<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
FILE NO. 333-79865
FILE NO. 811-09371
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
POST-EFFECTIVE AMENDMENT NO.
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 1
---------------------
SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
(Exact Name of Registrant)
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
------------------------
1401 LIVINGSTON LANE
JACKSON, MISSISSIPPI 39213
(Address of Principal Executive Office)
1-601-981-7422
JOSEPH A. PURVIS, ESQUIRE
1401 LIVINGSTON LANE
JACKSON, MISSISSIPPI 39213
(Name and Address of Agent for Service of Process)
------------------------
COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
SECURITIES BEING OFFERED: FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACTS
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
- --------------------------------------------------------------------------------
SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACT
------------------------------------------------------------------------
PROSPECTUS
, 1999
Southern Farm Bureau Life Insurance Company (the "Company") is offering the
individual flexible premium deferred variable annuity contract (the "Contract")
described in this prospectus. The Company sells the Contract to retirement
plans, including those that qualify for special federal tax treatment under the
Internal Revenue Code.
The Owner of a Contract ("you" or "your") may allocate premiums and Accumulated
Value to 1) the Declared Interest Option, an account that provides a specified
rate of interest, and/or 2) Subaccounts of Southern Farm Bureau Life Variable
Account, each of which invests in one of the following Investment Options:
<TABLE>
<S> <C>
Mid-Cap Growth Portfolio Equity Income Portfolio
Personal Strategy Balanced Portfolio Limited-Term Bond Portfolio
Growth Portfolio Prime Reserve Portfolio
Overseas Portfolio High Income Portfolio
Index 500 Portfolio Contrafund-Registered Trademark-
Portfolio
</TABLE>
The accompanying prospectus for each Investment Option describes the investment
objectives and attendant risks of each Investment Option. If you allocate
premiums to the Subaccounts, the amount of the Contract's Accumulated Value
prior to the retirement date will vary to reflect the investment performance of
the Investment Options you select.
Please note that the Contracts and Investment Options:
- are not bank deposits;
- are not federally insured;
- are not guaranteed to achieve their goals; and
- are subject to risks, including loss of the amount invested.
You may find additional information about your Contract and the Account in the
Statement of Additional Information, dated the same as this prospectus. To
obtain a copy of this document, please contact us at the address or phone number
shown on the cover of this prospectus.
Please read this prospectus carefully and retain it for future reference. A
prospectus for each Investment Option must accompany this prospectus and you
should read it in conjunction with this prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Issued By
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, Mississippi 39213
1-877-249-3691
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS................................................................................................... 3
EXPENSE TABLES................................................................................................ 5
SUMMARY OF THE CONTRACT....................................................................................... 9
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS................................................................... 11
Southern Farm Bureau Life Insurance Company............................................................. 11
Southern Farm Bureau Life Variable Account.............................................................. 11
Investment Options...................................................................................... 11
Addition, Deletion or Substitution of Investments....................................................... 13
DESCRIPTION OF ANNUITY CONTRACT............................................................................... 14
Issuance of a Contract.................................................................................. 14
Premiums................................................................................................ 14
Free-Look Period........................................................................................ 14
Allocation of Premiums.................................................................................. 15
Variable Accumulated Value.............................................................................. 15
Transfer Privilege...................................................................................... 16
Partial Withdrawals and Surrenders...................................................................... 17
Special Transfer and Withdrawal Options................................................................. 17
Death Benefit Before the Retirement Date................................................................ 18
Death Benefit After the Retirement Date................................................................. 20
Proceeds on the Retirement Date......................................................................... 20
Payments................................................................................................ 20
Modification............................................................................................ 21
Reports to Owners....................................................................................... 21
Inquiries............................................................................................... 21
THE DECLARED INTEREST OPTION.................................................................................. 21
Minimum Guaranteed and Current Interest Rates........................................................... 22
Transfers From Declared Interest Option................................................................. 22
Payment Deferral........................................................................................ 22
CHARGES AND DEDUCTIONS........................................................................................ 23
Surrender Charge (Contingent Deferred Sales Charge)..................................................... 23
Annual Administrative Charge............................................................................ 24
Transfer Processing Fee................................................................................. 24
Mortality and Expense Risk Charge....................................................................... 24
Investment Option Expenses.............................................................................. 24
Premium Taxes........................................................................................... 24
Other Taxes............................................................................................. 25
PAYMENT OPTIONS............................................................................................... 25
Election of Options..................................................................................... 25
Description of Options.................................................................................. 25
YIELDS AND TOTAL RETURNS...................................................................................... 26
FEDERAL TAX MATTERS........................................................................................... 27
Introduction............................................................................................ 27
Tax Status of the Contract.............................................................................. 28
Taxation of Annuities................................................................................... 29
Transfers, Assignments or Exchanges of a Contract....................................................... 31
Withholding............................................................................................. 31
Multiple Contracts...................................................................................... 31
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Taxation of Qualified Plans............................................................................. 32
Possible Charge for the Company's Taxes................................................................. 33
Other Tax Consequences.................................................................................. 34
DISTRIBUTION OF THE CONTRACTS................................................................................. 34
LEGAL PROCEEDINGS............................................................................................. 34
VOTING RIGHTS................................................................................................. 34
YEAR 2000..................................................................................................... 35
FINANCIAL STATEMENTS.......................................................................................... 35
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS......................................................... 36
</TABLE>
The Contract may not be available in all jurisdictions.
This prospectus constitutes an offering or solicitation only in those
jurisdictions where such offering or solicitation may lawfully be made.
2
<PAGE>
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DEFINITIONS
- --------------------------------------------------------------------------------
ACCOUNT: Southern Farm Bureau Life Variable Account.
ACCUMULATED VALUE: The total amount invested under the Contract, which is the
sum of the values of the Contract in each Subaccount of the Account plus the
value of the Contract in the Declared Interest Option.
ADMINISTRATIVE OFFICE: The Company's administrative office at 5400 University
Avenue, West Des Moines, Iowa 50266.
ANNUITANT: The person or persons whose life (or lives) determines the annuity
benefits payable under the Contract and whose death determines the death
benefit.
BENEFICIARY: The person to whom the Company pays the proceeds on the death of
the Annuitant.
BUSINESS DAY: Each day that the New York Stock Exchange is open for trading,
except the day after Thanksgiving, the two weekdays before Christmas and the
weekday after Christmas (in 1999), the weekday before New Year's Day (in 1999)
and the weekday after New Year's Day (in 2000) and any day on which the
Administrative Office or Company is closed because of a weather-related or
comparable type of emergency and is unable to segregate orders and redemption
requests received on that day.
THE CODE: The Internal Revenue Code of 1986, as amended.
THE COMPANY ("WE", "US" OR "OUR"): Southern Farm Bureau Life Insurance Company.
CONTRACT: The individual flexible premium deferred variable annuity contract we
offer and describe in this prospectus, which term includes the Contract
described in this prospectus, any endorsement or additional benefit riders, the
Contract application and any supplemental applications.
CONTRACT ANNIVERSARY: The same date in each Contract Year as the Contract Date.
CONTRACT DATE: The date on which the Company receives a properly completed
application at the Administrative Office. It is the date set forth on the data
page of the Contract which the Company uses to determine Contract Years and
Contract Anniversaries.
CONTRACT YEAR: A twelve-month period beginning on the Contract Date or on a
Contract Anniversary.
DECLARED INTEREST OPTION: An investment option under the Contract funded by the
Company's General Account. It is not part of, nor dependent upon, the investment
performance of the Account.
DUE PROOF OF DEATH: Satisfactory documentation provided to the Company verifying
proof of death. This documentation may include the following:
(a) a certified copy of the death certificate;
(b) a certified copy of a court decree reciting a finding of death; or
(c) any other proof satisfactory to the Company.
FUND: An open-end diversified management investment company in which the Account
invests.
GENERAL ACCOUNT: The assets of the Company other than those allocated to the
Account or any other separate account of the Company.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
NET ACCUMULATED VALUE: The Accumulated Value less any applicable Surrender
Charge.
NON-QUALIFIED CONTRACT: A Contract that is not a Qualified Contract.
3
<PAGE>
OWNER ("YOU" OR "YOUR"): The person who owns the Contract and who is entitled to
exercise all rights and privileges provided in the Contract.
QUALIFIED CONTRACT: A Contract the Company issues in connection with plans that
qualify for special federal income tax treatment under Sections 401, 403(b), 408
or 408A of the Code.
RETIREMENT DATE: The date when the Company applies the Accumulated Value under a
payment option, if the Annuitant is still living. It is the Contract Anniversary
nearest to the retirement age you select in the application. Such Retirement
Date may not be after the later of the Annuitant's 70th birthday or the 10th
Contract Anniversary. If no age is selected, the Retirement Date is the
Annuitant's 70th birthday.
SEC: The U.S. Securities and Exchange Commission.
SUBACCOUNT: A subdivision of the Account which invests its assets in a
corresponding Investment Option.
VALUATION PERIOD: The period that starts at the close of business (3:00 p.m.
central time) on one Business Day and ends at the close of business on the next
succeeding Business Day.
WRITTEN NOTICE: A written request or notice signed by the Owner in a form
satisfactory to the Company which the Company receives at the Administrative
Office.
4
<PAGE>
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EXPENSE TABLES
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The following expense information assumes that the entire Accumulated Value
is variable Accumulated Value.
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premiums None
</TABLE>
Surrender Charge (contingent deferred sales charge) as a percentage of the
amount surrendered:
<TABLE>
<CAPTION>
CONTRACT YEAR* SURRENDER CHARGE
<S> <C>
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
* We may apply a Surrender Charge to any withdrawal taken during the first
Contract Year. In each Contract Year after the first Contract Year, you
may withdraw up to 10% of the Accumulated Value on your most recent
Contract Anniversary without incurring a Surrender Charge. If you
subsequently surrender your Contract during the Contract Year, the
Company will apply a Surrender Charge to any partial withdrawals taken.
The amount that you may withdraw without incurring a Surrender Charge is
not cumulative from Contract Year to Contract Year.
<TABLE>
<S> <C>
Transfer Processing Fee None*
</TABLE>
* Fees are waived for the first twelve transfers during a Contract Year,
although the Company may charge $25 for each subsequent transfer during
the Contract Year.
<TABLE>
<S> <C>
Annual Administrative Charge $ 30
Annual Account Expenses (as a percentage of average net assets)
Mortality and Expense Risk Charge 1.40%
Other Account Expenses None
Total Account Expenses 1.40%
</TABLE>
5
<PAGE>
ANNUAL INVESTMENT OPTION EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
(AFTER WAIVER (AFTER WAIVER
ADVISORY OR OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
<S> <C> <C> <C>
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%(1)
T. Rowe Price Mid-Cap Growth Portfolio 0.85% 0.00% 0.85%(1)
T. Rowe Price Personal Strategy Balanced Portfolio 0.90% 0.00% 0.90%(1)
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond Portfolio 0.70% 0.00% 0.70%(1)
T. Rowe Price Prime Reserve Portfolio 0.55% 0.00% 0.55%(1)
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio 0.59% 0.07% 0.66%(2)
VIP High Income Portfolio 0.58% 0.12% 0.70%
VIP Overseas Portfolio 0.74% 0.15% 0.89%(2)
VIP Contrafund Portfolio 0.59% 0.07% 0.66%(2)
VIP Index 500 Portfolio 0.24% 0.04% 0.28%(3)
</TABLE>
(1) Total annual Investment Option expenses are an all-inclusive fee and
pay for investment management services and other operating costs.
(2) A portion of the brokerage commissions that certain Investment Options
pay is used to reduce Fund expenses. In addition, certain Investment
Options have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances are used to
reduce custodian expenses. Including these reductions, the total
Investment Option operating expenses presented in the preceding table
would have been: Growth 0.68%, Overseas 0.91% and Contrafund 0.70%.
(3) The investment adviser has voluntarily agreed to reimburse the Index
500 Investment Option to the extent that total operating expenses (with
the exceptions noted in the prospectus for the Investment Option) as a
percentage of its average net assets exceed 0.28%. If this agreement
had not been in effect, total operating expenses for the fiscal year
ended December 31, 1998, as a percentage of the Index 500 Investment
Option's average net assets would have been 0.35%.
The above tables are intended to assist you in understanding the costs and
expenses that you will bear directly or indirectly. The tables reflect the
expenses for the Account and the actual expenses for each Investment Option for
the fiscal year ended December 31, 1998. For a more complete description of the
various costs and expenses see "Charges and Deductions" and the prospectus for
each Investment Option which accompanies this prospectus.
6
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If you surrender or annuitize the Contract at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio $ 117 $ 208 $ 300 $ 555
T. Rowe Price Mid-Cap Growth Portfolio 117 208 300 555
T. Rowe Price Personal Strategy Balanced Portfolio 118 210 303 560
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond Portfolio 116 204 293 539
T. Rowe Price Prime Reserve Portfolio 115 200 285 524
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio 116 204 292 537
VIP High Income Portfolio 116 204 293 539
VIP Overseas Portfolio 118 210 303 561
VIP Contrafund Portfolio 116 204 293 539
VIP Index 500 Portfolio 112 192 272 496
</TABLE>
7
<PAGE>
2. If you do not surrender or annuitize the Contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio $ 53 $ 160 $ 270 $ 555
T. Rowe Price Mid-Cap Growth Portfolio 53 160 270 555
T. Rowe Price Personal Strategy Balanced Portfolio 53 162 272 560
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond Portfolio 51 155 262 539
T. Rowe Price Prime Reserve Portfolio 50 151 254 524
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio 51 155 261 537
VIP High Income Portfolio 51 155 262 539
VIP Overseas Portfolio 53 162 273 561
VIP Contrafund Portfolio 51 155 262 539
VIP Index 500 Portfolio 47 143 241 496
</TABLE>
The examples provided above assume that no transfer charges or premium taxes
have been assessed. The examples also assume that the annual administrative
charge is $30 and that the Accumulated Value per Contract is $10,000, which
translates the administrative charge into an assumed .30% charge for the
purposes of the examples based on a $1,000 investment.
Please do not consider the examples a representation of past or future expenses.
The assumed 5% annual rate of return is hypothetical and is not a representation
of past or future annual returns, which undoubtedly will be greater or less than
this assumed rate.
8
<PAGE>
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SUMMARY OF THE CONTRACT
- --------------------------------------------------------------------------------
ISSUANCE OF A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity contract with a maximum age of 80 for Annuitants on
the Contract Date (see "DESCRIPTION OF ANNUITY CONTRACT--Issuance of a
Contract"). The Contracts are:
- "flexible premium" because you do not have to pay premiums according to
a fixed schedule, and
- "variable" because, to the extent Accumulated Value is attributable to
the Account, Accumulated Value will increase and decrease based on the
investment performance of the Investment Options corresponding to the
Subaccounts to which you allocate your premiums.
FREE-LOOK PERIOD. You have the right to return the Contract within 10 days
after you receive it (or a longer period if required by the state where your
Contract is issued) (see "DESCRIPTION OF ANNUITY CONTRACT--Free-Look Period").
If you return the Contract, it will become void and you will receive the
greater of:
- premiums paid, or
- the Accumulated Value on the date the Company receives the returned
Contract at the Administrative Office, plus administrative charges and
any other charges deducted from the Account.
PREMIUMS. The minimum initial premium amount the Company accepts is $1,000.
You may make subsequent premium payments (minimum $50 each) at any time. (See
"DESCRIPTION OF ANNUITY CONTRACT--Premiums.")
ALLOCATION OF PREMIUMS. You can allocate premiums to one or more Subaccounts,
the Declared Interest Option, or both (see "DESCRIPTION OF ANNUITY
CONTRACT--Allocation of Premiums").
- The Company will allocate the initial premium to the Prime Reserve
Subaccount for 10 days from the Contract Date.
- At the end of that period, the Company will allocate those monies among
the Subaccounts and the Declared Interest Option according to the
instructions in your application.
- Amounts allocated to the Declared Interest Option earn interest at a
guaranteed annual rate of at least 3%.
TRANSFERS. You may transfer monies in a Subaccount or the Declared Interest
Option to another Subaccount or the Declared Interest Option on or before the
Retirement Date (see "DESCRIPTION OF ANNUITY CONTRACT--Transfer Privilege").
- The mimimum amount of each transfer is $100 or the entire amount in the
Subaccount or Declared Interest Option, if less.
- Transfers out of the Declared Interest Option must be for no more than
25% of the Accumulated Value in that option.
- The Company waives fees for the first twelve transfers during a Contract
Year.
- The Company may assess a transfer processing fee of $25 for the 13th and
each subsequent transfer during a Contract Year.
PARTIAL WITHDRAWAL. You may withdraw part of the Accumulated Value upon
Written Notice at any time before the Retirement Date (see "DESCRIPTION OF
ANNUITY CONTRACT--Partial Withdrawals and Surrenders--PARTIAL WITHDRAWALS").
9
<PAGE>
SURRENDER. You may surrender your Contract upon Written Notice on or before
the Retirement Date (see "DESCRIPTION OF ANNUITY CONTRACT--Partial Withdrawals
and Surrenders--SURRENDERS").
CHARGES AND DEDUCTIONS
Your Contract will be assessed the following charges and deductions:
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We apply a charge if you
make a partial withdrawal from or surrender your Contract during the first
seven Contract Years (see "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)--CHARGE FOR PARTIAL WITHDRAWAL OR
SURRENDER"). We deduct this charge from the amount surrendered.
<TABLE>
<CAPTION>
CONTRACT YEAR CHARGE
<S> <C>
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
We may apply a Surrender Charge to any withdrawal taken during the first
Contract Year. In each Contract Year after the first Contract Year, you may
withdraw up to 10% of the Accumulated Value on your most recent Contract
Anniversary without incurring a Surrender Charge. If you subsequently
surrender your Contract during the Contract Year, we will apply a Surrender
Charge to any partial withdrawals you've taken. (See "CHARGES AND
DEDUCTIONS--Surrender Charge (Contingent Deferred Sales Charge)--AMOUNTS NOT
SUBJECT TO SURRENDER CHARGE.")
We reserve the right to waive the Surrender Charge as provided in the
Contract. (See "CHARGES AND DEDUCTIONS--Surrender Charge (Contingent Deferred
Sales Charge)--WAIVER OF SURRENDER CHARGE.")
ANNUAL ADMINISTRATIVE CHARGE. We deduct an annual administrative charge of $30
on the Contract Date and on each Contract Anniversary prior to the retirement
date (see "CHARGES AND DEDUCTIONS--Annual Administrative Charge"). We
currently waive this charge:
- in the first Contract Year with an initial premium payment of $50,000,
or
- if you have a Net Accumulated Value of $50,000 on your Contract
Anniversary.
We may terminate this waiver at any time.
TRANSFER PROCESSING FEE. We may assess a $25 fee for the 13th and each
subsequent transfer in a Contract Year.
MORTALITY AND EXPENSE RISK CHARGE. We apply a daily mortality and expense risk
charge (calculated at an annual rate of 1.40% (approximately 1.01% for
mortality risk and 0.39% for expense risk) (see "CHARGES AND
DEDUCTIONS--Mortality and Expense Risk Charge").
INVESTMENT OPTION EXPENSES. The assets of the Account will reflect the
investment advisory fee and other operating expenses incurred by each
Investment Option. The table on page 6 titled "Annual Investment Option
Expenses" lists these fees and expenses for the most recent fiscal year.
10
<PAGE>
ANNUITY PROVISIONS
On your Retirement Date, you may choose to have the Net Accumulated Value
distributed to you as follows:
- under a payment option (see "PAYMENT OPTIONS"), or
- in a lump sum.
FEDERAL TAX MATTERS
You may be subject to adverse tax consequences if you take a distribution from
your Contract (see "FEDERAL TAX MATTERS").
- --------------------------------------------------------------------------------
THE COMPANY, ACCOUNT AND INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
The Company was incorporated on October 30, 1946 as a stock life insurance
company in the State of Mississippi and is principally engaged in the
offering of life insurance policies and annuity contracts. We are admitted
to do business in 13 jurisdictions: the states of Alabama, Arkansas,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, Tennessee, Texas and Virginia; and the Commonwealth of Puerto
Rico.
- --------------------------------------------------------------------------------
SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
On May 17, 1999, we established the Account pursuant to the laws of the
State of Mississippi. The Account:
- will receive and invest premiums paid to it under the Contract;
- will receive and invest premiums for other variable annuity
contracts we issue;
- meets the definition of a "separate account" under the federal
securities laws;
- is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve supervision by the SEC of the management or investment
policies or practices of the Account, us or the Funds.
We own the Account's assets. However, we cannot charge the Account with
liabilities arising out of any other business we may conduct. The Account's
assets are available to cover the general liabilities of the Company only to
the extent that the Account's assets exceed its liabilities. We may transfer
assets which exceed these reserves and liabilities to our General Account.
All obligations arising under the Contracts are general corporate
obligations of the Company.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS
There are currently ten Subaccounts available under the Account, each of
which invests exclusively in shares of a single corresponding Investment
Option. Each of the Investment Options was formed as an investment vehicle
for insurance company separate accounts. Each Investment Option has its own
investment objectives and separately determines the income and losses for
that Investment Option. While you may be invested in all Subaccounts, we
only permit you to "actively participate" in a maximum of 10 Investment
Options at any one time.
The investment objectives and policies of certain Investment Options are
similar to the investment objectives and policies of other mutual fund
portfolios that the same investment adviser, sub-investment adviser or
manager may manage. The investment results of the Investment Options,
however, may be higher or lower than the results of such other portfolios.
There can be no assurance, and no representation is made, that the
investment results of any of the Investment Options will be comparable to
the investment results of any other portfolio, even if the other mutual fund
portfolio has the same investment adviser, sub-investment adviser or
manager.
11
<PAGE>
We have summarized below the investment objectives and policies of each
Investment Option. There is no assurance that any Investment Option will
achieve its stated objectives. You should also read the prospectus for each
Investment Option, which must accompany or precede this prospectus, for more
detailed information, including a description of risks and expenses.
T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
T. Rowe Price Equity Income - This Portfolio seeks to provide substantial dividend income
Portfolio as well as long-term growth of capital by investing
primarily in the common stocks of established companies
considered by the adviser to have favorable prospects for
both increasing dividends and capital appreciation.
T. Rowe Price Mid-Cap Growth - This Portfolio seeks to provide long-term capital
Portfolio appreciation by investing primarily in mid-cap stocks with
the potential for above-average earnings growth. The Adviser
defines mid-cap companies as those whose market
capitalization falls within the range of companies in the
S&P Mid-Cap 400 Index.
T. Rowe Price Personal - This Portfolio seeks the highest total return over time
Strategy Balanced Portfolio consistent with an emphasis on both capital appreciation and
income.
</TABLE>
T. ROWE PRICE FIXED INCOME SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
T. Rowe Price Limited-Term - This Portfolio seeks a high level of income consistent with
Bond Portfolio moderate fluctuations in principal value.
T. Rowe Price Prime Reserve - This Portfolio seeks preservation of capital and liquidity
Portfolio and, consistent with these, the highest possible current
income. This Portfolio invests in high-quality U.S.
dollar-denominated money market securities.
</TABLE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS. Fidelity Management & Research
Company serves as the investment adviser to these Funds. Bankers Trust Company
serves as sub-investment adviser to the Index 500 Portfolio. The following
portfolios are available under the Contract.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Fidelity VIP Growth Portfolio - This Portfolio seeks capital appreciation by investing
primarily in common stocks. The Portfolio, however, is not
restricted to any one type of security and may pursue
capital appreciation through the purchase of bonds and
preferred stocks. The Portfolio does not place any emphasis
on dividend income from its investments, except when the
adviser believes this income will have a favorable influence
on the market value of the security. Growth may be measured
by factors such as earnings or gross sales.
Fidelity VIP High Income - This Portfolio seeks a high level of current income and
Portfolio growth of capital by investing primarily in income-producing
bonds, preferred stocks and convertible securities, with an
emphasis on lower-quality debt securities.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
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Fidelity VIP Overseas - This Portfolio seeks long-term growth of capital by
Portfolio investing primarily in foreign securities. The Portfolio
defines foreign securities as securities of issuers whose
principal activities are located outside the United States.
Normally, at least 65% of the Portfolio's total assets will
be invested in foreign securities. The Portfolio may also
invest in U.S. issuers.
Fidelity VIP Contrafund - This Portfolio seeks capital appreciation by investing in
Portfolio securities of companies whose value the adviser believes is
not fully recognized by the public. The Portfolio normally
invests primarily in common stocks and securities
convertible into common stock, but it has the flexibility to
invest in other types of securities.
Fidelity VIP Index 500 - This Portfolio seeks to provide investment results that
Portfolio correspond to the total return of a broad range of common
stocks publicly traded in the United States. To achieve this
objective, the Portfolio attempts to duplicate the
composition and total return of the S&P 500.
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The Funds currently sell shares: (a) to the Account as well as to separate
accounts of insurance companies that may or may not be affiliated with the
Company or each other; and (b) to separate accounts to serve as the
underlying investment for both variable insurance policies and variable
annuity contracts. We currently do not foresee any disadvantages to owners
arising from the sale of shares to support variable annuity contracts and
variable life insurance policies, or from shares being sold to separate
accounts of insurance companies that may or may not be affiliated with the
Company. However, we will monitor events in order to identify any material
irreconcilable conflicts that might possibly arise. In that event, we would
determine what action, if any, should be taken in response to the conflict.
In addition, if we believe that a Fund's response to any of those events or
conflicts insufficiently protects Owners, we will take appropriate action on
our own, which may include withdrawing the Account's investment in that
Fund. (See the Fund prospectuses for more detail.)
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the
Investment Options. These amounts are intended to compensate us for
administrative and other services we provide to the Funds and/or
affiliate(s).
Each Fund is registered with the SEC as an open-end, diversified management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the Fund by the SEC.
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares that are held
in the Account or that the Account may purchase. We reserve the right to
eliminate the shares of any Investment Option and to substitute any shares
of another Investment Option. We will not substitute any shares attributable
to your interest in a Subaccount without notice and prior approval of the
SEC and state insurance authorities, to the extent required by the 1940 Act
or other applicable law.
We also reserve the right to establish additional subaccounts of the
Account, each of which would invest in a new Investment Option, or in shares
of another investment company with a specified investment objective. We may
establish new subaccounts when, in our sole discretion, marketing needs or
investment conditions warrant, and we will make any new subaccounts
available to existing Contract Owners on a basis we determine. We may also
eliminate one or more Subaccounts if, in our sole discretion, marketing,
tax, regulatory requirements or investment conditions warrant.
