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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.
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
DREYFUS STOCK INDEX FUND
Managed by the Dreyfus Corporation (Index Fund Manager: Mellon Equity
Associates)
DREYFUS VARIABLE INVESTMENT FUND
Managed by the Dreyfus Corporation
Disciplined Stock
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
Managed by Invesco Funds Group, Inc.
INVESCO VIF--High Yield
INVESCO VIF--Equity Income (formerly, 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 companies that file electronically with the Commission.
The Policies:
.are not bank deposits
.are not federally insured
.are not endorsed by any bank or government agency
.are not guaranteed and may be subject to loss of principal
Date: May 3, 1999
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TABLE OF CONTENTS
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DEFINITIONS................................................................ 5
SUMMARY.................................................................... 7
1. The Variable Life Insurance Policy.................................... 7
2. Purchases............................................................. 7
3. Investment Choices.................................................... 7
4. Expenses.............................................................. 9
5. Death Benefit......................................................... 10
6. Taxes................................................................. 10
7. Access To Your Money.................................................. 10
8. Other Information..................................................... 10
9. Inquiries............................................................. 11
PART I..................................................................... 12
1. THE VARIABLE LIFE INSURANCE POLICY...................................... 12
2. PURCHASES............................................................... 12
Premiums................................................................. 12
Waiver of Planned Premiums............................................... 13
Application for a Policy................................................. 13
Issue Ages............................................................... 13
Application of Premiums.................................................. 13
Grace Period............................................................. 14
Accumulation Unit Values................................................. 14
Right to Refund.......................................................... 15
Exchange of a Policy for a BMA Policy.................................... 15
3. INVESTMENT CHOICES...................................................... 15
Transfers................................................................ 17
Dollar Cost Averaging.................................................... 18
Asset Rebalancing Option................................................. 18
Asset Allocation Option.................................................. 19
Substitution............................................................. 19
4. EXPENSES................................................................ 19
Premium Charge........................................................... 19
Monthly Deduction........................................................ 20
Surrender Charge......................................................... 22
Partial Surrender Fee.................................................... 22
Waiver of Surrender Charges.............................................. 23
Reduction or Elimination of the Surrender Charge......................... 23
Transfer Fee............................................................. 24
Taxes.................................................................... 24
Investment Option Expenses............................................... 24
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5. DEATH BENEFIT........................................................... 25
Change in Death Benefit Option........................................... 26
Change in Specified Amount............................................... 27
Guaranteed Minimum Death Benefit......................................... 28
Accelerated Death Benefit................................................ 28
6. TAXES................................................................... 28
Life Insurance in General................................................ 29
Taking Money Out of Your Policy.......................................... 29
Diversification.......................................................... 29
7. ACCESS TO YOUR MONEY.................................................... 29
Loans.................................................................... 29
Surrenders............................................................... 31
8. OTHER INFORMATION....................................................... 31
BMA...................................................................... 31
Year 2000................................................................ 31
The Separate Account..................................................... 32
Distributors............................................................. 32
Administration........................................................... 32
Suspension of Payments or Transfers...................................... 32
Ownership................................................................ 32
PART II.................................................................... 33
Executive Officers and Directors of BMA.................................... 33
Officers and Directors of Jones & Babson, Inc.............................. 35
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......................................................... 37
Maturity Date.............................................................. 37
Misstatement of Age or Sex................................................. 37
Our Right to Contest....................................................... 37
Payment Options............................................................ 38
Federal Tax Status......................................................... 38
Reports to Owners.......................................................... 41
Legal Proceedings.......................................................... 42
Experts.................................................................... 42
Financial Statements....................................................... 42
APPENDIX A--Illustration of Policy Values.................................. A-1
APPENDIX B--Rates of Return................................................ B-1
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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: Business Men's Assurance Company of America.
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.
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.
You should consult Your Policy for further understanding of its terms and
conditions and for any state-specific provisions and variances that may apply
to Your Policy.
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, a 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), if you fail to make the Planned Premium payments it will not
necessarily cause the Policy to lapse nor will paying 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
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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
DREYFUS STOCK INDEX FUND
MANAGED BY THE DREYFUS CORPORATION (Index Fund Manager: Mellon Equity
Associates)
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--Equity Income (formerly, INVESCO VIF-Industrial Income)
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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:
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Policy Years 1-10: 5.5% of all Premiums.
Policy Years 11 and
later: 4.0% of all Premiums.
We deduct a Policy Charge each month from the unloaned Accumulation Value
of the Policy. The Policy Charge is as follows:
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.
We deduct a Risk Charge each month from the unloaned Accumulation Value of
the Policy. The Risk Charge is calculated as follows:
Policy Years 1-10: Each month, .80%, on an annual basis, of the
Accumulation Value in the Separate Account.
Policy Years 11 and Each month, .40%, on an annual basis, of the
later: Accumulation Value in the Separate Account.
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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 Options. These charges are deducted from the
Investment Options and range on an annual basis from .26% to 1.25%, 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 charge 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 (pursuant to a set formula) 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 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 schedule will be imposed on the increased amount.
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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 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.
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. Once each Policy Year, on a 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.
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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.
You should consult Your Policy for further understanding of its term and
conditions and for any state-specific provisions and variances that may apply
to Your Policy.
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.
If the Primary Insured is no longer totally disabled, you must begin paying
Premiums again. If you do not pay sufficient Premiums, Your Policy may lapse
depending on Your facts and circumstances at that time.
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, a 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 be eligible for conditional coverage.
The conditional coverage, if You meet the conditions specified on the
conditional receipt, will be effective from the later date of the application,
of a medical exam, if required or a date You request (it must be within 60 days
of the date of the application). 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.
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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 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 100% of
the first net Premium paid. The maximum deduction that We will take from the
Premium is 5.5% of the Premium paid.
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.
14
<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
you have 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 Premium payments 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 believe that offering their
shares in this manner will not be disadvantageous to you.
BMA may enter into certain arrangements under which it is reimbursed by the
Investment Options' advisers, distributors and/or affiliates for the
administrative services which it provides to the portfolios.
The investment objectives and policies of certain of the Investment Options
are similar to the investment objectives and policies of other mutual funds
that certain of the investment advisers manage. Although the objectives and
policies may be similar, the investment results of the Investment Options may
be higher or lower than the results of such other mutual funds. The investment
advisers cannot guarantee, and make no representation, that the investment
results of similar funds will be comparable even though the funds have the same
investment advisers.
15
<PAGE>
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:
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.
16
<PAGE>
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)
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 Fund (seeks high level of current income)
INVESCO VIF--Equity Income Fund (formerly, INVESCO VIF--Industrial
Income Portfolio) (seeks high current income with growth of capital 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, a New York
limited liability company, 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 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
17
<PAGE>
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 requirement of a minimum time period between each transfer;
. not accepting transfer requests of an agent acting under a power of
attorney on behalf of more than one Owner; or
. limiting the dollar amount that may be transferred by an Owner at any
one time.
Telephone Transfers
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. Currently,
there is no charge for participating in Dollar Cost Averaging.
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.
Currently, there is no charge for participating in the asset rebalancing
option.
18
<PAGE>
Asset Rebalancing 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
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. Currently, BMA does not charge for participating in an Asset Allocation
Program.
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 from each Premium payment 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 Charge is 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.
19
<PAGE>
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 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:
.the Cost of Insurance for the Policy; plus
.the monthly rider charges, if any; plus
.the Risk Charge; plus
.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 of the Primary Insured,
.sex of the Primary Insured,
.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 Age in the range. The maximum rate for most Age in the
range will be smaller.
Maximum Monthly Cost of Insurance Rates Per $1,000
<TABLE>
<CAPTION>
Male Female
----------------- -----------------
Non- Non-
Attained Age Tobacco Tobacco 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 (current rate) during the first Policy Year. The
rates below are based on the preferred non-tobacco Rate Class and a $150,000
Specified Amount.
20
<PAGE>
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>
We will determine the monthly cost of insurance rates 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
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.
21
<PAGE>
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 Rider.
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 of the Primary Insured,
. sex of the Primary Insured, and
. Rate Class of the Primary Insured.
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
--------------- ---------------
Non- Non-
Issue Age Tobacco Tobacco 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 (pursuant to a formula). 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.
The Surrender Charge and Partial Surrender Fee are deducted from the
unloaned Accumulation Value of the Policy. The Partial Surrender Fee is
deducted pro-rata from the Investment Option(s) and/or the Fixed Account from
which the withdrawal is made.
22
<PAGE>
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 you totally surrender the Policy later that Policy Year
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.
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.
23
<PAGE>
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 do not currently assess any charge for income taxes which We incur as a
result of the operation of the Separate Account. We reserve the right to assess
a charge for such taxes against the Separate Account or your Accumulation Value
if we determine that such taxes will be incurred.
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 for
the most recent fiscal year, except as noted.)
<TABLE>
<CAPTION>
Total Annual
Other Portfolio
Expenses Expenses
(after (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%
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% -- .01% .26%
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock Portfolio..... .75% -- .13% .88%
INVESCO VARIABLE INVESTMENT FUNDS,
INC.
INVESCO VIF--High Yield Fund(3). .60% -- .47% 1.07%
INVESCO VIF--Equity Income
Fund(3)(4)..................... .75% -- .18% .93%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Small Cap
Portfolio(5)................... .75% .25% .25% 1.25%
</TABLE>
24
<PAGE>
- --------
(1) Investors Mark Advisors, LLC voluntarily agreed to reimburse expenses of
each Portfolio of Investors Mark Series Fund, Inc. for the year ended
December 31, 1998 and will continue this arrangement until April 30, 2000
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 for the year ended
December 31, 1998 were: 2.89% for the Money Market Portfolio; 1.97% for the
Intermediate Fixed Income Portfolio; 1.47% for the Global Fixed Income
Portfolio; 2.38% for the Mid Cap Growth Portfolio; 1.59% for the Balanced
Portfolio; 1.75% for the Growth & Income Portfolio; 2.29% for the Small Cap
Equity Portfolio; 1.66% for the Large Cap Growth Portfolio; and 1.55% for
the Large Cap Value Portfolio.
(2) The Fund's investment adviser has agreed to waive its advisory fee and
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, 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% respectively their Other Expenses
would have been 1.95% and Total Annual Portfolio Expenses would have been
2.85%.
(3) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown because its transfer agent and/or custodian fees were reduced
under expense offset arrangements. Because of an SEC requirement, the
figures shown do not reflect these reductions.
(4) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
Funds Group, Inc. pursuant to a commitment to the Fund. In the absence of
such absorption, Other Expenses and Total Annual Fund Operating Expenses
for the year ended December 31, 1998 were .42% and 1.17%, respectively.
This commitment may be changed at any time following consultation with the
board of directors.
(5) Lazard Asset Management, Inc., the fund's investment adviser, has
voluntarily agreed to reimburse all expenses through December 31, 1999 to
the extent total annual portfolio expenses exceed in any fiscal year 1.25%
of the Portfolio's average daily net assets. Total annual portfolio
expenses prior to waivers and/or reimbursements by the Investment Manager
totaled 16.20% for the Lazard Retirement Small Cap Portfolio.
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,
. 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.
25
<PAGE>
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
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;
26
<PAGE>
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.
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 schedule 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 in Specified
Amount:
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.
27
<PAGE>
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.
The GMDB Period is determined for each issue Age in accordance with the
following:
<TABLE>
<CAPTION>
GMDB
Issue Age 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. If you receive an Accelerated Death Benefit
amount, it 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 an additional discussion regarding taxes in Part II.
28
<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. Estate taxes may apply.
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 Modified Endowment Contract (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 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 Options. 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. The Policy will be the sole security for the loan. 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.
29
<PAGE>
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 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 terminate) 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 on or after the
ninth Policy Month, an amount equal to the sum of the next three
Monthly Deductions.
Loan Interest (Charged). You must pay interest 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 you do not pay loan interest, we will transfer the difference between the
value of the Loan Account and the Indebtedness 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. You may repay loans 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 with a loan outstanding may have Federal income tax
consequences. (See Part II--Federal Tax Status--Tax Treatment of Loans and
Surrenders).
