charge equal to .0024548% of
the average daily net assets of the
Subaccount for each day in the Valuation
Period. This corresponds to an effective
annual rate of 0.90% of the average daily
net assets of the Subaccount for mortality
and expense risks incurred in connection
with the Policies. (This charge is
guaranteed not to exceed .0028618% of the
average daily net assets on each Subaccount,
which corresponds to an effective annual
rate of 1.05%.)
(b) is the number of units outstanding at the
end of the preceding Valuation Period.
The Unit Value for a Valuation Period applies for each
day in the period. The assets in the Variable Account
will be valued at their fair market value in accordance
with accepted accounting practices and applicable laws
and regulations.
- - --------------------------------------------------------------------------------
TRANSFERS Policyowners may transfer amounts among the Subaccounts
an unlimited number of times in a Policy Year; however,
only one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account.
Transfers are made by written request to the Home Office
or, if the Policyowner has elected the "Telephone
Transfer Authorization" on the supplemental application,
by calling the Home Office toll-free at (800) 247-4170.
The amount of the transfer must be at least $100 or the
total Accumulated Value in the Subaccount or in the
Declared Interest Option (reduced, in the case of the
Declared Interest Option, by any outstanding Policy
Debt), if less than $100. The Company may, at its
discretion, waive the $100 minimum requirement. The
transfer will be effective as of the end of the Valuation
Period during which the request is received at the Home
Office.
The first transfer in each Policy Year will be made
without charge; each time amounts are subsequently
transferred in that Policy Year, a transfer charge of $25
may be assessed. The transfer charge, unless paid in
cash, will be deducted from the amount transferred. Once
a Policy is issued, the amount of the transfer charge is
guaranteed for the life of the Policy. (See "CHARGES AND
DEDUCTIONS--Transfer Charge.")
For purposes of these limitations and charges, all
transfers effected on the same day will be considered a
single transfer.
- - --------------------------------------------------------------------------------
LOAN BENEFITS POLICY LOANS. So long as the Policy remains in force and
has a positive Net Surrender Value, a Policyowner may
borrow money from the Company at any time using the
Policy as the sole security for the Policy Loan. A loan
taken from, or secured by, a Policy may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
The maximum amount that may be borrowed at any time is
90% of the Net Surrender Value as of the end of the
Valuation Period during which the request for the Policy
Loan is received at the Home Office. The Company's claim
for repayment of Policy Debt has priority over the claims
of any assignee or other person.
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<PAGE>
During any time that there is outstanding Policy Debt,
payments made by the Policyowner will be treated first as
payment of outstanding Policy Debt, unless the
Policyowner indicates that the payment should be treated
otherwise. Where no indication is made, any portion of a
payment that exceeds the amount of any outstanding Policy
Debt will be treated as a premium payment.
ALLOCATION OF POLICY LOAN. When a Policy Loan is made, an
amount equal to the Policy Loan will be segregated within
the Declared Interest Option as security for the Policy
Loan. If, immediately prior to the Policy Loan, the
Accumulated Value in the Declared Interest Option less
Policy Debt outstanding is less than the amount of such
Policy Loan, the difference will be transferred from the
subaccounts of the Variable Account, which have
Accumulated Value, in the same proportions that the
Policy's Accumulated Value in each Subaccount bears to
the Policy's total Accumulated Value in the Variable
Account. Accumulated Values will be determined as of the
end of the Valuation Period during which the request for
the Policy Loan is received at the Home Office.
Loan proceeds will normally be mailed to the Policyowner
within seven days after receipt of a written request.
Postponement of a Policy Loan may take place under
certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.")
Amounts segregated within the Declared Interest Option as
security for Policy Debt will bear interest at an
effective annual rate set by the Company. (See "POLICY
BENEFITS--Loan Benefits--EFFECT ON INVESTMENT
PERFORMANCE.")
LOAN INTEREST CHARGED. The interest rate charged on
Policy Loans is not fixed. The maximum annual loan
interest rate will be the higher of the "Published
Monthly Average of the Composite Yield on Seasoned
Corporate Bonds" as published by Moody's Investors
Service, Inc. or any successor thereto, for the calendar
month ending two months before the date on which the rate
is determined; or 5.5%. The Company may at any time elect
to change the interest rate. The Company will send notice
of any change in rate to the Policyowner. The new rate
will take effect on the Policy Anniversary coinciding
with or next following the date the rate is changed.
Interest is payable in advance at the time any Policy
Loan is made (for the remainder of the Policy Year) and
on each Policy Anniversary thereafter (for the entire
Policy Year) so long as there is Policy Debt outstanding.
Interest payable at the time a Policy Loan is made will
be subtracted from the loan proceeds. Thereafter,
interest not paid when due will be added to the existing
Policy Debt and bear interest at the same rate charged
for Policy Loans. The amount equal to unpaid interest
will be segregated within the Declared Interest Option in
the same manner that amounts for Policy Loans are
segregated within the Declared Interest Option. (See
"POLICY BENEFITS-- Loan Benefits--ALLOCATION OF POLICY
LOAN.")
Because interest is charged in advance, any interest that
has not been earned will be added to the death benefit
payable at the Insured's death and to the Accumulated
Value upon complete surrender, and will be credited to
the Accumulated Value in the Declared Interest Option
upon repayment of Policy Debt.
EFFECT ON INVESTMENT PERFORMANCE. Amounts transferred
from the Variable Account as security for Policy Debt
will no longer participate in the investment performance
of the Variable Account. All amounts held in the Declared
Interest Option as security for Policy Debt will be
credited with interest on each Monthly Deduction Day at
an effective annual rate equal to the greater of 4.0% or
the current effective loan interest rate minus no more
than 3.0%, as determined and declared by the Company. No
additional interest will be credited to these amounts.
The interest credited will remain in the Declared
Interest Option unless and until transferred by the
Policyowner to the Variable Account, but will not be
segregated within the Declared Interest Option as
security for Policy Debt.
From time to time, the Company may allow, by Company
practice, a loan spread of 0% on the gain in a Policy in
effect a minimum of ten years.
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<PAGE>
Even though Policy Debt may be repaid in whole or in part
at any time prior to the Maturity Date if the Policy is
still in force, Policy Loans will affect the Accumulated
Value of a Policy and may affect the death proceeds
payable. The effect could be favorable or unfavorable
depending upon whether the investment performance of the
Subaccount(s) from which the Accumulated Value was
transferred is less than or greater than the interest
rates actually credited to the Accumulated Value
segregated within the Declared Interest Option as
security for Policy Debt while Policy Debt is
outstanding. In comparison to a Policy under which no
Policy Loan was made, Accumulated Value will be lower
where such interest rates credited were less than the
investment performance of the Subaccount(s), but will be
greater where such interest rates were greater than the
performance of the Subaccount(s). In addition, death
proceeds will reflect a reduction of the death benefit by
any outstanding Policy Debt.
POLICY DEBT. Policy Debt equals the sum of all unpaid
Policy Loans and any due and unpaid policy loan interest.
Policy Debt is not included in Net Accumulated Value,
which is equal to Accumulated Value less Policy Debt. If,
during the first three Policy Years, Net Accumulated
Value or, after three Policy Years, Net Surrender Value
is insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "Charges and Deductions--Monthly
Deduction"), the Company will notify the Policyowner. To
avoid lapse and termination of the Policy without value
(see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"), the Policyowner must, during the
Grace Period, make a premium payment that, when reduced
by the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
Therefore the greater the Policy Debt under a Policy, the
more likely it would be to lapse.
REPAYMENT OF POLICY DEBT. Policy Debt may be repaid in
whole or in part any time during the Insured's life and
before the Maturity Date so long as the Policy is in
force. Any Policy Debt not repaid is subtracted from the
death benefit payable at the Insured's death, from
Surrender Value upon surrender or from the maturity
benefit. Any payments made by a Policyowner will be
treated first as the repayment of any outstanding Policy
Debt, unless the Policyowner indicates otherwise. Upon
repayment of Policy Debt, the portion of the Accumulated
Value in the Declared Interest Option securing the repaid
portion of the Policy Debt will no longer be segregated
within the Declared Interest Option as security for
Policy Debt, but will remain in the Declared Interest
Option unless and until transferred to the Variable
Account by the Policyowner.
For a discussion of the tax consequences associated with
Policy Loans and lapses, see "FEDERAL TAX MATTERS."
- - --------------------------------------------------------------------------------
DEATH PROCEEDS So long as the Policy remains in force, the Policy
provides for the payment of death proceeds upon the death
of the Insured. Proceeds will be paid to the primary
Beneficiary or a contingent Beneficiary. One or more
primary Beneficiaries or contingent Beneficiaries may be
named. If no Beneficiary survives the Insured, the death
proceeds will be paid to the Policyowner or his estate.
Death proceeds may be paid in a lump sum or under a
payment option. (See "POLICY BENEFITS--Payment Options.")
To determine the death proceeds, the death benefit will
be reduced by any outstanding Policy Debt and increased
by any unearned loan interest and any premiums paid after
the date of death. Proceeds will ordinarily be mailed
within seven days after receipt by the Company of Due
Proof of Death. Payment may, however, be postponed under
certain circumstances. (See "GENERAL PROVISIONS--
Postponement of Payments.") The Company pays interest on
those proceeds, at an annual rate of no less than 3.0% or
any rate required by law, from the date of death to the
date payment is made.
DEATH BENEFIT OPTIONS. Policyowners designate in the
initial application one of two death benefit options
offered under the Policy. The amount of the death benefit
payable under a Policy will depend upon the option in
effect at the time of the
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<PAGE>
Insured's death. Under Option A, the death benefit will
be equal to the greater of (i) the sum of the current
Specified Amount and the Accumulated Value, or (ii) the
Accumulated Value multiplied by the specified amount
factor. Accumulated Value will be determined as of the
end of the Business Day coinciding with or immediately
following the date of death. The specified amount factor
is 2.50 for an Insured Attained Age 40 or below on the
date of death. For Insureds with an Attained Age over 40
on the date of death, the factor declines with age as
shown in the Specified Amount Factor Table in Appendix B.
Accordingly, under Option A, the death proceeds will
always vary as the Accumulated Value varies (but will
never be less than the Specified Amount). Policyowners
who prefer to have favorable investment performance and
additional premiums reflected in increased death benefits
generally should select Option A.
Under Option B, the death benefit will be equal to the
greater of the current Specified Amount or the
Accumulated Value (determined as of the end of the
Business Day coinciding with or immediately following the
date of death) multiplied by the specified amount factor.
The specified amount factor is the same as under Option
A. Accordingly, under Option B the death benefit will
remain level at the Specified Amount unless the
Accumulated Value multiplied by the specified amount
factor exceeds the current Specified Amount, in which
case the amount of the death benefit will vary as the
Accumulated Value varies. Policyowners who are satisfied
with the amount of their insurance coverage under the
Policy and who prefer to have favorable investment
performance and additional premiums reflected in higher
Accumulated Value, rather than increased death benefits,
generally should select Option B.
Examples illustrating Option A and Option B can be found
in Appendix B.
CHANGE IN DEATH BENEFIT OPTION. The death benefit option
in effect may be changed at any time by sending a written
request for the change to the Company at its Home Office.
The effective date of such a change will be the Monthly
Deduction Day coinciding with or immediately following
the date the change is approved by the Company. A change
in death benefit options may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.")
If the death benefit option is changed from Option A to
Option B, the current Specified Amount will not change.
If the benefit option is changed from Option B to Option
A, the current Specified Amount will be reduced by an
amount equal to the Accumulated Value on the effective
date of the change. A change in the death benefit option
may not be made if it would result in a Specified Amount
which is less than the minimum Specified Amount in effect
on the effective date of the change or if after the
change the Policy would no longer qualify as life
insurance under federal tax law.
No charges will be imposed in connection with a change in
death benefit option; however, a change in death benefit
option will affect the cost of insurance charges. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction--COST OF
INSURANCE.")
CHANGE IN EXISTING COVERAGE. After a Policy has been in
force for one Policy Year, a Policyowner may adjust the
existing insurance coverage by increasing or decreasing
the Specified Amount. To make a change, the Policyowner
must send a written request to the Company at its Home
Office. Any change in the Specified Amount may affect the
cost of insurance rate and the net amount at risk, both
of which will affect a Policyowner's cost of insurance
charge. (See "CHARGES AND DEDUCTIONS-- Monthly
Deduction--COST OF INSURANCE RATE, and --NET AMOUNT AT
RISK.") If decreases in the Specified Amount cause the
premiums paid to exceed the maximum premium limitations
imposed by federal tax law (see "THE POLICY--Premiums--
PREMIUM LIMITATIONS"), the decrease will be limited to
the extent necessary to meet these requirements. A change
in existing coverage may have federal income tax
consequences. (See "FEDERAL TAX MATTERS--Tax Treatment of
Policy Benefits.")
Any decrease in the Specified Amount will become
effective on the Monthly Deduction Day coinciding with or
immediately following the date the request is approved by
the Company. The decrease will first reduce the Specified
Amount
24
<PAGE>
provided by the most recent increase, then the next most
recent increases successively, then the Specified Amount
under the original application. The Specified Amount
following a decrease can never be less than the minimum
Specified Amount for the Policy in effect on the date of
the decrease. A Specified Amount decrease will not reduce
the Surrender Charge.
To apply for an increase, evidence of insurability
satisfactory to the Company must be provided. Any
approved increase will become effective on the Monthly
Deduction Day coinciding with or immediately following
the date the request is approved by the Company. An
increase will not become effective, however, if the
Policy's Accumulated Value on the effective date would
not be sufficient to cover the deduction for the
increased cost of the insurance for the next Policy
Month. A Specified Amount increase is subject to its own
Surrender Charge.
CHANGES IN INSURANCE PROTECTION. A Policyowner may
increase or decrease the pure insurance protection
provided by a Policy--the difference between the death
benefit and the Accumulated Value--in one of several ways
as insurance needs change. These ways include increasing
or decreasing the Specified Amount of insurance, changing
the level of premium payments and, to a lesser extent,
partially withdrawing Accumulated Value. Although the
consequences of each of these methods will depend upon
the individual circumstances, they may be summarized as
follows:
(a) A decrease in the Specified Amount will,
subject to the applicable specified amount
factor limitations (see "POLICY
BENEFITS--Death Proceeds-- DEATH BENEFIT
OPTIONS"), decrease the pure insurance
protection and the cost of insurance charges
under the Policy without generally reducing
the Accumulated Value.
(b) An increase in the Specified Amount may
increase the amount of pure insurance
protection, depending on the amount of
Accumulated Value and the resultant
applicable specified amount factor. If the
insurance protection is increased, the cost
of insurance charge generally will increase
as well.
(c) If Option B is elected, an increased level
of premium payments will increase the
Accumulated Value and reduce the pure
insurance protection, until the Accumulated
Value multiplied by the applicable specified
amount factor exceeds the Specified Amount.
Increased premiums should also increase the
amount of funds available to keep the Policy
in force.
(d) If Option B is elected, a reduced level of
premium payments generally will increase the
amount of pure insurance protection,
depending on the applicable specified amount
factor. It also will result in a reduced
amount of Accumulated Value and will
increase the possibility that the Policy
will lapse.
(e) A partial withdrawal will reduce the death
benefit. (See "POLICY BENEFITS--Accumulated
Value Benefits--SURRENDER AND WITHDRAWAL
PRIVILEGES.") However, it only affects the
amount of pure insurance protection if the
death benefit payable is based on the
specified amount factor, because otherwise
the decrease in the benefit is offset by the
amount of Accumulated Value withdrawn. The
primary use of a partial withdrawal is to
withdraw cash and reduce Accumulated Value.
In comparison, an increase in the death benefit due to
the operation of the specified amount factor occurs
automatically and is intended to help assure that the
Policy remains qualified as life insurance under federal
tax law. The calculation of the death benefit based upon
the specified amount factor occurs only when the
Accumulated Value of a Policy reaches a certain
proportion of the Specified Amount (which may or may not
occur). Additional premium payments, favorable investment
performance and large initial premiums tend to increase
the likelihood of the specified amount factor becoming
operational after the first few Policy Years. Such
increases will be temporary, however, if the investment
performance becomes unfavorable and/or premium payments
are stopped or decreased.
25
<PAGE>
- - --------------------------------------------------------------------------------
ACCELERATED PAYMENTS OF DEATH PROCEEDS
In the event that the Insured becomes terminally ill (as
defined below), the Policyowner (if residing in a state
that has approved such an endorsement) may, by written
request and subject to the conditions stated below, have
the Company pay all or a portion of the accelerated death
benefit immediately to the Policyowner. If not attached
to the Policy beforehand, the Company will issue an
accelerated death benefit endorsement (the "Endorsement")
providing for this right.
For this purpose, an Insured is terminally ill when a
physician (as defined by the Endorsement) certifies that
he or she has a life expectancy of 12 months or less.
The accelerated death benefit is equal to the Policy's
death benefit as described on page 6, up to a maximum of
$250,000 (the $250,000 maximum applies in aggregate to
all policies issued by the Company on the Insured), less
an amount representing a discount for 12 months at the
interest rate charged for loans under the Policy. The
accelerated death benefit does not include the amount of
any death benefit payable under a rider that covers the
life of someone other than the Insured.
In the event that there is a loan outstanding under the
Policy on the date that the Policyowner requests a
payment under the Endorsement, the accelerated death
benefit is reduced by a portion of the outstanding loan
in the same proportion that the requested payment under
the Endorsement bears to the total death benefit under
the Policy. If the amount requested by the Policyowner to
be paid under the Endorsement is less than the total
death benefit under the Policy and the Specified Amount
of the Policy is equal to or greater than the minimum
Specified Amount, the Policy will remain in force with
all values and benefits under the Policy being reduced in
the same proportion that the new Policy benefit bears to
the Policy benefit before exercise of the Endorsement.
There are several other restrictions associated with the
Endorsement. These are: (1) the Endorsement is not valid
if the Policy is within five years of being matured, (2)
the consent of any irrevocable beneficiary or assignee is
required to exercise the Endorsement, (3) the Company
reserves the right, in its sole discretion, to require
the consent of the Insured or of any beneficiary,
assignee, spouse or other party of interest before
permitting the exercise of the Endorsement, (4) the
Company reserves the right to obtain the concurrence of a
second medical opinion as to whether any Insured is
terminally ill and (5) the Endorsement is not effective
where (a) the Insured or the Policyowner would be
otherwise required by law to use the Endorsement to meet
the claims of creditors, or (b) the Insured would be
otherwise required by any government agency to exercise
the Endorsement in order to apply for, obtain or keep a
government benefit or entitlement.
The Endorsement will terminate at the earlier of the end
of the grace period for which any premium is unpaid, upon
receipt in the Home Office of a written request from the
Policyowner to cancel the Endorsement or upon termination
of the Policy.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax
adviser about the consequences of adding this Endorsement
to a Policy or requesting an accelerated death benefit
payment under this Endorsement.
- - --------------------------------------------------------------------------------
BENEFITS AT MATURITY If the Insured is alive and the Policy is in force on the
Maturity Date, the Company will pay to the Policyowner
the Policy's Accumulated Value as of the end of the
Business Day coinciding with or immediately following the
Maturity Date, reduced by any outstanding Policy Debt.
(See "POLICY BENEFITS--Loan Benefits--REPAYMENT OF POLICY
DEBT.") Benefits at maturity may be paid in a lump sum or
under a payment option. The Maturity Date is Attained Age
115.
- - --------------------------------------------------------------------------------
PAYMENT OPTIONS Death proceeds and Accumulated Value paid at maturity, or
upon surrender or partial withdrawal of a Policy, may be
paid in whole or in part under a payment option. There
26
<PAGE>
are currently five payment options available. Payments
may also be made under any new payment option available
at the time proceeds become payable. In addition,
proceeds may be paid in any other manner acceptable to
the Company.
An option may be designated in the application or by
notifying the Company in writing at its Home Office.
During the life of the Insured, the Policyowner may
select a payment option; in addition, during that time
the Policyowner may change a previously selected option
by sending written notice to the Company requesting the
cancellation of the prior option and the designation of a
new option. If the Policyowner has not chosen an option
prior to the Insured's death, the Beneficiary may choose
an option. The Beneficiary may change a payment option by
sending a written request to the Company, provided that a
prior option chosen by the Policyowner is not in effect.
If no option is chosen, the Company will pay the proceeds
of the Policy in one sum. The Company will also pay the
proceeds in one sum if, (i) the proceeds are less than
$2,000; (ii) periodic payments would be less than $20; or
(iii) the payee is an assignee, estate, trustee,
partnership, corporation or association.
Amounts paid under a payment option are paid pursuant to
a payment contract and will not depend upon the
investment performance of the Variable Account. Proceeds
applied under a payment option earn interest at a rate
guaranteed to be no less than 3.0% compounded yearly. The
Company may be crediting higher interest rates on the
effective date of the payment contract. The Company may,
but is not obligated to, declare additional interest to
be applied to such funds.
If a payee dies, any remaining payments will be paid to a
contingent payee. At the death of the last payee, the
commuted value of any remaining payments will be paid to
the last payee's estate. A payee may not withdraw funds
under a payment option unless the Company has agreed to
such withdrawal in the payment contract. The Company
reserves the right to defer a withdrawal for up to six
months and to refuse to allow partial withdrawals of less
than $250.
Payments under Options 2, 3, 4 or 5 will begin as of the
date of the Insured's death, on surrender or on the
Maturity Date. Payments under Option 1 will begin at the
end of the first interest period after the date proceeds
are otherwise payable.
OPTION 1--INTEREST INCOME. Periodic payments of
interest earned from the proceeds will be paid.
Payments can be annual, semi-annual, quarterly or
monthly, as selected by the payee, and will begin at
the end of the first period chosen. Proceeds left
under this plan will earn interest at a rate
determined by the Company, in no event less than 3.0%
compounded yearly. The payee may withdraw all or part
of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. Periodic payments
will be made for a fixed term not longer than 30
years. Payments can be annual, semi-annual, quarterly
or monthly. Guaranteed amounts payable under the plan
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 3--LIFE INCOME WITH TERM CERTAIN. Equal
periodic payments will be made for a guaranteed
minimum period elected. If the payee lives longer
than the minimum period, payments will continue for
his or her life. The minimum period can be 0, 5, 10,
15 or 20 years. Guaranteed amounts payable under this
plan will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 4--INCOME OF A FIXED AMOUNT. Equal periodic
payments of a definite amount will be paid. Payments
can be annual, semi-annual, quarterly or monthly. The
amount paid each period must be at least $20 for each
$1,000 of proceeds. Payments will continue until the
proceeds are exhausted. The last payment will equal
the amount of any unpaid proceeds. Unpaid proceeds
will earn interest at a rate determined by the
Company, in no event less than 3.0% compounded
yearly.
OPTION 5--JOINT AND TWO-THIRDS SURVIVOR MONTHLY LIFE
INCOME. Equal monthly payments will be made for as
long as two payees live. The guaranteed amount
payable under this plan will earn interest at a
minimum rate of 3.0%
27
<PAGE>
compounded yearly. When one payee dies, payments of
two-thirds of the original monthly payment will be
made to the surviving payee. Payments will stop when
the surviving payee dies.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the accumulated value, net surrender value
or death benefit, as applicable, may be settled under
any other payment option made available by the
Company or requested and agreed to by the Company.
- - --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- - --------------------------------------------------------------------------------
Charges will be deducted in connection with the Policy to
compensate the Company for providing the insurance
benefits set forth in the Policy and any additional
benefits added by rider, for distributing and
administering the Policy, for applicable taxes and for
assuming certain risks in connection with the Policy. The
nature and amount of these charges are described more
fully below.
- - --------------------------------------------------------------------------------
PREMIUM EXPENSE CHARGE Prior to allocation of Net Premiums among the Subaccounts
and the Declared Interest Option, premiums paid will be
reduced by a premium expense charge. The premium less the
premium expense charge equals the Net Premium.
The premium expense charge is 7.0% of each premium up to
the Target Premium (or 2% for each premium over the
Target Premium) and is intended to compensate the Company
for expenses incurred in distributing the Policy,
including agent sales commissions, the cost of printing
prospectuses and sales literature, and advertising costs
and to compensate for the amount the Company considers
necessary to pay all taxes on premiums received by
insurance companies imposed by various states and
subdivisions thereof. Premium taxes charged by the
various states currently range from 1% to 3%.
The premium expense charge in any Policy Year is not
necessarily related to actual distribution expenses in
that year. Instead, the Company expects to incur the
majority of distribution expenses in the early Policy
Years and to recover any deficiency over the life of the
Policy and from the Company's general assets, including
amounts derived from the mortality and expense risk
charge.
- - --------------------------------------------------------------------------------
MONTHLY DEDUCTION Charges will be deducted monthly from the Accumulated
Value of each Policy ("monthly deduction") to compensate
the Company for the cost of insurance coverage and any
additional benefits added by rider (See "GENERAL
PROVISIONS-- Additional Insurance Benefits"), for
underwriting and start-up expenses in connection with
issuing a Policy and for certain administrative costs.
The monthly deduction will be deducted on the Policy Date
and on each Monthly Deduction Day. (If the Monthly
Deduction Day falls on Thanksgiving, the Friday following
Thanksgiving or the weekend following Thanksgiving; or on
the 27th or 28th day of February, 1999, the monthly
deduction will be deducted on the preceding Business
Day.) It will be deducted from the Declared Interest
Option and each Subaccount in the same proportion that
the Policy's Net Accumulated Value in the Declared
Interest Option and the Policy's Accumulated Value in
each Subaccount bear to the total Net Accumulated Value
of the Policy. For purposes of making deductions from the
Declared Interest Option and the Subaccounts, Accumulated
Values will be determined as of the end of the Business
Day coinciding with or immediately following the Monthly
Deduction Day. (If the Monthly Deduction Day falls on
Thanksgiving, the Friday following Thanksgiving or the
weekend following Thanksgiving; or on the 27th or 28th
day of February, 1999, Accumulated Values will be
determined as of the end of the preceding Business Day.)
Because portions of the monthly deduction, such as the
cost of insurance, can vary from month to month, the
monthly deduction itself will vary in amount from month
to month.
The monthly deduction will be made on the Business Day
coinciding with or immediately following each Monthly
Deduction Day and will equal:
(a) the cost of insurance for the Policy; plus
(b) the cost of any optional insurance benefits
added by rider; plus
(c) the monthly policy expense charge.
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<PAGE>
During the first twelve Policy Months and during the
twelve Policy Months immediately following an increase in
Specified Amount, the monthly deduction will include a
first year monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate
the Company for the anticipated cost of paying death
proceeds to Beneficiaries of those Insureds who die prior
to the Maturity Date. The cost of insurance is determined
on a monthly basis, and is determined separately for the
initial Specified Amount and for any subsequent increases
in Specified Amount. The Company will determine the
monthly cost of insurance charge by dividing the
applicable cost of insurance rate, or rates, by 1,000 and
multiplying the result by the net amount at risk for each
Policy Month.
NET AMOUNT AT RISK. Under Option A the net amount at risk
for a Policy Month is equal to (a) divided by (b), and
under Option B the net amount at risk for a Policy Month
is equal to (a) divided by (b), minus (c), where:
(a) is the Specified Amount;
(b) is 1.0032737;(1) and
(c) is the Accumulated Value.
The Specified Amount and the Accumulated Value will be
determined as of the end of the Business Day coinciding
with or immediately following the Monthly Deduction Day.
The net amount at risk is determined separately for the
initial Specified Amount and any increases in Specified
Amount. In determining the net amount at risk for each
Specified Amount, the Accumulated Value will be first
considered a part of the initial Specified Amount. If the
Accumulated Value exceeds the initial Specified Amount,
it will be considered to be a part of any increase in the
Specified Amount in the same order as the increases
occurred.
COST OF INSURANCE RATE. The cost of insurance rate for
the initial Specified Amount will be based on the
Insured's sex, premium class and Attained Age. For any
increase in Specified Amount, the cost of insurance rate
will be based on the Insured's sex, premium class and age
at last birthday on the effective date of the increase.
Actual cost of insurance rates may change and will be
determined by the Company based on its expectations as to
future mortality experience. However, the actual cost of
insurance rates will never be greater than the guaranteed
maximum cost of insurance rates set forth in the Policy.
These guaranteed rates are based on the 1980
Commissioners' Standard Ordinary Non-Smoker and Smoker
Mortality Table. Current cost of insurance rates are
generally less than the guaranteed maximum rates. Any
change in the cost of insurance rates will apply to all
persons of the same age, sex and premium class whose
Policies have been in force the same length of time.
The cost of insurance rates generally increase as the
Insured's Attained Age increases. The premium class of an
Insured also will affect the cost of insurance rate. The
Company currently places Insureds into a standard premium
class or into premium classes involving a higher
mortality risk. In an otherwise identical Policy,
Insureds in the standard premium class will have a lower
cost of insurance rate than those in premium classes
involving higher mortality risk. The standard premium
class is also divided into two categories: tobacco and
non-tobacco. (The Company may offer preferred classes in
addition to the standard tobacco and non-tobacco
classes.) Non-tobacco-using Insureds will generally have
a lower cost of insurance rate than similarly situated
Insureds who use tobacco, and preferred Insureds will
generally have a lower cost of insurance rate than
similarly situated standard Insureds.
The cost of insurance rate is determined separately for
the initial Specified Amount and for the amount of any
increase in Specified Amount. In calculating the cost of
insurance charge, the rate for the premium class on the
Policy Date will be applied to the net amount at risk for
the initial Specified Amount; for each increase in
Specified Amount, the rate for the premium class
applicable to the increase will be used.
- - --------------
(1)Dividing by 1.0032737 reduces the net amount at risk, solely for the purposes
of computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4.0%.
29
<PAGE>
However, if the death benefit is calculated as the Cash
Value times the specified amount factor, the rate for the
premium class for the most recent increase that required
evidence of insurability will be used for the amount of
death benefit in excess of the total Specified Amount.
ADDITIONAL INSURANCE BENEFITS. The monthly deduction will
include charges for any additional benefits provided by
rider. (See "GENERAL PROVISIONS--Additional Insurance
Benefits.")
MONTHLY POLICY EXPENSE CHARGE. The Company has primary
responsibility for the administration of the Policy and
the Variable Account. Policy expenses include premium
billing and collection, recordkeeping, processing death
benefit claims, cash withdrawals, surrenders and Policy
changes, and reporting and overhead costs. As
reimbursement for policy expenses related to the
maintenance of each Policy and the Variable Account, the
Company assesses a monthly policy expense charge against
each Policy. This charge currently is $5.00 per Policy
Month and is guaranteed not to exceed $7 per Policy
Month.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. Monthly
administrative charges will be deducted from Accumulated
Value as part of the monthly deduction during the first
twelve Policy Months and during the twelve Policy Months
immediately following an increase in Specified Amount.
