<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1998
FILE NO. 333-61901
FILE NO. 811-08975
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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. 1 /X/
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.; Fidelity Variable Insurance Products Fund ("VIP"): Growth
Portfolio and Overseas Portfolio; Fidelity Variable Insurance Products Fund II
("VIP II"): Contrafund Portfolio and Index 500 Portfolio or Fidelity Variable
Insurance Products Fund III ("VIP III"): Growth & Income Portfolio. 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.
- --------------------------------------------------------------------------------
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................................................................... 7
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THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS............................... 8
Farm Bureau Life Insurance Company.............................. 8
Iowa Farm Bureau Federation..................................... 8
Farm Bureau Life Annuity Account III............................ 8
Investment Options.............................................. 9
Addition, Deletion or Substitution of Investments............... 12
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DESCRIPTION OF ANNUITY CONTRACT........................................... 12
Issuance of a Contract.......................................... 12
Premiums........................................................ 12
Free-Look Period................................................ 12
Allocation of Premiums.......................................... 13
Variable Accumulated Value...................................... 13
Transfer Privilege.............................................. 14
Partial Withdrawals and Surrenders.............................. 14
Special Transfer and Withdrawal Options......................... 15
Death Benefit Before the Retirement Date........................ 15
Death Benefit After the Retirement Date......................... 16
Proceeds on the Retirement Date................................. 16
Payments........................................................ 17
Modification.................................................... 17
Reports to Owners............................................... 17
Inquiries....................................................... 17
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THE DECLARED INTEREST OPTION.............................................. 17
Minimum Guaranteed and Current Interest Rates................... 18
Transfers From Declared Interest Option......................... 18
Payment Deferral................................................ 18
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CHARGES AND DEDUCTIONS.................................................... 18
Surrender Charge (Contingent Deferred Sales Charge)............. 18
Annual Administrative Charge.................................... 19
Transfer Processing Fee......................................... 20
Mortality and Expense Risk Charge............................... 20
Investment Option Expenses...................................... 20
Premium Taxes................................................... 20
Other Taxes..................................................... 20
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PAYMENT OPTIONS........................................................... 20
Election of Options............................................. 21
Description of Options.......................................... 21
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YIELDS AND TOTAL RETURNS.................................................. 21
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FEDERAL TAX MATTERS....................................................... 23
Introduction.................................................... 23
Tax Status of the Contract...................................... 24
Taxation of Annuities........................................... 25
Transfers, Assignments or Exchanges of a Contract............... 27
Withholding..................................................... 27
Multiple Contracts.............................................. 27
Taxation of Qualified Plans..................................... 27
Possible Charge for the Company's Taxes......................... 29
Other Tax Consequences.......................................... 29
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DISTRIBUTION OF THE CONTRACTS............................................. 29
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LEGAL PROCEEDINGS......................................................... 30
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VOTING RIGHTS............................................................. 30
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YEAR 2000................................................................. 31
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FINANCIAL STATEMENTS...................................................... 31
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS..................... 32
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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
- --------------------------------------------------------------------------------
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)
Fidelity VIP
Growth.......................................... 0.60% 0.09% 0.69%(4)
Overseas........................................ 0.75% 0.17% 0.92%(4)
Fidelity VIP II
Contrafund...................................... 0.60% 0.11% 0.71%(4)
Index 500....................................... 0.24%(3) 0.04% 0.28%(5)
Fidelity VIP III
Growth & Income................................. 0.49% 0.21% 0.70%
</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.
(3) Effective December 1, 1997, the Index 500 Investment Option's management fee
was reduced from 0.28% to 0.24%.
(4) A portion of the brokerage commissions that certain Investment Options pay
is used to reduce Fund expenses. In addition, certain Investment Options
have entered into arrangements with their custodian whereby credits realized
as a result of uninvested cash balances are used to reduce custodian
expenses. Including these reductions, the total Investment Option operating
expenses presented in the preceding table would have been: Growth 0.67%,
Overseas 0.90% and Contrafund 0.68%.
