<PAGE> 1
As filed with the Securities and Exchange Commission on April 21, 2000
Registration Nos. 333-85183
and 811-09547
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 1 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [ ]
ACT OF 1940
Amendment No. 2 [X]
FARMERS ANNUITY SEPARATE ACCOUNT A
----------------------------------
(Exact Name of Registrant)
FARMERS NEW WORLD LIFE INSURANCE COMPANY
----------------------------------------
(Name of Depositor)
3003 - 77th Avenue, S.E., Mercer Island, Washington 98040
---------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
(206) 232-8400
Name and Address of Agent for Service: Copy to:
John R. Patton, FLMI, FLHC, CLU, ChFC Stephen E. Roth, Esq.
Assistant Vice President -- Staff Operations Sutherland Asbill & Brennan LLP
Farmers New World Life Insurance Company 1275 Pennsylvania Avenue, N.W.
3003 - 77th Avenue, S.E. Washington, D.C. 20004-2415
Mercer Island, Washington 98040
It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] On May 1, 2000, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] On _________, pursuant to paragraph (a) of Rule 485
-------------------
Title of securities being registered:
Units of interest in a separate account under individual flexible premium
variable annuity contracts.
<PAGE> 2
PROSPECTUS
MAY 1, 2000
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the Farmers Variable Annuity.
To learn more about the Contract, you may want to read the Statement of
Additional Information dated May 1, 2000 (known as the "SAI"). For a free copy
of the SAI, contact us at:
Farmers New World Life Insurance Company
SERVICE CENTER
P.O. Box 724208
Atlanta, Georgia 31139
1-877-376-8008 (toll free)
We have filed the SAI with the U.S. Securities and Exchange Commission ("SEC")
and have incorporated it by reference into this prospectus. (It is legally a
part of this prospectus.) The SAI's table of contents appears at the end of this
prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the SAI
and other information about us. You may also read and copy these materials at
the SEC's public reference room in Washington, D.C. Call 1-800-SEC-0330 for
information about the SEC's public reference room.
VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN RISKS, AND YOU MAY LOSE SOME OR ALL
OF YOUR INVESTMENT.
- - The investment performance of the portfolios in which the subaccounts
invest will vary.
- - We do not guarantee how any of the portfolios will perform.
- - The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the Contract.
- - Neither the U.S. Government nor any federal agency insures your
investment in the Contract.
FARMERS VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by
FARMERS NEW WORLD LIFE INSURANCE COMPANY
through the
FARMERS ANNUITY SEPARATE ACCOUNT A
HOME OFFICE
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Telephone: (206) 232-8400
The Farmers Variable Annuity Contract (the "Contract") has 13 funding choices --
one fixed account (paying a guaranteed minimum fixed rate of interest) and 12
subaccounts. The subaccounts invest in the following 12 portfolios:
JANUS ASPEN SERIES
- - Capital Appreciation Portfolio (Institutional Shares)
KEMPER VARIABLE SERIES
- - Kemper Government Securities Portfolio
- - Kemper High Yield Portfolio
- - Kemper Small Cap Growth Portfolio
- - Kemper-Dreman High Return Equity Portfolio
PIMCO VARIABLE INSURANCE TRUST
- - PIMCO Low Duration Bond Portfolio
- - PIMCO Foreign Bond Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
- - Money Market Portfolio
- - Growth and Income Portfolio (Class A Shares)
- - International Portfolio (Class A Shares)
- - Bond Portfolio (Class A Shares)
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- - Templeton Developing Markets Securities Fund (Class 2 Shares) (Formerly
Templeton Developing Markets Fund)
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
OF THE PORTFOLIOS LISTED ABOVE.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Glossary..................................................................................................................1
Highlights................................................................................................................3
The Contract...........................................................................................................3
How to Invest..........................................................................................................3
Cancellation -- The Right To Examine Period............................................................................4
Investment Options.....................................................................................................4
Transfers..............................................................................................................5
Access to Your Money...................................................................................................5
Standard Death Benefit.................................................................................................6
Guaranteed Minimum Death Benefit.......................................................................................6
Fees and Charges.......................................................................................................7
Annuity Provisions.....................................................................................................8
Guaranteed Retirement Income Benefit...................................................................................8
Federal Tax Status.....................................................................................................9
Inquiries..............................................................................................................9
Fee Table................................................................................................................10
Examples..............................................................................................................12
Condensed Financial Information.......................................................................................14
About Farmers New World Life Insurance Company and the Variable Account..................................................14
Farmers New World Life Insurance Company..............................................................................14
Farmers Annuity Separate Account A....................................................................................14
The Portfolios...........................................................................................................15
Investment Objectives of the Portfolios...............................................................................15
Availability of the Portfolios........................................................................................16
The Pay-In Period........................................................................................................17
Purchasing a Contract.................................................................................................17
Cancellation -- The 10 Day Right to Examine Period....................................................................17
Designating Your Investment Options...................................................................................18
Additional Premium Payments...........................................................................................18
Your Contract Value......................................................................................................19
Variable Account Value................................................................................................19
Transfers Between Investment Options.....................................................................................20
Automatic Asset Rebalancing Program...................................................................................21
Third Party Transfers.................................................................................................21
Excessive Trading Limits..............................................................................................21
Dollar Cost Averaging Program.........................................................................................21
Telephone Transfers...................................................................................................22
Transfer Fee..........................................................................................................22
Access to Your Money.....................................................................................................23
Surrenders............................................................................................................23
Partial Withdrawals...................................................................................................23
Systematic Withdrawal Plan............................................................................................24
Death Benefits...........................................................................................................24
Death Benefits Before the Annuity Start Date..........................................................................24
Guaranteed Minimum Death Benefit......................................................................................25
Distribution Upon Death...............................................................................................26
Death Benefits on or After the Annuity Start Date.....................................................................27
Fees and Charges.........................................................................................................27
Mortality and Expense Risk Charge.....................................................................................27
Asset-Based Administration Charge.....................................................................................27
Transfer Fee..........................................................................................................28
</TABLE>
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<TABLE>
<S> <C>
Surrender Charge......................................................................................................28
Records Maintenance Charge............................................................................................30
Portfolio Management Fees and Charges.................................................................................30
Premium Taxes.........................................................................................................30
Other Taxes...........................................................................................................30
The Payout Period........................................................................................................31
The Annuity Start Date................................................................................................31
Annuity Options.......................................................................................................31
Determining the Amount of Your Annuity Payment........................................................................31
Fixed Annuity Payments................................................................................................32
Guaranteed Annuity Tables.............................................................................................32
Description of Annuity Options........................................................................................33
Guaranteed Retirement Income Benefit.....................................................................................35
The Fixed Account........................................................................................................35
Fixed Account Value...................................................................................................36
Fixed Account Transfers...............................................................................................36
Investment Performance of the Subaccounts................................................................................37
Voting Rights............................................................................................................38
Federal Tax Matters......................................................................................................38
Taxation of Non-Qualified Contracts...................................................................................40
Taxation of Qualified Contracts.......................................................................................41
Other Tax Issues......................................................................................................41
Our Income Taxes......................................................................................................41
Possible Tax Law Changes..............................................................................................42
Other Information........................................................................................................42
Payments..............................................................................................................42
Modification..........................................................................................................42
Distribution of the Contracts.........................................................................................43
Legal Proceedings.....................................................................................................43
Reports to Owners.....................................................................................................43
Inquiries.............................................................................................................43
Year 2000 Matters.....................................................................................................43
Financial Statements..................................................................................................43
Statement of Additional Information Table of Contents....................................................................45
</TABLE>
ii
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GLOSSARY
For your convenience, we are providing a glossary of the special terms
we use in this prospectus.
