<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
FILE NO. 333-
FILE NO. 811-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. / /
------------------------
FARM BUREAU LIFE ANNUITY ACCOUNT III
(Exact Name of Registrant)
FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
5400 University Avenue
West Des Moines, Iowa 50266
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: 1-800-247-4170
------------------------
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 DEFERRED VARIABLE ANNUITY
CONTRACTS.
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>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(a) AND 495(a)
Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
1. Cover Page......................... Cover Page
2. Definitions........................ Definitions
3. Synopsis........................... Expense Tables; Summary
4. Condensed Financial Information.... Condensed Financial Information; Yields and Total Returns
5. General
(a) Depositor...................... Farm Bureau Life Insurance Company, FBL Financial Group, Inc.
(b) Registrant..................... Farm Bureau Life Annuity Account III
(c) Portfolio Company.............. Investment Options
(d) Fund Prospectus................ Investment Options
(e) Voting Rights.................. Voting Rights
(f) Administrators................. N/A
6. Deductions and Expenses
(a) General........................ Charges and Deductions; Summary
(b) Sales Load %................... Charges and Deductions; Summary
(c) Special Purchase Plan.......... N/A
(d) Commissions.................... Distribution of the Contracts
(e) Expenses -- Registrant......... Charges and Deductions; Summary
(f) Fund Expenses.................. Investment Options; Charges and Deductions
(g) Organizational Expenses........ N/A
7. Contracts
(a) Persons with Rights............ Summary; Addition, Deletion or Substitution of Investments; Description of
Annuity Contract; Payment Options; Voting Rights
(b) (i) Allocation of Purchase
Payments.................. Summary; Premiums; Free-Look Period; Allocation of Premiums
(ii) Transfers................. Summary; Transfer Privilege
(iii) Exchanges................. Transfers, Assignments or Exchanges of a Contract
(c) Changes........................ Additions, Deletions or Substitutions of Investments; Description of Annuity
Contract; Modification;
(d) Inquiries...................... Cover page; Inquiries
8. Annuity Period..................... Summary; Payment Options
9. Death Benefit...................... Death Benefit Before the Retirement Date; Death Benefit After the Retirement
Date
10. Purchases and Contract Value
(a) Purchases...................... Summary; Issuance of a Contract; Premiums; Free Look Period; Allocation of
Premiums; Variable Cash Value;
(b) Valuation...................... Definitions; Variable Cash Value;
(c) Daily Calculation.............. Definitions; Variable Cash Value;
(d) Underwriter.................... Issuance of a Contract; Distribution of the Contracts
11. Redemptions
(a) -- By Owners................... Summary; Transfer Privilege; Surrenders and Partial Surrenders; Proceeds on the
Retirement Date; Payments; Payment Options; Federal Tax Matters
-- By Annuitant................ Summary; Transfer Privilege; Surrenders and Partial Surrenders; Proceeds on the
Retirement Date; Payments; Payment Options; Federal Tax Matters
(b) Taxes ORP...................... N/A
(c) Check Delay.................... Payments
(d) Lapse.......................... N/A
(e) Free Look...................... Summary; Free Look Period
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
12. Taxes.............................. Summary; Federal Tax Matters
13. Legal Proceedings.................. Legal Proceedings
14. Table of Contents for the Statement
of Additional Information......... Statement of Additional Information
Table of Contents
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART B CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
15. Cover Page......................... Cover Page
16. Table of Contents.................. Table of Contents
17. General Information and History.... General Information About the Company
18. Services
(a) Fees and Expenses of
Registrant........................ N/A
(b) Management Contracts........... N/A
(c) Custodian...................... N/A
Independent Public Accountant...... Experts
(d) Assets of Registrant........... N/A
(e) Affiliated Persons............. N/A
(f) Principal Underwriter.......... Distribution of the Contracts (prospectus)
19. Purchase of Securities
Being Offered...................... Distribution of the Contracts (prospectus)
Offering Sales Load................ N/A
20. Underwriters....................... Distribution of the Contracts (prospectus)
21. Calculation of Performance Data.... Calculation of Yields and Total Returns; Yields and Total Returns (prospectus)
22. Annuity Payments................... Payment Options (prospectus)
23. Financial Statements............... Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PART C CAPTION
- ----------------------------------------- --------------------------------------------------------------------------------
<C> <S> <C>
24. Financial Statements and
Exhibits.......................... Financial Statements and Exhibits
(a) Financial Statements........... (a) Financial Statements
(b) Exhibits....................... (b) Exhibits
25. Directors and Officers of the
Depositor......................... Directors and Officers of Farm Bureau Life Insurance Company
26. Persons Controlled By or Under
Common Control with the Depositor
or Registrant..................... Persons Controlled By or In Common Control with the Depositor or Registrant
27. Number of Contractowners........... Number of owners
28. Indemnification.................... Indemnification
29. Principal Underwriters............. Principal Underwriter
30. Location of Accounts and Records... Location of Books and Records
31. Management Services................ Management Services
32. Undertakings....................... Undertakings and Representations
Signature Page..................... Signatures
</TABLE>
<PAGE>
PROSPECTUS
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Farm Bureau Life Annuity Account III
Individual Flexible Premium Deferred
Variable Annuity Contract
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This Prospectus describes the individual flexible premium deferred variable
annuity contract (the "Contract") being offered by Farm Bureau Life Insurance
Company (the "Company"). The Contract may be sold to or in connection with
retirement plans, including those that qualify for special federal tax treatment
under the Internal Revenue Code.
Premiums and accumulated values are allocated, as designated by the owner, to
one or more of the subaccounts of the Farm Bureau Life Annuity Account III (the
"Account"), the Declared Interest Option, or both. The assets of each Subaccount
will be invested solely in shares of the corresponding Investment Options: Value
Growth Portfolio, High Grade Bond Portfolio, High Yield Bond Portfolio, Money
Market Portfolio and Blue Chip Portfolio of EquiTrust Variable Insurance Series
Fund; Equity Income Portfolio, Mid-Cap Growth Portfolio, New America Growth
Portfolio and Personal Strategy Balanced Portfolio of T. Rowe Price Equity
Series, Inc.; International Stock Portfolio of T. Rowe Price International
Series, Inc.; or [Additional Investment Options to be provided by amendment.]
The accompanying prospectus for each Fund describes the investment objectives
and attendant risks of each Investment Option. The accumulated value of the
Contracts prior to the retirement date, except for amounts in the Declared
Interest Option, will vary according to the investment performance of each
Investment Option in which the selected Subaccounts are invested. THE OWNER
BEARS THE ENTIRE INVESTMENT RISK ON AMOUNTS ALLOCATED TO THE ACCOUNT.
This Prospectus sets forth basic information about the Contract and the Account
that a prospective investor should know before investing. Additional information
about the Contract and the Account is contained in the Statement of Additional
Information, which has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is dated the same as this Prospectus and
is incorporated herein by reference. The table of contents for the Statement of
Additional Information is on page 32 of this Prospectus. You may obtain a copy
of the Statement of Additional Information free of charge by writing or calling
the Company at the address or phone number shown below.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
FUND'S INVESTMENT OPTIONS.
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.
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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
, 1998
<PAGE>
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TABLE OF CONTENTS
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PAGE
DEFINITIONS............................................................... 3
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EXPENSE TABLES............................................................ 4
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SUMMARY................................................................... 6
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THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS............................... 7
Farm Bureau Life Insurance Company.............................. 7
Iowa Farm Bureau Federation..................................... 7
Farm Bureau Life Annuity Account III............................ 7
Investment Options.............................................. 8
Addition, Deletion or Substitution of Investments............... 10
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DESCRIPTION OF ANNUITY CONTRACT........................................... 10
Issuance of a Contract.......................................... 10
Premiums........................................................ 11
Free-Look Period................................................ 11
Allocation of Premiums.......................................... 11
Variable Accumulated Value...................................... 11
Transfer Privilege.............................................. 12
Partial Withdrawals and Surrenders.............................. 13
Special Transfer and Withdrawal Options......................... 13
Death Benefit Before the Retirement Date........................ 13
Death Benefit After the Retirement Date......................... 14
Proceeds on the Retirement Date................................. 15
Payments........................................................ 15
Modification.................................................... 15
Reports to Owners............................................... 15
Inquiries....................................................... 16
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THE DECLARED INTEREST OPTION.............................................. 16
Minimum Guaranteed and Current Interest Rates................... 16
Transfers From Declared Interest Option......................... 16
Payment Deferral................................................ 17
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CHARGES AND DEDUCTIONS.................................................... 17
Surrender Charge (Contingent Deferred Sales Charge)............. 17
Annual Administrative Charge.................................... 18
Transfer Processing Fee......................................... 18
Mortality and Expense Risk Charge............................... 18
Investment Option Expenses...................................... 18
Premium Taxes................................................... 18
Other Taxes..................................................... 18
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PAYMENT OPTIONS........................................................... 19
Election of Options............................................. 19
Description of Options.......................................... 19
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YIELDS AND TOTAL RETURNS.................................................. 20
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FEDERAL TAX MATTERS....................................................... 21
Introduction.................................................... 21
Tax Status of the Contract...................................... 22
Taxation of Annuities........................................... 23
Transfers, Assignments or Exchanges of a Contract............... 25
Withholding..................................................... 25
Multiple Contracts.............................................. 25
Taxation of Qualified Plans..................................... 26
Possible Charge for the Company's Taxes......................... 27
Other Tax Consequences.......................................... 27
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DISTRIBUTION OF THE CONTRACTS............................................. 28
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LEGAL PROCEEDINGS......................................................... 28
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VOTING RIGHTS............................................................. 28
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YEAR 2000................................................................. 29
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FINANCIAL STATEMENTS...................................................... 29
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS..................... 30
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2
<PAGE>
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DEFINITIONS
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<TABLE>
<S> <C>
ACCOUNT............................ Farm Bureau Life Annuity Account III.
ACCUMULATED VALUE.................. The total amount invested under the Contract. It is the sum of the values of the
Contract in each Subaccount of the Account plus the value of the Contract in the
Declared Interest Option.
ANNUITANT.......................... The person or persons whose life (or lives) determines the annuity benefits
payable under the Contract and whose death determines the death benefit.
BENEFICIARY........................ The person to whom the proceeds payable on the death of the owner/annuitant will
be paid.
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.
THE CODE........................... The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY............... Same date in each Contract Year as the Contract Date.
CONTRACT DATE...................... The date on which a properly completed application is received by the Company at
the Home Office. It is the date set forth on the data page of the Contract which
is used to determine Contract Years and Contract Anniversaries.
CONTRACT YEAR...................... A twelve-month period beginning on the Contract Date or on a Contract
Anniversary.
DECLARED INTEREST OPTION........... An investment option under the Contract funded by the Company's General Account.
It is not part of, nor dependent upon, the investment performance of the
Account.
DUE PROOF OF DEATH................. Proof of death 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 Account
invests.
GENERAL ACCOUNT.................... The assets of the Company other than those allocated to the Account or any other
separate account of the Company.
HOME OFFICE........................ The principal offices of the Company at 5400 University Avenue, West Des Moines,
Iowa 50266.
INVESTMENT OPTION.................. A separate investment portfolio of a Fund.
NET ACCUMULATED VALUE.............. The accumulated value less any applicable surrender charge.
NON-QUALIFIED CONTRACT............. A Contract that is not a "Qualified Contract."
OWNER.............................. The person who owns the Contract and who is entitled to exercise all rights and
privileges provided in the Contract.
QUALIFIED CONTRACT................. A Contract that is issued in connection with plans that qualify for special
federal income tax treatment under Sections 401, 403(b) or 408 of the Code.
RETIREMENT DATE.................... The date when the accumulated value will be applied under a payment option, if
the annuitant is still living.
SEC................................ U.S. Securities and Exchange Commission.
SUBACCOUNT......................... A subdivision of the Account, the assets of which are invested in a
corresponding Investment Option.
VALUATION PERIOD................... The period that starts at the close of business (3:00 p.m. central time) on one
Business Day and ends at the close of business on the next succeeding Business
Day.
WRITTEN NOTICE..................... A written request or notice in a form satisfactory to the Company which is
signed by the owner and received at the Home Office.
</TABLE>
3
<PAGE>
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EXPENSE TABLES
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The following expense information assumes that the entire accumulated value is
variable accumulated value.
<TABLE>
<S> <C>
OWNER TRANSACTION EXPENSES
Sales Charge Imposed on Premiums................ None
Surrender Charge (contingent deferred sales
charge) as a percentage of the amount
surrendered:
</TABLE>
<TABLE>
<CAPTION>
CONTRACT YEAR* SURRENDER CHARGE
- -------------------- -----------------
<S> <C>
1.................. 8.5%
2.................. 8
3.................. 7.5
4.................. 7
5.................. 6.5
6.................. 6
7.................. 5
8.................. 3
9.................. 1
10 and after........ 0
</TABLE>
* After the first Contract Year, the owner may make partial withdrawals of up to
10% of the accumulated value on the most recent Contract Anniversary without
incurring a surrender charge. If the Contract is subsequently surrendered
during the Contract Year, a surrender charge will be applied to the partial
withdrawals taken. The amount that may be withdrawn without incurring a
surrender charge is NOT cumulative from Contract Year to Contract Year.
<TABLE>
<S> <C>
Transfer Processing Fee........................... None*
</TABLE>
* The Company does not charge a fee for the first twelve transfers in a Contract
Year. The Company may charge $25 for each subsequent transfer in a Contract
Year.
<TABLE>
<S> <C>
ANNUAL ADMINISTRATIVE CHARGE...................... $45
ACCOUNT ANNUAL EXPENSES (as a percentage of
average net assets)
Mortality and Expense Risk Charge............... 1.40%
Other Account Expenses.......................... None
Total Account Expenses........................ 1.40%
</TABLE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
ADVISORY (AFTER WAIVER (AFTER WAIVER
INVESTMENT OPTION FEE OR REIMBURSEMENT) OR 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% 0.23% 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)
</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%.
4
<PAGE>
(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.
The above tables are intended to assist the owner of a Contract in understanding
the costs and expenses that he or she will bear directly or indirectly. The
tables reflect the expenses for the Account based on the actual expenses for
each Investment Option for the 1997 fiscal year. For a more complete description
of the various costs and expenses see "Charges and Deductions" and the
prospectus for each Investment Option which accompany this Prospectus.
EXAMPLES: An owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the Contract is surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth.................................. $ 152 $ 277 $ 403 $ 672
High Grade Bond............................... 152 276 402 669
High Yield Bond............................... 152 277 404 674
Money Market.................................. 151 275 400 665
Blue Chip..................................... 150 271 393 649
T. Rowe Price Equity Series, Inc.
Equity Income................................. 155 285 417 703
Mid-Cap Growth................................ 155 285 417 703
New America Growth............................ 155 285 417 703
Personal Strategy Balanced.................... 155 287 419 708
T. Rowe Price International Series, Inc.
International Stock........................... 157 291 426 722
</TABLE>
2. If the Contract is not surrendered or annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth.................................. $ 65 $ 196 $ 329 $ 672
High Grade Bond............................... 64 195 328 669
High Yield Bond............................... 65 196 330 674
Money Market.................................. 64 194 325 665
Blue Chip..................................... 63 189 318 649
T. Rowe Price Equity Series, Inc.
Equity Income................................. 68 205 344 703
Mid-Cap Growth................................ 68 205 344 703
New America Growth............................ 68 205 344 703
Personal Strategy Balanced.................... 68 206 347 708
T. Rowe Price International Series, Inc.
International Stock........................... 70 211 354 722
</TABLE>
The examples provided above assume that no transfer charges or premium taxes
have been assessed. The examples also assume that the annual administrative
charge is $45 and that the accumulated value per contract is $10,000, which
translates the administrative charge into an assumed .45% charge for the
purposes of the examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE ASSUMED 5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE
GREATER OR LESS THAN THIS ASSUMED RATE.
5
<PAGE>
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SUMMARY
- --------------------------------------------------------------------------------
THE CONTRACT ISSUANCE OF A CONTRACT. Contracts may be sold in
connection with retirement plans which may or may not
qualify for special federal tax treatment under the Code.
There is no maximum age for owners on the Contract date.
(See "Issuance of a Contract.")
FREE-LOOK PERIOD. The owner has the right to return the
Contract within 20 days after he or she receives it. The
returned Contract will become void. The Company will
return to the owner an amount equal to the greater of the
premiums paid or the accumulated value on the date the
returned Contract is received at the Home Office plus
administrative charges and charges deducted from the
Account. (See "Free-Look Period.")
PREMIUMS. The minimum amount which the Company will
accept as an initial premium is $1,000 for Qualified
Contracts and $5,000 for non-Qualified Contracts.
Subsequent premiums of not less than $50 may be paid
under the Contract. (See "Premiums.")
ALLOCATION OF PREMIUMS. Premiums under a Contract will be
allocated, as designated by the owner, to one or more
Subaccounts, the Declared Interest Option, or both. The
initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. At the end of that period, the amount in the Money
Market Subaccount will be allocated among the Subaccounts
and the Declared Interest Option in accordance with the
owner's percentage allocation in the application. The
assets of each Subaccount will be invested solely in a
corresponding Investment Option. The accumulated value,
except for amounts in the Declared Interest Option, will
vary according to the investment performance of the
Investment Option in which the selected Subaccounts are
invested. Interest will be credited to amounts in the
Declared Interest Option at a guaranteed minimum rate of
3% per year, or a higher current interest rate declared
by the Company. (See "Allocation of Premiums.")
TRANSFERS. On or before the retirement date, the owner
may transfer all or part of the amount in a Subaccount or
the Declared Interest Option to another Subaccount or the
Declared Interest Option subject to certain restrictions.
The total amount transferred each time must be at least
$100 or the entire amount in the Subaccount, if less.
Transfers out of the Declared Interest Option must be for
no more than 25% of the accumulated value in that option.
No fee is currently charged for the first twelve
transfers during a Contract year, but the Company may
assess a transfer processing fee of $25 for each
subsequent transfer during a Contract year. (See
"Transfer Privilege.")
PARTIAL WITHDRAWAL. Upon written notice at any time
before the retirement date, the owner may withdraw part
of the accumulated value subject to certain limitations.
(See "Partial Withdrawals.")
SURRENDER. Upon written notice received on or before the
retirement date, the owner may surrender the Contract and
receive its net accumulated value. (See "Surrender.")
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS The following charges and deductions are assessed under
the Contract:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). No
charge for sales expense is deducted from premiums at the
time premiums are paid. However, if a Contract has not
been in force for nine full Contract years, upon
surrender, partial withdrawal or the application of the
accumulated value to certain payment options under
certain circumstances, a surrender charge is deducted
from the amount surrendered, withdrawn or from the
remaining accumulated value.
For the first Contract year, the charge is 8.5% of the
amount surrendered. Thereafter, the surrender charge
decreases each subsequent Contract Year. In no event will
the total surrender charge on any Contract exceed 8.5% of
the total premiums paid under the Contract. (See "Charge
for Partial Withdrawal or Surrender.")
6
<PAGE>
Subject to certain restrictions, for partial withdrawals
in each Contract year after the first Contract year, up
to 10% of the accumulated value on the most recent
Contract Anniversary may be withdrawn without a current
surrender charge. If the Contract is subsequently
surrendered during the Contract Year, a surrender charge
will be applied to partial withdrawals taken. (See
"Amounts Not Subject to Surrender Charge.") The surrender
charge may be waived as provided in the Contracts. (See
"Waiver of Surrender Charge.")
ANNUAL ADMINISTRATIVE CHARGE. On the Contract date and on
each Contract anniversary prior to the retirement date,
the Company deducts an annual administrative charge of
$45 from the accumulated value. (See "Annual
Administrative Charge.")
MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
daily mortality and expense risk charge to compensate it
for assuming certain mortality and expense risks. The
charge is deducted from the assets of the Account at an
annual rate of 1.40% (approximately 1.01% for mortality
risk and 0.39% for expense risks). (See "Mortality and
Expense Risk Charge.")
INVESTMENT OPTION EXPENSES. Because the Account purchases
shares of the various Investment Options, the net assets
of the Account will reflect the investment advisory fee
and other operating expenses incurred by the Investment
Options. A table of each Investment Option's advisory fee
and other expenses can be found in the Expense Tables at
the front of this prospectus. For a description of each
Investment Option's advisory fee and other expenses, see
the prospectuses for the Investment Options of the Funds.
- --------------------------------------------------------------------------------
ANNUITY PROVISIONS On the retirement date, the accumulated value (less any
applicable surrender charge) will be applied under a
payment option, unless the owner chooses to receive the
net accumulated value in a lump sum. Payments under these
options do not depend upon the Account's performance.
(See "Payment Options.")
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS Generally, a distribution (including a surrender, partial
withdrawal or death benefit payment) may result in
taxable income. In certain circumstances, a 10% penalty
tax may apply. For further discussion of the federal
income status of variable annuity contracts, see "Federal
Tax Matters."
- --------------------------------------------------------------------------------
OTHER CONTRACTS The Company offers other variable annuity contracts that
invest in the same Investment Options of the Funds. These
contracts 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 contracts, contact the Company.
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THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY
The Company is a stock life insurance company
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, Iowa Farm Bureau Federation owned
66.36% of the outstanding voting stock of FBL Financial
Group, Inc. 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.
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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.
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FARM BUREAU LIFE ANNUITY ACCOUNT III
The Account was established by the Company as a separate
account on January 6, 1998. The Account will receive and
invest premiums paid under the Contracts. In addition,
the Account may receive and invest premiums for any other
variable annuity contracts issued in the future by the
Company.
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<PAGE>
Although the assets in the Account are the property of
the Company, the assets in the Account attributable to
the Contracts are not chargeable with liabilities arising
out of any other business which the Company may conduct.
The assets of the Account are available to cover the
general liabilities of the Company only to the extent
that the Account's assets exceed its liabilities arising
under the Contracts and any other contracts supported by
the Account. The Company has the right to transfer to the
general account any assets of the Account which are in
excess of such reserves and other contract liabilities.
All obligations arising under the Contracts are general
corporate obligations of the Company.
The 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 Account has been registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940
Act") 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 Account or the Company by the SEC. The
Account is also subject to the laws of the State of Iowa
which regulate the operations of insurance companies
domiciled in Iowa.
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INVESTMENT OPTIONS The 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 . [Additional Investment Options to
provided by amendment.] Each Investment Option has its
own investment objectives and the income and losses for
each Investment Option will be determined separately.
Each of these Investment Options was formed as an
investment vehicle for insurance company separate
accounts. The investment objectives and policies of
certain Investment Options are similar to the investment
objectives and policies of other portfolios that may be
managed by the same investment adviser, sub-investment
adviser or manager. The investment results of the
Investment Options, however, may be higher or lower than
the results of such other portfolios. There can be no
assurance, and no representation is made, that the
investment results of any of the Investment Options will
be comparable to the investment results of any other
portfolio, even if the other portfolio has the same
investment adviser, sub-investment adviser or manager.
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 and expenses, 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.
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
this objective by investing primarily in equity
securities of companies that the investment adviser
believes have a potential to earn a high return on
capital and/or in equity securities that the
investment adviser believes
8
<PAGE>
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
an investment in 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 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 Standards & Poor's, 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.
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.
9
<PAGE>
The Funds currently sell shares: (a) to the 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 owners
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 will monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise. In the event of such
a conflict, the Company would determine what action, if
any, should be taken in response to the conflict. In
addition, if the Company believes that a Fund's response
to any such conflicts insufficiently protects owners, it
will take appropriate action on its own, including
withdrawing the 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 SEC 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 SEC.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable
law, to make additions to, deletions from or
substitutions for the shares that are held in the Account
or that the Account may purchase. If the shares of an
Investment Option are no longer available for investment
or if, in the Company's judgment, further investment in
any Investment Option should become inappropriate in view
of the purposes of the Account, the Company may redeem
the shares, if any, of that Investment Option and
substitute shares of another Investment Option. The
Company will not substitute any shares attributable to a
Contract's interest in a Subaccount without notice and
prior approval of the SEC and state insurance
authorities, to the extent required by the 1940 Act or
other applicable law.
The Company also reserves the right to establish
additional subaccounts of the Account, each of which
would invest in shares corresponding to an Investment
Option or in shares of another investment company having
a specified investment objective. The Company may, in its
sole discretion, establish new subaccounts or eliminate
or combine one or more Subaccounts if marketing needs,
tax considerations or investment conditions warrant. Any
new subaccounts may be made available to existing
Contract owners 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
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, change the
Contract to reflect the substitution or change. If the
Company deems it to be in the best interest of Contract
owners and annuitants, and subject to any approvals that
may be required under applicable law, the Account may be
operated as a management investment company under the
1940 Act, it may be deregistered under that Act if
registration is no longer required, it may be combined
with other Company separate accounts or its assets may be
transferred to another separate account of the Company.
In addition, the Company may, when permitted by law,
restrict or eliminate any voting rights of owners or the
persons who have such rights under the Contracts.
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DESCRIPTION OF ANNUITY CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT In order to purchase a Contract, application must be made
to the Company through a licensed representative of the
Company, who is also a registered representative of
EquiTrust Marketing Services, Inc. ("EquiTrust
Marketing") (formerly FBL Marketing Services, Inc.), a
broker-dealer having a selling agreement with EquiTrust
Marketing or a broker-dealer having a selling agreement
with such broker-dealer. The Contract Date will be the
date the properly completed application is received by
the Company
10
<PAGE>
at its Home Office. If this date is the 29th, 30th or
31st of any month, the Contract Date will be the 28th of
such month. Contracts may be sold to or in connection
with retirement plans that do not qualify for special tax
treatment as well as retirement plans that qualify for
special tax treatment under the Code. There is no maximum
age for owners on the Contract date.
- --------------------------------------------------------------------------------
PREMIUMS The minimum initial premium which the Company will accept
is $1,000 for Qualified Contracts and $5,000 for
non-Qualified Contracts. Subsequent premium payments may
be paid at any time during the annuitant's lifetime and
before the retirement date and must be for at least $50.
At the time of application, a premium reminder notice
schedule may be selected based on an annual, semi-annual
or quarterly payment. The owner will receive a premium
reminder notice at the specified interval. The owner may
change the amount and schedule of the premium reminder
notice. Also, under the Automatic Payment Plan, the owner
can select a monthly payment schedule pursuant to which
premium payments will be automatically deducted from a
bank account or other source rather than being "billed."
The Contract will not necessarily lapse even if premiums
are not paid.
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FREE-LOOK PERIOD The Contract provides for an initial "free-look" period.
The owner has the right to return the Contract within 20
days of receiving it. When the Company receives the
returned Contract at its Home Office, it will cancel the
Contract and refund to the owner an amount equal to the
greater of the premiums paid under the Contract or the
sum of the accumulated value as of the date the returned
Contract is received by the Company at its Home Office
plus the amount of the annual administration charge and
any charges deducted from the Account.
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUMS If the application for a Contract is properly completed
and is accompanied by all the information necessary to
process it, including payment of the initial premium, the
initial premium will be allocated to the Money Market
Subaccount within two business days of receipt of such
premium by the Company at its Home Office. If the
application is not properly completed, the Company
reserves the right to retain the premium for up to five
business days while it attempts to complete the
application. If the application is not complete at the
end of the 5-day period, the Company will inform the
applicant of the reason for the delay and the initial
premium will be returned immediately, unless the
applicant specifically consents to the Company retaining
the premium until the application is complete.
At the time of application, the owner selects how the
initial premium is to be allocated among the Subaccounts
and the Declared Interest Option. Any allocation must be
for at least 10% of a premium payment and be in whole
percentages.
The initial premium will be allocated to the Money Market
Subaccount for a 10-day period following the Contract
date. After the expiration of the 10-day period, the
amount in the Money Market Subaccount will be allocated
among the Subaccounts and the Declared Interest Option in
accordance with the owner's percentage allocation in the
application. Any subsequent premiums will be allocated at
the end of the valuation period in which the subsequent
premium is received by the Company in the same manner,
unless the allocation percentages are changed. Subsequent
premiums will be allocated in accordance with the
allocation schedule in effect at the time the premium
payment is received. However, owners may direct
individual payments to a specific Subaccount or the
Declared Interest Option (or any combination thereof)
without changing the existing allocation schedule.
The allocation schedule may be changed by the owner at
any time by written notice. Changing the allocation
schedule will not change the allocation of existing
accumulated values among the Subaccounts or the Declared
Interest Option.
The accumulated values allocated to a Subaccount will
vary with that Subaccount's investment experience, and
the owner bears the entire investment risk. Owners should
periodically review their premium allocation schedule in
light of market conditions and their overall financial
objectives.
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VARIABLE ACCUMULATED VALUE
The variable accumulated value will reflect the
investment experience of the selected Subaccounts, any
premiums paid, any surrenders or partial withdrawals, any
transfers and any charges assessed in connection with the
Contract. There is no guaranteed
11
<PAGE>
minimum variable accumulated value, and, because a
Contract's variable accumulated value on any future date
depends upon a number of variables, it cannot be
predetermined.
CALCULATION OF VARIABLE ACCUMULATED VALUE. The variable
accumulated value is determined at the end of each
valuation period. The value will be the aggregate of the
values attributable to the Contract in each of the
Subaccounts, determined for each Subaccount by
multiplying that Subaccount's unit value for the relevant
valuation period by the number of Subaccount units
allocated to the Contract.
DETERMINATION OF NUMBER OF UNITS. Any amounts allocated
to the Subaccounts will be converted into Subaccount
units. The number of units to be credited to a Contract
is determined by dividing the dollar amount being
allocated to a Subaccount by the unit value for that
Subaccount at the end of the valuation period during
which the amount was allocated. The number of units in
any Subaccount will be increased at the end of the
valuation period by any premiums allocated to the
Subaccount during the current valuation period and by any
amounts transferred to the Subaccount from another
Subaccount or the Declared Interest Option during the
current valuation period. The number of units in any
Subaccount will be decreased at the end of the valuation
period by any amounts transferred from that Subaccount to
another Subaccount or the Declared Interest Option, any
amounts withdrawn during the current valuation period,
any surrender charge assessed upon a partial withdrawal
or surrender and the annual administrative charge, if
assessed during the current valuation period.
DETERMINATION OF UNIT VALUE. The unit value for each
Subaccount's first valuation period is set at $10. The
unit value for a Subaccount is calculated for each
subsequent valuation period by dividing (a) by (b) where:
(a) is the net result of:
1. the value of the net assets in the
Subaccount at the end of the preceding valuation
period; plus
2. the investment income, dividends and
capital gains, realized or unrealized, credited to
the Subaccount during the current valuation
period; minus
3. the capital losses, realized or
unrealized, charged against the Subaccount during
the current valuation period; minus
4. any amount charged for taxes or any amount
set aside during the valuation period as a
provision for taxes attributable to the
Subaccount; minus
5. the daily amount charged for mortality and
expense risks for each day of the current
valuation period; and
(b) the number of units outstanding at the end of
the preceding valuation period.
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TRANSFER PRIVILEGE Before the retirement date, an owner may transfer all or
part of an amount in a Subaccount to another Subaccount
or the Declared Interest Option at any time, or transfer
up to 25% of an amount in the Declared Interest Option to
one or more Subaccounts. However, if a transfer request
would reduce the amount in the Declared Interest Option
below $1,000, the owner may transfer the entire amount
from the Declared Interest Option. The minimum transfer
amount must be the lesser of $100 or the entire amount in
that Subaccount or the Declared Interest Option.