(5) The investment adviser has voluntarily agreed to reimburse the Index 500
Investment Option to the extent that total operating expenses (with the
exceptions noted in the prospectus for the Investment Option) as a
percentage of its average net assets exceed 0.28%. If this agreement had not
been in effect, total operating expenses for the fiscal year ended December
31, 1997, as a percentage of the Index 500 Investment Option's average net
assets would have been 0.40%.
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
Fidelity VIP
Growth........................................ 153 280 408 685
Overseas...................................... 155 287 419 708
Fidelity VIP II
Contrafund.................................... 153 280 409 686
Index 500..................................... 149 269 390 644
Fidelity VIP III
Growth & Income............................... 153 281 410 688
</TABLE>
5
<PAGE>
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
Fidelity VIP
Growth........................................ 66 199 335 685
Overseas...................................... 68 206 347 708
Fidelity VIP II
Contrafund.................................... 66 200 336 686
Index 500..................................... 62 188 315 644
Fidelity VIP III
Growth & Income............................... 66 200 337 688
</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.
6
<PAGE>
- --------------------------------------------------------------------------------
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.")
7
<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
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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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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 Growth Portfolio and Overseas Portfolio of
Fidelity VIP; the Contrafund Portfolio and Index 500
Portfolio of Fidelity VIP II; and the Growth & Income
Portfolio of Fidelity VIP III. 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
9
<PAGE>
return on capital and/or in equity securities that
the investment adviser believes are undervalued by
the market place. Such equity securities may include
common stock, preferred stock and securities
convertible or exchangeable into common stock.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
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.
10
<PAGE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity Management & Research Company serves as the investment adviser to the
Funds. Bankers Trust Company serves as sub-investment adviser to the Index 500
Portfolio. The following Fund portfolios are available under the Contract.
VIP GROWTH PORTFOLIO: This Portfolio seeks capital
appreciation by investing primarily in common stocks.
The Portfolio, however, is not restricted to any one
type of security and may pursue capital appreciation
through the purchase of bonds and preferred stocks.
The Portfolio does not place any emphasis on dividend
income from its investments, except when the adviser
believes this income will have a favorable influence
on the market value of the security. Growth may be
measured by factors such as earnings or gross sales.
VIP OVERSEAS PORTFOLIO: This Portfolio seeks
long-term growth of capital by investing primarily in
foreign securities. The Portfolio defines foreign
securities as securities of issuers whose principal
activities are located outside the United States.
Normally, at least 65% of the Portfolio's total
assets will be invested in foreign securities. The
Portfolio may also invest in U.S. issuers.
VIP II CONTRAFUND PORTFOLIO: This Portfolio seeks
capital appreciation by investing in securities of
companies whose value the adviser believes is not
fully recognized by the public. The Portfolio
normally invests primarily in common stocks and
securities convertible into common stock, but it has
the flexibility to invest in other types of
securities.
VIP II INDEX 500 PORTFOLIO: This Portfolio seeks to
provide investment results that correspond to the
total return of a broad range of common stocks
publicly traded in the United States. To achieve this
objective, the Portfolio attempts to duplicate the
composition and total return of the S&P 500.
VIP III GROWTH & INCOME PORTFOLIO: This Portfolio
seeks high total return through a combination of
current income and capital appreciation by investing
mainly in equity securities. The Portfolio expects to
invest the majority of its assets in domestic and
foreign equity securities, with a focus on those that
pay current dividends and show potential earnings
growth. However, the Portfolio may buy debt
securities as well as equity securities that are not
currently paying dividends, but offer prospects for
capital appreciation or future income.
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.
11
<PAGE>
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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 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.
- --------------------------------------------------------------------------------
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
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<PAGE>
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 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.
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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 Option 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.
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
14
<PAGE>
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
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.
15
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
Other rules may apply to a Qualified Contract.
- --------------------------------------------------------------------------------
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.
