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PROSPECTUS
OCTOBER 21, 1998
Clarity
Variable Universal Life
Simple by Design
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FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
BMA VARIABLE LIFE ACCOUNT A
AND
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
This Prospectus describes the Flexible Premium Adjustable Variable Life
Insurance Policy (Policy) offered by Business Men's Assurance Company of America
(BMA).
The Policy has been designed to be used to create or conserve one's estate,
retirement planning and other insurance needs of individuals and businesses.
The Policy has 18 investment choices--a Fixed Account and 17 Investment
Options listed below. The 17 Investment Options are part of Investors Mark
Series Fund, Inc.; Berger Institutional Products Trust; American Century
Variable Portfolios, Inc.; Dreyfus Stock Index Fund; Dreyfus Variable Investment
Fund; INVESCO Variable Investment Funds, Inc.; and Lazard Retirement Series,
Inc. When You buy a Policy, to the extent You have selected the Investment
Options, You bear the complete investment risk. Your Accumulation Value and,
under certain circumstances, the Death Benefit under the Policy may increase or
decrease or the duration of the Policy may vary depending on the investment
experience of the Investment Option(s) You select. You can put Your money in the
Fixed Account and/or any of the following Investment Options:
INVESTORS MARK SERIES FUND, INC.
MANAGED BY STANDISH, AYER & WOOD, INC.
Intermediate Fixed Income
Mid Cap Equity
Money Market
MANAGED BY STANDISH INTERNATIONAL MANAGEMENT COMPANY, L.P.
Global Fixed Income
MANAGED BY STEIN ROE & FARNHAM, INCORPORATED
Small Cap Equity
Large Cap Growth
MANAGED BY DAVID L. BABSON & CO. INC.
Large Cap Value
MANAGED BY LORD, ABBETT & CO.
Growth & Income
MANAGED BY KORNITZER CAPITAL MANAGEMENT, INC.
Balanced
BERGER INSTITUTIONAL PRODUCTS TRUST
MANAGED BY BBOI WORLDWIDE LLC
Berger/BIAM IPT--International
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
VP Income & Growth
VP Value
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DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION
DREYFUS VARIABLE INVESTMENT FUND
MANAGED BY THE DREYFUS CORPORATION
Disciplined Stock
INVESCO VARIABLE INVESTMENT FUNDS, INC.
MANAGED BY INVESCO FUNDS GROUP, INC.
INVESCO VIF--High Yield
INVESCO VIF--Industrial Income
LAZARD RETIREMENT SERIES, INC.
MANAGED BY LAZARD ASSET MANAGEMENT
Lazard Retirement Small Cap
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information about the BMA Flexible Premium
Adjustable Variable Life Insurance Policy. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains information
regarding registrants that file electronically with the Commission.
THE POLICY DESCRIBED HEREIN IS NOT A DEPOSIT OF, OR GUARANTEED BY ANY BANK,
NOR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Date: October 21, 1998
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TABLE OF CONTENTS
<TABLE>
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DEFINITIONS............................................................... 5
SUMMARY................................................................... 7
1. THE VARIABLE LIFE INSURANCE POLICY.................................... 7
2. PURCHASES............................................................. 7
3. INVESTMENT CHOICES.................................................... 7
4. EXPENSES.............................................................. 8
5. DEATH BENEFIT......................................................... 9
6. TAXES................................................................. 9
7. ACCESS TO YOUR MONEY.................................................. 9
8. OTHER INFORMATION..................................................... 10
9. INQUIRIES............................................................. 10
PART I.................................................................... 11
1. THE VARIABLE LIFE INSURANCE POLICY.................................... 11
2. PURCHASES............................................................. 11
Premiums............................................................. 11
Waiver of Planned Premiums........................................... 12
Application for a Policy............................................. 12
Issue Ages........................................................... 12
Application of Premiums.............................................. 12
Grace Period......................................................... 13
Accumulation Unit Values............................................. 13
Right to Refund...................................................... 14
Exchange of a Policy for a BMA Policy................................ 14
3. INVESTMENT CHOICES.................................................... 14
Transfers............................................................ 16
Dollar Cost Averaging................................................ 17
Asset Rebalancing Option............................................. 17
Asset Allocation Option.............................................. 18
Substitution......................................................... 18
4. EXPENSES.............................................................. 18
Premium Charge....................................................... 18
Monthly Deduction.................................................... 18
Surrender Charge..................................................... 20
Partial Surrender Fee................................................ 21
Waiver of Surrender Charges.......................................... 21
Reduction or Elimination of the Surrender Charge..................... 22
Transfer Fee......................................................... 22
Taxes................................................................ 22
Investment Option Expenses........................................... 22
5. DEATH BENEFIT......................................................... 24
Change in Death Benefit Option....................................... 25
Change in Specified Amount........................................... 26
Guaranteed Minimum Death Benefit..................................... 26
Accelerated Death Benefit............................................ 27
6. TAXES................................................................. 27
Life Insurance in General............................................ 28
</TABLE>
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<TABLE>
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Taking Money Out of Your Policy...................................... 28
Diversification...................................................... 28
7. ACCESS TO YOUR MONEY.................................................. 28
Loans................................................................ 28
Surrenders........................................................... 30
8. OTHER INFORMATION..................................................... 30
BMA.................................................................. 30
Year 2000............................................................ 30
The Separate Account................................................. 31
Distributors......................................................... 31
Administration....................................................... 31
Suspension of Payments or Transfers.................................. 31
Ownership............................................................ 31
PART II................................................................... 32
EXECUTIVE OFFICERS AND DIRECTORS OF BMA................................... 32
OFFICERS AND DIRECTORS OF JONES & BABSON, INC............................. 34
OFFICERS AND DIRECTORS OF CONSECO EQUITY SALES, INC....................... 35
VOTING.................................................................... 35
LEGAL OPINIONS............................................................ 36
REDUCTION OR ELIMINATION OF SURRENDER CHARGE.............................. 36
NET AMOUNT AT RISK........................................................ 36
MATURITY DATE............................................................. 36
MISSTATEMENT OF AGE OR SEX................................................ 37
OUR RIGHT TO CONTEST...................................................... 37
PAYMENT OPTIONS........................................................... 37
FEDERAL TAX STATUS........................................................ 37
REPORTS TO OWNERS......................................................... 41
LEGAL PROCEEDINGS......................................................... 41
EXPERTS................................................................... 41
FINANCIAL STATEMENTS...................................................... 41
APPENDIX A................................................................ A-1
</TABLE>
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DEFINITIONS
ACCUMULATION VALUE: The sum of Your Policy values in the Subaccounts, the
Fixed Account and the Loan Account.
ACCUMULATION UNIT: A unit of measure used to calculate Your Accumulation
Value in the Subaccounts.
AGE: Issue Age is age nearest birthday on the Policy Date. Attained Age is
the Issue Age plus the number of completed Policy Years.
AUTHORIZED REQUEST: A request, in a form satisfactory to Us, which is
received by the BMA Service Center.
BENEFICIARY: The person named in the application or at a later date to
receive the Death Proceeds of the Policy or any rider(s).
BMA SERVICE CENTER: The office indicated in the Summary to which notices,
requests and Premiums must be sent. All sums payable to Us under the Policy are
payable only at the BMA Service Center.
BUSINESS DAY: Each day that the New York Stock Exchange is open for
business. The Separate Account will be valued each Business Day.
CASH SURRENDER VALUE: The Accumulation Value less the surrender charge, if
any, that applies if the Policy is surrendered in full and less any
Indebtedness.
COMPANY: Business Men's Assurance Company of America (BMA).
DEATH BENEFIT: The amount used to determine the Death Proceeds payable upon
the death of the Primary Insured. The Death Benefit can be either Level or
Adjustable.
DEATH PROCEEDS: The Death Proceeds equal the Death Benefit as of the date
of the Primary Insured's death, less any Indebtedness.
FIXED ACCOUNT: A portion of the General Account into which You can allocate
Net Premiums or transfer Accumulation Values. It does not share in the
investment experience of any Subaccount of the Separate Account.
GENERAL ACCOUNT: Our general investment account which contains all of Our
assets with the exception of the Separate Account and other segregated asset
accounts.
GRACE PERIOD: The 61 days that follow the date We mail a notice to You for
payment if the Cash Surrender Value is not sufficient to cover the Monthly
Deduction.
INDEBTEDNESS: Unpaid Policy loans plus unpaid Policy loan interest.
INITIAL SPECIFIED AMOUNT: The amount of coverage selected by You at the
time of application and which will be used to determine the Death Benefit.
INVESTMENT OPTION(S): Those investment options available through the
Separate Account.
LOAN ACCOUNT: An account established within Our General Account for any
amounts transferred from the Fixed Account and the Separate Account as a result
of loans. The Loan Account is credited with interest and is not based on the
experience of any Separate Account.
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MATURITY DATE: The date the Accumulation Value, less any Indebtedness,
becomes payable to You, if the Primary Insured is then living.
MINIMUM SPECIFIED AMOUNT: The smallest Specified Amount the Policy may have
is the greater of $50,000, and the Specified Amount a $300 no-lapse annual
premium, excluding amounts for riders and Special Rate Classes, will purchase.
MONTHLY ANNIVERSARY DAY: The same day of each month as the Policy Date for
each succeeding month the Policy remains in force. If the Monthly Anniversary
falls on a day that is not a Business Day, any Policy transaction due as of that
day will be processed the first Business Day following such date.
MONTHLY DEDUCTION: On the Policy Date and each Monthly Anniversary Day
thereafter We deduct certain charges from Your Policy.
NET PREMIUM: We deduct a Premium Charge from each Premium paid. The Net
Premium is the Premium paid less the Premium Charge.
OWNER: The person entitled to all the ownership rights under the Policy. If
Joint Owners are named, all references to You or Owner shall mean Joint Owner.
POLICY ANNIVERSARY: The same month and day as the Policy Date for each
succeeding year the Policy remains in force.
POLICY DATE: The date by which Policy months, years and anniversaries are
measured.
POLICY MONTH: The one month period from the Policy Date to the same date of
the next month, or from one Monthly Anniversary Day to the next.
POLICY YEAR: The one year period from the Policy Date to the first Policy
Anniversary or from one Policy Anniversary to the next.
PREMIUM: A payment You make towards the Policy and that does not re-pay any
Indebtedness.
PRIMARY INSURED: The person whose life is insured under the Policy.
RATE CLASS: This is anything that would affect the level of Your Premium,
such as health status and tobacco use.
REINSTATEMENT: To restore coverage after the Policy has terminated.
SEPARATE ACCOUNT: A segregated asset account maintained by Us in which a
portion of Our assets has been allocated for this and certain other policies.
SPECIFIED AMOUNT: The Initial Specified Amount plus each increase to the
Specified Amount and less each decrease to the Specified Amount.
UNDERWRITING PROCESS: The underwriting process begins the day We receive
Your application at the BMA Service Center and ends the day We receive and
approve all required documents, including the initial Premium, necessary to put
the Policy in force.
US, WE, OUR: Business Men's Assurance Company of America.
YOU, YOUR, YOURS: The Owner of the Policy.
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SUMMARY
THE PROSPECTUS IS DIVIDED INTO THREE SECTIONS: SUMMARY, PART I AND PART II.
THE SECTIONS IN THIS SUMMARY CORRESPOND TO SECTIONS IN PART I OF THIS PROSPECTUS
WHICH DISCUSS THE TOPICS IN MORE DETAIL. EVEN MORE DETAILED INFORMATION IS
CONTAINED IN PART II.
1. THE VARIABLE LIFE INSURANCE POLICY: The variable life insurance policy
offered by BMA is a contract between You, the Owner, and BMA, an insurance
company.
The Policy provides for the payment of the Death Proceeds to Your selected
Beneficiary upon the death of the Primary Insured which should be excludable
from the gross income of the Beneficiary. The Policy can be used to create or
conserve one's estate or to save for retirement. The Policy can also be used for
certain business purposes, such as keyman insurance. The Primary Insured is the
person whose life is insured under the Policy. The Primary Insured can be the
same person as the Owner but does not have to be.
Under the Policy, You may, subject to certain limitations, make Premium
payments, in any amount and at any frequency. The Policy provides an
Accumulation Value, surrender rights, loan privileges and other features
traditionally associated with life insurance.
The Policy has a no-lapse guarantee in the first five years providing the
No-Lapse Monthly Minimum Premiums are paid. After this period, the Policy can
lapse (terminate without value) when the Cash Surrender Value is insufficient to
cover the Monthly Deduction and a Grace Period of 61 days has expired without an
adequate payment being made.
2. PURCHASES: You can buy the Policy by completing the proper forms. Your
registered representative can help You. The minimum initial Premium We will
accept will be computed for You with respect to the Specified Amount You have
requested. We will also compute the No-Lapse Monthly Minimum Premium. In some
circumstances We may contact You for additional information regarding the
Primary Insured and may require the Primary Insured to provide Us with medical
records, physician's statement or a complete paramedical examination.
The Policy is a flexible premium policy and unlike traditional insurance
policies, there is no fixed schedule for Premium payments after the initial
Premium. Although You may establish a schedule of Premium payments (Planned
Premium), failure to make the Planned Premium payments will not necessarily
cause the Policy to lapse nor will making the Planned Premium guarantee that a
Policy will remain in force until maturity. Under most circumstances it is
anticipated that You will need to make additional Premium payments, after the
initial Premium, to keep the Policy in force.
3. INVESTMENT CHOICES: You can put Your money in the Fixed Account or in
any or all of these Investment Options which are described in the prospectuses
for the funds:
INVESTORS MARK SERIES FUND, INC.
MANAGED BY STANDISH, AYER & WOOD, INC.
Intermediate Fixed Income
Mid Cap Equity
Money Market
MANAGED BY STANDISH INTERNATIONAL MANAGEMENT COMPANY, L.P.
Global Fixed Income
MANAGED BY STEIN ROE & FARNHAM, INCORPORATED
Small Cap Equity
Large Cap Growth
MANAGED BY DAVID L. BABSON & CO. INC.
Large Cap Value
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MANAGED BY LORD, ABBETT & CO.
Growth & Income
MANAGED BY KORNITZER CAPITAL MANAGEMENT, INC.
Balanced
BERGER INSTITUTIONAL PRODUCTS TRUST
MANAGED BY BBOI WORLDWIDE LLC
Berger/BIAM IPT--International
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
VP Income & Growth
VP Value
DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION
DREYFUS VARIABLE INVESTMENT FUND
MANAGED BY THE DREYFUS CORPORATION
Disciplined Stock
INVESCO VARIABLE INVESTMENT FUNDS, INC.
MANAGED BY INVESCO FUNDS GROUP, INC.
INVESCO VIF--High Yield
INVESCO VIF--Industrial Income
LAZARD RETIREMENT SERIES, INC.
MANAGED BY LAZARD ASSET MANAGEMENT
Lazard Retirement Small Cap
4. EXPENSES: The Policy has both insurance and investment features, and
there are costs related to each that reduce the return on Your investment.
We deduct a Premium Charge from each Premium payment made. The Premium
Charge is as follows:
<TABLE>
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Policy Years 1-10: 5.5% of all Premiums.
Policy Years 11 and
later: 4.0% of all Premiums.
</TABLE>
We deduct a Policy Charge each month from the unloaned Accumulation Value of
the Policy. The Policy Charge is as follows:
<TABLE>
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Policy Year 1: $25 each month
Policy Years 2 and
later: Currently, $5 each
month. This charge is
not guaranteed and
may be increased but
it will not exceed
$10.
</TABLE>
We deduct a Risk Charge each month from the unloaned Accumulation Value of
the Policy. The Risk Charge is calculated as follows:
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Policy Years 1-10: Each month, .80%, on
an annual basis, of
the Accumulation
Value in the Separate
Account.
Policy Years 11 and
later: Each month, .40%, on
an annual basis, of
the Accumulation
Value in the Separate
Account.
</TABLE>
Each month We will make a deduction from the unloaned Accumulation Value of
the Policy for the cost of insurance. This charge will depend upon the Specified
Amount, Your Accumulation Value, and the sex, age and Rate Class of the Primary
Insured. We may also charge for any riders attached to the Policy. The maximum
deduction that will be made for cost of insurance is 83.33333 per $1,000 net
amount at risk. This is the rate at attained age 98. Therefore, this is most
likely not the rate You will be charged. Maximum rates vary by sex, tobacco use
and attained age and range from 0.08420 to 83.33333 per $1,000 net amount at
risk. See "Expenses--Monthly Deduction--Cost of Insurance" in Part I for more
information.
There are also daily investment charges which apply to the average daily
value of the Investment
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Options. These charges are deducted from the Investment Options and range on an
annual basis from .28% to 1.50%, depending on the Investment Option.
If You take out more than the Free Partial Surrender Percentage, We may
assess a surrender charge which depends upon Your Initial Specified Amount, the
year of surrender, issue Age, sex and Rate Class. The maximum surrender charge
that will be deducted is $44.56 per $1,000 specified amount. The maximum varies
by issue age, sex and tobacco use and ranges from $5.40 to $44.56 per $1,000.
See "Expenses--Surrender Charge" in Part I for more information. The surrender
charge for total surrenders is level for the first four Policy Years then grades
down each month beginning in the fifth Policy Year and is zero at the end of
Policy Year ten. Your Policy is issued with a surrender charge schedule which
shows the surrender charge at the end of the Policy Year. The surrender charge
is level for the first four Policy Years. Beginning in the fifth Policy Year,
the surrender charge reduces each Policy Month. The amount of reduction to the
surrender charge during a Policy Year is the same each month. The amount of
reduction is one-twelfth of the difference between the end of the prior and
current years' surrender charges. The charge is not affected by Special Rate
Classes nor by the addition of riders. When You make a partial surrender, We
assess a pro-rata portion of the surrender charge. In the event that You
increase Your Specified Amount, a new surrender charge will be imposed on the
increased amount. The surrender and partial surrender charges are deducted from
the unloaned Accumulation Value of the Policy. The partial surrender charge is
deducted pro-rata from the Investment Option(s) and/or the Fixed Account from
which the withdrawal is made.
There is a partial surrender fee of $25 assessed for any partial surrender
in addition to any surrender charge that may be assessed. The partial surrender
fee is deducted from the unloaned Accumulation Value of the Policy. The partial
surrender fee is deducted pro-rata from the Investment Option(s) and/or Fixed
Account from which the withdrawal is made. The Free Partial Surrender Percentage
is excluded from these charges.
Each transfer after 12 in any Policy Year, unless the transfer is
pre-scheduled, will incur a transfer fee of $25. The transfer fee is deducted
from the amount transferred.
5. DEATH BENEFIT: The amount of the Death Benefit depends on the Specified
Amount of Your Policy, the Death Benefit option in effect at the time of death
and under some circumstances Your Policy's Accumulation Value. There are two
Death Benefit options: Level Death Benefit and Adjustable Death Benefit. Under
certain circumstances You can change Death Benefit options. You can also change
the Specified Amount under certain circumstances.
The actual amount payable to Your Beneficiary is the Death Proceeds which is
equal to the Death Benefit less any Indebtedness. At the time of application for
a Policy, You designate a Beneficiary who is the person or persons who will
receive the Death Proceeds. You can change Your Beneficiary unless You have
designated an irrevocable Beneficiary. The Beneficiary does not have to be a
natural person.
All or part of the Death Proceeds may be paid in a lump sum or applied under
one of the Payment Options contained in the Policy.
6. TAXES: Your Policy has been designed to comply with the definition of
life insurance in the Internal Revenue Code. As a result, the Death Proceeds
paid under the Policy should be excludable from the gross income of the
Beneficiary. Your earnings in the Policy are not taxed until You take them out.
The tax treatment of the loan proceeds and surrender proceeds will depend on
whether the Policy is considered a Modified Endowment Contract (MEC). Proceeds
taken out of a MEC are considered to come from earnings first and are includible
in taxable income. If You are younger than 59 1/2 when You take money out of a
MEC, You may also be subject to a 10% federal tax penalty on the earnings
withdrawn.
7. ACCESS TO YOUR MONEY: You can terminate the Policy at any time and We
will pay You the Cash Surrender Value. After the first Policy Year, You may
surrender a part of the Cash Surrender Value subject to the requirements of the
Policy. When You terminate Your Policy or make a partial surrender, a surrender
charge (or a portion thereof in the case of a partial surrender) may be
assessed. In the case of a partial surrender We assess a Partial Surrender Fee
of $25. Once each Policy Year, on a
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non-cumulative basis, You may make a free partial surrender of up to 10% of Your
unloaned Accumulation Value.
You can also borrow some of Your Accumulation Value.
8. OTHER INFORMATION:
FREE LOOK. You can cancel the Policy within ten days after You receive it
(or whatever period is required in Your state) and We will refund all Premiums
paid less any Indebtedness. Upon completion of the Underwriting Process, We will
allocate the initial Net Premium to the Money Market Portfolio for fifteen days
(or the Free Look period required in Your state plus five days). After that, We
will invest Your Accumulation Value as You requested.
WHO SHOULD PURCHASE THE POLICY? The Policy is designed for individuals and
businesses that have a need for death protection but who also desire to
potentially increase the values in their Policies through investment in the
Investment Options. The Policy offers the following to individuals:
- create or conserve one's estate
- supplement retirement income
- access to funds through loans and surrenders
The Policy offers the following to businesses:
- protection for the business in the event a key employee dies
- provide debt protection for business loans
- create a fund for employee benefits, buy outs and future business needs.
If You currently own a variable life insurance policy on the life of the
Primary Insured, You should consider whether the purchase of the Policy is
appropriate.
Also, You should carefully consider whether the Policy should be used to
replace an existing Policy on the life of an Insured.
ADDITIONAL FEATURES
- You can arrange to have a regular amount of money automatically
transferred from the Money Market Portfolio to the Investment Options each
month, theoretically giving You a lower average cost per unit over time than a
single one time purchase. We call this feature the Dollar Cost Averaging Option.
- We will automatically readjust Your money between Investment Options
periodically to keep the blend You select. We call this feature the Asset
Rebalancing Option.
- If the Primary Insured becomes terminally ill, We will pay You a portion
of the Death Benefit. We call this feature the Accelerated Death Benefit Rider.