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In the event of any such substitution, deletion or change, we may make
appropriate changes in the Contracts to reflect such substitution, deletion
or change. If you allocated all or a portion of your premiums to any of the
current Subaccounts that are being substituted for or deleted, you may
surrender the portion of the Accumulated Value funded by such Subaccount
without paying the associated Surrender Charge. You may also transfer the
portion of the Accumulated Value affected without paying a transfer charge.
If we deem it to be in the best interest of persons having voting rights
under the Contracts, we may:
- operate the Account as a management investment company under the
1940 Act,
- deregister the Account under that Act in the event such registration
is no longer required, or
- combine the Account with our other separate accounts.
In addition, we may, when permitted by law, restrict or eliminate your
voting rights under the Contract.
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DESCRIPTION OF ANNUITY CONTRACT
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ISSUANCE OF A CONTRACT
You must complete an application in order to purchase a Contract, which can
be obtained through a licensed representative of the Company, who is also a
registered representative of Southern Farm Bureau Fund Distributor, Inc.
("SFB Fund Distributor"), the distributor and principal underwriter of the
Contracts, a broker-dealer having a selling agreement with SFB Fund
Distributor or a broker-dealer having a selling agreement with such
broker-dealer. Your Contract Date will be the date the properly completed
application is received at our Administrative Office. (If this date is the
29th, 30th or 31st of any month, the Contract Date will be the 28th of such
month.) The Company sells the Contract to retirement plans that qualify for
special federal tax treatment under the Code. For Contracts issued in the
state of Texas, Owners must be members of Texas Farm Bureau. We apply a
maximum issue age of 80 to Annuitants on the Contract Date.
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PREMIUMS
The minimum initial premium amount the Company will accept is $1,000 and is
due on or before the Contract Date. You may make minimum subsequent premium
payments of at least $50 each at any time during the Annuitant's lifetime
and before the Retirement Date. We reserve the right to limit the number and
amount of subsequent premium payments.
You may select to receive a premium reminder notice schedule based on an
annual, semi-annual or quarterly payment, for which you may change the
amount and frequency of the notice at any time. Also, under the Automatic
Payment Plan, you can select a monthly payment schedule for premium payments
to be automatically deducted from a bank account or other source.
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FREE-LOOK PERIOD
We provide for an initial "free-look" period during which time you have the
right to return the Contract within 10 days after you receive it (certain
states may require a longer period). If you return the Contract, it will
become void and you will receive the greater of:
- premiums paid, or
- the Accumulated Value on the date we receive the returned Contract
at the Administrative Office, plus administrative charges and any
other charges deducted from the Account.
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ALLOCATION OF PREMIUMS
Upon receipt at our Administrative Office of your properly completed
Contract application and initial premium payment, we will allocate the
initial premium to the Prime Reserve Subaccount within two Business Days. If
your application is not properly completed, we reserve the right to retain
your initial premium for up to five Business Days while we attempt to
complete the application. At the end of this 5-day period, if the
application is not complete, we will inform you of the reason for the delay
and we will return the initial premium immediately, unless you specifically
provide us your consent to retain the premium until the application is
complete.
You can allocate premiums paid to one or more Subaccounts, the Declared
Interest Option, or both. Each allocation must be in whole percentages for a
minimum of 10% of your premium payment.
- We will allocate the initial premium to the Prime Reserve Subaccount
for 10 days after the Contract Date.
- At the end of that period, we will allocate those monies among the
Subaccounts and the Declared Interest Option according to the
instructions in your application.
- We will allocate subsequent premiums in the same manner at the end
of the valuation period when we receive them at our Administrative
Office, unless the allocation percentages are changed.
- You may change your allocation schedule at any time by sending
Written Notice to the Administrative Office. Changing your
allocation schedule will not alter the allocation of your existing
Accumulated Values among the Subaccounts or the Declared Interest
Option. If you change your allocation percentages, we will allocate
subsequent premium payments in accordance with the allocation
schedule in effect.
- You may, however, direct individual payments to a specific
Subaccount, the Declared Interest Option, or any combination
thereof, without changing the existing allocation schedule.
Because the Accumulated Values in each Subaccount will vary with that
Subaccount's investment experience, you bear the entire investment risk for
amounts allocated to the Subaccount. You should periodically review your
premium allocation schedule in light of market conditions and your overall
financial objectives.
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VARIABLE ACCUMULATED VALUE
The variable Accumulated Value of your Contract (i.e., the total amount in
each Subaccount) will reflect the investment experience of your selected
Subaccounts, any premiums paid, surrenders or partial withdrawals, transfers
and charges assessed. The Company does not guarantee a minimum variable
Accumulated Value, and, because your Contract's variable Accumulated Value
on any future date depends upon a number of variables, it cannot be
predetermined.
CALCULATION OF VARIABLE ACCUMULATED VALUE. Your Contract's variable
Accumulated Value is determined at the end of each Valuation Period and is
the aggregate of the values in each of the Subaccounts under your Contract.
These values are determined by multiplying each Subaccount's unit value by
the number of units allocated to that Subaccount.
DETERMINATION OF NUMBER OF UNITS. The amounts you allocate to your selected
Subaccounts are converted into Subaccount units. The number of units
credited to each Subaccount in your Contract is calculated at the end of the
Valuation Period by dividing the dollar amount allocated by the unit value
for that Subaccount. At the end of the Valuation Period, we will increase
the number of units in each Subaccount by:
- any premiums paid, and
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- any amounts transferred from another Subaccount or the Declared
Interest Option.
We will decrease the number of units in each Subaccount by:
- any amounts withdrawn,
- applicable charges assessed, and
- any amounts transferred to another Subaccount or the Declared
Interest Option.
DETERMINATION OF UNIT VALUE. We have set the unit value for each
Subaccount's first Valuation Period at $10. We calculate the unit value for
a Subaccount for each subsequent Valuation Period by dividing (a) by (b)
where:
(a) is the net result of:
1. the value of the net assets in the Subaccount at the end
of the preceding Valuation Period; plus
2. the investment income and realized or unrealized capital
gains credited to the Subaccount during the current
Valuation Period; minus
3. the capital losses, realized or unrealized, charged
against the Subaccount during the current Valuation
Period; minus
4. any amount charged for taxes or any amount set aside
during the Valuation Period as a provision for taxes
attributable to the operation and maintenance of that
Subaccount; minus
5. the daily amount charged for mortality and expense risks
for each day of the current Valuation Period.
(b) is the number of units outstanding at the end of the preceding
Valuation Period.
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TRANSFER PRIVILEGE
You may transfer monies in a Subaccount or the Declared Interest Option to
another Subaccount or the Declared Interest Option on or before the
Retirement Date. We will process all transfers as of the Business Day on or
next following receipt of your written request at the Administrative Office.
- The minimum amount of each transfer is $100 or the entire amount in
that Subaccount or the Declared Interest Option, if less.
- Transfers out of the Declared Interest Option must be for no more
than 25% of the Accumulated Value in that option.
- If a transfer would reduce the Accumulated Value in the Declared
Interest Option below $1,000, you may transfer the entire amount in
that option.
- The Company waives fees for the first twelve transfers during a
Contract Year.
- The Company may assess a transfer processing fee of $25 for the 13th
and each subsequent transfer during a Contract Year.
- We allow an unlimited number of transfers among or between the
Subaccounts or the Declared Interest Option. (See "DECLARED INTEREST
OPTION--Transfers from Declared Interest Option.")
All transfer requests received in a Valuation Period will be considered to
be one transfer, regardless of the Subaccounts or Declared Interest Option
affected. We will deduct the transfer processing fee on a pro-rata basis
from the Subaccounts or Declared Interest Option to which the transfer is
made unless it is paid in cash.
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You may also transfer monies via telephone request if you selected this
option on your initial application or have provided us with proper
authorization. We reserve the right to suspend telephone transfer privileges
at any time.
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PARTIAL WITHDRAWALS AND SURRENDERS
PARTIAL WITHDRAWALS. You may withdraw part of the Accumulated Value upon
Written Notice at any time before the Retirement Date.
- The minimum amount which you may partially withdraw is $500.
- If your partial withdrawal reduces your Accumulated Value to $2,000
or less, it may be treated as a full surrender of the Contract.
We will process your partial withdrawal, based on the next determined net
asset value, as of the Business Day on or next following receipt of your
written request at the Administrative Office. We may apply a Surrender
Charge to any withdrawal taken during the first Contract Year. In each
Contract Year after the first Contract Year, a Surrender Charge will apply
to any partial withdrawal that exceeds 10% of your Contract's Accumulated
Value as of the most recent Contract Anniversary. You may elect to have any
applicable Surrender Charge deducted from your remaining Accumulated Value
or the amount partially withdrawn. (See "Surrender Charge.")
You may specify the amount of the partial withdrawal to be made from
selected Subaccounts or the Declared Interest Option. If you do not so
specify, or if the amount in the designated Subaccount(s) or Declared
Interest Option is insufficient to comply with your request, we will make
the partial withdrawal from each Subaccount or Declared Interest Option
based on the proportion that these values bear to the total Accumulated
Value on the date we receive your request at the Administrative Office.
SURRENDER. You may surrender your Contract upon Written Notice on or before
the Retirement Date. We will determine your Net Accumulated Value, based on
the next determined net asset value, as of the Business Day on or next
following receipt of your written request and your Contract at the
Administrative Office. You may choose to have the Net Accumulated Value
distributed to you as follows:
- under a payment option, or
- in a lump sum.
SURRENDER AND PARTIAL WITHDRAWAL RESTRICTIONS. Your right to make partial
withdrawals and surrenders is subject to any restrictions imposed by
applicable law or employee benefit plan and you may realize adverse federal
income tax consequences, including a penalty tax, upon utilization of these
features. (See "Taxation of Annuities.")
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. Surrenders
and partial withdrawals of Contracts which are used as funding vehicles for
Code Section 403(b) retirement plans are subject to certain restrictions.
(See "FEDERAL TAX MATTERS--Taxation of Qualified Plans--TAX SHELTERED
ANNUITIES.")
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SPECIAL TRANSFER AND WITHDRAWAL OPTIONS
You may elect the following options on your initial application or at a
later date by completing the applicable Request Form and returning it to the
Administrative Office. The options selected will remain in effect until we
receive a written termination request from you at the Administrative Office.
The use of Automatic Rebalancing or Dollar Cost Averaging does not guarantee
profits, nor protect you against losses.
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AUTOMATIC REBALANCING. You may automatically reallocate your Accumulated
Value among the Subaccounts and Declared Interest Option each year to return
your Accumulated Value to your most recent premium allocation percentages.
- We will reallocate monies according to the percentage allocation
schedule in effect on your Contract Anniversary.
- The maximum number of Subaccounts which you may select at any one
time is ten.
- Rebalancing will occur on the fifth Business Day of the month
following your Contract Anniversary.
- This feature is not considered in the twelve free transfers during a
Contract Year.
- This feature cannot be utilized in combination with Dollar Cost
Averaging.
DOLLAR COST AVERAGING. You may periodically transfer a specified amount
among the Subaccounts or the Declared Interest Option.
- The minimum amount of each transfer is $100.
- The maximum number of Subaccounts which you may select at any one
time is ten, including the Declared Interest Option.
- You select the date to implement this program which will occur on
the same date each month, or on the next Business Day.
- We will terminate this option when monies in the source account are
inadequate.
- This feature is considered in the twelve free transfers during a
Contract Year.
- This feature cannot be utilized in combination with Automatic
Rebalancing or Systematic Withdrawals.
SYSTEMATIC WITHDRAWALS. You may elect to receive automatic partial
withdrawals.
- You specify the amount of the partial withdrawals to be made from
selected Subaccounts or the Declared Interest Option.
- You specify the allocation of the withdrawals among the Subaccounts
and Declared Interest Option, and the frequency (monthly, quarterly,
semi-annually or annually).
- The minimum amount which you may withdraw is $500.
- The maximum amount which you may withdraw is that which would leave
the remaining Accumulated Value equal to or more than $2,000.
- You may annually withdraw a maximum of 10% of Accumulated Value
without incurring a Surrender Charge.
- Distributions will take place on the same date each month as the
Contract Date.
- You may change the amount and frequency upon written request to the
Administrative Office.
- This feature cannot be utilized in combination with Dollar Cost
Averaging.
We may terminate these privileges at any time.
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DEATH BENEFIT BEFORE THE RETIREMENT DATE
DEATH OF OWNER. If an Owner dies prior to the Retirement Date, any surviving
Owner becomes the sole Owner. If there is no surviving Owner, the Annuitant
becomes the new Owner unless the deceased Owner was also the Annuitant. If
the deceased Owner was also the Annuitant, then the provisions relating to
the death of an Annuitant (described below) will govern unless the deceased
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Owner was one of two joint Annuitants. (In the latter event, the surviving
Annuitant becomes the Owner.)
The surviving Owners or new Owners are afforded the following options:
1. If the sole surviving Owner or the sole new Owner is the spouse
of the deceased Owner, he or she may continue the Contract as
the new Owner.
2. If the surviving Owner or the new Owner is not the spouse of
the deceased Owner:
(a) he or she may elect to receive the Net Accumulated Value
in a single sum within 5 years of the deceased Owner's
death, or
(b) he or she may elect to receive the Net Accumulated Value
paid out under one of the annuity payment options, with
payments beginning within one year after the date of the
Owner's death and with payments being made over the
lifetime of the Owner, or over a period that does not
exceed the life expectancy of the Owner.
Under either of these options, surviving Owners or new Owners may exercise
all ownership rights and privileges from the date of the deceased Owner's
death until the date that the Net Accumulated Value is paid.
Other rules may apply to a Qualified Contract.
DEATH OF AN ANNUITANT. If the Annuitant dies before the Retirement Date, we
will pay the death benefit under the Contract to the Beneficiary. If there
is no surviving Beneficiary, we will pay the death benefit to the Owner or
the Owner's estate. If the Annuitant's age on the Contract Date was less
than 76, the death benefit is equal to the greatest of:
- the sum of the premiums paid, less the sum of all partial withdrawal
reductions (including applicable Surrender Charges),
- the Accumulated Value on the date we receive Due Proof of Death, or
- the Accumulated Value on the most recent Contract Anniversary (plus
subsequent premiums paid and less subsequent partial withdrawals).
If the Annuitant's age on the Contract Date was 76 or older, the death
benefit will be determined as of the date we receive Due Proof of Death and
is equal to the greater of:
- the sum of the premiums paid, less the sum of all partial withdrawal
reductions (including applicable Surrender Charges), or
- the Accumulated Value.
A partial withdrawal reduction is defined as (a) times (b) divided by (c)
where:
(a) is the death benefit immediately prior to withdrawal;
(b) is the amount of the partial withdrawal (including applicable
Surrender Charges); and
(c) is the Accumulated Value immediately prior to withdrawal.
We will pay the death benefit to the Beneficiary in a lump sum unless the
Owner or Beneficiary elects a payment option. We do not pay a death benefit
if the Annuitant dies after the Retirement Date.
If the Annuitant who is also the Owner dies, the provisions described
immediately above under "Death of Owner" apply except that the Beneficiary
may only apply the death benefit payment to an annuity payment option if:
- payments under the option begin within 1 year of the Annuitant's
death, and
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- payments under the option are payable over the Beneficiary's life or
over a period not greater than the Beneficiary's life expectancy.
If the Owner's spouse is the designated Beneficiary, the Contract may be
continued with such surviving spouse as the new Owner.
Other rules may apply to a Qualified Contract.
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DEATH BENEFIT AFTER THE RETIREMENT DATE
If an Owner dies on or after the Retirement Date, any surviving Owner
becomes the sole Owner. If there is no surviving Owner, the payee receiving
annuity payments becomes the new Owner and retains the rights provided to
Owners during the annuity period, including the right to name successor
payees if the deceased Owner had not previously done so. On or after the
Retirement Date, if any Owner dies before the entire interest in the
Contract has been distributed, the remaining portion of such interest will
be distributed at least as quickly as under the method of distribution being
used as of the date of death.
If the Annuitant dies before all payments have been received, we will make
any remaining payments to the Beneficiary. There is no death benefit payable
if the Annuitant dies after the Retirement Date.
Other rules may apply to a Qualified Contract.
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PROCEEDS ON THE RETIREMENT DATE
You select the Retirement Date. The Retirement Date may not be after the
later of the Annuitant's age 70 or 10 years after the Contract Date. If you
do not select a Retirement Date, we will use the Annuitant's age 70.
On the Retirement Date, we will apply the proceeds under the life income
annuity payment option with ten years guaranteed, unless you choose to have
the proceeds paid under another option or in a lump sum. (See "Payment
Options.") If a payment option is elected, we will apply the Accumulated
Value less any applicable Surrender Charge. If a lump sum payment is chosen,
we will pay the Net Accumulated Value on the Retirement Date.
You may change the retirement date subject to these limitations:
- we must receive a Written Notice at the Administrative Office at
least 30 days before the current Retirement Date; and
- the requested Retirement Date must be a date that is at least 30
days after receipt of the Written Notice.
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PAYMENTS
We will usually pay any surrender, partial withdrawal or death benefit
within seven days of receipt of a written request at the Administrative
Office. We also require any information or documentation necessary to
process the request, and in the case of a death benefit, we must receive Due
Proof of Death. We may postpone payments if:
- the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC;
- the SEC permits by an order the postponement for the protection of
Owners; or
- the SEC determines that an emergency exists that would make the
disposal of securities held in the Account or the determination of
the value of the Account's net assets not reasonably practicable.
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If you have submitted a recent check or draft, we have the right to delay
payment until we are assured that the check or draft has been honored.
We have the right to defer payment of any surrender, partial withdrawal or
transfer from the Declared Interest Option for up to six months. If payment
has not been made within 30 days after receipt of all required
documentation, or such shorter period as necessitated by a particular
jurisdiction, we will add interest at the rate of 3% (or a higher rate if
required by a particular state) to the amount paid from the date all
documentation was received.
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MODIFICATION
You may modify the Contract only if one of our officers agrees in writing to
such modification.
Upon notification to you, we may modify your Contract if:
- necessary to make your Contract or the Account comply with any law
or regulation issued by a governmental agency to which the Company
is subject;
- necessary to assure continued qualification of your Contract under
the Code or other federal or state laws relating to retirement
annuities or variable annuity contracts;
- necessary to reflect a change in the operation of the Account; or
- the modification provides additional Subaccount and/or fixed
accumulation options.
We will make the appropriate endorsement to your Contract in the event of
most such modifications.
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REPORTS TO OWNERS
We will mail to you, at least annually, a report containing the Accumulated
Value of your Contract (reflecting each Subaccount and the Declared Interest
Option), premiums paid, withdrawals taken and charges deducted since your
last report, and any other information required by any applicable law or
regulation.
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INQUIRIES
You may contact the Company in writing at our Administrative Office if you
have any questions regarding your Contract.
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THE DECLARED INTEREST OPTION
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You may allocate some or all of your premium payments, and transfer some or
all of your Accumulated Value, to the Declared Interest Option, which is
part of the General Account and pays interest at declared rates guaranteed
for each Contract Year (subject to a minimum guaranteed interest rate of
3%).
IN COMPLIANCE WITH SPECIFIC STATE INSURANCE REGULATIONS, THE DECLARED
INTEREST OPTION MAY NOT BE AVAILABLE IN ALL STATES. A REGISTERED
REPRESENTATIVE CAN PROVIDE INFORMATION ON THE AVAILABILITY OF THIS
INVESTMENT OPTION.
The Declared Interest Option has not been, and is not required to be,
registered with the SEC under the Securities Act of 1933 (the "1933 Act"),
and neither the Declared Interest Option nor the Company's General Account
has been registered as an investment company under the 1940 Act. Therefore,
neither the Company's General Account, the Declared Interest Option, nor any
interests therein are generally subject to regulation under the 1933 Act or
the 1940 Act. The disclosures relating to these accounts, which are included
in this prospectus, are for your information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain generally
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applicable provisions of Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
The portion of your Accumulated Value allocated to the Declared Interest
Option (the "Declared Interest Option accumulated value") will be credited
with rates of interest, as described below. Since the Declared Interest
Option is part of the General Account, we assume the risk of investment gain
or loss on this amount. All assets in the General Account are subject to the
Company's general liabilities from business operations.
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MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Declared Interest Option accumulated value is guaranteed to accumulate
at a minimum effective annual interest rate of 3%. While we intend to credit
the Declared Interest Option accumulated value with current rates in excess
of the minimum guarantee, we are not obligated to do so. These current
interest rates are influenced by, but do not necessarily correspond to,
prevailing general market interest rates, and any interest credited on your
amounts in the Declared Interest Option in excess of the minimum guaranteed
rate will be determined in the sole discretion of the Company. You,
therefore, assume the risk that interest credited may not exceed the
guaranteed rate.
Occasionally, we establish new current interest rates for the Declared
Interest Option. The rate applicable to your Contract is the rate in effect
on your most recent Contract Anniversary. This rate will remain unchanged
until your next Contract Anniversary (i.e., for your entire Contract Year).
During each Contract Year, your entire Declared Interest Option accumulated
value (including amounts allocated or transferred to the Declared Interest
Option during the year) is credited with the interest rate in effect for
that period and becomes part of your Declared Interest Option accumulated
value.
We reserve the right to change the method of crediting interest, provided
that such changes do not have the effect of reducing the guaranteed interest
rate below 3% per annum, or shorten the period for which the current
interest rate applies to less than a Contract Year.
CALCULATION OF DECLARED INTEREST OPTION ACCUMULATED VALUE. The Declared
Interest Option accumulated value is equal to:
- amounts allocated and transferred to it, plus
- interest credited, less
- amounts deducted, transferred or withdrawn.
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TRANSFERS FROM DECLARED INTEREST OPTION
You may make an unlimited number of transfers from the Declared Interest
Option to any or all of the Subaccounts in each Contract Year. The amount
you transfer may not exceed 25% of the Declared Interest Option accumulated
value on the date of transfer. However, if the balance after the transfer is
less than $1,000, you may transfer the entire amount.
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PAYMENT DEFERRAL
We have the right to defer payment of any surrender, partial withdrawal or
transfer from the Declared Interest Option for up to six months.
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CHARGES AND DEDUCTIONS
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SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
CHARGE FOR PARTIAL WITHDRAWAL OR SURRENDER. We apply a charge if you make a
partial withdrawal from or surrender your Contract during the first seven
Contract Years.
<TABLE>
<CAPTION>
CONTRACT YEAR
IN WHICH
SURRENDER CHARGE AS PERCENTAGE OF
OCCURS AMOUNT SURRENDERED
<S> <C>
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
If Surrender Charges are not sufficient to cover sales expenses, the loss
will be borne by the Company; conversely, if the amount of such charges
proves more than enough, the Company will retain the excess. In no event
will the total Surrender Charges assessed under a Contract exceed 8.5% of
the total premiums paid under that Contract.
If the Contract is being surrendered, the Surrender Charge is deducted from
the Accumulated Value in determining the Net Accumulated Value. For a
partial withdrawal, the Surrender Charge may, at the election of the Owner,
be deducted from the Accumulated Value remaining after the amount requested
is withdrawn or be deducted from the amount of the withdrawal requested.
AMOUNTS NOT SUBJECT TO SURRENDER CHARGE. We may apply a Surrender Charge to
any withdrawal taken during the first Contract Year. In each Contract Year
after the first Contract Year, you may withdraw up to 10% of the Accumulated
Value on your most recent Contract Anniversary without a Surrender Charge.
If you subsequently surrender your Contract during the Contract Year, we
will apply a Surrender Charge to any partial withdrawals you've taken during
the Contract Year. (This right is not cumulative from Contract Year to
Contract Year.)
SURRENDER CHARGE AT THE RETIREMENT DATE. A Surrender Charge will be assessed
against your Accumulated Value at the Retirement Date if you select a
payment option other than options 2-5 described below (see "Payment
Options"). We do not apply a Surrender Charge if you select payment options
3 or 5. If you select payment options 2 or 4, we assess a Surrender Charge
by adding the number of years for which payments will be made to the number
of Contract Years since your Contract inception and applying this sum in the
table of Surrender Charges.
WAIVER OF SURRENDER CHARGE. We reserve the right to waive the Surrender
Charge after your first Contract Year if the Annuitant is terminally ill (as
defined in your Contract), stays in a qualified nursing center for 90 days,
or is required to satisfy minimum distribution requirements in accordance
with the Code. We must receive written notification, before the Retirement
Date, at the Administrative Office in order to activate this waiver.
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ANNUAL ADMINISTRATIVE CHARGE
We currently apply an annual administrative charge of $30 on the Contract
Date and on each Contract Anniversary prior to the Retirement Date. We
guarantee that this charge will not exceed $45 annually. We deduct this
charge from your Accumulated Value and use it to reimburse us for
administrative expenses relating to your Contract. We will make the
withdrawal from each Subaccount and the Declared Interest Option based on
the proportion that each Subaccount's value bears to the total Accumulated
Value. We do not assess this charge during the annuity payment period.
We currently waive the annual administrative charge:
- in the first Contract Year with an initial premium payment of
$50,000, or
- upon a Net Accumulated Value of $50,000 on your Contract
Anniversary.
We may terminate this privilege at any time.
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TRANSFER PROCESSING FEE
We waive the transfer processing fee for the first twelve transfers during a
Contract Year, but may assess a $25 charge for each subsequent transfer. We
will deduct this fee on a pro-rata basis from the Subaccounts or Declared
Interest Option to which the transfer is made unless it is paid in cash.
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MORTALITY AND EXPENSE RISK CHARGE
We apply a daily mortality and expense risk charge at an annual rate of
1.40% (daily rate of 0.0038091%) (approximately 1.01% for mortality risk and
0.39% for expense risk). This charge is used to compensate the Company for
assuming mortality and expense risks.
The mortality risk we assume is that Annuitants may live for a longer period
of time than estimated when the guarantees in the Contract were established.
Through these guarantees, each payee is assured that longevity will not have
an adverse effect on the annuity payments received. The mortality risk also
includes a guarantee to pay a death benefit if the Owner/Annuitant dies
before the Retirement Date. The expense risk we assume is that the annual
administrative charge and transfer processing fees may be insufficient to
cover actual future expenses.
We may realize a profit from this charge and we may use such profit for any
lawful purpose including paying distribution expenses.
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INVESTMENT OPTION EXPENSES
The assets of the Account will reflect the investment advisory fee and other
operating expenses incurred by each Investment Option. (See the Expense
Tables in this prospectus and the accompanying Investment Option
prospectuses.)