The charge will compensate the Company for first year
underwriting, processing and start-up expenses incurred
in connection with the Policy and the Variable Account.
These expenses include the cost of processing
applications, conducting medical examinations,
determining insurability and the Insured's premium class,
and establishing policy records. The first year monthly
administrative charge currently is $0.05 per $1,000 of
Specified Amount, or increase in Specified Amount and is
guaranteed not to exceed $0.07 per $1,000 of Specified
Amount.
FIRST YEAR MONTHLY EXPENSE CHARGE. A monthly expense
charge will be deducted from Accumulated Value as part of
the monthly deduction during the first twelve Policy
Months. This charge currently is $5 per Policy Month and
is guaranteed not to exceed $7 per Policy Month.
- - --------------------------------------------------------------------------------
TRANSFER CHARGE
A transfer charge of $25 may be imposed for the second
and each subsequent transfer during a Policy Year to
compensate the Company for the costs in effectuating the
transfer. The transfer charge, unless paid in cash, will
be deducted from the amount transferred. Once a Policy is
issued, the amount of this charge is guaranteed for the
life of the Policy. The transfer charge will not be
imposed on transfers that occur as a result of Policy
Loans, the exercise of the special transfer privilege or
the initial allocation of Accumulated Value among the
Subaccounts and the Declared Interest Option following
acceptance of the Policy by the Policyowner.
Currently there is no charge for changing the net premium
allocation instructions.
- - --------------------------------------------------------------------------------
PARTIAL WITHDRAWAL FEE Upon partial withdrawal of a Policy, a fee equal to the
lesser of $25 or 2% of the amount withdrawn will be
assessed to compensate the Company for costs incurred in
accomplishing the withdrawal. The fee will be deducted
from Accumulated Value.
- - --------------------------------------------------------------------------------
SURRENDER CHARGE At the time of surrender, a Surrender Charge will apply
during the first six Policy Years, as well as during the
first six years following an increase in Specified
Amount. The Surrender Charge is an amount per $1,000 of
Specified Amount, declining to $0 in the seventh year.
The Surrender Charge varies by age, sex, underwriting
category and Policy Year. The Surrender Charge is level
within each Policy Year. (See "Appendix C-- Maximum
Surrender Charges.") At the time of a requested decrease
in Specified Amount, the full original Surrender Charge
stays in place. The Surrender Charge may be waived after
the first Policy Year if the insured is terminally ill or
stays in a qualified nursing care center for 90 days.
At the time of a partial withdrawal, no Surrender Charge
applies.
- - --------------------------------------------------------------------------------
VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge from each
Subaccount at an effective annual rate of 0.90% of the
average daily net assets of the Subaccounts and is
guaranteed not to exceed 1.05% of the average daily net
assets of the Subaccounts.
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<PAGE>
The mortality risk assumed by the Company is that
Insureds may die sooner than anticipated and therefore,
the Company may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense risk
assumed is that expenses incurred in issuing and
administering the Policies will exceed the amounts
realized from the administrative charges assessed against
the Policies.
FEDERAL TAXES. Currently no charge is made to the
Variable Account for federal income taxes that may be
attributable to the Variable Account. The Company may,
however, make such a charge in the future. Charges for
other taxes, if any, attributable to the Account may also
be made. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
INVESTMENT OPTION EXPENSES. The value of net assets of
the Variable Account will reflect the investment advisory
fee and other expenses incurred by each Investment
Option. The investment advisory fee and other expenses
applicable to each Investment Option are listed in the
"SUMMARY OF THE POLICY" and described in the prospectus
for each Fund's Investment Option.
- - --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- - --------------------------------------------------------------------------------
Policyowners may allocate Net Premiums and transfer
Accumulated Value to the Declared Interest Option.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE DECLARED INTEREST OPTION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE
DECLARED INTEREST OPTION HAS NOT BEEN REGISTERED AS AN
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940. ACCORDINGLY, NEITHER THE DECLARED INTEREST OPTION
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
DISCLOSURES IN THIS PROSPECTUS RELATING TO THE DECLARED
INTEREST OPTION. DISCLOSURES REGARDING THE DECLARED
INTEREST OPTION MAY, HOWEVER, BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF
STATEMENTS MADE IN PROSPECTUSES.
- - --------------------------------------------------------------------------------
GENERAL DESCRIPTION The Declared Interest Option is supported by the General
Account. The General Account consists of all assets owned
by the Company other than those in the Variable Account
and other separate accounts. Subject to applicable law,
the Company has sole discretion over the investment of
the assets of the General Account.
A Policyowner may elect to allocate Net Premiums to the
Declared Interest Option, the Variable Account, or both.
The Policyowner may also transfer Accumulated Value from
the Subaccounts to the Declared Interest Option, or from
the Declared Interest Option to the Subaccounts. The
allocation or transfer of funds to the Declared Interest
Option does not entitle a Policyowner to share in the
investment experience of the General Account. Instead,
the Company guarantees that Accumulated Value in the
Declared Interest Option will accrue interest at an
effective annual rate of at least 4.0%, independent of
the actual investment experience of the General Account.
- - --------------------------------------------------------------------------------
THE POLICY This Prospectus describes a flexible premium variable
life insurance policy. This Prospectus is generally
intended to serve as a disclosure document for the
aspects of the Policy involving the Variable Account. For
complete details regarding the Declared Interest Option,
see the Policy itself.
- - --------------------------------------------------------------------------------
DECLARED INTEREST OPTION ACCUMULATED VALUE
Net premiums allocated to the Declared Interest Option
are credited to the Policy. The Company bears the full
investment risk for these amounts. The Company guarantees
that interest credited to each Policyowner's Accumulated
Value in the Declared Interest Option will not be less
than an effective annual rate of 4.0%. The Company may,
in its sole discretion, credit a higher rate of interest,
although it is not obligated to credit interest in excess
of 4.0% per year, and might not do so. Any interest
credited on the Policy's Accumulated Value in the
Declared Interest Option in excess of the guaranteed rate
of 4.0% per year will be determined in the sole
discretion of the Company and may be changed at any time
by the Company, in its
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<PAGE>
sole discretion. The Policyowner assumes the risk that
the interest credited may not exceed the guaranteed
minimum rate of 4.0% per year. The interest credited to
the Policy's Accumulated Value in the Declared Interest
Option that equals Policy Debt may be greater than 4.0%,
but will in no event be greater than the current
effective loan interest rate minus no more than 3.0%.
From time to time, the Company may allow, by Company
practice, a loan spread of 0% on the gain in a Policy in
effect a minimum of ten years. The Accumulated Value in
the Declared Interest Option will be calculated no less
frequently than each Monthly Deduction Day.
The Company guarantees that, at any time prior to the
Maturity Date, the Accumulated Value in the Declared
Interest Option will not be less than the amount of the
Net Premiums allocated or Accumulated Value transferred
to the Declared Interest Option, plus interest at the
rate of 4.0% per year, plus any excess interest which the
Company credits, less the sum of all policy charges
allocable to the Declared Interest Option and any amounts
deducted from the Declared Interest Option in connection
with partial withdrawals or transfers to the Variable
Account.
- - --------------------------------------------------------------------------------
TRANSFERS, PARTIAL WITHDRAWALS, SURRENDERS AND POLICY LOANS
Amounts may be transferred between the Subaccounts and
the Declared Interest Option. A transfer charge of $25
may be imposed in connection with the transfer unless
such transfer is the first transfer requested by the
Policyowner during such Policy Year. Unless paid in cash,
the transfer charge will be deducted from the amount
transferred. A Policyowner may make only one transfer
between the Variable Account and the Declared Interest
Option in each Policy Year. No more than 50% of the Net
Accumulated Value in the Declared Interest Option may be
transferred from the Declared Interest Option unless the
balance in the Declared Interest Option immediately after
the transfer will be less than $1,000. If the balance in
the Declared Interest Option after a transfer would be
less than $1,000, the full Net Accumulated Value in the
Declared Interest Option may be transferred. A
Policyowner may also make partial withdrawals, surrenders
and obtain Policy Loans from the Declared Interest Option
at any time prior to the Policy's Maturity Date.
Transfers, partial withdrawals and surrenders from, and
payments of Policy Loans allocated to, the Declared
Interest Option may be delayed for up to six months.
- - --------------------------------------------------------------------------------
GENERAL PROVISIONS
- - --------------------------------------------------------------------------------
THE CONTRACT The Policy is issued in consideration of the statements
in the application and the payment of the initial
premium. The Policy, the application, and any
supplemental applications and endorsements make up the
entire contract. In the absence of fraud, the statements
made in an application or supplemental application will
be treated as representations and not as warranties. No
statement will void the Policy or be used in defense of a
claim unless contained in the application or any
supplemental application.
- - --------------------------------------------------------------------------------
INCONTESTABILITY The Policy is incontestable, except for fraudulent
statements made in the application or supplemental
applications, after it has been in force during the
lifetime of the Insured for two years from the Policy
Date or date of reinstatement. Any increase in Specified
Amount will be incontestable only after it has been in
force during the lifetime of the Insured for two years
from the effective date of the increase.
- - --------------------------------------------------------------------------------
CHANGE OF PROVISIONS The Company reserves the right to change the Policy, in
the event of future changes in the federal tax law, to
the extent required to maintain the Policy's
qualification as life insurance under federal tax law.
Except as provided in the foregoing paragraph, no one can
change any part of the Policy except the Policyowner and
the President, a Vice President, the Secretary or an
Assistant Secretary of the Company. Both must agree to
any change and such change must be in writing. No agent
may change the Policy or waive any of its provisions.
- - --------------------------------------------------------------------------------
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was misstated in the
application, each benefit and any amount to be paid under
the Policy will be adjusted to reflect the correct age
and sex.
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<PAGE>
- - --------------------------------------------------------------------------------
SUICIDE EXCLUSION If the Policy is in force and the Insured commits
suicide, while sane or insane, within one year from the
Policy Date, life insurance proceeds payable under the
Policy will be limited to all premiums paid, reduced by
any outstanding Policy Debt and any partial withdrawals,
and increased by any unearned loan interest. If the
Policy is in force and the Insured commits suicide, while
sane or insane, within one year from the effective date
of any increase in Specified Amount, any increase in the
death benefit resulting from the requested increase in
specified amount will not be paid. Instead, the Company
will refund to the Policyowner an amount equal to the
total cost of insurance applied to the increase.
- - --------------------------------------------------------------------------------
ANNUAL REPORT At least once each year, an annual report will be sent to
each Policyowner. The report will show the current death
benefit, the Accumulated Value in each Subaccount and in
the Declared Interest Option, outstanding Policy Debt and
premiums paid, partial withdrawals made and charges
assessed since the last report. The report will also
include any other information required by state law or
regulation. Further, the Company will send the
Policyowner the reports required by the Investment
Company Act of 1940.
- - --------------------------------------------------------------------------------
NON-PARTICIPATION The Policy does not participate in the Company's profits
or surplus earnings. No dividends are payable.
- - --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS The Company shall have the exclusive and absolute
ownership and control over assets, including the assets
of the Variable Account.
- - --------------------------------------------------------------------------------
WRITTEN NOTICE Any written notice should be sent to the Company at its
Home Office. The notice should include the policy number
and the Insured's full name. Any notice sent by the
Company to a Policyowner will be sent to the address
shown in the application unless an appropriate address
change form has been filed with the Company.
- - --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete
surrenders, partial withdrawals and Policy Loans within
seven days after the Policyowner's signed request is
received at the Home Office. The Company will usually
mail death proceeds within seven days after receipt of
Due Proof of Death and maturity benefits within seven
days of the Maturity Date. However, payment of any amount
upon surrender or partial withdrawal, payment of any
Policy Loan, and payment of death proceeds or benefits at
maturity may be postponed whenever:
a) the New York Stock Exchange is closed other
than customary weekend and holiday closings,
or trading on the New York Stock Exchange is
restricted as determined by the Securities
and Exchange Commission;
b) the Securities and Exchange Commission by
order permits postponement for the
protection of Policyowners; or
c) an emergency exists, as determined by the
Securities and Exchange Commission, as a
result of which disposal of the securities
is not reasonably practicable or it is not
reasonably practicable to determine the
value of the net assets of the Variable
Account.
Transfers may also be postponed under these
circumstances.
Payments under the Policy which are derived from any
amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied
that the check or draft has cleared the bank upon which
it is drawn.
- - --------------------------------------------------------------------------------
CONTINUANCE OF INSURANCE
The insurance under a Policy will continue until the
earliest of:
a) the end of the Grace Period following the
Monthly Deduction Day on which the Net
Accumulated Value during the first three
Policy Years, or Net Surrender Value after
three Policy Years, is less than the monthly
deduction for the following Policy Month;
b) the date the Policyowner surrenders the
Policy for its entire Net Accumulated Value;
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<PAGE>
c) the death of the Insured; or
d) the Maturity Date.
Any rider to a Policy will terminate on the date
specified in the rider.
- - --------------------------------------------------------------------------------
OWNERSHIP The Policy belongs to the Policyowner. The original
Policyowner is the person named as owner in the
application. Ownership of the Policy may change according
to the ownership option selected as part of the original
application or by a subsequent endorsement to the Policy.
During the Insured's lifetime, all rights granted by the
Policy belong to the Policyowner, except as otherwise
provided for in the Policy.
Special ownership rules may apply if the Insured is under
legal age (as defined by state law in the state in which
the Policy is delivered) on the Policy Date.
The Policyowner may assign the Policy as collateral
security. The Company assumes no responsibility for the
validity or effect of any collateral assignment of the
Policy. No assignment will bind the Company unless in
writing and until received by the Company at its Home
Office. The assignment is subject to any payment or
action taken by the Company before it received the
assignment at the Home Office.
- - --------------------------------------------------------------------------------
THE BENEFICIARY The primary Beneficiaries and contingent Beneficiaries
are designated by the Policyowner in the application. If
changed, the primary Beneficiary or contingent
Beneficiary is as shown in the latest change filed with
the Company. One or more primary or contingent
Beneficiaries may be named in the application. In such
case, the proceeds will be paid in equal shares to the
survivors in the appropriate beneficiary class, unless
requested otherwise by the Policyowner.
Unless a payment option is chosen, the proceeds payable
at the Insured's death will be paid in a lump sum to the
primary Beneficiary. If the primary Beneficiary dies
before the Insured, the proceeds will be paid to the
contingent Beneficiary. If no Beneficiary survives the
Insured, the proceeds will be paid to the Policyowner or
the Policyowner's estate.
- - --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Insured's life, the Policyowner and the
Beneficiary may be changed. To make a change, written
request must be sent to the Company at its Home Office.
The request and the change must be in a form satisfactory
to the Company and must actually be received and recorded
by the Company. The change will take effect as of the
date the request is signed by the Policyowner. The change
will be subject to any payment made before the change is
recorded by the Company. The Company may require return
of the Policy for endorsement.
- - --------------------------------------------------------------------------------
ADDITIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the
following additional insurance benefits may be added to a
Policy by rider: (i) Cost of Living Increase; (ii) Waiver
of Charges; (iii) Other Adult Universal Life Insurance;
(iv) Children's Term Insurance and (v) Guaranteed
Insurability Option. The cost of any additional insurance
benefits will be deducted as part of the monthly
deduction. (See "CHARGES AND DEDUCTIONS--Monthly
Deduction.") Detailed information concerning available
riders may be obtained from the agent selling the Policy.
- - --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
- - --------------------------------------------------------------------------------
The Policies will be sold by individuals who in addition
to being licensed as life insurance agents for the
Company, are registered representatives of the principal
underwriter of the Policies, EquiTrust Marketing, a
broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement
with such broker-dealer. EquiTrust Marketing (formerly
FBL Marketing Services, Inc.), a corporation organized on
May 7, 1970, under the laws of the State of Delaware, is
registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association
of Securities Dealers, Inc. EquiTrust Marketing currently
receives annual compensation of $100 per registered
representative for acting as principal underwriter.
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<PAGE>
For Policies sold in states other than Kansas, writing
agents will receive commissions based on a commission
schedule and rules. The Company may pay agents first year
commissions at a rate not exceeding 50% of Target
Premiums and 4% above Target Premiums paid in the first
Policy Year. Agents will be paid renewal commissions at a
rate equal to 5% of Target Premiums and 4% above Target
Premiums paid after the first Policy Year. Additional
commissions at a rate not exceeding 50% of the increase
in Target Premiums may be paid during the first year
following an increase in Specified Amount.
For Policies sold in Kansas, writing agents will receive
commissions based on a commission schedule and rules. The
Company may pay agents first year commissions at a rate
not exceeding 60% of Target Premiums and 3% above Target
Premiums paid in the first Policy Year. Agents will be
paid renewal commissions at a rate equal to 4% of Target
Premiums and 3% above Target Premiums paid after the
first Policy Year. Additional commissions at a rate not
exceeding 60% of the increase in Target Premiums may be
paid during the first year following an increase in
Specified Amount.
These commissions (and other distribution expenses, such
as production incentive bonuses, agent's insurance and
pensions benefits, agency management compensation and
bonuses and expense allowances) are paid by the Company.
They do not result in any additional charges against the
Policy that are not described above under "CHARGES AND
DEDUCTIONS."
- - --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- - --------------------------------------------------------------------------------
INTRODUCTION The following discussion is general and is not intended
as tax advice. Any person concerned about these tax
considerations should consult a competent tax adviser.
This discussion is based on the Company's understanding
of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of
continuation of these current laws and interpretations,
and various changes have been proposed that would alter
these laws in ways that would have significant adverse
impacts. It should be further understood that the
following discussion is not exhaustive and does not
purport to be complete or to cover all situations and
that special rules not described in this Prospectus may
be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other
tax laws.
- - --------------------------------------------------------------------------------
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code") includes a definition of a life
insurance contract for federal tax purposes. The
Secretary of the Treasury (the "Treasury") is authorized
to prescribe regulations interpreting and implementing
section 7702 and has issued proposed regulations on
certain aspects of section 7702. If a Policy were
determined not to be a life insurance contract for
purposes of section 7702, such Policy would not provide
most of the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued exclusively on the basis
of a standard premium class, while there is some
uncertainty due to the limited guidance on section 7702,
the Company believes that in light of the proposed
regulations such a Policy should meet the section 7702
definition of a life insurance contract. However, with
respect to a Policy issued in whole or in part on a
substandard basis (i.e., a premium class involving higher
than standard mortality risk), it is not clear whether or
not such a Policy would satisfy section 7702,
particularly if the Policyowner pays the full amount of
premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy
section 7702, the Company will take whatever steps are
appropriate and necessary to attempt to cause such a
Policy to comply with section 7702, including possibly
refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or
other earnings on any such premiums
35
<PAGE>
refunded as required by law). For these reasons, the
Company reserves the right to modify the Policy as
necessary to attempt to qualify it as a life insurance
contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set
standards by regulation or otherwise for the investments
of the Account to be "adequately diversified" in order
for the Policy to be treated as a life insurance contract
for federal tax purposes. The Variable Account, through
each Fund, intends to comply with the diversification
requirements prescribed in Regulations section 1.817-5,
which affect how each Fund's assets may be invested.
Although the investment adviser of EquiTrust Variable
Insurance Series Fund is an affiliate of the Company, the
Company does not have control over the Fund or its
investments. Nonetheless, the Company believes that each
Investment Option in which the Variable Account owns
shares will be operated in compliance with the
requirements prescribed by the Treasury.
In certain circumstances, owners of variable life
insurance contracts may be considered the owners, for
federal income tax purposes, of the assets of the
separate account used to support their contracts. In
those circumstances, income and gains from the separate
account assets would be includable in the variable
contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be
considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment
control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in
which investor control of the investments of a segregated
asset account may cause the investor (I.E., the
Policyowner), rather than the insurance company, to be
treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular
subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but
different in certain respects from, those described by
the IRS in rulings in which it was determined that policy
owners were not owners of separate account assets. For
example, a Policyowner has additional flexibility in
allocating premium payments and policy values. These
differences could result in a Policyowner being treated
as the owner of a pro rata portion of the assets of the
Variable Account. In addition, the Company does not know
what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore
reserves the right to modify the Policy as necessary to
attempt to prevent a Policyowner from being considered
the owner of a pro rata share of the assets of the
Variable Account.
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. The Company believes that the proceeds and
cash value increases of a Policy should be treated in a
manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the
gross income of the Beneficiary under section 101(a)(l)
of the Code.
A change in a Policy's Specified Amount, the payment of
an unscheduled premium, a Policy loan, a partial
withdrawal, a surrender, a lapse with outstanding
indebtedness, a change in death benefit options, the
exchange of a Policy for a fixed-benefit policy (see "THE
POLICY--Special Transfer Privilege") and the assignment
of a Policy or the exercise of the right to change
Policyowners (see "GENERAL PROVISIONS-- Changing the
Policyowner or Beneficiary") may have tax consequences
depending upon the circumstances. In addition, federal
estate and state and local estate,
36
<PAGE>
inheritance, and other tax consequences of ownership or
receipt of Policy proceeds depend upon the circumstances
of each Policyowner or Beneficiary. A competent tax
adviser should be consulted for further information.
Pursuant to the recently enacted Health Insurance
Portability and Accountability Act of 1996, the Company
believes that for federal income tax purposes, an
accelerated death benefit payment received under an
accelerated death benefit endorsement should be fully
excludable from the gross income of the beneficiary, as
long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax
adviser about the consequences of adding this Endorsement
to a Policy or requesting an accelerated death benefit
payment under this Endorsement.
The Company further believes that an exchange of a
fixed-benefit policy issued by the Company for a Policy
as provided under "THE POLICY--Exchange Privilege"
generally should be treated as a non-taxable exchange of
life insurance policies within the meaning of section
1035 of the Code. However, in certain circumstances, the
exchanging owner may receive a cash distribution that
might have to be recognized as income to the extent there
was gain in the fixed-benefit policy. Moreover, to the
extent a fixed-benefit policy with an outstanding loan is
exchanged for an unencumbered Policy, the exchanging
owner could recognize income at the time of the exchange
up to the amount of such loan (including any due and
unpaid interest on such loan). An exchanging owner should
consult a tax adviser as to whether an exchange of a
fixed-benefit policy for the Policy will have tax
consequences to such owner.
The Policies may be used in various arrangements,
including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary
depending on the particular facts and circumstances of
each individual arrangement. Therefore, if it is
contemplated that a Policy may be used in any arrangement
the value of which depends in part on its tax
consequences, a qualified tax adviser should be consulted
regarding the tax attributes of the particular
arrangement.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including
increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from,
and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "modified endowment
contract."
Whether a Policy is or is not a modified endowment
contract, upon a complete surrender or lapse of a Policy,
or when benefits are paid at such Policy's maturity date,
if the amount received plus the amount of indebtedness
exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to
tax.
MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as
a modified endowment contract depending upon the amount
of premiums paid in relation to the death benefit
provided under such Policy. The premium limitation rules
for determining whether a Policy is a modified endowment
contract are extremely complex. In general, however, a
Policy will be a modified endowment contract if the
accumulated premiums paid at any time during the first
seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such
time if the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In
addition, if a Policy is "materially changed," it may
cause such Policy to be treated as a modified endowment
contract. The material change rules for determining
whether a Policy is a modified endowment contract are
also extremely complex. In general, however, the
determination whether a Policy will be a modified
endowment contract after a material change generally
depends upon the relationship among the death benefit at
the time of such change, the cash value at the time of
such change and the additional premiums paid in the seven
policy years starting with the date on which the material
change occurs.
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<PAGE>
Due to the Policy's flexibility, classification of a
Policy as a modified endowment contract will depend upon
the circumstances of each Policy. Accordingly, a
prospective Policyowner should contact a competent tax
adviser before purchasing a Policy to determine the
circumstances under which the Policy would be a modified
endowment contract. In addition, a Policyowner should
contact a competent tax adviser before paying any
unscheduled premiums or changing the planned premium
schedule or making any other change to, including an
exchange of, a Policy to determine whether such premium
or change would cause the Policy (or the new Policy in
the case of an exchange) to be treated as a modified
endowment contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax
rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a
Policy are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the cash
value immediately before the distribution over the
investment in the Policy (described below) at such time.
Second, loans taken from, or secured by, such a Policy
are treated as distributions from such a Policy and taxed
accordingly. In this regard, the Internal Revenue Service
could take the position that capitalized interest on such
loans are to be treated as a taxable distribution. Third,
a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by,
such a Policy that is included in income except where the
distribution or loan is made on or after the Policyowner
attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or
life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
If a Policy becomes a modified endowment contract after
it is issued, distributions made during the policy year
in which it becomes a modified endowment contract,
distributions in any subsequent policy year and
distributions within two years before the Policy becomes
a modified endowment contract will be subject to the tax
treatment described above. This means that a distribution
from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a
modified endowment contract.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Distributions from a Policy that is
not classified as a modified endowment contract are
generally treated as first recovering the investment in
the policy (described below) and then, only after the
return of all such investment in the policy, as
distributing taxable income. An exception to this general
rule occurs in the case of a partial withdrawal, a
decrease in the Specified Amount, or any other change
that reduces benefits under the Policy in the first 15
years after the Policy is issued and that results in a
cash distribution to the Policyowner in order for the
Policy to continue complying with the section 7702
definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed
in section 7702.
Loans from, or secured by, a Policy that is not a
modified endowment contract are not treated as
distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, neither distributions (including distributions
upon surrender or lapse) nor loans from, or secured by, a
Policy that is not a modified endowment contract are
subject to the 10 percent additional tax.
POLICY LOAN INTEREST. Interest paid on any loan under a
Policy may not be deductible. Therefore, a Policyowner
should consult a competent tax adviser before deducting
any Policy loan interest.
INVESTMENT IN THE POLICY. Investment in the policy means
(i) the aggregate amount of any premiums or other
consideration paid for a Policy, minus (ii) the aggregate
amount received under the Policy which is excluded from
the gross income of the
38
<PAGE>
Policyowner (except that the amount of any loan from, or
secured by, a Policy that is a modified endowment
contract, to the extent such amount is excluded from
gross income, will be disregarded), plus (iii) the amount
of any loan from, or secured by, a Policy that is a
modified endowment contract to the extent that such
amount is included in the gross income of the
Policyowner.
MULTIPLE POLICIES. All modified endowment contracts that
are issued by the Company (or its affiliates) to the same
Policyowner during any calendar year are treated as one
modified endowment contract for purposes of determining
the amount includable in gross income under section
72(e).
- - --------------------------------------------------------------------------------
TAXATION OF THE COMPANYAt the present time, the Company makes no charge to the
Variable Account, or to the Policy for any Federal, state
or local taxes (other than state premium taxes) that it
incurs that may be attributable to such Account or to the
Policies. The Company, however, reserves the right in the
future to make a charge for any such tax or other
economic burden resulting from the application of the tax
laws that it determines to be properly attributable to
the Variable Account or to the Policies.
- - --------------------------------------------------------------------------------
EMPLOYMENT-RELATED BENEFIT PLANS
The Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an
employer's deferred compensation plan could not, under
Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. In addition,
legislative, regulatory or decisional authority of some
states may prohibit use of sex-distinct mortality tables
under certain circumstances. The Policy described in this
Prospectus contains guaranteed cost of insurance rates
and guaranteed purchase rates for certain payment options
that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS,
and Title VII generally, on any employment-related
insurance or benefit program for which a Policy may be
purchased.
- - --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- - --------------------------------------------------------------------------------
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds the assets of the Variable Account. The
assets are kept physically segregated and held separate
and apart from the General Account. The Company maintains
records of all purchases and redemptions of shares by
each Investment Option for each corresponding Subaccount.
Additional protection for the assets of the Variable
Account is afforded by a blanket fidelity bond issued by
Chubb Insurance Group in the amount of $5,000,000
covering all the officers and employees of the Company.
- - --------------------------------------------------------------------------------
VOTING RIGHTS To the extent required by law, the Company will vote the
Fund shares held in the Variable Account at regular and
special shareholder meetings of the Funds in accordance
with instructions received from persons having voting
interests in the corresponding Subaccounts. If, however,
the Investment Company Act of 1940 or any regulation
thereunder should be amended or if the present
interpretation thereof should change, and, as a result,
the Company determines that it is permitted to vote the
Fund shares in its own right, it may elect to do so.
The number of votes which a Policyowner has the right to
instruct are calculated separately for each Subaccount
and are determined by dividing a Policy's Accumulated
Value in a Subaccount by the net asset value per share of
the corresponding Investment Option in which the
Subaccount invests. Fractional shares will be counted.
The number of votes of the Investment Option which the
Policyowner has the right to instruct will be determined
as of the date coincident with the date established by
that Investment Option for determining shareholders
eligible to vote at such meeting of the Fund. Voting
instructions will be solicited by written communications
prior to such meeting in accordance with procedures
established by each Fund. Each person having a voting
interest in a Subaccount will receive proxy materials,
reports and other materials relating to the appropriate
Investment Option.
39
<PAGE>
The Company will vote Fund shares attributable to
Policies as to which no timely instructions are received
(as well as any Fund shares held in the Variable Account
which are not attributable to Policies) in proportion to
the voting instructions which are received with respect
to all Policies participating in each Investment Option.
Voting instructions to abstain on any item to be voted
upon will be applied on a PRO RATA basis to reduce the
votes eligible to be cast on a matter.
Fund shares may also be held by separate accounts of
other affiliated and unaffiliated insurance companies.
The Company expects that those shares will be voted in
accordance with instructions of the owners of insurance
policies and contracts issued by those other insurance
companies. Voting instructions given by owners of other
insurance policies will dilute the effect of voting
instructions of Policyowners.
DISREGARD OF VOTING INSTRUCTIONS. The Company may, when
required by state insurance regulatory authorities,
disregard voting instructions if the instructions require
that the shares be voted so as to cause a change in the
sub-classification or investment objective of an
Investment Option or to approve or disapprove an
investment advisory contract for an Investment Option. In
addition, the Company itself may disregard voting
instructions in favor of changes initiated by a
Policyowner in the investment policy or the investment
adviser of an Investment Option if the Company reasonably
disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities,
or the Company determined that the change would have an
adverse effect on the General Account in that the
proposed investment policy for an Investment Option may
result in overly speculative or unsound investments. In
the event the Company does disregard voting instructions,
a summary of that action and the reasons for such action
will be included in the next annual report to
Policyowners.
