<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1998
File No. 333-
File No. 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(Name of Depositor)
One State Farm Plaza
Bloomington, Illinois 61710-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number: (309) 766-0886
Laura P. Sullivan
One State Farm Plaza
Bloomington, Illinois 61710-0001
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
files a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
TITLE OF SECURITIES BEING REGISTERED:
Individual variable deferred annuity policies.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rules 481(a) and 495(a)
Showing location in Part A (prospectus) and Part B (Statement of Additional
Information) of registration statement of information required by Form N-4
<TABLE>
<CAPTION>
PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION
<S> <C>
1. Cover Page....................... Cover Page
2. Definitions...................... Index of Terms
3. Synopsis......................... Fee Table; Profile
4. Condensed Financial Information.. How is the performance of the Policy presented?
5. General
(a) Depositor.................... What other information should I know?
(b) Registrant................... What other information should I know?
(c) Portfolio Company............ What are my allocation options under the Policy?
(d) Fund Prospectus.............. Cover Page
(e) Voting Rights................ What other information should I know?
(f) Administrators............... What other information should I know?
6. Deductions and Expenses
(a) General...................... What are the expenses under the Policy?
(b) Sales Load %................. Fee Table; Example
(c) Special Purchase Plan........ How do I purchase a Policy?
(d) Commissions.................. What other information should I know?
(e) Fund Expenses................ Fee Table; Example
(f) Expenses - Registrant........ Fee Table; What are the expenses under the Policy?
(g) Organizational Expenses...... N/A
7. Contracts
(a) Persons with Rights.......... What is the Policy?; What are my annuity options?; How do I invest
in a Policy?; How do I access my money?; What other information
should I know?
(b)(i) Allocation of Purchase
Payments................ What are my allocation options?
(ii) Transfers................. What are my allocation options?
(iii) Exchanges................. N/A
(c) Changes...................... What other information should I know?
(d) Inquiries.................... What other information should I know?
8. Annuity Period................... What are my annuity options?
9. Death Benefit.................... Does the Policy have a Death Benefit?
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Purchases and Contract Value
(a) Purchases.................... How do I purchase a Policy?
(b) Valuation.................... What are my allocation options under the Policy?
(c) Daily Calculation............ What are my allocation options under the Policy?
(d) Underwriter.................. What other information should I know?
11. Redemptions
(a) - By Owners.................. How do I access my money?
- By Annuitant............... What are my annuity options?
(b) Texas ORP.................... N/A
(c) Check Delay.................. N/A
(d) Lapse........................ N/A
(e) Free Look.................... What else should I know about the Policy?
12. Taxes........................... How will my investment in the Policy be taxed?
13. Legal Proceedings............... What other information should I know
about the Policy?
14. Table of Contents for the
Statement of Additional
Information.................... Table of Contents of the Statement of
Additional Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
ITEM OF FORM N-4 PART B CAPTION
<S> <C>
15. Cover Page...................... Cover Page
16. Table of Contents............... Table of Contents
17. General Information and
History......................... N/A
18. Services
(a) Fees and Expenses of
Registrant................... N/A
(b) Management Contracts......... N/A
(c) Custodian.................... N/A
Independent Public
Accountant................... Experts
(d) Assets of Registrant......... N/A
(e) Affiliated Persons........... N/A
(f) Principal Underwriter........ Distribution of the Policies
19. Purchase of Securities
Being Offered................... Distribution of the Policies
Offering Sales Load............. N/A
20. Underwriters.................... Distribution of the Policies
21. Calculation of Performance
Data............................ Calculation of Historical Performance Data
22. Annuity Payments................ Annuity Payment Provisions
23. Financial Statements............ Financial Statements
PART C -- OTHER INFORMATION
ITEM OF FORM N-4 PART C CAPTION
24. Financial Statements and
Exhibits........................ Financial Statements and Exhibits
(a) Financial Statements......... (a) Financial Statements
(b) Exhibits..................... (b) Exhibits
25. Directors and Officers of
the Depositor................... Directors and Officers of the Depositor
26. Persons Controlled By or
Under Common Control
with the Depositor or Persons Controlled By or under Common Control with the Depositor
Registrant...................... or Registrant
27. Number of Contract Owners....... Number of policy owners
28. Indemnification................. Indemnification
29. Principal Underwriters.......... Principal Underwriter
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
30. Location of Accounts and
Records......................... Location of Books and Records
31. Management Services............. Management Services
32. Undertakings.................... Undertakings and Representations
Signature Page.................. Signatures
</TABLE>
<PAGE>
PROFILE DATED
STATE FARM VARIABLE DEFERRED ANNUITY POLICY
STATE FARM LIFE AND ACCIDENT
ASSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
OF STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
P.O. BOX 2307
BLOOMINGTON, ILLINOIS, 61702-2307
TELEPHONE: (888) 702-2307 (TOLL FREE)
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING A POLICY. THE POLICY IS MORE FULLY DESCRIBED
IN THE FULL PROSPECTUS THAT ACCOMPANIES THIS PROFILE. PLEASE READ THAT
PROSPECTUS CAREFULLY.
"We," "us," "our" and "State Farm" refer to State Farm Life and Accident
Assurance Company.
"You" and "your" refer to the owner of a Policy.
1. WHAT IS THE POLICY?
The Policy is a contract between you and us, State Farm Life and Accident
Assurance Company. We have designed the Policy to be both an investment vehicle
and a source of lifetime retirement income. You purchase the Policy by paying an
initial premium or by making periodic premium payments, or both, and you add
money when you can. When you want annuity payments to begin, you choose an
"Annuity Date," and we will start sending you payments. There are also other
ways to access your money, each of which is discussed below.
The Policy permits you to allocate premiums to six subdivisions, or
"subaccounts," of the State Farm Life and Accident Assurance Company Variable
Annuity Separate Account (the "Variable Account"). Each subaccount invests in a
corresponding investment portfolio (each, a "Fund") of the State Farm Variable
Product Trust. The value of the premiums you allocate to the Funds will
fluctuate depending on market conditions. Therefore, you bear the investment
risk on your Policy value in the Funds. If you allocate premiums to our fixed
account (the "Fixed Account"), we will guarantee principal and interest. The
Policy value you accumulate before the Annuity Date will determine the amount of
annuity payments you receive.
The Policy offers important features. The Funds are professionally managed. Your
earnings generally grow tax-free until withdrawn, but if you withdraw money
before you are 59 1/2 years old, you may have to pay income tax and an
additional 10% IRS tax penalty. When you decide you want to start receiving
annuity payments, you can choose an annuity option that will provide you with a
lifetime income.
2. WHAT ARE MY ANNUITY OPTIONS?
When you want to begin receiving annuity payments, you can choose from four
annuity options. If you choose a "life annuity," you will receive payments as
long as the Annuitant lives (for example, if you have named yourself as the
Annuitant, you will receive payments for as long as you live). If you choose a
"life annuity with certain period," you will receive payments as long as the
Annuitant lives or to the end of the certain period, if longer. If you choose a
"joint and last survivor life annuity," you will receive payments as long as the
Annuitant or a second designated person (such as your spouse) is alive. If you
choose a "fixed year annuity," you will receive payments for the number of years
chosen.
We will use the money you have accumulated under your Policy to provide annuity
payments. We will not deduct a surrender charge on annuitization if the Policy
has been in force at least five Policy Years and if the payments are made under
a "life annuity," "life annuity with certain period," or a "joint and last
survivor life annuity." You tell us how much of your money to apply to fixed
annuity payments and how much to apply to variable annuity payments. Policy
value that you apply to provide fixed annuity payments will be allocated to the
Fixed Account. Under a "life annuity," "life annuity with certain period," or a
"joint and last survivor life annuity," the amount of each annuity payment will
be the same. Under the "fixed years" annuity option, the payments will never be
less than the minimum payment stated in the Policy. Policy value that you apply
to provide variable annuity payments will be allocated to the Funds you select,
and the amount of each annuity payment will vary according to the investment
performance of those Funds.
3. HOW DO I PURCHASE A POLICY?
You can purchase a Policy through any one of our authorized agents. Under most
circumstances, the minimum initial premium for a non-tax-qualified Policy is
$1,200 and $600 for tax-qualified Policies. (If you participate in one of our
special monthly payment plans, you may pay monthly premiums of $100 or more for
non-tax-qualified plans and $50 or more for tax-qualified plans). The minimum
initial premium requirements are higher if you are age 66 or more. You may pay
additional premiums of at least $50 at any time before the Annuity Date.
4. WHAT ARE MY ALLOCATION OPTIONS?
There are seven different allocation options under the Policy. You can allocate
premiums to one or more of the six
1 -------
<PAGE>
"subaccounts" of the Variable Account. Each subaccount, in turn, invests in a
corresponding Fund of the State Farm Variable Product Trust. The six Funds are:
Large Cap Equity Index Fund
Small Cap Equity Index Fund
International Equity Index Fund
Stock and Bond Balanced Fund
Bond Fund
Money Market Fund
You can also allocate premiums to the Fixed Account. We will pay you interest on
your Policy value in the Fixed Account at an effective annual rate of at least
3%.
5. WHAT ARE THE EXPENSES UNDER THE POLICY?
Insurance Charges. Once each year, we deduct a $30 Annual Administrative Fee. We
currently waive this charge if the amount of total premiums you have paid is at
least $50,000. We also deduct a daily mortality and expense risk charge from the
assets of the Variable Account, currently equal on an annual basis to 1.15%.
Surrender Charge. State Farm may deduct a surrender charge when you make a
withdrawal or surrender the Policy, when you take annuity payments, or when
proceeds are paid upon your death (unless you are also the Annuitant). We will
not deduct a surrender charge on annuitization if the Policy has been in force
at least five Policy Years and if the payments are made under a "life annuity,"
"life annuity with certain period," or a "joint and last survivor life annuity."
No surrender charge is deducted when a Death Benefit is paid upon the
Annuitant's death, regardless of how many Policy years have elapsed or how the
Death Benefit is paid. The surrender charge is calculated as a percentage of the
amount withdrawn or surrendered. The applicable percentage is 7% in the first
Policy Year, and declines by 1% in each following Policy Year, until it reaches
0% in the eighth Policy Year.
Fund Expenses. There are Fund expenses, which range on an annual basis from
0.36% to 0.75% of the average daily value of your money invested in the Funds.
The following chart is designed to help you understand the expenses that you
will pay under the Policy. The column "Total Annual Insurance Charges" shows the
total of the $30 Annual Administrative Fee (which, for purposes of the chart, is
assumed to be 0.12% of the value of an average Policy) and the 1.15% mortality
and expense risk charge. The column "Total Annual Fund Charges" shows the
investment charges for each Fund. The charges shown for each Fund reflect the
fact that the investment adviser to the Funds has agreed to bear the expenses
incurred by a Fund (other than the Stock and Bond Balanced Fund and the
International Equity Index Fund), other than the investment advisory fee, that
exceed 0.10% of such Fund's average daily net assets. The investment adviser to
the Funds has agreed to bear the expenses incurred by the International Equity
Index Fund, other than the investment advisory fee, that exceed 0.20% of that
Fund's average daily net assets. These expense limitations are voluntary and may
be terminated by the adviser at any time. The column "Total Annual Charges"
shows the combined total of the Total Annual Insurance Charges and Total Annual
Fund Charges columns. The next two columns show you two examples of the charges,
in dollars, you would pay under a Policy for each $1,000 you paid when you
purchased the Policy. The examples assume that the average Policy Accumulation
Value is $25,000 so that the Annual Administrative Fee is 0.12% and that your
Policy earns 5% annually before charges. For more information about the expenses
under the Policy, refer to the "Fee Table" in the full prospectus that
accompanies this Profile.
<TABLE>
<CAPTION>
IF YOU SURRENDER
OR ANNUITIZE ALL CHARGES
TOTAL YOUR POLICY AT THE EXCLUDING
ANNUAL END OF 1 YEAR YOU SURRENDER CHARGES,
INSURANCE TOTAL ANNUAL TOTAL WOULD PAY THE ASSESSED OVER
FUND CHARGES FUND CHARGES ANNUAL CHARGES FOLLOWING EXPENSES A 10 YEAR PERIOD
<S> <C> <C> <C> <C> <C>
Large Cap Equity Index
Fund 1.27% 0.36% 1.63% $ 89 $ 197
Small Cap Equity Index
Fund 1.27% 0.50% 1.77% $ 91 $ 213
International Equity
Index Fund 1.27% 0.75% 2.02% $ 93 $ 240
Money Market Fund 1.27% 0.50% 1.77% $ 91 $ 213
Bond Fund 1.27% 0.60% 1.87% $ 92 $ 224
Stock and Bond
Balanced Fund 1.27% 0.46%(1) 1.73% $ 90 $ 208
</TABLE>
(1) The investment adviser to the Funds has agreed not to be paid an investment
advisory fee for performing its services for the Stock and Bond Balanced
Fund and has agreed to bear any other expenses incurred by the Stock and
Bond Balanced Fund. (The investment adviser may change this at any time.)
However, the investment adviser will receive investment advisory fees from
managing the underlying Funds in which the Stock and Bond Balanced Fund
invests -- the Large Cap Equity Index Fund and the Bond Fund. Under normal
circumstances, the Stock and Bond Balanced Fund will attempt to maintain
approximately 60% of its net assets in shares of the Large Cap Equity Index
Fund and approximately 40% of its net assets in shares of the Bond Fund.
Based on these percentages, an approximate investment advisory fee can be
derived for the Stock and Bond Balanced Fund. This derived fee is used for
the purpose of showing the Stock and Bond Balanced Fund's annual expenses in
the table above. The underlying funds will also incur other expenses of up
to 0.10% (which is also reflected in the table above).
- ---------
2
<PAGE>
6. HOW WILL MY INVESTMENT IN THE POLICY BE TAXED?
You should consult a qualified tax adviser with regard to your Policy.
Generally, taxation of earnings under variable annuities is deferred until
amounts are withdrawn and distributions made. The deferral of taxes on earnings
under variable annuity policies is designed to encourage long-term personal
savings and supplemental retirement plans. The taxable portion of a withdrawal
or distribution is taxed as ordinary income.
7. HOW DO I ACCESS MY MONEY?
Prior to the Annuity Date, if you want to take money out of your Policy, you can
choose among several different options. You can withdraw part of your money. You
can surrender the Contract, taking the proceeds as a single lump sum payment or
applying the proceeds to an annuity option. You can also take withdrawals using
our systematic withdrawal program. After the Annuity Date, if you have selected
the "fixed year" annuity option, you may request withdrawals. Prior to the
Annuity Date, a surrender charge may apply to withdrawals and surrenders. The
amount of the surrender charge ranges from 7% of the amount withdrawn or
surrendered in the first Policy Year to 0% in the eighth Policy Year.
Withdrawals and surrenders may be subject to income tax and to a tax penalty.
8. HOW IS THE PERFORMANCE OF THE POLICY PRESENTED?
As of the date of this Profile the subaccounts had not commenced operations. As
of December 31, 1997, the Funds had not commenced operations. Therefore, no
performance data is presented.
9. DOES THE POLICY HAVE A DEATH BENEFIT?
The Policy offers a minimum Death Benefit if the Annuitant dies before the
Annuity Date. The amount of the Death Benefit will be the greater of (1) the sum
of all premiums paid less any withdrawals and less any applicable surrender
charges deducted, or (2) the value of your Policy. Both amounts will be
determined as of the end of the Valuation Period during which we receive due
proof of death.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
The Policy has several additional features that you may be interested in,
including the following.
Free Look Right. You should know that you have a "free-look right"; that is, the
right to return the Policy to us at our Home Office or to an authorized State
Farm agent and have us cancel the Policy within a certain number of days
(usually 10 days from the date you receive the Policy, but some states require
different periods). If you exercise this right, we will cancel the Policy as of
the day of mailing or delivery and send you a refund equal to the greater of (1)
the premiums paid under the Policy during the free-look period, or (2) your
Policy value (without the deduction of a surrender charge). All premiums are
allocated to the Fixed Account during the free-look period.
Transfers. On or before the Annuity Date, you may transfer Policy value from one
Subaccount to another Subaccount(s) or to the Fixed Account. The minimum amount
of Policy value that may be transferred from a Subaccount is $250, or, if less,
the entire Policy value in that Subaccount. You may also transfer Policy value
from the Fixed Account to another Subaccount(s), but only once each Policy year
and only during the 30-day period following the end of each Policy year. The
maximum amount that may be transferred from the Fixed Account is generally the
greater of 25% of the Policy value in the Fixed Account or $1,000.
After the Annuity Date the only type of transfer permitted is a transfer of
annuity units from one Subaccount to another Subaccount. This is limited to four
transfers per year and only applies if variable annuity payments have been
elected.
Dollar-Cost Averaging. Our dollar-cost averaging program permits you to
systematically transfer a set dollar amount from the Subaccount investing in the
Money Market Fund or the Subaccount investing in the Bond Fund to any
Subaccounts and/or the Fixed Account, subject to certain limitations. The
dollar-cost averaging method of investment is designed to reduce the risk of
making purchases only when the price of units in a Subaccount is high.
Portfolio Rebalancing Program. The Portfolio Rebalancing program will reallocate
on a periodic basis your Policy value among the Subaccounts to return to the
percentages you have chosen. Certain limitations apply.
Systematic Withdrawal Program. Our systematic withdrawal program provides an
automatic monthly, quarterly, semi-annual or annual payment to you from the
amounts you have accumulated in the Subaccounts and/or the Fixed Account.
Surrender charges may apply and certain restrictions apply.
11. HOW CAN I MAKE INQUIRIES?
If you need further information about the Policy, please write us at our home
office, call us at (888) 702-2307 (Toll free), or contact an authorized State
Farm Agent. The address of our home office is:
State Farm Life and Accident Assurance Company
P.O. Box 2307
Bloomington, IL 61702-2307
Telephone: (888) 702-2307 (Toll free)
3 -------
<PAGE>
PROSPECTUS DATED
STATE FARM VARIABLE DEFERRED ANNUITY POLICY
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE ANNUITY
SEPARATE ACCOUNT
OF STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
P.O. BOX 2307
BLOOMINGTON, ILLINOIS 61702-2307
TELEPHONE: (888) 702-2307 (TOLL FREE)
UNLESS OTHERWISE INDICATED, THIS PROSPECTUS DESCRIBES THE OPERATION OF THE
POLICY BEFORE THE ANNUITY DATE. DEFINITIONS OF CERTAIN TERMS USED IN THIS
PROSPECTUS MAY BE FOUND BY REFERRING TO THE INDEX OF TERMS.
This prospectus describes an individual variable deferred annuity policy (the
"Policy") offered by State Farm Life and Accident Assurance Company ("State
Farm," "we," "us," or "our"). The Policy is designed to be both an investment
vehicle and a source of lifetime retirement income. The purchaser of a Policy
(the "Owner," "you," or "your") can purchase the Policy by making a minimum
initial premium payment, by making periodic payments under a special monthly
purchase plan, or both. The Owner then determines the amount and timing of
additional premium payments.
The Owner may allocate premiums and transfer Policy Accumulation Value to the
State Farm Life and Accident Assurance Company Variable Annuity Separate Account
(the "Variable Account") and also to State Farm's general account (the "Fixed
Account"), within certain limits. The Variable Account is divided into
subaccounts (each, a "Subaccount"). Each Subaccount invests in a corresponding
investment portfolio (each, a "Fund") of State Farm Variable Product Trust (the
"Trust"). The Funds currently available are the Large Cap Equity Index Fund,
Small Cap Equity Index Fund, International Equity Index Fund, Bond Fund, Money
Market Fund, and Stock and Bond Balanced Fund. The accompanying prospectus for
the Trust describes each of the Funds, including the risks of investing in each
Fund, and provides other information about the Trust.
The Policy provides for a Cash Surrender Value. Because this value is based on
the performance of the Funds, to the extent of allocations to the Variable
Account, there is no guaranteed Cash Surrender Value or guaranteed minimum Cash
Surrender Value. On any given day, the Cash Surrender Value could be more or
less than the premiums paid. The Policy also permits withdrawals, within certain
limits. The Policy provides additional benefits, including four annuity options,
a minimum Death Benefit upon the Annuitant's death, and dollar cost averaging,
portfolio rebalancing and systematic withdrawal programs.
This prospectus sets forth basic information about the Policy and the Variable
Account that a prospective purchaser ought to know before purchasing a Policy.
This prospectus should be read carefully and retained for future reference. A
prospectus or prospectus profile for the State Farm Variable Product Trust must
accompany this prospectus and should be read in conjunction with this
prospectus.
Additional information about the Policy and the Variable Account is contained in
the Statement of Additional Information ("SAI"), which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same as this prospectus and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information is on page 18 of
this prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing to or calling State Farm at the address or
phone number shown above. The SEC maintains an Internet site at
http://www.sec.gov that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Policy
and the Variable Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Index of Terms 2
Fee Table 3
EXAMPLE 4
1. What is the Policy? 5
2. What are my annuity options? 5
3. How do I purchase a Policy? 6
Applying for a Policy 6
Initial Premium 6
Issuance of a Policy 6
Exchange Privilege: Variable Deferred Annuity 6
Free-Look Right to Cancel Policy 6
Making Additional Premium Payments 7
4. What are my allocation options? 7
Premium Allocations 7
Subaccount Options 7
Fixed Account Option 8
Transfers 8
Dollar-Cost Averaging 8
Portfolio Rebalancing Program 8
Policy Accumulation Value 9
Cash Surrender Value 9
Subaccount Policy Accumulation Value 9
Accumulation Unit Values 9
Net Investment Factor 9
Fixed Policy Accumulation Value 9
5. What are the expenses under the Policy? 9
Surrender Charge 10
Annual Administrative Fee 10
Transfer Processing Fee 10
Mortality and Expense Risk Charge 10
Fund Expenses 10
6. How will my investment in the Policy be
taxed? 10
Introduction 10
Tax Status of the Policies 11
Tax Treatment of Annuities 11
Taxation of Non-Qualified Policies 11
Taxation of Qualified Policies 12
Other Tax Consequences 13
Possible Changes in Taxation 13
7. How do I access my money? 13
Withdrawals 13
Surrenders 13
Systematic Withdrawal Program 14
Requesting Payments and Telephone
Transactions 14
8. How is the performance of the Policy
presented? 14
9. Does the Policy have a Death Benefit? 15
10. What other information should I know? 15
State Farm and the Variable Account 15
Modification 17
Distribution of the Policies 17
Legal Proceedings 17
Reports to Policy Owners 17
Financial Statements 17
11. How can I make inquiries? 17
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
1 -------
<PAGE>
INDEX OF TERMS
ACCUMULATION UNIT -- A unit of measure used to calculate Variable Policy
Accumulation Value.
ACCUMULATION UNIT VALUE -- The value of a Subaccount's Accumulation Unit. A
Subaccount's Accumulation Unit Value varies to reflect the performance of the
underlying Fund, and may increase or decrease from Valuation Day to Valuation
Day.
ANNUITANT -- The person whose life determines the Annuity Payments payable under
the Policy and whose death determines the Death Benefit.
ANNUITY DATE -- You may choose this date, which can be no later than the Final
Annuity Date. If a Death Benefit is payable and an annuity option is chosen, the
Annuity Date will be the date at the end of the Valuation Period during which we
receive due proof of the Annuitant's death. Payment intervals start on this
date. The first annuity payment is at the end of the first payment interval.
CASH SURRENDER VALUE -- The Policy Accumulation Value less any applicable
Surrender Charge and less any applicable Annual Administrative Fee.
CODE -- The United States Internal Revenue Code, as amended.
DOLLARS -- Any money we pay, or which is paid to us, must be in United States
dollars.
FINAL ANNUITY DATE -- The Policy Anniversary when the Annuitant is age 95 (90 in
New York).
FIXED ACCOUNT -- Part of our General Account to which Policy Accumulation Value
may be transferred or premium payments may be allocated under a Policy.
FIXED ANNUITY PAYMENT -- An annuity payment supported by our General Account.
Under a "life annuity," "life annuity with certain period," or a "joint and last
survivor life annuity," the amount of each annuity payment will be the same.
Under the "fixed years" annuity option, the payments will never be less than the
minimum stated in the Policy.
FIXED POLICY ACCUMULATION VALUE -- The Policy Accumulation Value in the Fixed
Account.
GENERAL ACCOUNT -- Our assets not allocated to the Variable Account or any other
separate account.
HOME OFFICE -- P.O. Box 2307, Bloomington, Illinois 61702-2307. Telephone: (888)
702-2307.
INITIAL PREMIUM PAYMENT -- The amount shown in the Policy that was paid on the
Policy Date.
NET ASSET VALUE PER SHARE -- The value per share of any Fund on any Valuation
Day. The method of computing the Net Asset Value Per Share is described in the
prospectus for the Trust.
PAYEE -- If the Annuitant dies prior to the Annuity Date and a Death Benefit is
payable, the beneficiaries shown in the application, unless changed. If you cash
surrender the Policy, the persons that you have named. A payee can be other than
a natural person only if we agree.
POLICY ACCUMULATION VALUE -- The sum of the Variable Policy Accumulation Value
and the Fixed Policy Accumulation Value.
POLICY DATE -- The effective date of this Policy.
POLICY MONTH, YEAR, OR ANNIVERSARY -- Each Policy Month, Year, or Anniversary is
measured from the Policy Date.
REQUEST -- A written request signed by the person making the request. Such
request must be sent to and received by us and be in a form acceptable to us. We
may, in our sole discretion, accept telephone requests in connection with
certain transactions, in accordance with rules and procedures established by us.
SEC -- The United States Securities and Exchange Commission.
SUBACCOUNT -- A subdivision of the Variable Account, the assets of which are
invested in a corresponding Fund.
SUBACCOUNT POLICY ACCUMULATION VALUE -- The Policy Accumulation Value in a
Subaccount.
SUCCESSOR OWNER -- Your Successor Owner is named in the application if you are
not the Annuitant.
VALUATION DAY -- Each day on which both the New York Stock Exchange and the Home
Office are open for business except for a day that a Subaccount's corresponding
Fund does not value its shares. The New York Stock Exchange is currently closed
on weekends and on the following holidays: New Year's Day; Reverend Dr. Martin
Luther King Jr. Holiday; Presidents' Day; Good Friday; Memorial Day;
Independence Day (observed on July 3 in 1998); Labor Day; Thanksgiving Day; and
Christmas Day. During 1998, the Home Office is closed on the above-listed
holidays and on the Friday after Thanksgiving and the day before Christmas Day.
VALUATION PERIOD -- The period that starts at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT -- A separate account of ours consisting of Subaccounts to
which premium payments may be allocated or Policy Accumulation Value may be
transferred.
VARIABLE ANNUITY PAYMENT -- An annuity payment that may vary in amount from one
payment to the next with the investment experience of one or more Subaccounts
you have chosen to support such payments.
VARIABLE POLICY ACCUMULATION VALUE -- The sum of all Subaccount Policy
Accumulation Values.
- ---------
2
<PAGE>
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the expenses
that you will pay directly or indirectly when you invest in the Policy.
POLICY OWNER TRANSACTION EXPENSES
Surrender Charge (1)
<TABLE>
<CAPTION>
YEAR % OF AMOUNT WITHDRAWN
<S> <C>
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 and over 0%
Transfer Processing Fee No charge for first 12
transfers
in a Policy Year;
thereafter, $25 fee per
transfer may be charged
Annual Administrative Fee $30 (waived if total
premiums paid are at least
$50,000)
VARIABLE ACCOUNT ANNUAL
EXPENSES
(AS A PERCENTAGE OF VARIABLE
ACCOUNT VALUE)
Mortality and Expense Risk
Charge 1.15%(2)
</TABLE>
(1) After the first Policy Year, you may withdraw a portion of your Policy
Accumulation Value without incurring a surrender charge. This amount is
called the "Free Withdrawal Amount." The Free Withdrawal Amount is equal
to 10% of your Policy Accumulation Value as of the previous Policy
Anniversary. If the entire 10% is not withdrawn in a particular Policy
Year, the unused Free Withdrawal Amount does not carry over to the next
Policy Year. The surrender charge may be waived in certain additional
circumstances. We cannot deduct more than 8 1/2% of the total premiums
you have paid under the Policy. See "Surrender Charge," page 10.
(2) The amount shown in the Fee Table reflects the mortality and expense
risk charge currently charged. The maximum mortality and expense risk
charge that we can charge is 1.25%. See "Mortality and Expense Risk
Charge," page 10.
TABLE A
FUND ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
The investment advisory fees shown below are the actual amounts expected to be
incurred in the current fiscal year for each of the Funds, other than the Stock
and Bond Balanced Fund. (The expenses of the Stock and Bond Balanced Fund are
shown in Table B.) Other Expenses are based on estimated amounts for the current
fiscal year and reflect the fact that the investment adviser to the Funds has
agreed to bear the expenses incurred by each Fund (other than the International
Equity Index Fund), other than the investment advisory fee, that exceed 0.10% of
such Fund's average daily net assets. The investment adviser to the Funds has
agreed to bear the expenses incurred by the International Equity Index Fund,
other than the investment advisory fee, that exceed 0.20% of that Fund's average
daily net assets. These expense limitation arrangements are voluntary and can be
eliminated by the investment adviser at any time.
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL ANNUAL EXPENSES
INVESTMENT (AFTER EXPENSE LIMITATION) (AFTER EXPENSE LIMITATION)
FUND ADVISORY FEES (3) (3)
<S> <C> <C> <C>
Large Cap Equity Index
Fund 0.26% 0.10% 0.36%
Small Cap Equity Index
Fund 0.40% 0.10% 0.50%
International Equity Index
Fund 0.55% 0.20% 0.75%
Bond Fund 0.50% 0.10% 0.60%
Money Market Fund 0.40% 0.10% 0.50%
</TABLE>
(3) Absent this expense limitation, estimated Other Expenses for the Large Cap
Equity Index Fund, Small Cap Equity Index Fund, International Equity Index
Fund, Bond Fund, and Money Market Fund would be 0.11%, 0.13%, 0.28%, 0.25%,
and 0.35%, respectively.
3 -------
<PAGE>
TABLE B
ANNUAL EXPENSES OF STOCK AND BOND BALANCED FUND
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
The Stock and Bond Balanced Fund invests primarily in the Large Cap Equity Index
Fund and the Bond Fund. The Stock and Bond Balanced Fund will not pay investment
advisory fees directly, but will indirectly bear its share of the investment
advisory fees incurred by the Large Cap Equity Index Fund and the Bond Fund.
Therefore, the investment results of the Stock and Bond Balanced Fund will be
net of these fees. The relative amounts that the Stock and Bond Balanced Fund
invests in the Large Cap Equity Index Fund and the Bond Fund at any one time
will fluctuate, but under normal circumstances, the Stock and Bond Balanced Fund
will attempt to maintain approximately 60% of its net assets in shares of the
Large Cap Equity Index Fund and approximately 40% of its net assets in shares of
the Bond Fund. Based on these percentages, an approximate investment advisory
fee can be derived for the Stock and Bond Balanced Fund. This derived fee is
used for the purpose of showing the Stock and Bond Balanced Fund's annual
expenses in the table below and for purposes of the Example below.
By investing in the Large Cap Equity Index Fund and the Bond Fund, the Stock and
Bond Balanced Fund will indirectly bear its share of those underlying Funds'
Other Expenses and will incur its own Other Expenses. The amounts shown for
these Other Expenses reflect the fact that the investment adviser to the Funds
has agreed to bear the expenses incurred by each underlying Fund, other than the
investment advisory fee, that exceed 0.10% of such Fund's average daily net
assets, and that the investment adviser to the Funds has agreed to bear all of
the Stock and Bond Balanced Fund's own Other Expenses. This expense limitation
arrangement is voluntary and can be eliminated by the investment adviser at any
time.
<TABLE>
<CAPTION>
TOTAL ANNUAL
OTHER EXPENSES OF EXPENSES OF STOCK
OTHER EXPENSES OF STOCK AND BOND AND BOND BALANCED
INVESTMENT ADVISORY UNDERLYING FUNDS BALANCED FUND FUND
FEES OF UNDERLYING (AFTER EXPENSE (AFTER EXPENSE (AFTER EXPENSE
FUND FUNDS LIMITATION) LIMITATION) (4) LIMITATION)
<S> <C> <C> <C> <C>
Stock and Bond Balanced
Fund 0.36% .10% 0.0% 0.46%
</TABLE>
(4) Absent this expense arrangement, estimated Other Expenses for the Stock and
Bond Balanced Fund would be 0.43%.
EXAMPLE
The purpose of the following Example is to demonstrate the expenses that you
would pay on a $1,000 investment in the Variable Account. The Example is
calculated based on the fees and charges shown in the tables above. For a more
complete description of these expenses, see "What are the expenses under the
Policy?" beginning on page 9 of this prospectus, and see the prospectus for the
Trust. The Example assumes that the average Policy Accumulation Value is
$25,000, so that the Annual Administration Fee is 0.12%. The tables above and
the Example do not reflect transfer processing fees. You might incur transfer
processing fees if you make more than twelve transfers in a Policy Year. See
"Transfer Processing Fee," page 10. The Example assumes you have invested all
your money in the Variable Account.
<TABLE>
<CAPTION>
YOU WOULD PAY THE FOLLOWING EXPENSES ON A
$1,000 INITIAL PREMIUM, ASSUMING A 5%
ANNUAL RETURN ON ASSETS AND THE CHARGES 1. IF YOU SURRENDER OR ANNUITIZE YOUR 2. IF YOU DO NOT SURRENDER OR ANNUITIZE
AND EXPENSES LISTED IN THE FEE TABLE POLICY AT THE END OF THE STATED TIME YOUR POLICY AT THE END OF THE STATED TIME
ABOVE: PERIOD: PERIOD:
<S> <C> <C> <C> <C>
FUND 1 YEAR 3 YEARS 1 YEAR 3 YEARS
Large Cap Equity Index Fund $ 89 $ 102 $ 17 $ 53
Small Cap Equity Index Fund $ 91 $ 107 $ 18 $ 57
International Equity Index Fund $ 93 $ 114 $ 21 $ 65
Bond Fund $ 92 $ 110 $ 19 $ 60
Money Market Fund $ 91 $ 107 $ 18 $ 57
Stock and Bond Balanced Fund $ 90 $ 105 $ 18 $ 56
</TABLE>
The Example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown. The assumed
5% annual rate of return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than this assumed rate.
- ---------
4
<PAGE>
1. WHAT IS THE POLICY?
The Policy is an individual variable deferred annuity policy offered by us,
State Farm Life and Accident Assurance Company. Under the terms of the Policy,
we promise to pay you annuity payments after the Annuity Date. Until the Annuity
Date, you may pay premiums under the Policy, and you will generally not be taxed
on increases in the value of your Policy as long as you do not take
distributions. When you use the Policy in connection with a tax-qualified
retirement plan, federal income taxes may be deferred on your premium payments,
as well as on increases in the value of your Policy. See "How will my investment
in the Policy be taxed?," page 10. The Policy may not be available in all
states.
When you pay premiums, you can allocate those premiums to one or more of the six
subdivisions of the Variable Account, known as "Subaccounts." Premiums allocated
to a Subaccount will be invested solely in a Fund, as you direct. Your Policy
value in a Subaccount, called the "Subaccount Policy Accumulation Value," will
vary according to the performance of the corresponding Fund. Depending on market
conditions, your Subaccount Policy Accumulation Value in each Subaccount could
increase or decrease. The total of the Subaccount Policy Accumulation in each
Subaccount is called the Variable Policy Accumulation Value.
You can also allocate premiums to our Fixed Account. Your Policy value in the
Fixed Account is called the Fixed Policy Accumulation Value. When you allocate
premium to the Fixed Account, we guarantee principal and interest. See "Fixed
Account Option," page 8.
You can request that we transfer Policy Accumulation Value from one account to
another, subject to certain conditions. See "Transfers," page 8.
2. WHAT ARE MY ANNUITY OPTIONS?
You choose the Annuity Date when you want annuity payments to begin. The Annuity
Date must come on or before the Final Annuity Date, which is the Policy
Anniversary when the Annuitant is age 95 (90 in New York). You select an annuity
option from those listed below, and indicate whether you want your annuity
payments to be fixed or variable or a combination of fixed and variable. If an
annuity option for the Cash Surrender Value is not chosen by the Final Annuity
Date, we will pay you the Cash Surrender Value using annuity option 1. On the
Annuity Date, the Cash Surrender Value under the Policy will be used to provide
annuity payments. If your Policy has been in force for at least five Policy
Years, and you choose a "life annuity," "life annuity with certain period," or a
"joint and last survivor life annuity," no surrender charge will be deducted.
Unless you request otherwise, any money that you have invested in the
Subaccounts will be used to provide variable annuity income, and any money that
you have invested in the Fixed Account will be used to provide a fixed annuity
income.
Your first annuity payment, whether fixed or variable, will be based on the
amount of proceeds applied under the annuity option you have selected and on
"annuity purchase rates" based on the Annuitant's age and sex and, if
applicable, upon the age and sex of a second designated person. The annuity
purchase rate that we apply will never be lower than the rate shown in your
Policy.
If you have told us you want fixed annuity payments, under a "life annuity,"
"life annuity with certain period," or a "joint and last survivor life annuity,"
the amount of each annuity payment will be the same. Under the "fixed years"
annuity option, the payments will never be less than the minimum payment stated
in the Policy.
If you told us you want variable annuity payments, the amount of variable
annuity payments will vary according to the investment performance of the Funds
you have selected to support your variable annuity payments.
You can choose either 1, 3, 6, or 12 month intervals to receive annuity
payments. Payment intervals start on the Annuity Date. The first annuity payment
is made at the end of the first payment interval. If any payment would be less
than $100, we may change the payment interval to the next longer interval. If on
the Annuity Date the payment for the 12 month interval is less than $100, we may
pay the Cash Surrender Value on that date in one sum.
5 -------
<PAGE>
We may require satisfactory proof that the Annuitant is living when each annuity
payment is due. If proof is required, payments will stop until such proof is
given. If any payment is made by check and the Annuitant personally endorses the
check on or after the date on which such payment is due, no other proof will be
required.
If you have selected the "fixed years" annuity option, you may request
withdrawals at any time.
The available annuity options are:
Option 1 -- Life Annuity. Payments will be made to you at the end of each
payment interval as long as the Annuitant lives.
Option 2 -- Life Annuity with Certain Period. Payments will be made to you at
the end of each payment interval as long as the Annuitant lives or to the end of
the certain period, if longer. The certain period can be any number of years
from 5 to 20. You must choose the number of years if you choose this option.
However, for payments under a tax-qualified plan, the certain period cannot
exceed the life expectancy of the Owner.
Option 3 -- Joint and Last Survivor Life Annuity. Payments will be paid to you
at the end of each payment interval as long as the Annuitant or a second
designated person is alive. You must name the second person on or before the
Annuity Date.
Option 4 -- Fixed Years. Payments will be made to you at the end of each payment
interval for the number of years chosen. You must choose the number of years
from 5 to 30. However, for payments under a tax-qualified plan, the number of
years chosen cannot exceed the life expectancy of the Owner.
You may elect State Farm's "Additional Deposit Rider." This feature is available
only in connection with certain tax-qualified Policies. The Additional Deposit
Rider permits you to make a single premium payment at the time you select an
Annuity Option in order to increase the amount of payment under the annuity
option you select. There is an additional charge deducted from the premium
payment.