30
<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. We may assess a Surrender
Charge.
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. Unlike a
loan repayment, all additional deposits will be considered Premium and
subject to the Premium charge.
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. You can make a partial surrender twice each Policy Year. The partial
surrender 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. We may assess a pro-rata portion of the Surrender Charge for any
amount by which the Specified Amount is reduced. We may also assess a
Partial Surrender Fee.
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 on July
1, 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. BMA has corrected its mission critical data processing
systems so they correctly handle year 2000 and subsequent dates. BMA currently
expects the portion of this project dealing with non-mission critical systems
to be complete by September 30, 1999. Based on this plan, BMA does not believe
that the costs to complete such system modifications or replacement will be
material to BMA.
31
<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
involving an Investment Option 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.
32
<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
As of May 1, 1999 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
------------------ -------------------------------------------
<C> <S>
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 of BMA from
1994 to present; President & Executive Vice President
from 1985 to 1996, BMA Financial Services, Inc.
Michael Kent Deardorff.. Senior Vice President--Marketing BMA Financial Group
of BMA from 1996--present; Vice President Annuity
from 1994 to 1996; Vice President--Advance Markets
from 1990 to 1994.
James Evan Kilmer....... Vice President--Taxes of BMA from 1986--present.
Edward Scott Ritter..... Senior Vice President--Insurance Services, Corporate
Development & Communications 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--Workplace Benefits 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.
Margaret Mary Heidkamp.. Vice President--Operations, Variable and Asset
Accumulation Products of BMA from 1998 to present;
Vice President, Management Services from 1986 to
1998.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices With Depositor and
Business Address* Business Experience for the Past Five Years
------------------ -------------------------------------------
<C> <S>
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.
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.
34
<PAGE>
OFFICERS AND DIRECTORS OF JONES & BABSON, INC.
As of May 1, 1999, 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.
------------------ ----------------------------------
<C> <S>
Larry D. Armel.......... President, Director and Chief Executive Officer
P. Bradley Adams........ Vice President, Chief Financial Officer and Treasurer
William G. Cooke........ Chief Compliance Officer
Martin A. Cramer........ Legal and Regulatory Affairs-Vice President and
Secretary
Constance B. Martin..... Assistant 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.
OFFICERS AND DIRECTORS OF CONSECO EQUITY SALES, INC.
As of May 1, 1999, 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.
------------------ ----------------------------------------
<C> <S>
L. Gregory Gloeckner.... President and Director
William P. Kovacs....... Vice President, Senior Counsel, Secretary and
Director
James S. Adams.......... Senior Vice President, Treasurer and Director
William T. Devanney, Senior Vice President, Corporate Taxes
Jr......................
Christene H. Darnell.... Vice President, Management Reporting
D. Bruce Johnston....... Vice President, Director--Mutual Fund Sales and
Marketing
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 is
amended or if the present interpretation of these laws should change, and as a
result We determine that We are 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.
35
<PAGE>
We will determine the number of shares which a person has a right to vote 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 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.
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
We may reduce or eliminate the amount of the Surrender Charge on the
Policies 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. We will
determine whether the Surrender Charge will be reduced after We examine all the
relevant factors such as:
1. We will consider the size and type of group to which sales are to be
made. 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. We will consider the total amount of Premiums to be received. Per
Policy sales expenses are likely to be less on larger Premium payments than
on smaller ones.
3. We will consider any prior or existing relationship with Us. 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.
We may eliminate the Surrender Charge 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.
36
<PAGE>
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 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. We determine this from the
date of birth shown in the application. If the date of birth or sex shown on
the Policy Schedule is not correct, we will adjust the Death Benefit 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.
37
<PAGE>
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 Our understanding of current
federal income tax law applicable to life insurance in general. We 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.
We believe that the policies to be issued will qualify as "life insurance
contracts" under Section 7702. We do 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. 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 in this prospectus 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, this discussion 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
38
<PAGE>
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 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
39
<PAGE>
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.
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, including those
resulting from the termination of the Policy, 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 or
termination of the Policy, 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.
40
<PAGE>
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.
You 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 MECs which 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. You 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. You should therefore consult a
competent tax adviser should you wish to assign or change the Owner of Your
Policy.
Qualified Plans. The Policies may be used in conjunction with certain
Qualified Plans. Because the rules governing such use are complex, you should
not do so until you have 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.
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
.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:
. the receipt of Premium;
. any transfer between Investment Options;
. any loan, interest repayment, or loan repayment;
. any surrender;
. exercise of the free look privilege; and
. payment of the Death Benefit under the Policy.
Upon request You are entitled to a receipt of Premium payment.
41
<PAGE>
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or the Co-
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 our total assets or that relates to the Separate Account.
EXPERTS
The financial statements of BMA Variable Life Account A at December 31, 1998
and the period from December 1, 1998 (inception) to December 31, 1998, and the
consolidated financial statements of Business Men's Assurance Company of
America at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of the Separate Account and BMA follow.
42
<PAGE>
FINANCIAL STATEMENTS
BMA VARIABLE LIFE ACCOUNT A
Period from December 1, 1998 (inception)
to December 31, 1998
with Report of Independent Auditors
43
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
FINANCIAL STATEMENTS
Period from December 1, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Contents Page
- -------- ----
<S> <C>
Report of Independent Auditors............................................. 45
Audited Financial Statements
Statement of Assets and Liabilities........................................ 46
Statement of Operations and Changes in Net Assets.......................... 48
Notes to Financial Statements.............................................. 52
</TABLE>
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Contract Owners of BMA Variable Life
Account A and The Board of Directors of
Business Men's Assurance Company of America
We have audited the accompanying statement of assets and liabilities of BMA
Variable Life Account A (the Account) as of December 31, 1998, and the related
statements of operations and changes in net assets for the period from December
1, 1998 (inception) to December 31, 1998. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 1998,
by correspondence with the mutual funds' transfer agents. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BMA Variable Life Account A
at December 31, 1998, and the results of its operations and changes in net
assets for the period from December 1, 1998 (inception) to December 31, 1998,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
45
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
Number Balance
of Share Sheet
Shares Value Cost Amount
------ ----- ------ -------
<S> <C> <C> <C> <C>
Assets
Investments (Notes 1 and 3):
Investors Mark Series Fund, Inc.:
Balanced........................................ 110 $8.88 $1,049 $ 976
Growth and Income............................... 89 11.53 1,011 1,029
Large Cap Value................................. 101 9.88 1,028 998
Small Cap Equity................................ 132 8.14 1,000 1,073
Large Cap Growth................................ 82 12.90 1,001 1,061
Intermediate Fixed Income....................... 101 9.95 1,060 1,000
Mid Cap Equity.................................. 95 11.11 1,010 1,058
Money Market.................................... 1,000 1.00 1,000 1,000
Global Fixed Income............................. 101 9.92 1,083 1,003
Berger Institutional Products Trust:
100 Fund........................................ 83 12.89 1,002 1,069
Growth and Income Fund.......................... 66 16.63 1,007 1,093
Small Company Growth Fund....................... 92 12.28 1,000 1,134
International Fund.............................. 95 11.21 1,015 1,061
Conseco Series Trust:
Asset Allocation Portfolio...................... 77 13.67 1,008 1,048
Common Stock Portfolio.......................... 52 21.59 1,001 1,100
Corporate Bond Portfolio........................ 100 10.05 1,005 1,001
Government Securities Portfolio................. 82 12.15 1,004 996
The Alger American Fund:
Growth Portfolio................................ 21 53.22 1,000 1,102
Leveraged AllCap Portfolio...................... 33 34.90 1,000 1,138
MidCap Growth Portfolio......................... 39 28.87 1,000 1,118
Small Capitalization Portfolio.................. 25 43.97 1,000 1,114
American Century Variable Portfolios, Inc.:
VP Income and Growth............................ 155 6.78 1,005 1,048
VP International................................ 142 7.62 1,000 1,079
VP Value........................................ 147 6.73 1,000 993
Dreyfus Socially Responsible Growth Fund, Inc..... 34 31.08 1,005 1,061
Dreyfus Stock Index Fund.......................... 32 32.52 1,004 1,047
Dreyfus Variable Investment Fund:
Disciplined Stock Fund.......................... 46 22.95 1,005 1,061
International Value Portfolio................... 77 13.45 1,080 1,034
Federated Insurance Series:
High-Income Bond Fund II........................ 91 10.92 1,000 997
International Equity Fund II.................... 71 15.39 1,000 1,094
Utility Fund II................................. 68 15.27 1,000 1,032
Invesco Variable Investment Funds:
High-Yield Portfolio............................ 88 11.32 1,104 993
Industrial Income Portfolio..................... 55 18.61 1,052 1,026
Lazard Retirement Series, Inc.:
Retirement Equity Portfolio..................... 95 11.05 1,004 1,047
Retirement Small Cap Portfolio.................. 107 9.52 1,000 1,019
Neuberger & Berman Advisors Management Trust:
Limited Maturity Bond Portfolio................. 72 13.82 1,000 999
Partners Portfolio.............................. 54 18.93 1,000 1,019
Strong Opportunity Fund II, Inc................... 48 21.72 1,002 1,043
Strong Variable Insurance Funds, Inc.:
Growth Fund II.................................. 70 16.02 1,000 1,126
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund............................. 82 12.28 1,000 1,011
Worldwide Emerging Markets Fund................. 144 7.12 1,000 1,023
Worldwide Hard Assets Fund...................... 108 9.20 1,000 989
Worldwide Real Estate Fund...................... 106 9.54 1,000 1,013
-------
Total Assets................................. $44,926
=======
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C>
Liabilities and net assets
Liabilities.......................................... $ --
<CAPTION>
Number of Unit
Units Value Amount
--------- ------- -------
<S> <C> <C> <C>
Net assets are represented by (Note 3):
Accumulation units:
Investors Mark Series Fund, Inc.:
Balanced........................................ 100 $9.7593 976
Growth and Income............................... 100 10.3205 1,029
Large Cap Value................................. 100 10.0173 998
Small Cap Equity................................ 100 10.7437 1,073
Large Cap Growth................................ 99 10.7032 1,061
Intermediate Fixed Income....................... 100 10.0183 1,000
Mid Cap Equity.................................. 99 10.6526 1,058
Money Market.................................... 100 10.0343 1,000
Global Fixed Income............................. 100 10.0270 1,003
Berger Institutional Products Trust:
100 Fund........................................ 99 10.7846 1,069
Growth and Income Fund.......................... 98 11.1016 1,093
Small Company Growth Fund....................... 100 11.3646 1,134
International Fund.............................. 103 10.3073 1,061
Conseco Series Trust:
Asset Allocation Portfolio...................... 99 10.5724 1,048
Common Stock Portfolio.......................... 98 11.1898 1,100
Corporate Bond Portfolio........................ 100 10.0411 1,001
Government Securities Portfolio................. 100 9.9868 996
The Alger American Fund:
Growth Portfolio................................ 98 11.2137 1,102
Leveraged AllCap Portfolio...................... 98 11.6450 1,138
MidCap Growth Portfolio......................... 99 11.2554 1,118
Small Capitalization Portfolio.................. 99 11.2744 1,114
American Century Variable Portfolios, Inc.:
VP Income and Growth............................ 99 10.5982 1,048
VP International................................ 102 10.5394 1,079
VP Value........................................ 100 9.9556 993
Dreyfus Socially Responsible Growth Fund, Inc..... 98 10.7907 1,061
Dreyfus Stock Index Fund.......................... 99 10.5782 1,047
Dreyfus Variable Investment Fund:
Disciplined Stock Fund.......................... 99 10.7245 1,061
International Value Portfolio................... 101 10.2246 1,034
Federated Insurance Series:
High-Income Bond Fund II........................ 100 9.9726 997
International Equity Fund II.................... 101 10.7924 1,094
Utility Fund II................................. 100 10.3596 1,032
Invesco Variable Investment Funds:
High-Yield Portfolio............................ 100 9.9193 993
Industrial Income Portfolio..................... 99 10.3350 1,026
Lazard Retirement Series, Inc.:
Retirement Equity Portfolio..................... 100 10.4609 1,047
Retirement Small Cap Portfolio.................. 100 10.1725 1,019
Neuberger & Berman Advisors Management Trust:
Limited Maturity Bond Portfolio................. 100 10.0145 999
Partners Portfolio.............................. 100 10.2380 1,019
Strong Opportunity Fund II, Inc................... 100 10.4636 1,043
Strong Variable Insurance Funds, Inc.:
Growth Fund II.................................. 100 11.3056 1,126
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund............................. 100 10.1572 1,011
Worldwide Emerging Markets Fund................. 102 10.0707 1,023
Worldwide Hard Assets Fund...................... 101 9.7665 989
Worldwide Real Estate Fund...................... 101 10.0633 1,013
-------
Net assets..................................... 44,926
-------
Total liabilities and net assets............... $44,926
=======
</TABLE>
See accompanying notes.
