<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2000
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.
POST-EFFECTIVE AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
---------------------
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
It is proposed that this filing will become effective (check appropriate
box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485;
/X/ on May 1, 2000 pursuant to paragraph (b) of Rule 485;
/ / days after filing pursuant to paragraph (a) of Rule 485;
/ / on (date) pursuant to paragraph (a) of Rule 485.
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<PAGE>
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SOUTHERN FARM BUREAU LIFE VARIABLE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACT
------------------------------------------------------------------------
PROSPECTUS
May 1, 2000
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.
The Statement of Additional Information (SAI) has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. The SEC
maintains a website (HTTP:// WWW.SEC.GOV) that contains the SAI, material
incorporated by reference into this prospectus and other information filed
electronically with the SEC.
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
CONDENSED FINANCIAL INFORMATION............................. 11
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..... 14
DESCRIPTION OF ANNUITY CONTRACT............................. 14
Issuance of a Contract................................ 14
Premiums.............................................. 15
Free-Look Period...................................... 15
Allocation of Premiums................................ 15
Variable Accumulated Value............................ 16
Transfer Privilege.................................... 17
Partial Withdrawals and Surrenders.................... 17
Special Transfer and Withdrawal Options............... 18
Death Benefit Before the Retirement Date.............. 19
Death Benefit After the Retirement Date............... 20
Proceeds on the Retirement Date....................... 20
Payments.............................................. 21
Modification.......................................... 21
Reports to Owners..................................... 21
Inquiries............................................. 22
THE DECLARED INTEREST OPTION................................ 22
Minimum Guaranteed and Current Interest Rates......... 22
Transfers From Declared Interest Option............... 23
Payment Deferral...................................... 23
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............................ 25
Premium Taxes......................................... 25
Other Taxes........................................... 25
PAYMENT OPTIONS............................................. 25
Election of Options................................... 25
Description of Options................................ 26
YIELDS AND TOTAL RETURNS.................................... 26
FEDERAL TAX MATTERS......................................... 28
Introduction.......................................... 28
Tax Status of the Contract............................ 28
Taxation of Annuities................................. 29
Transfers, Assignments or Exchanges of a Contract..... 31
Withholding........................................... 31
Multiple Contracts.................................... 32
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Taxation of Qualified Plans........................... 32
Possible Charge for the Company's Taxes............... 34
Other Tax Consequences................................ 34
DISTRIBUTION OF THE CONTRACTS............................... 34
LEGAL PROCEEDINGS........................................... 35
VOTING RIGHTS............................................... 35
FINANCIAL STATEMENTS........................................ 35
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS....... SAI-TOC
</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
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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: (1) any period when the Securities and Exchange Commission determines
that an emergency exists which makes it impracticable for a Fund to dispose of
its securities or to fairly determine the value of its net assets; or (2) such
other periods as the Securities and Exchange Commission may permit for the
protection of security holders of a Fund.
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 or
agreements, 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(a),
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>
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.
* Under certain circumstances, a Surrender Charge may apply on the
Retirement Date. See "CHARGES AND DEDUCTIONS--Surrender Charge
(Contingent Deferred Sales Charge)--SURRENDER CHARGE AT THE RETIREMENT
DATE.")
<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 after
waivers or reimbursements)
<TABLE>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
<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 0.58% 0.08% 0.66%(2)
VIP High Income Portfolio 0.58% 0.11% 0.69%
VIP Overseas Portfolio 0.73% 0.18% 0.91%(2)
VIP Contrafund Portfolio 0.58% 0.09% 0.67%(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. The amounts shown in the table do not
include these reductions. Including these reductions, the total
Investment Option operating expenses presented in the preceding table
would have been: Growth 0.65%, Overseas 0.87% and Contrafund 0.65%.
(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, 1999, as a percentage of the Index 500
Investment Option's average net assets would have been 0.34%. The
investment adviser may terminate this reimbursement arrangement at any
time.
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, 1999. 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>
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 116 203 290 534
VIP High Income Portfolio 116 204 292 538
VIP Overseas Portfolio 118 209 301 557
VIP Contrafund Portfolio 115 203 290 534
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>
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 51 154 260 534
VIP High Income Portfolio 51 155 262 538
VIP Overseas Portfolio 53 161 271 557
VIP Contrafund Portfolio 51 154 260 534
VIP Index 500 Portfolio 47 143 241 496
</TABLE>
Expenses assume that current fee waivers and expense reimbursement arrangements
for the Funds continue for the periods shown.
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"). A
Partial Withdrawal may have tax consequences. (See "FEDERAL TAX MATTERS.")
SURRENDER. You may surrender your Contract upon Written Notice on or before
the Retirement Date (see "DESCRIPTION OF ANNUITY CONTRACT--Partial Withdrawals
and
9
<PAGE>
Surrenders--SURRENDERS"). A Surrender may have tax consequences. (See "FEDERAL
TAX MATTERS.")
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
greater, or
- if you have a Net Accumulated Value of $50,000 or greater 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
The Contract's earnings are generally not taxed until you take a distribution.
If you are under age 59 1/2 when you take a distribution, the earnings may
also be subject to a penalty tax. Different tax consequences apply to
distributions from Qualified Contracts. (See "FEDERAL TAX MATTERS.")
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The Account commenced operations on November 3, 1999; however, no premiums
were received until February 7, 2000.
- --------------------------------------------------------------------------------
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
11
<PAGE>
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.
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 Portfolio - This Portfolio seeks to provide substantial dividend
income 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
investment adviser defines mid-cap companies as those
whose market capitalization falls within the range of
companies in the Standard & Poor's Mid-Cap 400 Index.
T. Rowe Price Personal Strategy - This Portfolio seeks the highest total return over time
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 Bond - This Portfolio seeks a high level of income consistent
Portfolio with moderate fluctuations in principal value.
T. Rowe Price Prime Reserve Portfolio - This Portfolio seeks preservation of capital and
liquidity and, consistent with these, the highest
possible current income. This Portfolio invests in
high-quality U.S. dollar-denominated money market
securities.
</TABLE>
12
<PAGE>
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 Portfolio - This Portfolio seeks a high level of current income and
growth of capital by investing primarily in
income-producing bonds, preferred stocks and convertible
securities, with an emphasis on lower-quality debt
securities.