3. HOW DO I PURCHASE A POLICY?
Applying for a Policy. To purchase a Policy, you must complete an application
and submit it to an authorized State Farm agent. You must pay an initial premium
at least equal to the minimum required and/or make periodic payments under a
special monthly payment plan. See "Initial Premium," below. We reserve the right
not to accept an application for any lawful reason.
Initial Premium. The Policy may be purchased to use in connection with
tax-qualified plans, or it may be purchased on a non-tax-qualified basis. To
purchase a non-tax-qualified Policy, you may not be more than 85 years old on
the Policy Date. (You may not be more than 80 years old in New York.) To
purchase a tax-qualified Policy, you must be at least 16 years old and not older
than 70 years old (85 years old for Roth IRA, 80 years old for Roth IRA in New
York) on the Policy Date. You must also make a minimum initial premium payment
or make periodic payments under a special monthly payment plan, depending on how
old you are and whether you are purchasing a tax-qualified or non-tax-qualified
Policy, as shown in the following table:
<TABLE>
<CAPTION>
ISSUE AGE ISSUE AGE
0-65 66 OR MORE
<S> <C> <C>
Minimum initial premium
required for
non-tax-qualified policy $1,200 $ 5,000
($100 PER
MONTH
FOR SPECIAL
MONTHLY
PAYMENT PLAN)
Minimum initial premium
required for
tax-qualified policy $600 $ 25,000
($50 PER MONTH ($2,000 FOR
FOR SPECIAL ROTH IRA)
MONTHLY
PAYMENT PLAN)
</TABLE>
Issuance of a Policy. Once we receive your initial premium and your completed
application at our Home Office, we will usually issue your Policy within two
Valuation Days. However, if you did not give us all the information we need, we
will try to contact you to get the additional needed information. If we cannot
complete the application within five Valuation Days, we will either send your
money back or obtain your permission to keep your money until we receive all the
necessary information. The Policy Date of your Policy will be the date the
initial premium is received, except when the premium is received on the 29th,
30th, or 31st of any month. The Policy Date of these Policies will be the 28th
of that month.
Exchange Privilege: Variable Deferred Annuity. State Farm will permit the policy
owner of a State Farm deferred annuity contract which has not yet been
annuitized to exchange such contract for a Variable Deferred Annuity. If a State
Farm deferred annuity is exchanged for a State Farm Variable Deferred Annuity,
State Farm will waive any surrender charge on the deferred annuity. State Farm
can change this program at any time.
Free-Look Right to Cancel Policy. During your "free-look" period, you may cancel
your Policy. The free-look period expires 10 days after you receive your Policy.
Some states may require a longer period. If you decide to cancel the Policy, you
must return it by mail or other delivery method to State Farm or to an
authorized State Farm agent. You will receive a refund
- ---------
6
<PAGE>
equal to the greater of: (i) the premium payments made under the Policy during
the free-look period; or (ii) the Policy Accumulation Value (without the
deduction of a surrender charge) at the end of the Valuation Period during which
the Policy is received at our Home Office (if the Policy is returned to the Home
Office) or by our agent (if the Policy is returned to the agent) for
cancellation. Immediately after mailing or delivery, the Policy will be deemed
void from the beginning.
Making Additional Premium Payments. You may pay additional premiums of $50 or
more at any time before the Annuity Date. You may arrange for monthly premiums
to be paid via automatic deduction from your checking account. Any premium
received after the Policy Date will be credited to the Policy as of the end of
the Valuation Period during which it is received at our Home Office. We reserve
the right to refuse a premium if total premiums paid in a Policy Year would
exceed $30,000.
4. WHAT ARE MY ALLOCATION OPTIONS?
Premium Allocations. When you apply for a Policy, you specify the percentage of
premium to be allocated to each Subaccount of the Variable Account and to be
allocated to the Fixed Account. You can change the allocation percentages at any
time by sending a satisfactory written or telephone request to our Home Office
(provided we have your telephone authorization on file). The change will apply
to all premiums received at the same time or after we receive your request.
Premium allocations must be in percentages totaling 100%, and each allocation
percentage must be a whole number.
Until the free-look period expires, all premiums are allocated to the Fixed
Account. At the end of this period, Policy Accumulation Value is transferred to
the Subaccounts and/or remains in the Fixed Account based on the premium
allocation percentages in effect at the time of the transfer. For this purpose,
we assume your free-look period begins 10 days after we issue your Policy. The
transfer from the Fixed Account to the Subaccounts upon the expiration of the
free-look period does not count as a transfer for any other purposes under the
Policy.
Subaccount Options. The Variable Account has six Subaccounts, each investing in
a specific Fund of the Trust. The Trust is a series-type fund registered with
the Securities and Exchange Commission as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
State Farm Investment Management Corp. ("SFIM") serves as the investment adviser
of the Trust and conducts the business and affairs of the Trust. SFIM has
engaged Barclays Global Fund Advisors as the investment sub-adviser to provide
day-to-day portfolio management for the Large Cap, Small Cap, and International
Equity Index Funds. The investment objective(s) of each of the Funds in which
Subaccounts invest are summarized below. There is no assurance that these
objectives will be met.
The Large Cap Equity Index Fund seeks to match the performance of the Standard &
Poor's-Registered Trademark- Composite Index of 500 Stocks.(1) This Fund will
pursue its objective by investing primarily on a capitalization-weighted basis
in the securities comprising the index.
The Small Cap Equity Index Fund seeks to match the performance of the Russell
2000-Registered Trademark- Small Stock Index.(2) This Fund will pursue its
objective by investing primarily in a representative sample of stocks found in
the index.
The International Equity Index Fund seeks to match the performance of the Morgan
Stanley Capital International Europe, Australia and Far East Free
(EAFE-Registered Trademark- Free) Index.(3) This Fund will pursue its objective
by investing primarily in a representative sample of stocks found in the index.
The Bond Fund seeks to realize over a period of years the highest yield
consistent with prudent investment management through current income and capital
gains. This Fund will pursue its objective by investing primarily in high
quality debt securities.
The Money Market Fund seeks to maximize current income to the extent consistent
with the preservation of capital and maintenance of liquidity. This Fund will
pursue its objective by investing exclusively in high quality money market
instruments. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. This Fund will attempt to maintain a stable
net asset value of $1.00 per share, BUT THERE CAN BE NO ASSURANCE THAT THE FUND
WILL BE ABLE TO DO SO.
The Stock and Bond Balanced Fund seeks long-term growth of capital, balanced
with current income. This Fund will pursue its objective by investing primarily
in the Trust's Large Cap Equity Index Fund and Bond Fund.
(1) Standard & Poor's-Registered Trademark-, S&P-Registered Trademark-, S&P
500-Registered Trademark-, Standard & Poor's 500 and 500 are trademarks of The
McGraw-Hill Companies, Inc. and have been licensed for use by State Farm and the
Trust. Neither the State Farm Variable Deferred Annuity, the Large Cap Equity
Index Fund, nor the Stock and Bond Balanced Fund (the "Product and the Funds")
is sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
Product and the Funds. (For more information regarding the S&P 500 Index, see
the SAI.)
(2) The Russell 2000-Registered Trademark- Index is a trademark/service mark of
the Frank Russell Company. Russell-TM- is a trademark of the Frank Russell
Company. The Small Cap Equity Index Fund (the "Fund") is not sponsored,
endorsed, sold or promoted by the Frank Russell Company, and the Frank Russell
Company makes no representation regarding the advisability of investing in the
Fund. (For more information regarding the Russell 2000 Index, see the SAI.)
(3) The Morgan Stanley Capital International Europe, Australia, and Far East
Free (EAFE-Registered Trademark- Free) Index is the exclusive property of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"). Morgan Stanley Capital
International is a service mark of Morgan Stanley and has been licensed for use
by the Trust. The International Equity Index Fund (the "Fund") is not sponsored,
endorsed, sold or promoted by Morgan Stanley and Morgan Stanley makes no
representation regarding the advisability of investing in the Fund. (For more
information regarding the Morgan Stanley Capital International EAFE Free Index,
see the SAI.)
7 -------
<PAGE>
Further information about the Funds is contained in the accompanying prospectus
for the Trust, which you should read in conjunction with this prospectus. See
also "The Trust," page 16.
Fixed Account Option. The Fixed Account is part of our General Account. It is
not a separate account. Amounts allocated to the Fixed Account are credited with
interest for the period of allocation at rates determined in our sole
discretion, but in no event will interest credited on these amounts be less than
an effective annual rate of 3% per year, compounded annually. The current
interest rate is the Guaranteed Interest Rate plus any excess interest rate. The
current interest rate and the guarantee period for that rate are determined
periodically. Each guarantee period will be at least one year. You assume the
risk that interest credited thereafter may not exceed the guaranteed rate of 3%
per year. See "State Farm's Fixed Account Option," page 16. There are
significant limits on your right to transfer Policy Accumulation Value from the
Fixed Account. See "Transfers," below.
Transfers. Prior to the earlier of the Annuity Date or the date the Annuitant
dies, you may transfer Policy Accumulation Value from and among the Subaccounts
at any time after the end of the free-look period. The minimum amount of Policy
Accumulation Value that may be transferred from a Subaccount is $250, or, if
less, the entire Policy Accumulation Value held in that Subaccount. Fixed Policy
Accumulation Value may be transferred from the Fixed Account to a Subaccount or
Subaccounts only once each Policy Year and only during the 30-day period
following the end of each Policy Year. Unused transfers from the Fixed Account
do not carry over to the next Policy Year. The maximum transfer amount is the
greater of 25% of the Fixed Policy Accumulation Value on the date of the
transfer or $1,000, unless waived by us. The amount transferred must be at least
$250, or, if less, the Policy Accumulation Value held in the Fixed Account.
After the Annuity Date, you may request to transfer annuity units from one
Subaccount to another Subaccount. This is limited to four transfers per year and
only if variable annuity payments have been elected.
Transfer requests may be made by satisfactory written or telephone request if we
have your written telephone authorization on file. A transfer will take effect
at the end of the Valuation Period during which the request is received at our
Home Office. State Farm may, however, defer transfers under the same conditions
that we may delay paying proceeds. See "Requesting Payments and Telephone
Transactions," page 14. There is no limit on the number of transfers from and
among the Subaccounts. However, State Farm reserves the right to impose a $25
transfer processing fee on each transfer in a Policy Year in excess of twelve.
For purposes of assessing the transfer processing fee, each transfer request is
considered one transfer, regardless of the number of Subaccounts affected by the
transfer. Any unused "free" transfers do not carry over to the next Policy Year.
State Farm reserves the right to modify, restrict, suspend or eliminate the
transfer privileges, including telephone transfer privileges, at any time, for
any reason.
Dollar-Cost Averaging. The dollar-cost averaging program permits you to
systematically transfer on a monthly, quarterly, semi-annual, or annual basis a
set dollar amount from either the Subaccount investing in the Money Market Fund
(the "Money Market Subaccount") or the Subaccount investing in the Bond Fund
(the "Bond Subaccount") to any combination of Subaccounts and/or the Fixed
Account. If the Money Market Subaccount or the Bond Subaccount is the Subaccount
from which the transfer is made, it cannot also be used as one of the
Subaccounts in this combination. The dollar-cost averaging method of investment
is designed to reduce the risk of making purchases only when the price of
Accumulation Units is high, but you should carefully consider your financial
ability to continue the program over a long enough period of time to purchase
units when their value is low as well as when it is high. Dollar-cost averaging
does not assure a profit or protect against a loss.
You may elect to participate in the dollar-cost averaging program at any time
before the Annuity Date by sending us a written request. The minimum transfer
amount is $100 from the Money Market Subaccount or the Bond Subaccount, as
applicable. Once elected, it remains in effect from the date we receive your
request until the Annuity Date or until the value of the Subaccount from which
transfers are being made is depleted or until you cancel the program by written
request or by telephone, if we have your telephone authorization on file. You
can request changes in writing or by telephone, if we have your telephone
authorization on file. There is no additional charge for dollar-cost averaging.
A transfer under this program is not considered a transfer for purposes of
assessing a transfer processing fee. We reserve the right to discontinue
offering the dollar-cost averaging program at any time and for any reason.
Dollar-cost averaging is not available while you are participating in the
portfolio rebalancing program.
Portfolio Rebalancing Program. Once your money has been allocated among the
Subaccounts, the performance of each Subaccount may cause your allocation to
shift. You may instruct us to automatically rebalance (on a monthly, quarterly,
semi-annual, or annual basis) the value of your Policy in the Subaccounts to
return to the percentages specified in your allocation instructions. You may
elect to participate in this program at any time before the Annuity Date by
sending a written request to our Home Office. Your request will be effective
when we receive it. Your percentage allocations must be in whole percentages.
You may start and stop portfolio rebalancing at any time and make changes to
your allocations by written or telephone request, if we have your telephone
authorization on file. There is no additional charge for using
- ---------
8
<PAGE>
this program. A transfer under this program is not considered a transfer for
purposes of assessing a transfer processing fee. We reserve the right to
discontinue offering the program at any time and for any reason. Portfolio
rebalancing does not guarantee a profit or protect against loss. Amounts in the
Fixed Account may not be used in connection with the portfolio rebalancing
program. The portfolio rebalancing program is not available while you are
participating in the dollar-cost averaging program.
Policy Accumulation Value. The Policy Accumulation Value serves as a starting
point for calculating certain values under a Policy. It is the aggregate of the
Subaccount Policy Accumulation Values and the Fixed Policy Accumulation Value
credited to the Policy. The Policy Accumulation Value is determined first on the
Policy Date and thereafter on each Valuation Day. The Policy Accumulation Value
will vary to reflect the performance of the Subaccounts to which premiums have
been allocated, interest credited on amounts allocated to the Fixed Account,
charges, transfers, withdrawals, and full surrenders. It may be more or less
than premiums paid.
Cash Surrender Value. The Cash Surrender Value on a Valuation Day is the Policy
Accumulation Value, reduced by any applicable surrender charge that would be
deducted if the Policy were surrendered that day and any applicable Annual
Administrative Fee.
Subaccount Policy Accumulation Value. On any Valuation Day, the Subaccount
Policy Accumulation Value in a Subaccount is equal to the number of Accumulation
Units attributable to that Subaccount multiplied by the Accumulation Unit Value
for that Subaccount for that Valuation Day. When you allocate an amount to a
Subaccount, either by premium allocation or transfer of Policy Accumulation
Value, your Policy is credited with Accumulation Units in that Subaccount. The
number of Accumulation Units is determined by dividing the dollar amount
allocated or transferred to the Subaccount by the Subaccount's Accumulation Unit
Value for that Valuation Day. Similarly, when an amount is transferred from a
Subaccount, a withdrawal is taken from the Subaccount, or the Policy is
surrendered, the number of Accumulation Units is determined by dividing the
dollar amount transferred, withdrawn or surrendered by the Subaccount's
Accumulation Unit Value for that Valuation Day.
Accumulation Unit Values. A Subaccount's Accumulation Unit Value is the value of
its Accumulation Unit. Accumulation Unit Values vary to reflect the investment
experience of the underlying Fund, and may increase or decrease from one
Valuation Day to the next. The Accumulation Unit Value for each Subaccount was
arbitrarily set at $10 when the Subaccount was established. For each Valuation
Period after the date of establishment, the Accumulation Unit Value is
determined by multiplying the Accumulation Unit Value for a Subaccount for the
prior Valuation Period by the net investment factor for the Subaccount for the
current Valuation Period.
Net Investment Factor. The net investment factor is an index used to measure the
investment performance of a Subaccount from one Valuation Period to the next.
The net investment factor for any Subaccount for any Valuation Period reflects
the change in the net asset value per share of the Fund held in the Subaccount
from one Valuation Period to the next, adjusted for the daily deduction of the
mortality and expense risk charge from assets in the Subaccount. If any
"ex-dividend" date occurs during the Valuation Period, the per share amount of
any dividend or capital gain distribution is taken into account. Also, if any
taxes need to be reserved, a per share charge or credit for any taxes reserved
for, which is determined by us to have resulted from the operations of the
Subaccount, is taken into account.
Fixed Policy Accumulation Value. The Fixed Policy Accumulation Value on any date
after the Policy Date is equal to: (1) the sum of the following amounts in the
Fixed Account: premium allocations, Policy Accumulation Value transfers to the
Fixed Account, and interest accruals (if the date is a Policy Anniversary it
also includes any dividend payments); minus (2) the sum of any withdrawals and
any applicable surrender charges or transfers to the Fixed Account including any
applicable transfer processing fee from the Fixed Account, as well as the
applicable portion of the Annual Administrative Fee.
5. WHAT ARE THE EXPENSES UNDER THE POLICY?
State Farm deducts the charges described below. The charges are for the services
and benefits provided, costs and expenses incurred and risks assumed by State
Farm under or in connection with the Policies. Services and benefits provided by
State Farm include: the ability for Owners to make withdrawals and surrenders
under the Policy; the Annuitant's Death Benefit; the available investment
options, including dollar cost averaging, portfolio rebalancing, and systematic
withdrawal programs; administration of the annuity options available under the
Policy; and the distribution of various reports to Owners. Costs and expenses
incurred by State Farm include those associated with various overhead and other
expenses associated with providing the services and benefits provided by the
Policy, sales and marketing expenses, and other costs of doing business. Risks
assumed by State Farm include the risks that Annuitants may live for a longer
period of time than estimated when the annuity factors under the Policy were
established, the amount of the Annuitant's Death Benefit will be greater than
Policy Accumulation Value, and the risks that the costs of providing the
services and benefits under the Policies will exceed the charges deducted. We
may profit from charges deducted, such as the mortality and expense risk charge,
and we may use that profit for any purpose, including the payment of
distribution charges.
9 -------
<PAGE>
SURRENDER CHARGE
If you make a withdrawal or surrender the Policy during the first seven Policy
Years, State Farm may deduct a surrender charge calculated as a percentage of
the amount withdrawn or surrendered. The applicable percentage is 7% in the
first Policy Year, and declines by 1% in each following Policy Year, until it
reaches 0% in the eighth Policy Year. We may also deduct a surrender charge when
you take annuity payments or when proceeds are paid upon the Owner's death
(unless the Owner is also the Annuitant). However, we will not deduct a
surrender charge on annuitization if the Policy has been in force at least five
Policy Years and if the payments are made under a "life annuity," "life annuity
with certain period," or a "joint and last survivor life annuity." See "What are
my annuity options?," page 5. No surrender charge is deducted when a Death
Benefit is paid upon the Annuitant's death, regardless of how many Policy Years
have elapsed or how the Death Benefit is paid. See "Does the Policy have a Death
Benefit?," page 15.
If the Policy is surrendered, the surrender charge is deducted from the Policy
Accumulation Value in determining the Cash Surrender Value. If a withdrawal is
taken, the Surrender Charge is deducted from the Policy Accumulation Value
remaining after you have been paid the amount requested, and the surrender
charge will be calculated as the applicable percentage of the total amount
withdrawn. Unless you specify otherwise, we will deduct the surrender charge
from each Subaccount and the Fixed Account pro-rata. Each year after the first
Policy Year, you may withdraw a "Free Withdrawal Amount" without incurring a
surrender charge. For a table of surrender charges and a description of the Free
Withdrawal Amount, see the "Fee Table," page 3.
Example of Calculation of Surrender Charge. Assume the applicable surrender
charge percentage is 7% and you have requested a withdrawal of $100. You will
receive $100 and the surrender charge is $7.53, for a total withdrawal of
$107.53.
Waiver of Surrender Charge. Except in New York, we will not deduct a surrender
charge if, at the time we receive a request for a withdrawal or a surrender, we
have received due proof that the Annuitant is "Terminally Ill" or has been
confined continuously to an "Eligible Hospital" or "Eligible Nursing Home" for
at least three months before the date we receive the request. "Terminally Ill,"
"Eligible Hospital," and "Eligible Nursing Home" are defined in the Policy.
ANNUAL ADMINISTRATIVE FEE
We will deduct an annual administrative fee (1) on each Policy Anniversary prior
to the Annuity Date, (2) on the day of any surrender if the surrender is not on
the Policy Anniversary, or (3) on the Annuity Date if the Annuity Date is not on
the Policy Anniversary. We will waive this fee if total premiums of at least
$50,000 have been paid under a Policy at the time the Annual Administrative Fee
would have otherwise been deducted. The fee will be deducted from each
Subaccount and the Fixed Account on a pro-rata basis.
TRANSFER PROCESSING FEE
We reserve the right to deduct a transfer processing fee of $25 for the 13th and
each subsequent transfer during a Policy Year. For the purpose of assessing the
transfer processing fee, each written or telephone request is considered to be
one transfer, regardless of the number of Subaccounts affected by the transfer.
The transfer processing fee will be deducted from the Subaccount or the Fixed
Account from which the transfer is made. If a transfer is made from more than
one Subaccount and/or the Fixed Account at the same time, the transfer fee would
be deducted pro-rata from the Subaccounts and/or the Fixed Account. We reserve
the right to waive the transfer processing fee.
MORTALITY AND EXPENSE RISK CHARGE
State Farm currently deducts a daily charge from the assets in the Subaccounts
attributable to the Policies at an annual rate of 1.15% of net assets. This
charge is guaranteed not to exceed an annual rate of 1.25% of net assets. This
charge does not apply to Fixed Policy Accumulation Value attributable to the
Policies. This charge is factored into the net investment factor. See "Net
Investment Factor," page 9.
FUND EXPENSES
Because the Variable Account purchases shares of the various Funds, the net
assets of the Variable Account will reflect the investment advisory fees and
other operating expenses incurred by the Funds. A table of each Fund's advisory
fees and other expenses can be found in the front of this prospectus in the Fee
Table. For a description of each Fund's expenses, advisory fees and other
expenses, see the prospectus for the Trust.
6. HOW WILL MY INVESTMENT IN THE POLICY BE TAXED?
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
INTRODUCTION
The following summary provides a general description of the Federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon State Farm's understanding of the
present Federal income tax laws. No representation is made as to the likelihood
of continuation of the present Federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service (the "IRS").
- ---------
10
<PAGE>
The Policy may be purchased on a non-tax-qualified basis ("Non-Qualified
Policy") or purchased on a tax-qualified basis ("Qualified Policy"). Qualified
Policies are designed for use by individuals whose premium payments are
comprised solely of proceeds from and/or contributions under retirement plans
that are intended to qualify as plans entitled to special income tax treatment
under Sections 401(a), 403(b), 408, or 408A of the Code. The ultimate effect of
federal income taxes on the amounts held under a Policy, or annuity payments,
depends on the type of retirement plan, on the tax and employment status of the
individual concerned, and on our tax status. In addition, certain requirements
must be satisfied in purchasing a Qualified Policy with proceeds from a
tax-qualified plan and receiving distributions from a Qualified Policy in order
to continue receiving favorable tax treatment. Some retirement plans are subject
to distribution and other requirements that are not incorporated into our Policy
administration procedures. Owners, participants and Beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the Policies comply with applicable law. Therefore,
purchasers of Qualified Policies should seek competent legal and tax advice
regarding the suitability of a Policy for their situation. The following
discussion assumes that Qualified Policies are purchased with proceeds from
and/or contributions under retirement plans that qualify for the intended
special federal income tax treatment.
TAX STATUS OF THE POLICIES
Diversification Requirements. The Code requires that the investments of the
Variable Account be "adequately diversified" in order for the Policies to be
treated as annuity contracts for Federal income tax purposes. It is intended
that the Variable Account, through the Funds, will satisfy these diversification
requirements.
In certain circumstances, owners of variable annuity contracts have been
considered for Federal income tax purposes to be the owners of the assets of the
Variable Account supporting their contracts due to their ability to exercise
investment control over those assets. When this is the case, the contract owners
have been currently taxed on income and gains attributable to the variable
account assets. There is little guidance in this area, and some features of the
Policies, such as the flexibility of an Owner to allocate premium payments and
transfer Policy Accumulation Values, have not been explicitly addressed in
published rulings. While State Farm believes that the Policies do not give
Owners investment control over Variable Account assets, State Farm reserves the
right to modify the Policies as necessary to prevent an Owner from being treated
as the owner of the Variable Account assets supporting the Policy.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Policy to
contain certain provisions specifying how your interest in the Policy will be
distributed in the event of your death. The Non-Qualified Policies contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise.
Other rules may apply to Qualified Policies.
The following discussion assumes that the Policies will qualify as annuity
contracts for Federal income tax purposes.
TAX TREATMENT OF ANNUITIES
In General. We believe that if you are a natural person you will not be taxed on
increases in the value of a Policy until a distribution occurs or until annuity
payments begin. (For these purposes, the agreement to assign or pledge any
portion of the Policy Accumulation Value, and, in the case of a Qualified
Policy, any portion of an interest in the qualified plan, generally will be
treated as a distribution.)
TAXATION OF NON-QUALIFIED POLICIES
Non-Natural Person. The Owner of any annuity contract who is not a natural
person generally must include in income any increase in the excess of the Policy
Accumulation Value over the "investment in the contract" (generally, the
premiums or other consideration paid for the contract) during the taxable year.
There are some exceptions to this rule and a prospective Owner that is not a
natural person may wish to discuss these with a tax adviser. The following
discussion generally applies to Policies owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Policy occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the Policy Accumulation Value immediately before the
distribution over the Owner's investment in the Policy at that time.
In the case of a surrender under a Non-Qualified Policy, the amount received
generally will be taxable only to the extent it exceeds the Owner's investment
in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from a
Non-Qualified Policy, there may be imposed a federal tax penalty equal to ten
percent of the amount treated as income. In general, however, there is no
penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer.
11-------
<PAGE>
Other exceptions may be applicable under certain circumstances and special rules
may be applicable in connection with the exceptions enumerated above. A tax
adviser should be consulted with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the payment
option elected under an annuity contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The non-
taxable portion of an annuity payment is generally determined in a manner that
is designed to allow you to recover your investment in the Policy ratably on a
tax-free basis over the expected stream of annuity payments, as determined when
annuity payments start. Once your investment in the Policy has been fully
recovered, however, the full amount of each annuity payment is subject to tax as
ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Policy
because of your death or the death of the Annuitant. Generally, such amounts are
includible in the income of the recipient as follows: (i) if distributed in a
lump sum, they are taxed in the same manner as a surrender of the contract, or
(ii) if distributed under a payment option, they are taxed in the same way as
annuity payments.
Transfers, Assignments or Exchanges of a Policy. A transfer or assignment of
ownership of a Policy, the designation of an Annuitant, the selection of certain
Annuity Dates, or the exchange of a Policy may result in certain tax
consequences to you that are not discussed herein. An Owner contemplating any
such transfer, assignment or exchange, should consult a tax advisor as to the
tax consequences.
Withholding. Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
Multiple Policies. All annuity contracts that are issued by State Farm (or its
affiliates) to the same Owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in such
Owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED POLICIES
The Policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from: contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in other specified circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Policies with the various types of qualified retirement plans. Policy Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Policy, but we shall not be bound by the terms and conditions of such plans
to the extent such terms contradict the Policy, unless the Company consents.
Distributions. Annuity payments are generally taxed in the same manner as under
a Non-Qualified Policy. When a withdrawal from a Qualified Policy occurs, a pro
rata portion of the amount received is taxable, generally based on the ratio of
the Owner's investment in the Policy (generally, the premiums or other
consideration paid for the Policy) to the participant's total accrued benefit
balance under the retirement plan. For Qualified Policies, the investment in the
contract can be zero. For Roth IRAs, distributions are generally not taxed,
except as described below.
For qualified plans under Section 401(a) and 403(b), the Code requires that
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the Owner (or plan
participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of the
calendar year following the calendar year in which the Owner (or plan
participant) reaches age 70 1/2. Roth IRAs under Section 408A do not require
distributions at any time prior to the Owner's death.
Withholding. Distributions from certain qualified plans generally are subject to
withholding for the Owner's federal income tax liability. The withholding rates
vary according to the type of distribution and the Owner's tax status. The Owner
may be provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a) plans and
section 403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions that are
required by the Code or distributions in a specified annuity form. The 20%
withholding does not apply, however, if the Owner chooses a "direct rollover"
from the plan to another tax-qualified plan or IRA.
Brief descriptions follow of the various types of qualified retirement plans in
connection with a Policy. We will endorse the Policy as necessary to conform it
to the requirements of such plan.
Corporate and Self-Employed Pension and Profit Sharing Plans. Section 401(a) of
the Code permits corporate employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish these
plans for
- ---------
12
<PAGE>
themselves and their employees. These retirement plans may permit the purchase
of the Policies to accumulate retirement savings under the plans. Adverse tax or
other legal consequences to the plan, to the participant, or to both may result
if this Policy is assigned or transferred to any individual as a means to
provide benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Policy. Employers intending
to use the Policy with such plans should seek competent advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on
the amount that can be contributed, the deductible amount of the contribution,
the persons who may be eligible, and the time when distributions commence. Also,
distributions from certain other types of qualified retirement plans may be
"rolled over" or transferred on a tax-deferred basis into an IRA. There are
significant restrictions on rollover or transfer contributions from Savings
Incentive Match Plans (SIMPLE), under which certain employers may, effective
January 1, 1997, provide contributions to IRAs on behalf of their employees,
subject to special restrictions. Employers may establish Simplified Employee
Pension (SEP) Plans to provide IRA contributions on behalf of their employees.
Sales of the Policy for use with IRAs may be subject to special requirements of
the IRS.
Roth IRAs. Effective January 1, 1998, section 408A of the Code permits certain
eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA,
which are subject to certain limitations, are not deductible, and must be made
in cash or as a rollover or transfer from another Roth IRA or other IRA. A
rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and
other special rules may apply. Distributions from a Roth IRA generally are not
taxed, except that, once aggregate distributions exceed contributions to the
Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable
years starting with the year in which the first contribution is made to the Roth
IRA.
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of certain
Section 501(c)(3) organizations and public schools to exclude from their gross
income the premium payments made, within certain limits, on a Policy that will
provide an annuity for the employee's retirement. These premium payments may be
subject to FICA (social security) tax.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences under
the Policies are not exhaustive, and special rules are provided with respect to
other tax situations not discussed in this prospectus. Further, the Federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of Ownership or receipt of distributions
under a Policy depend on the individual circumstances of each Owner or recipient
of the distribution. A competent tax adviser should be consulted for further
information.
Possible Changes in Taxation. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted, would
adversely modify the federal taxation of the Policies. It is also possible that
any change could be retroactive (that is, effective prior to the date of the
change). A tax adviser should be consulted with respect to legislative
developments and their effect on the Policy.
7. HOW DO I ACCESS MY MONEY?
You may make withdrawals or a full surrender under the Policy. Proceeds are also
payable upon the death of the Owner or the Annuitant. See "Does the Policy have
a Death Benefit?," page 15. When you surrender the Policy or when proceeds are
payable on the death of an Owner or Annuitant, you can request that the proceeds
be paid under an annuity option. See "What are my annuity options?," page 5.
WITHDRAWALS
You may request to withdraw part of the Cash Surrender Value at any time prior
to the earlier of the Annuity Date or the date the Annuitant dies. (If you have
elected the "fixed years" annuity option, you may request withdrawals after the
Annuity Date. See "What are my annuity options?," page 5.) Requests for
withdrawals may be made in writing or by telephone, if we have your telephone
authorization on file. See "Requesting Payments and Telephone Transactions,"
page 14. Any withdrawal must be at least $500. We will pay you the withdrawal
amount in one sum. Under certain circumstances, payments of proceeds from a
withdrawal or surrender may be delayed. See "Requesting Payments and Telephone
Transactions," page 14.
When you request a withdrawal, you can direct how the withdrawal will be
deducted from your Policy Accumulation Value. If you provide no directions, the
withdrawal will be deducted from your Policy Accumulation Value in the
Subaccounts and Fixed Account on a pro-rata basis.
SURRENDERS
You may request surrender of the Policy at any time prior to the earlier of the
Annuity Date or the date the Annuitant dies. (If you have elected the "fixed
years" annuity option, you may request a surrender after the Annuity Date. See
"What are my annuity options?," page 5.) The Policy will terminate on the date
we receive your request or such later date as you might request. We will pay you
the Cash Surrender Value in one sum unless
13-------
<PAGE>
you choose an annuity option. After five Policy Years, if you choose a "life
annuity," "life annuity with certain period," or a "joint and last survivor life
annuity," no surrender charge is deducted. Under certain circumstances, payments
of proceeds from a withdrawal or surrender may be delayed. See "Requesting
Payments and Telephone Transactions," below.
SYSTEMATIC WITHDRAWAL PROGRAM
The systematic withdrawal program provides an automatic monthly, quarterly,
semi-annual, or annual payment to you from the amounts you have accumulated in
the Subaccounts and/or the Fixed Account. The minimum payment is $100. You may
elect to participate in the systematic withdrawal program at any time before the
Annuity Date by sending a written request to our Home Office. Once we have
received your request, the program will begin and will remain in effect until
your Policy Accumulation Value drops to zero, unless you cancel or make changes
in the program. Withdrawals under the systematic withdrawal program will be
deducted from your Policy Accumulation Value in the Subaccounts and the Fixed
Account on a pro-rata basis. You may cancel or make changes in the program at
any time by sending us a written request or by telephone if we have your
telephone authorization on file.
We will assess any applicable surrender charge on these withdrawals. See
"Surrender Charge," page 10. We do not deduct any other charges for this
program. We reserve the right to discontinue offering the systematic withdrawal
program at any time and for any reason.
REQUESTING PAYMENTS AND TELEPHONE TRANSACTIONS
Requesting Payments. Written requests for payment (except when telephone
requests are authorized by us) must be sent to our Home Office or given to an
authorized State Farm agent for forwarding to our Home Office. We will
ordinarily pay any Death Benefit, withdrawal, or surrender proceeds within seven
days after receipt at our Home Office of all the documents required for such a
payment. The amount will be determined as of the end of the Valuation Period
during which our Home Office receives all required documents. If no annuity
option has been chosen for a Death Benefit to be paid, or if the annuity option
chosen is not available, a Death Benefit generally will be paid through the
State Farm Benefit Management Account,-Registered Trademark- an interest bearing
checking account. We will send the State Farm Benefit Management
Account-Registered Trademark- checkbook to you within seven days after we
receive all required documents. A Beneficiary will have immediate access to the
proceeds by writing a check on the State Farm Benefit Management
Account.-Registered Trademark- Interest will be paid on the amount in the State
Farm Benefit Management Account-Registered Trademark- from the date due proof of
death is received at the Home Office to the date the State Farm Benefit
Management Account-Registered Trademark- is closed. Amounts in the State Farm
Benefit Management Account-Registered Trademark- are not insured by the Federal
Deposit Insurance Corporation or any other agency.
We may delay making a payment or processing a transfer request if: (1) the
disposal or valuation of the Variable Account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists; or (2) the SEC by order permits postponement
of payment to protect State Farm's Policy Owners. We also may defer making
payments attributable to a check that has not cleared, and we may defer payment
of proceeds from the Fixed Account for a withdrawal or surrender request for up
to six months from the date we receive the request. However, Cash Surrender
Value paid under an annuity option will not be deferred.
Telephone Transactions. You may make certain requests under the Policy by
telephone if we have a written telephone authorization on file. These include
requests for transfers, withdrawals, changes in premium allocation instructions,
dollar-cost averaging changes, changes in the portfolio rebalancing program and
systematic withdrawal changes. Our Home Office will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. Such
procedures may include, among others, requiring some form of personal
identification prior to acting upon instructions received by telephone,
providing written confirmation of such transactions, and/or tape recording of
telephone instructions. Your request for telephone transactions authorizes us to
record telephone calls. If reasonable procedures are not employed, we may be
liable for any losses due to unauthorized or fraudulent instructions. If
reasonable procedures are employed, we will not be liable for any losses due to
unauthorized or fraudulent instructions. We reserve the right to place limits,
including dollar limits, on telephone transactions.
8. HOW IS THE PERFORMANCE OF THE POLICY PRESENTED?
We may advertise or include in sales literature yields, effective yields and
total returns for the Subaccounts. Effective yields and total returns for the
Subaccounts are based on the investment performance of the corresponding
Portfolio of the Funds. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO
NOT INDICATE OR PROJECT FUTURE PERFORMANCE. We may also advertise or include in
sales literature a Subaccount's performance compared to certain performance
rankings and indexes compiled by independent organizations, and we may present
performance rankings and indexes without such a comparison. More detailed
information about performance data appears in the Statement of Additional
Information.
The yield of the Subaccount investing in the Money Market Fund refers to the
annualized income generated by an investment in the Subaccount over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-
- ---------
14
<PAGE>
day period over a 52-week period. The effective yield is calculated similarly
but, when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to the
annualized income generated by an investment in the Subaccount over a specified
30-day or one-month period. The yield is calculated by assuming that the income
generated by the investment during that 30-day or one-month period is generated
each period over a 12-month period.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time. Average annual total return of a Subaccount tells you the return you
would have experienced if you allocated a $1,000 premium to a Subaccount for the
specified period. "Standardized" average annual total return reflects all
historical investment results, less all charges and deductions applied against
the Subaccount, including any surrender charge that would apply if you
terminated the Policy at the end of each period indicated, but excluding any
deductions for premium taxes. "Non-Standard" average annual total return
information may be presented, computed on the same basis as described above,
except that deductions will not include the Surrender Charge. In addition, we
may from time to time disclose average annual total return in non-standard
formats and cumulative total return for a Subaccount.
We may, from time to time, also disclose yield, standard total returns, and
non-standard total returns for the Funds. We may also disclose yield, standard
total returns, and non-standard total returns of funds or other accounts managed
by the Adviser or Subadviser with investment objectives similar to those of the
Funds, and Subaccount performance based on that performance data. Non-standard
performance will be accompanied by standard performance.
In advertising and sales literature, the performance of each Subaccount may be
compared to the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in
underlying funds, or investment series of underlying funds with investment
objectives similar to each of the Subaccounts. Advertising and sales literature
may also present the performance of the Standard & Poor's-Registered Trademark-
Index of 500 Common Stocks, a widely used measure of stock performance, either
by itself or compared to the performance of one or more Subaccounts. This
unmanaged index assumes the reinvestment of dividends but does not reflect any
"deduction" for the expense of operating or managing an investment portfolio.
Other independent ranking services and indexes may also be used as a source of
performance comparison or presentation. We may also report other information,
including the effect of tax-deferred compounding on a Subaccount's investment
returns, or returns in general, which may be illustrated by tables, graphs, or
charts.
9. DOES THE POLICY HAVE A DEATH BENEFIT?
If the Annuitant dies before the Annuity Date and a Death Benefit is payable,
the amount paid will be the greater of (1) the sum of all premiums paid less any
withdrawals and less any applicable surrender charges, and (2) the Policy
Accumulation Value. Both amounts will be calculated as of the end of the
Valuation Period during which we receive due proof of the Annuitant's death. If
the Death Benefit is payable and an annuity option is chosen, the Annuity Date
will be the date at the end of the Valuation Period during which we receive due
proof of the Annuitant's death. The beneficiary must choose the annuity option
as well as whether the annuity payments are to be fixed or variable or a
combination of fixed and variable. See "What are my annuity options?," page 5.