16
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
17
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
18
<PAGE>
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 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
19
<PAGE>
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
FEE 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. 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.
- --------------------------------------------------------------------------------
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.
20
<PAGE>
- --------------------------------------------------------------------------------
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.
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.
21
<PAGE>
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).
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
22
<PAGE>
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 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
23
<PAGE>
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
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
24
<PAGE>
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 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.
25
<PAGE>
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;
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.
26
<PAGE>
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 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,
27
<PAGE>
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 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
28
<PAGE>
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 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
29
<PAGE>
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 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
30
<PAGE>
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.
31
<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
- --------------------------------------------------------------------------------
32
<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 Fidelity Variable Insurance Products Funds. 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))TO THE POWER OF 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)TO THE POWER OF 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............................................ (4.05)% 10.91% 10.48% 7.36%
High Grade Bond......................................... (0.11) 4.44 7.30 7.76
High Yield Bond......................................... 1.72 7.71 9.53 9.74
Money Market (1)........................................ (5.28) 1.14 -- 2.49
Blue Chip (2)........................................... 17.06 16.49 -- 17.28
T. Rowe Price Equity Series, Inc.
Equity Income (3)....................................... 18.50 -- -- 20.66
Mid-Cap Growth (4)...................................... 8.45 -- -- 8.48
New America Growth (3).................................. 10.77 -- -- 20.59
Personal Strategy Balanced (5).......................... 7.69 -- -- 16.23
T. Rowe Price International Series, Inc.
International Stock (3)................................. (7.26) -- -- 4.26
Fidelity VIP
Growth (6).............................................. 13.13 15.20 15.34 12.73
Overseas (7)............................................ 1.21 11.18 7.77 6.37
Fidelity VIP II
Contrafund (8).......................................... 13.79 -- -- 13.86
Index 500 (9)........................................... 22.47 17.17 -- 17.31
Fidelity VIP III
Growth and Income (10).................................. 19.74 -- -- 3.44
</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.
(6) The Growth Portfolio commenced operations on October 9, 1986.
(7) The Overseas Portfolio commenced operations on January 28, 1987.
(8) The Contrafund Portfolio commenced operations on January 3, 1995.
(9) The Index 500 Portfolio commenced operations on August 27, 1992.
(10)The Growth & Income Portfolio commenced operations on December 31, 1996.
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>
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"). (1)
(2) Not Applicable.
(3) Form of Underwriting agreement among the Company, the Account and
EquiTrust Marketing Services, Inc. ("EquiTrust Marketing"). (1)
(4) * Contract Form
(5) Form of Contract Application. (1)
(6) (a) Articles of Incorporation of the Company. (1)
(b) By-Laws of the Company. (1)
(7) Not Applicable.
(8) (a) Participation agreement relating to EquiTrust Variable
Insurance Series Fund. (1)
* (b)(1) Participation agreement relating to Fidelity Variable
Insurance Products Fund.
* (b)(2) Participation agreement relating to Fidelity Variable
Insurance Products Fund II.
* (b)(3) Participation agreement relating to Fidelity Variable
Insurance Products Fund III.
(c) Participation agreement relating to T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Series, Inc.
(1)
(9) Opinion and Consent of Stephen M. Morain, Esquire. (1)
(10) (a) Consent of Sutherland, Asbill & Brennan LLP. (1)
(b) Consent of Ernst & Young LLP. (1)
(c) Opinion and Consent of Christopher G. Daniels, FSA, MSAA,
Life Product Development and Pricing Vice President. (1)
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney. (1)
</TABLE>
- ------------------------
* Attached as an exhibit.
(1) Incorporated herein by reference to the initial filing of this Registration
Statement (File No. 333-61901) on August 20, 1998.