Fidelity VIP Overseas Portfolio - This Portfolio seeks long-term growth of capital by
investing primarily in foreign securities. The Portfolio
defines foreign securities as securities of issuers whose
principal activities are located outside the United
States. Normally, at least 65% of the Portfolio's total
assets will be invested in foreign securities. The
Portfolio may also invest in U.S. issuers.
Fidelity VIP Contrafund Portfolio - This Portfolio seeks capital appreciation by investing in
securities of companies whose value the adviser believes
is not fully recognized by the public. The Portfolio
normally invests primarily in common stocks and
securities convertible into common stock, but it has the
flexibility to invest in other types of securities.
Fidelity VIP Index 500 Portfolio - This Portfolio seeks to provide investment results that
correspond to the total return of a broad range of common
stocks publicly traded in the United States. To achieve
this objective, the Portfolio attempts to duplicate the
composition and total return of the S&P 500.
</TABLE>
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).
13
<PAGE>
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 Funds by the SEC.
- --------------------------------------------------------------------------------
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.
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.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANNUITY CONTRACT
- --------------------------------------------------------------------------------
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.
14
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 provide for 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.
- --------------------------------------------------------------------------------
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
15
<PAGE>
periodically review your premium allocation schedule in light of market
conditions and your overall financial objectives.
- --------------------------------------------------------------------------------
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
- 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.
16
<PAGE>
- --------------------------------------------------------------------------------
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 based on the net asset value
next determined after we receive 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.
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.
- --------------------------------------------------------------------------------
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 net asset value next
determined after we receive 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.
17
<PAGE>
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 net asset value next determined after we receive 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 "FEDERAL TAX MATTERS--Taxation of Annuities," and "--Taxation
of Qualified Contracts.")
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN TYPES OF CONTRACTS. Surrenders
and partial withdrawals of Qualified Contracts are subject to certain
restrictions. (See "FEDERAL TAX MATTERS--Taxation of Qualified Contracts.")
- --------------------------------------------------------------------------------
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.
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.
18
<PAGE>
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.
- --------------------------------------------------------------------------------
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
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),
19
<PAGE>
- 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
- 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
20
<PAGE>
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.
- --------------------------------------------------------------------------------
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.
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
21
<PAGE>
- --------------------------------------------------------------------------------
INQUIRIES
You may contact the Company in writing at our Administrative Office if you
have any questions regarding your Contract.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
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%).
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
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.
- --------------------------------------------------------------------------------
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
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<PAGE>
- interest credited, less
- amounts deducted, transferred or withdrawn.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
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 CHARGE AS PERCENTAGE OF
SURRENDER 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
23
<PAGE>
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. We may assess a Surrender Charge
against your Accumulated Value at the Retirement Date. 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 greater, or
- upon a Net Accumulated Value of $50,000 or greater 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 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
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<PAGE>
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 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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<PAGE>
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FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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 payout
option elected under an annuity contract, a portion of each annuity payment
is generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow you to recover your investment in the
Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once your investment in
the Contract has been fully recovered, however, the full amount of each
annuity payment is subject to tax as ordinary income.
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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;
- 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. The Owner generally can elect not
to have withholding apply.
Eligible rollover distributions from section 401(a) plans section 403(a)
annuities 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
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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 CONTRACTS
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) and 403(b), 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
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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 amount of compensation
includible in the owner's 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 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 conversion 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. Such conversions are subject to a 10% penalty tax
if they are distributed before five years have passed since the year of the
conversion. 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
33
<PAGE>
- 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.
- --------------------------------------------------------------------------------
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. ("NASD").
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."
Under the Public Disclosure Program, NASD Regulation ("NASDR") provides
certain information regarding the disciplinary history of NASD member
broker-dealers and their associated persons in response to written,
electronic or telephonic inquiries. NASDR's toll-free Public Disclosure
Program
34
<PAGE>
Hotline telephone number is 1-800-289-9999 and their Web site address is
www.nasdr.com. An investor brochure that includes information describing the
Public Disclosure Program is available from NASDR.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company, like other life insurance companies, is involved in lawsuits.
Currently, there is one class action lawsuit naming the Company as a
defendant, but it does not involve the Account. The Company has entered into
a Stipulation of Settlement in the class action lawsuit, 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.
In some lawsuits involving other insurers, substantial damages have been
sought and/or material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with certainty, the Company
believes that at the present time, there are no pending or threatened
lawsuits that are reasonably likely to have a material adverse impact on the
Account or the Company.
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited statutory statements of admitted assets, liabilities and
stockholders' equity of the Company as of December 31, 1999 and 1998, 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, 1999, 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 no assets and incurred no liabilities as of December 31,
1999.
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
INDEPENDENT ACCOUNTANTS.................................................. 5
OTHER INFORMATION........................................................ 6
FINANCIAL STATEMENTS..................................................... 6
</TABLE>
SAI-TOC
<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
- -------------------------------------------------------------------------------
<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.
May 1, 2000
<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
INDEPENDENT ACCOUNTANTS.................................................... 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 (see four columns under
"Investment Option" heading below). For purposes of calculating average
annual total return, an average annual administrative fee per dollar of
Contract value is used. The calculation also assumes
3
<PAGE>
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 following chart provides the adjusted historic average annual total
return information for the Subaccounts.
<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 12/31/99 12/31/99 12/31/99 TO 12/31/99
<S> <C> <C> <C> <C>
T. Rowe Price Series, Inc.
T. Rowe Price Equity Income Portfolio(1) (5.12)% 16.21% -- 15.14%
T. Rowe Price Mid-Cap Growth Portfolio(2) 13.53 -- -- 17.84
T. Rowe Price Personal Strategy Balanced
Portfolio(4) (0.76) 14.14 -- 13.91
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond Portfolio(3) (7.80) 3.22 -- 3.14
T. Rowe Price Prime Reserve Portfolio(2) (4.03) -- -- 1.36
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio(5) 27.24 27.40 18.24% 17.08
VIP High Income Portfolio(6) (1.00) 8.52 10.73 9.19
VIP Overseas Portfolio(7) 32.35 14.97 9.73 9.20
VIP Contrafund Portfolio(8) 14.05 -- -- 25.35
VIP Index 500 Portfolio(9) 10.50 25.79 -- 19.26
</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, General Counsel, and Secretary of the Company. Sutherland
Asbill & Brennan LLP, Washington D.C. has provided advice on certain matters
relating to the federal securities laws.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The statutory statements of admitted assets, liabilities and stockholders'
equity of the Company as of December 31, 1999 and 1998 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,
1999, and related financial statement schedules, appearing herein, have been
audited by KPMG 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998,
or the results of its operations or its cash flows for each of the years in the
three-year period ended December 31, 1999.