If no annuity option has been chosen for the Death Benefit to be paid, or if the
annuity option chosen is not available, the Death Benefit generally will be paid
through the State Farm Benefit Management Account-Registered Trademark-. See
"Requesting Payments and Telephone Transactions," page 14. For a discussion of
the order for payment to beneficiaries, as well as how beneficiaries are
designated, see "Payment of Proceeds Upon Death of Owner or Annuitant" in the
Statement of Additional Information.
If any Owner dies before the Annuity Date, unless the Owner is the Annuitant,
the Cash Surrender Value of the Policy will be payable. There are certain
exceptions to this rule. For a discussion of the rules for paying the proceeds
upon the death of an Owner, see "Death of Owner" in the Statement of Additional
Information.
10. WHAT OTHER INFORMATION SHOULD I KNOW?
STATE FARM AND THE VARIABLE ACCOUNT
State Farm Life and Accident Assurance Company. State Farm is an Illinois stock
life insurance company that is wholly-owned by State Farm Mutual Automobile
Insurance Company, an Illinois mutual insurance company. State Farm's Home
Office is located at One State Farm Plaza, Bloomington, Illinois 61710. State
Farm Life and Accident Assurance Company was incorporated in 1960 and has been
continuously engaged in the life insurance business since that year. State Farm
Life and Accident Assurance Company is subject to regulation by the Insurance
Department of the State of Illinois as well as by the insurance departments of
all other states in which it does business. State Farm sells insurance in New
York and Wisconsin and is also licensed in Illinois and Connecticut. State Farm
submits annual statements on its operations and
15-------
<PAGE>
finances to insurance officials in such states. The Policy described in this
prospectus has been filed with and, where required, approved by, insurance
officials in those states where it is sold.
State Farm's Fixed Account Option. The Fixed Account is part of State Farm's
general account assets. State Farm's general account assets are used to support
our insurance and annuity obligations other than those funded by separate
accounts. Subject to applicable law, State Farm has sole discretion over the
investment of the assets of the Fixed Account.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED ACCOUNT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE FIXED
ACCOUNT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT.
ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN ARE SUBJECT TO
THE PROVISIONS OF THESE ACTS AND, AS A RESULT, THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING
TO THE FIXED ACCOUNT. THE DISCLOSURE REGARDING THE FIXED ACCOUNT MAY, HOWEVER,
BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES
LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN A
PROSPECTUS.
The Variable Account. State Farm established the Variable Account as a separate
investment account under Illinois law on December 9, 1996. State Farm owns the
assets in the Variable Account and is obligated to pay all benefits under the
Policies. The Variable Account is used to support the Policies as well as for
other purposes permitted by law. The Variable Account is registered with the SEC
as a unit investment trust under the 1940 Act and qualifies as a "separate
account" within the meaning of the federal securities laws. Such registration
does not involve any supervision by the SEC of the management of the Variable
Account or State Farm. State Farm has established other separate investment
accounts, of which State Farm Life and Accident Assurance Company Variable Life
Separate Account is registered with the SEC under the 1940 Act.
The Variable Account is divided into Subaccounts, each of which currently
invests in shares of a specific Fund of the Trust. These Subaccounts buy and
redeem Fund shares at net asset value without any sales charge. Any dividend
from net investment income and distribution from realized gains from security
transactions of a Fund is reinvested at net asset value in shares of the same
Fund. Income, gains and losses, realized or unrealized, of a Subaccount are
credited to or charged against that Subaccount without regard to any other
income, gains or losses of State Farm. Assets equal to the reserves and other
contract liabilities with respect to each Subaccount are not chargeable with
liabilities arising out of any other business or account of State Farm. If the
assets exceed the required reserves and other liabilities, State Farm may
transfer the excess to its general account.
The Variable Account may include other Subaccounts that are not available under
the Policy and are not otherwise discussed in this prospectus. State Farm may
substitute another subaccount or insurance company separate account under the
Policies if, in State Farm's judgment, investment in a Subaccount should no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of Owners. No substitution may take place without notice to
Owners and prior approval of the SEC and insurance regulatory authorities, to
the extent required by the 1940 Act and applicable law.
The Trust. State Farm Investment Management Corp. ("SFIM"), a wholly-owned
subsidiary of State Farm Mutual Automobile Insurance Company, serves as
investment adviser to the Trust. SFIM has engaged Barclays Global Fund Advisors
as the investment sub-adviser to provide day-to-day portfolio management for the
Large Cap Equity Index Fund, the Small Cap Equity Index Fund, and the
International Equity Index Fund. For more information concerning the investment
adviser and investment sub-adviser, please see the accompanying prospectus for
the Trust.
Voting of Fund Shares. State Farm is the legal owner of shares held by the
Subaccounts and as such has the right to vote on all matters submitted to
shareholders of the Funds. However, as required by law, State Farm will vote
shares held in the Subaccounts at regular and special meetings of shareholders
of the Funds in accordance with instructions received from Owners with Policy
Accumulation Value in the Subaccounts. To obtain voting instructions from
Owners, before a meeting of shareholders of the Funds, State Farm will send
Owners voting instruction materials, a voting instruction form and any other
related material. Shares held by a Subaccount for which no timely instructions
are received will be voted by State Farm in the same proportion as those shares
for which voting instructions are received. Should the applicable federal
securities laws, regulations or interpretations thereof change so as to permit
State Farm to vote shares of the Funds in its own right, State Farm may elect to
do so.
PREPARING FOR YEAR 2000.
Like all financial services providers, State Farm, in administering the
Policies, utilizes systems that may be affected by Year 2000 transition issues
and relies on service providers that also may be affected. State Farm has
developed, and is in the process of implementing, a Year 2000 transition plan,
and is confirming that its service providers are also so engaged. The resources
that are being devoted to this effort are substantial. We are unable to predict
the outcome of these efforts; however, as of the date of this prospectus, it is
not anticipated that
- ---------
16
<PAGE>
Owners will experience negative effects with respect to their Policies as a
result of Year 2000 transition implementation. Business application systems and
external interfaces will be tested, prioritized and remediated as necessary to
provide continuous, uninterrupted service. Our target date for completion is
June, 1999 or earlier for most activities, but there can be no assurance that
State Farm will be successful, or that interaction with other service providers
will not impact State Farm's services at that time.
MODIFICATION
We may modify the Policy as follows: (1) to conform the Policy, our operations,
or the operation of the Variable Account to the requirements of any law (or
regulation issued by a government agency) to which we, the Policy, or the
Variable Account is subject; (2) to assure continued qualification of the Policy
as an annuity under the Code; or (3) to reflect a change in the operation of the
Variable Account, if allowed by the Policy. If we modify the Policy, we will
make the appropriate endorsement to the Policy.
DISTRIBUTION OF THE POLICIES
State Farm VP Management Corp., a subsidiary of State Farm Mutual Automobile
Insurance Company, acts as the principal underwriter of the Policies. State Farm
VP Management Corp. is a corporation organized under the laws of the state of
Delaware in 1996, is registered as a broker-dealer under the Securities Exchange
Act of 1934, and is a member of the National Association of Securities Dealers,
Inc. (the "NASD"). The Policies may not be available in all states. State Farm
VP Management Corp. receives commissions of up to 2.5% of premiums paid in
connection with the sale of the Policies.
The Policies are sold by certain registered representatives of State Farm VP
Management Corp. who are also appointed and licensed as insurance agents. These
registered representatives receive commissions for selling Policies calculated
as a percentage of premiums. Registered representatives who meet certain
productivity and profitability standards may be eligible for additional
compensation.
LEGAL PROCEEDINGS
State Farm and its affiliates, like other life insurance companies, are involved
in lawsuits, including class action lawsuits. In some class action and other
lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, State Farm believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or State Farm.
REPORTS TO POLICY OWNERS
State Farm maintains records and accounts of all transactions involving the
Policy, the Variable Account, and the Fixed Account. Each year, or more often if
required by law, you will be sent a report showing information about your Policy
for the period covered by the report. You will also be sent an annual and a
semi-annual report for each Fund underlying a Subaccount to which you have
allocated Policy Accumulation Value, as required by the 1940 Act. In addition,
when you pay premiums (other than by pre-authorized checking account deduction),
or if you make transfers or withdrawals, you will receive a confirmation of
these transactions.
FINANCIAL STATEMENTS
The audited statutory basis statements of admitted assets, liabilities, capital
and surplus for State Farm as of December 31, 1997 and 1996, and the related
statutory basis statements of operations, changes in capital and surplus, and
cash flows for the years then ended, as well as the Report of the Independent
Accountants, are contained in the Statement of Additional Information. The
financial statements of State Farm should be considered only as bearing on our
ability to meet our obligations under the Policies. They should not be
considered as bearing on the investment performance of the assets held in the
Variable Account. Unaudited interim financial statements for the Company as of
March 31, 1998 have also been provided.
No financial statements are presented for the Variable Account because, as of
the date of this prospectus, the Variable Account had not yet commenced
operations, had no assets, and had incurred no liabilities.
11. HOW CAN I MAKE INQUIRIES?
Inquiries regarding a policy may be made by writing to us at our Home Office, by
calling us at (888) 702-2307 (Toll free), or by contacting an authorized State
Farm agent.
17-------
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Policies and the Variable Account is contained
in the Statement of Additional Information. The following is the Table of
Contents for the Statement of Additional Information. You can obtain a free copy
of the Statement of Additional Information by writing to us at our Home Office
or calling us at 1-(888) 702-2307 (Toll free).
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Policy Provisions
The Policy
Ownership
Incontestability
Error in Age or Sex
Participation
Assignment
Calculation of Historical Performance
Data
Money Market Subaccount Yields
Other Subaccount Yields
Average Annual Total Returns
Effect of the Annual Administrative
Fee on Performance Data
Other Total Returns
Use of Indexes
Other Information
Net Investment Factor
Annuity Payment Provisions
Amount of Fixed Annuity Payments
Amount of Variable Annuity Payments
Annuity Units
Annuity Unit Value
Payment of Proceeds Upon Death of
Owner or Annuitant
Death of Owner
Death Of Annuitant
Addition, Deletion or Substitution of
Investments
Safekeeping of Variable Account Assets
Distribution of the Policies
Legal Matters
Experts
Other Information
Relationships with the Companies that
Maintain the Benchmark Indices
Financial Statements
</TABLE>
- ---------
18
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED
STATE FARM VARIABLE DEFERRED ANNUITY POLICY
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE ANNUITY
SEPARATE ACCOUNT
OF STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
P.O. Box 2307
Bloomington, Illinois 61702-2307
--------------------
This Statement of Additional Information expands upon subjects discussed
in the current Prospectus for the variable deferred annuity policy (the
"Policy") offered by State Farm Life and Accident Assurance Company ("State
Farm, "we," "us," or "our"). You may obtain a copy of the Prospectus dated
by calling 1-888-702-2307 (Toll free) or by writing to our Home
Office at the above address. Terms used in the current Prospectus for the
Contract are incorporated into and made a part of this Statement of
Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES
FOR THE POLICY AND THE FUNDS.
Form 231-3555 Printed in U.S.A.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL POLICY PROVISIONS............................................... 1
The Policy............................................................ 1
Ownership............................................................. 1
Incontestability...................................................... 1
Error in Age or Sex................................................... 1
Participation......................................................... 1
Assignment............................................................ 2
CALCULATION OF HISTORICAL PERFORMANCE DATA................................. 2
Money Market Subaccount Yields........................................ 2
Other Subaccount Yields............................................... 4
Average Annual Total Returns.......................................... 5
Effect of the Annual Administrative Fee on Performance Data........... 6
Other Total Returns................................................... 6
Use of Indexes........................................................ 6
Other Information..................................................... 7
NET INVESTMENT FACTOR...................................................... 7
ANNUITY PAYMENT PROVISIONS................................................. 8
Amount of Fixed Annuity Payments...................................... 8
Amount of Variable Annuity Payments................................... 8
Annuity Units......................................................... 8
Annuity Unit Value.................................................... 9
PAYMENT OF PROCEEDS UPON DEATH OF OWNER OR ANNUITANT....................... 10
Death of Owner........................................................ 10
Death Of Annuitant.................................................... 11
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.......................... 12
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS..................................... 13
DISTRIBUTION OF THE POLICIES............................................... 13
LEGAL MATTERS.............................................................. 13
EXPERTS.................................................................... 14
OTHER INFORMATION.......................................................... 14
RELATIONSHIPS WITH THE COMPANIES THAT MAINTAIN THE BENCHMARK INDICES....... 14
FINANCIAL STATEMENTS....................................................... 15
</TABLE>
<PAGE>
ADDITIONAL POLICY PROVISIONS
THE POLICY
The Policy contains the Basic Plan, any amendments, endorsements, and
riders, and a copy of the application. The Policy is the entire contract.
Only an officer has the right to change the Policy. No agent has the
authority to change the Policy or to waive any of its terms. All endorsements,
amendments, or riders must be signed by an officer to be valid.
OWNERSHIP
You, as the Owner, are named in the application. You may exercise any
provision of the Policy only by request and while the Annuitant is alive. Your
Successor Owner is named in the application if you are not the Annuitant.
You may change the Owner or Successor Owner by sending us a request while
the Annuitant is alive. We have the right to request the Policy to make the
change on it. The change will take effect the day you sign the request, but the
change will not affect any action we have taken before we receive the request. A
change of Owner or Successor Owner does not change the beneficiary designation.
No more than two Owners and/or Successor Owners can be named.
INCONTESTABILITY
We will not contest the Policy. Any rider has its own incontestability
provision.
ERROR IN AGE OR SEX
If the Annuitant's, Payee's, or second designated person's date of birth or
sex is not correct, every benefit will be such as premiums paid would have
bought at the correct age or sex, based on the rates at the date of issue. We
may require proof of the Annuitant's, Payee's, second designated person's age
and sex before annuity payments start. Any overpayment with compound interest at
6% a year will be charged against the Policy. This amount will be deducted from
any annuity payments due after the error is found. Any underpayment with
compound interest at 6% a year will be paid to you in one sum.
PARTICIPATION
We do not expect to pay dividends on the Policy. However, we may apportion
and pay dividends each year. All dividends apportioned will be derived from the
divisible surplus of our participating business. Any such dividends will be paid
only at the end of the Policy Year. There is no right to a partial or pro rated
dividend prior to the end of the Policy Year. We will
-1-
<PAGE>
transfer the dividend to the Policy Accumulation Value at the end of the Policy
Year. Unless specified by you, the amount transferred is allocated to each
Subaccount and the Fixed Account on a pro-rata basis.
ASSIGNMENT
You may assign a nonqualified Policy or any interest in it. We will
recognize an assignment only if it is in writing and filed with us. We are
not responsible for the validity or effect of any assignment. An assignment
may limit the interest of any Beneficiary.
CALCULATION OF HISTORICAL PERFORMANCE DATA
From time to time, State Farm may disclose yields, total returns, and other
performance data of the Subaccounts and the Funds. Such performance data will be
computed, or accompanied by performance data computed, in accordance with the
standards defined by the SEC.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the Subaccount investing in the Money Market Fund of
the State Farm Variable Product Trust (the "Trust") for a seven-day
period in a manner that does not take into consideration any realized or
unrealized gains or losses or income other than investment income on shares of
the Money Market Fund (the "Money Market Subaccount").
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation and income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Policy having a balance of one Accumulation Unit of the Money
Market Subaccount at the beginning of the period, dividing such net change in
account value by the value of the hypothetical account at the beginning of
the period to determine the base period return, and annualizing this quotient
on a 365-day basis. The net change in account value reflects: 1) net income
from the Money Market Fund attributable to the hypothetical account; and 2)
charges and deductions imposed under the Policy which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for the Annual Administrative Fee, and the
mortality and expense risk charge. For purposes of calculating current yields
for a Policy, an average per unit Annual Administrative Fee is used based on
the $30 Annual Administrative Fee. Current Yield is calculated according to
the following formula:
-2-
<PAGE>
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market Fund (exclusive
of realized gains or losses on the sale of securities and
unrealized appreciation and depreciation and income other than
investment income) for the seven-day period attributable to a
hypothetical account having a balance of one Accumulation Unit.
ES = per unit expenses attributable to the hypothetical account for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
/365/7/
Effective yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market Fund (exclusive
of realized gains or losses on the sale of securities and
unrealized appreciation and depreciation and income other than
investment income) for the seven-day period attributable to a
hypothetical account having a balance of one Accumulation Unit.
ES = per unit expenses attributable to the hypothetical account for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
Because of the charges and deductions imposed under the Policy, the yield
for the Money Market Subaccount is lower than the yield for the Money Market
Fund.
The current and effective yields on amounts held in the Money Market
Subaccount normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD
FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Fund, the types and quality of portfolio
securities held by the Money Market Fund and the Money Market Fund's operating
expenses. Yields on amounts held in the Money Market Subaccount may also be
presented for periods other than a seven-day period.
-3-
<PAGE>
Yield calculations do not take into account the Surrender Charge that is
assessed on certain withdrawals of Policy Accumulation Value.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Money Market
Subaccount) under the Policy for 30-day or one-month periods. The annualized
yield of a Subaccount refers to income generated by the Subaccount during a 30-
day or one-month period and is assumed to be generated each period over a 12-
month period.
The yield is computed by: 1) dividing the net investment income of the Fund
attributable to the Subaccount units less Subaccount expenses for the period; by
2) the maximum offering price per unit on the last day of the period times the
daily average number of Accumulation Units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the Subaccount include the Annual Administrative
Fee and the mortality and expense risk charge. The yield calculation assumes an
Annual Administrative Fee of $30 per Policy deducted at the end of each Policy
Year. For purposes of calculating the 30-day or one-month yield, an average
Annual Administrative Fee based on the average Policy Accumulation Value in the
Subaccount is used to determine the amount of the charge attributable to the
Subaccount for the 30-day or one-month period. The 30-day or one-month yield is
calculated according to the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)/6/ - 1)
Where:
NI = net income of the portfolio for the 30-day or one-month period
attributable to the Subaccount's Accumulation Units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-
day or one-month period.
Because of the charges and deductions imposed under the Policies, the yield
for the Subaccount is lower than the yield for the corresponding Fund.
-4-
<PAGE>
The yield on the amounts held in the Subaccounts normally fluctuates over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A Subaccount's
actual yield is affected by the types and quality of portfolio securities held
by the corresponding Fund and that Fund's operating expenses.
Yield calculations do not take into account the Surrender Charge that is
assessed on certain withdrawals and surrenders of Policy Accumulation Value.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
When a Subaccount has been in operation for 1, 5, and 10 years,
respectively, the average annual total return for these periods will be
provided. Average annual total returns for other periods of time may, from
time to time, also be disclosed.
Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent calendar quarter-end
practicable, considering the type of the communication and the media through
which it is communicated.
Standard average annual total returns are calculated using Subaccount Unit
Values which State Farm calculates on each Valuation Day based on the
performance of the Subaccount's underlying Fund, the deductions for the
mortality and expense risk charge, and the deductions for the Annual
Administrative Fee. The calculation assumes that the Annual Administrative Fee
is $30 per year per Policy deducted at the end of each Policy Year. For purposes
of calculating average annual total return, an average per-dollar per-day Annual
Administrative Fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of Policy Accumulation Value at the
end of the period for the return quotation taking into account the applicable
Free Withdrawal Amount. The total return is calculated according to the
following formula:
TR = ((ERV/P)/1/N/) - 1
Where:
TR = the average annual total return net of Subaccount recurring
charges.
-5-
<PAGE>
ERV = the ending redeemable value (net of any applicable Surrender
Charge) of the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may present historic
performance data for an investment portfolio in which a Subaccount invests,
shown since the portfolio's inception reduced by some or all of the fees and
charges under the Policy. Such adjusted historic performance would include
data that precedes the inception date of the Subaccount. This data is designed
to show the performance that would have resulted if the Policy had been in
existence during that time. This type of non-standard performance data will
only be disclosed if standard performance data for the required periods is
also disclosed.
EFFECT OF THE ANNUAL ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Policy provides for a $30 Annual Administrative Fee (waived for
Policies with respect to which total premiums paid are at least $50,000) that is
deducted from the Subaccounts and the Fixed Account pro-rata. For purposes of
reflecting the Annual Administrative Fee in yield and total return quotations,
the average Policy Accumulation Value is assumed to be $25,000, so that the
Annual Administrative Fee is 0.12%.
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect deduction of the Surrender
Charge. Other total returns are calculated in exactly the same way as average
annual total returns described above, except that the ending redeemable value of
the hypothetical account for the period is replaced with an ending value for the
period that does not take into account any charges on amounts withdrawn.
State Farm may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount recurring charges
for the period.
ERV = The ending redeemable value of the hypothetical investment at the
end of the period.
P = A hypothetical single payment of $1,000.
USE OF INDEXES
-6-
<PAGE>
From time to time, the performance of certain historical indexes may be
presented in advertisements or sales literature. The performance of these
indexes may be compared to the performance of certain Subaccounts or Funds, or
may be presented without such a comparison.
OTHER INFORMATION
The following is a partial list of those publications which may be cited in
the Funds' sales literature and/or shareholder materials which contain articles
describing investment results or other data relative to one or more of the
Subaccounts. Other publications may also be cited.
Broker World Financial World
Across the Board Advertising Age
American Banker Barron's
Best's Review Business Insurance
Business Month Business Week
Changing Times Consumer Reports
Economist Financial Planning
Forbes Fortune
Inc. Institutional Investor
Insurance Forum Insurance Sales
Insurance Week Journal of Accountancy
Journal of the American Society of Journal of Commerce
CLU & ChFC
Life Insurance Selling Life Association News
MarketFacts Manager's Magazine
National Underwriter Money
Morningstar, Inc. Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker VARDs
Wall Street Journal Working Woman
NET INVESTMENT FACTOR
The Net Investment Factor is an index applied to measure the investment
performance of a Subaccount from one Valuation Period to the next. The Net
Investment Factor for any Subaccount for any Valuation Period is equal to (1)
divided by (2) and subtracting (3) from the result, where:
(1) is the result of:
-7-
<PAGE>
(a) the Net Asset Value Per Share of the Fund held in the Subaccount
determined at the end of the current Valuation Period; plus
(b) the per share amount of any dividend or capital gain distribution
made by the Fund held in the Subaccount, if the "ex-dividend"
date occurs during the Valuation period; plus or minus
(c) a per share charge or credit for any taxes reserved for
(2) is the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the prior Valuation Period,
(3) is a daily factor representing the mortality and expense risk charge
deducted from the Subaccount adjusted for the number of days in the
Valuation Period. Such charge will not exceed an annual rate of 1.25%
of the daily net asset value of the Variable Account.
ANNUITY PAYMENT PROVISIONS
AMOUNT OF FIXED ANNUITY PAYMENTS. On the Annuity Date, the amount you have
chosen to apply to provide fixed annuity payments will be applied under the
annuity option you have chosen. For a "life annuity;" "life annuity with certain
period," or a "joint and last survivor life annuity," the annuity option payment
factor in effect on the Annuity Date times that amount will be the dollar amount
of each payment. Each of these payments will be equal and will not change. For
the "fixed years" annuity option, the annuity option payment factor guaranteed
in the Policy times that amount will be the minimum amount of each payment. Each
of these payments may be higher if any additional interest has been credited on
the balance of the account.
The annuity option payment factor used to determine the amount of the fixed
annuity payments will not be less than the guaranteed minimum annuity payment
factors shown in the Policy. For Policies issued in New York, the amount of
each monthly payment will not be less than the amount provided by the same
plan of single premium immediate life annuity, if available on the Annuity
Date.
AMOUNT OF VARIABLE ANNUITY PAYMENTS. These payments will vary in amount.
The dollar amount of each payment attributable to each Subaccount is the number
of Annuity Units for each Subaccount times the Annuity Unit Value of that
Subaccount. The sum of the dollar amounts for each Subaccount is the amount of
the total variable annuity payment. The Annuity Unit Value for each payment will
be determined no earlier than five Valuation Days preceding the date the annuity
payment is due. We guarantee the payment will not vary due to changes in
mortality or expenses.
ANNUITY UNITS. On the Annuity Date, the number of Annuity Units for an
applicable Subaccount is determined by multiplying (1) by (2) and dividing the
result by (3), where:
(1) is the part of the Cash Surrender Value or Death Benefit on that date
applied under that Subaccount;
(2) is the Guaranteed Minimum Payment Factor for the Annuity Option
chosen; and
-8-
<PAGE>
(3) is the Annuity Unit Value for the Subaccount at the end of the
Valuation Period encompassing that date.
ANNUITY UNIT VALUE. The Annuity Unit Values for each Subaccount were
arbitrarily set initially at $10 when that Subaccount began operation.
Thereafter, the Annuity Unit Value for every Valuation Period is the Annuity
Unit Value at the end of the previous Valuation Day times the Net Investment
Factor times the Annuity Interest Factor. The Annuity Interest Factor is used to
neutralize the Assumed Investment Rate of 3 1/2% a year used to determine the
annuity option payment factors. The Assumed Investment Rate is significant in
determining the amount of each variable annuity payment and the amount by which
each variable annuity payment varies from one payment to the next.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
1. Accumulation unit value for current
valuation period.............................................. 11.12
2. Accumulation unit value for immediately
preceding valuation period.................................... 11.10
3. Annuity unit value for immediately preceding
valuation period.............................................. 20.00
4. Factor to compensate for the assumed
investment rate of 3.5%....................................... .9999
5. Annuity unit value of current valuation
period ((1) / (2)) x (3) x (4)................................ 20.03
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
1. Number of accumulation units at Maturity Date.................. 10,000
2. Accumulation unit value........................................ 11.12
3. Adjusted Policy Accumulation Value (1)x(2)..................... 111,200
4. Monthly annuity payment per $1,000
of adj. Policy Accumulation Value............................. 5.82
5. Monthly annuity payment (3)x(4) / 1,000........................ 647.18
6. Annuity unit value at Maturity Date............................ 20.03
7. Number of annuity units (5)/(6)................................ 32.3105
8. Assume annuity unit value at the end of
first month equal to.......................................... 20.20
9. First monthly annuity payment (7)x(8).......................... 652.67
10. Assume annuity unit value at the end of second month equal to.. 19.90
11. Second monthly annuity payment (7)x(10)........................ 642.98
12. Assume annuity unit value at the end of third month equal to... 20.50
13. Third monthly annuity payment (7)x(12)......................... 662.37
-9-
<PAGE>
PAYMENT OF PROCEEDS UPON DEATH OF OWNER OR ANNUITANT
DEATH OF OWNER
The Code requires the following distributions under an annuity when you
die.
(1) If you die before the Annuity Date, you are not the Annuitant, and you
either have not named a Successor Owner or your named Successor Owner
is not a living natural person, the Cash Surrender Value must be paid
within 5 years after your date of death.
(2) If you die before the Annuity Date, you are the Annuitant, and you
either have not named any beneficiary or your named beneficiary is not
a living natural person, the death benefit must be paid within 5 years
after your date of death.
(3) If you die before the Annuity Date, you are not the Annuitant, and
your sole Successor Owner is a person other than your spouse, your
Successor Owner may elect to have the Cash Surrender Value paid under
an annuity option or any other method of payment then provided by us
other than an interest only method of payment. The election must be
made and payments must start within one year after your death and must
not extend beyond the life expectancy of your Successor Owner. If no
election is made within this time, distribution will be made within
five years after your date of death.
(4) If you die before the Annuity Date, you are the Annuitant, and your
sole named surviving primary beneficiary is a person other than your
spouse, your surviving primary beneficiary may elect to have the Death
Benefit paid under an annuity option or any other method of payment
then provided by us other than an interest only method of payment. The
election must be made and payments must start within one year after
your death and must not extend beyond the life expectancy of your
primary beneficiary. If no election is made within this time,
distribution will be made within five years after your date of death.
(5) If you die before the Annuity Date, you are not the Annuitant, and
your sole Successor Owner is your surviving spouse, your surviving
spouse becomes the Owner.
(6) If you die before the Annuity Date, you are the Annuitant, and your
surviving spouse is your sole named primary beneficiary, your spouse
will replace you as Owner and may replace you as Annuitant. If your
-10-
<PAGE>
spouse does not elect to replace you as Annuitant, the Death Benefit
must be paid to your spouse under an annuity option or any other
method of payment then provided by us for an owner. For purposes of
the preceding sentence, the election must be made, payments must start
within one year after your death, and must not extend beyond your
spouse's life expectancy; however, if your spouse does not choose a
method of payment within this time, distribution will be made under
Annuity Option 1.
(7) If you die on or after the Annuity Date and you are not the Annuitant,
any remaining payments must be paid to your Successor Owner at least
as fast as the method of payment in effect at your death.
(8) If you die on or after the Annuity Date and you are the Annuitant, any
remaining payments must be paid to the beneficiary at least as fast as
the method of payment in effect at your death.
If you are not a living natural person, the Annuitant will be treated as
the Owner for purposes of this provision. If you are not a living natural person
and there is a change in the Annuitant, such change shall be treated as the
death of the Owner for purposes of this provision. If the Policy has two owners,
the first death of either owner is treated as the death of the owner for
purposes of this provision. For purposes of this provision, the amount of any
distribution will be determined on that date of such distribution.
Notwithstanding anything in the Policy to the contrary, the surviving joint
owner will be treated as the Successor Owner of the Policy.
Other rules apply to Qualified Policies.
DEATH OF ANNUITANT
DEATH OF ANNUITANT WHO IS NOT AN OWNER. If the Annuitant dies before the
Annuity Date while you are alive, the Death Benefit will be paid as provided in
the following provisions. If the method of payment chosen is not available or no
method of payment is chosen, payment will be in one sum.
If the Annuitant dies on or after the Annuity Date while you are alive, any
remaining payments must be paid to you at least as fast as the method of payment
in effect on the Annuitant's date of death.
BENEFICIARY DESIGNATION. This is as shown in the application. It includes
the name of the beneficiary and the order and method of payment. If you name
"estate" as a beneficiary, it means the executors or administrators of the last
survivor of you and all beneficiaries. If you name "children" of a person as a
beneficiary, only children born to or legally adopted by that person as of the
Annuitant's date of death will be included.
-11-
<PAGE>
We may rely on an affidavit as to the ages, names, and other facts about
all beneficiaries. We will incur no liability if we act on such affidavit.
CHANGE OF BENEFICIARY DESIGNATION. You may make a change while the
Annuitant is alive by sending us a request. The change will take effect the date
the request is signed and will replace previous beneficiary designations for the
Policy, but the change will not affect any action we have taken before we
receive the request. We have the right to request your Policy to make the
change.
After the Annuitant's death, anyone who has the right to make a withdrawal
may change the method of payment or may select one of the annuity options, and
may name a successor to their interest. The successor payee may be their estate.
ORDER OF PAYMENT. When the Annuitant dies (1) before the Annuity Date and
a death benefit is payable or (2) on or after the Annuity Date, you are the
Annuitant, and payments continue to the beneficiary, we will make such
payment(s) in equal shares to the primary beneficiaries living when payment is
made. If a primary dies after the first payment is made, we will pay that
primary's unpaid share in equal shares to the other primaries living when
payment is made. If the last primary dies, we will make payment in equal shares
to the successor beneficiaries living when payment is made. If a successor dies
while receiving payments, we will pay that successor's unpaid share in equal
shares to the other successors living when payment is made. If, at any time, no
primary or successor is alive, we will make a one sum payment in equal shares to
the final beneficiaries. If, at any time, no beneficiary is living, we will make
a one sum payment to you, if living when payment is made. Otherwise, we will
make a one sum payment to the estate of the last survivor of you and all
beneficiaries. "When payment is made" means (1) the date that a periodic payment
is due or (2) the date that a request is signed for a cash withdrawal or a one
sum payment. You may change this order of payment by sending us a request while
the Annuitant is alive.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Where permitted by applicable law, we may:
(1) create new separate accounts;
(2) combine separate accounts, including the Variable Account;
(3) add new Subaccounts to or remove existing Subaccounts from the
Variable Account or combine Subaccounts;
(4) make any Subaccount available to such classes of policies as we may
determine;
(5) add new funds or remove existing funds;
-12-
<PAGE>
(6) substitute new funds for any existing Fund if shares of the Fund are
no longer available for investment or if we determine investment in a
Fund is no longer appropriate in the light of the purposes of the
Variable Account;
(7) deregister the Variable Account under the Act if such registration is
no longer required; and
(8) operate the Variable Account as a management investment company under
the Act or in any other form permitted by law.
The investment policy of the Variable Account will only be changed with the
approval of the insurance supervisory official of the state in Illinois, our
State of domicile. The investment policy of the Variable Account is to invest in
one or more investment companies. The process for such approval is on file.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
State Farm holds the title to the assets of the Subaccounts. The assets are
kept physically segregated and held separate and apart from State Farm's General
Account assets and from the assets in any other separate account.
Records are maintained of all purchases and redemptions of Fund shares held
by each of the Subaccounts.
A fidelity bond in the amount of $5 million covering State Farm's
directors, officers, and employees has been issued by National Union Fire
Insurance Company.
DISTRIBUTION OF THE POLICIES
State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois
61710, acts as the principal underwriter of the Policies. The Policies are
offered to the public on a continuous basis. We do not anticipate discontinuing
the offering of the Policies, but reserve the right to discontinue the offering.
LEGAL MATTERS
All matters relating to Illinois law pertaining to the Policies, including
the validity of the Policies and State Farm's authority to issue the Policies,
have been passed upon by William A. Montgomery, Senior Vice President and
General Counsel of State Farm. Sutherland, Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to the federal securities
laws.
-13-
<PAGE>
EXPERTS
The statutory basis statements of admitted assets, liabilities, capital
and surplus of State Farm Life and Accident Assurance Company as of December
31, 1997 and 1996, and the related statutory basis statements of operations,
changes in capital and surplus, and cash flows for the years then ended,
appearing in this Statement of Additional Information have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report thereon is
set forth elsewhere herein, and are included in reliance upon the authority
of such firm as experts in accounting and auditing.
As stated in their report, these financial statements were prepared by
the Company in conformity with the accounting practices prescribed or
permitted by the Insurance Department of the State of Illinois (statutory
basis), which practices differ from generally accepted accounting principles
(GAAP). The effects on the financial statements of the variances between the
statutory basis of accounting and GAAP, although not reasonably determinable,
are presumed to be material. Therefore, their report contains a qualified
opinion on the financial statements of the Company in conformity with GAAP,
but an unqualified opinion in conformity with statutory basis accounting.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933, as amended, with respect to the Policies discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
SEC.
RELATIONSHIPS WITH THE COMPANIES THAT MAINTAIN THE BENCHMARK INDICES
STANDARD & POOR'S. "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)",
"Standard & Poor's 500", and "500" are trademarks of The McGraw-Hill Companies,
Inc. and have been licensed for use by State Farm and the Trust. Neither the
State Farm Variable Deferred Annuity, the Large Cap Equity Index Fund, nor the
Stock and Bond Balanced Fund (the "Product and Funds") are sponsored, endorsed,
sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the owners of
the Product and Funds or any member of the public regarding the advisability of
investing in securities generally or in the Product and Funds particularly or
the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to State Farm and the Trust is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to State Farm, the Trust, the
Product, or the Funds. S&P has no obligation to take the needs of State Farm,
the Trust, or the owners of the Product and Funds into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Product and Funds or the timing of the issuance or sale of the Product and
Funds or in the determination or calculation of the equation by which the
Product and Funds are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the
Product and Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY STATE FARM, THE TRUST, OWNERS OF THE PRODUCT AND
FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
FRANK RUSSELL COMPANY. The Russell 2000(R) Index is a trademark/service
mark of the Frank Russell Company. Russell TM is a trademark of the Frank
Russell Company.
-14-
<PAGE>
The Small Cap Equity Index Fund is not promoted, sponsored or endorsed by, nor
in any way affiliated with Frank Russell Company. Frank Russell Company is not
responsible for and has not reviewed the Small Cap Equity Index Fund nor any
associated literature or publications and Frank Russell Company makes no
representation or warranty, express or implied, as to their accuracy, or
completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice, to
alter, amend, terminate or in any way change its Index(es). Frank Russell
Company has no obligation to take the needs of any particular fund or its
participants or any other product or person into consideration in determining,
composing or calculating the Index(es).
Frank Russell Company's publication of the Index(es) in no way suggests or
implies an opinion by Frank Russell Company as to the attractiveness or
appropriateness of investment in any or all securities upon which the Index(es)
are based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR
GUARANTEE AS TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX(ES) OR ANY DATA INCLUDED IN THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
INDEX(ES) OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF)
COMPRISING THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING,
WITHOUT MEANS OF LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX(ES) OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.
MORGAN STANLEY & CO. INCORPORATED. The Morgan Stanley Capital
International EAFE(R) Free Index is the exclusive property of Morgan Stanley &
Co. Incorporated ("Morgan Stanley"). Morgan Stanley Capital International is a
service mark of Morgan Stanley and has been licensed for use by the Trust.
The International Equity Index Fund is not sponsored, endorsed, sold or promoted
by Morgan Stanley. Morgan Stanley makes no representation or warranty, express
or implied, to the owners of this fund or any member of the public regarding the
advisability of investing in funds generally or in this fund particularly or the
ability of the Morgan Stanley Capital International EAFE(R) Free Index to track
general stock market performance. Morgan Stanley is the licensor of certain
trademarks, service marks and trade names of Morgan Stanley and of the Morgan
Stanley Capital International EAFE(R) Free Index which is determined, composed
and calculated by Morgan Stanley without regard to the issuer of this fund.
Morgan Stanley has no obligation to take the needs of the issuer of this fund or
the owners of this fund into consideration in determining, composing or
calculating the Morgan Stanley Capital International EAFE(R) Free Index. Morgan
Stanley is not responsible for and has not participated in the determination of
the timing of, prices at, or quantities of this fund to be issued or in the
determination or calculation of the equation by which this fund is redeemable
for cash. Morgan Stanley has no obligation or liability to owners of this fund
in connection with the administration, marketing or trading of this fund.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN
THE CALCULATION OF THE INDEXES FROM SOURCES WHICH MORGAN STANLEY CONSIDERS
RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER PARTY GUARANTEES THE ACCURACY
AND/OR THE COMPLETENESS OF THE INDEXES OR ANY DATA INCLUDED THEREIN. NEITHER
MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE TRUST, THE TRUST'S CUSTOMERS AND COUNTERPARTIES,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEXES OR
ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR
FOR ANY OTHER USE. NEITHER MORGAN STANLEY NOR ANY OTHER PARTY MAKES ANY EXPRESS
OR IMPLIED WARRANTIES, AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE INDEXES OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL MORGAN STANLEY OR ANY OTHER PARTY HAVE ANY
LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY
OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF
SUCH DAMAGES.
FINANCIAL STATEMENTS
State Farm's financial statements that follow should be considered only
as bearing on State Farm's ability to meet its obligations under the
Policies. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account. No financial
statements have been included for the Variable Account because, as of the
date of this Statement of Additional Information, the Variable Account had
not yet commenced operations, had no assets, and had incurred no liabilities.