- If You pay a certain required Premium, We guarantee that the Policy will
not lapse even if Your Accumulation Value is not sufficient to cover the Monthly
Deductions. We call this feature the Guaranteed Minimum Death Benefit Rider.
- If the Primary Insured becomes totally disabled, We will waive the Monthly
Deduction, excluding the Risk Charge, or the Planned Premium. This is provided
by the Waiver of Monthly Deductions Rider or the Waiver of Planned Premium
Rider.
- We also offer a number of additional riders that are common for universal
life policies.
These features and riders may not be available in Your state and may not be
suitable for Your particular situation.
9. INQUIRIES: If You need more information about buying a Policy, please
contact Us at:
BMA
P.O. Box 412879
Kansas City, Missouri 64141-2879
1-888-262-8131
If You need policy owner service (such as changes in policy information,
inquiry into policy values, or to make a loan), please contact Us at our service
center:
BMA
P.O. Box 66793
St. Louis, Missouri 63166-6793
1-800-423-9398
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PART I
1. THE VARIABLE LIFE INSURANCE POLICY
The variable life insurance policy is a contract between You, the Owner, and
BMA, an insurance company. The Policy can be used to create or conserve one's
estate and retirement planning for individuals. It can also be used for certain
business purposes.
The Policy provides for life insurance coverage on the Primary Insured and
has Accumulation Values, a Death Benefit, surrender rights, loan privileges and
other characteristics associated with traditional and universal life insurance.
However, since the Policy is a variable life insurance policy, the Accumulation
Value, to the extent invested in the Investment Options, will increase or
decrease depending upon the investment experience of those Investment Options.
The duration or amount of the Death Benefit may also vary based on the
investment performance of the underlying Investment Options. To the extent You
allocated Premium or Accumulation Value to the Separate Account, You bear the
investment risk. If the Cash Surrender Value is insufficient to pay the Monthly
Deductions, the Policy may terminate.
Because the Policy is like traditional and universal life insurance, it
provides a Death Benefit which will be paid to Your named Beneficiary. When the
Primary Insured dies, the Death Proceeds are paid to Your Beneficiary which
should be excludable from the gross income of the Beneficiary. The tax-free
Death Proceeds makes this an excellent way to accumulate money You don't think
you'll use in Your lifetime and is a tax-efficient way to provide for those You
leave behind. If You need access to Your money, You can borrow from the Policy
or make a total or partial surrender.
2. PURCHASES
PREMIUMS
Premiums are the monies You give Us to buy the Policy. The Policy is a
Flexible Premium Policy which allows You to make Premium payments in any amount
and at any time, subject of course to making sufficient Premium payments to keep
the Policy in force. Even though the Policy is flexible, when You apply for
coverage You can establish a schedule of Premium payments (Planned Premium). The
Planned Premium is selected by You. Thus they will differ from Policy to Policy.
You should consult Your Registered Representative about Your Planned Premium.
We guarantee that the Policy will stay in force for the first five years
after issue if total Premiums paid are at least as great as:
1. the cumulative five year No-Lapse Monthly Minimum Premium; plus
2. the total of all partial surrenders made; plus
3. indebtedness.
We will establish a No-Lapse Monthly Minimum Premium at the time you apply
for coverage which is the smallest level of Planned Premium.
The Policy will remain in force if the Cash Surrender Value is greater than
zero regardless of how long it has been in force.
Additional Premiums may be paid at any time. However, We reserve the right
to limit the number and amount of additional Premiums. Under some circumstances,
We may require evidence that the Primary Insured is still insurable. All
Premiums are payable at the BMA Service Center.
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WAIVER OF PLANNED PREMIUMS
You can elect to have a Waiver of Planned Premium Rider added to Your
Policy. The rider provides for the Planned Premium to be waived by crediting a
Premium equal to the monthly waiver benefit on each Monthly Anniversary Day
during the Primary Insured's total disability beginning before age 60 and
continuing 6 months or more. Premiums paid during the first 6 months of
disability are refunded, and subsequent Premiums are waived as long as total
disability continues. The monthly waiver benefit to be credited as a Premium to
the Policy while benefits are payable under the rider is the Planned Premium at
the time the disability begins.
All Monthly Deductions will continue to be made.
If at the end of any Policy Month while benefits are being paid under the
rider, the Cash Surrender Value is not sufficient to cover the Monthly
Deductions, the credit of the monthly waiver benefit will cease, and the Monthly
Deductions will be waived as long as total disability continues.
You should consult the rider for the terms and conditions. The rider is
available as an alternative to the Waiver of Monthly Deductions. You can select
either the Waiver of Monthly Deduction Rider or the Waiver of Planned Premium
Rider but not both.
APPLICATION FOR A POLICY
In order to purchase a Policy, You must submit an application to Us that
requests information about the proposed Primary Insured. In some cases, We will
ask for additional information. We may request that the Primary Insured provide
Us with medical records, physician's statement or possibly require other medical
tests.
ISSUE AGES
We currently issue to Primary Insureds whose ages are: 20-80 for Standard
rates and 20-70 for Preferred rates.
We will review all the information We are provided about the Primary Insured
and determine whether or not the Primary Insured meets Our standards for issuing
the Policy. This process is called underwriting. If the Primary Insured meets
all of Our underwriting requirements, We will issue a Policy. There are several
underwriting classes under which the Policy may be issued.
The underwriting period could be up to 60 days or longer from the time the
application is signed. If We receive the initial Premium with the application,
Your registered representative will give you a conditional receipt. If You
receive a conditional receipt, you will have conditional coverage. The
conditional receipt provides coverage from the later date of receipt of the
application, the medical exam, if required, and the money being received at the
BMA Service Center. It will expire 60 days from the effective date. The
conditional insurance is subject to a number of restrictions and is only
applicable if the proposed Primary Insured was an acceptable risk for the
insurance applied for.
APPLICATION OF PREMIUMS
When You purchase a Policy and We receive money with Your application, We
will initially put Your money in Our General Account. Your money will remain in
Our General Account during the Underwriting Process. Upon completion of the
Underwriting Process, Your money will be moved to the Money Market Portfolio
where it will remain for 15 days (or the period required in Your state plus five
days). After the 15 days, We will allocate Your money to the Investment
Option(s) You requested in the application. All allocation directions must be in
whole percentages. If You pay additional Premiums, We will allocate them in the
same way as Your first Premium unless You tell Us otherwise.
12
<PAGE>
If You change Your mind about owning a Policy, You can cancel it within 10
days after receiving it (or the period required in Your state) (Free Look
Period). (If the Owner is a resident of California and is age 60 or older, the
period is 30 days.) When You cancel the Policy within this time period, We will
not assess a Surrender Charge and will give You back Your Premium payment less
any Indebtedness.
When Your application for the Policy is in good order, We will invest Your
first Premium in the Money Market Portfolio within two days after We have
completed Our underwriting. Subsequent Premiums will be allocated in accordance
with the selections in Your application.
If as a result of Our underwriting review, We do not issue You a Policy, We
will return to You Your Premium, and interest, if any, required by Your state.
If We do issue a Policy, on the Policy Date We will deduct the first Monthly
Deduction and credit interest. The maximum first Monthly Deduction is 5.5% of
Premium.
GRACE PERIOD
Your Policy will stay in effect as long as Your Cash Surrender Value is
sufficient to cover Monthly Deductions. If the Cash Surrender Value of Your
Policy is not enough to cover these deductions, We will mail You a notice. You
will have 61 days from the time the notice is mailed to You to send Us the
required payment. This is called the Grace Period. Because this Policy has a
five year no-lapse guarantee, the Policy will not terminate if the No Lapse
Monthly Minimum Premiums are paid during this five year period.
ACCUMULATION UNIT VALUES
The value of Your Policy that is invested in the Investment Option(s) will
go up or down depending upon the investment performance of the Investment
Option(s) You choose. In order to keep track of the value of Your Policy, We use
a unit of measure We call an Accumulation Unit. (An Accumulation Unit works like
a share of a mutual fund.)
Every Business Day We determine the value of an Accumulation Unit for each
of the Investment Options. The value of an Accumulation Unit for any given
Business Day is determined by multiplying a factor We call the net investment
factor times the value of the Accumulation Unit for the previous Business Day.
We do this for each Investment Option. The net investment factor is a number
that reflects the change (up or down) in an underlying Investment Option share.
Our Business Days are each day that the New York Stock Exchange is open for
business. Our Business Day closes when the New York Stock Exchange closes,
usually 4:00 P.M. Eastern time.
When You make a Premium payment, We credit Your Policy with Accumulation
Units. The number of Accumulation Units credited is determined by dividing the
amount of Net Premium allocated to an Investment Option by the value of the
Accumulation Unit for the Investment Option for the Business Day when the
Premium payment is applied to Your Policy.
We calculate the value of an Accumulation Unit for each Investment Option
after the New York Stock Exchange closes each Business Day and then apply it to
Your Policy.
When We assess the Monthly Deductions, We do so by deducting Accumulation
Units from Your Policy. When You have selected more than one Investment Option
and/or the Fixed Account, We make the deductions pro-rata from all the
Investment Options and the Fixed Account.
When You make a surrender We determine the number of Accumulation Units to
be deducted by dividing the amount of the surrender from an Investment Option by
the value of an Accumulation Unit for the Investment Option. The resulting
number of Accumulation Units is deducted from Your Policy. When You make a
transfer from one Investment Option to another We treat the transaction by its
component parts, i.e. a surrender and a purchase.
13
<PAGE>
EXAMPLE:
On Monday We receive a Premium payment from You. You have told Us You want
$700 of this payment to go to the Large Cap Value Portfolio. When the New York
Stock Exchange closes on that Monday, We determine that the value of an
Accumulation Unit for the Large Cap Value Portfolio is $12.70. We then divide
$700 by $12.70 and credit Your Policy on Monday night with 55.12 Accumulation
Units for the Large Cap Value Portfolio.
RIGHT TO REFUND
To receive the tax treatment accorded life insurance under Federal laws,
insurance under the Policy must initially qualify and continue to qualify as
life insurance under the Internal Revenue Code. To maintain qualification to the
maximum extent permitted by law, We reserve the right to return Premiums paid
which We determine will cause any coverage under the Policy to fail to qualify
as life insurance under applicable tax law and any changes in applicable tax
laws or will cause it to become a Modified Endowment Contract (MEC).
Additionally, We reserve the right to make changes in the Policy or to make
distributions to the extent We determine necessary to continue to qualify the
Policy as life insurance and to comply with applicable laws. We will provide You
advance written notice of any change.
If subsequent Premiums will cause Your Policy to become a MEC We will
contact You prior to applying the Premium. If You elect to have the Premium
applied, We require that You acknowledge in writing that You understand the tax
consequences of a MEC before We will apply the Premiums. Section 6 contains a
discussion of certain tax considerations provisions including MECs.
EXCHANGE OF A POLICY FOR A BMA POLICY
Under federal tax law a life insurance policy may be exchanged tax-free for
another life insurance policy. However, a policy received in exchange for a MEC
will also be treated as a MEC. Any exchange of a policy for a BMA Policy must
meet Our policy exchange rules in effect at that time.
3. INVESTMENT CHOICES
The Policy offers 18 investment choices--a Fixed Account and 17 Investment
Options. Additional Investment Options may be available in the future.
YOU SHOULD READ THE PROSPECTUSES FOR THESE FUNDS CAREFULLY BEFORE INVESTING.
COPIES OF THESE PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS. CERTAIN PORTFOLIOS
CONTAINED IN THE FUND PROSPECTUSES MAY NOT BE AVAILABLE WITH YOUR POLICY.
Shares of the funds are offered in connection with certain variable annuity
contracts and variable life insurance policies of various life insurance
companies which may or may not be affiliated with BMA. Certain portfolios are
also sold directly to qualified plans. The funds do not believe that offering
their shares in this manner will be disadvantageous to you.
INVESTORS MARK SERIES FUND, INC.
Investors Mark Series Fund, Inc. is managed by Investors Mark Advisors, LLC
(Adviser), which is an affiliate of BMA. Investors Mark Series Fund, Inc. is a
mutual fund with multiple portfolios. Each Investment option has a different
investment objective. The Adviser has engaged sub-advisers to provide investment
advice for the individual Investment Option. The following Investment Options
are available under the Policy.
14
<PAGE>
STANDISH, AYER & WOOD, INC. IS THE SUB-ADVISER TO THE FOLLOWING PORTFOLIOS:
Intermediate Fixed Income Portfolio
Mid Cap Equity Portfolio
Money Market Portfolio
STANDISH INTERNATIONAL MANAGEMENT COMPANY, L.P. IS THE SUB-ADVISER TO THE
FOLLOWING PORTFOLIO:
Global Fixed Income Portfolio
STEIN ROE & FARNHAM, INCORPORATED IS THE SUB-ADVISER TO THE FOLLOWING
PORTFOLIOS:
Small Cap Equity Portfolio
Large Cap Growth Portfolio
DAVID L. BABSON & CO., INC. IS THE SUB-ADVISER TO THE FOLLOWING PORTFOLIO:
Large Cap Value Portfolio
LORD, ABBETT & CO. IS THE SUB-ADVISER TO THE FOLLOWING PORTFOLIO:
Growth & Income Portfolio
KORNITZER CAPITAL MANAGEMENT, INC. IS THE SUB-ADVISER TO THE FOLLOWING
PORTFOLIO:
Balanced Portfolio
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. BBOI Worldwide LLC is the adviser to the Berger/BIAM
IPT--International Fund. BBOI Worldwide LLC has retained Bank of Ireland Asset
Management (U.S.) Limited ("BIAM"). The following Investment Option is available
under the Policy:
Berger/BIAM IPT--International Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
American Century Variable Portfolios, Inc. is a series of funds managed by
American Century Investment Management, Inc. The following Investment Options
are available under the Policy:
VP Income & Growth
VP Value (long-term capital growth with income as a secondary objective)
DREYFUS STOCK INDEX FUND
The Dreyfus Corporation serves as the Fund's manager. Dreyfus has hired its
affiliate, Mellon Equity Associates, to serve as the Fund's index fund manager
and provide day-to-day management of the Fund's investments.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Variable Investment Fund is a mutual fund with multiple
portfolios. The Dreyfus Corporation serves as the investment adviser. The
following Investment Option is available under the Policy:
Disciplined Stock Portfolio (seeks to outperform the total return
performance of the Standard &
Poor's 500 Composite Stock Price Index)
15
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. is a mutual fund with multiple
portfolios. INVESCO Funds Group, Inc. is the investment adviser. The following
Investment Options are available under the Policy:
INVESCO VIF--High Yield Portfolio
INVESCO VIF--Industrial Income Portfolio (seeks high current income with
capital appreciation as a secondary goal)
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Series, Inc. is a mutual fund with multiple portfolios.
Lazard Asset Management, a division of Lazard Freres & Co. LLC, is the
investment manager for each portfolio. The following Investment Option is
available under the Policy:
Lazard Retirement Small Cap Portfolio
TRANSFERS
You can transfer money among the Fixed Account and the Investment Options.
You can make 12 free transfers each Policy Year. You can make a transfer to or
from the Fixed Account and to or from any Investment Option. If You make more
than 12 transfers in a year, there is a transfer fee deducted. The fee is $25
per transfer. The transfer fee is deducted from the amount which is transferred.
The following apply to any transfer:
1. The minimum amount which You can transfer from the Fixed Account or any
Investment Option is $250 or Your entire interest in the Investment Option or
the Fixed Account, if the remaining balance is less than $250.
2. The maximum amount which can be transferred from the Fixed Account is
limited to 25% of the Accumulation Value in the Fixed Account. Only one transfer
out of the Fixed Account is allowed each Policy Year. These requirements are
waived if the transfer is pursuant to a pre-scheduled transfer.
3. The minimum amount which must remain in any Investment Option or Fixed
Account after a transfer is $250.
4. A transfer will be effective as of the end of the Business Day when We
receive an Authorized Request at the BMA Service Center.
5. Neither Us nor Our BMA Service Center is liable for a transfer made in
accordance with Your instructions.
6. We reserve the right to restrict the number of transfers per year and to
restrict transfers from being made on consecutive Business Days.
7. Your right to make transfers is subject to modification if We determine,
in Our sole opinion, that the exercise of the right by one or more Owners is, or
would be, to the disadvantage of other Owners. Restrictions may be applied in
any manner reasonably designed to prevent any use of the transfer right which is
considered by Us to be to the disadvantage of other Owners. A modification could
be applied to transfers to or from one or more of the Investment Options and
could include but not be limited to:
a. a requirement of a minimum time period between each transfer;
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<PAGE>
b. not accepting transfer requests of an agent acting under a power of
attorney on behalf of more than one Owner; or
c. limiting the dollar amount that may be transferred by an Owner at
any one time.
You may elect to make transfers by telephone. To elect this option You must
do so in an Authorized Request. If there are Joint Owners, unless We are
instructed to the contrary, instructions will be accepted from either one of the
Joint Owners. We will use reasonable procedures to confirm that instructions
communicated by telephone are genuine. If We do not, We may be liable for any
losses due to unauthorized or fraudulent instructions. The BMA Service Center
tape records all telephone instructions. Transfers do not change the allocation
instructions for future Premiums.
DOLLAR COST AVERAGING
The Dollar Cost Averaging Option allows You to systematically transfer a set
amount each month from the Money Market Portfolio to any of the other Investment
Option(s). By allocating amounts on a regular schedule as opposed to allocating
the total amount at one particular time, You may be less susceptible to the
impact of market fluctuations.
The minimum amount which can be transferred each month is $250. You must
have an unloaned Accumulation Value of at least $5,000. The amount required to
complete Your program must be in the source account in order to participate in
dollar cost averaging.
All dollar cost averaging transfers will be made on the 15th day of the
month unless that day is not a Business Day. If it is not, then the transfer
will be made the next Business Day. You must participate in dollar cost
averaging for at least 6 months.
If You participate in dollar cost averaging, the transfers made under this
option are not taken into account in determining any transfer fee.
ASSET REBALANCING OPTION
Once Your money has been allocated among the Investment Options, the
performance of the Accumulation Value of each option may cause Your allocation
to shift. If the unloaned Accumulation Value of Your Policy is at least $5,000,
You can direct Us to automatically rebalance Your Policy each quarter to return
to Your original percentage allocations by selecting Our asset rebalancing
option. The program will terminate if You make any transfer outside of the
Investment Options You have selected under the asset rebalancing option. The
minimum period to participate in this program is 6 months. The transfer date
will be the 15th of the month unless that day is not a Business Day. If it is
not, then the transfer will be made the next Business Day. The Fixed Account is
not part of asset rebalancing.
If You participate in the asset rebalancing option, the transfers made under
the program are not taken into account in determining any transfer fee.
EXAMPLE:
Assume that You want the Accumulation Value split between two Investment
Options. You want 40% to be in the Intermediate Fixed Income Portfolio and 60%
to be in the Mid Cap Equity Portfolio. Over the next 2 1/2 months the bond
market does very well while the stock market performs poorly. At the end of the
first quarter, the Intermediate Fixed Income Portfolio now represents 50% of
Your holdings because of its increase in value. If You had chosen to have Your
holdings rebalanced quarterly, on the first day of the next quarter, We would
sell some of Your units in the Intermediate Fixed Income Portfolio to bring its
17
<PAGE>
value back to 40% and use the money to buy more units in the Mid Cap Equity
Portfolio to increase those holdings to 60%.
ASSET ALLOCATION OPTION
We recognize the value to certain Owners of having available, on a
continuous basis, advice for the allocation of Your money among the Investment
Options available under the Policy. Certain providers of these types of services
have agreed to provide such services to Owners in accordance with Our
administrative rules regarding such programs.
We have made no independent investigation of these programs. We have only
established that these programs are compatible with Our administrative systems
and rules.
Even though We permit the use of approved asset allocation programs, the
Policy was not designed for professional market timing organizations. Repeated
patterns of frequent transfers are disruptive to the operations of the
Investment Options, and when We become aware of such disruptive practices, We
may modify the transfer provisions of the Policy.
If You participate in an approved asset allocation program, the transfers
made under the program are not taken into account in determining any transfer
fee.
SUBSTITUTION
We may be required to substitute one of the Investment Options You have
selected with another Investment Option. We would not do this without the prior
approval of the Securities and Exchange Commission. We will give You notice of
Our intent to do this.
4. EXPENSES
There are charges and other expenses associated with the Policy that reduce
the return on Your investment in the Policy. The charges and expenses are:
PREMIUM CHARGE
We deduct a Premium Charge for each Premium You make. We consider a portion
of the Premium Charge a sales load. The sales load portion is 3.5% of Premiums
paid during the first ten Policy Years and 2.0% of Premiums paid thereafter. The
portion of the Surrender Charge that does not recover issue and underwriting
expenses is assessed as a sales load but only if the Policy is surrendered
during the first ten Policy Years. The Premium Charges are as follows:
<TABLE>
<S> <C>
Policy Years 1-10:.................................... 5.5% of all Premiums.
Policy Years 11 and thereafter:....................... 4.0% of all Premiums.
</TABLE>
The Premium Charge is to cover some of Our costs incurred in selling the
Policy and in issuing it, such as commissions, premium tax, DAC tax (Deferred
Acquisition Costs) and administrative costs.
MONTHLY DEDUCTION
The initial Monthly Deduction is made on the Policy Date but does not
include a Risk Charge. On each Monthly Anniversary Day We make a Monthly
Deduction from the Accumulation Value of Your
18
<PAGE>
Policy. The Monthly Deduction will be taken on a pro-rata basis from the
Investment Options and the Fixed Account, exclusive of the Loan Account. The
Monthly Deduction equals:
a. the Cost of Insurance for the Policy; plus
b. the monthly rider charges, if any; plus
c. the Risk Charge; plus
d. the monthly Policy Charge
COST OF INSURANCE. This charge compensates Us for insurance coverage
provided for the month. The cost of insurance charge for a Policy month equals
the appropriate current cost of insurance rate per $1,000, including any special
Rate Classes, times the net amount at risk. The net amount at risk is different
for the Level Death Benefit Option and the Adjustable Death Benefit Option. Part
II contains a more detailed description of the net amount at risk.