- - --------------------------------------------------------------------------------
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized
under the laws of Iowa, is subject to regulation by the
Iowa Insurance Department. An annual statement is filed
with the Iowa Insurance Department on or before March lst
of each year covering the operations and reporting on the
financial condition of the Company as of December 31st of
the preceding year. Periodically, the Iowa Insurance
Department examines the liabilities and reserves of the
Company and the Variable Account and certifies their
adequacy, and a full examination of operations is
conducted periodically by the National Association of
Insurance Commissioners.
In addition, the Company is subject to the insurance laws
and regulations of other states within which it is
licensed or may become licensed to operate. Generally,
the insurance department of any other state applies the
laws of the state of domicile in determining permissible
investments.
40
<PAGE>
- - --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS OF FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
Kenneth R. Ashby, Director Farmer; President, Utah Farm Bureau Federation and
affiliated companies and Ashby's Valley View
Farms; Vice President and Director, Utah Farm
Bureau Insurance Co.; Director, Millard County
Water Conservancy District, American Farm Bureau
Federation and affiliated companies, Multi States
Farmers Service Co., FBL Financial Group, Inc. and
Universal Assurors Life Insurance Company
Al Christopherson, Director Farmer; President, Minnesota Farm Bureau
Federation; Director, FBL Financial Group, Inc.,
Universal Assurors Life Insurance Company, Farm
Bureau Mutual Insurance Company and FBL Insurance
Brokerage, Inc.
Ernest A. Glienke, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc., Utah Farm
Bureau Insurance Company and FBL Financial
Services, Inc.
Philip A. Hemesath, Director Farmer
Craig D. Hill, Director Farmer; President, CAPA Hill, Inc.; Director, Farm
Bureau Mutual Insurance Company, FBL Insurance
Brokerage, Inc., Utah Farm Bureau Insurance
Company and FBL Financial Services, Inc.
Daniel L. Johnson, Director Farmer; Farm Bureau Mutual Insurance Company, FBL
Insurance Brokerage, Inc. and FBL Financial
Services, Inc.
Richard G. Kjerstad, Director Farmer; President and Director, South Dakota Farm
Bureau Federation and South Dakota Farm Bureau
Mutual Insurance Company; Director, FBL Financial
Group, Inc. and Universal Assurors Life Insurance
Company
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
41
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
Lindsey D. Larsen, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc., Utah Farm
Bureau Insurance Company and FBL Financial
Services, Inc.
David R. Machacek, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc., and FBL
Financial Services, Inc.
Donald O. Narigon, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc., and FBL
Financial Services, Inc.
Bryce P. Neidig, Director Farmer; President, Nebraska Farm Bureau
Federation, Nebraska Farm Bureau Services, Inc.,
Farm Bureau Insurance Company of Nebraska,
Nebraska Farm Bureau Insurance Agency, Inc.;
Director, American Agriculture Insurance Company,
American Agriculture Insurance Agency, Inc.,
American Farm Bureau Service Company, American
Farm Bureau Federation, American Agricultural
Communications Systems, Inc., Western Agricultural
Insurance Co., Western Agricultural Management
Corp., FBL Financial Group, Inc., Blue Cross/Blue
Shield of Nebraska and Universal Assurors Life
Insurance Company
Charles E. Norris, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
Keith R. Olsen, Director Farmer
Bennett M. Osmonson, Director Farmer
Howard D. Poulson, Director Farmer; President, Wisconsin Farm Bureau
Federation, Rural Mutual Insurance Company and
Midwest Livestock Producers; Director, FBL
Financial Group, Inc. and Universal Assurors Life
Insurance Company
Sally A. Puttmann, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
42
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
Beverly L. Schnepel, Director Farmer; Director, Farm Bureau Mutual Insurance
Company, FBL Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
F. Gary Steiner, Director Farmer; Director, Wisconsin Farm Bureau Insurance
Company and Bank of Alma (Alma, WI)
Edward M. Wiederstein, Farmer; Chairman and Director, FBL Financial
President and Director Group, Inc.; President and Director, Iowa Farm
Bureau Federation, FBL Insurance Brokerage, Inc.,
Farm Bureau Mutual Insurance Company, Utah Farm
Bureau Insurance Company, FBL Financial Services,
Inc., Universal Assurors Life Insurance Company
and Farm Bureau Agricultural Business Corporation;
Director, Multi-Pig Corporation, Western
Agricultural Insurance Company, Western Ag
Insurance Agency, Inc., Western Farm Bureau Life
Insurance Company and American Ag Insurance
Company
Craig A. Lang, Vice President Farmer; Director, Growmark, Inc., Western Farm
and Director Bureau Life Insurance Company, Utah Farm Bureau
Insurance Company, Vice President and Director,
Farm Bureau Mutual Insurance Company, FBL
Insurance Brokerage, Inc. and FBL Financial
Services, Inc., Vice President, Universal Assurors
Life Insurance Company
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
43
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
Richard D. Harris, Senior Vice Senior Vice President and Secretary- Treasurer,
President and Farm Bureau Mutual Insurance Company, FBL
Secretary-Treasurer Insurance Brokerage, Inc., Universal Assurors Life
Insurance Company, Utah Farm Bureau Insurance
Company, Western Farm Bureau Life Insurance
Company, FBL Financial Services, Inc. and FBL
Financial Group, Inc.; Senior Vice President and
Assistant Secretary- Treasurer, South Dakota Farm
Bureau Mutual Insurance Company
Stephen M. Morain, Senior Vice Senior Vice President and General Counsel, FBL
President and General Financial Group, Inc.
Counsel
Thomas R. Gibson, Chief Chief Executive Officer, FBL Financial Group, Inc.
Executive Officer
William J. Oddy, Executive Chief Operating Officer, FBL Financial Group, Inc.
Vice President and General
Manager
Timothy J. Hoffman, Vice Vice President, Chief Property/Casualty Officer,
President FBL Financial Group, Inc.
James W. Noyce, Chief Chief Financial Officer, FBL Financial Group, Inc.
Financial Officer
Barbara J. Moore, Vice Vice President-Property/Casualty Operations, FBL
President Financial Group, Inc.
JoAnn W. Rumelhart, Vice Vice President-Life Operations, FBL Financial
President-Life Operations Group, Inc.
Monte R. Roumpf, Vice Vice President-Corporate Administration, FBL
President-Corporate Financial Group, Inc.
Administration
Lynn E. Wilson, Vice Vice President-Life Sales, FBL Financial Group,
President- Inc.
Life Sales
F. Walter Tomenga, Vice Vice President-Corporate Affairs and Marketing
President-Corporate Affairs Services, FBL Financial Group, Inc.
and Marketing Services
Robert L. Tatge, Vice Vice President-Property/Casualty Operations, FBL
President Financial Group, Inc.
John M. Paule, Vice President- Vice President-Information Technology, FBL
Information Technology Financial Group, Inc.
Lou Ann Sandburg, Vice Vice President-Investments and Assistant
President- Treasurer, FBL Financial Group, Inc.
Investments and Assistant
Treasurer
Thomas E. Burlingame, Vice Vice President-Associate General Counsel, FBL
President-Associate General Financial Group, Inc.
Counsel
Kathryn Coleson Horner, Accounting Vice President, FBL Financial Group,
Accounting Vice President Inc.
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
44
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
- - ------------------------------ --------------------------------------------------
<S> <C>
Dennis M. Marker, Investment Investment Vice President, Administration, FBL
Vice President, Financial Group, Inc.
Administration
Paul Grinvalds, Variable Variable Operations Vice President, Appointed
Operations Vice President Actuary, FBL Financial Group, Inc.
James P. Brannen, Tax and Tax and Investment Accounting Vice President, FBL
Investment Accounting Vice Financial Group, Inc.
President
Ronald J. Palmer, Agency Agency Services Vice President, FBL Financial
Services Vice President Group, Inc.
Christopher G. Daniels, Life Life Product Development and Pricing Vice
Product Development and President, FBL Financial Group, Inc.
Pricing Vice President
James M. Mincks, Human Human Resources Vice President, FBL Financial
Resources Vice President Group, Inc.
Don Seibel, GAAP Accounting GAAP Accounting Vice President, FBL Financial
Vice President Group, Inc.
Scott Shuck, Marketing Marketing Services Vice President, FBL Financial
Services Vice President Group, Inc.
Jim Streck, Traditional Traditional Operations Vice President, FBL
Operations Vice President Financial Group, Inc.
Blake D. Weber, Sales Services Sales Services Vice President, FBL Financial
Vice President Group, Inc.
Kermit J. Larson, Agency Vice Agency Vice President, Farm Bureau Life Insurance
President Company
Larry W. Riley, Agency Vice Agency Vice President, Farm Bureau Life Insurance
President Company
John F. Mottet, Agency Vice Agency Vice President, Farm Bureau Life Insurance
President Company
Richard J. January, Senior Senior Agency Vice President, Farm Bureau Life
Agency Vice President Insurance Company
Cyrus S. Winters, Senior Senior Agency Vice President, Farm Bureau Life
Agency Vice President Insurance Company
Michael J. Tousley, Senior Senior Agency Vice President, Farm Bureau Life
Agency Vice President Insurance Company
Ronnie G. Lee, Agency Vice Agency Vice President, Farm Bureau Life Insurance
President Company
Art Sieler, Agency Vice Agency Vice President, Farm Bureau Life Insurance
President Company
</TABLE>
- - --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West
Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years.
Corporate positions may, in some instances, have changed during the period.
45
<PAGE>
- - --------------------------------------------------------------------------------
LEGAL MATTERS Sutherland, Asbill & Brennan LLP of Washington, D.C. has
provided advice on certain legal matters relating to
federal securities laws applicable to the issuance of the
flexible premium variable life insurance policy described
in this Prospectus. All matters of Iowa law pertaining to
the Policy, including the validity of the Policy and the
Company's right to issue the Policy under Iowa Insurance
Law, have been passed upon by Stephen M. Morain, Senior
Vice President and General Counsel of the Company.
- - --------------------------------------------------------------------------------
LEGAL PROCEEDINGS The Company, like other insurance companies, is involved
in lawsuits. Currently, there are no class action
lawsuits naming the Company as a defendant or involving
the Variable Account. In some lawsuits involving other
insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with
certainty, the Company believes that at the present time,
there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on
the Variable Account of the Company.
- - --------------------------------------------------------------------------------
EXPERTS The financial statements of the Company at December 31,
1997 and 1996 and for each of the three years in the
period ended December 31, 1997, appearing herein, have
been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report
given upon the authority of such firms as experts in
accounting and auditing.
Actuarial matters included in this Prospectus have been
examined by Christopher G. Daniels, FSA, MSAA, Life
Product Development and Pricing Vice President, as stated
in the opinion filed as an exhibit to the registration
statement.
- - --------------------------------------------------------------------------------
YEAR 2000 Like other investment funds, financial and business
organizations and individuals around the world, the
Variable Account could be adversely affected if the
computer systems used by the Company and other service
providers do not properly process and calculate
date-related information and data from and after January
1, 2000. In 1997, the Company completed a comprehensive
assessment of the Year 2000 issue and developed a plan to
address the issue in a timely manner. The Company has and
will utilize both internal and external resources to
reprogram, or replace, and test the software for Year
2000 modifications. The company anticipates completing
the Year 2000 project no later than December 31, 1998,
and prior to any anticipated impact on its operating
systems.
The date on which the Company believes it will complete
the Year 2000 modifications is based on management's best
estimates, which were derived utilizing numerous
assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to
its Year 2000 effort, over which it has little or no
control. However, the Company is putting effort into
ensuring these considerations will have minimal impact.
These would include the continued availability of certain
resources, third-party modification plans and many other
factors. However, there can be no guarantee that these
estimates will be achieved and actual results could
differ from those anticipated.
- - --------------------------------------------------------------------------------
OTHER INFORMATION A registration statement has been filed with the
Securities and Exchange Commission under the Securities
Act of 1933, as amended, with respect to the Policy
offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and
the amendments and exhibits to the registration
statement, to all of which reference is made for further
information concerning the Variable Account, the Company
and the Policy offered hereby. Statements contained in
this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such
instruments as filed.
46
<PAGE>
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The consolidated balance sheets of the Company at
December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholder's equity and
cash flows for each of the three years in the period
ended December 31, 1997, appearing herein, have been
audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere
herein. The unaudited consolidated balance sheet of the
Company at March 31, 1998, the related unaudited
consolidated statement of changes in stockholder's equity
for the three months then ended, and the related
unaudited consolidated statements of income and cash
flows for the three months ended March 31, 1998 and 1997
also appear herein.
It is anticipated that the Variable Account will commence
operations in 1998; accordingly, no financial statements
currently exist for the variable account.
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the accompanying consolidated balance sheets of Farm Bureau Life
Insurance Company as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Farm
Bureau Life Insurance Company at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 16, 1998
48
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
MARCH 31, 31,
----------- ----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost (market:
1998--$524,539;
1997--$541,332; 1996--$574,338) $ 506,703 $ 522,411 $ 562,283
Available for sale, at market (amortized cost:
1998--$1,271,422;
1997--$1,218,469; 1996--$1,096,179) 1,341,321 1,286,169 1,128,587
Equity securities, at market (cost: 1998--$48,420;
1997--$54,861; 1996--$69,915) 47,598 51,268 79,786
Mortgage loans on real estate 248,058 253,093 235,331
Investment real estate, less allowances for depreciation of
$3,023 in 1998, $2,507 in 1997 and $1,741 in 1996 39,845 38,774 26,384
Policy loans 89,888 90,052 88,940
Other long-term investments 9,986 9,989 22,157
Short-term investments 8,288 23,853 62,025
----------- ---------- ----------
Total investments 2,291,687 2,275,609 2,205,493
Cash and cash equivalents 1,196 1,678 1,802
Securities and indebtedness of related parties 62,614 63,394 39,244
Accrued investment income 25,385 25,340 24,298
Accounts and notes receivable 662 703 1,526
Amounts receivable from affiliates 11,092 6,686 7,095
Reinsurance recoverable 3,582 3,934 5,552
Deferred policy acquisition costs 161,269 157,096 145,614
Property and equipment, less allowances for depreciation of $4,293
in 1998, $18,330 in 1997 and $17,313 in 1996 7,783 32,518 36,182
Current income taxes recoverable 4,203 10,349 --
Goodwill, less accumulated amortization of $2,961 in 1998, $2,792
in 1997 and $2,172 in 1996 10,471 10,640 9,726
Other assets 7,828 7,443 5,388
Assets held in separate accounts 163,075 138,409 79,043
----------- ---------- ----------
Total assets $ 2,750,847 $2,733,799 $2,560,963
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
MARCH 31, 31,
----------- ----------------------
1998 1997 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products $ 1,176,127 $1,172,881 $1,132,491
Traditional life insurance and accident and health products 578,884 576,405 555,664
Unearned revenue reserve 23,787 23,341 22,182
Other policy claims and benefits 5,348 7,091 7,313
----------- ---------- ----------
1,784,146 1,779,718 1,717,650
Other policyholders' funds:
Supplementary contracts without life contingencies 132,608 129,389 120,649
Advance premiums and other deposits 66,695 66,626 66,572
Accrued dividends 12,365 12,107 12,796
----------- ---------- ----------
211,668 208,122 200,017
Long-term debt 75 77 81
Amounts payable to affiliates 63 -- 1,700
Current income taxes payable -- -- 56
Deferred income taxes 46,383 45,123 43,810
Other liabilities 40,516 29,639 27,602
Liabilities related to separate accounts 163,075 138,409 79,043
----------- ---------- ----------
Total liabilities 2,245,926 2,201,088 2,069,959
Commitments and contingencies
Stockholder's equity:
Preferred stock, 7 1/2% cumulative, par value $50.00 per share--
authorized 6,000 shares -- -- --
Common stock, par value $50.00 per share--authorized 994,000
shares, issued and outstanding 50,000 shares 2,500 2,500 2,500
Additional paid-in capital 55,285 55,285 55,285
Accumulated other comprehensive income--Net unrealized
investment gains 42,314 38,719 26,327
Retained earnings 404,822 436,207 406,892
----------- ---------- ----------
Total stockholder's equity 504,921 532,711 491,004
----------- ---------- ----------
Total liabilities and stockholder's equity $ 2,750,847 $2,733,799 $2,560,963
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------------- ----------------------------------------------------
1998 1997 1997 1996 1995
----------------- ---------------- ---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 9,878 $ 8,712 $ 37,802 $ 33,755 $ 33,343
Traditional life insurance and
accident and health premiums 14,799 14,801 61,675 61,611 57,907
Property-casualty premiums -- -- -- -- 18,709
Net investment income 44,260 42,839 174,763 166,422 184,348
Realized gains on investments 1,206 19,622 38,639 54,454 5,902
Realized gain on dividend of home
office properties 8,346 -- -- -- --
Other income 1,364 1,002 4,968 11,887 28,011
----------------- ---------------- ---------------- ---------------- ----------------
Total revenues 79,853 86,976 317,847 328,129 328,220
Benefits and expenses:
Interest sensitive product benefits 24,800 23,682 95,052 90,720 88,147
Traditional life insurance and
accident and health benefits 10,369 10,764 42,121 42,370 37,710
Increase in traditional life and
accident and health future policy
benefits 2,481 3,185 15,107 13,679 15,310
Distributions to participating
policyholders 5,660 6,028 22,784 23,725 23,838
Property-casualty losses and loss
adjustment expenses -- -- -- -- 13,621
Underwriting, acquisition and
insurance expenses 12,008 11,580 48,380 45,714 54,336
Interest expense 2 43 9 425 1,007
Other expenses 326 181 1,149 7,814 17,776
----------------- ---------------- ---------------- ---------------- ----------------
Total benefits and expenses 55,646 55,463 224,602 224,447 251,745
----------------- ---------------- ---------------- ---------------- ----------------
24,207 31,513 93,245 103,682 76,475
Income taxes (5,582) (10,578) (31,579) (34,156) (27,291)
Minority interest in earnings of
subsidiaries -- -- -- -- (12)
Equity income (loss), net of related
income taxes (360) 566 1,908 4,138 1,488
----------------- ---------------- ---------------- ---------------- ----------------
Net income $ 18,265 $ 21,501 $ 63,574 $ 73,664 $ 50,660
----------------- ---------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
51
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
COMMON PAID-IN GAINS RETAINED STOCKHOLDER'S
STOCK CAPITAL (LOSSES) EARNINGS EQUITY
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $1,194 $51,732 $(10,768) $313,314 $355,472
Comprehensive income:
Net income for 1995 -- -- -- 50,660 50,660
Change in net unrealized investment gains/
losses -- -- 45,375 -- 45,375
--------
Total comprehensive income 96,035
Issuance of 26,119.72 shares pursuant to stock
dividend 1,306 (1,306) -- -- --
Dividend of Utah Farm Bureau Insurance Company
to parent -- -- (461) (10,650) (11,111)
------ -------- -------- -------- --------
Balance at December 31, 1995 2,500 50,426 34,146 353,324 440,396
Comprehensive income:
Net income for 1996 -- -- -- 73,664 73,664
Change in net unrealized investment gains/
losses -- -- (7,819) -- (7,819)
--------
Total comprehensive income 65,845
Adjustment resulting from capital transaction
of equity investee -- 4,859 -- -- 4,859
Dividend of FBL Financial Services, Inc. to
parent -- -- -- (15,096) (15,096)
Cash dividend paid to parent -- -- -- (5,000) (5,000)
------ -------- -------- -------- --------
Balance at December 31, 1996 2,500 55,285 26,327 406,892 491,004
Comprehensive income:
Net income for 1997 -- -- -- 63,574 63,574
Change in net unrealized investment gains/
losses -- -- 12,392 -- 12,392
--------
Total comprehensive income 75,966
Cash dividends paid to parent -- -- -- (33,000) (33,000)
Other -- -- -- (1,259) (1,259)
------ -------- -------- -------- --------
Balance at December 31, 1997 2,500 55,285 38,719 436,207 532,711
Comprehensive income:
Net income for three months ended March
31, 1998 -- -- -- 18,265 18,265
Change in net unrealized investment gains/
losses -- -- 3,595 -- 3,595
--------
Total comprehensive income 21,860
Cash dividends paid to parent -- -- -- (4,000) (4,000)
Dividend of home office properties -- -- -- (45,650) (45,650)
------ -------- -------- -------- --------
Balance at March 31, 1998 $2,500 $55,285 $42,314 $404,822 $504,921
------ -------- -------- -------- --------
------ -------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
52
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,265 $ 21,501 $ 63,574 $ 73,664 $ 50,660
Adjustments to reconcile net income to net cash provided
by operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 20,806 20,617 82,821 80,867 80,132
Charges for mortality and administration (9,948) (9,080) (38,134) (35,050) (34,083)
Deferral of unearned revenues 605 516 2,266 1,825 1,696
Amortization of unearned revenue reserve (144) (147) (779) (530) (956)
Provision for depreciation and amortization (915) 943 3,088 5,906 10,034
Net gains and losses related to investments held by
broker-dealer and investment company subsidiaries -- (614) (1,223) (3,125) (25,801)
Realized gains on investments (1,206) (19,622) (38,639) (54,454) (5,902)
Realized gain on dividend of home office properties (8,346) -- -- -- --
Increase in traditional life, accident and health and
property-casualty benefit accruals 2,479 3,234 15,198 13,646 16,144
Policy acquisition costs deferred (5,165) (4,817) (22,334) (18,561) (18,995)
Amortization of deferred policy acquisition costs 1,507 1,802 7,760 7,271 10,181
Provision for deferred income taxes (675) (8,393) (5,172) 6,310 15,026
Other (678) 5,214 (12,545) 8,635 (19,895)
------------- ------------ ------------ ------------ ------------
Net cash provided by operating activities 16,585 11,154 55,881 86,404 78,241
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 16,358 8,593 40,460 33,212 16,529
Fixed maturities--available for sale 69,249 79,654 250,842 222,093 208,189
Equity securities 7,434 49,827 109,641 101,937 29,766
Mortgage loans on real estate 8,107 6,673 38,725 21,977 18,646
Investment real estate 3 3 6 4,829 927
Policy loans 5,203 5,202 21,002 20,092 19,701
Other long-term investments 3 7,222 52 10,404 11,609
Short-term investments--net 15,564 -- 41,061 -- 68,799
------------- ------------ ------------ ------------ ------------
121,921 157,174 501,789 414,544 374,166
</TABLE>
53
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Acquisition of investments:
Fixed maturities--held for investment $ -- $ -- $ -- $ (38,472) $ (120,885)
Fixed maturities--available for sale (120,479) (120,087) (363,560) (374,808) (282,657)
Equity securities (688) (26,836) (45,520) (28,824) (30,380)
Mortgage loans on real estate (3,081) (11,372) (56,571) (40,601) (17,110)
Investment real estate (1,389) (118) (10,142) (4,988) (8,034)
Policy loans (5,039) (5,584) (22,114) (20,506) (20,275)
Other long-term investments -- -- (1,936) (535) (13,632)
Short-term investments--net -- (8,875) -- (30,249) --
------------- ------------ ------------ ------------ ------------
(130,676) (172,872) (499,843) (538,983) (492,973)
Proceeds from disposal, repayments of advances and other
distributions from equity investees 1,240 1,517 16,084 36,265 31,986
Investments in and advances to equity investees (936) (673) (41,018) (10,396) (21,463)
Net cash paid for acquisitions -- -- (9,694) -- --
Net purchases of property and equipment and other (221) (2,139) (28) (7,062) (7,664)
------------- ------------ ------------ ------------ ------------
Net cash used in investing activities (8,672) (16,993) (32,710) (105,632) (115,948)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited to
policyholder account balances 60,275 61,293 220,437 181,148 169,207
Return of policyholder account balances on interest
sensitive products (64,668) (52,541) (210,728) (153,784) (124,802)
Proceeds from short-term borrowings -- -- -- -- 8
Repayments of short-term borrowings -- -- -- -- (6,396)
Repayments of long-term debt (2) -- (4) (1,199) (5,915)
Dividends paid (4,000) (3,200) (33,000) (5,135) (248)
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (8,395) 5,552 (23,295) 21,030 31,854
------------- ------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (482) (287) (124) 1,802 (5,853)
Cash and cash equivalents at beginning of year 1,678 1,802 1,802 -- 5,853
------------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,196 $ 1,515 $ 1,678 $ 1,802 $ --
------------- ------------ ------------ ------------ ------------
------------- ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 2 $ 2 $ 8 $ 415 $ 1,086
Income taxes (232) 11,041 48,876 17,694 16,833
</TABLE>
SEE ACCOMPANYING NOTES.
54
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Farm Bureau Life Insurance Company (the Company), a wholly-owned subsidiary of
FBL Financial Group, Inc., operates predominantly in the life insurance
industry. The Company currently markets its products, which consist primarily of
individual life insurance policies and annuity contracts, to Farm Bureau members
and other individuals and businesses in 15 midwestern and western states.
Prior to May 31, 1996, the Company owned 100% of the outstanding common stock of
FBL Financial Services, Inc., a holding company which, through its subsidiaries,
provided investment advisory, marketing and distribution, and leasing services.
On May 31, 1996, the common stock of FBL Financial Services, Inc. was
transferred to FBL Financial Group, Inc. in the form of a dividend. FBL
Financial Services, Inc. had investments of $6.1 million, property and equipment
of $26.1 million, other assets of $3.3 million, long-term debt of $11.3 million
and other liabilities of $8.8 million on the date of the dividend.
Prior to December 31, 1995, the Company owned approximately 99% of the
outstanding common stock of Utah Farm Bureau Insurance Company, a
property-casualty insurance company providing individual and small business
coverages. On December 31, 1995, the common stock of Utah Farm Bureau Insurance
Company was transferred to FBL Financial Group, Inc. in the form of a dividend.
Utah Farm Bureau Insurance Company had investments of $26.0 million, reinsurance
recoverable of $26.7 million, other assets of $7.6 million, reserves on
property-casualty policies of $30.0 million and other liabilities of $19.1
million on the date of the dividend.
CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its direct and indirect subsidiaries. All significant intercompany
transactions have been eliminated.
INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 1998 and for the
three-month periods ended March 31, 1998 and 1997 and related notes have not
been audited. The interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment". Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale".
Available for sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholder's equity,
net of certain adjustments (see Note 2). Premiums and discounts are
amortized/accrued using methods which result in a constant yield over the
securities' expected lives. Amortization/accrual of premiums and discounts on
mortgage and asset-backed securities incorporates prepayment assumptions to
estimate the securities' expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholder's equity, net of any
related deferred income taxes.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If the value of any mortgage loan is
determined to be impaired (i.e., when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the
55
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
mortgage loan is reduced to its fair value, which may be based upon the present
value of expected future cash flows from the loan (discounted at the loan's
effective interest rate), or the fair value of the underlying collateral. The
carrying value of impaired loans is reduced by the establishment of a valuation
allowance, changes to which are recognized as realized gains or losses on
investments. Interest income on impaired loans is recorded on a cash basis.
OTHER INVESTMENTS
Investment real estate is reported at cost less allowances for depreciation.
Policy loans are reported at unpaid principal balance. Short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts.
Other long-term investments include certain nontraditional investments and
securities held by a subsidiary engaged in the venture capital investment
company industry. Nontraditional investments include a debt-related instrument
and investment deposits which are reported at cost. In accordance with
accounting practices for the investment company industry, marketable securities
held by subsidiaries in this industry are valued at market value if readily
marketable or at fair value, as determined by the Board of Directors of the
subsidiary holding the security, if not readily marketable. The resulting
difference between cost and market is included in the statements of income as
net investment income. Realized gains and losses are also reported as a
component of net investment income. The Company recorded transfers from its
venture capital subsidiary, which was dissolved during 1997, at fair value on
the date of transfer, re-establishing a new cost basis for the security.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which the Company may exercise significant
influence. Such investments are accounted for using the equity method. Changes
in the value of the Company's investment in equity investees attributable to
capital transactions of the investee, such as a public offering of stock, are
recorded directly to stockholder's equity. Securities and indebtedness of
related parties also includes advances and loans to the partnerships and
corporations which are principally reported at cost.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows for securities or fair value for mortgage
loans on real estate) and a specific writedown is taken. Such reductions in
carrying value are recognized as realized losses on investments. Realized gains
and losses on sales are determined on the basis of specific identification of
investments. If the Company expects that an issuer of a security will modify its
payment pattern from contractual terms but no writedown is required, future
investment income is recognized at the rate implicit in the calculation of net
realizable value under the expected payment pattern.
MARKET VALUES
Market values of fixed maturity securities are reported based on quoted market
prices, where available. Market values of fixed maturity securities not actively
traded in a liquid market are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds. Market values of redeemable preferred stock and equity
securities are based on the latest quoted market prices, or for those not
readily marketable, generally at values which are representative of the market
values of comparable issues.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. For
participating traditional life insurance and interest sensitive products
(principally universal life insurance policies and annuity contracts), these
costs are being amortized generally in proportion to expected gross profits
(after dividends to policyholders, if applicable) from surrender charges and
investment, mortality, and expense margins. That amortization is adjusted
retrospectively when estimates of current or future gross profits/margins
(including the impact of investment gains and losses) to be realized from a
group of products are revised. For nonparticipating traditional life and
accident and health insurance products, these costs are amortized over the
premium paying period
56
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the related policies, in proportion to the ratio of annual premium revenues
to total anticipated premium revenues. Such anticipated premium revenues are
estimated using the same assumptions used for computing liabilities for future
policy benefits. The deferred policy acquisition costs for property-casualty
insurance are amortized over the effective period of the related insurance
policies; deferred policy acquisition costs for these policies are charged to
expense when such costs are deemed not to be recoverable from the related
unearned premiums and any related investment income.
PROPERTY AND EQUIPMENT
Property and equipment, comprised primarily of home office properties, furniture
and equipment, are reported at cost less allowances for depreciation.
Depreciation expense is computed primarily using the straight-line method over
the estimated useful lives of the assets. Depreciation expense for the years
ended December 31, 1997, 1996 and 1995 was $2.3 million, $5.1 million and $9.3
million, respectively.
On March 30, 1998, the Company transferred its home office properties to its
parent in the form of a dividend. The fair value of the properties, which served
as the basis for the transaction, was $45.7 million and the book value was $24.7
million. The Company will lease a portion of the properties back from its parent
under a sublease arrangement. Of the $21.0 million gain on the transaction, $8.3
million was recognized in the income statement and $12.7 million was deferred
and will be amortized over the term of the operating lease.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is generally being amortized on a straight-line
basis over a period of 20 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary. If facts and circumstances suggest that goodwill is
impaired, the Company assesses the fair value of the underlying business and
reduces goodwill to an amount that results in the book value of the underlying
business approximating fair value. The Company has not recorded any such
writedowns during the years ended December 31, 1997, 1996 or 1995.