-15-
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY)
REPORT ON AUDITS OF FINANCIAL STATEMENTS -- STATUTORY BASIS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1 -------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Report of Independent Accountants 3
Financial Statements:
Statements of Admitted Assets, Liabilities, Capital and
Surplus -- Statutory Basis, December 31, 1997 and 1996 4
Statements of Operations -- Statutory Basis for the years
ended December 31, 1997 and 1996 5
Statements of Changes in Capital and Surplus -- Statutory
Basis for the years ended December 31, 1997 and 1996 6
Statements of Cash Flows -- Statutory Basis for the years
ended December 31, 1997 and 1996 7
Notes to Financial Statements -- Statutory Basis 8-13
Supplemental Schedule of Assets and Liabilities 14-17
Statements of Admitted Assets, Liabilities, Capital and
Surplus -- Statutory Basis (Unaudited) As of March 31, 1998 18
Statements of Changes in Capital and Surplus -- Statutory
Basis (Unaudited) for the quarter ended March 31, 1998 19
Statements of Cash Flows -- Statutory Basis (Unaudited) for
the quarter ended March 31, 1998 20
Statements of Operations -- Statutory Basis (Unaudited) for
the quarter ended March 31, 1998 21
Note to Financial Statements 22
</TABLE>
- ---------
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
State Farm Life and Accident Assurance Company
Bloomington, Illinois
We have audited the accompanying statutory statements of admitted assets,
liabilities, capital and surplus of State Farm Life and Accident Assurance
Company as of December 31, 1997 and 1996, and the related statutory statements
of operations, changes in capital and surplus, and cash flows, for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 2, these financial statements were prepared by
the Company in conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Illinois (statutory-basis), which
practices differ from generally accepted accounting principles. When
statutory-basis financial statements are presented for purposes other than for
filing with a regulatory agency, generally accepted auditing standards require
that an auditor's report on them state whether they are presented fairly in
conformity with generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of State Farm Life and Accident Assurance Company as of December 31, 1997 and
1996, or the results of its operations or its cash flows for the years then
ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus of
State Farm Life and Accident Assurance Company as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended,
on the basis of accounting described in Note 2.
Our audit was conducted for the purpose of expressing an opinion on the
statutory financial statements taken as a whole. The Supplemental Schedule of
Assets and Liabilities is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic statutory financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic statutory financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
February 17, 1998
3 -------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS -- STATUTORY
BASIS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
ADMITTED ASSETS
Bonds:
United States Government $ 255,888,160 $ 261,169,872
Other governmental units 53,772,072 41,081,626
Public utility 123,669,069 119,036,061
Industrial and other 229,795,080 200,352,271
--------------- ---------------
663,124,381 621,639,830
--------------- ---------------
Mortgage loans 434,956 881,687
--------------- ---------------
Policy loans 55,227,567 50,619,504
Cash (225,037) 793,829
Short-term investments 32,123,095 22,912,462
--------------- ---------------
87,125,625 74,325,795
--------------- ---------------
Total cash and invested assets 750,684,962 696,847,312
Federal income taxes recoverable 6,401 4,995
Premiums deferred and uncollected 2,800,161 2,955,909
Investment income due and accrued 13,378,335 12,696,611
Other assets 523,555 508,880
--------------- ---------------
Total admitted assets $ 767,393,414 $ 713,013,707
--------------- ---------------
--------------- ---------------
LIABILITIES
Aggregate reserves for life polices and contracts $ 522,598,055 $ 487,454,812
Supplementary contracts without life contingencies 15,886,447 13,984,522
Policy and contract claims 3,192,384 3,743,996
Policyholders' dividend accumulations 44,984,808 40,397,525
Dividends to policyholders payable in the following year 18,337,390 17,155,313
Advance premiums, deposits and other policy and contract liabilities 11,547,853 10,820,786
Interest maintenance reserve 2,971,290 3,224,825
Commissions payable 307,194 256,625
Other liabilities 6,131,527 4,811,220
Federal income taxes due or accrued 28,502 28,502
Federal income taxes (payable to affiliates) 2,005,289 1,768,283
Asset valuation reserve 1,499,234 3,413,208
--------------- ---------------
Total liabilities 629,489,973 587,059,617
--------------- ---------------
CAPITAL AND SURPLUS
Common stock, $100 par value; 10,000 shares authorized, issued and outstanding 1,000,000 1,000,000
Paid-in surplus 2,000,000 2,000,000
Group contingency life reserve 115,796 112,574
Unassigned surplus 134,787,645 122,841,516
--------------- ---------------
Total capital and surplus 137,903,441 125,954,090
--------------- ---------------
Total liabilities, capital and surplus $ 767,393,414 $ 713,013,707
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---------
4
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Income:
Premiums and annuity considerations $ 87,937,701 $ 83,530,695
Net investment income 52,128,562 48,639,789
Considerations for supplementary contracts and dividend accumulations 12,926,962 12,439,159
Other 244,648 238,722
------------- -------------
$ 153,237,873 $ 144,848,365
------------- -------------
Benefits and other expenses:
Death benefits 11,774,735 10,652,837
Surrender benefits and other fund withdrawals 23,964,018 22,498,422
Other benefits and claims 4,384,724 5,607,763
Payments on supplementary contracts and dividend accumulations 11,472,593 11,098,199
Increase in policy and contract reserves 41,087,000 39,317,611
Commissions 6,412,280 6,069,105
General insurance expenses 14,020,365 12,841,898
Taxes, licenses and fees 2,259,658 2,225,026
------------- -------------
$ 115,375,373 $ 110,310,861
------------- -------------
Net gain from operations before dividends to policyholders and federal income taxes 37,862,500 34,537,504
Dividends to policyholders 17,978,550 16,870,893
------------- -------------
Net gain from operations after dividends to policyholders and before federal income taxes 19,883,950 17,666,611
Federal income taxes incurred (excluding capital gains) 9,074,127 7,643,806
------------- -------------
Net gain from operations after dividends to policyholders and federal income taxes and
before realized gains 10,809,823 10,022,805
Net realized capital gains less capital gains tax of $20,934 and $41,017 (excluding
($10,323) and ($84,120) transferred to the IMR) (26,493) (84,352)
------------- -------------
Net income $ 10,783,330 $ 9,938,453
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5 -------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Common stock:
Balance at beginning and end of year $ 1,000,000 $ 1,000,000
------------- -------------
Paid in surplus:
Balance at beginning and end of year 2,000,000 2,000,000
------------- -------------
Group contingency life reserve:
Balance at beginning of year 112,574 107,411
Transfer from unassigned surplus 3,222 5,163
------------- -------------
Balance at end of year 115,796 112,574
------------- -------------
Unassigned surplus:
Balance at beginning of year 122,841,516 114,436,603
Net income 10,783,330 9,938,453
Net unrealized capital (losses) gains (682) 130
Change in nonadmitted assets (130,312) (69,928)
Change in asset valuation reserve 1,913,974 (170,943)
Change in group contingency life reserve (3,222) (5,163)
Increase in reserves on account of change in valuation basis (616,959) (1,287,636)
------------- -------------
Balance at end of year 134,787,645 122,841,516
------------- -------------
Total capital and surplus $ 137,903,441 $ 125,954,090
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---------
6
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Cash from operations:
Premiums and annuity considerations $ 88,923,871 $ 84,238,057
Other premiums, considerations and deposits, allowances and reserve adjustments and other
income 12,928,398 12,441,484
Investment income received (excluding realized gains/losses and net of investment
expenses) 52,713,874 49,069,364
Life and accident and health benefits paid (12,615,700) (11,745,944)
Surrender benefits and other fund withdrawals paid (23,964,018) (22,498,422)
Other benefits to policyholders paid (15,554,952) (15,112,660)
Commissions, other expenses and taxes paid (excluding federal income taxes) (21,432,911) (20,830,652)
Dividends to policyholders paid (16,796,472) (15,929,693)
Federal income taxes paid (excluding tax on capital gains) (8,818,190) (8,616,731)
--------------- ---------------
Net cash from operations 55,383,900 51,014,803
--------------- ---------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Bonds 43,467,042 35,084,672
Stocks and mortgage loans 453,109 386,564
Net loss on cash and short-term investments -- (658)
--------------- ---------------
Total investment proceeds 43,920,151 35,470,578
Tax on capital gains 41,271 133,963
--------------- ---------------
Total cash from investments 43,878,880 35,336,615
--------------- ---------------
Cost of investments acquired (long term only):
Bonds 86,260,215 79,477,197
--------------- ---------------
Total investments acquired 86,260,215 79,477,197
--------------- ---------------
Increase in policy loans and premium notes 4,608,746 5,026,094
--------------- ---------------
Net cash from investments (46,990,081) (49,166,676)
--------------- ---------------
Cash from financing and miscellaneous sources:
Other cash provided 640,478 689,616
Other applications (net) (842,530) (718,727)
--------------- ---------------
Net cash from financing and miscellaneous sources (202,052) (29,111)
--------------- ---------------
Net change in cash and short-term investments 8,191,767 1,819,016
Cash and short-term investments, beginning of year 23,706,291 21,887,275
--------------- ---------------
Cash and short-term investments, end of year $ 31,898,058 $ 23,706,291
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7 -------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
1. NATURE OF BUSINESS OPERATIONS
State Farm Life and Accident Assurance Company (the Company) is a wholly-owned
subsidiary of State Farm Mutual Automobile Insurance Company (SFMAIC). The
Company is licensed in four states and primarily markets individual life and
annuity products through an independent contractor agency force. The Company's
individual life insurance products include traditional whole life, universal
life and term insurance which together account for approximately 88% of premium
revenue. Individual annuity products account for an additional 12%. The Company
also writes small amounts of group credit life and employee group life.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
The accompanying financial statements have been prepared on a statutory basis in
accordance, in all material respects, with accounting practices prescribed in
the National Association of Insurance Commissioners (NAIC) Annual Statement
Instructions and Accounting Practices and Procedures manuals, as well as state
laws, regulations, and general administrative rules. Statutory basis accounting
also permits the use of accounting practices which differ from those prescribed
in the sources referred to above, when such practices are approved by the
insurance department of the insurer's state of domicile. State Farm Life and
Accident Assurance Company has used no such permitted accounting practices in
the preparation of these financial statements that would be deemed to have a
material effect on the determination of its financial position as of December
31, 1997 and 1996, or the results of its operations for the years then ended.
Statutory basis accounting is a comprehensive basis of accounting other than
generally accepted accounting principles (GAAP).
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Significant accounting practices include:
A. INVESTMENTS
Bonds are stated at values prescribed by the NAIC. In general, bonds are stated
at amortized cost. Under GAAP, debt securities would be classified into three
categories: held-to-maturity, trading and available-for-sale. Held-to-maturity
securities would be reported at amortized cost. Trading securities would be
reported at fair value, with unrealized gains and losses included in earnings.
Available-for-sale securities would be reported at fair value, with unrealized
gains and losses, net of applicable taxes, reported in a separate component of
surplus.
Prepayment assumptions for loan-backed bonds are internal estimates based on
historical prepayment patterns. Prepayment assumptions for structured securities
are based on estimates from various data reporting services. These assumptions
are consistent with the current interest rate and economic environment. The
retrospective adjustment method is used to value all securities.
Mortgage loans on real estate, all of which are first liens, are carried at the
aggregate unpaid principal balances.
Policy loans are stated at the aggregate of unpaid loan balances which are not
in excess of cash surrender values of related policies.
Short-term investments are stated at cost which approximates market.
Investment income is recorded when earned. Realized gains and losses on sale or
maturity of investments are determined on the basis of specific identification.
Aggregate unrealized capital gains and losses are credited or charged directly
to unassigned surplus.
B. PREMIUMS DEFERRED AND UNCOLLECTED
Premiums deferred and uncollected represent modal premiums, either due and
uncollected or not yet due, where policy reserves have been provided on the
assumption that the full premium for the current policy year has been collected.
Also, where policy reserves have been provided on a continuous premium
assumption, premiums uncollected are similarly defined.
C. AGGREGATE RESERVES FOR LIFE POLICIES AND CONTRACTS
Policy reserves on life insurance are based on statutory mortality and interest
requirements and are computed using principally net level and modified
preliminary term methods with interest rates ranging from 3% to 5.5%. The use of
a modified reserve basis partially offsets the effect of immediately expensing
policy acquisition costs. Policy reserves on annuities are based on statutory
mortality and interest requirements with interest rates ranging from 3% to 7%.
GAAP reserves are based on mortality, lapse, withdrawal and interest rates that
are based on company experience.
- ---------
8
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
D. POLICYHOLDERS' DIVIDENDS
All of the Company's life insurance business is written on the participating
basis. Policyholders' dividends are determined annually by the Board of
Directors. Amounts declared and estimated to be payable to policyholders in the
forthcoming year have been included in the accompanying financial statements as
a liability based on approved dividend scales. Under GAAP, dividends are
anticipated and may be considered as a planned contractual benefit when
computing the value of future policy benefits.
E. FEDERAL INCOME TAXES
The Company's federal income tax return is consolidated with SFMAIC and its
affiliates.
The consolidated federal income tax liability is apportioned to each entity in
accordance with a written agreement. The allocation is based upon separate
return calculations with current credit for net losses and tax credits.
Intercompany federal income tax balances are settled as follows: 1) intercompany
federal income tax receivables and payables which relate to the current tax year
will be settled within ninety (90) days; 2) any refunds of federal income tax
will be settled within sixty (60) days of receipt of the refund; and 3) any
payments of federal income tax due will be settled within sixty (60) days of
payment of the tax due.
The Company's provision for federal income taxes is computed in accordance with
those sections of the Internal Revenue Code applicable to life insurance
companies and is based on income which is currently taxable. Under GAAP,
deferred federal income taxes would be provided for temporary differences
between the tax basis and financial statement basis of assets and liabilities.
F. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Pension Plan
The Company and affiliated insurers sponsor a defined benefit plan covering
substantially all of its employees.
The Company's funding policy is to contribute (1) at least the current service
cost on a current basis and to fund any unfunded liabilities over the
appropriate period and (2) not more than the maximum amount that may be deducted
for federal income tax purposes.
Contributions are allocated among participating companies based on ratios of
annual compensation rates.
Under GAAP, periodic net pension expense would be based on the cost of
incremental benefits for employee service during the period, interest on the
projected benefit obligation, actual return on plan assets and amortization of
actuarial gains and losses rather than the funding policy.
Other Postretirement Benefits
The Company and its affiliated insurers currently provide certain health care
and life insurance benefits pursuant to plans sponsored by its parent, SFMAIC.
Eligible former employees, eligible former agents, and their eligible dependents
currently may participate in these plans.
As a result of the policy promulgated by the NAIC concerning the treatment of
certain postretirement benefits, beginning in 1993, the Company changed its
method of accounting for the costs of the potential health care and life
insurance benefits provided to post-career associates to the accrual method, and
elected to amortize its transition obligation attributable to these potential
benefits over twenty years.
GAAP accounting for postretirement benefits requires an additional accrual for
the estimated cost of the potential benefit obligation under the plans for
active, but not yet eligible, employees and their dependents.
G. INTEREST MAINTENANCE RESERVE AND ASSET VALUATION RESERVE
Interest Maintenance Reserve (IMR) -- Realized capital gains and losses, due to
interest rate fluctuations, net of tax on short-term and long-term fixed income
investments are applied in this calculation. These gains and losses are
amortized into income over the approximate remaining life of the investment
sold. The IMR is not calculated under GAAP.
Asset Valuation Reserve (AVR) -- Realized gains and losses due to credit risk
fluctuations and unrealized gains and losses on applicable invested assets are
reflected in the calculation of this reserve. Changes in the AVR are charged or
credited directly to unassigned surplus and include no voluntary contributions
in 1997 or 1996. The AVR is not calculated under GAAP.
H. RECOGNITION OF PREMIUMS AND ANNUITY CONSIDERATIONS AND RELATED EXPENSES
Premiums and annuity considerations are recognized over the premium paying
period of the policies, whereas acquisition costs such as commissions and other
costs related to new business are expensed as incurred. Under GAAP, certain of
the Company's premium and annuity considerations and initial reserves (e.g. on
universal life policies) would be excluded from
9 -------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
income and the change in reserves. Additionally, acquisition costs under GAAP
are capitalized and amortized over the policy period.
I. NONADMITTED ASSETS
Certain assets designated as "nonadmitted" assets aggregating $307,116 and
$176,804 at December 31, 1997 and 1996, respectively, are not recognized by
statutory accounting practices. These assets are excluded from the balance
sheet, and the net change in such assets is charged or credited directly to
unassigned surplus. GAAP would recognize such assets at the lower of cost or net
realizable value.
The discussion above highlights the significant variances between the statutory
accounting practices followed by the Company and GAAP. The effect of these
differences has not been determined but is presumed to be material.
3. BONDS AND OTHER DEBT SECURITIES
The amortized cost and estimated market values of investments in debt securities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $309,842,748 $25,903,661 $ (135,590) $335,610,819
Obligations of states and political subdivisions 2,799,255 96,007 -- 2,895,262
Corporate securities 382,605,473 11,423,289 (739,261) 393,289,501
------------ ----------- ----------- ------------
Total $695,247,476 $37,422,957 $ (874,851) $731,795,582
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies $299,847,642 $ 22,178,903 $(1,327,849) $320,698,696
Obligations of states and political subdivisions 3,099,190 85,095 -- 3,184,285
Corporate securities 341,605,460 6,819,931 (4,090,937) 344,334,454
------------ ------------ ------------ ------------
Total $644,552,292 $ 29,083,929 $(5,418,786) $668,217,435
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The amortized cost and estimated market value of debt securities, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less $ 62,873,481 $ 63,019,585
Due after one year through five years 214,104,126 223,861,793
Due after five years through ten years 367,635,499 390,249,558
Due after ten years 50,634,370 54,664,646
------------ ------------
Total $695,247,476 $731,795,582
</TABLE>
Gross proceeds and realized gains and losses on bonds sold at the discretion of
the Company for the year ended December 31, were:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Proceeds $ 4,819,158 $ 8,272,109
Gross gains -- 277
Gross losses (161,609) (222,005)
</TABLE>
At December 31, 1997, bonds carried at amortized cost of $1,627,655 were on
deposit with regulatory authorities.
- ---------
10
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
4. NET INVESTMENT INCOME
The components of net investment income earned by type of investment for the
years ended December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Bonds $47,315,582 $44,754,214
Short-term investments 1,575,944 1,019,916
Policy loans 3,449,552 3,062,129
Mortgage loans 50,169 99,510
Other 2,777 880
----------- -----------
Gross investment income 52,394,024 48,936,649
Investment expenses (265,462) (296,860)
----------- -----------
Net investment income $52,128,562 $48,639,789
----------- -----------
----------- -----------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each significant class of financial instruments for which it is practicable to
estimate that value:
Bonds and Short-Term Investments
Fair values for issues traded on public exchanges are based on the market price
in such exchanges at year end. For issues that are not traded on public
exchanges, fair values were estimated based on market comparables or internal
analysis.
Mortgage Loans
Fair values were estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Cash
The carrying amount is a reasonable estimate of fair value.
Deferred Annuities
Fair values were approximated by the amount due to the annuity holder as if the
annuity contract was surrendered at year end.
Advance Premiums
Fair values were approximated by the amount due to the policyholder as if the
policy was surrendered at year end.
Settlement Options Without Life Contingencies
Settlement options without life contingencies are similar to demand deposits.
The fair value is the amount payable on demand at year end.
The estimated fair values and statement values of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
FAIR STATEMENT FAIR STATEMENT
VALUE VALUE VALUE VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds $699,684,257 $663,124,381 $645,305,556 $621,639,830
Bond reserves 0 1,406,917 0 3,212,828
------------ ------------ ------------ ------------
$699,684,257 $661,717,464 $645,305,556 $618,427,002
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Mortgage loans $ 450,040 $ 434,956 $ 905,156 $ 881,687
Mortgage loan reserves 0 4,893 0 15,430
------------ ------------ ------------ ------------
$ 450,040 $ 430,063 $ 905,156 $ 866,257
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash $ (225,037) $ (225,037) $ 793,829 $ 793,829
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Short-term investments: $ 32,111,325 $ 32,123,095 $ 22,911,879 $ 22,912,462
Short-term reserves 0 87,424 0 184,951
------------ ------------ ------------ ------------
$ 32,111,325 $ 32,035,671 $ 22,911,879 $ 22,727,511
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Financial liabilities:
Deferred annuity reserves $127,986,114 $127,653,829 $128,520,058 $128,382,016
Advance premiums 2,294,493 2,315,423 2,495,614 2,538,370
Settlement options without life contingencies 15,886,447 15,886,447 13,984,522 13,984,522
</TABLE>
11-------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
6. FEDERAL INCOME TAXES
The difference between the Company's effective income tax rate and the statutory
rate for both 1997 and 1996 is primarily due to non-deductible policyholder
dividends, unamortized deferred acquisition costs and tax reserves.
The examinations of the Company's federal income tax returns through 1986 have
been closed by the Internal Revenue Service. Returns for 1987, 1988, 1989 and
1990 have been examined. Although a few issues remain open, no open issue would
have a material effect on surplus. Returns for 1991, 1992 and 1993 are currently
under examination. At this time, there have been no issues raised that would
require adjustments which would have a material effect on surplus.
7. PENSION PLAN AND OTHER
POSTRETIREMENT BENEFITS
A. Pension Plan
Plan benefits are based on years of credited service up to 35 years and the
employee's rate of annual compensation during the 5 consecutive years of highest
compensation.
The pension cost allocated to the Company for its employees amounted to $0 and
$100,785 in 1997 and 1996, respectively. A comparison of accumulated plan
benefits, determined in accordance with Statement of Financial Accounting
Standards No. 35, and plan net assets for the non-contributory defined benefit
pension plan of the Company and its parent and other affiliates as of August 31,
1997 (the most recent actuarial valuation date) and 1996 is presented below:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Actuarial present value of accumulated plan
benefits:
Vested $2,857,266,646 $2,620,702,754
Nonvested 59,983,879 56,123,860
-------------- --------------
$2,917,250,525 $2,676,826,614
-------------- --------------
-------------- --------------
Net assets available for benefits $6,611,785,481 $5,235,032,043
-------------- --------------
-------------- --------------
</TABLE>
The assumed rate of return used in determining the actuarial present value of
vested and nonvested accumulated plan benefits was 7% as of August 31, 1997 and
1996.
The Company participates with its affiliates in a qualified defined contribution
plan for which substantially all employees are eligible. Contributions are based
on the performance of the Company and its affiliates as well as matching a
percentage of employee contributions (up to specified limits). Such
contributions for the years ended December 31, 1997 and 1996, were $71,088 and
$61,340, respectively. Benefits, generally
available upon retirement, are paid from net assets available for plan benefits.
B. Other Postretirement Benefits
The Company's share of the net post-career benefit cost for the year ended
December 31, 1997, was $328,983 and included paid benefits, the expected cost of
the potential health care and life insurance benefits for newly eligible
post-career associates, interest cost and amortization of the transition
obligation.
At December 31, 1997 and 1996 respectively, the Company's share of the unfunded
recorded post-career benefit obligation attributable to the potential health
care and life insurance benefits for post-career associates was $985,543 and
$723,089. The transition obligation for these potential benefits is being
amortized over twenty years. The Company's share of the remaining transition
obligation was $807,171 and $1,181,880 at December 31, 1997 and 1996
respectively. The Company's share of unrecognized net (gains) or losses,
resulting from experience different from that assumed and/or changes in
actuarial assumptions was $(35,161) at December 31, 1997. The Company's share of
the estimated cost of the potential benefit obligation under the plans for
active, but not yet eligible employees, agents, and their qualifying dependents,
at January 1, 1997, was $2,353,787 which is not accrued in these financial
statements. The discount rate used in determining the accumulated post-career
benefit obligation attributable to these potential benefits is 7%, and the
health care cost trend rate is 11%, graded to 6% over the following 5 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the Company's share of
the post-career benefit obligation attributable to the potential health care
insurance benefits for post-career associates by $131,251 as of January 1, 1997,
and the estimated eligibility and interest cost components of the net periodic
post-career benefit cost for 1997 by $24,196.
The Company participates with its affiliates in an unfunded deferred
compensation plan for highly compensated employees
- ---------
12
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
and independent contractor agents. As the Company currently has no participants
in this plan, there was no liability established for 1997 or 1996.
8. OTHER RELATED PARTY TRANSACTIONS
The Company, its parent, and its affiliates share certain administrative,
occupancy and marketing expenses. Such expenses are allocated to the Company
based on time and usage studies and totaled approximately $8,762,970 and
$7,959,707, in 1997 and 1996, respectively.
At December 31, 1997 and 1996, total amounts owed to the parent company,
exclusive of federal income taxes, were approximately $1,800,341 and $1,539,134,
respectively. Total amounts owed to affiliates were approximately $5,397 and
$3,465 at December 31, 1997 and 1996, respectively.
9. CONTINGENT LIABILITIES
The Company is a defendant in several lawsuits challenging sales practices with
respect to life insurance products, some of which allege class action status.
The ultimate outcome of these lawsuits is uncertain, and an amount or estimate
of a range of amounts relative to the outcome of these cases cannot be
determined at this time. Therefore, no liability has been recorded in these
financial statements. Management believes it is possible that the resolution of
these matters could be material to these statements.
In addition, the Company is subject to liabilities of a contingent nature which
may from time to time arise. Such liabilities could result from income tax
matters, guaranty fund assessments or other occurrences that take place in the
normal course of doing business. In addition, the life insurance industry has
not been exempt from the impact of an increasingly litigious environment which
is being experienced in the United States. Liabilities arising as a result of
these factors, or other such contingencies, that are not provided for elsewhere
in these financial statements are not reasonably estimable and are not
considered by management to be material in relation to the financial position of
the Company.
10. DIVIDEND RESTRICTIONS
The maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in Illinois without the prior approval of the commissioner
is subject to restrictions related to statutory surplus and net income. For
companies doing business in New York, such payments are subject to similar
restrictions related to statutory surplus.
13-------
<PAGE>
SUPPLEMENTAL SCHEDULE
- ---------
14
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
SCHEDULE 1 -- SELECTED FINANCIAL DATA
DECEMBER 31, 1997 AND 1996
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Investment income earned:
U.S. government bonds $ 20,487,860 $ 20,118,942
Other bonds (unaffiliated) 26,827,722 24,635,272
Mortgage loans 50,169 99,510
Premiums notes, policy loans and liens 3,449,552 3,062,129
Short-term investments 1,575,944 1,019,916
Cash on hand 2,777 880
------------ ------------
Gross investment income $ 52,394,024 $ 48,936,649
------------ ------------
------------ ------------
Mortgage loans -- book value
Commercial mortgages $ 434,956 $ 881,687
------------ ------------
Total mortgage loans $ 434,956 $ 881,687
------------ ------------
------------ ------------
Mortgage loans by standing -- book value
Good standing $ 434,956 $ 881,687
------------ ------------
------------ ------------
</TABLE>
15-------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
SCHEDULE 1 -- SELECTED FINANCIAL DATA, CONTINUED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Bonds and short-term investments by class and maturity:
Bonds by maturity -- statement value
Due within one year or less $ 62,873,481 $ 57,726,725
Over 1 year through 5 years 214,104,126 156,503,907
Over 5 years through 10 years 367,635,499 384,092,202
Over 10 years through 20 years 47,644,606 44,238,838
Over 20 years 2,989,764 1,990,620
------------- -------------
Total by maturity $ 695,247,476 $ 644,552,292
------------- -------------
------------- -------------
Bond by class -- statement value
Class 1 $ 671,755,663 $ 627,967,895
Class 2 22,886,243 14,942,661
Class 3 553,599 850,027
Class 4 51,971 791,709
Class 5
Class 6
------------- -------------
Total by class $ 695,247,476 $ 644,552,292
------------- -------------
------------- -------------
Total bonds publicly traded $ 666,183,274 $ 619,390,464
------------- -------------
------------- -------------
Total bonds privately placed $ 29,064,202 $ 25,161,828
------------- -------------
------------- -------------
Short term investments -- book value $ 32,123,095 $ 22,912,462
------------- -------------
------------- -------------
Cash on deposit $ (225,037) $ 793,829
------------- -------------
------------- -------------
</TABLE>
- ---------
16
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
SCHEDULE 1 -- SELECTED FINANCIAL DATA, CONTINUED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Life insurance in force
Ordinary $12,406,768,000 $11,416,229,000
--------------- ---------------
--------------- ---------------
Credit life $ 14,124,000 $ 17,231,000
--------------- ---------------
--------------- ---------------
Group life $ 19,777,000 $ 31,484,000
--------------- ---------------
--------------- ---------------
Amount of accidental death insurance in force under ordinary policies $ 315,065,000 $ 318,935,000
--------------- ---------------
--------------- ---------------
Life Insurance policies with disability provisions in force:
Ordinary $ 197,527 $ 190,671
--------------- ---------------
--------------- ---------------
Group life (certificates) $ 603 $ 802
--------------- ---------------
--------------- ---------------
Supplementary contracts in force:
Ordinary -- not involving life contingencies
Amount on deposit $ 8,588,989 $ 8,316,380
--------------- ---------------
--------------- ---------------
Income payable $ 123,053 $ 116,160
--------------- ---------------
--------------- ---------------
Ordinary -- involving life contingencies
Income payable $ 154,207 $ 129,213
--------------- ---------------
--------------- ---------------
Annuities:
Ordinary
Immediate -- amount of income payable $ 2,431,809 $ 2,214,101
--------------- ---------------
--------------- ---------------
Deferred -- fully paid account balance $ 125,241,738 $ 125,694,658
--------------- ---------------
--------------- ---------------
Deferred -- not fully paid -- account balance $ 1,057,844 $ 1,466,957
--------------- ---------------
--------------- ---------------
Deposit funds and dividend accumulations:
Deposit funds -- account balance $ 3,679,461 $ 3,767,979
--------------- ---------------
--------------- ---------------
Dividend accumulations -- account balance $ 44,984,808 $ 40,397,525
--------------- ---------------
--------------- ---------------
</TABLE>
17-------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS -- STATUTORY
BASIS
(UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
1998
---------------
<S> <C>
ADMITTED ASSETS
Bonds:
United States Government $ 255,974,959
Other governmental units 53,702,460
Public utilities 127,443,287
Industrial and other 249,964,053
---------------
687,084,759
---------------
Mortgage Loans 0
---------------
Policy loans 56,501,241
Cash 182,667
Short-term investments 19,574,247
---------------
Total cash and invested assets 762,977,580
---------------
Premiums deferred and uncollected 2,893,203
Investment income due and accrued 14,036,595
Federal income tax recoverable (including from affiliates) 6,767
Other assets 596,005
---------------
Total admitted assets $ 780,510,150
---------------
---------------
LIABILITIES
Aggregate reserves for life policies and contracts $ 531,790,214
Reserve for contracts without life contingencies 16,964,084
Policy and contract claims 3,633,578
Policyholders' dividend accumulations 46,550,018
Dividends to policyholders payable in the following year 18,523,024
Advance premiums, deposits and other policy and contract liabilities 11,649,620
Interest maintenance reserve 2,912,497
Commissions payable 243,949
Federal income taxes due or accrued 1,586,249
Other liabilities 6,625,633
Asset valuation reserve 1,572,174
---------------
Total Liabilities 642,051,040
---------------
CAPITAL AND SURPLUS
Common stock, $100 par value; 10,000 shares authorized, issued and outstanding 1,000,000
---------------
Special surplus -- group 94,076
Paid-in surplus 2,000,000
Unassigned surplus 135,365,035
---------------
Total capital and surplus 138,459,111
---------------
Total liabilities, capital and surplus $ 780,510,150
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---------
18
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS - STATUTORY BASIS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------
<S> <C>
Common stock:
Balance at beginning and end of period $ 1,000,000
---------------
Paid-in surplus:
Balance at beginning and end of period 2,000,000
Group contingency life reserve 94,076
---------------
2,094,076
---------------
Unassigned surplus:
Balance at beginning of year 134,787,645
Net income 1,110,629
Change in nonadmitted assets (24,116)
Change in asset valuation reserve (72,940)
Increase in reserves on account of change in valuation basis (457,903)
Change in group contingency life reserve 21,720
---------------
Balance at end of period 135,365,035
---------------
Total capital and surplus $ 138,459,111
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19-------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------
<S> <C>
Income:
Premiums and annuity considerations $ 22,953,103
Other premiums, considerations and deposits, allowances and reserve adjustment, and other income 3,752,334
Investment income received (excluding realized gains/losses and net of investment expenses) 13,169,007
Surrender benefits and other fund withdrawals paid (6,502,446)
Other benefits to policyholders paid (7,345,775)
Commissions, other expenses and taxes paid (excluding federal income taxes) (6,696,527)
Dividends to policyholders paid (4,966,573)
Federal income taxes paid (excluding tax on capital gains) (2,051,246)
Sundry expenses (9)
---------------
Net cash from operations 12,311,867
---------------
Cash from investments:
Proceeds from investments sold, matured or repaid: 6,660,723
Bonds 439,289
Mortgage loans 7,100,012
---------------
Total investment proceeds 7,100,012
Net tax on capital gains 0
---------------
Total cash from investments 7,100,012
---------------
Cost of investments acquired (long-term only):
Bonds 30,930,100
---------------
Total investments acquired 30,930,100
---------------
Increase (decrease) in policy loans and premium notes 1,273,674
---------------
Net cash from investments (25,103,762)
---------------
Cash from financing and miscellaneous sources:
Other cash provided 526,393
Other applications (net) 240,976
---------------
Net cash from financing and miscellaneous sources 285,417
---------------
Net change in cash and short-term investments (12,506,478)
Cash and short-term investments, beginning of year 31,898,058
---------------
Cash and short-term investments, end of period $ 19,391,580
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ---------
20
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------
<S> <C>
Income:
Premiums and annuity considerations $ 22,790,642
Net investment income 13,477,354
Considerations for supplementary contracts and dividend accumulations 3,752,334
Other 62,861
---------------
$ 40,083,191
---------------
Benefits and other expenses:
Death benefits 3,946,867
Surrender benefits and other fund withdrawals 6,502,446
Other benefits and claims 1,307,177
Payments on supplementary contracts and dividend accumulations 2,514,400
Increase in policy and contract reserves 11,156,043
Commissions 1,595,598
General insurance expenses 4,244,491
Taxes, licenses and fees 757,860
Other Fees 32,523
---------------
$ 32,057,405
---------------
Net gain from operations before dividends to policyholders and federal income taxes 8,025,786
Dividends to policyholders 5,314,189
---------------
Net gain from operations after dividends to policyholders and before federal income taxes 2,711,598
Federal and foreign income taxes incurred (excluding capital gains) 1,577,137
---------------
Net gain from operations after dividends to policyholders and federal income taxes and before realized
gains 1,134,460
Net realized capital gains or (losses) less capital gains tax of ($26,200) (excluding ($4,068) transferred
to the IMR) (23,831)
---------------
Net income $ 1,110,629
---------------
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21-------
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY)
NOTE TO FINANCIAL STATEMENTS
The statement of admitted assets, liabilities, capital and surplus -- statutory
basis as of March 31, 1998 and the statement of changes in capital and surplus,
operations, and cash flows -- statutory basis for the three-month period ended
March 31, 1998 are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for fair presentation of the financial
position, changes in capital and surplus, results of operations and cash flows
for the interim period. The results of operations for the interim period should
not be considered indicative of results to be expected for the full year.
- ---------
22
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
(1) Resolutions of the Board of Directors of State Farm Life and Accident
Assurance Company ("State Farm") establishing the State Farm Life
and Accident Assurance Company Variable Annuity Separate Account (the
"Variable Account").
(2) Not Applicable.
(3) Distribution Agreement.
(4) (a) Form of Policy.
(b) Riders to Form of Policy
(5) Application.
(6) (a) Articles of Incorporation of State Farm.
(b) By-Laws of State Farm.
(7) Not Applicable.
(8) Form of Participation Agreement.
(9) Opinion and Consent of Counsel.
(10) (a) Consent of Sutherland, Asbill & Brennan LLP.
(b) Consent of Coopers & Lybrand L.L.P.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL
BUSINESS ADDRESS/*/ Position with State Farm
---------------- ------------------------
<S> <C>
Marvin D. Bower Chairman of the Board and Director
Edward B. Rust, Jr. Director; President
Roger B. Tompkins Director: Executive Vice President
Darrell W. Beernink Vice President and Actuary
Charles R. Wright Director; Agency Vice President
Bruce Callis Director
Robert S. Eckley Director
Roger S. Joslin Director
R.J. Lehman Director
Kurt G. Moser Director; Vice President - Investments
Laura P. Sullivan Director; Vice President - Counsel and Secretary
Vincent J. Trosino Director
Mary Rebecca Blakeslee Vice President - Life/Health Underwriting
James G. Fisher Vice President - Operations
James A. Malay Vice President - Policyholder Systems
William A. Montgomery Senior Vice President and General Counsel
Danny L. Scott, M.D. Vice President and Medical Director
Dale R. Egeberg Vice President and Controller - Life
Robert Myer Vice President - Life/Health Field Services
Terry L. Huff Vice President - Advanced Products
Max E. McPeek Vice President - Compliance
</TABLE>
* The principal business address of all the persons listed above is One State
Farm Plaza, Bloomington, Illinois 61710-0001.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
State Farm Mutual Automobile Insurance Company
State Farm County Mutual Insurance Company of Texas (Common
Management)
State Farm General Insurance Company (100% Ownership)
State Farm Fire and Casualty Company (100% Ownership)
State Farm Life Insurance Company (100% Ownership)
State Farm Annuity and Life Insurance Company (100% Ownership)
State Farm Life and Accident Assurance Company (100% Ownership)
State Farm Indemnity Company (100% Ownership)
Amberjack, Ltd. (100% Ownership)
Fiesta Jack, Ltd. (100% Ownership)
State Farm Lloyds, Inc. (100% Ownership)
State Farm Investment Management Corp. (100% Ownership)
State Farm International Services, Inc. (100% Ownership)
State Farm VP Management Corp. (100% Ownership)
Insurance Placement Services, Inc. (100% Ownership)
ITEM 27. NUMBER OF POLICY OWNERS
Not applicable.
ITEM 28. INDEMNIFICATION
Illinois Business Corporation Act Chapter 805 Section 5/8.75 is a
comprehensive provision that defines the power of Illinois corporations to
provide for the indemnification of its officers, directors, employees and
agents. This Section also authorizes Illinois corporations to purchase and
maintain insurance on behalf of directors, officers, employees or agents of the
corporation.
The Articles of Incorporation, as amended, and the Bylaws of State
Farm Life and Accident Assurance Company do not provide for the
indemnification of officers, directors, employees or agents of the Company.
ITEM 29. PRINCIPAL UNDERWRITER
(a) State Farm VP Management Corp. ("State Farm VP") is the
registrant's principal underwriter.
<PAGE>
(b) Officers and Directors of State Farm VP.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* With the Underwriter
- ------------------ ---------------------
<S> <C>
Edward B. Rust, Jr. Director; President, CEO
Roger S. Joslin Director; Vice President and
Treasurer; CFO
Kurt G. Moser Director
Charles R. Wright Director; Vice President,
Sales and Marketing
Roger B. Tompkins Director; Vice President,
Administration; COO
Ralph O. Bolt Assistant Vice President,
Sales and Marketing
David R. Grimes Assistant Vice President,
Financial; Secretary
Terry L. Huff Assistant Vice President,
Administration; Manager, OSJ
Max E. McPeek Assistant Vice President, Compliance;
Chief Compliance Officer
Patricia L. Dysart Assistant Secretary; Counsel
</TABLE>
* The principal business address of all of the persons listed above is One
State Farm Plaza, Bloomington, Illinois 61710-0001.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by State Farm at One State Farm Plaza,
Bloomington, Illinois 61710-0001.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for as
long as purchase payments under the Policies offered herein are
being accepted.