ACCUMULATION UNIT
An accounting unit we use to calculate subaccount values during the pay-in
period. It measures the net investment results of each of the subaccounts.
ANNUITANT
You are the annuitant, unless you state otherwise in your application. Before
any annuity payments begin, the annuitant is the person (or persons) on whose
life (or lives) the Contract is issued. When annuity payments begin, the
annuitant is a person during whose lifetime we may make payments under one of
the annuity options. You may select joint annuitants.
ANNUITY START DATE
The date when we will begin to pay annuity payments to you or a person you
designate under the annuity option you selected.
BENEFICIARY
The person you select to receive the death benefit if you or the last surviving
annuitant die before the annuity start date.
CASH VALUE
The Contract Value minus any applicable surrender charge, records maintenance
charge, and premium tax.
COMPANY (WE, US, OUR, FARMERS)
Farmers New World Life Insurance Company.
CONTRACT MONTH, YEAR OR ANNIVERSARY
A month, year or anniversary as measured from the issue date.
CONTRACT VALUE
The sum of the amounts you have accumulated under the Contract. It is equal to
the money you have under the Contract in the variable account and the fixed
account.
FINAL ANNUITY DATE
The Contract anniversary when the oldest annuitant is age 95.
FIXED ACCOUNT
An option to which you can direct your money under the Contract. It provides a
guarantee of principal and interest. The assets supporting the fixed account are
held in our general account and are not part of, or dependent on, the investment
performance of the variable account.
FIXED ACCOUNT VALUE
Your Contract Value in the fixed account.
FREE WITHDRAWAL AMOUNT
An amount you can withdraw each Contract year as a partial withdrawal without
incurring a surrender charge.
FUNDS
Investment companies that are registered with the SEC. This Contract allows you
to invest in the portfolios of the funds that are listed on the front page of
this prospectus.
GENERAL ACCOUNT
The account containing all of Farmers' assets, other than those held in its
separate accounts.
HOME OFFICE
The address of our Home Office is 3003 - 77th Avenue, S.E., Mercer Island,
Washington 98040.
ISSUE DATE
The date on which we credit the initial premium payment to your Contract. It is
also the date when, depending on your state of residence, we allocate your
premium(s) either entirely to the fixed account, or to the fixed account and the
subaccounts you selected on your application.
NET INVESTMENT FACTOR
The factor we use to determine the value of an accumulation unit at the end of
each valuation period. We determine the net investment factor separately for
each subaccount.
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PAY-IN PERIOD
The period that begins when we issue your Contract and ends on the annuity start
date. During the pay-in period, earnings accumulate on a tax-deferred basis
until you take money out.
PAYOUT PERIOD
The period beginning on the annuity start date during which you or the person
you designate will receive annuity payments.
PORTFOLIO
A separate investment portfolio of a fund. Each subaccount invests exclusively
in one portfolio of a fund.
PREMIUM PAYMENT
Amount you pay to us for the Contract. When we use the term "premium payment" in
this prospectus, it means a premium payment less any applicable premium taxes.
QUALIFIED CONTRACT
A Contract issued in connection with a retirement plan that qualifies for
special federal income tax treatment under the Tax Code.
SERVICE CENTER
The address of the Service Center is P.O. Box 724208, Atlanta, Georgia 31139.
McCamish Systems, L.L.C. is the administrator of the Contract. You can call the
Service Center office toll-free at 1-877-376-8008.
SUBACCOUNT
A subdivision of the variable account that invests exclusively in shares of one
portfolio of a fund. The investment performance of each subaccount is linked
directly to the investment performance of the portfolio in which it invests.
SURRENDER
The termination of a Contract at the option of the owner.
TAX CODE
The Internal Revenue Code of 1986, as amended.
VALUATION DAY
Each day that the New York Stock Exchange ("NYSE") is open for trading. Farmers
New World Life Insurance Company is open to administer the Contract on each day
the NYSE is open.
VALUATION PERIOD
The period of time over which we determine the change in the value of the
subaccounts in order to price accumulation units. Each valuation period begins
at the close of normal trading on the NYSE (currently 4:00 p.m. Eastern time,
1:00 p.m. Pacific Time) on each Valuation Day and ends at the close of normal
trading on the NYSE on the next Valuation Day.