FUTURE POLICY BENEFITS
The liability for future policy benefits for participating traditional life
insurance is based on net level premium reserves, including assumptions as to
interest, mortality, and other assumptions underlying the guaranteed policy cash
values. Reserve interest assumptions are level and range from 2.5% to 6.0%. The
average rate of assumed investment yields used in estimating gross margins was
8.15% in 1997, 8.34% in 1996 and 8.14% in 1995. Accrued dividends for
participating business are established for anticipated amounts earned to date
for the period through the policy's next anniversary and are provided for as a
separate liability. The declaration of future dividends for participating
business is at the discretion of the Board of Directors. Participating life
insurance business accounted for 42% of receipts from policyholders during the
year ended December 31, 1997 and represented 19% of life insurance inforce at
December 31, 1997.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level or two-year preliminary term method, including
assumptions as to morbidity, mortality and interest and to include provisions
for possible unfavorable deviations. Policy benefit claims are charged to
expense in the period that the claims are incurred.
Future policy benefit reserves for interest sensitive products are computed
under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in excess of related
policy account balances.
Interest crediting rates for interest sensitive products ranged from 5.25% to
6.90% in 1997, 5.75% to 7.50% in 1996 and 5.50% to 7.50% in 1995.
The unearned revenue reserve reflects the unamortized balance of the excess of
first year administration charges over renewal period administration charges
(policy initiation fees) on interest sensitive products. These excess charges
have been deferred and are being recognized in income over the period benefited
using the same assumptions and factors used to amortize deferred policy
acquisition costs.
57
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESERVES AND UNEARNED PREMIUMS ON PROPERTY-CASUALTY POLICIES
Unpaid property-casualty losses and loss adjustment expenses represent the
estimated liability for reported claims plus those incurred but not yet reported
and the related estimated adjustment expenses. The reserve for unpaid claims and
related adjustment expenses was determined using case-basis evaluations and
statistical analyses and represented estimates of the ultimate cost of all
unpaid losses incurred through December 31 of each year. Salvage and subrogation
recoverables were offset against reserves on property-casualty policies and were
estimated using statistical analysis.
Property-casualty insurance unearned premiums were calculated on a pro rata
basis.
GUARANTEE FUND ASSESSMENTS
From time to time assessments are levied on the Company by guaranty associations
in most states in which the Company is licensed. These assessments are to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. During 1997, the Company adopted Statement of Position (SOP)
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments", which requires the accrual of such assessments. Prior to 1997, the
Company recognized its obligation for guarantee fund assessments when such
assessments were received and an asset was recorded for future premium tax
offsets on assessments paid. The impact of adopting SOP 97-3 was not separately
reported as a change in accounting principle because the impact of adoption was
not material to the Company.
At December 31, 1997, the Company had an undiscounted reserve of $1.8 million to
cover estimated future assessments on known insolvencies and had an asset
totaling $2.3 million representing estimated premium tax offsets on paid and
future assessments. Expenses incurred for guaranty fund assessments, net of
related premium tax offsets, totaled $1.1 million (including $0.9 million
related to the adoption of SOP 97-3) during the year ended December 31, 1997,
and $0.1 million during each of the years ended December 31, 1996 and 1995. It
is estimated future guarantee fund assessments on known insolvencies will be
paid during the three year period ended December 31, 2000 and substantially all
the related future premium tax offsets will be realized during the six year
period ended December 31, 2003. The Company believes the reserve for guarantee
fund assessments is sufficient to provide for future assessments based upon
known insolvencies and projected premium levels.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the underlying
investment risk. The separate account assets and liabilities are carried at fair
value. Revenues and expenses related to the separate account assets and
liabilities, to the extent of benefits paid or provided to the separate account
policyholders, are excluded from the amounts reported in the accompanying
consolidated statements of income.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for interest sensitive products consist of policy charges for the cost
of insurance, administration charges, amortization of policy initiation fees and
surrender charges assessed against policyholder account balances. Expenses
related to these products include interest credited to policyholder account
balances and benefit claims incurred in excess of policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
Property-casualty insurance premiums were recognized using a daily or monthly
pro rata method over the terms of the policies.
All insurance-related revenues, benefits, losses and expenses are reported net
of reinsurance ceded.
58
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINSURANCE
The Company uses reinsurance to manage certain risks associated with its
insurance operations. These reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential
risks arising from large losses and provide additional capacity for growth.
The Company's life insurance operations cede reinsurance to various reinsurers.
The cost of reinsurance is generally amortized over the contract periods of the
reinsurance agreements.
The Company's property-casualty operations assumed and ceded reinsurance,
principally as a participant in a reinsurance pooling agreement with two
affiliates. The Company's contracts were prospective and the cost of insurance
was amortized over the contract periods in proportion to the amount of insurance
protection provided.
OTHER INCOME AND OTHER EXPENSES
Other income and other expenses include revenue and expenses generated by the
Company's various non-insurance subsidiaries for investment advisory, marketing
and distribution, and leasing services. A portion of these activities are
performed on behalf of affiliates of the Company. In addition, certain revenue
generated by the insurance companies have been classified as other income.
During the years ended December 31, 1997, 1996 and 1995, revenues of the
insurance companies included as other income aggregated $3.7 million, $2.7
million and $8.4 million, respectively.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform to the 1997 financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. For
example, significant estimates and assumptions are utilized in the calculation
of deferred policy acquisition costs, policyholder liabilities and accruals and
valuation allowances on investments. It is reasonably possible that actual
experience could differ from the estimates and assumptions utilized which could
have a material impact on the consolidated financial statements.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, "Reporting
Comprehensive Income". Statement No. 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholder's
equity. Statement No. 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other comprehensive income.
During the three months ended March 31, 1998 and 1997, comprehensive income
totaled $21.9 million and $4.4 million, respectively.
2. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
--------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
Corporate securities $ 5,008 $ 814 $ (8) $ 5,814
Mortgage-backed securities 517,403 19,575 (1,460) 535,518
--------------------------------------------------------
Total fixed maturities $ 522,411 $ 20,389 $ (1,468) $ 541,332
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
59
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
--------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS LOSSES MARKET VALUE
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 14,406 $ 18 $ (19) $ 14,405
State, municipal and other governments 37,986 1,012 (126) 38,872
Public utilities 80,071 4,637 (390) 84,318
Corporate securities 688,362 55,095 (6,089) 737,368
Mortgage and asset-backed securities 372,482 13,418 (1,283) 384,617
Redeemable preferred stock 25,162 1,533 (106) 26,589
--------------------------------------------------------
Total fixed maturities $ 1,218,469 $ 75,713 $ (8,013) $ 1,286,169
--------------------------------------------------------
--------------------------------------------------------
Equity securities $ 54,861 $ 3,635 $ (7,228) $ 51,268
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
Corporate securities $ 5,009 $ 649 $ (9) $ 5,649
Mortgage-backed securities 557,274 16,577 (5,162) 568,689
------------------------------------------------------
Total fixed maturities $ 562,283 $ 17,226 $ (5,171) $ 574,338
------------------------------------------------------
------------------------------------------------------
<CAPTION>
AVAILABLE FOR SALE
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and agencies $ 44,440 $ 237 $ (281) $ 44,396
State, municipal and other governments 11,530 383 (53) 11,860
Public utilities 119,619 4,995 (836) 123,778
Corporate securities 611,021 32,078 (9,989) 633,110
Mortgage and asset-backed securities 278,308 7,391 (2,793) 282,906
Redeemable preferred stock 31,261 1,369 (93) 32,537
------------------------------------------------------
Total fixed maturities $ 1,096,179 $ 46,453 $ (14,045) $ 1,128,587
------------------------------------------------------
------------------------------------------------------
Equity securities $ 69,915 $ 28,671 $ (18,800) $ 79,786
------------------------------------------------------
------------------------------------------------------
</TABLE>
60
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
Amortized cost of securities held by a subsidiary engaged in the investment
company industry was $8.7 million at December 31, 1996. Gross unrealized
appreciation and depreciation on these securities totaled $5.4 million and $0.3
million, respectively. Short-term investments have been excluded from the above
schedules as amortized cost approximates market value for these securities.
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at December 31, 1997, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
HELD FOR INVESTMENT AVAILABLE FOR SALE
-------------------------- ------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 19,224 $ 19,274
Due after one year through five years -- -- 133,569 139,424
Due after five years through ten years 5,008 5,814 207,167 222,249
Due after ten years -- -- 460,865 494,016
----------------------------------------------------------
5,008 5,814 820,825 874,963
Mortgage and asset-backed securities 517,403 535,518 372,482 384,617
Redeemable preferred stocks -- -- 25,162 26,589
----------------------------------------------------------
$ 522,411 $ 541,332 $ 1,218,469 $ 1,286,169
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
The unrealized appreciation or depreciation on fixed maturity and equity
securities available for sale is reported as a separate component of
stockholder's equity, reduced by adjustments to deferred policy acquisition
costs, value of insurance in force acquired and unearned revenue reserve that
would have been required as a charge or credit to income had such amounts been
realized, and a provision for deferred income taxes. Net unrealized investment
gains as reported were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available for sale $ 64,107 $ 42,279
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (5,251) (2,159)
Unearned revenue reserve 711 383
Provision for deferred income taxes (20,848) (14,176)
-----------------------
Net unrealized investment gains $ 38,719 $ 26,327
-----------------------
-----------------------
</TABLE>
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loan portfolio consists principally of commercial
mortgage loans. The Company's lending policies require that the loans be
collateralized by the value of the related property, establish limits on the
amount that can be loaned to one borrower and require diversification by
geographic location and collateral type. Regions in which at least 20% of the
Company's mortgage loan portfolio is invested during the years presented
include; Pacific (26% in 1997 and 28% in 1996), which includes California,
Oregon and Washington; West South Central (22% in 1997 and 12% in 1996), which
includes Oklahoma and Texas; and Mountain (15% in 1997 and 20% in 1996), which
includes Arizona, Colorado, Idaho, New Mexico, Utah and Wyoming. Mortgage loans
on real estate have also been analyzed during the years presented by collateral
types with office buildings (44% in 1997 and 46% in 1996) and retail facilities
(36% in 1997 and 34% in 1996), representing the largest holdings.
61
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
The Company has also provided an allowance for possible losses against its
mortgage loan portfolio. An analysis of this allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 600 $ 600 $ 600
Realized losses -- 2,527 --
Uncollectible amounts written off, net of recoveries (77) (2,527) --
-------------------------------
Balance at end of year $ 523 $ 600 $ 600
-------------------------------
-------------------------------
</TABLE>
Impaired loans (those loans in which the Company does not believe it will
collect all amounts due according to the contractual terms of the respective
loan agreements) totaled $3.1 million at December 31, 1996. There were no
impaired loans at December 31, 1997. No valuation allowance was established on
the impaired loans at December 31, 1996.
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
--------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 43,648 $ 45,744 $ 42,016
Available for sale 97,044 85,722 83,490
Equity securities 1,259 1,345 1,098
Mortgage loans on real estate 21,027 20,297 19,544
Investment real estate 4,457 4,495 4,191
Policy loans 5,692 5,653 5,567
Other long-term investments 2,921 3,698 26,249
Short-term investments 3,691 3,166 2,671
Other 4,105 3,485 5,581
--------------------------------------
183,844 173,605 190,407
Less investment expenses (9,081) (7,183) (6,059)
--------------------------------------
Net investment income $ 174,763 $ 166,422 $ 184,348
--------------------------------------
--------------------------------------
</TABLE>
Investment income from other long-term investments, which includes investments
held by subsidiaries engaged in the broker-dealer and investment company
industries, is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Dividends, interest and other income $ 1,698 $ 613 $ 519
Net realized gain (loss) from investment transactions 6,288 (1,811) 25,810
Change in unrealized appreciation/depreciation of investments (5,065) 4,896 (80)
--------------------------------
$ 2,921 $ 3,698 $ 26,249
--------------------------------
--------------------------------
</TABLE>
During the year ended December 31, 1997, 13 securities with a total fair value
of $15.0 million were transferred to the Company from its venture capital
subsidiary, upon its dissolution. During the year ended December 31, 1995, two
securities with a total fair value of $27.6 million were transferred out of the
subsidiary. Realized gains (recognized in net investment income) of $6.3 million
and $24.6 million were recognized on the 1997 and 1995 transfers, respectively,
although neither transfer had an impact on net income (as unrealized
appreciation had been reported prior to the transfer).
62
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments, excluding amounts attributed to investments held by subsidiaries
engaged in the broker-dealer and investment company industries discussed above,
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities--available for sale $ 4,300 $ 2,199 $ 5,526
Equity securities 35,120 56,522 (763)
Mortgage loans on real estate -- (2,527) --
Investment real estate 6 619 123
Other long-term investments (300) (154) (158)
Securities and indebtedness of related parties (487) (1,438) 1,182
Notes receivable and other -- (767) (8)
------------------------------------
Realized gains on investments $ 38,639 $ 54,454 $ 5,902
------------------------------------
------------------------------------
UNREALIZED
Fixed maturities:
Held for investment $ 6,866 $ (12,225) $ 50,905
Available for sale 35,292 (25,675) 75,590
Equity securities (13,464) 4,429 9,209
------------------------------------
Change in unrealized appreciation/depreciation of investments $ 28,694 $ (33,471) $ 135,704
------------------------------------
------------------------------------
</TABLE>
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio for the years ended December 31, 1997, 1996, and 1995 is as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale $ 154,939 $ -- $ -- $ 154,939
Held for investment 40,460 -- -- 40,460
Sales--available for sale 91,603 6,313 (2,013) 95,903
-------------------------------------------------
Total $ 287,002 $ 6,313 $ (2,013) $ 291,302
-------------------------------------------------
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Scheduled principal repayments and calls:
Available for sale $ 148,299 $ -- $ -- $ 148,299
Held for investment 33,212 -- -- 33,212
Sales--available for sale 71,095 5,197 (2,498) 73,794
-------------------------------------------------
Total $ 252,606 $ 5,197 $ (2,498) $ 255,305
-------------------------------------------------
-------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Scheduled principal repayments and calls:
Available for sale $ 74,710 $ -- $ -- $ 74,710
Held for investment 16,529 -- -- 16,529
Sales--available for sale 127,738 7,186 (1,445) 133,479
-------------------------------------------------
Total $ 218,977 $ 7,186 $ (1,445) $ 224,718
-------------------------------------------------
-------------------------------------------------
</TABLE>
Realized losses totaling $0.5 million and $0.2 million were incurred during the
years ended December 31, 1996 and 1995, respectively, as a result of writedowns
for other than temporary impairment of fixed maturity securities. No such
writedowns were recorded during the year ended December 31, 1997.
63
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
OTHER
In December 1997, the Company acquired a 35% interest (with 20% voting control)
in an unaffiliated life insurance company for $25.0 million. The excess
(approximately $5.1 million) of the carrying amount of the investment, which is
classified as securities and indebtedness of related parties on the consolidated
balance sheet, over the amount of underlying equity in net assets is
attributable to goodwill and is being amortized over a 20 year period. The
investment is being accounted for using the equity method. The insurance company
underwrites and markets life insurance and annuity products throughout the
United States.
Also in December 1997, the Company acquired all of the common stock of EquiTrust
Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a
shell life insurance company licensed in 38 states. Goodwill totaling $1.5
million was recorded in connection with the acquisition and is being amortized
over 20 years.
In February 1996, an equity investee of the Company completed an initial public
offering which resulted in an increase of $4.9 million, net of $2.6 million in
taxes, in the Company's share of the investee's stockholders' equity. This
increase was credited directly to additional paid-in capital. Subsequent to the
public offering, the Company reclassified the investment to equity securities.
The Company has sold the majority of its holdings in this investment and
realized gains of $24.3 million during the year ended December 31, 1997 and
$50.4 million during the year ended December 31, 1996.
At December 31, 1997, affidavits of deposits covering investments with a
carrying value totaling $2,081.4 million were on deposit with state agencies to
meet regulatory requirements.
At December 31, 1997, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $6.5 million. These commitments
arose in the normal course of business at terms which are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1997, include fixed maturities of $3.2
million and other long-term investments of $1.6 million.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded ten percent of stockholder's
equity at December 31, 1997.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 also excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements and allows companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented herein are limited by each of these factors and do
not purport to represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds.
EQUITY SECURITIES: The fair values for equity securities are based on quoted
market prices, where available. For equity securities that are not actively
traded, estimated fair values are based on values of comparable issues.
MORTGAGE LOANS ON REAL ESTATE AND POLICY LOANS: Fair values are estimated by
discounting expected cash flows using interest rates currently being offered for
similar loans.
64
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER LONG-TERM INVESTMENTS: The fair values for nontraditional debt
instruments and investment deposits are estimated by discounting expected cash
flows using interest rates currently being offered for similar investments. The
fair values for investments held by a subsidiary in the investment company
industry are based on quoted market prices, where available. For holdings that
are not actively traded, fair values are determined in good faith by the Board
of Directors of the subsidiary holding the security.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheet for these instruments approximate their fair values.
SECURITIES AND INDEBTEDNESS OF RELATED PARTIES: Fair values for loans and
advances are estimated by discounting expected cash flows using interest rates
currently being offered for similar investments. As allowed by Statement No.
107, fair values are not assigned to investments accounted for using the equity
method.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's consolidated
balance sheet.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of the
Company's liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities, deposit administration funds
and supplementary contracts) are stated at cash surrender value, the cost the
Company would incur to extinguish the liability. The Company is not required to
estimate the fair value of its liabilities under other contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement No.
107:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
CARRYING FAIR CARRYING
VALUE VALUE VALUE FAIR VALUE
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment $ 522,411 $ 541,332 $ 562,283 $ 574,338
Available for sale 1,286,169 1,286,169 1,128,587 1,128,587
Equity securities 51,268 51,268 79,786 79,786
Mortgage loans on real estate 253,093 265,059 235,331 245,125
Policy loans 90,052 97,712 88,940 88,940
Other long-term investments 9,989 9,587 22,157 21,671
Cash and short-term investments 25,531 25,531 63,827 63,827
Securities and indebtedness of related parties 5,451 5,829 11,658 12,292
Assets held in separate accounts 138,409 138,409 79,043 79,043
LIABILITIES
Future policy benefits $ 782,933 $ 767,030 $ 744,369 $ 730,272
Other policyholders' funds 195,330 195,330 186,535 186,535
Liabilities related to separate accounts 138,409 138,409 79,043 79,043
</TABLE>
4. REINSURANCE AND POLICY PROVISIONS
LIFE INSURANCE OPERATIONS
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured with retention limits ranging up to $0.5 million of coverage per
individual life. The Company does not use financial or surplus relief
reinsurance. Life insurance in force ceded totaled $663.4 million (5.1% of total
life insurance in force) at December 31, 1997 and $594.9 million (4.9% of total
life insurance in force) at December 31, 1996.
65
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company's life insurance
subsidiaries would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk.
No allowance for uncollectible amounts has been established against the
Company's asset for reinsurance recoverable since none of the receivables are
deemed to be uncollectible. Insurance premiums and product charges have been
reduced by $3.7 million, $3.4 million and $3.3 million and insurance benefits
have been reduced by $2.9 million, $4.0 million and $1.7 million during the
years ended December 31, 1997, 1996 and 1995, respectively, as a result of
cession agreements. The amount of reinsurance assumed is not significant.
Unpaid claims on accident and health policies (entirely disability income
products) include amounts for losses and related adjustment expense and are
estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors. The activity in the liability for unpaid claims and
related adjustment expense, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related
reinsurance, at beginning of year $ 13,812 $ 13,899 $ 10,494
Add:
Provision for claims occurring in the current
year 5,829 4,737 5,011
Increase (decrease) in estimated expense for
claims occurring in the prior years 2,236 (371) 2,357
--------------------------------
Incurred claim expense during the current year 8,065 4,366 7,368
Deduct expense payments for claims occurring
during:
Current year 1,692 1,681 2,109
Prior years 2,564 2,772 1,854
--------------------------------
4,256 4,453 3,963
--------------------------------
Unpaid claims liability, net of related
reinsurance, at end of year 17,621 13,812 13,899
Active life reserve 15,832 15,376 14,614
--------------------------------
Net accident and health reserves 33,453 29,188 28,513
Reinsurance ceded 1,721 1,483 934
--------------------------------
Gross accident and health reserves $ 35,174 $ 30,671 $ 29,447
--------------------------------
--------------------------------
</TABLE>
Reserves for unpaid claims are developed using industry mortality and morbidity
data. One year development on prior year reserves represents Company experience
being more or less favorable than that of the industry. Over time, the Company
expects its experience with respect to disability income business to be
comparable to that of the industry. A certain level of volatility in development
is inherent in these reserves since the underlying block of business is
relatively small.
PROPERTY-CASUALTY OPERATIONS
Utah Insurance is a participant with Farm Bureau Mutual Insurance Company and
South Dakota Farm Bureau Mutual Insurance Company, another affiliate, in a
reinsurance pooling agreement (the Farm Bureau Mutual pool). Under the terms of
the agreement, Utah Insurance and South Dakota Farm Bureau Mutual Insurance
Company cede to Farm Bureau Mutual Insurance Company all of their insurance
business and assume back from Farm Bureau Mutual Insurance Company an amount
equal to their participation in the pooling agreement. Also, losses, loss
adjustment expenses, and other underwriting and administrative expenses are
prorated among the companies on the basis of their participation in the pooling
agreement. For the year ended December 31, 1995, Utah Insurance's participation
in the reinsurance pool was 8%.
66
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
Property-casualty premiums earned and losses and loss adjustment expenses
incurred, reflect the following reinsurance amounts during the year ended
December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
PREMIUMS EARNED
Direct premiums written $ 26,244
Assumed from non-affiliates 5
Ceded to non-affiliates (615)
Assumed from Farm Bureau Mutual pool 18,851
Ceded to Farm Bureau Mutual pool (25,634)
---------
Net premiums written 18,851
Increase in reserve for unearned premiums, net of
reinsurance (150)
Increase in accrued retrospective premiums 8
---------
Total premiums earned $ 18,709
---------
---------
LOSSES AND LOSS ADJUSTMENT EXPENSES INCURRED
Direct losses and loss adjustment expenses paid $ 18,532
Net ceded to non-affiliates 91
Assumed from Farm Bureau Mutual pool 13,030
Ceded to Farm Bureau Mutual pool (18,623)
---------
Net losses and loss adjustment expenses paid 13,030
Increase in losses and loss adjustment expense
reserves, net of reinsurance 591
---------
Total losses and loss adjustment expenses incurred $ 13,621
---------
---------
</TABLE>
The difference between premiums on a written and on an earned basis is not
significant.
The activity in the reserves on property-casualty policies, net of reinsurance
and salvage and subrogation recoverables, is summarized as follows during the
year ended December 31, 1995 (dollars in thousands):
<TABLE>
<S> <C>
Reserves on property-casualty policies (gross),
beginning of year $ 28,828
Less reinsurance recoverable on unpaid losses and
loss adjustment expenses, beginning of year (16,646)
---------
Reserve for losses and loss adjustment expenses,
net of related reinsurance, beginning of year 12,182
Add:
Provision for losses and loss adjustment
expenses for claims occurring in the current
year 14,529
Decrease in estimated losses and loss adjustment
expenses for claims occurring in the prior
years (908)
---------
Incurred losses and loss adjustment expenses
during the current year 13,621
Deduct loss and loss adjustment expense payments
for claims occurring during:
Current year (7,678)
Prior years (5,351)
---------
(13,029)
---------
Reserve for losses and loss adjustment expenses,
net of related reinsurance, end of year 12,774
Reinsurance recoverables on unpaid losses and loss
adjustment expenses, end of year 17,210
Transfer to parent as part of dividend of Utah
Farm Bureau Insurance Company (29,984)
---------
Reserves on property-casualty policies (gross),
end of year $ --
---------
---------
</TABLE>
5. INCOME TAXES
The Company files a consolidated federal income tax return with FBL Financial
Group, Inc. and a majority of its subsidiaries. FBL Financial Group, Inc. and
its direct and indirect subsidiaries included in the consolidated federal income
tax return each report current income tax expense as allocated under a
consolidated tax allocation agreement.
67
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Generally, this allocation results in profitable companies recognizing a tax
provision as if the individual company filed a separate return and loss
companies recognizing benefits to the extent their losses contribute to reduce
consolidated taxes. The companies file separate state income tax returns.
Deferred income taxes have been established based upon the temporary differences
between the financial statement and income tax bases of assets and liabilities
within each entity. The reversal of the temporary differences will result in
taxable or deductible amounts in future years when the related asset or
liability is recovered or settled.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of
income on:
Income before minority interest in earnings of
subsidiaries and equity income:
Current $ 36,828 $ 28,400 $ 13,278
Deferred (5,249) 5,756 14,013
--------------------------------
31,579 34,156 27,291
Equity income:
Current 951 1,674 (212)
Deferred 77 554 1,013
--------------------------------
1,028 2,228 801
Taxes provided in consolidated statement of
changes in stockholder's equity:
Change in net unrealized investment
gains/losses--deferred 6,672 (4,211) 24,435
Adjustment resulting from capital transaction of
equity investee-- deferred -- 2,617 --
--------------------------------
6,672 (1,594) 24,435
--------------------------------
$ 39,279 $ 34,790 $ 52,527
--------------------------------
--------------------------------
</TABLE>
The effective tax rate on income before income taxes, minority interest in
earnings of subsidiaries and equity income is different from the prevailing
federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes, minority interest in
earnings of subsidiaries and equity income $ 93,245 $ 103,682 $ 76,475
----------------------------------
----------------------------------
Income tax at federal statutory rate (35%) $ 32,636 $ 36,289 $ 26,766
Tax effect (decrease) of:
Tax-exempt interest income (323) (383) (574)
Tax-exempt dividend income (1,148) (1,246) (798)
State income taxes 39 242 1,337
Other items 375 (746) 560
----------------------------------
Income tax expense $ 31,579 $ 34,156 $ 27,291
----------------------------------
----------------------------------
</TABLE>
The Internal Revenue Service (IRS) has examined the federal income tax returns
of FBL Financial Group, Inc. for the tax years through 1994 and FBL Financial
Group, Inc. has reached a tentative settlement with the IRS's Appeals Division
for tax years 1988 through 1994. The settlement is subject to approval of the
Joint Committee on Taxation. Management believes that any settlement will not
have a material impact on the Company's financial statements.
68
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities $ 25,247 $ 17,265
Deferred policy acquisition costs 46,944 44,307
Deferred investment gains -- 10,551
Other 14,236 13,437
-----------------------
86,427 85,560
Deferred income tax assets:
Future policy benefits (21,320) (22,304)
Accrued dividends (3,273) (2,997)
Accrued pension costs (9,092) (10,082)
Other (7,619) (6,367)
-----------------------
(41,304) (41,750)
-----------------------
Deferred income tax liability $ 45,123 $ 43,810
-----------------------
-----------------------
</TABLE>
Prior to 1984, a portion of current income of the Company was not subject to
current income taxation, but was accumulated, for tax purposes, in a memorandum
account designated as "policyholders' surplus account". The aggregate
accumulation in this account at December 31, 1997 was $11.1 million. Should the
policyholders' surplus account of the Company exceed the limitation prescribed
by federal income tax law, or should distributions be made by the Company to its
stockholder in excess of $445.3 million, such excess would be subject to federal
income taxes at rates then effective. Deferred income taxes of $3.9 million have
not been provided on amounts included in this memorandum account since the
Company contemplates no action and can foresee no events that would create such
a tax.
Deferred income taxes were also reported on equity income. These taxes arise
from the recognition of income and losses differently for purposes of filing
federal income tax returns than for financial reporting purposes.
6. CREDIT ARRANGEMENT
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $54.0 million and $43.9 million from the FHLB as of March 31,
1998 and December 31, 1997, respectively. As of December 31, 1997, the Company
had no outstanding debt under this credit arrangement.
7. RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans covering substantially all employees. The benefits of these plans are
based primarily on years of service and employees' compensation. The Company and
affiliates have adopted a policy of allocating the net periodic pension cost of
the plans between themselves generally on a basis of time incurred by the
respective employees for each employer. Such allocations are reviewed annually.
Pension expense aggregated $4.2 million, $5.9 million and $7.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
Prior to January 1, 1996, the Company provided benefits to agents of the Company
and certain of its affiliates through the Agents' Career Incentive Plan. Company
contributions to the plan were based upon the individual agent's earned
commissions and varied based upon the overall production level and the number of
years of service. Company contributions charged to expense with respect to this
plan during the year ended December 31, 1995 were $1.4 million. During 1996, in
conjunction with a restructuring of the agents' compensation program,
contributions to this plan were discontinued.
69
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
The Company has established deferred compensation plans for certain key current
and former employees and has certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management of the Company.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in the financial statements herein.
In addition, certain amounts included in the policy liabilities for interest
sensitive products relate to deposit administration funds maintained by the
Company on behalf of affiliates offering substantially the same benefit programs
as the Company.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Postretirement pension expense aggregated $0.1 million for each of the
years ended December 31, 1997, 1996 and 1995, respectively.
8. STATUTORY INFORMATION
STATUTORY LIMITATIONS ON DIVIDENDS
The ability of the Company to pay dividends to the parent company is restricted
because prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limitation.
During 1998 the Company could pay dividends to the parent company of
approximately $37.8 million without prior approval of insurance regulatory
authorities.
STATUTORY ACCOUNTING POLICIES
The financial statements of the Company included herein differ from related
statutory-basis financial statements principally as follows: (a) the bond
portfolio is segregated into held-for-investment (carried at amortized cost) and
available-for-sale (carried at fair value) classifications rather than generally
being carried at amortized cost; (b) future policy benefit reserves for
participating traditional life insurance products are based on net level premium
methods and guaranteed cash value assumptions which may differ from statutory
reserves; (c) future policy benefit reserves on certain interest sensitive
products are based on full account values, rather than discounting methodologies
utilizing statutory interest rates; (d) deferred income taxes are provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (e) net realized gains or losses attributed to changes in the
level of interest rates in the market are recognized as gains or losses in the
statement of income when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security or mortgage
loan; (f) declines in the estimated realizable value of investments are charged
to the statement of income when such declines are judged to be other than
temporary rather than through the establishment of a formula-determined
statutory investment reserve (carried as a liability), changes in which are
charged directly to surplus; (g) agents' balances and certain other assets
designated as "non-admitted assets" for statutory purposes are reported as
assets rather than being charged to surplus; (h) revenues for interest sensitive
products consist of policy charges for the cost of insurance, policy
administration charges, amortization of policy initiation fees and surrender
charges assessed rather than premiums received; (i) pension income or expense is
recognized in accordance with Statement No. 87, "Employers' Accounting for
Pensions" rather than in accordance with rules and regulations permitted by the
Employee Retirement Income Security Act of 1974; (j) the financial statements of
subsidiaries are consolidated with those of the Company; and (k) assets and
liabilities are restated to fair values when a change in ownership occurs that
is accounted for as a purchase, with provisions for goodwill and other
intangible assets, rather than continuing to be presented at historical cost.