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, 1999 and
1998, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1999, 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 audit
of the basic statutory financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic statutory financial
statements taken as a whole.
KPMG LLP
April 26, 2000
Jackson, Mississippi
7
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds, at amortized cost (approximate fair value of
$3,788,282,615 in 1999 and $3,533,805,303 in 1998) $3,854,079,639 $3,431,897,156
Stocks:
Preferred stocks, at cost (approximate fair value of
$71,596,808 in 1999 and $79,801,240 in 1998) 56,309,533 71,814,049
Common stocks, generally at fair value (cost of
$260,132,621 in 1999 and $213,619,466 in 1998) 339,351,756 318,852,293
-------------- --------------
Total stocks 395,661,289 390,666,342
-------------- --------------
Mortgage and other loans 897,191,242 784,546,085
Real estate:
Home office property, at cost, less accumulated
depreciation of $14,779,270 in 1999 and $13,811,838 in
1998 17,991,945 18,959,377
Real estate held for investment, at cost, less
accumulated depreciation of $30,033,333 in 1999 and
$27,136,380 in 1998 84,141,499 86,891,105
-------------- --------------
Total real estate 102,133,444 105,850,482
-------------- --------------
Investment in subsidiaries 4,951,239 51,754,100
Partnership interests, at approximate equity in net assets 195,391,631 132,551,785
Short-term investments, at cost which approximates fair
value 129,319,406 118,756,829
Cash 9,586,388 8,497,319
Policy loans 318,952,460 318,037,334
-------------- --------------
Total investments 5,907,266,738 5,342,557,432
-------------- --------------
Premiums deferred and uncollected 69,358,823 64,648,786
Accrued investment income 78,212,285 69,804,186
Due from subsidiaries and other affiliates -- 5,966,173
Other receivables 8,214,425 7,235,048
-------------- --------------
$6,063,052,271 $5,490,211,625
============== ==============
</TABLE>
(continued)
8
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Aggregate reserves for all policies:
Life and annuity policies and contracts $4,570,830,028 $4,359,074,071
Accident and health contracts 21,000,331 18,362,622
Supplementary contracts 16,850,722 16,541,043
-------------- --------------
Total policy reserves 4,608,681,081 4,393,977,736
-------------- --------------
Policy and contract claims 15,900,592 13,473,216
Policyholders' funds:
Premiums received in advance 1,834,443 1,727,335
Funds on deposit 4,475,298 4,778,016
Accrued policy dividends 55,016,180 53,352,746
Dividends left on deposit 294,060,110 289,218,369
-------------- --------------
Total policyholders' funds 355,386,031 349,076,466
-------------- --------------
Pension plan administration funds 232,239,266 --
General liabilities:
Taxes, other than federal income taxes 1,837,322 1,971,802
Federal income taxes 17,030,737 11,724,668
Due to subsidiaries and other affiliates 1,009,283 --
Commissions 5,310,580 5,421,136
Notes payable 28,315,015 --
Accounts payable and other liabilities 62,294,372 44,537,498
-------------- --------------
Total general liabilities 115,797,309 63,655,104
-------------- --------------
Interest maintenance reserve 4,747,956 1,574,542
Asset valuation reserve 134,565,136 115,436,921
-------------- --------------
Total liabilities 5,467,317,371 4,937,193,985
-------------- --------------
Stockholders' equity:
Common stock of $100 par value. Authorized 20,000 shares;
issued and outstanding 15,000 shares 1,500,000 1,500,000
Additional paid-in capital 400,000 400,000
Unassigned surplus 593,834,900 551,117,640
-------------- --------------
Total stockholders' equity 595,734,900 553,017,640
-------------- --------------
$6,063,052,271 $5,490,211,625
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
9
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Premiums and other considerations:
Life premiums $348,281,260 $331,189,590 $314,927,656
Annuity premiums 181,558,622 172,009,262 215,817,937
Accident and health premiums 19,745,028 18,137,970 16,173,084
Supplementary contracts and dividend accumulations 35,628,154 42,235,814 39,382,248
Reserve adjustments on reinsurance ceded 21,369,091 -- --
Investment income, net of expenses of $32,020,884 in 1999,
$32,049,675 in 1998 and $29,341,149 in 1997 367,681,412 366,228,843 349,238,424
Other 456,053 681,237 609,435
------------ ------------ ------------
Total income 974,719,620 930,482,716 936,148,784
------------ ------------ ------------
Benefits and reserve changes:
Death benefits 87,686,517 73,326,829 72,994,836
Accident and health benefits 8,186,468 8,019,614 7,190,793
Surrender and other life insurance benefits 263,721,779 258,042,065 213,738,412
Annuity benefits 28,028,351 29,744,958 26,503,534
Net increase in aggregate reserves, certain funds on
deposit, and loading on deferred and uncollected
premiums 239,597,607 219,827,805 291,169,406
Interest on policy and contract funds 1,069,386 1,019,198 945,255
Payments on dividend accumulations and supplementary
contracts 46,822,835 44,873,650 43,804,449
------------ ------------ ------------
Total benefits and reserve changes 675,112,943 634,854,119 656,346,685
------------ ------------ ------------
Other operating expenses:
Commissions 53,457,322 51,354,641 54,675,690
General insurance expenses 76,472,469 74,661,182 76,928,424
Taxes, licenses and fees 11,999,098 12,300,466 11,467,132
------------ ------------ ------------
Total other operating expenses 141,928,889 138,316,289 143,071,246
------------ ------------ ------------
Earnings before policyholders' dividends, federal income
taxes and realized investment gains 157,677,788 157,312,308 136,730,853
Policyholders' dividends 53,269,970 51,640,910 50,166,848
------------ ------------ ------------
Earnings before federal income taxes and realized
investment gains 104,407,818 105,671,398 86,564,005
Federal income taxes 42,632,478 40,119,044 43,137,767
------------ ------------ ------------
Earnings before realized investment gains 61,775,340 65,552,354 43,426,238
Realized investment gains 63,767,085 27,736,157 60,725,757
Adjusted for:
Federal income taxes (24,400,801) (10,258,983) (21,987,458)
Transfer to interest maintenance reserve (5,475,929) (5,354,235) (7,694,113)
------------ ------------ ------------