47
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
Period from December 1, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Berger
Institutional
Investors Mark Series Fund, Inc. Products Trust
------------------------------------------------------------------------------------ -------------------
Intermediate Global Growth
Growth and Large Cap Small Cap Large Cap Fixed Mid Cap Money Fixed and Income
Balanced Income Value Equity Growth Income Equity Market Income 100 Fund Fund
-------- ---------- --------- --------- --------- ------------ ------- ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income......... $ 49 $ 11 $ 28 $ 1 $ 1 $ 60 $ 10 $ -- $ 83 $ 2 $ 7
Expenses (Note
2):
Mortality,
expense and
administrative
charges....... -- -- -- -- -- -- -- -- -- -- --
----- ------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income......... 49 11 28 1 1 60 10 -- 83 2 7
Net realized
gains on
investments.... -- -- -- -- -- -- -- -- -- -- --
Unrealized
appreciation
(depreciation)
on investments (73) 18 (30) 72 60 (60) 48 -- (80) 67 86
----- ------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net realized and
unrealized gain
(loss) on
investments.... (73) 18 (30) 72 60 (60) 48 -- (80) 67 86
Net increase
(decrease) in
net assets
resulting from
operations (24) 29 (2) 73 61 -- 58 -- 3 69 93
Variable annuity
deposits (Notes
2 and 3)....... 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
----- ------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net increase.... 976 1,029 998 1,073 1,061 1,000 1,058 1,000 1,003 1,069 1,093
Net assets at
beginning of
period......... -- -- -- -- -- -- -- -- -- -- --
----- ------ ----- ------ ------ ------ ------ ------ ------ ------ ------
Net assets at
end of period.. $ 976 $1,029 $ 998 $1,073 $1,061 $1,000 $1,058 $1,000 $1,003 $1,069 $1,093
===== ====== ===== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
48
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
Period from December 1, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Berger Institutional
Products Trust Conseco Series Trust The Alger American Fund
--------------------- ----------------------------------------- --------------------------------------------
Small
Company Asset Common Corporate Government Leveraged MidCap Small
Growth International Allocation Stock Bond Securities Growth AllCap Growth Capitalization
Fund Fund Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------- ------------- ---------- --------- --------- ---------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income......... $ -- $ 15 $ 8 $ 1 $ 5 $ 4 $ -- $ -- $ -- $ --
Expenses (Note
2):
Mortality,
expense and
administrative
charges....... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net investment
income......... -- 15 8 1 5 4 -- -- -- --
Net realized
gains on
investments.... -- -- -- -- -- -- -- -- -- --
Unrealized
appreciation
(depreciation)
on
investments.... 134 46 40 99 (4) (8) 102 138 118 114
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net realized and
unrealized gain
(loss) on
investments.... 134 46 40 99 (4) (8) 102 138 118 114
Net increase
(decrease) in
net assets
resulting from
operations 134 61 48 100 1 (4) 102 138 118 114
Variable annuity
deposits (Notes
2 and 3)....... 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net increase.... 1,134 1,061 1,048 1,100 1,001 996 1,102 1,138 1,118 1,114
Net assets at
beginning of
period......... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Net assets at
end of period.. $1,134 $1,061 $1,048 $1,100 $1,001 $ 996 $1,102 $1,138 $1,118 $1,114
====== ====== ====== ====== ====== ===== ====== ====== ====== ======
</TABLE>
49
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
Period from December 1, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
American Century Variable Dreyfus Variable
Portfolios, Inc. Investment Fund Federated Insurance Series
-------------------------- ----------- ------- ------------------------- -----------------------------
Dreyfus High-
VP Socially Dreyfus Income
Income Responsible Stock Disciplined International Bond International
and VP VP Growth Index Stock Value Fund Equity Utility
Growth International Value Fund, Inc. Fund Fund Portfolio II Fund II Fund II
------ ------------- ----- ----------- ------- ----------- ------------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income........... $ 5 $ -- $ -- $ 40 $ 4 $ 5 $ 80 $ -- $ -- $ --
Expenses (Note
2):
Mortality,
expense and
administrative
charges......... -- -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ ------ ----- ------ ------
Net investment
income........... 5 -- -- 40 4 5 80 -- -- --
Net realized
gains on
investments -- -- -- -- -- -- -- -- -- --
Unrealized
appreciation
(depreciation) on
investments 43 79 (7) 21 43 56 (46) (3) 94 32
------ ------ ----- ------ ------ ------ ------ ----- ------ ------
Net realized and
unrealized gain
(loss) on
investments...... 43 79 (7) 21 43 56 (46) (3) 94 32
------ ------ ----- ------ ------ ------ ------ ----- ------ ------
Net increase
(decrease) in net
assets resulting
from operations.. 48 79 (7) 61 47 61 34 (3) 94 32
Variable annuity
deposits (Notes 2
and 3)........... 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
------ ------ ----- ------ ------ ------ ------ ----- ------ ------
Net increase..... 1,048 1,079 993 1,061 1,047 1,061 1,034 997 1,094 1,032
Net assets at
beginning of
period -- -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ ------ ----- ------ ------
Net assets at end
of period........ $1,048 $1,079 $ 993 $1,061 $1,047 $1,061 $1,034 $ 997 $1,094 $1,032
====== ====== ===== ====== ====== ====== ====== ===== ====== ======
<CAPTION>
Invesco Variable
Investment Funds
--------------------
High- Industrial
Yield Income
Portfolio Portfolio
--------- ----------
<S> <C> <C>
Investment
income........... $ 104 $ 52
Expenses (Note
2):
Mortality,
expense and
administrative
charges......... -- --
--------- ----------
Net investment
income........... 104 52
Net realized
gains on
investments -- --
Unrealized
appreciation
(depreciation) on
investments (111) (26)
--------- ----------
Net realized and
unrealized gain
(loss) on
investments...... (111) (26)
--------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. (7) 26
Variable annuity
deposits (Notes 2
and 3)........... 1,000 1,000
--------- ----------
Net increase..... 993 1,026
Net assets at
beginning of
period -- --
--------- ----------
Net assets at end
of period........ $ 993 $1,026
========= ==========
</TABLE>
50
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS--(Continued)
Period from December 1, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Strong
Neuberger & Berman Variable
Lazard Retirement Advisors Management Insurance
Series, Inc. Trust Funds, Inc. Van Eck Worldwide Insurance Trust
--------------------- ------------------- ----------- -------------------------------------------
Limited Worldwide
Retirement Retirement Maturity Strong Worldwide Emerging Worldwide Worldwide
Equity Small Cap Bond Partners Opportunity Growth Bond Markets Hard Assets Real Estate
Portfolio Portfolio Portfolio Portfolio Fund II Fund II Fund Fund Fund Fund
---------- ---------- --------- --------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income........... $ 3 $ -- $ -- $ -- $ 2 $ -- $ -- $ -- $ -- $ --
Expenses (Note
2):
Mortality,
expense and
administrative
charges......... -- -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ ------ ------ ----- ------
Net investment
income........... 3 -- -- -- 2 -- -- -- -- --
Net realized
gains on
investments...... -- -- -- -- -- -- -- -- -- --
Unrealized
appreciation
(depreciation) on
investments...... 44 19 (1) 19 41 126 11 23 (11) 13
------ ------ ----- ------ ------ ------ ------ ------ ----- ------
Net realized and
unrealized gain
(loss) on
investments...... 44 19 (1) 19 41 126 11 23 (11) 13
------ ------ ----- ------ ------ ------ ------ ------ ----- ------
Net increase
(decrease) in net
assets resulting
from operations.. 47 19 (1) 19 43 126 11 23 (11) 13
Variable annuity
deposits (Notes 2
and 3)........... 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
------ ------ ----- ------ ------ ------ ------ ------ ----- ------
Net increase..... 1,047 1,019 999 1,019 1,043 1,126 1,011 1,023 989 1,013
Net assets at
beginning of
period........... -- -- -- -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ ------ ------ ----- ------
Net assets at end
of period........ $1,047 $1,019 $ 999 $1,019 $1,043 $1,126 $1,011 $1,023 $ 989 $1,013
====== ====== ===== ====== ====== ====== ====== ====== ===== ======
<CAPTION>
Total
-------
<S> <C>
Investment
income........... $ 580
Expenses (Note
2):
Mortality,
expense and
administrative
charges......... --
-------
Net investment
income........... 580
Net realized
gains on
investments...... --
Unrealized
appreciation
(depreciation) on
investments...... 1,346
-------
Net realized and
unrealized gain
(loss) on
investments...... 1,346
-------
Net increase
(decrease) in net
assets resulting
from operations.. 1,926
Variable annuity
deposits (Notes 2
and 3)........... 43,000
-------
Net increase..... 44,926
Net assets at
beginning of
period........... --
-------
Net assets at end
of period........ $44,926
=======
</TABLE>
51
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Summary of Significant Accounting Policies
Organization
BMA Variable Life Account A (the Account) is a separate account of Business
Men's Assurance Company of America (BMA). The Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended.
Deposits received by the Account are invested in the various funds (mutual
funds not otherwise available to the public) as directed by the owners.
Amounts may be invested in shares of the following portfolios:
Investors Mark Series Fund: Balanced, Growth and Income, Large Cap
Value, Small Cap Equity, Large Cap Growth, Intermediate Fixed Income, Mid
Cap Equity, Money Market and Global Fixed Income.
Berger Institutional Products Trust (Berger IPT): 100 Fund, Growth and
Income Fund, Small Company Growth Fund and International Fund.
Conseco Series Trust: Asset Allocation Portfolio, Common Stock
Portfolio, Corporate Bond Portfolio and Government Securities Portfolio.
The Alger American Fund: Growth Portfolio, Leveraged AllCap Portfolio,
MidCap Growth Portfolio and Small Capitalization Portfolio.
American Century Variable Portfolios, Inc.: VP Income and Growth, VP
International and VP Value.
Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund.
Dreyfus Variable Investment Fund: Disciplined Stock Fund and
International Value Portfolio.
Federated Insurance Series: High-Income Bond Fund II, International
Equity Fund II and Utility Fund II.
Invesco Variable Investment Funds: High-Yield Portfolio and Industrial
Income Portfolio.
Lazard Retirement Series, Inc.: Retirement Equity Portfolio and
Retirement Small Cap Portfolio.
Neuberger & Berman Advisors Management Trust: Limited Maturity Bond
Portfolio and Partners Portfolio.
Strong Opportunity Fund II.
Strong Variable Insurance Funds, Inc.: Growth Fund II.
Van Eck Worldwide Insurance Trust: Worldwide Bond Fund, Worldwide
Emerging Markets Fund, Worldwide Hard Assets Fund and Worldwide Real Estate
Fund.
Under the terms of the investment advisory contracts, portfolio investments
of the underlying mutual funds of Investors Mark Series Funds are made by
Investors Mark Series Fund, LLC (IMSF, LLC), which is owned by Jones & Babson,
Inc., a wholly-owned subsidiary of BMA. IMSF, LLC has engaged Standish, Ayer &
Wood, Inc. to provide subadvisory services for the Intermediate Fixed Income
Portfolio, the Mid Cap Equity Portfolio and the Money Market Portfolio. IMSF,
LLC has engaged Standish International Management Company, L.P. to provide
subadvisory services for the Global Fixed Income Portfolio. IMSF, LLC has
engaged Stein Roe & Farnam, Incorporated to provide subadvisory services for
the Small Cap Equity Portfolio and the Large Cap Growth Portfolio. IMSF, LLC
has engaged David L. Babson & Co., Inc. to provide subadvisory
52
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
services for the Large Cap Value Portfolio. IMSF, LLC has engaged Lord, Abbett
& Co. to provide subadvisory services for the Growth and Income Portfolio.