Total statutory capital and surplus of the Company was $291.3 million at
December 31, 1997 and $280.6 million at December 31, 1996. Net income for the
Company determined in accordance with statutory accounting practices was $73.5
million in 1997, $75.0 million in 1996 and $47.4 million in 1995.
70
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STATUTORY INFORMATION (CONTINUED)
The Company's insurance subsidiaries reported the following statutory amounts to
regulatory agencies, after appropriate elimination of intercompany accounts:
<TABLE>
<CAPTION>
CAPITAL AND NET INCOME
SURPLUS YEAR ENDED DECEMBER
DECEMBER 31, 31,
-------------- ----------------------
1997 1996 1997 1996 1995
--------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Life insurance companies $13,111 $3,352 $ 56 $ 151 $ 92
Property-casualty insurance subsidiary -- -- -- -- 1,454
--------------------------------------
Total $13,111 $3,352 $ 56 $ 151 $1,546
--------------------------------------
--------------------------------------
</TABLE>
The National Association of Insurance Commissioners (NAIC) is in the process of
codifying statutory accounting practices (Codification). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company's insurance
subsidiaries use to prepare their statutory-basis financial statements.
Codification, which is expected to be approved by the NAIC in 1998, will require
adoption by the various state insurance departments before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective the
state of domicile must adopt Codification as the prescribed basis of accounting
on which domestic insurers must report their statutory-basis results. At this
time it is unclear whether the state of Iowa will adopt Codification.
9. MANAGEMENT AND OTHER AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated by
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and occupancy costs.
In addition, prior to January 1, 1996, the Company participated in a management
agreement with Farm Bureau Management Corporation, a wholly-owned subsidiary of
the Iowa Farm Bureau Federation. Under this agreement, Farm Bureau Management
Corporation provided general business, administration and management services to
the Company. During 1996, the Company's parent assumed responsibility for
providing a majority of these services for itself as well as Farm Bureau
Management Corporation and other affiliates. During the years ended December 31,
1997, 1996 and 1995, the Company incurred expenses under these contracts of $0.8
million, $2.4 million and $3.7 million, respectively.
The Company has equipment and auto lease agreements with FBL Leasing Services,
Inc., a wholly-owned subsidiary of FBL Financial Services, Inc. The Company
incurred expenses totaling $1.7 million during 1997 and $0.7 million during the
seven month period ended December 31, 1996 (period in 1996 subsequent to the
dividend of FBL Financial Services, Inc. to FBL Financial Group, Inc.) under
these agreements.
FBL Investment Advisory Services, Inc., a wholly-owned subsidiary of FBL
Financial Services, Inc., provides investment advisory services to the Company.
The related fees are based on the level of assets under management plus certain
out-of-pocket expenses. The Company incurred expenses totaling $4.1 million
during 1997 and $1.6 million during the seven month period ended December 31,
1996 relating to these services.
Effective January 1, 1996, the Company entered into marketing agreements with
the property-casualty companies operating within its marketing territory,
including Farm Bureau Mutual Insurance Company and other affiliates. Under the
marketing agreements, the property-casualty companies assumed responsibility for
development and management of the Company's agency force for a fee equal to a
percentage of commissions on first year life insurance premiums and annuity
deposits. During the years ended December 31, 1997 and 1996, the Company paid
$3.3 million and $2.8 million, respectively, to the property-casualty companies
under these arrangements.
The Company is licensed by the Iowa Farm Bureau Federation to use the "Farm
Bureau" and "FB" designations in Iowa. In connection with this license,
royalties of $0.5 million, $0.4 million and $0.3 million were paid to the Iowa
Farm Bureau Federation for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company has
71
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANAGEMENT AND OTHER AGREEMENTS (CONTINUED)
similar arrangements with Farm Bureau organizations in other states in its
market territory. Total royalties paid to Farm Bureau organizations other than
the Iowa Farm Bureau Federation were $0.4 million in 1997 and $0.3 million in
1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
IMPACT OF YEAR 2000 (UNAUDITED)
Many of the Company's computer programs were originally written using two digits
rather than four to define a particular year. As a result, these computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions to operations, including, but not limited
to, a temporary inability to process transactions, send premium notices and
calculate policy reserves and accruals.
During 1997, the Company completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The Company
is currently in the process of modifying or replacing portions of its software
to help ensure that its computer systems will function properly when using
date-sensitive information. The testing of these modifications is also currently
being performed. Furthermore, the Company has initiated formal communications
with all of its significant vendors to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues.
The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project no later than December 31,
1998, and prior to any anticipated impact on its operating systems. The total
incremental cost of the Year 2000 project (those costs which the Company would
not have incurred had the Year 2000 issue not existed) is estimated to be $1.4
million and is being funded through operating cash flows. Year 2000 modification
costs incurred and charged to expense during the three month period ended March
31, 1998 and the year ended December 31, 1997 totaled $0.4 million and $0.6
million, respectively. It is anticipated the project costs to be charged to
expense during the remainder of 1998 will total approximately $0.4 million.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
OTHER
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At March 31, 1998 and December 31, 1997,
management is not aware of any claims for which a material loss is reasonably
possible.
The Company has extended a line of credit in the amount of $15.0 million to FBL
Leasing Services, Inc., a wholly-owned subsidiary of FBL Financial Group, Inc.
Interest on this agreement is equal to the prime rate of a national bank and
payable monthly. At December 31, 1997, there was $4.8 million outstanding on the
line of credit. No amounts were outstanding at March 31, 1998 or December 31,
1996.
The Company has extended a line of credit in the amount of $0.5 million to
Western Computer Services, Inc., an affiliate. Interest on this agreement is
equal to the prime rate of a national bank and payable monthly. At March 31,
1998 and December 31, 1997, there was $0.1 million outstanding on the line of
credit. No amounts were outstanding at December 31, 1996.
The Company has guaranteed the payment of principal and interest on notes
totaling $24.5 million payable by FBL Leasing Services, Inc. to a bank. The
notes are due August 1999 and are collateralized by lease agreements primarily
with affiliates. The Company believes no losses will be recognized in connection
with this guarantee due to the credit worthiness of the lessees and the value of
the underlying collateral.
72
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During the first quarter of 1998, the Company entered into a 15-year operating
lease with the Iowa Farm Bureau Federation for the lease of its home office
properties. Future minimum lease payments under this lease are as follows: 1998
- - -$0.7 million; 1999 - $1.0 million; 2000 - $1.2 million; 2001 - $1.2 million;
2002 - $1.2 million; and thereafter, through 2013 - $14.8 million.
In connection with an investment in a limited real estate partnership in 1996,
the Company has agreed to pay any cash flow deficiencies of a medium-sized
shopping center owned by the partnership through January 1, 2001. At March 31,
1998, the Company assessed the probability and amount of future cash flows from
the property and determined that no accrual was necessary. The limited
partnership had a $5.4 million mortgage loan, secured by the shopping center,
with Farm Bureau Mutual Insurance Company.
73
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX A
- - --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUES
The following tables illustrate how the death benefits,
Accumulated Values and Surrender Values of a Policy may
vary over an extended period of time at certain ages,
assuming hypothetical gross rates of investment return
for the Investment Options equivalent to constant gross
annual rates of 0% and 10%. The hypothetical rates of
investment return are for purposes of illustration only
and should not be deemed a representation of past or
future rates of investment return. Actual rates of return
for a particular Policy may be more or less than the
hypothetical investment rates of return and will depend
on a number of factors including the investment
allocations made by a Policyowner. Also, values would be
different from those shown if the gross annual investment
returns averaged 0% and 10% over a period of years but
fluctuated above and below those averages for individual
Policy Years.
The amounts shown are as of the end of each Policy Year.
The tables assume that the assets in the Investment
Options are subject to an annual expense ratio of 0.77%
of the average daily net assets. This annual expense
ratio is based on the average of the expense ratios of
each of the Investment Options available under the Policy
for the last fiscal year and takes into account current
expense reimbursement arrangements. The fees and expenses
of each Investment Option vary, and in 1997 the total
fees and expenses ranged from an annual rate of 0.33% to
an annual rate of 1.06% of average daily net assets. For
information on Investment Option expenses, see the
prospectuses for the Investment Options.
The tables reflect deduction of the premium expense
charge, the monthly Policy expense charge, the first-year
monthly administrative charge, the first-year monthly
expense charge, the daily charge for the Company's
assumption of mortality and expense risks, and cost of
insurance charges for the hypothetical Insured. The
surrender values illustrated in the tables also reflect
deduction of applicable surrender charges. The current
charges and the higher guaranteed maximum charges the
Company may charge are reflected in separate tables on
each of the following pages.
Applying the current charges and the average Investments
Option fees and expenses of 0.77% of average net assets,
the gross annual rates of investment return of 0% and 10%
would produce net annual rates of return of -1.82% and
8.18%, respectively, on a guaranteed basis, and -1.67%
and 8.33%, respectively, on a current basis.
The hypothetical values shown in the tables do not
reflect any charges for federal income taxes against the
Variable Account since the Company is not currently
making such charges. However, such charges may be made in
the future and, in that event, the gross annual
investment rate of return would have to exceed 0% or 10%
by an amount sufficient to cover tax charges in order to
produce the death benefits and Accumulated Values
illustrated. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
The tables illustrate the Policy values that would result
based upon the hypothetical investment rates of return if
premiums are paid as indicated, if all Net Premiums are
allocated to the Variable Account and if no Policy Loans
have been made. The tables are also based on the
assumptions that the Policyowner has not requested an
increase or decrease in Specified Amount, and that no
partial withdrawals or transfers have been made.
For comparative purposes, the second column of each table
shows the amount to which the premiums would accumulate
if an amount equal to those premiums were invested to
earn interest at 5% compounded annually.
* * *
Upon request, the Company will provide a comparable
illustration based upon the proposed insured's age, sex
and premium class, the Specified Amount or premium
requested, and the proposed frequency of premium
payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
AND GUARANTEED MAXIMUM EXPENSE CHARGES CHARGES
--------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- --------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 581 $ 106 $ 0 $ 100,106 $ 241 $ 0 $ 100,241
2..... 1,190 367 0 100,367 590 102 100,590
3..... 1,831 612 0 100,612 927 537 100,927
4..... 2,503 * * * 1,251 958 101,251
5..... 3,208 * * * 1,561 1,366 101,561
6..... 3,950 * * * 1,857 1,773 101,857
7..... 4,728 * * * 2,137 2,137 102,137
8..... 5,545 * * * 2,402 2,402 102,402
9..... 6,403 * * * 2,652 2,652 102,652
10..... 7,303 * * * 2,888 2,888 102,888
15..... 12,530 * * * 3,793 3,793 103,793
20..... 19,200 * * * 4,125 4,125 104,125
25..... 27,713 * * * 3,775 3,775 103,775
30..... 38,578 * * * 2,528 2,528 102,528
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
65..... * * * * * * *
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 38,578 * * * 2,528 2,528 102,528
Age 70..... * * * * * * *
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 581 $ 136 $ 0 $ 100,136 $ 278 $ 0 $ 100,278
2..... 1,190 449 0 100,449 698 210 100,698
3..... 1,831 774 0 100,774 1,145 755 101,145
4..... 2,503 1,112 136 101,112 1,622 1,329 101,622
5..... 3,208 1,464 488 101,464 2,131 1,936 102,131
6..... 3,950 1,827 991 101,827 2,671 2,587 102,671
7..... 4,728 2,200 1,547 102,200 3,246 3,246 103,246
8..... 5,545 2,586 2,108 102,586 3,857 3,857 103,857
9..... 6,403 2,984 2,673 102,984 4,509 4,509 104,509
10..... 7,303 3,396 3,244 103,396 5,203 5,203 105,203
15..... 12,530 5,641 5,641 105,641 9,391 9,391 109,391
20..... 19,200 8,038 8,038 108,038 15,004 15,004 115,004
25..... 27,713 10,252 10,252 110,252 22,539 22,539 122,539
30..... 38,578 11,498 11,498 111,498 32,618 32,618 132,618
35..... 52,445 9,389 9,389 109,389 45,680 45,680 145,680
40..... 70,143 * * * 62,159 62,159 162,159
45..... 92,730 * * * 80,982 80,982 180,982
50..... 121,558 * * * 100,275 100,275 200,275
55..... 158,351 * * * 115,743 115,743 215,743
60..... 205,309 * * * 119,512 119,512 219,512
65..... 265,240 * * * 49,751 49,751 149,751
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 38,578 11,498 11,498 111,498 32,618 32,618 132,618
Age 70..... 52,445 9,389 9,389 109,389 45,680 45,680 145,680
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, AND CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
GUARANTEED MAXIMUM EXPENSE CHARGES CHARGES
------------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED END OF YEAR END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE SURRENDER VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- --------------- ----------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 581 $ 107 $ 0 $ 100,000 $ 241 $ 0 $ 100,000
2..... 1,190 369 0 100,000 591 103 100,000
3..... 1,831 614 0 100,000 929 539 100,000
4..... 2,503 * * * 1,254 961 100,000
5..... 3,208 * * * 1,566 1,371 100,000
6..... 3,950 * * * 1,864 1,780 100,000
7..... 4,728 * * * 2,147 2,147 100,000
8..... 5,545 * * * 2,416 2,416 100,000
9..... 6,403 * * * 2,670 2,670 100,000
10..... 7,303 * * * 2,911 2,911 100,000
15..... 12,530 * * * 3,853 3,853 100,000
20..... 19,200 * * * 4,247 4,247 100,000
25..... 27,713 * * * 3,984 3,984 100,000
30..... 38,578 * * * 2,837 2,837 100,000
35..... 52,445 * * * 200 200 100,000
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
65..... * * * * * * *
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 38,578 * * * 2,837 2,837 100,000
Age 70..... 52,445 * * * 200 200 100,000
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $553
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
10% HYPOTHETICAL GROSS RETURN, ASSUMING
GUARANTEED MAXIMUM COST OF INSURANCE 10% HYPOTHETICAL GROSS RETURN,
CHARGES, AND GUARANTEED MAXIMUM EXPENSE NON-GUARANTEED CURRENT COST OF INSURANCE CHARGES,
CHARGES AND NON-GUARANTEED CURRENT EXPENSE CHARGES
-------------------------------------------- ----------------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED END OF YEAR END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE SURRENDER VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 581 $ 137 $ 0 $ 100,000 $ 278 $ 0 $ 100,000
2..... 1,190 450 0 100,000 699 211 100,000
3..... 1,831 777 0 100,000 1,148 758 100,000
4..... 2,503 1,118 142 100,000 1,627 1,334 100,000
5..... 3,208 1,474 498 100,000 2,138 1,943 100,000
6..... 3,950 1,841 1,005 100,000 2,683 2,599 100,000
7..... 4,728 2,222 1,569 100,000 3,263 3,263 100,000
8..... 5,545 2,616 2,138 100,000 3,882 3,882 100,000
9..... 6,403 3,025 2,714 100,000 4,543 4,543 100,000
10..... 7,303 3,451 3,299 100,000 5,249 5,249 100,000
15..... 12,530 5,828 5,828 100,000 9,557 9,557 100,000
20..... 19,200 8,544 8,544 100,000 15,495 15,495 100,000
25..... 27,713 11,454 11,454 100,000 23,815 23,815 100,000
30..... 38,578 14,130 14,130 100,000 35,687 35,687 100,000
35..... 52,445 14,854 14,854 100,000 52,852 52,852 100,000
40..... 70,143 10,096 10,096 100,000 78,677 78,677 100,000
45..... 92,730 * * * 119,001 119,001 106,611
50..... 121,558 * * * 178,733 178,733 160,340
55..... 158,351 * * * 265,549 265,549 238,126
60..... 205,309 * * * 393,986 393,986 339,610
65..... 265,240 * * * 584,230 584,230 503,194
70..... 341,730 * * * 859,786 859,786 739,069
75..... 439,352 * * * 1,261,358 1,261,358 1,081,594
80..... 563,945 * * * 1,846,690 1,846,690 1,579,105
Age 65..... 38,578 14,130 14,130 100,000 35,687 35,687 100,000
Age 70..... 52,445 14,854 14,854 100,000 52,852 52,852 100,000
Age 115..... 563,945 * * * 1,846,690 1,846,690 1,579,105
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 744 $ 227 $ 0 $ 100,227 $ 370 $ 0 $ 100,370
2..... 1,526 608 0 100,608 849 205 100,849
3..... 2,347 969 0 100,969 1,312 797 101,312
4..... 3,209 1,311 23 101,311 1,760 1,374 101,760
5..... 4,114 1,634 503 101,634 2,192 1,966 102,192
6..... 5,064 1,933 1,013 101,933 2,608 2,516 102,608
7..... 6,061 2,209 1,491 102,209 3,006 3,006 103,006
8..... 7,109 2,462 1,936 102,462 3,386 3,386 103,386
9..... 8,209 2,689 2,347 102,689 3,748 3,748 103,748
10..... 9,364 2,890 2,723 102,890 4,091 4,091 104,091
15..... 16,064 3,419 3,419 103,419 5,441 5,441 105,441
20..... 24,616 2,870 2,870 102,870 5,991 5,991 105,991
25..... 35,530 539 539 100,539 5,351 5,351 105,351
30..... 49,460 * * * 2,984 2,984 102,984
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
65..... * * * * * * *
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 49,460 * * * 2,984 2,984 102,984
Age 70..... * * * * * * *
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 744 $ 270 $ 0 $ 100,270 $ 421 $ 0 $ 100,421
2..... 1,526 729 0 100,729 998 354 100,998
3..... 2,347 1,212 0 101,212 1,615 1,100 101,615
4..... 3,209 1,721 433 101,721 2,276 1,890 102,276
5..... 4,114 2,258 1,127 102,258 2,983 2,757 102,983
6..... 5,064 2,820 1,900 102,820 3,739 3,647 103,739
7..... 6,061 3,410 2,692 103,410 4,546 4,546 104,546
8..... 7,109 4,029 3,503 104,029 5,410 5,410 105,410
9..... 8,209 4,676 4,334 104,676 6,333 6,333 106,333
10..... 9,364 5,352 5,185 105,352 7,319 7,319 107,319
15..... 16,064 9,157 9,157 109,157 13,291 13,291 113,291
20..... 24,616 13,497 13,497 113,497 21,328 21,328 121,328
25..... 35,530 17,615 17,615 117,615 31,870 31,870 131,870
30..... 49,460 19,843 19,843 119,843 45,345 45,345 145,345
35..... 67,239 16,527 16,527 116,527 62,109 62,109 162,109
40..... 89,929 636 636 100,636 82,047 82,047 182,047
45..... 118,889 * * * 104,123 104,123 204,123
50..... 155,849 * * * 127,138 127,138 227,138
55..... 203,020 * * * 148,375 148,375 248,375
60..... 263,225 * * * 163,738 163,738 263,738
65..... 340,062 * * * 115,365 115,365 215,365
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 49,460 19,843 19,843 119,843 45,345 45,345 145,345
Age 70..... 67,239 16,527 16,527 116,527 62,109 62,109 162,109
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 744 $ 228 $ 0 $ 100,000 $ 371 $ 0 $ 100,000
2..... 1,526 610 0 100,000 850 206 100,000
3..... 2,347 973 0 100,000 1,315 800 100,000
4..... 3,209 1,319 31 100,000 1,765 1,379 100,000
5..... 4,114 1,645 514 100,000 2,200 1,974 100,000
6..... 5,064 1,949 1,029 100,000 2,619 2,527 100,000
7..... 6,061 2,231 1,513 100,000 3,022 3,022 100,000
8..... 7,109 2,491 1,965 100,000 3,408 3,408 100,000
9..... 8,209 2,726 2,384 100,000 3,776 3,776 100,000
10..... 9,364 2,936 2,769 100,000 4,127 4,127 100,000
15..... 16,064 3,533 3,533 100,000 5,536 5,536 100,000
20..... 24,616 3,086 3,086 100,000 6,196 6,196 100,000
25..... 35,530 852 852 100,000 5,733 5,733 100,000
30..... 49,460 * * * 3,580 3,580 100,000
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
65..... * * * * * * *
70..... * * * * * * *
75..... * * * * * * *
80..... * * * * * * *
Age 65..... 49,460 * * * 1,920 1,920 100,000
Age 70..... * * * * * *
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $709
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
10% HYPOTHETICAL GROSS RETURN, ASSUMING
GUARANTEED MAXIMUM COST OF INSURANCE 10% HYPOTHETICAL GROSS RETURN,
CHARGES, AND GUARANTEED MAXIMUM EXPENSE NON-GUARANTEED CURRENT COST OF INSURANCE CHARGES,
CHARGES AND NON-GUARANTEED CURRENT EXPENSE CHARGES
-------------------------------------------- ----------------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED END OF YEAR END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE SURRENDER VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 744 $ 271 $ 0 $ 100,000 $ 422 $ 0 $ 100,000
2..... 1,526 731 0 100,000 1,000 356 100,000
3..... 2,347 1,217 0 100,000 1,619 1,104 100,000
4..... 3,290 1,731 443 100,000 2,283 1,897 100,000
5..... 4,114 2,274 1,143 100,000 2,994 2,768 100,000
6..... 5,064 2,845 1,925 100,000 3,757 3,665 100,000
7..... 6,061 3,446 2,728 100,000 4,573 4,573 100,000
8..... 7,109 4,079 3,553 100,000 5,448 5,448 100,000
9..... 8,209 4,745 4,403 100,000 6,385 6,385 100,000
10..... 9,364 5,445 5,278 100,000 7,389 7,389 100,000
15..... 16,064 9,485 9,485 100,000 13,553 13,553 100,000
20..... 24,616 14,444 14,444 100,000 22,142 22,142 100,000
25..... 35,530 20,086 20,086 100,000 34,156 34,156 100,000
30..... 49,460 25,834 25,834 100,000 51,333 51,333 100,000
35..... 67,239 30,144 30,144 100,000 77,016 77,016 100,000
40..... 89,929 29,324 29,324 100,000 117,026 117,026 125,218
45..... 118,889 12,078 12,078 100,000 176,839 176,839 185,681
50..... 155,849 * * * 264,197 264,197 277,407
55..... 203,020 * * * 390,746 390,746 410,284
60..... 263,225 * * * 578,477 578,477 584,261
65..... 340,062 * * * 857,288 857,288 865,861
70..... 438,129 * * * 1,261,164 1,261,164 1,273,776
75..... 563,290 * * * 1,849,715 1,849,715 1,868,212
80..... 723,030 * * * 2,707,550 2,707,550 2,734,625
Age 65..... 49,460 25,834 25,834 100,000 51,333 51,333 100,000
Age 70..... 67,239 30,144 30,144 100,000 77,016 77,016 100,000
Age 115..... 723,030 * * * 2,707,550 2,707,550 2,734,625
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
ASSUMING 0% HYPOTHETICAL GROSS RETURN,
0% HYPOTHETICAL GROSS RETURN, NON-GUARANTEED CURRENT COST OF INSURANCE
GUARANTEED MAXIMUM COST OF INSURANCE CHARGES, CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
AND GUARANTEED MAXIMUM EXPENSE CHARGES CHARGES
------------------------------------------------ --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED END OF YEAR END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE SURRENDER VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ----------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 1,506 $ 432 $ 0 $ 100,432 $ 741 $ 0 $ 100,741
2..... 3,087 977 0 100,977 1,560 191 101,560
3..... 4,747 1,467 0 101,467 2,338 1,243 102,338
4..... 6,490 * * * 3,075 2,359 103,075
5..... 8,320 * * * 3,768 3,370 103,768
6..... 10,242 * * * 4,412 4,251 104,412
7..... 12,259 * * * 5,008 5,008 105,008
8..... 14,378 * * * 5,547 5,547 105,547
9..... 16,603 * * * 6,019 6,019 106,019
10..... 18,938 * * * 6,417 6,417 106,417
15..... 32,491 * * * 7,301 7,301 107,301
20..... 49,787 * * * 5,709 5,709 105,709
25..... * * * * * * *
30..... * * * * * * *
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 18,938 * * * 6,417 6,417 106,417
Age 70..... 32,491 * * * 7,301 7,301 107,301
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 1,506 $ 518 $ 0 $ 100,518 $ 843 $ 0 $ 100,843
2..... 3,087 1,205 0 101,205 1,853 484 101,853
3..... 4,747 1,902 0 101,902 2,917 1,822 102,917
4..... 6,490 2,609 224 102,609 4,040 3,324 104,040
5..... 8,320 3,321 1,333 103,321 5,224 4,826 105,224
6..... 10,242 4,028 2,417 104,028 6,467 6,306 106,467
7..... 12,259 4,716 3,463 104,716 7,774 7,774 107,774
8..... 14,378 5,364 4,450 105,364 9,140 9,140 109,140
9..... 16,603 5,948 5,355 105,948 10,558 10,558 110,558
10..... 18,938 6,447 6,159 106,447 12,027 12,027 112,027
15..... 32,491 7,124 7,124 107,124 20,200 20,200 120,200
20..... 49,787 1,563 1,563 101,563 29,386 29,386 129,386
25..... 71,863 * * * 37,329 37,329 137,329
30..... 100,037 * * * 40,391 40,391 140,391
35..... 135,995 * * * 31,642 31,642 131,642
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 18,938 6,447 6,159 106,447 12,027 12,027 112,027
Age 70..... 32,491 7,124 7,124 107,124 20,200 20,200 120,200
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 1,506 $ 438 $ 0 $ 100,000 $ 745 $ 0 $ 100,000
2..... 3,087 992 0 100,000 1,572 203 100,000
3..... 4,747 1,496 0 100,000 2,362 1,267 100,000
4..... 6,490 * * * 3,114 2,398 100,000
5..... 8,320 * * * 3,828 3,430 100,000
6..... 10,242 * * * 4,498 4,337 100,000
7..... 12,259 * * * 5,125 5,125 100,000
8..... 14,378 * * * 5,700 5,700 100,000
9..... 16,603 * * * 6,215 6,215 100,000
10..... 18,938 * * * 6,665 6,665 100,000
15..... 32,491 * * * 7,910 7,910 100,000
20..... 49,787 * * * 6,858 6,858 100,000
25..... 71,863 * * * 1,342 1,342 100,000
30..... * * * * * * *
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 18,938 * * * 6,665 6,665 100,000
Age 70..... 32,491 * * * 7,910 7,910 100,000
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $1,434
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 1,506 $ 524 $ 0 $ 100,000 $ 848 $ 0 $ 100,000
2..... 3,087 1,223 0 100,000 1,867 498 100,000
3..... 4,747 1,939 0 100,000 2,947 1,852 100,000
4..... 6,490 2,673 288 100,000 4,093 3,377 100,000
5..... 8,320 3,422 1,434 100,000 5,311 4,913 100,000
6..... 10,242 4,179 2,568 100,000 6,599 6,438 100,000
7..... 12,259 4,932 3,679 100,000 7,966 7,966 100,000
8..... 14,378 5,664 4,750 100,000 9,411 9,411 100,000
9..... 16,603 6,354 5,761 100,000 10,930 10,930 100,000
10..... 18,938 6,986 6,698 100,000 12,528 12,528 100,000
15..... 32,491 8,845 8,845 100,000 21,993 21,993 100,000
20..... 49,787 5,590 5,590 100,000 34,631 34,631 100,000
25..... 71,863 * * * 51,524 51,524 100,000
30..... 100,037 * * * 76,576 76,576 100,000
35..... 135,995 * * * 118,870 118,870 124,813
40..... 181,888 * * * 183,170 183,170 185,001
45..... 240,460 * * * 278,367 278,367 281,151
50..... 315,215 * * * 416,356 416,356 420,520
55..... 410,623 * * * 617,486 617,486 623,661
60..... 532,391 * * * 910,674 910,674 919,781
Age 65..... 18,938 6,986 6,698 100,000 12,528 12,528 100,000
Age 70..... 32,491 8,845 8,845 100,000 21,993 21,993 100,000
Age 115..... 532,391 * * * 910,674 910,674 919,781
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-13
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 2,233 $ 881 $ 0 $ 100,881 $ 1,260 $ 0 $ 101,260
2..... 4,578 1,829 0 101,829 2,566 637 102,566
3..... 7,041 2,672 0 102,672 3,795 2,463 103,795
4..... 9,626 3,402 576 103,402 4,943 4,095 104,943
5..... 12,341 4,008 1,658 104,008 6,003 5,533 106,003
6..... 15,191 4,481 2,581 104,481 6,969 6,779 106,969
7..... 18,184 4,809 3,335 104,809 7,845 7,845 107,845
8..... 21,327 4,974 3,902 104,974 8,624 8,624 108,624
9..... 24,626 4,957 4,265 104,957 9,296 9,296 109,296
10..... 28,091 4,743 4,408 104,743 9,854 9,854 109,854
15..... 48,192 181 181 100,181 10,763 10,763 110,763
20..... 73,848 * * * 7,578 7,578 107,578
25..... * * * * * * *
30..... * * * * * * *
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 28,091 4,743 4,408 104,743 9,854 9,854 109,854
Age 70..... 48,192 181 181 100,181 10,763 10,763 110,763
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-14
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
10% HYPOTHETICAL GROSS RETURN, 10% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 2,233 $ 1,021 $ 0 $ 101,021 $ 1,421 $ 0 $ 101,421
2..... 4,578 2,214 0 102,214 3,031 1,102 103,031
3..... 7,041 3,411 82 103,411 4,717 3,385 104,717
4..... 9,626 4,603 1,777 104,603 6,479 5,631 106,479
5..... 12,341 5,777 3,427 105,777 8,315 7,845 108,315
6..... 15,191 6,918 5,018 106,918 10,224 10,034 110,224
7..... 18,184 8,008 6,534 108,008 12,215 12,215 112,215
8..... 21,327 9,021 7,949 109,021 14,283 14,283 114,283
9..... 24,626 9,929 9,237 109,929 16,426 16,426 116,426
10..... 28,091 10,703 10,368 110,703 18,639 18,639 118,639
15..... 48,192 11,385 11,385 111,385 30,702 30,702 130,702
20..... 73,848 1,418 1,418 101,418 43,627 43,627 143,627
25..... 106,591 * * * 55,240 55,240 155,240
30..... 148,381 * * * 62,645 62,645 162,645
35..... 201,717 * * * 60,593 60,593 160,593
40..... 269,788 * * * 41,212 41,212 141,212
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 28,091 10,703 10,368 110,703 18,639 18,639 118,639
Age 70..... 48,192 11,385 11,385 111,385 30,702 30,702 130,702
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-15
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING ASSUMING
0% HYPOTHETICAL GROSS RETURN, 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM EXPENSE CHARGES, AND NON-GUARANTEED CURRENT EXPENSE
CHARGES CHARGES
-------------------------------------------- --------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED SURRENDER END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 2,233 $ 893 $ 0 $ 100,000 $ 1,268 $ 0 $ 100,000
2..... 4,578 1,862 0 100,000 2,591 662 100,000
3..... 7,041 2,738 0 100,000 3,846 2,514 100,000
4..... 9,626 3,511 685 100,000 5,030 4,182 100,000
5..... 12,341 4,174 1,824 100,000 6,137 5,667 100,000
6..... 15,191 4,716 2,816 100,000 7,164 6,974 100,000
7..... 18,184 5,127 3,653 100,000 8,115 8,115 100,000
8..... 21,327 5,387 4,315 100,000 8,983 8,983 100,000
9..... 24,626 5,480 4,788 100,000 9,760 9,760 100,000
10..... 28,091 5,385 5,050 100,000 10,442 10,442 100,000
15..... 48,192 1,404 1,404 100,000 12,248 12,248 100,000
20..... 73,848 * * * 10,401 10,401 100,000
25..... 106,591 * * * 2,621 2,621 100,000
30..... * * * * * * *
35..... * * * * * * *
40..... * * * * * * *
45..... * * * * * * *
50..... * * * * * * *
55..... * * * * * * *
60..... * * * * * * *
Age 65..... 28,091 5,385 5,050 100,000 10,442 10,442 100,000
Age 70..... 48,192 1,404 1,404 100,000 12,248 12,248 100,000
Age 115..... * * * * * * *
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-16
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM OF $2,127
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING
10% HYPOTHETICAL GROSS RETURN, ASSUMING
GUARANTEED MAXIMUM COST OF INSURANCE 10% HYPOTHETICAL GROSS RETURN,
CHARGES, AND GUARANTEED MAXIMUM EXPENSE NON-GUARANTEED CURRENT COST OF INSURANCE CHARGES,
CHARGES AND NON-GUARANTEED CURRENT EXPENSE CHARGES
-------------------------------------------- ----------------------------------------------------
PREMIUMS END OF YEAR END OF YEAR END OF YEAR
END OF ACCUMULATED AT ACCUMULATED SURRENDER END OF YEAR ACCUMULATED END OF YEAR END OF YEAR
POLICY YEAR 5% PER YEAR VALUE VALUE DEATH BENEFIT VALUE SURRENDER VALUE DEATH BENEFIT
- - ------------ -------------- -------------- ------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1..... $ 2,233 $ 1,035 $ 0 $ 100,000 $ 1,430 $ 0 $ 100,000
2..... 4,578 2,253 0 100,000 3,060 1,131 100,000
3..... 7,041 3,495 166 100,000 4,780 3,448 100,000
4..... 9,626 4,752 1,926 100,000 6,595 5,747 100,000
5..... 12,341 6,019 3,669 100,000 8,509 8,039 100,000
6..... 15,191 7,286 5,386 100,000 10,525 10,335 100,000
7..... 18,184 8,544 7,070 100,000 12,659 12,659 100,000
8..... 21,327 9,774 8,702 100,000 14,917 14,917 100,000
9..... 24,626 10,959 10,267 100,000 17,306 17,306 100,000
10..... 28,091 12,081 11,746 100,000 19,834 19,834 100,000
15..... 48,192 15,985 15,985 100,000 35,126 35,126 100,000
20..... 73,848 12,779 12,799 100,000 56,948 56,948 100,000
25..... 106,591 * * * 91,404 91,404 100,000
30..... 148,381 * * * 146,747 146,747 154,085
35..... 201,717 * * * 227,064 227,064 238,417
40..... 269,788 * * * 346,127 346,127 349,588
45..... 356,666 * * * 522,854 522,854 528,082
50..... 493,158 * * * 779,004 779,004 786,794
55..... 609,063 * * * 1,152,331 1,152,331 1,163,854
60..... 789,676 * * * 1,696,502 1,696,502 1,713,467
Age 65..... 28,091 12,081 11,746 100,000 19,834 19,834 100,000
Age 70..... 48,192 15,985 15,985 100,000 35,126 35,126 100,000
Age 115..... 789,676 * * * 1,696,502 1,696,502 1,713,467
</TABLE>
- - ------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0% AND 10% SHOWN ABOVE CORRESPOND TO NET
ANNUAL RATES OF RETURN OF -1.82% AND 8.18% ON A GUARANTEED BASIS AND -1.67% AND
8.33% ON A CURRENT BASIS, RESPECTIVELY. THE DEATH BENEFIT AND ACCUMULATED VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGED 0% AND 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
A-17
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX B
- - --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS OPTION A EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option A,
a Policy with a Specified Amount of $50,000 will
generally provide a death benefit of $50,000 plus
Accumulated Value. Thus, for example, a Policy with a
Accumulated Value of $5,000 will have a death benefit of
$55,000 ($50,000 + $5,000); a Accumulated Value of
$10,000 will provide a death benefit of $60,000 ($50,000
+ $10,000). The death benefit, however, must be at least
2.50 multiplied by the Accumulated Value. As a result, if
the Accumulated Value of the Policy exceeds $33,333, the
death benefit will be greater than the Specified Amount
plus Accumulated Value. Each additional dollar of
Accumulated Value above $33,333 will increase the death
benefit by $2.50. A Policy with a Specified Amount of
$50,000 and a Accumulated Value of $40,000 will provide a
death benefit of $100,000 ($40,000 x 2.50); a Accumulated
Value of $60,000 will provide a death benefit of $150,000
($60,000 x 2.50).