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 20th day
of October, 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 October 20, 1998
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ----------------------------------- [Principal Financial October 20, 1998
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ----------------------------------- [Principal Accounting October 20, 1998
James W. Noyce Officer]
- ----------------------------------- Vice President and October 20, 1998
Craig A. Lang* Director
- ----------------------------------- Director October 20, 1998
Kenneth R. Ashby*
- ----------------------------------- Director October 20, 1998
Al Christopherson*
- ----------------------------------- Director October 20, 1998
Ernest A. Glienke*
- ----------------------------------- Director October 20, 1998
Philip A. Hemesath*
- ----------------------------------- Director October 20, 1998
Craig D. Hill*
- ----------------------------------- Director October 20, 1998
Daniel L. Johnson*
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
<C> <S> <C>
- ----------------------------------- Director October 20, 1998
Richard G. Kjerstad*
- ----------------------------------- Director October 20, 1998
Lindsey D. Larson*
- ----------------------------------- Director October 20, 1998
David R. Machacek*
- ----------------------------------- Director October 20, 1998
Donald O. Narigon*
- ----------------------------------- Director October 20, 1998
Bryce P. Neidig*
- ----------------------------------- Director October 20, 1998
Charles E. Norris*
- ----------------------------------- Director October 20, 1998
Keith R. Olsen*
- ----------------------------------- Director October 20, 1998
Bennett M. Osmonson*
- ----------------------------------- Director October 20, 1998
Howard D. Poulson*
- ----------------------------------- Director October 20, 1998
Sally A. Puttmann*
- ----------------------------------- Director October 20, 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 20th day of October, 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>
4 Contract Form.
8(b)(1) Participation agreement relating to Fidelity Variable
Insurance Products Fund.
(b)(2) Participation agreement relating to Fidelity Variable
Insurance Products Fund II.
(b)(3) Participation agreement relating to Fidelity Variable
Insurance Products Fund III.
</TABLE>
<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.
VIP - Growth Fidelity Variable Insurance Products
VIP - Overseas Fidelity Variable Insurance Products
VIP II - Contrafund Fidelity Variable Insurance Products II
VIP II - Index 500 Fidelity Variable Insurance Products II
VIP III - Growth & Income Fidelity Variable Insurance Products III
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>
- --------------------------------------------------------------------------------
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.
11
<PAGE>
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
<PAGE>
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.
13
<PAGE>
An illustrative report will be sent to the owner upon request. A fee may be
charged for this report.
- --------------------------------------------------------------------------------
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.
14
<PAGE>
PAYMENT OPTION TABLES
(PER $1,000 OF PROCEEDS)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
<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>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 29th day of
September, 1998 by and among FARM BUREAU LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Iowa corporation, 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 such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), 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
1
<PAGE>
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 its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing 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 variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("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 on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each 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 Fund which each 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
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston 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 Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable 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 Portfolio to any person, or suspend or terminate the offering of
shares of any 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 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 Portfolio will be sold to the general public.
1.4. 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, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund 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. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, 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 Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the 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
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. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
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 each Account prior to any issuance or sale thereof as a segregated
asset account under Section 508A of the Iowa Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each 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
4
<PAGE>
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 represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify 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.
2.4. The Company represents that the Contracts are currently treated
as endowment 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 that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has
adopted a Rule 12b-1 Plan under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board
of trustees, a majority of whom are not interested persons of the Fund, which
has formulated and approved the Fund's Rule 12b-1 Plan to finance
distribution expenses of the Fund and that any changes to the Fund's Rule
12b-1 Plan will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations 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 and the Fund and the Underwriter represent that their respective
operations are and shall at all times remain in material compliance with the
laws of the State of Iowa to the extent required to perform this Agreement.
2.7. 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
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Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Iowa and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects 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 Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/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
minimal 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.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
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the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law 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 a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
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<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. 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 Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission 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 in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
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 for the
Fund shares, as such registration statement and prospectus 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 or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
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,
each Account, or the Contracts other than the information or representations
contained in a registration
8
<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each 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, Statements of Additional
Information, 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,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, 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 each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" 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, research
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, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and 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.