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PREMIUM TAXES
Currently, we do not charge for premium taxes levied by various states and
other governmental entities on annuity contracts issued by insurance
companies. These taxes range up to 3.5% and are subject to change. We
reserve the right, however, to deduct such taxes from Accumulated Value.
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OTHER TAXES
Currently, we do not charge for any federal, state or local taxes incurred
by the Company which may be attributable to the Account or the Contracts. We
reserve the right, however, to make such a charge in the future.
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PAYMENT OPTIONS
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Your Contract ends on the Retirement Date. At that time, your Net
Accumulated Value will be applied under a payment option, unless you elect
to receive this amount in a single sum. Should you not elect a payment
option on the Retirement Date, proceeds will be paid as a life income
annuity with payments guaranteed for ten years.
Prior to the Retirement Date, you may have your Net Accumulated Value
applied under a payment option, or a Beneficiary can have the death benefit
applied under a payment option. In either case, the Contract must be
surrendered for a lump sum payment to be made, or a supplemental contract to
be issued for the payment option.
We have provided a description of the available payment options below. The
term "payee" means a person who is entitled to receive payment under that
option. All payment options offer a fixed and guaranteed amount to be paid
during the annuity payment period, independent of the investment experience
of the Account.
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ELECTION OF OPTIONS
While the Annuitant is living, you may elect, revoke or change a payment
option at any time before the Retirement Date. Upon an Annuitant's death, if
a payment option is not in effect or if payment will be made in one lump sum
under an existing option, the Beneficiary may elect one of the options after
the death of the Owner/Annuitant.
We will initiate an election, revocation or change of a payment option upon
receipt of your written request at the Administrative Office.
We reserve the right to refuse the election of a payment option, other than
in a lump sum, if:
1) the total payments would be less than $2,000;
2) each payment would be less than $20; or
3) the payee is an assignee, estate, trustee, partnership,
corporation or association.
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DESCRIPTION OF OPTIONS
OPTION 1--INTEREST INCOME. The proceeds are left with the Company to earn a
set interest rate. The payee may elect to have the interest paid monthly,
quarterly, semi-annually or annually. Under this option, the payee may
withdraw part or all of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED TERM. The proceeds are paid in equal
installments for a fixed number of years.
OPTION 3--LIFE INCOME OPTION WITH TERM CERTAIN. The proceeds are paid in
equal amounts (at intervals elected by the payee) during the payee's
lifetime with the guarantee that payments will be made for a specified
number of years. Under this option, at the death of a payee having no
Beneficiary (or where the Beneficiary died prior to the payee), the present
value of the dollar amount of any remaining guaranteed payments will be paid
in one lump sum to the executors or administrators of the payee's estate.
Also under this option, if any Beneficiary dies while receiving
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payment, the present value of the dollar amount of any remaining guaranteed
payments will be paid in one lump sum to the executors or administrators of
the Beneficiary's estate. The amount to be paid is calculated as of the date
of death of the payee, or Beneficiary if applicable.
OPTION 4--INCOME FOR FIXED AMOUNT. The proceeds are paid in equal
installments (at intervals elected by the payee) for a specific amount and
will continue until all the proceeds plus interest are exhausted.
OPTION 5--JOINT AND TWO-THIRDS TO SURVIVOR MONTHLY LIFE INCOME. The proceeds
are paid in equal installments while two joint payees live. When one payee
dies, future proceeds equal to two-thirds of the initial payment will be
made to the survivor for their lifetime.
The amount of each payment is calculated from the tables in the Contract
which apply to that particular option using the payee's age and sex. Age is
determined as the last birthday at the date of the first payment.
ALTERNATE PAYMENT OPTIONS. The Company may make available alternative
payment options.
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YIELDS AND TOTAL RETURNS
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We may advertise, or include in sales literature, yields, effective yields
and total returns for the Subaccounts. THESE FIGURES ARE BASED ON HISTORICAL
EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE PERFORMANCE. Each Subaccount
may also advertise, or include in sales literature, performance relative to
certain performance rankings and indices compiled by independent rating
organizations. You may refer to the Statement of Additional Information for
more detailed information relating to performance.
The effective yield and total return calculated for each Subaccount is based
on the investment performance of the corresponding Investment Option, which
includes the Investment Option's total operating expenses. (See the
accompanying Investment Option prospectuses.)
The yield of a Subaccount (except the Prime Reserve Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. This yield is calculated by assuming
that the income generated during that 30-day or one-month period is
generated each period over 12-months and is shown as a percentage of the
investment.
The yield of the Prime Reserve Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day
period. This yield is calculated by assuming that the income generated for
that seven-day period is generated each period for 52 weeks and is shown as
a percentage of the investment. The effective yield is calculated similiarly
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 total return of a Subaccount refers to return quotations of an
investment in a Subaccount for various periods of time. Total return figures
are provided for each Subaccount for one, five and ten year periods,
respectively. For periods prior to the date the Account commenced
operations, performance information is calculated based on the performance
of the Investment Options and the assumption that the Subaccounts were in
existence for those same periods, with the level of Contract charges which
were in effect at inception of the Subaccounts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
to the redemption value of that investment as of the last day of each of the
periods for which total return quotations are provided. Average annual total
return information shows the average percentage change in the value of an
investment in the Subaccount from the beginning date of the measuring period
to the end of that period. This standardized version of average annual total
return reflects all historical investment results less all
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charges and deductions applied against the Subaccount (including any
Surrender Charge that would apply if you terminated your Contract at the end
of each period indicated, but excluding any deductions for premium taxes).
In addition to standardized average annual total return, non-standardized
total return information may be used in advertisements or sales literature.
Non-standardized return information will be computed on the same basis as
described above, but does not include a Surrender Charge. In addition, the
Company may disclose cumulative total return for Contracts funded by
Subaccounts.
Each Investment Option's yield, and standardized and non-standardized
average annual total returns may also be disclosed, which may include
investment periods prior to the date the Account commenced operations.
Non-standardized performance data will only be disclosed if standardized
performance data is also disclosed. Please refer to the Statement of
Additional Information for additional information regarding the calculation
of other performance data.
In advertising and sales literature, Subaccount performance may be compared
to the performance of other issuers of variable annuity contracts which
invest in mutual fund portfolios with similar investment objectives. Lipper
Analytical Services, Inc. ("Lipper") and the Variable Annuity Research Data
Service ("VARDS") are independent services which monitor and rank the
performance of variable annuity issuers according to investment objectives
on an industry-wide basis.
The rankings provided by Lipper include variable life insurance issuers as
well as variable annuity issuers, whereas the rankings provided by VARDS
compare only variable annuity issuers. The performance analyses prepared by
Lipper and VARDS each rank such issuers on the basis of total return,
assuming reinvestment of distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level
into consideration. In addition, VARDS prepares risk rankings, which
consider the effects of market risk on total return performance. This type
of ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely
used measure of stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any deductions for operating
expenses. Other independent ranking services and indices may also be used as
a source of performance comparison.
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. All income and capital
gains derived from Subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
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FEDERAL TAX MATTERS
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THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is based on the Company's understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of the
continuation of these current tax laws and interpretations. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
A Contract may be purchased on a non-qualified basis ("Non-Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). A Qualified Contract is
designed for use by individuals whose premium payments are comprised solely
of proceeds from and/or contributions under retirement plans which are
intended to qualify as plans
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entitled to special income tax treatment under Sections 401(a), 403(b), 408
or 408A of the Internal Revenue Code of 1986, as amended (the "Code"). The
effect of federal income taxes on amounts held under a Contract or annuity
payments, and on the economic benefit to the Owner, the Annuitant or the
Beneficiary depends on the type of retirement plan, the tax and employment
status of the individual concerned, and the Company's tax status. In
addition, an individual must satisfy certain requirements in connection
with:
- purchasing a Qualified Contract with proceeds from a tax-qualified
plan, and
- receiving distributions from a Qualified Contract
in order to continue to receive favorable tax treatment.
Therefore, purchasers of Qualified Contracts are encouraged to seek
competent legal and tax advice regarding the suitability and tax
considerations specific to their situation. The following discussion assumes
that Qualified Contracts are purchased with proceeds from and/or
contributions under retirement plans that qualify for the intended special
federal income tax treatment.
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TAX STATUS OF THE CONTRACT
The Company believes that the Contract will be subject to tax as an annuity
contract under the Code, which generally means that any increase in
Accumulated Value will not be taxable until monies are received from the
Contract, either in the form of annuity payments or in some other form. The
following Code requirement must be met in order to be subject to annuity
contract treatment for tax purposes:
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Code provides that
separate account investments must be "adequately diversified" in accordance
with Treasury regulations in order for the Contract to qualify as an annuity
contract for federal tax purposes. The Account, through each Investment
Option, intends to comply with the diversification requirements prescribed
in regulations under Section 817(h) of the Code, which affect how the assets
in each Subaccount may be invested. We do not have control over the Funds or
their investments. Nonetheless, the Company believes that each Investment
Option in which the Account owns shares will meet the diversification
requirements.
OWNER CONTROL. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of
the assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contract owner's gross income. The IRS
has stated in published rulings that a variable annuity contract owner will
be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of
a segregated asset account may cause the investor (i.e., the contract
owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, the Contract Owner has additional flexibility in allocating
premium payments and Accumulated Values. These differences could result in a
Contract Owner being treated as the owner of a pro rata portion of the
assets of the Account. In addition, the Company does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves
the right to modify the Contract as necessary to attempt to prevent the
Contract Owner from being considered the owner of the assets of the Account.
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REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any
Non-Qualified Contract to provide that:
- if any Owner dies on or after the Retirement Date but before the
interest in the Contract has been fully distributed, the remaining
portion of such interest will be distributed at least as rapidly as
under the method of distribution being used as of the date of that
Owner's death; and
- if any Owner dies prior to the Retirement Date, the interest in the
Contract will be distributed within five years after the date of the
Owner's death.
These requirements will be considered satisfied as to any portion of the
Owner's interest which is payable to or for the benefit of a designated
Beneficiary and which is distributed over the life of such Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary,
provided that such distributions begin within one year of that Owner's
death. The Owner's designated Beneficiary is the person designated by such
Owner as a Beneficiary and to whom ownership of the Contract passes by
reason of death and must be a natural person. However, if the designated
Beneficiary is the surviving spouse of the Owner, the Contract may be
continued with the surviving spouse as the new Owner.
Non-Qualified Contracts contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. The Company intends to
review such provisions and modify them if necessary to assure that they
comply with the requirements of Code Section 72(s) when clarified by
regulation or otherwise.
Other rules may apply to Qualified Contracts.
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TAXATION OF ANNUITIES
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS ANNUITY
CONTRACTS FOR FEDERAL INCOME TAX PURPOSES.
IN GENERAL. Section 72 of the Code governs taxation of annuities in general.
The Company believes that an Owner who is a natural person is not taxed on
increases in the value of a Contract until distribution occurs through a
partial withdrawal, surrender or annuity payment. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the
Accumulated Value (and in the case of a Qualified Contract, any portion of
an interest in the qualified plan) generally will be treated as a
distribution. The taxable portion of a distribution (in the form of a single
sum payment or payment option) is taxable as ordinary income.
NON-NATURAL OWNER. A non-natural owner of an annuity contract generally must
include any excess of cash value over the "investment in the contract" as
income during the taxable year. However, there are some exceptions to this
rule. Certain Contracts will generally be treated as held by a natural
person if:
- the nominal Owner is a trust or other entity which holds the
Contract as an agent for a natural person (but not in the case of
certain non-qualified deferred compensation arrangements);
- the Contract is acquired by an estate of a decedent by reason of the
death of the decedent;
- the Contract is issued in connection with certain Qualified Plans;
- the Contract is purchased by an employer upon the termination of
certain Qualified Plans;
- the Contract is used in connection with a structured settlement
agreement; or
- the Contract is purchased with a single payment within a year of the
annuity starting date and substantially equal periodic payments are
made, not less frequently than annually, during the annuity period.
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<PAGE>
A prospective Owner that is not a natural person should discuss these
exceptions with their tax adviser.
THE FOLLOWING DISCUSSION GENERALLY APPLIES TO CONTRACTS OWNED BY NATURAL
PERSONS.
PARTIAL WITHDRAWALS. Under Section 72(e) of the Code, if a partial
withdrawal is taken from a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the investment
in the contract to the participant's total accrued benefit or balance under
the retirement plan. The "investment in the contract" generally equals the
portion, if any, of any premium payments paid by or on behalf of the
individual under a Contract which was not excluded from the individual's
gross income. For Contracts issued in connection with qualified plans, the
investment in the Contract can be zero. Special tax rules may be available
for certain distributions from Qualified Contracts, and special rules apply
to distributions from Roth IRAs.
Under Section 72(e) of the Code, if a partial withdrawal is taken from a
Non-Qualified Contract, amounts received are generally first treated as
taxable income to the extent that the Accumulated Value immediately before
the partial withdrawal exceeds the investment in the Contract at that time.
Any additional amount withdrawn is not taxable.
In the case of a surrender under a Qualified or Non-Qualified Contract, the
amount received generally will be taxable only to the extent it exceeds the
investment in the Contract.
Section 1035 of the Code provides that no gain or loss shall be recognized
on the exchange of one annuity contract for another and the contract
received is treated as a new contract for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to Section
1035 transactions and prospective Owners wishing to take advantage of
Section 1035 should consult their tax adviser.
ANNUITY PAYMENTS. Although tax consequences may vary depending on the
payment option elected under an annuity contract, under Code Section 72(b),
generally (prior to recovery of the investment in the contract) gross income
does not include that part of any amount received as an annuity under an
annuity contract that bears the same ratio to such amount as the investment
in the contract bears to the expected return at the annuity starting date.
Stated differently, prior to recovery of the investment in the contract,
generally, there is no tax on the amount of each payment which represents
the same ratio that the investment in the contract bears to the total
expected value of the annuity payments for the term of the payment; however,
the remainder of each income payment is taxable. After the investment in the
contract is recovered, the full amount of any additional annuity payments is
taxable. Special rules apply to distributions from Roth IRAs.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed from a
Contract because of the death of the Owner. Generally, such amounts are
includible in the income of the recipient as follows:
- if distributed in a lump sum, they are taxed in the same manner as a
surrender of the Contract, or
- if distributed under a payment option, they are taxed in the same
way as annuity payments.
For these purposes, the investment in the Contract remains the amount of any
purchase payments which were not excluded from gross income.
PENALTY TAX ON CERTAIN WITHDRAWALS. In the case of a distribution from a
Non-Qualified Contract, a 10% federal tax penalty may be imposed. However,
generally, there is no penalty applied on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of the holder (or if the holder is not an
individual, the death of the primary annuitant);
- attributable to the taxpayer becoming disabled;
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- as part of a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy) of
the taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and his or her designated beneficiary;
- made under certain annuities issued in connection with structured
settlement agreements; and
- made under an annuity contract that is purchased with a single
premium when the retirement date is no later than a year from
purchase of the annuity and substantially equal periodic payments
are made, not less frequently than annually, during the annuity
payment period.
Other tax penalties may apply to certain distributions under a Qualified
Contract. Contract Owners should consult their tax adviser.
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TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
Certain tax consequences may result upon:
- a transfer of ownership of a Contract,
- the designation of an Annuitant, payee or other Beneficiary who is
not also the Owner,
- the selection of certain Retirement Dates, or
- the exchange of a Contract.
An Owner contemplating any of these actions should consult their tax
adviser.
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WITHHOLDING
Generally, distributions from a Contract are subject to withholding of
federal income tax at a rate which varies according to the type of
distribution and the Owner's tax status.
Eligible rollover distributions from section 401(a) plans and section 403(b)
tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An "eligible rollover distribution" is the taxable
portion of any distribution from such a plan, except certain distributions
such as distributions required by the Code or distributions in a specified
annuity form. The 20% withholding does not apply, however, if the Owner
chooses a "direct rollover" from the plan to another tax-qualified plan or
IRA.
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MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts entered into after October 21,
1988 that are issued by the Company (or its affiliates) to the same Owner
during any calendar year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under Section 72(e). This
rule could affect the time when income is taxable and the amount that might
be subject to the 10% penalty tax described above. In addition, the Treasury
Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts
or otherwise. There may also be other situations in which the Treasury
Department may conclude that it would be appropriate to aggregate two or
more annuity contracts purchased by the same owner. Accordingly, a Contract
Owner should consult a competent tax adviser before purchasing more than one
annuity contract.
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TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary
according to the type of plan and the terms and conditions of the plan
itself. Special favorable tax treatment may be available for certain types
of contributions and distributions. Adverse tax consequences may result
from:
- contributions in excess of specified limits;
- distributions prior to age 59 1/2 (subject to certain exceptions);
- distributions that do not conform to specified commencement and
minimum distribution rules; and
- other specified circumstances.
Therefore, no attempt is made to provide more than general information about
the use of the Contracts with the various types of qualified retirement
plans. Contract Owners, the Annuitants and Beneficiaries are cautioned that
the rights of any person to any benefits under these qualified retirement
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract, but the Company
shall not be bound by the terms and conditions of such plans to the extent
such terms contradict the Contract, unless the Company consents. Some
retirement plans are subject to distribution and other requirements that are
not incorporated into our Contract administration procedures. Owners,
participants and Beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law. For qualified plans under Section
401(a), 403(a), 403(b) and 457, the Code requires that distributions
generally must commence no later than 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 April 1 of the calendar year following
the calendar year in which the Owner (or plan participant) reaches age
70 1/2. For Roth IRAs under Section 408A, distributions are not required
during the Owner's (or plan participant's) lifetime. Brief descriptions
follow of the various types of qualified retirement plans available in
connection with a Contract. The Company will amend the Contract as necessary
to conform it to the requirements of the Code.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits
on the amount that may be contributed, the persons who may be eligible and
on the time when distributions may commence. Also, distributions from
certain other types of qualified retirement plans may be "rolled over" on a
tax-deferred basis into an IRA. Sales of the Contract for use with IRAs may
be subject to special requirements of the Internal Revenue Service. Earnings
in an IRA are not taxed until distribution. IRA contributions are limited
each year to the lesser of $2,000 or 100% of the owner's adjusted gross
income and may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax.
Employers may establish Simplified Employee Pension (SEP) Plans to provide
IRA contributions on behalf of their employees. In addition to all of the
general Code rules governing IRAs, such plans are subject to certain Code
requirements regarding participation and amounts of contributions.
SIMPLE IRAS. Section 408(p) of the Code permits small employers to establish
SIMPLE IRAs under which employees may elect to defer a percentage of their
compensation up to $6,000 (as increased
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for cost of living adjustments). The sponsoring employer is required to make
a matching contribution on behalf of contributing employees. Distributions
from a SIMPLE IRA are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain
exceptions, premature distributions prior to age 59 1/2 are subject to a 10%
penalty tax, which is increased to 25% if the distribution occurs within the
first two years after the commencement of the employee's participation in
the plan.
ROTH IRAS. Section 408A of the Code permits certain eligible individuals to
contribute to a Roth IRA. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special
rules may apply. You should consult a tax adviser before combining any
converted amounts with any other Roth IRA contributions, including any other
conversion amounts from other tax years. Distributions from a Roth IRA
generally are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply to
distributions made:
- before age 59 1/2 (subject to certain exceptions), or
- during the five taxable years starting with the year in which the
first contribution is made to any Roth IRA.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code allows employees of
certain Section 501(c)(3) organizations and public schools to exclude from
their gross income the premiums paid, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premiums
may be subject to FICA (social security) tax. Code section 403(b)(11)
restricts the distribution under Code section 403(b) annuity contracts of:
- elective contributions made in years beginning after December 31,
1988;
- earnings on those contributions; and
- earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
Distribution of those amounts may only occur upon:
- death of the employee,
- attainment of age 59 1/2,
- separation from service,
- disability, or
- financial hardship.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
RESTRICTIONS UNDER QUALIFIED CONTRACTS. Other restrictions with respect to
the election, commencement or distribution of benefits may apply under
Qualified Contracts or under the terms of the plans in respect of which
Qualified Contracts are issued.
- --------------------------------------------------------------------------------
POSSIBLE CHARGE FOR THE COMPANY'S TAXES
The Company currently makes no charge to the Subaccounts for any Federal,
state or local taxes that we incur which may be attributable to such
Subaccounts or the Contracts. We reserve the right in the future to make a
charge for any such tax or other economic burden resulting from the
application of the tax laws that the Company determines to be properly
attributable to the Subaccounts or to the Contracts.
33
<PAGE>
- --------------------------------------------------------------------------------
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided
with respect to other tax situations not discussed in the prospectus.
Further, the Federal income tax consequences discussed herein reflect our
understanding of current law. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. Federal estate and state
and local estate, inheritance and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual
circumstances of each Owner or recipient of the distribution. You should
consult your tax adviser for further information.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The Contracts will be offered to the public on a continuous basis. We do not
anticipate discontinuing the offering of the Contracts, but reserve the
right to do so. Applications for Contracts are solicited by agents, who in
addition to being licensed by applicable state insurance authorities to sell
the variable annuity contracts for the Company, are also registered
representatives of SFB Fund Distributor, broker-dealers having selling
agreements with SFB Fund Distributor or broker-dealers having selling
agreements with such broker-dealers. SFB Fund Distributor is registered with
the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc.
SFB Fund Distributor serves as the principal underwriter, as defined in the
1940 Act, of the Contracts for the Account pursuant to an Underwriting
Agreement between the Company and SFB Fund Distributor and is not obligated
to sell any specific number of Contracts. SFB Fund Distributor's principal
business address is the same as that of the Company.
The Company may pay broker-dealers with selling agreements up to an amount
equal to 7% of the premiums paid under a Contract during the first Contract
Year, 3.75% of the premiums paid in the second through sixth Contract Years
and 1.25% of the premiums paid in the seventh and subsequent Contract Years,
as well as other distribution expenses such as production incentive bonuses,
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts that are not described under "Charges and Deductions."
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company, like other life insurance companies, is involved in lawsuits.
Currently, there are two class action lawsuits naming the Company as a
defendant, but neither involves the Account. The Company has entered into a
Stipulation of Settlement in one of the class action lawsuits, and such
settlement has received final approval from the Court. The Company has
evaluated the impact of this settlement on the Company's statutory financial
statements and has concluded that the ultimate resolution of this matter
will not materially affect the Company's financial position or results of
operation. Plaintiff's counsel in the other class action lawsuit has agreed
to voluntarily dismiss such lawsuit. In some lawsuits involving other
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, the Company believes that at the present time,
there are no pending or threatened lawsuits that are reasonably likely to
have a material adverse impact on the Account or the Company.
34
<PAGE>
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
To the extent required by law, the Company will vote the Fund shares held in
the Account at regular and special shareholder meetings of the Funds, in
accordance with instructions received from persons having voting interests
in the corresponding Subaccounts. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present interpretation
thereof should change, and, as a result, the Company determines that it is
permitted to vote the Fund shares in its own right, it may elect to do so.
The number of votes you have the right to instruct will be calculated
separately for each Subaccount in which you have Accumulated Value, and may
include fractional votes. (You only have voting interest prior to the
Retirement Date.) The number of votes attributable to a Subaccount is
determined by dividing your Accumulated Value in that Subaccount by the net
asset value per share of the Investment Option of the corresponding
Subaccount.
The number of votes of an Investment Option which are available to you is
determined as of the date coincident with the date established by that
Investment Option for determining shareholders eligible to vote at the
relevant meeting for that Fund. Voting instructions will be solicited by
written communication prior to such meeting in accordance with procedures
established by each Fund. For each Subaccount in which you have a voting
interest, you will receive proxy materials and reports relating to any
meeting of shareholders of the Investment Option in which that Subaccount
invests.
The Company will vote Fund shares attributable to Contracts as to which no
timely instructions are received (as well as any Fund shares held in the
Account which are not attributable to Contracts) in proportion to the voting
instructions received with respect to all Contracts participating in each
Investment Option. Voting instructions to abstain on any item to be voted
upon will be applied on a pro rata basis to reduce the votes eligible to be
cast on a matter.
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
Like other investment funds, financial and business organizations and
individuals around the world, the Account could be adversely affected if the
computer systems used by the Company and other service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. We have completed a comprehensive assessment of the
Year 2000 issue and developed a plan to address the issue in a timely
manner. We have and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. We
anticipate completing the Year 2000 project prior to any anticipated impact
on our operating systems.
The Company believes it has completed the Year 2000 modifications based on
management's best estimates, which were derived utilizing numerous
assumptions of future events. We also recognize there are outside influences
and dependencies relative to our Year 2000 effort, over which we have little
or no control. However, we are putting effort into ensuring these
considerations will have minimal impact. These would include the continued
availability of certain resources, third party modification plans and many
other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ from those anticipated.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited statutory statements of admitted assets, liabilities and
stockholders' equity of the Company as of December 31, 1998 and 1997, and
the related statutory statements of earnings, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998, as well as the related financial statement schedules and
Independent Auditors' Report are contained in the Statement of Additional
Information. No financial information for the Account is included because
the Account had not commenced operations as of the date of this prospectus.
35
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS........................................... 1
The Contract....................................................... 1
Incontestability................................................... 1
Misstatement of Age or Sex......................................... 1
Non-Participation.................................................. 1
CALCULATION OF YIELDS AND TOTAL RETURNS.................................. 1
Prime Reserve Subaccount Yields.................................... 1
Other Subaccount Yields............................................ 2
Average Annual Total Returns....................................... 3
Other Total Returns................................................ 5
Effect of the Administrative Charge on Performance Data............ 5
LEGAL MATTERS............................................................ 5
EXPERTS.................................................................. 5
OTHER INFORMATION........................................................ 6
FINANCIAL STATEMENTS..................................................... 6
</TABLE>
36
<PAGE>
TEAR AT PERFORATION
If you would like a copy of the Statement of Additional Information, please
complete the information below and detach and mail this card to the Company at
the address shown on the cover of this prospectus.
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City, State, Zip
- -------------------------------------------------------------------------------
37
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
1401 Livingston Lane
Jackson, Mississippi 39213
1-877-249-3691
SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains additional information to the
Prospectus for the flexible premium deferred variable annuity contract (the
"Contract") offered by Southern Farm Bureau Life Insurance Company (the
"Company"). This Statement of Additional Information is not a Prospectus, and it
should be read only in conjunction with the Prospectuses for the Contract, and
the selected Investment Options of T. Rowe Price Equity Series, Inc., T. Rowe
Price Fixed Income Series, Inc. and Fidelity Variable Insurance Products Funds.
The Prospectus for the Contract is dated the same as this Statement of
Additional information. You may obtain a copy of the Prospectuses by writing or
calling us at our address or phone number shown above.