The transfer will be made as of the business day on or
next following the day written notice requesting such
transfer is received at the Home Office. There is no
limit on the number of transfers that can be made among
or between Subaccounts or the Declared Interest Option.
(See "Transfers from Declared Interest Option.")
There is no charge for the first twelve transfers during
a Contract Year. The Company may charge $25 for each
subsequent transfer during a Contract Year. For the
purpose of assessing the transfer processing fee, all
transfer requests received in a valuation period will be
considered to be one transfer, regardless of the
Subaccounts or Declared Interest Options affected. Unless
paid in cash, the transfer processing fee will be
deducted on a pro-rata basis from the Subaccounts or
Declared Interest Option to which the transfer is made.
12
<PAGE>
Transfers may be made based upon instructions given by
telephone, provided the appropriate election has been
made at the time of application or proper authorization
is provided to the Company. The Company reserves the
right to suspend telephone transfer privileges at any
time, for any class of Contracts, for any reason.
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PARTIAL WITHDRAWALS AND SURRENDERS
PARTIAL WITHDRAWALS. At any time before the retirement
date, an owner may make a partial withdrawal of the
accumulated value. The minimum amount which may be
withdrawn is $500; the maximum amount is that which would
leave the remaining accumulated value equal to or less
than $2,000. A partial withdrawal request that would
reduce the accumulated value to $2,000 or less will be
treated as a full surrender of the Contract. The Company
will withdraw the amount requested from the accumulated
value as of the Business Day on or next following the day
written notice requesting the partial withdrawal is
received at the Home Office. Any applicable surrender
charge will, at the election of the owner, be deducted
from the remaining accumulated value or be deducted from
the amount withdrawn. (See "Surrender Charge.")
The owner may specify the amount of the partial
withdrawal to be made from certain Subaccounts or the
Declared Interest Option. If the owner does not so
specify, or if the amount in the designated Subaccount(s)
or Declared Interest Option is inadequate to comply with
the request, the partial withdrawal will be made from
each Subaccount and the Declared Interest Option based on
the proportion that the value in such Subaccount bears to
the total accumulated value on the date the request is
received at the Home Office.
A partial withdrawal may have adverse federal income tax
consequences, including a penalty tax. (See "Taxation of
Annuities.")
SURRENDER. At any time before the retirement date, the
owner may request a surrender of the contract for its net
accumulated value. The net accumulated value will be
determined as of the Business Day on or next following
the date written notice requesting surrender and the
Contract are received at the Home Office. The net
accumulated value will be paid in a lump sum unless the
owner requests payment under a payment option. A
surrender may have adverse federal income tax
consequences. (See "Taxation of Annuities.")
SURRENDER AND PARTIAL WITHDRAWAL RESTRICTIONS. The
owner's right to make surrenders and partial withdrawals
is subject to any restrictions imposed by applicable law
or employee benefit plan.
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF
CONTRACTS. There are certain restrictions on surrenders
and partial withdrawals of Contracts used as funding
vehicles for Code Section 403(b) retirement plans.
Section 403(b)(11) of the Code restricts the distribution
under Section 403(b) annuity contracts of: (i) elective
contributions made in years beginning after December 31,
1988; (ii) earnings on those contributions; and (iii)
earnings in such years on amounts held as of the last
year beginning before January 1, 1989. Distributions of
those amounts may only occur upon the death of the
employee, attainment of age 59 1/2, separation from
service, disability or financial hardship. In addition,
income attributable to elective contributions may not be
distributed in the case of hardship.
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SPECIAL TRANSFER AND WITHDRAWAL OPTIONS
DOLLAR COST AVERAGING. Dollar Cost Averaging is a special
type of automatic transfer. Under this option, an owner
may periodically transfer a specified amount in a
Subaccount or the Declared Interest Option into up to ten
Subaccounts or the Declared Interest Option. The use of
Dollar Cost Averaging is subject to all the same
provisions and limitations as regular transfers described
above and is considered in the twelve free transfers
during a Contract Year.
SYSTEMATIC WITHDRAWALS. The Systematic Withdrawal option
allows for automatic partial withdrawals. Under this
option, specified amounts may be periodically withdrawn
from the Contract's accumulated value. The owner may
specify the allocation of the withdrawals among the
Subaccounts and Declared Interest Option. The use of the
Systematic Withdrawal Option is subject to all the same
provisions and limitations as regular partial withdrawals
described above.
The Company prohibits the use of these two options at the
same time.
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DEATH BENEFIT BEFORE THE RETIREMENT DATE
DEATH OF OWNER. If an owner dies prior to the retirement
date, any surviving owner becomes the sole owner. If
there is no surviving owner, the annuitant becomes the
13
<PAGE>
new owner unless the deceased owner was also the
annuitant. If the sole deceased owner was also the
annuitant, then the provisions relating to the death of
an annuitant (described below) will govern unless the
deceased owner was one of two joint annuitants. (In the
latter event, the surviving annuitant becomes the owner.)
The following options are available to the sole surviving
owners or new owners:
1. If the owner is the spouse of the deceased
owner, he or she may continue the Contract as the new
owner.
2. If the owner is not the spouse of the
deceased owner:
(a) he or she may elect to receive the net
accumulated value in a single sum within 5 years
of the deceased owner's death; or
(b) he or she may elect to receive the net
accumulated value paid out under one of the
annuity payment options, with payments beginning
within one year after the date of the owner's
death and with payments being made over the
lifetime of the owner, or over a period that does
not exceed the life expectancy of the owner.
Under either of these options, sole surviving owners or
new owners may exercise all ownership rights and
privileges from the date of the deceased owner's death
until the date that the net accumulated value is paid.
DEATH OF AN ANNUITANT. If the annuitant dies before the
retirement date, the Company will pay the death benefit
under the Contract to the beneficiary. If there is no
surviving beneficiary, the Company will pay the death
benefit to the owner or the owner's estate. If the
annuitant's age on the Contract Date was less than 76,
the death benefit is equal to the greater of the sum of
the premiums paid less the sum of all partial withdrawal
reductions (including applicable surrender charges), the
accumulated value on the date the Company receives due
proof of the annuitant's death, or the accumulated value
on the most recent Contract Anniversary (plus subsequent
premiums paid and less subsequent partial withdrawals).
If the annuitant's age on the Contract Date was 76 or
older, the death benefit is equal to the greater of the
sum of the premiums paid less the sum of all partial
withdrawal reductions (including applicable surrender
charges), as of the date the Company receives due proof
of death, or the accumulated value as of the date the
Company receives due proof of death.
A partial withdrawal reduction is defined as (a) the
death benefit immediately prior to withdrawal times (b)
the amount of the partial withdrawal (including
applicable surrender charge) divided by (c) the
accumulated value immediately prior to withdrawal.
There is no death benefit payable if the annuitant dies
after the retirement date. The death benefit will be paid
to the beneficiary in a lump sum unless the owner or
beneficiary elects a payment option.
If the annuitant who is also the the owner dies, the
provisions described immediately above apply except that
the beneficiary may only apply the death benefit payment
to an annuity payment option if:
1. payments under the option begin within 1 year
of the annuitant's death; and
2. payments under the option are payable over
the beneficiary's life or over a period not greater
than the beneficiary's life expectancy.
If the owner's spouse is the designated beneficiary, the
Contract may be continued with such surviving spouse as
the new owner.
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DEATH BENEFIT AFTER THE RETIREMENT DATE
If an owner dies on or after the retirement date, any
surviving owner becomes the sole owner. If there is no
surviving owner, the payee receiving annuity payments
becomes the new owner. Such owners will have the rights
of owners during the annuity period, including the right
to name successor payees if the deceased owner had not
previously done so.
If the annuitant dies before 120 payments have been
received, any remaining payments will be paid to the
beneficiary. There is no death benefit payable if the
annuitant dies after the retirement date.
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<PAGE>
Other rules may apply to a Qualified Contract.
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PROCEEDS ON THE RETIREMENT DATE
The retirement date is selected by the owner. For
Non-Qualified Contracts, the retirement date may not be
after the later of the annuitant's age 70 or 10 years
after the Contract date. For Qualified Contracts, the
retirement date must be no later than the annuitant's age
70 1/2 or such other date as meets the requirements of
the Code.
On the retirement date, the proceeds will be applied
under the life income annuity payment option with ten
years guaranteed, unless the owner chooses to have the
proceeds paid under another payment option or in a lump
sum. (See "Payment Options.") If a payment option is
elected, the amount that will be applied is the
accumulated value less any applicable surrender charge.
If a lump sum payment is chosen, the amount paid will be
the net accumulated value on the retirement date.
The retirement date may be changed subject to these
limitations: the owner's written notice must be received
at the Home Office at least 30 days before the current
retirement date; the requested retirement date must be a
date that is at least 30 days after receipt of the
written notice; and the requested retirement date must be
no later than the annuitant's 70th birthday or any
earlier date required by law.
- --------------------------------------------------------------------------------
PAYMENTS Any surrender, partial withdrawal or death benefit will
usually be paid within seven days of receipt of a written
request, any information or documentation reasonably
necessary to process the request and, in the case of a
death benefit, receipt and filing of due proof of death.
However, payments may be postponed if:
1. the New York Stock Exchange is closed, other
than customary weekend and holiday closings, or
trading on the exchange is restricted as determined
by the SEC; or
2. the SEC permits by an order the postponement
for the protection of owners; or
3. the SEC determines that an emergency exists
that would make the disposal of securities held in
the Account or the determination of the value of the
Account's net assets not reasonably practicable.
If a recent check or draft has been submitted, the
Company has the right to delay payment until it has
assured itself that the check or draft has been honored.
The Company has the right to defer payment of any
surrender, partial withdrawal or transfer from the
Declared Interest Option for up to six months from the
date of receipt of written notice for such a surrender,
withdrawal or transfer. If payment is not made within 30
days after receipt of documentation necessary to complete
the transaction, or such shorter period as required by a
particular jurisdiction, interest will be added to the
amount paid from the date of receipt of documentation at
3% or such higher rate required for a particular state.
- --------------------------------------------------------------------------------
MODIFICATION Upon notice to the owner, the Company may modify the
Contract if:
1. necessary to make the Contract or the Account
comply with any law or regulation issued by a
governmental agency to which the Company is subject;
or
2. necessary to assure continued qualification
of the Contract under the Code or other federal or
state laws relating to retirement annuities or
variable annuity contracts; or
3. necessary to reflect a change in the
operation of the Account; or
4. the modification provides additional Account
and/or fixed accumulation options.
In the event of most such modifications, the Company will
make appropriate endorsement to the Contract.
- --------------------------------------------------------------------------------
REPORTS TO OWNERS At least annually, the Company will mail to each owner,
at such owner's last known address of record, a report
containing the accumulated value (including the
accumulated value in each Subaccount and the Declared
Interest Option) of the Contract, premiums paid and
charges deducted since the last report, partial
withdrawals made since the last report and any further
information required by any applicable law or regulation.
15
<PAGE>
- --------------------------------------------------------------------------------
INQUIRIES Inquiries regarding a Contract may be made by writing to
the Company at its Home Office.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
An owner may allocate some or all of the premiums and
transfer some or all of the accumulated value to the
Declared Interest Option, which is part of the General
Account and pays interest at declared rates guaranteed
for each Contract year (subject to a minimum guaranteed
interest rate of 3%). The principal, after deductions, is
also guaranteed. The Company's General Account supports
its insurance and annuity obligations.
The Declared Interest Option has not been, and is not
required to be, registered with the SEC under the
Securities Act of 1933 ("the 1933 Act"), and neither the
Declared Interest Option nor the Company's General
Account has been registered as an investment company
under the 1940 Act. Therefore, neither the Company's
General Account, the Declared Interest Option, nor any
interests therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures
relating to these accounts which are included in this
Prospectus are for the owner's information and have not
been reviewed by the SEC. However, such disclosures may
be subject to certain generally applicable provisions of
Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the accumulated value allocated to the
Declared Interest Option (the "Declared Interest Option
accumulated value") will be credited with rates of
interest, as described below. Since the Declared Interest
Option is part of the General Account, the Company
assumes the risk of investment gain or loss on this
amount. All assets in the General Account are subject to
the Company's general liabilities from business
operations.
- --------------------------------------------------------------------------------
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Declared Interest Option cash value is guaranteed to
accumulate at a minimum effective annual interest rate of
3%. The Company intends to credit the Declared Interest
Option accumulated value with current rates in excess of
the minimum guarantee but is not obligated to do so.
These current interest rates are influenced by, but do
not necessarily correspond to, prevailing general market
interest rates. Any interest credited on the amounts in
the Declared Interest Option in excess of the minimum
guaranteed rate of 3% per year will be determined in the
sole discretion of the Company. The owner, therefore,
assumes the risk that interest credited may not exceed
the guaranteed rate.
From time to time, the Company establishes new current
interest rates for the Declared Interest Option under the
Contracts. The rate applicable for a particular Contract
is the rate in effect on the most recent Contract
anniversary. This rate remains unchanged for that
Contract until the next Contract anniversary (i.e., for
the entire Contract year). During each Contract year, the
entire Declared Interest Option accumulated value
(including amounts allocated or transferred to the
Declared Interest Option during that year) is credited
with the interest rate in effect for that Contract year.
Once credited, interest becomes part of the Declared
Interest Option accumulated value.
The Company reserves the right to change the method of
crediting interest from time to time, provided that such
changes do not have the effect of reducing the guaranteed
rate of interest below 3% per annum or shorten the period
for which the current interest rate applies to less than
a Contract year (except for the year in which such amount
is received or transferred).
CALCULATION OF DECLARED INTEREST OPTION ACCUMULATED
VALUE. The Declared Interest Option accumulated value at
any time is equal to amounts allocated and transferred to
it, plus interest credited less amounts deducted,
transferred or withdrawn.
- --------------------------------------------------------------------------------
TRANSFERS FROM DECLARED INTEREST OPTION
An unlimited number of transfers are allowed from the
Declared Interest Option to any or all of the Subaccounts
in each Contract year. The amount transferred from the
Declared Interest Option may not exceed 25% of the
Declared Interest Option accumulated value on the date of
transfer, unless the balance after the transfer would be
less than $1,000, in which case the entire amount may be
transferred.
16
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT DEFERRAL The Company has the right to defer payment of any
surrender, partial withdrawal or transfer from the
Declared Interest Option up to six months from the date
of receipt of the written notice for surrender or
transfer.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
GENERAL. No charge for sales expenses is deducted from
premiums at the time premiums are paid. However, within
certain time limits described below, a surrender charge
(contingent deferred sales charge) is deducted from the
accumulated value if a partial withdrawal or surrender is
made before the retirement date. Also, as described
below, a surrender charge may be deducted from amounts
applied to certain payment options.
In the event surrender charges are not sufficient to
cover sales expenses, the loss will be borne by the
Company; conversely, if the amount of such charges proves
more than enough, the excess will be retained by the
Company.
CHARGE FOR PARTIAL WITHDRAWAL OR SURRENDER. During the
first nine Contract years, if a partial withdrawal or
surrender is made, the applicable surrender charge will
be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN CHARGE AS PERCENTAGE
WHICH SURRENDER OCCURS OF AMOUNT SURRENDERED
------------------------- ---------------------
<S> <C>
1........................ 8.5%
2........................ 8
3........................ 7.5
4........................ 7
5........................ 6.5
6........................ 6
7........................ 5
8........................ 3
9........................ 1
10 and after............. 0
</TABLE>
No surrender charge is deducted if the partial withdrawal
or surrender occurs after nine full Contract years.
In no event will the total surrender charges assessed
under a Contract exceed 8.5% of the total premiums paid
under that Contract.
If the Contract is being surrendered, the surrender
charge is deducted from the accumulated value in
determining the net accumulated value. For a partial
withdrawal, the surrender charge may, at the election of
the owner, be deducted from the accumulated value
remaining after the amount requested is withdrawn or be
deducted from the amount of the withdrawal requested.
AMOUNTS NOT SUBJECT TO SURRENDER CHARGE. For partial
withdrawals in each Contract year after the first
Contract year, up to 10% of the accumulated value on the
most recent Contract Anniversary may be withdrawn without
a current surrender charge. If the Contract is
subsequently surrendered during the Contract Year, a
surrender charge will be applied to partial withdrawals
taken during that Contract Year, as well as to the amount
surrendered.
Any amounts surrendered in excess of 10% of the
accumulated value will be assessed a surrender charge.
This right is not cumulative from Contract year to
Contract year.
SURRENDER CHARGE AT THE RETIREMENT DATE. If any payment
option is selected at the retirement date other than
options 2-5 described below (see "Payment Options"), the
surrender charge is assessed against the accumulated
value applied to that option. If payment options 3 or 5
are selected, no surrender charge is assessed and if
payment options 2 or 4 are selected, the surrender charge
is applied by adding the fixed
17
<PAGE>
number of years for which payments will be made under the
option to the number of Contract years since the Contract
date and using this sum in the surrender charge table.
WAIVER OF SURRENDER CHARGE. Upon written notice from the
owner before the retirement date, the surrender charge
may be waived on any partial withdrawal or surrender if
the annuitant is terminally ill, as defined in the
Contract, stays in a qualified nursing center for 90
days, or is required to satisfy Internal Revenue Code
minimum distribution requirements.
- --------------------------------------------------------------------------------
ANNUAL ADMINISTRATIVE CHARGE
On the Contract date and on each Contract anniversary
prior to the retirement date, the Company deducts from
the accumulated value an annual administrative charge of
$45 to reimburse it for administrative expenses relating
to the Contract. (If the Contract date falls on
Thanksgiving, the Friday following Thanksgiving or the
weekend following Thanksgiving; or on the 27th or 28th
day of February, 1999, the annual administrative charge
will be deducted on the preceding Business Day.) The
charge will be deducted from each Subaccount and the
Declared Interest Option based on the proportion that the
value in each such Subaccount bears to the total
accumulated value. No annual administrative charge is
payable during the annuity payment period.
- --------------------------------------------------------------------------------
TRANSFER PROCESSING FEEThere is no charge for the first twelve transfers during
a Contract Year. The Company may charge $25 for each
subsequent transfer during a Contract year. Unless paid
in cash, the transfer processing fee will be deducted on
a pro-rata basis from the Subaccounts or Declared
Interest Option to which the transfer is made.
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
To compensate the Company for assuming mortality and
expense risks, the Company deducts a daily mortality and
expense risk charge from the assets of the Account. The
charge is at an annual rate of 1.40% (daily rate of
0.0038091%) (approximately 1.01% for mortality risk and
0.39% for expense risk). The Company may realize a profit
from this charge.
The mortality risk the Company assumes is that annuitants
may live for a longer period of time than estimated when
the guarantees in the Contract were established. Because
of these guarantees, each payee is assured that longevity
will not have an adverse effect on the annuity payments
received. The mortality risk that the Company assumes
also includes a guarantee to pay a death benefit if the
owner/annuitant dies before the retirement date. The
expense risk that the Company assumes is the risk that
the administrative fees and transfer fees may be
insufficient to cover actual future expenses.
- --------------------------------------------------------------------------------
INVESTMENT OPTION EXPENSES
Because the Account purchases shares of the Investment
Options, the net assets of the Account will reflect the
investment advisory fees and other operating expenses
incurred by each Investment Option. (See the Expense
Tables in this prospectus and the accompanying Investment
Option prospectuses.)
- --------------------------------------------------------------------------------
PREMIUM TAXES Currently, no charge or deduction is made under the
Contracts for premium taxes. The Company reserves the
right, however, to deduct such taxes from accumulated
value. Various states and other governmental entities
levy a premium tax, currently ranging up to 3.5%, on
annuity contracts issued by insurance companies. Premium
tax rates are subject to change, from time to time, by
legislative and other governmental action.
- --------------------------------------------------------------------------------
OTHER TAXES Currently, no charge is made against the Account for any
federal, state or local taxes that the Company incurs or
that may be attributable to the Account or the Contracts.
The Company may, however, make such a charge in the
future for any such tax or economic burden on the Company
resulting from the application of the tax laws that it
determines to be properly attributable to the Account or
Contracts.
18
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT OPTIONS
- --------------------------------------------------------------------------------
The Contract ends on the retirement date, at which time
the accumulated value (or, under certain options, the net
accumulated value) will be applied under a payment
option, unless the owner elects to receive the net
accumulated value in a single sum. If an election of a
payment option has not been filed at the Home Office on
the retirement date, the proceeds will be paid as a life
income annuity with payments for ten years guaranteed.
Prior to the retirement date, the owner can have the
entire net accumulated value applied under a payment
option, or a beneficiary can have the death benefit
applied under a payment option. The Contract must be
surrendered so that the applicable amount can be paid in
a lump sum or a supplemental contract for the applicable
payment option can be issued.
The payment options available are described below. The
term "payee" means a person who is entitled to receive
payment under that option. The payment options are fixed,
which means that each option has a fixed and guaranteed
amount to be paid during the annuity payment period that
is not in any way dependent upon the investment
experience of the Account.
- --------------------------------------------------------------------------------
ELECTION OF OPTIONS An option may be elected, revoked or changed at any time
before the retirement date while the annuitant is living.
If an election is not in effect at the annuitant's death
or if payment is to be made in one sum under an existing
election, the beneficiary may elect one of the options
after the death of the owner/annuitant.
An election of payment options and any revocation or
change must be made by written notice and signed by the
owner or beneficiary, as appropriate.
The Company reserves the right to refuse the election of
a payment option other than paying the proceeds in a lump
sum if: 1) the total payments together would be less than
$2,000; 2) each payment would be less than $20; or 3) the
payee is an assignee, estate, trustee, partnership,
corporation or association.
- --------------------------------------------------------------------------------
DESCRIPTION OF OPTIONS OPTION 1--INTEREST INCOME. To have the proceeds left with
the Company to earn interest at a rate to be determined
by the Company. Interest will be paid every month or
every 3, 6 or 12 months as the payee selects. Under this
option, the payee may withdraw part or all of the
proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. To have the proceeds
paid out in equal installments for a fixed number of
years.
OPTION 3--LIFE INCOME OPTION WITH TERM CERTAIN. To have
the proceeds paid in equal amounts (at intervals elected
by the payee) during the payee's lifetime with the
guarantee that payments will be made for a period of not
less than the specified number of years. Under this
option, at the death of a payee having no beneficiary (or
where the beneficiary died prior to the payee), the
present value of the current dollar amount on the date of
death of any remaining guaranteed payments will be paid
in one sum to the executors or administrators of the
payee's estate. Also under this option, if any
beneficiary dies while receiving payment, the present
value of the current dollar amount on the date of death
of any remaining guaranteed payments will be paid in one
sum to the executors or administrators of the
beneficiary's estate. Calculation of such present value
shall be no less than 3%.
OPTION 4--INCOME FOR FIXED AMOUNT. To have the proceeds
paid out in equal installments (at intervals elected by
the payee) of a specific amount. The payments will
continue until all the proceeds plus interest have been
paid out.
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE
INCOME. To have proceeds paid out in equal installments
for as long as two joint payees live. When one payee
dies, installments of two-thirds of the first installment
will be paid to the surviving payee until he or she dies.
19
<PAGE>
The amount of each payment will be determined from the
tables in the Contract which apply to the particular
option using the payee's age and sex. Age will be
determined from the last birthday at the due date of the
first payment.
ALTERNATE PAYMENT OPTION. In lieu of one of the above
options, the cash value, cash 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.
- --------------------------------------------------------------------------------
YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
From time to time, the Company may advertise or include in
sales literature yields, effective yields and total
returns for the Subaccounts. THESE FIGURES ARE BASED ON
HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE
PERFORMANCE. Each Subaccount may, from time to time,
advertise or include in sales literature performance
relative to certain performance rankings and indices
compiled by independent organizations. More detailed
information as to the calculation of performance, as well
as comparisons with unmanaged market indices, appears in
the Statement of Additional Information.
Effective yields and total returns for the Subaccounts
are based on the investment performance of the
corresponding Investment Option. Each Investment Option's
performance in part reflects the Investment Option's
expenses. (See the accompanying Investment Option
prospectuses.)
The yield of the Money Market Subaccount refers to the
annualized income generated by an investment in the
Subaccount over a specified seven-day period. The yield
is calculated by assuming that the income generated for
that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment
in the Subaccount is assumed to be reinvested. The
effective yield will be slightly higher than the yield
because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market
Subaccount) refers to the annualized income generated by
an investment in the Subaccount over a specified 30-day
or one-month period. The yield is calculated by assuming
that the income generated by the investment during that
30-day or one-month period is generated each period over
a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return
quotations assuming an investment under a Contract has
been held in the Subaccount for various periods of time.
When a Subaccount has been in operation for one, five and
ten years, respectively, the total return for these
periods will be provided. For periods prior to the date
the Account commenced operations, performance information
will be calculated based on the performance of the
Investment Options and the assumption that the
Subaccounts were in existence for the same periods as
those indicated for the Investment Options, with the
level of Contract charges that were in effect at the
inception of the Subaccounts for the Contracts.
The average annual total return quotations represent the
average annual compounded rates of return that would
equate an initial investment of $1,000 under a Contract
to the redemption value of that investment as of the last
day of each of the periods for which total return
quotations are provided. Average annual total return
information shows the average percentage change in the
value of an investment in the Subaccount from the
beginning date of the measuring period to the end of that
period. This standardized version of average annual total
return reflects all historical investment results less
all charges and deductions applied against the Subaccount
(including any surrender charge that would apply if an
owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium
taxes).
20
<PAGE>
In addition to the standard version described above,
total return performance information computed on two
different non-standard bases may be used in
advertisements or sales literature. Average annual total
return information may be presented, computed on the same
basis as described above, except deductions will not
include the surrender charge. In addition, the Company
may, from time to time, disclose cumulative total return
for Contracts funded by Subaccounts.
From time to time, yields, standard average annual total
returns and non-standard total returns for the Fund's
Investment Options may be disclosed, including such
disclosures for periods prior to the date the Account
commenced operations.
Non-standard performance data will only be disclosed if
the standard performance data for the required periods is
also disclosed. For additional information regarding the
calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of
each Subaccount may be compared to the performance of
other variable annuity issuers in general, or to the
performance of particular types of variable annuities
investing in mutual funds or investment portfolios of
mutual funds with investment objectives similar to each
of the Subaccounts. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research Data Service
("VARDS") are independent services which monitor and rank
the performance of variable annuity issuers in each of
the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life insurance issuers
as well as variable annuity issuers. VARDS rankings
compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS each rank such
issuers on the basis of total return, assuming
reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at
the separate account level into consideration. In
addition, VARDS prepares risk rankings, which consider
the effects of market risk on total return performance.
This type of ranking provides data as to which funds
provide the highest total return within various
categories of funds defined by the degree of risk
inherent in their investment objectives.
Advertising and sales literature may also compare the
performance of each Subaccount to the Standard & Poor's
Index of 500 Common Stocks, a widely used measure of
stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any
"deduction" for the expense of operating or managing an
investment portfolio. Other independent ranking services
and indices may also be used as a source of performance
comparison.
The Company may also report other information including
the effect of tax-deferred compounding on a Subaccount's
investment returns, or returns in general, which may be
illustrated by tables, graphs or charts. All income and
capital gains derived from Subaccount investments are
reinvested and can lead to substantial long-term
accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS
TAX ADVICE
- --------------------------------------------------------------------------------
INTRODUCTION This discussion is not intended to address the tax
consequences resulting from all of the situations in
which a person may be entitled to or may receive a
distribution under the annuity contract issued by the
Company. Any person concerned about these tax
implications should consult a competent tax adviser
before initiating any transaction. This discussion is
based upon the Company's understanding of the present
Federal income tax laws, as they are currently
interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the
continuation of the present federal
21
<PAGE>
income tax laws or of the current interpretation by the
Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis
("Non-Qualified Contract") or purchased and used in
connection with plans qualifying for favorable tax
treatment ("Qualified Contract"). The Qualified Contract
is designed for use by individuals whose premium payments
are comprised solely of proceeds from and/or
contributions under retirement plans which are intended
to qualify as plans entitled to special income tax
treatment under Sections 401(a), 403(b), or 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
The ultimate effect of federal income taxes on the
amounts held under a Contract, or annuity payments, and
on the economic benefit to the owner, the annuitant or
the beneficiary depends on the type of retirement plan,
on the tax and employment status of the individual
concerned, and on the Company's tax status. In addition,
certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified
plan and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax
treatment. Therefore, purchasers of Qualified Contracts
should seek competent legal and tax advice regarding the
suitability of a Contract for their situation, the
applicable requirements and the tax treatment of the
rights and benefits of a Contract. The following
discussion assumes that Qualified Contracts are purchased
with proceeds from and/or contributions under retirement
plans that qualify for the intended special federal
income tax treatment.
- --------------------------------------------------------------------------------
TAX STATUS OF THE CONTRACT
The Company believes that the Contract will be subject to
tax as an annuity contract under the Code, which
generally means that any increase in Account Value will
not be taxable until amounts are received from the
Contract, either in the form of Annuity payments or in
some other form. In order to be subject to annuity
contract treatment for tax purposes, the Contract must
meet the following Code requirements:
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code
provides that separate account investments underlying a
contract must be "adequately diversified" in accordance
with Treasury regulations in order for the contract to
qualify as an annuity contract under Section 72 of the
Code. The Account, through each Portfolio of the Fund,
intends to comply with the diversification requirements
prescribed in regulations under Section 817(h) of the
Code, which affect how the assets in the various
Subaccounts may be invested. Although the Company does
not have control over the Fund in which the Account
invests, we believe that each Portfolio in which the
Account owns shares will meet the diversification
requirements.
OWNER CONTROL. In certain circumstances, owners of
variable annuity contracts may be considered the owners,
for federal income tax purposes, of the assets of the
separate account used to support their contracts. In
those circumstances, income and gains from the separate
account assets would be includible in the variable
annuity contract owner's gross income. Several years ago,
the IRS stated in published rulings that a variable
contract owner will be considered the owner of separate
account assets if the contract owner possesses incident
of ownership in those assets, such as the ability to
exercise investment control over the assets. More
recently, the Treasury Department announced, in
connection with the issuance of regulations concerning
investment 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 contract
owner), rather than the insurance company, to be treated
as the owner of the assets in the account." This
announcement also states 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 Contracts are similar to,
but different in certain respects from, those described
by the Service in rulings in which it was determined that
contract owners were not owners of separate account
assets. For example, the owner of a Contract has the
choice of one or more Subaccounts in which to allocate
22
<PAGE>
premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings.
These differences could result in the contract owner
being treated as the owner of the assets of the 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 Contract as necessary to attempt to prevent the
contract owner from being considered the owner of the
assets of the Account.
REQUIRED DISTRIBUTIONS. In order to be treated as an
annuity contract for federal income tax purposes, Section
72(s) of the Code requires any Non-Qualified Contract to
provide that: (a) if any owner dies on or after the
retirement date but prior to the time the entire interest
in the contract has been distributed, the remaining
portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as
of the date of that owner's death; and (b) if any owner
dies prior to the annuity commencement date, the entire
interest in the Contract will be distributed within five
years after the date of the owner's death. These
requirements will be considered satisfied as to any
portion of the owner's interest which is payable to or
for the benefit of a "designated beneficiary" and which
is distributed over the life of such beneficiary or over
a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin
within one year of that owner's death. The owner's
"designated beneficiary" is the person designated by such
owner as a beneficiary and to whom ownership of the
contract passes by reason of death and must be a natural
person. However, if the owner's "designated beneficiary"
is the surviving spouse of the owner, the Contract may be
continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are
intended to comply with the requirements of Section 72(s)
of the Code, although no regulations interpreting these
requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to
assure that they comply with the requirements of Code
Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will
qualify as annuity contracts for federal income tax
purposes.