VARIABLE ACCOUNT
Farmers Annuity Separate Account A. It is a separate investment account divided
into subaccounts, each of which invests in a corresponding portfolio of a
designated fund.
VARIABLE ACCOUNT VALUE
The portion of the total value of your Contract that is allocated to the
subaccounts of the variable account.
WRITTEN NOTICE
The written notice you must sign and send to us to request or exercise your
rights as owner under the Contract. To be complete, it must: (1) be in a form we
accept; (2) contain the information and documentation that we determine is
necessary, and (3) be received at our Service Center.
YOU (YOUR, OWNER)
The person(s) entitled to exercise all rights as owner under the Contract.
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HIGHLIGHTS
These highlights provide only a brief overview of the more important
features of the Contract. More detailed information about the Contract appears
later in this prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS
CAREFULLY.
THE CONTRACT
An annuity is a contract between you (the Contract owner) and an
insurance company (Farmers) in which you agree to make one or more payments to
us and, in return, we agree to pay a series of payments to you at a later date.
The Farmers Variable Annuity Contract is a special kind of annuity that is:
- FLEXIBLE PREMIUM - you may add premium payments at any time.
- TAX-DEFERRED - you do not have to pay taxes on earnings until you
take money out by surrender, partial cash withdrawals, or we make
annuity payments to you, or we pay the death benefit.
- VARIABLE - you can direct your premium into any of 12 subaccounts.
Each subaccount invests exclusively in a single portfolio of a
fund. The money you invest in the subaccounts will fluctuate daily
based on the performance of the portfolios. You bear the
investment risk on the amounts you invest in the subaccounts.
You can also direct money to the fixed account. Amounts in the fixed
account earn interest annually at a fixed rate that is guaranteed by us never to
be less than 3%, and may be more. We guarantee the interest, as well as
principal, on money placed in the fixed account.
The Contract allows you to select on your application, for an
additional fee:
- the optional Guaranteed Minimum Death Benefit, and/or
- the optional Guaranteed Retirement Income Benefit.
These riders may not be available in all states, and may vary by state.
Like all deferred annuities, the Contract has two phases: the "pay-in"
period and the "payout" period. During the pay-in period, you can allocate money
to any combination of investment alternatives. Any earnings on your investments
accumulate tax-deferred. The payout period begins once you start receiving
regular annuity payments from the Contract. The Contract allows you to receive
annuity payments under one of three fixed annuity payment options. Unless you
opt for the Guaranteed Retirement Income Benefit, the money you can accumulate
during the pay-in period will directly determine the dollar amount of any
annuity payments you receive.
This Contract cannot be offered in any state where it is not lawful to
make such offer.
HOW TO INVEST
You may obtain a Contract application from your Farmers agent who is
also a licensed registered representative. You may purchase the Contract with a
single payment of $500 or more. We will not issue a Contract if you are older
than age 90 on the issue date.
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You can pay additional premiums of $500 or more ($50 or more if you
authorize us to draw on an account by check or electronic debit) at any time
before the annuity start date. You must send all premium payments to the Service
Office in Atlanta, Georgia at the address listed on the front cover of this
prospectus.
We may limit the total premium(s) paid to us during any Contract year.
CANCELLATION -- THE RIGHT TO EXAMINE PERIOD
You may return your Contract to us for a refund within 10 days after
you receive it. In most states, the amount of the refund will be the total
premiums we have received, plus (or minus) any gains (or losses) in the amounts
you invested in the subaccounts. If state law requires a return of premium, we
will refund the greater of your original premium or the Contract Value on the
date we receive the returned Contract at our Home Office at the address shown on
the front page of this prospectus. If you purchase a qualified Contract, we will
return the premium(s) paid. If your state requires us to return your premium or
if you have purchased a qualified Contract, we will place your premium(s) in the
fixed account for the number of days in your state's right to examine period,
plus 10 days. We will pay the refund within 7 calendar days after we receive the
Contract. The Contract will then be deemed void. In some states you may have
more than 10 days to return the Contract.
INVESTMENT OPTIONS
You may invest your money in any of 12 portfolios by directing it into
the corresponding subaccount. The portfolios now available to you under the
Contract are:
<TABLE>
<S> <C>
JANUS ASPEN SERIES SCUDDER VARIABLE LIFE INVESTMENT FUND
- Capital Appreciation Portfolio - Money Market Portfolio
(Institutional Shares) - Growth and Income Portfolio (Class A
Shares)
KEMPER VARIABLE SERIES - International Portfolio (Class A Shares)
- Kemper Government Securities - Bond Portfolio (Class A Shares)
Portfolio
- Kemper High Yield Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE
- Kemper Small Cap Growth Portfolio PRODUCTS TRUST
- Kemper-Dreman High Return Equity - Templeton Developing Markets Securities Fund
Portfolio (Class 2 Shares) (Formerly Templeton Developing
Markets Fund)
PIMCO VARIABLE INSURANCE TRUST
- PIMCO Low Duration Bond Portfolio
- PIMCO Foreign Bond Portfolio
</TABLE>
EACH ALLOCATION TO A SUBACCOUNT OR THE FIXED ACCOUNT MUST BE AT LEAST
$500.
Each subaccount invests exclusively in shares of one portfolio of a
fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The portfolios
are described in their own prospectuses that accompany this prospectus. The
value of your investment in the subaccounts will fluctuate daily based on the
investment results of the portfolios in which you invest, and on the fees and
charges we deduct.
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DEPENDING ON MARKET CONDITIONS, YOU CAN GAIN OR LOSE MONEY IN ANY OF
THE SUBACCOUNTS. WE RESERVE THE RIGHT TO OFFER OTHER INVESTMENT CHOICES IN THE
FUTURE.
You may also direct your money to the fixed account and receive a
guaranteed rate of return. Money you place in the fixed account will earn
interest for one-year periods at a fixed rate that we guarantee to be not less
than 3.0%.