The monthly cost of insurance rate, per $1,000 of net amount at risk, is
based on the Specified Amount, issue age, and Rate Class of the Primary Insured
and the Policy Year. The maximum monthly cost of insurance rate ranges from
0.08420 to 83.33333 per $1,000. The table below shows the largest maximum
monthly cost of insurance rate for all of the ages in the range. The maximum
rate for most ages in the range will be smaller.
MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000
<TABLE>
<CAPTION>
Male Female
------------------------ ------------------------
Attained Age Non- Tobacco Tobacco Non- Tobacco Tobacco
- ------------------------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
20-29......................... 0.14010 0.19437 0.10005 0.12341
30-39......................... 0.17850 0.30049 0.16097 0.22778
40-49......................... 0.37912 0.73630 0.32558 0.50808
50-59......................... 0.96089 1.79681 0.66576 0.99290
60-69......................... 2.65338 4.29327 1.63207 2.19463
70-80......................... 8.16248 10.74533 5.59571 6.58858
81-99......................... 83.33333 83.33333 83.33333 83.33333
</TABLE>
Generally, We use a cost of insurance rate that is less than the maximum
rate. The table below compares the maximum cost of insurance rate to the rate
that is currently being used during the first Policy Year. The rates below are
based on the preferred non-tobacco Rate Class and a $150,000 Specified Amount.
MONTHLY COST OF INSURANCE RATE COMPARISON
<TABLE>
<CAPTION>
COST OF INSURANCE RATE
ISSUE ----------------------
SEX AGE CURRENT MAXIMUM
- --------------------------------------------------------- ----- --------- -----------
<S> <C> <C> <C>
Male..................................................... 45 0.26313 0.27708
Female................................................... 50 0.31223 0.34983
Male..................................................... 55 0.47878 0.65401
</TABLE>
Monthly cost of insurance rates will be determined by Us based on the
expectations as to future experience. We may charge less than the maximum cost
of insurance rates as shown in the Table of Cost of Insurance Rates contained in
Your Policy. Any change in the cost of insurance rates will apply to all
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<PAGE>
Primary Insureds of the same Age, sex, Rate Class and Policy Year. The cost of
insurance rates are greater for insureds in special Rate Classes.
MONTHLY RIDER CHARGES. We charge separately for any riders attached to the
Policy. We deduct the cost of the riders for a Policy Month as part of the
Monthly Deduction on each Monthly Anniversary Day.
RISK CHARGE. We assess a Risk Charge which is deducted as part of the
Monthly Deduction. The Risk Charge is calculated as follows:
<TABLE>
<S> <C>
Per Policy Month for Policy
Years 1-10:....................... .80%, on an annual basis, of the
Accumulation Value in the Separate
Account.
Per Policy Month for Policy
Years 11 and later:............... .40%, on an annual basis, of the
Accumulation Value in the Separate
Account.
</TABLE>
The Risk Charge compensates Us for some of the mortality risks We assume,
and the risk that We will experience costs above that for which We are
compensated. It also compensates Us for some of the administrative costs in
administering the Policy. We expect to profit from the charge.
POLICY CHARGE. We assess a Policy Charge which is deducted each Monthly
Anniversary Day. The Policy Charge is:
<TABLE>
<S> <C>
Per Policy Month for Policy
Year 1:........................... $25
Per Policy Month for Policy
Years 2 and later:................ Currently, $5. This charge is not
guaranteed and may be increased but
it will not exceed $10.
</TABLE>
The Policy Charge compensates Us for some of the administrative costs of the
Policy and the Separate Account.
WAIVER OF MONTHLY DEDUCTION. You can elect to have a Waiver of Monthly
Deduction Rider added to Your Policy. This rider provides for all monthly
deductions, excluding the Risk Charge, to be waived during the Primary Insured's
total disability beginning before age 60 and continuing 6 months or more. Any
Monthly Deductions, excluding the Risk Charge, made during the first 6 months
will be credited back to the Accumulation Value and subsequent monthly
deductions, excluding the Risk Charge, are waived as long as total disability
continues.
You should consult the rider for the terms and conditions. The rider is
available as an alternative to the Waiver of Planned Premiums. You can select
either the Waiver of Monthly Deduction Rider or the Waiver of Planned Premium
Rider but not both. The rider is not available if the Policy is issued with the
Guaranteed Minimum Death Benefit.
SURRENDER CHARGE
If the Policy is surrendered before the 10th Policy Anniversary or within 10
years following the effective date of any increase in Specified Amount, a
Surrender Charge may be deducted. The amount of the Surrender Charge depends
upon Your Specified Amount, the year of surrender, issue Age, sex and
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<PAGE>
Rate Class. The Surrender Charge specific to Your Policy is shown on Your Policy
Schedule. The maximum Surrender Charge that will be assessed ranges from $5.40
to $44.56 per $1,000 of Specified Amount. The table below shows the maximum
Surrender Charge per $1,000 for all of the ages in the range. The maximum
Surrender Charge for some ages in the range will be smaller.
MAXIMUM INITIAL SURRENDER CHARGES PER $1,000
<TABLE>
<CAPTION>
Male Female
------------------------ ------------------------
Issue Age Non- Tobacco Tobacco Non- Tobacco Tobacco
- ------------------------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
20-29......................... $ 8.10 $ 9.18 $ 7.20 $ 8.10
30-39......................... 12.43 14.78 10.92 12.43
40-49......................... 19.32 23.87 16.28 18.91
50-59......................... 29.52 35.07 23.52 28.11
60-69......................... 41.64 44.56 32.49 38.00
70-80......................... 49.94 42.29 35.97 39.41
</TABLE>
The charge is not affected by special Rate Classes nor by the addition of
riders. After the fourth Policy Year, or after four years following the
effective date of an increase, the Surrender Charge between Policy Years will be
pro-rated monthly. When there is a partial surrender of Cash Surrender Value, a
pro-rata portion of the Surrender Charge is assessed for any amount that the
Specified Amount is reduced. The pro-rata Surrender Charge is calculated in the
same manner as for a requested decrease.
The Surrender Charge and the pro-rata Surrender Charge compensates Us for
the costs associated with selling the Policy and for issue and underwriting
expenses.
PARTIAL SURRENDER FEE
When there is a partial surrender of the Cash Surrender Value, in addition
to any Surrender Charge that may be assessed, We will charge a Partial Surrender
Fee of $25. This charge compensates Us for administrative expenses associated
with a surrender.
WAIVER OF SURRENDER CHARGES
After the first Policy Anniversary, the Surrender Charge may be waived in
the following circumstances:
FREE PARTIAL SURRENDER AMOUNT. Once each Policy Year, on a non-cumulative
basis, You may make a free partial surrender up to 10% of the unloaned
Accumulation Value without the imposition of the Partial Surrender Fee or the
Surrender Charge. If the Policy is later totally surrendered for its Cash
Surrender Value, then the pro-rata Surrender Charges for each free partial
surrender will be assessed at the time of surrender.
CONFINEMENT. The Surrender Charge will not apply if: (1) You are confined
in a long term care facility, skilled or intermediate nursing facility or
hospital; (2) You have been so confined for at least 90 consecutive days; (3) a
physician certifies that confinement is required because of sickness or injury;
and (4) You were not so confined on the Policy Date. Proof of confinement will
be required in a form satisfactory to Us.
TOTAL DISABILITY. The Surrender Charge will not apply if: (1) You are
totally disabled; (2) You have been so disabled for at least 90 days; (3) a
physician certifies that You are totally disabled; and (4) You were not so
disabled on the Policy Date. Proof of disability will be required in a form
satisfactory to Us.
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<PAGE>
INVOLUNTARY UNEMPLOYMENT. The Surrender Charge will not apply if: (1) You
were employed on a "full time" basis (working at least 17 hours per week) on the
Policy Date; (2) Your employment was terminated by Your employer; (3) You remain
unemployed for at least 90 days; and (4) You certify in writing at the time You
make Your surrender request that You are still unemployed.
DIVORCE. The Surrender Charge will not apply if: (1) You were married on
the Policy Date; (2) subsequent to the Policy Date a divorce proceeding is
filed; and (3) You certify in writing at the time You make Your surrender
request that You are now divorced.
We will not assess pro-rata Surrender Charges for earlier free partial
withdrawals if You make a total surrender due to confinement, total disability,
involuntary unemployment or divorce.
Not all options may be available in all states.
REDUCTION OR ELIMINATION OF THE SURRENDER CHARGE
We may reduce or eliminate the amount of the Surrender Charge when the
Policy is sold under circumstances which reduce its sales expense. Some examples
are: if there is a large group of individuals that will be purchasing the Policy
or a prospective purchaser already had a relationship with Us. We will not
deduct a Surrender Charge under a Policy issued to an officer, director or
employee of BMA or any of its affiliates.
TRANSFER FEE
You can make 12 free transfers every Policy Year. If You make more than 12
transfers a year, We will deduct a transfer fee of $25. If We do assess a
transfer fee, it will be deducted from the amount transferred.
If the transfer is part of the Dollar Cost Averaging Option, the Asset
Rebalancing Option or Asset Allocation Option, it will not count in determining
the transfer fee.
TAXES
We may assess a charge against the Policy for any taxes attributable to the
Separate Account. We do not expect to incur any such taxes.
INVESTMENT OPTION EXPENSES
There are deductions from and expenses paid out of the assets of the various
Investment Options, which are summarized below. See the fund prospectuses for
more information.
INVESTMENT OPTION EXPENSES
(as a percentage of the average daily net assets of an Investment Option)
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSES (AFTER
REIMBURSEMENT REIMBURSEMENT
MANAGEMENT 12b-1 FOR CERTAIN FOR CERTAIN
FEES FEES PORTFOLIOS) PORTFOLIOS)
------------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
INVESTORS MARK SERIES FUND, INC.(1)
Intermediate Fixed Income Portfolio..................... .60% -- .20% .80%
Mid Cap Equity Portfolio................................ .80% -- .10% .90%
Money Market Portfolio.................................. .40% -- .10% .50%
Global Fixed Income Portfolio........................... .75% -- .25% 1.00%
Small Cap Equity Portfolio.............................. .95% -- .10% 1.05%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES PORTFOLIO
(AFTER EXPENSES (AFTER
REIMBURSEMENT REIMBURSEMENT
MANAGEMENT 12b-1 FOR CERTAIN FOR CERTAIN
FEES FEES PORTFOLIOS) PORTFOLIOS)
------------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
Large Cap Growth Portfolio.............................. .80% -- .10% .90%
Large Cap Value Portfolio............................... .80% -- .10% .90%
Growth & Income Portfolio............................... .80% -- .10% .90%
Balanced Portfolio...................................... .80% -- .10% .90%
BERGER INSTITUTIONAL PRODUCTS TRUST(2)
Berger/BIAM IPT--International Fund..................... .00% -- 1.20% 1.20%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP Value................................................ 1.00% -- .00% 1.00%
VP Income & Growth...................................... .70% -- .00% .70%
DREYFUS STOCK INDEX FUND.................................. .25% -- .03% .28%
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock Portfolio............................. .75% -- .27% 1.02%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--High Yield Portfolio(3).................... .60% -- .27% .87%
INVESCO VIF--Industrial Income Portfolio(3)............. .75% -- .20% .95%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Small Cap Portfolio(4)................ .75% .25% .50% 1.50%
</TABLE>
- ------------------------
1. Investors Mark Advisors, LLC has voluntarily agreed to reimburse
expenses of each Portfolio of Investors Mark Series Fund, Inc. for the first
year of operations so that the annual expenses do not exceed the amounts set
forth above under "Total Annual Portfolio Expenses" for each Portfolio. Absent
such expense reimbursement, the Total Annual Portfolio Expenses are estimated to
be: 1.15% for the Money Market Portfolio; 2.04% for the Intermediate Fixed
Income Portfolio; 2.04% for the Global Fixed Income Portfolio; 1.10% for the Mid
Cap Growth Portfolio; 1.10% for the Balanced and Growth & Income Portfolios;
1.25% for the Small Cap Equity Portfolio; and 1.02% for the Large Cap Growth and
Large Cap Value Portfolios.
2. BBOI Worldwide LLC has voluntarily agreed to waive its advisory fee and
expects to voluntarily reimburse the Berger/BIAM IPT--International Fund for
additional expenses to the extent that normal operating expenses in any fiscal
year, including the investment advisory fee but excluding brokerage commissions,
interest, taxes and extraordinary expenses, of the Fund exceed 1.20% of the
Fund's average daily net assets. Absent the voluntary waiver and reimbursement,
the Management Fee for the Fund would have been .90%, its Other Expenses would
have been 2.93%, and its Total Annual Portfolio Expenses would have been 3.83%.
3. Certain expenses are being absorbed voluntarily by the investment
adviser. In the absence of such voluntary expense limitation, the Other Expenses
and Total Operating Expenses for the fiscal period ended December 31, 1997 would
have been .34% and .94% for the INVESCO VIF--High Yield Portfolio and .22% and
.97% for the INVESCO VIF--Industrial Income Portfolio. With respect to the
INVESCO VIF--Industrial Income Portfolio and the INVESCO VIF--High Yield
Portfolio, certain fund expenses are absorbed voluntarily by INVESCO Funds
Group, Inc. (IFG) pursuant to a commitment to limit the
23
<PAGE>
INVESCO VIF--Industrial Income Portfolio's annual expenses to no more than .90%
of the Fund's average net assets prior to July 6, 1998 and to no more than 1.15%
of the Fund's average net assets effective July 6, 1998 and to limit the INVESCO
VIF--High Yield Portfolio's annual expenses to no more than .80% of the Fund's
average net assets prior to July 6, 1998 and to no more than 1.05% of the Fund's
average net assets effective July 6, 1998. The Fund reimburses IFG for its costs
in providing, or assuring that participating insurance companies provide,
certain services in an amount up to $10,000 per year (base fee), plus .015% of
the net assets of the Fund, plus, effective July 6, 1998, an additional .25% of
gross new assets (new sales of shares, exchanges into the Fund and reinvestment
of dividends and capital gains distributions) of the Fund (incremental fees).
IFG may pay all or a portion of the base fee and the incremental fees to other
companies that assist in providing the services. If the additional 0.25%
administrative services fee had been charged during the fiscal year ended
December 31, 1997, the Fund estimates that "Other Expenses" and "Total Operating
Expenses" would have been .59% and 1.19%, respectively for the INVESCO VIF--High
Yield Portfolio and .47% and 1.22%, respectively for the INVESCO VIF--Industrial
Income Portfolio.
It should be noted that the Portfolio's actual expenses were lower than the
figures shown because the Portfolio's custodian fees and pricing expenses were
reduced under expense offset arrangements. However, as a result of an SEC
requirement for mutual funds to state their total operating expenses without
crediting any such expense offsetting arrangements, the figures shown above do
not reflect these reductions.
4. The Investment Manager has agreed to voluntarily reimburse expenses to
the extent total Fund expenses exceed, on an annual basis, 1.50% of the Fund's
average net assets. The Investment Manager has advised BMA that it will continue
its voluntary expense reimbursement arrangement through May 1, 1999. Fees and
expenses for the Lazard Retirement Small Cap Portfolio are based on estimates
for the current fiscal year. Absent such arrangement, the expenses for the
Lazard Retirement Small Cap Portfolio for the current fiscal year are estimated
to be 13.19%
5. DEATH BENEFIT
The primary purpose of the Policy is to provide Death Benefit protection on
the life of the Primary Insured. While the Policy is in force, if the Primary
Insured dies, the Beneficiary(ies) will receive the Death Proceeds. The Death
Proceeds equal the Death Benefit under the Policy less any Indebtedness.
The amount of the Death Benefit depends upon the Specified Amount and Your
Policy's Accumulation Value on the date of the Primary Insured's death, and the
Death Benefit Option in effect at the time of death.
The Policy provides two Death Benefit options: a Level Death Benefit and an
Adjustable Death Benefit. So long as the Policy remains in force, the Death
Benefit under either option will never be less than the Specified Amount.
LEVEL DEATH BENEFIT OPTION. The amount of the Death Benefit under the Level
Death Benefit Option is the greater of:
1. the Specified Amount on the date of death; or
2. the Accumulation Value on the date of death multiplied by the applicable
factor from the Table of Minimum Death Benefit Corridor Percentages shown
below.
ADJUSTABLE DEATH BENEFIT OPTION. The amount of the Death Benefit under the
Adjustable Death Benefit Option is the greater of:
1. the Specified Amount on the date of death plus the Accumulation Value on
the date of death; or
24
<PAGE>
2. the Accumulation Value on the date of death multiplied by the applicable
factor from the Table of Minimum Death Benefit Corridor Percentages shown
below.
The applicable percentage is a percentage that is based on the attained Age
of the Primary Insured at the beginning of the Policy Year and is equal to the
following:
<TABLE>
<CAPTION>
ATTAINED CORRIDOR ATTAINED CORRIDOR
AGE PERCENTAGE AGE PERCENTAGE
- --------- ----------- ----------- -----------
<S> <C> <C> <C>
0-40 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75-90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94 101%
95-100 100%
</TABLE>
CHANGE IN DEATH BENEFIT OPTION
You may change the Death Benefit option after the Policy has been in force
for at least one year, subject to the following:
1. You must submit an Authorized Request;
2. once the Death Benefit option has been changed, it cannot be changed
again for one year from the date of the change;
3. if the Level Death Benefit Option is to be changed to the Adjustable
Death Benefit Option, You must submit proof satisfactory to Us that the
Primary Insured is still insurable;
4. if the Level Death Benefit Option is changed to the Adjustable Death
Benefit Option the resulting Specified Amount can never be less than 50%
of the Minimum Specified Amount. The Specified Amount will be reduced to
equal the Specified Amount less the Accumulation Value on the date of
change. This decrease will not result in any decrease in Premiums or
Surrender Charges; and
5. if the Adjustable Death Benefit Option is changed to the Level Death
Benefit Option, the Specified Amount will be increased by an amount equal
to the Accumulation Value on the date of the change. This increase will
not result in any increase in Premiums or Surrender Charges.
Any change in a Death Benefit option will take effect on the Monthly
Anniversary Date on or following the date We approve the request for the change.
25
<PAGE>
CHANGE IN SPECIFIED AMOUNT
You may change the Specified Amount of the Policy effective on any Monthly
Anniversary Day after the Policy has been in force at least one year, subject to
the following requirements. Once the Specified Amount has been changed, it
cannot be changed again for one year from the date of a change.
SPECIFIED AMOUNT INCREASE. To increase the Specified Amount You must:
1. submit an application for the increase;
2. submit proof satisfactory to Us that the Primary Insured is an insurable
risk; and
3. pay any additional Premium which is required.
The Specified Amount can only be increased before the Primary Insured
reaches Age 80. A Specified Amount increase will take effect on the Monthly
Anniversary Day on or following the day We approve the application for the
increase. The Specified Amount increase must be for at least $10,000. Each
increase will have its own Surrender Charge based on the increased issue Age,
sex and Rate Class. The Rate Class that applies to any Specified Amount increase
may be different from the Rate Class that applies to the Initial Specified
Amount. Each increase will have its own cost of insurance rate.
The following changes will be made to reflect the increase:
1. the No-Lapse Monthly Minimum Premium will be increased;
2. an additional Surrender Charge for the increase in Specified Amount will
apply.
We will furnish You with documentation showing You any change in Rate Class
for the Specified Amount increase, the amount of the increase and the additional
Surrender Charges.
SPECIFIED AMOUNT DECREASE. You must request by Authorized Request any
decrease in the Specified Amount. The decrease will take effect on the later of:
1. the Monthly Anniversary Day on or following the day We receive Your
request for the decrease; or
2. the Monthly Anniversary Day one year after the last change in Specified
Amount was made.
A Specified Amount decrease will be used to reduce any previous increases to
the Specified Amount which are then in effect starting with the latest increase
and continuing in the reverse order in which the increases were made. If any
portion of the decrease is left over after all Specified Amount increases have
been reduced to zero, it will be used to reduce the Initial Specified Amount. We
will not permit a Specified Amount decrease that would reduce the Specified
Amount below the Minimum Specified Amount. The applicable Surrender Charge for
the amount of decrease will be deducted from the Accumulation Value.
The No-Lapse Monthly Minimum Premium will be reduced to reflect the
Specified Amount decrease.
GUARANTEED MINIMUM DEATH BENEFIT
You can elect to have a Guaranteed Minimum Death Benefit Rider added to Your
Policy. This rider guarantees that the Death Benefit under Your Policy will
never be less than the Specified Amount during the Guaranteed Minimum Death
Benefit (GMDB) period provided that the GMDB payment requirement has been met.
26
<PAGE>
The GMDB Period is determined for each issue Age in accordance with the
following:
<TABLE>
<CAPTION>
ISSUE AGE GMDB PERIOD
- ----------------------------------------------------------- -------------
<S> <C>
20-35...................................................... 25 years
36-50...................................................... to age 60
51-55...................................................... 10 years
56-59...................................................... to age 65
</TABLE>
There is no separate charge for this rider but in order to have the GMDB
provided by the rider You must pay a certain level of Premiums each month which
is greater than the No-Lapse Monthly Minimum Premium. The GMDB payment
requirement is that the sum of all premiums paid less any partial surrenders and
less any Indebtedness are at least as large as the sum of the GMDB monthly
Premiums since the Policy Date. The payment requirement for the GMDB rider must
be met on each Monthly Anniversary Day even though Premiums do not need to be
paid monthly. The GMDB Monthly Premium is determined by the Primary Insured's
issue Age, sex and Rate Class and includes all rider costs. Ask Your registered
representative for the particulars to Your own situation.
ACCELERATED DEATH BENEFIT
If the Primary Insured is terminally ill, under the Accelerated Death
Benefit rider, We will pre-pay a portion of the Death Benefit. You may elect to
have an Accelerated Death Benefit. You can only elect this benefit one time,
regardless of the amount You selected. No premium is charged for this rider.
You can choose an amount between 10% and 50% of the Specified Amount. The
maximum benefit amount is the greater of $250,000 and 10% of the Specified
Amount. The remaining amount of the Specified Amount in Your Policy must be at
least equal to 50% of the Minimum Specified Amount.