(b) The registrant undertakes that it will include either (1) as part
of any application to purchase a Policy offered by the
prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove and send to State Farm
for a Statement of Additional Information.
(c) The registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form N-4 promptly upon written or oral
request to State Farm at the address or phone number listed in
the prospectus.
(d) State Farm represents that in connection with its offering of the
Policies as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of
1986, it is relying on a no-action letter dated November 28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-
88) regarding Sections 22(e), 27(c)(1), and 27(d) of the
Investment Company Act of 1940, and that paragraphs numbered (1)
through (4) of that letter will be complied with.
(e) State Farm represents that the fees and charges under the
Policies, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the
risks assumed by State Farm.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the registrant has caused this registration statement to be signed
on its behalf, in the City of Bloomington, and the State of Illinois, on this
24th day of June, 1998.
State Farm Life and Accident Assurance Company
Variable Annuity Separate Account (Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Attest: /s/ Patricia Dysart By: *
- ---------------------------- ------------------------------
Edward B. Rust, Jr.
President
State Farm Life and Accident Assurance Company
By: State Farm Life and Accident Assurance Company (Depositor)
Attest: /s/ Patricia Dysart By: *
- ---------------------------- ------------------------------
Edward B. Rust, Jr.
President
State Farm Life and Accident Assurance Company
</TABLE>
<PAGE>
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
* President and Director
- ----------------------- (Principal Executive Officer)
Edward B. Rust, Jr.
* Vice President and Actuary
- ----------------------- (Principal Financial Officer)
Darrell W. Beernink
* Vice President and Controller - Life
- ----------------------- (Principal Accounting Officer)
Dale R. Egeberg
* Director
- -----------------------
Marvin D. Bower
Director
- -----------------------
Roger B. Tompkins
* Director
- -----------------------
Robert S. Eckley
* Director
- -----------------------
Bruce Callis
* Director
- -----------------------
Roger S. Joslin
* Director
- -----------------------
Kurt G. Moser
* Director
- -----------------------
R. J. Lehman
* Director
- -----------------------
Laura P. Sullivan
* Director
- -----------------------
Vincent J. Trosino
* Director
- -----------------------
Charles R. Wright
* By /s/ Terry Huff Date: June 24, 1998
-----------------
Terry Huff
Pursuant to Power
of Attorney
<PAGE>
Exhibit Index
(1) Resolutions of the Board of Directors of State Farm Life and Accident
Assurance Company ("State Farm") establishing the State Farm Life and
Accident Assurance Company Variable Annuity Separate Account (the
"Variable Account").
(2) Not Applicable.
(3) Distribution Agreement.
(4) (a) Form of Policy.
(b) Riders to Form of Policy.
(5) Application.
(6) (a) Articles of Incorporation of State Farm.
(b) By-Laws of State Farm.
(7) Not Applicable.
(8) Form of Participation Agreement.
(9) Opinion and Consent of Counsel.
(10) (a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Coopers & Lybrand L.L.P.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Powers of Attorney.
<PAGE>
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
BOARD OF DIRECTORS RESOLUTIONS
FOR VARIABLE ANNUITY SEPARATE ACCOUNT
BE IT RESOLVED, That the Board of Directors of State Farm Life and Accident
Assurance Company (the "Company"), hereby establishes a separate account,
pursuant to the provisions of 215 ILCS 5/245.21 of the Illinois Insurance
Laws, designated the State Farm Life and Accident Assurance Company Variable
Annuity Separate Account (hereinafter the "Variable Account"), for the
following use and purposes, and subject to such conditions as hereinafter set
forth; and
FURTHER RESOLVED, That the Variable Account is established for the purpose of
providing for the issuance by the Company of certain variable annuity
policies (the "Policies"), and shall constitute a funding medium to support
reserves under such Policies issued by the Company; and
FURTHER RESOLVED, That the income, gains and losses, realized or unrealized,
from assets allocated to the Variable Account shall be credited to or charged
against the Variable Account, without regard to other income, gains or losses
of the Company; and
FURTHER RESOLVED, That the assets of the Variable Account equal to the
reserves and other liabilities under the Policies and any other policies
issued through the Variable Account may not be charged with liabilities
arising out of any other business the Company may conduct; and
FURTHER RESOLVED, That the Variable Account shall be divided into investment
subaccounts (the "Subaccounts"), each of which shall invest in the shares of
a mutual fund portfolio, and net premiums under the Policies shall be
allocated in accordance with instructions received from owners of the
Policies; and
FURTHER RESOLVED, That the President, Executive Vice President, and Vice
President - Investments are jointly authorized to add or remove any
Subaccount of the Variable Account or add or remove any mutual fund as may
hereafter be deemed necessary or appropriate; and
FURTHER RESOLVED, That the income, gains and losses, realized or unrealized,
from assets allocated to each Subaccount of the Variable Account shall be
credited to or charged against such Subaccount of the Variable Account,
without regard to other income, gains or losses of any other Subaccount of
the Variable Account; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them,
<PAGE>
with full power to act without the others, be, and they hereby are, severally
authorized to invest such amount or amounts of the Company's cash in the
Variable Account or in any Subaccount thereof or in any mutual fund as may be
deemed necessary or appropriate to facilitate the commencement of the
Variable Account's and/or the fund's operations and/or to meet any minimum
capital requirements under the Investment Company Act of 1940 (the "1940
Act"); and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, be, and they hereby are, severally authorized to
transfer cash from time to time from the Company's general account to the
Variable Account, or from the Variable Account to the general account, as
deemed necessary or appropriate and consistent with the terms of the
Policies; and
FURTHER RESOLVED, That the Board of Directors of the Company reserves the
right to change the designation of the Variable Account hereafter to such
other designation as it may deem necessary or appropriate; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, with such assistance from the Company's independent
certified public accountants, legal counsel and independent consultants or
others as they may require, be, and they hereby are, severally authorized and
directed to take all action necessary to: (a) register the Variable Account
as a unit investment trust under the 1940 Act; (b) register the Policies in
such amounts, which may be an indefinite amount, as such officers of the
Company shall from time to time deem appropriate under the Securities Act of
1933 (the "1933 Act"); and (c) take all other actions that are necessary in
connection with the offering of the Policies for sale and the operation of
the Variable Account in order to comply with the 1940 Act, the Securities
Exchange Act of 1934, the 1933 Act, and other applicable Federal laws,
including the filing of any registration statements, any undertakings,
no-action requests, consents, and any applications for exemptions from the
1940 Act or other applicable federal laws and any amendments to the foregoing
as the officers of the Company shall deem necessary or appropriate; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, are severally authorized and empowered to prepare,
execute and cause to be filed with the Securities and Exchange Commission on
behalf of the Variable Account, and by the Company as sponsor and depositor,
a Notification of Registration on Form N-8A, a registration statement
registering the Account as an investment
-2-
<PAGE>
company under the 1940 Act and the Policies under the 1933 Act, and any and
all amendments to the foregoing on behalf of the Variable Account and the
Company and on behalf of and as attorneys-in-fact for the principal executive
officer and/or the principal financial officer and/or the principal
accounting officer and/or any other officer of the Company; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President-Counsel and Secretary, Vice President and Actuary, and Controller
are duly appointed as agents for service under any such registration
statement and are duly authorized to receive communications and notices from
the Securities and Exchange Commission with respect thereto; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, are severally authorized on behalf of the Variable
Account and on behalf of the Company to take any and all action that each of
them may deem necessary or advisable in order to offer and sell the Policies,
including any registrations, filings and qualifications both of the Company,
its officers, agents and employees, and of the Policies, under the insurance
and securities laws of any of the states of the United States of America or
other jurisdictions, and in connection therewith to prepare, execute, deliver
and file all such applications, requests, undertakings, reports, covenants,
resolutions, applications for exemptions, consents to service of process and
other papers and instruments as may be required under such laws, and to take
any and all further action which such officers or legal counsel of the
Company may deem necessary or desirable (including entering into whatever
agreements and contracts may be necessary) in order to maintain such
registrations or qualifications for as long as the officers or legal counsel
deem it to be in the best interests of the Variable Account and the Company;
and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, be, and they hereby are, severally authorized in the
names and on behalf of the Variable Account and the Company to execute and
file irrevocable written consents on the part of the Variable Account and of
the Company to be used in such states wherein such consents to service of
process may be required under the insurance or securities laws therein in
connection with the registration or qualification of the Policies and to
appoint the appropriate state official, or such other person as may be
allowed by insurance or securities laws, agent of the Variable Account and of
the Company for the purpose of receiving and accepting process; and
-3-
<PAGE>
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, be, and hereby are, severally authorized to establish
procedures under which the Company will provide voting rights for owners of
the Policies with respect to securities owned by the Variable Account; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, are hereby severally authorized to execute such
agreement or agreements as deemed necessary and appropriate (i) with State
Farm VP Management Corp. or other qualified entity under which State Farm VP
Management Corp. or such other entity will be appointed principal underwriter
and distributor for the Policies, (ii) with one or more qualified banks or
other qualified entities to provide administrative and/or custody services in
connection with the establishment and maintenance of the Variable Account and
the design, issuance, and administration of the Policies, and (iii) with the
designated mutual funds and/or the principal underwriter and distributor of
those funds for the purchase and redemption of fund shares; and
FURTHER RESOLVED, That the President, Executive Vice President, Vice
President and Actuary, and Controller, and each of them, with full power to
act without the others, are hereby severally authorized to execute and
deliver such agreements and other documents and do such acts and things as
each of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
-4-
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ___ day of _________, 1998 by and between State Farm
Life and Accident Assurance Company, an Illinois insurance company ("State
Farm"), on its behalf and on behalf of each separate account identified in
Schedule 1 hereto, and State Farm VP Management Corp. ("Distributor"), a
Delaware corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and may engage in the distribution of other
investment products;
WHEREAS, State Farm desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter and distributor; and
WHEREAS, State Farm and Distributor acknowledge that Distributor may
distribute variable insurance products and other investment products for other
companies.
NOW, THEREFORE, in consideration of their mutual promises, State Farm and
Distributor hereby agree as follows:
1. DEFINITIONS
a. CONTRACTS -- The class or classes of variable insurance products set
forth on Schedule 2 to this Agreement as in effect at the time this
Agreement is executed, and such other classes of variable insurance
products that may be added to Schedule 2 from time to time in
accordance with Section 10.b of this Agreement, and including any
riders to such contracts and any other contracts offered in connection
therewith. For this purpose and under this Agreement generally, a
"class of Contracts" shall mean those Contracts issued by State Farm
on the same policy form or forms and covered by the same Registration
Statement.
b. REGISTRATION STATEMENT -- At any time that this Agreement is in
effect, each currently effective registration statement filed with the
SEC under the 1933 Act on a prescribed form, or currently effective
post-effective amendment thereto, as the case may be, relating to a
class of Contracts, including financial statements included in, and
all exhibits to, such registration statement or post-effective
amendment. For purposes of Section 8 of this Agreement, the term
"Registration Statement" means any document which is or at any time
was a Registration Statement within the meaning of this Section 1.b.
<PAGE>
c. PROSPECTUS -- The prospectus included within a Registration Statement,
except that, if the most recently filed version of the prospectus
(including any supplements thereto) filed pursuant to Rule 497 under
the 1933 Act subsequent to the date on which a Registration Statement
became effective differs from the prospectus included within such
Registration Statement at the time it became effective, the term
"Prospectus" shall refer to the most recently filed prospectus filed
under Rule 497 under the 1933 Act, from and after the date on which it
shall have been filed. For purposes of Section 8 of this Agreement,
the term "any Prospectus" means any document which is or at any time
was a Prospectus within the meaning of this Section 1.c.
d. FUND -- An investment company in which the Separate Account invests.
e. VARIABLE ACCOUNT -- A separate account supporting a class or classes
of Contracts and specified on Schedule 1 as in effect at the time this
Agreement is executed, or as it may be amended from time to time in
accordance with Section 10.b of this Agreement.
f. 1933 ACT -- The Securities Act of 1933, as amended.
g. 1934 ACT -- The Securities Exchange Act of 1934, as amended.
h. 1940 ACT -- The Investment Company Act of 1940, as amended.
i. SEC -- The Securities and Exchange Commission.
j. NASD -- The National Association of Securities Dealers, Inc.
k. REPRESENTATIVE -- An individual who is an associated person of
Distributor, as that term is defined in the 1934 Act.
l. APPLICATION -- An application for a Contract.
m. PREMIUM -- A payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.
2. AUTHORIZATION AND APPOINTMENT
a. SCOPE OF AUTHORITY. State Farm hereby authorizes Distributor on an
exclusive basis, and Distributor accepts such authority, subject to
the registration requirements of the 1933 Act and the 1940 Act and
the provisions of the 1934 Act and conditions herein, to be the
distributor and principal underwriter for the sale of the Contracts to
the public in each state and other jurisdiction in which the
-2-
<PAGE>
Contracts may lawfully be sold during the term of this Agreement. The
Contracts shall be offered for sale and distribution at Premium rates
set from time to time by State Farm. Distributor shall use its best
efforts to market the Contracts actively subject to compliance with
applicable law, including the rules of the NASD. However, Distributor
shall not be obligated to sell any specific number or amount of
Contracts. Also, the parties acknowledge and agree that Distributor
may distribute variable insurance products and other investment
products for other companies.
b. LIMITS ON AUTHORITY. Distributor shall act as an independent
contractor and nothing herein contained shall constitute
Distributor or its agents, officers or employees as agents, officers
or employees of State Farm solely by virtue of their activities in
connection with the sale of the Contracts hereunder. Distributor and
its Representatives shall not have authority, on behalf of State Farm:
to make, alter or discharge any Contract or other insurance policy or
annuity entered into pursuant to a Contract; to waive any Contract
forfeiture provision; to extend the time of paying any Premium; or to
receive any monies or Premiums (except for the sole purpose of
forwarding monies or Premiums to State Farm). Distributor shall not
expend, nor contract for the expenditure of, the funds of State Farm.
Distributor shall not possess or exercise any authority on behalf of
State Farm other than that expressly conferred on Distributor by this
Agreement.
c. TRADEMARKS. An affiliate of State Farm, State Farm Mutual Automobile
Insurance Company, owns all right, title and interest in and to the
name, "State Farm," and has authorized State Farm to use and license
other persons to use such name. State Farm hereby grants to
Distributor a non-exclusive license to use the name "State Farm" in
its corporate name and in connection with its performance of the
services contemplated under this Agreement, subject to the termination
provisions in Section 9, and subject further to State Farm's right to
terminate this license at any time for any reason whatsoever. Upon
any such termination, Distributor shall promptly take steps to remove
the name "State Farm" from its corporate name and from all materials
bearing its name.
Distributor: (i) acknowledges and stipulates that State Farm's name is
a valid and enforceable trademark and/or service mark; and that
Distributor does not own State Farm's name and claims no rights
therein other than as a Distributor under this Agreement; (ii) agrees
never to contend otherwise in legal proceedings or in other
circumstances; and (iii) acknowledges and agrees that the use of State
Farm's name pursuant to this grant of license shall inure to the
benefit of State Farm.
-3-
<PAGE>
3. SOLICITATION ACTIVITIES
a. REPRESENTATIVES. No Representative shall solicit the sale of a
Contract unless at the time of such solicitation such individual is
duly registered with the NASD and duly licensed with all applicable
state insurance and securities regulatory authorities, and is duly
appointed as an insurance agent of State Farm.
b. SOLICITATION ACTIVITIES. All solicitation and sales activities
engaged in by Distributor and its Representatives with respect to the
Contracts shall be in compliance with all applicable federal and state
securities laws and regulations, as well as all applicable insurance
laws and regulations, and compliance manuals provided by State Farm.
In particular, without limiting the generality of the foregoing:
(1) Distributor shall train, supervise and be solely responsible for
the conduct of Representatives in their solicitation of
applications and Premiums and distribution of the Contracts
under, and shall supervise their compliance with, applicable
rules and regulations of any securities regulatory agencies that
have jurisdiction over variable insurance product activities.
(2) Neither Distributor nor any Representative shall offer, attempt
to offer, or solicit Applications for, the Contracts or deliver
the Contracts, in any state or other jurisdiction unless State
Farm has notified Distributor that such Contracts may lawfully be
sold or offered for sale in such state, and has not subsequently
revised such notice.
(3) Neither Distributor nor any Representative shall give any
information or make any representation in regard to a class of
Contracts in connection with the offer or sale of such class of
Contracts that is not in accordance with the Prospectus for such
class of Contracts, or in the then-currently effective prospectus
or statement of additional information for a Fund, or in current
advertising materials for such class of Contracts authorized by
State Farm.
(4) All Premiums paid by check or money order that are collected by
Distributor or any of its Representatives shall be remitted
promptly, and in any event within two business days after receipt
in full, together with any Applications, forms and any other
required documentation, to State Farm. Checks or money orders in
payment of Premiums shall be drawn to the order of State Farm.
If any Premium is held at any time by Distributor, Distributor
shall hold such Premium as an agent of State Farm and such
Premium shall be remitted promptly, and in any event within two
business days, to State Farm. Distributor acknowledges that all
such Premiums,
-4-
<PAGE>
whether by check, money order or wire, shall be the property of
State Farm. Distributor acknowledges that State Farm shall have
the unconditional right to reject, in whole or in part, any
Application or Premium.
c. SUITABILITY. State Farm and Distributor wish to ensure that the
Contracts sold by Distributor will be issued to purchasers for
whom the Contracts are suitable. Distributor shall require that the
Representatives have reasonable grounds to believe that a
recommendation to an applicant to purchase a Contract is suitable for
that applicant. Distributor shall review all applications for
suitability in accordance with Rule 2310 of the NASD Conduct Rules and
interpretations and guidance relating thereto. State Farm will review
all applications under the suitability standards set forth in variable
life insurance regulations adopted by states where the Contracts are
sold, and standards adopted by State Farm or as set forth in its
compliance and operational manuals. While not limited to the
following, a determination of suitability shall be based on
information furnished to a Representative after reasonable inquiry of
the applicant concerning his or her financial status, retirement
needs, reasons for purchasing a Contract, investment sophistication
and experience, other securities holdings, investment objectives
(including risk tolerance), investment time horizon and tax status.
d. REPRESENTATIONS AND WARRANTIES OF DISTRIBUTOR. Distributor represents
and warrants to State Farm that Distributor is and during the term of
this Agreement shall remain registered as a broker-dealer under the
1934 Act, admitted as a member with the NASD, and duly registered
under applicable state securities laws, and that Distributor is and
shall remain during the term of this Agreement in compliance with
Section 9(a) of the 1940 Act.
4. MARKETING MATERIALS
a. PREPARATION AND FILING. State Farm and Distributor shall together
design and develop all promotional, sales and advertising material
relating to the Contracts and any other marketing-related documents
for use in the sale of the Contracts, subject to review and approval
by Distributor of such material and documents in accordance with
Section 2210 of the NASD Conduct Rules. Distributor shall be
responsible for filing such material with the NASD and any state
securities regulatory authorities requiring such filings. State Farm
shall be responsible for filing all promotional, sales or advertising
material, as required, with any state insurance regulatory
authorities. State Farm shall be responsible for preparing the
Contract forms and filing them with applicable state insurance
regulatory authorities, and for preparing the Prospectuses and
Registration Statements and filing them with the SEC and state
regulatory authorities, to the extent required. The parties shall
notify each other expeditiously of any comments provided by the
-5-
<PAGE>
SEC, NASD or any securities or insurance regulatory authority on such
material, and will cooperate expeditiously in resolving and
implementing any comments, as applicable.
b. USE IN SOLICITATION ACTIVITIES. State Farm shall be responsible for
furnishing Distributor with such Applications, Prospectuses and other
materials for use by Distributor and Representatives in their
solicitation activities with respect to the Contracts. State Farm
shall notify Distributor of those states or jurisdictions which
require delivery of a statement of additional information with a
Prospectus to a prospective purchaser. Distributor or its
Representatives shall not use any promotional, sales or advertising
materials that have not been approved by State Farm.
5. COMPENSATION AND EXPENSES
a. COMPENSATION FOR SALES OF THE CONTRACTS. State Farm shall pay
compensation for sales of the Contracts in accordance with the
provisions of this Section 5 as follows:
(1) State Farm shall pay compensation for sales of the Contracts in
accordance with the Registered Representatives Agreements and the
compensation schedules attached thereto, and referenced in
Schedule 3 attached hereto as revised from time to time by
Distributor;
(2) State Farm will pay commissions to the Representatives as paying
agent on behalf of Distributor and will maintain the books and
records reflecting such payments in accordance with the
requirements of the 1934 Act on behalf of Distributor; and
(3) State Farm may delegate its responsibility to pay compensation or
commissions pursuant to this Section 5.a to any other insurer
affiliated with State Farm, in its discretion, provided such
insurer agrees to comply with the provisions hereof applicable to
the payment of such compensation or commissions.
b. EXPENSES RELATING TO THE CONTRACTS. Subject to the provisions of this
Section 5, State Farm shall pay any and all expenses in connection
with the Contracts including, but not limited to:
(1) the preparation and filing of each Registration Statement
(including each pre-effective and post-effective amendment
thereto) and the preparation and filing of each Prospectus
(including any preliminary and each definitive Prospectus);
-6-
<PAGE>
(2) the design, preparation and printing of all Prospectuses,
marketing materials, confirmations, reports and all other
materials prepared for or provided to Contract Owners or
prospective Contract Owners;
(3) the preparation, underwriting, issuance and administration of the
Contracts;
(4) any registration, qualification or approval or other filing of
the Contracts or Contract forms required under the securities or
insurance laws of the states in which the Contracts will be
offered; and
(5) all registration fees for the Contracts payable to the SEC.
c. EXPENSES OF DISTRIBUTOR. State Farm shall bear, as principal, all
expenses of Distributor, except for the responsibility and obligation
to pay compensation to Representatives, without any present or future
expectation or obligation of Distributor to incur such expenses as
principal, to pay for such expenses or to reimburse State Farm for
such expenses. Such expenses to be paid by State Farm shall include,
but not be limited to:
(1) all expenses for the preparation and filing of all contracts,
reports and other communications with federal, state and local
agencies;
(2) all legal fees, auditing fees and consulting fees;
(3) all fees and expenses associated with the licensing, training
and supervision of Representatives and other associated persons
of Distributor;
(4) all administrative, clerical, stenographic, data processing and
other support services expenses;
(5) all office supplies and equipment expenses;
(6) all expenses related to office space;
(7) all NASD, SEC and other regulatory registration fees, membership
fees and membership assessments for Distributor and for
Distributor's registered personnel; and
(8) all other corporate expenses of Distributor.
It is understood that, if Distributor enters into a distribution
agreement with another company affiliated with State Farm, State
Farm's obligations pursuant to
-7-
<PAGE>
this Section 5.c shall be allocated between State Farm and such other
company based on existing insurance or other regulations, agreements
and procedures.
d. NO RIGHTS TO COMPENSATION. Representatives shall have no interest in
this Agreement or right to any compensation to be paid to or on behalf
of Distributor hereunder. Distributor and Representatives shall have
no right to withhold or deduct any commission from any premiums in
respect of the Contracts which either of them may collect.
6. COMPLIANCE
a. MAINTAINING REGISTRATION AND APPROVALS. State Farm shall be
responsible for maintaining the registration of the Contracts with the
SEC and any state securities regulatory authority with which such
registration is required, and for gaining and maintaining approval of
the Contract forms where required under the insurance laws and
regulations of each state or other jurisdiction in which the Contracts
are to be offered.
b. CONFIRMATIONS AND 1934 ACT COMPLIANCE. State Farm, as agent for
Distributor, shall confirm to each applicant for, and purchaser of, a
Contract in accordance with Rule 10b-10 under the 1934 Act acceptance
of Premiums and such other transactions as are required by Rule 10b-10
or administrative interpretations thereunder. State Farm shall
maintain and preserve books and records with respect to such
confirmations in conformity with the requirements of Rules 17a-3 and
17a-4 under the 1934 Act to the extent such requirements apply. The
books, accounts and records of State Farm, the Variable Account and
Distributor as to all transactions hereunder shall be maintained so as
to disclose clearly and accurately the nature and details of the
transactions. State Farm shall maintain, as agent for Distributor,
such books and records of Distributor pertaining to the offer and sale
of the Contracts and required by the 1934 Act as may be mutually
agreed upon by State Farm and Distributor, including but not limited
to maintaining a record of Representatives and of the payment of
commissions and other payments or service fees to Representatives. In
addition, State Farm, as agent for Distributor, shall maintain and
preserve such additional accounts, books and other records as are
required of State Farm and Distributor by the 1934 Act. State Farm
shall maintain all such books and records and hold such books and
records on behalf of and as agent for Distributor whose property they
are and shall remain, and acknowledges that such books and records are
at all times subject to inspection by the SEC in accordance with
Section 17(a) of the 1934 Act, NASD, and all other regulatory bodies
having jurisdiction.
-8-
<PAGE>
c. REPORTS. Distributor shall cause State Farm to be furnished with such
reports as State Farm may reasonably request for the purpose of
meeting its reporting and record keeping requirements under the 1933
Act, the 1934 Act and the 1940 Act and regulations thereunder as well
as the insurance laws of the State of Illinois and any other
applicable states or jurisdictions.
d. ISSUANCE AND ADMINISTRATION OF CONTRACTS. State Farm shall be
responsible for issuing the Contracts and administering the Contracts
and the Variable Account, provided, however, that Distributor shall
have full responsibility for the securities activities of all persons
employed by State Farm, engaged directly or indirectly in the Contract
operations, and for the training, supervision and control of such
persons to the extent of such activities.
7. INVESTIGATIONS AND PROCEEDINGS
a. COOPERATION. Distributor and State Farm shall cooperate fully in any
securities or insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the offering, sale or
distribution of the Contracts distributed under this Agreement.
Without limiting the foregoing, State Farm and Distributor shall
notify each other promptly of any customer complaint or notice of any
regulatory investigation or proceeding or judicial proceeding received
by either party with respect to the Contracts.
b. CUSTOMER COMPLAINTS. Distributor shall comply with the reporting
requirements imposed by Section 3070 of the NASD Rules of Conduct with
regard to the sales of the Contracts. Without limiting the foregoing,
Distributor shall notify the NASD if Distributor or persons associated
with Distributor are the subject of any written customer complaint
involving allegations of theft, forgery or misappropriation of funds
or securities, or is the subject of any claim for damages by a
customer, broker, or dealer which is settled for an amount exceeding
$15,000.
8. INDEMNIFICATION
a. BY STATE FARM. State Farm shall indemnify and hold harmless
Distributor and any officer, director or employee of Distributor
against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted),
to which Distributor and/or any such person may become subject, under
any statute or regulation, any NASD rule or interpretation, at common
law or otherwise, insofar as such losses, claims, damages or
liabilities:
-9-
<PAGE>
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, contained in
any Registration Statement or in any Prospectus; provided that
State Farm shall not be liable in any such case to the extent
that such loss, claim, damage or liability arises out of, or is
based upon, an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon information
furnished in writing to State Farm by Distributor specifically
for use in the preparation of any such Registration Statement or
any amendment thereof or supplement thereto;
(2) result from any breach by State Farm of any provision of this
Agreement.
This indemnification agreement shall be in addition to any liability
that State Farm may otherwise have; provided, however, that no person
shall be entitled to indemnification pursuant to this provision if
such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
b. BY DISTRIBUTOR. Distributor shall indemnify and hold harmless State
Farm and any officer, director or employee of State Farm against any
and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which State
Farm and/or any such person may become subject under any statute or
regulation, any NASD rule or interpretation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(1) arise out of, or are based upon, any untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact required to be stated therein
or necessary in order to make the statements therein not
misleading, in light of the circumstances in which they were
made, contained in any Registration Statement or in any
Prospectus; in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon
information furnished in writing by Distributor to State Farm
specifically for use in the preparation of any such Registration
Statement or any amendment thereof or supplement thereto;
(2) result from any breach by Distributor of any provision of this
Agreement;
(3) result from Distributor's own misconduct or negligence.
-10-
<PAGE>
This indemnification shall be in addition to any liability that
Distributor may otherwise have; provided, however, that no person
shall be entitled to indemnification pursuant to this provision if
such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
c. GENERAL. Promptly after receipt by a party entitled to
indemnification ("indemnified person") under this Section 8 of notice
of the commencement of any action as to which a claim will be made
against any person obligated to provide indemnification under this
Section 8 ("indemnifying party"), such indemnified person shall notify
the indemnifying party in writing of the commencement thereof as soon
as practicable thereafter, but failure to so notify the indemnifying
party shall not relieve the indemnifying party from any liability
which it may have to the indemnified person otherwise than on account
of this Section 8. The indemnifying party will be entitled to
participate in the defense of the indemnified person but such
participation will not relieve such indemnifying party of the
obligation to reimburse the indemnified person for reasonable legal
and other expenses incurred by such indemnified person in defending
himself or itself.
The indemnification provisions contained in this Section 8 shall
remain operative in full force and effect, regardless of any
termination of this Agreement. A successor by law of Distributor or
State Farm, as the case may be, shall be entitled to the benefits of
the indemnification provisions contained in this Section 8.
9. TERMINATION. This Agreement shall terminate automatically if it is
assigned by Distributor without the prior written consent of State Farm.
This Agreement may be terminated at any time for any reason by either party
upon 60 days' written notice to the other party, without payment of any
penalty. (The term "assigned" shall not include any transaction exempted
from Section 15(b)(2) of the 1940 Act.) This Agreement may be terminated
at the option of either party to this Agreement upon the other party's
material breach of any provision of this Agreement or of any representation
or warranty made in this Agreement, unless such breach has been cured
within 10 days after receipt of notice of breach from the non-breaching
party. Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the following: (1) the obligation to settle
accounts hereunder, including commissions on Premiums subsequently received
for Contracts in effect at the time of termination or issued pursuant to
Applications received by State Farm prior to termination; (2) the
provisions contained in Section 8 regarding indemnification; and (3) the
provisions contained in Section 3(b)(4) regarding the remittance of
premiums. In the event of any termination for any reason, all Prospectuses
or marketing materials held by Distributor shall promptly be returned to
State Farm free from any claim or retention of rights by Distributor, and
any books and records held or maintained by State Farm on behalf of
Distributor shall be returned to Distributor free from any claim or
retention of rights by State Farm. Furthermore, if so requested by State
Farm, upon
-11-
<PAGE>
termination of this Agreement, Distributor shall eliminate all reference to
the name "State Farm," including removing the name from Distributor's
corporate name, and shall refrain from using the name "State Farm" in any
form or combination whatsoever, in connection with its business activities.
10. MISCELLANEOUS
a. BINDING EFFECT. This Agreement shall be binding on, and shall inure
to the benefit of, the respective successors and assigns of the
parties hereto provided that neither party shall assign this Agreement
or any rights or obligations hereunder without the prior written
consent of the other party.
b. SCHEDULES. The parties to this Agreement may amend Schedules 1 and 2
to this Agreement from time to time to reflect additions of any class
of Contracts and Variable Accounts. The provisions of this Agreement
shall be equally applicable to each such class of Contracts and each
Variable Account that may be added to the Schedule, unless the context
otherwise requires. State Farm and Distributor may modify Schedule 3
as mutually agreed in writing from time to time. Any other change in
the terms or provisions of this Agreement shall be by written
agreement between State Farm and Distributor.
c. RIGHTS, REMEDIES, ETC, ARE CUMULATIVE. The rights, remedies and
obligations contained in this Agreement are cumulative and are in
addition to any and all rights, remedies and obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws. Failure of either party to insist upon strict
compliance with any of the conditions of this Agreement shall not be
construed as a waiver of any of the conditions, but the same shall
remain in full force and effect. No waiver of any of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of
any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
d. NOTICES. All notices hereunder are to be made in writing and shall be
given:
if to State Farm, to:
if to Distributor, to:
-12-
<PAGE>
or such other address as such party may hereafter specify in writing.
Each such notice to a party shall be either hand delivered or
transmitted by registered or certified United States mail with return
receipt requested, or by overnight mail by a nationally recognized
courier, and shall be effective upon delivery.
e. INTERPRETATION; JURISDICTION. This Agreement constitutes the whole
agreement between the parties hereto with respect to the subject
matter hereof, and supersedes all prior oral or written
understandings, agreements or negotiations between the parties with
respect to such subject matter. No prior writings by or between the
parties with respect to the subject matter hereof shall be used by
either party in connection with the interpretation of any provision of
this Agreement.
f. SEVERABILITY. This is a severable Agreement. In the event that any
provision of this Agreement would require a party to take action
prohibited by applicable federal or state law or prohibit a party from
taking action required by applicable federal or state law, then it is
the intention of the parties hereto that such provision shall be
enforced to the extent permitted under the law, and, in any event,
that all other provisions of this Agreement shall remain valid and
duly enforceable as if the provision at issue had never been a part
hereof.
g. SECTION AND OTHER HEADINGS. The headings in this Agreement are
included for convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect their
construction or effect.
h. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and
the same instrument.
i. REGULATION. This Agreement shall be subject to the provisions of the
1933 Act, 1934 Act and 1940 Act and the regulations thereunder and the
rules and regulations of the NASD, from time to time in effect,
including the conditions of any exemptions therefrom as the SEC or
NASD may grant, and the terms hereof shall be interpreted and
construed in accordance therewith.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their authorized officers designated below as of the date specified
above.
STATE FARM LIFE AND ACCIDENT ASSURANCE
COMPANY
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
STATE FARM VP MANAGEMENT CORP.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
-14-
<PAGE>
SCHEDULE 1
Accounts of the Company
Effective as of the date the Agreement was executed, the following separate
accounts of State Farm are subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Established Type of Product
Name of Account by Board of SEC 1940 Act Supported by
and Subaccounts Directors of the Registration Account
Company Number
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
State Farm Life December 9, 1996 Variable Annuity
and Accident
Assurance Company
Variable Annuity
Separate Account
- --------------------------------------------------------------------------------
State Farm Life December 9, 1996 Variable Life
and Accident
Assurance
Company Variable
Life Separate
Account
- --------------------------------------------------------------------------------
</TABLE>
Effective as of ___________, the following separate accounts of State Farm are
hereby added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date Established Type of Product
Name of Account by Board of SEC 1940 Act Supported by
and Subaccounts Directors of the Registration Account
Company Number
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Distributor and State Farm hereby amend this Schedule 1
in accordance with Section 10. b. of the Agreement.
- --------------------------------- ---------------------------------
State Farm VP Management Corp. State Farm Life and Accident
Assurance Company
<PAGE>
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contract SEC 1933 Act Name of Supporting
Marketing Name Registration Account Annuity or Life
Number
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
State Farm State Farm Life Annuity
Variable Deferred and Accident
Annuity Assurance
Company Variable
Annuity Separate
Account
- --------------------------------------------------------------------------------
State Farm State Farm Life Life
Variable and Accident
Universal Life Assurance Company
Variable Life
Separate Account
- --------------------------------------------------------------------------------
</TABLE>
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Contract SEC 1933 Act Name of Supporting
Marketing Name Registration Account Annuity or Life
Number
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, the Distributor and State Farm hereby amend this Schedule 2
in accordance with Section 10.b. of the Agreement.
- -------------------------------- ---------------------------
State Farm VP Management Corp. State Farm Life and Accident Assurance
Company
<PAGE>
SCHEDULE 3
COMPENSATION OF REPRESENTATIVES
Effective as of the date the Agreement was executed, compensation payable to a
Representative for the sale of Contracts shall be determined based on the
compensation schedules attached to the Registered Representatives Agreement with
such Representative as in effect at the time of the sale
<PAGE>
ANNUITANT JOHN J DOE
(Male)
AGE 45
POLICY NUMBER AS-0000-0000
POLICY DATE October 15, 1998
This policy is based on the application and the payment of the initial premium
shown on page 3. State Farm Life and Accident Assurance Company will pay
benefits according to the terms of this policy.
10-DAY RIGHT TO EXAMINE THE POLICY. This policy may be returned within 10 days
of its receipt for a refund of the greater of (1) all premiums paid and (2) the
Policy Accumulation Value. Return may be made to State Farm Life and Accident
Assurance Company or one of its authorized agents. If returned, this policy will
be void from the policy date.
READ THIS POLICY WITH CARE. This is a legal contract between the Owner and State
Farm Life and Accident Assurance Company.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS POLICY MAY INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT PERFORMANCE OF THE SUBACCOUNTS. THE AMOUNT
OF ANY VARIABLE ANNUITY PAYMENT WILL NOT DECREASE AS LONG AS THE NET ASSET VALUE
PER SHARE INCREASES BY AT LEAST 4.81% PER YEAR.
A DEATH BENEFIT IS PROVIDED. THE PART OF THE POLICY ACCUMULATION VALUE IN THE
SUBACCOUNTS IS NOT GUARANTEED. A MORTALITY AND EXPENSE RISK CHARGE WILL BE MADE
AGAINST THE NET ASSET VALUE AT AN ANNUAL RATE NOT TO EXCEED 1.25%.
/s/ Laura P. Sullivan /s/ Edward B. Rust, Jr.
Secretary President
- --------------------------------------------------------------------------------
BASIC PLAN DESCRIPTION
VARIABLE DEFERRED ANNUITY
Flexible premiums are payable until the Annuity Date while the Annuitant is
alive. Payment intervals for annuity payments start on the Annuity Date. This
policy is participating.
- --------------------------------------------------------------------------------
PAGE 1
<PAGE>
CONTENTS
PAGE
POLICY IDENTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SCHEDULE OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
PREMIUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
INVESTMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
PREMIUM ALLOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
CHARGES AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Owner. Change of Owner/Successor Owner.
Successor Owner.
PREMIUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Payment of Premiums. Paid-up Annuity.
VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Variable Account. Accumulation Units.
Subaccounts. Accumulation Unit Value.
Changes to the Variable Account. Net Investment Factor.
Variable Policy Accumulation Value.
FIXED ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Fixed Policy Accumulation Interest Credited.
Value.
ALLOCATIONS AND TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . 10
Premium Allocation. Fixed Account Transfer Restrictions.
Transfer Right.
SURRENDERS AND WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . 10
Surrenders. Withdrawals.
FEES AND CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Surrender Charge. Transfer Processing Fee.
Annual Administrative Fee.
ANNUITY PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Annuity Payments. Evidence of Living.
Annuity Options. Amount of Fixed Annuity Payments.
Basis of Computation. Amount of Variable Annuity Payments.
Payment Interval. Annuity Units.
Proof of Age and Sex. Annuity Unit Value.
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Death Benefit. Death of Owner.
Death of Annuitant.
BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Beneficiary Designation. Order of Payment.
Change of Beneficiary Designation.
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Contract. Error in Age or Sex.
Transaction Delay. Incontestability.
Minimum Value. Annual Report.
Assignment. Participation.
THE APPLICATION AND ANY RIDERS AND ENDORSEMENTS FOLLOW PAGE 18.