- --------------------------------------------------------------------------------
TAXATION OF ANNUITIES IN GENERAL. Section 72 of the Code governs taxation of
annuities in general. The Company believes that an owner
who is a natural person is not taxed on increases in the
value of a Contract until distribution occurs by
withdrawing all or part of the cash value (e.g., partial
surrenders and surrenders) or as annuity payments under
the payment option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any
portion of the cash value (and in the case of a Qualified
Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a
single sum payment or payment option) is taxable as
ordinary income.
NON-NATURAL OWNER. The owner of any annuity contract who
is not a natural person generally must include in income
any increase in the excess of the cash value over the
"investment in the contract" during the taxable year.
There are some exceptions to this rule. Certain Contracts
will generally be treated as held by a natural person if
(a) the nominal owner is a trust or other entity which
holds the contract as a agent for a natural person (but
not in the case of certain non-qualified deferred
compensation arrangements); (b) the Contract is acquired
by an estate of a decedent by reason of the death of the
decedent; (c) the Contract is issued in connection with
certain Qualified Plans; (d) the Contract is purchased by
an employer upon the termination of certain Qualified
Plans; (e) the Contract is used in connection with a
structured settlement agreement; and (f) the Contract is
purchased with a single purchase payment when the annuity
starting date (as defined in the tax law) is no later
than a year from the purchase of the Contract and
substantially equal periodic payments are
23
<PAGE>
made, not less frequently than annually, during the
annuity period. A prospective owner that is not a natural
person may wish to discuss these with a competent tax
adviser.
The following discussion generally applies to Contracts
owned by natural persons.
PARTIAL WITHDRAWALS. In the case of a partial withdrawal
from a Qualified Contract, under Section 72(e) of the
Code, a ratable portion of the amount received is
taxable, generally based on the ratio of the "investment
in the contract" to the participant's total accrued
benefit or balance under the retirement plan. The
"investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on
behalf of the individual under a Contract which was not
excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the
"investment in the contract" can be zero. Special tax
rules may be available for certain distributions from
Qualified Contracts.
In the case of a partial withdrawal from a Non-Qualified
Contract, under Section 72(e) amounts received are
generally first treated as taxable income to the extent
that the cash value immediately before the partial
withdrawal exceeds the "investment in the contract" at
that time. Any additional amount withdrawn is not
taxable.
In the case of a surrender under a Qualified or
Non-Qualified Contract, the amount received generally
will be taxable only to the extent it exceeds the
"investment in the contract."
Section 1035 of the Code provides that no gain or loss
shall be recognized on the exchange of one annuity
contract for another. If the surrendered contract was
issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the
extent the amount received exceeds the owner's investment
in the contract will continue to apply to amounts
allocable to investments in that contract prior to August
14, 1982. In contrast, contracts issued after January 19,
1985 in a Code Section 1035 exchange are treated as new
contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures
apply to Section 1035 transactions. Prospective owners
wishing to take advantage of Section 1035 should consult
their tax adviser.
ANNUITY PAYMENTS. Although tax consequences may vary
depending on the payment option elected under an annuity
contract, under Code Section 72(b), generally (prior to
recovery of the investment in the contract) gross income
does not include that part of any amount received as an
annuity under an annuity contract that bears the same
ratio to such amount as the investment in the contract
bears to the expected return at the annuity starting
date. Stated differently, prior to recovery of the
investment in the contract, generally, there is no tax on
the amount of each payment which represents the same
ratio that the "investment in the contract" bears to the
total expected value of the annuity payments for the term
of the payment; however, the remainder of each income
payment is taxable. After the "investment in the
contract" is recovered, the full amount of any additional
annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be
distributed from a Contract because of the death of the
owner. Generally, such amounts are includible in the
income of the recipient as follows: (i) if distributed in
a lump sum, they are taxed in the same manner as a
surrender of the contract or (ii) if distributed under a
payment option, they are taxed in the same way as annuity
payments. For these purposes, the investment in the
Contract is not affected by the owner's death. That is,
the investment in the Contract remains the amount of any
purchase payments which were not excluded from gross
income.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a
distribution pursuant to a Non-Qualified Contract, there
may be imposed a federal penalty tax equal to 10% of the
amount treated as taxable income. In general, however,
there is no penalty on distributions:
1. made on or after the taxpayer reaches age
59 1/2;
24
<PAGE>
2. made on or after the death of the holder (or
if the holder is not an individual, the death of the
primary annuitant);
3. attributable to the taxpayer becoming
disabled;
4. as part of a series of substantially equal
periodic payments (not less frequently than annually)
for the life (or life expectancy) of the taxpayer or
the joint lives (or joint life expectancies) of the
taxpayer and his or her designated beneficiary;
5. made under certain annuities issued in
connection with structured settlement agreements;
6. made under an annuity contract that is
purchased with a single premium when the retirement
date is no later than a year from purchase of the
annuity and substantially equal periodic payments are
made, not less frequently than annually, during the
annuity payment period; and
7. any payment allocable to an investment
(including earnings thereon) made before August 14,
1982 in a contract issued before that date.
Other tax penalties may apply to certain distributions
under a Qualified Contract.
Legislation has been proposed in 1998 that, if enacted,
would adversely modify the federal taxation of certain
insurance and annuity contracts. For example, one
proposal would tax transfers among investment options and
tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract"
under cash value life insurance and certain annuity
contracts by certain amounts, thereby increasing the
amount of income for purposes of computing gain. Although
the likelihood of there being any changes in uncertain,
there is always the possibility that the tax treatment of
the Contracts could change by legislation or other means.
Moreover, it is also possible that any change could be
retroactive (that is, effective prior to the date of the
change). You should consult a tax adviser with respect to
legislative developments and their effect on the
Contract.
- --------------------------------------------------------------------------------
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of
an annuitant, payee or other beneficiary who is not also
the owner, the selection of certain retirement dates or
the exchange of a Contract may result in certain tax
consequences to the owner that are not discussed herein.
An owner contemplating any such transfer, assignment,
selection or exchange of a Contract should contact a
competent tax adviser with respect to the potential tax
effects of such a transaction.
- --------------------------------------------------------------------------------
WITHHOLDING Distributions from Contracts generally are subject to
withholding for the owner's federal income tax liability.
The withholding rate varies according to the type of
distribution and the owner's tax status. The owner will
be provided the opportunity to elect not have tax
withheld from distributions.
"Eligible rollover distributions" from section 401(a)
plans and section 403(b) tax-sheltered annuities are
subject to a mandatory federal income tax withholding of
20%. An eligible rollover distribution is the taxable
portion of any distribution from such a plan, except
certain distributions such as distributions required by
the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner
chooses a "direct rollover" from the plan to another tax-
qualified plan or IRA.
- --------------------------------------------------------------------------------
MULTIPLE CONTRACTS All non-qualified deferred annuity contracts entered into
after October 21, 1988 that are issued by the Company (or
its affiliates) to the same owner during any calendar
year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under
Section 72(e). This rule could affect the time when
income is taxable and the amount that might be subject to
the 10% penalty tax described above. In addition, the
Treasury Department has specific authority to issue
regulations that prevent the avoidance of Section 72(e)
through the serial purchase of annuity contracts or
otherwise. There may also be other situations in which
the
25
<PAGE>
Treasury may conclude that it would be appropriate to
aggregate two or more annuity contracts purchased by the
same owner. Accordingly, a Contract owner should consult
a competent tax adviser before purchasing more than one
annuity contract.
- --------------------------------------------------------------------------------
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of
qualified plans. The tax rules applicable to participants
in these qualified plans vary according to the type of
plan and the terms and conditions of the plan itself.
Special favorable tax treatment may be available for
certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do
not conform to specified commencement and minimum
distribution rules; aggregate distributions in excess of
a specified annual amount; and in other specified
circumstances. Therefore, no attempt is made to provide
more than general information about the use of the
Contracts with the various types of qualified retirement
plans. Contract owners, the annuitants, and beneficiaries
are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be
subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the
Contract, but the Company shall not be bound by the terms
and conditions of such plans to the extent such terms
contradict the Contract, unless the Company consents.
Some retirement plans are subject to distribution and
other requirements that are not incorporated into our
Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that
contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. For
qualified plans under Section 401(a), 403(a), 403(b), and
457, the Code requires that distributions generally must
commence no later than the later of April 1 of the
calendar year following the calendar year in which the
owner (or plan participant) (i) reaches age 70 1/2 or
(ii) retires, and must be made in a specified form or
manner. If the plan participant is a "5 percent owner"
(as defined in the Code), distributions generally must
begin no later than April 1 of the calendar year
following the calendar year in which the owner (or plan
participant) reaches age 70 1/2. For IRAs described in
Section 408, distributions generally must commence no
later than the later of April 1 of the calendar year
following the calendar year in which the owner (or plan
participant) reaches age 70 1/2. Brief descriptions
follow of the various types of qualified retirement plans
available in connection with a Contract. The Company will
amend the Contract as necessary to conform it to the
requirements of the Code.
CORPORATE PENSION AND PROFIT SHARING PLANS AND H.R. 10
PLANS. Section 401(a) of the Code permits corporate
employers to establish various types of retirement plans
for employees, and permits self-employed individuals to
establish these plans for themselves and their employees.
These retirement plans may permit the purchase of the
Contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the
plan, to the participant or both may result if this
Contract is assigned or transferred to any individual as
a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such
benefits prior to transfer of the Contract. Employers
intending to use the Contract with such plans should seek
competent advice.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code
permits eligible individuals to contribute to an
individual retirement program known as an "Individual
Retirement Annuity" or "IRA". These IRAs are subject to
limits on the amount that may be contributed, the persons
who may be eligible and on the time when distributions
may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over"
on a tax-deferred basis into an IRA. Sales of the
Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. Earnings in
an IRA are not taxed until distribution. IRA
contributions are limited each year to the lesser of
$2,000 or 100% of the owner's adjusted gross income and
may be deductible in whole or in part depending on the
individuals's income. The limit on the amount contributed
to an IRA does not apply to distributions from certain
other types of qualified plans that are "rolled over" on
a
26
<PAGE>
tax-deferred basis into an IRA. Amounts in the IRA (other
than nondeductible contributions) are taxed when
distributed from the IRA. Distributions prior to age
59 1/2 (unless certain exceptions apply) are subject to a
10% penalty tax.
Employers may establish Simplified Employee Pension (SEP)
Plans to provide IRA contributions on behalf of their
employees. In addition to all of the general Code rules
governing IRAs, such plans are subject to certain Code
requirements regarding participation and amounts of
contributions.
SIMPLE RETIREMENT ACCOUNTS. Beginning January 1, 1997,
certain small employers may establish Simple Retirement
Accounts as provided by Section 408(p) of the Code, under
which employees may elect to defer up to $6,000 (as
increased for cost of living adjustments) as a percentage
of compensation. The sponsoring employer is required to
make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account
are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject
to certain exceptions, premature distributions prior to
age 59 1/2 are subject to a 10% penalty tax, which is
increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's
participation in the plan. The failure of the Simple
Retirement Account to meet Code requirements may result
in adverse tax consequences.
ROTH IRAS. Effective January 1, 1998, section 408A of the
Code permits certain eligible individuals to contribute
to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and
must be made in cash or as a rollover or transfer from
another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax
and other special rules may apply. You should consult a
tax adviser before combining any converted amounts with
any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions
from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the
Roth IRA, income tax and a 10% penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to
certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is
made to the Roth IRA.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code
allows employees of certain Section 501(c)(3)
organizations and public schools to exclude from their
gross income the premiums paid, within certain limits, on
a Contract that will provide an annuity for the
employee's retirement. These premiums may be subject to
FICA (social security) tax. Code section 403(b)(11)
restricts the distribution under Code section 403(b)
annuity contracts of: (1) elective contributions made in
years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on
amounts held as of the last year beginning before January
1, 1989. Distribution of those amounts may only occur
upon death of the employee, attainment of age 59 1/2,
separation from service, disability, or financial
hardship. In addition, income attributable to elective
contributions may not be distributed in the case of
hardship.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other
restrictions with respect to the election, commencement
or distribution of benefits may apply under Qualified
Contracts or under the terms of the plans in respect of
which Qualified Contracts are issued.
- --------------------------------------------------------------------------------
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
At the present time, the Company makes no charge to the
Subaccounts for any Federal, state or local taxes that
the Company incurs which may be attributable to such
Subaccounts or the Contracts. 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 Subaccounts or to the
Contracts.
- --------------------------------------------------------------------------------
OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the Federal
tax consequences under these Contracts are not
exhaustive, and special rules are provided with respect
to other tax situations not discussed in the Prospectus.
Further, the Federal income tax
27
<PAGE>
consequences discussed herein reflect the Company's
understanding of current law and the law may change.
Federal estate and state and local estate, inheritance
and other tax consequences of ownership or receipt of
distributions under a Contract depend on the individual
circumstances of each owner or recipient of the
distribution. A competent tax adviser should be consulted
for further information.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The Contracts will be offered to the public on a
continuous basis. The Company does not anticipate
discontinuing the offering of the Contracts, but reserves
the right to discontinue the offering. Applications for
Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell the
Company's variable annuity contracts and who are also
registered representatives of EquiTrust Marketing,
broker-dealers having selling agreements with EquiTrust
Marketing or broker-dealers having selling agreements
with such broker-dealers. EquiTrust Marketing (formerly
FBL Marketing Services, Inc.) is registered with the SEC
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 acts as the Principal Underwriter, as
defined in the 1940 Act, of the Contracts for the Account
pursuant to an Underwriting Agreement between the Company
and EquiTrust Marketing. EquiTrust Marketing is not
obligated to sell any specific number of Contracts.
EquiTrust Marketing's principal business address is the
same as that of the Company.
The Company may pay sales representatives commissions up
to an amount equal to 4% of the premiums paid under a
Contract during the first six Contract years and 1% of
the premiums paid in the seventh and subsequent Contract
years. Managers of sales representatives may also receive
commission overrides of up to 30% of the sales
representative's commissions. The Company also may pay
other distribution expenses such as production incentive
bonuses, agent's insurance and pension benefits, and
agency expense allowances. These distribution expenses do
not result in any additional charges against the
Contracts that are not described under "Charges and
Deductions."
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company, like other life insurance companies, is
involved in lawsuits. Currently, there are no class
action lawsuits naming the Company as a defendant or
involving the 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 Account or the Company.
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
In accordance with its view of current applicable law,
the Company will vote the Fund shares held in the 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 1940 Act or any regulation thereunder
should be amended, or if the present interpretation
thereof should change, or the Company otherwise
determines that it is allowed to vote the shares in its
own right, it may elect to do so.
The number of votes that an owner has the right to
instruct will be calculated separately for each
Subaccount, and may include fractional votes. An owner
holds a voting interest in each Subaccount to which the
accumulated value is allocated. The owner only has voting
interest prior to the retirement date. For each owner,
the
28
<PAGE>
number of votes attributable to a Subaccount will be
determined by dividing the accumulated value attributable
to that owner's Contract in that Subaccount by the net
asset value per share of the Investment Option in which
that Subaccount invests.
The number of votes of an Investment Option which are
available to the owner will be determined as of the date
coincident with the date established by that Investment
Option for determining shareholders eligible to vote at
the relevant meeting for that Fund. Voting instructions
will be solicited by written communication prior to such
meeting in accordance with procedures established by each
Fund. Each owner having a voting interest in a Subaccount
will receive proxy materials and reports relating to any
meeting of shareholders of the Investment Option in which
that Subaccount invests.
Fund shares as to which no timely instructions are
received and shares held by the Company in a Subaccount
as to which no owner has a beneficial interest will be
voted in proportion to the voting instructions which are
received with respect to all Contracts participating in
that Subaccount. Voting instructions to abstain on any
item to be voted upon will be applied to reduce the total
number of votes eligible to be cast on a matter.
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
Like other investment funds, financial and business
organizations and individuals around the world, the
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 is 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.
- --------------------------------------------------------------------------------
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, as well as the related Report of
Independent Auditors are contained in the Statement of
Additional Information. The unaudited consolidated
balance sheet of the Company at June 30, 1998, the
related unaudited consolidated statements of changes in
stockholder's equity for the six months then ended, and
the related unaudited consolidated statements of income
and cash flows for the six months ended June 30, 1998 and
1997 are also contained in the Statement of Additional
Information.
It is anticipated that the Account will commence
operations in 1998; accordingly, no financial statements
currently exist.
29
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
ADDITIONAL CONTRACT PROVISIONS............................................ 1
The Contract.................................................... 1
Incontestability................................................ 1
Misstatement of Age or Sex...................................... 1
Non-Participation............................................... 1
- --------------------------------------------------------------------------------
CALCULATION OF YIELDS AND TOTAL RETURNS................................... 1
Money Market Subaccount Yields.................................. 1
Other Subaccount Yields......................................... 3
Average Annual Total Returns.................................... 4
Other Total Returns............................................. 6
Effect of the Administrative Charge on Performance Data......... 6
- --------------------------------------------------------------------------------
LEGAL MATTERS............................................................. 6
- --------------------------------------------------------------------------------
EXPERTS................................................................... 7
- --------------------------------------------------------------------------------
OTHER INFORMATION......................................................... 7
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS...................................................... 7
- --------------------------------------------------------------------------------
30
<PAGE>
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TEAR AT PERFORATION
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name ___________________________________________________________________________
Address ________________________________________________________________________
City, State, Zip _______________________________________________________________
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FARM BUREAU LIFE INSURANCE COMPANY
5400 University Avenue
West Des Moines, Iowa 50266
1-800-247-4170
FARM BUREAU LIFE ANNUITY ACCOUNT III
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by Farm Bureau Life Insurance
Company (the "Company"). This Statement of Additional Information is not a
Prospectus, and it should be read only in conjunction with the Prospectuses for
the Contract, and the selected Investment Options of EquiTrust Variable
Insurance Series Fund, T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and . [Additional Investment Options to
provided by amendment.]The Prospectus for the Contract is dated the same as this
Statement of Additional information. You may obtain a copy of the Prospectuses
by writing or calling us at our address or phone number shown above.
, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS...................................................................... 1
The Contract...................................................................................... 1
Incontestability.................................................................................. 1
Misstatement of Age or Sex........................................................................ 1
Non-Participation................................................................................. 1
CALCULATION OF YIELDS AND TOTAL RETURNS............................................................. 1
Money Market Subaccount Yields.................................................................... 1
Other Subaccount Yields........................................................................... 3
Average Annual Total Returns...................................................................... 4
Other Total Returns............................................................................... 6
Effect of the Administrative Fee On Performance Data.............................................. 6
LEGAL MATTERS....................................................................................... 6
EXPERTS............................................................................................. 7
OTHER INFORMATION................................................................................... 7
FINANCIAL STATEMENTS................................................................................ 7
</TABLE>
<PAGE>
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The application and all other attached papers are part of the Contract. The
statements made in the application are deemed representations and not
warranties. The Company will not use any statement in defense of a claim or to
void the Contract unless it is contained in the application.
INCONTESTABILITY
The Company will not contest the Contract from its Contract date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant has been misstated, the amount which will be
paid is that which the proceeds would have purchased at the correct age and sex.
NON-PARTICIPATION
The Contracts are not eligible for dividends and will not participate in the
Company's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, the Company may disclose yields, total returns and other
performance data pertaining to the contracts for a Subaccount. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the current
annualized yield of the Money Market Subaccount for a seven-day period in a
manner which does not take into consideration any realized or unrealized gains
or losses or income other than investment income on shares of the Money Market
Investment Option or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive or realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment income) at the
end of the seven-day period in the value of a hypothetical account under a
Contract having a balance of 1 unit of the Money Market Subaccount at the
beginning of the period, dividing such net change in account value by the value
of the hypothetical account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis.
1
<PAGE>
The net change in account value reflects: 1) net income from the Investment
Option attributable to the hypothetical account; and 2) charges and deductions
imposed under the Contract which are attributable to the hypothetical account.
The charges and deductions include the per unit charges for the hypothetical
account for: 1) the annual administrative fee and 2) the mortality and expense
risk charge. For purposes of calculating current yields for a Contract, an
average per unit administrative fee is used based on the $45 administrative fee
deducted at the beginning of each Contract Year. Current Yield will be
calculated according to the following formula:
<TABLE>
<S> <C> <C>
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Investment Option (exclusive or realized gains
or losses on the sale of securities and unrealized appreciation and depreciation
and income other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
Effective Yield = (1 + ((NCS-ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Investment Option (exclusive of realized gains
or losses on the sale of securities and unrealized appreciation and depreciation
and income other than investment income) for the seven-day period attributable to a
hypothetical account having a balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
</TABLE>
Because of the charges and deductions imposed under the Contract, the yield for
the Money Market Subaccount will be lower than the yield for the Money Market
Investment Option.
2
<PAGE>
The current and effective yields on amounts held in the Money Market Subaccount
normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD FOR ANY
GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR
RATES OF RETURN. The Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Money Market Investment Option, the types of quality of portfolio
securities held by the Money Market Investment Option and the Money Market
Investment Option operating expenses. Yields on amounts held in the Money Market
Subaccount may also be presented for periods other than a seven-day period.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one month periods. The annualized yield
or a subaccount refers to income generated by the subaccount during a 30-day or
one-month period is assumed to be generated each period over a 12-month period.
The yield is computed by: 1) dividing net investment income of the Investment
Option attributable to the subaccount units less subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the subaccount include the annual administrative
fee and the mortality and expense risk charge. The yield calculation assumes an
administrative fee of $45 per year per Contract deducted at the beginning of
each Contract year. For purposes of calculating the 30-day or one-month yield,
an average administrative fee per dollar of Contract value in the Account issued
to determine the amount of the charge attributable to the subaccount for the
30-day or one-month period. The 30-day or one-month yield is calculated
according to the following formula:
<TABLE>
<S> <C> <C>
Yield = 2 X ((NI - ES)/(U X UV)) + 1)6 - 1
Where:
NI = net income of the Investment Option for the 30-day or one-month period attributable
to the subaccount's units.
ES = expenses of the subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day one-month period.
</TABLE>
3
<PAGE>
Because of the charges and deductions imposed under the Contracts, the yield for
the subaccount will be lower that the yield for the corresponding Investment
Option.
The yield on the amounts held in the subaccounts normally will fluctuate over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A subaccount's
actual yield is affected by the types and quality of Investment Option
securities held by the corresponding Investment Option and its operating
expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 8.5% of the amount withdrawn or surrendered during the
first nine Contract years. For partial withdrawals in each Contract year after
the first Contract year, up to 10% of the accumulated value on the most recent
Contract Anniversary may be withdrawn without a current surrender charge.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns for one or more of the subaccounts for various periods of
time.
When a subaccount has been in operation for 1, 5 and 10 years, respectively, the
average annual total return for these periods will be provided. Average annual
total returns for other periods of time may, from time to time, also be
disclosed.
Standard average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication that will be stated in the
communication.
Standard average annual total returns will be calculated using subaccount unit
values which the Company calculates on each valuation day based on the
performance of the subaccount's underlying portfolio, the deductions for the
mortality and expense risk charge, and the annual administrative fee. The
calculation assumes that the administrative fee is $45 per year per Contract
deducted at the beginning of each Contract year. For purposes of calculating
average annual total return, an average per dollar administrative fee
attributable to the hypothetical account for the period is used.
4
<PAGE>
The calculation also assumes surrender of the Contract at the end of the period
for the return quotation. Total returns will therefore reflect a deduction of
the surrender charge for any period less than ten years. The total return will
then be calculated according to the following formula:
<TABLE>
<S> <C> <C>
TR = ((ERV/P)/N)-1
Where:
TR = the average annual total return net of subaccount recurring charges.
EHV = the ending redeemable value (net of any applicable surrender charge) of the
hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
</TABLE>
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Account commenced
operations. Such performance information for the subaccounts will be calculated
based on the performance of the Investment Option and the assumption that the
subaccounts were in existence for the same periods as those indicated for the
Investment Option, with the level of Contract charges that were in effect at the
inception of the subaccounts.
Such average annual total return information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE PERIOD FROM
1-YEAR PERIOD 5-YEAR PERIOD 10-YEAR PERIOD DATE OF INCEPTION OF
ENDED ENDED ENDED INVESTMENT OPTION
SUBACCOUNT 12/31/97 12/31/97 12/31/97 TO 12/31/97
- ---------------------------------------------------------- --------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth............................................ (1.25)% 11.91% 10.78% 7.66%
High Grade Bond......................................... 2.69 5.73 7.60 8.07
High Yield Bond......................................... 4.52 8.84 9.83 10.04
Money Market (1)........................................ (2.48) 2.41 -- 3.19
Blue Chip (2)........................................... 19.86 17.30 -- 18.02
T. Rowe Price Equity Series, Inc.
Equity Income (3)....................................... 28.85 -- -- 23.73
Mid-Cap Growth (4)...................................... 18.80 -- -- 18.80
New America Growth (3).................................. 21.12 -- -- 23.66
Personal Strategy Balanced (5).......................... 18.04 -- -- 20.13
T. Rowe Price International Series, Inc.
International Stock (3)................................. 3.09 -- -- 8.07
</TABLE>
- ------------------------
(1) The Money Market Portfolio commenced operations on February 20, 1990.
(2) The Blue Chip Portfolio commenced operations on October 15, 1990.
(3) The Equity Income, New America Growth and International Stock Portfolios
commenced operations on March 31, 1994.
(4) The Mid-Cap Growth Portfolio commenced operations on December 31, 1996.
(5) The Personal Strategy Balanced Portfolio commenced operations on December
30, 1994.
5
<PAGE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the surrender charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn.
The Company may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
<TABLE>
<S> <C> <C>
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the period.
ERV = The ending redeemable value of the hypothetical investment at the end of the
period.
P = A hypothetical single payment of $1,000.
</TABLE>
EFFECT OF THE ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Contract provides for a $45 annual administrative fee to be deducted
annually at the beginning of each Contract Year, from the subaccounts and the
Declared Interest Option based, on the proportion that the value of each such
account bears to the total cash value. For purposes of reflecting the
administrative fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
LEGAL MATTERS
All matters relating to Iowa law pertaining to the Contracts, including the
validity of the Contracts and the Company's authority to issue the Contracts,
have been passed upon by Stephen M. Morain, Esquire, Senior Vice President and
General Counsel of the Company. Sutherland, Asbill & Brennan LLP, Washington
D.C. has provided advice on certain matters relating to the federal securities
laws.
6
<PAGE>
EXPERTS
The consolidated 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 firm as
experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the Contracts discussed in this Statement of
Additional Information. Not all the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the Contracts and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Company's financial statements included in this Statement of Additional
Information should be considered only as bearing on the Company's ability to
meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Account.
7
<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
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, YEAR ENDED DECEMBER 31,
------------- -----------------------------
1998 1997 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1998--$502,531;
1997--$541,332; 1996--$574,338) $ 484,903 $ 522,411 $ 562,283
Available for sale, at market (amortized cost:
1998--$1,246,833;
1997--$1,218,469; 1996--$1,096,179) 1,318,812 1,286,169 1,128,587
Equity securities, at market (cost:
1998--$48,420; 1997--$54,861; 1996--$69,915) 37,774 51,268 79,786
Mortgage loans on real estate 238,108 253,093 235,331
Investment real estate, less allowances for
depreciation of $3,343 in 1998, $2,507 in 1997
and $1,741 in 1996 40,699 38,774 26,384
Policy loans 90,193 90,052 88,940
Other long-term investments 6,450 9,989 22,157
Short-term investments 57,661 23,853 62,025
------------- ------------- -------------
Total investments 2,274,600 2,275,609 2,205,493
Cash and cash equivalents 2,119 1,678 1,802
Securities and indebtedness of related parties 65,156 63,394 39,244
Accrued investment income 24,455 25,340 24,298
Accounts and notes receivable 616 703 1,526
Amounts receivable from affiliates 1,170 6,686 7,095
Reinsurance recoverable 3,662 3,934 5,552
Deferred policy acquisition costs 166,938 157,096 145,614
Property and equipment, less allowances for
depreciation of $4,015 in 1998, $18,330 in 1997
and $17,313 in 1996 7,703 32,518 36,182
Current income taxes recoverable 9,841 10,349 --
Goodwill, less accumulated amortization of $3,136
in 1998, $2,792 in 1997 and $2,172 in 1996 10,296 10,640 9,726
Other assets 9,223 7,443 5,388
Assets held in separate accounts 182,328 138,409 79,043
------------- ------------- -------------
Total assets $ 2,758,107 $ 2,733,799 $ 2,560,963
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, YEAR ENDED DECEMBER 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 $ 1,152,489 $ 1,172,881 $ 1,132,491
Traditional life insurance and accident and
health products 582,556 576,405 555,664
Unearned revenue reserve 24,122 23,341 22,182
Other policy claims and benefits 6,700 7,091 7,313
------------- ------------- -------------
1,765,867 1,779,718 1,717,650
Other policyholders' funds:
Supplementary contracts without life
contingencies 135,858 129,389 120,649
Advance premiums and other deposits 66,745 66,626 66,572
Accrued dividends 10,733 12,107 12,796
------------- ------------- -------------
213,336 208,122 200,017
Long-term debt 74 77 81
Amounts payable to affiliates 20 -- 1,700
Current income taxes payable -- -- 56
Deferred income taxes 45,686 45,123 43,810
Other liabilities 41,780 29,639 27,602
Liabilities related to separate accounts 182,328 138,409 79,043
------------- ------------- -------------
Total liabilities 2,249,091 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 41,677 38,719 26,327
Retained earnings 409,554 436,207 406,892
------------- ------------- -------------
Total stockholder's equity 509,016 532,711 491,004
------------- ------------- -------------
Total liabilities and stockholder's equity $ 2,758,107 $ 2,733,799 $ 2,560,963
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 20,464 $ 17,876 $ 37,802 $ 33,755 $ 33,343
Traditional life insurance and
accident and health premiums 33,040 33,682 61,675 61,611 57,907
Property-casualty premiums -- -- -- -- 18,709
Net investment income 90,217 86,446 174,763 166,422 184,348
Realized gains on investments (2,804) 21,689 38,639 54,454 5,902
Realized gain on dividend of home
office properties 8,346 -- -- -- --
Other income 1,436 2,088 4,968 11,887 28,011
------------- ------------- ------------- ------------- -------------
Total revenues 150,699 161,781 317,847 328,129 328,220
Benefits and expenses:
Interest sensitive product benefits 48,154 21,536 95,052 90,720 88,147
Traditional life insurance and
accident and health benefits 23,833 21,536 42,121 42,370 37,710
Increase in traditional life and
accident and health future policy
benefits 6,213 8,215 15,107 13,679 15,310
Distributions to participating
policyholders 11,436 12,182 22,784 23,725 23,838
Property-casualty losses and loss
adjustment expenses -- -- -- -- 13,621
Underwriting, acquisition and
insurance expenses 24,733 22,593 48,380 45,714 54,336
Interest expense 4 43 9 425 1,007
Other expenses 602 406 1,149 7,814 17,776
------------- ------------- ------------- ------------- -------------
Total benefits and expenses 114,975 113,452 224,602 224,447 251,745
------------- ------------- ------------- ------------- -------------
33,724 48,329 93,245 103,682 76,475
Income taxes (9,481) (16,175) (31,579) (34,156) (27,291)
Minority interest in earnings of
subsidiaries -- -- -- -- (12)
Equity income (loss), net of related
income taxes 554 87 1,908 4,138 1,488
------------- ------------- ------------- ------------- -------------
Net income $ 26,797 $ 32,241 $ 63,574 $ 73,664 $ 50,660
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL INVESTMENT TOTAL
PAID-IN GAINS RETAINED STOCKHOLDER'S
COMMON 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 six months ended June 30,
1998 -- -- -- 26,797 26,797
Change in net unrealized investment gains/
losses -- -- 2,958 -- 2,958
-------------
Total comprehensive income 29,755
Cash dividends paid to parent -- -- -- (7,800) (7,800)
Dividend of home office properties -- -- -- (45,650) (45,650)
------------- ------------- ------------- ------------- -------------
Balance at June 30, 1998 $ 2,500 $ 55,285 $ 41,677 $ 409,554 $ 509,016
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 26,797 $ 32,241 $ 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 41,057 40,982 82,821 80,867 80,132
Charges for mortality and administration (20,420) (18,650) (38,134) (35,050) (34,083)
Deferral of unearned revenues 1,238 1,076 2,266 1,825 1,696
Amortization of unearned revenue reserve (419) (302) (779) (530) (956)
Provision for depreciation and amortization (1,968) 2,114 3,088 5,906 10,034
Net gains and losses related to investments
held by broker-dealer and investment company
subsidiaries -- (1,223) (1,223) (3,125) (25,801)
Realized gains on investments 2,804 (21,689) (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 6,151 8,371 15,198 13,646 16,144
Policy acquisition costs deferred (12,997) (11,587) (22,334) (18,561) (18,995)
Amortization of deferred policy acquisition
costs 3,654 3,228 7,760 7,271 10,181
Provision for deferred income taxes (1,030) (6,316) (5,172) 6,310 15,026
Other 3,023 (940) (12,545) 8,635 (19,895)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating activities 39,544 27,305 55,881 86,404 78,241
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 38,895 16,212 40,460 33,212 16,529
Fixed maturities--available for sale 149,018 133,373 250,842 222,093 208,189
Equity securities 15,576 75,549 109,641 101,937 29,766
Mortgage loans on real estate 25,658 13,525 38,725 21,977 18,646
Investment real estate 65 -- 6 4,829 927
Policy loans 11,155 10,937 21,002 20,092 19,701
Other long-term investments 64 7,225 52 10,404 11,609
Short-term investments--net -- 16,281 41,061 -- 68,799
------------ ------------ ------------ ------------ ------------
240,431 273,102 501,789 414,544 374,166
</TABLE>
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 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 (176,711) (212,092) (363,560) (374,808) (282,657)
Equity securities (945) (28,700) (45,520) (28,824) (30,380)
Mortgage loans on real estate (10,689) (23,074) (56,571) (40,601) (17,110)
Investment real estate (2,624) (345) (10,142) (4,988) (8,034)
Policy loans (11,296) (12,059) (22,114) (20,506) (20,275)
Other long-term investments -- -- (1,936) (535) (13,632)
Short-term investments--net (33,809) -- -- (30,249) --
------------ ------------ ------------ ------------ ------------
(230,074) (276,270) (499,843) (538,983) (492,973)
Proceeds from disposal, repayments of advances and
other distributions from equity investees 2,107 4,367 16,084 36,265 31,986
Investments in and advances to equity investees (2,797) (3,623) (41,018) (10,396) (21,463)
Net cash paid for acquisitions -- -- (9,694) -- --
Net purchases of property and equipment and other (407) (3,822) (28) (7,062) (7,664)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities 3,260 6,246 (32,710) (105,632) (115,948)
FINANCING ACTIVITIES
Receipts from interest sensitive products credited
to policyholder account balances 112,682 118,753 220,437 181,148 169,207
Return of policyholder account balances on
interest sensitive products (147,242) (108,778) (210,728) (153,784) (124,802)
Proceeds from short-term borrowings -- -- -- -- 8
Repayments of short-term borrowings -- -- -- -- (6,396)
Repayments of long-term debt (3) (1) (4) (1,199) (5,915)
Dividends paid (7,800) (29,700) (33,000) (5,135) (248)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities (42,363) (19,726) (23,295) 21,030 31,854
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 441 1,333 (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 $ 2,119 $ 3,135 $ 1,678 $ 1,802 $ --
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 4 $ 4 $ 8 $ 415 $ 1,086
Income taxes 9,802 31,528 48,876 17,694 16,833
</TABLE>
SEE ACCOMPANYING NOTES.