IMSF, LLC has engaged Kornitzer Capital Management, Inc. to provide subadvisory
services for the Balanced Portfolio.
Berger Institutional Products Trust is a mutual fund with multiple
portfolios. Berger Associates is the investment advisor to all portfolios
except the Berger/BIAM IPT--International Fund. BBOI Worldwide LLC is the
advisor to the Berger/BIAM IPT--International Fund. BBOI Worldwide LLC has
retained Bank of Ireland Asset Management (U.S.) Limited (BIAM) as subadvisor.
Conseco Series Trust is a mutual fund with multiple portfolios. Conseco
Capital Management, Inc. is the investment advisor to the portfolios.
The Alger American Fund is a mutual fund with multiple portfolios. Fred
Alger Management, Inc. serves as investment advisor.
American Century Variable Portfolios, Inc. is a series of funds managed by
American Century Investment Management, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc. is managed by The Dreyfus
Corporation. Dreyfus has hired NCM Capital Management Group, Inc. to serve as
sub-investment advisor and to provide day-to-day management of the Fund's
investments. The Dreyfus Corporation serves as the Dreyfus Stock Index Fund's
manager. Dreyfus has hired an affiliate, Mellon Equity Associates, to serve as
the Fund's index fund manager and to provide day-to-day management of the
Fund's investments. The Dreyfus Variable Investment Fund is a mutual fund with
multiple portfolios. The Dreyfus Corporation serves as the investment advisor.
Federated Insurance Series is a mutual fund with multiple portfolios.
Federated Advisors is the investment advisor.
Invesco Variable Investment Funds. Inc. is a mutual fund with multiple
portfolios. Invesco Funds Group, Inc. is the investment advisor.
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.
Each portfolio of Neuberger & Berman Advisers Management Trust invests in a
corresponding series of Advisors Managers Trust. All series of Advisors
Managers Trust are managed by Neuberger & Berman Management Incorporated.
Strong Opportunity Fund II, Inc. is a mutual fund managed by Strong Capital
Management, Inc. Strong Variable Insurance Funds, Inc. is a mutual fund with
multiple series. Strong Capital Management, Inc. serves as the investment
advisor.
Van Eck Worldwide Insurance Trust is a mutual fund with multiple portfolios
managed by Van Eck Associates Corporation.
Investment Valuation
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
method is used to determine gains and losses. Security transactions are
accounted for on the trade date, and dividend income from the funds to the
Account is recorded on the ex-dividend date and reinvested upon receipt.
Capital gain distributions from the mutual funds to the Account also are
reinvested upon receipt.
53
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
The cost of investments purchased were as follows:
<TABLE>
<CAPTION>
Period from
December 1, 1998
(inception) to
December 31, 1998
-----------------
Cost of Purchases
-----------------
<S> <C>
Investors Mark Series Fund, Inc.:
Balanced................................................. $1,049
Growth and Income........................................ 1,011
Large Cap Value.......................................... 1,028
Small Cap Equity......................................... 1,000
Large Cap Growth......................................... 1,001
Intermediate Fixed Income................................ 1,060
Mid Cap Equity........................................... 1,010
Money Market............................................. 1,000
Global Fixed Income...................................... 1,083
Berger Institutional Products Trust:
100 Fund................................................. 1,002
Growth and Income Fund................................... 1,007
Small Company Growth Fund................................ 1,000
International Fund....................................... 1,015
Conseco Series Trust:
Asset Allocation Portfolio............................... 1,008
Common Stock Portfolio................................... 1,001
Corporate Bond Portfolio................................. 1,005
Government Securities Portfolio.......................... 1,004
The Alger American Fund:
Growth Portfolio......................................... 1,000
Leveraged AllCap Portfolio............................... 1,000
MidCap Growth Portfolio.................................. 1,000
Small Capitalization Portfolio........................... 1,000
American Century Variable Portfolios, Inc.:
VP Income and Growth..................................... 1,005
VP International......................................... 1,000
VP Value................................................. 1,000
Dreyfus Socially Responsible Growth Fund, Inc.............. 1,005
Dreyfus Stock Index Fund................................... 1,004
Dreyfus Variable Investment Fund:
Disciplined Stock Fund................................... 1,005
International Value Portfolio............................ 1,080
Federated Insurance Series:
High-Income Bond Fund II................................. 1,000
International Equity Fund II............................. 1,000
Utility Fund II.......................................... 1,000
Invesco Variable Investment Funds:
High-Yield Portfolio..................................... 1,104
Industrial Income Portfolio.............................. 1,052
</TABLE>
54
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Period from
December 1, 1998
(inception) to
December 31, 1998
-----------------
Cost of Purchases
-----------------
<S> <C>
Lazard Retirement Series, Inc.:
Retirement Equity Portfolio.............................. 1,004
Retirement Small Cap Portfolio........................... 1,000
Neuberger & Berman Advisors Management Trust:
Limited Maturity Bond Portfolio.......................... 1,000
Partners Portfolio....................................... 1,000
Strong Opportunity Fund II................................. 1,002
Strong Variable Insurance Funds, Inc.:
Growth Fund II........................................... 1,000
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund...................................... 1,000
Worldwide Emerging Markets Fund.......................... 1,000
Worldwide Hard Assets Fund............................... 1,000
Worldwide Real Estate Fund............................... 1,000
-------
Total.................................................. $43,545
=======
</TABLE>
There were no sales of investments during the period from December 1, 1998
(inception) to December 31, 1998.
Federal Income Taxes
The operations of the Account form a part of, and are taxed with, the
operations of BMA, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on income distributions received by the
subaccounts.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Variable Life Contract Charges
BMA deducts a premium charge from each premium payment of 5.5% of all
premiums in the first through the 10th policy year and 4.0% of all premiums in
the 11th and later policy years. BMA deducts a policy charge of $25 per month
in the first policy year and $5 per month thereafter. BMA deducts a risk charge
each month of .80%, on an annual basis, of the accumulation value in the
separate account for the first through 10th policy year and .40%, on an annual
basis, of the accumulation value in the separate account for the 11th policy
year and thereafter.
A deduction for cost of insurance and cost of any riders also is made
monthly. This charge will depend upon the specified amount, the accumulation
value and the sex, age and rate class of the primary insured.
Charges retained by BMA from the proceeds of sales of variable life
contracts were not significant during 1998.
55
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Summary of Unit Transactions
Account deposits, all of which are attributable to BMA during 1998, by units
follow:
<TABLE>
<CAPTION>
Period from
December 1, 1998
(inception) to
December 31, 1998
-----------------
Units Deposited
<S> <C>
Investors Mark Series Fund, Inc.:
Balanced................................................. 100
Growth and Income........................................ 100
Large Cap Value.......................................... 100
Small Cap Equity......................................... 100
Large Cap Growth......................................... 99
Intermediate Fixed Income................................ 100
Mid Cap Equity........................................... 99
Money Market............................................. 100
Global Fixed Income...................................... 100
Berger Institutional Products Trust:
100 Fund................................................. 99
Growth and Income Fund................................... 98
Small Company Growth Fund................................ 100
International Fund....................................... 103
Conseco Series Trust:
Asset Allocation Portfolio............................... 99
Common Stock Portfolio................................... 98
Corporate Bond Portfolio................................. 100
Government Securities Portfolio.......................... 100
The Alger American Fund:
Growth Portfolio......................................... 98
Leveraged AllCap Portfolio............................... 98
MidCap Growth Portfolio.................................. 99
Small Capitalization Portfolio........................... 99
American Century Variable Portfolios, Inc.:
VP Income and Growth..................................... 99
VP International......................................... 102
VP Value................................................. 100
Dreyfus Socially Responsible Growth Fund, Inc.............. 98
Dreyfus Stock Index Fund................................... 99
Dreyfus Variable Investment Fund:
Disciplined Stock Fund................................... 99
International Value Portfolio............................ 101
Federated Insurance Series:
High-Income Bond Fund II................................. 100
International Equity Fund II............................. 101
Utility Fund II.......................................... 100
Invesco Variable Investment Funds:
High-Yield Portfolio..................................... 100
Industrial Income Portfolio.............................. 99
</TABLE>
56
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Period from
December 1, 1998
(inception) to
December 31, 1998
-----------------
Units Deposited
<S> <C>
Lazard Retirement Series, Inc.:
Retirement Equity Portfolio.............................. 100
Retirement Small Cap Portfolio........................... 100
Neuberger & Berman Advisors Management Trust:
Limited Maturity Bond Portfolio.......................... 100
Partners Portfolio....................................... 100
Strong Opportunity Fund II................................. 100
Strong Variable Insurance Funds, Inc.:
Growth Fund II........................................... 100
Van Eck Worldwide Insurance Trust:
Worldwide Bond Fund...................................... 100
Worldwide Emerging Markets Fund.......................... 102
Worldwide Hard Assets Fund............................... 101
Worldwide Real Estate Fund............................... 101
</TABLE>
57
<PAGE>
BMA VARIABLE LIFE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Impact of Year 2000 (Unaudited)
BMA continues to monitor the potential impact of the year 2000 on its
systems and those of its primary vendors and business partners. This assessment
extends to both informational technology systems and noninformation technology
systems. All identified modifications to BMA's critical operating systems have
been completed as of December 31, 1998, and BMA continues to validate completed
systems to ensure ongoing compliance. Contingency plans are being developed and
management estimates that these plans will be completed by mid-1999, prior to
any anticipated impact on its operating systems. Total costs of the
modifications have been immaterial to BMA's operations and have been expensed
as incurred.
BMA does risk that one or more of its critical suppliers or customers
(external relationships) will not be able to interact with BMA due to the third
parties' inability to resolve their own year 2000 issues. BMA is actively
monitoring the compliance programs of those third parties, and formal
communication has been initiated with all major outside service providers.
However, BMA is unable to predict with certainty to what extent its external
relationships will be year 2000 ready.
The forecast costs, consequences of the year 2000 problem and the dates by
which BMA believes it will complete its various year 2000 computer
modifications are based on its best estimates, which in turn were based on
numerous assumptions of future events including third-party modification and
compliance plans, continued availability of resources and other factors. BMA
cannot be sure that these estimates will be achieved or that the assumptions
are accurate, and actual results could differ materially from those
anticipated.
58
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
59
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 61
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................. 62
Consolidated Statements of Operations....................................... 63
Consolidated Statements of Comprehensive Income............................. 64
Consolidated Statements of Stockholder's Equity............................. 65
Consolidated Statements of Cash Flows....................................... 66
Notes to Consolidated Financial Statements.................................. 67
</TABLE>
60
<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, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 4, 1999
61
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
(In Thousands)
<S> <C> <C>
Assets
Investments (Notes 1 and 3):
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost--$1,257,705 in 1998
and $1,308,458 in 1997)............................. $1,277,121 $1,326,018
Equity securities (cost--$36,214 in 1998 and $46,807
in 1997)............................................ 40,373 57,806
Mortgage loans on real estate, net of allowance for
losses of $9,185 in 1998 and $8,435 in 1997........... 875,117 842,149
Policy loans........................................... 59,780 62,207
Short-term investments................................. 38,815 47,507
Other.................................................. 44,084 3,424
---------- ----------
Total investments.................................... 2,335,290 2,339,111
Cash..................................................... 2,531 --
Accrued investment income................................ 18,078 18,520
Premium and other receivables............................ 12,017 10,606
Deferred policy acquisition costs........................ 112,311 125,065
Property, equipment and software (Note 6)................ 16,276 16,753
Reinsurance recoverables:
Paid benefits.......................................... 6,549 6,588
Benefits and claim reserves ceded...................... 95,476 72,000
Other assets (Note 1).................................... 14,852 16,216
Assets held in separate accounts (Note 1)................ 300,366 76,964
---------- ----------
Total assets......................................... $2,913,746 $2,681,823
========== ==========
Liabilities and stockholder's equity
Future policy benefits:
Life and annuity (Note 10)............................. $1,253,531 $1,259,319
Health................................................. 78,527 87,883
Contract account balances................................ 677,444 699,244
Policy and contract claims............................... 62,953 58,381
Unearned revenue reserve................................. 9,924 11,284
Other policyholder funds................................. 14,671 14,286
Outstanding checks in excess of bank balances............ -- 2,669
Current income taxes payable (Note 7).................... 2,300 2,158
Deferred income taxes (Note 7)........................... 10,650 12,244
Payable to affiliate (Note 10)........................... 771 799
Other liabilities........................................ 84,183 72,858
Liabilities related to separate accounts (Note 1)........ 300,366 76,964
---------- ----------
Total liabilities........................................ 2,495,320 2,298,089
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
Accumulated other comprehensive income................. 10,730 14,364
Retained earnings...................................... 355,590 317,264
---------- ----------
Total stockholder's equity........................... 418,426 383,734
---------- ----------
Total liabilities and stockholder's equity........... $2,913,746 $2,681,823
========== ==========
</TABLE>
See accompanying notes.