9
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. 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 distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications 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 Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
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
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<PAGE>
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 trustees, 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 trustees), 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
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 Underwriter and 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
11
<PAGE>
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 Underwriter and 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 Sections 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 Contracts 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 that 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 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, 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.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund 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
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<PAGE>
become subject under any statute, 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 or prospectus for the Contracts or contained in
the Contracts or sales literature 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 or
prospectus for the Contracts or in the Contracts or sales literature
(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 of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its 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, or sales literature 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 failure by the Company to
provide the services and furnish the materials under the terms 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.
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8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from 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 or duties under this Agreement or to
the Fund, whichever is applicable.
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 the Indemnified Parties, 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. 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.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter 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 8.2)
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, at common law or otherwise, insofar as
14
<PAGE>
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 sales
literature 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 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 for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser 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, or sales literature covering 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 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 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
15
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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 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 each 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 Parties, 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. 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 each 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, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification 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
incurred or assessed against an Indemnified Party as such may arise from 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 each 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 defense thereof, with counsel satisfactory to the party named in the
action. 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.
17
<PAGE>
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
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 Commonwealth of
Massachusetts.
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
Securities and Exchange Commission may grant (including, but not limited to, the
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 by sixty (60)
days 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 Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the 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 Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision,
18
<PAGE>
or if the Company reasonably believes that the Fund may
fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof; or
(f) 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 and/or its affiliated companies
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
(g) 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 either
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; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
forty five (45) days after the notice specified in
Section 1.6(b) was given.
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, without limitation, the owners of the Existing
Contracts shall 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 terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII 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
19
<PAGE>
necessary to implement Contract Owner initiated or approved transactions, or
(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) as permitted by an order of 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.
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:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
20
<PAGE>
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 until such time as it may come into
the public domain without the express written consent of the affected party.
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 California 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 insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance 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; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
21
<PAGE>
12.9. The Company shall furnish, or shall 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:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any
annual, interim or special audit made by them of
the books of the Company, as soon as practical
after the receipt thereof.
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.
FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Dennis M. Marker
----------------------------
Name: Dennis M. Marker
----------------------------
Title: Investment Vice President, Administration
-----------------------------------------
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ Robert C. Pozen
---------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
---------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
Farm Bureau Life Flexible Premium Variable
Variable Account - 3/3/87 Life Insurance Policy
No. 434-114 (0798)
Farm Bureau Life
Variable Account II - 1/6/98
Farm Bureau Life
Variable Account III - 1/6/98
- --------------------------------------------------------------------------------
Farm Bureau Life Flexible Premium Deferred Variable
Annuity Account - 1/26/93 Annuity Contract
No. 434-062 (0798)
Farm Bureau Life Annuity Account II - 1/6/98
Farm Bureau Life Annuity Account III - 1/6/98
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
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<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
Equitrust Variable Insurance Series Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price International Series, Inc.
28
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 29th day of
September, 1998 by and among FARM BUREAU LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Iowa corporation, 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 such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), 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
1
<PAGE>
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 its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing 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 variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("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 on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each 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 Fund which each 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
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston 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 Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable 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 Portfolio to any person, or suspend or terminate the offering of
shares of any 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 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 Portfolio will be sold to the general public.
1.4. 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, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund 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. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, 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 Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the 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
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. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
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 each Account prior to any issuance or sale thereof as a segregated
asset account under Section 508A of the Iowa Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each 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
4
<PAGE>
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 represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify 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.
2.4. The Company represents that the Contracts are currently treated
as endowment 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 that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has
adopted a Rule 12b-1 Plan under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board
of trustees, a majority of whom are not interested persons of the Fund, which
has formulated and approved the Fund's Rule 12b-1 Plan to finance
distribution expenses of the Fund and that any changes to the Fund's Rule
12b-1 Plan will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations 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 and the Fund and the Underwriter represent that their respective
operations are and shall at all times remain in material compliance with the
laws of the State of Iowa to the extent required to perform this Agreement.