, 1999
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................. 1
The Contract......................................................... 1
Incontestability..................................................... 1
Misstatement of Age or Sex........................................... 1
Non-Participation.................................................... 1
CALCULATION OF YIELDS AND TOTAL RETURNS.................................... 1
Prime Reserve Subaccount Yields...................................... 1
Other Subaccount Yields.............................................. 2
Average Annual Total Returns......................................... 3
Other Total Returns.................................................. 5
Effect of the Administrative Fee On Performance Data................. 5
LEGAL MATTERS.............................................................. 5
EXPERTS.................................................................... 5
OTHER INFORMATION.......................................................... 6
FINANCIAL STATEMENTS....................................................... 6
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL CONTRACT PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
The Contract includes the application and all other attached papers. The
statements made in the application are deemed representations and not
warranties. We will not use any statement in defense of a claim or to void
the Contract unless it is contained in the application.
- --------------------------------------------------------------------------------
INCONTESTABILITY
We will not contest the Contract from its Contract Date.
- --------------------------------------------------------------------------------
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, we will pay that
amount which the proceeds would have purchased at the correct age and sex.
- --------------------------------------------------------------------------------
NON-PARTICIPATION
The Contracts are not eligible for dividends and will not participate in the
Company's divisible surplus.
- --------------------------------------------------------------------------------
CALCULATION OF YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
The Company may disclose yields, total returns and other performance data
for a Subaccount. Such performance data will be computed, or accompanied by
performance data computed, in accordance with the standards defined by the
SEC.
- --------------------------------------------------------------------------------
PRIME RESERVE SUBACCOUNT YIELDS
Advertisements and sales literature may quote the current annualized yield
of the Prime Reserve Subaccount for a seven-day period. This figure is
computed by determining the net change (exclusive or realized gains and
losses on the sale of securities, unrealized appreciation and depreciation
and income other than investment income) at the end of the seven-day period
in the value of a hypothetical account under a Contract with a balance of 1
unit at the beginning of the period, dividing this net change 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:
- net income from the Investment Option attributable to the
hypothetical account; and
- charges and deductions imposed under the Contract attributable to
the hypothetical account.
The charges and deductions include per unit charges for the hypothetical
account for:
- the annual administrative fee and
- the mortality and expense risk charge.
1
<PAGE>
For purposes of calculating current yields for a Contract, an average per
unit administrative fee is used based on the $30 administrative fee deducted
at the beginning of each Contract Year. Current yield will be calculated
according to the following formula:
<TABLE>
<S> <C><C>
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Investment Option (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment income)
for the seven-day period attributable to a hypothetical account having a
balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value for the first day of the seven-day period.
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Investment Option (exclusive of
realized gains or losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment income)
for the seven-day period attributable to a hypothetical account having a
balance of 1 subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value for the first day of the seven-day period.
</TABLE>
The yield for the Prime Reserve Subaccount will be lower than the yield for
the Prime Reserve Investment Option due to the charges and deductions
imposed under the Contract.
The current and effective yields of the Prime Reserve Subaccount normally
fluctuate on a daily basis and SHOULD NOT ACT AS AN INDICATION OR
REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The actual yield is
affected by:
- changes in interest rates on money market securities,
- the average portfolio maturity of the Prime Reserve Investment
Option,
- the quality of portfolio securities held by this Investment Option,
and
- the operating expenses of the Prime Reserve Investment Option.
Yields may also be presented for other periods of time.
- --------------------------------------------------------------------------------
OTHER SUBACCOUNT YIELDS
Advertisements and sales literature may quote the current annualized yield
of one or more of the Subaccounts (except the Prime Reserve Subaccount) for
a Contract for 30-day or one month periods. The annualized yield of a
Subaccount refers to income generated by that Subaccount during a 30-day or
one-month period which is assumed to be generated each period over a
12-month period.
The yield is computed by:
1) dividing net investment income of the Investment Option attributable
to the Subaccount units less Subaccount expenses for the period; by
2
<PAGE>
2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period;
by
3) compounding that yield for a six-month period; and by
4) multiplying that result by 2.
The annual administrative fee (deducted at the beginning of each Contract
Year) and mortality and expense risk charge are included in expenses of the
Subaccounts. For purposes of calculating the 30-day or one-month yield, an
estimated average administrative fee per dollar of Contract value 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:
<TABLE>
<S> <C><C>
6
Yield = 2 X ((NI - ES)/(U X UV)) + 1) - 1
Where:
NI = net income of the Investment Option for the 30-day or one-month period
attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the 30-day or one-month
period.
</TABLE>
The yield for each Subaccount will be lower than the yield for the
corresponding Investment Option due to the various charges and deductions
imposed under the Contract.
The yield for each Subaccount normally will fluctuate over time and SHOULD
NOT ACT AS AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF
RETURN. A Subaccount's actual yield is affected by the quality of portfolio
securities held by the corresponding Investment Option and its operating
expenses.
The Surrender Charge is not considered in the yield calculation.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns for the Subaccounts for various periods of time, including periods
before the Subaccounts were in existence. Total return figures are provided
for each Subaccount for one, five and ten year periods. Average annual total
returns may also be disclosed for other periods of time.
Adjusted historic average annual total return quotations represent the
average annual compounded rates of return that would equate an initial
investment of $1,000 to the redemption value of that investment as of the
last day of each of the periods for which total return quotations are
provided. The last date of each period is the most recent month-end
practicable.
Adjusted historic average annual total returns for each Subaccount are
calculated based on the assumption that the Subaccounts were in existence
during the stated periods with the level of Contract charges which were in
effect at the inception of each Subaccount. For purposes of calculating
average annual total return, an average annual administrative fee per dollar
of Contract
3
<PAGE>
value is used. The calculation also assumes surrender of the Contract at the
end of the period. The total return will then be calculated according to the
following formula:
<TABLE>
<S> <C><C>
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return net of Subaccount recurring charges.
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.
</TABLE>
The adjusted historic average annual total return information for the
Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE PERIOD
1-YEAR 5-YEAR 10-YEAR FROM DATE OF
PERIOD PERIOD PERIOD INCEPTION OF
ENDED ENDED ENDED INVESTMENT OPTION
SUBACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98
<S> <C> <C> <C> <C>
T. Rowe Price Series, Inc.
T. Rowe Price Equity Income Portfolio(1) (0.15)% -- -- 18.15%
T. Rowe Price Mid-Cap Growth Portfolio(2) 11.95 -- -- 15.11
T. Rowe Price Personal Strategy Balanced
Portfolio(4) 4.74 -- -- 15.75
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond Portfolio(3) (1.81) -- -- 4.03
T. Rowe Price Prime Reserve Portfolio(2) (3.66) -- -- 0.45
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio(5) 29.29 19.31% 17.71% 15.67
VIP High Income Portfolio(6) (12.61) 6.45 9.38 9.40
VIP Overseas Portfolio(7) 3.28 7.34 8.38 6.90
VIP Contrafund Portfolio(8) 19.78 -- -- 25.85
VIP Index 500 Portfolio(9) 18.11 21.28 -- 19.35
</TABLE>
(1) The T. Rowe Price Equity Income Portfolio commenced operations on
March 31, 1994.
(2) The T. Rowe Price Mid-Cap Growth and T. Rowe Price Prime Reserve
Portfolios commenced operations on December 31, 1996.
(3) The T. Rowe Price Limited-Term Bond Portfolio commenced operations
on May 13, 1994.
(4) The T. Rowe Price Personal Strategy Balanced Portfolio commenced
operations on December 30, 1994.
(5) The Growth Portfolio commenced operations on October 9, 1986.
(6) The High Income Portfolio commenced operations on September 19,
1985.
(7) The Overseas Portfolio commenced operations on January 28, 1987.
(8) The Contrafund Portfolio commenced operations on January 3, 1995.
(9) The Index 500 Portfolio commenced operations on August 27, 1992.
4
<PAGE>
- --------------------------------------------------------------------------------
OTHER TOTAL RETURNS
Advertisements and sales literature may also quote average annual total
returns which do not reflect the Surrender Charge. These figures are
calculated in the same manner as average annual total returns described
above, however, the Surrender Charge is not taken into account at the end of
the period.
We may disclose cumulative total returns in conjunction with the standard
formats described above. The cumulative total returns will be calculated
using the following formula:
<TABLE>
<S> <C><C>
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical single payment of $1,000.
</TABLE>
- --------------------------------------------------------------------------------
EFFECT OF THE ADMINISTRATIVE FEE ON PERFORMANCE DATA
We apply an annual administrative charge of $30 on the Contract Date and on
each Contract Anniversary prior to the Retirement Date. This charge is
deducted from each Subaccount and the Declared Interest Option based on the
proportion that each Subaccount's value bears to the total Accumulated
Value. For purposes of reflecting the administrative fee in yield and total
return quotations, this annual charge is converted into a per-dollar per-day
charge based on the average value of all Contracts in the Account on the
last day of the period for which quotations are provided. The per-dollar
per-day average charge is then adjusted to reflect the basis upon which the
particular quotation is calculated.
- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
All matters relating to Mississippi law pertaining to the Contracts,
including the validity of the Contracts and the Company's authority to issue
the Contracts, have been passed upon by Joseph A. Purvis, Esquire, Vice
President and General Counsel of the Company. Sutherland Asbill & Brennan
LLP, Washington D.C. has provided advice on certain matters relating to the
federal securities laws.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The statutory statements of admitted assets, liabilities and stockholders'
equity of the Company at December 31, 1998 and 1997 and the related
statutory statements of earnings, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31,
1998, and related financial statement schedules, appearing herein, have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
5
<PAGE>
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contract 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 as to the contents of the
Contract and other legal instruments are summaries. For a complete statement
of the terms of these documents, reference is made to such instruments as
filed.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company's statutory-basis financial statements included in this
Statement of Additional Information should be considered only as bearing on
the Company's ability to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the
assets held in the Account.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Southern Farm Bureau Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities and stockholders' equity of Southern Farm Bureau Life Insurance
Company as of December 31, 1998 and 1997, and the related statutory statements
of earnings, changes in stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998. 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 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Mississippi, which
practices differ from 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 Southern Farm Bureau Life Insurance Company as of December 31, 1998 and 1997,
or the results of its operations or its cash flows for each of the years in the
three-year period ended December 31, 1998.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and stockholders'
equity of Southern Farm Bureau Life Insurance Company at December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1998, on the basis of accounting
described in note 1.
Our audits were made for the purpose of forming an opinion on the basic
statutory financial statements taken as a whole. The supplementary information
included in Schedule 1, 2 and 3 is presented for purposes of additional analysis
and is not a required part of the basic statutory financial statements. Such
information has been subjected to the auditing procedures applied in the audits
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.
KPMG Peat Marwick LLP
Jackson, Mississippi
April 30, 1999
7
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1999 1998 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ADMITTED ASSETS
Investments:
Bonds, at amortized cost (approximate fair
value of $3,749,255,000 in 1999 (unaudited),
$3,533,805,303 in 1998 and $3,386,218,638 in
1997) $3,531,653,111 $3,431,897,156 $3,276,469,563
Stocks:
Preferred stocks, at cost (approximate fair
value of $62,847,897 in 1999 (unaudited),
$79,801,240 in 1998 and $49,164,515 in
1997) 55,832,499 71,814,049 41,487,974
Common stocks, at approximate fair value
(cost of $229,788,011 in 1999 (unaudited),
$213,619,466 in 1998 and $143,322,990 in
1997) 356,099,520 318,852,293 260,149,169
-------------- -------------- --------------
Total stocks 411,932,019 390,666,342 301,637,143
-------------- -------------- --------------
Mortgage and other loans 829,116,781 786,222,681 753,916,240
Real estate:
Home office property, at cost, less
accumulated depreciation of $14,295,554 in
1999 (unaudited), $13,811,838 in 1998 and
$12,839,548 in 1997 18,475,661 18,959,377 19,931,668
Real estate held for investment, at cost,
less accumulated depreciation of
$28,668,889 in 1999 (unaudited),
$27,136,380 in 1998 and $24,218,009 in 1997 86,190,721 86,891,105 90,598,511
-------------- -------------- --------------
Total real estate 104,666,382 105,850,482 110,530,179
-------------- -------------- --------------
Investment in subsidiaries 51,882,663 51,754,100 48,443,968
Partnership interests, at approximate equity in
net assets 149,316,531 130,875,189 85,179,307
Short-term investments, at cost which
approximates fair value 149,141,681 118,756,829 168,279,487
Cash (bank overdraft) (13,602,260) 8,497,319 6,403,731
Policy loans 318,812,853 318,037,334 312,204,990
-------------- -------------- --------------
Total investments 5,532,919,761 5,342,557,432 5,063,064,608
-------------- -------------- --------------
Premiums deferred and uncollected 68,181,259 64,648,786 60,653,706
Accrued investment income 61,771,279 69,804,186 64,417,057
Due from subsidiaries and other affiliates 10,585,101 5,966,173 --
Other receivables 7,330,827 7,235,048 15,089,129
-------------- -------------- --------------
$5,680,788,227 $5,490,211,625 $5,203,224,500
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
(continued)
8
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------
1999 1998 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Aggregate reserves for all policies:
Life and annuity policies and contracts $4,484,126,812 $4,359,074,071 $4,152,300,370
Accident and health contracts 19,202,937 18,362,622 16,102,881
Supplementary contracts 17,369,059 16,541,043 14,655,639
-------------- -------------- --------------
Total policy reserves 4,520,698,808 4,393,977,736 4,183,058,890
-------------- -------------- --------------
Policy and contract claims 14,976,838 13,473,216 13,256,755
Policyholders' funds:
Premiums received in advance 1,521,766 1,727,335 1,815,317
Funds on deposit 4,680,708 4,778,016 5,038,203
Accrued policy dividends 53,154,099 53,352,746 51,844,349
Dividends left on deposit 290,931,291 289,218,369 283,100,673
-------------- -------------- --------------
Total policyholders' funds 350,287,864 349,076,466 341,798,542
-------------- -------------- --------------
General liabilities:
Taxes, other than federal income taxes 3,423,569 1,971,802 1,361,065
Federal income taxes 2,145,493 11,724,668 17,234,619
Due to subsidiaries and other affiliates 3,129,162 -- 6,392,449
Commissions 5,193,482 5,421,136 5,442,871
Accounts payable and other liabilities 57,154,798 44,537,498 41,106,458
-------------- -------------- --------------
Total general liabilities 71,046,504 63,655,104 71,537,462
-------------- -------------- --------------
Interest maintenance reserve 6,797,399 1,574,542 --
Asset valuation reserve 143,674,864 115,436,921 104,293,580
-------------- -------------- --------------
Total liabilities 5,107,482,277 4,937,193,985 4,713,945,229
-------------- -------------- --------------
Stockholders' equity:
Common stock of $100 par value. Authorized
20,000 shares; issued and outstanding 15,000
shares 1,500,000 1,500,000 1,500,000
Additional paid-in capital 400,000 400,000 400,000
Unassigned surplus 571,405,950 551,117,640 487,379,271
-------------- -------------- --------------
Total stockholders' equity 573,305,950 553,017,640 489,279,271
-------------- -------------- --------------
$5,680,788,227 $5,490,211,625 $5,203,224,500
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
9
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31
---------------------------- ---------------------------------------------
1999 1998 1998 1997 1996
------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income:
Premiums and other considerations:
Life premiums $ 178,534,337 $ 169,327,323 $ 331,189,590 $ 314,927,656 $ 302,950,182
Annuity premiums 121,525,220 99,789,290 172,009,262 215,817,937 200,599,010
Accident and health premiums 8,742,611 7,949,140 18,137,970 16,173,084 15,305,360
Supplementary contracts and dividend
accumulations 19,911,954 23,989,775 42,235,814 39,382,248 36,057,653
Reserve adjustments on reinsurance ceded -- -- -- -- 1,748,108,719
Investment income, net of expenses of
$15,854,298 for the period ending June 30,
1999 (unaudited), $15,630,999 for the period
ending June 30, 1998 (unaudited),
$32,049,675 in 1998, $29,341,149 in 1997 and
$27,442,487 in 1996 179,039,380 176,912,403 366,228,843 349,238,424 324,075,374
Other 245,019 369,516 681,237 609,435 641,115
------------- ------------- ------------- ------------- ---------------
Total income 507,998,521 478,337,447 930,482,716 936,148,784 2,627,737,413
------------- ------------- ------------- ------------- ---------------
Benefits and reserve changes:
Death benefits 44,816,384 37,421,181 73,326,829 72,994,836 67,240,693
Accident and health benefits 3,656,161 3,363,623 8,019,614 7,190,793 6,944,738
Surrender and other life insurance benefits 139,433,512 143,731,323 258,042,065 213,738,412 177,532,124
Annuity benefits 14,846,703 16,250,166 29,744,958 26,503,534 20,875,978
Net increase in aggregate reserves, certain
funds on deposit, and loading on deferred
and uncollected premiums 135,312,206 109,375,410 219,827,805 291,169,406 2,054,523,204
Interest on policy and contract funds 546,695 562,635 1,019,198 945,255 835,473
Payments on dividend accumulations and
supplementary contracts 24,685,972 23,607,583 44,873,650 43,804,449 40,131,441
------------- ------------- ------------- ------------- ---------------
Total benefits and reserve changes 363,297,633 334,311,921 634,854,119 656,346,685 2,368,083,651
------------- ------------- ------------- ------------- ---------------
Other operating expenses:
Commissions 27,836,110 26,178,566 51,354,641 54,675,690 55,401,051
General insurance expenses 38,162,897 37,999,123 74,661,182 76,928,424 72,975,326
Taxes, licenses and fees 6,643,486 6,543,900 12,300,466 11,467,132 12,548,639
------------- ------------- ------------- ------------- ---------------
Total other operating expenses 72,642,493 70,721,589 138,316,289 143,071,246 140,925,016
------------- ------------- ------------- ------------- ---------------
Earnings before policyholders' dividends,
federal income taxes and realized investment
gains 72,058,395 73,303,937 157,312,308 136,730,853 118,728,746
Policyholders' dividends 27,180,327 26,176,932 51,640,910 50,166,848 48,490,669
------------- ------------- ------------- ------------- ---------------
Earnings before federal income taxes and
realized investment gains 44,878,068 47,127,005 105,671,398 86,564,005 70,238,077
Federal income taxes 21,714,717 22,690,000 40,119,044 43,137,767 43,482,639
------------- ------------- ------------- ------------- ---------------
Earnings before realized investment gains 23,163,351 24,437,005 65,552,354 43,426,238 26,755,438
Realized investment gains 21,568,173 24,614,114 27,736,157 60,725,757 37,779,227
Adjusted for:
Federal income taxes (7,548,861) (8,614,940) (10,258,983) (21,987,458) (13,672,777)
Transfer to interest maintenance reserve (6,461,390) -- (5,354,235) (7,694,113) (4,994,498)
------------- ------------- ------------- ------------- ---------------
Realized investment gains, net 7,557,922 15,999,174 12,122,939 31,044,186 19,111,952
------------- ------------- ------------- ------------- ---------------
Net earnings $ 30,721,273 $ 40,436,179 $ 77,675,293 $ 74,470,424 $ 45,867,390
------------- ------------- ------------- ------------- ---------------
------------- ------------- ------------- ------------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
10
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNASSIGNED
STOCK CAPITAL SURPLUS
---------- ---------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1995 $1,500,000 $400,000 $ 310,995,847
Net earnings -- -- 45,867,390
Unrealized investment gains, net -- -- 36,651,672
Change in equity of subsidiaries -- -- 34,596,656
Increase in asset valuation reserve -- -- (49,676,623)
Increase in nonadmitted assets -- -- (1,398,785)
Cash dividends to stockholders -- -- (163,200)
Adjustment for prior years' income taxes (6,500,000)
---------- ---------- ---------------
Balance, December 31, 1996 1,500,000 400,000 370,372,957
Net earnings -- -- 74,470,424
Unrealized investment gains, net -- -- 12,801,172
Change in equity of subsidiaries -- -- 4,730,319
Decrease in asset valuation reserve -- -- 23,944,767
Decrease in nonadmitted assets -- -- 1,217,282
Cash dividends to stockholders -- -- (157,650)
---------- ---------- ---------------
Balance, December 31, 1997 1,500,000 400,000 487,379,271
Net earnings -- -- 77,675,293
Unrealized investment losses, net -- -- (13,048,519)
Change in equity of subsidiaries -- -- 5,504,444
Increase in asset valuation reserve -- -- (11,143,341)
Change in valuation basis on certain group
annuity contracts -- -- (273,068)
Decrease in nonadmitted assets -- -- 5,175,060
Cash dividends to stockholders -- -- (151,500)
---------- ---------- ---------------
Balance, December 31, 1998 1,500,000 400,000 551,117,640
---------- ---------- ---------------
Net earnings for six months ending June 30,
1999 (unaudited) -- -- 30,721,273
Unrealized investment gains, net (unaudited) -- -- 16,543,215
Change in equity of subsidiaries (unaudited) -- -- 128,563
Increase in asset valuation reserve
(unaudited) -- -- (28,237,943)
Decrease in nonadmitted assets (unaudited) -- -- 1,279,152
Cash dividends to stockholders (unaudited) -- -- (145,950)
---------- ---------- ---------------
Balance, June 30, 1999 (unaudited) $1,500,000 $400,000 $ 571,405,950
---------- ---------- ---------------
---------- ---------- ---------------
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
11
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ ---------------------------------------------------
1999 1998 1998 1997 1996
------------- ------------- --------------- --------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FROM OPERATIONS:
Premiums, annuity considerations, and
other fund deposits $ 301,166,343 $ 269,543,062 $ 508,452,122 $ 533,894,168 $ 505,368,711
Other premiums, considerations and
deposits collected 19,911,954 23,989,775 42,235,814 39,382,248 36,057,653
Reinsurance reserve adjustments
received on reinsurance ceded 3,899,436 3,796,173 8,285,999 7,666,445 6,822,631
Investment income received 183,000,060 180,395,372 350,056,509 335,489,929 329,340,088
Other income received 235,440 263,302 487,139 551,567 476,466
------------- ------------- --------------- --------------- -------------
508,213,233 477,987,684 909,517,583 916,984,357 878,065,549
------------- ------------- --------------- --------------- -------------
Life and accident and health claims
paid (47,617,994) (43,686,255) (82,227,716) (81,687,439) (72,940,710)
Surrender benefits paid (138,784,442) (143,003,131) (256,944,332) (212,721,898) (176,277,514)
Annuity and other benefits paid to
policyholders (40,089,966) (38,942,771) (75,499,836) (71,214,628) (61,694,715)
------------- ------------- --------------- --------------- -------------
(226,492,402) (225,632,157) (414,671,884) (365,623,965) (310,912,939)
------------- ------------- --------------- --------------- -------------
Commissions, taxes and other expenses
paid (68,321,168) (67,239,097) (137,610,641) (143,491,088) (139,562,951)
Dividends paid to policyholders (27,378,974) (26,625,378) (50,132,513) (48,470,788) (46,413,784)
Federal income taxes paid (11,914,703) (15,628,320) (36,379,223) (47,070,276) (43,549,810)
------------- ------------- --------------- --------------- -------------
(107,614,845) (109,492,795) (224,122,377) (239,032,152) (229,526,545)
------------- ------------- --------------- --------------- -------------
Net cash from operations 174,105,986 142,862,732 270,723,322 312,328,240 337,626,065
------------- ------------- --------------- --------------- -------------
CASH FROM INVESTMENTS:
Proceeds from investments sold,
matured or repaid:
Bonds 470,672,489 382,666,693 799,985,799 457,413,396 419,859,238
Common and preferred stocks 67,650,804 47,346,189 89,647,294 180,623,715 107,066,046
Mortgage loans 42,553,263 50,150,919 114,007,683 70,976,792 50,215,620
Real estate 150,000 1,870,000 1,870,000 154,900 5,794,900
Other invested assets 13,068,448 16,708,918 40,975,309 22,904,810 4,134,198
Federal income taxes on net capital
gains 10,258,983 21,987,458 (21,987,458) (11,249,624) (5,866,945)
------------- ------------- --------------- --------------- -------------
Total investment proceeds 604,353,987 520,730,177 1,024,498,627 720,823,989 581,203,057
------------- ------------- --------------- --------------- -------------
COST OF INVESTMENTS ACQUIRED:
Bonds (557,779,831) (461,405,647) (938,055,688) (736,819,688) (563,188,809)
Common and preferred stocks (50,324,855) (83,424,030) (160,151,880) (144,412,281) (106,329,802)
Mortgage loans (85,360,406) (57,147,422) (143,095,413) (110,452,484) (100,306,740)
Real estate (948,126) (473,926) (891,977) (3,420,722) (5,713,185)
Other invested assets (31,001,753) (41,171,229) (88,323,837) (30,740,033) (21,275,441)
------------- ------------- --------------- --------------- -------------
Total investments acquired (725,414,971) (643,622,254) (1,330,518,795) (1,025,845,208) (796,813,977)
------------- ------------- --------------- --------------- -------------
Net increase in policy loans 775,519 2,692,001 (5,832,344) (8,920,994) (9,194,846)
------------- ------------- --------------- --------------- -------------
Net cash from investments (120,285,465) (120,200,076) (311,852,512) (313,942,213) (224,805,766)
------------- ------------- --------------- --------------- -------------
</TABLE>
(continued)
12
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- --------------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FROM FINANCING AND MISCELLANEOUS
SOURCES:
Cash dividends from the Annuity
Company $ -- $ -- $ -- $ -- $ 49,739,678
Other cash provided 5,064,066 36,574,622 5,741,803 3,623,393 5,310,079
Dividends paid to stockholders (145,950) (151,500) (151,500) (157,650) (163,200)
Other cash applied (28,384,360) (45,436,917) (11,890,183) (19,074,000) (19,817,602)
------------ ------------ ------------ ------------ ------------
Net cash from financing and
miscellaneous sources (23,466,244) (9,013,795) (6,299,880) (15,608,257) 35,068,955
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
short-term investments 8,285,273 (37,113,520) (47,429,070) (17,222,230) 147,889,254
CASH AND SHORT-TERM INVESTMENTS:
Beginning of period 127,254,148 174,683,218 174,683,218 191,905,448 44,016,194
------------ ------------ ------------ ------------ ------------
End of period $135,539,421 $137,569,698 $127,254,148 $174,683,218 $191,905,448
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
13
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) OPERATIONS
Southern Farm Bureau Life Insurance Company (the Company) writes a portfolio of
the usual forms of ordinary life insurance on a participating basis, term,
universal and group life insurance, annuities, and accident and health
coverages. The Company has two wholly-owned subsidiaries: Southern Farm Bureau
Annuity Insurance Company (the Annuity Company) and Southern Farm Bureau Fund
Distributor, Inc. In December 1998, Southern Farm Bureau Universal Life
Insurance Company was merged in the Company. The Company operates under the
control of the Farm Bureaus in the States of Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Texas and
Virginia.