PAGE 2
<PAGE>
P O L I C Y I D E N T I F I C A T I O N
Annuitant JOHN J DOE Age 45
(Male)
Policy Number AS-0000-0000
Policy Date October 15, 1998
Issue Date October 15, 1998
S C H E D U L E O F B E N E F I T S
Form Description
A97040 Basic Plan
(Variable Deferred Annuity)
P R E M I U M
Initial Premium: $l,000.00
I N T E R E S T R A T E S
The current interest rate applied to the part of the Initial Premium allocated
to the Fixed Account until October 15, 1999 is 4.90% a year. The current
interest rate and guarantee period when a subsequent part of the premium
allocated to the Fixed Account is received will be applied to that premium. At
the end of this and each subsequent guarantee period, a new current interest
rate and guarantee period are applicable. Each guarantee period will be at least
one year.
Guaranteed Interest Rate for the Fixed Account: 3%
A L L O C A T I O N O P T I O N S
Fixed Account
State Farm Life and Accident Assurance Company Variable Annuity Separate
Account Subaccounts that invest in Funds of the State Farm Variable
Product Trust:
Large Cap Equity Index Subaccount
Small Cap Equity Index Subaccount
International Equity Index Subaccount
Stock and Bond Balanced Subaccount
Bond Subaccount
Money Market Subaccount
Continued on Next Page
Page 3
<PAGE>
Continued from Page 3
P R E M I U M A L L O C A T I O N
To the end of the day on November 3, 1998 (presumed end of free-look period):
Fixed Account 100%
Starting at the end of the day on November 3, 1998
Large Cap Equity Index Subaccount 15%
Small Cap Equity Index Subaccount 15%
International Equity Index Subaccount 15%
Stock and Bond Balanced Subaccount 15%
Bond Subaccount 15%
Money Market Subaccount 15%
Fixed Account 10%
Minimum percent of each premium allocated to a Subaccount or to the Fixed
Account: 1%.
Minimum Transfer Amount: $250
Minimum Withdrawal Amount: $500
Page 3 Continued
<PAGE>
C H A R G E S A N D F E E S
Annual Administrative Fee: $30 This fee will be waived if premiums in excess of
$50,000 have been paid.
Maximum Transfer Processing Fee after first 12 in a policy year: $25
Table of Surrender Charges
Surrender
Policy Charge
Year Percentage
1 7
2 6
3 5
4 4
5 3
6 2
7 1
8 & over 0
Page 4
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
WE, US, and OUR refer to State Farm Life and Accident Assurance Company.
YOU and YOUR refer to the Owner.
ACCUMULATION UNIT. A unit of measure used to calculate the Variable Policy
Accumulation Value.
ANNUITY DATE. You may choose this date which can be no later than the Final
Annuity Date. If a death benefit is payable and an annuity option is chosen, the
Annuity Date will be the date we receive due proof of the Annuitant's Death.
Payment intervals start on this date. The first annuity payment is at the end of
the first payment interval.
ANNUITY UNIT. A unit of measure used to calculate the Variable Annuity Payments.
CASH SURRENDER VALUE. The Policy Accumulation Value less any applicable
Surrender Charge and less any applicable Annual Administrative Fee.
CODE. The U.S. Internal Revenue Code.
DOLLARS. Any money we pay, or which is paid to us, must be in United States
dollars.
EFFECTIVE DATE. Coverage starts on this date.
FINAL ANNUITY DATE. The policy anniversary when the Annuitant is age 90.
FIXED ACCOUNT. Part of our General Account to which the Policy Accumulation
Value may be transferred or premium payments may be allocated under a policy.
FIXED ANNUITY PAYMENT. Annuity payment supported by the General Account. Payment
does not vary in amount from one payment to the next.
FIXED POLICY ACCUMULATION VALUE. The Policy Accumulation Value in the Fixed
Account.
FUND. Any open-end management investment company or investment portfolio
thereof, or unit investment trust or series, thereof, in which a Subaccount
invests.
GENERAL ACCOUNT. Our assets not allocated to the Variable Account or any other
separate account.
NET ASSET VALUE PER SHARE. The value per share of any Fund on any Valuation Day.
The method of computing the Net Asset Value Per Share is described in the
prospectus for the Funds.
OFFICER. The president, a vice president, the secretary, or an assistant
secretary of State Farm Life and Accident Assurance Company.
PAYEE. If the Annuitant dies prior to the Annuity Date and a death benefit is
payable, the beneficiaries shown in the application, unless changed. If you cash
surrender this policy, the persons that you have named. A payee can be other
than a natural person only if we agree.
POLICY ACCUMULATION VALUE. The sum of the Variable Policy Accumulation Value and
the Fixed Policy Accumulation Value.
POLICY DATE. The effective date of this policy.
POLICY MONTH, YEAR, OR ANNIVERSARY. A policy month, year, or anniversary is
measured from the policy date.
REQUEST. A written request signed by the person making the request. Such request
must be sent to and be in a form acceptable to us. We may, in our sole
discretion, accept telephone requests in connection with certain transactions.
We may also, in our sole discretion, adopt rules and procedures from time to
time for telephone requests.
RIDER. Any benefit, other than the Basic Plan, made a part of this policy.
SEC. The U.S. Securities and Exchange Commission.
SUBACCOUNT. A subdivision of the Variable Account, the assets of which are
invested in a corresponding Fund.
PAGE 5
<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS (CONTINUED)
- --------------------------------------------------------------------------------
SUBACCOUNT POLICY ACCUMULATION VALUE. The Policy Accumulation Value in a
Subaccount as defined in the Accumulation Unit Value provision.
VALUATION DAY. For each Subaccount, each day on which the New York Stock
Exchange is open for business except for certain holidays listed in the
Prospectus and days on which a Subaccount's corresponding Fund does not value
its shares.
VALUATION PERIOD. The period that starts at the close of regular trading on the
New York Stock Exchange on any Valuation Day and ends at the close of regular
trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT. Our separate account named on page 3.
VARIABLE ANNUITY PAYMENT. Annuity payment that may vary in amount from one
payment to the next with the investment experience of one or more Subaccounts
chosen by you to support such payments.
VARIABLE POLICY ACCUMULATION VALUE. The sum of all Subaccount Policy
Accumulation Values.
- --------------------------------------------------------------------------------
OWNERSHIP PROVISIONS
- --------------------------------------------------------------------------------
OWNER. You, as the Owner, are named in the application. You may exercise any
policy provision only by request and while the Annuitant is alive.
SUCCESSOR OWNER. Your Successor Owner is named in the application if you are not
the Annuitant.
CHANGE OF OWNER/SUCCESSOR OWNER. You may change the Owner or Successor Owner by
sending us a request while the Annuitant is alive. We have the right to request
this policy to make the change on it. The change will take effect the date you
sign the request, but the change will not affect any action we have taken before
we receive the request. A change of owner or successor owner does not change the
beneficiary designation. No more than two owners and/or successor owners can be
named.
- --------------------------------------------------------------------------------
PREMIUM PROVISIONS
- --------------------------------------------------------------------------------
PAYMENT OF PREMIUMS. You may pay premiums at our Home Office, a regional office,
or to one of our authorized agents. We will give you a receipt signed by one of
our officers, if you request one.
The initial premium is shown on page 3 and is due on the policy date. Premiums
may be paid at any time before the Annuity Date even if you have discontinued
premium payments. After payment of the initial premium, premium payments are not
required to continue this policy in force. Each premium must be at least $50.
The total premium paid in a policy year after the first may not exceed $30,000,
unless we set a higher limit.
PAID-UP ANNUITY. If premium payments stop, the accumulation value will
accumulate as provided in the Variable Policy Accumulation Value and Fixed
Policy Accumulation Value provisions. A life annuity will be paid to you as
provided in the Annuity Payment Provisions. The present value of such life
annuity will equal the Policy Accumulation Value on the Annuity Date.
PAGE 6
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT PROVISIONS
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT. The Variable Account is registered with the SEC as a unit
investment trust under the Investment Company Act of 1940, as amended (the
"Act"). The Variable Account is also subject to the laws of the state of
Illinois, our state of domicile. We own the assets of the Variable Account;
however, these assets are held separately from our other assets and are not part
of our General Account. The assets of the Variable Account are used to support
the operation of and provide the variable values and benefits for this policy
and similar policies. The part of the assets of the Variable Account equal to
the reserves and other policy liabilities of the Variable Account are not
chargeable with liabilities from any other business in which we take part. We
have the right to transfer to our General Account any assets of the Variable
Account that are in excess of such reserves and other liabilities.
SUBACCOUNTS. The Variable Account consists of Subaccounts. The income, gains and
losses, realized and unrealized, from the assets allocated to the Subaccount are
credited to or charged against such Subaccount, without regard to our other
income, gains or losses. Those Subaccounts currently available under this policy
on the policy date are shown on page 3. Each Subaccount invests exclusively in
shares of a corresponding Fund. Shares of a Fund are bought and redeemed for a
Subaccount at their net asset value. Any amounts of income, dividends, and gains
distributed from the shares of a Fund are reinvested in additional shares of
that Fund at net asset value. The dollar amounts of values and benefits of this
policy supported by the Variable Account depend on the investment performance of
the Subaccounts selected by you. We do not guarantee the investment performance
of the Subaccounts. You bear the full investment risk for the Subaccount Policy
Accumulation Value in the Subaccounts you have chosen.
CHANGES TO THE VARIABLE ACCOUNT. Where permitted by applicable law, we may:
(1) create new separate accounts;
(2) combine separate accounts, including the Variable Account;
(3) add new Subaccounts to or remove existing Subaccounts from the
Variable Account or combine Subaccounts;
(4) make any Subaccount available to such classes of policies as we may
determine:
(5) add new Funds or remove existing Funds;
(6) substitute new Funds for any existing Fund if shares of the Fund are
no longer available for investment or if we determine investment in a
Fund is no longer appropriate in light of the purposes of the Variable
Account;
(7) deregister the Variable Account under the Act if such registration is
no longer required; and
(8) operate the Variable Account as a management
investment company under the Act or in any other form permitted by
law.
The investment policy of the Variable Account will only be changed with the
approval of the insurance supervisory official of the state of Illinois, our
state of domicile. The investment policy of the Variable Account is to invest in
one or more investment companies. The process for such approval is on file.
VARIABLE POLICY ACCUMULATION VALUE. The Variable Policy Accumulation Value
reflects:
(1) the net investment experience of the Subaccounts to which it is
allocated:
(2) any premium payments allocated to the Subaccounts,
(3) any dividend transferred to the Subaccounts;
(4) transfers of Policy Accumulation Value in or out of the Subaccounts
and any applicable transfer charge deducted;
(5) the deduction of the part of the Annual Administrative Fee allocated
to the Subaccounts;
(6) any withdrawals of the Variable Policy Accumulation Value; and
(7) any applicable surrender charges deducted from the Subaccounts.
There is no guaranteed minimum Variable Policy Accumulation Value.
ACCUMULATION UNITS. For each Subaccount, premium payments allocated to a
Subaccount or amounts of Policy Accumulation Value or dividends transferred to a
Subaccount are converted into Accumulation Units. The number of Accumulation
Units credited to a policy equals the
PAGE 7
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
dollar amount directed to each Subaccount divided by the value of the
Accumulation Unit for that Subaccount for the Valuation Period as of which the
dollar amount is invested in the Subaccount. Any dollar amount directed to a
Subaccount increases the number of Accumulation Units of that Subaccount
credited to the policy.
Certain events will cancel an appropriate number of Accumulation Units of a
Subaccount credited to a policy:
(1) withdrawals of Subaccount Policy Accumulation Value from a Subaccount
and any applicable surrender charges deducted;
(2) transfers of Subaccount Policy Accumulation Value from a Subaccount
and any applicable transfer processing fee deducted;
(3) surrender of the policy;
(4) payment of the Death Benefit;
(5) application of the Variable Accumulation Value to an annuity payment
option on the Annuity Date; and
(6) deduction of the part of the Annual Administrative Fee allocated to a
Subaccount.
Accumulation Units are cancelled as of the end of the Valuation Period in which
the event occurs.
ACCUMULATION UNIT VALUE. The Accumulation Unit values for each Subaccount were
arbitrarily set initially at $10 when that Subaccount began operation.
Thereafter, the Accumulation Unit value for every Valuation Period is the
Accumulation Unit value at the end of the previous Valuation Day times the Net
Investment Factor. The Subaccount Accumulation Value on any day equals the
number of Accumulation Units attributable to the policy times the Accumulation
Unit Value for that Subaccount on that day.
NET INVESTMENT FACTOR. The Net Investment Factor is an index applied to measure
the investment performance of a Subaccount from one Valuation Period to the
next. The Net Investment Factor for any Subaccount for any Valuation Period is
equal to (1) divided by (2) and subtracting (3) from the result, where:
(1) is the result of:
(a) the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the current Valuation Period; plus
(b) the per share amount of any dividend or capital gain distribution
made by the Fund held in the Subaccount, if the "ex-dividend"
date occurs during the Valuation Period; plus or minus
(c) a per share charge or credit for any taxes reserved for.
(2) is the Net Asset Value Per Share of the Fund held in the Subaccount,
determined at the end of the prior Valuation Period.
(3) is a daily factor representing the mortality and expense risk charge
deducted from the Subaccount adjusted for the number of days in the
Valuation Period. Such charge will not exceed an annual rate of
1.25% of the daily net asset value of the Variable Account.
PAGE 8
<PAGE>
- --------------------------------------------------------------------------------
FIXED ACCOUNT PROVISIONS
- --------------------------------------------------------------------------------
FIXED POLICY ACCUMULATION VALUE. The Fixed Policy Accumulation Value on the
policy date is zero.
The Fixed Policy Accumulation Value on any other day equals:
(1) aggregate premium payments allocated to the Fixed Account; plus
(2) Policy Accumulation Value transferred to the Fixed Account; plus
(3) interest credited to the Fixed Account; plus
(4) any dividend transferred to the Fixed Account; less
(5) any withdrawals and any applicable surrender charges deducted from the
Fixed Account: less
(6) transfers and any applicable transfer processing fee deducted from the
Fixed Account; less
(7) the part of the Annual Administrative Fees deducted from the Fixed
Policy Accumulation Value. Interest Credited. Each interest rate is
expressed as an effective annual interest rate. We guarantee to credit
interest to the Fixed Policy Accumulation Value at an effective annual
rate of not less than the Guaranteed Interest Rate shown on page 3.
The current interest rate is the Guaranteed Interest Rate plus any
excess interest rate. The current interest rate and the guarantee
period for that rate are determined periodically. Each guarantee
period will be at least one year.
The current interest rate and guarantee period for the Initial Premium are shown
on page 3. At the end of this and each subsequent guarantee period, a new
current interest rate and guarantee period are applicable.
The current interest rate and guarantee period in effect when a subsequent part
of the premium is received and allocated to the Fixed Account or the date Policy
Accumulation Value is transferred to the Fixed Account will be applied to that
amount. At the end of this and each subsequent guarantee period, a new current
interest rate and guarantee period are applicable.
PAGE 9
<PAGE>
- --------------------------------------------------------------------------------
ALLOCATION AND TRANSFERS PROVISIONS
- --------------------------------------------------------------------------------
ALLOCATION OF PREMIUM. You may allocate premium payments among the Subaccounts
and the Fixed Account.
The allocation for the Initial Premium and any premiums we receive prior to the
end of the free-look period is shown on page 3. For purposes of this provision,
we presume your free-look period will end on the date shown on page 3. On that
date, any Policy Accumulation Value will be transferred to the Subaccounts and
the Fixed Account on a pro-rata basis using your premium allocation instructions
in effect at that time. Any additional premium received will be allocated
according to your premium allocation instructions in the application or in a
subsequent request.
Allocation instructions must be in whole percentages. The minimum amount we can
allocate to any Subaccount or the Fixed Account is shown on page 3 as a percent
of any premium. We reserve the right to set additional limitations on premium
allocations.
TRANSFER RIGHT. While the Annuitant is alive and on or before the Annuity Date,
you may request to transfer all or part of any Subaccount Policy Accumulation
Value to another Subaccount(s) (subject to availability) or to the Fixed
Account, or transfer all or part of the Fixed Policy Accumulation Value to any
Subaccount(s), (subject to availability and restrictions). Transfers are subject
to the lesser of:
(1) the minimum transfer amount shown on page 3; and
(2) the entire Subaccount Policy Accumulation Value or Fixed Policy
Accumulation Value,
and the additional restrictions on transfers from the Fixed Policy Accumulation
Value.
While the Annuitant is alive and after the Annuity Date, you may request to
transfer Annuity Units from one Subaccount to another Subaccount no more than 4
times a year.
We reserve the right to modify, restrict, suspend, or eliminate the transfer
right at any time, for any reason.
FIXED ACCOUNT TRANSFER RESTRICTIONS. On or before the Annuity Date, you may
transfer all or part of the Fixed Policy Accumulation Value to a Subaccount,
subject to the following:
(1) You may make only one transfer each policy year from the Fixed Account
to one or more Subaccounts. Such a transfer must be made within 30
days after the policy anniversary. An unused transfer does not carry
over to the next year; and
(2) The maximum transfer amount is the greater of 25% of the Fixed Policy
Accumulation Value on the date of the transfer or $1,000, unless
waived by us.
After the Annuity Date, any Cash Surrender Value used to provide fixed income
payments may not be transferred to provide Annuity Units in any Subaccount; and
any Cash Surrender Value used to provide variable income payments may not be
transferred to provide fixed income payments.
- --------------------------------------------------------------------------------
SURRENDERS AND WITHDRAWALS PROVISIONS
- --------------------------------------------------------------------------------
SURRENDERS. You may request surrender of this policy at any time prior to the
earlier of the Annuity Date or the date the Annuitant dies. This policy will
terminate on the date we receive your request or on a later date if you so
request it. We will pay you the Cash Surrender Value in one sum unless you
choose an annuity option or another method of payment then available. The Cash
Surrender Value of this policy is its Policy Accumulation Value less any
applicable surrender charge less any applicable Annual Administrative Fee. See
the Surrender Charge provision regarding the surrender charges applicable. We
may defer payment from the Fixed Account of any Cash Surrender Value for up to 6
months after receiving your request unless paid under Annuity Option 1, 2, or 3.
PAGE 10
<PAGE>
- --------------------------------------------------------------------------------
SURRENDERS AND WITHDRAWALS PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
WITHDRAWALS. Prior to the Annuity Date, you may request to withdraw part of the
Cash Surrender Value. The amount you request to withdraw must be at least the
minimum withdrawal amount shown on page 3 and must be less than the Cash
Surrender Value. The total amount withdrawn will include the amount you request
plus any applicable surrender charge. The surrender charge is based on the
schedule of surrender charges and the total amount withdrawn, which includes the
surrender charge. We may defer payment from the Fixed Account of any withdrawal
for up to 6 months after receiving your request.
Unless you request otherwise, amounts withdrawn and any applicable surrender
charges deducted are taken from Subaccount Policy Accumulation Values and Fixed
Policy Accumulation Value on a pro-rata basis.
- --------------------------------------------------------------------------------
FEES AND CHARGES PROVISIONS
- --------------------------------------------------------------------------------
SURRENDER CHARGE. The surrender charge percentages are shown on page 4. A
surrender charge may be applicable if you surrender the policy or make a
withdrawal. If you surrender the policy, the amount of the surrender charge is
the surrender charge percentage time the Policy Accumulation Value subject to a
surrender charge. If you request a withdrawal, the amount of the surrender
charge is the surrender charge percentage times the total amount withdrawn
subject to a surrender charge. The total surrender charge deducted cannot exceed
8 1/2 % of the total premiums paid.
There is no surrender charge after the end of the first five policy years if the
Cash Surrender Value is then paid under Annuity Option 1, 2, or 3.
After the first policy year, a total of 10% of the Policy Accumulation Value at
the end of the previous policy year may be withdrawn in a policy year without a
deduction for a surrender charge. The 10% of Policy Accumulation Value that may
be withdrawn in a policy year without a deduction for a surrender charge is not
cumulative from one policy year to the next.
ANNUAL ADMINISTRATIVE FEE. We will deduct an administrative fee on
(1) each policy anniversary prior to the Annuity Date,
(2) the day of any surrender if the surrender is not on the policy
anniversary, or
(3) the Annuity Date
The amount of the fee and any waivers are shown on page 4.
The fee will be deducted from Subaccount Accumulation Values and Fixed
Account Accumulation Values on a pro-rata basis.
TRANSFER PROCESSING FEE. A number of transfers during each policy year are free
as shown on page 4. We reserve the right to assess a transfer fee for each
transfer in excess of that number during a policy year. The maximum fee is shown
on page 4. For the purpose of assessing this fee, each request is considered one
transfer, regardless of the number of Subaccounts affected by the transfer. This
fee is deducted on a pro-rata basis from each Subaccount and the Fixed Account
from which you request a transfer.
PAGE 11
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS
- --------------------------------------------------------------------------------
ANNUITY PAYMENTS. On or before the Final Annuity Date, an Annuity Date must be
chosen. If a death benefit is payable and an annuity option is chosen, the
Annuity Date will be the date we receive due proof of the Annuitant's Death. The
annuity option and whether annuity payments will be variable, fixed, or a
combination of variable and fixed must be chosen on or before the Annuity Date.
On the Annuity Date, the Cash Surrender Value or the Death Benefit will be used
to provide annuity payments. On the Final Annuity Date, we will use Annuity
Option 1 for payment of the Cash Surrender Value if no choice is made. Unless
otherwise requested, any part of the Cash Surrender Value or Death Benefit
attributable to any Subaccount Policy Accumulation Value will be used to
determine Annuity Units under that Subaccount; and any part of the Cash
Surrender Value or Death Benefit attributable to the Fixed Policy Accumulation
Value will be used to provide a fixed annuity income. If this policy has been in
force for at least five policy years and Annuity Option 1, 2 or 3 are used, no
surrender charge will be deducted from the Policy Accumulation Value.
ANNUITY OPTIONS. The available annuity options are:
ANNUITY OPTION 1- LIFE ANNUITY. Payments attributable to the Cash Surrender
Value will be made to you at the end of each payment interval as long as the
Annuitant lives. Payments attributable to the Death Benefit will be made to the
Payee at the end of each payment interval as long as the Payee lives. The
present value of payments may not be withdrawn.
- --------------------------------------------------------------------------------
ANNUITY OPTION 1
- --------------------------------------------------------------------------------
Guaranteed minimum monthly payment factors per $1000. Payment
factors for ages and payment intervals not shown will be given, if requested.
- --------------------------------------------------------------------------------
EXACT
AGE MALE FEMALE
- --------------------------------------------------------------------------------
50 $4.34 $4.02
55 4.70 4.31
60 5.17 4.69
65 5.82 5.20
70 6.73 5.90
75 8.01 6.92
80 9.80 8.43
85 12.34 10.70
90 15.81 14.08
95 20.44 18.79
- --------------------------------------------------------------------------------
ANNUITY OPTION 2 - LIFE ANNUITY WITH CERTAIN PERIOD. Payments attributable to
the Cash Surrender Value will be made to you at the end of each payment interval
as long as the Annuitant lives or to the end of the certain period, if longer.
Payments attributable to the Death Benefit will be made to the Payee at the end
of each payment interval as long as the Payee lives or the end of the certain
period, if longer. The present value of any payments may not be withdrawn unless
the Annuitant or Payee dies. The certain period can be any number of years from
5 to 20. The number of years must be chosen if this annuity option is chosen.
- --------------------------------------------------------------------------------
ANNUITY OPTION 2
- --------------------------------------------------------------------------------
Guaranteed minimum monthly payment factors per $1000 for a life
annuity with a 10 year certain period. Payment factors for ages, payment
intervals, and certain periods not shown will be given, if requested.
- --------------------------------------------------------------------------------
EXACT
AGE MALE FEMALE
- --------------------------------------------------------------------------------
50 $4.30 $4.01
55 4.64 4.28
60 5.07 4.64
65 5.63 5.11
70 6.34 5.73
75 7.17 6.52
80 8.05 7.48
85 8.82 8.45
90 9.37 9.19
95 9.69 9.61
- --------------------------------------------------------------------------------
PAGE 12
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
ANNUITY OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY. Payments
attributable to the Cash Surrender Value will be paid to you at the end of
each payment interval as long as at least the Annuitant or a second
designated person is alive. Payments attributable to the Death Benefit will
be paid to the Payee at the end of each payment interval as long as at least
the Payee or a second designated person is alive. The second designated
person must be named by you on or before the Annuity Date. The present value
of any payments may not be withdrawn.
- --------------------------------------------------------------------------------
ANNUITY OPTION 3
- --------------------------------------------------------------------------------
Guaranteed minimum monthly payment factors per $1000. Payment factors for age
combinations and payment intervals not shown will be given, if requested.
- --------------------------------------------------------------------------------
EXACT FEMALE
AGE 60 65 70 75
MALE
- --------------------------------------------------------------------------------
60 $4.27 $4.47 $4.66 $4.82
65 4.39 4.66 4.93 5.19
70 4.49 4.82 5.20 5.58
75 4.56 4.95 5.42 5.95
- --------------------------------------------------------------------------------
ANNUITY OPTION 4 - FIXED YEARS. Payments attributable to the Cash
Surrender Value will be made to you at the end of each payment interval for
the number of years chosen. Payments attributable to the Death Benefit will
be made to the Payee at the end of each payment interval for the number of
years chosen. The number of years can be from 5 to 30. Withdrawals can be
made in addition to the payments under this option. If a withdrawal is made,
the number of remaining payments will be reduced.
- --------------------------------------------------------------------------------
ANNUITY OPTION 4
- --------------------------------------------------------------------------------
Guaranteed minimum monthly payment factors per $1000 for the number of years
chosen. Payments for years not shown will be given, if requested.
- --------------------------------------------------------------------------------
YEARS PAYMENTS YEARS PAYMENTS
- --------------------------------------------------------------------------------
1 $84.90 8 $11.93
2 43.18 9 10.78
3 29.28 10 9.86
4 22.33 15 7.12
5 18.17 20 5.77
6 15.39 25 4.98
7 13.41 30 4.46
BASIS OF COMPUTATION. The Guaranteed Minimum Annuity Option Payment Factors for
Options 1, 2, and 3 are based on an interest rate of 3 1/2% a year (Assumed
Investment Rate), the 1983a Individual Annuity Mortality Table with ages set
back 4 years, the exact age and sex of the Annuitant or Payee on the Annuity
Date, and, if applicable, the exact age and sex of the second designated person
on the Annuity Date. The Guaranteed Minimum Annuity Option Payment Factors for
Option 4 are based on an interest rate of 3 1/2% a year (Assumed Investment
Rate). The factors are used to determine the number of Annuity Units and the
guaranteed minimum amount of the fixed annuity payments.
Any present values will be based on the interest rate used in determining the
number of Annuity Units and the amount of the fixed annuity payments. The
factors for other payment intervals will be furnished on request.
PAYMENT INTERVAL. You may choose to have payments made at the end of 1, 3, 6, or
12 month intervals. If any payment would be less than $100, we may change the
payment interval to the next longer interval. If, on the Annuity Date, the
payment for the 12 month interval is less than $100, we may pay the Cash
Surrender Value or Death Benefit on that date in one sum.
PROOF OF AGE AND SEX. We may require proof of the age and sex of the Annuitant
or Payee and the second designated person before any payments are made.
EVIDENCE OF LIVING. We may require satisfactory proof that the Annuitant is
living when each payment is due. If proof is required, payments will stop until
such proof is given. If any payment is made by check and the Annuitant
personally endorses the check on or after the date on which such payment is due,
no other proof will be required.
PAGE 13
<PAGE>
- --------------------------------------------------------------------------------
ANNUITY PAYMENT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
AMOUNT OF FIXED ANNUITY PAYMENTS. On the Annuity Date, the amount you have
chosen to apply to provide fixed annuity payments will be applied under the
annuity option you have chosen. The annuity option payment factor in effect on
the Annuity Date times that amount will be the dollar amount of each payment.
Each payment will be equal and will not change.
The annuity option payment factor used to determine the amount of the fixed
annuity payments will not be less than the guaranteed minimum annuity payment
factors. The amount of each monthly payment will not be less than the amount
provided by the same plan of single premium immediate life annuity, if available
on the annuity date.
AMOUNT OF VARIABLE ANNUITY PAYMENTS. These payments will vary in amount. The
dollar amount of each payment attributable to each Subaccount is the number of
Annuity Units for each Subaccount times the Annuity Unit Value of that
Subaccount. The sum of the dollar amounts for each Subaccount is the amount of
the total variable annuity payment. The Annuity Unit Value for each payment will
be determined no earlier than five Valuation Days preceding the date the annuity
payment is due. We guarantee the payment will not vary due to changes in
mortality or expenses.
ANNUITY UNITS. On the Annuity Date, the number of Annuity Units for an
applicable Subaccount is determined by multiplying (1) by (2) and dividing the
result by (3), where:
(1) is the part of the Cash Surrender Value or Death Benefit on that date
applied under that Subaccount;
(2) is the Guaranteed Minimum Payment Factor for the Annuity Option
chosen; and
(3) is the Annuity Unit Value for that Subaccount for the Valuation Period
ending on that date.
ANNUITY UNIT VALUE. The Annuity Unit Values for each Subaccount were arbitrarily
set initially at $10 when that Subaccount began operation. Thereafter, the
Annuity Unit Value for every Valuation Period is the Annuity Unit value at the
end of the previous Valuation Day times the Net Investment Factor times the
Annuity Interest Factor. The Annuity Interest Factor is used to neutralize the
Assumed Investment Rate of 3 1/2% a year used to determine the Guaranteed
Minimum Payment Factor. The Assumed Investment Rate is significant in
determining the amount of each variable annuity payment and the amount by which
each variable annuity payment varies from one payment to the next.
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS
- --------------------------------------------------------------------------------
DEATH BENEFIT. If the Annuitant dies before the Annuity Date and a death benefit
is payable, the amount paid will be the greater of:
(1) the sum of all premiums paid less any withdrawals and any applicable
surrender charges deducted, or
(2) the Policy Accumulation Value.
Both will be determined on the date we receive due proof of the Annuitant's
death.
DEATH OF ANNUITANT. If the Annuitant dies before the Annuity Date while you are
alive, the Death Benefit will be paid as provided in the Beneficiary Provisions.
If the method of payment chosen is not available or no method of payment is
chosen, payment will be in one sum.
If the Annuitant dies on or after the Annuity Date while you are alive, any
remaining payments must be paid to you at least as fast as the method of payment
in effect on the Annuitant's date of death.
PAGE 14
<PAGE>
- --------------------------------------------------------------------------------
DEATH BENEFIT PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
DEATH OF OWNER. The Code requires certain distributions under an annuity when
you die. This provision will override any inconsistent provisions in the policy.
(1) If you die before the Annuity Date, you are not the Annuitant, and you
either have not named a Successor Owner or your named Successor Owner
is not a living natural person, the Cash Surrender Value must be paid
within five years after your date of death.
(2) If you die before the Annuity Date, you are the Annuitant, and you
either have not named any beneficiary or your named beneficiary is not
a living natural person, the Death Benefit must be paid within five
years after your date of death.
(3) If you die before the Annuity Date, you are not the Annuitant, and
your sole Successor Owner is a person other than your spouse, your
Successor Owner may elect to have the Cash Surrender Value paid under
an annuity option or any other method of payment then provided by us
other than an interest only method of payment. The election must be
made and payments must start within one year after your death and must
not extend beyond the life expectancy of your Successor Owner. If no
election is made within this time, distribution will be made within
five years after your date of death.
(4) If you die before the Annuity Date, you are the Annuitant, and your
sole named surviving primary beneficiary is a person other than your
spouse, your surviving primary beneficiary may elect to have the Death
Benefit paid under an annuity option or any other method of payment
then provided by us other than an interest only method of payment. The
election must be made and payments must start within one year after
your death and must not extend beyond the life expectancy of your
primary beneficiary. If no election is made within this time,
distribution will be made within five years after your date of death.
(5) If you die before the Annuity Date, you are not the Annuitant, and
your sole Successor Owner is your surviving spouse, your surviving
spouse becomes the Owner.
(6) If you die before the Annuity Date, you are the Annuitant, and your
surviving spouse is your sole named primary beneficiary, your spouse
will replace you as Owner and may replace you as Annuitant. If your
spouse does not elect to replace you as Annuitant, the Death Benefit
must be paid to your spouse under an annuity option or any other
method of payment then provided by us for an owner. For purposes of
the preceding sentence, the election must be made, payments must start
within one year after your death, and must not extend beyond your
spouse's life expectancy; however, if your spouse does not choose a
method of payment within this time, distribution will be made under
Annuity Option 1.
(7) If you die on or after the Annuity Date and you are not the Annuitant,
any remaining payments must be paid to your Successor Owner at least
as fast as the method of payment in effect at your death.
(8) If you die on or after the Annuity Date and you are the Annuitant, any
remaining payments must be paid to the beneficiary at least as fast as
the method of payment in effect at your death.
If you are not a living natural person, the Annuitant will be treated as the
Owner for purposes of this provision. If you are not a living natural person and
there is a change in the Annuitant, such change shall be treated as the death of
the Owner for purposes of this provision. If this policy has two owners, the
first death of either owner is treated as death of the owner for purposes of
this provision. For purposes of this provision, the amount of any distribution
will be determined on the date of such distribution. Notwithstanding anything in
the policy to the contrary, the surviving joint owner will be treated as the
Successor Owner of the policy.
Future endorsements may also be necessary to maintain this policy's
qualification as an annuity. This includes endorsements required due to changes
in the Code. Such endorsements will be sent to you to be placed with this
policy.
PAGE 15
<PAGE>
- --------------------------------------------------------------------------------
BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------
BENEFICIARY DESIGNATION. This is as shown in the application. It includes the
name of the beneficiary and the order and method of payment. If you name
"estate" as a beneficiary, it means the executors or administrators of the last
survivor of you and all beneficiaries. If you name "children" of a person as a
beneficiary, only children born to or legally adopted by that person as of the
Annuitant's date of death will be included.
We may rely on an affidavit as to the ages, names, and other facts about all
beneficiaries. We will incur no liability if we act on such affidavit.
CHANGE OF BENEFICIARY DESIGNATION. You may make a change while the Annuitant is
alive by sending us a request. The change will take effect on the date the
request is signed and will replace previous beneficiary designations for this
policy, but the change will not affect any action we have taken before we
receive the request. We have the right to request your policy to make the change
on it.
After the Annuitant's death, anyone who has the right to make a withdrawal may
change the method of payment or may select one of the annuity options, and may
name a successor to their interest. The successor payee may be their estate.
ORDER OF PAYMENT. When the Annuitant dies
(1) before the Annuity Date and a death benefit is payable or
(2) on or after the Annuity Date, you are the Annuitant, and payments
continue to the beneficiary,
we will make such payment(s) in equal shares to the primary beneficiaries living
when payment is made. If a primary dies after the first payment is made, we will
pay that primary's unpaid share in equal shares to the other primaries living
when payment is made. If the last primary dies, we will make payment in equal
shares to the successor beneficiaries living when payment is made. If a
successor dies while receiving payments, we will pay that successor's unpaid
share in equal shares to the other successors living when payment is made. If,
at any time, no primary or successor is alive, we will make a one sum payment in
equal shares to the final beneficiaries. If, at any time, no beneficiary is
living, we will make a one sum payment to you, if living when payment is made.
Otherwise, we will make a one sum payment to the estate of the last survivor of
you and all beneficiaries. "When payment is made" means
(1) the date that a periodic payment is due or
(2) the date that a request is signed for a cash withdrawal or a one sum
payment.
You may change this order of payment by sending us a request while the Annuitant
is alive.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT. The policy contains the Basic Plan, any amendments, endorsements,
and riders, and a copy of the application. The policy is the entire contract.
Only an officer has the right to change this policy. No agent has the authority
to change the policy or to waive any of its terms. All endorsements,
amendments, or riders must be signed by an officer to be valid.
We may modify this policy as follows after we notify you:
(1) to conform the policy or our operations or the operation of the
Variable Account to the requirements of any law (or regulation issued
by a government agency) to which we, this policy, or the Variable
Account is subject;
(2) to assure continued qualification of this policy as an annuity under
the Code; or
(3) to reflect a change in the operation of the Variable Account, if
allowed by this policy.
If we modify this policy, we will send you the appropriate endorsement to be
placed with this policy. If any provision of this policy conflicts with the law
of a jurisdiction that governs this policy, the provision is deemed to be
amended to conform with such law.
PAGE 16
<PAGE>
- --------------------------------------------------------------------------------
GENERAL PROVISIONS (CONTINUED)
- --------------------------------------------------------------------------------
TRANSACTION DELAY. Any payment from the Subaccounts will usually be made within
7 days of receipt of the request for payment. However, we may defer:
(1) payment from the Subaccounts of Cash Surrender Value or a withdrawal,
(2) payment of any part of the Death Benefit, and
(3) transfer from a Subaccount
if:
(1) the New York Stock Exchange is closed (other than customary weekend
and holiday closings); or
(2) the SEC permits, by an order, the postponement for the protection of
owners; or
(3) the SEC requires that trade be restricted or declares an emergency; or
(4) the SEC determines an emergency exists that would make the disposal of
securities held in the Variable Account or the determination of their
value not reasonably practicable.
We may defer payment from the Fixed Account of any Cash Surrender Value or
withdrawal or transfer for up to 6 months from the date we receive your
request. However, any Cash Surrender Value paid under an annuity option will
not be deferred.
If we defer any such payment for 30 days or more, we will pay interest in
addition to such payment. Such interest accrues from the date the payment
becomes payable to the date of payment at 3 1/2% per year or the rate and time
required by law, if greater.
MINIMUM VALUE. The paid-up annuity, Cash Surrender Value, and Death Benefit of
this policy are at least as large as those required by law where it is
delivered.
ASSIGNMENT. You may assign this policy or any interest in it. We will recognize
an assignment only if it is in writing and filed with us. We are not responsible
for the validity or effect of any assignment. An assignment may limit the
interest of any beneficiary.
ERROR IN AGE OR SEX. If the Annuitant's, Payee's, or second designated person's
date of birth or sex is not correct, every benefit will be such as premiums paid
would have bought at the correct age or sex, based on the rates at the date of
issue.
We may require proof of the Annuitant's, Payee's, second designated person's age
and sex before annuity payments start. Any overpayment with compound interest at
6% a year will be charged against this policy. This amount will be deducted from
any annuity payments due after the error is found. Any underpayment with
compound interest at 6% a year will be paid to you in one sum.
INCONTESTABILITY. We will not contest this policy. Any rider has its own
incontestability provision.
ANNUAL REPORT. Each year, or more often if required by law, we will send you a
report. This report will show:
(1) the period covered by the report;
(2) the number of Accumulation Units or Annuity Units credited to this
policy and the dollar value of such units;
(3) the current Policy Accumulation Value and the Cash Surrender Value;
(4) the current Variable Policy Accumulation Value showing each Subaccount
Policy Accumulation Value and the Fixed Policy Accumulation Value;
(5) the amount of the Death Benefit as of the date of the report;
(6) any premiums paid, any dividends paid, and any deductions, including
withdrawals, applicable surrender charges, the annual administrative
fee, and any transfer processing fee, made since the last report; and
(7) any other information required by law.