TRANSFERS
You have the flexibility to transfer assets within your Contract. At
any time during the pay-in period and after the Right to Examine Period, you may
transfer amounts among the subaccounts and between the fixed account and the
subaccounts. Certain restrictions apply:
- transfers must be at least $100, or the total value in a
subaccount or fixed account, if less;
- Contract Value remaining in a subaccount or the fixed account must
be at least $500, or we will transfer the total value;
- only one transfer may be made from the fixed account each Contract
year. The transfer must be made during the 30 days following a
Contract anniversary; and
- transfers cannot be made from any subaccount to the fixed account
during the 6 month period following any transfer from the fixed
account into one or more subaccounts.
You may make 12 free transfers each Contract year. We impose a $25
charge per transfer on each transfer after the twelfth during a Contract year.
Transfers made under the asset allocation or dollar cost averaging programs do
not count toward the 12 free transfers.
AUTOMATIC ASSET REBALANCING PROGRAM
Under the automatic asset rebalancing program, we will automatically
transfer amounts among the subaccounts on a quarterly basis so that the
allocation of your Contract Value matches the percentages you specify.
DOLLAR COST AVERAGING PROGRAM
The dollar cost averaging program permits you to systematically
transfer (on each monthly anniversary of the issue date) a set dollar amount
from the fixed account to up to 8 subaccounts. Dollar cost averaging is
available only during the pay-in period. The minimum transfer amount is $100.
ACCESS TO YOUR MONEY
During the pay-in period, you may receive a cash withdrawal of part of
your cash value once each calendar quarter. You may also fully withdraw all your
value from the Contract and receive its cash value. This is called a surrender.
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Partial withdrawals are subject to the following conditions:
- the minimum amount you can withdraw is $100; and
- you may not make a partial withdrawal if the withdrawal
plus the surrender charge would cause the Contract Value to
fall below $500.
Surrenders and partial withdrawals may be subject to a surrender
charge. In any Contract year, you may withdraw a portion of your Contract Value,
called the free withdrawal amount, without incurring a surrender charge.
We offer a systematic withdrawal plan whereby, after the first Contract
year, you may receive periodic payments of at least $100 on a monthly basis
during the pay-in period.
You may have to pay federal income taxes and a penalty tax on any money
you fully or partially withdraw from the Contract. Access to amounts held in
qualified Contracts may be restricted or prohibited.
STANDARD DEATH BENEFIT
We will pay a death benefit to the beneficiary on the death of either
any owner or the last surviving annuitant before the annuity start date.
If you do not select the Guaranteed Minimum Death Benefit on your
application and if an annuitant (including an owner who is an annuitant) dies
before his or her 80th birthday, the death benefit equals the standard death
benefit, which is the greater of:
- the Contract Value on the later of the date that we receive
due proof of death and the date when we receive the
beneficiary's instructions on payment method; or
- the minimum death benefit. The minimum death benefit equals
the sum of all premiums paid, minus proportional reductions
for withdrawals.
In all other cases, the death benefit equals the Contract Value
determined on the later of the date that we receive due proof of death and the
date when we receive the beneficiary's instructions on payment method.
GUARANTEED MINIMUM DEATH BENEFIT
The Guaranteed Minimum Death Benefit provides an enhanced death benefit
in the event of the death of the last surviving annuitant before the annuity
start date. You may select the Guaranteed Minimum Death Benefit only on your
Contract application. We will deduct an additional daily charge from the
subaccounts at an annual rate of 0.25% for this benefit.
On the death of the last surviving annuitant, the Guaranteed Minimum
Death Benefit will equal the greatest of the following:
- the standard death benefit described above;
- premiums you paid accumulated daily with interest
compounded at 4% per year until the earlier of: (i) the
date of death, or (ii) the Contract anniversary on or next
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following the last surviving annuitant's 80th birthday;
minus proportional reductions for withdrawals; or
- the Greatest Anniversary Value on any Contract anniversary
through the earlier of the date of death or the Contract
anniversary on or next following the last surviving
annuitant's 80th birthday, minus proportional reductions
for withdrawals.
A different death benefit calculation applies if the last surviving
annuitant dies after the Contract anniversary on or next following the
annuitant's 80th birthday. See "Death Benefits."
FEES AND CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily mortality and
expense risk charge from your value in the subaccounts at an annual rate of
0.95% (1.20% if you select either the Guaranteed Minimum Death Benefit or the
Guaranteed Retirement Income Benefit; 1.45% if you choose both benefits.)
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily
administrative charge from your value in each subaccount at an annual rate of
0.20%.
RECORDS MAINTENANCE CHARGE. We deduct a Records Maintenance Charge of
$30 from your Contract Value on the last valuation day of each Contract year
during the pay-in period, on the date when the Contract is surrendered, and on
the annuity start date. We will waive this charge if your Contract Value is
$50,000 or more on the date the charge would be assessed.
TRANSFER FEE. You may make 12 free transfers each Contract year. We
impose a $25 charge per transfer on each transfer after the twelfth during a
Contract year before the annuity start date.
SURRENDER CHARGE. During the pay-in period, you may withdraw all or
part of your cash value before your death. Certain withdrawals may be taken
without payment of any surrender charge. Other withdrawals are subject to
surrender charges.
We calculate the surrender charge from the date you made the premium
payment(s) being withdrawn. The surrender charge applies during the entire seven
year period following each premium payment, and will vary depending on the
number of years since you made the premium payment(s) being withdrawn.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
FROM DATE OF PREMIUM
PAYMENT:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 1 2 3 4 5 6 7+
-------------------------------------------------------------------
SURRENDER CHARGE: 7% 6% 5% 5% 4% 3% 2% 0
</TABLE>
In determining surrender charges, we will treat your premium payments
as being withdrawn in the order in which we received them -- that is on a
first-in, first-out basis.
We do not assess a surrender charge on:
- the death benefit;
- on the withdrawal of premium payments you paid us more than
seven years ago;
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- on withdrawals that qualify under the waiver of surrender
charge riders as extended hospitalization or confinement to
a skilled nursing facility or terminal illness (see,
"Surrender Charge"); or
- on the free withdrawal amount.