2.7. 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
5
<PAGE>
Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Iowa and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects 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 Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/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
minimal 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.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
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the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law 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 a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
7
<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. 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 Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission 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 in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
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 for the
Fund shares, as such registration statement and prospectus 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 or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
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,
each Account, or the Contracts other than the information or representations
contained in a registration
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<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each 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, Statements of Additional
Information, 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,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, 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 each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" 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, research
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, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and 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.
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<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. 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 distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications 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 Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
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
10
<PAGE>
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 trustees, 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 trustees), 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
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 Underwriter and 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
11
<PAGE>
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 Underwriter and 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 Sections 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 Contracts 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 that 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 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, 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.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund 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
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<PAGE>
become subject under any statute, 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 or prospectus for the Contracts or contained in
the Contracts or sales literature 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 or
prospectus for the Contracts or in the Contracts or sales literature
(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 of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its 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, or sales literature 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 failure by the Company to provide
the services and furnish the materials under the terms 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.
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<PAGE>
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from 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 or duties
under this Agreement or to the Fund, whichever is applicable.
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 the
Indemnified Parties, 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. 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.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter 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 8.2)
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, at common law or otherwise, insofar as
14
<PAGE>
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 sales
literature 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 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 for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser 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, or sales literature covering 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 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 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
15
<PAGE>
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 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 each 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 Parties, 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. 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 each 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, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification 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
incurred or assessed against an Indemnified Party as such may arise from 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 each 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 defense thereof, with counsel satisfactory to the party named in the
action. 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.
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8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
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 Commonwealth of
Massachusetts.
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
Securities and Exchange Commission may grant (including, but not limited to, the
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 by sixty (60) days
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 Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the 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 Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under any
successor or similar provision,
18
<PAGE>
or if the Company reasonably believes that the Fund may fail
to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) 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 and/or its
affiliated companies 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
(g) 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 either 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; or
(h) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b)
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision of
this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after
the notice specified in Section 1.6(b) was given.
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, without limitation, the owners of the Existing
Contracts shall 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 terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII 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
19
<PAGE>
necessary to implement Contract Owner initiated or approved transactions, or
(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) as permitted by an order of 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.
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:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
20
<PAGE>
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 until such time as it may come into
the public domain without the express written consent of the affected party.
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 California 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 insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance 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; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
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<PAGE>
12.9. The Company shall furnish, or shall 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:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any
annual, interim or special audit made by them of
the books of the Company, as soon as practical
after the receipt thereof.
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.
FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Dennis M. Marker
----------------------------
Name: Dennis M. Marker
----------------------------
Title: Investment Vice President, Administration
-----------------------------------------
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ Robert C. Pozen
----------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
----------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
Farm Bureau Life Flexible Premium Variable
Variable Account - 3/3/87 Life Insurance Policy
No. 434-114 (0798)
Farm Bureau Life
Variable Account II - 1/6/98
Farm Bureau Life
Variable Account III - 1/6/98
- --------------------------------------------------------------------------------
Farm Bureau Life Flexible Premium Deferred Variable
Annuity Account - 1/26/93 Annuity Contract
No. 434-062 (0798)
Farm Bureau Life Annuity Account II - 1/6/98
Farm Bureau Life Annuity Account III - 1/6/98
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
26
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
Equitrust Variable Insurance Series Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price International Series, Inc.
28
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 29th day of
September, 1998 by and among FARM BUREAU LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Iowa corporation, 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 such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), 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
1
<PAGE>
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 its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing 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 variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("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 on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each 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 Fund which each 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
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston 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 Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable 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 Portfolio to any person, or suspend or terminate the offering of
shares of any 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 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 Portfolio will be sold to the general public.
1.4. 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, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund 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. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, 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 Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the 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
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. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
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 each Account prior to any issuance or sale thereof as a segregated
asset account under Section 508A of the Iowa Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each 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
4
<PAGE>
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 represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify 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.