Realized investment gains, net 33,890,355 12,122,939 31,044,186
------------ ------------ ------------
Net earnings $ 95,665,695 $ 77,675,293 $ 74,470,424
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
10
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN UNASSIGNED
STOCK CAPITAL SURPLUS
---------- ---------- --------------
<S> <C> <C> <C>
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 -- -- 95,665,695
Unrealized investment losses, net -- -- (28,521,645)
Change in equity of subsidiaries, net of
dividends received -- -- 447,139
Increase in asset valuation reserve -- -- (19,128,215)
Transfer of interest maintenance reserve from
subsidiary -- -- (489,947)
Increase in nonadmitted assets -- -- (5,109,817)
Cash dividends to stockholders -- -- (145,950)
---------- -------- ------------
Balance, December 31, 1999 $1,500,000 $400,000 $593,834,900
========== ======== ============
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
11
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
-----------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FROM OPERATIONS:
Premiums, annuity considerations, and
other fund deposits $ 534,502,883 $ 508,452,122 $ 533,894,168
Other premiums, considerations and
deposits collected 35,628,154 42,235,814 39,382,248
Reinsurance reserve adjustments
received on reinsurance ceded 9,188,030 8,285,999 7,666,445
Investment income received 351,247,945 350,056,509 335,489,929
Other income received 411,105 487,139 551,567
--------------- --------------- ---------------
930,978,117 909,517,583 916,984,357
--------------- --------------- ---------------
Life and accident and health claims
paid (94,714,531) (82,227,716) (81,687,439)
Surrender benefits paid (262,452,856) (256,944,332) (212,721,898)
Annuity and other benefits paid to
policyholders (75,883,974) (75,499,836) (71,214,628)
--------------- --------------- ---------------
(433,051,361) (414,671,884) (365,623,965)
--------------- --------------- ---------------
Commissions, taxes and other expenses
paid (145,175,086) (137,610,641) (143,491,088)
Dividends paid to policyholders (51,606,536) (50,132,513) (48,470,788)
Federal income taxes paid (44,214,002) (36,379,223) (47,070,276)
--------------- --------------- ---------------
240,995,624) (224,122,377) (239,032,152)
--------------- --------------- ---------------
Net cash from operations 256,931,132 270,723,322 312,328,240
--------------- --------------- ---------------
CASH FROM INVESTMENTS:
Proceeds from investments sold,
matured or repaid:
Bonds 1,243,564,059 799,985,799 457,413,396
Common and preferred stocks 180,626,487 89,647,294 180,623,715
Mortgage loans 82,402,398 114,007,683 70,976,792
Real estate 1,850,000 1,870,000 154,900
Other invested assets 30,091,764 40,975,309 22,904,810
Federal income taxes on net capital
gains (10,258,983) (21,987,458) (11,249,624)
--------------- --------------- ---------------
Total investment proceeds 1,528,275,725 1,024,498,627 720,823,989
--------------- --------------- ---------------
Cost of investments acquired:
Bonds (1,416,661,383) (938,055,688) (736,819,688)
Common and preferred stocks (144,647,276) (160,151,880) (144,412,281)
Mortgage loans (158,628,935) (143,095,413) (110,452,484)
Real estate (2,282,399) (891,977) (3,420,722)
Other invested assets (83,016,637) (88,323,837) (30,740,033)
--------------- --------------- ---------------
Total investments acquired (1,805,236,630) (1,330,518,795) (1,025,845,208)
--------------- --------------- ---------------
Net increase in policy loans (915,126) (5,832,344) (8,920,994)
--------------- --------------- ---------------
Net cash from investments (277,876,031) (311,852,512) (313,942,213)
--------------- --------------- ---------------
CASH FROM FINANCING AND MISCELLANEOUS
SOURCES:
Advances on notes payable 30,407,143 -- --
Payments on notes payable (2,092,128) -- --
Other cash provided 18,948,899 5,741,803 3,623,393
Dividends paid to stockholders (145,950) (151,500) (157,650)
Other cash applied (14,521,419) (11,890,183) (19,074,000)
--------------- --------------- ---------------
Net cash from financing and
miscellaneous sources 32,596,545 (6,299,880) (15,608,257)
--------------- --------------- ---------------
Net increase (decrease) in cash and
short-term investments 11,651,646 (47,429,070) (17,222,230)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year 127,254,148 174,683,218 191,905,448
--------------- --------------- ---------------
End of year $ 138,905,794 $ 127,254,148 $ 174,683,218
=============== =============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO STATUTORY FINANCIAL STATEMENTS.
(continued)
12
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1999, 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 Capital Life
Insurance Company (Southern Capital), formerly known as Southern Farm Bureau
Annuity Insurance Company, and Southern Farm Bureau Fund Distributor, Inc. In
December 1998, Southern Farm Bureau Universal Life Insurance Company was merged
with 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, which 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.
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.
13
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(1) OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. "
13. The statutory basis financial statements do not include reporting and
display of comprehensive income and its components as specified under
generally accepted accounting principles.
The aggregate effect on the accompanying statutory financial statements of the
variations from generally accepted accounting principles has not been
determined, but are presumed to be material.
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) 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 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.
14
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(1) OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(d) COMMON STOCKS
Common stocks are generally carried at fair value with unrealized investment
gains and losses reflected in unassigned surplus.
(e) DEPRECIATION
Depreciation is provided over the estimated useful lives of the respective
assets using straight-line and accelerated methods.
(f) 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.