Each Contract year, you may withdraw the free withdrawal amount which
is an amount up to the greater of:
- Contract Value minus total premiums and minus prior
withdrawals that were previously assessed a surrender
charge; or
- 10% of the Contract Value determined at the time the
withdrawal is requested.
PREMIUM TAXES. We will deduct state premium taxes, which currently
range from 0% up to 3.5%, if your state requires us to pay the tax. If
applicable, we will make the deduction either: (a) from premium payments as we
receive them, (b) from your Contract Value upon surrender or partial withdrawal,
(c) on the annuity start date, or (d) upon payment of a death benefit.
PORTFOLIO MANAGEMENT FEES AND CHARGES. Each portfolio deducts portfolio
management fees and charges from the amounts you have invested in the
portfolios. For 1999, these charges ranged from 0.43% to 1.81% annually. See the
Fee Table in this Prospectus and the prospectuses for the portfolios.
ANNUITY PROVISIONS
ANNUITY OPTIONS. The Contract allows you to receive income payments
under one of three fixed annuity options beginning on the annuity start date you
select. The latest annuity start date you may select is the Contract anniversary
when the oldest annuitant is age 95. You may receive income payments for a
specific period of time, or for life with or without a guaranteed number of
payments.
We will use your cash value (less any applicable premium taxes) on the
annuity start date to calculate the amount of your income payments under the
annuity option you choose.
GUARANTEED RETIREMENT INCOME BENEFIT
The Guaranteed Retirement Income Benefit provides a minimum guaranteed
lifetime fixed income benefit in the form of fixed monthly annuity payments,
once the Contract has been in force for at least 10 Contract years. You may
select the Guaranteed Retirement Income Benefit only on your Contract
application. We will deduct an additional daily charge from the subaccounts at
an annual rate of 0.25% for this benefit.
The amount of income payments we will pay under the Guaranteed
Retirement Income Benefit is determined by applying the income base (less
applicable taxes) to the guaranteed annuity table rates in your Contract for the
annuity option you select. On the annuity start date, the amount of income
payments we will pay under the Contract will be the greater of:
- the dollar amount determined under the Guaranteed
Retirement Income Benefit; and
- the dollar amount determined by applying the Contract's
cash value to the income benefits, annuity options and
annuity tables described in your Contract.
The income base under the Guaranteed Retirement Income Benefit equals the
greater of:
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(i) premiums you paid accumulated daily with interest compounded
at 5.00% per year through the earlier of the annuity start
date and the Contract anniversary on or next following the
oldest joint annuitant's 80th birthday, with a proportional
reduction for withdrawals; and
(ii) the Greatest Anniversary Value for the Contract anniversaries
through the earlier of the annuity start date and the Contract
anniversary on or next following the oldest joint annuitant's
80th birthday, with a proportional reduction for withdrawals
FEDERAL TAX STATUS
Generally, a Contract's earnings are not taxed until you take them out.
For federal tax purposes, if you take money out during the pay-in period,
including a surrender or partial withdrawal payment, earnings come out first and
are taxed as ordinary income. If you are younger than 59 1/2 when you take money
out, you also may be charged a 10% federal penalty tax on earnings. The annuity
payments you receive during the payout phase are considered partly a return of
your original investment so that part of each payment is not taxable as income
until the "investment in the contract" has been fully recovered. Death benefits
are taxable and generally are included in the income of the recipient as
follows: if received under an annuity option, death benefits are taxed in the
same manner as annuity payouts; if not received under an annuity option (for
instance, if paid out in a lump sum), death benefits are taxed in the same
manner as a surrender or full withdrawal. Different tax consequences may apply
for a qualified Contract. For a further discussion of the federal tax status of
variable annuity contracts, see "Federal Tax Status."
INQUIRIES
If you need additional information, please contact us at:
the Service Center
P.O. Box 724208
Atlanta, Georgia 31139
1-877-376-8008 (toll-free)
9
<PAGE> 14
FEE TABLE
The purpose of the Fee Table is to help you understand the various
costs and expenses that you will pay directly and indirectly by investing in the
subaccounts. The Fee Table shows the current expenses for the variable account
as well as the actual charges and expenses for each portfolio for the fiscal
year ended December 31, 1999, except as stated in the footnotes.
YOUR TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Sales Charge Imposed on Premium Payments...............................................None
Maximum Surrender Charge
(as a percentage of your premium payment) (1)........................................7.0%
Transfer Fee..............................................No fee for the first 12 transfers
in a Contract year; then $25
per additional transfer
RECORDS MAINTENANCE CHARGE (2)...................................................................$30
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets in the subaccounts)
<TABLE>
<CAPTION>
<S> <C>
With Both the Guaranteed Minimum Death Benefit AND the
Guaranteed Retirement Income Benefit
Mortality and Expense Risk Charge...............................................1.45%
Administrative Expenses.........................................................0.20%
-------
Total Variable Account Annual Expenses..........................................1.65%
With Either the Guaranteed Minimum Death Benefit OR the
Guaranteed Retirement Income Benefit
Mortality and Express Risk Charge...............................................1.20%
Administrative Expenses.........................................................0.20%
-------
Total Variable Account Annual Expenses..........................................1.40%
With Standard Death Benefit Only
Mortality and Expense Risk Charge...............................................0.95%
Administrative Expenses.........................................................0.20%
-------
Total Variable Account Annual Expenses..........................................1.15%
</TABLE>
ANNUAL PORTFOLIO EXPENSES
(as a percentage of average daily net assets in the subaccounts after fee
waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES 12b-1 (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) FEES REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
Janus Aspen Series
Capital Appreciation Portfolio .65% -- % .04% .69%
(Institutional Shares)(3)
Kemper Variable Series
Kemper Government Securities Portfolio .55% -- % .08% .63%
</TABLE>
10
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Kemper High Yield Portfolio .60% -- % .07% .67%
Kemper Small Cap Growth Portfolio .65% -- % .06% .71%
Kemper-Dreman High Return Equity
Portfolio(4) .75% -- % .11% .86%
PIMCO Variable Insurance Trust(5)
Low Duration Bond Portfolio .25% -- % .40% .65%
Foreign Bond Portfolio .25% -- % .85% 1.10%
Scudder Variable Life Investment Fund
Money Market Portfolio .37% -- % .06% .43%
Growth and Income Portfolio (Class A Shares) .47% -- % .08% .55%
International Portfolio (Class A Shares) .85% -- % .18% 1.03%
Bond Portfolio (Class A Shares) .48% -- % .09% .57%
Franklin Templeton Variable Insurance Products Trust
Templeton Developing Markets Securities Fund 1.25% .25% .31% 1.81%
(Class 2 Shares)(6)(7)
</TABLE>
1/ We do not assess a surrender charge on death benefit payments. We do
assess a surrender charge if you surrender your Contract, partially withdraw its
cash value, or annuitize under the Contract.