Benefits as specified under the Policy will be reduced upon receipt of an
Accelerated Death Benefit amount. Receipt of an Accelerated Death Benefit amount
may be taxable. You should contact Your personal tax or financial adviser for
specific information.
After an Accelerated Death Benefit payment is made, the Policy will remain
in force and reduced Premiums will be payable. The Policy's Specified Amount,
Accumulation Value and Surrender Charge will be reduced by the percentage of the
requested portion of the available amount as specified in the rider. Any
outstanding Loan will be reduced by the portion of the Loan and repaid by the
same percentage as the Accelerated Death Benefit percentage as described in the
rider.
The receipt of an Accelerated Death Benefit amount may adversely affect the
recipient's eligibility for Medicaid or other government benefits or
entitlements.
The amount available will be reduced by an interest charge and any repayment
of Indebtedness. The interest charge is based on the same interest charge that
is used to determine loans.
6. TAXES
NOTE: BMA HAS PREPARED THE FOLLOWING INFORMATION ON FEDERAL INCOME TAXES AS
A GENERAL DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE TO ANY
PERSON. YOU SHOULD CONSULT YOUR OWN TAX ADVISER ABOUT YOUR OWN CIRCUMSTANCES.
BMA HAS INCLUDED IN PART II AN ADDITIONAL DISCUSSION REGARDING TAXES.
27
<PAGE>
LIFE INSURANCE IN GENERAL
Life insurance, such as this Policy, is a means of providing for death
protection and setting aside money for future needs. Congress recognized the
importance of such planning and provided special rules in the Internal Revenue
Code (Code) for life insurance.
Simply stated, these rules provide that You will not be taxed on the
earnings on the money held in Your life insurance policy until You take the
money out. Beneficiaries generally are not taxed when they receive the Death
Proceeds upon the death of the Primary Insured.
TAKING MONEY OUT OF YOUR POLICY
You, as the Owner, will not be taxed on increases in the value of Your
Policy until a distribution occurs either as a surrender or as a loan. If Your
Policy is a MEC any loans or withdrawals from the Policy will be treated as
first coming from earnings and then from Your investment in the Policy.
Consequently, these earnings are included in taxable income.
The Internal Revenue Code also provides that any amount received from a MEC
which is included in income may be subject to a 10% penalty. The penalty will
not apply if the income received is: (1) paid on or after the taxpayer reaches
age 59 1/2; (2) paid if the taxpayer becomes totally disabled (as that term is
defined in the Code); or (3) in a series of substantially equal payments made
annually (or more frequently) for the life or life expectancy of the taxpayer.
If Your Policy is not a MEC, any surrender proceeds will be treated as first
a recovery of the investment in the Policy and to that extent will not be
included in taxable income. Furthermore any loan will be treated as indebtedness
under the Policy and not as a taxable distribution. See Federal Tax Status in
Part II for more details.
DIVERSIFICATION
The Code provides that the underlying investments for a variable life policy
must satisfy certain diversification requirements in order to be treated as a
life insurance contract. We believe that the Investment Options are being
managed so as to comply with such requirements.
Under current Federal tax law, it is unclear as to the circumstances under
which You, because of the degree of control You exercise over the underlying
investments, and not Us would be considered the Owner of the shares of the
Investment Options. If You are considered the Owner of the investments, it will
result in the loss of the favorable tax treatment for the Policy. It is unknown
to what extent Owners are permitted to select Investment Options, to make
transfers among the Investment Options or the number and type of Investment
Options Owners may select from. If guidance from the Internal Revenue Service is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean that You, as the
Owner of the Policy, could be treated as the Owner of the investment portfolios.
Due to the uncertainty in this area, BMA reserves the right to modify the Policy
in an attempt to maintain favorable tax treatment.
7. ACCESS TO YOUR MONEY
LOANS
We will loan You money while the Policy is in force and not in a Grace
Period, with the Policy as the sole security. We will advance a loan amount not
to exceed the loan value. The loan must be secured by proper assignment of the
Policy. We may defer granting loans but not for more than six months.
The Accumulation Value securing the loan is transferred to the Loan Account
on a pro-rata basis. The amount transferred from each Investment Option and the
Fixed Account will equal the ratio of the value
28
<PAGE>
each bears to the total unloaned Accumulation Value. If You desire other than
the above, You may specify the specific Investment Option from which the
transfer is to be made.
Any Indebtedness will be deducted from any amount payable under the Policy.
No new loan may be taken which, in combination with existing loans and
accrued interest, is greater than the Loan Value.
EFFECT OF A LOAN. A Policy loan will result in Accumulation Value being
transferred from the Investment Options or the Fixed Account to the Loan
Account. A Policy Loan, whether or not unpaid, will have a permanent effect on
the death benefits and Policy values, because the amount of the Policy Loan
transferred to the Loan Account will not share in the investment results of the
Investment Options while the Policy Loan is outstanding. If the Loan Account
earnings rate is less than the investment performance of the selected Investment
Options and/or the Fixed Account, the values and benefits under the Policy will
be reduced (and the Policy may even lapse) as a result of the Policy Loan.
Furthermore, if not repaid, the Policy Loan will reduce the amount of Death
Benefit and Cash Surrender Value.
LOAN VALUE. The loan value is equal to 90% of the Accumulation Value as of
the date the Authorized Request for the loan is received at the BMA Service
Center less: (a) an amount equal to the Surrender Charge, if any, that applies
if the Policy is surrendered in full; (b) any existing Indebtedness; (c)
interest on all Indebtedness on the Policy to the next Policy Anniversary; and
(d) prior to the ninth Policy Month, an amount equal to the balance of the
Monthly Deductions for the first Policy Year; or (e) on or after the ninth
Policy Month, an amount equal to the sum of the next three Monthly Deductions.
LOAN INTEREST (CHARGED). Interest is payable in advance on the first
interest payment due date and on each Policy Anniversary that follows at the
loan interest rate which is shown on Your Policy Schedule. The interest rate
applies to the unpaid balance of the loan. The first interest payment is due on
the date of the loan.
If loan interest is not paid, the difference between the value of the Loan
Account and the Indebtedness will be transferred from the Investment Options and
the Fixed Account on a pro-rata basis to the Loan Account.
INTEREST CREDITED. The Accumulation Value in the Loan Account will earn
interest at a rate not less than 4%. For Policy Years 11 and after, the
Accumulation Value in the Loan Account will earn interest at the Loan Interest
Rate.
LOAN REPAYMENT. Loans may be repaid at any time while the Policy is in
force. There is no minimum loan repayment amount. The amount equivalent to a
loan repayment will be deducted from the Loan Account and allocated to the
originating Investment Options and the Fixed Account in the same percentage as
was used for the transfers to the Loan Account.
AMOUNTS RECEIVED BY US WILL BE APPLIED AS PREMIUMS UNLESS WE ARE OTHERWISE
INSTRUCTED TO APPLY SUCH AMOUNTS AS REPAYMENT OF THE LOAN.
TERMINATION FOR MAXIMUM INDEBTEDNESS. The Policy will terminate when
Indebtedness equals or exceeds the Accumulation Value less the Surrender Charge,
if any, that applies if the Policy is surrendered in full. Termination will be
effective 61 days after We send notice of the termination to Your last known
address and the last known address of any assignee of record. A termination of
the Policy may have Federal income tax consequences. (See Part II--Federal Tax
Status--Tax Treatment of Loans and Surrenders).
29
<PAGE>
SURRENDERS
TOTAL SURRENDER. You may terminate the Policy at any time by submitting an
Authorized Request to the BMA Service Center. We will pay the Cash Surrender
Value to You as of the Business Day the Authorized Request is received in good
order and Our liability under the Policy will cease. A Surrender Charge may be
assessed.
PARTIAL SURRENDER. After the first Policy Year, You may surrender a part of
the Cash Surrender Value by submitting an Authorized Request to the BMA Service
Center. All partial surrenders are subject to the following:
1. a partial surrender must be for at least $250.
2. unless You specify otherwise, the partial surrender will be deducted on
a pro-rata basis from the Fixed Account and the Investment Options; the
Surrender Charge and the Partial Surrender Charge are also deducted from
the Accumulation Value; You may specify if a different allocation method
is to be used; however the proportion to be taken from the Fixed Account
may never be greater than the Fixed Account's proportion of the total
unloaned Accumulation Value.
3. You cannot replace the surrendered Cash Surrender Value.
4. upon a partial surrender, the Specified Amount may be reduced if the
Level Death Benefit Option is in effect. The Specified Amount will not be
reduced if the Adjustable Death Benefit Option is in effect. The
Specified Amount will be reduced by the amount of the partial surrender
if the Policy is not in corridor. (A Policy is in corridor if the
Accumulation Value exceeds certain specified percentages as set forth in
the Internal Revenue Code.)
5. a partial surrender is allowed twice each Policy Year and will be
limited to such amounts so that the partial surrender will not reduce the
Specified Amount below the Minimum Specified Amount, or reduce the
remaining Cash Surrender Value below $500.
6. a pro-rata portion of the Surrender Charge is assessed for any amount by
which the Specified Amount is reduced. A Partial Surrender Fee also
applies.
8. OTHER INFORMATION
BMA
Business Men's Assurance Company of America ("BMA" or the "Company"), BMA
Tower, 700 Karnes Blvd., Kansas City, Missouri 64108 was incorporated in 1909
under the laws of the state of Missouri. BMA is licensed to do business in the
District of Columbia, Puerto Rico and all states except New York. BMA operates
as a reinsurer in the state of New York. BMA is a wholly owned subsidiary of
Assicurazioni Generali S.p.A., which is the largest insurance organization in
Italy.
YEAR 2000
Some of BMA's computer systems were written using two digits rather than
four to define the applicable year. As a result, those computer systems will not
recognize the year 2000 which, if not corrected, could cause disruptions of
operations, including, among other things, an inability to process transactions
or engage in similar normal business activities.
BMA has developed a plan to modify its information technology to be ready
for the year 2000 and has begun converting critical data processing systems. BMA
currently expects the project to be substantially complete by late 1998 which is
prior to any anticipated impact on its operating systems. Based on this plan,
BMA does not believe that the costs to complete such system modifications or
replacement will be material to BMA.
30
<PAGE>
THE SEPARATE ACCOUNT
We have established a separate account, BMA Variable Life Account A
(Separate Account), to hold the assets that underlie the Policies.
The assets of the Separate Account are being held in Our name on behalf of
the Separate Account and legally belong to Us. However, those assets that
underlie the Policies, are not chargeable with liabilities arising out of any
other business We may conduct. All the income, gains and losses (realized and
unrealized) resulting from those assets are credited to or charged against the
Policies and not against any other Policies We may issue.
DISTRIBUTORS
Jones & Babson, Inc., 700 Karnes Boulevard, Kansas City, Missouri 64108 and
Conseco Equity Sales, Inc., 11815 N. Pennsylvania Street, Carmel, Indiana 46032
act as the co-distributors of the Policies. Jones & Babson, Inc. and Conseco
Equity Sales, Inc. will each distribute the Policy in different markets through
their own distribution systems. Jones & Babson, Inc. was organized under the
laws of the state of Missouri on February 23, 1959. Conseco Equity Sales, Inc.
was organized under the laws of the state of Texas on July 12, 1965. Jones &
Babson, Inc., and Conseco Equity Sales, Inc. are both members of the National
Association of Securities Dealers, Inc. Jones & Babson, Inc. is a wholly owned
subsidiary of BMA. Conseco Equity Sales, Inc. is not affiliated with BMA.
The Policy will be sold by individuals who, in addition to being licensed as
life insurance agents for BMA, are also National Association of Securities
Dealers (NASD) registered representatives. These persons will receive
compensation for this sale.
ADMINISTRATION
We have hired NAVISYS (formerly GENELCO, Incorporated), 9735 Landmark
Parkway Drive, St. Louis, Missouri to perform certain administrative services
regarding the Policies. The administrative services include issuance of the
Policy and maintenance of Policy records. Claims are handled jointly between BMA
and NAVISYS.
SUSPENSION OF PAYMENTS OR TRANSFERS
We may be required to suspend or postpone any payments or transfers for any
period when:
1. the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
Investment Options is not reasonably practicable or BMA cannot reasonably
value the shares of the Investment Options;
4. during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of owners.
We may defer the portion of any transfer, amount payable or surrender, or
Policy Loan from the Fixed Account for not more than six months.
OWNERSHIP
OWNER. You, as the Owner of the Policy, have all of the rights under the
Policy. If You die while the Policy is still in force and the Primary Insured is
living, ownership passes to a successor Owner or if none, then Your estate
becomes the Owner.
31
<PAGE>
JOINT OWNER. The Policy can be owned by Joint Owners. Authorization of both
Joint Owners is required for all Policy changes except for telephone transfers.
BENEFICIARY. The Beneficiary is the person(s) or entity You name to receive
any Death Proceeds. The Beneficiary is named at the time the Policy is issued
unless changed at a later date. Unless an irrevocable Beneficiary has been
named, You can change the Beneficiary at any time before the insured dies. If
there is an irrevocable Beneficiary, all Policy changes except Premium
allocations and transfers require the consent of the Beneficiary.
ASSIGNMENT. You can assign the Policy.
PART II
EXECUTIVE OFFICERS AND DIRECTORS OF BMA
The directors and executive officers of BMA and their business experience
for the past five years are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR AND
BUSINESS ADDRESS * BUSINESS EXPERIENCE FOR THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Giorgio Balzer Director, Chairman of the Board and Chief Executive Officer of BMA; U.S.
Representative--Generali--US Branch.
Robert Thomas Rakich Director, President and Chief Operating Officer of BMA from 1995 to
present; President and Chief Executive Officer, Laurentian Capital
Corp., 1988 to October, 1995.
Dennis Keith Cisler Senior Vice President--Information Systems of BMA from 1991--present.
David Lee Higley Senior Vice President and Chief Financial Officer of BMA from
1989--present.
Stephen Stanley Soden Senior Vice President--Financial Group from 1994 to present; President &
Executive Vice President from 1985 to 1996, BMA Financial Services, Inc.
Michael Kent Deardorff Vice President--BMA Financial Group Marketing from 1996-- present; Vice
President Annuity from 1994 to 1996; Vice President--Advance Markets
from 1990 to 1994.
James Evan Kilmer Vice President of BMA--Taxes.
Edward Scott Ritter Senior Vice President--Corporate Development of BMA from 1998 to
present; Vice President from 1990 to 1998.
David Allen Gates Vice President and General Counsel of BMA from 1998 to present;
Regulatory Affairs Vice President from 1991 to 1998.
Martin Jefferson Fuller Senior Vice President--Insurance Distribution of BMA from 1996 to
present; Vice President--Sales Employee Benefits Division from 1993 to
1996.
Robert Noel Sawyer Director since 1997, Senior Vice President and Chief Investment Officer
of BMA from 1990 to present.
Vernon Wirt Voorhees II Director since 1995, Senior Vice President--Corporate Services and
Secretary of BMA 1990 to present; Senior Vice President-- Finance
1983-1990.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR AND
BUSINESS ADDRESS * BUSINESS EXPERIENCE FOR THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Margaret Mary Heidkamp Vice President--Operations, Variable and Accumulation Products of BMA
from 1998 to present; Vice President, Management Services from 1986 to
1998.
Jay Brian Kinnamon Vice President and Corporate Actuary of BMA from 1991 to present.
Susan Annette Sweeney Vice President--Treasurer & Controller of BMA from 1995 to present;
Chief Financial Officer--Dean Machinery 1995; Manager of
Finance--Jackson County, Missouri from 1991 to 1995.
Gerald Wayne Selig Vice President and Actuary--Accumulation Products of BMA from 1998 to
present; Actuary--Accumulation Products from 1996 to 1998;
Actuary--Qualified Plan Services from 1989 to 1996.
Thomas Morton Bloch Director of BMA since 1993; Teacher, St. Francis Xavier School from
August 1995 to present; President and Chief Executive Officer--H & R
Block, Inc. until 1995.
Gianguido Castagno Director of BMA since 1990; Vice President--Head of Valuations
Department--Assicurazioni Generali, S.p.A., Trieste, Italy; Vice
President--Head of Corporate Operations Control Department to December
1997--Assicurazioni Generali.
William Thomas Grant II Director of BMA since 1990; President and Chief Executive Officer,
Chairman of the Board--LabOne, from 1997 to present; Chairman and Chief
Executive Officer Seafield Capital Corporation from 1993 to 1997.
Donald Joyce Hall, Jr. Director of BMA since 1990; Hallmark Vice President-- Creative--Hallmark
Cards, Inc.; Hallmark Vice President-- Product Development--Hallmark;
Hallmark Vice President-- Creative--Hallmark; General
Manager--Keepsakes--Hallmark; Executive Assistant to Executive Vice
President--Hallmark; Director, Specialty Store Development--Hallmark.
Allan Drue Jennings Director of BMA since 1990; Chairman of the Board, President and Chief
Executive Officer--Kansas City Power & Light Company.
David Woods Kemper Director of BMA since 1991; Chairman of the Board, President and Chief
Executive Officer--Commerce Bancshares, Inc.
Giorgio Liveris Director of BMA since 1992; Head of Life Branch-- Assicurazioni
Generali, S.p.A., Trieste, Italy.
John Kessander Lundberg Director of BMA since 1990; Retired.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH DEPOSITOR AND
BUSINESS ADDRESS * BUSINESS EXPERIENCE FOR THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
John Pierre Mascotte Director of BMA since 1990; President and Chief Executive Officer--Blue
Cross Blue Shield of Kansas City, Chairman-- Johnson & Higgins of
Missouri, Inc.; Chairman and Chief Executive Officer--The Continental
Corporation.
Giovanni Perissinotto Director of BMA since 1990; Manager of the Accounting and Investment
Department--Assicurazioni Generali, S.p.A., Trieste, Italy; General
Manager--Assicurazioni Generali--1997; Deputy General Manager,
Assicurazioni Generali--1996; Manager of the Accounting and Investment
Department--Assicurazioni Generali--1995; Joint Manager of the
Accounting and Investment Department--Assicurazioni Generali--1993.
</TABLE>
- ------------------------
* Principal business address is BMA Tower, 700 Karnes Blvd., Kansas City,
Missouri 64108-3306.
OFFICERS AND DIRECTORS OF JONES & BABSON, INC.
As of July 31, 1998, the following are the officers and directors of Jones &
Babson, Inc. and their position with Jones & Babson, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS * POSITION WITH JONES & BABSON, INC.
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Larry D. Armel President, Director and Chief Executive Officer
P. Bradley Adams Vice President, Chief Financial Officer and Treasurer
Michael A. Brummel Vice President, Assistant Secretary and Assistant Treasurer
Martin A. Cramer Vice President and Secretary
John G. Dyer Assistant Secretary and Legal Counsel
Constance B. Martin Assistant Vice President
Rui M. Moura Vice President
Stephen S. Soden Chairman of the Board and Director
Giorgio Balzer Director
Robert T. Rakich Director
Edward S. Ritter Director
Robert N. Sawyer Director
Vernon W. Voorhees II Director
</TABLE>
- ------------------------
* Principal business address is 700 Karnes Boulevard, Kansas City, Missouri
64108-3306.
34
<PAGE>
OFFICERS AND DIRECTORS OF CONSECO EQUITY SALES, INC.
As of July 31, 1998, the following are the officers and directors of Conseco
Equity Sales, Inc. and their position with Conseco Equity Sales, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS * POSITION WITH CONSECO EQUITY SALES, INC.
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
L. Gregory Gloeckner President and Director
William P. Latimer Vice President, Senior Counsel, Secretary and Director
James S. Adams Senior Vice President, Treasurer and Director
William T. Devanney, Jr. Senior Vice President, Corporate Taxes
Christene H. Darnell Vice President, Management Reporting
Lisa M. Zimmerman Assistant Vice President, Corporate Taxes
Christine E. Monical Second Vice President and Assistant General Counsel
</TABLE>
- ------------------------
* Principal business address is 11815 N. Pennsylvania Street, Carmel, Indiana
46032.
VOTING
In accordance with Our view of present applicable law, We will vote the
shares of the Investment Options at special meetings of shareholders in
accordance with instructions received from Owners having a voting interest. We
will vote shares for which We have not received instructions in the same
proportion as We vote shares for which We have received instructions. We will
vote shares We own in the same proportion as We vote shares for which We have
received instructions. The funds do not hold regular meetings of shareholders.
If the Investment Company Act of 1940 or any regulation thereunder should be
amended or if the present interpretation thereof should change, and as a result
We determine that it is permitted to vote the shares of the funds in Our own
right, We may elect to do so.
The voting interests of the Owner in the funds will be determined as
follows: Owners may cast one vote for each $100 of Accumulation Value of a
Policy which is allocated to an Investment Option on the record date. Fractional
votes are counted.
The number of shares which a person has a right to vote will be determined
as of the date to be chosen by Us not more than sixty (60) days prior to the
meeting of the fund. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting.
Each Owner having such a voting interest will receive periodic reports
relating to the Investment Options in which he or she has an interest, proxy
material and a form with which to give such voting instructions.
DISREGARD OF VOTING INSTRUCTIONS. We may, when required to do so by state
insurance authorities, vote shares of the funds without regard to instructions
from Owners if such instructions would require the shares to be voted to cause
an Investment Option to make, or refrain from making, investments which would
result in changes in the sub-classification or investment objectives of the
Investment Option. We may also disapprove changes in the investment policy
initiated by Owners or trustees of the funds, if such disapproval is reasonable
and is based on a good faith determination by Us that the change would violate
state or federal law or the change would not be consistent with the investment
objectives of the Investment Options or which varies from the general quality
and nature of investments and investment techniques used by other funds with
similar investment objectives underlying other variable contracts offered by Us
or of an affiliated company. In the event We do disregard voting instructions, a
summary of this action and the reasons for such action will be included in the
next semi-annual report to Owners.
35
<PAGE>
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice
on certain matters relating to the Federal securities and income tax laws in
connection with the Policies.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE
The amount of the Surrender Charge on the Policies may be reduced or
eliminated when sales of the Policies are made to individuals or to a group of
individuals in a manner that results in savings of sales expenses. The
entitlement to a reduction of the Surrender Charge will be determined by Us
after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than for a
smaller group because of the ability to implement large numbers of Policies with
fewer sales contacts.