Similarly, any time Accumulated Value exceeds $33,333,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $40,000 to $35,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $100,000 to $87,500. If at any time, however,
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount plus the
Accumulated Value, then the death benefit will be the
current Specified Amount plus Accumulated Value of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than under 40), the specified amount factor would
be 1.85. The amount of the death benefit would be the sum
of the Accumulated Value plus $50,000 unless the
Accumulated Value exceeded $58,824 (rather than $33,333),
and each dollar then added to or taken from the
Accumulated Value would change the death benefit by $1.85
(rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option B,
a Policy with a $50,000 Specified Amount will generally
pay $50,000 in death benefits. However, because the death
benefit must be equal to or be greater than 2.50
multiplied by the Accumulated Value, any time the
Accumulated Value of the Policy exceeds $20,000, the
death benefit will exceed the $50,000 Specified Amount.
Each additional dollar added to Accumulated Value above
$20,000 will increase the death benefit by $2.50. A
Policy with a $50,000 Specified Amount and a Accumulated
Value of $30,000 will provide death proceeds of $75,000
($30,000 x 2.50); a Accumulated Value of $40,000 will
provide a death benefit of $100,000 ($40,000 x 2.50); a
Accumulated Value of $50,000 will provide a death benefit
of $125,000 ($50,000 x 2.50).
Similarly, so long as Accumulated Value exceeds $20,000,
each dollar taken out of Accumulated Value will reduce
the death benefit by $2.50. If, for example, the
Accumulated Value is reduced from $25,000 to $20,000
because of partial withdrawals, charges, or negative
investment performance, the death benefit will be reduced
from $62,500 to $50,000. If at any time, however, the
Accumulated Value multiplied by the specified amount
factor is less than the Specified Amount, the death
benefit will equal the current Specified Amount of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than between 0 and 40), the specified amount
factor would be 1.85. The death proceeds would not exceed
the $50,000 Specified Amount unless the Accumulated Value
exceeded approximately $27,028 (rather than $20,000), and
each dollar then added to or taken from the Accumulated
Value would change the life insurance proceeds by $1.85
(rather than $2.50).
B-1
<PAGE>
<TABLE>
<CAPTION>
SPECIFIED AMOUNT FACTOR TABLE
- - -----------------------------------------------------
ATTAINED AGE SPECIFIED AMOUNT FACTOR
- - ------------------------ ---------------------------
<S> <C>
40 or younger 2.50
41 2.43
42 2.36
43 2.29
44 2.22
45 2.15
46 2.09
47 2.03
48 1.97
49 1.91
50 1.85
51 1.78
52 1.71
53 1.64
54 1.57
55 1.50
56 1.46
57 1.42
58 1.38
59 1.34
60 1.30
61 1.28
62 1.26
63 1.24
64 1.22
65 1.20
66 1.19
67 1.18
68 1.17
69 1.16
70 1.15
71 1.13
72 1.11
73 1.09
74 1.07
75 to 90 1.05
91 1.04
92 1.03
93 1.02
94 to 114 1.01
115 1.00
</TABLE>
B-2
<PAGE>
- - --------------------------------------------------------------------------------
APPENDIX C
- - --------------------------------------------------------------------------------
MAXIMUM SURRENDER CHARGES
The chart below reflects the maximum surrender charge per
$1,000 of Specified Amount for selected issue ages as
policy years increase.
Male, Non-Tobacco
<TABLE>
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.50 4.30 3.15 2.05 1.00
20 7.46 7.46 7.46 7.46 7.46 6.46 5.05 3.70 2.41 1.18
30 10.48 10.48 10.48 10.48 9.85 8.01 6.26 4.59 2.99 1.46
40 16.08 16.08 16.08 15.81 13.22 10.75 8.39 6.14 3.99 1.95
50 25.74 25.74 25.74 22.86 19.06 15.46 12.03 8.77 5.69 2.77
60 56.18 48.88 41.98 35.48 29.36 23.61 18.21 13.17 8.46 4.07
70 57.48 49.03 41.24 34.10 27.56 21.62 16.26 11.44 7.14 3.34
80 57.48 46.35 36.74 28.53 21.60 15.82 11.08 7.25 4.21 1.83
Male, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 12.00 12.00 12.00 10.90 9.12 7.42 5.79 4.24 2.76 1.35
30 17.48 17.48 16.34 13.95 11.66 9.49 7.41 5.42 3.53 1.72
40 27.74 26.34 22.80 19.43 16.22 13.16 10.25 7.49 4.86 2.37
50 44.66 39.17 33.75 28.62 23.76 19.18 14.86 10.79 6.96 3.37
60 57.48 49.60 42.24 35.39 29.02 23.12 17.67 12.65 8.04 3.83
70 57.48 48.27 39.97 32.50 25.84 19.94 14.74 10.20 6.26 2.88
80 57.48 45.30 35.12 26.68 19.79 14.22 9.78 6.30 3.60 1.55
Female, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.30 5.30 5.30 5.30 5.30 5.15 4.03 2.95 1.92 0.94
20 5.66 5.66 5.66 5.66 5.66 5.66 4.69 3.44 2.24 1.10
30 8.04 8.04 8.04 8.04 8.04 7.37 5.76 4.22 2.75 1.34
40 11.98 11.98 11.98 11.98 11.84 9.63 7.52 5.50 3.58 1.75
50 17.96 17.96 17.96 17.96 16.44 13.34 10.40 7.60 4.93 2.40
60 43.60 40.26 34.72 29.46 24.49 19.79 15.34 11.15 7.20 3.49
70 57.48 49.61 42.25 35.38 28.99 23.06 17.59 12.56 7.96 3.78
80 57.48 47.51 38.62 30.77 23.90 17.97 12.92 8.67 5.15 2.29
Female, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 7.76 7.76 7.76 7.76 7.76 6.47 5.06 3.71 2.41 1.18
30 11.40 11.40 11.40 11.40 9.97 8.11 6.34 4.64 3.02 1.48
40 17.34 17.34 17.34 15.90 13.28 10.79 8.41 6.15 4.00 1.95
50 25.82 25.82 25.82 22.19 18.49 14.97 11.65 8.49 5.50 2.67
60 51.72 45.03 38.72 32.76 27.14 21.86 16.89 12.24 7.88 3.80
70 57.48 49.36 41.81 34.82 28.36 22.43 17.01 12.07 7.60 3.59
80 57.48 47.10 37.97 29.99 23.11 17.24 12.29 8.19 4.83 2.13
Unisex, Non-Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 5.50 5.50 5.50 5.50 5.50 5.43 4.24 3.11 2.02 0.99
20 7.10 7.10 7.10 7.10 7.10 6.37 4.98 3.65 2.38 1.16
30 9.98 9.98 9.98 9.98 9.69 7.88 6.16 4.51 2.94 1.43
40 15.24 15.24 15.24 15.24 12.94 10.52 8.21 6.01 3.91 1.91
50 24.16 24.16 24.16 22.20 18.51 15.01 11.69 8.53 5.53 2.69
60 53.96 46.98 40.38 34.16 28.29 22.77 17.59 12.73 8.18 3.95
70 57.48 49.17 41.48 34.39 27.89 21.95 16.56 11.70 7.33 3.44
80 57.48 46.67 37.26 29.15 22.24 16.42 11.60 7.65 4.47 1.96
Unisex, Tobacco
<CAPTION>
POLICY YEAR
ISSUE AGE 1 2 3 4 5 6 7 8 9 10
- - ----------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
20 11.14 11.14 11.14 10.61 8.88 7.23 5.64 4.13 2.69 1.32
30 16.26 16.26 15.85 13.53 11.32 9.20 7.19 5.26 3.42 1.67
40 25.60 25.32 21.92 18.68 15.59 12.66 9.86 7.20 4.68 2.28
50 40.68 37.18 32.05 27.19 22.60 18.25 14.15 10.28 6.64 3.22
60 57.48 49.70 42.42 35.62 29.28 23.38 17.91 12.86 8.20 3.92
70 57.48 48.56 40.46 33.12 26.52 20.61 15.35 10.70 6.62 3.07
80 57.48 45.95 36.14 27.88 20.98 15.30 10.69 6.98 4.05 1.76
<CAPTION>
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Male, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Female, Non-Tobac
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Female, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Unisex, Non-Tobac
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 0.00
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
Unisex, Tobacco
ISSUE AGE 11+
- - ----------------- ---------
<S> <C> <C>
10 N/A
20 0.00
30 0.00
40 0.00
50 0.00
60 0.00
70 0.00
80 0.00
</TABLE>
C-1
<PAGE>
[LOGO]
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
737- ( )
<PAGE>
PART II
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
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
XII also provides for the indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its factor by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
offer, employee or agent of another corporation, partnership, joint venture,
trust or another enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonable entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 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.
REPRESENTATIONS PURSUANT TO SECTION 26(e)(2)(A)
The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by the Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 93 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representations pursuant to Section 26(a)(2)(A).
The signatures.
Written consents of the following persons:
Stephen M. Morain, Esquire.
Messrs. Sutherland, Asbill & Brennan, LLP
Ernst & Young LLP, Independent Auditors
Christopher G. Daniels, FSA, MSAA, Consulting Actuary
The following exhibits:
<TABLE>
<S> <C> <C>
1.A. 1. Certified Resolution of the Board of
Directors of the Company establishing
the Variable Account. (1)
2. None.
3. * Form of Principal Underwriting
Agreement.
4. None.
5. (a) Form of Policy. (1)
* (b) Form of Application.
6. (a) Articles of Incorporation of the
Company. (1)
(b) By-Laws of the Company. (1)
7. None.
8. None.
9. * (a) Participation Agreement relating to
EquiTrust Variable Insurance Series
Fund.
* (b) Participation Agreement relating to
Dreyfus Variable Investment Fund.
* (c) Participation Agreement relating to
T. Rowe Price Equity Series, Inc. and
T. Rowe Price International Series,
Inc.
10. Form of Application (see Exhibit
1.A.(5)(c) above.)
2. * Opinion and Consent of Stephen M. Morain,
Esquire.
3. None.
4. Not applicable.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels,
FSA, MSAA, Life Product Development and
Pricing Vice President.
7. *(a) Consent of Ernst & Young LLP.
*(b) Consent of Messrs. Sutherland, Asbill &
Brennan LLP.
8. Memorandum describing the Company's conversion
procedure (included in Exhibit 9 hereto).
9. *Memorandum describing the Company's issuance,
transfer and redemption procedures for the
Policy.
10. Powers of Attorney (1)
</TABLE>
- - ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to the initial filing of this Registration
Statement (File No. 333-45805) on February 6, 1998.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Farm Bureau Life Variable Account II, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of West Des Moines, State of Iowa, on the 20th day of
May, 1998.
Farm Bureau Life Insurance Company
Farm Bureau Life Variable Account II
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
Attest: /s/ RICHARD D. HARRIS
---------------------------------
Richard D. Harris
SENIOR VICE PRESIDENT AND
SECRETARY-TREASURER
Farm Bureau Life Insurance
Company
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- - ------------------------------ [Principal Executive May 20, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- - ------------------------------ [Principal Financial May 20, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- - ------------------------------ [Principal Accounting May 20, 1998
James W. Noyce Officer]
- - ------------------------------ Vice President and May 20, 1998
Craig A. Lang* Director
- - ------------------------------ Director May 20, 1998
Kenneth R. Ashby*
- - ------------------------------ Director May 20, 1998
Al Christopherson*
- - ------------------------------ Director May 20, 1998
Ernest A. Glienke*
- - ------------------------------ Director May 20, 1998
Philip A. Hemesath*
- - ------------------------------ Director May 20, 1998
Craig D. Hill*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------ -------------------------- -------------------
<C> <S> <C>
- - ------------------------------ Director May 20, 1998
Daniel L. Johnson*
- - ------------------------------ Director May 20, 1998
Richard G. Kjerstad*
- - ------------------------------ Director May 20, 1998
Lindsey D. Larsen*
- - ------------------------------ Director May 20, 1998
David R. Machacek*
- - ------------------------------ Director May 20, 1998
Donald O. Narigon*
- - ------------------------------ Director May 20, 1998
Bryce P. Neidig*
- - ------------------------------ Director May 20, 1998
Charles E. Norris*
- - ------------------------------ Director May 20, 1998
Keith R. Olsen*
- - ------------------------------ Director May 20, 1998
Bennett M. Osmonson*
- - ------------------------------ Director May 20, 1998
Howard D. Poulson*
- - ------------------------------ Director May 20, 1998
Sally A. Puttmann*
- - ------------------------------ Director May 20, 1998
Beverly L. Schnepel*
- - ------------------------------ Director May 20, 1998
F. Gary Steiner*
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Farm Bureau Life
Variable Account II, has duly caused this Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized in the City of West Des
Moines, State of Iowa, on the 20th day of May, 1998.
Farm Bureau Life Variable Account II
(Registrant)
Farm Bureau Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
* By /s/ STEPHEN M. MORAIN Attorney-In-Fact, pursuant to Power of Attorney.
------------------------
Stephen M. Morain
<PAGE>
UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT made this ___ day of ____________ ____, by and
between Farm Bureau Life Insurance Company ("Farm Bureau"), an Iowa
corporation, on its own behalf and on behalf of Farm Bureau Life Annuity
Account II ("Annuity Account") and EquiTrust Marketing Services, Inc.
("EquiTrust Marketing"), a Delaware corporation.
WITNESSETH:
WHEREAS, Farm Bureau has established and maintains the Annuity Account,
a segregated investment account, pursuant to the laws of the State of Iowa
for the purpose of selling flexible premium deferred variable annuity
contracts (the "Contracts"), to commence after the effectiveness of the
registration statement for the Contracts as filed with Securities and
Exchange Commission (the "SEC") on Form N-4 pursuant to the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Annuity Account is registeed as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act:"); and
WHEREAS, the EquiTrust Marketing is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and is a member of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the parties desire to have EquiTrust Marketing act as principal
underwriter for the Account and assume such supervisory responsibility as is
required by federal and state securities law and applicable requirements of
the NASD for the securities activities of any "person associated" (as that
term is defined in Section 3(a)(18) of the 1934 Act) with EquiTrust
Marketing, including Farm Bureau personnel, and engaged directly or
indirectly in Farm Bureau's variable annuity operations (the "associated
persons"); and
WHEREAS, Farm Bureau and the Annuity Account desire to have the
Contracts sold and distributed through EquiTrust Marketing, and EquiTrust
Marketing is willing to sell and distribute such Contracts, under the terms
stated herein.
NOW THEREFORE, the parties hereto agree as follows:
1. DISTRIBUTOR AND PRINCIPAL UNDERWRITER
Farm Bureau grants to EquiTrust Marketing the right to be, and EquiTrust
Marketing agrees to serve as, distributor and principal underwriter of the
Contracts during the term of this Agreement. EquiTrust Marketing agrees to
use its best efforts to solicit applications for the Contracts, and to
undertake to provide sales services relative to the Contracts and otherwise
to perform all duties and functions which are necessary and proper for the
distribution of the Contracts.
<PAGE>
2. PREMIUM PAYMENTS
All premium payments or other monies payable for the Contracts shall be
paid or remitted in full by or on behalf of contractowners directly to Farm
Bureau or its designated servicing agent together with such applications,
forms and other documentation as may be required by Farm Bureau. Checks or
money orders in payment of premiums or other monies payable shall be drawn to
the order of "Farm Bureau Life Insurance Company." Farm Bureau will retain
all such payments except to the extent such payments are allocated to the
Annuity Account.
3. SALES IN ACCORDANCE WITH CURRENT PROSPECTUS
EquiTrust Marketing agrees to offer the Contracts for sale in accordance
with the current prospectus therefor. EquiTrust Marketing is not authorized
to give any information or to make any representations concerning the
Contracts other than those contained in the current prospectus therefor filed
with the SEC or in such sales literature as may be developed and authorized
by Farm Bureau.
4. PROSPECTUSES AND PROMOTIONAL MATERIALS
On behalf of the Annuity Account, Farm Bureau shall furnish EquiTrust
Marketing with copies of all prospectuses, financial statements, and other
documents which EquiTrust Marketing reasonably requests for use in
connection with the distribution of the Contracts. Farm Bureau shall have
responsibility for preparing, filing and printing all required prospectuses
and/ or registration statements in connection with the Contracts and the
payment of all related expenses. EquiTrust Marketing and Farm Bureau shall
cooperate fully in the design, draft, and review of sales promotion materials
and the preparation of individual sales proposals related to the sale of the
Contracts. EquiTrust Marketing shall not use any such materials not provided
or approved by Farm Bureau.
5. COMPLIANCE WITH APPLICABLE LAWS
EquiTrust Marketing represents that it is duly registered as a
broker-dealer under the 1934 Act and is a member in good standing of the NASD
and, to the extent necessary to offer the Contracts, shall be duly registered
or otherwise qualified under the securities laws of any state or other
jurisdiction. EquiTrust Marketing shall be responsible for carrying out its
sales and underwriting obligation hereunder in continued compliance with the
NASD Rules of Fair Practice and federal and state securities laws and
regulations. Without limiting the generality of the foregoing, EquiTrust
Marketing agrees that it shall be fully responsible for:
(a) ensuring that no person shall offer or sell the Contracts on its behalf
until such person is duly registered as a representative of EquiTrust
Marketing, duly licensed and appointed by Farm Bureau under applicable state
insurance law, and appropriately licensed, registered or otherwise qualified
to offer and sell such Contracts under the federal securities laws and any
applicable securities laws of each state or other jurisdiction in which such
Contracts may be
<PAGE>
lawfully sold, in which Farm Bureau is licensed to sell the Contracts and
in which such persons shall offer or sell the Contracts; and
(b) training, supervision, and control of all such persons for purposes of
complying on a continuous basis with the NASD Rules of Fair Practice and
with federal and state securities laws requirements applicable in connection
with the offering and sale of the Contracts. In this connection EquiTrust
Marketing shall:
(i) conduct such training (including the preparation and utilization of
training materials) as in the opinion of EquiTrust Marketing is
necessary to accomplish the purposes of this Agreement;
(ii) establish and implement reasonable written procedures for supervision
of sales practices of associated persons or brokers selling the
Contracts;
(iii) establish branch offices and offices of supervisory jurisdiction, as
necessary or appropriate; and
(iv) take reasonable steps to ensure that the various sales representatives
associated with it shall not make recommendations to an applicant to
purchase a Contract in the absence of reasonable grounds to believe
that the purchase of the Contract is suitable for such applicant.
While not limited to the following, a determination of suitability
shall be based on information furnished to a sales representative
after reasonable inquiry of such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs,
and the likelihood of whether the applicant will persist with the
Contract for such a period of time that Farm Bureau's acquisition
costs are amortized over a reasonable period of time.
6. SALES AGREEMENTS
EquiTrust Marketing is hereby authorized to enter into separate written
agreements, on such terms and conditions as EquiTrust Marketing may determine
not inconsistent with this Agreement, with broker-dealers which agree to
participate in the distribution of the Contracts and to use their best
efforts to solicit applications for the Contracts. All such sales agreements
shall provide that each independent broker-dealer will assume full
responsibility for continued compliance by itself and its representatives
with applicable federal and state securities laws. Such broker-dealers and
their agents or representatives soliciting applications for the Contracts
shall be duly and appropriately licensed, registered or otherwise qualified
for the sale of such Contracts under the federal securities laws, the state
insurance laws and any applicable state securities laws of each state or
other jurisdiction in which such Contracts may be lawfully sold and in which
Farm Bureau is licensed to sell the Contracts. Each such organization shall
be both registered as a broker-dealer under the 1934 Act and a member of the
NASD.
Applications for the Contracts solicited by such organizations through
their representatives shall be forwarded to Farm Bureau. All payments for
the Contracts shall be made by check payable to "Farm Bureau Life Insurance
Company" and remitted promptly by such organizations to Farm Bureau as agent
for EquiTrust Marketing. All broker-dealers who agree to participate in the
distribution of the Contracts shall act as independent contractors and nothing
<PAGE>
herein contained shall constitute such broker-dealers or their agents or
employees as employees of Farm Bureau in connection with the sale of the
Contracts.
7. INSURANCE LICENSES
Farm Bureau shall apply for the proper insurance licenses in the
appropriate states or jurisdictions for the designated persons associated
with EquiTrust Marketing or with other independent broker-dealers which have
entered into agreements with EquiTrust Marketing for the sale of the
Contracts, provided that Farm Bureau reserves the right to refuse to appoint
any proposed registered representatives as an agent or broker, and to
terminate an agent or broker once appointed.
8. MAINTENANCE OF BOOKS, RECORDS AND ACCOUNTS
Farm Bureau and EquiTrust Marketing shall cause to be maintained and
preserved, for the periods prescribed, such accounts, books and other
documents as are required of them by the 1940 Act, the 1934 Act and any other
applicable laws and regulations. The books, accounts and records of Farm
Bureau, the Annuity Account, and EquiTrust Marketing as to all transactions
hereunder shall be maintained so as to disclose clearly and accurately the
nature and details of the transactions.
As agent for and on behalf of EquiTrust Marketing, Farm Bureau shall
maintain such books and records of EquiTrust Marketing pertaining to the sale
of the Contracts and required by the 1934 Act as may be mutually agreed upon
from time to time by Farm Bureau and EquiTrust Marketing; provided that such
books and records shall be the property of EquiTrust Marketing and shall at
all times be subject to such reasonable periodic, special or other
examination by the SEC and all other regulatory bodies having jurisdiction.
In addition, Farm Bureau will maintain records of all sales commissions paid
to associated persons of EquiTrust Marketing in connection with the sale of
the Contract. Farm Bureau, as agent for EquiTrust Marketing, shall be
responsible for sending all required confirmations on customer transactions
in compliance with applicable regulations, as modified by an exemption or
other relief obtained by Farm Bureau and EquiTrust Marketing.
EquiTrust Marketing shall have the responsibility for maintaining the
records of associated persons of EquiTrust Marketing who are licensed,
registered, and otherwise qualified to sell the Contracts, and for furnishing
periodic reports thereto to Farm Bureau. EquiTrust Marketing shall cause
Farm Bureau to be furnished with such other reports as Farm Bureau may
reasonable request for the purpose of meeting its reporting and recordkeeping
requirements under the insurance laws of the State of Iowa and any other
applicable states or jurisdictions.
9. COSTS AND EXPENSES BORNE BY EQUITRUST MARKETING
EquiTrust Marketing shall bear the costs and expenses of: (a) services,
materials, and supplies required to be supplied by EquiTrust Marketing
pursuant to the terms of this Agreement; (b) registration, licensing or other
qualification of associated persons of EquiTrust Marketing under federal and
state securities laws and with the NASD; and (c) training and supervision of
associated persons.
<PAGE>
10. COMPENSATION
As compensation for EquiTrust Marketing's assumption of the costs and
expenses set forth in Section 9 hereof, the sales services rendered by
EquiTrust Marketing and the associated persons of EquiTrust Marketing, and
the continuing obligations spelled out herein, Farm Bureau shall pay
EquiTrust Marketing an annual fee, payable monthly, at a rate equal to $100
multiplied by the number of associated persons of EquiTrust Marketing, and
shall, on behalf of and as agent for EquiTrust Marketing, pay associated
persons of EquiTrust Marketing all commissions or other fees which are due
for the sale of the Contracts. No associated person shall have an interest
in any fees payable to EquiTrust Marketing pursuant to this Agreement.
For Contracts sold under dealer sales agreements that EquiTrust
Marketing enters into with other broker-dealers pursuant to Section 6 hereof,
Farm Bureau shall pay to the parties specified in any such agreements such
compensation as is due under the terms of such sales agreements.
11. INDEMNIFICATION
Farm Bureau agrees to indemnify EquiTrust Marketing for any losses
incurred as a result of any action taken or omitted by EquiTrust Marketing or
any of its officers, agents, or employees in performing their
responsibilities under this Agreement in good faith and without willful
misfeasance, gross negligence, or reckless disregard of such obligations.
12. INVESTIGATIONS AND PROCEEDINGS
EquiTrust Marketing and Farm Bureau agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial proceeding
arising in connection with the Contracts distributed under this Agreement.
EquiTrust Marketing and Farm Bureau further agree to cooperate fully in any
securities regulatory inspection, inquiry, investigation or proceeding or any
judicial proceeding with respect to Farm Bureau, EquiTrust Marketing, their
affiliates, or the associated persons to the extent that such inspection,
inquiry, investigation or proceeding is in connection with the Contracts
distributed under this Agreement. Without limiting the foregoing:
(a) EquiTrust Marketing will be notified promptly of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding or judicial proceeding received by Farm
Bureau with respect to EquiTrust Marketing or any associated person
or which may affect Farm Bureau's issuance of any Contract marketed
under this Agreement; and
(b) EquiTrust Marketing will promptly notify Farm Bureau of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding received by EquiTrust Marketing or its
affiliates with respect to EquiTrust Marketing or any associated
person in connection with any Contract distributed under this
Agreement or any activity in connection with any such Contract.