(b) BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Mississippi. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners, as well as state laws, regulations and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The Company has no significant
accounting policies that do not follow prescribed statutory accounting
principles. Such prescribed accounting practices vary in some respects from
generally accepted accounting principles. The more significant of these
differences are:
1. Eligible bonds are carried at amortized cost and eligible preferred
stocks are carried at cost. Other bonds and preferred stocks are carried
in accordance with valuations established by the National Association of
Insurance Commissioners, generally at fair value, with no provision for
deferred income taxes on the net unrealized appreciation or depreciation
in such investments.
2. Certain assets, designated as "nonadmitted assets," have been deducted
from unassigned surplus.
3. Investments in wholly-owned subsidiaries are accounted for using the
modified equity method (equity in earnings or losses computed on a
statutory basis is included in unassigned surplus rather than earnings)
and are treated as unconsolidated investments rather than being
consolidated in accordance with Statement of Financial Accounting
Standards No. 94, "Consolidation of All Majority-owned Subsidiaries."
4. Premium income is reported as earned over the premium-paying period of
the policies, whereas the related acquisition and commission costs are
recognized as expenses when incurred. The reserves for future benefits
are accumulated by setting aside portions of premium income at certain
rates of interest, mortality, and morbidity consistent with statutory
requirements. Such reserves are designed to be sufficient to provide the
contractual benefits; however, such reserves may not recognize estimates,
based on actual experience, of mortality, morbidity, interest and
withdrawals as required by generally accepted accounting principles. The
mortality tables and interest assumptions currently being used on
ordinary life policies issued are principally the 1958 CSO table, with
2 1/2% to 4 1/2% interest rate factors, and the 1980 CSO tables, with 4%
to 5% interest rate factors, and on annuities issued, are principally the
1971 IAM tables, with 4 1/2% to 7 1/2% interest rate factors.
5. The provision for participating policyholders' dividends is determined
by the Board of Directors rather than being recorded ratably over the
premium-paying period in accordance with dividend scales contemplated at
the time the policies were issued.
14
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
6. Annuity and certain universal life deposits and withdrawals are recorded
as income and expense rather than being accounted for as a direct
increase or decrease of the corresponding liability.
7. The asset valuation and interest maintenance reserves are reported as
liabilities rather than as appropriated surplus.
8. Reinsurance premiums and corresponding benefits and reserves ceded are
recorded as deductions from direct amounts.
9. Deferred federal income taxes are not provided for in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
10. The statutory statements of cash flows do not classify or define cash
flows consistent with generally accepted accounting principles and a
reconciliation of net earnings to net cash provided by operating
activities is not provided.
11. Pension expense and the related financial statement disclosures are not
determined in accordance with Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions."
12. Postretirement benefits expense and the related financial statement
disclosures are not determined in accordance with Statement of Financial
accounting Standards No. 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions."
The aggregate effect on the accompanying statutory financial statements of the
variations from generally accepted accounting principles has not been
determined.
The preparation of the statutory financial statements in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Mississippi requires management to make estimates and assumptions that
affect the reported amounts of admitted assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
(c) UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim statutory financial statements have been prepared in
conformity with statutory accounting practices prescribed or permitted by the
Insurance Department of the State of Mississippi and include all adjustments
which are, in the opinion of management, necessary to a fair presentation of the
results for the interim period presented. All such adjustments are, in the
opinion of management, of a normal recurring nature. Results for the six-months
ended June 30, 1999 are not necessarily indicative of results to be expected for
the full year.
(d) CODIFICATION PROJECT
The Company currently prepares its statutory financial statements in accordance
with accounting practices prescribed or permitted by the Insurance Department of
the State of Mississippi. In 1994, the National Association of Insurance
Commissioners (NAIC) undertook a project to codify statutory accounting in an
effort to develop a single uniform and comprehensive basis of statutory
accounting. In its March 1998 meeting, the NAIC membership adopted the
Codification of Statutory Accounting Principles Project (the Codification) as
the NAIC supported basis of accounting. The Codification was approved with a
provision allowing for commissioner discretion in determining appropriate
statutory accounting for insurers. Accordingly, such discretion will continue to
allow prescribed or permitted accounting practices that may differ from state to
state. The impact of the Codification on the Company's statutory financial
statements
15
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
has not been determined. Because the Codification represents a new basis of
accounting for statutory financial statements, adoption of the Codification may
have a significant impact on the Company's statutory financial statements.
The NAIC adoption date is January 1, 2001; however, the implementation date is
dependent upon an insurer's state of domicile. Accordingly, the Company's
adoption date of the Codification is dependent upon actions of the Insurance
Department of the State of Mississippi and the Mississippi State Legislature.
(e) COMMON STOCKS
Common stocks are carried at approximate fair value with unrealized investment
gains and losses reflected in unassigned surplus.
(f) DEPRECIATION
Depreciation is provided over the estimated useful lives of the respective
assets using straight-line and accelerated methods.
(g) INVESTMENTS
Premiums and discounts are amortized over the term of the related investment
using the interest method. The amortization of premiums and discounts on
mortgage-backed securities is periodically adjusted to reflect the actual
prepayment experience of the underlying mortgage loans. The specific recognition
method is used to recognize realized gains or losses on sales of investments.
(h) INCOME TAXES
The Company files a consolidated federal income tax return that includes the
operating results of the Company and its wholly-owned subsidiaries. Income taxes
are allocated to the subsidiaries as if they filed separate federal income tax
returns.
(i) RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the current
year presentation.
(2) BONDS AND COMMON AND PREFERRED STOCKS
The cost or amortized cost and estimated fair value of bonds and common and
preferred stocks follow:
<TABLE>
<CAPTION>
GROSS GROSS
COST OR UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
U. S. Treasury securities and obligations of
U. S. Government corporations and agencies $ 451,456,676 $ 22,593,390 $ (3,507,850) $ 470,542,216
Mortgage-backed securities 1,203,386,660 30,229,488 (1,251,299) 1,232,364,849
Corporate and other securities 1,777,053,820 89,503,939 (35,659,521) 1,830,898,238
---------------- -------------- -------------- ----------------
$ 3,431,897,156 $ 142,326,817 $ (40,418,670) $ 3,533,805,303
---------------- -------------- -------------- ----------------
---------------- -------------- -------------- ----------------
Preferred stocks $ 71,814,049 $ 10,608,039 $ (2,620,848) $ 79,801,240
Common stocks 213,619,466 140,570,408 (35,337,581) 318,852,293
---------------- -------------- -------------- ----------------
$ 285,433,515 $ 151,178,447 $ (37,958,429) $ 398,653,533
---------------- -------------- -------------- ----------------
---------------- -------------- -------------- ----------------
</TABLE>
16
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(2) BONDS AND COMMON AND PREFERRED STOCKS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
COST OR UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
U. S. Treasury securities and obligations of
U. S. Government corporations and agencies $ 444,467,448 $ 10,682,320 $ (403,267) $ 454,746,501
Mortgage-backed securities 1,460,742,964 46,348,948 (6,016,071) 1,501,075,841
Corporate and other securities 1,371,259,151 64,549,628 (5,412,483) 1,430,396,296
---------------- -------------- -------------- ----------------
$ 3,276,469,563 $ 121,580,896 $ (11,831,821) $ 3,386,218,638
---------------- -------------- -------------- ----------------
---------------- -------------- -------------- ----------------
Preferred stocks $ 41,487,974 $ 8,285,344 $ (608,803) $ 49,164,515
Common stocks 143,322,990 132,300,442 (15,474,263) 260,149,169
---------------- -------------- -------------- ----------------
$ 184,810,964 $ 140,585,786 $ (16,083,066) $ 309,313,684
---------------- -------------- -------------- ----------------
---------------- -------------- -------------- ----------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1998, 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>
ESTIMATED
AMORTIZED COST FAIR VALUE
---------------- ----------------
<S> <C> <C>
Due in one year or less $ 98,124,868 $ 99,443,621
Due after one year through five years 570,548,531 588,530,995
Due after five years through ten years 1,039,294,804 1,070,785,444
Due after ten years 520,542,293 542,680,394
---------------- ----------------
2,228,510,496 2,301,440,454
Mortgage-backed securities 1,203,386,660 1,232,364,849
---------------- ----------------
$ 3,431,897,156 $ 3,533,805,303
---------------- ----------------
---------------- ----------------
</TABLE>
Proceeds from sales of bonds during 1998, 1997 and 1996 were $216,682,439,
$275,729,600 and $154,432,332, respectively. Gross gains of $14,999,434 in 1998,
$10,573,478 in 1997 and $7,682,260 in 1996 and gross losses of $9,315,159 in
1998, $3,640,448 in 1997 and $5,412,711 in 1996 were realized on those sales.
Proceeds from sales of preferred stocks during 1998, 1997 and 1996 were
$44,351,611, $31,289,277 and $828,281, respectively. Gross gains of $5,304,489
in 1998, $1,965,388 in 1997 and $77,738 in 1996 and gross losses of $2,904,217
in 1998, $1,679,201 in 1997 and $174 in 1996 were realized on those sales.
Proceeds from sales of common stocks during 1998, 1997 and 1996 were
$42,294,693, $148,714,838 and $106,244,864, respectively. Gross gains of
$19,485,640 in 1998, $55,099,811 in 1997 and $34,228,458 in 1996 and gross
losses of $1,708,497 in 1998, $2,993,386 in 1997 and $2,993,166 in 1996 were
realized on those sales.
17
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (Continued)
(3) REINSURANCE
A summary of reinsurance activity follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C> <C>
AT DECEMBER 31,
Ceded life insurance in force--unrelated parties $ 2,992,577,353 $ 3,095,193,377
---------------- ----------------
---------------- ----------------
Reserve credits--unrelated parties $ 20,581,501 $ 18,804,008
---------------- ----------------
---------------- ----------------
Ceded life insurance in force to the Annuity Company $ 1,236,542,319 $ 1,173,369,190
---------------- ----------------
---------------- ----------------
Reserves ceded to the Annuity Company $ 7,309,329 $ 7,149,118
---------------- ----------------
---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- -------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
Net premiums ceded--unrelated parties $ 31,279,185 $ 29,729,352 $ 28,294,096
---------------- ---------------- -------------
---------------- ---------------- -------------
Claims ceded--unrelated parties $ 21,024,100 $ 24,419,933 $ 20,961,139
---------------- ---------------- -------------
---------------- ---------------- -------------
Premiums ceded to the Annuity Company $ 2,992,484 $ 3,357,258 $ 2,652,099
---------------- ---------------- -------------
---------------- ---------------- -------------
Claims ceded to the Annuity Company $ 3,501,304 $ 2,405,905 $ 2,374,799
---------------- ---------------- -------------
---------------- ---------------- -------------
</TABLE>
A contingent liability exists with respect to life insurance covered under
reinsurance agreements in the event the reinsurance company is unable to meet
its obligations due under the contracts. In the opinion of management, this
liability is not significant.
(4) FEDERAL INCOME TAXES
The differences between income tax expense shown on the statutory statements of
earnings and the amounts computed by applying the federal income tax rate of 35%
in 1998 and 1997 to earnings before federal income taxes and realized investment
gains follow:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $ 36,984,989 35.0% $ 30,297,402 35.0% $ 24,583,327 35.0%
Increases (reductions) in taxes resulting from:
Difference in statutory and tax reserves 939,314 0.9 5,362,846 6.2 12,622,988 18.0
Increase in deferred and uncollected premiums,
net of loading (1,404,718) (1.3) (1,673,358) (1.9) (2,512,830) (3.6)
Increase in reserve for policy dividends 532,683 0.5 594,607 0.7 731,151 1.0
Discount amortization on bonds not currently
taxable (1,485,581) (1.4) (1,209,078) (1.4) (853,699) (1.2)
Deferred acquisition costs, net 3,874,392 3.7 4,383,089 5.0 4,545,659 6.5
Provision in excess of current requirement 1,000,000 0.9 6,000,000 6.9 3,000,000 4.3
Earnings of investments in partnerships (1,371,989) (1.3) (929,270) (1.1) (228,410) (0.3)
Other 1,049,954 1.0 311,529 0.4 1,594,453 2.2
------------- --- ------------- --- ------------- ---
Actual tax expense $ 40,119,044 38.0% $ 43,137,767 49.8% $ 43,482,639 61.9%
------------- --- ------------- --- ------------- ---
------------- --- ------------- --- ------------- ---
</TABLE>
18
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(4) FEDERAL INCOME TAXES (CONTINUED)
Accumulations in the "policyholders' surplus account" generally become taxable
only when distributions are made from this account or when the balance exceeds
certain limitations. There is no present intention to distribute such surplus,
and the account balance does not exceed applicable limitations. At December 31,
1998, the "policyholders' surplus account" was approximately $2,800,000.
During 1996, the Internal Revenue Service completed its examination of the
Company's 1992 and 1993 federal income tax returns. As a result of the
examination, the Company was assessed additional taxes and interest that was
recorded as an adjustment to surplus.
(5) RELATED PARTY TRANSACTIONS
Through common ownership and directorship, the Company has certain transactions
with associated companies. For the most part, these transactions represent
agency-related costs of operations. Service agreements with the State and County
Farm Bureau organizations in the various states provide for reimbursement (based
on a percentage of income) to these organizations of the cost of office space
and clerical assistance. Management believes that such agreements are beneficial
to the Company in providing operating efficiency and prompt service to
policyholders.
Additionally, the Company allocates certain expenses to its subsidiaries,
principally the Annuity Company. The reimbursements from the Annuity Company are
principally based on actual commissions, service fees and premium taxes incurred
plus a management fee. Such allocated expenses aggregated approximately
$1,915,000 in 1998 and $1,815,000 in 1997. As discussed in note 1(g), federal
income taxes are allocated to the Company's subsidiaries as if they filed a
separate return. At December 31, 1998 and 1997, amounts due to (from)
subsidiaries and other affiliates consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Southern Farm Bureau Annuity Insurance Company $ (8,313,432) $ 3,917,515
Southern Farm Bureau Universal Life Insurance Company -- (37,707)
Southern Farm Bureau Fund Distributor, Inc. 5,477 28,001
State and County Farm Bureaus 2,341,782 2,484,640
------------- ------------
$ (5,966,173) $ 6,392,449
------------- ------------
------------- ------------
</TABLE>
Effective January 1, 1996, the Company modified or cancelled its co-insurance
agreements with the Annuity Company. In connection with the modification or
cancellation, approximately $1.7 billion of assets and liabilities were
transferred to the Company at the Annuity Company's carrying values.
Additionally, the Annuity Company's interest maintenance reserve associated with
the liabilities transferred, which had a negative balance of $9,245,070 and was
a non-admitted asset, was transferred to the Company. In November 1996, the
Annuity Company declared and distributed a $90,000,000 special dividend to the
Company consisting of bonds (including accrued interest) and cash. The bonds and
accrued interest ($40,260,322) were recorded by the Company at the Annuity
Company's carrying value. These transactions were approved by the Commissioner
of Insurance of the State of Mississippi during 1996.
(6) INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
The Company's wholly-owned subsidiaries are accounted for using the modified
equity method rather than being consolidated in accordance with Statement of
Financial Accounting Standards No. 94,
19
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(6) INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
"Consolidation of All Majority-owned Subsidiaries." A summary of the principal
unconsolidated subsidiaries financial position and operating results, prepared
on a statutory basis, follows:
Southern Farm Bureau Annuity Insurance Company--audited
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Total admitted assets $ 302,290,981 $ 289,301,310
-------------- --------------
-------------- --------------
Total liabilities $ 250,711,886 $ 243,236,832
-------------- --------------
-------------- --------------
Capital stock and surplus $ 51,579,095 $ 46,064,478
-------------- --------------
-------------- --------------
Net earnings $ 6,488,333 $ 1,234,067
-------------- --------------
-------------- --------------
</TABLE>
Southern Farm Bureau Universal Life Insurance Company--unaudited
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Total admitted assets $ -- $ 2,245,691
-------------- --------------
-------------- --------------
Total liabilities $ -- $ 51,379
-------------- --------------
-------------- --------------
Capital stock and surplus $ -- $ 2,194,312
-------------- --------------
-------------- --------------
Net earnings $ -- $ 70,027
-------------- --------------
-------------- --------------
</TABLE>
(7) RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan, a contributory
defined contribution plan and a postretirement benefit plan. All plans cover
substantially all employees, subject to certain eligibility requirements such as
age and length of service.
PENSION PLAN
A summary of the actuarial present value of accumulated benefits and net assets
of the pension plan follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Actuarial present value of accumulated benefits:
Vested $ 17,833,096 $ 18,279,071
Nonvested 2,219,295 2,395,427
------------- -------------
Net assets available for benefits $ 20,052,391 $ 20,674,498
------------- -------------
------------- -------------
$ 22,175,688 $ 26,127,150
------------- -------------
------------- -------------
</TABLE>
The assumed rate of return used in determining the actuarial present value of
accumulated benefits was 6.95% in 1998 and 7.34% in 1997. The assets of the
pension plan are administered by the Annuity Company at the direction of the
trustee.
The actuarial present value of accumulated plan benefits is the present value of
benefits attributed by the pension benefit formula to employee service rendered
as of the valuation date and is based on employee services and compensation as
of that date. The actuarial present value of accumulated plan benefits includes
no assumption about future compensation or future service.
20
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(7) RETIREMENT PLANS (CONTINUED)
Contributions to the pension plan fund normal pension costs on a current basis,
unfunded accrued liabilities over thirty years and prior service costs arising
from changes in actuarial assumptions over ten years. During 1998, 1997 and
1996, contributions of $3,009,945, $2,395,862 and $2,255,460, respectively, were
made to the plan.
DEFINED CONTRIBUTION PLAN
Participants may contribute up to twenty-two percent of their compensation to
this plan each year, subject to regulatory limitations. The Company matches
participant contributions that qualify for income tax deferral, limited to three
percent of each participant's compensation. All contributions made by a
participant are vested. The cost of the plan to the Company was $521,402 in
1998, $471,362 in 1997 and $429,514 in 1996.
POSTRETIREMENT BENEFIT PLAN
The actuarial and recorded liability for the Company's postretirement benefit
plan, none of which have been funded, are as follows at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants $ 905,963 $ 724,774
Other fully eligible participants 2,790,713 2,477,449
------------- -------------
$ 3,696,676 $ 3,202,223
------------- -------------
------------- -------------
</TABLE>
Postretirement benefit expense of $376,052, $476,775 and $480,189 is reflected
as a component of general insurance expenses in the 1998, 1997 and 1996
statutory statements of earnings, respectively. The discount rate used in
determining the accumulated postretirement benefit obligation was 7.0% and 7.25%
in 1998 and 1997, respectively. The assumed healthcare cost trend rate used in
measuring the accumulated postretirement benefit obligation was 8.0% and 7.5%
for employees under 65 and for those over 65, respectively, in 1998 and 8.5% and
8.0% for employees under 65 and for those over 65, respectively, in 1997 graded
down during each year to an ultimate rate of 5.5% and 5.0% in 2003. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1998, would be increased by
10.2%.
(8) COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company is obligated under the terms of various leases for certain
equipment. Total lease rental expense, including short-term rentals, amounted to
approximately $2,625,000 in 1998, $2,285,000 in 1997 and $2,339,000 in 1996. In
most cases, management expects that in the normal course of business leases will
be renewed or replaced by other leases. Future minimum rental payments required
under leases that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1998 are not significant.
The Company makes commitments to extend credit and make equity investments in
the normal course of business. Commitments to extend credit are agreements to
lend money with fixed expiration dates or other termination clauses. Equity
commitments usually take the form of investments in limited partnerships. The
Company applies its normal lending standards when extending credit commitments.
Since several of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. Collateral is not obtained for commitments to extend credit, but
is obtained when loans are closed based on an assessment of the customers'
creditworthiness. The Company's maximum exposure to credit loss is represented
by the
21
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
contractual amount of the commitments. Commitments to extend credit and make
equity investments aggregated approximately $125,000,000 at December 31, 1998.
CONTINGENCIES
On January 21, 1998, a Complaint and Petition for Class Action Certification was
filed against the Company by an individual on behalf of a class of all Georgia
policyholders of the Company who had their insurance policies replaced with a
universal life policy. The litigation asserts causes of action against the
Company and its agents in replacement of existing life insurance policies in the
State of Georgia. The action was to be expanded to seek certification of a class
relating to the sale of policies by the Company to replace existing life
insurance policies within the states of Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee,
Texas and Virginia.
After extended negotiations, the plaintiff and the Company agreed to settle the
litigation, pursuant to the provisions of an agreement dated March 24, 1999.
Under the proposed settlement, class members are entitled to choose from two
basic types of relief: General Relief and Special Adjudication Relief. In
general, these benefits will be based upon the expenses and other fees that were
charged against the cash value of the policy or policies that were replaced with
a flexible premium or universal life policy. The Company has further agreed to
pay certain costs and attorney's fees up to a specified amount.
On March 24, 1999, a preliminary order was entered approving the settlement,
conditionally certifying the settlement class, directing the distribution of
notice to the class, and setting a fairness hearing for July 15, 1999.
Management has evaluated the potential impact of this litigation on the
Company's statutory financial statements, including the impact of the settlement
agreement, and has concluded that the ultimate resolution of this matter will
not materially affect the Company's financial position or results of operations.
The Company and other parties are defendants in various lawsuits (not covered by
existing claim reserves) which, in the opinion of management, based on the
advice of legal counsel, will be disposed of without significant liability.
22
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(9) LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIMS ADJUSTMENT
EXPENSES
Activity in the liability for unpaid accident and health claims and claim
adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Balance January 1 $ 13,119,311 $ 12,736,348
Less reinsurance recoverables 5,302,141 5,387,117
------------- -------------
Net balance January 1 7,817,170 7,349,231
------------- -------------
Incurred related to:
Current year 7,853,244 6,919,388
Prior year (381,422) (359,816)
------------- -------------
Total incurred 7,471,822 6,559,572
------------- -------------
Paid related to:
Current year 3,837,079 3,603,861
Prior year 2,638,981 2,487,772
------------- -------------
Total paid 6,476,060 6,091,633
------------- -------------
Net balance December 31 8,812,932 7,817,170
Plus reinsurance recoverables 5,170,681 5,302,141
------------- -------------
Balance December 31 $ 13,983,613 $ 13,119,311
------------- -------------
------------- -------------
</TABLE>
(10) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, short-term investments, accounts
receivables and payables approximate their fair values due to the short-term
nature of these financial instruments.
The carrying amounts and fair values of the Company's debt and equity securities
are disclosed in note 2 of the notes to the statutory financial statements. For
marketable debt and equity securities, fair values are based on quoted market
prices. If a quoted market price is not available, as in the case of private
placements, fair value is estimated using quoted market prices for similar
securities.
The fair value for mortgage and other loans was determined on a loan by loan
basis using market yields and coupon rates. Market yield for each loan was
determined by adding an appropriate pricing spread to the yields on similar
maturity treasury issues. The fair value for each loan was calculated as the
present value of the future interest and principal payments at the market yield.
The carrying amount and fair value of the Company's investments in mortgage and
other loans at December 31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial mortgages $ 782,868,429 $ 838,289,000 $ 752,039,253 $ 798,718,000
Residential mortgages 690,842 740,000 620,253 659,000
Other loans 2,663,410 2,673,000 1,256,734 1,257,000
-------------- -------------- -------------- --------------
$ 786,222,681 $ 841,702,000 $ 753,916,240 $ 800,634,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The fair value of annuity contracts was determined to be the Company's statutory
reserve as such amount most closely approximates the current value of the
expected payments under such contracts. Such reserve is higher than the policy
surrender values, which is considered the floor value and lower than the account
value, which is considered the maximum value. The account value does not
approximate the amount the Company anticipates paying under such contracts due
to anticipated surrenders.
23
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
(11) RISK-BASED CAPITAL
In order to enhance the regulation of insurer solvency, the NAIC adopted a
formula and model law to implement Risk-Based Capital (RBC) requirements for
life and annuity insurance companies, which is designed to assess minimum
capital requirements. RBC requirements are used as minimum capital requirements
by the NAIC and states to identify companies that merit further regulatory
action. For this purpose, an insurer's surplus is measured relative to its
specific asset and liability profiles. A company's risk-based capital is
calculated by applying factors to various asset, premium and reserve items,
where the factor is higher for those items with greater underlying risk and
lower for less risky items. Within certain ratio ranges, regulators have
increasing authority to take action as the RBC ratio decreases.
At December 31, 1998, the Company and its insurance subsidiary had adjusted
capital in excess of required amounts.
(12) YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
Management has assessed the impact of Year 2000 issues on the Company's computer
systems and applications, developed a remediation plan, and determined that its
impact will be immaterial. Conversion and implementation activities for mission
critical systems are in process and management expects implementation and
testing to be completed by June 1999. Also, the Company has attempted to obtain
positive confirmation of Year 2000 compliancy or resolution plans from
significant reinsurers, vendors or other counterparties. The Company is
recording costs associated with these systems changes as the costs are incurred.
Estimates of the completion date for implementation and testing of mission
critical systems are based on assumptions which management believes are
reasonable and appropriate.
(13) SUBSEQUENT EVENT (UNAUDITED)
On August 20, 1999, a fairness hearing was held on the Complaint and Petition
for Class Action Certification discussed in note 8. The proposed settlement was
approved by the Court and is now final. Management has evaluated the impact of
this settlement on the Company's June 30, 1999 statutory financial statements
and has concluded that the ultimate resolution of this matter will not
materially affect the Company's financial position or results of operations.