2. The total amount of Premiums to be received will be considered. Per
Policy sales expenses are likely to be less on larger Premium payments than on
smaller ones.
3. Any prior or existing relationship with Us will be considered. Per
Policy sales expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Policy with fewer
sales contacts.
4. There may be other circumstances, of which We are not presently aware,
which could result in reduced sales expenses.
If, after consideration of the foregoing factors, We determine that there
will be a reduction in sales expenses, We may provide for a reduction or
elimination of the Surrender Charge.
The Surrender Charge may be eliminated when the Policies are issued to an
officer, director or employee of BMA or any of Our affiliates. In no event will
any reduction or elimination of the Surrender Charge be permitted where the
reduction or elimination will be unfairly discriminatory to any person.
NET AMOUNT AT RISK
LEVEL DEATH BENEFIT. For the Level Death Benefit Option, the Net Amount at
Risk is the greater of:
1. the Specified Amount divided by 1.0032737 less the Accumulation Value;
and
2. the Accumulation Value times the applicable Minimum Death Benefit
Corridor Percentage (shown in Part I Section 5 Death Benefit) divided by
1.0032737, less the Accumulation Value.
ADJUSTABLE DEATH BENEFIT OPTION. For the Adjustable Death Benefit Option,
the Net Amount at Risk is the greater of:
1. the Specified Amount plus the Accumulation Value divided by 1.0032737,
less the Accumulation Value, and
2. the Accumulation Value times the applicable Minimum Death Benefit
Corridor Percentage divided by 1.0032737, less the Accumulation Value.
MATURITY DATE
The Policy provides that We will pay the Accumulation Value of the Policy,
less Indebtedness, to You on the Maturity Date if the Primary Insured is then
living. Unless an extension is requested, the Maturity Date will be the Policy
Anniversary Date nearest the Primary Insured's 100th birthday.
At any time within the twelve calendar months prior to the Maturity Date,
You may request that the Maturity Date be extended through the Extension of
Maturity Date Rider. If We received Your written
36
<PAGE>
request prior to the Maturity Date and all past due Monthly Deductions have been
paid, the Policy will continue in force beyond the Maturity Date until the
earlier of the death of the Primary Insured or the date that We receive Your
request to surrender the Policy.
No rider will be extended past the original Policy Maturity Date.
Once the Maturity Date extension is in place, the Death Benefit will be the
Accumulation Value, less any Indebtedness. The Monthly Deduction will no longer
be deducted and no new Premiums will be accepted. Interest or loans, if any,
will continue to accrue and will be added to the total Indebtedness.
Loan repayments will be accepted.
There is no charge for this rider.
MISSTATEMENT OF AGE OR SEX
The age of the Primary Insured is the Age nearest the Primary Insured's
birthday on the Policy Date or Policy Anniversary, determined from the date of
birth shown in the application. If the date of birth or sex shown on the Policy
Schedule is not correct, the Death Benefit will be adjusted to that which would
be purchased by the most recent cost of insurance charge at the correct date of
birth and sex.
OUR RIGHT TO CONTEST
We cannot contest the validity of the Policy except in the case of fraud
after it has been in effect during the Primary Insured's lifetime for two years
from the Policy Date. If the Policy is reinstated, the two-year period is
measured from the date of reinstatement. In addition, if the Primary Insured
commits suicide in the two-year period, or such period as specified in state
law, the benefit payable will be limited to Premiums paid less loans and less
any surrenders.
PAYMENT OPTIONS
The Death Proceeds may be paid in a lump sum or may be applied to one of the
following Payment Options:
Option 1--Life Annuity
Option 2--Life Annuity with 120 or 240 Monthly Annuity Payments Guaranteed
Option 3--Joint and Last Survivor Annuity
Option 4-- Joint and Last Survivor Annuity with 120 or 240 Monthly Annuity
Payments Guaranteed.
You or the Beneficiary can select to have the Payment Options payable on
either a fixed or variable basis.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON BMA'S UNDERSTANDING OF CURRENT
FEDERAL INCOME TAX LAW APPLICABLE TO LIFE INSURANCE IN GENERAL. BMA CANNOT
PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE. PURCHASERS
ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY OF SUCH
CHANGES. SECTION 7702 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"),
DEFINES THE TERM "LIFE INSURANCE CONTRACT" FOR PURPOSES OF THE CODE. BMA
BELIEVES THAT THE POLICIES TO BE ISSUED WILL QUALIFY AS "LIFE INSURANCE
CONTRACTS" UNDER SECTION 7702. BMA DOES NOT GUARANTEE THE TAX STATUS OF THE
POLICIES. PURCHASERS BEAR THE COMPLETE RISK THAT THE POLICIES MAY NOT BE TREATED
AS "LIFE INSURANCE" UNDER FEDERAL INCOME TAX LAWS. PURCHASERS SHOULD CONSULT
THEIR OWN TAX ADVISERS.
37
<PAGE>
IT SHOULD BE FURTHER UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE
AND THAT SPECIAL RULES NOT DESCRIBED IN THIS PROSPECTUS MAY BE APPLICABLE IN
CERTAIN SITUATIONS.
INTRODUCTION. The discussion contained herein is general in nature and is
not intended as tax advice. Each person concerned should consult a competent tax
adviser. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion herein is based upon Our understanding of current
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of those current Federal income
tax laws or of the current interpretations by the Internal Revenue Service.
BMA is taxed as a life insurance company under the Code. For Federal income
tax purposes, the Separate Account is not a separate entity from BMA and its
operations form a part of BMA.
DIVERSIFICATION. Section 817(h) of the Code imposes certain diversification
standards on the underlying assets of variable life insurance policies. The Code
provides that a variable life insurance policy will not be treated as life
insurance for any period (and any subsequent period) for which the investments
are not, in accordance with regulations prescribed by the United States Treasury
Department ("Treasury Department"), adequately diversified. Disqualification of
the Policy as a life insurance contract would result in imposition of federal
income tax to the Owner with respect to earnings allocable to the Policy prior
to the receipt of payments under the Policy. The Code contains a safe harbor
provision which provides that life insurance policies such as these Policies
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than fifty-five (55%) percent of the total assets consist of
cash, cash items, U.S. Government securities and securities of other regulated
investment companies. There is an exception for securities issued by the U.S.
Treasury in connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
Section 1.817-5), which established diversification requirements for the
investment portfolios underlying variable contracts such as the Policies. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (i) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (ii) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (iii) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (iv) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these Regulations, all securities of the same
issuer are treated as a single investment.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer".
BMA intends that each Investment Option underlying the Policies will be
managed by the managers in such a manner as to comply with these diversification
requirements.
The Treasury Department has indicated that the diversification Regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
the Owner of the assets of the Separate Account, thereby resulting in the loss
of favorable tax treatment for the Policy. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Policy is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
Owner was not the Owner of the assets of the separate account. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type
38
<PAGE>
of investment choices available, would cause the Owner to be considered as the
Owner of the assets of the Separate Account.
In the event any forthcoming guidance or ruling is considered to set forth a
new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Owner
being retroactively determined to be the Owner of the assets of the Separate
Account.
Due to the uncertainty in this area, BMA reserves the right to modify the
Policy in an attempt to maintain favorable tax treatment.
TAX TREATMENT OF THE POLICY. The Policy has been designed to comply with
the definition of life insurance contained in Section 7702 of the Code. Although
some interim guidance has been provided and proposed regulations have been
issued, final regulations have not been adopted. Section 7702 of the Code
requires the use of reasonable mortality and other expense charges. In
establishing these charges, BMA has relied on the interim guidance provided in
IRS Notice 88-128 and proposed regulations issued on July 5, 1991. Currently,
there is even less guidance as to a Policy issued on a substandard risk basis
and thus it is even less clear whether a Policy issued on such basis would meet
the requirements of Section 7702 of the Code.
While BMA has attempted to comply with Section 7702, the law in this area is
very complex and unclear. There is a risk, therefore, that the Internal Revenue
Service will not concur with BMA's interpretations of Section 7702 that were
made in determining such compliance. In the event the Policy is determined not
to so comply, it would not qualify for the favorable tax treatment usually
accorded life insurance policies. Owners should consult their tax advisers with
respect to the tax consequences of purchasing the Policy.
POLICY PROCEEDS. The tax treatment accorded to loan proceeds and/or
surrender payments from the Policies will depend on whether the Policy is
considered to be a MEC. (See "Tax Treatment of Loans and Surrenders.")
Otherwise, BMA believes that the Policy should receive the same federal income
tax treatment as any other type of life insurance. As such, the death benefit
thereunder is excludable from the gross income of the Beneficiary under Section
101(a) of the Code. Also, the Owner is not deemed to be in constructive receipt
of the Cash Surrender Value, including increments thereon, under a Policy until
there is a distribution of such amounts.
Federal, state and local estate, inheritance and other tax consequences of
ownership, or receipt of Policy proceeds, depend on the circumstances of each
Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS. Section 7702A of the Code sets forth
the rules for determining when a life insurance policy will be deemed to be a
MEC. A MEC is a contract which is entered into or materially changed on or after
June 21, 1988 and fails to meet the 7-pay test. A Policy fails to meet the 7-pay
test when the cumulative amount paid under the Policy at any time during the
first 7 Policy Years exceeds the sum of the net level premiums which would have
been paid on or before such time if the Policy provided for paid-up future
benefits after the payment of seven (7) level annual premiums. A material change
would include any increase in the future benefits or addition of qualified
additional benefits provided under a policy unless the increase is attributable
to: (1) the payment of premiums necessary to fund the lowest death benefit and
qualified additional benefits payable in the first seven policy years; or (2)
the crediting of interest or other earnings (including policyholder dividends)
with respect to such premiums.
Furthermore, any Policy received in exchange for a Policy classified as a
MEC will be treated as a MEC regardless of whether it meets the 7-pay test.
However, an exchange under Section 1035 of the Code of a life insurance policy
entered into before June 21, 1988 for the Policy will not cause the Policy to be
treated as a MEC if no additional premiums are paid.
39
<PAGE>
Due to the flexible premium nature of the Policy, the determination of
whether it qualifies for treatment as a MEC depends on the individual
circumstances of each Policy.
If the Policy is classified as a MEC, then surrenders and/or loan proceeds
are taxable to the extent of income in the Policy. Such distributions are deemed
to be on a last-in, first-out basis, which means the taxable income is
distributed first. Loan proceeds and/or surrender payments may also be subject
to an additional 10% federal income tax penalty applied to the income portion of
such distribution. The penalty shall not apply, however, to any distributions:
(1) made on or after the date on which the taxpayer reaches age 59 1/2; (2)
which is attributable to the taxpayer becoming disabled (within the meaning of
Section 72(m)(7) of the Code); or (3) which is part of a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of such taxpayer and his beneficiary.
If a Policy is not classified as a MEC, then any surrenders shall be treated
first as a recovery of the investment in the Policy which would not be received
as taxable income. However, if a distribution is the result of a reduction in
benefits under the Policy within the first fifteen years after the Policy is
issued in order to comply with Section 7702, such distribution will, under rules
set forth in Section 7702, be taxed as ordinary income to the extent of income
in the Policy.
Any loans from a Policy which is not classified as a MEC, will be treated as
indebtedness of the Owner and not a distribution. Upon complete surrender, if
the amount received plus loan indebtedness exceeds the total premiums paid that
are not treated as previously surrendered by the Owner, the excess generally
will be treated as ordinary income.
Personal interest payable on a loan under a Policy owned by an individual is
generally not deductible. Furthermore, no deduction will be allowed for interest
on loans under Policies covering the life of any employee or officer of the
taxpayer or any person financially interested in the business carried on by the
taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on Policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Owners should seek competent tax advice on the tax consequences of taking
loans, distributions, exchanging or surrendering any Policy.
MULTIPLE POLICIES. The Code further provides that multiple MEC that are
issued within a calendar year period to the same Owner by one company or its
affiliates are treated as one MEC for purposes of determining the taxable
portion of any loans or distributions. Such treatment may result in adverse tax
consequences including more rapid taxation of the loans or distributed amounts
from such combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one MEC in any calendar year period.
TAX TREATMENT OF ASSIGNMENTS. An assignment of a Policy or the change of
ownership of a Policy may be a taxable event. Owners should therefore consult
competent tax advisers should they wish to assign or change the Owner of their
Policies.
QUALIFIED PLANS. The Policies may be used in conjunction with certain
Qualified Plans. Because the rules governing such use are complex, a purchaser
should not do so until he has consulted a competent Qualified Plans consultant.
INCOME TAX WITHHOLDING. All distributions or the portion thereof which is
includible in gross income of the Owner are subject to federal income tax
withholding. However, the Owner in most cases may elect not to have taxes
withheld. The Owner may be required to pay penalties under the estimated tax
rules, if the Owner's withholding and estimated tax payments are insufficient.
40
<PAGE>
REPORTS TO OWNERS
We will at a minimum send to each Owner semi-annual and annual reports of
the Investment Options. Within 30 days after each Policy Anniversary, an annual
statement will be sent to each Owner. We may elect to send these more often. The
statement will show the current amount of Death Benefit payable under the
Policy, the current Accumulation Value, the current Cash Surrender Value,
current Loans and will show all transactions previously confirmed. The statement
will also show Premiums paid and all charges deducted during the Policy Year.
Confirmations will be mailed to Policy Owners within seven days of the
transaction of: (a) the receipt of Premium; (b) any transfer between Investment
Options; (c) any loan, interest repayment, or loan repayment; (d) any surrender;
(e) exercise of the free look privilege; and (f) payment of the Death Benefit
under the Policy. Upon request an Owner shall be entitled to a receipt of
Premium payment.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or the
Distributors are a party or to which the assets of the Separate Account are
subject. We are not involved in any litigation that is of material importance in
relation to its total assets or that relates to the Separate Account.
EXPERTS
The consolidated financial statements of Business Men's Assurance Company of
America at December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, have been audited by Ernst & Young LLP, 1200
Main Street, Kansas City, Missouri 64106, 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.
FINANCIAL STATEMENTS
There are no financial statements for the Separate Account because as of the
date of this prospectus it has not yet commenced operations.
41
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost--$1,200,870 in 1998 and $1,308,458 in 1997)..... $ 1,219,618 $1,326,018
Equity securities (cost--$53,381 in 1998 and $46,807 in 1997).................... 61,438 57,806
Mortgage loans on real estate, net of allowance for losses of $9,185 in 1998 and
$8,435 in 1997................................................................... 834,253 842,149
Policy loans....................................................................... 61,139 62,207
Short-term investments............................................................. 63,105 47,507
Other.............................................................................. 4,007 3,424
------------- ------------
Total investments.............................................................. 2,243,560 2,339,111
Cash................................................................................. 9,646 --
Accrued investment income............................................................ 17,863 18,520
Premium and other receivables........................................................ 11,852 10,606
Deferred policy acquisition costs.................................................... 121,145 125,065
Property, equipment and software..................................................... 16,527 16,753
Reinsurance recoverables:
Paid benefits...................................................................... 8,372 6,588
Benefits and claim reserves ceded.................................................. 76,798 72,000
Other assets......................................................................... 15,685 16,216
Assets held in separate accounts..................................................... 206,875 76,964
------------- ------------
Total assets..................................................................... $ 2,728,323 $2,681,823
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits:
Life and annuity................................................................... $ 1,244,302 $1,259,319
Health............................................................................. 88,909 87,883
Contract account balances............................................................ 626,768 699,244
Policy and contract claims........................................................... 62,653 58,381
Unearned revenues.................................................................... 13,311 11,284
Other policyholder funds............................................................. 15,111 14,286
Outstanding checks in excess of bank balances........................................ -- 2,669
Current income taxes payable......................................................... 3,291 2,158
Deferred income taxes................................................................ 14,539 12,244
Payable to affiliate................................................................. 505 799
Other liabilities.................................................................... 48,601 72,858
Liabilities related to separate accounts............................................. 206,875 76,964
------------- ------------
Total liabilities................................................................ 2,324,865 2,298,089
Commitments and contingencies........................................................ -- --
Stockholder's equity:
Preferred stock of $1 par value; authorized 3,000,000 shares, none issued and
outstanding...................................................................... -- --
Common stock of $1 par value; authorized 24,000,000 shares, 12,000,000 shares
issued and outstanding........................................................... 12,000 12,000
Paid-in capital.................................................................... 40,106 40,106
Net unrealized gains on securities................................................. 13,237 14,364
Retained earnings.................................................................. 338,115 317,264
------------- ------------
Total stockholder's equity....................................................... 403,458 383,734
------------- ------------
Total liabilities and stockholder's equity....................................... $ 2,728,323 $2,681,823
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to unaudited financial statements.
42
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Premiums:
Life and annuity...................................................................... $ 81,754 $ 75,405
Health................................................................................ 16,207 24,935
Other insurance considerations.......................................................... 19,525 19,064
Net investment income................................................................... 89,960 82,754
Realized gains, net..................................................................... 9,233 3,661
Other income............................................................................ 22,370 16,669
---------- ----------
Total revenues............................................................................ 239,049 222,488
Benefits and expenses:
Life and annuity benefits............................................................... 76,081 62,277
Health benefits......................................................................... 8,572 17,071
Increase in policy liabilities including interest credited to account balances.......... 46,780 49,828
Real estate expense, net................................................................ -- 819
Commissions............................................................................. 26,807 26,674
(Increase) decrease in deferred policy acquisition costs................................ 3,457 (1,814)
Taxes, licenses and fees................................................................ 2,061 2,593
Other operating costs and expenses...................................................... 44,500 41,949
---------- ----------
Total benefits and expenses............................................................... 208,258 199,397
---------- ----------
Earnings before taxes on income........................................................... 30,791 23,091
Income tax expense........................................................................ 9,940 8,303
---------- ----------
Net earnings.............................................................................. $ 20,851 $ 14,788
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited financial statements.
43
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Common stock:
Balance at beginning and end of year.................................................... $ 12,000 $ 12,000
Paid-in capital:
Balance at beginning of year............................................................ 40,106 40,106
Net unrealized gains on securities:
Balance at beginning of year:........................................................... 14,364 3,686
Change in net unrealized gains........................................................ (1,127) (1,522)
---------- ----------
Balance at end of period................................................................ 13,237 2,164
Retained earnings:
Balance at beginning of year:........................................................... 317,264 281,075
Net earnings.......................................................................... 20,851 14,788
Dividends declared.................................................................... -- --
---------- ----------
Balance at end of period................................................................ 338,115 295,863
---------- ----------
Total stockholder's equity................................................................ $ 403,458 $ 350,133
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited financial statements.
44
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings............................................................................ $ 20,851 $ 14,788
Adjustments to reconcile net earnings to net cash provided by operating activities:
Deferred income tax................................................................... 2,870 4,301
Realized gains, net................................................................... (9,233) (3,661)
Premium amortization (discount accretion), net........................................ (560) (514)
Policy loans lapsed in lieu of surrender benefits..................................... 1,826 2,352
Depreciation.......................................................................... 1,404 1,850
Amortization.......................................................................... 391 391
Changes in assets and liabilities:
(Increase) decrease in accrued investment income.................................... 657 (818)
Increase in receivables and reinsurance recoverables................................ (8,122) (5,912)
Policy acquisition costs deferred................................................... (11,508) (14,625)
Deferred policy acquisition costs amortized......................................... 14,964 12,811
(Increase) decrease in income taxes recoverable..................................... 1,110 (2,510)
Increase in accrued policy benefits, claim reserves, unearned revenues and
policyholder funds................................................................ 20,870 13,808
Interest credited to policyholder accounts.......................................... 38,494 38,338
Increase in outstanding checks in excess of bank balances........................... (2,669) (2,922)
(Increase) decrease in other assets and other liabilities, net...................... (3,532) 634
Other, net............................................................................ (1,679) (806)
----------- -----------
Net cash provided by operating activities............................................... 66,134 57,505
INVESTING ACTIVITIES
Purchases of investments:
Securities available-for-sale:
Fixed Maturities.................................................................... (257,275) (259,428)
Equity.............................................................................. (20,416) (11,332)
Mortgage and policy loans............................................................. (129,592) (127,648)
Sales, calls or maturities of investments:
Maturities and calls of securities available-for-sale:
Fixed Maturities.................................................................... 143,873 88,020
Sales of securities available-for-sale:
Fixed Maturities.................................................................... 227,053 108,208
Equity.............................................................................. 16,967 7,514
Mortgage and policy loans............................................................. 137,924 49,999
Real estate........................................................................... -- 1,544
Purchase of property, equipment and software............................................ (560) (858)
Net (increase) decrease in short-term investments....................................... (15,598) 7,348
Distributions from unconsolidated related parties....................................... 653 983
----------- -----------
Net cash provided (used) in investing activities........................................ 103,029 (135,650)
</TABLE>
45
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30
----------------------
1998 1997
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds (disbursements) of interest sensitive and investment type contracts.......... $ (138,654) $ 78,145
Net proceeds from reverse repurchase borrowing............................................ -- 20,031
Retirement of reverse repurchase borrowing................................................ (20,863) (20,031)
----------- ---------
Net cash provided (used) by financing activities.......................................... (159,517) 78,145
----------- ---------
Net increase in cash...................................................................... 9,646 --
Cash at beginning of year................................................................. -- --
----------- ---------
Cash at end of period..................................................................... $ 9,646 $ --
----------- ---------
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the statements of cash flows, Business Men's Assurance Company of America
considers only cash on hand and demand deposits to be cash.
Cash paid (received) during the year for:
Income taxes............................................................................ $ 4,352 $ 5,579
Interest paid on reverse repurchase borrowing........................................... 299 370
----------- ---------
$ 4,651 $ 5,949
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to unaudited financial statements.
46
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. These Financial Statements are unaudited but, in management's opinion,
include all adjustments necessary for a fair presentation of the results.
2. These interim financial statements should be read in conjunction with the
Company's financial statements for the year ended December 31, 1997. The
results of operations for any interim period are not necessarily indicative
of the Company's operating results for a full year.
3. Certain amounts from the prior period's financial statements have been
reclassified to conform with the current period's presentation.