<PAGE>
In the case of a customer complaint, EquiTrust Marketing and Farm Bureau
will cooperate in investigating such complaint and arrive at a mutually
satisfactory response.
13. TERMINATION
This Agreement may be terminated by either party hereto upon 60 days'
written notice to the other party without the payment of any penalty. This
Agreement may be terminated upon written notice of one party to the other
party hereto in the event of bankruptcy or insolvency of such party to which
notice is given. This Agreement may be terminated at any time upon the
mutual written consent of the parties hereto. This Agreement shall terminate
automatically if it shall be assigned.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease except (a) the obligation to settle
accounts hereunder, including commissions on premiums subsequently received
for Contracts in effect at the time of termination or issued pursuant to
applications received by Farm Bureau prior to termination, and (b) the
agreements contained in 12 hereof.
1. EXCLUSIVITY
The services of EquiTrust Marketing hereunder are not to be deemed
exclusive and EquiTrust Marketing shall be free to render similar services to
others so long as its services hereunder are not impaired or interfered with
hereby.
15. REGULATION
This Agreement shall be subject to the provisions of the 1940 Act and
the 1934 Act and the rules, regulations, and rulings thereunder and of the
NASD, from time to time in effect, including such exemptions from the 1940
Act as the SEC may grant and the terms hereof shall be interpreted and
construed in accordance therewith.
EquiTrust Marketing shall submit to all regulatory and administrative
bodies having jurisdiction over the operations of Farm Bureau or the Annuity
Account, present or future, and will provide any information, reports or
other material which any such body by reason of this Agreement may request or
require pursuant to applicable laws or regulations. Without limiting the
generality of the foregoing, EquiTrust Marketing shall furnish the Iowa
Department of Insurance with any information or reports which the Department
may request in order to ascertain whether the variable Annuity operations of
Farm Bureau are being conducted in a manner consistent with the Department's
variable annuity insurance regulations and any other applicable law or
regulations.
16. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
<PAGE>
17. APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Attest:
FARM BUREAU LIFE INSURANCE COMPANY
[signature]
Edward M. Wiederstein
President
Attest:
EQUITRUST MARKETING SERVICES, INC.
[signature]
Lynn E. Wilson
President
<PAGE>
<TABLE>
<S><C>
[LOGO] LIFE-DISABILITY
FARM BUREAU
LIFE INSURANCE COMPANY
Account No.____________________
APPLICATION FOR_____________________________________ Date of birth _______________ Insurance Age ____________
PROPOSED INSURED MONTH DAY YEAR
/ / Male / / Female State of Birth_______________Social Security No.__________Applicant's St.-Co. Code____
BILLING ADDRESS____________________________________________________________________________________________
STREET CITY-TOWN STATE ZIP
- - -----------------------------------------------------------------------------------------------------------------------------------
SECTION A COMPLETE THE APPROPRIATE SECTION FOR INSURANCE POLICIES DESIRED
I. LIFE
Policy
Number________________________________________________
(HOME OFFICE USE ONLY)
1. PLAN # AMOUNT
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
- - ---------------------------------------------------------------
A B
Universal Life/Variable Universal Life Opt. / / / /
Yes No
Tobacco User / / / /
2. RIDERS Yes No
Spouse Rider $_______ Tobacco User / / / /
Universal Life/ AMOUNT
Variable Universal Life
F.T.R.________ C.T.R. _______ G.P.O. $__________
UNITS UNITS AMOUNT
A.D.B. $___________________ W.P. / / P.I. / /
AMOUNT
3. Is this application for an increase on or an
addition to an existing Universal Life or Yes No
Variable Universal Life policy? / / / /
Policy number____________________________
4. If Participating the Dividend Option is:
/ / Pay by Check / / Leave to Accumulate
/ / Apply to Premium / / Additional Paid-Up Ins.
/ / One Year Term (5th Opt.)
5. Premium / / Annually / / Semi-Annually / / Quarterly
Payable / / COM / / Other_________________________
6. Submitted Transfer
Premium $ of Funds $
(Do Not Include Transfer)
II. DISABILITY INCOME
Policy
Number____________________________
(HOME OFFICE USE ONLY)
1. Occ. Class ________ Basic Monthly Amt. $______________
Waiting Period__________ Benefit Period _______________
Yes No
2. Tobacco User / / / /
3. / / Series 234 FIXED
-----
Benefit Riders
WPI 541 / / LTPR 534 / / STPR 549 / / PD 552 / /
4. / / Series 236 FLEXIBLE
--------
Flexible Monthly Benefit $____________
AMOUNT
Benefit Riders
WPI 541 / / LTPR 534 / / STPR 549 / / PD 552 / /
5. / / Series 238 BOE
---
Benefit Riders
WPI 541 / / LTPR 534 / / STPR 549 / /
Complete BOE Supplement
6. What is Applicant's Annual:
Gross Earned Income? $_________________
Net Earned Income? $_________________
7. Premium / / Annually / / Semi-Annually / / Quarterly
Payable / / COM / / Other_________________________
8. Submitted Transfer
Premium $ of Funds $
(Do Not Include Transfer)
- - ---------------------------------------------------------------------------------------------------------
SECTION B COMPLETE THIS SECTION FOR ALL POLICIES
1. INSURANCE IN FORCE (if none, state "None") LIFE DISABILITY INCOME
- - ----------------------------------------------------------------------------------------------------------
COMPANY AMOUNT ACC. DEATH AMOUNT WAITING/BENEFIT
PERIODS
- - ----------------------------------------------------------------------------------------------------------
2. Is the policy applied for replacing or likely to replace any existing plan? / / Yes / / No
If "yes" indicate the amount, company name, give termination date and complete appropriate replacement
forms.
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
432-120 (3-94)
AGENT'S CERTIFICATE Agent Credit____________________________________________________________%__________
Name (Primary) State County Agent No.
____________________________________________________________%__________
Name State County Agent No.
Was I.R. ordered / / Yes / / No
Was Exam ordered / / Yes / / No Indicate the "key" letter used for medical requirements. ________
- - -----------------------------------------------------------------------------------------------------------
Will this plan If yes, have replacement / / Yes Did you give "Notice to / / Yes
replace any other? / / Yes / / No forms been submitted? / / No Applicant" form to applicant? / / No
Did you see all persons / / Yes (If no - explain)
proposed for insurance? / / No
- - --------------------------------------------------------------------------------------------------------------
If proposed insured is a married female: How long married? __________________________________________________
Maiden name______________________________ Husband's name and Amount of Life Ins. in force? ___________________
______________________________________________________________________________________________________________
Estate Planning: Attach copy of your programming or give full details.
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
Business insurance: Give full reason for this insurance and nature of applicant's interest__________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
The answers to each question of this application were recorded in my presence exactly as given. I know
nothing detrimental to the risk that is not recorded in these papers. I have rechecked all answers and
calculations for correctness.
Dated at_____________________________________________________________________________________________________
City State Signature of Agent
<PAGE>
SECTION C COMPLETE THIS SECTION FOR ALL POLICIES
1. Name of Proposed Insured (Print)
_____________________________________________________________________________
2. Present Address (if different from Billing Address already listed)
_____________________________________________________________________________
3. Phone No.: Home______________________ Bus.__________________________
A.M.
Best time to reach by phone____________________ P.M.
4. Married / / Single / / Widowed / / Divorced / /
5. Height ________ ft. _________in. Weight ________ lbs.
Questions 6 through 8 refer to the Proposed Insured if age 15 or over,
otherwise to the Owner if Proposed Insured is under 15.
6. a. Occupation_________________________________________
b. Duties_____________________________________________
c. Employer___________________________________________
d. Have you any other occupation or do you contemplate
any change in occupation? Yes / / No / / (give details in
REMARKS section)
7. Business Address_______________________________________
8. Spouse's Occupation____________________________________
(if applying for coverage)
- - ---------------------------------------------------------------------------------------------------
SECTION D COMPLETE THIS SECTION IF OTHERS ARE TO BE INCLUDED
1. Names of all other persons proposed for insurance. (Include Family Members and Payor if Premium Insurance
is applied for)
DATE OF STATE AMOUNT OF
BIRTH INSURING OF LIFE INSURANCE
LAST FIRST MIDDLE SEX RELATIONSHIP MO. DAY YR. AGE BIRTH HEIGHT WEIGHT IN FORCE
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
2. Was any child under age 5 listed for coverage a premature birth? Yes No
(If yes, list birth weight and give details in Section G.) / / / /
3. Are all children listed the natural or legally adopted children
of the Proposed Insured or Spouse? / / / /
4. Has each child eligible for coverage been included? / / / /
5. Is the Proposed Insured's residence the permanent residence
of all children listed? / / / /
- - --------------------------------------------------------------------------------------------------------------
SECTION E OWNER AND BENEFICIARY (IF REQUIRED)
I. OWNER: (If other than Proposed Insured):
1. OWNERSHIP TO BE VESTED IN
Name Social Security No.
________________________________________________________________
________________________________________________________________
________________________________________________________________
2. OWNERS ADDRESS
________________________________________________________________
________________________________________________________________
3. CONTINGENT OWNER (if any) Social Security No.
Name_____________________________________________________________
Address__________________________________________________________
II. BENEFICIARY as to proceeds at death of the Insured:
Survivors within a class (Primary or Secondary) entitled to the
proceeds shall share equally unless otherwise specified.
NAME RELATIONSHIP
1. Primary_______________________________________________________
2. Secondary, if primary beneficiary is not living:
NAME RELATIONSHIP
______________________________________________________________
/ / Children born to or adopted by the Proposed Insured and
________________________________(including any named above).
The Beneficiary as to proceeds at death of any person other
than the Insured or Joint Insured shall be as stated in the
applicable benefit provision.
3. / / Directions for settlement attached.
- - --------------------------------------------------------------------------------------------------------------
SECTION F SPECIAL REQUESTS, REMARKS AND CORRECTIONS OR ENDORSEMENTS
(Policy date, certificates for additional insurance, etc.)
I request the adjustable policy loan interest rate.
I request the Cost of Living Increase Rider if available.
I request the Automatic Premium Loan privilege if available.
ADDITIONAL COMMENTS
<PAGE>
SECTION G MEDICAL HISTORY - HAS ANY PERSON PROPOSED FOR COVERAGE EVER HAD OR BEEN TOLD THEY HAD:
1. Epilepsy, fainting spells, convulsions, nervous YES NO
or mental condition, stroke, paralysis or any dis-
order of the brain or nervous system? / / / /
2. Heart attack, heart murmur, high blood pressure,
shortness of breath, pain or pressure in the
chest, palpitation, or any disorder of the heart,
blood or blood vessels? / / / /
3. Tuberculosis, asthma, spitting of blood, or any
disorder of the lungs, bronchial tubes, throat or
respiratory system? / / / /
4. Ulcer, indigestion, colitis, chronic diarrhea,
hepatitis, gallstones, hernia, passing blood or
any disorder of the stomach, intestines, rectum,
appendix, gallbladder or liver? / / / /
5. Nephritis, sugar, albumin, pus or blood in the
urine, syphilis, kidney stone, or any disorder of
the kidneys, urinary system or female or male
organs including the prostate? / / / /
6. Diabetes, gout, or any disorder of the thyroid or
other glands? / / / /
7. Immune system disorder? / / / /
8. Rheumatic fever, arthritis, back trouble, or any
disorder of the joints, muscles or bones? / / / /
9. Any disorder of the eyes, ears or skin? / / / /
10. Cancer, tumor or lymph node enlargement? / / / /
11. Any physical deformity or defect? / / / /
12. Any injury, disease, recurrent infection,
condition or disorder not indicated above? / / / /
HAS ANY PERSON PROPOSED FOR COVERAGE:
13. Gained or lost weight in the past year? (If yes,
give pounds gained or lost and reason) / / / /
14. Used drugs for high blood pressure or presently
taking medication of any type? / / / /
(If yes, show drugs, dosage, and duration taken)
15. Been advised to have or now contemplate surgery? / / / /
16. Smoked cigarettes or used tobacco in any form
within the past 12 months? / / / /
DURING THE PAST FIVE YEARS
HAS ANY PERSON PROPOSED FOR COVERAGE:
17. Been examined or had a physical check-up? / / / /
18. Had an x-ray, electrocardiogram, blood studies,
or any other laboratory test or study? / / / /
19. Give details to "yes" answers to questions 17 and 18 regarding check-ups, electrocardiograms, x-rays,
blood studies, or other tests.
- - --------------------------------------------------------------------------------------------------------------
QUES. WHAT TEST NAME AND ADDRESS OF
NO. NAME WAS DONE DATE REASON FOR TEST WHAT WAS FOUND DOCTORS AND HOSPITALS
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
INDICATE QUESTION # -- IDENTIFY PERSON
Circle specific condition, give date and severity of symptoms, type of surgery,
remaining effects, names & addresses of physicians & hospitals.
- - --------------------------------------------------------------------------------------------------------------
CONDITIONAL RECEIPT -- CONTINUED
The DATE OF INSURABILITY is defined as the later of (1) the date on which all parts of this application
and any supplements hereto are completed on all persons proposed for insurance, or (2) the date on which all
medical examinations and procedures which may be required in connection with this application, including, when
required by the company, a second physical examination, electrocardiogram, urine specimen or chest x-ray, have
been completed, or (3) if the person proposed for insurance is a child, the date he or she attains the age of
7 days.
The total of all proceeds payable by the Company in connection with the interim insurance provided by
this receipt, if any, shall be equal to the face amount of the insurance applied for subject to the following
limitations and exceptions:
(1) If any person proposed for insurance is insurable on the DATE OF INSURABILITY, but only at a rate
which is higher than the rate applied for, the total proceeds which may be payable shall not exceed $50,000.
(2) In no event shall the total proceeds which may be payable exceed $250,000.
The payment for which this receipt is given will be applied to the premium due on any policy issued as a
result of or in connection with the application. If no such policy is issued, the amount of the payment will
be returned to the person from whom it was received.
No Agent or employee of the Farm Bureau Life Insurance Company has any power or authority to change or
modify any of the provisions of this Conditional Receipt.
DATED AT____________________________________ _________________ _______________________________
CITY STATE DATE SOLICITING AGENT
NOTICE TO APPLICANT
INFORMATION REGARDING YOUR INSURABILITY WILL BE TREATED AS CONFIDENTIAL. FARM BUREAU LIFE INSURANCE COMPANY
OR ITS REINSURERS MAY, HOWEVER, MAKE A BRIEF REPORT THEREON TO THE MEDICAL INFORMATION BUREAU, A NON-PROFIT
MEMBERSHIP ORGANIZATION OF LIFE INSURANCE COMPANIES, WHICH OPERATES AN INFORMATION EXCHANGE ON BEHALF OF ITS
MEMBERS. IF YOU APPLY TO ANOTHER MEDICAL INFORMATION BUREAU MEMBER COMPANY FOR LIFE OR HEALTH INSURANCE
COVERAGE, OR A CLAIM FOR BENEFITS IS SUBMITTED TO SUCH A COMPANY, THE MEDICAL INFORMATION BUREAU, UPON
REQUEST, WILL SUPPLY SUCH COMPANY WITH THE INFORMATION IN ITS FILE.
UPON RECEIPT OF A REQUEST FROM YOU, THE MEDICAL INFORMATION BUREAU WILL ARRANGE DISCLOSURE OF ANY INFORMATION
IT MAY HAVE IN YOUR FILE. (MEDICAL INFORMATION WILL BE DISCLOSED ONLY TO YOUR ATTENDING PHYSICIAN.) IF YOU
QUESTION THE ACCURACY OF INFORMATION IN THE MEDICAL INFORMATION BUREAU'S FILE, YOU MAY CONTACT THE MEDICAL
INFORMATION BUREAU AND SEEK A CORRECTION IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THE FEDERAL FAIR
CREDIT REPORTING ACT. THE ADDRESS OF THE MEDICAL INFORMATION BUREAU'S INFORMATION OFFICE IS POST OFFICE BOX
105, ESSEX STATION, BOSTON, MASSACHUSETTS 02112, TELEPHONE NUMBER (617) 426-3660.
FARM BUREAU LIFE INSURANCE COMPANY 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. (SEE NOTICE TO APPLICANT -- ON REVERSE SIDE.)
<PAGE>
SECTION H GENERAL QUESTIONS -- HAS ANY PERSON PROPOSED FOR COVERAGE:
YES NO
1. Been treated for alcoholism or any drug habit;
used or taken narcotics, marijuana, LSD,
amphetamines or barbiturates on a regular basis? / / / /
2. Engaged in, or intend to engage in hazardous
sports or travel outside the U.S. and Canada? (If
yes for Hazardous Sports, complete Supplement
#432-87) / / / /
3. Made any aerial flights in the past two years or
contemplate such flights in the future, other
than as a civilian passenger? / / / /
(If yes, complete Supplement #432-87)
4. Volunteered for military service, been alerted,
or ordered to report for active duty? / / / /
5. Been rejected for or received a Medical Discharge
or Disability Benefits from Military Service? / / / /
6. A pending application for or reinstatement of
insurance in this or any other Company? / / / /
7. Ever had an application for insurance or
reinstatement declined, postponed, rated
up or limited? / / / /
8. Had any cases of stroke, heart attack, cancer,
diabetes, insanity, suicide, tuberculosis or
inheritable disorders in their family? / / / /
9. Applied for a pension, disability or medical
expense payments from any source? / / / /
10. Had a moving traffic violation in the past 2
years? Give the specific details of each violation. / / / /
INDICATE QUESTION # -- IDENTIFY PERSON
- - ----------------------------------------------------------------------------------
GIVE DETAILS
- - --------------------------------------------------------------------------------------------------------------
REPRESENTATIONS, AUTHORIZATION AND ACKNOWLEDGEMENT STATEMENT
I represent that the statements and answers in all parts of this application and supplements thereto are
true and complete to the best of my knowledge and belief. It is agreed that: (1) All such statements and
answers shall be the basis of any insurance issued; (2) Except as provided in the conditional receipt attached
hereto and unless it is delivered to the applicant and the premium payment therein described is made, no
insurance shall take effect unless a policy has been issued by the Company, physically received and accepted
by the applicant and the entire first premium paid while, to the best of his knowledge, there has been no
change, since the date of this application, in the health and insurability of all persons proposed for
coverage; (3) No agent or medical examiner is authorized to pass on acceptability for insurance or to make,
modify or discharge any contract of insurance or waive any of the Company's rights or requirements; (4) The
right to change any beneficiary is reserved unless otherwise requested; (5) All changes on the application
must be subject to written ratification by the proposed insured or owner.
STATEMENT regarding payment made with application: I have paid $____________ with this application for / /
Life / / Disability Income and I accept the terms of the conditional receipt detached from this application.
I hereby authorize any licensed physician, medical practitioner, hospital, clinic or other medical or
medically related facility, insurance company, the Medical Information Bureau, or other organization,
institution or person, that has any records or knowledge of me or my health or the health of my dependent, to
give to the Farm Bureau Life Insurance Company or its reinsurers any such information. This authorization
shall remain valid for two years.
I also acknowledge receipt of the NOTICE TO APPLICANT relating to information obtained by inspecting companies
and Medical Information Bureau. A photographic copy of this authorization and acknowledgement shall be as
valid as the original.
DATED AT_____________________________________ DATE SIGNED_________________________________________________
CITY AND STATE
___________________________________________________ _____________________________________________________
SIGNATURE OF WITNESS SIGNATURE OF PROPOSED INSURED
____________________________________________________________________ _____________________________________
SIGNATURE OF APPLICANT OWNER IF OTHER THAN PROPOSED INSURED SIGNATURE OF SPOUSE OR PAYOR (IF
PROPOSED FOR INSURANCE) OR PARENT
IF INSURED IS A CHILD UNDER AGE 15
- - --------------------------------------------------------------------------------------------------------------
CONDITIONAL RECEIPT
Received from _____________________________this____________day of_______________________, 19_____,
the amount of $________________(this amount must be a minimum of one month's premium for each policy applied
for) in connection with an application for / / Life / / Disability Income insurance on which
_______________________________ is the Proposed Insured. This receipt shall be void and no further action will
be taken to process this application if any check or draft for which this receipt is given is not paid when
presented for payment.
IMPORTANT INFORMATION -- PLEASE READ CAREFULLY
Except as otherwise expressly provided below, no insurance is provided by this receipt or in connection
with or as a result of having completed this application, and no insurance will be provided by this receipt or
in connection with or as a result of having completed this application unless the person or persons proposed
for insurance in this application is insurable in accordance with the Company's rules and standards of
insurability with respect to the policy or policies applied for and the level of insurance applied for.
If the person or persons proposed for insurance in this application is insurable as described above, this
receipt provides interim insurance coverage from the DATE OF INSURABILITY, as defined below, until the
earliest of the following dates:
(1) the date the Company mails notice that the application is not accepted;
(2) the date the Company mails to the applicant or the proposed insured a policy or policies other than
the policy or policies applied for;
(3) the date the policy or policies applied for is issued and becomes effective; or
(4) the date 60 days after the DATE OF INSURABILITY.
No insurance is provided by this receipt after the earliest of the four dates listed above.
The terms and conditions of any interim insurance coverage which may be provided by this receipt shall be
the same as those contained in the policy or policies applied for, but shall not include the terms or
provisions of any Accidental Death Benefit rider or any other insurance rider or riders applied for.
(CONTINUED ON REVERSE SIDE OF THIS RECEIPT)
NOTICE TO APPLICANT -- (SEE REVERSE SIDE OF THIS NOTICE)
Federal law requires that notice of investigation be given to persons applying for insurance.
In making this application for insurance to Farm Bureau Life Insurance Company or its reinsurers, it is
understood that 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.
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. (See Notice to Applicant --
on reverse side.)
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
AMONG
EQUITRUST VARIABLE INSURANCE SERIES FUND,
EQUITRUST INVESTMENT MANAGEMENT SERVICES, INC.,
AND
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 5th day of June, 1998
by and among Farm Bureau Life Insurance Company (hereinafter, the "Company"),
an Iowa insurance company, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each account hereinafter referred to as the "Account"),
and the undersigned fund, a business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter referred to as the "Fund") and
EquiTrust Investment Management Services, Inc. (hereinafter the
"Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933,
<PAGE>
as amended (hereinafter the "1933 Act"); and
WHEREAS, EquiTrust Investment Management Services, Inc. (hereinafter
referred to as the "Adviser") is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or
<PAGE>
suspend or terminate the offering of shares of any Designated Portfolio if such
action is required by law or by regulatory authorities having jurisdiction, or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 3:00 p.m. central time and the Fund receives
notice of such order by 9:30 a.m. central time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt of
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. central time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. central time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock
<PAGE>
certificates will not be issued to the Company or any Account. Shares ordered
from the Fund will be recorded in an appropriate title for each Account or the
appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated
(normally by 5:30 p.m. central time) and shall use its best efforts to make
such net asset value per share available by 6:00 p.m. central time. If the
net asset value is materially incorrect through no fault of the Company, the
Company on behalf of each Account, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct net asset value
in accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative
or other costs or losses incurred for correcting underlying Contract owner
accounts shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Iowa and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration
<PAGE>
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Iowa and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any
<PAGE>
amounts received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. PROSPECTUSES. STATEMENTS OF ADDITIONAL INFORMATION. AND PROXY
STATEMENTS: VOTING
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from
<PAGE>
Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be
<PAGE>
used if the Company reasonably objects to such use within ten calendar days
after receipt of such material. The Company reserves the right to reasonably
object to the continued use of such material and no such material shall be used
if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, within a reasonable time
after the filing of such document(s) with the SEC or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(I.E., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise
<PAGE>
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity, endowment, or
life insurance contracts, whichever is appropriate, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations issued thereunder (or
any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio of the Fund will comply with Section 817(h) of the Code and
Treasury Regulation Section 1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified
<PAGE>
endowment contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. POTENTIAL CONFLICTS.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be
<PAGE>
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and each of their officers and directors and each person, if any,
who controls the Fund or the Underwriter within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information ("SAI") for the Contracts or contained
in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement, prospectus or SAI
for the Contracts or in the Contracts or sales literature or
other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of
the Company or persons under its authorization or control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature or other promotional
material of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement
or omission was made in reliance upon information furnished to
the Fund by or on behalf
<PAGE>
of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
<PAGE>
8.2 INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of it directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts;
and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or SAI or sales
literature or other promotional material of the Fund (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or
other promotional material for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful
conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature or other promotional
material of the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission
<PAGE>
was made in reliance upon information furnished to the Company
by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
<PAGE>
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
<PAGE>
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Iowa.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares; provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the Fund
or Underwriter reasonably believes that such Contracts may
fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a
<PAGE>
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
EquiTrust Variable Insurance Series Fund
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
<PAGE>
If to the Company:
Farm Bureau Life Insurance Company
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
If to Underwriter:
EquiTrust Investment Management Services, Inc.
Attn: Sue Cornick
5400 University Avenue
West Des Moines, IA 50266
ARTICLE XII. MISCELLANEOUS
12.1 All references herein to the Adviser relate solely to the Adviser of
such individual Fund, as appropriate. All persons dealing with a Fund must look
solely to the property of such Fund, and in the case of a series company, the
respective Designated Portfolio listed on Schedule A hereto as though such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
<PAGE>
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year.
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of
each quarterly period.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: Farm Bureau Life Insurance Company
By its authorized officer
By: /s/ William J. Oddy
---------------------------------------------
Title: Executive Vice President & General
Manager
------------------------------------------
Date: June 5, 1998
-------------------------------------------
FUND: EquiTrust Variable Insurance Series Fund
By its authorized officer
By: /s/ Richard D. Harris
---------------------------------------------
Title: Senior Vice President,
Secretary-Treasurer & Trustee
------------------------------------------
Date: June 5, 1998
-------------------------------------------
UNDERWRITER: EquiTrust Investment Management Services, Inc.
By its authorized officer
By: /s/ William J. Oddy
---------------------------------------------
Title: President
------------------------------------------
Date: June 5, 1998
-------------------------------------------
<PAGE>
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE ESTABLISHED BY BOARD OF DIRECTORS
Farm Bureau Life Variable Account II 1/6/98
Farm Bureau Life Annuity Account II 1/6/98
CONTRACTS FUNDED BY SEPARATE ACCOUNT
Flexible Premium Variable Life Insurance Policies
Flexible Premium Deferred Variable Annuity Contracts
DESIGNATED PORTFOLIOS
Value Growth Portfolio
High Grade Bond Portfolio
High Yield Bond Portfolio
Money Market Portfolio
Blue Chip Portfolio
<PAGE>
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 8th day of June, 1998, between Farm
Bureau Life Insurance Company, a life insurance company organized under the
laws of the State of Iowa ("Insurance Company"), and each of DREYFUS VARIABLE
INVESTMENT FUND; THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; DREYFUS
LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND); AND
DREYFUS INVESTMENT PORTFOLIOS (each a "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control of
the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract with
a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
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1.10 "Participating Fund" shall mean each Fund, including, as applicable, any
series thereof, specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of which
are available to serve as the underlying investment medium for the
aforesaid Contracts.
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean Farm Bureau Life Annuity Account II and
Farm Bureau Life Variable Account II, individually, each a separate
account established by Insurance Company in accordance with the laws
of the State of Iowa.
1.13 "Software "Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations
where the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Iowa Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c)
it has registered the Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts or variable life insurance
contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions, of which Insurance Company has knowledge,
imposed by state insurance law and applicable to the Participating Fund.
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<PAGE>
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities from
any business that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating Fund
to operate and offer its shares as an underlying investment medium for
Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort
to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are currently,
and at the time of issuance will be, treated as life insurance policies
or annuity contracts, whichever is appropriate, under applicable
provisions of the Code, and that it will make every effort to maintain
such treatment and that it will notify each Participating Fund and
Dreyfus immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that term
is defined in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be managed and
invested in a manner that complies with the requirements of Section
817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times
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<PAGE>
covered by a blanket fidelity bond or similar coverage for the benefit of
the Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than $2.5 million.
The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the
best interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund will
be sold only to (a) Participating Companies and their separate accounts
or (b) "qualified pension or retirement plans" as determined under
Section 817(h)(4) of the Code. Except as otherwise set forth in this
Section 3.3, no shares of any Participating Fund will be sold to the
general public.
3.4 Each Participating Fund shall use its best efforts to provide closing net
asset value, dividend and capital gain information on a per-share basis
to Insurance Company by 6:00 p.m. Eastern time on each Business Day. Any
material errors in the calculation of net asset value, dividend and
capital gain information shall be reported immediately upon discovery to
Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share.
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<PAGE>
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit values
of the Separate Account for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received by
it by the close of the trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of each Participating Fund's shares that will be purchased or
redeemed at that day's closing net asset value per share. The net
purchase or redemption orders will be transmitted to each Participating
Fund by Insurance Company by 11:00 a.m. Eastern time on the Business Day
next following Insurance Company's receipt of that information. Subject
to Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of each Participating Fund next calculated after receipt of the
order by the Participating Fund or its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above and
in Section 3.8, as applicable, will be effected at the net asset value
per share computed on the Business Day immediately preceding the next
following Business Day upon which such conditions have been satisfied in
accordance with the requirements of this Section and Section 3.8.
Insurance Company represents and warrants that all orders submitted by
the Insurance Company for execution on the effective trade date shall
represent purchase or redemption orders received from Contractholders
prior to the close of trading on the New York Stock Exchange on the
effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the applicable Participating
Fund payment in Federal Funds by 12:00 noon Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
Section 3.5. Each applicable Participating Fund will execute such orders
at the applicable net asset value per share determined as of the close of
trading on the effective trade date if the Participating Fund receives
payment in Federal Funds by 12:00 midnight Eastern time on the Business
Day the Participating Fund receives the notice of the order pursuant to
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<PAGE>
Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by a Participating Fund after 12:00 noon Eastern
time on such Business Day, Insurance Company shall promptly, upon each
applicable Participating Fund's request, reimburse the respective
Participating Fund for any charges, costs, fees, interest or other
expenses incurred by the Participating Fund in connection with any
advances to, or borrowings or overdrafts by, the Participating Fund, or
any similar expenses incurred by the Participating Fund, as a result of
portfolio transactions effected by the Participating Fund based upon such
purchase request. If Insurance Company's order requests the redemption
of any Participating Fund's shares valued at or greater than $1 million
dollars, the Participating Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital gain,
if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not on a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as of
the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices, periodic
reports and other printed materials (which the Participating Fund
customarily provides to its shareholders) in quantities as
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<PAGE>
Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least
one complete copy of all registration statements, Prospectuses,
reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to
the Participating Fund or its shares, contemporaneously with the
filing of such document with the Commission or other regulatory
authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating
Fund materials, including the cost of printing a Participating
Fund's Prospectus, or marketing materials for prospective
Insurance Company Contractholders and Participants as Dreyfus and
Insurance Company shall agree from time to time.
b. Distribution expenses of say Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
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<PAGE>
Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc. and Dreyfus Investment Portfolios, and, in particular, has
reviewed the conditions to the relief set forth in each related Notice.