(g) DERIVATIVES
The Company writes covered call options as a means of generating additional
income. Option contracts allow the holder of the option to buy or sell a
specific financial instrument at a specified price during a specified time
period. The amount received for the call option is recognized as a liability
until the option expires. Gains and losses realized on the settlement or
expiration of these options are recognized as income based on the difference
between the consideration received by the Company and the consideration paid, if
any, on termination of the option contract. For the year ended December 31,
1999, the net loss recognized on the termination of covered call options in the
statutory statement of earnings was $2,598,884.
(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.
15
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(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>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
U. S. Treasury securities and
obligations of U. S. Government
corporations and agencies $ 520,007,227 $ 2,378,796 $ (14,743,653) $ 507,642,370
Mortgage-backed securities 1,329,608,072 7,258,497 (38,353,029) 1,298,513,540
Corporate and other securities 2,004,464,340 65,099,879 (87,437,514) 1,982,126,705
-------------- ------------ ------------- --------------
$3,854,079,639 $ 74,737,172 $(140,534,196) $3,788,282,615
============== ============ ============= ==============
Preferred stocks $ 56,309,533 $ 17,462,019 $ (2,174,744) $ 71,596,808
Common stocks 260,132,621 132,834,015 (53,614,880) 339,351,756
-------------- ------------ ------------- --------------
$ 316,442,154 $150,296,034 $ (55,789,624) $ 410,948,564
============== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR 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>
The amortized cost and estimated fair value of bonds at December 31, 1999, 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>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less $ 62,384,752 $ 62,536,098
Due after one year through five years 727,926,296 733,579,447
Due after five years through ten years 1,134,021,998 1,109,065,992
Due after ten years 600,138,521 584,587,538
-------------- --------------
2,524,471,567 2,489,769,075
Mortgage-backed securities 1,329,608,072 1,298,513,540
-------------- --------------
$3,854,079,639 $3,788,282,615
============== ==============
</TABLE>
16
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(2) BONDS AND COMMON AND PREFERRED STOCKS (CONTINUED)
Proceeds from sales of bonds during 1999, 1998 and 1997 were $348,736,547,
$216,682,439 and $275,729,600, respectively. Gross gains of $29,849,941 in 1999,
$14,999,434 in 1998 and $10,573,478 in 1997 and gross losses of $23,479,378 in
1999, $9,315,159 in 1998 and $3,640,448 in 1997 were realized on those sales.
Proceeds from sales of common stocks during 1999, 1998 and 1997 were
$92,129,381, $34,519,274 and $148,714,838, respectively. Gross gains of
$48,930,633 in 1999, $18,714,537 in 1998 and $55,099,811 in 1997 and gross
losses of $3,808,573 in 1999, $937,387 in 1998 and $2,993,386 in 1997 were
realized on those sales.
Proceeds from sales of preferred stocks during 1999, 1998 and 1997 were
$55,331,598, $43,715,575 and $31,289,277, respectively. Gross gains of
$9,771,276 in 1999, $5,304,482 in 1998 and $1,965,388 in 1997 and gross losses
of $4,210,309 in 1999, $2,904,217 in 1998 and $1,679,201 in 1997 were realized
in those sales.
(3) REINSURANCE
A summary of reinsurance activity follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
AT DECEMBER 31,
Ceded life insurance in force--unrelated parties $3,343,987,535 $2,992,577,353
============== ==============
Reserve credits--unrelated parties $ 29,221,738 $ 20,581,501
============== ==============
Ceded life insurance in force to Southern Capital $ -- $1,236,542,319
============== ==============
Reserves ceded to Southern Capital $ -- $ 7,309,329
============== ==============
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- -----------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
Net premiums ceded--unrelated parties $ 30,719,250 $ 31,279,185 $29,729,352
============== ============== ===========
Claims ceded--unrelated parties $ 19,893,653 $ 21,024,100 $24,419,933
============== ============== ===========
Premiums ceded to Southern Capital $ 4,000,370 $ 2,992,484 $ 3,357,258
============== ============== ===========
Claims ceded to Southern Capital $ 2,671,676 $ 3,501,304 $ 2,405,905
============== ============== ===========
</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.
17
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(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 1999, 1998 and 1997 to earnings before federal income taxes and realized
investment gains follow:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $36,542,736 35.0% $36,984,989 35.0% $30,297,402 35.0%
Increases (reductions) in taxes
resulting from:
Difference in statutory and tax
reserves 4,877,840 4.7 939,314 0.9 5,362,846 6.2
Increase in deferred and uncollected
premiums, net of loading (1,645,039) (1.6) (1,404,718) (1.3) (1,673,358) (1.9)
Increase in reserve for policy
dividends 594,325 0.6 532,683 0.5 594,607 0.7
Discount amortization on bonds not
currently taxable (1,613,306) (1.6) (1,485,581) (1.4) (1,209,078) (1.4)
Deferred acquisition costs, net 2,746,077 2.6 3,874,392 3.7 4,383,089 5.0
Provision in excess of current
requirement -- -- 1,000,000 0.9 6,000,000 6.9
Earnings of investments in
partnerships (1,302,596) (1.2) (1,371,989) (1.3) (929,270) (1.1)
Contingent liability accruals 5,087,786 4.9 700,000 0.7 -- --
Other (2,655,345) (2.6) 349,954 0.3 311,529 0.4
----------- ---- ----------- ---- ----------- ----
Actual tax expense $42,632,478 40.8% $40,119,044 38.0% $43,137,767 49.8%
=========== ==== =========== ==== =========== ====
</TABLE>
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,
1999, the "policyholders' surplus account" was approximately $2,800,000.
18
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(5) RELATED PARTY TRANSACTIONS
Effective December 31, 1999, the Company cancelled its coinsurance agreement
with Southern Capital. In connection with the cancellation, the assets and
liabilities summarized below were transferred to the Company at Southern
Capital's carrying values:
<TABLE>
<S> <C>
Assets:
Bonds $187,138,560
Common stocks 10,767,904
Mortgage loans 35,481,594
Other invested assets 9,640,883
Premiums deferred and uncollected 175,224
Accrued investment income 2,384,233
------------
245,588,398
------------
Liabilities:
Aggregate reserves:
Life and annuity policies and contracts 10,829,425
Excess interest reserves 9,919,358
Interest maintenance reserve 489,947
Pension plan administration funds 223,563,009
Accrued interest on policy contract funds 8,676,257
Accrued policy dividends 20,629
Premiums received in advance 25,228
Policy and contract claims 259,728
------------
253,783,581
------------
Additional amount due from Southern Capital $ 8,195,183
============
</TABLE>
In October 1999, Southern Capital declared a special dividend in the amount of
$47,250,000, which was paid to the Company on December 31, 1999. The dividend
consisted of bonds including accrued interest, which were recorded by the
Company at Southern Capital's carrying value.