<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 June 30, 1998 and for the
three-month periods ended June 30, 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
six-month period ended June 30, 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
<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
<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.
<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.
<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.
Comprehensive income for the periods presented is as follows (dollars in
millions):
<TABLE>
<S> <C>
Three months ended June 30, 1998.................. $ 7.9
Three months ended June 30, 1997.................. 27.7
Six months ended June 30, 1998.................... 29.8
Six months ended June 30, 1997.................... 32.1
Year ended December 31, 1997...................... 76.0
Year ended December 31, 1996...................... 65.8
Year ended December 31, 1995...................... 96.0
</TABLE>
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
--------------------------------------------------------
--------------------------------------------------------
<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
------------------------------------------------------
------------------------------------------------------
</TABLE>
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<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>
<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.
<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).
<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.
<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.
<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.
<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%.
<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.
<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.
<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.
<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.
<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 31, DECEMBER 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.
Equitrust Investment Management 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
<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.
<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.
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<C> <C><S> <C>
(1) * Certified resolution of the board of directors of Farm Bureau Life
Insurance Company (the "Company") establishing Farm Bureau Life
Annuity Account III (the "Account").
(2) Not Applicable.
(3) * Form of Underwriting agreement among the Company, the Account and
EquiTrust Marketing Services, Inc. ("EquiTrust Marketing").
(4) * Contract Form
(5) * Form of Contract Application.
(6) * (a) Articles of Incorporation of the Company.
* (b) By-Laws of the Company.
(7) Not Applicable.
(8) * (a) Participation agreement relating to EquiTrust Variable
Insurance Series Fund.
(b) Participation agreement relating to
* (c) Participation agreement relating to T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Series, Inc.
(9) * Opinion and Consent of Stephen M. Morain, Esquire.
(10) * (a) Consent of Sutherland, Asbill & Brennan LLP.
* (b) Consent of Ernst & Young LLP.
* (c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA,
Life Product Development and Pricing Vice President.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) * Powers of Attorney.
</TABLE>
- ------------------------
* Attached as an exhibit.
[Additional exhibits to be filed by amendment.]
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
Incorporated herein by reference to the prospectus in the Form S-6 registration
statement (File No. 333-45805) for certain variable life insurance contracts
issued by the Company and filed with the Commission on February 6, 1998.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by FBL Financial Group, Inc. This Company and its
affiliates are described more fully in the prospectus included in this
registration statement. Various companies and other entities controlled by FBL
Financial Group, Inc., may therefore be considered to be under common control
with the registrant or the Company. Such other companies and entities, together
with the identity of the owners of their common stock (where applicable), are
set forth on the following diagram.
SEE ORGANIZATION CHART ON FOLLOWING PAGE
1
<PAGE>
FBL FINANCIAL GROUP, INC.
OWNERSHIP CHART
01/01/98
[CHART]
2
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of the date of the prospectus included in this registration statement, no
Contracts have been sold.
ITEM 28. INDEMNIFICATION
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 favor 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 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
reasonably 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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) EquiTrust Marketing Services, Inc. is the registrant's principal
underwriter and also serves as the principal underwriter of certain variable
annuity contracts and variable life insurance policies issued by other separate
accounts of the Company or its life insurance company affiliates supporting
other variable products or to other variable annuity and variable life insurance
separate accounts of insurance companies not affiliated with the Company.
(b) Officers and Directors of EquiTrust Marketing Services, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Stephen M. Morain General Counsel and Assistant Secretary, Iowa Farm Bureau Federation; General Counsel, Secretary
Senior Vice President, General and Director, Farm Bureau Management Corporation; Senior Vice President, General Counsel and
Counsel and Director Director, FBL Financial Group, Inc.; Senior Vice President and General Counsel, Farm Bureau Life
Insurance Company and other affiliates of the foregoing. Holds various positions with affiliates
of the foregoing. Director, Computer Aided Design Software, Inc., and Iowa Business Development
Finance Corporation Chairman, Edge Technologies, Inc.
William J. Oddy Chief Operating Officer, FBL Financial Group, Inc., Farm Bureau Life Insurance Company, Western
Chief Operating Officer and Farm Bureau Life Insurance Company and other affiliates of the foregoing. Holds various positions
Director with affiliates of the foregoing.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Dennis M. Marker Investment Vice President, Administration, FBL Financial Group, Inc. Holds various positions with
Investment Vice President, affiliates of the foregoing.
Administration, Secretary and
Director
Thomas R. Gibson Chief Executive Officer and Director, FBL Financial Group, Inc.; Chief Executive Officer, Farm
Chief Executive Officer and Bureau Life Insurance Company, Western Farm Bureau Life Insurance Company and other affiliates of
Director the foregoing. Holds various positions with affiliates of the foregoing.
Timothy J. Hoffman Chief Property/Casualty Officer, FBL Financial Group, Inc.; Vice President, Farm Bureau Life
Vice President and Director Insurance Company, Western Farm Bureau Life Insurance Company and other affiliates of the
foregoing. Holds various positions with affiliates of the foregoing.
James W. Noyce Chief Financial Officer, Farm Bureau Life Insurance Company, FBL Financial Group, Inc., Western
Chief Financial Officer, Farm Bureau Life Insurance Company and other affiliates of the foregoing. Holds various positions
Treasurer and Director with affiliates of the foregoing.
Thomas E. Burlingame Vice President - Associate General Counsel, FBL Financial Group, Inc. Holds various positions with
Director affiliates of the foregoing.
F. Walter Tomenga Vice President - Corporate Affairs and Marketing Services, FBL Financial Group, Inc. Holds various
Director positions with affiliates of the foregoing.
Lynn E. Wilson Vice President - Life Sales, FBL Financial Group, Inc. Holds various positions with affiliates of
President and Director the foregoing.
Lou Ann Sandburg Vice President - Investments and Assistant Treasurer, Farm Bureau Life Insurance Company, FBL
Vice President, Investments Financial Group, Inc., Western Farm Bureau Life Insurance Company and other affiliates of the
and Director foregoing. Holds various positions with affiliates of the foregoing.
James P. Brannen Tax and Investment Accounting Vice President, FBL Financial Group, Inc. Holds various positions
Tax and Investment Accounting with affiliates of the foregoing.
Vice President
Sue A. Cornick Market Conduct and Mutual Funds Vice President and Assistant Secretary, EquiTrust Investment
Market Conduct and Mutual Management Services, Inc., EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
Funds Vice President and EquiTrust Variable Insurance Series Fund.
Assistant Secretary
Kristi Rojohn Assistant Mutual Funds Manager and Assistant Secretary, EquiTrust Investment Management Services,
Assistant Mutual Funds Manager Inc.; Assistant Secretary, EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and
and Assistant Secretary EquiTrust Variable Insurance Series Fund.
Elaine A. Followwill Compliance Assistant and Assistant Secretary, EquiTrust Investment Management Services, Inc.;
Compliance Assistant and Assistant Secretary, EquiTrust Money Market Fund, Inc., EquiTrust Series Fund, Inc. and EquiTrust
Assistant Secretary Variable Insurance Series Fund
Roger F. Grefe Investment Management Vice President, FBL Financial Group, Inc. and EquiTrust Investment Management
Investment Management Vice Services, Inc.
President
Robert Rummelhart Fixed Income Vice President, FBL Financial Group, Inc. and EquiTrust Investment Management
Fixed Income Vice President Services, Inc.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
- ------------------------------ ---------------------------------------------------------------------------------------------------
<S> <C>
Charles T. Happel Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
Laura Kellen Beebe Portfolio Manager, EquiTrust Investment Management Services, Inc.
Portfolio Manager
</TABLE>
- ------------------------
* The principal business address of all of the persons listed above is 5400
University Avenue, West Des Moines, Iowa 50266.
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 5400 University Avenue, West Des Moines, Iowa
50266.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this registration
statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment
to this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for as long as purchase payments under the contracts offered
herein are being accepted.
(b) The registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a statement of additional information, or (2) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove and send to the Company for a statement
of additional information.
(c) The registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request to the Company at the
address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the requirements of
Section 403(b) of the Internal Revenue Code of 1986, it is relying on a no-
action letter dated November 28, 1988, to the American Council of Life Insurance
(Ref. No. IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the
Investment Company Act of 1940, and that paragraphs numbered (1) through (4) of
that letter will be complied with.
(e) The Company represents that the aggregate charges under the Contracts
are reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by the Company.
5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Farm Bureau Life Annuity Account III 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 10th day
of August, 1998.
Farm Bureau Life Insurance Company
Farm Bureau Life Annuity Account III
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
As required by 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.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ EDWARD M. WIEDERSTEIN President and Director
- ----------------------------------- [Principal Executive August 10, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ----------------------------------- [Principal Financial August 10, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ----------------------------------- [Principal Accounting August 10, 1998
James W. Noyce Officer]
- ----------------------------------- Vice President and August 10, 1998
Craig A. Lang* Director
- ----------------------------------- Director August 10, 1998
Kenneth R. Ashby*
- ----------------------------------- Director August 10, 1998
Al Christopherson*
- ----------------------------------- Director August 10, 1998
Ernest A. Glienke*
- ----------------------------------- Director August 10, 1998
Philip A. Hemesath*
- ----------------------------------- Director August 10, 1998
Craig D. Hill*
- ----------------------------------- Director August 10, 1998
Daniel L. Johnson*
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
- ----------------------------------- Director August 10, 1998
Richard G. Kjerstad*
- ----------------------------------- Director August 10, 1998
Lindsey D. Larson*
- ----------------------------------- Director August 10, 1998
David R. Machacek*
- ----------------------------------- Director August 10, 1998
Donald O. Narigon*
- ----------------------------------- Director August 10, 1998
Bryce P. Neidig*
- ----------------------------------- Director August 10, 1998
Charles E. Norris*
- ----------------------------------- Director August 10, 1998
Keith R. Olsen*
- ----------------------------------- Director August 10, 1998
Bennett M. Osmonson*
- ----------------------------------- Director August 10, 1998
Howard D. Poulson*
- ----------------------------------- Director August 10, 1998
Sally A. Puttmann*
- ----------------------------------- Director August 10, 1998
Beverly L. Schnepel*
- ----------------------------------- Director
F. Gary Steiner*
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Farm Bureau Life
Annuity Account III, 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 10th day of August, 1998.
Farm Bureau Life Annuity Account III
(Registrant)
By: Farm Bureau Life Insurance Company
(Depositor)
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
* /s/ STEPHEN M. MORAIN Attorney-In-Fact,
------------------------ Pursuant to Power of
Stephen M. Morain Attorney.
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1 Certified resolution of the board of directors of Farm
Bureau Life Insurance Company establishing Farm Bureau
Life Annuity Account III.
3(a) Form of Underwriting agreement among the Company, the
Account and EquiTrust Marketing Services, Inc.
4 Contract Form.
5 Contract Application.
6(a) Articles of Incorporation of the Company.
(b) By-Laws of the Company.
8(a) Participation agreement relating to EquiTrust Variable
Insurance Series Fund.
(c) Participation agreement relating to T. Rowe Price
Equity Series, Inc. and T. Rowe Price International
Series, Inc.
9 Opinion and consent of Stephen M. Morain, Esquire.
10(a) Consent of Sutherland, Asbill & Brennan LLP.
10(b) Consent of Ernst & Young LLP.
10(c) Opinion and Consent of Christopher G. Daniels, FSA,
MSAA, Life Product Development and Pricing Vice
President.
14 Powers of Attorney.
</TABLE>
<PAGE>
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
FARM BUREAU LIFE INSURANCE COMPANY
January 6, 1998
RESOLVED, that the Board of Directors of Farm Bureau Life Insurance Company (the
"Company"), hereby establishes a separate account, pursuant to the provisions of
Section 508A.1 of the Insurance Laws of the State of Iowa, designated Farm
Bureau Life Annuity Account III (hereinafter the "Variable Account"), for the
following use and purposes, and subject to such conditions as hereinafter set
forth; and
FURTHER RESOLVED, that the Variable Account is established for the purpose of
providing for the issuance by the Company of certain variable annuity contracts
(the "Contracts"), and shall constitute a funding medium to support reserves
under such Contracts issued by the Company; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to the Variable Account shall be credited to or charged
against the Variable Account, without regard to other income, gains or losses of
the Company; and
FURTHER RESOLVED, that the assets of the Variable Account equal to the reserves
and other liabilities under the Contracts and any other variable annuity
contracts issued through the Variable Account may not be charged with
liabilities arising out of any other business the Company may conduct; and
FURTHER RESOLVED, that the Variable Account shall be divided into investment
subaccounts (the "Subaccounts"), each of which shall invest in the shares of a
mutual fund portfolio, and net payments under the Contracts shall be allocated
among the Subaccounts in accordance with instructions received from owners of
the Contracts; and
FURTHER RESOLVED, that the Executive Committee of the Board of Directors be, and
it hereby is, authorized to add or remove any Subaccount of the Variable Account
or add or remove any mutual fund portfolio as may hereafter be deemed necessary
or appropriate; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to each Subaccount of the Variable Account shall be
credited to or charged against such Subaccount of the Variable Account, without
regard to other income, gains or losses of any other Subaccount of the Variable
Account; and
1
<PAGE>
FURTHER RESOLVED, that the Executive Committee be, and it hereby is, authorized
to invest such amount or amounts of the Company's cash in the Variable Account
or in any Subaccount thereof or in any mutual fund portfolio as may be deemed
necessary or appropriate to facilitate the commencement of the Variable
Account's and/or the mutual fund portfolio's operations and/ or to meet any
minimum capital requirements under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
FURTHER RESOLVED, that the Chief Executive Officer, Chief Operating Officer, and
Chief Financial Officer (hereafter, the "empowered officers") and each of them,
with full power to act without the others, be, and they hereby are, severally
authorized to transfer cash from time to time from the Company's general account
to the Variable Account, or from the Variable Account to the general account, as
deemed necessary or appropriate and consistent with the terms of the Contracts;
and
FURTHER RESOLVED, that the Board of Directors of the Company reserves the right
to change the designation of the Variable Account hereafter to such other
designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, with such assistance from the Company's independent
certified public accountants, legal counsel and independent consultants or
others as they may require, be, and they hereby are, severally authorized and
directed to take all action necessary to: (a) register the Variable Account as
a unit investment trust under the 1940 Act; (b) register the Contracts under the
Securities Act of 1933 (the "1933 Act"); and (c) take all other actions that are
necessary in connection with the offering of the Contracts for sale and the
operation of the Variable Account in order to comply with the 1940 Act, the 1933
Act, the Securities Exchange Act of 1934 and other applicable Federal laws,
including the filing of any registration statements, any undertakings, no-action
requests, consents, applications for exemptions from the 1940 Act or other
applicable federal laws, and any amendments to the foregoing as the empowered
officers of the Company shall deem necessary or appropriate; and
FURTHER RESOLVED, that the empowered officers and each of them, with full
power to act without the others, are severally authorized and empowered to
prepare, execute and cause to be filed with the Securities and Exchange
Commission on behalf of the Variable Account, and by the Company as sponsor
and depositor, a Notification of Registration on Form N-8A, a registration
statement on Form N-4 registering the Variable Account under the 1940 Act and
registering the Contracts under the 1933 Act, and any and all amendments to
the foregoing on behalf of the Variable Account and the Company and on behalf
of and as attorneys-in-fact for the empowered officers and/or any other
officer of the Company; and
FURTHER RESOLVED, that Stephen M. Morain, Senior Vice President and General
Counsel (and any successor to such position), is duly appointed as agent for
service under any such registration statement, duly authorized to receive
communications and notices from the Securities and Exchange Commission with
respect thereto; and
2
<PAGE>
FURTHER RESOLVED, that the empowered officers and each of them, with full
power to act without the others, are severally authorized on behalf of the
Variable Account and on behalf of the Company to take any and all action that
each of them may deem necessary or advisable in order to offer and sell the
Contracts, including any registrations, filings and qualifications both of
the Company, its officers, agents and employees, and of the Contracts, under
the insurance and securities laws of any of the states of the United States
of America or other jurisdictions, and in connection therewith to prepare,
execute, deliver and file all such applications, requests, undertakings,
reports, covenants, resolutions, applications for exemptions, consents to
service of process and other papers and instruments as may be required under
such laws, and to take any and all further action which such officers or
legal counsel of the Company may deem necessary or desirable (including
entering into whatever agreements and contracts may be necessary) in order to
maintain such registrations or qualifications for as long as the officers or
legal counsel deem it to be in the best interests of the Variable Account and
the Company; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and they hereby are, severally authorized in the
names and on behalf of the Variable Account and the Company: (a) to execute and
file irrevocable written consents on the part of the Variable Account and of the
Company to be used in such states wherein such consents to service of process
may be required under the insurance or securities laws therein in connection
with the registration or qualification of the Contracts; and (b) to appoint the
appropriate state official, or such other person as may be allowed by insurance
or securities laws, agent of the Variable Account and of the Company for the
purpose of receiving and accepting process; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, be, and hereby are, severally authorized to establish
procedures under which the Company will provide voting rights for owners of the
Contracts with respect to securities owned by the Variable Account; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute such
agreement or agreements as deemed necessary and appropriate (a) with a qualified
entity under which such entity will be appointed principal underwriter and
distributor for the Contracts, (b) with one or more qualified entities to
provide administrative services in connection with the establishment and
maintenance of the Variable Account and the administration of the Contracts, and
(c) with the designated mutual fund portfolios and/or the principal underwriter
and distributor of such mutual fund portfolios for the purchase and redemption
of portfolio shares; and
FURTHER RESOLVED, that the empowered officers and each of them, with full power
to act without the others, are hereby severally authorized to execute and
deliver such agreements and other documents and do such acts and things as each
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
3
<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 III ("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, 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>
- --------------------------------------------------------------------------------
NON-PARTICIPATING
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY POLICY
RETIREMENT BENEFIT PAYABLE ON THE RETIREMENT DATE. DEATH BENEFIT PAYABLE AT
DEATH BEFORE THE RETIREMENT DATE. FLEXIBLE PREMIUMS PAYABLE FOR THE
ANNUITANT'S LIFE OR UNTIL THE RETIREMENT DATE. THE ACCUMULATED VALUE IN THE
VARIABLE ACCOUNT IS BASED ON THE INVESTMENT EXPERIENCE OF THAT ACCOUNT, AND
MAY INCREASE OR DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. THE
VARIABLE FEATURES OF THIS POLICY ARE DESCRIBED ON PAGES 9 AND 10.
Farm Bureau Life Insurance Company will pay the benefits of this policy subject
to all of its terms.
RIGHT TO EXAMINE POLICY
The owner may cancel this policy by delivering or mailing a written notice or
sending a telegram or fax to the agent through whom it was purchased or the Farm
Bureau Life Insurance Company, 5400 University Avenue, West Des Moines, Iowa
50266-5997 and by returning the policy or contract before midnight of the
twentieth day after the date you receive the policy. Notice given by mail and
return of the policy or contract by mail are effective on being postmarked,
properly addressed and postage prepaid. Farm Bureau Life will refund, within
seven days after it receives the returned policy, an amount equal to the greater
of the premiums paid or the sum of:
a) the accumulated value of the policy on the date the policy is received at
the home office;
b) any administrative charges which were deducted; and
c) amounts equal to daily charges against the variable account.
Signed for and on behalf of Farm Bureau Life Insurance Company at its home
office at 5400 University Avenue, West Des Moines, Iowa, 50266-5997, effective
as of the date of issue of this policy.
/s/ Edward M. Wiederstein /s/ Richard D. Harris
President Secretary
FARM BUREAU LIFE INSURANCE COMPANY [LOGO]
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266-5997
- --------------------------------------------------------------------------------
<PAGE>
This policy is a legal contract between the owner and Farm Bureau Life Insurance
Company.
READ YOUR POLICY CAREFULLY
INDEX OF MAJOR POLICY PROVISIONS
POLICY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3
Annuitant; Age; Sex; Policy Number; Policy Date; Owner(s);
Normal Retirement Date; Interest Rates; Schedule of Forms
and Premiums; Schedule of Charges; Schedule of Investment
Options.
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . Page 5
1.1 You or Your; 1.2 Annual Administrative Charge; 1.3
Annuitant; 1.4 Age; 1.5 Beneficiary; 1.6 Business Day; 1.7
Declared Interest Option; 1.8 Due Proof of Death; 1.9
Eligibility for Waiver of Surrender Charge; 1.10 Fund;
1.11 General Account; 1.12 Home Office; 1.13 Owner;
1.14 Physician; 1.15 Policy Anniversary; 1.16 Policy
Date; 1.17 Policy Year; 1.18 Retirement Date; 1.19 SEC;
1.20 Surrender Charge; 1.21 Qualified Nursing Care Center;
1.22 Valuation Period; 1.23 Variable Account; 1.24 We, Our,
Us or the Company.
SECTION 2 - THE CONTRACT. . . . . . . . . . . . . . . . . . . . . . . Page 6
2.1 Retirement Date; 2.2 Contract; 2.3 Modification; 2.4
Incontestable Clause; 2.5 Misstatement of Age or Sex; 2.6
Return of Policy and Policy Settlement; 2.7 Termination;
2.8 Non-Participation.
SECTION 3 - OWNERSHIP AND BENEFICIARIES . . . . . . . . . . . . . . . Page 7
3.1 Ownership; 3.2 Beneficiary; 3.3 Change of Owner or
Beneficiary; 3.4 Assignment.
SECTION 4 - PREMIUMS. . . . . . . . . . . . . . . . . . . . . . . . . Page 7
4.1 Premium Payment; 4.2 Payment Frequency; 4.3 Unscheduled
Premiums; 4.4 Allocation of Premiums.
SECTION 5 - ANNUITY AND DEATH BENEFITS. . . . . . . . . . . . . . . . Page 8
5.1 Annuity Benefit; 5.2 Death Benefit; 5.3 Death of Owner;
5.4 Death Proceeds at Death of Annuity During Accumulation
Period.
SECTION 6 - VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . Page 9
6.1 Variable Account; 6.2 Subaccounts; 6.3 Fund Portfolios;
6.4 Transfers.
SECTION 7 - ACCUMULATED VALUE BENEFITS. . . . . . . . . . . . . . . . Page 10
7.1 Accumulated Value; 7.2 Net Accumulated Value; 7.3
Variable Accumulated Value; 7.4 Subaccount Units; 7.5 Unit
Value; 7.6 Declared Interest Option Accumulated Value;
7.7 Declared Interest Option Interest; 7.8 Surrender; 7.9
Surrender Charge; 7.10 Ten Percent Withdrawal Privilege;
7.11 Waiver of Surrender Charge; 7.12 Partial Withdrawal;
7.13 Delay of Payment; 7.14 Tax Charges; 7.15 Annual Report.
SECTION 8 - PAYMENT OF PROCEEDS . . . . . . . . . . . . . . . . . . . Page 14
8.1 Choice of Options; 8.2 Payment Options; 8.3 Interest
and Mortality; 8.4 Requirements; 8.5 Effective Date;
8.6 Death of Payee; 8.7 Withdrawal of Proceeds; 8.8 Claims
of Creditors.
PAYMENT OPTION TABLES . . . . . . . . . . . . . . . . . . . . . . . . Page 15
Any additional benefits and endorsements which apply to this policy are listed
on the policy data page and are described in the forms which follow page 15 of
this policy.
<PAGE>
POLICY DATA
Annuitant [JOHN DOE]
Age [35]
Sex [MALE]
Policy Number [12345]
Policy Date [03-01-1998]
Owner(s) [JOHN DOE]
Normal Retirement Date [11-01-2026]
On Declared Interest Option:
Guaranteed Interest Rate 3.00%
Current Interest Rate [5.50%]
Current Interest Rate guaranteed to: [03-01-1999]
*************************SCHEDULE OF FORMS AND PREMIUMS*************************
Form No. Description
- ------- -----------
434-062(06-98) NON-PARTICIPATING FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
<PAGE>
SCHEDULE OF CHARGES
Annual Administrative Charge: [$45.00 per year]
Transfer Charge: [$25]
Mortality and Expense Risk Charge: [.0038091% of the variable
cash value per day (equivalent
to 1.40% per year).]
A surrender charge will apply during the first [9] policy years.
[The surrender charge will be as shown in the following table:
Surrender Charge
Policy Year (as a percent of Accumulated Value)
- ----------- -----------------------------------
1 8.5%
2 8.0%
3 7.5%
4 7.0%
5 6.5%
6 6.0%
7 5.0%
8 3.0%
9 1.0%
Thereafter 0%]
However, the total surrender charge assessed will never exceed 8.5% of the
premiums paid.
SCHEDULE OF INVESTMENT OPTIONS
General Account: The general assets of Farm Bureau Life Insurance
Company.
Separate Account: Farm Bureau Life Annuity Account III
Subaccounts: Fund
EquiTrust - Value Growth EquiTrust Variable Insurance Series Fund
EquiTrust - High Grade Bond EquiTrust Variable Insurance Series Fund
EquiTrust - High Yield Bond EquiTrust Variable Insurance Series Fund
EquiTrust - Money Market EquiTrust Variable Insurance Series Fund
EquiTrust - Blue Chip EquiTrust Variable Insurance Series Fund
T.Rowe - Intl Stock T.Rowe Price International Series, Inc.
T.Rowe - MidCap Growth T.Rowe Price Equity Series, Inc.
T.Rowe - New America Growth T.Rowe Price Equity Series, Inc.
T.Rowe - Equity Income T.Rowe Price Equity Series, Inc.
T.Rowe - Pers Strategy Bal T.Rowe Price Equity Series, Inc.
Form Number 434-062(06-98)
Policy Number 1234567
4
<PAGE>
- --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- --------------------------------------------------------------------------------
1.1 YOU OR YOUR
means the owner, or owners, of this policy.
1.2 ANNUAL ADMINISTRATIVE CHARGE
means a fee that is charged yearly. The annual administrative charge may go up
or down but is guaranteed not to exceed $45. The annual administrative charge as
of the policy date is shown on the policy data page.
1.3 ANNUITANT
The person (or persons) whose life (or lives) determine(s) the annuity and
death benefit. No more than two Annuitants may be named. Provisions referring to
the death of an Annuitant mean the last surviving Annuitant.
1.4 AGE
means age at the last birthday.
1.5 BENEFICIARY
The person (or persons) named by you to whom the proceeds payable on the
death of the Annuitant will be paid. Prior to the retirement date, if no
beneficiary survives the annuitant, you or your estate will be the
beneficiary.
1.6 BUSINESS DAY
means a day when the New York Stock Exchange is open for trading, except for the
day after Thanksgiving, any other designated Company holidays, and any day the
home office is closed because of a weather-related or comparable type of
emergency. Assets are valued at the close of the business day.
1.7 DECLARED INTEREST OPTION
means an option pursuant to which accumulated value accrues interest at a
guaranteed minimum rate. The declared interest option is supported by the
general account.
1.8 DUE PROOF OF DEATH
Proof of death satisfactory to us. Such proof may consist of a certified copy
of the death record, a certified copy of a court decree reciting a finding of
death, or any other proof satisfactory to us.