2/ We will also deduct this fee on the annuity start date or the date you
surrender your Contract. We waive this fee for Contracts with a Contract Value
of $50,000 or more on the date the fee is assessed.
3/ The expense figures shown for the Janus Aspen Capital Appreciation
Portfolio are based upon expenses for the fiscal year ended December 31, 1999,
restated to reflect a reduction in the management fee.
4/ Pursuant to their respective agreements with Kemper Variable Series, the
investment manager and the accounting agent have agreed, for the one year period
commencing on May 1, 2000, to limit their respective fees and to reimburse other
operating expenses to the extent necessary to limit total annual expenses of the
Kemper-Dreman High Return Equity Portfolio to 0.87%.
5/ For the PIMCO Low Duration Bond Portfolio, "Other Expenses" reflects a
0.25% administrative fee and a 0.15% service fee. For the PIMCO Foreign Bond
Portfolio, "Other Expenses" reflects a 0.50% administrative fee, a 0.15% service
fee and 0.20% of interest expense. PIMCO has contractually agreed to reduce
total annual portfolio operating expenses to the extent they would exceed, due
to the payment of organizational expenses and Trustees' fees, 0.65% and 0.90% of
average daily net assets of the PIMCO Low Duration Bond Portfolio and the PIMCO
Foreign Bond Portfolio, respectively. The expense reimbursement does not include
the 0.20% interest expense for the PIMCO Foreign Bond Portfolio. Without such
reductions, total annual expenses for the fiscal year ended December 31, 1999
would have been 0.78% and 1.25% for the PIMCO Low Duration Bond Portfolio and
the PIMCO Foreign Bond Portfolio, respectively. Under the Expense Limitation
Agreement, PIMCO may recoup these waivers and reimbursements in future periods,
not exceeding three years, provided total annual expenses, including such
recoupment, do not exceed the annual expense limit. For the PIMCO Foreign Bond
Portfolio, the ratio of net expenses to average net assets excluding interest
expense is 0.90%. Fees expressed are restated as of April 1, 2000.
6/ On February 8, 2000, shareholders approved a merger and reorganization
that combined the portfolio with the Templeton Developing Markets Equity Fund,
effective May 1, 2000. The shareholders of that portfolio had approved new
management fees, which apply to the combined portfolio effective May 1, 2000.
The table shows restated total expenses based on the new fees and the assets of
the portfolio as of December 31, 1999, and not the assets of the combined
portfolio. However, if the table reflected both the new fees and the combined
assets,
11
<PAGE> 16
the portfolio's expenses after May 1, 2000 would be estimated as:
management fees, 1.25%; 12b-1 fees, 0.25%; other expenses, 0.29%; and total
annual expenses, 1.79%.
7/ Class 2 of the Templeton Developing Markets Securities Fund has a
distribution plan or "Rule 12b-1 Plan" which is described in the portfolio's
prospectus. While the maximum amount payable under the portfolio's class 2 rule
12b-1 plan is 0.35% per year of the portfolio's average daily net assets, the
Board of Trustees of Franklin Templeton Variable Insurance Products Trust has
set the current rate at 0.25% per year. Because these fees are paid out of Class
2's assets on an on-going basis, over time these fees will increase the cost of
an investment, and may cost more than paying other types of sales charges.
The purpose of the following Examples is to assist you in understanding
the expenses that you would pay over time. The Examples are based on the actual
charges and expenses for the variable account and for each portfolio for the
fiscal year ended December 31, 1999, as stated in the Fee Table.
EXAMPLES
EXAMPLE 1
Example 1 below shows the dollar amount of expenses that you would bear directly
or indirectly if you:
- invested $1,000 in a subaccount;
- earned a 5% annual return on your investment;
- fully surrendered your Contract, or began receiving annuity
payments, with applicable surrender charges deducted; and
- selected both the optional Guaranteed Minimum Death Benefit
(with an annual charge of 0.25%) and the optional
Guaranteed Retirement Income Benefit (with an annual charge
of 0.25%), resulting in total variable account expenses of
1.65%.
EXAMPLE 2
Example 2 has the same assumptions as Example 1, except that you selected
neither the Guaranteed Minimum Death Benefit nor Guaranteed Retirement Income
Benefit, resulting in total variable account expenses of 1.15%.