4. In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components. Comprehensive income includes all changes in equity during a
period except those due to owner investments and distributions. It includes
unrealized gains and losses on available-for-sale securities. This standard
does not change the display or components of net income; rather,
comprehensive income is displayed as a separate statement in the
Consolidated Statement of Comprehensive Income and as a component in the
Consolidated Balance Sheet, and the Consolidated Statement of Stockholders'
Equity.
Total comprehensive income amounted to $19,724,000 during the first six
months of 1998 and $13,266,000 during the first six months of 1997.
47
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................... 49
Audited Consolidated Financial Statements
Consolidated Balance Sheets.............................................................................. 50
Consolidated Statements of Operations.................................................................... 51
Consolidated Statements of Stockholder's Equity.......................................................... 52
Consolidated Statements of Cash Flows.................................................................... 53
Notes to Consolidated Financial Statements............................................................... 55
</TABLE>
48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Business Men's Assurance Company of America
We have audited the accompanying consolidated balance sheets of Business
Men's Assurance Company of America (an ultimate subsidiary of Assicurazioni
Generali, S.p.A.) (the Company) as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Business Men's Assurance Company of America at December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
By: /s/ ERNST & YOUNG LLP
-----------------------------------------
ERNST & YOUNG LLP
[GRAPHIC OMITTED]
Kansas City, Missouri
February 6, 1998
49
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments (Notes 1 and 3): Securities available-for-sale, at fair value:
Fixed maturities (amortized cost--$1,308,458 in 1997 and $1,286,888 in 1996).......... $ 1,326,018 $ 1,288,934
Equity securities (cost--$46,807 in 1997 and $28,644 in 1996)......................... 57,806 32,350
Mortgage loans on real estate, net of allowance for losses of $8,435 in 1997 and
$6,879 in 1996...................................................................... 842,149 704,356
Real estate (Note 1).................................................................. -- 5,498
Policy loans.......................................................................... 62,207 65,225
Short-term investments................................................................ 47,507 39,991
Other................................................................................. 3,424 3,830
----------- -----------
Total investments................................................................... 2,339,111 2,140,184
Accrued investment income............................................................... 18,520 18,539
Premium and other receivables........................................................... 10,606 11,817
Deferred policy acquisition costs....................................................... 125,065 131,025
Property, equipment and software (Note 6)............................................... 16,753 18,890
Reinsurance recoverables:
Paid benefits......................................................................... 6,588 3,948
Benefits and claim reserves ceded..................................................... 72,000 58,177
Other assets (Note 1)................................................................... 16,216 16,923
Assets held in separate accounts (Note 1)............................................... 76,964 --
----------- -----------
Total assets........................................................................ $ 2,681,823 $ 2,399,503
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Future policy benefits:
Life and annuity (Note 10)............................................................ $ 1,259,319 $ 1,192,497
Health................................................................................ 87,883 75,914
Contract account balances............................................................... 699,244 636,656
Policy and contract claims.............................................................. 58,381 58,617
Unearned revenues....................................................................... 11,284 13,813
Other policyholder funds................................................................ 14,286 15,429
Outstanding checks in excess of bank balances........................................... 2,669 4,673
Current income taxes payable (Note 7)................................................... 2,158 4,345
Deferred income taxes (Note 7).......................................................... 12,244 14,912
Payable to affiliate (Note 10).......................................................... 799 972
Other liabilities....................................................................... 72,858 44,808
Liabilities related to separate accounts (Note 1)....................................... 76,964 --
----------- -----------
Total liabilities................................................................... 2,298,089 2,062,636
Commitments and contingencies (Note 5)
Stockholder's equity (Notes 2 and 11):
Preferred stock of $1 par value; authorized 3,000,000 shares, none issued and
outstanding......................................................................... -- --
Common stock of $1 par value; authorized 24,000,000 shares, 12,000,000 shares issued
and outstanding..................................................................... 12,000 12,000
Paid-in capital....................................................................... 40,106 40,106
Net unrealized gains (losses) on securities........................................... 14,364 3,686
Retained earnings..................................................................... 317,264 281,075
----------- -----------
Total stockholder's equity.......................................................... 383,734 336,867
----------- -----------
Total liabilities and stockholder's equity.......................................... $ 2,681,823 $ 2,399,503
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
50
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums:
Life and annuity......................................................... $ 154,602 $ 142,461 $ 130,360
Health................................................................... 43,518 60,491 47,294
Other insurance considerations............................................. 37,928 38,780 37,183
Net investment income (Note 3)............................................. 167,346 145,629 124,605
Realized gains, net (Note 3)............................................... 5,121 5,906 4,290
Other income............................................................... 35,941 26,802 23,394
---------- ---------- ----------
Total revenues............................................................... 444,456 420,069 367,126
Benefits and expenses:
Life and annuity benefits.................................................. 126,345 122,915 111,734
Health benefits............................................................ 27,812 42,224 40,132
Increase in policy liabilities including interest credited to account
balances................................................................. 104,581 94,530 65,017
Real estate expense, net................................................... 932 551 649
Commissions................................................................ 53,622 55,180 54,176
Increase in deferred policy acquisition costs.............................. (1,229) (5,459) (16,366)
Taxes, licenses and fees................................................... 4,654 5,229 5,251
Other operating costs and expenses......................................... 89,018 76,647 82,604
---------- ---------- ----------
Total benefits and expenses.................................................. 405,735 391,817 343,197
---------- ---------- ----------
Earnings from continuing operations before income tax expense................ 38,721 28,252 23,929
Income tax expense (Note 7).................................................. 2,532 10,168 8,503
---------- ---------- ----------
Earnings from continuing operations.......................................... 36,189 18,084 15,426
Discontinued operations (Note 12):
Gain on sale of discontinued operations, net of income tax expense of $735
in 1996 and $3,352 in 1995............................................... -- 1,416 6,355
---------- ---------- ----------
Earnings from discontinued operations........................................ -- 1,416 6,355
---------- ---------- ----------
Net earnings................................................................. $ 36,189 $ 19,500 $ 21,781
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
51
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year....................................... $ 12,000 $ 12,000 $ 12,000
Paid-in capital:
Balance at beginning of year............................................... 40,106 25,106 25,106
Additional paid-in capital............................................... -- 15,000 --
---------- ---------- ----------
Balance at end of year..................................................... 40,106 40,106 25,106
Net unrealized gains (losses) on securities:
Balance at beginning of year............................................... 3,686 15,297 (28,865)
Change in net unrealized gains (losses).................................. 10,678 (11,611) 44,162
---------- ---------- ----------
Balance at end of year..................................................... 14,364 3,686 15,297
Retained earnings:
Balance at beginning of year............................................... 281,075 266,575 252,794
Net earnings............................................................. 36,189 19,500 21,781
Dividends declared (Note 2).............................................. -- (5,000) (8,000)
---------- ---------- ----------
Balance at end of year..................................................... 317,264 281,075 266,575
---------- ---------- ----------
Total stockholder's equity................................................... $ 383,734 $ 336,867 $ 318,978
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
52
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................................................... $ 36,189 $ 19,500 $ 21,781
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Deferred income tax (benefit)............................................ (8,416) 4,146 7,025
Realized gains, net...................................................... (5,121) (5,906) (4,290)
Gain on disposal of discontinued segment................................. -- (2,151) (7,417)
Discount accretion, net.................................................. (975) (1,246) (1,090)
Policy loans lapsed in lieu of surrender benefits........................ 1,021 2,996 3,201
Depreciation............................................................. 3,778 4,153 4,817
Amortization............................................................. 782 782 782
Changes in assets and liabilities:
(Increase) decrease in accrued investment income....................... 19 (1,392) (1,719)
(Increase) decrease in receivables and reinsurance recoverables........ (15,425) 2,761 (19,425)
Policy acquisition costs deferred...................................... (28,449) (31,745) (40,510)
Policy acquisition costs amortized..................................... 27,220 26,286 24,144
(Increase) decrease in income taxes recoverable........................ (2,187) 5,518 (4,546)
Increase in accrued policy benefits, claim reserves, unearned revenues
and policyholder funds............................................... 30,777 32,331 4,574
Interest credited to policyholder accounts............................. 79,312 69,494 56,358
Increase (decrease) in outstanding checks in excess of bank balances... (2,004) 805 3,868
Decrease in other assets and other liabilities, net.................... 7,269 412 1,133
Decrease in net asset of discontinued operations....................... -- -- 1,335
Other, net............................................................... (433) (1,208) (179)
----------- ----------- -----------
Net cash provided by operating activities.................................. 123,357 125,536 49,842
INVESTING ACTIVITIES
Purchases of investments:
Securities available-for-sale:
Fixed maturities....................................................... (464,419) (527,172) (592,373)
Equity securities...................................................... (31,625) (17,586) (12,537)
Mortgage and policy loans................................................ (237,990) (259,438) (159,521)
Other.................................................................... -- -- (269)
Sales, calls or maturities of investments:
Maturities and calls of securities available-for-sale:
Fixed maturities....................................................... 167,000 117,057 108,472
Equity securities...................................................... -- -- 2,031
Sales of securities available-for-sale:
Fixed maturities....................................................... 284,124 238,051 263,650
Equity securities...................................................... 14,379 12,444 6,223
Mortgage and policy loans................................................ 98,554 66,934 41,753
Real estate.............................................................. 5,854 2,194 502
Purchase of property, equipment and software............................... (1,949) (290) (2,659)
Net (increase) decrease in short-term investments.......................... (7,516) 36,272 13,264
Proceeds from sale of discontinued operations.............................. -- 632 5,426
Distributions from unconsolidated related parties.......................... 1,514 718 2
----------- ----------- -----------
Net cash used in investing activities...................................... (172,074) (330,184) (326,036)
</TABLE>
53
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Dividends paid............................................................. $ -- $ (5,000) $ (8,000)
Additional paid-in capital................................................. -- 15,000 --
Deposits from interest sensitive and investment type contracts............. 323,487 381,865 401,681
Withdrawals from interest sensitive and investment type contracts.......... (295,633) (187,217) (120,956)
Net proceeds from reverse repurchase borrowing............................. 40,925 35,173 --
Retirement of reverse repurchase borrowing................................. (20,062) (35,173) --
----------- ----------- -----------
Net cash provided by financing activities.................................. 48,717 204,648 272,725
----------- ----------- -----------
Net decrease in cash....................................................... -- -- (3,469)
Cash at beginning of year.................................................. -- -- 3,469
----------- ----------- -----------
----------- ----------- -----------
Cash at end of year........................................................ $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the statements of cash flows, Business Men's Assurance
Company of America considers only cash on hand and demand deposits to be
cash
Cash paid during the year for:
Income taxes............................................................. $ 13,135 $ 1,239 $ 9,376
----------- ----------- -----------
----------- ----------- -----------
Interest paid on reverse repurchase borrowing............................ $ 369 $ 620 $ --
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Real estate acquired through foreclosure................................... $ 1,236 $ 3,033 $ 5,156
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
54
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Business Men's Assurance Company of America (the Company) is a
Missouri-domiciled life insurance company licensed to sell insurance products in
49 states and the District of Columbia. The Company offers a diversified
portfolio of individual and group insurance and investment products both
directly, primarily distributed through general agencies, and through
reinsurance assumptions. Assicurazioni Generali S.p.A. (Generali), an Italian
insurer, is the ultimate parent company.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
INVESTMENTS
The Company's entire investment portfolio is designated as
available-for-sale. Changes in fair values of available-for-sale securities,
after adjustment of deferred policy acquisition costs (DPAC) and deferred income
taxes, are reported as unrealized gains or losses directly in stockholder's
equity and, accordingly, have no effect on net income. The DPAC offset to the
unrealized gains or losses represents valuation adjustments or reinstatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized.
The amortized cost of fixed maturity investments classified as
available-for-sale is adjusted for amortization of premiums and accretion of
discounts. That amortization or accretion is included in net investment income.
Mortgage loans and mortgage-backed securities are carried at unpaid balances
adjusted for accrual of discount and allowances for other than temporary decline
in value. Policy loans are carried at unpaid balances.
Real estate is stated at the lower of cost or fair value. At December 31,
1997, no real estate was owned; at December 31, 1996, real estate was carried
net of a valuation allowance of $2,344,000. Profit is recognized on real estate
sales when down payment, continuing investment and transfer of risk criteria
have been satisfied. Property, equipment and software, and the home office
building are generally valued at cost, including development costs, less
allowances for depreciation and other than temporary decline in value.
Property, equipment and software are being depreciated over the estimated
useful lives of the assets, principally on a straight-line basis. Depreciation
rates on these assets are set forth in Note 6.
Realized gains and losses on sales of investments and declines in value
considered to be other than temporary are recognized in net earnings on the
specific identification basis.
55
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
DEFERRED POLICY ACQUISITION COSTS
Certain commissions, expenses of the policy issue and underwriting
departments and other variable expenses have been deferred. For limited payment
and other traditional life insurance policies, these deferred acquisition costs
are being amortized over a period of not more than 25 years in proportion to the
ratio of the expected annual premium revenue to the expected total premium
revenue. Expected premium revenue was estimated with the same assumptions used
for computing liabilities for future policy benefits for these policies.
For universal life-type insurance and investment-type products, the deferred
policy acquisition costs are amortized over a period of not more than 25 years
in relation to the present value of estimated gross profits arising from
estimates of mortality, interest, expense and surrender experience. The
estimates of expected gross profits are evaluated regularly and are revised if
actual experience or other evidence indicates that revision is appropriate. Upon
revision, total amortization recorded to date is adjusted by a charge or credit
to current earnings.
Deferred policy acquisition costs are evaluated to determine that the
unamortized portion of such costs does not exceed recoverable amounts after
considering anticipated investment income.
RECOGNITION OF INSURANCE REVENUE AND RELATED EXPENSES
For limited payment and other traditional life insurance policies, premium
income is reported as earned when due with past-due premiums being reserved.
Profits are recognized over the life of these contracts by associating benefits
and expenses with insurance in force for limited payment policies and with
earned premiums for other traditional life policies. This association is
accomplished by a provision for liability for future policy benefits and the
amortization of policy acquisition costs. Accident and health premium revenue is
recognized on a pro rata basis over the terms of the policies.
For universal life and investment-type policies, contract charges for
mortality, surrender and expense, other than front-end expense charges, are
reported as other insurance considerations revenue when charged to
policyholders' accounts. Expenses consist primarily of benefit payments in
excess of policyholder account values and interest credited to policyholder
accounts. Profits are recognized over the life of universal life-type contracts
through the amortization of policy acquisition costs and deferred front-end
expense charges with estimated gross profits from mortality, interest, surrender
and expense.
POLICY LIABILITIES AND CONTRACT VALUES
The liability for future policy benefits for limited payment and other
traditional life insurance contracts has been computed primarily by a net level
premium reserve method based on estimates of
56
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future investment yield, mortality and withdrawals made at the time gross
premiums were calculated. Assumptions used in computing future policy benefits
are as follows: interest rates range from 3.25% to 8.50%, depending on the year
of issue; withdrawal rates for individual life policies issued in 1966 and after
are based on Company experience, and policies issued prior to 1966 are based on
industry tables; and mortality rates are based on mortality tables that consider
Company experience. The liability for future policy benefits is graded to
reserves stipulated by the policy over a period of 20 to 25 years or the end of
the premium paying period, if less.
For universal life and investment-type contracts, the account value before
deduction of any surrender charges is held as the policy liability. An
additional liability is established for deferred front-end expense charges on
universal life-type policies. These expense charges are recognized in income as
insurance considerations using the same assumptions as are used to amortize
deferred policy acquisition costs.
Claims and benefits payable for reported disability income claims have been
computed as the present value of expected future benefit payments based on
estimates of future investment yields and claim termination rates. The amount of
benefits payable included in the future policy benefit reserves and policy and
contract claims for December 31, 1997 and 1996 was $47,211,000 and $38,694,000,
respectively. Interest rates used in the calculation of future investment yields
vary based on the year the claim was incurred and range from 3% to 8.75%. Claim
termination rates are based on industry tables.
Other accident and health claims and benefits payable for reported claims
and incurred but not reported claims are estimated using prior experience. The
methods of calculating such estimates and establishing the related liabilities
are periodically reviewed and updated. Any adjustments needed as a result of
periodic reviews are reflected in current operations.
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided in the consolidated
financial statements to recognize temporary differences between the financial
reporting and tax bases of assets and liabilities measured using enacted tax
rates and laws (Note 7). Temporary differences are principally related to
deferred policy acquisition costs, the provision for future policy benefits,
accrual of discounts on investments, accelerated depreciation and unrealized
investment gains and losses.
SEPARATE ACCOUNTS
These accounts arise from two lines of business, variable annuities and MBIA
insured guaranteed investment contracts (GIC). The separate account assets are
legally segregated and are not subject to the claims which may arise from any
other business of the Company.
The assets and liabilities of the variable line of business are reported at
fair value since the underlying investment risks are assumed by the
policyowners. Investment income and gains or losses arising from the variable
line of business accrue directly to the policy owners and are, therefore, not
included in investment earnings in the accompanying consolidated statement of
operations. Revenues to the Company from variable products consist primarily of
contract maintenance charges and administration fees. Separate account assets
and liabilities for the variable line of business totaled $30,000 on December
31, 1997.
57
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The assets of the MBIA GIC line of business are maintained at an amount
equal to the related liabilities. These assets related to the MBIA GIC line of
business include securities available-for-sale reported at fair value and
mortgage loans carried at unpaid balances. Changes in fair values of available-
for-sale securities, net of deferred income taxes, are reported as unrealized
gains or losses directly in stockholders equity.
The liabilities are reported at the original deposit amount plus accrued
interest guaranteed to the contractholders. Investment income and gains or
losses arising from MBIA GIC investments are included in investment earnings in
the accompanying consolidated statement of operations. The guaranteed interest
payable is included in the increase in policy liabilities in the accompanying
consolidated statement of operations. Separate account assets and liabilities
for the MBIA GIC line of business totaled $76,934,000 on December 31, 1997.
INTANGIBLE ASSETS
Goodwill of $12,323,000, net of accumulated amortization of $3,325,000
resulting from the acquisition of a subsidiary, is included in other assets.
Goodwill is being amortized over a period of 20 years on a straight-line basis,
and amortization amounted to $782,000 for each of the years ended December 31,
1997, 1996 and 1995.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements.
58
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities (Note 3)...................... $ 1,326,018 $ 1,326,018 $ 1,288,934 $ 1,288,934
Equity securities (Note 3)..................... 57,806 57,806 32,350 32,350
Mortgage loans................................. 842,149 867,552 704,356 707,915
Policy loans................................... 62,207 57,491 65,225 60,735
Short-term investments......................... 47,507 47,507 39,991 39,991
Reinsurance recoverables:
Paid benefits................................ 6,588 6,588 3,948 3,948
Benefits and claim reserves.................. 72,000 72,000 58,177 58,177
Assets held in separate accounts............... 76,964 77,061 -- --
Mortgage loan commitments (Note 5)............. -- 74,469 -- 46,735
Investment-type insurance contracts (Note 4)... 1,277,362 1,256,129 1,097,821 1,078,326
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, by
discounting expected future cash flows using a current market rate applicable to
the yield, credit quality and maturity of the investments. The fair value for
equity securities is based on quoted market prices.
OFF-BALANCE-SHEET INSTRUMENTS: The fair value for outstanding loan
commitments approximates the amount committed, as all loan commitments were made
within the last 60 days of the year.
MORTGAGE LOANS AND POLICY LOANS: The fair value for mortgage loans and
policy loans is estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Loans with similar characteristics are aggregated for
purposes of the calculations. The carrying amount of accrued interest
approximates its fair value.
FLEXIBLE AND SINGLE PREMIUM DEFERRED ANNUITIES: The cash surrender value of
flexible and single premium deferred annuities approximates their fair value.
GUARANTEED INVESTMENT CONTRACTS: The fair value for the Company's
liabilities under guaranteed investment contracts is estimated using discounted
cash flow analyses, using interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
59
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPPLEMENTAL CONTRACTS WITHOUT LIFE CONTINGENCIES: The carrying amounts of
supplemental contracts without life contingencies approximate their fair values.
REINSURANCE RECOVERABLES: The carrying values of reinsurance recoverables
approximate their fair values.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company becomes a party to various
financial transactions to reduce its exposure to fluctuations in interest rates.
In 1997, the Company entered into interest rate swap contracts for the purpose
of converting the variable interest rate characteristics of certain investments
to fixed rates to match those of the related insurance liabilities (guaranteed
investment contracts) that the investments are supporting. The net interest
effect of such swap transactions is reported as an adjustment of interest income
as incurred. The notional amount of these contracts were $25,000,000 at December
31, 1997.
POSTRETIREMENT BENEFITS
The projected future cost of providing postretirement benefits, such as
health care and life insurance, is recognized as an expense as employees render
service. See Note 8 for further disclosures with respect to postretirement
benefits other than pensions.
IMPAIRMENT OF LOANS
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures," require that an impaired mortgage loan's fair value be
measured based on the present value of future cash flows discounted at the
loan's effective interest rate, at the loan's observable market price or at the
fair value of the collateral if the loan is collateral dependent. If the fair
value of a mortgage loan is less than the recorded investment in the loan, the
difference is recorded as an allowance for mortgage loan losses. The change in
the allowance for mortgage loan losses is reported with realized gains or losses
on investments. Interest income on impaired loans is recognized on a cash basis.
PENDING ACCOUNTING STANDARD
SFAS No. 130, "Reporting Comprehensive Income," will be adopted in 1998 and
will require disclosure of comprehensive income which includes the change in
unrealized investment gains and losses. The comprehensive income amount is
expected to be more volatile than net income.
RECLASSIFICATION
Certain amounts for 1996 and 1995 have been reclassified to conform to the
current year presentation.
60
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. DIVIDEND LIMITATIONS
Missouri has legislation that requires prior reporting of all dividends to
the Director of Insurance. The Company, as a regulated life insurance company,
may pay a dividend from unassigned surplus without the approval of the Missouri
Department of Insurance if the aggregate of all dividends paid during the
preceding 12-month period does not exceed the greater of 10% of statutory
stockholder's equity at the end of the preceding calendar year or the statutory
net gain from operations for the preceding calendar year. A portion of the
statutory equity of the Company that is available for dividends would be subject
to additional federal income taxes should distribution be made from
"policyholders' surplus" (see Note 7).