1.9 ELIGIBILITY FOR WAIVER OF SURRENDER CHARGE
means the annuitant:
a) is diagnosed by a Qualified Physician as having a terminal illness. A
terminal illness is any disease or medical condition which the
Qualified Physician expects will result in death within one year;
b) stays in a Qualified Nursing Care Center for 90 days; or
d) is required to satisfy the minimum distribution requirement of
Sec. 401(a) 9 of the Internal Revenue Code.
1.10 FUND
means the investment options shown on the policy data page. The corresponding
funds are registered with the SEC under the Investment Company Act of 1940 as
open-end diversified management investment companies or unit investment trusts.
1.11 GENERAL ACCOUNT
means all our assets other than those allocated to the variable account or any
other separate account. We have complete ownership and control of the assets of
the general account.
1.12 HOME OFFICE
means Farm Bureau Life Insurance Company at its home office, 5400 University
Avenue, West Des Moines, Iowa, 50266-5997.
1.13 OWNER
The person (or persons) who own(s) the policy and who is entitled to exercise
all rights and privileges provided in the policy. The original owner(s) is shown
on the policy data page.
1.14 QUALIFIED PHYSICIAN
means a licensed, medical practitioner performing within the scope of his/her
license. Such person must be someone other than you, the annuitant, or a member
of the immediate family of either you or the annuitant.
1.15 POLICY ANNIVERSARY
means the same date in each year as the policy date.
1.16 POLICY DATE
means the policy date shown on the policy data page. This date is used to
determine policy years and anniversaries. The date of issue is equal to the
policy date.
1.17 POLICY YEAR
means the 12-month period that begins on the policy date or on a policy
anniversary.
1.18 RETIREMENT DATE
means the policy anniversary nearest the
5
<PAGE>
retirement age chosen in the application. If no age is chosen, age 70 will be
used. Subject to the payment option provisions, the owner may change the
retirement date at any time. However, the retirement date may not be changed
after payments begin.
1.19 SEC
means the Securities and Exchange Commission, a U.S. government agency.
1.20 SURRENDER CHARGE
means a fee that is applied at the time of any partial or full surrender. The
surrender charges are shown on the policy data page.
1.21 QUALIFIED NURSING CARE CENTER
means a long term care center that is licensed to operate according to the laws
of their location. The following are qualified nursing care centers:
a) Skilled Nursing Center - means a center:
i) That provides skilled nursing care supervised by a licensed
physician;
ii) That provides 24-hour nursing care by, or supervised, an R.N.;
and
iii) That keeps daily medical record of each patient.
b) Intermediate Care Center - means a center:
i) That provides 24-hour nursing care by, or supervised by an R.N.
or an L.P.N.; and
ii) That keeps a daily medical record of each patient.
c) Hospital - means a center:
i) That operates for the care and treatment of sick or injured
persons as inpatients;
ii) That provides 24-hour nursing care by, or supervised by, an R.N.;
iii) That is supervised by a staff of licensed physicians; and
iv) That has medical, diagnostic, and major surgery capabilities or
access to such capabilities.
Qualified Nursing Care Center does not include:
a) Drug or alcohol treatment centers;
b) Home for the aged or mentally ill, community living centers, or places
that primarily provide domiciliary, residency or retirement care;
c) Places owned or operated by a member of the annuitant's immediate
family.
1.22 VALUATION PERIOD
means the period between the close of business on a business day and the close
of business on the next business day.
1.23 VARIABLE ACCOUNT
means the Separate Account shown on the policy data page. It is a unit
investment trust registered with the SEC under the Investment Company Act of
1940.
1.24 OUR, US OR THE COMPANY
means the Farm Bureau Life Insurance Company.
- --------------------------------------------------------------------------------
SECTION 2 - THE CONTRACT
- --------------------------------------------------------------------------------
2.1 RETIREMENT DATE
The owner may choose a retirement date on the application. However, such
retirement date may not be after the latest of the annuitant's 70th birthday or
the 10th policy anniversary. If no date is chosen on the application, age 70
will be used. The owner may change the retirement date at any time. However, the
retirement date may not be changed after payments begin. However, if the policy
is subject to Internal Revenue Service minimum distribution requirements, we
will begin distributions as required.
2.2 CONTRACT
This policy is a legal contract. We issue this policy in consideration of the
first premium and the statements in the application. The entire contract
consists of:
a) the basic policy;
b) any endorsements or additional benefit riders;
c) the attached copy of your application; and
d) any amendments, supplemental applications or other attached papers.
We rely on statements made in the application for the policy. These statements
in the absence of fraud are deemed representations and not warranties. No
statement will void this policy or be used in defense of a claim unless:
a) it is contained in the application; and
b) such application is attached to this policy.
2.3 MODIFICATION
No one can change any part of this policy except
6
<PAGE>
the owner and one of our officers. Both must agree to a change, and it must be
in writing. No agent may change this policy or waive any of its provisions.
2.4 INCONTESTABLE CLAUSE
We will not contest this policy from its policy date.
2.5 MISSTATEMENT OF AGE OR SEX
We have the right to correct benefits for misstated age or sex. In such an
event, benefits will be the amount the premium actually paid would have bought
at the correct age or sex.
2.6 RETURN OF POLICY AND POLICY SETTLEMENT
We reserve the right to have this policy sent to us for any:
a) modification; b) death settlement; c) surrender or partial surrender;
d) assignment; e) change of owner or beneficiary; f) election; or g) exercise
of any policy privilege.
We will send a payment contract to replace this policy if any payment option is
chosen. All sums to be paid by us under this policy are considered paid when
tendered by us at our home office.
2.7 TERMINATION
This policy ends when any one of the following events occurs:
a) the owner requests that the policy be canceled;
b) the annuitant dies; or
c) the policy is surrendered.
2.8 NON-PARTICIPATION
This policy does not share in the Company's surplus or profits.
- --------------------------------------------------------------------------------
SECTION 3 - OWNERSHIP AND BENEFICIARIES
- --------------------------------------------------------------------------------
3.1 OWNERSHIP
The owner has all rights, title and interest in the policy during the
accumulation period and while the annuitant is living. You may exercise all
rights and options stated in the policy, subject to the rights of any
irrevocable beneficiary.
3.2 BENEFICIARY
Beneficiaries are as named in the application, unless changed by the owner. The
interests of any beneficiary in a class who dies before the annuitant will pass
to any survivors of the class, unless the policy provides otherwise. Secondary
beneficiaries will have the right to receive the proceeds only if no primary
beneficiary survives. If no beneficiary survives the annuitant, we will pay the
proceeds to you or your estate.
In finding and identifying beneficiaries we may rely on sworn statements, other
facts, or evidence we deem satisfactory. Any benefits we pay based on such
information will be a valid discharge of our duty up to the amount paid.
3.3 CHANGE OF OWNER OR BENEFICIARY
While the annuitant lives, a change of owner or beneficiary can be made at any
time, subject to the following rules:
a) the change must be in writing on a form acceptable to us;
b) it must be signed by the owner;
c) if the owner is more than one person, the written notice for change must be
signed by all persons named as owner;
d) the form must be sent to and recorded by us;
e) a request for change of beneficiary must be signed by any irrevocable
beneficiary; and
f) the change will take effect on the date signed, but it will not apply to
any payment or action by us before we receive the form.
3.4 ASSIGNMENT
No assignment of this policy will bind us unless:
a) it is in writing on a form acceptable to us;
b) signed by the owner; and
c) received by us at our home office.
We will not be responsible for the validity of an assignment.
- --------------------------------------------------------------------------------
SECTION 4 - PREMIUMS
- --------------------------------------------------------------------------------
4.1 PREMIUM PAYMENT
Premium payments may be made at any time. However, we reserve the right to limit
or restrict the amount of a premium payment as we deem appropriate. Premiums are
to be paid at our home office. The first premium must be equal to or greater
than $1,000. Thereafter, premium payments are flexible as to both timing and
amount. Each premium is to be paid at our home office. No payment may be less
than $50 without our consent.
4.2 PAYMENT FREQUENCY
The first premium is due on or prior to the policy
7
<PAGE>
date. We will send periodic reminder notices to the owner. The minimum amount
for which such notice will be sent will be $50. A reminder notice may be sent
for different periods, which may be 12, 6, or 3 months. The reminder notice
period may be changed upon request.
4.3 UNSCHEDULED PREMIUMS
Unscheduled premium payments of at least $50 may be made at any time prior to
the maturity date. The Company may, in its discretion, waive the $50 minimum
requirements. The Company reserves the right to limit the number and amount
of unscheduled premium payments.
4.4 ALLOCATION OF PREMIUM
The owner will determine the percentage of premium that will be allocated to
each subaccount of the variable account and to the declared interest option. The
owner may choose to allocate all the premium, a percentage or nothing to a
particular subaccount or to the declared interest option. Any allocation must be
for at least 10% of the premium. A fractional percent may not be chosen.
On the policy date, premiums will be initially allocated to the money market
subaccount. On the eleventh day following the policy date, we will transfer part
or all of the accumulated value in the money market subaccount to the
subaccounts or the declared interest option in accordance with the premium
allocation percentages shown in the application. For any premium received after
we receive the signed form, the premium will be allocated in accordance with the
premium allocation percentages shown in the application or the most recent
written instructions of the owner.
The owner may change the allocation for future premiums at any time, subject to
the following rules:
a) the policy must be in force;
b) there must be an accumulated value;
c) the change must be in writing on a form acceptable to us;
d) the form must be signed by the owner;
e) the change will take effect on the business day on or next following the
date we receive the signed form at our home office.
A change of allocation of future premiums does not affect current accumulated
values.
- --------------------------------------------------------------------------------
SECTION 5 - ANNUITY AND DEATH BENEFITS
- --------------------------------------------------------------------------------
5.1 ANNUITY BENEFIT
If the annuitant lives to the retirement date, we will pay the annuitant a
monthly income for the rest of the annuitant's life beginning on the retirement
date if:
a) this policy is in force on the retirement date;
b) the owner has not elected to have the accumulated value paid in a single
sum; and
c) the owner has not elected a payment option.
The amount of payments will be obtained by applying the accumulated value under
payment option 3. We will make at least 120 payments. After 120 payments the
annuitant must be living to receive further payments. If the annuitant dies
before 120 payments have been received, any remaining payments will be paid to
the beneficiary. If no beneficiary survives, we will pay the commuted value, as
determined by us, of any remaining payments to the estate of the last
beneficiary to die.
5.2 DEATH OF ANNUITANT DURING ACCUMULATION PERIOD
If the sole annuitant dies during the accumulation period and the annuitant is
not an owner, we will pay the death benefit to the beneficiary. The beneficiary
may elect to apply this sum under one of the annuity payment options as payee.
See Section 5.3 if you are the annuitant.
5.3 DEATH OF OWNER
If any owner dies prior to the retirement date and the deceased owner is the
sole annuitant, we will pay the death benefit to the beneficiary in one sum
within five (5) years of the deceased owner's death. The beneficiary may elect
(within 60 days of the date we receive due proof of death) to apply this sum
under one of the annuity payment options as payee, provided:
a) payments under the annuity payment option begin not later than one (1)
year after the owner's death; and
b) payments will be payable for the life of the beneficiary, or over a
period not greater than the beneficiary's life expectancy.
If any owner dies and the deceased owner is not the annuitant (or a co-annuitant
survives the
8
<PAGE>
deceased owner/annuitant), the new owner will be the surviving owner if any. The
new owner will be the annuitant (unless otherwise provided) if there are no
surviving owners. If the sole new owner is the deceased owner's spouse, the
contract may be continued. If the new owner is someone other than the deceased
owner's spouse, the surrender value of the policy must be distributed within
five (5) years of the deceased owner's death.
If any owner dies on or after the retirement date, but before all proceeds
payable under this contract have been distributed, we will continue payments to
the annuitant (or, if the deceased owner was the annuitant, to the beneficiary)
under the payment method in effect at the time of the deceased owner's death.
For purposes of this section, if any owner of this contract is not an
individual, the death or change of any annuitant shall be treated as the death
of an owner.
5.4 DEATH PROCEEDS AT DEATH OF ANNUITANT DURING ACCUMULATION PERIOD
The death proceeds will be determined based on the annuitant's age on the policy
date. If there is more than one annuitant, we will use the age of the last
surviving annuitant.
If the annuitant's age on the policy date is:
a) less than 76, the death proceeds will be equal to the greater of:
1) the sum of all premium payments less any partial withdrawals, as of
the date due proof of death is received;
2) the accumulated value as of the date due proof of death is received;
3) the death benefit anniversary amount as of the date of death plus any
premium payment made and less any partial withdrawals since the most
recent death benefit anniversary prior to death;
The death benefit anniversary amount is equal to the accumulated value
on the most recent policy anniversary. The death benefit anniversary
amount is determined on the first policy anniversary and on each
subsequent policy anniversary thereafter.
b) 76 or greater, the death benefit is equal to the greater of:
1) the sum of all premium payments less any partial withdrawals, as of
the date due proof of death is received; or
2) the accumulated value as of the date due proof of death is received.
- --------------------------------------------------------------------------------
SECTION 6 - VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
6.1 VARIABLE ACCOUNT
We own the assets of the variable account. We will value the assets of the
variable account each business day. The assets of such account will be kept
separate from the assets of our general account and any other separate accounts.
Income, and realized and unrealized gains or losses from assets in the variable
account will be credited to or charged against such account without regard to
our other income, gains or losses.
That portion of the assets of the variable account which equals the reserves and
other policy liabilities of the policies which are supported by the variable
account will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our general account any assets of the
variable account which are in excess of such reserves and other policy
liabilities.
While the variable account is registered with the SEC and thereby subject to SEC
rules and regulations, it is also subject to the laws of the State of Iowa which
regulate the operations of insurance companies incorporated in Iowa. The
investment policy of the variable account will not be changed without the
approval of the Insurance Commissioner of the State of Iowa. The approval
process is on file with the insurance commissioner of the state in which this
policy was delivered.
We also reserve the right to transfer assets of the variable account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
"variable account," as used in this policy, shall then mean the variable account
to which the assets were transferred.
When permitted by law, we also reserve the right to:
a) deregister the variable account under the Investment Company Act of 1940;
b) manage the variable account under the direction
9
<PAGE>
of a committee;
c) restrict or eliminate any voting rights of owners, or other persons who
have voting rights as to the variable account; and
d) combine the variable account with other separate accounts.
6.2 SUBACCOUNTS
The variable account is divided into subaccounts. The subaccounts are listed on
page 4. Subject to obtaining any approvals or consents required by applicable
law, we reserve the right to eliminate or combine any subaccounts and the right
to transfer the assets of one or more subaccounts to any other subaccount. We
also reserve the right to add new subaccounts and make such subaccounts
available to any class or series of policies as we deem appropriate. Each new
subaccount would invest in a new investment option of the fund, or in shares of
another investment company. The owner will determine the percentage of premium
that will be allocated to each subaccount in accordance with the allocation of
premium provision.
6.3 FUND INVESTMENT OPTIONS
The fund has several investment options each of which corresponds to one of the
subaccounts of the variable account. The investment options are listed on the
policy data page. Premiums allocated to a subaccount will automatically be
invested in the fund investment option associated with that subaccount. The
owner will share only in the income, gains or losses of the investment option(s)
where shares are held.
We have the right, subject to compliance with any applicable laws, to make:
a) additions to;
b) deletions from; or
c) substitutions for;
the shares of a fund investment option that are held by the variable account or
that the account may purchase.
We also reserve the right to dispose of the shares of an investment option of
the fund listed on page 4 and to substitute shares of another investment option
of such fund or another mutual fund investment option, if:
a) the shares of the investment option are no longer available for investment;
or
b) if in our judgment further investment in the investment option should
become inappropriate in view of the purposes of the variable account.
In the event of any substitution or change, we may, by appropriate endorsement,
make such changes in this and other policies as may be necessary or appropriate
to reflect the substitution or change.
6.4 TRANSFERS
The owner may transfer all or part of the accumulated value among the
subaccounts of the variable account and between the subaccounts and
the declared interest option, subject to the following rules:
a) The transfer request must be in writing on a form acceptable to us.
b) The form must be signed by the owner.
c) The transfer will take effect as of the end of the valuation period during
which we receive the signed form at our home office.
d) The owner may transfer amounts among the subaccounts of the variable
account an unlimited number of times in a policy year.
e) The owner may transfer amounts from the declared interest option to the
variable account an unlimited number of times. Amounts transferred from the
declared interest option are considered transferred on a last-in-first-out
basis.
f) The first twelve transfers in each policy year will be made without a
transfer charge. Thereafter, each time amounts are transferred a transfer
charge may be imposed. This transfer charge is shown on the policy data
page.
g) The accumulated value on the date of the transfer will not be affected by
the transfer except to the extent of the transfer charge. Unless paid in
cash, the transfer charge will be deducted on a pro rata basis from the
declared interest option and/or the subaccounts to which the transfer is
made.
h) The owner must transfer at least:
(1) a total of $100; or
(2) the total accumulated value in the subaccount or the total
accumulated value in the declared interest option, if the total
amount transferred is less than $100.
i) No more than 25% of the accumulated value in the declared interest option
may be transferred unless the balance in the declared interest option after
the transfer would be less than $1,000. If the balance in the declared
interest option would fail below $1,000, the accumulated value in the
declared interest option may be transferred.
10
<PAGE>
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SECTION 7 - ACCUMULATED VALUE BENEFITS
- --------------------------------------------------------------------------------
7.1 ACCUMULATED VALUE
The accumulated value of this policy will be the sum of:
a) the accumulated value in the subaccounts of the variable account; plus
b) the accumulated value in the declared interest option.
All of the values are the same or more than the minimums set by the laws of the
state where the policy is delivered.
7.2 NET ACCUMULATED VALUE
The net accumulated value of this policy will be the accumulated value less a
surrender charge. All of the values are the same or more than the minimums set
by the laws of the state where the policy is delivered.
7.3 VARIABLE ACCUMULATED VALUE
On the business day on or next following the day we receive a completed
application and the minimum initial premium, the variable accumulated value is
the total amount of premium, if any, allocated to the subaccounts of the
variable account. After such date, the policy's variable accumulated value is
equal to the sum of the policy's accumulated value in each subaccount. The value
in a subaccount is equal to a) multiplied by b) where:
a) is the current number of subaccount units; and
b) is the current unit value.
The variable accumulated value will vary from business day to business day
reflecting changes in a) and b) above.
7.4 SUBACCOUNT UNITS
When transactions are made which affect the variable accumulated value, dollar
amounts are converted to subaccount units. The number of subaccount units for a
transaction is determined by dividing the dollar amount of the transaction by
the current unit value.
The number of units for a subaccount attributable to a policy increases when:
a) premiums are allocated under the policy to that subaccount; or
b) transfers from the declared interest option or other subaccounts are
credited under the policy to that subaccount.
The number of units for a subaccount attributable to a policy decreases when:
a) the owner makes a surrender or partial withdrawal from that subaccount;
b) transfers are made from that subaccount to the declared interest option
or other subaccounts; or
c) the annual administrative charge shown on the policy data page is deducted
(the annual administrative charge will be prorated among the subaccounts
and the declared interest option).
7.5 UNIT VALUE
The unit value for a subaccount on any business day is determined by dividing
each subaccount's net asset value by the number of units outstanding
at the time of calculation. The unit value for each subaccount was set initially
at $10.00 when the subaccounts first purchased fund shares. The
unit value for each subsequent valuation period is calculated by dividing a) by
b), where:
a) is:
(1) the value of the net assets 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 net
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;
minus
(5) the mortality and expense risk shown on the policy data page. This
charge may go up or down but will never exceed 0.0038091% of the net
daily assets in that subaccount for each day in the valuation period.
The maximum charge corresponds to a charge of 1.40% per year of the
average daily net assets of the subaccount for mortality and expense
risks.
b) is the number of units outstanding at the end of the preceding valuation
period.
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The unit value for a valuation period applies for each day in the period. We
will value the net assets in each subaccount at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
7.6 DECLARED INTEREST OPTION ACCUMULATED VALUE
The declared interest option accumulated value as of the eleventh day following
the policy date is the premium allocated to the declared interest option as of
that date. Thereafter, the declared interest option accumulated value changes
every valuation period.
The declared interest option accumulated value increases when:
a) premiums are allocated to the declared interest option; or
b) transfers from the other subaccounts are credited to the declared interest
option; or
c) any interest is credited to the declared interest option.
The declared interest option accumulated value decreases when:
a) the owner makes a surrender or partial withdrawal from the declared
interest option; or
b) transfers are made from the declared interest option to other subaccounts;
or
c) the annual administrative charge shown on the policy data page is deducted
(the annual administrative charge will be prorated among the subaccounts
and the declared interest option).
For the purposes of the above calculation, interest does not accrue on amounts
deducted for policy charges, amounts transferred from or on amounts surrendered
or withdrawn from the declared interest option. Interest is accrued on the
accumulated value of the declared interest option on a daily basis and is
credited no less frequently than once a policy year.
7.7 DECLARED INTEREST OPTION INTEREST
The guaranteed minimum interest rate applied to the declared interest option
accumulated value is an effective rate of 3.0% per year. Interest in excess of
the minimum rate may be applied. The amount of the excess interest credited for
any policy year will be set by us at the start of that policy year and will be
guaranteed for such year.
7.8 SURRENDER
Before the retirement date, the owner may surrender the policy, subject to the
following rules:
a) The owner must send a written request to us along with such information or
evidence as may be required by law or as may be needed to process the
request.
b) The amount of any such surrender may be paid in cash or we will apply part
or all of it under a payment option.
c) We have the right to defer payment of a surrender from the declared
interest option for up to 6 months.
d) The amount of accumulated value surrendered will be subject to a surrender
charge.
e) Upon surrender, the policy will terminate.
7.9 SURRENDER CHARGE
The surrender charge is shown on the policy data page. The total surrender
charges assessed will never exceed 8.5% of premiums paid.
If all of the accumulated value is applied under payment option 2, 3, 4 or 5,
the surrender charge will be reduced as follows:
a) if option 3 or 5 is used, the surrender charge will be zero; or
b) if option 2 or 4 is used, the surrender charge will be applied, however,
the fixed number of years for which payment will be made is added to the
number of years the contract has been in force to determine what the charge
will be.
All of the values are the same or more than the minimums set by the laws of the
state where the policy is delivered.
7.10 TEN PERCENT WITHDRAWAL PRIVILEGE
After the first policy year, amounts up to the "withdrawal privilege amount" may
be withdrawn from the policy during each policy year without being subject to
the surrender charge. The withdrawal privilege amount will be equal to 10% of
the accumulated value on the most recent policy anniversary. If the policy is
subsequently surrendered during the policy year, the surrender charge will be
applied to any partial withdrawals taken during that policy year, as well as the
amount surrendered.
7.11 WAIVER OF SURRENDER CHARGE
The owner may make a surrender of this policy without incurring a surrender
charge if the annuitant becomes eligible for waiver of the surrender charge.
12
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The waiver of the surrender charge is subject to the following rules:
a) We must receive a written request on our form signed by the owner.
b) The policy must be in force or not providing benefits under any payment
option.
c) Proof must be provided that the conditions of eligibility requirements for
waiver of the surrender charge have been met, including an attending
physician's statement and any other proof we may require. We reserve the
right to seek a second medical opinion or have an examination performed at
our expense by a physician we choose.
d) If there are joint annuitants, you may exercise this waiver privilege once,
for either the first or second annuitant, but not both.
e) The annuitant must become eligible for waiver of surrender charge after the
first contract year ends.
7.12 PARTIAL WITHDRAWAL
Before the retirement date, the owner may obtain a partial withdrawal of the
accumulated value, subject to the following rules:
a) The amount of any partial withdrawal must be at least $500;
b) If the accumulated value after a partial withdrawal is less than $2,000, we
have the right to pay the remaining accumulated value to the owner as a
full surrender;
c) The accumulated value will be reduced by the amount of any partial
withdrawal and any surrender charge applying to such withdrawal. The owner
may tell us how to allocate a partial withdrawal among the subaccounts and
the declared interest option. If the owner does not so instruct, we will
prorate the partial withdrawal among the subaccounts and the declared
interest option. The allocation will be in the same proportion that the
accumulated value in each of the subaccounts and the accumulated value in
the declared interest option bears to the total accumulated value on the
date we receive the request;
d) Amounts withdrawn from the declared interest option are considered
withdrawn on the last-in-first-out basis.
7.13 DELAY OF PAYMENT
Proceeds from full surrenders and partial surrenders will usually be mailed to
the owner within seven days after the owner's signed request is received in our
home office. We will usually mail any death claim proceeds within seven days
after we receive due proof of death. We have the right to delay such payment
whenever:
a) the New York Stock Exchange is closed other than on customary weekend and
any holiday closing;
b) trading on the New York Stock Exchange is restricted as determined by the
SEC;
c) the SEC, by order, permits postponement for the protection of policyowners;
d) as a result of an emergency, as determined by the SEC, it is not reasonably
possible to dispose of securities or to determine the value of the net
assets of the variable account.
We have the right to defer payment which is derived from any amount paid to us
by check or draft until we are satisfied the check or draft has been paid by the
bank on which it is drawn.
We also have the right to delay making a full surrender or partial surrender,
from the declared interest option for up to six months from the date we receive
the owner's request.
7.14 TAX CHARGES
The Company may deduct state and local government premium tax from the
accumulated value, if such taxes are applicable in your state. The Company may
also make a charge against the accumulated value of this policy for any tax or
economic burden on the Company resulting from the application of federal, state
or local tax laws that the Company determines to be properly attributable to the
separate account or the policies. The charge will be applied by:
a) redeeming the number of subaccount units from the separate account equal to
the pro rata share of the charge applicable to the subaccounts; or
b) deducting from the declared interest option accumulated value the pro rata
portion of the charge applicable to the declared interest option.
7.15 ANNUAL REPORT
At least once each year we will send a report, without charge, to the owner
which shows:
a) all premiums paid and charges made since the last report;
b) the current accumulated value including the value in each subaccount and
the declared interest option; and
c) any partial surrenders since the last report.
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An illustrative report will be sent to the owner upon request. A fee may be
charged for this report.
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SECTION 8 - PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
8.1 CHOICE OF OPTIONS
The owner may choose to have the proceeds of this policy paid under a payment
option. After the annuitant's death, the beneficiary may choose an option if the
owner had not done so before the annuitant's death. If no payment option is
chosen, we will pay the proceeds of this policy in one sum. We may also fulfill
our obligation under this policy by paying the proceeds in one sum if:
a) the proceeds are less than $2,000;
b) periodic payments become less than $20; or
c) the payee is an assignee, estate, trustee, partnership, corporation, or
association.
8.2 PAYMENT OPTIONS
The choice of payment options are:
1) INTEREST INCOME -- The proceeds will be left with us to earn interest. The
interest will be paid every 1, 3, 6 or 12 months as the payee chooses. The
rate of interest will be determined by us. The payee may withdraw all or
part of the proceeds at any time.
2) INCOME FOR FIXED TERM -- The proceeds will be paid out in equal
installments for a fixed term of years.
3) LIFE INCOME WITH TERM CERTAIN -- The proceeds will be paid out in equal
installments for as long as the payee lives, but for not less than a term
certain. The owner or payee may choose one of the terms certain shown in
the payment option tables.
4) INCOME FOR FIXED AMOUNT -- The proceeds will be paid out in equal
installments of a specified amount. The payments will continue until all
proceeds plus interest have been paid out.
5) JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME -- The proceeds will
be paid out in equal monthly installments for as long as two joint payees
live. When one payee dies, installments of two-thirds of the first
installment will be paid to the surviving payee. Payments will stop when
the surviving payee dies.
The proceeds may be paid in any other manner requested and agreed to by us, or
under any other payment options made available by the Company.
8.3 INTEREST AND MORTALITY
The minimum interest rate used in computing any payment option is 3% per year.
Higher interest rates may be used on the effective date of the payment contract.
We may at any time declare additional interest on these funds. The amount of
additional interest and how it is determined will be set by us.
The mortality table which is used for options 3) and 5) is the "1983 Table a"
individual annuity mortality table.
8.4 WITHDRAWAL OF PROCEEDS
The payee may not withdraw the funds under a payment option unless agreed to in
the payment contract. We have the right to defer a withdrawal for up to 6
months. We may also refuse to allow partial withdrawals of less than $250.
8.5 CLAIMS OF CREDITORS
Payments under any payment option will be exempt from the claims of creditors to
the maximum extent allowed by law.
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PAYMENT OPTION TABLES
(PER $1,000 OF PROCEEDS)
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Option 2 - Income for Fixed Term
Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Number of
Years Annual Monthly
- --------------------------------------------------------------------------------
5 211.99 17.91
10 113.82 9.61
15 81.33 6.87
20 65.26 5.51
25 55.76 4.71
30 49.53 4.18
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Guaranteed Settlement Option 5
Joint and Two-thirds to Survivor Monthly Life Income
Monthly Installments per $1,000 of Proceeds
- --------------------------------------------------------------------------------
Female Age
Male
Age 55 60 62 65 70
-----------------------------------------------------------------
60 4.44 4.71 4.82 5.01 5.34
62 4.53 4.81 4.93 5.13 5.50
65 4.65 4.97 5.11 5.33 5.75
70 4.88 5.24 5.41 5.68 6.20
75 5.11 5.52 5.71 6.04 6.68
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
GUARANTEED SETTLEMENT OPTION 3
LIFE INCOME WITH TERM CERTAIN
MONTLY INSTALLMENTS PER $1,000 PROCEEDS
- ---------------------------------------------------------------------------------------------------------
MALE FEMALE
- ---------------------------------------------------------------------------------------------------------
YEARS CERTAIN YEARS CERTAIN
Age 0 5 10 15 20 0 5 10 15 20
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
55 $4.70 4.68 4.62 4.53 4.39 4.25 4.25 4.22 4.18 4.11
56 4.80 4.78 4.72 4.61 4.45 4.34 4.33 4.30 4.25 4.17
57 4.91 4.89 4.82 4.69 4.51 4.42 4.41 4.38 4.32 4.23
58 5.03 5.00 4.92 4.78 4.58 4.52 4.50 4.47 4.40 4.30
59 5.15 5.12 5.03 4.87 4.64 4.61 4.60 4.56 4.48 4.37
60 5.28 5.25 5.14 4.96 4.71 4.72 4.70 4.66 4.57 4.44
- ---------------------------------------------------------------------------------------------------------
61 5.42 5.39 5.26 5.06 4.78 4.83 4.81 4.76 4.66 4.51
62 5.57 5.53 5.39 5.16 4.84 4.95 4.93 4.86 4.75 4.58
63 5.74 5.69 5.52 5.26 4.90 5.07 5.05 4.98 4.85 4.65
64 5.91 5.85 5.66 5.36 4.96 5.21 5.18 5.10 4.95 4.72
65 6.10 6.03 5.81 5.46 5.02 5.35 5.32 5.22 5.05 4.79
- ---------------------------------------------------------------------------------------------------------
66 6.29 6.21 5.96 5.56 5.08 5.51 5.47 5.36 5.16 4.86
67 6.50 6.41 6.11 5.66 5.13 5.67 5.63 5.50 5.26 4.93
68 6.73 6.62 6.28 5.76 5.18 5.85 5.80 5.65 5.37 5.00
69 6.97 6.84 6.44 5.86 5.23 6.04 5.98 5.80 5.49 5.06
70 7.23 7.07 6.61 5.96 5.27 6.25 6.18 5.96 5.60 5.12
- ---------------------------------------------------------------------------------------------------------
71 7.51 7.32 6.78 6.05 5.31 6.47 6.39 6.14 5.71 5.18
72 7.80 7.58 6.96 6.14 5.34 6.71 6.62 6.31 5.83 5.23
73 8.12 7.85 7.14 6.23 5.37 6.97 6.86 6.50 5.94 5.28
74 8.45 8.14 7.32 6.31 5.40 7.26 7.12 6.69 6.04 5.32
75 8.82 8.44 7.49 6.38 5.42 7.56 7.39 6.89 6.14 5.35
- ---------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
NON-PARTICIPATING
FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY POLICY
If you have any questions concerning this policy or if anyone
suggests that you change or replace this policy, please contact
your Farm Bureau Life agent or our home office. (515-225-5400)
FARM BUREAU LIFE INSURANCE COMPANY
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266-5997
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[LOGO] FLEXIBLE PREMIUM DEFERRED ANNUITY APPLICATION
FARM BUREAU FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY APPLICATION
FINANCIAL SERVICES
/ / FARM BUREAU LIFE
INSURANCE COMPANY
/ / WESTERN FARM BUREAU
LIFE INSURANCE COMPANY
ACCOUNT NO.____________________
APPLICATION FOR______________________________________________Policy Number______________________
PROPOSED ANNUITANT (HOME OFFICE USE ONLY)
ADDRESS________________________________________ ______________________________________________
STREET CITY-TOWN STATE ZIP ANNUITANT'S STATE-COUNTY CODE
/ / MALE
/ / FEMALE Date of Birth____________ Age______________ State of Birth_______Social Security No.______________
MONTH/DAY/YEAR (nearest birthday)
AGENT CREDIT__________________________________________________________________________________________________
Name State-County Agent No.