As set forth therein, if Dreyfus Variable Investment Fund, Dreyfus Life
and Annuity Index Fund, Inc., The Dreyfus Socially Responsible Growth
Fund, Inc. or Dreyfus Investment Portfolios is a Participating Fund,
Insurance Company agrees, as applicable, to report any potential or
existing conflicts promptly to the respective Board of Dreyfus Variable
Investment Fund, Dreyfus Life and Annuity Index Fund, Inc., The Dreyfus
Socially Responsible Growth Fund, Inc. and/or Dreyfus Investment
Portfolios, and, in particular, whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting each applicable Board in carrying out its responsibilities
under such application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
Shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected contractholders;
and/or
b. Establishing a new registered management investment company.
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6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under,
or otherwise affect the operation of, Article V, VOTING OF PARTICIPATING
FUND SHARES.
ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other communications to
shareholders in such quantity as Insurance Company shall reasonably
require for distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with
instructions received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be
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responsible for assuring that voting the Participating Fund shares for
the Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit, induce
or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by Insurance
Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating Fund,
its investment adviser or the administrator is named, at least fifteen
Business Days prior to its use. No such material shall be used unless the
Participating Fund or its designee approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. Each
applicable Participating Fund or its designee, as the case may be, shall
use all reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
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supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished, to
Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company approves
such material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after receipt
of such material. Insurance Company shall use all reasonable efforts to
respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning insurance
company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from time
to time, or in published reports for the Separate Account that are in the
public domain or approved by Insurance Company for distribution to
Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or
made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and
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<PAGE>
each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any
action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect to thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
information furnished by Insurance Company for use in the registration
statement or Prospectus or sales literature or advertisements of the
respective Participating Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) arise
out of or as a result of conduct, statements or representations (other
than statements or representations contained in the Prospectus and sales
literature or advertisements of the respective Participating Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which the respective Participating Fund's
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect to
the sale or distribution of the Contracts or the respective Participating
Fund's shares; (iv) arise out of Insurance Company's incorrect calculation
and/or untimely reporting of net purchase or redemption orders; or (v)
arise out of any breach by Insurance Company of a material term of this
Agreement or as a result of any failure by Insurance Company to provide
the services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any Indemnified
Party in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that with respect to
clauses (i) and (ii) above Insurance Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission or
alleged omission made in such registration statement, prospectus, sales
literature, or advertisement in conformity with written information
furnished to Insurance Company by the respective Participating Fund
specifically for use therein. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company and each of its directors, officers, employees, agents
and each person, if any, who controls Insurance Company within the meaning
of the 1933 Act against any losses, claims, damages or liabilities to
which Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or advertisements
of the respective Participating Fund: (2) arise out of or
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<PAGE>
are based upon the omission to state in the registration statement or
Prospectus or sales literature or advertisements of the respective
Participating Fund any material fact required to be stated therein or
necessary to make the statements therein not misleading; or (3) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the registration statement or Prospectus or
sales literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company by the respective Participating Fund; and the respective
Participating Fund will reimburse any legal or other expenses reasonably
incurred by Insurance Company or any such director, officer, employee,
agent or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
the respective Participating Fund will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or omission or alleged omission made in
such registration statement, Prospectus, sales literature or advertisements
in conformity with written information furnished to the respective
Participating Fund by Insurance Company specifically for use therein. This
indemnity agreement will be in addition to any liability which the
respective Participating Fund may otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold Insurance
Company harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to pay
due to the respective Participating Fund's (1) incorrect calculation of the
daily net asset value, dividend rate or capital gain distribution rate; (2)
incorrect reporting of the daily net asset value, dividend rate or capital
gain distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the
respective Participating Fund shall have no obligation to indemnify and
hold harmless Insurance Company if the incorrect calculation or incorrect
or untimely reporting was the result of incorrect information furnished by
Insurance Company or information furnished untimely by Insurance Company or
otherwise as a result of or relating to a breach of this Agreement by
Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of notice
of the commencement of any action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party under this
Article, notify the indemnifying party of the commencement thereof. The
omission to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article IX, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a
result of the failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party, and
to the extent that the indemnifying party has given notice to such effect
to the indemnified party and is
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<PAGE>
performing its obligations under this Article, the indemnifying party shall
not be liable for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation. Notwithstanding the foregoing, in any
such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund under
Section 851 of the Code arising from purchases or redemptions by Insurance
Company's General Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company or
the Participating Fund at any time from the date hereof upon 180 days'
notice, unless a shorter time is agreed to by the respective
Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company, if
shares of that Participating Fund are not reasonably available to meet
the requirements of the Contracts as determined by Insurance Company.
Prompt notice of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after receipt of
notice unless the Participating Fund makes available a sufficient
number of shares to meet the requirements of the Contracts within said
ten-day period;
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<PAGE>
c. As to a Participating Fund, at the option of Insurance Company, upon the
institution of formal proceedings against that Participating Fund by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in Insurance Company's reasonable judgment, materially impair
that Participating Fund's ability to meet and perform the Participating
Fund's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by Insurance Company with said termination to
be effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating Fund, upon
the institution of formal proceedings against Insurance Company by the
Commission, National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in the Participating Fund's reasonable judgment, materially
impair Insurance Company's ability to meet and perform Insurance Company's
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating Fund, if
the Participating Fund shall determine, in its sole judgment reasonably
exercised in good faith, that Insurance Company has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or material
adverse publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus, such
Participating Fund shall notify Insurance Company in writing of such
determination and its intent to terminate this Agreement, and after
considering the actions taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such determination of the
Participating Fund shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall be the
effective date of termination;
f. As to a Participating Fund, upon termination of the Investment Advisory
Agreement between that Participating Fund and Dreyfus or its successors
unless Insurance Company specifically approves the selection of a new
Participating Fund investment adviser. Such Participating Fund shall
promptly furnish notice of such termination to Insurance Company;
g. As to a Participating Fund, in the event that Participating Fund's shares
are not registered, issued or sold in accordance with applicable federal
law, or such law precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by Insurance Company.
Termination shall be effective immediately as to that Participating Fund
only upon such occurrence without notice;
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<PAGE>
h. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue to
operate pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by such Participating
Fund to Insurance Company of such termination;
i. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
j. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
k. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
l. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided below,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and Dreyfus
so elect to make additional Participating Fund shares available, the
owners of the Existing Contracts or Insurance Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in that Participating Fund, redeem investments in that
Participating Fund and/or invest in that Participating Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund will continue to make that
Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that Participating Fund, as so continued
pursuant to this Section 10.3, upon prior written
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<PAGE>
notice to the other party, such notice to be for a period that is
reasonable under the circumstances but, if given by the Participating
Fund, need not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the addition
or deletion of any Participating Fund as specified in Exhibit A, shall be
made by agreement in writing between Insurance Company and each
respective Participating Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attn: Sue Cornick
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Steven F. Newman
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
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<PAGE>
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount owing by another Fund and
that the Funds have executed one instrument for convenience only.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws of
the State of New York, without giving effect to principles of conflict of
laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ William J. Oddy
-----------------------------
Its: Executive Vice President &
General Manager
-----------------------------
Attest: /s/ Dennis M. Marker
-----------------------------
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
-----------------------------
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<PAGE>
Attest: /s/ Doreen Plante
-----------------------------
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
DREYFUS INVESTMENT PORTFOLIOS
By: /s/ Michael S. Petrucelli
-----------------------------
Its: Vice President
-----------------------------
Attest: /s/ Doreen Plante
-----------------------------
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<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund
Capital Appreciation Portfolio
Disciplined Stock Portfolio
Growth and Income Portfolio
International Equity Portfolio
Small Cap Portfolio
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<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of June, 1998
by and among Farm Bureau Life Insurance Company (hereinafter, the "Company"), a
Iowa insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the
undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
<PAGE>
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
<PAGE>
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Iowa insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
<PAGE>
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Iowa and any
applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
<PAGE>
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
<PAGE>
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
<PAGE>
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the Code ) and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
<PAGE>
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
<PAGE>
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
<PAGE>
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information ( SAI ) for the
Contracts or contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its authorization or control, with
respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, SAI, or
sales literature or other promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature or other promotional material
of the Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the Company
for use in the Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other promotional
material for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
<PAGE>
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based upon the
Company's determination that shares of the Fund are not reasonably available to
meet the requirements of the Contracts; provided that such termination shall
apply only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or the
purchase of the Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the qualifications
specified in Section 6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
<PAGE>
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company s assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a Legally Required Redemption ), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Farm Bureau Life Insurance Company
5400 University Avenue
<PAGE>
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ( GAAP ), if any), as soon as practical and in any event within 90
days after the end of each fiscal year.
(b) the Company s quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
<PAGE>
COMPANY: FARM BUREAU LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ William J. Oddy
Title: Executive Vice President & General Manager
Date: June 8, 1998
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: June 8, 1998
<PAGE>
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Title: Vice President
Date: June 8, 1998
<PAGE>
SCHEDULE A
Name of Separate Account and Date Established by Board of Directors:
Farm Bureau Life Variable Account II
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Variable Life Insurance Policy
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
Name of Separate Account and Date Established by Board of Directors:
Farm Bureau Life Annuity Account II
1/6/98
Contracts Funded by Separate Account:
Flexible Premium Deferred Variable Annuity Contract
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Equity Income Portfolio
- Mid-Cap Growth Portfolio
- New America Growth Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price International Series, Inc.
- International Stock Portfolio
<PAGE>
May 21, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form S-6 filed by Farm Bureau
Life Insurance Company ("Company") and its Farm Bureau Life Variable Account II
with the Securities and Exchange Commission covering certain variable universal
life insurance policies, I have examined such documents and such law as I
considered necessary and appropriate, and on the basis of such examinations, it
is my opinion that:
(1) Company is duly organized and validly existing under the laws of the State
of Iowa.
(2) The variable universal life policies, when issued as contemplated by the
said Form S-6 Registration Statement will constitute legal, validly issued
and binding obligations of Farm Bureau Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
S-6 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration Statement.
In giving this consent, I am not admitting that I am in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
May 21, 1998
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by Farm Bureau
Life Insurance Company of a flexible premium variable life insurance policy
("Policy") under the Securities Act of 1933, as amended. The prospectus
included in Pre-Effective Amendment No. 1 to the Registration Statement on Form
S-6 (File No. 333-45805) describes the Policy. I have provided actuarial advice
concerning the preparation of the policy form described in the Registration
Statement, and I am familiar with the Registration Statement and exhibits
thereto.
It is my professional opinion that:
(1) The illustrations of death benefits and cash values included in Appendix A
of the Prospectus, based on the assumptions stated in the illustrations,
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
for policyowners at the ages illustrated than for policyowners at other
ages.
(2) The information contained in the examples set forth in Appendix B of the
Prospectus, based on the assumptions stated in the examples, is consistent
with the provisions of the Policy.
(3) 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 the insurance company.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement and to the reference to my name
under the heading "Experts" in the Prospectus.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing Vice President
Farm Bureau Life Insurance Company
<PAGE>
Ernst & Young LLP letterhead
The Board of Directors
Farm Bureau Life Insurance Company
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our report dated February 16, 1998
with respect to Farm Bureau Life Insurance Company, in the Registration
Statement under the Securities Act of 1933 (Form S-6 No. 333-45805) and related
Prospectus of Farm Bureau Life Variable Account II.
Sincerely,
/s/ Ernst & Young LLP
Des Moines, Iowa
June 9, 1998
<PAGE>
[Sutherland, Asbill & Brennan LLP letterhead]
June 15, 1998
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of the registration statement on Form
S-6 for Farm Bureau Life Variable Account II (File No. 333-45805). 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
Stephen E. Roth, Esq.
<PAGE>
DESCRIPTION OF FARM BUREAU LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR ITS FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES
This document sets forth the administrative procedures that will be
followed by Farm Bureau Life Insurance Company (the "Company") in connection
with the issuance of its individual flexible premium variable life insurance
policy (the "Policy") and acceptance of payments thereunder, the transfer of
assets held thereunder and the redemption by policyowners of their interests in
the 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. 333-45805) as filed with the Securities and
Exchange Commission ("Commission" or "SEC").
1. PURCHASE AND RELATED TRANSACTIONS.
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction.
(a) PREMIUM PAYMENTS. The Policies will be offered and sold pursuant to
established underwriting standards in accordance with state insurance laws.
State insurance laws prohibit unfair discrimination, but recognize that premiums
and charges must be based upon factors such as age, sex, health and occupation.
Premiums for the Policies will not be the same for all policyowners selecting
the same Specified Amount. An initial premium, together with a completed
application, must be received by the Company before a Policy will be issued.
The minimum amount of an initial premium is equal to an amount that, when
reduced by the premium expense charge, will be sufficient to pay the monthly
deduction for the first Policy Months. Other than the initial premium, the
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<PAGE>
Company does not require the payment of an additional premium, and failure to
pay an additional premium will not of itself cause a Policy to lapse. The
Company expects that most Policyowners will choose to pay planned periodic
premiums -- that is, level premiums at regular (quarterly, semi-annual or
annual) intervals. The Policy provides, however, that a policyowner may pay
premiums in addition to planned periodic premiums (i.e., unscheduled premiums)
if (i) the insured is then living; (ii) the additional premium is at least $100;
and (iii) the premium does not cause total premiums paid to exceed the maximum
premium limitation for the Policy established by federal tax law. The Company
reserves the right to limit the number and amount of unscheduled premium
payments. In the event that a tendered premium causes total premiums paid to
exceed the maximum premium limitation for the Policies established by federal
tax law, the Company will return the portion of such premium which causes total
premiums to exceed such limitation.
The Policy will remain in force so long as the Net Accumulated Value is
sufficient to pay the monthly deduction which consists of charges for the cost
of insurance, additional insurance benefits and administrative expenses. Thus,
the amount of the premium, if any, that must be paid to keep the Policy in force
depends upon the amount of the monthly deduction and the Net Accumulated Value
of the Policy, which in turn depends upon the investment experience of the
Subaccounts of the Variable Account.
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the same for each Policyowner. The chief reason is that the
principle of pooling and distribution of mortality risks is based upon the
assumption that the cost of insuring each insured is commensurate with his or
her mortality risk, which is actuarially determined based upon factors such as
attained
-2-
<PAGE>
age, sex and premium class. Accordingly, while not all insureds will be subject
to the same cost of insurance rate, there will be a single rate for all insureds
in a given actuarial category.
(b) INITIAL PREMIUM PROCESSING. Upon receipt of a completed application
for a Policy, the Company will follow certain insurance underwriting (i.e.,
evaluation of risk) procedures designed to determine whether the proposed
insured is insurable. This process may involve medical examinations or other
verification procedures and may require that certain further information be
provided by the applicant before a determination can be made. A Policy will not
be issued until this underwriting procedure has been completed. The effective
date of insurance coverage under the Policy will be the latest of (i) the policy
date, (ii) if an amendment to the initial application is required pursuant to
the Company's underwriting rules, the date the insured signs the last such
amendment, or (iii) the date on which the full initial premium is received by
the Company at its Home Office. The policy date will be the later of (i) the
date of the initial application, or (ii) if additional medical or other
information is required pursuant to the Company's underwriting rules, the date
such information is received by the Company at its Home Office. The policy date
may also be any other date mutually agreed to by the Company and the
Policyowner. If the policy date would fall on the 29th, 30th or 31st of any
month, the policy date will instead be the 28th of such month. Applicants who
pay the initial premium at the time of submission of the application will be
issued a conditional receipt which provides that if the applicant dies during
the underwriting period, he or she will receive the death benefit provided for
in such conditional receipt if he or she would have been found to be insurable
under the Company's normal underwriting procedures. The initial net premium
(the initial premium reduced by a premium expense charge) will be allocated
automatically
-3-
<PAGE>
to the Declared Interest Option as of the policy date. The initial net premium
will remain in the Declared Interest Option until the Company receives, at its
Home Office, a notice signed by the policyowner that the Policy has been
received and accepted. At that time, the Accumulated Value in the Declared
Interest Option automatically will be allocated among the Subaccounts and
Declared Interest Option pursuant to the allocation instructions set forth in
the application for the Policy. No charge is imposed in connection with this
initial allocation.
(c) PREMIUM ALLOCATION. The policyowner may allocate net premiums among
the Subaccounts or the Declared Interest Option. The Variable Account currently
has 15 Subaccounts, each of which invests exclusively in shares of one of the
corresponding portfolios of the EquiTrust Variable Insurance Series Fund, T.
Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., and
Dreyfus Variable Investment Fund (each a "Fund"). Each Fund is a series-type
mutual fund and is registered with the Securities and Exchange Commission as an
open-end diversified management investment company.
The policyowner must indicate the initial allocation of premiums in the
application for the Policy. Net premiums will continue to be allocated in
accordance with the policyowner's allocation instructions in the application
unless contrary written instructions are received by the Company. The change
will take effect on the date the written notice is received at the Home Office.
Once a change in allocation is made, all future net premiums will be allocated
in accordance with the new allocation instructions, unless contrary written
instructions are provided by the policyowner. The minimum percentage of each
premium that may be allocated to any Subaccount or the Declared Interest Option
-4-
<PAGE>
is 10%; fractional percentages are not permitted. No charge is imposed for any
change in net premium allocation.
(d) EXCHANGE PRIVILEGE. The Company will permit the owner of a flexible
premium fixed-benefit life insurance policy issued by the Company or an
affiliated ("fixed-benefit policy"), within 12 months of the policy date shown
in such policy, to exchange his or her policy for a Policy on the life of the
insured.
The policy date will be the date the application for the Policy is signed.
The Policy will have a specified amount equal to the specified amount of the
fixed-benefit policy. No evidence of insurability is required to exercise this
privilege. The insured will be placed in the premium class applicable to the
initial specified amount under the fixed-benefit policy, unless there has been
an underwritten increase in specified amount, in which event the insured will be
placed, with respect to the entire specified amount under the Policy, in the
premium class applicable to such increase in specified amount.
The net cash value of the fixed-benefit policy will initially be allocated
to the Declared Interest Option. When the Company receives, at its Home Office,
a notice signed by the policyowner that the Policy has been received and
accepted, the amount initially allocated to the Declared Interest Option
automatically will be transferred among the Subaccounts and the Declared
Interest Option pursuant to the allocation instructions set forth in the
application for the Policy.
The Company will waive the premium expense charge and premium taxes on the
net cash value of the fixed-benefit policy applied to the Policy pursuant to the
exchange. In addition, the Company will assess the first year monthly
administrative charge only to the extent that 12 monthly
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<PAGE>
per $1,000 charges under the fixed-benefit policy have not been assessed.
Otherwise, charges and deductions will be made in the usual manner.
An exchanging owner will not be permitted to carry over any outstanding
loans under his fixed-benefit policy. Any outstanding loan and loan interest
must be repaid prior to the date of exchange. If not repaid prior to the date
of exchange, the amount of the outstanding loan and interest thereon will be
reflected in the net cash value of the fixed-benefit policy.
(e) REINSTATEMENT. Prior to the maturity date, a lapsed policy (other
than a surrendered Policy) may be reinstated at any time within five years of
the monthly deduction day immediately preceding the grace period which expired
without payment of the required premium. In order to reinstate a Policy, a
policyowner must submit: (i) a written application for reinstatement signed by
the insured and the policyowner; (ii) evidence of insurability satisfactory to
the Company; (iii) payment of a premium that, after deduction of the premium
expense charge, is at least sufficient to keep the Policy in force for three
months; and (iv) an amount equal to the monthly cost of insurance charge for the
two policy months prior to lapse. The effective date of reinstatement will be
the monthly deduction day coinciding with or next following the date of approval
by the Company of the application for reinstatement.
(f) REPAYMENT OF POLICY DEBT. A loan made under the Policy will be
subject to interest charges at the loan interest rate stated in the Policy from
the date that the loan is made. Outstanding policy debt may be repaid in whole
or in part prior to the maturity date at any time during the insured's life so
long as the Policy is in force. Any payments made by the policyowner while
there is outstanding policy debt are treated first as repayment of policy debt,
unless the owner indicates
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<PAGE>
otherwise. When a repayment of the debt is made, the portion of the accumulated
value in the Declared Interest Option securing the repaid portion of the policy
debt will no longer be segregated within the Declared Interest Option as
security for policy debt, but will remain in the Declared Interest Option unless
and until transferred to the Variable Account by the Policyowner.
(g) CORRECTION OF MISSTATEMENT OF AGE OR SEX. If the insured's age or sex
was misstated in an application, the Company will recalculate the accumulated
value to be the amount it would have been had the cost of insurance been based
on the correct age and sex of the insured. If the insured has died, the Company
will pay the death proceeds that would have been payable at the insured's
correct age and sex.
2. TRANSFERS.
Amounts may be transferred among the Subaccounts an unlimited number of
times per year. Only one transfer per policy year may be made between the
Declared Interest Option and the Variable Account. The amount of this transfer
must be at least $100 or the total accumulated value in the Subaccount, or the
total accumulated value in the Declared Interest Option reduced by any
outstanding policy debt, if less than $100. The Company may, at its discretion,
waive the $100 minimum requirement. The transfer will be effective as of the
end of the valuation period during which the request is received at the Home
Office. The first transfer in each policy year will be made without charge;
each time amounts are subsequently transferred in that policy year, a transfer
charge of $25 will be assessed. Transfers resulting from the making of policy
loans will not be considered transfers for the purposes of these limitations and
charges. All transfers effected on the same day will be considered a single
transfer for purposes of these limitations and charges. Transfers are made
-7-
<PAGE>
by written request to the Home Office or by telephone if the policyowner has
elected the Telephone Transfer Authorization.
3. REDEMPTION PROCEDURES - SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and annuity plans.
(a) SURRENDER. At any time prior to the maturity date while the Policy is
in force, a policyowner may surrender the Policy in whole or in part by sending
a written request to the Company at its Home Office. A surrender charge equal
to the lesser of $25 or 2.0% of the amount requested will be payable upon
complete surrender and upon each partial surrender.
The amount payable on complete surrender of the Policy is the net surrender
value at the end of the valuation period during which the surrender request is
received. If the entire net accumulated value is surrendered, all insurance in
force will terminate. A partial surrender must be at least $500 and cannot
exceed the lesser of (i) the net accumulated value less $500, or (2) 90% of the
net accumulated value. The policyowner may request that the proceeds of a
complete or partial surrender be paid in a lump sum or under one of the payment
options specified in the Policy.
A partial surrender will be allocated among the Subaccounts and Declared
Interest Option in accordance with the written instructions of the policyowner.
If no such instructions are received with the request for partial surrender, the
partial surrender will be allocated among the Subaccounts and Declared Interest
Option in the same proportion that the accumulated value in each of the
Subaccounts and the accumulated value in the Declared Interest Option, reduced
by any outstanding
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<PAGE>
Policy Debt, bears to the total accumulated value, reduced by any outstanding
Policy Debt, on the date the request is received at the Home Office.
Surrender proceeds ordinarily will be mailed to the policyowner within
seven days after the Company receives a signed request for a surrender at its
Home Office, although payments may be postponed whenever: (i) the New York
Stock Exchange is closed other than customary weekend and holiday closing, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; (ii) the Commission by order permits
postponement for the protection of policyowners; or (iii) an emergency exists,
as determined by the Commission, as a result of which disposal of securities is
not reasonably practicable, or it is not reasonably practicable to determine the
value of the net assets of the Variable Account. Payments under the Policy which
are derived from any amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied that the check or draft
has cleared the bank upon which it is drawn.
(b) PAYMENT OF DEATH PROCEEDS. So long as the Policy remains in force,
the Company will, upon due proof of the insured's death, pay the death proceeds
to the primary or a contingent beneficiary (or if no beneficiary survives the
insured, to the policyowner or his estate). In determining the amount of the
death proceeds, the death benefit will be reduced by any outstanding policy debt
and increased by any unearned loan interest and any premiums paid after the date
of death. The amount of the death benefit payable under a Policy will depend
upon the death benefit option in effect at the time of the Insured's death.
Under Option A, the death benefit will be equal to the greater of (i) the sum of
the current specified amount and the accumulated value, or (ii) the accumulated
value multiplied by the specified amount factor. Under Option B, the death
benefit will
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be equal to the greater of (i) the current specified amount, or (ii) the
accumulated value multiplied by the specified amount factor. Accumulated value
will be determined as of the end of the Business Day coinciding with or
immediately following the date of death. The specified amount factors referred
to above are determined by the "cash value corridor" mandated by Section 7702 of
the Internal Revenue Code. The factor is 2.50 for those under 40 years of age
and declines as the insured's attained age increases until it becomes 1.0 at age
115.
The death proceeds will be paid to the beneficiary in one lump sum or under
any of the payment options set forth in the Policy, which include payments of
interest only, payments for a fixed period, payments for life with a term
certain, payments of a fixed amount, and a joint and two-thirds survivor monthly
life income. The Company may also provide other payment options in the future.
If the insured is still alive and the Policy is in force on the maturity
date (i.e., the insured's 115th birthday), the Company will pay the policyowner
the accumulated value of the Policy reduced by an outstanding policy debt.
All payments of death benefits and maturity proceeds are ordinarily mailed
within seven days after the Company receives due proof of the insured's death or
within seven days of the maturity date, unless a payment option is chosen.
However, payment may be delayed for more than seven days under the same
circumstances described above with respect to surrender payments.
(c) POLICY LOANS. So long as the Policy remains in force and has a
positive net surrender value, a policyowner may borrow money from the Company at
any time using the Policy as the sole security for the policy loan. The maximum
amount that may be borrowed at any time is 90% of the
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net surrender value as of the end of the valuation period during which the
request for the policy loan is received at the Home Office, less any previously
outstanding policy debt. Policy debt equals the sum of all unpaid policy loans
and any due and unpaid policy loan interest. Policy debt may be repaid in whole
or in part any time during the insured's life and before the maturity date so
long as the Policy is in force.
When a policy loan is made, an amount equal to the policy loan will be
segregated within the Declared Interest Option as security for the policy loan.
If, immediately prior to the policy loan, the accumulated value in the Declared
Interest Option less policy debt outstanding immediately prior to such policy
loan is less than the amount of such policy loan, the difference will be
transferred from the Subaccounts which have accumulated value in the same
proportions that the Policy's accumulated value in each Subaccount bears to the
Policy's total accumulated value in the Variable Account. No charge will be
made for those transfers. Accumulated values will be determined as of the end
of the valuation period during which the request for the policy loan is received
at the home office.
Policy loan proceeds normally will be mailed to the policyowner within
seven days after receipt of a written request. Postponement of a policy loan may
take place under the same circumstances described above with respect to
surrender payments.
Amounts segregated within the Declared Interest Option as security for
policy debt will bear interest at an annual rate determined and declared by the
Company. The interest credited will remain in the Declared Interest Option
unless and until transferred by the policyowner to the Variable Account, but
will not be segregated within the Declared Interest Option as security for
policy debt.
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The interest rate charged on policy loans is not fixed. Initially, it will
be the rate shown in the Policy on the policy data page. The Company may at any
time elect to change the interest rate, subject to certain conditions specified
in the Policy and prospectus. The Company will send notice of any change in
rate to the policyowner. The new rate will take effect on the policy
anniversary coinciding with or next following the date the rate is changed.
Interest is payable in advance at the time any policy loan is made (for the
remainder of the policy year) and on each policy anniversary thereafter (for the
entire policy year) so long as there is policy debt outstanding. Interest
payable at the time a policy loan is made will be subtracted from the loan
proceeds. Thereafter, interest not paid when due will be added to the existing
policy debt and bear interest at the same rate charged for policy loans. An
amount equal to unpaid interest will be segregated within the Declared Interest
Option in the same manner that amounts for policy loans are segregated within
the Declared Interest Option.
Because interest is charged in advance, any interest that has not been
earned will be added to the death benefit payable at the insured's death and to
the accumulated value upon complete surrender, and will be credited to the
accumulated value in the Declared Interest Option upon repayment of policy debt.
(d) POLICY TERMINATION. The Policy will terminate and lapse only when net
accumulated value is insufficient on a monthly deduction day to cover the
monthly deduction and a grace period expires without payment of a sufficient
premium. A grace period of 61 days begins on the date on which the Company
sends written notice of any insufficiency to the policyowner. The notice will
be sent to the policyowner's last known address on file with the Company. The
notice will specify
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the premium payment that, if received during the grace period, will be
sufficient to keep the Policy in force. If the Company does not receive the
premium payment on or before the last day of the grace period, the Policy will
terminate and insurance coverage and all rights thereunder will cease.
Insurance coverage will continue during the grace period. The amount of the
premium sufficient to keep the Policy in force beyond the grace period is an
amount equal to three times the monthly deduction due on the monthly deduction
day immediately preceding the grace period. A terminated Policy (other than a
surrendered Policy) may be reinstated prior to the maturity date at any time
within five years of the monthly deduction day immediately preceding the grace
period which expired without payment of the required premium.
(e) CANCELLATION PRIVILEGE. The policyowner may cancel the Policy by
delivering or mailing written notice or sending a telegram to the Company at its
Home Office, and returning the Policy to the Company at its Home Office before
midnight of the twentieth day after receipt of the Policy. With respect to all
Policies, the Company will refund, within seven days after receipt of the notice
of cancellation and the returned Policy at its Home Office, an amount equal to
the greater of premiums paid or the accumulated value plus an amount equal to
any charges that have been deducted from premiums, accumulated value and the
Variable Account.
(f) SPECIAL TRANSFER PRIVILEGE. A policyowner may, at any time prior to
the maturity date while the Policy is in force, convert the Policy to a flexible
premium fixed-benefit life insurance policy by requesting that all of the
accumulated value in the Variable Account be transferred to the Declared
Interest Option. The policyowner may exercise this special transfer privilege
once each policy year. Once a policyowner exercises the special transfer
privilege, all future premium
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payments will automatically be credited to the Declared Interest Option, until
such time as the policyowner requests a change in allocation. No charge will be
imposed for any transfers resulting from the exercise of this special transfer
privilege.
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