<TABLE>
<CAPTION>
ASSUMES YOU SURRENDER OR ANNUITIZE THE CONTRACT EXAMPLE 1 EXAMPLE 2
------------------------------------------------- ------------------------------ ------------------------------
SUBACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------------------------------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
JANUS ASPEN SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Capital Appreciation $89.79 $126.03 $85.10 $111.63
------------------------------------------------- --------------- -------------- -------------- ---------------
KEMPER VARIABLE SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Government Securities $89.23 $124.31 $84.53 $109.89
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper High Yield $89.61 $125.45 $84.91 $111.05
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Small Cap Growth $89.98 $126.60 $85.28 $112.21
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper-Dreman High Return Equity $91.39 $130.87 $86.70 $116.55
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO VARIABLE INSURANCE TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Low Duration Bond $89.42 $124.88 $84.72 $110.47
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Foreign Bond $93.63 $137.67 $88.95 $123.45
------------------------------------------------- --------------- -------------- -------------- ---------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------- --------------- -------------- -------------- ---------------
Money Market $87.35 $118.57 $82.64 $104.05
------------------------------------------------- --------------- -------------- -------------- ---------------
Growth and Income $88.57 $122.30 $83.87 $107.85
------------------------------------------------- --------------- -------------- -------------- ---------------
International $92.97 $135.69 $88.29 $121.44
------------------------------------------------- --------------- -------------- -------------- ---------------
</TABLE>
12
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------- --------------- -------------- -------------- ---------------
Bond $88.67 $122.59 $83.96 $108.14
------------------------------------------------- --------------- -------------- -------------- ---------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
Templeton Developing Markets Securities
Fund $100.23 $157.48 $95.58 $143.57
------------------------------------------------- --------------- -------------- -------------- ---------------
</TABLE>
EXAMPLE 3
Example 3 has the same assumptions as Example 1, except that you decided not to
surrender your Contract or begin receiving annuity payments. Surrender charges
are not deducted. Like Example 1, we assume that you selected both the optional
Guaranteed Minimum Death Benefit (with an annual charge of 0.25%) and the
Guaranteed Retirement Income Benefit (with an annual charge of 0.25%), resulting
in total variable account expenses of 1.65%.
EXAMPLE 4
Example 4 has the same assumptions as Example 3, except that you selected
neither the optional Guaranteed Minimum Death Benefit nor the optional
Guaranteed Retirement Income Benefit, resulting in total variable annuity
expenses of 1.15%.
<TABLE>
<CAPTION>
ASSUMES YOU DO NOT SURRENDER OR ANNUITIZE THE
CONTRACT EXAMPLE 3 EXAMPLE 4
------------------------------------------------- ------------------------------ ------------------------------
SUBACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------------------------------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
JANUS ASPEN SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Capital Appreciation $25.21 $77.55 $20.20 $62.44
------------------------------------------------- --------------- -------------- -------------- ---------------
KEMPER VARIABLE SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Government Securities $24.61 $75.75 $19.60 $60.61
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper High Yield $25.01 $76.95 $20.00 $61.83
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Small Cap Growth $25.41 $78.15 $20.40 $63.05
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper-Dreman High Return Equity $26.91 $82.64 $21.91 $67.60
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO VARIABLE INSURANCE TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Low Duration Bond $24.81 $76.35 $19.80 $61.22
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Foreign Bond $29.30 $89.79 $24.31 $74.85
------------------------------------------------- --------------- -------------- -------------- ---------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------- --------------- -------------- -------------- ---------------
Money Market $22.61 $69.72 $17.58 $54.49
------------------------------------------------- --------------- -------------- -------------- ---------------
Growth and Income $23.91 $73.65 $18.89 $58.47
------------------------------------------------- --------------- -------------- -------------- ---------------
International $28.61 $87.70 $23.61 $72.74
------------------------------------------------- --------------- -------------- -------------- ---------------
Bond $24.01 $73.95 $18.99 $58.78
------------------------------------------------- --------------- -------------- -------------- ---------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
Templeton Developing Markets Securities
Fund $36.35 $110.58 $31.39 $95.97
------------------------------------------------- --------------- -------------- -------------- ---------------
</TABLE>
The examples assume that you made no transfers. The examples also do
not take into account any premium taxes. The examples reflect the Records
Maintenance Charge of $30 as an annual charge of 0.15% which we calculated by
dividing the total Records Maintenance Charges expected to be collected during a
year by an assumed average investment of $20,000 in the Contract.
PLEASE REMEMBER THAT THE EXAMPLES ARE SIMPLY ILLUSTRATIONS AND DO NOT REPRESENT
PAST OR FUTURE EXPENSES. Your actual expenses may be higher or lower than those
shown in the examples. Similarly your rate of return may be more or less than
the 5% assumed in the examples.
13
<PAGE> 18
CONDENSED FINANCIAL INFORMATION
Because the variable account had not commenced operations as of
December 31, 1999, no condensed financial information is included in this
prospectus.
ABOUT FARMERS NEW WORLD LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
================================================================================
FARMERS NEW WORLD LIFE INSURANCE COMPANY
Farmers New World Life Insurance Company ("Farmers") is the stock life
insurance company issuing the Contract. Farmers is located at 3003 - 77th
Avenue, S.E., Mercer Island, Washington 98040, and was incorporated under
Washington law on February 21, 1910. Farmers established the variable account to
support the investment options under this Contract and under other variable
annuity contracts Farmers may issue. Farmers' general account supports the fixed
account under the Contract.
Farmers is a direct wholly-owned subsidiary of Farmers Group, Inc.
("FGI"). FGI is a stock holding and management company. The ultimate controlling
parents of FGI are Allied Zurich p.l.c., a United Kingdom company, and Zurich
Allied AG, a Swiss company. Allied Zurich p.l.c. and Zurich Allied AG are traded
in certain European markets, but are not publicly traded in the U.S.
Farmers markets a broad line of individual life insurance products,
including universal life, term life and whole life insurance and annuity
products (predominately flexible premium deferred annuities). Farmers currently
is licensed to sell insurance in 41 states and the District of Columbia. The
states where Farmers is not licensed are Alaska, Florida, Hawaii, Louisiana,
Maine, New Hampshire, New York, North Carolina, and Vermont.
FARMERS ANNUITY SEPARATE ACCOUNT A
We established the Farmers Annuity Separate Account A (the "variable
account") as a variable account under Washington insurance law on April 6, 1999.
The variable account will receive and invest premium payments paid under the
Contracts and under other variable annuity contracts we may issue in the future.