- ---------------------------------------------------------------------------------------------------------------------------
SECTION A ANNUITY
1. A birth certificate is attached (A birth certificate Yes No
must be submitted as proof of age
before annuity payments can begin) / / / /
2. As a condition precedent to receiving annuity
payments will you furnish satisfactory evidence
of life and identity as each payment falls due? / / / /
3. It is agreed that the money consideration for
the policy shall upon payment be nonrefundable
and the Company's obligation limited
to the terms of the annuity policy applied for. / / / /
4. Is the policy applied for replacing or likely to
replace any existing annuity or life insurance
policy? (If "YES", give details in Section C,
including name, insurer, and policy numbers. / / / /
5. Occupation________________For____Years
6. Annuity Plan: / / FPDA / / FPDVA
7. Check the appropriate box for the type of plan:
/ / Keogh / / IRA / / TDA / / SEP / / Non-Qualified
/ / Other_____________________
8. Premium / / Annual / / Semi-Annual / / Quarterly
Payable / / COM / / Other___________________
9. Company to begin payment on policy anniversary nearest
age 70 or ____________________________________________
10. If the name of a female proposed Annuitant is different
than her maiden name, give her maiden name:
____________________________________________________
11. Submitted Transfer
Premium: $ of Funds: $
- ---------------------------------------------------------------------------------------------------
SECTION B OWNER AND BENEFICIARY (IF REQUIRED)
1. BENEFICIARY as to proceeds at death of the Annuitant;
Survivors within a class (Primary or Secondary) entitled
to the proceeds shall share equally unless otherwise
specified.
NAME & ADDRESS SSN RELATIONSHIP
1. Primary______________________________________
_____________________________________________
2. Secondary, if primary beneficiary is not living:
NAME & ADDRESS SSN RELATIONSHIP
_____________________________________________
_____________________________________________
/ / Children born to or adopted by the Proposed
Annuitant and ____________________________
(including any named above). The Beneficiary
as to proceeds at death of any person other than
the annuitant shall be as stated in the applicable
benefit provision.
3. / / Directions for settlement attached.
II. OWNER: (If other than Proposed Annuitant.)
1. OWNERSHIP TO BE VESTED IN
OWNER EMPLOYER TIN:
_____________________________________________
Address:
- ---------------------------------------------------------------------------------------
SECTION C SPECIAL REQUESTS, REMARKS AND CORRECTIONS OR ENDORSEMENT
- ----------------------------------------------------------------------------------------
SECTION D REPRESENTATIONS, AUTHORIZATION AND ACKNOWLEDGEMENT STATEMENT
I have paid $__________ as payment of the first premium on the policy herein applied for, subject to and in accordance with the
provisions of the conditional receipt for such payment. I, the Applicant, agree that: (1) Acceptance of any Annuity Contract issued
on this application shall constitute ratification of any corrections, additions, or changes made by the Company and recorded in the
space "Special Requests, Remarks and Corrections or Endorsement" except that no change shall be made as to amount, classification,
plan or annuity, or benefits unless agreed to in writing. (2) This application and any continuations thereof or additions or
amendments thereto, and the policy herein applied for shall constitute the entire contract between the parties hereto. The Applicant
and the Proposed Annuitant (if other than Applicant) agree that to the best of their knowledge and belief all statements herein are
full, complete and true, and that the Applicant will be the owner until the retirement date of any policy issued on the basis of
this application unless otherwise agreed to in writing between the parties. It is understood that no agent, agency manager or other
unauthorized person except an Executive Officer or an Assistant Secretary of the company is authorized to waive forfeitures, to make
or alter contracts, or to waive any of the Company's rights or requirements.
I represent that the statements and answers on this application and supplements thereto are true and complete to the best of my
knowledge and belief.
Dated at________________________ Date signed_______________________________________________
City and State
________________________________ ___________________________________________________________
Signature of Witness Signature of Proposed Annuitant
________________________________ ____________________________________________________________
Agent's Signature Signature of Owner-Employer if other than Proposed Annuitant
- -----------------------------------------------------------------------------------------------------------------
432-121 (0396)
CONDITIONAL RECEIPT ______________________________________________ Plan________________________
FOR ADVANCE PAYMENT Name of Proposed Annuitant Annuity applied for
OF PREMIUM
RECEIVED OF________________________________________________________________
Name of Applicant
the sum of $___________ as the first premium for the annuity applied for in the application to the FARM BUREAU
LIFE INSURANCE COMPANY OR WESTERN FARM BUREAU LIFE INSURANCE COMPANY bearing the same date as the conditional
receipt. The annuity contract, subject to the terms and conditions thereof, shall take effect as of the date of
this receipt, provided the person upon whose life the annuity is based is eligible for same according to the
Company's rules and regulations, otherwise the payment evidenced by this receipt shall be returned upon
surrender of the receipt. Any remittance not in cash is received subject to actual cash payment.
____________________________, 19_____ ____________________________________Agent
When premium is paid at the time of application, complete this receipt and give to the applicant. No other receipt will be
recognized by the Company.
If premium is not paid -- do not detach.
<PAGE>
Under penalties of perjury, I certify that the Social Security Number provided on this Annuity Application is true, correct and
complete.
Dated at_______________________________ Date signed________________________________________________
City and State
_______________________________________ ___________________________________________________________
Signature of Witness Signature of Proposed Annuitant
_______________________________________ ____________________________________________________________
Agent's Signature Signature of Owner-Employer if other than Proposed Annuitant
- -------------------------------------------------------------------------------------------------------------------
AGENT'S CERTIFICATE
Yes No
1. Will this plan replace any other plan? / / / /
2. If yes, have replacement forms been submitted? / / / /
3. Did you give "Notice to applicant" form to applicant? / / / /
4. Did you see the proposed annuitant? (If no - explain below.) / / / /
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
</TABLE>
<PAGE>
Exhibit 6(a)
Certificate of Incorporation of the Company
STATE OF IOWA
OFFICE OF SECRETARY OF STATE
This is to Certify that the IOWA LIFE INSURANCE COMPANY of Des Moines, Iowa
has filed in this office Articles of Incorporation, and paid the fees as by law
provided.
Therefore, this Certificate is issued, thereby authorizing it to transact
business as a corporation, under and Subject to the laws of the State of Iowa,
PERPETUALLY from October 30th, 1944.
In testimony whereof, I have hereunto set my hand and caused to be affixed
the seal of the office.
Done at Des Moines, the Capital, this Thirtieth day of October, 1944.
/s/ Wayne M. Ropes
Wayne M. Ropes
Secretary of State
by [left blank] Deputy Secretary of State
Expires PERPETUAL
<PAGE>
ARTICLES OF INCORPORATION
OF
IOWA LIFE INSURANCE COMPANY
We, the undersigned, for the purpose of transacting the business
hereinafter set forth, do hereby associate ourselves together and under the
following Articles of Incorporation unite ourselves into a body corporate under
the provisions of Chapter 384 and Chapter 398 of the Code of Iowa, 1939, and all
acts amendatory thereto, and assume all powers and obligations granted bodies
corporate under said chapters, and do hereby adopt the following Articles of
Incorporation, to-wit:
ARTICLE I.
NAME
The name of this Corporation shall be IOWA LIFE INSURANCE COMPANY.
ARTICLE II.
PRINCIPAL PLACE OF BUSINESS
The principal place of business of this Corporation shall be in the city of
Des Moines, County of Polk, State of Iowa. It may establish and maintain branch
offices, depositories and agencies elsewhere.
ARTICLE III.
POWERS, OBJECTS AND PURPOSES
The purposes and objects for which this Corporation is formed, and the
powers which it shall have and exercise, are:
1. To make insurance on the lives of persons and every insurance
appertaining thereto or connected therewith, and granting, purchasing or
disposing of annuities, and to make insurance against bodily injury, disablement
or death by accident, and against disablement resulting from sickness or old age
and every insurance appertaining thereto, on a level premium plan and as a legal
reserve company with all the rights and privileges granted or permitted by
Chapter 384 and Chapter 398 of the Code of Iowa, 1939, and all acts amendatory
thereto.
2. To assume and exercise all the rights, powers and privileges that are
now or may hereafter be conferred by law upon similar corporations, and to have
the right of perpetual succession, sue and be sued, make contracts, acquire,
own, and transfer property, real and personal, and have a common seal.
<PAGE>
3. To issue all forms of insurance contracts pertaining to or connected
with the business of life insurance as it now or may hereafter be carried on in
this state or elsewhere.
4. To cede to and reinsure its excess risks wherever they may be in other
companies or associations, and to accept and reinsure the excess risks of other
companies or associations ceded to it.
5. To buy, sell, invest and reinvest its funds in any of the securities or
property in which a life insurance company may now or hereafter lawfully invest.
6. To have and exercise all of the rights and powers necessary and
incident to carrying into effect the purposes for which this Corporation is
formed.
7. The objects, powers and purposes specified above shall, except where
otherwise expressed, be in no way limited or restricted by inference to or
inference from the terms of any clause or paragraph of these Articles of
Incorporation, and the foregoing shall be construed both as powers and objects
and the enumeration thereof shall not be held to limit or restrict in any manner
the general powers conferred upon this Corporation by the laws of the State of
Iowa, or any acts amendatory thereto, all of which are hereby expressly claimed.
ARTICLE IV.
CAPITAL STOCK
The authorized capital stock of this Corporation is Five Hundred Thousand
($500,000.00) Dollars, divided into Two Hundred Six Thousand (206,000) shares,
of which amount Two Hundred Thousand (200,000) shares of the par value of One
($1.00) Dollar per share, amounting to Two Hundred Thousand ($200,000.00)
Dollars is "Common Stock," and Six Thousand (6,000) shares of the par value of
Fifty ($50.00) Dollars per share, amounting to Three Hundred Thousand
($300,000.00) Dollars, is 6% cumulative "First Preferred Stock."
The nature and definitive extent and preferences and privileges granted
each class is, as follows:
1. STOCK ISSUE CONDITIONS. No stock of this Corporation shall be issued
until this Corporation has received payment in full therefor the selling price
as fixed by the board of directors, which shall be not less than par, in cash or
property, providing, however, that when it is issued for anything other than
money it must be done in accordance with the statutes in force at the time said
stock shall be issued.
2. COMMON STOCK. The Common Stock shall be issued to and owned only by
the Iowa Farm Bureau Foundation, its assigns, or a member in good standing of
the
<PAGE>
Iowa Farm Bureau Federation as defined in the By-Laws of this Corporation, and
no one else shall be eligible to own the same.
The Common stockholders shall be entitled to receive, when and as
declared by the board of directors, subject to any limitations in these
Articles contained, dividends from the net earnings of this Corporation on
such equitable basis as the board of directors shall determine, and shall be
payable annually when and as determined by the board of directors, provided,
however, that no dividends shall be declared or paid on the Common Stock
issued to and owned by the Iowa Farm Bureau Federation or its assigns in
excess of six (6%) per cent per annum on the par value thereof. No dividends
shall be declared or paid on the Common Stock until the board of directors
has first declared dividends on the First Preferred Stock and paid or set
apart the same to or for the account of said First Preferred stockholders.
Dividends to the Common stockholders shall be non-cumulative. No person
shall be entitled to dividends unless he is a Common stockholder of record at
the time of the declaration of the same.
The holders of Common Stock shall be entitled to one vote for each and
every share of stock issued and owned at all meetings of the stockholders, and
shall not have the privilege of voting by proxy but a corporate stockholder
shall have the privilege of voting by an authorized representative or
representatives, and no one other than the Iowa Farm Bureau Federation shall be
entitled to own more than one share.
The Common Stock of any holder thereof, other than the Iowa Farm Bureau
Federation or its assigns, may be called, redeemed or retired at the election of
the board of directors at such time or times as it shall determine, and shall be
called, redeemed or retired by the board of directors whenever the holder
thereof shall cease to be eligible to own the same by ceasing to be a member in
good standing of a County Farm Bureau and the Iowa Farm Bureau Federation, as
herein provided and as defined in the By-Laws, or any amendment thereto, upon
the payment of the purchase price paid per share with accrued dividends, if any;
provided, however, that not less than thirty (30) days' prior notice of such
intention to retire or redeem such stock shall be given the holder of such stock
called for retirement or redemption by written notice postpaid to the last known
address of each stockholder as shown by the books of this Corporation.
From and after the date fixed for such redemption all dividends on the
Common Stock thereby called for redemption shall, unless the Corporation shall
default in the payment of the redemption price, cease and all rights of the
holders thereof as stockholders of the Corporation, except the right to receive
the redemption price and accrued dividends, if any, shall cease and terminate.
The eligibility of a person, other than the Iowa Farm Bureau Federation or
its assigns, to own and hold Common Stock in this Corporation shall be
determined by the records of the Iowa Farm Bureau Federation of which the owner
thereof or the one under which he is eligible to own the same is or was a member
at the time of issue of said stock, and said books and records shall be
conclusive of his or their said eligibility.
<PAGE>
In the event of the dissolution and winding up of the business of this
Corporation, whether voluntary or involuntary, or in the event of the sale of
all of the assets of the Corporation and the distribution of the proceeds
thereof, the Common stockholder shall receive nothing until the First Preferred
Stock has been paid in full the purchase price paid per share to this
Corporation, together with all unpaid accrued dividends on such shares of stock.
3. FIRST PREFERRED STOCK. The First Preferred Stock shall be issued to
and owned only by members in good standing of a County Farm Bureau of this state
and of the Iowa Farm Bureau Federation and shall have no voting privileges, and
the holder of First Preferred Stock shall be entitled to receive, when and as
declared by the board of directors, dividends from the net earnings of the
Corporation at the rate of six (6%) per cent per annum, payable annually, when
and as determined by the board of directors. Such dividends shall be payable
before any dividends shall be paid on or set apart for the Common stockholders,
and such dividends on the First Preferred Stock shall be cumulative so that if
at any time at the dividend period dividends at the rate of six (6%) per annum
should not have been paid upon or set apart for the First Preferred Stock, the
deficiency shall be fully paid or set apart without interest before any
dividends shall be paid or declared upon the Common Stock.
The First Preferred Stock may be redeemed or retired in whole or in part,
at the election of the board of directors at such time or times as it shall
determine at the purchase price paid per share with accrued dividends, if any,
provided, however, that not less than thirty (30) days' prior notice of such
intention to retire or redeem such stock shall be given the holders of such
stock so called for retirement or redemption by written notice postpaid to the
last known address of such stockholders as shown by the books of the
Corporation.
No First Preferred stockholders shall have any preferential right
respecting the retirement or redemption of the shares of First Preferred Stock
owned by him, but in the event less than all of the outstanding shares of First
Preferred Stock are to be redeemed such redemption may be made by lot or
pro-rata in such manner as may be determined by the board of directors of this
Corporation.
From and after the date fixed for such redemption all dividends on the
First Preferred Stock thereby called for redemption shall, unless the
Corporation shall default in the payment of the redemption price, cease and all
rights of the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price and accrued dividends, if any, shall cease
and terminate.
In the event of the dissolution and winding up of the business of the
Corporation, whether voluntary or involuntary, or in the event of the sale of
all of the assets of the Corporation and the distribution of the proceeds
thereof, the holder of the First Preferred Stock shall be entitled to be paid in
full the purchase price paid per share, together with all unpaid dividends
accrued on such shares, before any sum whatsoever shall be paid
<PAGE>
in liquidation on account of the Common Stock, and thereafter the Common Stock
shall be entitled to the remaining assets.
4. LIMITATION ON STOCKHOLDERS' DIVIDENDS. No cash dividend on the capital
stock of the Corporation in excess of the amount required to pay dividends at
the rate of six (6%) per annum on the par value on the issued and outstanding
First Preferred Stock, shall be paid in any calendar year prior to January 1,
1946, unless the capital of the Corporation, its surplus and contingency
reserves shall aggregate ten (10%) per cent or more of all other liabilities of
the Corporation, and no cash dividend in excess of the amount required to pay
dividends at the rate of six (6%) per cent per annum on the par value of the
issued and outstanding First Preferred Stock shall be paid in any calendar year
between January 1, 1946 and January 1, 1951, unless the capital, surplus and
contingency reserves shall equal or exceed eight and one-half (8 1/2%) per cent
of all other liabilities; nor shall any cash dividends in excess of the amount
required to pay dividends at the rate of six (6%) per cent per annum on the par
value of the issued and outstanding First Preferred Stock be paid on the capital
stock in any calendar year after January 1, 1951, unless the capital, surplus
and contingency reserves shall equal or exceed seven (7%) per cent of all other
liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of six (6%) per cent per annum, on the issued and
outstanding First Preferred Stock, shall be paid on the capital stock unless the
policyholders dividend scale of the Corporation in effect for said calendar year
results in an average net cost equal to or less than the average net cost to the
ten legal reserve companies operating in the United States each having more than
$250,000,000 insurance in force and showing the lowest average net cost.
For the purpose of this comparison the average net cost shall be computed
on the Whole Life Plan for ages at issue 25, 35, and 45, and for a policy issued
in the amount of One Thousand ($1,000) Dollars. Cost for above ages shall be
determined for each year of issue since organization of the Corporation, except
that the cost on policies in force for twenty (20) years or more shall not be
used. The actual dividends payable for the year in question shall be used and
not a net cost based on dividend history. Companies doing primarily a mail
order business or operating through lodges or as fraternal organizations, as
well as United States Government Insurance, shall not be included in the
comparison.
5. REGISTERED OWNER. This Corporation shall be entitled to treat the
person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any other
person or corporation, whether or not the corporation shall have notice thereof,
save as expressly provided by the laws of the State of Iowa or as may hereafter
be provided.
6. TRANSFER OF STOCK. The shares of First Preferred Stock in this
Corporation shall be transferable only to a member in good standing of a County
Farm Bureau of
<PAGE>
this state and of the Iowa Farm Bureau Federation, and the shares of Common
Stock shall not be transferable in any manner except the shares owned by the
Iowa Farm Bureau Federation, and no transfer except as herein provided shall be
of any validity or cognizable by the Corporation, and no transfer of any stock
of this Corporation shall be of any validity until duly entered on the books of
the Corporation.
7. INCREASE OR DECREASE OF STOCK. From time to time any class of stock
may be increased or decreased as may be determined by vote of the stockholders
present at any annual or special meeting possessing voting rights to the extent
and in the manner provided by the statutes of the State of Iowa and these
Articles of Incorporation, and in the event it is determined to increase the
amount of First Preferred Stock it shall not be necessary to secure the consent
of the holders of the First Preferred Stock; provided, however, that no other
class of stock shall be created having preference over the First Preferred Stock
as now authorized or as may hereafter be authorized in respect of payment of
dividends out of the earnings or upon liquidation or dissolution unless the
amendment authorizing such change shall receive the affirmative vote of the
holders of not less than two-thirds of the outstanding First Preferred Stock
voting as a class.
8. All persons and/or corporations or associations who shall acquire stock
in this Corporation shall acquire the same subject to the provisions of these
Articles of Incorporation, and shall, by their subscription therefor and
acceptance thereof, be bound by the said Articles of Incorporation, and any
amendments thereto, and the By-Laws duly adopted thereunder.
ARTICLE V.
OFFICERS AND DIRECTORS
1. The business and affairs of this Corporation shall be managed by a
board of twelve (12) directors who shall be members in good standing of the Iowa
Farm Bureau Federation, and shall be elected by the stockholders of this
Corporation as hereinafter provided, and said directors shall hold office until
their successors are elected and qualified.
2. The term of office of the directors of this Corporation shall be two
(2) years and until their successors are elected and qualified.
3. At the first annual meeting of the stockholders of this Corporation to
be held in 1946, as provided in these Articles, seven (7) directors shall be
elected for a term which shall expire at the next annual meeting of the
stockholders and until their successors are elected and qualified; five (5)
directors for a term of two years, and then at each annual meeting thereafter
there shall be elected for a term of two years each as many directors as there
are directors whose terms expire.
4. Until the first annual meeting of the stockholders of this Corporation
to be held in 1946, the following persons shall constitute the directors of this
Corporation.
<PAGE>
Name Address
---- -------
Allan E. Kline Vinton, Iowa
E. Howard Hill Minburn, Iowa
Mrs. Raymond Sayre Ackworth, Iowa
A. Fletcher Aitchison Cascade, Iowa
J. S. Van Wort Hampton, Iowa
H. J. Shoemaker Hawarden, Iowa
J. Otto Gidel Lake City, Iowa
Russell Hayes Prairie City, Iowa
W. C. Molison Grinnell, Iowa
Lee Stephenson Eldon, Iowa
W. G. Lodwick Sedan, Iowa
F. A. Klopping Underwood, Iowa
5. Until the first annual meeting of the stockholders of this Corporation
and until their successors are elected and qualified the officers of this
Corporation shall be:
Office Name Address
------ ---- -------
President: Allan B. Kline Vinton, Iowa
Vice-President: E. Howard Hill Minburn, Iowa
Secretary: Donald B. Groves Des Moines, Iowa
Treasurer: Donald B. Groves Des Moines, Iowa
6. The officers of this Corporation shall be elected by the board of
directors immediately following the first annual meeting of the stockholders,
and thereafter immediately following each annual meeting, and shall hold office
for the term of one year or until their successors are elected and qualified.
7. The officers of this Corporation shall be a president, vice-president,
secretary, treasurer, and such other officers as the board of directors may from
time to time create, and the offices of secretary and treasurer may be held by
the same person.
8. The board of directors may fill all vacancies occurring in its
membership, and a director elected to fill a vacancy shall serve for the
unexpired term of the director whose vacancy he was elected to fill and/ or
until his successor is elected and qualified.
9. A majority of the board of directors shall constitute a quorum for the
transaction of all business of the Corporation.
10. The board of directors shall have full authority to adopt and enact
regulations and rules and by-laws for the proper government of the Corporation,
classify risks, promulgate rates therefor, adopt policy forms and riders,
appoint agents, officers,
<PAGE>
employees or others, require bonds for such officers and employees as they may
determine, issue such information as the welfare of the Corporation may require,
designate depositories, hold meetings at such times and places as the business
may require, and shall make a full and complete report of its doings at each
annual meeting of the Corporation.
11. The board of directors may appoint an executive committee, consisting
of five (5) members, and designate a chairman thereof; the members thereof shall
hold office for the term of one year or until their successors are appointed and
qualified; said term, however, being subject to the will and pleasure of the
board of directors. The executive committee shall have such powers and possess
such authority as the board of directors shall, from time to time, by by-law or
resolution vest in it.
12. The board of directors shall have power to appoint such other
committees as it may deem necessary for the efficient conduct of the business,
and every such committee so created by the board shall report its doings to the
meeting of the board of directors next ensuing.
13. All conveyances of real property, releases of mortgages, liens and
judgments, and all other instruments affecting real property, made by the
Corporation or required by law to be made a matter of record, shall be executed
by the president or vice-president and the secretary or assistant secretary and
attested to by the corporate seal.
ARTICLE VI.
MEETINGS OF STOCKHOLDERS
1. REGULAR ANNUAL MEETING. The first regular annual meeting of the
stockholders of this Corporation shall be held in the year 1946 and all
subsequent annual meetings of the stockholders of this Corporation shall be held
annually, at such time and place and upon such notice as the board of directors
shall, from time to time, fix and determine, provided such notice is not less
than ten days and such meeting shall be held at Des Moines, Iowa.
2. SPECIAL MEETINGS. Special Meetings of the stockholders may be called
at any time by the president upon the giving of five (5) days' notice in writing
by mail to the stockholders as shown by the records of this Corporation, and
such meetings shall be called at any time upon the request of stockholders
representing twenty-five (25%) per cent of the stock issued.
In case the president neglects or refuses to call a meeting at the request
of the stockholders, as herein provided, the stockholders may join in a call of
the stockholders at a special meeting upon giving to each stockholder of record
having voting privileges the same notice and in the same manner as hereinbefore
provided in this section.
<PAGE>
3. VOTING PRIVILEGE. At all meetings of the stockholders each Common
stockholder shall be entitled to one vote for each share of stock owned and held
by him or it.
ARTICLE VII.
CORPORATE PERIOD
This Corporation shall commence business under these Articles of
Incorporation as soon as it secures certificate of incorporation from the
Secretary of State of the State of Iowa, and certificate authorizing it to
transact an insurance business from the Commissioner of Insurance of the State
of Iowa, as by law provided, and shall have perpetual existence unless changed
as by law and these Articles of Incorporation required.
ARTICLE VIII.
PRIVATE PROPERTY EXEMPT
The private property of the stockholders of this Corporation shall be
exempt from the debts of the Corporation and from all liability therefor.
ARTICLE IX.
This Corporation shall have a corporate seal and shall have inscribed
thereon "Iowa Life Insurance Company, Des Moines, Iowa, Corporate Seal, " which
words may be changed at any time by resolution of the board of directors.
ARTICLE X.
BY-LAWS
The Board of Directors may at its pleasure make and adopt By-Laws which do
not conflict with the law or these Articles of Incorporation or By-Laws adopted
or ratified by the stockholders and alter or amend the same.
ARTICLE XI.
AMENDMENTS
These Articles of Incorporation may be amended at any annual meeting of the
stockholders or at any special meeting called for that purpose by a two-thirds
vote of the stockholders having voting privileges present at such meeting,
provided that no amendment shall be made or enacted unless the proposed
amendment or alteration has been filed in writing with the president and with
the secretary of this Corporation not less than sixty (60) days before the
meeting at which the same is offered. Notice of
<PAGE>
special meeting and the proposed amendment or alteration to these Articles of
Incorporation coming before such special meeting shall be given the stockholders
in the same manner and for the same period of time as is required for special
meetings of stockholders.
<PAGE>
STATE OF IOWA
[GRAPHIC]
OFFICE OF
THE SECRETARY OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
I, MELVIN D. LYNHORST, SECRETARY OF STATE OF THE STATE OF IOWA, DO HEREBY
CERTIFY THAT THE FOLLOWING AND HERETO ATTACHED IS A TRUE PHOTOSTATIC COPY OF
Amendment to Articles of Incorporation for IOWA LIFE INSURANCE COMPANY, of
- -------------------------------------------------------------------------------
Des Moines, Iowa, changing the corporate title to FARM BUREAU LIFE INSURANCE
- -------------------------------------------------------------------------------
COMPANY.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AS THE SAME APPEAR OF RECORD IN THIS OFFICE.
-----------------------------------
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
SET MY HAND AND AFFIXED THE OFFICIAL SEAL
OF THE SECRETARY OF STATE AT THE CAPITOL, IN
DES MOINES, THIS 4th DAY OF August,
A.D. NINETEEN HUNDRED AND FIFTY-EIGHT.
/s/ Melvin D. Lynhorst
--------------------------------------------
SECRETARY OF STATE
--------------------------------------------
DEPUTY
<PAGE>
AMENDMENT TO ARTICLES OF INCORPORATION,
AS AMENDED, OF
IOWA LIFE INSURANCE COMPANY
KNOW ALL MEN BY THESE PRESENTS:
That at the annual meeting of the stockholders of the Iowa Life Insurance
Company, held at the Fort Des Moines Hotel, Des Moines, Iowa, on the 1st day
of August, 1958, pursuant to notice in writing, stating the time, place and
purpose of said meeting mailed in accordance with the provisions of the Articles
of Incorporation and the laws of the State of Iowa, the following Amendment to
the Articles of Incorporation, a copy of which amendment was duly filed with the
president and secretary of this corporation more than sixty (60) days prior to
August 1, 1958, was adopted by a UNANIMOUS vote of all of the stockholders
present in person or represented by an authorized representative at said
meeting:
Amend Article I, entitled "Name," by striking all of said article, and
substituting in lieu thereof the following:
"The name of this corporation shall be 'FARM BUREAU LIFE INSURANCE
COMPANY'."
Amend Article IV, entitled "Capital Stock," by striking all of said
article, and substituting in lieu thereof the following:
"The authorized capital stock of this corporation is Five Hundred Thousand
($500,000.00) Dollars, divided into ten thousand (10,000) shares, of which
amount four thousand (4,000) shares of the par value of Fifty ($50.00)
Dollars per share, amounting to Two Hundred Thousand ($200,000.00) Dollars,
is Common Stock, and six thousand (6,000) shares of the par value of Fifty
($50.00) Dollars per share, amounting to Three Hundred Thousand
($300,000.00) Dollars, is six (6%) per cent cumulative First Preferred
Stock.
The nature and definite extent and preferences and privileges granted each
class is, as follows:
Section 1. STOCK ISSUE CONDITIONS. No stock of this corporation shall be
issued until this corporation has received payment in full therefor the
selling price as fixed by the board of directors, which shall be not less
than par, in cash or property, providing, however, that when it is issued
for anything other than money it must be done in accordance with the
statutes in force at the time said stock shall be issued.
Sec. 2. COMMON STOCK. The Common Stock shall have a par value of Fifty
($50.00) Dollars per share, and the holders of record thereof shall be
entitled to one vote per share at all
<PAGE>
-2-
meetings of the stockholders. The Common Stock shall be issued to and
owned only by the Iowa Farm Bureau Federation and shall be issued from time
to time upon application by it and upon tender and payment of the purchase
price as fixed by the board of directors, which shall be not less than par.
The holders of record of the Common Stock shall be entitled to vote at all
meetings of the stockholders by a duly authorized representative or
representatives.
If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the board of
directors required for the operation of the business of this corporation or
for the payment of its liabilities, it shall be applicable to dividends
upon the Common Stock for such fiscal year when and as from time to time
the same shall be declared by the board of directors, which dividend shall
not be cumulative but shall only be paid as surplus net earnings or profits
are available and dividends are declared. Such dividends shall be ratable
in proportion to the number of shares of Common Stock issued and
outstanding until dividends have been declared and set apart for the Common
Stock to the extent of, but not in excess of, six (6%) per cent for any one
fiscal year.