62
<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
---------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums:
Life and annuity.............................. $170,494 $154,602 $142,461
Health........................................ 27,199 43,518 60,491
Other insurance considerations.................. 37,599 37,928 38,780
Net investment income (Note 3).................. 181,528 167,958 146,564
Realized gains, net (Note 3).................... 10,556 5,121 5,906
Other income.................................... 44,123 35,941 26,802
-------- -------- --------
Total revenues.............................. 471,499 445,068 421,004
Benefits and expenses:
Life and annuity benefits....................... 144,979 126,345 122,915
Health benefits................................. 15,547 27,812 42,224
Increase in policy liabilities including
interest credited to account balances.......... 101,650 104,581 94,530
Commissions..................................... 51,881 53,622 55,180
(Increase) decrease in deferred policy
acquisition costs.............................. 11,271 (1,229) (5,459)
Taxes, licenses and fees........................ 3,739 4,654 5,229
Other operating costs and expenses.............. 87,301 90,562 78,133
-------- -------- --------
Total benefits and expenses................. 416,368 406,347 392,752
-------- -------- --------
Income from continuing operations before income
tax expense...................................... 55,131 38,721 28,252
Income tax expense (Note 7)....................... 16,805 2,532 10,168
-------- -------- --------
Income from continuing operations................. 38,326 36,189 18,084
Discontinued operations (Note 12):
Gain on sale of discontinued operations, net of
income tax expense of $735 in 1996............. -- -- 1,416
-------- -------- --------
Income from discontinued operations............... -- -- 1,416
-------- -------- --------
Net income.................................. $ 38,326 $ 36,189 $ 19,500
======== ======== ========
</TABLE>
See accompanying notes.
63
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Net income.......................................... $38,326 $36,189 $19,500
Other comprehensive income:
Unrealized holding gains (losses) arising during
period........................................... 2,597 25,009 (21,346)
Less realized gains included in net income........ 6,760 1,868 7,851
------- ------- -------
Net unrealized gains (losses)................... (4,163) 23,141 (29,197)
Effect on deferred policy acquisition costs......... (1,483) (7,189) 13,418
Effect on unearned revenue reserve.................. 55 474 (2,082)
Deferred income taxes............................... 1,957 (5,748) 6,250
------- ------- -------
Other comprehensive income.......................... (3,634) 10,678 (11,611)
------- ------- -------
Comprehensive income............................ $34,692 $46,867 $ 7,889
======= ======= =======
</TABLE>
See accompanying notes.
64
<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
---------------------------
1998 1997 1996
-------- -------- --------
(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 40,106 25,106
Additional paid-in capital..................... -- -- 15,000
-------- -------- --------
Balance at end of year........................... 40,106 40,106 40,106
Accumulated other comprehensive income:
Balance at beginning of year..................... 14,364 3,686 15,297
Change in net unrealized gains (losses)........ (3,634) 10,678 (11,611)
-------- -------- --------
Balance at end of year........................... 10,730 14,364 3,686
Retained earnings:
Balance at beginning of year..................... 317,264 281,075 266,575
Net income..................................... 38,326 36,189 19,500
Dividends declared (Note 2).................... -- -- (5,000)
-------- -------- --------
Balance at end of year........................... 355,590 317,264 281,075
-------- -------- --------
Total stockholder's equity......................... $418,426 $383,734 $336,867
======== ======== ========
</TABLE>
See accompanying notes.
65
<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
-------------------------------
1998 1997 1996
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Operating activities
Net income.................................... $ 38,326 $ 36,189 $ 19,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income tax (benefit)................ 363 (8,416) 4,146
Realized gains, net.......................... (10,556) (5,121) (5,906)
Gain on disposal of discontinued segment..... -- -- (2,151)
Discount accretion, net...................... (1,618) (975) (1,246)
Policy loans lapsed in lieu of surrender
benefits.................................... 3,740 1,021 2,996
Depreciation................................. 2,524 3,778 4,153
Amortization................................. 782 782 782
Changes in assets and liabilities:
(Increase) decrease in accrued investment
income.................................... 442 19 (1,392)
(Increase) decrease in receivables and
reinsurance recoverables.................. (24,876) (15,425) 2,761
Policy acquisition costs deferred.......... (22,484) (28,449) (31,745)
Policy acquisition costs amortized......... 33,755 27,220 26,286
Increase (decrease) in income taxes
payable................................... 142 (2,187) 5,518
Increase in accrued policy benefits, claim
reserves, unearned revenues and
policyholder funds........................ 19,189 30,777 32,331
Interest credited to policyholder accounts. 77,358 79,312 69,494
Increase (decrease) in outstanding checks
in excess of bank balances................ (2,669) (2,004) 805
Decrease in other assets and other
liabilities, net.......................... 2,344 7,269 412
Other, net................................... 19 (433) (1,208)
--------- --------- ---------
Net cash provided by operating activities..... 116,781 123,357 125,536
Investing activities
Purchases of investments:
Securities available-for-sale:
Fixed maturities........................... (603,142) (464,419) (527,172)
Equity securities.......................... (12,969) (31,625) (17,586)
Mortgage and policy loans.................... (310,127) (237,990) (259,438)
Other........................................ (41,118) -- --
Sales, calls or maturities of investments:
Maturities and calls of securities
available-for-sale:
Fixed maturities........................... 305,013 167,000 117,057
Sales of securities available-for-sale:
Fixed maturities........................... 360,296 284,124 238,051
Equity securities.......................... 22,632 14,379 12,444
Mortgage and policy loans.................... 277,325 98,554 66,934
Real estate.................................. -- 5,854 2,194
Purchase of property, equipment and software.. (1,805) (1,949) (290)
Net (increase) decrease in short-term
investments.................................. 8,692 (7,516) 36,272
Proceeds from sale of discontinued operations. -- -- 632
Distributions from unconsolidated related
parties...................................... 1,466 1,514 718
--------- --------- ---------
Net cash provided by (used in) investing
activities................................... 6,263 (172,074) (330,184)
Financing activities
Dividends paid................................ -- -- (5,000)
Additional paid-in capital.................... -- -- 15,000
Deposits from interest sensitive and
investment-type contracts.................... 245,620 323,487 381,865
Withdrawals from interest sensitive and
investment-type contracts.................... (375,459) (295,633) (187,217)
Net proceeds from reverse repurchase
borrowing.................................... 30,189 40,925 35,173
Retirement of reverse repurchase borrowing.... (20,863) (20,062) (35,173)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (120,513) 48,717 204,648
--------- --------- ---------
Net increase in cash.......................... 2,531 -- --
Cash at beginning of year..................... -- -- --
--------- --------- ---------
Cash at end of year........................... $ 2,531 $ -- $ --
========= ========= =========
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................................. $ 16,300 $ 13,135 $ 1,239
========= ========= =========
Interest paid on reverse repurchase
borrowing................................... $ 299 $ 369 $ 620
========= ========= =========
Supplemental schedule of noncash investing and
financing activities
Real estate acquired through foreclosure...... $ -- $ 1,236 $ 3,033
========= ========= =========
</TABLE>
See accompanying notes.
66
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 accumulated other
comprehensive 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,
1998 and 1997, no real estate was owned. 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.
Impairment of Loans
Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (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.
67
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 policy issue 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 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.
68
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1998 and 1997 was $30,262,000 and
$47,211,000, 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 (See Note 7). Temporary differences are principally related to
deferred policy acquisition costs, the provision for future policy benefits,
accrual of discounts on investments, accrued expenses, accelerated depreciation
and unrealized investment gains and losses.
Separate Accounts
These accounts arise from four lines of business--variable annuities,
variable universal life, variable 401(k) 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 lines 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 policyowners and are, therefore, not
included in investment earnings in the accompanying consolidated statements 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 lines of business totaled $3,409,000 on
December 31, 1998 and $30,000 on December 31, 1997.
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 accumulated other comprehensive income.
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 statements of operations. The guaranteed interest
payable is included in the increase in policy liabilities in the accompanying
consolidated statements of
69
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations. Separate account assets and liabilities for the MBIA GIC line of
business totaled $296,957,000 on December 31, 1998 and $76,934,000 on December
31, 1997.
Intangible Assets
At December 31, 1998, goodwill of $11,541,000 (1997--$12,323,000), net of
accumulated amortization of $4,107,000 (1997--$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, 1998, 1997 and
1996.
Fair Values of Financial Instruments
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 sheets, 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.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Fixed maturities (Note 3).......... $1,277,121 $1,277,121 $1,326,018 $1,326,018
Equity securities (Note 3)......... 43,373 40,373 57,806 57,806
Mortgage loans..................... 875,117 934,712 842,149 867,552
Policy loans....................... 59,780 55,579 62,207 57,491
Short-term investments............. 38,815 38,815 47,507 47,507
Cash............................... 2,531 2,531 -- --
Reinsurance recoverables:
Paid benefits.................... 6,549 6,549 6,588 6,588
Benefits and claim reserves...... 95,476 95,476 72,000 72,000
Assets held in separate accounts... 300,366 302,549 76,964 77,061
Investment-type insurance contracts
(Note 4).......................... 1,456,634 1,453,909 1,277,362 1,256,129
</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 sheets 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.
70
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Reinsurance recoverables: The carrying values of reinsurance
recoverables approximate their fair values.
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.
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. The Company has entered into interest rate swap contracts for the
purpose of converting either the variable interest rate characteristics of
certain investments to fixed rates or from fixed rates to variable rates. The
purpose of these swaps is to better match the invested assets of the Company
with 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 was $40,000,000 at December 31, 1998 and
$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.
Accounting Changes
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Company's net income or stockholder's equity.
SFAS No. 130 requires unrealized gains or losses on the Company's available-
for-sale securities, which prior to adoption were reported separately in
equity, to be included in other comprehensive income. Prior year consolidated
financial statements have been reclassified to conform to the requirements of
SFAS No. 130.
SFAS No. 132, "Employer's Disclosures about Pension and Other Postretirement
Benefits," enhances disclosure requirements from previously adopted SFAS Nos.
87 and 106. This standard has no financial impact and was adopted at year end
1998.
Reclassification
Certain amounts for 1997 and 1996 have been reclassified to conform to the
current year presentation.