The above transactions were approved by the Commissioner of Insurance of the
State of Mississippi during 1999.
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 Southern Capital. The reimbursements from Southern Capital are
principally based on actual commissions, service fees and premium taxes incurred
plus a management fee. Such allocated expenses aggregated approximately
$1,994,000 in 1999, $1,915,000 in 1998 and $1,815,000 in 1997. As discussed in
note 1(h), federal income
19
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
taxes are allocated to the Company's subsidiaries as if they filed a separate
return. At December 31, 1999 and 1998, amounts due to (from) subsidiaries and
other affiliates consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Southern Capital Life Insurance Company $(1,166,565) $(8,313,432)
Southern Farm Bureau Fund Distributor, Inc. 38,518 5,477
State and County Farm Bureaus 2,137,330 2,341,782
----------- -----------
$ 1,009,283 $(5,966,173)
=========== ===========
</TABLE>
(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, "Consolidation of All Majority-owned
Subsidiaries." A summary of the principal unconsolidated subsidiary's financial
position and operating results, prepared on a statutory basis, follows:
Southern Capital Life Insurance Company--audited
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Total admitted assets $5,995,171 $302,290,981
========== ============
Total liabilities $1,167,413 $250,711,886
========== ============
Capital stock and surplus $4,827,758 $ 51,579,095
========== ============
Net earnings $2,257,336 $ 6,488,333
========== ============
</TABLE>
20
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(7) NOTES PAYABLE
Notes payable at December 31, 1999 consist of the following:
<TABLE>
<S> <C>
Note payable with imputed interest at 8.04%, maturing
October 1, 2000; secured by limited partnership interest
in American Tax Credit Corporate Fund VII, L. P. $ 7,548,537
Note payable with imputed interest at 6.59%, maturing
October 1, 2001; secured by limited partnership interest
in Boston Capital Corporate Tax Credit Fund XI, L. P. 3,576,384
Note payable with imputed interest at 7.40%, maturing
January 1, 2002; secured by limited partnership interest
in Boston Capital Corporate Tax Credit Fund XII, L. P. 3,564,680
Note payable with imputed interest at 7.38%, maturing
May 31, 2001; secured by limited partnership interest in
American Tax Credit Corporate Fund IX, L. P. 5,422,072
Note payable with imputed interest at 8.37%, maturing
July 1, 2002; secured by limited partnership interest in
Boston Capital Corporate Tax Credit Fund XIV, L. P. 5,464,342
Zero coupon note payable due on demand; secured by limited
partnership interest in American Tax Credit Corporate
Fund X, L. P. 2,739,000
-----------
$28,315,015
===========
</TABLE>
The aggregate maturities of notes payable for each of the years subsequent to
December 31, 1999 are as follows: 2000, $12,370,835; 2001, $8,697,498 and 2002,
$7,246,682.
(8) 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,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefits:
Vested $19,917,265 $17,833,096
Nonvested 2,680,147 2,219,295
----------- -----------
$22,597,412 $20,052,391
=========== ===========
Net assets available for benefits $23,210,150 $22,175,688
=========== ===========
</TABLE>
The assumed rate of return used in determining the actuarial present value of
accumulated benefits was 6.33% in 1999 and 6.95% in 1998. At December 31, 1999,
the assets of the pension plan are administered
21
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(8) RETIREMENT PLANS (CONTINUED)
by the Company at the direction of the trustee. Previously, the assets of the
pension plan were administered by Southern Capital.
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.
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 1999, 1998 and
1997, contributions of $2,995,983, $3,009,945 and $2,395,862, 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 $509,575 in
1999, $521,402 in 1998 and $471,362 in 1997. Beginning January 1, 2000, the
Company will match tax deferred contributions up to four percent of each
participant's compensation.
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, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retired participants $ 2,317,530 $ 905,963
Other fully eligible participants 1,320,874 2,790,713
----------- -----------
$ 3,638,404 $ 3,696,676
=========== ===========
</TABLE>
Postretirement benefit expense of $354,252, $376,052 and $476,775 is reflected
as a component of general insurance expenses in the 1999, 1998 and 1997
statutory statements of earnings, respectively. The discount rate used in
determining the accumulated postretirement benefit obligation was 7.75% and 7.0%
in 1999 and 1998, respectively. The assumed healthcare cost trend rate used in
measuring the accumulated postretirement benefit obligation was 7.5% and 7.0%
for employees under 65 and for those over 65, respectively, in 1999 and 8.0% and
7.5% for employees under 65 and for those over 65, respectively, in 1998 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, 1999, would be increased by
8.1%
(9) 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 $1,911,000 in 1999, $2,625,000 in 1998 and $2,285,000 in 1997. 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
22
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1999 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 contractual amount of the commitments. Commitments to extend credit and
make equity investments aggregated approximately $75,000,000 at December 31,
1999.
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. On
August 20, 1999, a fairness hearing was held on the Complaint and Petition for
Class Action Certification. The proposed settlement was approved by the Court
and is now final.
Management 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 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.
The Company is currently under audit by the Mississippi State Tax Commission
(MSTC) for the tax years ended 1997, 1996 and 1995. The MSTC has proposed that
the Company pay additional state income taxes, including interest, of
approximately $12,800,000. A final settlement has not been reached between the
Company and the MSTC. Management has evaluated the impact of this issue 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 operations.