No common stockholder shall be entitled to dividends unless it is a
stockholder of record at the time of the declaration of the same.
The Common Stock or any part thereof may be called, redeemed or retired at
the option and election of the board of directors at such time or times and
in such manner as it shall determine upon the payment of the purchase price
paid this corporation for each share, with accrued dividends, if any,
provided, however, that not less than thirty (30) days' prior notice of
such intention to retire or redeem such stock shall be given the holder of
such stock called for retirement or redemption in writing, post-paid, to
the last known address of such stockholder as shown by the books of this
corporation.
From and after the date fixed for such retirement or redemption all
dividends on the Common Stock thereby called for retirement or redemption
shall, unless this corporation shall default in the payment of the
redemption price, cease, and all rights of the holders thereof as Common
stockholders of this corporation, except the right to receive the
redemption price and accrued dividends, if any, shall cease and terminate.
In the event of the dissolution or winding up of the business and affairs
of this corporation, whether voluntary or involuntary, or in the event of
the sale of all of the assets of this corporation and the distribution of
the proceeds thereof, the Common stockholders of record shall, after the
First Preferred stockholders have received distribution and payment of the
full purchase price paid per share to this corporation, together with all
unpaid accrued dividends, for their shares,
<PAGE>
-3-
as provided in Section 4 of this Article, be entitled to receive
distribution of all of the remaining assets of this corporation in
proportion to the purchase price paid per share to this corporation by said
Common stockholder.
Sec. 3. EXCHANGE OF ISSUED AND OUTSTANDING COMMON STOCK. Within a
reasonable time after the adoption of this amended and substituted Article
IV of the Articles of Incorporation of this corporation, the board of
directors shall call the present issued and outstanding Common Stock of
this corporation as permitted in the Articles of Incorporation, as amended,
and give the thirty (30) days' notice to the holders of record of the
Common Stock owned by the Iowa Farm Bureau Federation as provided in
Section 3 of Article IV of this corporation's Articles of Incorporation, as
amended, and all of the shares of the Class A Common Stock issued and of
record in the name of the Iowa Farm Bureau Federation, as of the date of
the adoption of this amendment, shall be surrendered up to this corporation
and exchanged for such number of shares or fractional part thereof of the
Common Stock authorized by this amendment as the total amount paid by the
Iowa Farm Bureau Federation, at the purchase price of One and 50/100
($1.50) Dollars per share will pay for, at the rate of Seventy-five
($75.00) Dollars per share for said Common Stock.
Sec. 4. FIRST PREFERRED STOCK. The First Preferred Stock shall have a par
value of Fifty ($50.00) Dollars per share and shall have no voting
privileges, and the holders of record of the First Preferred Stock shall be
entitled to receive, when and as declared by the board of directors,
dividends from the net earnings of this corporation at the rate of six (6%)
per cent per annum, payable annually, when and as determined by the board
of directors. Such dividends shall be payable before any dividends shall
be paid on or set apart for the Common stockholders, and such dividends on
the First Preferred Stock shall be cumulative so that if at any dividend
period dividends at the rate of six (6%) per cent per annum should not have
been paid upon or set apart for the First Preferred Stock the deficiency
shall be fully paid on or set apart without interest before any dividends
shall be paid or declared upon the Common Stock. No first preferred
stockholder shall be entitled to dividends unless he is a stockholder of
record at the time of the declaration of the same.
The First Preferred Stock may be redeemed or retired in whole or in part,
at the election and option of the board of directors, at such time or times
as it shall determine at the purchase price paid per share with accrued
dividends, if any, provided, however, that not less than thirty (30) days'
prior notice of such intention to retire or redeem such stock shall be
given the holders of such stock so called for retirement or redemption by a
written notice post-paid to the last known address of such stockholders as
shown by the books of the corporation.
Except as provided in the preceding paragraph, no First Preferred
stockholders shall have any preferential right respecting the
<PAGE>
-4-
retirement or redemption of the shares of First Preferred Stock owned by
him, but in the event less than all of the outstanding shares of First
Preferred Stock are to be redeemed, such redemption may be made by lot or
pro rata or by designation of stockholder or holders in such manner and
basis as may be determined by the board of directors of this corporation.
From and after the date fixed for such redemption all dividends on the
First Preferred Stock thereby called for redemption shall, unless the
corporation shall default in the payment of the redemption price, cease,
and all rights of the holders thereof as stockholders of the corporation,
except the right to receive the redemption price and accrued dividends, if
any, shall cease and terminate.
In the event of the dissolution and winding up of the business of the
corporation, whether voluntary or involuntary, or in the event of the sale
of all of the assets of the corporation and the distribution of the
proceeds thereof, the holder of the First Preferred Stock shall be entitled
to be paid in full the purchase price paid per share to this corporation,
together with all unpaid dividends accrued on such shares, before any sum
whatsoever shall be paid in liquidation on account of the Common Stock, and
thereafter the holders of the Common Stock shall be entitled to the entire
remaining assets ratably in proportion to the shares issued and
outstanding.
Sec. 5. LIMITATION ON STOCKHOLDER DIVIDENDS. No cash dividend on the
capital stock of this corporation in excess of the amount required to
pay dividends at the rate of six (6%) per cent per annum on the par
value of the issued and outstanding First Preferred Stock shall be paid
in any calendar year prior to January 1, 1946, unless the capital of the
corporation, its surplus and contingency reserves shall aggregate ten
(10%) per cent or more of all other liabilities of the corporation, and
no cash dividend in excess of the amount required to pay dividends at
the rate of six (6%) per cent per annum on the par value of the issued
and outstanding First Preferred Stock shall be paid in any calendar year
between January 1, 1946 and January 1, 1951, unless the capital, surplus
and contingency reserves shall equal or exceed eight and one-half (8
1/2%) per cent of all other liabilities; nor shall any cash dividends in
excess of the amount required to pay dividends at the rate of six (6%)
per cent per annum on the par value of the issued and outstanding First
Preferred Stock to be paid on the capital stock in any calendar year
after January 1, 1951, unless the capital, surplus and contingency
reserves shall equal or exceed seven (7%) per cent of all other
liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of six (6%) per cent per annum, on the issued
and outstanding First Preferred Stock, shall be paid on the capital stock
unless the policyholders dividend scale of the corporation in effect for
said calendar year results in an average net cost equal to or less than the
average net cost to the ten legal reserve companies, other than
<PAGE>
-5-
the Farm Bureau Life Insurance Company, having the most insurance in force
in the State of Iowa as of the preceding December 31st.
For the purpose of this comparison the average net cost shall be
computed on the Whole Life Plan for ages at issue at 25, 35 and 45, and
for a policy issued in the amount of One Thousand ($1,000.00) Dollars, cost
for above ages shall be determined from the information provided annually
by recognized life insurance publications. Companies doing primarily a
mail order business or operating through lodges or as fraternal
organizations, as well as United States Government insurance, shall not be
included in the comparison.
Sec. 6. REGISTERED OWNER. This corporation shall be entitled to treat the
person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any
other person or corporation, whether or not the corporation shall have
notice thereof, save as expressly provided by the laws of the State of Iowa
or as may hereafter be provided.
Sec. 7. TRANSFER OF STOCK. The shares of First Preferred Stock and Common
Stock shall not be transferable.
Sec. 8. INCREASE OR DECREASE OF STOCK. From time to time any class of
stock may be increased or decreased as may be determined by vote of the
stockholders present at any annual or special meeting possessing voting
rights to the extent and in the manner provided by the statutes of the
State of Iowa and these Articles of Incorporation, and in event it is
determined to increase the amount of First Preferred Stock it shall not be
necessary to secure the consent of the holders of the First Preferred
Stock; provided, however, that no other class of stock shall be created
having preference over the First Preferred Stock as now authorized or as
may hereafter be authorized in respect to payment of dividends out of the
earnings or upon liquidation or dissolution unless the amendment
authorizing such change shall receive the affirmative vote of the holders
of not less than two-thirds (2/3) of the outstanding First Preferred Stock
voting as a class.
Sec. 9. All persons and/or corporations or associations who shall acquire
stock in this corporation shall acquire the same subject to the provisions
of these Articles of Incorporation, and shall, by their subscription
therefor and acceptance thereof, be bound by the said Articles of
Incorporation and any amendments thereto, and the By-Laws duly adopted
thereunder."
Amend Article V, by striking all of Section 1 thereof, and substituting
in lieu thereof the following:
"Section 1. The business and affairs of this corporation shall be managed
by a board of directors of not less than twelve (12)
<PAGE>
-6-
nor more than twenty-one (21), the exact number to be fixed and defined by
a by-law adopted by a two-thirds (2/3) vote of the stockholders entitled to
vote and present in person or represented by an authorized representative
at any regular or special meeting of the stockholders of this corporation,
and said by-law shall only be amended in the same manner as is provided
herein for its adoption."
Amend Article V, by striking all of Section 2 thereof, and substituting in
lieu thereof the following:
"Sec. 2. The board of directors shall be divided into two classes,
district directors and directors at large, and the district directors shall
be elected to serve for terms of three (3) years and until their successors
are elected and have qualified, and the directors at large shall be elected
to serve for terms of two (2) years and until their successors are elected
and have qualified. The terms of the directors shall be on a staggered
basis so that approximately one-half of the directors at large shall be
elected each year and approximately one-third of the district directors
shall be elected each year. The manner, method and procedure for the
nomination and election of directors shall be as defined and provided in a
by-law duly adopted by a two-thirds (2/3) vote of the stockholders entitled
to vote and present in person or represented by an authorized
representative at any regular or special meeting of the stockholders of
this corporation, and said by-law shall only be amended in the same manner
as is provided herein for its adoption."
Amend Article V, by striking all of Section 3 thereof, and substituting in
lieu thereof the following:
"Sec. 3. The following named persons shall, from and after the date of the
adoption of this Amendment to the Articles of Incorporation, as amended,
constitute the board of directors of this corporation, and shall serve for
a term expiring as of the date set opposite their names and until their
successors are elected and qualified, in accordance with the terms and
provisions of the By-Laws. At the annual meeting of the stockholders of
this corporation held in the year of 1959, and at each annual meeting
thereafter, there shall be elected such number of directors as terms expire
as of the date of such annual meeting, and such additional directors, if
any, as provided for in the By-Laws, to serve for the terms fixed in the
By-Laws of this corporation and until their successors are elected and
qualified.
Expiration Date
Name Address of Term
---- ------- ---------------
K. Howard Hill Minburn, Iowa November, 1959
Howard Waters Danville, Iowa November 21, 1958
Mrs. H. L. Witmer Tipton, Iowa November 21, 1958
Clarence Myers Blue Earth, Minn. November, 1959
Charles Marshall Avoca, Nebraska November, 1959
John Ingels Maynard, Iowa November 21, 1958
<PAGE>
-7-
Expiration Date
Name Address of Term
---- ------- ---------------
Wayne Keith Burt, Iowa November, 1960
LeRoy Getting Sanborn, Iowa November 21, 1958
Wesley Seymour Lakeview, Iowa November, 1959
Harvey Moeckly Polk City, Iowa November 21, 1958
Wayne J. Farmer Van Horne, Iowa November, 1959
James B. Helmick Rte. #2, Columbus
Junction, Iowa November, 1960
R. Edwin Allen Lucas, Iowa November, 1959
John Kenagy Rte. #3, Clarinda,
Iowa November, 1960
Amend Article V, by striking all of Section 4 thereof.
Amend Article V, by striking all of Section 5 thereof, and substituting in
lieu thereof as Section 4 the following:
"Sec. 4. Until the first annual meeting of the stockholders of this
corporation held after the adoption of this Amendment, and until their
successors are elected and qualified, the officers of this corporation
shall be:
Office Name Address
------ ---- -------
President: E. Howard Hill Minburn, Iowa
Vice-President: Howard Waters Danville, Iowa
Secretary: Kenneth Thatcher Des Moines, Iowa
Treasurer: D. B. Groves Des Moines, Iowa."
Amend Article V, by striking all of Section 6 thereof, and substituting in
lieu thereof as Section 5 the following:
"Sec. 5. The officers of this corporation shall be elected by the board of
directors immediately following each annual meeting and shall hold office
for such term or until their successors are elected and qualified, as shall
be provided for in the By-Laws."
Amend Article V, by striking the numbers of Sections 7, 8, 9, 10, 11, 12
and 13, and re-numbering as "Sections 6, 7, 8, 9, 10, 11 and 12,"
respectively.
Amend Article V, by striking all of Section 14 thereof, and substituting in
lieu thereof as Section 13 the following:
"Sec. 13. PROPORTIONATE REPRESENTATION. The holder or holders jointly or
severally, of not less than one-fifth (1/5) of the aggregate vote of the
Common Stock, but less than a majority of the vote represented by the
shares of such stock, shall be entitled to nominate to be elected directors
in accordance with these Articles of Incorporation. In the event such
nomination shall be made, there shall be elected, to the extent that the
total number to be elected is divisible, such proportionate
<PAGE>
-8-
number from the persons so nominated as the aggregate vote of the shares of
stock held by persons making such nominations bear to the whole of Common
shares issued; provided the holders of the minority shares of such stock
shall only be entitled to one-fifth (1/5) of the total number of directors
to be elected for each one-fifth of the entire voting capital stock of such
corporation so held by them. This section shall not be construed to
prevent the holders of a majority of the votes represented by said Common
Stock from electing a majority of the directors. Vacancies occurring from
time to time shall be filled so as to preserve and secure to such minority
and majority stockholders proportionate representation as herein provided."
Amend Article VI, by striking all of said Article and substituting in lieu
thereof as Article VI the following:
"Section 1. REGULAR ANNUAL MEETING. The first regular annual meeting of
the stockholders of this corporation shall be held in the year 1946 and all
subsequent annual meetings of the stockholders of this corporation shall be
held annually at such time and place and upon such notice as the board of
directors shall from time to time, fix and determine, provided such notice
is not less than ten days and such meeting shall be held at Des Moines,
Iowa.
Sec. 2. SPECIAL MEETINGS. Special meetings of the stockholders, except for
the election of directors, may be called at any time by the president, and
shall be called by the president or secretary of this corporation upon the
call of the board of directors by a resolution duly adopted so providing
and directing and notice thereof shall be given the stockholders by written
or printed notice stating the object, time and place of such meeting, and
shall be mailed to the last known address of each stockholder as shown by
the books and records of this corporation at least fifteen (15) days prior
to such meeting."
Sec. 3. VOTING PRIVILEGE. At all meetings of the stockholders each Common
stockholder shall be entitled to one vote for each share of stock owned and
held by him or it."
Amend Article IX, by striking all of said Article and substituting in lieu
thereof as Article IX the following:
"This corporation shall have a corporate seal and shall have inscribed
thereon 'Farm Bureau Life Insurance Company, Des Moines, Iowa, Corporate
Seal.'"
Amend Article X, by striking all of said Article and substituting in lieu
thereof as Article X the following:
"The board of directors may, at its pleasure, make and adopt By-Laws and
amend the same which do not conflict with the law of the Articles of
Incorporation, as amended from time to time,
<PAGE>
-9-
or the By-Laws adopted by the stockholders. No amendment shall be made to
any By-Law which has been adopted by the stockholders unless the proposed
amendment or alteration has been filed in writing with the president and
with the secretary of the corporation not less than sixty (60) days prior
to the meeting at which the amendment is to be offered and voted upon."
CERTIFICATE
The President and Secretary of this corporation were duly authorized and
directed to sign, acknowledge, record, and do all things which are by law
required to execute, complete and carry into effect the within and foregoing
amendment to the Articles of Incorporation. We, E. Howard Hill and Kenneth
Thatcher, Chairman and Secretary, respectively, of said meeting, do hereby
certify the above to be a true and correct statement of the proceedings of the
stockholders at the above named meeting.
/s/ E. Howard Hill
---------------------------------
Chairman
/s/ Kenneth Thatcher
---------------------------------
Secretary
In conformity with the above resolution we, the President and Secretary,
respectively, of said corporation, have executed this instrument, and do hereby
sign and acknowledge the same for and on behalf of the said corporation this 1st
day of August, A. D., 1958.
/s/ E. Howard Hill
---------------------------------
President
/s/ Kenneth Thatcher
---------------------------------
Secretary
[STAMP]
[STAMP]
<PAGE>
-10-
STATE OF IOWA
SS.
COUNTY OF POLK
BE IT REMEMBERED, that on this 1st day of August, A. D., 1958, before me, a
Notary Public in and for said county and state, personally appeared E. Howard
Hill and Kenneth Thatcher, each being to me personally known, who being by me
duly sworn did say, that they are the President and Secretary, respectively, of
the Iowa Life Insurance Company, and that the foregoing instrument was signed
and sealed on behalf of said corporation by authority of its stockholders, and
that they acknowledge said instrument to be the voluntary act and deed of said
corporation, by them voluntarily executed.
/s/
---------------------------------
Notary Public in and for
POLK COUNTY, IOWA
[SEAL]
<PAGE>
Exhibit 6 (b)
By-Laws of the Company
Adopted ANNUAL MEETING
May 28, 1969
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
ARTICLE I
CORPORATE NAME, LOCATION AND PURPOSE
Section 1. NAME. The name of this corporation shall be FARM BUREAU LIFE
INSURANCE COMPANY.
Section 2. LOCATION. The location of its principal or home office shall
be in Des Moines, Iowa.
Section 3. POWERS, OBJECTS AND PURPOSES. The corporate powers, objects
and purposes of this corporation are such as are provided in Article III of the
Articles of Incorporation of this corporation.
ARTICLE II
CORPORATE PERIOD
Section 1. CORPORATE PERIOD. The corporate period of this corporation
commenced on the 30th day of October, 1944, and shall have perpetual existence
thereafter unless changed as by law and the Articles of Incorporation required.
ARTICLE III
STOCK AND STOCKHOLDERS
(Authorized Capital- Eligibility to own stock- Conditions, etc.)
Section 1. AUTHORIZED CAPITAL. The authorized capital stock of this
corporation is Five Hundred Thousand Dollars ($500,000), divided into ten
thousand (10,000) shares, of which amount four thousand (4,000) shares of the
par value of Fifty Dollars ($50) per share, amounting to Two Hundred Thousand
Dollars ($200,000), is Common Stock, and six thousand (6,000) shares of the par
value of Fifty Dollars ($50) per share, amounting
<PAGE>
to Three Hundred Thousand Dollars ($300,000), is seven and one-half per cent (7
1/2%) cumulative First Preferred Stock.
Section 2. COMMON STOCK. The Common Stock shall have a par value of Fifty
Dollars ($50) per share, and the holders of record shall be entitled to one vote
per share at all meetings of the stockholders. The Common Stock shall be issued
to and owned only by the Iowa Farm Bureau Federation and shall be issued from
time to time upon application by it and upon tender of the purchase price as
fixed by the Board of Directors, which shall be not less than par. The holders
of record of the Common Stock shall be entitled to vote at all meetings of the
stockholders by a duly authorized representative or representatives.
If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the Board of Directors
required for the operation of the business of this corporation or for the
payment of its liabilities, it shall be applicable to dividends upon the Common
Stock for such fiscal year when and as from time to time the same shall be
declared by the Board of Directors, which dividends shall not be cumulative but
shall only be paid as surplus net earnings or profits are available and
dividends are declared. Such dividends shall be ratable in proportion to the
number of shares of Common Stock issued and outstanding until dividends have
been declared and set apart for the Common Stock to the extent of, but not in
excess of, seven and one-half (7 1/2 %) for any one fiscal year.
No Common stockholder shall be entitled to dividends unless it is a
stockholder of record at the time of the declaration of the same.
It is callable at the option of the Board of Directors at the selling
price, together with accrued dividends, if any, on thirty (30) days' prior
notice as provided in the Articles of Incorporation.
(b) FIRST PREFERRED STOCK. The holders of the First Preferred Stock shall
be entitled to receive when and as declared by the Board of Directors, dividends
from the net earnings of this corporation at the rate of seven and one-half per
cent (7 1/2 %) per annum on the par value, payable annually when and as
determined by the Board of Directors. Such dividends shall be payable before
any dividends shall be paid on or set apart for the common stockholders, and
shall be fully paid or set apart before any dividends shall be paid or declared
upon the Common Stock. It is to be sold at par and one-half per share,
one-third of which selling price shall be contributed surplus. It is callable
at the option of the Board of Directors at the selling price, together with any
accrued dividends, if any, on a thirty (30) day's prior notice, as provided in
the Articles of Incorporation. No first preferred stockholder shall be entitled
to dividends unless he or it is a stockholder of record at the time of the
declaration of the same.
<PAGE>
Section 3. LIMITATION ON DIVIDENDS. No cash dividends on the capital
stock of the corporation in excess of the amount required to pay dividends at
the rate of six per cent (6%) per annum on the par value of the issued and
outstanding First Preferred Stock shall be paid in any calendar year prior to
January 1, 1946, unless the capital of the corporation, its surplus and
contingency reserves, shall aggregate ten per cent (10%) or more of all other
liabilities of the corporation, and no cash dividend in excess of the amount
required to pay dividends at the rate of six per cent (6%) per annum on the par
value of the issued and outstanding First Preferred Stock, shall be paid in any
calendar year between January 1, 1946 and January 1, 1951, unless the capital
surplus and contingency reserves shall equal or exceed eight and one-half (8
1/2%) of all other liabilities, nor shall any cash dividends in excess of the
amount required to pay dividends at the rate of seven and one-half per cent (7
1/2%) per annum on the par value of the issued and outstanding First Preferred
Stock be paid on the capital stock in any calendar year after January 1, 1951,
unless the capital surplus and contingency reserves shall equal or exceed seven
per cent (7%) of all other liabilities.
No cash dividend in any one calendar year in excess of the amount required
to pay dividends at the rate of seven and one-half per cent ( 7 1/2%) per annum,
on the issued and outstanding First Preferred Stock, shall be paid on the
capital stock unless the policyholders' dividend scale of the corporation in
effect for said calendar year results in an average net cost equal to or less
than the average net cost to the ten legal reserve companies other than the Farm
Bureau Life Insurance Company, having the most insurance in force in the State
of Iowa as of the preceding December 31st.
For the purpose of this comparison the average net cost shall be computed
on the Whole Life Plan for ages at issued 25, 35, and 45, and for a policy
issued in the amount of One Thousand Dollars ($1,000). Cost for the above ages
shall be determined from the information provided annually by recognized life
insurance publications. Companies doing primarily a mail order business or
operating through lodges or as fraternal organizations, as well as United States
Government Insurance, shall not be included in the comparison.
Section 4. REGISTERED OWNER. This corporation shall be entitled to treat
the person or corporation in whose name any share of stock is registered as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable right or claim to any interest in such share on the part of any other
person or corporation, whether or not the corporation shall have notice thereof,
save as expressly provided by the laws of the State of Iowa or as may hereafter
be provided.
Section 5. TRANSFER OF STOCK. The shares of First Preferred Stock and
Common Stock shall be transferable.
Section 6. STOCKHOLDERS' CONTRACTS. All persons who shall acquire stock
in this corporation shall acquire the same subject to the provisions of the
Articles of Incorporation and these By-Laws, and by the acceptance of a
certificate or certificates
<PAGE>
of stock in said corporation, agree to be bound by the Articles of Incorporation
and By-Laws and all amendments thereto.
Section 7. ISSUANCE OF STOCK. So long as Chapter 492, Code of Iowa, 1966,
is the law of the State of Iowa, no stock of this corporation shall be issued
until this corporation has first received payment in full therefor at par, in
cash or property, provided, however, that when stock is issued for anything
other than money, it must be in accordance with the statutes of the State of
Iowa in force at the time said stock is issued.
ARTICLE IV
MEETINGS OF STOCKHOLDERS
Section 1. ANNUAL MEETING. The first regular annual meeting of the
stockholders of this corporation shall be held in the year of 1946 and all
subsequent annual meetings of the stockholders of this corporation shall be held
annually at Des Moines, Iowa, at such time and place as the Board of Directors
shall fix and determine, provided not less than ten (10 ) days' notice in
writing is given each stockholder entitled to vote, by mailing the same to his
last known address.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders, except
for the election of directors, may be called at any time by the president, and
shall be called by the president or secretary of this corporation upon the call
of the Board of Directors by a resolution duly adopted so providing and
directing and notice thereof shall be given the stockholders by written or
printed notice stating the object, time and place of such meeting, and shall be
mailed to the last known address of each stockholder, as shown by the books and
records of this corporation at least fifteen (15) days prior to such meeting.
Section 3. VOTING PRIVILEGE. At all meetings of the stockholders each
Common stockholder shall be entitled to one vote for each share of stock owned
and held by him or it.
Section 4. QUORUM. At annual and special meetings of the stockholders,
the stockholders of this corporation represented in person or by duly authorized
representative shall constitute a quorum at all meetings of the stockholders.
Section 5. ORDER OF BUSINESS. The order of business at all stockholders'
meetings insofar as possible and appropriate shall be as follows:
a. Call of Roll.
b. Reading and disposing of any unapproved minutes.
c. Reports of officers and committees.
d. Unfinished business.
e. New business.
<PAGE>
f. Election of directors.
g. Adjournment.
ARTICLE V
(Stockholders' By-Law)
BOARD OF DIRECTORS
(Classification - Qualification - Nomination - Terms and Election)
Section 1. MANAGEMENT. The business and affairs of this corporation shall
be managed by a Board of Directors of not less than twelve (12) nor more than
twenty-one (21), divided into two classes, district directors and directors at
large, and the district directors shall be elected to serve for terms of three
(3) years and until their successors are elected and qualified, and the
directors at large shall be elected to serve for terms of two (2) years and
until their successors are elected and qualified.
Section 2. NUMBER, QUALIFICATION AND ELECTION OF DIRECTORS. The board of
directors shall be constituted, as follows: There shall be twelve (12)
directors who shall be residents of the State of Iowa and active members of the
board of directors of the Iowa Farm Bureau Federation, nine (9) of whom shall be
district directors, and three (3) of whom shall be directors at large elected to
serve for a term of two (2) years and until their successors are elected and
qualified; plus one (1) director at large elected to serve for a term of two (2)
years and until his successor is elected and qualified from each state, other
than the state of the domicile of the corporation, in which this corporation is
licensed and authorized to transact and conduct its insurance business, other
than for the purpose of investments or reinsurance, who shall be an active
member of the board of directors of the Farm Bureau corporation of each such
state; at such time as the premium volume in any state other than the state of
domicile equals or exceeds one-sixth (1/6) of the premium volume in Iowa, such
other state shall be entitled to one (1) district director and shall be further
entitled to an additional district director each time such state attains an
additional premium volume equal to one-twelfth (1/12) of the premium volume in
Iowa. The number of district directors in each such state, if any, shall be
reduced whenever the premium volume in such state is less than the premium
volume required above to attain such director and the difference is greater than
one twenty-fourth (1/24) of the premium volume in Iowa. Adjustments in the
number of district directors shall be made at the time of the regular annual
meeting of this corporation based upon premium volume defined as the
direct-business premiums and annuity considerations received less dividends
allowed in the preceding fiscal year. In the event there is to be a downward
adjustment in board representation, as provided for above, then and in that
event the board of directors' nominating committee for such state, as
hereinafter provided for, shall determine and designate which district director
or directors are to be continued in office and the board of directors upon
receiving such determination and designation shall forthwith accept the
resignation of the board member who is not continuing, said resignation to be
effective as of the date of the
<PAGE>
board meeting held in connection with the annual meeting of the company, and in
the event said board of directors' nominating committee for said state fails to
act and so designate then and in that event the board of directors shall accept
the resignation of the district director from said state whose term has the
least number of years to run, and if there be more than one such district
director, then said terminating director shall be chosen by lot among them. All
district directors shall be elected to serve for a term of three (3) years and
until their successors are elected and qualified from districts and in the
manner hereinafter in these ByLaws provided, except that a district director
newly qualified from a state, other than the state of domicile of this
corporation, may at the discretion of the nominating committee of his state, be
elected for a term of one (1) or two (2) years in order to provide for staggered
terms of district directors from said state.
Each district director must be an active member of the board of directors
of the Farm Bureau corporation of his state of residence and whenever he ceases
to be a director of the board of directors of such state Farm Bureau
corporation, there shall be a vacancy in the office of director of this
corporation.
Section 3. DISTRICTS DEFINED.
(a) The State of Iowa shall be divided into nine (9) districts numbered
from one (1) to nine (9), which districts shall be defined, as follows:
DISTRICT 1- Alameda, Black Hawk, Bremer, Buchanan, Chickasaw, Clayton,
Delaware, Dubuque, Fayette, Howard, Winneshiek;
DISTRICT 2- Butler, Cerro Gordo, Floyd, Franklin, Hancock, Humboldt,
Kossuth, Mitchell, Winnebago, Worth, Wright;
DISTRICT 3- Cherokee, Clay, Buena Vista, Dickinson, Emmet, Lyon, O'Brien,
Osceola, Palo Alto, Plymouth, Pocahontas, Sioux;
DISTRICT 4- Audubon, Calhoun, Carroll, Crawford, Guthrie, Harrison, Ida,
Monona, Sac, Woodbury, Shelby;
DISTRICT 5- Boone, Dallas, Greene, Grundy, Hamilton, Hardin, Jasper,
Marshall, Polk, Story, Webster;
DISTRICT 6- Benton, Cedar, Clinton, Iowa, Jackson, Johnson, Jones, Linn,
Poweshiek, Scott, Tama;
DISTRICT 7- Davis, Des Moines, Henry, Jefferson, Lee, Louisa, Keokuk,
Muscatine, Van Buren, Wapello, Washington;
DISTRICT 8- Appanoose, Clarke, Decatur, Lucas, Mahaska, Marion, Monroe,
Madison, Warren, Wayne;
<PAGE>
DISTRICT 9- Adams, Adair, Cass, Fremont, Mills, Montgomery, Pottawattamie,
Page, Ringgold, Taylor, Union.
(b) DISTRICTS DEFINED IN STATES OTHER THAN THE STATE OF THE DOMICILE OF
THIS CORPORATION. On and after the date any state, other than the
state of the domicile of this corporation, is entitled to one (1)
district director, said state shall constitute one (1) district, and
when such state is entitled to more than one district director as
herein provided said state may, if its nominating committee so
determines, divide itself into such number of districts as there are
district directors, or, in the alternative, said state may elect its
district directors on a state-wide basis and said directors shall
serve for the same terms as all other district directors. When a
state, other than the state of domicile of this corporation, is
entitled to an additional director, as hereinbefore provided, the
secretary of this corporation shall in writing so advise the
nominating committee of said state (the board of directors of the
state Farm Bureau corporation) and said committee shall then nominate
an eligible person, as defined in this Article, and file in writing
with the secretary of this corporation the name of such nominee
properly certified in the manner and in accordance with the terms of
Section 4 of this Article. The Board of Directors of this corporation
shall at its next meeting elect said nominee as a district director of
this corporation to serve until the next regular annual meeting of
this corporation and until his successor is elected and qualified.