71
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1998 and 1997, the Company's statutory stockholder's
equity was $226,345,000 and $188,193,000, respectively. Statutory net gain from
operations and net income for each of the three years in the period ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Net gain from operations......................... $36,305 $18,545 $10,898
Net income....................................... 44,692 14,540 10,381
</TABLE>
3. Investment Operations
The Company's investments in securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------
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..................... $ 83,444 $ 1,848 $ (159) $ 85,133
Obligations of states and
political subdivisions 27,093 2,160 -- 29,253
Debt securities issued by
foreign governments 4,416 82 (24) 4,474
Corporate securities.......... 411,490 12,676 (2,877) 421,289
Mortgage-backed securities.... 712,853 9,028 (3,833) 718,048
Redeemable preferred stocks... 18,409 524 (9) 18,924
---------- ------- ------- ----------
Total........................... 1,257,705 26,318 (6,902) 1,277,121
Equity securities............... 36,214 5,981 (1,822) 40,373
---------- ------- ------- ----------
$1,293,919 $32,299 $(8,724) $1,317,494
========== ======= ======= ==========
</TABLE>
72
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<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
========== ======= ======= ==========
<CAPTION>
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, 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............................ $ 8,022 $ 8,120
Due after one year through five years.............. 194,668 199,802
Due after five years through 10 years.............. 221,128 228,871
Due after 10 years................................. 121,034 122,280
---------- ----------
544,852 559,073
Mortgage-backed securities......................... 712,853 718,048
---------- ----------
Total fixed maturity securities.................... $1,257,705 $1,277,121
========== ==========
</TABLE>
73
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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
-----------------
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
State:
California............................................ $ 69,913 $ 71,675
Arizona............................................... 65,135 65,030
Missouri.............................................. 62,462 51,839
Texas................................................. 59,900 60,821
Florida............................................... 49,789 42,549
Utah.................................................. 44,110 37,821
Kansas................................................ 38,509 34,267
Oklahoma.............................................. 38,394 47,569
Washington............................................ 38,136 39,824
Other................................................. 408,769 390,754
-------- --------
$875,117 $842,149
======== ========
</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>
1998 1997 1996
---- ------ ------
(In Thousands)
<S> <C> <C> <C>
Impaired mortgage loans............................... $-- $1,069 $2,516
Allowance for credit losses........................... -- 244 691
---- ------ ------
Net recorded investment in impaired loans............. $-- $ 825 $1,825
==== ====== ======
Average recorded investment in impaired loans......... $413 $1,325 $2,667
==== ====== ======
Interest income on impaired loans..................... $-- $ 57 $ 115
==== ====== ======
</TABLE>
Bonds, mortgage loans, preferred stocks and common stocks approximating
$4,900,000 and $4,600,000 were on deposit with regulatory authorities at
December 31, 1998 and 1997, respectively.
74
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Set forth below is a summary of consolidated net investment income for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities:
Bonds....................................... $ 94,975 $ 92,741 $ 86,066
Redeemable preferred stocks................. 1,603 1,309 814
Equity securities:
Common stocks............................... 702 793 579
Nonredeemable preferred stocks.............. 237 541 438
Mortgage loans on real estate................. 75,768 66,053 52,973
Real estate................................... 18 612 935
Policy loans.................................. 3,667 3,906 3,953
Short-term investments........................ 4,334 2,955 3,016
Other......................................... 2,685 1,223 269
-------- -------- --------
183,989 170,133 149,043
Less:
Investment expenses......................... 2,461 2,175 2,479
-------- -------- --------
Net investment income from continuing
operations................................... $181,528 $167,958 $146,564
======== ======== ========
</TABLE>
Realized gains (losses) on securities disposed of during 1998, 1997 and
1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Fixed maturity securities:
Gross realized gains....................... $ 5,149 $10,499 $ 7,953
Gross realized losses...................... (1,420) (4,690) (1,622)
Equity securities:
Gross realized gains....................... 7,395 3,204 2,001
Gross realized losses...................... (1,636) (777) --
Other investments............................ 1,068 (3,115) (2,426)
------- ------- -------
Net realized gains........................... $10,556 $ 5,121 $ 5,906
======= ======= =======
</TABLE>
Sales of investments in securities in 1998, 1997 and 1996, excluding
maturities and calls, resulted in gross realized gains of $10,980,000,
$8,362,000 and $9,798,800 and gross realized losses of $2,304,500, $1,017,000
and $1,290,500 respectively.
There were no nonincome producing investments at December 31, 1998 and
1997.
The Company began investing in the Cypress Tree Investment Fund LLC during
1998. The Company has invested $40 million in the partnership, which primarily
invests in senior secured loans. The Company's portion of the investment is
approximately 43% of the total fund value at December 31, 1998 and has been
recorded under the guidelines of equity accounting. This investment is
classified in other investments on the balance sheets, with unrealized gains
and losses being reflected in accumulated other comprehensive income.
75
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Investment Contracts
The carrying amounts and fair values of the Company's liabilities for
investment-type insurance contracts (included with future policy benefits,
contract account balances and separate accounts in the balance sheets) at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Guaranteed investment
contracts................... $ 640,137 $ 651,809 $ 660,782 $ 662,281
Flexible and single premium
deferred annuities.......... 516,131 495,873 539,616 516,343
Separate accounts............ 300,366 306,227 76,964 77,505
---------- ---------- ---------- ----------
Total investment-type
insurance contracts......... $1,456,634 $1,453,909 $1,277,362 $1,256,129
========== ========== ========== ==========
</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 $1,364,000, $2,137,000 and
$2,117,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
As of December 31, 1998, the minimum future payments under noncancelable
operating leases for each of the next five years are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................. $ 901
2000.............................. 622
2001.............................. 504
2002.............................. 265
2003.............................. 58
------
Total........................... $2,350
======
</TABLE>
Total outstanding commitments to fund mortgage loans were $32,275,000 and
$74,496,000 at December 31, 1998 and 1997, 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, these matters will not have a materially adverse effect on the
operations or financial position of the Company.
76
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1998 1997
------------ -------- --------
(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% 820 973
Less accumulated depreciation.......... (13,097) (12,530)
-------- --------
10,881 11,601
Equipment and software................. 5%-33% 21,701 23,937
Less accumulated depreciation.......... (16,306) (18,785)
-------- --------
5,395 5,152
-------- --------
Total property, equipment and software. $ 16,276 $ 16,753
======== ========
</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>
1998 1997 1996
------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Current............................................ $16,442 $ 10,948 $ 6,757
Deferred:
Deferred policy acquisition costs................ (3,385) 143 1,322
Future policy benefits........................... 6,620 3,783 2,424
Accrual of discount.............................. 560 197 408
Tax on realized gains greater than book.......... (1,610) 571 (1,076)
Recognition of tax effect previously deferred on
sale of affiliate stock in prior period......... (1,311) (11,169) --
Employee benefit plans........................... (2,014) (2,206) 86
Prior year taxes................................. 1,018 -- --
Other, net....................................... 485 265 982
------- -------- -------
363 (8,416) 4,146
------- -------- -------
Total.............................................. 16,805 2,532 10,903
Less taxes from discontinued operations:
Current.......................................... -- -- (149)
Deferred......................................... -- -- 884
------- -------- -------
-- -- 735
------- -------- -------
Total taxes from continuing operations............. $16,805 $ 2,532 $10,168
======= ======== =======
</TABLE>
The Company did not record any valuation allowances against deferred tax
assets at December 31, 1998, 1997 or 1996.
77
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
1998 1997 1996
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Application of statutory rate to income before
taxes on income.............................. $19,296 $13,552 $ 9,888
Tax-exempt municipal bond interest and
dividends received deductions................ (287) (361) (291)
Recognition of tax effect previously deferred
on sale of affiliate stock in a prior period. (1,311) (11,169) --
Other......................................... (893) 510 571
------- ------- -------
$16,805 $ 2,532 $10,168
======= ======= =======
</TABLE>
The significant components comprising the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs............................. $26,340 $29,641
Unrealized investment gains and losses................. 5,778 7,735
Other.................................................. 9,860 9,655
------- -------
Total deferred tax liability............................. 41,978 47,031
Deferred tax assets:
Reserve for future policy benefits..................... 15,093 21,411
Accrued expenses....................................... 10,969 8,504
Other.................................................. 5,266 4,872
------- -------
Total deferred tax assets................................ 31,328 34,787
------- -------
Net deferred tax liability............................... $10,650 $12,244
======= =======
</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.
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 $278,000,000 at December 31,
1998.
78
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Benefit Plans
Trusteed Employee Retirement 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 1998, approximately $3.1
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 following table sets forth the plan's funded status at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning of year.............. $62,683 $57,187
Service cost......................................... 1,873 1,767
Interest cost........................................ 4,557 4,374
Plan participants' contributions..................... 1 1
Amendments........................................... -- 118
Actuarial losses..................................... 1,249 3,627
Benefits paid........................................ (3,419) (4,391)
------- -------
Benefit obligation at end of year...................... 66,944 62,683
Change in plan assets:
Fair value of plan assets at beginning of year....... 85,605 79,679
Actual return on plan assets......................... 12,988 10,316
Plan participant's contributions..................... 1 1
Benefits paid........................................ (3,419) (4,391)
------- -------
Fair value of plan assets at end of year............... 95,175 85,605
------- -------
Funded status of the plan.............................. 28,231 22,922
Unrecognized net actuarial loss........................ (26,877) (23,519)
Unrecognized prior service cost........................ 1,342 2,034
Unrecognized net asset at January 1, 1987 being
recognized over 15 years.............................. (883) (1,177)
Adjustment to recognized minimum liability............. (2) (50)
------- -------
Prepaid pension cost................................... $ 1,811 $ 210
======= =======
</TABLE>
79
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The additional minimum pension liability noted above results from the
pension plan for the Company's subsidiary, BMA Financial Services, Inc.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Net pension cost included the following components:
Service cost--benefits earned during the period.... $ 1,873 $ 1,767 $1,797
Interest cost on projected benefit obligation...... 4,557 4,374 4,195
Actual return on plan assets....................... (12,988) (10,316) (9,745)
Net amortization and deferral...................... 5,005 2,812 3,102
------- ------- ------
Net pension benefit.................................. $(1,553) $(1,363) $ (651)
======= ======= ======
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate utilized was 7% for 1998, 7.5%
for 1997 and 8% for 1996. The rate of increase in future compensation levels
used for 1998 was 7% for employees at the younger attained ages grading to 3%
for older employees, the rate was 5% for 1997 and 5.5% for 1996. The expected
long-term rate of return on assets was 8% in 1998, 1997 and 1996.
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.
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.
80
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the combined supplemental retirement
programs' and deferred compensation plan's funded status at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning of year............ $ 11,281 $ 10,179
Service cost....................................... 235 190
Interest cost...................................... 813 783
Actuarial losses................................... 1,085 1,050
Benefits paid...................................... (902) (921)
-------- --------
Benefit obligation at end of year.................... 12,512 11,281
Change in plan assets:
Fair value of plan assets at beginning and end of
year.............................................. -- --
-------- --------
Funded status of the plan (underfunded).............. (12,512) (11,281)
Unrecognized net actuarial loss...................... 3,164 2,260
Unrecognized prior service cost...................... 659 888
Unrecognized net asset at January 1, 1987 being
recognized over 15 years............................ 389 519
Adjustment to recognized minimum liability........... (2,789) (2,486)
-------- --------
Accrued pension cost................................. (11,089) (10,100)
Accrued benefit liability............................ 10,041 8,653
Intangible asset..................................... 1,048 1,447
-------- --------
Net amount recognized................................ $ -- $ --
======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Net pension cost included the following
components:
Service cost--benefits earned during the period. $ 235 $ 190 $ 189
Interest cost on projected benefit obligation... 813 783 761
Net amortization and deferral................... 541 469 513
------ ------ ------
Net pension cost.................................. $1,589 $1,442 $1,463
====== ====== ======
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate utilized was 7% for 1998, 7.5%
for 1997 and 8% for 1996. The rate of increase in future compensation levels
used was 4.5% for 1998, 5% for 1997 and 5.5% for 1996.
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. The Company's matching contributions amounted
to $1,153,000 in 1998, $1,099,000 in 1997 and $1,284,000 in 1996. Participants
are fully vested in the Company match after five years of service.
81
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $33,000 in 1998, $230,000 in 1997 and $225,000 in 1996.