24
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SCHEDULE 1
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS SHOWN ON
THE BALANCE
TYPE OF INVESTMENT COST FAIR VALUE SHEET
- ------------------------------------------------------------------------- ------------ ------------ --------------
<S> <C> <C> <C>
Bonds:
United States Government and government agencies and authorities $ 451,457 $ 470,542 $ 451,457
Foreign governments -- -- --
Public utilities 231,855 239,626 231,855
Mortgage-backed securities 1,203,387 1,232,365 1,203,387
All other corporate bonds 1,545,198 1,591,272 1,545,198
------------ ------------ --------------
Total Bonds 3,431,897 3,533,805 3,431,897
------------ ------------ --------------
Equity Securities:
Common Stocks (1)
Public utilities 846 1,136 1,136
Banks, trusts and insurance companies 23,798 59,216 59,216
Industrial, miscellaneous and all other 178,973 252,754 252,754
Nonredeemable preferred stocks 71,814 79,801 71,814
------------ ------------ --------------
Total equity securities 275,431 392,907 384,920
------------ ------------ --------------
Mortgage loans on real estate 786,223 N/D 786,223
Real estate:
Home office property 18,959 N/D 18,959
Real estate held for investment 77,521 N/D 77,521
Real estate acquired in satisfaction of debt 9,370 N/D 9,370
Policy loans 318,037 N/D 318,037
Partnership interests 130,875 N/D 130,875
Short-term investments and cash 127,254 127,254 127,254
------------ ------------ --------------
Total investments $ 5,175,567 $ N/A $ 5,285,056
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
(1) Investment in common stocks does not include the Company's investment in the
Virginia Farm Bureau, a related party, with a cost and market value of
$10,002 and $5,746, respectively.
N/D -- not determined
N/A -- not applicable
SEE INDEPENDENT AUDITORS' REPORT
25
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SCHEDULE 2
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE
- ------------------------------------- ----------- -------------- -------- ------------
<S> <C> <C> <C> <C>
1998:
Life Insurance $ -- $2,295,175 $1,672 $359,281
Accident & Health Insurance -- 18,363 55 1,513
Annuity -- 2,080,440 -- 29
Property & Liability Insurance -- -- -- --
----------- -------------- -------- ------------
$ -- $4,393,978 $1,727 $360,823
----------- -------------- -------- ------------
----------- -------------- -------- ------------
1997:
Life Insurance $ -- $2,153,337 $1,532 $351,907
Accident & Health Insurance -- 16,103 283 1,307
Annuity -- 2,013,619 -- 26
Property & Liability Insurance -- -- -- --
----------- -------------- -------- ------------
$ -- $4,183,059 $1,815 $353,240
----------- -------------- -------- ------------
----------- -------------- -------- ------------
1996:(3)
Life Insurance
Accident & Health Insurance
Annuity
Property & Liability Insurance
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------------------------------------
AMORTIZATION
BENEFITS, OF DEFERRED
NET CLAIMS, LOSSES POLICY OTHER
PREMIUM INVESTMENT AND SETTLEMENT ACQUISITION OPERATING
SEGMENT REVENUE(1) INCOME EXPENSES COSTS EXPENSES(2)
- ------------------------------------- ---------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998:
Life Insurance $374,107 $199,957 $337,429 $ -- $110,366
Accident & Health Insurance 18,138 930 9,130 -- 9,913
Annuity 172,009 165,342 288,295 -- 18,037
Property & Liability Insurance -- -- -- --
---------- ---------- -------------- ------------ -----------
$564,254 $366,229 $634,854 $ -- $138,316
---------- ---------- -------------- ------------ -----------
---------- ---------- -------------- ------------ -----------
1997:
Life Insurance $354,919 $183,216 $319,759 $ -- $112,081
Accident & Health Insurance 16,173 793 7,391 -- 9,327
Annuity 215,818 165,229 329,197 -- 21,663
Property & Liability Insurance -- -- -- -- --
---------- ---------- -------------- ------------ -----------
$586,910 $349,238 $656,347 $ -- $143,071
---------- ---------- -------------- ------------ -----------
---------- ---------- -------------- ------------ -----------
1996:(3)
Life Insurance $339,649 $173,968 $310,687 $ -- $110,680
Accident & Health Insurance 15,305 729 7,144 -- 9,071
Annuity 200,599 149,378 302,144 -- 21,174
Property & Liability Insurance -- -- -- -- --
---------- ---------- -------------- ------------ -----------
$555,553 $324,075 $619,975 $ -- $140,925
---------- ---------- -------------- ------------ -----------
---------- ---------- -------------- ------------ -----------
</TABLE>
(1) Life insurance premium revenue includes supplementary contracts, dividend
accumulations and other
(2) Commissions, taxes, licenses and fees reflect actual expenses by segment.
All other operating expenses are allocated to each segment on the basis of
policy count and time studies.
(3) 1996 amounts exclude the recapture of the annuity business by the Company.
SEE INDEPENDENT AUDITORS' REPORT
26
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SCHEDULE 3
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
CEDED TO AMOUNT
OTHER ASSUMED FROM ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES NET AMOUNT NET
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1998:
Life insurance in force $45,128,699 $ 4,229,119 $ -- $ 40,899,580 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
Premiums:
Life insurance $ 345,614 $ 14,424 $ -- $ 331,190 $ --
Accident & health insurance 38,908 20,770 -- 18,138 --
Annuity 172,009 -- -- 172,009 --
Property & liability insurance -- -- -- -- --
------------- ------------ ------------- ------------- -------------
Total Premiums $ 556,531 $ 35,194 $ -- $ 521,337 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
1997:
Life insurance in force $43,083,934 $ 4,268,562 $ -- $ 38,815,372 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
Premiums:
Life insurance $ 330,306 $ 15,378 $ -- $ 314,928 $ --
Accident & health insurance 35,711 19,538 16,173 --
Annuity 215,818 -- -- 215,818 --
Property & liability insurance -- -- -- -- --
------------- ------------ ------------- ------------- -------------
Total Premiums $ 581,835 $ 34,916 $ -- $ 546,919 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
1996:
Life insurance in force $40,425,690 $ 4,349,959 $ -- $ 36,075,731 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
Premiums:
Life insurance $ 315,970 $ 13,020 $ -- $ 302,950 $ --
Accident & health insurance 34,060 18,755 -- 15,305 --
Annuity 200,599 -- -- 200,599 --
Property & liability insurance -- -- -- -- --
------------- ------------ ------------- ------------- -------------
Total Premiums $ 550,629 $ 31,775 $ -- $ 518,854 $ --
------------- ------------ ------------- ------------- -------------
------------- ------------ ------------- ------------- -------------
</TABLE>
SEE INDEPENDENT AUDITORS' REPORT
27
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
<TABLE>
<C> <S>
(1) Certified resolution of the board of directors of Southern Farm Bureau
Life Insurance Company (the "Company") establishing Southern Farm Bureau
Life Variable Account (the "Account").(1)
(2) Not Applicable.
(3) *Underwriting Agreement among the Company, the Account and Southern Farm
Bureau Fund Distributor, Inc. ("SFB Fund Distributor").
(4) Contract Form.(1)
(5) Form of Contract Application.(1)
(6) (a) Articles of Incorporation of the Company.(1)
(b) By-Laws of the Company.(1)
(7) Not Applicable.
(8) *(a) Participation agreement relating to Fidelity Variable Insurance
Products Fund.
*(b) Participation agreement relating to Fidelity Variable Insurance
Products Fund II.
*(c) Participation agreement relating to Fidelity Variable Insurance
Products Fund III.
*(d) Participation agreement relating to T. Rowe Price Equity Series, Inc.
and T. Rowe Price Fixed Income Series, Inc.
*(e) Form of Administrative Services Agreement.
(9) *Opinion and Consent of Joseph A. Purvis, Esquire.
(10) *(a) Consent of Sutherland Asbill & Brennan LLP.
*(b) Consent of KPMG Peat Marwick LLP.
*(c) Opinion and Consent of Kenneth P. Johnston, FSA, MAAA, Vice
President, Product Development.
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) *Powers of Attorney.
</TABLE>
- ------------------------
(1) Incorporated herein by reference to the Initial Filing of this Form N-4
Registration Statement (File Nos. 333-79865; 811-9371) filed with the
Securities and Exchange Commission on June 3, 1999.
* Attached as exhibit.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
Ronald R. Anderson Director
James C. Bass Director
James R. Carter Director
Donald Childs Director
Marshall Coyle Director
Ben Gramling, II Director
Bruce Hiatt Director
David Hillman Director
W. B. Jenkins Director
Bryan Mitchell Director
Sam Moore Director
Donald Patman Director
Wayne F. Pryor Director
Bob Stallman Director
David Waide Director
Andrew Whisenhunt Director
David M. Winkles, Jr. Director
J. M. Wright, Jr. Director
Carl B. Loop, Jr. Chairman of the Board and President
Wayne Dollar First Vice President and Director
Bobby Waters Executive Vice President, Chief Executive Officer
Nolin Cook Senior Vice President and Secretary
Larry Favreau Senior Vice President, Chief Financial Officer
Robert W. Peacock Senior Vice President, Marketing
Joey Stroble Senior Vice President, Policy Administration
Sherrell Ballard Vice President, Information Systems
Denny Blaylock Vice President, Underwriting
David N. Duddleston, M.D. Vice President, Medical Director
Rick Fielding Vice President, Chief Actuary
Gino Gianfrancesco Vice President, Sales
Philip R. Hogue Vice President, Realty Investments
Kenneth P. Johnston Vice President, Product Development
Richard D. McClure Vice President, Claims
Walt Olson Vice President, Chief Investment Officer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
Kenneth A. Phillips Vice President, Personnel
Beverly Pogue Vice President, Valuation Actuary
Joe Purvis Vice President, General Counsel
William Risher Vice President, Director of Marketing Services
E. J. "Bubby" Trosclair Vice President, Agency
</TABLE>
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The registrant is a segregated asset account of the Company and is therefore
owned and controlled by the Company. All of the Company's outstanding voting
common stock is owned by Arkansas Farm Bureau Investment Corporation, Florida
Farm Bureau Holding Corporation, Georgia Farm Bureau Federation Holding Co.
Inc., Kentucky Farm Bureau Investment Corporation, Louisiana Farm Bureau
Investment Corporation, Mississippi Farm Bureau Investment Corporation, North
Carolina Farm Bureau Investment Corporation, South Carolina Farm Bureau
Investment Corporation, Texas Farm Bureau Investment Corporation and Virginia
Farm Bureau Holding Corporation. The Company and its affiliates are described
more fully in the prospectus included in this registration statement. An
organizational chart is set forth on the following page.
<PAGE>
ORGANIZATIONAL CHART OF SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arkansas Florida Georgia Kentucky Louisiana Mississippi North South Texas Farm Virginia
Farm Bureau Farm Bureau Farm Bureau Farm Bureau Farm Bureau Farm Bureau Carolina Carolina Bureau Farm Bureau
Federation Federation Federation Federation Federation Federation Farm Bureau Farm Bureau Federation Federation
OWNS OWNS OWNS OWNS OWNS OWNS Federation Federation OWNS OWNS
CONTROLLING CONTROLLING CONTROLLING CONTROLLING CONTROLLING CONTROLLING OWNS OWNS CONTROLLING CONTROLLING
INTEREST IN INTEREST IN INTEREST IN INTEREST IN INTEREST IN INTEREST IN CONTROLLING CONTROLLING INTEREST IN INTEREST IN
INTEREST IN INTEREST IN
/ / / / / / / / / /
/ / / / / / / / / /
/ / / / / / / / / /
Arkansas Florida Georgia Kentucky Louisiana Mississippi North South Texas Farm Virginia
Farm Bureau Farm Bureau Farm Bureau Farm Bureau Farm Bureau Farm Bureau Carolina Carolina Bureau Farm Bureau
Investment Holding Fed. Investment Investment Investment Farm Bureau Farm Bureau Investment Holding
Corporation Corporation Holding Co. Corporation Corporation Corporation Investment Investment Corporation Corporation
OWNS 10% OF OWNS 10% OF Inc. OWNS OWNS 10% OF OWNS 10% OF OWNS 10% OF Corporation Corporation OWNS 10% OF OWNS 10% OF
10% OF OWNS 10% OF OWNS 10% OF
/ / / / / / / / / /
/ / / / / / / / / /
/ / / / / / / / / /
--------------------------------------------------------------------------------------------------------------------------------
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
ULTIMATE CONTROLLING PERSON--OWNS 100% OF
--------------------------------------------------------------------------------------------------------------------------------
/ /
/ /
/ /
SOUTHERN SOUTHERN
FARM BUREAU FARM BUREAU
ANNUITY FUND
INSURANCE DISTRIBUTOR
COMPANY
</TABLE>
NOTE: Southern Farm Bureau Life Insurance Company has disclaimed control by and
affiliation with its shareholders and their parent companies pursuant to
the Insurance Holding Company System Regulatory Act.
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of the date of the prospectus included in this Registration Statement, no
Contracts have been sold.
ITEM 28. INDEMNIFICATION
Article XII of the Company's By-Laws provides for the indemnification by the
Company to the maximum extent allowed by Mississippi law, of any director or
officer thereof, who is made party to any suit or proceeding because he is or
was a director or officer, provided that the director or officer has met the
standard of conduct set out in Mississippi Code of 1972 Annotated Section
79-4-8.51(a-d), and indemnification is not otherwise provided for by any
insurance coverage available to such director or officer. Article XII also
provides that if there is any question as to whether a director or officer has
met the applicable standard of conduct, the same will be determined by an
independent special legal counsel selected by the Board of Directors.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Southern Farm Bureau Fund Distributor, Inc. is the registrant's principal
underwriter.
(b) Officers and Directors of Southern Farm Bureau Fund Distributor, Inc.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS
ADDRESS* POSITIONS AND OFFICES
<S> <C>
William Harold Risher, Vice President, Director of Marketing Services, Southern Farm Bureau
President Life Insurance Company
Nolin Cook, Vice President and Senior Vice President and Secretary, Southern Farm Bureau
Assistant Secretary Life Insurance Company
Laurence Edmond Favreau, Senior Vice President, Chief Financial Officer, Southern Farm Bureau
Secretary/Treasurer Life Insurance Company
Carl B. Loop, Jr., Director Chairman of the Board and President, Southern Farm Bureau Life
Insurance Company
Ronald Roy Anderson, Advisory Director, Southern Farm Bureau Life Insurance Company
Director
James C. Bass, Director Director, Southern Farm Bureau Life Insurance Company
James Richard Carter, Director Director, Southern Farm Bureau Life Insurance Company
William Donald Childs, Director, Southern Farm Bureau Life Insurance Company
Director
Marshall Coyle, Director Director, Southern Farm Bureau Life Insurance Company
John Wayne Dollar, Director First Vice President and Director, Southern Farm Bureau Life
Insurance Company
Ben Martin Gramling, II, Director, Southern Farm Bureau Life Insurance Company
Director
Bruce Lane Hiatt, Director Director, Southern Farm Bureau Life Insurance Company
David Webster Hillman, Director, Southern Farm Bureau Life Insurance Company
Director
William Bobbitt Jenkins, Director, Southern Farm Bureau Life Insurance Company
Director
Oliver Bryan Mitchell, Director, Southern Farm Bureau Life Insurance Company
Director
Sam Moore, Director Director, Southern Farm Bureau Life Insurance Company
Wayne F. Pryor, Director Director, Southern Farm Bureau Life Insurance Company
Bob Stallman, Director Director, Southern Farm Bureau Life Insurance Company
David Waide, Director Director, Southern Farm Bureau Life Insurance Company
William Andrew Whisenhunt, Director, Southern Farm Bureau Life Insurance Company
Director
David Milton Winkles, Jr., Director, Southern Farm Bureau Life Insurance Company
Director
John Milton Wright, Jr., Director, Southern Farm Bureau Life Insurance Company
Director
</TABLE>
* The principal business address of all of the persons listed above is 1401
Livingston Lane, Jackson, Mississippi 39213.
<PAGE>
ITEM 30. LOCATION BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be kept by
Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are
maintained by the Company at 1401 Livingston Lane, Jackson, Mississippi 39213 or
5400 University Avenue, West Des Moines, Iowa 50266.
ITEM 31. MANAGEMENT SERVICES
VARIABLE PRODUCTS COMPLIANCE AND ACCOUNTING AGREEMENT. Under this agreement,
EquiTrust Investment Management Services, Inc. ("EquiTrust") agrees to provide
Southern Farm Bureau Life Insurance Company ("Company") with certain compliance
and accounting functions with respect to the variable annuity contracts issued
by the Company. These functions include: preparing Forms N-4, N-SAR and 24F-2;
providing requested information for SEC examinations; calculating daily unit
values, preparing trial balances, financials and audit schedules.
EquiTrust is not an affiliated person of the Company. EquiTrust is compensated
quarterly for its services based on a schedule of fees attached to the
agreement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for as long as purchase payments under the Contracts offered
herein are being accepted.
(b) The registrant undertakes that it will include either as part of any
application to purchase a Contract offered by the prospectus, a post card or
similar written communication affixed to or included in the prospectus that the
applicant can remove and send to the Company for a statement of additional
information.
(c) The registrant undertakes to deliver any statement of additional information
and any financial statements required to be made available under this Form N-4
promptly upon written or oral request to the Company at the address or phone
number listed in the prospectus.
(d) The Company represents that in connection with its offering of the Contracts
as funding vehicles for retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code of 1986, it is relying on a no-action letter
dated November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company
Act of 1940, and that paragraphs numbered (1) through (4) of that letter will be
complied with.
(e) The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by the Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Southern Farm Bureau Life Variable Account has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of Jackson, State of Mississippi, on the
8th day of October, 1999.
<TABLE>
<S> <C> <C>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
By: *
-----------------------------------------
Bobby Waters
EXECUTIVE VICE PRESIDENT, CHIEF EXECUTIVE
OFFICER
Southern Farm Bureau Life Insurance
Company
Attest: *
-----------------------------------------
Nolin Cook
SENIOR VICE PRESIDENT AND SECRETARY
Southern Farm Bureau Life Insurance
Company
</TABLE>
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the dates set
forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Executive Vice President,
* Chief Executive Officer
- ------------------------------ [Principal Executive October 8, 1999
Bobby Waters Officer]
Senior Vice President,
* Chief Financial Officer
- ------------------------------ [Principal Financial October 8, 1999
Laurence E. Favreau Officer] [Principal
Accounting Officer]
*
- ------------------------------ President and Chairman of October 8, 1999
Carl B. Loop, Jr. the Board
*
- ------------------------------ First Vice President and October 8, 1999
John Wayne Dollar Director
*
- ------------------------------ Director October 8, 1999
Ronald R. Anderson
*
- ------------------------------ Director October 8, 1999
James C. Bass
*
- ------------------------------ Director October 8, 1999
James R. Carter
*
- ------------------------------ Director October 8, 1999
Donald Childs
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director October 8, 1999
Marshall Coyle
*
- ------------------------------ Director October 8, 1999
Ben Gramling, II
*
- ------------------------------ Director October 8, 1999
Bruce Hiatt
*
- ------------------------------ Director October 8, 1999
David Hillman
*
- ------------------------------ Director October 8, 1999
W.B. Jenkins
*
- ------------------------------ Director October 8, 1999
Bryan Mitchell
*
- ------------------------------ Director October 8, 1999
Sam Moore
*
- ------------------------------ Director October 8, 1999
Donald Patman
*
- ------------------------------ Director October 8, 1999
Wayne F. Pryor
*
- ------------------------------ Director October 8, 1999
Bob Stallman
*
- ------------------------------ Director October 8, 1999
David Waide
*
- ------------------------------ Director October 8, 1999
Andrew Whisenhunt
*
- ------------------------------ Director October 8, 1999
David M. Winkles, Jr.
*
- ------------------------------ Director October 8, 1999
J.M. Wright, Jr.
</TABLE>
<TABLE>
<S> <C>
*By: /s/ JOSEPH A. PURVIS
---------------------------------
Joseph A. Purvis
ATTORNEY-IN-FACT
Pursuant to Power of Attorney
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
UNDERWRITING AGREEMENT
This UNDERWRITING AGREEMENT (this "Agreement"), dated as of
the 5th day of October, 1999, is made and entered into by and between
Southern Farm Bureau Life Insurance Company ("Insurer"), a Mississippi
corporation, on its behalf and on behalf of Southern Farm Bureau Life Variable
Account (the "Separate Account"), and Southern Farm Bureau Fund Distributor,
Inc. ("Distributor"), a Mississippi corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that is willing to engage in the
distribution of variable insurance products and other investment products; and
WHEREAS, Insurer desires to issue certain variable insurance products
described more fully below to the public through Distributor acting as principal
underwriter.
NOW THEREFORE, in consideration of their mutual promises, Insurer and
Distributor hereby agree as follows:
1. Additional Definitions
a. "Contracts" means the class or classes of variable insurance products
set forth on Schedule 1 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 1 from time to time in accordance with Section
11.b of this Agreement, including any riders to such contracts and any other
contracts offered in connection therewith. For the purpose of this Agreement
generally, a "class of Contracts" means those Contracts issued by Insurer on the
same policy form or forms and covered by the same Registration Statement.
b. "Registration Statement" means, with respect to each class of Contracts,
the most recent post-effective registration statement filed with the SEC or the
most recent effective post-effective amendment thereto, including financial
statements included therein and all exhibits thereto. For purposes of Section 9
of this Agreement, the term "Registration Statement" means any document that is
or at any time was a Registration Statement within the meaning of this Section
1.b.
c. "Prospectus" means, with respect to each class of Contracts, the
prospectus for such class of Contracts included within the Registration
Statement for such class of Contracts; provided, however, that if the most
recently filed prospectus filed pursuant to Rule 497 under the 1933 Act
subsequent to the date on which the Registration
<PAGE>
Statement became effective differs from the prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall refer to
the most recently filed prospectus filed under Rule 497 from and after the date
on which it shall have been filed. For purposes of Section 9 of this Agreement,
the term "any Prospectus" means any document that is or at any time was a
Prospectus within the meaning of this Section 1.c.
d. "Variable Accounts" means separate accounts supporting a class or
classes of Contracts and specified in 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 11.b of this Agreement.
e. "1933 Act" means the Securities Act of 1933, as amended.
f. "1934 Act" means the Securities Exchange Act of 1934, as amended.
g. "1940 Act" means the Investment Company Act of 1940, as amended.
h. "SEC" means the Securities and Exchange Commission.
i. "NASD" means the National Association of Securities Dealers, Inc. and
any affiliates.
j. "Regulations" means the rules and regulations promulgated by the SEC
under the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time this
Agreement is executed or thereafter promulgated.
k. "Agent Manual" means any manual and other written rules, regulations and
procedures provided by Insurer to insurance agents appointed to sell its
insurance contracts, as revised from time to time.
l. "Representative" means, when used with reference to Distributor, an
individual who is an associated person, as that term is defined in the 1934 Act,
thereof.
m. "Application" means an application for a Contract.
n. "Premium" means a payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.
2. Authorization and Appointment
a. Scope and Authority. Insurer 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
<PAGE>
Contracts to the public in each state and other jurisdiction in which the
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 Insurer. Distributor shall use its best efforts to market the Contracts
actively, subject to compliance with applicable law, including rules of the
NASD.
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 Insurer 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 Insurer 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
monies or Premiums (except for the sole purpose of forwarding monies or Premiums
to Insurer). Distributor shall not expend, nor contract for the expenditure of,
funds of the Insurer. Distributor shall not possess or exercise any authority on
behalf of Insurer other than that expressly conferred on Distributor by this
Agreement.
3. Solicitation Activities
a. Distributor Representatives. Distributor will solicit Applications from
the public through Distributor Representatives. All Distributor Representatives
shall be duly registered with the NASD as representatives of Distributor with
authority to sell variable products, and shall be duly licensed as insurance
agents with authority to sell variable products.
b. Insurer shall appoint Distributor and each of its Representatives;
provided that Insurer reserves the right to refuse to appoint any proposed
person or, once appointed, to terminate such appointment.
c. Distributor shall use its best efforts to cause its Representatives to
solicit Applications and to comply with applicable laws and regulations,
including the Insurer's rules and regulations as reflected in the Agent Manual
or otherwise communicated to its Representatives appointed by the Insurer.
Distributor and its Representatives shall not offer or attempt to offer the
Contracts, solicit Applications or Premiums, or deliver Contracts in any state
or jurisdiction in which the Contracts have not been approved for sale.
Distributor and its Representatives shall not solicit Applications or Premiums
without delivering the Prospectus and, where required by state insurance law,
the then-currently effective statement of additional information for the
Contracts, and the then-currently effective prospectus(es) for the registered
investment companies in which the Separate Account invests.
d. In view of the fact that Insurer and Distributor want to ensure that
Contracts will be sold to purchasers for whom the Contracts will be suitable,
Distributor
<PAGE>
and its Representatives shall not make recommendations to an applicant to
purchase a Contract in the absence of reasonable grounds to believe that the
purchase of the Contract is suitable for the applicant. While not limited to the
following, a determination of suitability shall be based on information supplied
by an applicant after reasonable inquiry concerning the applicant's other
security holdings, insurance and investment objectives, financial situation and
needs, and the likelihood that the applicant will continue to make premium
payments contemplated by the Contract applied for and will keep the Contract in
force for a sufficient period of time so that Insurer's acquisition costs are
amortized over a reasonable period of time.
e. Insurer reserves the right, in its sole discretion, to reject any
Application or Premium and to return or refund to an applicant such applicant's
Premium.
4. Representations and Warranties of Distributor.
Distributor represents and warrants to Insurer that Distributor is and shall
remain registered during the term of this Agreement as a broker-dealer under the
1934 Act, is a member of the NASD, is duly registered under applicable state
securities laws, and is and shall remain during the term of the Agreement in
compliance with Section 9(a) of the 1940 Act.
5. Marketing Materials
a. Preparation and Filing. Insurer shall be responsible for the design and
preparation of all promotional, sales and advertising material related to the
Contracts. Distributor shall be responsible for filing such material with the
NASD and any state securities regulatory authorities, to the extent required, at
Insurer's expense. Insurer shall be responsible for filing all promotional,
sales or advertising material, to the extent required, with any state insurance
regulatory authorities. Insurer 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
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. Insurer shall be responsible for
furnishing Distributor with such Applications, Prospectuses and other materials
for use by Distributor and its Representatives in their solicitation activities
with respect to the Contracts. Distributor and its Representatives shall not use
or implement any other promotional, sales or advertising material relating to
the Contracts or otherwise advertise the Contracts without the prior written
approval of Insurer.