SECTION 4. NOMINATION OF DIRECTORS- NOMINATING COMMITTEES. The Board of
Directors of the state Farm Bureau corporation of the state of the domicile of
this corporation and of any other state in which this corporation is licensed
and is authorized to transact its insurance business shall each, respectively,
constitute and be a stockholders' nominating committee for each state. Each
such state's nominating committee shall nominate the person or persons who are
eligible and qualified to be elected as directors of this corporation from such
state, as hereinbefore provided, and shall submit and file in writing with the
secretary of this corporation the names of such nominees, including the name of
the nominee, if any, who has been nominated and elected by the Board of
Directors as a district director since the date of the last annual meeting of
the stockholders of this corporation, not less than thirty (30) days prior to
the date of the meeting of the stockholders of this corporation at which they
are to be elected, and the secretary of this corporation shall submit the names
of such nominees to a nominating committee appointed by the president of this
corporation which said committee shall report and submit to the stockholders for
election only the names of those so nominated, if eligible, and no one else
shall be eligible for election to the Board of Directors of this corporation.
Section 5. MEMBERS OF BOARD OF DIRECTORS. The following named persons
shall constitute the Board of Directors of this corporation and shall serve for
the terms set opposite their names and until their successors are elected and
qualified. At the annual meeting of the stockholders of this corporation to be
held in the year 1970, and at each annual meeting thereafter, there shall be
elected such number of district directors as
<PAGE>
terms expire as of the date of such annual meeting for a term of three (3) years
and until their successors are elected and qualified, and such number of
directors at large as terms expire as of the date of such annual meeting for a
term of two (2) years and until their successors are elected and qualified.
(Directors at Large)
Name Address Expiration Date of Term
---- ------- -----------------------
J. Merrill Anderson RFD #1, Newton, Iowa 1970
Dean Kleckner Rudd, Iowa 1971
Mrs. Herbert Johnson RFD #1, Charles City, Iowa 1971
P. Dillon Hempstead Houston, Minnesota 1970
Roland G. Nelson Mead, Nebraska 1970
Kenneth McIntyre Harwood, North Dakota 1971
(District Directors)
District Name Address Expiration Date of Term
- -------- ---- ------- -----------------------
1 K. H. Hoppenworth RFD #1, Tripoli, Iowa 1971
2 Edward Engstrom RFD #1, Kanawha, Iowa 1970
3 Lyle R. Stephens LeMars, Iowa 1971
4 T. Selmer Hodne Box 103, Manilla, Iowa 1972
5 R. N. Burt RFD #1, Marshalltown, Iowa 1971
6 Robert Joslin RFD #2, Clarence, Iowa 1972
7 Fred Holsteen RFD #1, West Point, Iowa 1970
8 Lawrence W. Everett RFD, New Sharon, Iowa 1972
9 William E. McGrew Emerson, Iowa 1970
Section 6. ELIGIBILITY OF OFFICERS. No person shall be eligible to be
elected by the Board of Directors of this corporation to the offices of
president and vice-president of this corporation unless he is a resident of the
State of Iowa, an active member of the board of directors of the Iowa Farm
Bureau Federation. No person shall be eligible to be elected by the Board of
Directors of this corporation to the offices of secretary and treasurer of this
corporation unless he is a resident of the State of Iowa and the active
secretary and active treasurer of the Iowa Farm Bureau Federation.
Section 7. MEETINGS. The regular organization meeting of the Board of
Directors shall be held immediately after each annual meeting of the
stockholders, or as soon thereafter as a quorum of the Board of Directors can
be obtained for the election of officers and the transaction of any other
business which may properly be brought before the meeting and no notice of said
organization meeting shall be required.
Regular meetings of the Board of Directors shall be held quarterly at such
time and place and upon such notice as the directors may fix by resolution.
Special
<PAGE>
meetings may be called upon the order of the president. Notice of the time,
place and purpose of special meetings shall be given at least two (2) days
previous thereto by oral or written notice delivered personally or mailed to the
several directors at their last known address. Any director may waive notice of
any meeting of the Board of Directors. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting.
Section 8. QUORUM. A majority of the entire number of the Board of
Directors shall constitute a quorum of the board for the transaction of business
at any meeting of the Board of Directors. A majority vote of the members
present in quorum shall determine any matters not herein or in the Articles and
ByLaws requiring a different vote. If less than a majority of the directors may
be present at any meeting, a majority of the members present may adjourn the
meeting from time to time without further notice.
Section 9. VACANCIES. The Board of Directors shall fill all vacancies
occurring in its membership and that of the officers of this corporation by the
election of a person eligible to serve as such, as in these ByLaws authorized
and provided, and a director or officer so elected to fill a vacancy shall serve
for the unexpired term of the director or officer whose vacancy he was elected
to fill and/ or until his successor is elected and qualified. Whenever a member
of the Board of Directors of this corporation ceases to be eligible by reason of
the termination of his membership as an active member of the Board of Directors
of the Iowa Farm Bureau Federation , or of a state Farm Bureau corporation of a
state in which this corporation is licensed and authorized to transact its
insurance business, there shall be a vacancy in the office of said director as a
member of the Board of Directors of this corporation, and the Board of Directors
of this corporation shall fill such vacancy by electing the person nominated and
eligible to be elected as a director of this corporation, as in these ByLaws
provided, to serve until the next regular annual meeting of the stockholders of
this corporation and until his successor is elected and qualified, and his name
shall be placed in nomination for election as a director of this corporation by
the nominating committee and elected to serve for the remainder of a two-year
term if a director at large, and a three-year term if a district director, and
until his successor is elected and qualified.
Section 10. This Article V of the ByLaws of this corporation is a bylaw
adopted by the stockholders of this corporation in accordance with the laws of
this state and the Articles of Incorporation, as amended, of this corporation,
and may be amended only as authorized and provided in Article XI of these
ByLaws.
ARTICLE V-A
BOARD OF DIRECTORS- GENERAL PROVISIONS
Section 1. RULES AND REGULATIONS. The Board of Directors may from time
to time adopt rules and regulations and such rules and regulations shall
constitute by
<PAGE>
reference a part of these ByLaws, and shall be binding upon the stockholders of
this corporation and upon anyone doing business with this corporation.
Section 2. COMMITTEES.
(a) AUDIT AND BUDGET. The audit and budget committee shall consist of
three (3) members who shall be members of the Board of Directors and shall be
appointed by the president and approved by the Board of Directors. The chairman
thereof shall be designated by the president. This committee shall review at
periodic intervals, all receipts received and all disbursements made from the
funds of the corporation and perform such other duties as may be delegated to it
by the Board of Directors.
(b) INVESTMENT. The investment policy of the corporation shall be
determined by the Board of Directors, which shall have the power to determine
the classes of investments and the percentage of investment to be made within
each of said classifications, subject to and in accordance with the provisions
of Section 515.35, Code of Iowa, 1966. The investment committee shall consist
of the president, secretary, treasurer, general counsel and the general manager
of the corporation, all of whom shall serve by virtue of their office. The
president shall serve as chairman of said committee and in the absence of the
president, those present shall designate an acting chairman. The committee
shall elect its secretary. The secretary of the committee shall keep a complete
record of the proceedings thereof. The investment committee shall make a report
to the Board of Directors each month, which report shall show the investments
purchased, sold or retired during the month immediately preceding, and in
addition, said committee shall, annually, make a full report to the Board of
Directors, covering all investment activities with particular reference to
purchases and sales during the preceding fiscal year. The Board of Directors
may call for special reports on investments at any time they so desire.
The investment committee shall have the duty and the power to authorize and
direct the mode, manner and time of making and calling in investments, and the
sale or transfer of investments and the reinvestment of the proceeds thereof,
and to examine all funds and securities as often as they deem necessary or when
required to do so by the Board of Directors. The investment committee shall
have the duty and authority from time to time and whenever necessary to
authorize the execution of all contracts, deeds, conveyances and any other
instruments of the corporation necessary for the assignment, transfer and sale
of investments of the corporation requiring corporate signature. A majority of
the members of the committee shall constitute a quorum. There shall also be a
purchasing committee, which said committee shall consist of this corporation,
all of whom shall serve by virtue of their office. The treasurer shall serve as
chairman of said committee and in the absence of the treasurer, those present
shall designate an acting chairman. The purchasing committee shall select its
secretary who shall keep a complete record of the proceedings thereof. The
purchasing committee shall have the same power and authority, relative to the
handling, acquisition and disposition of investments of every kind and nature,
coextensive with the investment committee. A majority of the members of the
committee shall constitute a quorum. The
<PAGE>
purchasing committee shall make a detailed report to the investment committee
quarterly, covering the activities of the purchasing committee for the preceding
three months' period.
The investment of the funds of the corporation and the deposit of the
reserve on all policies and contracts issued by the corporation shall comply
with the laws of the State of Iowa.
Section 3. FIDELITY BONDS. The Board of Directors shall require the
officers, agents and employees having custody of any of its funds or property to
give the corporation a bond conditioned for the faithful discharge of the duties
of such person and in such amount and with such company as surety as the Board
of Directors shall require or approve. The cost of such bond shall be borne by
the corporation.
Section 4. AUDITS. The Board of Directors shall have an annual audit made
of the records of the corporation for submission to the members at the annual
meeting. The Board of Directors may have other audits made from time to time
whenever they shall deem such additional audits necessary.
ARTICLE VI
OFFICERS
(Officers - Election - Term - Duties)
Section 1. OFFICERS. The officers of this corporation shall be a
president, vice president, secretary and treasurer, and the office of secretary
and treasurer may be held by the same person. The Board of Directors may also
elect or appoint a general manager, an assistant general manager, assistant
secretaries, an assistant treasurer, a general counsel, an assistant general
counsel, an underwriting secretary, a medical director, an actuary and such
other officers as the interests of the company may require. The Board of
Directors shall have power to prescribe additional powers and duties for the
officers and employees herein provided for, and to change such powers and duties
whenever the board may deem best.
Section 2. ELECTION AND TERM OF OFFICE. The president, vice president,
treasurer, and secretary shall be elected at the organization meeting of the
Board of Directors and all other officers shall be appointed or elected at such
time as the Board of Directors in its discretion shall determine. The term of
office of the president, vice president, treasurer and secretary shall be for
one (1) year, or until their successors are elected and qualified. The term of
office of all other elected or appointed officers shall be at the will and
pleasure of the Board of Directors.
Section 3. DUTIES OF OFFICERS.
<PAGE>
(a) PRESIDENT. The president shall preside over all meetings of the Board
of Directors and meetings of the stockholders; shall execute personally or
through an agent duly authorized by the Board of Directors, in behalf of the
corporation, all contracts, deeds or other instruments which have been approved
by the Board of Directors; shall be a member ex-officio of all committees of the
Board of Directors; and shall have general supervision and administrative
control over all of the affairs of the corporation.
(b) VICE PRESIDENT. In the absence or the inability or disability of the
president, or his refusal to act, his duties shall devolve upon and be
discharged by the vice president.
(c) SECRETARY. The secretary shall be the custodian of all books, papers,
records, documents, official seal and property of the corporation, except as
otherwise authorized by the Board of Directors. He shall conduct by himself or
through such assistant secretaries and other subordinates such business as shall
be authorized by the Board of Directors; he shall serve or cause to be served,
printed and published, such notice as shall be required by law, by these ByLaws
and by resolutions of the Board of Directors; he shall keep the corporate
records, carry on all proper correspondence and shall act as secretary in the
meetings of the stockholders and the Board of Directors, and shall perform such
other administrative duties as shall be assigned to him from time to time by the
Board of Directors.
(d) TREASURER. The treasurer shall have charge of the funds of the
corporation and shall pay them out as ordered by the Board of Directors. He
shall keep an accurate account of receipts and disbursements and submit a
monthly report thereof to the Board of Directors at their regular meeting and
oftener as required; he shall also give a full and complete report at the annual
meeting of the stockholders.
(e) GENERAL MANAGER. Subject to the business and administrative policies
adopted by the Board of Directors from time to time and under the supervision
and direction of the Iowa Farm Administrative Board, the corporate manager, the
general manager shall be responsible for the supervision and direction of the
business and affairs of this corporation and its employees and agents.
(f) ASSISTANT GENERAL MANAGER. The assistant general manager shall, in
the absence of the general manager, perform the duties of the general manager;
he shall at other times have such duties and authority as shall be delegated to
him and shall assist the general manager and be subject to the supervision and
direction of the general manager.
(g) ASSISTANT SECRETARY. The assistant secretary or secretaries shall
perform the duties of the secretary in the absence of the secretary and shall
perform such other duties as may from time to time be required by the Board of
Directors.
(h) ASSISTANT TREASURER. Such of the powers and duties vested in the
treasurer may be delegated by the Board of Directors to an assistant treasurer
or assistant
<PAGE>
treasurers as the Board of Directors in its discretion may deem necessary or
desirable. The assistant treasurer or assistant treasurers shall be vested only
such powers and duties as are so delegated. Assistant treasurers shall, in the
performance of their duties as delegated, be subject to the direction,
supervision and control of the treasurer.
(i) GENERAL COUNSEL. The general counsel, subject to the supervision of
the Board of Directors, shall be responsible for all matters of legal import
concerning the company.
(j) ASSISTANT GENERAL COUNSEL. The assistant general counsel shall, in
the absence of the general counsel, perform the duties of the general counsel;
he shall at other times have such duties and authority as shall be delegated to
him and shall assist the general counsel and be subject to the supervision and
direction of the general counsel.
(k) UNDERWRITING SECRETARY. It shall be the duty of the underwriting
secretary to have general supervision of the underwriting and acceptance of
risks and applications for insurance. No policy shall be issued unless the
application shall have first been approved by either the Underwriting Secretary
or an underwriter designated by him.
(l) MEDICAL DIRECTOR. It shall be the duty of the medical director to
have general supervision of medical underwriting and he shall be under the
general supervision of the underwriting secretary. He shall have supervision
over all medical examiners and cause to be kept such records as may be required
by the business of the company, and perform such other duties relating to the
underwriting of the company as shall from time to time be delegated to him.
(m) ACTUARY. The actuary shall be directly responsible to the general
manager and through him to the Iowa Farm Administrative Board, and through it to
the Board of Directors of this corporation for the performance and carrying out
of his responsibilities. It shall be the duty of the actuary to supervise the
compilation of all statistics and calculation of premium rates and the
allocation and distribution of surplus, and the performance of such other duties
as shall be assigned to him from time to time by the general manager.
ARTICLE VII
Section 1. KINDS OF INSURANCE. The Board of Directors shall determine the
kinds of insurance and the nature of the risks to be covered, subject and
pursuant to the provisions of the Articles of Incorporation, as amended, and the
applicable laws of the State of Iowa.
Section 2. FORM OF POLICIES. The policies of insurance issued by the
company shall be in such form and upon such terms and conditions as may be
determined and authorized by the Board of Directors.
<PAGE>
Section 3. PREMIUM. The Board of Directors shall fix the amount of the
premium and valuations for each policy and contract of insurance, with said
premiums to be paid monthly, quarterly, semi-annually or annually.
Section 4. REINSURANCE. The company may contract for reinsurance on its
own risks and may make and issue reinsurance contracts on the risks of others.
Such contracts may be on a participating or on a non-participating basis and may
be with or without contingent liability.
ARTICLE VIII
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year of the company shall commence
with the first day of January of each year and terminate with the 31st day of
December each year.
ARTICLE IX
CORPORATE SEAL
Section 1. CORPORATE SEAL. The corporate seal of the corporation shall be
in the form of a circle and shall have inscribed therein the name of the
corporation and the words "Corporate Seal, Iowa."
ARTICLE X
EMPLOYEES
Section 1. EMPLOYEES. No person who is a member of the Board of
Directors, other than the president, and no person who is a relative of any
member of the Board of Directors or any officer of this corporation shall be
eligible for employment by the corporation.
ARTICLE XI
(Stockholders' By-Law)
AMENDMENTS TO BY-LAWS
Section 1. AMENDMENTS TO BYLAWS. The Board of Directors may, at its
pleasure, make and adopt ByLaws and amend the same which do not conflict with
the law or the Articles of Incorporation, as amended from time to time, or the
ByLaws adopted by the stockholders. No amendment shall be made to any ByLaw
which has been adopted by the stockholders unless the proposed amendment or
alteration has been filed in writing
<PAGE>
with the president and with the secretary of the corporation not less than sixty
(60) days prior to the meeting at which the amendment is to be offered and voted
upon.
<PAGE>
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
Adopted August 26, 1975
AMEND ARTICLE I of the By-Laws, entitled CORPORATE NAME, LOCATION AND
PURPOSES, by striking Section 2 thereof in its entirety and by substituting in
lieu thereof the following:
"Section 2. LOCATION. The location of its principal or home office shall
be in West Des Moines, Polk County, Iowa."
AMEND ARTICLE IV, entitled MEETINGS OF STOCKHOLDERS, by striking Section 1
in its entirety and by substituting in lieu thereof the following:
"Section 1. REGULAR ANNUAL MEETING. The regular annual meeting of the
stockholders and of this corporation held in the year 1975, and all subsequent
annual meetings of the stockholders of this corporation shall be held annually
at such time and place and upon such notice as the Board of Directors shall from
time to time fix and determine. Such notice shall be given in writing and
mailed to the stockholders' last known address as shown by the books and records
of the corporation not less than ten (10) days prior to such meeting, informing
the stockholders of the place, date and hour of said stockholders' meeting, and
said meeting shall be held in West Des Moines, Iowa, or at such other place in
Polk County, Iowa, as the Board of Directors may fix and determine, providing
notice of any such meeting at a place other than West Des Moines, Iowa, shall be
given to the stockholders in writing and mailed to the stockholders' last known
address as shown by the books and records of the corporation at least twenty
(20) days prior to such meeting, informing the stockholders of the place, date
and hour of said stockholders' meeting."
AMEND ARTICLE V-A, entitled BOARD OF DIRECTORS - GENERAL PROVISIONS, by
striking Section 2(a) in its entirety and by substituting in lieu thereof the
following:
"(a) BUDGET AND FINANCE. The budget and finance committee shall consist
of three (3) members who shall be members of the Board of Directors and shall be
appointed by the president and approved by the Board of Directors. The chairman
thereof shall be designated by the president. This committee shall review at
periodic intervals, all receipts and all disbursements made from the funds of
the corporation and perform such other duties as may be delegated to it by the
Board of Directors."
FURTHER AMEND ARTICLE V-A, by striking from Section 2(b), entitled
INVESTMENT, the figures and words "515.35, Code of Iowa, 1966" appearing in line
five thereof and by substituting in lieu thereof the figures and words "511.8,
Code of Iowa, 1975."
<PAGE>
AMEND ARTICLE IX, entitled CORPORATE SEAL, by striking said Article in its
entirety and by substituting in lieu thereof the following:
"ARTICLE IX
CORPORATE SEAL
Section 1. CORPORATE SEAL. The corporation shall have a corporate seal
and shall have inscribed thereon, 'Farm Bureau Life Insurance Company, Corporate
Seal, Iowa.'"
<PAGE>
AMENDMENT TO
AMENDED AND SUBSTITUTED BY-LAWS
FARM BUREAU LIFE INSURANCE COMPANY
26 November, 1975
ARTICLE XII
INDEMNIFICATION - OFFICERS, DIRECTORS AND EMPLOYEES
This corporation shall make indemnification to the following extent and
under the following circumstances:
a. To indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right or the corporation) by reason of the fact that
he is or was a director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
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 interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
b. To indemnify 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 corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorney's 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 corporation and except that no indemnification shall 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 this duty to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
<PAGE>
c. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in paragraphs "a" and "b," or in
defense of any claim, issue, or matter herein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred
by him in connection therewith.
d. Any indemnification under paragraphs "a" and "b" (unless ordered by a
court") shall be made by the corporation only as authorized in the specific case
upon a determination that the indemnification of the director, officer,
employee, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs "a" and "b." Such
determination shall be made (1) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit, or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the shareholders.
e. Expenses, including attorney fees, incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding as authorized in
the manner provided in paragraph "d" upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this section.
f. The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
g. The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
<PAGE>
Section 9. VACANCIES. The Board of Directors shall fill all vacancies
occurring in its membership and that of the officers of this corporation by the
election of a person eligible to serve as such, as in these ByLaws authorized
and provided, and a director or officer so elected to fill a vacancy shall serve
for the unexpired term of the director or officer whose vacancy he was elected
to fill and/ or until his successor is elected and qualified.
Whenever a member of the Board of Directors of this corporation ceases to
be eligible by reason of the termination of his membership as an active member
of the Board of Directors of the Iowa Farm Bureau Federation, or of a state Farm
Bureau corporation of a state in which this corporation is licensed and
authorized to transact its insurance business, there shall be a vacancy in the
office of said director as a member of the Board of Directors of this
corporation, and the Board of Directors of this corporation shall fill such
vacancy by electing the person nominated and eligible to be elected as a
director of this corporation, as in these ByLaws provided, to serve for the
unexpired term of the director whose vacancy he was elected to fill and/ or
until his successor is elected and qualified.
<PAGE>
Adopted: September 30, 1980
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
AMEND ARTICLE V-A, Section 2(b), entitled "Investment," by striking it in
its entirety and substituting in lieu thereof the following:
"(b) INVESTMENT AND PURCHASE COMMITTEE. The investment policy of the
Corporation shall be determined by the Board of Directors, which shall have
the power to determine the classes of investments and the percentage of
investment to be made within each of said classifications, subject to and in
accordance with the provisions of Section 511.8 of the 1979 Code of Iowa.
The Investment and Purchase Committee shall consist of the secretary,
treasurer and general counsel and the general manager of the Corporation and
the head of the Investment Department shall be an ex officio member of this
Committee without portfolio, all of whom shall serve by virtue of their
office. The treasurer shall serve as chairman of said Committee and in his
absence the general counsel shall act as chairman; the Committee shall elect
its secretary. The secretary of the Committee shall keep a complete record
of the proceedings thereof. The Investment and Purchase Committee shall make
a report to the Board of Directors each month, which report shall show the
investments purchased, sold, or retired during the month immediately
preceding, and in addition, said Committee shall, annually, make a full
report to the Board of Directors, covering all investment activities with
particular reference to purchases and sales during the preceding fiscal year.
The Board of Directors may call for special reports on investments at any
time they so desire.
The Investment and Purchase Committee shall have the duty and the power to
authorize and direct the mode, manner and time of making and calling in
investments, and the sale or transfer of investments and the reinvestment of the
proceeds thereof, and to examine all funds and securities as often as they deem
necessary or when required to do so by the Board of Directors. The Investment
and Purchase Committee shall have the duty and authority from time to time and
whenever necessary to authorize the execution of all contracts, deeds,
conveyances and any other instruments of the Corporation necessary for the
assignment, transfer and sale of investments of the Corporation requiring
corporate signature. A majority of the members of the Committee shall
constitute a quorum.
The investment of the funds of the Corporation and the deposit of the
reserve on all policies and contracts issued by the Corporation shall comply
with the laws of the State of Iowa."
<PAGE>
AMENDMENTS
TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
West Des Moines, Iowa
AMEND ARTICLE III, Section 1, entitled "AUTHORIZED CAPITAL", by striking
the first paragraph in its entirety and by substituting in lieu thereof the
following:
"Section 1. AUTHORIZED CAPITAL. The authorized capital stock of this
corporation is One Million Five Hundred Fifty Thousand Dollars ($1,550,000.00),
divided into thirty one thousand (31,000) shares, of which amount twenty-five
thousand (25,000) shares of the par value of Fifty Dollars ($50.00) per share,
amounting to One Million Two Hundred Fifty Thousand Dollars ($1,250,000) is
Common Stock, and six thousand (6,000) shares of the par value of Fifty Dollars
($50.00) per share, amounting to Three Hundred Thousand Dollars ($300,000) is
seven and one-half per cent (7 1/2%) cumulative First Preferred Stock."
AMEND ARTICLE III, Section 2 (a)., entitled "COMMON STOCK", by striking the
second paragraph in its entirety and substituting in lieu thereof the following:
"If, after providing for the payment of full dividends for any fiscal year
on the First Preferred Stock and for any balance that remains due on the
cumulative dividends of such First Preferred Stock, there shall remain any
surplus net earnings or profits not in the opinion of the board of directors
required for the operation of the business of this corporation or for the
payment of its liabilities, it shall be applicable to dividends upon the Common
Stock for such fiscal year when and as from time to time the same shall be
declared by the board of directors, which dividend shall not be cumulative but
shall only be paid as surplus net earnings or profits are available and
dividends are declared. Such dividends shall be ratable in proportion to the
number of shares of Common stock issued and outstanding."
AMEND ARTICLE III, Section 3, entitled "LIMITATION ON DIVIDENDS" by
striking the Section in its entirety.
<PAGE>
Adopted March 1, 1984
AMENDMENTS TO THE
AMENDED AND SUBSTITUTED BY-LAWS
OF
FARM BUREAU LIFE INSURANCE COMPANY
AMEND ARTICLE V-A, Section 2(b), entitled "Investment," by striking it in
its entirety and substituting in lieu thereof the following:
(b) INVESTMENT COMMITTEE. The investment policy of the Corporation shall
be determined by the Board of Directors, which shall have the power to determine
the classes of investments and the percentage of investment to be made within
each of said classifications, subject to and in accordance with the provisions
of Section 511.8 of the Code of Iowa, as amended. The Investment Committee
shall consist of the Secretary, Treasurer, General Counsel, General Manager,
Assistant General Manager, Controller and Financial Planning Officer, Vice
President Life and Health Insurance, and Vice President Investments of the
Corporation, all of whom shall serve by virtue of their office. The Treasurer
shall serve as chairman of said Committee and in his absence the General Counsel
shall act as chairman; the Committee shall elect its Secretary. The secretary
of the Committee shall keep a complete record of the proceedings thereof. The
Investment Committee shall make a report to the Board of Directors each month,
which report shall show the investments purchase, sold or retired during the
month immediately preceding, and in addition, said Committee shall, annually,
make a full report to the Board of Directors, covering all investment activities
with particular reference to purchases and sales during the preceding fiscal
year. The Board of Directors may call for special reports on investments at any
time they so desire.
The Investment Committee shall have the duty and the power to authorize
and direct the mode, manner and time of making and calling in investments, and
the sale or transfer of investments and the reinvestment of the proceeds
thereof, and to examine all funds and securities as often as they deem necessary
or when required to do so by the Board of Directors. The Investment Committee
shall have the duty and authority from time to time and whenever necessary to
authorize the execution of all contracts, deeds, conveyances and any other
instruments of the Corporation necessary for the assignment, transfer and sale
of investments of the Corporation requiring corporate signature. A majority of
the members of the Committee shall constitute a quorum.
The investment of the funds of the Corporation and the deposit of the
reserve on all policies and contracts issued by the Corporation shall comply
with the laws of the State of Iowa.
AMEND ARTICLE III, Section 4., entitled "REGISTERED OWNER" by renumbering
as Section 3.
<PAGE>
AMEND ARTICLE III, Section 5., entitled "TRANSFER OF STOCK" by renumbering
as Section 4.
AMEND ARTICLE III, Section 6., entitled "STOCKHOLDERS' CONTRACTS" by
renumbering as Section 5.
AMEND ARTICLE III, Section 7., entitled "ISSUANCE OF STOCK" by renumbering
as Section 6.
<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
Farm Bureau Life Variable Account III 1/6/98
Farm Bureau Life Annuity Account III 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>
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
Farm Bureau Life Variable Account III
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
Farm Bureau Life Annuity Account III
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>
Farm Bureau letterhead
August 10, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form N-4 filed by Farm Bureau
Life Insurance Company ("Company") and its Farm Bureau Life Annuity Account III
with the Securities and Exchange Commission covering certain variable annuity
contracts, 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 annuity contracts, when issued as contemplated by the said
Form N-4 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
N-4 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>
Sutherland, Asbill & Brennan LLP letterhead
August 19, 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 statement of additional information filed as part of the
registration statement on Form N-4 for Farm Bureau Life Annuity Account III.
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
/s/ Stephen E. Roth, Esq.
Stephen E. Roth
<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 (Form N-4) and related Prospectus of Farm Bureau Life Annuity
Account III for the registration of individual flexible premium deferred
variable annuity contracts.
Sincerely,
/s/ Ernst & Young LLP
Des Moines, Iowa
August 14, 1998
<PAGE>
Farm Bureau letterhead
August 10, 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 deferred variable annuity
contract ("Contract") under the Securities Act of 1933, as amended. The
prospectus included in the Initial Filing to the Registration Statement on
Form N-4 describes the Contract. I have provided actuarial advice concerning
the preparation of the contract form described in the Registration Statement,
and I am familiar with the Registration Statement and exhibits thereto.
It is my professional opinion that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
insurance company.
I hereby consent to the use of this opinion as an exhibit to the Initial
filing to the Registration Statement.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing Vice
President
Farm Bureau Life Insurance Company
<PAGE>
POWER OF ATTORNEY
The undersigned directors of Farm Bureau Life Insurance Company, an Iowa
corporation (the "Company"), hereby constitute and appoint Edward M.
Wiederstein, and Stephen M. Morain, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him and on his behalf and in his name, place
and stead, to execute and file any of the documents referred to below relating
to registrations under the Securities Act of 1933 and under the Investment
Company Act of 1940 with respect to any life insurance policies or annuity
contracts: registration statements on any form or forms under the Securities Act
of 1933 and under the Investment Company Act of 1940, and any and all amendments
and supplements thereto, with all exhibits and all instruments necessary or
appropriate in connection therewith, each of said attorneys-in-fact and agents
and him or their substitutes being empowered to act with or without the others
or other, and to have full power and authority to do or cause to be done in the
name and on behalf of the undersigned each and every act and thing requisite and
necessary or appropriate with respect thereto to be done in and about the
premises in order to effectuate the same, as fully to all intents and purposes
as the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may do or cause to
be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereto set his or her hand on the date
set forth below.
NAME DATE
- ---- ----
- ----------------------------------- ---------------
Kenneth R. Ashby
/s/ Al Christopherson January 6, 1998
- ----------------------------------- ---------------
Al Christopherson
/s/ Ernest A. Glienke January 6, 1998
- ----------------------------------- ---------------
Ernest A. Glienke
/s/ Philip A. Hemesath January 6, 1998
- ----------------------------------- ---------------
Philip A. Hemesath
/s/ Craig D. Hill January 6, 1998
- ----------------------------------- ---------------
Craig D. Hill
/s/ Daniel L. Johnson January 6, 1998
- ----------------------------------- ---------------
Daniel L. Johnson
- ----------------------------------- ---------------
Richard G. Kjerstad
<PAGE>
/s/ Craig A. Lang January 6, 1998
- ----------------------------------- ---------------
Craig A. Lang
/s/ Lindsey D. Larson January 6, 1998
- ----------------------------------- ---------------
Lindsey D. Larson
/s/ David R. Machacek January 6, 1998
- ----------------------------------- ---------------
David R. Machacek
/s/ Donald O. Narigon January 6, 1998
- ----------------------------------- ---------------
Donald O. Narigon
- ----------------------------------- ---------------
Bryce P. Neidig
/s/ Charles E. Norris January 6, 1998
- ----------------------------------- ---------------
Charles E. Norris
- ----------------------------------- ---------------
Keith R. Olsen
- ----------------------------------- ---------------
Bennett M. Osmonson
- ----------------------------------- ---------------
Howard D. Poulson
/s/ Sally A. Puttmann January 6, 1998
- ----------------------------------- ---------------
Sally A. Puttmann
/s/ Beverly L. Schnepel January 6, 1998
- ----------------------------------- ---------------
Beverly L. Schnepel
<PAGE>
- ----------------------------------- ---------------
F. Gary Steiner
/s/ Edward M. Wiederstein January 6, 1998
- ----------------------------------- ---------------
Edward M. Wiederstein