23
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(10) 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>
1999 1998
----------- -----------
<S> <C> <C>
Balance January 1 $13,983,613 $13,119,311
Less reinsurance recoverables 5,170,681 5,302,141
----------- -----------
Net balance January 1 8,812,932 7,817,170
----------- -----------
Incurred related to:
Current year 7,220,529 7,090,400
Prior year 469,790 381,422
----------- -----------
Total incurred 7,690,319 7,471,822
----------- -----------
Paid related to:
Current year 3,980,410 3,837,079
Prior year 2,802,707 2,638,981
----------- -----------
Total paid 6,783,117 6,476,060
----------- -----------
Net balance December 31 9,720,134 8,812,932
Plus reinsurance recoverables 6,584,747 5,170,681
----------- -----------
Balance December 31 $16,304,881 $13,983,613
=========== ===========
</TABLE>
(11) 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 value of notes payable approximates fair value because of the
short-term nature of these financial instruments and the relative immateriality
of the balances. The carrying amount and fair value of the Company's investments
in mortgage and other loans and notes payable at December 31, 1999 and 1998
follow:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
CARRYING ESTIMATED FAIR CARRYING ESTIMATED FAIR
AMOUNT VALUE AMOUNT VALUE
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Commercial mortgages $895,698,987 $879,093,000 $782,868,429 $838,289,000
Residential mortgages 533,560 501,000 690,842 740,000
Other loans 958,695 959,000 986,814 987,000
------------ ------------ ------------ ------------
$897,191,242 $880,553,000 $784,546,085 $840,016,000
============ ============ ============ ============
Notes payable $ 28,315,015 $ 28,315,015 -- --
============ ============ ============ ============
</TABLE>
24
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Covered call options are the primary derivative financial instrument used by the
Company. The fair value of these options are obtained from market quotes. These
values represent the estimated amount the Company would receive or pay to
terminate the agreement. The carrying amount and fair value of these options
written and outstanding at December 31, 1999 are $968,076 and $365,381,
respectively.
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.
It is not considered practicable to determine the fair value of the Company's
liability for pension plan administration funds due to the difficulty in
calculating an estimated payment pattern and period. Such funds currently bear
interest at a rate of approximately 8.30%. The interest rate will adjust
annually based on investment portfolio returns for the related assets. Such
funds have no stated maturity.
(12) PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, domiciled in the State of Mississippi, prepares its statutory
financial statements in accordance with 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 (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
The Company records its investment in common stock of two telecommunications
companies at the lower of cost or fair value. The fair value and cost of these
investments are approximately $260,000,000 and $10,168,650, respectively, at
December 31, 1999. Generally, common stocks are carried at fair value under
statutory accounting practices; however, carrying these investments at the lower
of cost or fair value has been permitted by the Insurance Department of the
State of Mississippi because these investments are subject to certain pledges
and other restrictions. The Company is a party to several agreements that
restrict its rights to transfer its shares of stock before a specified date
without first offering that stock to certain other parties. The stock is also
pledged to secure repayment of an $8 million non-recourse loan from a third
party to one of the investees, which matures in January 2007, if not sooner
paid. Further, a portion of the Company's investment is pledged to secure
certain non-recourse indemnification obligations. The restrictions will expire
on the earlier of (a) January 7, 2004, or (b) the merger or sale of the assets
or liquidation of one of the investees, or (c) any date after January 7, 2001 on
which indemnification matters have been settled.
(13) 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, 1999, the Company and its insurance subsidiary had adjusted
capital in excess of required amounts.
25
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SCHEDULE 1
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST OR AS SHOWN ON
AMORTIZED THE BALANCE
COST FAIR VALUE SHEET
---------- ---------- -----------
<S> <C> <C> <C>
Bonds:
United States Government and government agencies and
authorities $ 520,007 $ 507,642 $ 520,007
Foreign governments -- -- --
Public utilities 253,545 249,759 253,545
Mortgage-backed securities 1,329,608 1,298,514 1,329,608
All other corporate bonds 1,750,920 1,724,103 1,750,920
---------- ---------- ----------
Total bonds 3,854,080 3,780,018 3,854,080
---------- ---------- ----------
Equity Securities:
Common stocks (1)
Public utilities 1,747 2,947 2,947
Banks, trusts, and insurance companies 29,781 54,199 54,199
Industrial, miscellaneous and all other 218,603 275,460 275,460
Nonredeemable preferred stocks 56,310 71,597 56,310
---------- ---------- ----------
Total equity securities 306,441 404,203 388,916
---------- ---------- ----------
Mortgage loans on real estate 897,191 N/D 897,191
Real estate:
Home office property 32,771 N/D 17,992
Real estate held for investment 106,040 N/D 76,760
Real estate acquired in satisfaction of debt 8,135 N/D 7,381
Policy loans 318,952 N/D 318,952
Partnership interests 163,452 N/D 195,392
Short-term investments and cash 138,291 138,906 138,906
---------- ---------- ----------
Total investments $5,825,353 $ N/A $5,895,570
========== ========== ==========
</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 $6,746, respectively.
N/D -- not determined
N/A -- not applicable
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
26
<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>
1999(3):
Life insurance $ -- $2,433,180 $1,533 $367,721
Accident & health insurance -- 21,000 301 1,699
Annuity -- 2,154,501 -- 32
Property & liability insurance -- -- -- --
---------- ---------- ------ --------
$ -- $4,608,681 $1,834 $369,452
========== ========== ====== ========
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
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>
1999(3):
Life insurance $405,735 $199,521 $351,375 $ -- $112,923
Accident & health insurance 19,745 1,031 10,564 -- 9,921
Annuity 181,559 167,129 313,174 -- 19,085
Property & liability insurance -- -- -- -- --
-------- -------- -------- -------- --------
$607,039 $367,681 $675,113 $ -- $141,929
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
</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) 1999 amounts exclude the effects of the Company's cancellation of its
coinsurance agreement with Southern Capital.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
27
<PAGE>
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY
SCHEDULE 3
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(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>
1999:
Life insurance in force $47,232,286 $3,343,988 $ -- $43,888,298 --
=========== ========== ========== =========== ==========
Premiums:
Life insurance $ 363,439 $ 15,158 $ -- $ 348,281 --
Accident & health insurance 40,238 20,493 -- 19,745 --
Annuity 181,559 -- -- 181,559 --
Property & liability insurance -- -- -- -- --
----------- ---------- ---------- ----------- ----------
Total premiums $ 585,236 $ 35,651 $ -- $ 549,585 --
=========== ========== ========== =========== ==========
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 --
=========== ========== ========== =========== ==========
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
28
<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").(2)
(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.(2)
(b) Participation agreement relating to Fidelity Variable Insurance
Products Fund II.(2)
(c) Participation agreement relating to Fidelity Variable Insurance
Products Fund III.(2)
(d) Participation agreement relating to T. Rowe Price Equity Series, Inc.
and T. Rowe Price Fixed Income Series, Inc.(2)
(e) Form of Administrative Services Agreement.(2)
(9) *Opinion and Consent of Joseph A. Purvis, Esquire.