<PAGE>
6. Compensation and Expenses.
a. Insurer shall pay compensation for sales of the Contracts in accordance
with Schedule 2 hereto. Upon Distributor's request, Insurer shall pay
compensation payable to Distributor's Representatives, on Distributor's behalf,
subject to the provisions of Section 7 of this Agreement. No compensation shall
be payable, and Distributor agrees to reimburse Insurer for any compensation
paid to Distributor or its Representatives, if Insurer:
(1) in its sole discretion, rejects an Application or Premium;
(2) refunds the Premiums upon the applicant's surrender or withdrawal
pursuant to any "free-look" privilege;
(3) refunds the Premiums as a result of a complaint by applicant; or
(4) determines that any person signing an Application who is required to
be licensed or registered or any other person receiving compensation
for soliciting the purchase of a Contract is not duly licensed or
registered to sell the Contract in the state or jurisdiction of such
sale.
b. Insurer shall pay all expenses in connection with:
(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);
(2) the preparation, underwriting, issuance and administration of the
Contracts;
(3) 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;
(4) all registration fees for the Contracts payable to the SEC;
(5) the printing of promotional materials, definitive Prospectuses for the
Contracts and any supplements thereto for distribution;
(6) any applicable postage costs; and
(7) any out-of-pocket expenses incurred by Distributor in carrying out its
obligations under this Agreement.
<PAGE>
7. Compliance.
a. Maintaining Registration and Approvals. Insurer 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 the 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. Insurer, as agent for the
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. Insurer shall maintain and preserve such 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. Insurer 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.
c. Issuance and Administration of Contracts. Insurer 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 the Insurer, engaged
directly or indirectly in the Contract operations, and for the training,
supervision and control of such persons to the extent of such activities.
8. Investigations and Proceedings.
a. Cooperation. Distributor and Insurer 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,
Insurer 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. In the case of any customer complaints, Distributor
and Insurer will cooperate in investigating such complaint and any response by
Distributor to such complaint or by Insurer to such complaint will be sent to
the other party for review and approval not less than five business days prior
to its being sent to the customer or regulatory authority, except that if a more
prompt response is required, the response shall be communicated by telephone or
electronic mail.
<PAGE>
9. Indemnification.
a. By Insurer. Insurer shall indemnify and hold harmless Distributor and
each person who controls or is associated with Distributor within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, 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:
(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 (i) Registration Statement or
in any Prospectus or (ii) blue sky application or other document
executed by Insurer specifically for the purpose of qualifying any or
all of the Contracts for sale under the securities laws of any
jurisdiction; provided that Insurer 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 Insurer by Distributor
specifically for use in the preparation of any such Registration
Statement or any such blue sky application or any amendment thereof or
supplement thereto; or
(2) result from any breach by Insurer of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that
Insurer 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 Insurer
and each person who controls or is associated with the Insurer within the
meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, 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 Insurer 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
<PAGE>
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 to make the
statements therein not misleading, in light of the circumstances in
which they were made, contained in any (i) Registration Statement or
in any Prospectus or (ii) blue sky application or other document
executed by Insurer specifically for the purpose of qualifying any or
all of the Contracts for sale under the securities laws of any
jurisdiction; 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 Insurer specifically for use in the
preparation of any such Registration Statement or any such blue sky
application or any amendment thereof or supplement thereto; or
(2) result from any breach by Distributor of any provision of this
Agreement.
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 9 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 9 ("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 9. 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 expense incurred by such indemnified person in
defending himself or herself.
The indemnification provisions contained in this Section 9 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Distributor or Insurer, as the case may be,
shall be entitled to the benefits of the indemnification provisions contained in
this Section 9.
10. Termination. This Agreement shall terminate automatically if Distributor
ceases
<PAGE>
to be a registered broker-dealer or a member of the NASD or if this Agreement is
assigned by a party without the prior written consent of the other party. (The
term "assigned" shall not include any transaction exempted from Section 15(b)(2)
of the 1940 Act.) This Agreement may be terminated at any time for any reason by
either party upon sixty (60) days' written notice to the other party, without
payment of any penalty. 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 obligation to
settle accounts hereunder, including compensation on Premiums subsequently
received for Contracts in effect at the time of termination or issued pursuant
to Applications received by Insurer prior to termination.
11. 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 Schedule 1 to this
Agreement from time to time to reflect the addition 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. Insurer may amend
Schedule 2 unilaterally, from time to time. Any other change in the terms or
provisions of this Agreement shall be by written agreement between Insurer 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 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 Insurer, to:
Southern Farm Bureau Life Insurance Company
<PAGE>
1401 Livingston Lane
Jackson, MS 39213
If to Distributor, to:
Southern Farm Bureau Fund Distributor, Inc.
1401 Livingston Lane
Jackson, MS 39213
or such 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 written or oral 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. This Agreement shall be construed and its
provisions interpreted under and in accordance with the laws of the state of
Mississippi without giving effect to principles of conflict of laws.
f. Severability. 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 the 1940 Act and the rules and regulations of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as the
SEC may grant, and the terms hereof shall be interpreted and construed in
accordance therewith.
<PAGE>
[The remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by such authorized officers as of the date set forth
above.
INSURER:
Southern Farm Bureau Life Insurance Company
By: /s/ Joseph A. Purvis
--------------------------------------
Name Joseph A. Purvis
-------------------------------------
Title Vice President and General Counsel
------------------------------------
DISTRIBUTOR:
Southern Farm Bureau Fund Distributor, Inc.
By: /s/ Laurence E. Favreau
--------------------------------------
Name Laurence E. Favreau
-------------------------------------
Title Secretary/Treasurer
------------------------------------
<PAGE>
SCHEDULE 1
To Underwriting Agreement
Contracts:
Flexible Premium Deferred Variable Annuity
Variable Accounts:
Southern Farm Bureau Life Variable Account
<PAGE>
SCHEDULE 2
To Underwriting Agreement
Compensation for Flexible Premium Deferred Variable Annuity
Effective ___________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Issue Age 0-70
- -------------------------------------------------------------------------------------------------------
Yr 1 Yr 2-7 Yr 8+
% PREM % FUND % PREM % FUND % PREM % FUND
(BP)* (BP) * (BP)*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
4.19% 0 3.75% 3.0 1.25% 13.0
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Issue Age 71-75
- -------------------------------------------------------------------------------------------------------
YR 1 YR 2-7 YR 8+
% PREM % FUND % PREM % FUND % PREM % FUND
(bp)* (bp) * (bp)*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.15% 0 2.81% 3.0 0.94% 13.0
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Issue Age 76-80
- -------------------------------------------------------------------------------------------------------
Yr 1 Yr 2-7 Yr 8+
% PREM % FUND % PREM % FUND % PREM % FUND
(BP)* (BP) * (BP)*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.10% 0 1.88% 3.0 0.63% 13.0
- -------------------------------------------------------------------------------------------------------
</TABLE>
* BP = BASIS POINT; 100 BASIS POINTS = 1.00%
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 30th day of
July, 1999 by and among SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY,
(hereinafter the "Company"), a Mississippi corporation, on its own behalf and
on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), and the VARIABLE INSURANCE
PRODUCTS FUND, an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY
DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and
1
<PAGE>
Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act and has
identified those contracts on Schedule A ("Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
segregated asset account under Chapter 7 of the Mississippi Insurance Code
and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Mississippi and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its
4
<PAGE>
shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has
adopted a Rule 12b-1 Plan under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board
of trustees, a majority of whom are not interested persons of the Fund, which
has formulated and approved the Fund's Rule 12b-1 Plan to finance
distribution expenses of the Fund and that any changes to the Fund's Rule
12b-1 Plan will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Mississippi and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Mississippi to the extent required to perform
this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The
5
<PAGE>
Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Mississippi and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall
perform its obligations for the Fund in compliance in all material respects
with the laws of the Commonwealth of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
6
<PAGE>
the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
7
<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration
8
<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each Account which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
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5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly
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<PAGE>
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision
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<PAGE>
has created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may
12
<PAGE>
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
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<PAGE>
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
14
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this
15
<PAGE>
Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
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<PAGE>
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision,
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<PAGE>
or if the Company reasonably believes that the Fund may
fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company and/or its affiliated companies
has suffered a material adverse change in its business,
operations, financial condition or prospects since the
date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either
the Fund or the Underwriter has suffered a material
adverse change in its business, operations, financial
condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
forty five (45) days after the notice specified in
Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as
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necessary to implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Fund and the Underwriter the opinion of counsel for
the Company (which counsel shall be reasonably satisfactory to the Fund and
the Underwriter) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, MS 39213
Attention: General Counsel
With an additional copy to:
Southern Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, IA 50266
Attention: Administrative Service Center
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
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12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent
of all parties hereto; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
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<PAGE>
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in
any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any
annual, interim or special audit made by them of
the books of the Company, as soon as practical
after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Joseph A. Purvis
----------------------------
Name: Joseph A. Purvis
----------------------------
Title: Vice President and General Counsel
-----------------------------------------
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ Robert C. Pozen
---------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
---------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
Southern Farm Bureau Life Flexible Premium Deferred Variable
Variable Account - (est May 17, 1999) Annuity Contract (no form number)
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
26
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
28
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 30th day of July,
1999 by and among SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY, (hereinafter
the "Company"), an Mississippi corporation, on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND II,
an unincorporated business trust organized under the laws of the Commonwealth
of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and
1
<PAGE>
Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act and has
identified those contracts on Schedule A (Contracts); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
segregated asset account under Chapter 7 of the Mississippi Insurance Code
and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Mississippi and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its
4
<PAGE>
shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a
Rule 12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a majority of
whom are not interested persons of the Fund, which has formulated and approved
the Fund's Rule 12b-1 Plan to finance distribution expenses of the Fund and that
any changes to the Fund's Rule 12b-1 Plan will be approved by a similarly
constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance
with the laws of the State of Mississippi and the Fund and the Underwriter
represent that their respective operations are and shall at all times remain
in material compliance with the laws of the State of Mississippi to the
extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The
5
<PAGE>
Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Mississippi and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall
perform its obligations for the Fund in compliance in all material respects
with the laws of the Commonwealth of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
6
<PAGE>
the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
7
<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration
8
<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each Account which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
9
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly
10
<PAGE>
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision
11
<PAGE>
has created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may
12
<PAGE>
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
13
<PAGE>
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the Fund
Shares or the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
14
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this
15
<PAGE>
Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
17
<PAGE>
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company;
or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor
or similar provision,
18
<PAGE>
or if the Company reasonably believes that the Fund may fail
to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(h) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as
19
<PAGE>
necessary to implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Fund and the Underwriter the opinion of counsel for
the Company (which counsel shall be reasonably satisfactory to the Fund and
the Underwriter) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, MS 39213
Attention: General Counsel
With an additional copy to:
Southern Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, IA 50266
Attention: Administrative Service Center
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
20
<PAGE>
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent
of all parties hereto; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
21
<PAGE>
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90
days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company,
as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Joseph A. Purvis
----------------------------
Name: Joseph A. Purvis
----------------------------
Title: Vice President and General Counsel
-----------------------------------------
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ Robert C. Pozen
----------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
----------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- --------------------------------
Southern Farm Bureau Life Flexible Premium Deferred Variable
Variable Account (est May 17, 1999) Annuity Contract (no form number)
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
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Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
28
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 30th day of July,
1999 by and among SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY, (hereinafter
the "Company"), an Mississippi corporation, on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND III,
an unincorporated business trust organized under the laws of the Commonwealth
of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and
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<PAGE>
Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order");
and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act and has
identified those contracts on Schedule A (Contracts); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of
2
<PAGE>
the Fund. For purposes of this Section 1.1, the Company shall be the
designee of the Fund for receipt of such orders from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Boston time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section
3
<PAGE>
2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall become
the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a
segregated asset account under Chapter 7 of the Mississippi Insurance Code
and has registered or, prior to any issuance or sale of the Contracts, will
register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Mississippi and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its
4
<PAGE>
shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. (a) With respect to Initial Class shares, the Fund currently
does not intend to make any payments to finance distribution expenses pursuant
to Rule 12b-1 under the 1940 Act or otherwise, although it may make such
payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a board of trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has adopted a
Rule 12b-1 Plan under which it makes payments to finance distribution expenses.
The Fund represents and warrants that it has a board of trustees, a majority of
whom are not interested persons of the Fund, which has formulated and approved
the Fund's Rule 12b-1 Plan to finance distribution expenses of the Fund and that
any changes to the Fund's Rule 12b-1 Plan will be approved by a similarly
constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance
with the laws of the State of Mississippi and the Fund and the Underwriter
represent that their respective operations are and shall at all times remain
in material compliance with the laws of the State of Mississippi to the
extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The
5
<PAGE>
Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Mississippi and all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall
perform its obligations for the Fund in compliance in all material respects
with the laws of the Commonwealth of Massachusetts and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have
6
<PAGE>
the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with other fund companies'
prospectuses and statements of additional information. Except as provided in
the following three sentences, all expenses of printing and distributing Fund
prospectuses and Statements of Additional Information shall be the expense of
the Company. For prospectuses and Statements of Additional Information
provided by the Company to its existing owners of Contracts in order to
update disclosure annually as required by the 1933 Act and/or the 1940 Act,
the cost of printing shall be borne by the Fund. If the Company chooses to
receive camera-ready film in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of A and B where A is the number of such prospectuses distributed to
owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset
7
<PAGE>
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration
8
<PAGE>
statement or prospectus for the Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in published
reports for each Account which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
9
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly
10
<PAGE>
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision
11
<PAGE>
has created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may
12
<PAGE>
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
13
<PAGE>
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Company to such party of the Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the Fund
Shares or the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as
14
<PAGE>
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or
on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this
15
<PAGE>
Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation
16
<PAGE>
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
17
<PAGE>
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company;
or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor
or similar provision,
18
<PAGE>
or if the Company reasonably believes that the Fund may fail
to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at
the time such notice was given there was no notice of
termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(h) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as
19
<PAGE>
necessary to implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Fund and the Underwriter the opinion of counsel for
the Company (which counsel shall be reasonably satisfactory to the Fund and
the Underwriter) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, MS 39213
Attention: General Counsel
With an additional copy to:
Southern Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, IA 50266
Attention: Administrative Service Center
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
20
<PAGE>
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent
of all parties hereto; provided, however, that the Underwriter may assign
this Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under
this Agreement. The Company shall promptly notify the Fund and the
Underwriter of any change in control of the Company.
21
<PAGE>
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90
days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company,
as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
By: /s/ Joseph A. Purvis
----------------------------
Name: Joseph A. Purvis
----------------------------
Title: Vice President and General Counsel
-----------------------------------------
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ Robert C. Pozen
----------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
----------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors By Separate Account
- -------------------------------------- --------------------------------
Southern Farm Bureau Life Flexible Premium Deferred Variable
Variable Account (est May 17, 1999) Annuity Contract (no form number)
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund MUST allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
26
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be NOT RECEIVED for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
28
<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of July, 1999
by and among Southern Farm Bureau Life Insurance Company (hereinafter, the
"Company"), a Mississippi insurance company, on its own behalf and on behalf
of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each account hereinafter referred
to as the "Account"), and the undersigned funds, each, a corporation
organized under the laws of Maryland (each hereinafter referred to as the
"Fund") and T. Rowe Price Investment Services, Inc. (hereinafter the
"Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC, and the Fund shall use its best efforts to
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
<PAGE>
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt
of an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.
<PAGE>
1.10 The Fund shall make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such net
asset value per share available by 7 p.m. Baltimore time. If the net asset
value is materially incorrect through no fault of the Company, the Company on
behalf of each Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value in
accordance with Fund procedures. Any material error in the net asset value
shall be reported to the Company promptly upon discovery. Any administrative or
other costs or losses incurred for correcting underlying Contract owner accounts
shall be at Company's expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Mississippi insurance laws and has registered or, prior to any issuance or
sale of the Contracts, will register the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Mississippi and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
<PAGE>
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Mississippi to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Mississippi and any applicable
state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Mississippi
and any applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $2.5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund if, and when, applicable. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies. The Company
agrees to exercise its best efforts to ensure that other individuals/entities
not employed or controlled by the Company and dealing with the money and/or
securities of the Fund maintain a similar bond or coverage in a reasonable
amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
<PAGE>
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself, and for any owner of a Contract who
requests such SAI. The Company shall send an SAI to any such Contract owner
within 3 business days of the receipt of a request.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and semi-
annual reports to shareholders in such quantity as the Company shall reasonably
request for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or on diskette) and other assistance as
is reasonably necessary in order for the Company (at the Company's expense) to
print such shareholder communications for distribution to Contract owners.
The Company shall send a copy of the Fund's annual or semi-annual report
within 3 business days of the receipt of a request by a Contract owner.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such Designated Portfolio
for which instructions have been received, so long as and to the extent that
the SEC continues to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners or to the extent otherwise required
by law. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
<PAGE>
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least ten calendar days
prior to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within ten calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account, within a
reasonable time after the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
<PAGE>
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except as otherwise provided herein. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's
prospectus (in accordance with 3.1) and of distributing the Fund's prospectus,
proxy materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such
a manner as to ensure that the Contracts will be treated as annuity, endowment,
or life insurance contracts, whichever is appropriate, under the Internal
Revenue Code of 1986, as amended (the Code ) and the regulations issued
thereunder (or any successor provisions). Without limiting the scope of the
foregoing, each Designated Portfolio of the Fund will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
<PAGE>
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance, endowment contracts, or
annuity insurance contracts, under applicable provisions of the Code, and that
it will make every effort to maintain such treatment, and that it will notify
the Fund and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
<PAGE>
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
<PAGE>
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement, prospectus, or statement of additional information ( SAI ) for the
Contracts or contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature or other promotional material of the
Fund not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its authorization or control, with
respect to the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, SAI, or
sales literature or other promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the Company;
or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
<PAGE>
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature or other promotional material
of the Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf of the Company
for use in the Registration Statement or prospectus for the Fund or in sales
literature or other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other promotional
material for the Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
<PAGE>
comply with the diversification and other qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months' advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based upon the
Company's determination that shares of the Fund are not reasonably available to
meet the requirements of the Contracts; provided that such termination shall
apply only to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the Company by the
NASD, the SEC, the Insurance Commissioner or like official of any state or any
other regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or the
purchase of the Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the qualifications
specified in Section 6.3 hereof; or if the Fund or Underwriter reasonably
believes that such Contracts may fail to so qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
<PAGE>
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that the Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company s assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a Legally Required Redemption ), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund
and the Underwriter the opinion of counsel for the Company (which counsel shall
be reasonably satisfactory to the Fund and the Underwriter) to the effect that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, MS 39213
Attention: General Counsel
Copy to:
Southern Farm Bureau Life Insurance Company
5400 University Avenue
<PAGE>
West Des Moines, Iowa 50266
Attention: Administrative Service Center
If to Underwriter:
T. Rowe Price Investment Services, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned
Funds as if this agreement were between such individual Fund and the Underwriter
and the Company. All references herein to the Adviser relate solely to the
Adviser of such individual Fund, as appropriate. All persons dealing with a
Fund must look solely to the property of such Fund, and in the case of a series
company, the respective Designated Portfolio listed on Schedule A hereto as
though such Designated Portfolio had separately contracted with the Company and
the Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information may come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Mississippi Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Iowa
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ( GAAP ), if any), as soon as practical and in any event within 90
days after the end of each fiscal year.
(b) the Company s quarterly statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
<PAGE>
COMPANY: SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ Joseph A. Purvis
Title: Vice President and General Counsel
Date: July 20, 1999
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: July 8, 1999
FUND: T. ROWE PRICE FIXED INCOME SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: July 8, 1999
<PAGE>
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Title: Vice President
Date: July 8, 1999
<PAGE>
SCHEDULE A
Name of Separate Account and Date Established by Board of Directors:
Southern Farm Bureau Life Variable Account
Established May 17, 1999
Contracts Funded by Separate Account:
Flexible Premium Deferred Variable Annuity Contract
Designated Portfolios:
T. Rowe Price Equity Series, Inc.
- Mid-Cap Growth Portfolio
- Equity Income Portfolio
- Personal Strategy Balanced Portfolio
T. Rowe Price Fixed Income Series, Inc.
- Limited Term Bond Portfolio
- Prime Reserve Portfolio
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT is made and executed by and between
EquiTrust Life Insurance Company ("EquiTrust Life"), an Iowa corporation
having its principal offices at 5400 University Avenue, West Des Moines, Iowa
50266; and Southern Farm Bureau Life Insurance Company (the "Company"), a
life insurance company having its principal offices at 1401 Livingston Lane,
Jackson, Mississippi 39213.
RECITALS
The Company desires to have EquiTrust Life provide services to the Company
with respect to certain annuity contracts and/or insurance policies and
EquiTrust Life is willing to provide such services, subject to the terms and
conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and obligations
hereinafter expressed and for the consideration recited herein, the Company and
EquiTrust Life hereby covenant, stipulate and agree as follows:
PART 1 - SERVICES
1.1 SCOPE OF SERVICES. From and after the date of this Agreement, EquiTrust
Life agrees to provide to the Company financial reporting and service
functions with respect to the annuity contract and/or insurance policy forms
underwritten and issued by the Company, as identified and listed in the
schedule of contract and policy forms and riders annexed hereto as Schedule
A. Such financial reporting and service functions shall consist of the
activities set forth and described in the Description of Services annexed
hereto and incorporated herein as Schedule B, including all expenses and fees
related thereto. Schedules A and B may be amended from time to time by mutual
written agreement of the Company and EquiTrust Life.
1.2 ADDITIONAL SERVICES. EquiTrust Life shall review any additional servicing
requirements at the request of the Company, and EquiTrust Life will provide
the Company with a written proposal to include specific services to be
provided, an implementation schedule and any associated fees and expenses.
1.3 COMPENSATION. In consideration of its administration services under this
Agreement for and on behalf of the Company and its contract or policy
holders, annuitants and beneficiaries, the Company will pay EquiTrust Life
such compensation and reimburse EquiTrust Life for such expenses as are
provided for in the schedule of administrative fees annexed hereto as
Schedule C. EquiTrust Life agrees that the compensation payable pursuant to
Schedule C shall be accepted by EquiTrust Life as full compensation from the
Company for the services described in Schedule B.
1.4 COMPANY DIRECTIVES. EquiTrust Life shall, in all cases and at all times,
to the extent there is reasonable notice thereof, observe and obey the rules,
regulations, instructions and directives of the Company as the Company may,
from time to time, promulgate for its operations, and shall not bind the
Company in contravention of any such rules, regulations, instructions or
directives. EquiTrust Life shall not, however, upon reasonable prior notice
to the Company, be responsible for observing or obeying any rule, regulation,
instruction or directive of the Company, if in so doing, EquiTrust Life, in
the opinion of its counsel, would
1
<PAGE>
be in violation of any statute, rule or regulation promulgated by any
governmental authority with jurisdiction thereover.
1.5 REFERRAL OF COMMUNICATIONS. EquiTrust Life shall handle all
correspondence of a routine nature and other general functions necessary for
satisfactory administration of the Company's annuity contracts or insurance
policies and shall maintain files relative thereto. EquiTrust Life shall
immediately forward to the Company copies of all complaints and all attorney
letters or other communications notifying EquiTrust Life of threatened or
actual litigation against EquiTrust Life or the Company. The Company shall
forward to EquiTrust Life, immediately upon receipt, all complaints and
inquiries, and all attorney letters containing complaints received by the
Company but appropriate for EquiTrust Life response. EquiTrust Life will
dispatch responses within a reasonable period or as required by appropriate
law, whichever is sooner, and will copy the Company on such responses to all
complaints. The Company shall have an opportunity to review EquiTrust Life's
response to all attorney letters and EquiTrust Life will not mail or
otherwise transmit any such written responses to such attorney letters
without the prior written approval of the Company.
PART 2 - STANDARDS OF PERFORMANCE
2.1 LICENSURE. EquiTrust Life will be properly licensed with each state or
other jurisdiction as required.
2.2 GENERAL STANDARD. All services to be provided by EquiTrust Life under
this Agreement shall be performed in a professional manner consistent with
reasonable industry standards consistent with the maintenance of an "A" or
better rating as determined by A.M. Best Company and in accordance with all
applicable laws and regulations.
2.3 RESERVATION OF MANAGEMENT AUTHORITY. Services as are rendered by
EquiTrust Life hereunder are subject to the express limitation that they
shall in no way constitute a relinquishment of the management responsibility
of the Company, which shall not be relieved of any obligation or liability to
which it would otherwise be subject by law as a result of these services
being rendered. The Company retains ultimate and final authority to
underwrite, issue policies, arrange reinsurance or otherwise service the
policies as set forth in Schedule B. The authority granted and delegated in
Schedule B can be amended or removed pursuant to section 3.2 in the sole
discretion of the Company.
PART 3 - EFFECTIVE DATE, TERM; TERMINATION
3.1 EFFECTIVE DATE; TERM. This Agreement shall become and be effective on and
as of January 1, 2000, and, unless sooner terminated pursuant to Section 3.2
hereof, shall thereafter continue in full force and effect until December 31,
2004 (the "Initial Term"); provided, however, upon written notice to
EquiTrust Life on or before December 31, 2002, the Company, at its sole
option, may elect to extend the Initial Term to December 31, 2009; and
provided further, however, after the Initial Term, this Agreement, and all of
its terms and provisions, as the same may have previously been amended by the
parties, shall be automatically renewed and reconducted for successive six
month renewal terms unless one party shall, not less than 90 days prior to
the conclusion of the Initial Term or any renewed term, advise the other
party in writing of its intent that this Agreement terminate as of the
conclusion of any such term.
3.2 TERMINATION: After the conclusion of the Initial Term or any renewed or
extended term, this Agreement may be terminated:
2
<PAGE>
a. by either party with respect to new business, upon 90 days prior written
notice to the other party;
b. by the Company with respect to business in force, upon 90 days prior
written notice to EquiTrust Life;
c. by the Company, with respect to new business and/or business in force, upon
written notice to EquiTrust Life in the event of the bankruptcy or
insolvency of EquiTrust Life; or
d. by either party upon prior written notice to the other party specifying the
other party's breach or default in the performance of any material covenant
or obligation of this Agreement and failure to cure or remedy such breach
or non-performance within 30 days of the date on which notice of such
breach or default is received, or such longer period as may be permitted by
the party giving notice.
Prior to the completion of the Initial Term of this Agreement, this Agreement
may be terminated only for the reasons stated in subparagraphs "c" and "d"
above, or by the express written agreement of the parties.
3.4 RIGHTS AND OBLIGATIONS UPON TERMINATION. Upon the termination of this
Agreement, EquiTrust Life shall supply the Company with copies of claims and
policy administration documents and all information necessary to administer
the business covered by this Agreement, including data on magnetic media.