2.4. The Company represents that the Contracts are currently treated
as endowment 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 that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a
Rule 12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a majority of
whom are not interested persons of the Fund, which has formulated and approved
the Fund's Rule 12b-1 Plan to finance distribution expenses of the Fund and that
any changes to the Fund's Rule 12b-1 Plan will be approved by a similarly
constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations 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 and the Fund and the Underwriter represent that their respective
operations are and shall at all times remain in material compliance with the
laws of the State of Iowa to the extent required to perform this Agreement.
2.7. 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
5
<PAGE>
Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Iowa and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. 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.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects 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 Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/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
minimal 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.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. 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.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
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the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law 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 a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
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<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. 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 Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission 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 in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
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 for the
Fund shares, as such registration statement and prospectus 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 or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
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,
each Account, or the Contracts other than the information or representations
contained in a registration
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<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each 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, Statements of Additional
Information, 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,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, 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 each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" 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, research
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, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and 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.
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<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. 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 distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications 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 Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
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
10
<PAGE>
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 trustees, 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 trustees), 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
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 Underwriter and 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
11
<PAGE>
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 Underwriter and 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 Sections 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 Contracts 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 that 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 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, 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.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund 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
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<PAGE>
become subject under any statute, 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 or prospectus for the Contracts or contained in
the Contracts or sales literature 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 or
prospectus for the Contracts or in the Contracts or sales literature
(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 of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its 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, or sales literature 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 failure by the Company to provide
the services and furnish the materials under the terms 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.
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<PAGE>
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from 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 or duties
under this Agreement or to the Fund, whichever is applicable.
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 the
Indemnified Parties, 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. 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.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter 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 8.2)
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, at common law or otherwise, insofar as
14
<PAGE>
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 sales
literature 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 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 for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser 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, or sales literature covering 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 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 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
15
<PAGE>
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 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 each 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 Parties, 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. 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 each 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, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification 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
incurred or assessed against an Indemnified Party as such may arise from 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 each 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 defense thereof, with counsel satisfactory to the party named in the
action. 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.
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<PAGE>
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
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 Commonwealth of
Massachusetts.
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
Securities and Exchange Commission may grant (including, but not limited to, the
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 by sixty (60) days
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 Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the 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 Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor
or similar provision,
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<PAGE>
or if the Company reasonably believes that the Fund may fail
to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) 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 and/or its
affiliated companies 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
(g) 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 either 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; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(h) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
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, without limitation, the owners of the Existing
Contracts shall 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 terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII 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
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necessary to implement Contract Owner initiated or approved transactions, or
(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) as permitted by an order of 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.
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:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Attention: Sue Cornick
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
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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 until such time as it may come into
the public domain without the express written consent of the affected party.
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 California 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 insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance 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; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
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12.9. The Company shall furnish, or shall 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:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company,
as soon as practical after the receipt thereof.
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.
FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Dennis M. Marker
----------------------------
Name: Dennis M. Marker
----------------------------
Title: Investment Vice President, Administration
-----------------------------------------
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VARIABLE INSURANCE PRODUCTS FUND III
By: /s/ Robert C. Pozen
----------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
----------------------------
Kevin J. Kelly
Vice President
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<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- --------------------------------
Farm Bureau Life Flexible Premium Variable
Variable Account - 3/3/87 Life Insurance Policy
No. 434-114 (0798)
Farm Bureau Life
Variable Account II - 1/6/98
Farm Bureau Life
Variable Account III - 1/6/98
- --------------------------------------------------------------------------------
Farm Bureau Life Flexible Premium Deferred Variable
Annuity Account - 1/26/93 Annuity Contract
No. 434-062 (0798)
Farm Bureau Life Annuity Account II - 1/6/98
Farm Bureau Life Annuity Account III - 1/6/98
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<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
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Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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SCHEDULE C
Other investment companies currently available under the Contracts:
Equitrust Variable Insurance Series Fund
T. Rowe Price Equity Series, Inc.
T. Rowe Price International Series, Inc.
28