(10) *(a) Consent of Sutherland Asbill & Brennan LLP.
*(b) Consent of KPMG 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.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-4 (File No. 333-79865) filed with
the Securities and Exchange Commission on October 12, 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
Delmas McCormick Director
Bryan Mitchell Director
Sam Moore Director
Donald Patman Director
Wayne F. Pryor Director
Stanley E. Reed Director
David Waide Director
David M. Winkles, Jr. Director
Larry B. Wooten 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
Larry Favreau Senior Vice President, Chief Financial Officer
Gino Gianfrancesco Senior Vice President, Marketing
Joey Stroble Senior Vice President, Policy Administration and Assistant Secretary
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
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
Kenneth A. Phillips Vice President, Personnel
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
Beverly Pogue Vice President, Valuation Actuary
Joseph A. Purvis Vice President, General Counsel and Secretary
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
CAPITAL FARM BUREAU
LIFE 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 April 1, 2000, there were 284 Contract owners.
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
Joseph A. Purvis, General Vice President, General Counsel and Secretary, Southern Farm Bureau
Counsel and Secretary Life Insurance Company
Laurence Edmond Favreau, Senior Vice President, Chief Financial Officer, Southern Farm Bureau
Treasurer and Assistant Life Insurance Company
Secretary
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
Delmas McCormick, Director Director, Southern Farm Bureau Life Insurance Company
Oliver Bryan Mitchell, Director, Southern Farm Bureau Life Insurance Company
Director
Sam Moore, Director Director, Southern Farm Bureau Life Insurance Company
Donald Patman, Director Director, Southern Farm Bureau Life Insurance Company
Wayne F. Pryor, Director Director, Southern Farm Bureau Life Insurance Company
Stanley E. Reed, Director Director, Southern Farm Bureau Life Insurance Company
David Waide, Director Director, Southern Farm Bureau Life Insurance Company
David Milton Winkles, Jr., Director, Southern Farm Bureau Life Insurance Company
Director
Larry B. Wooten, Director Director, Southern Farm Bureau Life Insurance Company
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, certifies that
it meets all the requirements for effectiveness of the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and 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
25th day of April, 2000.
<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: *
-----------------------------------------
Joseph A. Purvis
VICE PRESIDENT, GENERAL COUNSEL 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 April 25, 2000
Bobby Waters Officer]
Senior Vice President,
* Chief Financial Officer
- ------------------------------ [Principal Financial April 25, 2000
Laurence E. Favreau Officer] [Principal
Accounting Officer]
*
- ------------------------------ President and Chairman of April 25, 2000
Carl B. Loop, Jr. the Board
*
- ------------------------------ First Vice President and April 25, 2000
John Wayne Dollar Director
*
- ------------------------------ Director April 25, 2000
Ronald R. Anderson
*
- ------------------------------ Director April 25, 2000
James C. Bass
*
- ------------------------------ Director April 25, 2000
James R. Carter
*
- ------------------------------ Director April 25, 2000
Donald Childs
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
- ------------------------------ Director April 25, 2000
Marshall Coyle
*
- ------------------------------ Director April 25, 2000
Ben Gramling, II
*
- ------------------------------ Director April 25, 2000
Bruce Hiatt
*
- ------------------------------ Director April 25, 2000
David Hillman
*
- ------------------------------ Director April 25, 2000
Delmas McCormick
*
- ------------------------------ Director April 25, 2000
Bryan Mitchell
*
- ------------------------------ Director April 25, 2000
Sam Moore
*
- ------------------------------ Director April 25, 2000
Donald Patman
*
- ------------------------------ Director April 25, 2000
Wayne F. Pryor
*
- ------------------------------ Director April 25, 2000
Stanley E. Reed
*
- ------------------------------ Director April 25, 2000
David Waide
*
- ------------------------------ Director April 25, 2000
David M. Winkles, Jr.
*
- ------------------------------ Director April 25, 2000
Larry B. Wooten
*
- ------------------------------ Director April 25, 2000
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>
[Southern Farm Bureau letterhead]
April 26, 2000
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. 333-70865; 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]
April 25, 2000
Southern Farm Bureau Life Insurance Company
1401 Livingston Lane
Jackson, Mississippi 39213
Re: Southern Farm Bureau Variable Account (File No. 333-79865)
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
Post-Effective Amendment Number 1 to the registration statement on Form N-4 for
Southern Farm Bureau Variable Account (File No. 333-79865). 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
By: /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 "Independent Accountants" in the prospectus.
KPMG LLP
Jackson, Mississippi
April 26, 2000
<PAGE>
[Southern Farm Bureau letterhead]
April 26, 2000
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 Post-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 Post-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 1940, as amended, in connection with the registration of certain
variable annuity contracts issued by the Company through Southern Farm
Bureau Life Variable 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 day of , .
Signature:
Printed Name:
Title:
<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/ Childs, Donald Director 05/18/99
/s/ Coyle, Marshall Director 06/29/99
/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/ Loop, Jr., Carl B. Chairman of the Board
and President 05/17/99
/s/ McCormick, Delmas Director 02/21/00
/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/ Reed, Stanley E. Director 02/21/00
/s/ Waide, David W. Director 05/17/99
/s/ Winkles, Jr., David M. Director 05/17/99
/s/ Wooten, Larry B. Director 02/21/00
/s/ Wright, Jr., J.M. Director 05/18/99
/s/ Laurence E. Favreau Senior Vice President,
Chief Financial Officer 06/01/99
/s/ Bobby Waters Executive Vice President,
Chief Executive Officer 06/01/99