You may request additional copies of reports from us, but we reserve the right
to charge a fee for additional copies.
PARTICIPATION. We do not expect to pay dividends on this policy; however, we may
apportion and pay dividends each year. All dividends apportioned will be derived
from the divisible surplus of our participating business. Any such dividends
will be paid only at the end of the Policy Year. There is no right to a partial
or pro-rated dividend prior to the end of the Policy Year. We will transfer the
dividend to the Policy Accumulation Value at the end of the Policy Year. Unless
specified by you, the amount transferred is allocated to each Subaccount and the
Fixed Account on a pro-rata basis.
PAGE 17
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL DEPOSIT BENEFIT RIDER - ANNUITY
- --------------------------------------------------------------------------------
GENERAL. This rider is a part of your policy. Only certain policy provisions are
a part of this rider. They are "Definitions," "Ownership," "The Contract," and
"Assignment."
BENEFIT. You may make an additional deposit to this policy when it is
surrendered. The deposit less the expense charge will be added to the Cash
Surrender Value. This total will then be paid under the annuity option or method
of payment chosen.
DEPOSIT LIMIT. The deposit may not exceed 4 times the Policy Accumulation Value.
EXPENSE CHARGE. The expense charge is 3% of the deposit plus the lesser of 2% of
the deposit or $100.
EFFECTIVE DATE OF THIS RIDER. This is the policy date.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
/s/ Edward B Rust Jr.
President
/s/ Laura P Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
- --------------------------------------------------------------------------------
The Internal Revenue Code (the Code) requires certain restrictions on policy
provisions to make this policy an Individual Retirement Annuity. This
endorsement controls if its wording conflicts with policy wording. Changes in
the Internal Revenue Code, regulations, and Revenue Rulings may require changes
to be made to this endorsement. Any such changes will be sent to you. This
policy is established for the exclusive benefit of you and your beneficiaries.
You will receive annual calendar-year reports as required by the Code.
PREMIUM PROVISIONS. Except in the case of a rollover contribution (as permitted
by section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code), or a
contribution to a Simplified Employee Pension Program as described in section
408(k) of the Code, the total premiums paid for any taxable year may not exceed
$2,000 and must be in cash. No contribution will be accepted under a SIMPLE plan
established by any employer pursuant to section 408(p) of the Code. No transfer
or rollover of funds attributable to contributions made by a particular employer
under its SIMPLE plan will be accepted from a SIMPLE IRA, that is, an IRA used
in conjunction with a SIMPLE plan, prior to the expiration of the 2-year period
beginning on the date the individual first participated in that employer's
SIMPLE plan.
OWNER. The Annuitant is the Owner. Ownership cannot be changed or forfeited. An
irrevocable beneficiary may not be named.
NOT TRANSFERABLE. You cannot transfer ownership of this policy or assign, sell,
or pledge any interest in it.
REQUIRED DISTRIBUTION RULES:
ARTICLE I
Notwithstanding any provision of this agreement to the contrary, the
distribution of an individual's interest shall be made in accordance with
minimum distribution requirements of section 401(a)(9) of the Code, including
the incidental death benefit provisions of section 401(a)(9)(G) of the Code, and
the regulations thereunder, including the minimum distribution incidental
benefit requirement of section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Payments must be made periodically in intervals no longer than one
year. In addition, payments must be either nonincreasing or they may increase
only as provided in Q&A F-3 of section 1.401(a)(9)-1 of the proposed
regulations.
ARTICLE II
The Owner's entire interest in the policy must be distributed, or begin to be
distributed, by the Owner's required beginning date, which is April 1 following
the calendar year in which the Owner reaches age 70 1/2. For each succeeding
year, a distribution must be made on or before December 31. By the required
beginning date, the Owner may elect to have the balance in the policy
distributed in one of the following forms:
(a) a single sum payment;
(b) equal or substantially equal payments over the life of the Owner;
(c) equal or substantially equal payments over the lives of the Owner and
his or her designated beneficiary;
(d) equal or substantially equal payments over a specified period that may
not be longer than the Owner's life expectancy;
(e) equal or substantially equal payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the Owner and
his or her designated beneficiary.
ARTICLE III
If the Owner dies before his or her entire interest is distributed, the entire
remaining interest will be distributed as follows:
(a) If the Owner dies on or after distributions have begun under Article II
above, the entire remaining interest must be distributed at least as rapidly as
provided under Article II.
<PAGE>
- --------------------------------------------------------------------------------
INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT (CONTINUED)
- --------------------------------------------------------------------------------
REQUIRED DISTRIBUTION RULES (CONTINUED)
ARTICLE III (CONTINUED)
(b) If the Owner dies before distributions have begun under Article II
above, the entire remaining interest must be distributed as elected by the Owner
or, if the Owner has not so elected, as elected by the beneficiary or
beneficiaries, as follows:
(1) by December 31st of the year containing the fifth anniversary of the
Owner's death; or
(2) in equal or substantially equal payments over the life expectancy of
the designated beneficiary or beneficiaries starting by December 31st of the
year following the year of the Owner's death. If, however, the beneficiary is
the Owner's surviving spouse, then this distribution is not required to begin
before the later of December 31st of the calendar year immediately following the
calendar year of the Owner's death, or December 31st of the calendar year in
which the Owner would have attained age 70 1/2.
Distributions under this article are considered to have begun if distributions
are made on account of the Owner reaching his or her required beginning date or,
if prior to the required beginning date, distributions irrevocably commence to
the Owner over a period permitted and in an annuity form acceptable under
section 1.401(a)(9) of the proposed regulations.
ARTICLE IV
(a) Unless otherwise elected by the Owner prior to the commencement of
distributions under Article II above or, if applicable, by the surviving spouse
where the Owner dies before distributions have commenced, life expectancies of
an Owner or spouse beneficiary shall be recalculated annually for purposes of
distributions under Article II and Article III above. (Life expectancy is
computed by use of the expected return multiples in Table V and VI of section
1.72-9 of the Income Tax Regulations.)
(b) An election not to recalculate shall be irrevocable and shall apply to all
subsequent years. The life expectancy of a nonspouse beneficiary shall not be
recalculated. Under this approach, life expectancy will be calculated using the
attained age of an individual during the calendar year in which the Owner
attains age 70 1/2. Payments for the subsequent years shall be calculated based
on such life expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
ARTICLE V
An individual may satisfy the minimum distribution requirements under sections
408(a)(6) and 409(b)(3) of the Code by receiving a distribution from one IRA
that is equal to the amount required to satisfy the minimum distribution
requirements for two or more IRAs. For this purpose, the Owner of two or more
IRAs may use the 'alternate method' described in Notice 88-38, 1988-1 C.B. 524,
to satisfy the minimum distribution requirements described above.
EFFECTIVE DATE OF THIS ENDORSEMENT. This is the policy date.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
/s/ Edward B Rust Jr.
President
/s/ Laura P Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
ENDORSEMENTS
- --------------------------------------------------------------------------------
This policy is amended by deleting the Change of Owner/Successor Owner provision
and replacing it with the following:
CHANGE OF OWNER/SUCCESSOR OWNER. You may change the Owner or Successor Owner to
another natural person by sending us a request while the Annuitant is alive. We
have the right to request this policy to make the change on it. The change will
take effect the date you sign the request, but the change will not affect any
action we have taken before we receive the request. A change of owner or
successor owner does not change the beneficiary designation. No more than two
owners and/or successor owners can be named.
EFFECTIVE DATE OF THIS ENDORSEMENT. This is the policy date shown on page 3 of
this policy.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
/s/ Edward B Rust Jr.
President
/s/ Laura P Sullivan
Secretary
<PAGE>
- --------------------------------------------------------------------------------
TAX-SHELTERED ANNUITY ENDORSEMENT
- --------------------------------------------------------------------------------
PURPOSE. To conform this policy to the tax-sheltered annuity requirements of
Internal Revenue Code (the "Code") Section 403(b), any other relevant Code
Sections, and applicable Internal Revenue Service regulations and rulings. If
terms in this Endorsement are inconsistent with terms in the policy, the terms
in the Endorsement shall prevail. Changes in the Internal Revenue Code,
regulations, and Revenue Rulings may require changes to be made to this
endorsement. Any such changes will be sent to you.
RESTRICTION ON BENEFIT PAYMENTS. Payment of benefits, which are attributable
to premiums paid pursuant to a salary reduction agreement as defined in Code
Section 402(g)(3)(C), may not be made unless the employee/annuitant has:
become disabled as defined in Code Section 72(m)(7), an employee/annuitant
shall be considered to be disabled if such employee/annuitant is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long-continued and indefinite duration, attained age 59 1/2,
separated from service with the employer, died, or incurred a hardship.
(No distribution of any income attributable to such contributions may be made
in the case of a distribution on account of hardship.) This restriction on
benefit payments applies only to payments which are attributable to policy
proceeds other than those in existence on December 31, 1988.
REQUIRED DISTRIBUTION RULES:
ARTICLE I
Notwithstanding any provision of this agreement to the contrary, the
distribution of an employee/annuitant's interest shall be made in accordance
with the minimum distribution requirements of section 403(b)(10) and 401(a)(9)
of the Code, including the incidental death benefit provisions of section
401(a)(9)(G) of the Code, and the regulations thereunder, including the minimum
distribution incidental benefit requirements of section 1.401(a)(9)-2 of the
Proposed Income Tax Regulations. Payments must be made periodically in intervals
no longer than one year. In addition, payments must be either nonincreasing or
they may increase only as provided in Q&A F-3 of section 1.401(a)(9)-1 of the
proposed regulations.
ARTICLE II
The employee/annuitant's entire interest in the policy must be distributed, or
begin to be distributed, by the employee/annuitant's required beginning date,
which is April 1 following the calendar year in which occurs the later of the
employee/annuitant's: (1) attainment of age 70 1/2 or (2) retirement. (For an
employee/annuitant who is a 5-percent owner (as defined in Code Section 416) in
the year of attainment of age 70 1/2, (2) in the preceding sentence shall not
apply.) For each succeeding year, a distribution must be made on or before
December 31. By the required beginning date, the employee/annuitant may elect to
have the balance in the policy distributed in one of the following forms:
(a) a single sum payment;
(b) equal or substantially equal payments over the life of the
employee/annuitant;
(c) equal or substantially equal payments over the lives of the
employee/annuitant and his or her designated beneficiary;
(d) equal or substantially equal payments over a specified period that may not
be longer than the employee/annuitant's life expectancy;
(e) equal or substantially equal payments over a specified period that may not
be longer than the joint life and last survivor expectancy of the employee/
annuitant and his or her designated beneficiary.
ARTICLE III
If the employee/annuitant dies before his or her entire interest is distributed,
the entire remaining interest will be distributed as follows:
(a) If the employee/annuitant dies on or after distributions have begun, the
entire remaining interest must be distributed at least as rapidly as under the
method of distribution in effect at the time of death of the employee/annuitant.
(b) If the employee/annuitant dies before distributions have begun under Article
II above, the entire remaining interest must be distributed as elected by the
employee/annuitant or, if the employee/annuitant has not so elected, as elected
by the beneficiary or beneficiaries, as follows:
<PAGE>
- --------------------------------------------------------------------------------
TAX-SHELTERED ANNUITY ENDORSEMENT (CONTINUED)
- --------------------------------------------------------------------------------
REQUIRED DISTRIBUTION RULES (CONTINUED)
ARTICLE III (CONTINUED)
(1) by December 31st of the year containing the fifth anniversary of the
employee/annuitant's death; or
(2) in equal or substantially equal payments over the life expectancy of the
designated beneficiary or beneficiaries starting by December 31st of the year
following the year of the employee/annuitant's death. If, however, the
beneficiary is the employee/annuitant's surviving spouse, then this distribution
is not required to begin before the later of December 31st of the calendar year
immediately following the calendar year of the employee/annuitant's death, or
December 31st of the calendar year in which the employee/annuitant would have
attained age 70 1/2.
Distributions under this article are considered to have begun if distributions
are made on account of the employee/annuitant reaching his or her required
beginning date or, if prior to the required beginning date, distributions
irrevocably commence to the employee/annuitant over a period permitted and in an
annuity form acceptable under section 1.401(a)(9) of the proposed regulations.
ARTICLE IV
(a) Unless otherwise elected by the employee/annuitant prior to
the commencement of distributions under Article II above or, if applicable,
by the surviving spouse where the employee/annuitant dies before
distributions have commenced, life expectancies of an employee/annuitant or
spouse beneficiary shall be recalculated annually for purposes of
distributions under Article II and Article III above. (Life expectancy is
computed by use of the expected return multiples in Table V and VI of section
1.72-9 of the Income Tax Regulations.)
(b) An election not to recalculate shall be irrevocable and shall apply to all
subsequent years. The life expectancy of a nonspouse beneficiary shall not be
recalculated. Under this approach, life expectancy will be calculated using the
attained age of an individual during the calendar year in which the
employee/annuitant attains age 70 1/2. Payments for the subsequent years shall
be calculated based on such life expectancy reduced by one for each calendar
year which has elapsed since the calendar year life expectancy was first
calculated.
ARTICLE V
An employee/annuitant may satisfy the minimum distribution requirements under
sections 403(b)(10) and 401(a)(9) of the Code by receiving a distribution from
one Tax-Sheltered Annuity that is equal to the amount required to satisfy the
minimum distribution requirements for two or more Tax-Sheltered Annuities.
DIRECT ROLLOVER OF DISTRIBUTIONS:
(a) This section applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of this agreement to the contrary that would
otherwise limit a distributee's election under this section, a distributee may
elect, at the time and in the manner prescribed, to have any portion of an
eligible rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
(b) Definitions:
(1) Eligible Rollover Distribution: An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under sections 403(b)(10) and 401(a)(9) of the Code, and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to employer
securities).
<PAGE>
- --------------------------------------------------------------------------------
TAX-SHELTERED ANNUITY ENDORSEMENT (CONTINUED)
- --------------------------------------------------------------------------------
DIRECT ROLLOVER DISTRIBUTIONS (CONTINUED)
(2) Eligible Retirement Plan: An eligible retirement plan is an individual
retirement account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, or an annuity
contract described in section 403(b) of the Code which accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(3) Distributee: A distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
(4) Direct Rollover: A direct rollover is a payment by this plan to the
eligible retirement plan specified by the distributee.
(c) If a distribution is one to which sections 401(a)(11)
and 417 of the Code do not apply, such distribution may commence less than 30
days after the notice required under section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
(1) the distributee is clearly informed that the distributee has a right to
a period of at least 30 days not to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the distributee, after receiving the notice, affirmatively elects a
distribution.
NOT TRANSFERABLE. This policy may not be sold, assigned or pledged to anyone
other than us.
NONFORFEITABLE. The interest of the employee/annuitant is nonforfeitable. This
policy is for the exclusive benefit of the employee/annuitant and his or her
beneficiary.
LIMITS ON CONTRIBUTIONS:
(a) Contributions to this policy shall not exceed the annual contribution
limitations of section 415 of the Code or the maximum exclusion allowance
prescribed by section 403(b) of the Code.
(b) Contributions made by elective deferral shall be limited to the annual
elective deferral limits provided under section 402(g) of the Code.
EFFECTIVE DATE OF THIS ENDORSEMENT. This is effective on the later of January 1,
1989, or the policy date.
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
/s/ Edward B Rust Jr.
President
/s/ Laura P Sullivan
Secretary
<PAGE>
<TABLE>
<CAPTION>
<S><C>
---------------------------------------------------------------------------
[LOGO] STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY, Bloomington, Illinois
VARIABLE DEFERRED ANNUITY APPLICATION PAGE 1
- ------------------------------------------------------------------------------------------------------------------------------------
1 PROPOSED ANNUITANT (Print name in full)
- ------------------------------------------------------------------------------------------------------------------------------------
MR / / LAST NAME FIRST NAME MIDDLE INITIAL MAILING ADDRESS
a MS / /
---------------------------------------------------------------------------------------------------------------------------------
SOCIAL SECURITY OR TAX
CITY STATE ZIP CODE IN YES NO IDENTIFICATION NUMBER DRIVER'S LICENSE NUMBER STATE
b CITY? / / / /
---------------------------------------------------------------------------------------------------------------------------------
SEX BIRTH DATE MO-DAY-YR AGE MARITAL STATUS HEIGHT WEIGHT STATE OF BIRTH UNITED STATES OR YES NO
c CANADIAN CITIZEN? / / / /
---------------------------------------------------------------------------------------------------------------------------------
Do job duties fall into one of the following hazardous
OCCUPATION (GIVE EXACT DUTIES) EMPLOYER'S NAME AND ADDRESS categories? (amusement/sports; construction/explosive/ YES NO
d divers; liquor; logging/mining; gas/oil) / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
2 APPLICANT/OWNER (Required for Corporate, Trusteed Keogh, AND Juvenile Non Tax-Qualified)
- ------------------------------------------------------------------------------------------------------------------------------------
MR / / LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER
a MS / /
---------------------------------------------------------------------------------------------------------------------------------
MAILING ADDRESS CITY STATE ZIP CODE IN YES NO
b CITY? / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
c SUCCESSOR OWNER (REQUIRED UNLESS APPLICANT/OWNER IS A TRUST OR CORPORATION)
- ------------------------------------------------------------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL
- ------------------------------------------------------------------------------------------------------------------------------------
3 COMPLETE: IF PROPOSED ANNUITANT IS UNDER AGE 16 | Is Proposed Annuitant to be Owner at and after age 21? / / YES / / NO
- ------------------------------------------------------------------------------------------------------------------------------------
4 VARIABLE DEFERRED ANNUITY
- ------------------------------------------------------------------------------------------------------------------------------------
a INITIAL ACCOUNT AND PAYMENT ALLOCATION: (During the free look period, all premiums will be allocated to the Fixed Account.)
%
(MUST BE WHOLE %
WITH 1% MINIMUM)
/ / Large Cap Equity Index Subaccount -----------------------------------------------------
------------ Check the appropriate box if you wish to have:
/ / Small Cap Equity Index Subaccount
------------ ONLY ONE MAY BE IN EFFECT AT ONE TIME.
/ / International Equity Index Subaccount / / Dollar Cost Averaging
------------
/ / Stock and Bond Balanced Subaccount -OR-
------------
/ / Bond Subaccount / / Portfolio Rebalancing
------------
/ / Money Market Subaccount COMPLETE SEPARATE FORM IF EITHER IS CHECKED.
------------ -----------------------------------------------------
/ / Fixed Account
------------
TOTAL = 100 %
--------------------
b Amount of premium to be billed: $
Mode: (Check One) --------------------
Existing Agents Payroll Employee Salary Existing Special Monthly
/ / Annual / / SFPP / / Life PAC / / Deduction / / Payroll Deduction / / Allotment Account Number:
--------------------
c Amount of premium submitted with this application: $
--------------------
--------------------
d If tax-qualified, indicate amount of premium to be applied to PRIOR tax year: (IF NONE, SO INDICATE) $
--------------------
--------------------
e If IRA, indicate amount of premium irrevocably designated as a rollover contribution: $
--------------------
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
5 Is this annuity tax-qualified? / / / / (IF YES, INDICATE TYPE) / / TSA - Issue with TSA Endorsement, with Proposed
Annuitant as Owner
/ / IRA - Issue with IRA Endorsement / / CORPORATE
/ / SEP-IRA - Issue with IRA Endorsement / / KEOGH
/ / OTHER TAX-QUALIFIED
---------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
6 Will this policy replace or change insurance or annuities you now have? / /YES / /NO (IF YES, ENTER NAME OF COMPANY AND EXPLAIN)
- ------------------------------------------------------------------------------------------------------------------------------------
7 BENEFICIARY DESIGNATION
- ------------------------------------------------------------------------------------------------------------------------------------
--PRIMARY BENEFICIARY - FULL NAME------------AGE---RELATIONSHIP-- ----SUCCESSORY BENEFICIARY - FULL NAME----AGE---RELATIONSHIP--
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | / /Interest Option or / /One Sum or / / Other-Explain |
| | | | |------------------------------------------------------------|
| | | | ----FINAL BENEFICIARY - FULL NAME----------AGE--RELATIONSHIP--
| | | | | | | |
| | | | | | | |
| / /Interest Option or / /One Sum or / /Other-Explain | | One Sum Settlement Only | | |
----------------------------------------------------------------- --------------------------------------------------------------
If a beneficiary survives the Annuitant, any payment to successor will be one sum, unless changed.
- ------------------------------------------------------------------------------------------------------------------------------------
454-616 NY Printed in U.S.A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C> PAGE 2
VARIABLE DEFERRED ANNUITY APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
8 SUITABILITY INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Applicants are urged to supply information in order that the agent may make an informed judgment as to the suitability of a
particular purchase of a Variable Deferred Annuity Policy. If the Applicant chooses not to, the agent must complete the
following items to the best of his/her knowledge.
YES NO
Did the applicant provide the suitability information? / / / / (IF NO, EXPLAIN)
- ------------------------------------------------------------------------------------------------------------------------------------
a. Annual Income from Occupation $ f. Tax g. Score from
Bracket: Risk Profiler:
- ------------------------------------------------------------------------------------------------------------------------------------
b. Annual Income from other sources $ h. Purpose for Purchasing this Policy:
Indicate other sources:
/ / Personal Retirement Planning
Years to Retirement:
--------------------
/ / Other (specify)
- ------------------------------------------------------------------------------------------------------------------------------------
c. Projected Income for next 12 months $
- ------------------------------------------------------------------------------------------------------------------------------------
d. Estimated Net Worth (excluding home) $ i. Which best approximates your experience with the following
------------ types of investments:
Liquid Assets included in Net Worth $
------------ NONE UP TO 5 YRS 5 YRS OR MORE
- ------------------------------------------------------------ Mutual Funds / / / / / /
e. No. and Age of Dependent Children: (IF NONE, SO STATE) Individual Common Stocks / / / / / /
Annuities / / / / / /
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
9 AGREEMENTS AND ACKNOWLEDGEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
a. DO YOU BELIEVE THAT THIS POLICY WILL MEET YOUR NEEDS AND FINANCIAL OBJECTIVES? / / / /
b. DO YOU UNDERSTAND THAT THE POLICY VALUES MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT? / / / /
c. DID YOU RECEIVE THE SEPARATE ACCOUNT PROSPECTUS AND THE FUND PROSPECTUS
FOR THE POLICY APPLIED FOR? IF YES, GIVE DATE SHOWN ON THE PROSPECTUS: / / / /
-------------------------------------------
d. ARE YOU ASSOCIATED WITH AN NASD MEMBER BROKER DEALER? / / / /
Coverage will start on the policy date, provided any check received is honored for the payment when presented. By accepting
the policy, the Owner agrees to the beneficiaries named, method of payment, and corrections made. No change in plan, amount,
benefits, classification, or age at issue may be made on the application unless the Owner agrees in writing. Only an authorized
company officer may change policy provisions.
Any policy issued on this application will be owned by Proposed Annuitant or the Applicant, if other than Proposed Annuitant.
- -----------------------------------------------------------------------------------------------------------------------------------
Social Security or Tax Identification Number (TIN) Certification - By signing this application, I certify under penalties of
perjury that (1) the TIN shown above is correct, and (2) that I am not subject to backup withholding either because I have not
been notified that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the
Internal Revenue Service has notified me that I am no longer subject to backup withholding. (IF YOU ARE SUBJECT TO BACKUP
WITHHOLDING, CROSS OUT ITEM 2.) The Internal Revenue Service does not require your consent to any provision of this document
other than the certifications required to avoid backup withholding.
- -----------------------------------------------------------------------------------------------------------------------------------
DATED ON SIGNATURE OF PROPOSED ANNUITANT X
-------------------------------- -------------------------------------------------------
MONTH DAY YEAR NOT REQUIRED IF PROPOSED ANNUITANT IS UNDER AGE 16
AT
--------------------------------------
CITY STATE
SIGNATURE OF APPLICANT X
----------------------------------------------------------------
Required for Corporate, Trusteed Keogh, TSA and Juvenile
Non Tax-Qualified. Not required unless applicant is other than
Proposed Annuitant. If a firm or corporation is to be the
owner, give its name and signature of authorized officer.
SIGNATURE OF AGENT AS X
WITNESS TO ALL SIGNATURES -----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
AGENT'S STATEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
1 Do you know the Proposed Annuitant? 4 Is this policy a replacement or change of existing
----------------------------------------------------------------- insurance or annuities? (IF YES, EXPLAIN) / /Yes / /No
2 Check if Proposed Annuitant is now a State Farm Policyholder. ----------------------------------------------------------------
/ / Auto / / Life / / Fire / / Health 5 Did you give Proposed Agent Code Stamp
----------------------------------------------------------------- Annuitant the Premium
3 Personal History Interview Telephone Information Receipt?
DAYTIME / / Yes / / No
PHONE NO. ( ) -
-----------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
[LOGO] STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
PREMIUM RECEIPT
State Farm Life and Accident Assurance Company has received $ . This money is part of the
-----------------------
application for an annuity on .
------------------------------------------------------
(Proposed Annuitant)
Date of Application Signature of Agent X
--------------------------------- -----------------------------------------------------
NOTICE OF INFORMATION PRACTICES
The application requests personal information about the persons proposed for coverage. Occasionally, we may need to collect
additional personal information from other sources. All such personal information is treated as confidential. In certain
cases, however, that information might be disclosed to others without authorization. A right of access and correction exists
as to the personal information we may collect. A more detailed notice, including a description of our information practices
and your rights, is available upon request.
</TABLE>
<PAGE>
ARTICLES OF INCORPORATION AS AMENDED OF
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
ARTICLE I
The name of the Corporation shall be State Farm Life and Accident
Assurance Company.
ARTICLE II
The principal office of the Corporation for transacting business shall
be located at Bloomington, McLean County, Illinois.
ARTICLE III
The period of duration of the Corporation shall be perpetual.
ARTICLE IV
The class of insurance in which the Corporation proposes to engage is
Class I, Life, Accident and Health Insurance, as provided in Section 4 of
Article I of the Illinois Insurance Code. The kinds of insurance in which the
Corporation proposes to engage are: (a) Insurance on the lives of persons and
every insurance appertaining thereto or connected therewith and granting,
purchasing or disposing of annuities, as provided in Subsection (a) of Class 1
of Section 4 of Article I of the Illinois Insurance Code; and (b) Insurance
against bodily injury, disablement or death by accident and against disablement
resulting from sickness or old age and every insurance appertaining thereto, as
provided in Subsection (b) of Class 1 of Section 4 of Article I of the Illinois
Insurance Code.
ARTICLE V
The Corporation also proposes to engage in the rendering of services
related to functions involved in the operation of its insurance business,
including, but not limited to, actuarial, data processing, accounting, claims,
risk appraisal, collection services, financial services and any other business
activity reasonably complementary or supplementary to its authorized insurance
business.
ARTICLE VI
The corporate powers shall be exercised by a Board of Directors, the
number of whom, within the minimum and maximum limits authorized by law, shall
be as provided in the Bylaws. All directors shall be at least twenty-one years
of age, and at least three directors shall be residents and citizens of
Illinois. All directors shall be elected annually in the manner provided by law.
Vacancies in the Board of Directors may be filled by the shareholders for the
balance of the term at a special meeting of shareholders called for that
purpose. Shareholders may vote in person or by proxy at all meetings of
shareholders as provided in the Bylaws.
<PAGE>
ARTICLE VII
The amount of the capital stock of the Corporation shall be one
million dollars ($1,000,000) divided into ten thousand (10,000) common shares of
the par value of one hundred dollars ($100.00) each. The total number of the
said ten thousand (10,000) common shares of the par value of one hundred dollars
($100.00) each is to be issued and sold in accordance with the provisions of
Article II of the Illinois Insurance Code, to provide a paid-up capital of one
million dollars ($1,000,000) and a paid-in surplus of two million dollars
($2,000,000).
ARTICLE VIII
The corporate powers shall be exercised by and its business and
affairs shall be under the control of the Board of Directors which shall have
the power to make, alter, amend, and repeal Bylaws and regulations for the
government of the officers and the general conduct of the business and affairs
of the Corporation.
Dated this 10th day Of December, 1979.
STATE FARM LIFE AND ACCIDENT
ASSURANCE COMPANY
By (Signed) EDWARD B. RUST
----------------------------------
Edward B. Rust, President
ATTEST:
(Signed) MARVIN D. BOWER
- ------------------------------
Marvin D. Bower, Secretary
(Seal) APPROVED this 21st day of
December, A.D., 1979.
(Signed) PHILIP R. O'CONNOR
------------------------------------
PHILIP R. O'CONNOR
Acting Director of Insurance
<PAGE>
BYLAWS
of the
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
(Amended as of March 9, 1992)
ARTICLE I
NAME, LOCATION, PURPOSE, AND PLAN
Section 1. The name of the Company shall be State Farm Life and
Accident Assurance Company.
Section 2. The principal office and principal place of business
of the Company shall be located at Bloomington, McLean County, Illinois.
Section 3. The objects and purposes of the Company are to
transact life, accident and health insurance and related services, as set forth
in the Articles of Incorporation.
Section 4. The Company shall be conducted upon the stock plan and
may issue insurance policies and annuity contracts upon the participating or
non-participating plan as may be determined from time to time by the Board of
Directors.
ARTICLE II
CORPORATE SEAL
A seal with the words "State Farm Life and Accident Assurance
Company, Corporate Seal, Bloomington, Illinois" upon it shall be the corporate
seal of the Company, which shall be in the custody of the Secretary of the Board
of Directors.
ARTICLE III
OFFICERS, THEIR ELECTION OR APPOINTMENT,
TERMS AND POWERS
Section 1. (a) The elective officers of the Company shall consist
of a Chairman of the
<PAGE>
Board of Directors, a President, and an Executive Vice President. Such officers
shall be elected at the Annual Meeting of the Board of Directors, to serve until
the next succeeding Annual Meeting of the Board of Directors. All such officers
shall be Directors. Any such office becoming vacant may be filled for the
unexpired term by the Board of Directors. In its discretion, the Board of
Directors by vote of the majority thereof, may leave unfilled for any period it
may fix by resolution, any office, except that of President and Executive Vice
President. Any Director may be an officer, and two or more elective offices,
except those of President and Executive Vice President, may be held by the same
person.
(b) The Board of Directors shall appoint a Secretary of the Board of
Directors and a Secretary of the Company and, in addition, may appoint a
Treasurer of the Company, one or more Senior Vice Presidents, Vice Presidents,
Counsel, Actuaries, Controllers, Medical Directors, Mathematicians,
Statisticians, Auditors, Secretaries, Assistant Secretaries, Assistant
Treasurers, and other officers, and fix the title, duties, and term of
appointment of each. Such appointive officers may be appointed or removed by the
Board of Directors at any meeting. Any two or more offices may be held by the
same person, except that the President may not also hold the office of Secretary
of the Board of Directors or Secretary of the Company.
Section 2. The Chairman of the Board of Directors shall preside
at all meetings of the Stockholders and of the Board of Directors, and by virtue
of his office shall be a member of the Executive Committee and the Investment
Committee. In the absence of the President, he shall act as the Chief Executive
Officer.
Section 3. The President shall be the Chief Executive Officer of
the Company and by virtue of his office, shall be a member of the Executive
Committee and of the Investment Committee. In the absence of the Chairman of the
Board, the President shall preside at all meetings of the Stockholders and of
the Board of Directors. He may sign and execute all authorized bonds, checks,
contracts or other obligations in the name of the Company, and shall have such
other powers and perform such duties as may be from time to time assigned to him
by the Board of Directors.
Section 4. The Executive Vice President shall be the Chief
Administrative Officer and shall have such other powers and perform such other
duties as may be assigned to him by the Board of Directors. In the absence of
the Chairman of the Board and the President, the Executive Vice President shall
preside at all meetings of the Stockholders and of the Board of Directors. In
the absence of the President and the Chairman of the Board, the Executive Vice
President shall act as the Chief Executive Officer.
Section 5. The Secretary of the Board of Directors shall keep
accurate minutes of all Meetings of the Stockholders and of all Meetings of the
Board of Directors, and shall give notice of all meetings requiring notice and
shall perform all other usual duties incident to the office.
Section 6. The Chairman of the Board of Directors and such other
officers and persons as may be designated by the Board of Directors shall
furnish, at the expense of the
<PAGE>
Company, surety bonds in such amount and form as may be required by the Board of
Directors.
Section 7. Subject to the requirements and limitations of Section
245 of the Illinois Insurance Code, the officers of the Company shall receive
such salary or compensation as shall be fixed by the Board of Directors.
ARTICLE IV
BOARD OF DIRECTORS, THEIR ELECTION, TERMS AND POWERS
Section 1. The corporate powers of the Company shall be exercised
by a Board of Directors consisting of eleven natural persons.
Section 2. The total number of Directors shall be elected by a
majority vote of the stockholders at each Annual Meeting of the Stockholders,
and all Directors shall serve until the next succeeding Annual Meeting of the
Stockholders, or until their successors are elected and qualified. Any vacancy
in the Board of Directors may be filled for the unexpired term by a majority
vote of the Stockholders at a Special Meeting of the Stockholders called for
that purpose; provided that the total number of elected directors shall not be
less than seven.
Section 3. Each Director shall be at least twentyone years of
age. All nominations for Directors shall be filed in writing with the Secretary
of the Board of Directors at least fifteen days prior to the date of election.
If nominations are not so filed, consent of the owners of two-thirds of the
shares of stock represented at the meeting shall be required to consider the
same.
Section 4. All regular elections of Directors shall be held at
Annual Meetings of the Stockholders. In all elections of Directors, each share
of stock shall be entitled to as many votes as there are Directors to be elected
and each shareholder shall be entitled to cumulate his votes for one candidate
or to so distribute them among two or more candidates as he deems appropriate.
Section 5. At least three of the Directors shall be residents and
citizens of the State of Illinois.
Section 6. (a) The Board of Directors shall have the general
control and management of the business and affairs of the Company. They shall
have power to make, alter, amend and repeal Bylaws and rules and regulations and
to take all other action necessary or desirable for the proper transaction and
conduct of the business and affairs of the Company.
(b) The Board of Directors at its Annual Meeting
may by resolution adopted by a majority of the whole Board, appoint an Executive
Committee consisting
<PAGE>
of the Chairman of the Board of Directors, the President and three other
Directors who may be officers. Such Executive Committee shall serve until the
next Annual Meeting of the Board of Directors. Vacancies on such committee may
be filled by the Board of Directors at any meeting. A majority of the Executive
Committee shall be residents of Illinois. Meetings of the Committee may be
called by the Chairman of the Board of Directors, the President, or any three
members of the Committee. Three members shall constitute a quorum for the
transaction of business. The Executive Committee shall have and exercise
between meetings of the Board of Directors the authority of the Board of
Directors in the management of the Company but shall not have power to amend the
Articles of Incorporation or the Bylaws. The Executive Committee shall keep a
written record of their transactions and shall report the same to the Board of
Directors at regular meetings of the Board.
(c) There shall be an Investment Committee
consisting of the Chairman of the Board of Directors, the President, and two
other Directors who may be officers. Such other Directors shall be chosen at
the Annual Meeting of the Board of Directors to serve until the next Annual
Meeting of the same. Vacancies on such Committee may be filled by the Board of
Directors at any meeting. Meetings of the Investment Committee may be called by
the Chairman of the Board of Directors, the President, or any two members of the
committee. Two members of the committee shall constitute a quorum for the
transaction of business. The Investment Committee shall have power to invest
the assets of the Company in investments authorized by law and shall have
power to sell or exchange the same. The Investment Committee shall keep a
written record of their transactions and shall report the same to the Board of
Directors at regular meetings of the Board.
Section 7. The Board of Directors shall approve the terms and
conditions of all agency agreements, but agency appointments shall be made by or
under the direction of the officers of the Company.
Section 8. Subject to the requirements and limitations of Section
245 of the Illinois Insurance Code, the members of the Board of Directors,
except such members as may also be officers of the Company, shall receive their
actual expenses and such per diem or compensation as fixed by the Board of
Directors for attending meetings of the Board or meetings of the Committees of
the Board.
ARTICLE V
ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
Section 1. The Annual Meeting of Stockholders shall be held
the Second
<PAGE>
Monday in March at the hour of 2:00 p.m. at the Home Office of the Company
unless the Directors shall elect to change the date or the time or the place of
such meeting. Notice of the Annual Meeting stating the time and place thereof
shall be mailed or delivered personally to each Stockholder at his last known
address at least ten days prior thereto. Annual Meetings of Stockholders may be
held without such notice when all Stockholders are present and sign waiver of
notice.
Section 2. Special meetings of the Stockholders may be called by
the Chairman of the Board or by the President and shall be called upon either
written request of a majority of the total number of Directors or written
request of persons holding a majority of the stock outstanding. Notice of such
special meetings, stating the time, place and purpose thereof, shall be mailed
or delivered personally to each Stockholder at his last known address at least
ten days prior thereto and no business shall be transacted at any such special
meeting except that stated in the written notice thereof. Special meetings of
Stockholders may be held without such notice when all are present and sign
waiver of notice.
Section 3. Stockholders representing a majority of the stock
outstanding, present in person or by proxy, in any meetings of Stockholders
shall constitute a quorum but a lesser number may adjourn to another time. A
majority of the quorum present in person or by proxy at any meeting of
Stockholders shall govern any proceeding not herein or by law requiring a
different vote. Proxies shall be in writing and shall be filed with the
Secretary of the Board of Directors at least ten days prior to the date of
meeting at which such proxies are to be voted.
ARTICLE VI
ANNUAL AND SPECIAL MEETINGS OF
THE BOARD OF DIRECTORS
Section 1. The Annual Meeting of the Board of Directors shall be
held at the Home Office of the Company immediately following the adjournment of
the Annual Meeting of the Stockholders or as soon thereafter as practicable
unless the Directors shall elect to change the date or the time or the place of
such meeting, in which case, but not otherwise, due notice shall be mailed to
each Director as in the case of Special Meetings of the Directors. Regular
quarterly meetings shall be held at such place and at such times as may be fixed
by the Board. Notice of such Regular meetings shall not be required.
Section 2. Special Meetings of the Board of Directors may be
called by the Chairman of the Board or by the President and shall be called by
either of them upon written request of a majority of the total number of
Directors. Notice of Special Meetings, stating the time and place thereof, shall
be mailed or delivered personally to each Director at least five days prior
thereto but neither the business to be transacted nor the purpose of such
meetings need be
<PAGE>
stated in the notice. Special Meetings may be held without such notice when all
Directors are present and sign waiver of notice which need not state the
business to be transacted or the purpose of the meeting. Attendance of a
Director at any such meeting shall constitute a waiver of notice except where a
Director appears for the express purpose of objecting that the meeting is not
lawfully called or convened.
Section 3. Six Directors shall constitute a quorum at all
meetings but a lesser number may adjourn to another time. A majority vote of the
quorum present at any meeting shall govern all proceedings not herein or by law
requiring a different vote."
ARTICLE VII
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 1. The Company shall cause to be issued to each
Stockholder a certificate representing the number of shares of capital stock
owned in the Company. The certificates shall be numbered consecutively and be in
such form, not inconsistent with the laws of the State of Illinois, as may be
adopted by the Board of Directors. The certificates shall be signed by the
President or the Executive Vice President and the Secretary of the Board of
Directors and shall have affixed thereto the corporate seal. No certificate
shall be issued without a knowledge of the apparent title of the person to whom
it is issued.