As of December 31, 1997 and 1996, the Company's statutory stockholder's
equity was $188,193,000 and $171,240,000, respectively. Statutory net gain from
operations and net income for each of the three years in the period ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1997 1996 1995
-------------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain from operations.......................... $ 18,545 $ 10,898 $ 8,309
Net income........................................ 14,540 10,381 9,418
</TABLE>
3. INVESTMENT OPERATIONS
The Company's investments in securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 67,406 $ 1,233 $ (46) $ 68,593
Obligations of states and political
subdivisions.................................. 36,053 1,472 (9) 37,516
Debt securities issued by foreign governments... 3,975 121 (126) 3,970
Corporate securities............................ 427,242 8,955 (2,004) 434,193
Mortgage-backed securities...................... 755,467 10,153 (2,330) 763,290
Redeemable preferred stocks..................... 18,315 206 (65) 18,456
---------- ---------- ---------- ----------
Total............................................. 1,308,458 22,140 (4,580) 1,326,018
Equity securities................................. 46,807 12,419 (1,420) 57,806
---------- ---------- ---------- ----------
$1,355,265 $34,559 $(6,000) $1,383,824
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
61
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 119,125 $ 1,571 $ (802) $ 119,894
Obligations of states and political
subdivisions.................................. 40,052 773 (93) 40,732
Debt securities issued by foreign governments... 4,471 166 (267) 4,370
Corporate securities............................ 426,286 6,472 (3,786) 428,972
Mortgage-backed securities...................... 687,455 6,031 (8,147) 685,339
Redeemable preferred stocks..................... 9,499 157 (29) 9,627
---------- ---------- ---------- ----------
Total............................................. 1,286,888 15,170 (13,124) 1,288,934
Equity securities................................. 28,644 4,875 (1,169) 32,350
---------- ---------- ---------- ----------
$1,315,532 $20,045 $(14,293) $1,321,284
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, by contractual maturity, are as follows. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities have not been set forth in the
following table, as such securities are not due at a single maturity date:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less........................... $ 59,899 $ 59,517
Due after one year through five years............. 140,594 142,573
Due after five years through 10 years............. 266,145 271,715
Due after 10 years................................ 86,353 88,923
-------------- --------------
552,991 562,728
Mortgage-backed securities........................ 755,467 763,290
-------------- --------------
Total fixed maturity securities................... $ 1,308,458 $ 1,326,018
-------------- --------------
-------------- --------------
</TABLE>
62
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. INVESTMENT OPERATIONS (CONTINUED)
The majority of the Company's mortgage loan portfolio is secured by real
estate. The following table presents information about the location of the real
estate that secures mortgage loans in the Company's portfolio:
<TABLE>
<CAPTION>
CARRYING AMOUNT AS OF DECEMBER
31,
------------------------------
1997 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
State:
California...................................... $ 71,675 $ 68,399
Arizona......................................... 65,030 51,515
Texas........................................... 60,821 59,404
Missouri........................................ 51,839 34,400
Oklahoma........................................ 47,569 32,809
Florida......................................... 42,549 30,790
Washington...................................... 39,824 34,614
Utah............................................ 37,821 25,383
Kansas.......................................... 34,267 34,069
Other........................................... 390,754 332,973
-------------- --------------
$ 842,149 $ 704,356
-------------- --------------
-------------- --------------
</TABLE>
The following table lists the Company's investment in impaired mortgage
loans and related allowance for credit losses at December 31. The table also
includes the average recorded investment in impaired loans and interest income
on impaired loans:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Impaired mortgage loans........................... $ 1,069 $ 2,516 $ 5,160
Allowance for credit losses....................... 244 691 1,651
------- ------- -------
Net recorded investment in impaired loans......... $ 825 $ 1,825 $ 3,509
------- ------- -------
------- ------- -------
Average recorded investment in impaired loans..... $ 1,325 $ 2,667 $ 2,902
------- ------- -------
------- ------- -------
Interest income on impaired loans................. $ 57 $ 115 $ 403
------- ------- -------
------- ------- -------
</TABLE>
Bonds, mortgage loans, preferred stocks and common stocks approximating
$4,600,000 and $4,200,000 were on deposit with regulatory authorities at
December 31, 1997 and 1996, respectively.
63
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. INVESTMENT OPERATIONS (CONTINUED)
Set forth below is a summary of consolidated net investment income for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds........................................... $ 92,741 $ 86,066 $ 73,930
Redeemable preferred stocks..................... 1,309 814 1,176
Equity securities:
Common stocks................................... 793 579 521
Nonredeemable preferred stocks.................. 541 438 330
Mortgage loans on real estate..................... 66,053 52,973 41,770
Policy loans...................................... 3,906 3,953 3,952
Short-term investments............................ 2,955 3,016 4,779
Other............................................. 1,223 269 340
-------------- -------------- --------------
169,521 148,108 126,798
Less:
Investment income from discontinued
operations.................................... -- -- 211
Investment expenses............................. 2,175 2,479 1,982
-------------- -------------- --------------
-------------- -------------- --------------
Net investment income from continuing
operations...................................... $ 167,346 $ 145,629 $ 124,605
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Realized gains (losses) on securities disposed of during 1997, 1996 and 1995
consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities:
Gross realized gains............................ $10,499 $ 7,953 $10,246
Gross realized losses........................... (4,690) (1,622) (4,388)
Equity securities:
Gross realized gains............................ 3,204 2,001 1,789
Gross realized losses........................... (777) -- (376)
Other investments................................. (3,115) (2,426) (2,981)
------- ------- -------
Net realized gains................................ $ 5,121 $ 5,906 $ 4,290
------- ------- -------
------- ------- -------
</TABLE>
Sales of investments in securities in 1997, 1996 and 1995, excluding
maturities and calls, resulted in gross realized gains of $8,362,000, $9,798,800
and $11,887,000 and gross realized losses of $1,017,000, $1,290,500 and
$4,564,000 respectively.
The net carrying value of nonincome-producing investments at December 31,
1996, which were nonincome producing during the year, consisted of mortgage
loans of $1,293,000 and bonds of $1,200,000. There were no nonincome producing
investments at December 31, 1997.
64
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
4. INVESTMENT CONTRACTS
The carrying amounts and fair values of the Company's liabilities for
investment-type insurance contracts (included with future policy benefits and
contract account balances in the balance sheet) at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Guaranteed investment contracts................... $ 660,782 $ 662,281 $ 596,499 $ 598,241
Flexible and single premium deferred annuities.... 539,616 516,343 501,322 480,085
Separate accounts................................. 76,964 77,505 -- --
-------------- -------------- -------------- --------------
Total investment-type insurance contracts......... $ 1,277,362 $ 1,256,129 $ 1,097,821 $ 1,078,326
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Fair values of the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
5. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and certain office facilities from others under
operating leases through 2003. Certain other equipment and facilities are rented
monthly. Rental expense amounted to $2,137,000, $2,117,000 and $2,742,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. As of December
31, 1997, the minimum future payments under noncancelable operating leases for
each of the next five years and in the aggregate subsequent to 2002 are as
follows:
<TABLE>
<S> <C>
1998.............................................. $1,093,000
1999.............................................. 945,000
2000.............................................. 491,000
2001.............................................. 386,000
2002.............................................. 168,000
Subsequent to 2002................................ 2,000
--------------
Total............................................. $3,085,000
--------------
--------------
</TABLE>
Total outstanding commitments to fund mortgage loans were $74,496,000 and
$46,735,000 at December 31, 1997 and 1996, respectively.
The Company and its subsidiaries are parties to certain claims and legal
actions arising during the ordinary course of business. In the opinion of
management, after consulting with legal counsel, these matters will not have a
materially adverse effect on the operations or financial position of the
Company.
65
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
6. PROPERTY, EQUIPMENT AND SOFTWARE
A summary of property, equipment and software at December 31 and their
respective depreciation rates is as follows:
<TABLE>
<CAPTION>
RATE OF
DEPRECIATION 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Home office building, including land with a cost
of $425,000..................................... 2% $ 23,158 $ 23,158
Other real estate not held-for-sale or rental..... 4% 973 1,126
Less accumulated depreciation..................... (12,530) (11,963)
-------------- --------------
11,601 12,321
Equipment and software............................ 5%-33% 23,937 29,010
Less accumulated depreciation..................... (18,785) (22,441)
-------------- --------------
5,152 6,569
-------------- --------------
Total property, equipment and software............ $ 16,753 $ 18,890
-------------- --------------
-------------- --------------
</TABLE>
7. FEDERAL INCOME TAXES
The components of the provision for income taxes and the temporary
differences generating deferred income taxes for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current........................................... $ 10,948 $ 6,757 $ 4,830
Deferred:
Deferred policy acquisition costs............... 143 1,322 4,139
Future policy benefits.......................... 3,783 2,424 4,010
Accrual of discount............................. 197 408 494
Tax on realized gains greater than book......... 571 (1,076) (1,034)
Recognition of tax effect previously deferred on
sale of affiliate stock in prior period....... (11,169) -- --
Employee benefit plans.......................... (2,206) 86 (148)
Other, net...................................... 265 982 (436)
--------- -------- --------
(8,416) 4,146 7,025
--------- -------- --------
Total............................................. 2,532 10,903 11,855
Less taxes from discontinued operations:
Current......................................... -- (149) 1,539
Deferred........................................ -- 884 1,813
--------- -------- --------
-- 735 3,352
--------- -------- --------
Total taxes from continuing operations............ $ 2,532 $ 10,168 $ 8,503
--------- -------- --------
--------- -------- --------
</TABLE>
66
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. FEDERAL INCOME TAXES (CONTINUED)
The Company did not record any valuation allowances against deferred tax
assets at December 31, 1995, 1996 or 1997.
Total taxes vary from the amounts computed by applying the federal income
tax rate of 35% to earnings from continuing operations for the following
reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Application of statutory rate to earnings before
taxes on income................................. $ 13,552 $ 9,888 $ 8,375
Tax-exempt municipal bond interest and dividends
received deductions............................. (361) (291) (293)
Recognition of tax effect previously deferred on
sale of affiliate stock in a prior period....... (11,169) -- --
Other............................................. 510 571 421
--------- -------- -------
$ 2,532 $ 10,168 $ 8,503
--------- -------- -------
--------- -------- -------
</TABLE>
The significant components comprising the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs...................... $ 29,641 $ 27,426
Tax effect of sale of affiliates stock.......... -- 14,169
Unrealized investment gains and losses.......... 7,735 1,987
Other........................................... 9,655 5,532
-------- --------
Total deferred tax liability...................... 47,031 49,114
Deferred tax assets:
Reserve for future policy benefits.............. 21,411 23,012
Accrued expenses................................ 8,504 6,636
Other........................................... 4,872 4,554
-------- --------
Total deferred tax assets......................... 34,787 34,202
-------- --------
Net deferred tax liability........................ $ 12,244 $ 14,912
-------- --------
-------- --------
</TABLE>
Certain amounts that were not currently taxed under pre-1984 tax law were
credited to a "policyholders' surplus" account. This account is frozen under the
1984 Tax Act and is taxable only when distributed to stockholders at which time
it is taxed at regular corporate rates. The "policyholders' surplus" of the
Company approximates $87,000,000. The Company has no present plan for
distributing the amount in "policyholders' surplus." Consequently, no provision
has been made in the consolidated financial statements for the taxes thereon.
However, if such taxes were assessed, the amount of taxes payable would be
approximately $30,000,000.
67
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
7. FEDERAL INCOME TAXES (CONTINUED)
Earnings taxed on a current basis are accumulated in a "shareholder's
surplus" account and can be distributed to the shareholder without tax. The
shareholder's surplus amounted to approximately $247,000,000 at December 31,
1997.
8. BENEFIT PLANS
TRUSTEED EMPLOYEE RETIREMENT PLAN AND JONES & BABSON, INC. PENSION PLAN
The Company has a trusteed employee retirement plan for the benefit of
salaried employees who have reached age 21 and who have completed one year of
service. The plan, which is administered by an Employees' Retirement Committee
consisting of at least three officers appointed by the Board of Directors of the
Company, provides for normal retirement at age 65 or earlier retirement based on
minimum age and service requirements. Retirement may be deferred to age 70. Upon
retirement, the retirees receive monthly benefit payments from the plan's BMA
group pension investment contract. During 1997, approximately $4.3 million of
annual benefits were covered by a group pension investment contract issued by
the Company. Assets of the plan, primarily equities, are held by three trustees
appointed by the Board of Directors.
The Company's subsidiary, Jones & Babson, Inc., had a pension plan covering
substantially all employees. As of January 5, 1995, that plan was merged into
the trusteed plan for BMA salaried employees. The benefits for the Jones &
Babson, Inc. employees in the merged plan were the same as provided in the
previous Jones & Babson, Inc. pension plan. Effective January 1, 1997, the
benefit formula for the Jones & Babson, Inc. employees was changed to be
identical with the benefit formula used for BMA employees. All benefits accrued
prior to January 1, 1997 have been preserved. Employees of the Company's
subsidiary, BMA Financial Services, Inc., became eligible to participate in the
Company's plan effective January 1, 1995.
68
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. BENEFIT PLANS (CONTINUED)
The following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested........................................................................ $ 50,968 $ 45,377
Non-vested.................................................................... 1,397 1,296
---------- ----------
Total........................................................................... $ 52,365 $ 46,673
---------- ----------
---------- ----------
Projected benefit obligation for service rendered to date....................... $ (62,683) $ (57,186)
Plan assets at fair value....................................................... 85,605 79,679
---------- ----------
Plan assets in excess of projected benefit obligation........................... 22,922 22,493
Unrecognized net gain from past experience different from that assumed and
effects of changes in assumptions............................................. (23,519) (24,732)
Prior service cost not yet recognized in net periodic pension cost.............. 2,034 2,607
Unrecognized net asset at January 1, 1987 being recognized over 15 years........ (1,177) (1,471)
Adjustment to recognize minimum liability....................................... (50) (57)
---------- ----------
Prepaid (accrued) pension cost.................................................. $ 210 $ (1,160)
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net pension cost included the following components:
Service cost--benefits earned during the period................... $ 1,767 $ 1,797 $ 1,758
Interest cost on projected benefit obligation..................... 4,374 4,195 4,089
Actual return on plan assets...................................... (10,316) (9,745) (12,888)
Net amortization and deferral..................................... 2,812 3,102 7,019
---------- ---------- ----------
Net pension benefit................................................. $ (1,363) $ (651) $ (22)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate utilized was 7.5% for 1997, 8%
for 1996 and 7.5% for 1995, and the rate of increase in future compensation
levels used was 5% for 1997, 5.5% for 1996 and 5% for 1995. The expected
long-term rate of return on assets was 8% in 1997, 1996 and 1995.
SUPPLEMENTAL RETIREMENT PROGRAMS AND DEFERRED COMPENSATION PLAN
The Company has supplemental retirement programs for senior executive
officers and for group sales managers and group sales persons who are
participants in the trusteed retirement plan. These programs are not qualified
under Section 401(a) of the Internal Revenue Code and are not prefunded.
Benefits are paid directly by the Company as they become due. Benefits are equal
to an amount computed on the same basis as under the trusteed retirement plan
(except incentive compensation is included and limitations under Sections 401
and 415 of the Internal Revenue Code are not considered) less the actual benefit
payable under the trusteed plan.
69
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. BENEFIT PLANS (CONTINUED)
The Company also has a deferred compensation plan for the Company's managers
that provides retirement benefits based on renewal premium income at retirement
resulting from the sales unit developed by the manager. This program is not
qualified under Section 401(a) of the Internal Revenue Code and is not
prefunded. As of January 1, 1987, the plan was frozen with respect to new
entrants. Currently, there are two managers who have not retired and will be
entitled to future benefits under the program. The actuarial present value of
benefits shown below includes these active managers, as well as all managers who
have retired and are entitled to benefits under the program.
The following table sets forth the combined supplemental retirement
programs' and deferred compensation plan's funded status at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested........................................................................ $ 9,964 $ 8,535
Non-vested.................................................................... 136 234
---------- ----------
Total........................................................................... $ 10,100 $ 8,769
---------- ----------
---------- ----------
Projected benefit obligation for service rendered to date....................... $ (11,281) $ (10,178)
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions............................................. 2,260 1,319
Prior service cost not yet recognized in net periodic pension cost.............. 678 856
Unrecognized net obligation at January 1, 1987 being recognized over 15 years... 729 911
Adjustment required to recognize minimum liability.............................. (2,486) (1,677)
---------- ----------
Accrued pension liability....................................................... $ (10,100) $ (8,769)
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net pension cost included the following components:
Service cost--benefits earned during the period.......................... $ 190 $ 189 $ 197
Interest cost on projected benefit obligation............................ 783 761 651
Net amortization and deferral............................................ 469 513 371
--------- --------- ---------
Net pension cost........................................................... $ 1,442 $ 1,463 $ 1,219
--------- --------- ---------
--------- --------- ---------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate utilized was 7.5% for 1997, 8%
for 1996 and 7.5% for 1995. The rate of increase in future compensation levels
used was 5% for 1997, 5.5% for 1996 and 5% for 1995.
SAVINGS AND INVESTMENT PLANS
The Company has savings and investment plans qualifying under Section 401(k)
of the Internal Revenue Code. Employees and sales representatives are eligible
to participate after one year of service. Participant contributions are invested
by the trustees for the plans at the direction of the participant in any one or
more of four investment funds. The Company makes matching contributions in
varying amounts.
70
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. BENEFIT PLANS (CONTINUED)
The Company's matching contributions amounted to $1,099,000 in 1997, $1,284,000
in 1996 and $1,336,000 in 1995. Participants are fully vested in the Company
match after five years of service.
The Company has a field force retirement plan for the benefit of agents and
managers. The plan is a defined contribution plan with contributions made
entirely by the Company. Each agent or manager under a standard contract with
one year of service with the Company is eligible to participate. The Company
makes an annual contribution for each participant equal to 3% of eligible
earnings up to the Social Security wage base and 6% of eligible earnings which
are in excess of the Social Security wage base. Each participant is fully vested
in his retirement account after five years of service. Assets of the plan are
deposited in a retirement trust fund and maintained by the plan trustees who are
appointed by the Company. The Company incurred costs related to this plan of
$230,000 in 1997, $225,000 in 1996 and $420,000 in 1995.
DEFINED BENEFIT HEALTH CARE PLAN
In addition to the Company's other benefit plans, the Company sponsors an
unfunded defined benefit health care plan that provides postretirement medical
benefits to full-time employees for whom the sum of the employee's age and years
of service equals or exceeds 75, with a minimum age requirement of 50 and at
least 10 years of service. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. The accounting for the plan anticipates a future cost-sharing
arrangement with retirees that is consistent with the Company's past practices.
The following table presents the plan's funded status at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................................ $ 9,636 $ 10,199
Active plan participants........................................................ 1,854 2,054
--------- ---------
11,490 12,253
Plan assets at fair value......................................................... -- --
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets............ 11,490 12,253
Unrecognized net loss............................................................. (268) (125)
Unrecognized transition obligation................................................ (4,872) (5,199)
Unrecognized prior service costs.................................................. (2,808) (4,008)
--------- ---------
Accrued postretirement benefit cost............................................... $ 3,542 $ 2,921
--------- ---------
--------- ---------
</TABLE>
71
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. BENEFIT PLANS (CONTINUED)
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................................... $ 122 $ 118 $ 153
Interest cost.............................................................. 878 867 771
Amortization of transition obligation over 20 years........................ 327 327 511
Amortization of past service costs......................................... 407 407 --
--------- --------- ---------
Net periodic postretirement benefit cost................................... $ 1,734 $ 1,719 $ 1,435
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) varies per year, equal
to the maximum contractual increase of the Company's contribution. Because the
Company's future contributions are contractually limited as discussed above, an
increase in the health care cost trend rate has a minimal impact on expected
benefit payments.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%, 7.5% and 7.5% at December 31, 1997,
1996 and 1995 respectively.
During the year ended December 31, 1995, the Company recognized a reduction
in the accumulated postretirement benefit obligation of approximately $3,165,000
from a curtailment of the plan due to the disposal of its medical line of
business. The decrease in the accumulated postretirement benefit obligation has
been directly offset by a reduction of the remaining unrecognized transition
obligation. The Company also adopted certain plan amendments during 1995 that
resulted in an increase to the accumulated postretirement benefit obligation of
approximately $4,415,000 related to prior service rendered by plan participants.
This amount has been deferred and will be amortized over the remaining service
period of active plan participants.
9. REINSURANCE
The Company actively solicits reinsurance from other companies. The Company
also cedes portions of the insurance it writes as described in the next
paragraph. The effect of reinsurance on premiums earned from continuing
operations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct............................................................. $ 118,192 $ 124,912 $ 153,476
Assumed............................................................ 134,541 116,154 102,212
Ceded.............................................................. (54,613) (38,114) (77,604)
---------- ---------- ----------
Total net premium.................................................. 198,120 202,952 178,084
Less net premium from discontinued operations...................... -- -- 430
---------- ---------- ----------
Total net premium from continuing operations....................... $ 198,120 $ 202,952 $ 177,654
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company reinsures with other companies portions of the insurance it
writes, thereby limiting its exposure on larger risks. Normal retentions without
reinsurance are $750,000 on an individual life policy,
72
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
9. REINSURANCE (CONTINUED)
$750,000 on individual life insurance assumed and $200,000 on an individual life
insured under a single group life policy. As of December 31, 1997, the Company
had ceded to other life insurance companies individual life insurance in force
of approximately $24.1 billion and group life of approximately $654 million.
Benefits and reserves ceded to other insurers amounted to $42,069,000,
$28,132,000 and $53,672,000 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, policy reserves ceded to
other insurers were $55,568,000 and $43,573,000, respectively. Claim reserves
ceded amounted to $16,432,000 and $14,604,000 at December 31, 1997 and 1996,
respectively. The Company remains contingently liable on all reinsurance ceded
by it to others. This contingent liability would become an actual liability in
the event an assuming reinsurer should fail to perform its obligations under its
reinsurance agreement with the Company.