PART 4 - INDEMNIFICATION
4.1 MUTUAL INDEMNIFICATION. EquiTrust Life agrees to indemnify and hold the
Company harmless from any liability, damages or losses which the Company may
incur as a result of any claims, actions or judgments, negligent or
intentional, in connection with EquiTrust Life's provision of services to the
Company; provided, however, EquiTrust Life shall not be responsible for
decisions made by the Company or for actions as directed by the Company in
writing. The Company similarly agrees to indemnify and hold EquiTrust Life
harmless for decisions made by the Company or actions as directed by the
Company in writing. Each party warrants to the other that its services and
obligations as performed under this Agreement, including, but not limited to
the materials used therein, will not infringe upon the proprietary interests
or rights of third parties and each party will further indemnify, hold
harmless and defend the other party, its directors, officers, agents and
employees, against any infringement liability, claim or action as a result of
the actions of the indemnifying party.
4.2 NOTICE OF CLAIM. If any claim is made by a party which would give rise to
a right of indemnification under Section 4.1, the party entitled to
indemnification (the "Indemnified Party") promptly will give notice of the
claim to the party required to provide indemnification (the "Indemnifying
Party"). The Indemnified Party will permit the Indemnifying Party to
participate in such defense at the Indemnifying Party's expense. The
Indemnifying Party will not, in the defense of any such claim or litigation,
consent to entry or any judgment or enter into any settlement without the
written consent of the Indemnified Party which will not be withheld
unreasonably. The Indemnified Party shall cooperate fully with the
Indemnifying Party and make available to the Indemnifying Party all pertinent
information under its control relating thereto.
3
<PAGE>
PART 5 - GENERAL PROVISIONS
5.1 AUTHORIZED OFFICERS. The Company authorizes each of its officers
identified in Schedule D, attached hereto and incorporated herein by
reference (hereinafter referred to as "Authorized Officers"), within the
scope of the officers' authority as described in Schedule D, to: (i)
coordinate communications with EquiTrust Life with respect to this Agreement;
(ii) provide to EquiTrust Life written requests and instructions with respect
to the services provided for herein; and (iii) clarify with EquiTrust Life
the specific scope and timing of records maintained, reports prepared and
other services performed by EquiTrust Life. The Company authorizes its
Executive Vice President, any of its Senior Vice Presidents, and its General
Counsel ("Executive Officers") to agree in writing with EquiTrust Life on
changes in the compensation payable by the Company to EquiTrust Life to
reflect changes in the scope and timing of the services. If EquiTrust Life
receives any letter or other writing from an Executive Officer of the Company
authorizing an officer of the Company to sign documents on behalf of the
Company, then such officer shall be considered an Authorized Officer for
purposes of this Agreement and Schedule D shall be considered amended
accordingly. The Company may amend Schedule D from time to time by giving
notice to EquiTrust Life of the amendment.
5.2 CONFIDENTIAL INFORMATION. In performing the obligations arising under
this Agreement, each party may have access to and receive disclosure of
certain confidential or proprietary information of the other party
(hereinafter "Confidential Information"). Each party shall take all
reasonable steps necessary to protect the confidential and proprietary nature
of all Confidential Information of the other party by affording thereto the
same types of protection which the party in possession of Confidential
Information of the other party affords its own confidential and proprietary
information. Except as provided in this Agreement or as reasonably required
to perform the services referenced herein, neither party shall, directly or
indirectly, disclose or make available to any third party, or use for any
purpose, any Confidential Information belonging to the other party except as
may be required by law. Notwithstanding the foregoing, Confidential
Information shall not include: (i) any information which is or becomes
generally available to the public or the insurance industry, other than as a
result of a breach of this Agreement by the party obtaining the Confidential
Information; (ii) any information which is lawfully obtained by the party
from a third party, provided that the third party is not, to the knowledge of
the party obtaining the information, bound by a nondisclosure agreement with
respect thereto; or (iii) any information which subsequently develops from
independent sources.
5.3 COMPANY PROPERTY. All contract and policy forms, records and supplies
furnished by the Company to EquiTrust Life, shall remain the property of the
Company and shall be turned over to the Company promptly on demand. All other
contract and policy forms or other supplies, and all underwriting files or
other files pertaining to an annuitant's or insured's coverage, whether
retained by the Company or EquiTrust Life, shall be copied upon request and
said copies provided to the other party at the expense of the requesting
party. All licenses and other materials relating to government licensing or
authorizations of the Company with respect to this Agreement shall be and
remain the property of the Company and shall be turned over to the Company by
EquiTrust Life promptly upon demand.
5.4 INSPECTION OF BOOKS AND RECORDS. The Company, or others on its behalf,
shall have the right at any reasonable time to inspect all books and
documents relating to the business administered under this Agreement.
EquiTrust Life shall provide any and all information
4
<PAGE>
concerning the business administered hereunder required in order to administer
this Agreement and to permit the Company to comply with governmental
regulations, examinations, audits and inspections.
5.5 EQUITRUST LIFE AUTHORITY. EquiTrust Life expressly represents and
warrants that it has the authority to enter into this Agreement and that it
is not or will not be, by virtue of entering into this Agreement or
otherwise, in breach of any other agreement with any other insurance company,
association, firm, person or corporation.
5.6 COMPANY AUTHORITY. The officer signing this Agreement on behalf of the
Company and EquiTrust Life represent and warrant that they are authorized to
execute this document on behalf of such corporations pursuant to their bylaws
or a resolution of their boards of directors.
5.7 INDEPENDENT CONTRACTOR. EquiTrust Life is an independent contractor.
Nothing contained in this Agreement shall be construed to create the
relationship of employer and employee between the Company and EquiTrust Life,
nor shall EquiTrust Life's employees be considered employees of the Company
for any purposes.
5.8 ARBITRATION. In the event of any dispute arising between EquiTrust Life
and the Company with reference to the rights or liabilities of either party
under this Agreement, the dispute shall be referred to three arbitrators
(other than present or former officers or employees of EquiTrust Life, the
Company, any affiliated company or any company with a monetary interest in
the dispute) familiar with the business of insurance. One of the arbitrators
shall be chosen by EquiTrust Life, another by the Company and a third by the
first two. The decision of the arbitrators shall be binding and final. The
standards to be used in the proceedings will be the Commercial Arbitration
Rules of the American Arbitration Association. Each party shall initially pay
the costs and fees of the arbitrator it selects, and the costs and fees of
the third arbitrator shall be divided equally by the parties; PROVIDED,
HOWEVER, that the prevailing party in any arbitration proceeding conducted
pursuant to this Section shall be entitled to recover from the other party
any costs or expenses incurred by the prevailing party in connection with the
arbitration, including the fees of arbitrators and the reasonable fees of
attorneys, actuaries, accountants and other experts.
5.9 ASSIGNMENT. Neither party may assign or delegate all or any part of its
rights and duties under this Agreement without the prior written consent of
the other party.
5.10 NON-WAIVER. The waiver of any breach of any term, covenant or condition of
this Agreement shall not be deemed a waiver of any subsequent breach of the same
or any other term, covenant or condition. No term, covenant or condition of this
Agreement shall be deemed to have been waived unless such waiver is in writing
and signed by the party charged therewith.
5
<PAGE>
5.11 NOTICES. Any notice required or permitted under this Agreement shall be
deemed sufficiently given and effective five (5) business days after deposit
with the United States Postal Service, postage-prepaid, registered or certified,
return-receipt-requested, by facsimile or other electronic transmission, or upon
receipt if delivered personally. Such notice shall be directed as follows:
EQUITRUST LIFE INSURANCE SOUTHERN FARM BUREAU LIFE
COMPANY INSURANCE COMPANY
Attn.: William J. Oddy Attn.: Executive Vice President,
Executive Vice President Chief Executive Officer
and General Manager 1401 Livingston Lane
5400 University Avenue Jackson, Mississippi 39213
West Des Moines, Iowa 50266
5.12 TITLES AND HEADINGS. The titles and headings appearing in this Agreement
are included for convenience only and shall not be taken into account in the
interpretation, construction or application of this Agreement.
5.13 AMENDMENT. Any amendment to this Agreement shall be in writing and signed
by authorized representatives of both parties.
5.14 ENTIRE AGREEMENT. This Agreement, together with the several Schedules
appended hereto and incorporated herein, constitutes the entire agreement
between the parties relative to the subject matter hereof, superseding any and
all prior understandings or agreements between the parties and any subsidiary,
parent or affiliated company and may not be amended except by written instrument
executed by the parties.
IN WITNESS WHEREOF, EquiTrust Life and the Company have caused this Agreement
to be subscribed and executed, in triplicate original, by their undersigned
officers, duly authorized hereunto, on the dates hereinafter indicated.
EQUITRUST LIFE INSURANCE COMPANY SOUTHERN FARM BUREAU LIFE
INSURANCE COMPANY
By:________________________________ By:________________________________
William J. Oddy
Executive Vice President and
General Manager
Date:_______________________ Date:_______________________
6
<PAGE>
SCHEDULE A
------
SCHEDULE OF CONTRACTS, POLICY FORMS AND RIDERS
------
<TABLE>
<CAPTION>
Description Policy Number
- -------------------------------------------------------------------------------
<S> <C>
- -Variable Products folder 43X-001
- -Variable Products brochure 43X-002
- -Variable Annuity guide 43X-003
- -Variable Annuity Prospectus 43X-007
- -Annuity Buyers Guide (if required) 43X-018
- -Non-Participating Flexible Premium 43X-062
Deferred Variable Annuity
- -Beneficiary Designation form 43X-064
- -IRA Disclosure Statement 43X-085
- -Roth IRA Disclosure Statement 43X-085R
- -Simple IRA Disclosure Statement 43X-085S
- -Variable Annuity Application form 43X-121
- -Systematic Withdrawal/DCA Service form 43X-129
- -Settlement Election form 43X-130
- -Texas - special complaint notice 43X-174
- -Replacement Notice (if required by state) 43X-176XX
- -Guaranty Association Notice (if required by state) 43X-177XX
- -EFT Notice 43X-279
- -Policy Service Request Form 43X-279
- -Variable Policyowner Service Request 43X-289
- -Beneficiary Statement 43X-341
- -Amendment of Application 43X-358
- -403(b) Annuity Endorsement 43X-531
- -IRA Endorsement 43X-550
- -Qualified Plan Endorsement 43X-551
- -Roth IRA Endorsement plus Texas variation 43X-553
- -SIMPLE IRA Endorsement 43X-554
- -Lost Policy Certificate 43X-566
- -Settlement Options 43X-585
- -Statement of Values 43X-821
- -Statement of Values 43X-822
- -Absolute Assignment 43X-830
- -Request for transfer 43X-832
</TABLE>
7
<PAGE>
SCHEDULE B
------
DESCRIPTION OF SERVICES
------
1. NEW BUSINESS
EquiTrust Life shall:
(a) Receive all premiums and applications, and shall date stamp and
process those applications promptly.
(b) Verify that agency and agent licenses are in place according to data
provided by the Company.
(c) Maintain all written communication pertinent to the application.
2. UNDERWRITING AND POLICY ISSUE
EquiTrust Life shall:
(a) Prepare a systems master file.
(b) Underwrite all applications.
(c) Create policy and data pages.
(d) Verify that policies are issued as applied for or amended.
(e) Mail, via Regular United States Postal Service, policies to owner
and/or broker/dealer in accordance with the Company's placement.
(f) Create a policyholder file.
3. POLICYHOLDER SERVICE
EquiTrust Life shall:
(a) Maintain policyholder records (computer, hard copy, microfilm or image
system as applicable).
(b) Record all policy services changes on master file.
(c) Receive and respond to requests, complaints and inquiries from
policyholder, and other authorized people in accordance with the
Company's complaint procedures, subject to the provisions set forth
in part 1 Section 1.5.
(d) Maintain all written material reflecting system changes.
(e) Receive and process all disbursement requests with confirmations to
policyholder and broker/dealer in accordance with agreed upon
procedures.
(f) Calculate and collect fees and taxes as applicable.
(g) Receive and process policyholder service requests.
(h) Receive and process policyholder requests for settlement/annuity
options.
(i) Prepare periodic and non-periodic disbursement payments by check to
policyholders or designated payees and deliver in accordance with
agreed upon procedures.
8
<PAGE>
(j) Withhold and report federal and state income tax as required.
(k) Record and acknowledge assignments of ownership and collateral.
(l) Produce and mail periodic statements of account to policyholders.
(m) Prepare and mail tax forms to policyholders and other payees as
required by law.
4. CLAIMS PROCESSING
The Company shall advise and instruct EquiTrust Life in writing
concerning disputed claims and policy interpretations brought to the
attention of the Company by EquiTrust Life. In the event a Claimant's file is
to be sent to the Company for review, the original copy of that file shall be
retained by EquiTrust Life unless requested by the Company.
EquiTrust Life shall:
(a) Withhold and report federal and state income tax as required.
(b) Fulfill state requirements for Tax Notices and Consents in the
payment of claims.
(c) Include statutory interest on the payment of claims when applicable.
(d) Abide by the applicable state Unfair Claim Settlement Practices
regulations.
(e) Receive and respond to complaints in accordance with the Company's
complaint procedures as set forth in part 1 Section 1.5.
5. AGENCY/AGENT SERVICES
EquiTrust Life shall:
(a) Prepare and transmit to the Company daily production data and
commission information.
(b) Prepare and transmit to the Company tax information for
broker/dealer or other payees as required by law.
(c) Carry sufficient information on registered representatives of the
broker so that proper identification of business issued can be
appropriately credited.
6. COLLECTION AND DISPOSITION OF FUNDS
(a) EquiTrust Life shall act on behalf of the Company in collecting and
receiving funds from insureds, reinsurers, agents and brokers/dealers.
All funds so received and collected shall be deposited promptly in a
bank account for the Company and established by the Company, separate
and apart from any funds belonging to EquiTrust Life or third parties.
(b) The Company shall grant EquiTrust Life authority to disburse funds
from such bank account for the following purposes:
1. Payment of commissions to broker.
2. Payment of return premiums.
3. Payment to the Company of net due to the Company.
4. Payment of fees to EquiTrust Life pursuant to the Settlement
Information section below and Schedule C.
5. Payment of policy proceeds including, but not limited to,
surrenders and claims.
9
<PAGE>
6. Remit Federal and State policyholder benefit withholding to the
Company for distribution to the proper authorities.
EquiTrust Life shall not disburse funds from the account for any other reason
without written authorization from the Company.
EquiTrust Life shall monitor the account balance on an as needed basis,
determine daily funding needs and communicate deposit requests to the
Company. When requested by EquiTrust Life, the Company shall deposit funds in
amounts sufficient to maintain a minimum balance in the account. It shall be
the responsibility of the Company to make deposits on a timely basis.
7. SETTLEMENT INFORMATION
(a) Within 10 business days after the end of each quarter, EquiTrust Life
shall report to the Company the net due to or from the Company; and the
prior quarter's activity shall be reconciled by EquiTrust Life.
(b) EquiTrust Life shall provide service reports to the Company, including
but not limited to the following reports:
1. Check Register.
2. Premiums and commissions on a year-to-date basis, broken down by first
year and renewals.
3. Benefits including but not limited to: surrender, annuitization or
death.
4. Statutory tax information.
5. Standard production or Marketing Reports as agreed upon.
MONTHLY
(1) Commissions Payable.
(2) A reconciliation between what flowed through bank account
vs. what was reported.
(3) Pending Premium Report.
QUARTERLY
(1) Premiums by State.
(2) Agents' Debit Balances.
(3) Interest Credited.
(4) Reserve Report.
(5) Reconciliation Report (Reinsurance)
ANNUALLY
(1) Surrenders by State.
(2) Death Claims by State.
(3) Any other Policyholder Benefits Paid by State.
(4) Policy Exhibit by State Information.
(5) Death Claim counts by State.
10
<PAGE>
8. OTHER SERVICES
EquiTrust Life shall:
(a) Reconcile bank statements and cash accounts on a monthly basis.
(b) Furnish to the Company all applicable data necessary for preparation of
the Company's NAIC Convention Blank and corporate tax return.
(c) Have Responsibility for compliance with all statutory and regulatory
requirements with respect to services provided hereunder.
(d) Provide historical record retention in hard copy, microfilm or image as
applicable and in conformance with the Company's retention policy.
(e) Maintain off-site computer disaster recovery backup and recovery tapes on a
daily, weekly and monthly basis, with recovery time to mirror the
Company's rules.
(f) Provide statutory and tax reserve information, such as minimum death
benefits reserves, contingency reserves, ETC., and supporting detail, as
required by the Company.
(g) Support financial, administrative, claim, regulatory and data processing
audit reviews in accordance with guidelines agreed to with the Company.
(h) Process special mailings and/or mailing inserts as reasonably required.
(i) To the extent not specifically provided for herein, EquiTrust Life will
provide such services as are necessary to allow the Company to comply with
its obligations under the Variable Annuity Reinsurance Agreement with
EquiTrust Life Insurance Company.
The Company will notify EquiTrust Life in writing and, likewise,
EquiTrust Life will notify the Company in writing, if there are any
changes in federal, state or local law, rules or regulations which
affect the services provided to the Company under this Agreement.
EquiTrust Life will develop and implement the necessary changes and take
other actions reasonably required so that the services continue to
satisfy applicable laws, rules and regulations. The Company may request
in writing system changes not required by law, rule or regulation.
EquiTrust Life will use its best effort to develop and implement these
changes where the changes are practical and feasible at a pre-agreed
upon cost.
11
<PAGE>
SCHEDULE C
----------
EXPENSES
----------
1. INITIAL CHARGES: There shall be a one time charge of $75,000 for the
development and implementation of the variable annuity product. This amount
shall be paid no later than the execution date of this Agreement.
2. ONGOING CHARGES: Acquisition and maintenance charges related to the variable
annuity contract will be charged as follows:
<TABLE>
<CAPTION>
VARIABLE
CHARGES AND FEES ANNUITY
--------
<S> <C>
Acquisition charge per application $108
Annual maintenance fee per policy $53
</TABLE>
ACQUISITION CHARGES AND MAINTENANCE FEES
Acquisition charges apply to new applications. The maintenance fee is charged
quarterly on the number of policies in force each quarter. The number of
policies in force each quarter will be equal to half of the sum of the number of
policies in force at the end of the prior quarter and the number in force on the
last day of the current quarter.
MAXIMUM ANNUAL ACQUISITION CHARGES AND MAINTENANCE FEES
If the Company issues at least the cumulative number of policies, as shown
in the following table, by the end of each of the first five calendar years
of this Agreement, then the annual per application acquisition charge and per
policy maintenance fee charged effective January 1 of the following year will
not be greater than charge and the fee shown in the table below. The policy
count would apply on a cumulative basis.
<TABLE>
<CAPTION>
YEAR CUMULATIVE
NO. OF POLICIES MAXIMUM ANNUAL MAXIMUM ANNUAL
ISSUED ACQUISITION CHARGE MAINTENANCE FEE
<S> <C> <C> <C>
2000 457 $105 $50
2001 1,656 $101 $46
2002 3,670 $98 $43
2003 6,314 $95 $40
2004 9,090 $95 $37
</TABLE>
12
<PAGE>
Charges and fees in this section are based on 1998 experience. Subject to the
Company qualifying for a cap on the maximum acquisition charge and/or annual
maintenance fee based on the number of policies issued each year, as shown
above, charges and fees will be adjusted annually, on April 1. If the Company
does not meet the requirements regarding the number of policies issued, as
shown above, the maintenance fee will be based on actual results for the year
ended the previous December 31. If new charges and fees are not mutually
agreed to in writing within ninety (90) days after the announcement of the
new charges and fees, the parties agree to resolve any dispute about the new
charges and fees by arbitration pursuant to section 5.8 of this Agreement.
After the Initial Term of this Agreement, if new charges and fees are not
mutually agreed to in writing within ninety (90) days after the date of
announcement of the new charges and fees, this Agreement will terminate.
SERVICES PROVIDED
These initial charges and fees are based on the cost of providing the
services described in Schedule B.
3. OTHER EXPENSES
Except for the following listed services which are specifically excluded from
this Agreement and which will be provided by EquiTrust Life and paid for
separately by the Company only upon the written request for these additional
services by the Company, it is the intent of the parties that EquiTrust Life
will provide such services necessary to allow the Company to comply with
its obligations under the Variable Annuity Reinsurance Agreement with
EquiTrust Life Insurance Company. Those types of services which are excluded
from this agreement are as follows:
1. Additional product development and pricing. Product development,
filing with the appropriate regulatory authorities and pricing for the
initial products are covered by the fees paid under section 1 of this
Schedule C.
2. Agency matters (including fees and costs associated with the
appointment of agents).
3. Commissions.
4. Designing and printing brochures, applications or any other printed
material utilized by the Company.
13
<PAGE>
5. Filing fees. Any fee incurred by EquiTrust Life related to the
services provided to the Company.
6. Certain claims settlement expenses such as outside legal fees and
expenses.
7. Advertising costs.
8. Video/CD/ other media development.
9. Providing training for Companies' agents/managers/employees.
10. Illustration modification, systems modification, diskette
distribution.
11. Any system modification requested by the Company.
12. Market research conducted for or on behalf of the Company.
13. Advanced underwriting/marketing.
14. Investment accounting
15. Outside legal expenses.
16. Taxes.
17. Software expenses.
18. Preparation of prospectuses.
Direct expenses for services that are not included under Schedule B and that
are provided pursuant to the Company's written request will be billed as
incurred and will be payable within 15 days of receipt.
14
<PAGE>
SCHEDULE D
----------
AUTHORIZED OFFICERS
----------
Executive Vice President
Senior Vice President
Vice President
Treasurer
Assistant Treasurer
Secretary
Assistant Secretary
15
<PAGE>
October 8, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form N-4 filed by Southern
Farm Bureau Life Insurance Company ("Company") and its Southern Farm Bureau
Life Variable Account with the Securities and Exchange Commission covering
certain variable annuity contracts (File Nos. 233-79865; 811-9371), I have
examined such documents and such law as I considered necessary and
appropriate, and on the basis of such examinations, it is my opinion that:
(1) The Company is duly organized and validly existing under the laws of the
State of Mississippi.
(2) The variable annuity contracts, when issued as contemplated by the said
Form N-4 Registration Statement will constitute legal, validly issued and
binding obligations of Southern Farm Bureau Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
N-4 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Statement of Additional Information contained in the
said Registration Statement. In giving this consent, I am not admitting that
I am in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933.
Very truly yours,
/s/ Joseph A. Purvis
Joseph A. Purvis
Vice President & General Counsel
Southern Farm Bureau Life Insurance Company
<PAGE>
Sutherland Asbill & Brennan LLP letterhead
October 8, 1999
Southern Farm Bureau Life Insurance Company
1401 Livingston Lave
Jackson, Mississippi 39213
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 Pre-Effective
Amendment No. 1 to the registration statement on Form N-4 for Southern Farm
Bureau Life Variable Account (File Nos. 333-79865; 811-9371). In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
/s/ Stephen E. Roth
Stephen E. Roth, Esq.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southern Farm Bureau Life Insurance Company:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Jackson, Mississippi
October 8, 1999
<PAGE>
October 8, 1999
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, Mississippi 39213
Gentlemen:
This opinion is furnished in connection with the registration by Southern Farm
Bureau Life Insurance Company of a flexible premium deferred variable annuity
contract ("Contract") under the Securities Act of 1933, as amended. The
prospectus included in Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4 describes the Contract. I have provided actuarial advice
concerning the preparation of the contract form described in the Registration
Statement, and I am familiar with the Registration Statement and exhibits
thereto.
It is my professional opinion that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred and the risks assumed by the insurance
company.
I hereby consent to the use of this opinion as an exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement.
Sincerely,
/s/ Kenneth P. Johnson
Kenneth P. Johnson, FSA, MAAA
Vice President, Product Development
Southern Farm Bureau Life Insurance Company
<PAGE>
POWER OF ATTORNEY
The undersigned director or officer of Southern Farm Bureau Life Insurance
Company (the "Company"), a Mississippi corporation, hereby makes, constitutes,
and appoints the Executive Vice President, any Senior Vice President, and the
General Counsel of the Company, and each of them (with full power to each of
them to act alone), as his true and lawful attorney-in-fact and agent with full
power of substitution to each, for him and on his behalf and in his name, place
and stead:
(1) to sign and cause to be filed with the Securities and Exchange Commission,
a registration statement on Form N-4 under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, in connection
with the registration of certain variable annuity contracts issued by the
Company through Southern Farm Bureau Life Annuity Account, a separate
account established by the Company;
(2) to sign and cause to be filed with the Securities and Exchange Commission
any and all amendments and supplements to such registration statement;
(3) to withdraw such registration statement, amendments, or supplements; and
(4) to take any and all other actions of whatever kind or nature in connection
with such registration statement, amendments or supplements which said
attorneys-in-fact may deem necessary, appropriate or advisable, including,
but not limited to, providing any certifications or exhibits, making any
requests for acceleration, and signing and causing to be filed any
applications for exemption from provisions of the Federal securities laws.
The undersigned hereby ratifies and confirms all actions of any of said
attorneys-in-fact hereunder. The actions of each of the attorneys-in-fact shall
bind the undersigned as fully as if all of the attorneys-in-fact had acted
together.
IN WITNESS WHEREOF, the undersigned has hereto set his hand on this the _______
day of ________________________, __________.
Signature:
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Printed Name:
-------------------------------------------
Title:
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<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
DIRECTORS OR OFFICERS - POWERS OF ATTORNEY
RE: SECURITIES AND EXCHANGE COMMISSION
NAME TITLE DATE EXECUTED
/s/ Anderson, Ronald R. Director 05/17/99
/s/ Bass, James C. Director 06/29/99
/s/ Carter, James R. Director 05/19/99
/s/ Coyle, Marshall Director 06/29/99
/s/ Childs, Donald Director 05/18/99
/s/ Dollar, Wayne Director and
First Vice President 05/17/99
/s/ Gramling, II, Ben M. Director 05/18/99
/s/ Hiatt, Bruce L. Director 05/17/99
/s/ Hillman, David Director 05/18/99
/s/ Jenkins, William B. Director 05/17/99
/s/ Loop, Jr., Carl B. Chairman of the Board
and President 05/17/99
/s/ Mitchell, Bryan Director 05/18/99
/s/ Moore, Sam Director 05/17/99
/s/ Patman, Donald Director 05/18/99
/s/ Pryor, Wayne F. Director 05/19/99
/s/ Stallman, Bob Director 05/17/99
/s/ Waide, David W. Director 05/17/99
/s/ Whisenhunt, Andrew Director 05/17/99
/s/ Winkles, Jr., David M. Director 05/17/99
/s/ Wright, Jr., J. M. Director 05/18/99
/s/ Nolin Cook Senior Vice President
and Secretary 06/01/99
/s/ Laurence E. Farreau Senior Vice President,
Chief Financial Officer 06/01/99
/s/ Bobby Waters Executive Vice President,
Chief Executive Officer 06/01/99