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>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year.... $11,490 $12,253
Service cost......................................... 108 122
Interest cost........................................ 777 878
Amendments........................................... -- (793)
Actuarial losses..................................... 260 143
Benefits paid........................................ (1,234) (1,113)
------- -------
Projected benefit obligation at end of year............ 11,401 11,490
Change in plan assets:
Fair value of plan assets at beginning and end of
year................................................ -- --
------- -------
Funded status of the plan (underfunded)................ (11,401) (11,490)
Unrecognized net actuarial loss........................ 529 268
Unrecognized prior service cost........................ 2,215 2,808
Unrecognized transition obligation..................... 4,107 4,873
------- -------
Accrued pension cost................................... (4,550) (3,541)
Accrued benefit liability.............................. 4,550 3,541
------- -------
Net amount recognized.................................. $ -- $ --
======= =======
</TABLE>
82
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Service cost........................................ $ 108 $ 122 $ 118
Interest cost....................................... 777 878 867
Amortization of transition obligation over 20 years. 293 327 327
Amortization of past service costs.................. 295 407 407
------ ------ ------
Net periodic benefit cost........................... 1,473 1,734 1,719
Plan curtailment adjustment......................... 770 -- --
------ ------ ------
Final periodic postretirement benefit cost.......... $2,243 $1,734 $1,719
====== ====== ======
</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%, 7.25% and 7.5% at December 31, 1998,
1997 and 1996, respectively.
As part of the restatement of the 1998 net periodic postretirement benefit
cost, a curtailment loss was recognized. The curtailment resulted from closing
certain field locations in March 1998.
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>
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Direct...................................... $118,315 $118,192 $124,912
Assumed..................................... 152,844 134,541 116,154
Ceded....................................... (73,466) (54,613) (38,114)
-------- -------- --------
Total net premium........................... $197,693 $198,120 $202,952
======== ======== ========
</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, $1,000,000 on
individual life insurance assumed and $200,000 on an individual life insured
under a single group life policy. As of December 31, 1998, the Company had
ceded to other life insurance companies individual life insurance in force of
approximately $29.6 billion and group life of approximately $890 million.
Benefits and reserves ceded to other insurers amounted to $54,670,000,
$42,069,000 and $28,132,000 during the years ended December 31, 1998, 1997 and
1996, respectively. At December 31, 1998 and 1997, policy reserves ceded to
other insurers were $77,460,000 and $55,568,000, respectively. Claim reserves
ceded amounted to $18,016,000 and $16,432,000 at December 31, 1998 and 1997,
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.
83
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1998, 1997 or
1996. The Company retrocedes a portion of the life insurance it assumes to
Generali. In accordance with this agreement, the Company ceded premiums of
$756,000, $873,000 and $1,035,000 during 1998, 1997 and 1996, respectively. The
Company ceded claims of $240,000 during 1998 and no claims during 1997 or 1996.
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, $8 million, $35 million and $60
million in account balances were ceded to Generali in 1998, 1997 and 1996,
respectively, and Generali loaned such amounts back to the Company. Account
balances ceded and loaned back at December 31, 1998 and 1997 were $196 million
and $213 million, respectively. The recoverable amount from Generali was offset
against the loan. The net expense related to this agreement was $1,564,000,
$1,895,000 and $1,344,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company held payables to Generali of $771,000 and $799,000 at
December 31, 1998 and 1997, respectively.
11. Stockholder's Equity
The changes in net unrealized gains (losses) that have been included in the
balance sheet caption "other accumulated comprehensive income" in stockholder's
equity are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Net unrealized gains (losses) on securities:
Fixed maturities...................................... $19,416 $17,560
Equity securities..................................... 4,159 10,999
Securities held in separate account................... 1,593 334
Other................................................. (438) --
------- -------
Net unrealized gains.................................... 24,730 28,893
Adjustment to deferred policy acquisition costs......... (8,707) (7,224)
Adjustment to unearned revenue reserve.................. 485 430
Deferred income taxes................................... (5,778) (7,735)
------- -------
Net unrealized gains.................................... $10,730 $14,364
======= =======
</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 year ended 1996 and the consolidated financial
statements reported separately the net assets and operating results of the
discontinued operations.
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
consolidated 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 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.
84
<PAGE>
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
(A Member of the Generali Group of Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Impact of Year 2000 (Unaudited)
The Company continues to monitor the potential impact of the year 2000 on
its systems and that of its primary vendors and business partners. This
assessment extends to both informational technology systems and noninformation
technology systems. All identified modifications to critical operating systems
have been completed as of December 31, 1998, and the Company continues to
validate completed systems to ensure ongoing compliance. Contingency plans are
being developed and management estimates that these plans will be completed by
mid 1999, which is prior to any anticipated impact on its operating systems.
Total costs of the modifications have been immaterial to the Company's
operations and have been expensed as incurred.
The Company does face the risk that one or more of its critical suppliers or
customers (external relationships) will not be able to interact with the
Company due to the third parties' inability to resolve their own year 2000
issues. The Company is actively monitoring the compliance programs of those
third parties, and formal communication has been initiated with all major
outside service providers. However, the Company is unable to predict with
certainty to what extent its external relationships will be year 2000 ready.
The forecast costs, consequences of the year 2000 problem and the dates on
which the Company believes it will complete its various year 2000 computer
modifications are based on its best estimates, which, in turn, were based on
numerous assumptions of future events, including third-party modification and
compliance plans, continued availability of resources and other factors. The
Company cannot be sure that these estimates will be achieved or that the
assumptions are accurate, and actual results could differ materially from those
anticipated.
85
<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 operating expenses (including the
management fee). When these costs are taken into account, the net annual
investment return rates (net of an average of approximately .89% for these
charges) are approximately -.89%, 5.11% and 11.11%.
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 .89% of the
average net assets of the Investment Option. This is the average of the fees
and expenses of the Investment Options in 1998. The expenses of .89% 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 2.45%. The investment advisers currently
anticipate that the current waiver and/or reimbursement arrangements will
continue through at least May 1, 2000 to the extent necessary to maintain
competitive total annual portfolio expense levels as described under Expenses--
Investment Option Expenses. However, certain advisers have the right to
terminate waivers and/or reimbursements at any time at their sole discretion.
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 Initial Specified Amount: $150,000
Planned Premium: $1,980
Assuming Guaranteed Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ----------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,079 150,000 150,000 150,000 1,055 1,141 1,227
2 4,262 150,000 150,000 150,000 2,234 2,478 2,733
3 6,554 150,000 150,000 150,000 3,356 3,834 4,354
4 8,961 150,000 150,000 150,000 4,419 5,207 6,100
5 11,488 150,000 150,000 150,000 5,418 6,594 7,980
6 14,141 150,000 150,000 150,000 6,352 7,993 10,008
7 16,927 150,000 150,000 150,000 7,213 9,395 12,189
8 19,853 150,000 150,000 150,000 7,992 10,793 14,533
9 22,924 150,000 150,000 150,000 8,682 12,178 17,052
10 26,149 150,000 150,000 150,000 9,273 13,539 19,754
11 29,536 150,000 150,000 150,000 9,828 14,960 22,781
12 33,092 150,000 150,000 150,000 10,268 16,348 26,050
13 36,825 150,000 150,000 150,000 10,586 17,697 29,588
14 40,746 150,000 150,000 150,000 10,774 18,996 33,424
15 44,862 150,000 150,000 150,000 10,816 20,230 37,587
16 49,184 150,000 150,000 150,000 10,696 21,381 42,110
17 53,722 150,000 150,000 150,000 10,394 22,430 47,033
18 58,487 150,000 150,000 150,000 9,884 23,348 52,401
19 63,491 150,000 150,000 150,000 9,134 24,104 58,263
20 68,744 150,000 150,000 150,000 8,110 24,660 64,683
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 3 258
3 881 1,359 1,879
4 1,944 2,732 3,625
5 3,364 4,540 5,926
6 4,694 3,662 8,350
7 5,975 8,158 10,952
8 7,175 9,976 13,716
9 8,261 11,757 16,631
10 9,273 13,539 19,754
11 9,828 14,960 22,781
12 10,268 16,348 26,050
13 10,586 17,697 29,588
14 10,774 18,996 33,424
15 10,816 20,230 37,587
16 10,696 21,381 42,110
17 10,394 22,430 47,033
18 9,884 23,348 52,401
19 9,134 24,104 58,263
20 8,110 24,660 64,683
</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 Option(s) selected by the Owner.
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 Initial Specified Amount: $150,000
Planned Premium: $1,980
Assuming Current Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% 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 2,362 2,611 2,872
3 6,554 150,000 150,000 150,000 3,605 4,100 4,637
4 8,961 150,000 150,000 150,000 4,808 5,634 6,567
5 11,488 150,000 150,000 150,000 5,973 7,216 8,676
6 14,141 150,000 150,000 150,000 7,099 8,849 10,987
7 16,927 150,000 150,000 150,000 8,185 10,532 13,518
8 19,853 150,000 150,000 150,000 9,231 12,266 16,291
9 22,924 150,000 150,000 150,000 10,234 14,053 19,332
10 26,149 150,000 150,000 150,000 11,190 15,891 22,664
11 29,536 150,000 150,000 150,000 12,175 17,881 26,458
12 33,092 150,000 150,000 150,000 13,108 19,932 30,636
13 36,825 150,000 150,000 150,000 13,983 22,041 35,238
14 40,746 150,000 150,000 150,000 14,803 24,214 40,317
15 44,862 150,000 150,000 150,000 15,561 26,450 45,926
16 49,184 150,000 150,000 150,000 16,195 28,692 52,077
17 53,722 150,000 150,000 150,000 16,758 30,996 58,885
18 58,487 150,000 150,000 150,000 17,258 33,372 66,438
19 63,491 150,000 150,000 150,000 17,685 35,817 74,821
20 68,744 150,000 150,000 150,000 18,038 38,335 84,142
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 136 397
3 1,130 1,625 2,162
4 2,333 3,159 4,092
5 3,918 5,162 6,622
6 5,441 7,190 9,329
7 6,948 9,294 12,280
8 8,414 11,450 15,474
9 9,813 13,632 18,911
10 11,190 15,891 22,664
11 12,175 17,881 26,458
12 13,108 19,932 30,636
13 13,983 22,041 35,238
14 14,803 24,214 40,317
15 15,561 26,450 45,926
16 16,195 28,692 52,077
17 16,758 30,996 58,885
18 17,258 33,372 66,438
19 17,685 35,817 74,821
20 18,038 38,335 84,142
</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 Option(s) selected by the Owner.
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 Initial Specified Amount: $150,000
Planned Premium: $3,654
Assuming Guaranteed Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ----------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,837 150,000 150,000 150,000 1,956 2,116 2,276
2 7,865 150,000 150,000 150,000 3,957 4,404 4,871
3 12,095 150,000 150,000 150,000 5,817 6,683 7,627
4 16,537 150,000 150,000 150,000 7,532 8,948 10,555
5 21,200 150,000 150,000 150,000 9,089 11,184 13,664
6 26,097 150,000 150,000 150,000 10,475 13,378 16,964
7 31,238 150,000 150,000 150,000 11,676 15,514 20,469
8 36,637 150,000 150,000 150,000 12,670 17,571 24,186
9 42,306 150,000 150,000 150,000 13,433 19,520 28,126
10 48,258 150,000 150,000 150,000 13,936 21,333 32,301
11 54,507 150,000 150,000 150,000 14,271 23,139 36,948
12 61,069 150,000 150,000 150,000 14,299 24,774 41,934
13 67,959 150,000 150,000 150,000 13,990 26,207 47,306
14 75,194 150,000 150,000 150,000 13,313 27,408 53,125
15 82,790 150,000 150,000 150,000 12,223 28,333 59,463
16 90,767 150,000 150,000 150,000 10,652 28,918 66,397
17 99,142 150,000 150,000 150,000 8,430 29,005 73,975
18 107,936 150,000 150,000 150,000 5,609 28,630 82,415
19 117,169 150,000 150,000 150,000 1,961 27,584 91,833
20 126,864 Lapse 150,000 150,000 Lapse 25,706 102,456
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 303 750 1,217
3 2,163 3,029 3,973
4 3,878 5,294 6,901
5 6,056 8,151 10,631
6 8,027 10,930 14,516
7 9,849 13,687 18,642
8 11,464 16,365 22,980
9 12,812 18,899 27,504
10 13,936 21,333 32,301
11 14,271 23,139 36,948
12 14,299 24,774 41,934
13 13,990 26,207 47,306
14 13,313 27,408 53,125
15 12,223 28,333 59,463
16 10,652 28,918 66,397
17 8,430 29,005 73,975
18 5,609 28,630 82,415
19 1,961 27,584 91,833
20 Lapse 25,706 102,456
</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 Option(s) selected by the Owner.