Section 2. The shares of the capital stock of the Company shall
be transferable only upon the books of the Company by the owner in person or by
the legal representative of such owner, and, upon any such transfer being made,
the old certificate shall be surrendered to the person in charge of the stock
and transfer books and ledger or to such other person as the Board of Directors
may designate, who shall cancel the same and thereupon issue a new certificate
or certificates therefor.
Section 3. The transfer books shall be closed for a period of
fifteen days prior to the date set for any Annual Meeting and for such period of
time prior to the date set for the payment of dividends to Stockholders as the
Board of Directors may, from time to time, determine and during such period no
stock shall be transferred.
Section 4. The Board of Directors may appoint a transfer agent or
registrar of transfers and thereafter may require all stock certificates to bear
the signature of such transfer agent or registrar of transfers. Until otherwise
changed by the Board of Directors, the Secretary of the Board of Directors shall
act as transfer agent and registrar of transfers.
Section 5. The Company shall be entitled to treat the registered
holder of any share as the absolute holder thereof and accordingly shall not be
bound to recognize any
<PAGE>
equitable or any other claim thereto or interest therein, on the part of any
other person, whether or not it shall have express or other notice thereof, save
as expressly provided by the statutes of the State of Illinois.
Section 6. The Board of Directors shall also have the power and
authority to make any rules and regulations they may deem expedient concerning
the issue, transfer and registration of the certificates for the shares of the
capital stock of the Company.
Section 7. Any person claiming a certificate of stock of the
Company to be lost or destroyed, shall make affidavit of the fact and file the
same with the Secretary of the Board of Directors, accompanied by a signed
application for a new certificate. Such person shall also advertise such lost
certificate if the Board of Directors shall so require and shall give the
Company a bond of indemnity with one or more sureties satisfactory to the Board
of Directors and in an amount, which in their judgment, shall be sufficient to
save the Company from loss, and thereupon the proper officers may cause to be
issued a new certificate of like tenor with the one alleged to be lost or
destroyed, but the Board of Directors may refuse the issuance of such new
certificate.
Section 8. Each certificate, representing a share or shares of
the capital stock, shall have stamped or printed thereon, when and as issued,
the amount actually received therefor or the words "Fully Paid and
Non-Assessable."
ARTICLE VIII
DIVIDENDS
Subject to the limitations provided by law, the Board of
Directors may set apart from time to time, such part of the net earnings,
savings, or profits of the Company as they in their discretion may deem proper
for any or all of the following purposes:
(a) For a reserve fund to meet contingencies; (b) For dividends to
participating policyholders; (c) For dividends to Stockholders. The Board of
Directors shall fix the time or times when any such amounts set apart for
dividends to participating policyholders or Stockholders shall be due and
payable. Any amounts set apart for dividends to participating policyholders
shall be equitably apportioned among such policyholders.
ARTICLE IX
FISCAL YEAR
<PAGE>
The fiscal year of the Company shall begin on the first day of
January and terminate on the thirty-first day of December of each year.
ARTICLE X
AMENDMENT OF BYLAWS
These Bylaws may be amended by the Board of Directors at any
regular or special meeting by a majority vote of the entire number of Directors.
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT is made and entered into this 12th day of December, 1997
by and between STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY, an Illinois
corporation (the "Company"), on its own behalf and on behalf of the segregated
asset accounts of the Company set forth on Schedule A attached hereto (each, an
"Account"; collectively, the "Accounts"), STATE FARM VARIABLE PRODUCT TRUST, a
Delaware business trust (the "Trust"), and STATE FARM INVESTMENT MANAGEMENT
CORP., a Delaware corporation ("SFIM").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust issues shares of beneficial interest (the "Shares")
registered under the Securities Act of 1933, as amended (the "1933 Act")
pursuant to a registration statement initially filed with the Securities and
Exchange Commission on February 27, 1997, as amended from time to time (the
"Registration Statement");
WHEREAS, the Trust has established six separate series of Shares, each
corresponding to a separate investment portfolio having its own investment
objective, and may establish additional series of Shares in the future (such
existing and future series are collectively referred to herein as the "Funds");
WHEREAS, the Trust is available to act as the investment vehicle for the
Accounts, and other separate accounts established in connection with variable
life insurance policies and variable annuity contracts issued by the Company and
its affiliates (the "Contracts");
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolutions of the Board of Directors of the
Company, to set aside and invest assets attributable to the Contracts that are
allocated to the Accounts (the Contracts and the Accounts covered by this
agreement, and the corresponding Funds covered by this agreement in which the
Accounts invest, are specified in Schedule A attached hereto as may be modified
from time to time);
WHEREAS, the Company has registered the Accounts as unit investment
trusts under the 1940 Act;
WHEREAS, SFIM, the Trust's investment adviser and principal underwriter,
is an investment adviser registered under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and all applicable state securities laws, a
broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Trust, either directly or in conjunction with SFIM as its
principal underwriter, intends to make a continuous offering of its shares at
net asset value, and the Company has and intends to purchase the shares of the
Funds on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Trust, and SFIM agree as follows:
ARTICLE 1
SALE OF TRUST SHARES
1.1 The Trust and SFIM agree to sell to the Company those
shares of the Trust which the Accounts order, executing such orders on a daily
basis at the net asset value next computed after receipt by the Trust, SFIM, or
their designee for the order of the shares of the Trust. For purposes of this
Section 1.1, the Company shall be the Trust's and SFIM's designee for receipt
of such orders from Contract owners and receipt by the Company shall constitute
receipt by the Trust and SFIM; PROVIDED, that either the Trust or SFIM receives
notice of such order by 7:30 a.m. Chicago time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net asset value pursuant
to the rules of the Securities and Exchange Commission (the "SEC").
1.2 The Trust and SFIM agree to make Trust shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and the Accounts on those days on which the Trust calculates its net
asset value pursuant to rules of the SEC. The Trust shall use reasonable efforts
to calculate its net asset values on the days and at the times described in the
Trust's prospectus (as of the date hereof, as of the close of the New York Stock
Exchange on each day on which the New York Stock Exchange is open for trading,
but not on the Friday following Thanksgiving nor on December 26, 1997).
Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board")
may refuse to sell shares of any Fund to the Company and the Accounts, or
suspend or terminate the offering of shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of its fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Fund.
1.3 The Trust and SFIM agree that shares of the Trust will be
sold to the Company and the Accounts. In addition. shares of the Trust may be
sold to other insurance companies affiliated with the Company or their separate
accounts. Shares will not be sold to natural persons. Nothing herein shall
prohibit the Company from establishing separate accounts or sub-accounts other
than the Accounts which purchase shares from investment companies other than the
Trust.
2
<PAGE>
1.4 The Company shall pay for the Trust shares in federal funds
transmitted by wire on the next Business Day after an order to purchase shares
is made in accordance with the provisions of Section 1.1 hereof. For purpose of
Section 2.8, upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. The amount of redemption proceeds payable
pursuant to Section 1.6 may be credited toward any purchase payments due
pursuant to this Section 1.4.
1.5 The Trust agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Trust held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Trust for
receipt of requests for redemption from Contract owners and receipt by such
designee shall constitute receipt by the Trust; PROVIDED, that the Trust
receives notice of such request for redemption by 7:30 a.m. Chicago time on the
next following Business Day.
1.6 Payment of redemption proceeds will be in federal funds
transmitted by wire on the same Business Day the Trust receives notice of the
redemption order from the Company. The Trust reserves the right to delay payment
of redemption proceeds, but in no event may such payment be delayed longer than
the period permitted by the 1940 Act. If notification of redemption is received
after 7:30 a.m. Chicago time, payment for redeemed shares will be made on the
next following Business Day. For purpose of Section 2.8, upon receipt by the
Company of the federal funds so wired, such funds shall cease to be the
responsibility of the Trust and shall become the responsibility of the Company;
the Trust will not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds. Purchase payments payable
pursuant to Section 1.4 may be credited toward any amounts of redemption
proceeds due pursuant to this Section 1.6.
1.7 Unless otherwise determined by the Board, issuance and
transfer of the Trust's shares will be by book entry only and share certificates
will not be issued to the Company or the Accounts. Shares ordered from the Trust
will be recorded in an appropriate title for the Accounts or the appropriate
subaccounts of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or
telephone followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Fund shares in additional shares of that Fund. The Trust shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.9 The Trust or its custodian shall make the net asset value
per share for each Fund available to the Company on each Business Day as soon as
reasonably practical
3
<PAGE>
after the net asset value per share is calculated and shall use its best efforts
to make such net asset value per share available by 6:00 p.m. Chicago time.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act, and that the Contracts will be issued,
sold, and distributed in material compliance with all applicable state and
federal laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law, that it has
legally and validly established the Accounts as segregated asset accounts under
Illinois law, and that it has registered the Accounts as unit investment trusts
in accordance with the provisions of the 1940 Act (unless exempt therefrom) to
serve as segregated investment accounts for the Contracts and that it will
maintain such registrations for so long as any Contracts are outstanding. The
Company shall amend the registration statements under the 1933 Act for the
Contracts and the registration statements under the 1940 Act for the Accounts
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale in accordance with the securities
laws of the various states only if and to the extent deemed necessary by the
Company.
2.2 The Company represents that it believes, in good faith,
that the Contracts are currently and at the time of issuance will be treated as
life insurance, endowment or annuity contracts under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), that it will make
every effort to maintain such treatment and that it will notify the Trust
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.3 The Trust and SFIM represent and warrant that Trust shares
sold pursuant to this agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in material compliance with the laws of
Delaware and all applicable federal and state securities laws. The Trust further
represents that it is and shall remain registered under the 1940 Act, and that
it shall amend the Registration Statement for its shares under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify the shares for sale
in accordance with the laws of the various states, including those states
designated by SFIM pursuant to its underwriting agreement with the Trust, only
if and to the extent deemed advisable by the Trust.
2.4 The Trust represents that each Fund of the Trust is
currently qualified or will be qualified as a Regulated Investment Company under
Subchapter M of the Code and that every effort will be made to maintain such
qualification (under Subchapter M or any successor
4
<PAGE>
or similar provision) and that the Trust will notify the Company orally
(followed by written notice) or by wire immediately upon having a reasonable
basis for believing that any Fund of the Trust has ceased to so qualify or that
any Fund might not so qualify in the future.
2.5 The Trust currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. However, if the
Trust were authorized to establish a l2b-1 plan, the Trust would undertake to
have the Board, of which a majority of trustees are not interested persons, as
defined in the 1940 Act, of the Trust, formulate and approve any plan under Rule
l2b-1 to finance distribution expenses.
2.6 The Trust represents that it is lawfully organized and
validly existing under the laws of the State of Delaware and that it does and
will comply in all material respects with the 1940 Act.
2.7 SFIM represents that it is and shall remain duly registered
as an investment adviser and broker-dealer under all applicable federal and
state securities laws at all times when it is the Trust's investment adviser and
principal underwriter and that it shall perform its obligations for the Trust in
material compliance with any applicable state and federal securities laws and
NASD rules and regulations relating to broker-dealers.
2.8 The Trust, SFIM, and the Company each represents and
warrants that all of its directors, trustees, officers, employees, investment
advisers, and other individuals or entities dealing with the money and/or
securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the minimal coverage as required currently by Section 17(g)
and Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
ARTICLE 3
PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At least annually, the Trust shall, at its expense or at
the expense of SFIM, as appropriate, provide the Company, free of charge, with
as many copies of the Trust's current prospectus as the Company may reasonably
request for distribution to both existing Contract owners and prospective
purchasers. If requested by the Company in lieu thereof, the Trust shall provide
such documentation (including a final "camera ready" copy of the new prospectus
as set in type at the Trust's expense) and other assistance as is reasonably
necessary in order for the parties hereto once each year (or more frequently if
the prospectus for the Trust is supplemented or amended) to have the
prospectus for the Contracts and the Trust's prospectus printed together in one
document; the expenses of such printing to be
5
<PAGE>
apportioned between the Company and the Trust (or SFIM, if appropriate) in
proportion to the number of pages of the Contract and Trust prospectuses, taking
account of other relevant factors affecting the expense of printing, such as
columns, charts, etc.; the Trust or SFIM will bear the cost of printing the
Trust's portion of such document, and the Company will bear the expenses of
printing the Accounts' portion of such document.
3.2 The Trust's prospectus shall state that the Statement of
Additional Information ("SAI") for the Trust is available from the Trust. The
Trust, at its expense or at the expense of SFIM, as appropriate, shall print and
provide the SAI to the Company (or a master of the SAI suitable for duplication
by the Company) for any Contract owner or prospective purchaser who requests the
SAI. The Company shall provide the SAI to any Contract owner or prospective
purchaser who requests it.
3.3 The Trust (or SFIM, as appropriate), at its expense, shall
provide the Company with copies of its proxy material, reports to shareholders
and other communications to shareholders in such quantity as the Company shall
reasonably require for distribution to Contract owners.
3.4 The Company shall: (a) solicit voting instructions from
Contract owners; (b) vote the Trust shares in accordance with instructions
received from Contract owners; and (c) vote Trust shares for which no
instructions have been received in the same proportion as Trust shares of such
Fund for which instructions have been received. The Company reserves the right
to vote Trust shares held in the Accounts in its own right, to the extent
permitted by law.
3.5 The process of soliciting Contract owners' voting
instructions, tabulating votes, and other shareholder voting procedures shall be
conducted in accordance with procedures adopted by the Company.
ARTICLE 4
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished,
to the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust is named, at least five (5) Business
Days prior to its use by the Company. No such material shall be used by the
Company if the Trust or its designee object to such use within five (5) Business
Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and
6
<PAGE>
prospectus may be amended or supplemented from time to time, or in reports or
proxy statements for the Trust which are in the public domain or approved by the
Trust for distribution to Contract owners, or in sales literature or other
promotional material approved by the Trust or its designee, except with the
permission of the Trust. The Trust or its designee agrees to respond to any
request for approval on a prompt and timely basis.
4.3 The Trust shall furnish, or shall cause to be furnished, to
the Company or its designee, each piece of sales literature or other promotional
material in which the Company and/or the Accounts is named, at least five (5)
Business Days prior to its use by the Trust. No such material shall be used by
the Trust if the Company or its designee object to such use within five (5)
Business Days after receipt of such material.
4.4 The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts, or the Contracts other than information or representations contained
in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Accounts which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company or its designee
agrees to respond to any request for approval on a prompt and timely basis.
4.5 The Company and the Trust may each request that the other
provide at least one complete copy of all registration statements, prospectuses,
SAIs, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for "no-action" letters, and
all amendments to any of the above, that relate to the Contracts, or to the
Trust or its shares, prior to or contemporaneously with the filing of such
document with the SEC or other regulatory authority. The Company or Trust shall
also each promptly inform the other of the results of any examination by the SEC
(or other regulatory authority) that relates to the Contracts, the Trust or its
shares, and the party that was the subject of the examination shall provide the
other party with a copy of any "deficiency letter" or other correspondence or
written report regarding any such examination.
4.6 For purposes of this Article 4, the phrase "sales
literature or other promotional material" means advertisements (defined as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, telephone directories (other than routine
listings), electronic or other public media), sales literature (defined as any
written or electronic communication distributed or made generally available to
customers or the public that is not an advertisement as defined above,
including, but not limited to, circulars, research reports, market letters,
performance reports or summaries, form letters, telemarketing scripts, seminar
texts, and reprints or excerpts of any other advertisement, sales literature or
published
7
<PAGE>
article), and educational or training materials or communications distributed or
made generally available to some or all agents or employees.
ARTICLE 5
FEES AND EXPENSES
5.1 No party hereto shall pay any fee or other compensation to
any other party hereto pursuant to this agreement, except that if the Trust or
any Fund adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution expenses, then, subject to obtaining any regulatory
approvals, the Trust may make payments to the Company, SFIM, or the Company's
principal underwriter for the Contracts if and in amounts agreed to by the Trust
in writing.
5.2 Each party shall reimburse each other party for expenses
initially paid by such other party but allocated to it in accordance with any
allocation of expenses specified in Article 3 hereof.
ARTICLE 6
DIVERSIFICATION AND RELATED LIMITATIONS
6.1 Subject to the Company's obligations under Section 2.2
hereof, the Trust and SFIM each represent and warrant that the Trust will at all
times invest its assets in such a manner as to ensure that the Contracts will be
treated as annuity, endowment, or life insurance contracts under the Code and
the regulations issued thereunder. Without limiting the scope of the foregoing,
the Trust and SFIM will at all times ensure that the Trust complies with Section
817(h) of the Code and Treas. Reg. Section 1.817-5, as amended from time to
time, and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations.
6.2 Trust shares will not be sold to any person or entity that
would result in the Contracts not being treated as annuity, endowment, or life
insurance contracts, in accordance with the statutes and regulations referred to
in Section 6.1 hereof.
8
<PAGE>
ARTICLE 7
POTENTIAL MATERIAL CONFLICTS
7.1 The Board shall monitor each Fund of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract owners and the variable life policy owners of the
Company and/or affiliated companies (collectively, "contract owners") investing
indirectly in the Trust. The Trust represents that at all times at least a
majority of the trustees of the Trust shall not be interested persons, as
defined in the 1940 Act (the "disinterested trustees"). The Board shall have the
sole authority to determine if a material irreconcilable conflict exists, and
such determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the disinterested
trustees of the Board. The Board will give prompt notice of any such
determination to the Company.
7.2 The Company agrees that it will be responsible for
reporting any potential or existing conflicts to the Board. The Company also
agrees that, if a material irreconcilable conflict arises, it will at its own
cost remedy such conflict up to and including: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any Fund and
reinvesting such assets in a different investment medium, including (but not
limited to) another Fund of the Trust, or submitting to a vote of all affected
contract owners whether to withdraw assets from the Trust or any Fund and
reinvesting such assets in a different investment medium and, as appropriate,
segregating the assets attributable to any appropriate group of contract owners
that votes in favor of such segregation, or offering to any of the affected
contract owners the option of segregating the assets attributable to their
contracts or policies; and/or (b) establishing and registering a new management
investment company and segregating the assets underlying the Contracts, unless a
majority of Contract owners materially adversely affected by the conflict have
voted to decline the offer to establish and register a new management investment
company.
7.3 A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies any
material irreconcilable conflict. In the event that the Board determines that
any proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw each Account designated by the disinterested
trustees from investment in the Trust and terminate this agreement within six
(6) months after the Board informs the Company in writing of the foregoing
determination: PROVIDED, that such withdrawal and termination shall be limited
to the extent required to remedy any such material irreconcilable conflict as
determined by a majority of the disinterested trustees of the Board.
7.4 The Trust agrees that it will not enter into any
participation agreement with a life insurance company affiliated with the
Company unless such agreement includes a section substantially identical to this
Article 7.
9
<PAGE>
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless
the Trust and SFIM and each of the Trust's and SFIM's trustees, directors, and
officers and each person, if any, who controls the Trust or SFIM within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (collectively, the "Indemnified Parties" for purposes of this Section
8.1), against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, PROVIDED, that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished the Company by or on behalf of
the Trust or SFIM for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature of the Trust not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to the Trust or SFIM by or on behalf of the Company; or
10
<PAGE>
(iv) arise out of or result from any material
breach of any representation and/or warranty made by the Company in this
agreement or arise out of or result from any other material breach of this
agreement by the Company;
except to the extent provided in Sections 8.1(b) and 8.1(c) hereof.
(b) The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision,
except to the extent that failure to notify results in failure of actual
notice to the Company and the Company is damaged solely as a result of
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless: (i)
the Company and the Indemnified Party shall have mutually agreed on the
retention of such counsel; or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the
Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify
the Indemnified Party from all and against any loss or liability by reason of
such settlement or judgment.
(c) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust and the Indemnified Parties will provide the Company with
all relevant information and documents requested by the Company. For purposes of
this Section 8.l(c), the "commencement" of proceedings shall include any
informal or formal communications from the SEC or its staff (or the receipt of
information from any other persons or entities) indicating that enforcement
action by said Commission or staff may be contemplated or forthcoming; this
includes any information to the effect that any matter(s) has been referred to
the SEC's Division of Enforcement, or that any matter(s) is being discussed with
that Division.
11
<PAGE>
8.2 INDEMNIFICATION BY THE TRUST AND SFIM.
(a) The Trust and SFIM, in each case solely to the
extent relating to such party's responsibilities hereunder, agree to indemnify
and hold harmless the Company and each or its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act, and any agents or employees of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.2), against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust and SFIM) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, PROVIDED, that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Trust by or on behalf of the Company for use in the registration
statement or prospectus for the Trust or in sales literature for the Trust (or
any amendment or supplement) or otherwise for use in connection with the sale of
the Contracts or Trust shares;
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
registration statement, prospectus or sales literature for the Contracts not
supplied by the Trust, or persons under its control) or wrongful conduct of the
Trust or persons under its control, with respect to the sale or distribution of
the Contracts or Trust shares;
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Trust;
or
(iv) arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this agreement
or arise out of or result from any other material breach of this agreement by
the Trust (including a failure, whether
12
<PAGE>
unintentional or in good faith or otherwise, to comply with the requirements
specified in Article 6 of this agreement);
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
(b) Neither the Trust nor SFIM shall be liable under
this indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the Trust or
SFIM in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the Trust
or SFIM of any such claim shall not relieve the Trust or SFIM from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision, except to the
extent that failure to notify results in the failure of actual notice to the
Trust or SFIM and the Trust or SFIM is damaged solely as a result of failure to
give such notice. In case any such action is brought against the Indemnified
Parties, the Trust and SFIM will be entitled to participate, at their own
expense, in the defense thereof. The Trust and SFIM also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust or SFIM to such party of its election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and neither the Trust nor
SFIM shall be liable to such party under this agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
Trust, SFIM and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include the Trust or SFIM and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
Neither the Trust nor SFIM shall be liable for any settlement of any proceeding
effected without their written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the Trust and SFIM agree to
indemnify the Indemnified Party from and against any loss or liability by
reason of such settlement or judgment.
(c) The Indemnified Parties will promptly notify both
the Trust and SFIM of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust and the Indemnified Parties will provide
the Trust or SFIM with all relevant information and documents requested by the
Trust or SFIM, respectively. For purposes of this Section 8.1(c), the
"commencement" of proceedings shall include any informal or formal
communications from the SEC or its staff (or the receipt of information from any
other persons or entities) indicating that enforcement action by said Commission
or staff may be contemplated or forthcoming; this includes any information to
the effect that any matter(s) has been referred to
13
<PAGE>
the SEC's Division of Enforcement, or that any matter(s) is being discussed with
that Division.
8.3 A successor by law of the parties to this agreement shall
be entitled to the benefits of the indemnification contained in this Article 8.
The indemnification provisions contained in this Article 8 shall survive any
termination of this agreement.
ARTICLE 9
LIMITATIONS OF LIABILITY
9.1 LIMITATION OF LIABILITY OF COMPANY. The Company shall give
the Trust and SFIM the benefit of the Company's best judgment and efforts in
fulfilling its obligations under this agreement; PROVIDED, that the Company
shall not be liable for any error of judgment or import of law, or for any loss
suffered by the Trust or SFIM in connection with the matters to which this
agreement relates, except loss resulting from: (i) willful misfeasance, bad
faith or gross negligence on the part of the Company in the performance of its
obligations and duties under this agreement; (ii) its reckless disregard of its
obligations and duties under this agreement; or (iii) a breach of Section 2.2 of
this agreement.
9.2 LIMITATION OF LIABILITY OF SFIM. SFIM shall give the Trust
and the Company the benefit of SFIM's best judgment and efforts in fulfilling
its obligations under this agreement; PROVIDED, that SFIM shall not be liable
for any error of judgment or import of law, or for any loss suffered by the
Trust or the Company in connection with the matters to which this agreement
relates, except loss resulting from: (i) willful misfeasance, bad faith or gross
negligence on the part of SFIM in the performance of its obligations and duties
under this agreement; (ii) its reckless disregard of its obligations and duties
under this agreement; or (iii) a breach of Sections 2.4 or 6.1 of this
agreement.
9.3 LIMITATION OF LIABILITY OF TRUST. The Company and SFIM each
acknowledge that it has received notice of and accepts the limitations on the
Trust's liability as set forth in the Trust's Declaration of Trust, as amended
from time to time. In accordance therewith, the Company and SFIM agree that the
Trust's obligations hereunder shall be limited to the assets of the Funds, and
with respect to each Fund shall be limited to the assets of such Fund, and no
party shall seek satisfaction of any such obligation from any shareholder of the
Trust, nor from any trustee, officer, employee or agent of the Trust.
14
<PAGE>
ARTICLE 10
DURATION AND TERMINATION OF THIS AGREEMENT
10.1 EFFECTIVE DATE AND TERM. This agreement shall not become
effective unless and until it is approved by the Trust's Board. This agreement
shall come into full force and effect on the date which it is so approved,
provided that it shall not became effective as to any subsequently created
Fund until it has been approved by the Board specifically for such Fund.
10.2 TERMINATION.
(a) This agreement shall terminate with respect to one,
some, or all the Accounts, or one, some, or all Funds:
(i) at the option of any party upon six months'
advance written notice to the other party;
(ii) at the option of the Company to the extent
that shares of the Funds are not reasonably available to meet the requirements
of the Contracts or are not "appropriate funding vehicles" for the Contracts,
as determined by the Company reasonably and in good faith; PROVIDED, that prompt
notice of the election to terminate for such cause and an explanation of such
cause shall be furnished by the Company;
(iii) at the option of the Trust upon institution
of formal proceedings against the Company by the SEC or any insurance department
or any other regulatory body regarding the Company's duties under this agreement
or related to the sale of the Contracts, the operation of the Accounts, or the
purchase of the Trust shares;
(iv) at the option of the Company upon institution
of formal proceedings against the Trust or SFIM by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body;
(v) at the option of the Company or the Trust
upon receipt of any necessary regulatory approvals and/or the vote of the
Contract owners having an interest in the Accounts (or any subaccount) to
substitute the shares of another investment company for the corresponding Fund
shares of the Trust in accordance with the terms of the Contracts for which
those Fund shares had been selected to serve as the underlying investment media;
PROVIDED, that the Company will give 30 days' prior written notice to the Trust
of the date of any proposed vote or other action taken to replace the Trust's
shares; or
(vi) at the option of the Company or the Trust,
upon the other party's material breach of any provision of this agreement.
15
<PAGE>
(b) Without limiting the generality of Section
10.l(a)(ii), shares of a Fund would not be "appropriate funding vehicles" if,
for example, such shares did not meet the diversification or other requirements
referred to in Article 6 hereof, the Fund did not qualify under Subchapter M of
the Code, as referred to in Section 2.4 hereof, the investments or investment
policies, objectives, and/or limitations of the Fund would impose unanticipated
risks on the Company, or if the Company would be permitted to disregard policy
owner voting instructions under the 1940 Act or the rules promulgated
thereunder.
10.3 Any notice pursuant to Section 10.1 shall specify the Fund
or Funds, Contracts and, if applicable, the Accounts as to which the agreement
is to be terminated.
10.4 It is understood and agreed that the right of any party
hereto to terminate this agreement pursuant to Section 10.1(a) may be
exercised for cause or for no cause.
10.5 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Trust shares attributable to the Contracts (as opposed to Trust
shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Contract owners from allocating payments to a Fund
that was otherwise available under the Contracts, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
10.6 Notwithstanding any termination of this agreement, the
Trust shall, at the option of the Company, continue to make available additional
shares of the Funds pursuant to the terms and conditions of this agreement for
all Contracts in effect on the effective date of termination of this agreement
(the "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to transfer or reallocate investments
under the Contracts, redeem investments in the Trust and/or invest in the Trust
upon the making of additional purchase payments under the Existing Contracts.
ARTICLE 11
NOTICES
11.1 Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Company:
State Farm Life and Accident Assurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
---------------------------
16
<PAGE>
If to the Trust:
State Farm Variable Product Trust
One State Fam Plaza
Bloomington, Illinois 61710-0001
Attn:
-------------------------------
If to SFIM:
State Farm Investment Management Corp.
One State Farm Plaza
Bloomington, Illinois 61710-0001
Attn:
-------------------------------
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 APPLICABLE LAW.
(a) This agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Delaware without
regard to conflicts of law principles or precedents.
(b) This agreement shall be subject to the provisions of
the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
12.2 SEVERABILITY. If any provision of this agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this agreement shall not be affected thereby.
12.3 CAPTIONS. The captions in this agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
12.4 COUNTERPARTS. This agreement may be executed simultaneously
in multiple counterparts, each of which taken together shall constitute one and
the same instrument.
17
<PAGE>
12.5 SCHEDULES. The Schedules attached hereto, as modified from
time to time, are incorporated herein by reference and are part of this
agreement.
12.6 COOPERATION WITH AUTHORITIES. Each party hereto shall
cooperate with the other party and all appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance regulators)
and shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this agreement or the
transactions contemplated hereby.
12.7 CUMULATIVE RIGHTS. The rights, remedies and obligations
contained in this agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
12.8 AMENDMENTS. This agreement may be amended at any time
upon the consent of all of the parties.
18
<PAGE>
IN WITNESS WHEREOF. the parties hereto have caused this agreement
to be executed in their names and on their behalf by their duly authorized
officers all on the day and year first above written.
STATE FARM LIFE AND ACCIDENT ASSURANCE
COMPANY
By:
-------------------------------------
Title:
----------------------------------
STATE FARM VARIABLE PRODUCT TRUST
By: /s/ Edward B. Rust, Jr.
-------------------------------------
Title: President
----------------------------------
STATE FARM INVESTMENT MANAGEMENT CORP.
By: /s/ Roger Joslin
-------------------------------------
Title: Vice President and Treasurer
----------------------------------
19
<PAGE>
SCHEDULE A
Accounts, Contracts and Funds Subject
to the Participation Agreement
-------------------------------------
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE ANNUITY SEPARATE
ACCOUNT:
CONTRACT: State Farm Variable Deferred Annuity Policy*
FUNDS: Money Market Fund**
Large Cap Equity Index Fund**
Small Cap Equity Index Fund**
International Equity Index Fund**
Bond Fund**
Stock and Bond Balanced Fund**
STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT:
CONTRACT: State Farm Variable Universal Life Insurance Policy*
FUNDS: Money Market Fund**
Large Cap Equity Index Fund**
Small Cap Equity Index Fund**
International Equity Index Fund**
Bond Fund**
Stock and Bond Balanced Fund**
- --------------------
* After effectiveness of registration statement for the Contract.
** After effectiveness of registration statement for the Fund.
20
<PAGE>
[LETTERHEAD]
May 27, 1998
Ladies and Gentlemen:
As Senior Vice President and General Counsel of State Farm Life and Accident
Assurance Company (the "Company"), I have general supervision of the
Company's legal affairs. In connection with the proposed registration under
the Securities Act of 1933, as amended, of certain individual variable
deferred annuity contracts (the "Contracts") to be issued by the Company
through the State Farm Life and Accident Assurance Company Variable Annuity
Separate Account (the "Separate Account"), I have been advised by members of
our legal staff concerning the establishment of the Separate Account by the
Board of Directors of the Company on December 9, 1996 as a separate account
for assets applicable to variable annuity contracts, pursuant to the
provisions of 215 ILCS 5/245.21 of the Illinois Insurance Laws. I have
further been advised by members of our legal staff concerning such other
matters of law as I deem necessary for this opinion, and I therefore advise
you that:
1. The Separate Account is a separate account of the Company duly
created and validly existing pursuant to the laws of the State of Illinois.
2. The Contracts, when issued in accordance with the Prospectus
constituting a part of the Registration Statement and upon compliance with
applicable local law, will be legal and binding obligations of the Company in
accordance with their respective terms.
3. The portion of the assets held in the Separate Account equal to
reserves and other contract liabilities with respect to the Separate Account
are not chargeable with liabilities arising out of any other business the
Company may conduct.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the heading "Legal Matters" in the
Statement of Additional Information constituting a part of the Registration
Statement.
Very truly yours,
/s/ William A. Montgomery
William A. Montgomery
Senior Vice President and
General Counsel
<PAGE>
[LETTERHEAD]
June 22, 1998
State Farm Life and Accident Assurance Company
One State Farm Plaza
Bloomington, Illinois 61710-0001
RE: STATE FARM LIFE AND ACCIDENT ASSURANCE COMPANY
VARIABLE ANNUITY SEPARATE ACCOUNT
----------------------------------------------
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of the
initial Form N-4 registration statement for State Farm Life and Accident
Assurance Company Variable Annuity Separate Account. In giving this consent,
we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
----------------------------------
Stephen E. Roth
<PAGE>
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
State Farm Life and Accident Assurance Company
We consent to the inclusion in the Registration Statement of State Farm Life and
Accident Assurance Company Variable Annuity Separate Account on Form N-1 of our
report dated February 17, 1998, on our audits of the statutory financial
statements of State Farm Life and Accident Assurance Company. We also consent
to the reference to our Firm under the caption "Experts" in the Statement of
Additional Information.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
June 22, 1998
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
In the Presence of: /s/ Edward B. Rust, Jr.
----------------------------
Edward B. Rust, Jr.
/s/ Laura P. Sullivan
- -------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of State Farm Life and Accident Assurance Company, a life insurance
corporation organized under the laws of Illinois, does hereby constitute and
appoint Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 23rd
day of December, 1996.
/s/ Darrell W. Beernink
------------------------
In the Presence of: Darrell W. Beernink
/s/ Sandra Alderman
- ------------------------
Sandra Alderman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or inconnection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
10th day of December, 1996.
/s/ Dale R. Egeberg
------------------------
In the Presence of: Dale R. Egeberg
/s/ Wendy L. Wilber
- -------------------------
Wendy L. Wilber
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Marvin D. Bower
------------------------
In the Presence of: Marvin D. Bower
/s/ Laura P. Sullivan
- -------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Bruce Callis
-------------------
In the Presence of: Bruce Callis
/s/ Laura P. Sullivan
- ---------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit flied as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Robert S. Eckley
-----------------------
In the Presence of: Robert S. Eckley
/s/ Laura P. Sullivan
- -------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Roger S. Joslin
---------------------
In the Presence of: Roger S. Joslin
/s/ Laura P. Sullivan
- -------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of State Farm Life and Accident Assurance Company, a life insurance
corporation organized under the laws of Illinois, does hereby constitute and
appoint Patricia L. Dysart and Terry Huff, each located at One State Farm
Plaza, Bloomington, IL 61710 and each of them, with full power of
substitution as his or her true and lawful attorney-in-fact and agent to do
any and all acts and things and to execute any and all instruments which said
attorney-in-fact and agent may deem necessary or advisable, including, not
limited to, accepting service of process on behalf of the undersigned, and
appointing the Director of the Illinois Department of Insurance and his
successors as the true and lawful attorney of the undersigned for service of
process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ R. J. Lehman
-------------------
In the Presence of R. J. Lehman
/s/ Laura P. Sullivan
- --------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of State Farm Life and Accident Assurance Company, a life insurance
corporation organized under the laws of Illinois, does hereby constitute and
appoint Patricia L. Dysart and Terry Huff, each located at One State Farm
Plaza, Bloomington, IL 61710 and each of them, with full power of
substitution as his or her true and lawful attorney-in-fact and agent to do
any and all acts and things and to execute any and all instruments which said
attorney-in-fact and agent may deem necessary or advisable, including, not
limited to, accepting service of process on behalf of the undersigned, and
appointing the Director of the Illinois Department of Insurance and his
successors as the true and lawful attorney of the undersigned for service of
process;
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Kurt G. Moser
--------------------
In the Presence of: Kurt G. Moser
/s/ Laura P. Sullivan
- ------------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of State Farm Life and Accident Assurance Company, a life insurance
corporation organized under the laws of Illinois, does hereby constitute and
appoint Patricia L. Dysart and Terry Huff, each located at One State Farm
Plaza, Bloomington, IL 61710 and each of them, with full power of
substitution as his or her true and lawful attorney-in-fact and agent to do
any and all acts and things and to execute any and all instruments which said
attorney-in-fact and agent may deem necessary or advisable, including, not
limited to, accepting service of process on behalf of the undersigned, and
appointing the Director of the Illinois Department of Insurance and his
successors as the true and lawful attorney of the undersigned for service of
process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 10th
day of December, 1996.
/s/ Laura P. Sullivan
------------------------
In the Presence of: Laura P. Sullivan
/s/ Wendy L. Wilber
- ------------------------
Wendy L. Wilber
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance corporation
organized under the laws of Illinois, does hereby constitute and appoint
Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process:
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation, or any affiliate thereof as broker or dealer
in said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Vincent J. Trosino
-----------------------------
In the Presence of: Vincent J. Trosino
/s/ Laura P. Sullivan
- -----------------------
Laura P. Sullivan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or director
of State Farm Life and Accident Assurance Company, a life insurance
corporation organized under the laws of Illinois, does hereby constitute and
appoint Patricia L. Dysart and Terry Huff, each located at One State Farm Plaza,
Bloomington, IL 61710 and each of them, with full power of substitution as his
or her true and lawful attorney-in-fact and agent to do any and all acts and
things and to execute any and all instruments which said attorney-in-fact and
agent may deem necessary or advisable, including, not limited to, accepting
service of process on behalf of the undersigned, and appointing the Director of
the Illinois Department of Insurance and his successors as the true and lawful
attorney of the undersigned for service of process;
(i) to enable the said corporation to comply with the Securities Act of 1933,
as amended (the "1933 Act"), and any rules, regulations and requirements of
the Securities and Exchange Commission in respect thereof, in connection
with the registration under the said 1933 Act of variable life insurance
contracts and variable annuity contracts of the said corporation
(hereinafter collectively called "State Farm Securities"), including
specifically, but without limiting the generality of the foregoing, the
power and authority to sign for and on behalf of the undersigned the name
of the undersigned as officer and/or director of the said corporation to a
registration statement or to any amendment thereto filed with the
Securities and Exchange Commission with respect to said State Farm
Securities and to any instrument or document filed as part of, as an
exhibit to or in connection with, said registration statement or amendment;
and
(ii) to register or qualify said State Farm Securities for sale and to register
or license said corporation or any affiliate thereof as broker or dealer in
said State Farm Securities under the securities or Blue Sky Laws of all
such states as may be necessary or appropriate to permit therein the
offering and sale of said State Farm Securities as contemplated by said
registration statement, including specifically, but without limiting the
generality of the foregoing, the power of attorney to sign for and on
behalf of the undersigned the name of the undersigned as an officer and/or
director of said corporation to any application, statement, petition,
prospectus, notice or other instrument or document, or to any amendment
thereto, or to any exhibit filed as a part thereto or in connection
therewith, which is required to be signed by the undersigned and to be
filed with the public authority or authorities administering State Farm
Securities or Blue Sky Laws for the purpose of so registering or licensing
said corporation;
and the undersigned does hereby ratify and confirm as his or her own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof,
IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th
day of December, 1996.
/s/ Charles R. Wright
-----------------------------
In the Presence of: Charles R. Wright
/s/ Laura P. Sullivan
- -------------------------
Laura P. Sullivan