10. RELATED-PARTY TRANSACTIONS
The Company reimburses Generali's U.S. branch for certain expenses incurred
on the Company's behalf. These expenses were not material in 1997, 1996 or 1995.
The Company retrocedes a portion of the life insurance it assumes to Generali.
In accordance with this agreement, the Company ceded premiums of $873,000,
$1,035,000 and $1,023,000 during 1997, 1996 and 1995, respectively. The Company
ceded no claims during 1997, 1996 or 1995.
In 1995, the Company entered into a modified coinsurance agreement with
Generali to cede 50% of certain single-premium deferred annuity contracts
issued. In accordance with this agreement, $35 million, $60 million and $137
million in account balances were ceded to Generali in 1997, 1996 and 1995,
respectively, and Generali loaned such amounts back to the Company. Account
balances ceded and loaned back at December 31, 1997 and 1996 were $213 million
and $193 million, respectively. The recoverable amount from Generali was offset
against the loan. The net expense related to this agreement was $1,895,000,
$1,344,000 and $136,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company held payables to Generali of $799,000 and $972,000 at
December 31, 1997 and 1996, respectively.
73
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
11. STOCKHOLDER'S EQUITY
The components of the balance sheet caption "net unrealized gain on
securities" in stockholder's equity are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net unrealized gains (losses) on securities:
Fixed maturities................................................................. $ 17,560 $ 2,046
Equity securities................................................................ 10,999 3,706
Securities held in separate account.............................................. 334 --
--------- ---------
Net unrealized gains (losses)...................................................... 28,893 5,752
Adjustment to deferred policy acquisition costs.................................... (7,224) (35)
Adjustment to unearned revenue reserve............................................. 430 (44)
Deferred income taxes.............................................................. (7,735) (1,987)
--------- ---------
Net unrealized gains (losses)...................................................... $ 14,364 $ 3,686
--------- ---------
--------- ---------
</TABLE>
12. DISCONTINUED OPERATIONS
In June of 1994, the Company adopted a plan to dispose of its medical line
of business. Accordingly, the medical line of business was considered a
discontinued operation for the years ended 1996 and 1995, and the consolidated
financial statements report separately the net assets and operating results of
the discontinued operations.
During 1994, the Company entered into an agreement to dispose of the
Company's Kansas and Missouri group medical business and sell the Company's
wholly-owned HMO, BMA Selectcare. The transaction closed on December 31, 1994.
The agreement provided for the full reinsurance of the Company's Kansas and
Missouri group medical business through the renewal dates of the related group
contracts. The estimated gain on disposal of this business was recorded in 1994.
An additional gain of $661,000, net of tax, was recorded in 1995 reflecting
various adjustments to initial estimates.
The Company also entered into an agreement during 1994 to dispose of the
remainder of its medical line of business effective January 1, 1995. This
transaction closed January 31, 1995 and, accordingly, was reflected in the 1995
financial statements. The agreement provided for the reinsurance of
substantially all of the Company's remaining group and individual medical
business through the renewal dates of the related contracts. Under the
agreement, the Company continued to remain primarily liable for claims, billing
and receipts through the next anniversary dates of the policies reinsured. The
estimated gain on disposal of this business of $5,694,000, net of income taxes,
was recorded in 1995. An additional gain of $1,416,000, net of income taxes, was
recorded in 1996 reflecting various adjustments to initial estimates.
13. IMPACT OF YEAR 2000 (UNAUDITED)
Some of the Company's computer systems were written using two digits rather
than four to define the applicable year. As a result, those computer systems
will not recognize the year 2000 which, if not corrected, could cause
disruptions of operations, including, among other things, an inability to
process transactions or engage in similar normal business activities.
74
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A MEMBER OF THE GENERALI GROUP OF COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
13. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has begun converting critical data processing
systems. The Company currently expects the project to be substantially complete
by late 1998 which is prior to any anticipated impact on its operating systems.
Based on this plan, the Company does not believe that the costs to complete such
system modifications or replacements will be material to the Company's financial
statements.
75
<PAGE>
APPENDIX A
ILLUSTRATION OF POLICY VALUES
In order to show You how the Policy works, We created some hypothetical
examples. We chose two males ages 45 and 55 and a female age 50. Our
hypothetical insureds are in good health, do not smoke and qualify for preferred
non-tobacco rates. The initial and Planned Premiums are shown in the upper
portion of each illustration. The Death Proceeds, Accumulation Values and Cash
Surrender Values would be lower if the Primary Insured was in a standard
non-tobacco, tobacco or special Rate Class since the cost of insurance charges
would increase.
There are three illustrations--all of which are based on the above. We also
assumed that the underlying Investment Option had gross rates of return of 0%,
6%, 12%. This means that the underlying Investment Option would earn these rates
of return before the deduction of the advisory fee and operating expenses. When
these costs are taken into account, the net annual investment return rates (net
of an average of approximately .93% for these charges) are approximately -.93%,
5.07% and 11.07%.
It is important to be aware that this illustration assumes a level rate of
return for all years. If the actual rate of return moves up and down over the
years instead of remaining level, this may make a big difference in the
long-term investment results of Your Policy. In order to properly show You how
the Policy actually works, We calculated values for the Accumulation Value, Cash
Surrender Value and the Death Proceeds. The Death Proceeds are the Death Benefit
minus any outstanding loans and loan interest accrued. We used the charges We
described in the Expenses Section of the Prospectus. These charges are: (1)
Premium Charge; (2) Policy Charge; and (3) Risk Charge. We also deducted for the
cost of insurance based on both the current charges and the guaranteed charges.
The values also assume that each Investment Option will incur expenses annually
which are assumed to be approximately .93% of the average net assets of the
Investment Option. This is the average of the fees and expenses of the
Investment Options in 1997 or estimated (for new Investment Options) through
1998. The expenses of .93% reflect the voluntary waiver of certain advisory fees
and/or the reimbursement of operating expenses for certain Investment Options
(as noted under Expenses--Investment Option Expenses in Part I of this
prospectus). If the advisory fees had not been waived and/or if expenses had not
been reimbursed, the average expenses would have been approximately 2.02%. The
investment advisers currently anticipate that the current waiver and/or
reimbursement arrangements will continue through at least May 1, 1999 to the
extent necessary to maintain the total annual portfolio expense levels as
described under Expenses--Investment Option Expenses. If the waiver and/or
reimbursement arrangements were not in effect, the Death Proceeds, Accumulation
Values and the Cash Surrender Values shown in the illustrations below would be
lower. The illustration assumes no loans were taken.
There is also a column labeled "Premiums Accumulated at 5% Interest Per
Year." This shows how the Premium grows if it was invested at 5% per year.
We will furnish You, upon request, a comparable personalized illustration
reflecting the proposed insured's Age, Rate Class, Specified Amount, the Planned
Premiums, and reflecting both the current cost of insurance and the guaranteed
cost of insurance.
A-1
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
MALE AGE 45 PREFERRED NON-TOBACCO
ASSUMING GUARANTEED CHARGES
PLANNED PREMIUM: $1,980
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,079 150,000 150,000 150,000 1,054 1,140 1,227
2 4,262 150,000 150,000 150,000 2,233 2,476 2,731
3 6,554 150,000 150,000 150,000 3,353 3,831 4,350
4 8,961 150,000 150,000 150,000 4,414 5,202 6,094
5 11,488 150,000 150,000 150,000 5,411 6,586 7,970
6 14,141 150,000 150,000 150,000 6,342 7,981 9,993
7 16,927 150,000 150,000 150,000 7,200 9,379 12,168
8 19,853 150,000 150,000 150,000 7,975 10,771 14,505
9 22,924 150,000 150,000 150,000 8,663 12,150 17,014
10 26,149 150,000 150,000 150,000 9,250 13,505 19,704
11 29,536 150,000 150,000 150,000 9,801 14,918 22,718
12 33,092 150,000 150,000 150,000 10,236 16,298 25,970
13 36,825 150,000 150,000 150,000 10,550 17,636 29,487
14 40,746 150,000 150,000 150,000 10,734 18,925 33,299
15 44,862 150,000 150,000 150,000 10,771 20,146 37,433
16 49,184 150,000 150,000 150,000 10,646 21,284 41,922
17 53,722 150,000 150,000 150,000 10,339 22,317 46,805
18 58,487 150,000 150,000 150,000 9,825 23,220 52,125
19 63,491 150,000 150,000 150,000 9,071 23,958 57,931
20 68,744 150,000 150,000 150,000 8,042 24,494 64,285
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 1 256
3 878 1,356 1,875
4 1,939 2,727 3,619
5 3,356 4,531 5,916
6 4,684 6,323 8,335
7 5,962 8,141 10,931
8 7,159 9,955 13,688
9 8,242 11,730 16,593
10 9,250 13,505 19,704
11 9,801 14,918 22,718
12 10,236 16,298 25,970
13 10,550 17,636 29,487
14 10,734 18,925 33,299
15 10,771 20,146 37,433
16 10,646 21,284 41,922
17 10,339 22,317 46,805
18 9,825 23,220 52,125
19 9,071 23,958 57,931
20 8,042 24,494 64,285
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a Policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-2
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
MALE AGE 45 PREFERRED NON-TOBACCO
ASSUMING CURRENT CHARGES
PLANNED PREMIUM: $1,980
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,079 150,000 150,000 150,000 1,079 1,166 1,253
2 4,262 150,000 150,000 150,000 2,360 2,609 2,870
3 6,554 150,000 150,000 150,000 3,601 4,096 4,634
4 8,961 150,000 150,000 150,000 4,803 5,628 6,560
5 11,488 150,000 150,000 150,000 5,965 7,207 8,666
6 14,141 150,000 150,000 150,000 7,089 8,836 10,971
7 16,927 150,000 150,000 150,000 8,172 10,514 13,495
8 19,853 150,000 150,000 150,000 9,213 12,243 16,261
9 22,924 150,000 150,000 150,000 10,212 14,023 19,290
10 26,149 150,000 150,000 150,000 11,164 15,853 22,611
11 29,536 150,000 150,000 150,000 12,144 17,835 26,388
12 33,092 150,000 150,000 150,000 13,072 19,876 30,548
13 36,825 150,000 150,000 150,000 13,942 21,973 35,127
14 40,746 150,000 150,000 150,000 14,755 24,133 40,179
15 44,862 150,000 150,000 150,000 15,508 26,354 45,755
16 49,184 150,000 150,000 150,000 16,135 28,580 51,867
17 53,722 150,000 150,000 150,000 16,692 30,866 58,630
18 58,487 150,000 150,000 150,000 17,185 33,222 66,129
19 63,491 150,000 150,000 150,000 17,605 35,644 74,450
20 68,744 150,000 150,000 150,000 17,950 38,138 83,696
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 134 395
3 1,126 1,621 2,159
4 2,328 3,153 4,085
5 3,911 5,153 6,612
6 5,430 7,178 9,313
7 6,934 9,277 12,258
8 8,397 11,427 15,444
9 9,791 13,603 18,870
10 11,164 15,853 22,611
11 12,144 17,835 26,388
12 13,072 19,876 30,548
13 13,942 21,973 35,127
14 14,755 24,133 40,179
15 15,508 26,354 45,755
16 16,135 28,580 51,867
17 16,692 30,866 58,630
18 17,185 33,222 66,129
19 17,605 35,644 74,450
20 17,950 38,138 83,696
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-3
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
MALE AGE 55 PREFERRED NON-TOBACCO
ASSUMING GUARANTEED CHARGES
PLANNED PREMIUM: $3,654
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,837 150,000 150,000 150,000 1,955 2,115 2,275
2 7,865 150,000 150,000 150,000 3,954 4,401 4,868
3 12,095 150,000 150,000 150,000 5,812 6,677 7,620
4 16,537 150,000 150,000 150,000 7,523 8,938 10,543
5 21,200 150,000 150,000 150,000 9,076 11,169 13,646
6 26,097 150,000 150,000 150,000 10,458 13,356 16,938
7 31,238 150,000 150,000 150,000 11,653 15,485 20,431
8 36,637 150,000 150,000 150,000 12,642 17,533 24,135
9 42,306 150,000 150,000 150,000 13,399 19,472 28,058
10 48,258 150,000 150,000 150,000 13,896 21,274 32,213
11 54,507 150,000 150,000 150,000 14,224 23,066 36,835
12 61,069 150,000 150,000 150,000 14,245 24,685 41,790
13 67,959 150,000 150,000 150,000 13,929 26,101 47,124
14 75,194 150,000 150,000 150,000 13,245 27,282 52,899
15 82,790 150,000 150,000 150,000 12,148 28,186 59,182
16 90,767 150,000 150,000 150,000 10,570 28,747 66,051
17 99,142 150,000 150,000 150,000 8,341 28,807 73,549
18 107,936 150,000 150,000 150,000 5,515 28,401 81,891
19 117,169 150,000 150,000 150,000 1,860 27,320 91,191
20 126,864 Lapse 150,000 150,000 Lapse 25,404 101,667
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 300 747 1,214
3 2,158 3,023 3,966
4 3,869 5,284 6,889
5 6,043 8,136 10,613
6 8,009 10,908 14,490
7 9,826 13,658 18,604
8 11,436 16,327 22,929
9 12,778 18,851 27,437
10 13,896 21,274 32,213
11 14,224 23,066 36,835
12 14,245 24,685 41,790
13 13,929 26,101 47,124
14 13,245 27,282 52,899
15 12,148 28,186 59,182
16 10,570 28,747 66,051
17 8,341 28,807 73,549
18 5,515 28,401 81,891
19 1,860 27,320 91,191
20 Lapse 25,404 101,667
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-4
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
MALE AGE 55 PREFERRED NON-TOBACCO
ASSUMING CURRENT CHARGES
PLANNED PREMIUM: $3,654
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,837 150,000 150,000 150,000 2,262 2,431 2,601
2 7,865 150,000 150,000 150,000 4,674 5,162 5,672
3 12,095 150,000 150,000 150,000 6,997 7,962 9,011
4 16,537 150,000 150,000 150,000 9,230 10,834 12,646
5 21,200 150,000 150,000 150,000 11,369 13,775 16,606
6 26,097 150,000 150,000 150,000 13,416 16,792 20,930
7 31,238 150,000 150,000 150,000 15,363 19,882 25,654
8 36,637 150,000 150,000 150,000 17,210 23,049 30,823
9 42,306 150,000 150,000 150,000 18,949 26,288 36,485
10 48,258 150,000 150,000 150,000 20,566 29,593 42,689
11 54,507 150,000 150,000 150,000 22,181 33,138 49,743
12 61,069 150,000 150,000 150,000 23,683 36,789 57,554
13 67,959 150,000 150,000 150,000 25,069 40,555 66,221
14 75,194 150,000 150,000 150,000 26,338 44,446 75,864
15 82,790 150,000 150,000 150,000 27,470 48,459 86,610
16 90,767 150,000 150,000 150,000 28,156 52,349 98,467
17 99,142 150,000 150,000 150,000 28,646 56,339 111,768
18 107,936 150,000 150,000 150,000 28,974 60,476 126,758
19 117,169 150,000 150,000 156,603 29,124 64,770 143,673
20 126,864 150,000 150,000 162,474 29,057 69,222 162,474
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 1,020 1,508 2,018
3 3,343 4,308 5,357
4 5,576 7,180 8,992
5 8,336 10,743 13,573
6 10,967 14,344 18,482
7 13,536 18,055 23,827
8 16,005 21,843 29,618
9 18,328 25,667 35,864
10 20,566 29,593 42,689
11 22,181 33,138 49,743
12 23,683 36,789 57,554
13 25,069 40,555 66,221
14 26,338 44,446 75,864
15 27,470 48,459 86,610
16 28,156 52,349 98,467
17 28,646 56,339 111,768
18 28,974 60,476 126,758
19 29,124 64,770 143,673
20 29,057 69,222 162,474
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a Policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-5
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
FEMALE AGE 50 PREFERRED NON-TOBACCO
ASSUMING GUARANTEED CHARGES
PLANNED PREMIUM: $2,232
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,344 150,000 150,000 150,000 1,161 1,257 1,354
2 4,804 150,000 150,000 150,000 2,440 2,711 2,994
3 7,388 150,000 150,000 150,000 3,652 4,180 4,755
4 10,101 150,000 150,000 150,000 4,790 5,659 6,644
5 12,950 150,000 150,000 150,000 5,854 7,147 8,672
6 15,941 150,000 150,000 150,000 6,843 8,642 10,854
7 19,082 150,000 150,000 150,000 7,755 10,143 13,206
8 22,379 150,000 150,000 150,000 8,593 11,653 15,749
9 25,842 150,000 150,000 150,000 9,361 13,177 18,510
10 29,478 150,000 150,000 150,000 10,057 14,711 21,510
11 33,295 150,000 150,000 150,000 10,748 16,351 24,908
12 37,303 150,000 150,000 150,000 11,346 17,993 28,615
13 41,512 150,000 150,000 150,000 11,830 19,618 32,650
14 45,931 150,000 150,000 150,000 12,170 21,197 37,033
15 50,572 150,000 150,000 150,000 12,342 22,708 41,793
16 55,444 150,000 150,000 150,000 12,332 24,137 46,976
17 60,559 150,000 150,000 150,000 12,126 25,469 52,637
18 65,931 150,000 150,000 150,000 11,721 26,699 58,850
19 71,571 150,000 150,000 150,000 11,113 27,824 65,702
20 77,493 150,000 150,000 150,000 10,285 28,827 73,287
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 200 483
3 1,141 1,669 2,244
4 2,279 3,148 4,133
5 3,770 5,063 6,588
6 5,160 6,959 9,172
7 6,499 8,888 11,951
8 7,764 10,825 14,921
9 8,934 12,750 18,083
10 10,057 14,711 21,510
11 10,748 16,351 24,908
12 11,346 17,993 28,615
13 11,830 19,618 32,650
14 12,170 21,197 37,033
15 12,342 22,708 41,793
16 12,332 24,137 46,976
17 12,126 25,469 52,637
18 11,721 26,699 58,850
19 11,113 27,824 65,702
20 10,285 28,827 73,287
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-6
<PAGE>
BMA
CLARITY VARIABLE UNIVERSAL LIFE
FEMALE AGE 50 PREFERRED NON-TOBACCO
ASSUMING CURRENT CHARGES
PLANNED PREMIUM: $2,232
INITIAL SPECIFIED AMOUNT: $150,000
DEATH BENEFIT OPTION: LEVEL
<TABLE>
<CAPTION>
DEATH PROCEEDS ACCUMULATION VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
ACCUMULATED ---------------------------------------- ----------------------------------------
END OF AT 5% 0% GROSS 0% GROSS
POLICY INTEREST (-0.93% 6% GROSS 12% GROSS (-0.93% 6% GROSS 12% GROSS
YEAR PER YEAR NET) (5.07% NET) (11.07% NET) NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,344 150,000 150,000 150,000 1,227 1,325 1,424
2 4,804 150,000 150,000 150,000 2,656 2,938 3,232
3 7,388 150,000 150,000 150,000 4,045 4,603 5,209
4 10,101 150,000 150,000 150,000 5,391 6,321 7,371
5 12,950 150,000 150,000 150,000 6,693 8,092 9,735
6 15,941 150,000 150,000 150,000 7,952 9,919 12,325
7 19,082 150,000 150,000 150,000 9,170 11,807 15,165
8 22,379 150,000 150,000 150,000 10,349 13,760 18,286
9 25,842 150,000 150,000 150,000 11,496 15,789 21,724
10 29,478 150,000 150,000 150,000 12,611 17,896 25,514
11 33,295 150,000 150,000 150,000 13,781 20,199 29,849
12 37,303 150,000 150,000 150,000 14,916 22,599 34,648
13 41,512 150,000 150,000 150,000 16,011 25,093 39,957
14 45,931 150,000 150,000 150,000 17,047 27,670 45,822
15 50,572 150,000 150,000 150,000 18,041 30,350 52,321
16 55,444 150,000 150,000 150,000 18,933 33,086 59,486
17 60,559 150,000 150,000 150,000 19,783 35,935 67,443
18 65,931 150,000 150,000 150,000 20,586 38,903 76,285
19 71,571 150,000 150,000 150,000 21,355 42,006 86,125
20 77,493 150,000 150,000 150,000 22,091 45,255 97,085
<CAPTION>
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
----------------------------------------
END OF 0% GROSS
POLICY (-0.93% 6% GROSS 12% GROSS
YEAR NET) (5.07% NET) (11.07% NET)
- ------ ----------- ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 145 427 721
3 1,534 2,092 2,698
4 2,880 3,810 4,860
5 4,609 6,008 7,651
6 6,270 8,237 10,642
7 7,915 10,552 13,910
8 9,520 12,931 17,457
9 11,069 15,362 21,297
10 12,611 17,896 25,514
11 13,781 20,199 29,849
12 14,916 22,599 34,648
13 16,011 25,093 39,957
14 17,047 27,670 45,822
15 18,041 30,350 52,321
16 18,933 33,086 59,486
17 19,783 35,935 67,443
18 20,586 38,903 76,285
19 21,355 42,006 86,125
20 22,091 45,255 97,085
</TABLE>
The hypothetical investment rates of return shown in this illustration are
for illustrative purposes only and should not be deemed a representation of past
or future investment rates of return. Actual rates of return may be more or less
than those shown and will depend on a number of factors including the investment
performance of the Investment Options selected by the Policyowner.
The Death Proceeds, Accumulation Value and Cash Surrender Value for a Policy
would differ from those shown in this illustration if the actual gross annual
rates of return averaged 0.00%, 6.00% and 12.00% over a period of years, but
also fluctuated above or below those averages for individual Policy Years. The
Death Proceeds, Accumulation Value and Cash Surrender Value would also be
different if any Policy loans or partial surrenders were made.
No representation can be made by BMA, the Separate Account or the underlying
portfolios that these hypothetical rates of return can be achieved for any one
year or sustained over a period of time.
A-7
<PAGE>
BMA
A member of the Generali Group
Business Men's Assurance Company of America
P.O. Box 412879/Kansas City, MO 64141
This cover is not part of the prospectus.
V1046 (11/98)