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 Initial Specified Amount: $150,000
Planned Premium: $3,654
Assuming Current Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest Per 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,837 150,000 150,000 150,000 2,263 2,432 2,602
2 7,865 150,000 150,000 150,000 4,677 5,166 5,675
3 12,095 150,000 150,000 150,000 7,003 7,969 9,018
4 16,537 150,000 150,000 150,000 9,240 10,845 12,659
5 21,200 150,000 150,000 150,000 11,384 13,793 16,626
6 26,097 150,000 150,000 150,000 13,436 16,817 20,961
7 31,238 150,000 150,000 150,000 15,389 19,916 25,697
8 36,637 150,000 150,000 150,000 17,244 23,094 30,883
9 42,306 150,000 150,000 150,000 18,990 26,345 36,565
10 48,258 150,000 150,000 150,000 20,616 29,666 42,793
11 54,507 150,000 150,000 150,000 22,240 33,227 49,879
12 61,069 150,000 150,000 150,000 23,751 36,898 57,726
13 67,959 150,000 150,000 150,000 25,149 40,687 66,439
14 75,194 150,000 150,000 150,000 26,429 44,604 76,137
15 82,790 150,000 150,000 150,000 27,573 48,645 86,948
16 90,767 150,000 150,000 150,000 28,271 52,568 98,885
17 99,142 150,000 150,000 150,000 28,775 56,596 112,281
18 107,936 150,000 150,000 150,000 29,116 60,774 127,385
19 117,169 150,000 150,000 157,427 29,280 65,116 144,428
20 126,864 150,000 150,000 174,803 29,227 69,620 163,367
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 1,023 1,512 2,021
3 3,349 4,315 5,364
4 5,586 7,191 9,005
5 8,351 10,760 13,594
6 10,988 14,369 18,513
7 13,562 18,089 23,870
8 16,038 21,888 29,677
9 18,369 25,724 35,944
10 20,616 29,666 42,793
11 22,240 33,227 49,879
12 23,751 36,898 57,726
13 25,149 40,687 66,439
14 26,429 44,604 76,137
15 27,573 48,645 86,948
16 28,271 52,568 98,885
17 28,775 56,596 112,281
18 29,116 60,774 127,385
19 29,280 65,116 144,428
20 29,227 69,620 163,367
</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 Option(s) selected by the Owner.
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 Initial Specified Amount: $150,000
Planned Premium: $2,232
Assuming Guaranteed Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ----------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,344 150,000 150,000 150,000 1,161 1,258 1,354
2 4,804 150,000 150,000 150,000 2,442 2,712 2,996
3 7,388 150,000 150,000 150,000 3,655 4,184 4,759
4 10,101 150,000 150,000 150,000 4,795 5,665 6,651
5 12,950 150,000 150,000 150,000 5,862 7,156 8,683
6 15,941 150,000 150,000 150,000 6,853 8,655 10,870
7 19,082 150,000 150,000 150,000 7,769 10,161 13,229
8 22,379 150,000 150,000 150,000 8,611 11,677 15,781
9 25,842 150,000 150,000 150,000 9,383 13,207 18,552
10 29,478 150,000 150,000 150,000 10,082 14,749 21,564
11 33,295 150,000 150,000 150,000 10,778 16,397 24,978
12 37,303 150,000 150,000 150,000 11,381 18,049 28,704
13 41,512 150,000 150,000 150,000 11,869 19,684 32,761
14 45,931 150,000 150,000 150,000 12,215 21,276 37,171
15 50,572 150,000 150,000 150,000 12,392 22,801 41,963
16 55,444 150,000 150,000 150,000 12,387 24,244 47,184
17 60,559 150,000 150,000 150,000 12,187 25,593 52,890
18 65,931 150,000 150,000 150,000 11,788 26,843 59,157
19 71,571 150,000 150,000 150,000 11,185 27,988 66,072
20 77,493 150,000 150,000 150,000 10,362 29,014 73,731
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 0 201 485
3 1,144 1,673 2,248
4 2,284 3,154 4,140
5 3,778 5,072 6,599
6 5,171 6,973 9,188
7 6,513 8,906 11,974
8 7,782 10,848 14,952
9 8,956 12,780 18,125
10 10,082 14,749 21,564
11 10,778 16,397 24,978
12 11,381 18,049 28,704
13 11,869 19,684 32,761
14 12,215 21,276 37,171
15 12,392 22,801 41,963
16 12,387 24,244 47,184
17 12,187 25,593 52,890
18 11,788 26,843 59,157
19 11,185 27,988 66,072
20 10,362 29,014 73,731
</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 Option(s) selected by the Owner.
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 Initial Specified Amount: $150,000
Planned Premium: $2,232
Assuming Current Charges
Death Benefit Option: Level
<TABLE>
<CAPTION>
Death Proceeds Accumulation Value
Premiums Assuming Hypothetical Gross Assuming Hypothetical Gross
Accumulated Annual Investment Return of Annual Investment Return of
End of at 5% ------------------------------------- -------------------------------------
Policy Interest 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year Per Year (-0.89% Net) (5.11% Net) (11.11% Net) (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ----------- ------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,344 150,000 150,000 150,000 1,228 1,326 1,425
2 4,804 150,000 150,000 150,000 2,658 2,940 3,234
3 7,388 150,000 150,000 150,000 4,049 4,607 5,214
4 10,101 150,000 150,000 150,000 5,397 6,327 7,378
5 12,950 150,000 150,000 150,000 6,701 8,102 9,747
6 15,941 150,000 150,000 150,000 7,964 9,934 12,343
7 19,082 150,000 150,000 150,000 9,186 11,827 15,191
8 22,379 150,000 150,000 150,000 10,368 13,786 18,320
9 25,842 150,000 150,000 150,000 11,520 15,822 21,770
10 29,478 150,000 150,000 150,000 12,640 17,938 25,575
11 33,295 150,000 150,000 150,000 13,815 20,252 29,928
12 37,303 150,000 150,000 150,000 14,957 22,663 34,748
13 41,512 150,000 150,000 150,000 16,058 25,170 40,083
14 45,931 150,000 150,000 150,000 17,101 27,761 45,978
15 50,572 150,000 150,000 150,000 18,101 30,459 52,515
16 55,444 150,000 150,000 150,000 19,001 33,213 59,723
17 60,559 150,000 150,000 150,000 19,859 36,083 67,732
18 65,931 150,000 150,000 150,000 20,670 39,074 76,635
19 71,571 150,000 150,000 150,000 21,448 42,203 86,547
20 77,493 150,000 150,000 150,000 22,192 45,480 97,591
<CAPTION>
Cash Surrender Value
Assuming Hypothetical Gross
Annual Investment Return of
End of -------------------------------------
Policy 0% Gross 6% Gross 12% Gross
Year (-0.89% Net) (5.11% Net) (11.11% Net)
- ------ ------------ ----------- ------------
<S> <C> <C> <C>
1 0 0 0
2 147 429 723
3 1,538 2,096 2,703
4 2,886 3,816 4,867
5 4,617 6,018 7,663
6 6,281 8,251 10,660
7 7,930 10,571 13,935
8 9,540 12,957 17,492
9 11,093 15,395 21,344
10 12,640 17,938 25,575
11 13,815 20,252 29,928
12 14,957 22,663 34,748
13 16,058 25,170 40,083
14 17,101 27,761 45,978
15 18,101 30,459 52,515
16 19,001 33,213 59,723
17 19,859 36,083 67,732
18 20,670 39,074 76,635
19 21,448 42,203 86,547
20 22,192 45,480 97,591
</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 Option(s) selected by the Owner.
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>
APPENDIX B--RATES OF RETURN
From time to time, We may report different types of historical performance
for the Investment Options available under the Policy. We may report the
average annual total returns of the funds over various time periods. Such
returns will reflect the operating expenses (including management fees) of the
funds, but not deductions at the Separate Account or Policy level for Risk
Charges and Policy expenses, which, if included, would reduce performance. See
Section 4. Expenses for a discussion of the charges and deductions from a
Policy.
At the request of a purchaser, BMA will accompany the returns of the funds
with at least one of the following: (i) returns, for the same periods as shown
for the funds, which include deductions under the Separate Account for the Risk
Charge in addition to the deductions of fund expenses, but does not include
other charges under the Policy; or (ii) an illustration of Accumulation Values
and Cash Surrender Values as of the performance reporting date for a
hypothetical Insured of given age, gender, risk classification, Premium level
and initial Specified Amount. The illustration will be based either on actual
historic fund performance or on a hypothetical investment return between 0% and
12% as requested by the purchaser. The Cash Surrender Value figures will assume
all fund charges, the Risk Charge, and all other Policy charges are deducted.
The Accumulation Value figures will assume all charges except the Surrender
Charges are deducted.
We also may distribute sales literature comparing the percentage change in
the net asset values of the funds or in the Accumulation Unit Values for any of
the Investment Options to established market indices, such as the Standard &
Poor's 500 Composite Stock Price Index and the Dow Jones Industrial Average. We
also may make comparisons to the percentage change in values of other mutual
funds with investment objectives similar to those of the Investment Options
being compared.
The chart below shows the Effective Annual Rates of Return of the funds
based on the actual investment performance (after deduction of investment
management fees and direct operating expenses of the funds). These rates do not
reflect the Risk Charge assessed. The rates do not reflect deductions from
premiums or Monthly Deductions assessed against the Accumulation Value of the
Policy, nor do they reflect the Policy's Surrender Charges. (For a discussion
of these charges, please see Section 4.--Expenses.) Therefore, these rates are
not illustrative of how actual investment performance will affect the benefits
under the Policy (see, however, Appendix A--Illustration of Policy Values).
The rates of return shown are not indicative of future performance. These
rates of return may be considered, however, in assessing the competence and
performance of the investment advisers.
<TABLE>
<CAPTION>
Portfolio
Inception 10 Years/
Investment Option Date 1 Year 5 Years Since Inception
- ----------------- --------- ------ ------- ---------------
<S> <C> <C> <C> <C>
INVESTORS MARK SERIES FUND, INC.
Intermediate Fixed Income.......... 11/13/97 5.16% N/A 5.72%
Mid Cap Equity..................... 11/13/97 7.03% N/A 10.94%
Money Market....................... 11/13/97 5.05% N/A 5.11%
Global Fixed Income................ 11/13/97 7.23% N/A 7.95%
Small Cap Equity................... 11/13/97 -16.22% N/A -16.60%
Large Cap Growth................... 11/13/97 24.35% N/A 28.22%
Large Cap Value.................... 12/2/97 5.03% N/A 1.71%
Growth & Income.................... 11/12/97 12.03% N/A 14.67%
Balanced........................... 11/17/97 -6.03% N/A -5.24%
BERGER INSTITUTIONAL PRODUCTS TRUST
Berger/BIAM IPT--International..... 8/1/97 16.13% N/A 7.99%
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Portfolio
Inception 1 10 Years/
Investment Option Date Year 5 Years Since Inception
- ----------------- --------- ----- ------- ---------------
<S> <C> <C> <C> <C>
AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.
VP Income & Growth................. 10/30/97 26.87% N/A 30.68%
VP Value........................... 5/1/96 4.81% N/A 15.94%
DREYFUS STOCK INDEX FUND............. 9/29/89 28.21% 23.58 17.12%
DREYFUS VARIABLE INVESTMENT FUND
Disciplined Stock.................. 5/1/96 26.72% N/A 29.18%
INVESCO VARIABLE INVESTMENT FUNDS,
INC.
INVESCO VIF--High Yield............ 5/27/94 1.42% N/A 11.82%
INVESCO VIF--Equity Income......... 8/10/94 15.30% N/A 21.63%
LAZARD RETIREMENT SERIES, INC.
Lazard Retirement Small Cap........ 11/4/97 -3.22% N/A -3.99%
</TABLE>
The figures shown in this chart do not reflect any charges at the Separate
Account or the Policy level.
B-2