Although the assets in the variable account are our property, the
portion of the assets in the variable account that are attributable to variable
annuity contracts are not chargeable with the liabilities arising out of any
other business that we may conduct. All obligations arising under the Contracts
are our general corporate obligations. Income, gains and losses, whether or not
realized, from assets allocated to the variable account are credited to or
charged against the variable account without regard to our other income, gains
or losses.
The variable account is divided into 12 subaccounts. Additional
subaccounts may be available in the future. Each subaccount invests exclusively
in shares of a single portfolio of a fund. The income, gains and losses, whether
or not realized, from the assets allocated to each subaccount are credited to or
charged against that subaccount without regard to income, gains or losses from
any other subaccount.
14
<PAGE> 19
The variable account has been registered with the SEC as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act") and
meets the definition of a separate account under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the variable account, the funds or of us by
the SEC. The variable account is also subject to the laws of the State of
Washington which regulate the operations of insurance companies domiciled in
Washington.
THE PORTFOLIOS
================================================================================
Each subaccount of the variable account invests exclusively in shares
of a designated portfolio of a fund. Shares of each portfolio are purchased and
redeemed at net asset value, without a sales charge. Each fund available under
the Contract is registered with the SEC under the 1940 Act as an open-end,
management investment company.
The assets of each portfolio are separate from the assets of any other
portfolio, and each portfolio has separate investment objectives and policies.
As a result, each portfolio operates as a separate investment portfolio and the
income or losses of one portfolio has no effect on the investment performance of
any other portfolio.
Each of the portfolios is managed by an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended. Each
investment adviser is responsible for the selection of the investments of the
portfolio. These investments must be consistent with the investment objective,
policies and restrictions of that portfolio.
Some of the portfolios have been established by investment advisers
that manage retail mutual funds sold directly to the public having similar names
and investment objectives to the portfolios available under the Contract. While
some of the portfolios may be similar to, and may in fact be modeled after,
publicly traded mutual funds, you should understand that the portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any similarly named
portfolio may differ substantially from the portfolios available through this
Contract.
An investment in a subaccount, or in any portfolio, including the Money
Market Portfolio, is not insured or guaranteed by the U.S. Government and there
can be no assurance that the Money Market Portfolio will be able to maintain a
stable net asset value per share.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objective of each portfolio is summarized below. NO ONE
CAN PROMISE THAT ANY PORTFOLIO WILL MEET ITS INVESTMENT OBJECTIVES. Amounts you
have allocated to the subaccounts may grow in value, decline in value, or grow
less than you expect, depending on the investment performance of the portfolios
in which those subaccounts invest. You bear the investment risk that those
portfolios possibly will not meet their investment objectives.
You can find more detailed information, including a description of
risks, fees and expenses of each portfolio, in the prospectuses for the
portfolios which accompany this prospectus.
15
<PAGE> 20
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES. YOU SHOULD CAREFULLY READ
THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE YOU INVEST.
<TABLE>
<CAPTION>
- ------------------------------- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
- ------------------------------- ----------------------------------------------------------------------------
<S> <C>
JANUS ASPEN CAPITAL
APPRECIATION PORTFOLIO seeks long-term growth of capital. It is a non-diversified fund.
(INSTITUTIONAL SHARES) Investment adviser is Janus Capital Corporation.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER GOVERNMENT SECURITIES seeks high current return consistent with preservation of capital.
PORTFOLIO Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER HIGH YIELD PORTFOLIO seeks to provide a high level of current income. Investment adviser is
Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER SMALL CAP GROWTH seeks maximum appreciation of investors' capital. Investment adviser is
PORTFOLIO Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER-DREMAN HIGH RETURN seeks to achieve a high rate of total return. Investment adviser is
EQUITY PORTFOLIO Scudder Kemper Investments, Inc.; investment sub-adviser is Dreman Value
Management L.L.C.
- ------------------------------- ----------------------------------------------------------------------------
PIMCO LOW DURATION BOND seeks to maximize total return, consistent with preservation of capital
PORTFOLIO and prudent investment management. Investment adviser is Pacific
Investment Management Company.
- ------------------------------- ----------------------------------------------------------------------------
PIMCO FOREIGN BOND PORTFOLIO seeks to maximize total return, consistent with preservation of capital
and prudent investment management. Investment adviser is Pacific
Investment Management Company.
- ------------------------------- ----------------------------------------------------------------------------
MONEY MARKET PORTFOLIO seeks to maintain stability of capital and consistent therewith, to maintain
the liquidity of capital and to provide current income. Investment adviser
is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income and growth of income.
(CLASS A SHARES) Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through diversified holdings
(CLASS A SHARES) of marketable foreign equity investments. Investment adviser is Scudder
Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
BOND PORTFOLIO (CLASS A seeks a high level of income consistent with a high quality portfolio of
SHARES) debt securities. Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS seeks long-term capital appreciation. The Fund invests primarily in
SECURITIES FUND (CLASS 2 emerging market equity securities. Investment adviser is Templeton Asset
SHARES) Management Ltd.
- ------------------------------- ----------------------------------------------------------------------------
</TABLE>
AVAILABILITY OF THE PORTFOLIOS
We cannot guarantee that each portfolio will always be available for
investment through the Contracts.
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares of a portfolio that are held in
the variable account. If the shares of a portfolio are no longer available for
investment or if, in our judgment, further investment in any portfolio should
become inappropriate, we may redeem the shares of that portfolio and substitute
shares of another portfolio. We will not substitute any shares without notice
and prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law.
16
<PAGE> 21
We also reserve the right in our sole discretion to establish
additional subaccounts, or eliminate or combine one or more subaccounts. Subject
to obtaining any approvals or consents required by law, the assets of one or
more subaccounts may also be transferred to any other subaccount if, in our sole
discretion, conditions warrant. Additional information regarding the
substitutions of investments and resolving conflicts among funds may be found in
the SAI.
THE PAY-IN PERIOD
================================================================================
The pay-in period begins when we issue your Contract and continues
until the annuity start date. The pay-in period will also end if you surrender
your Contract, or a death benefit is payable, before the payout period.
PURCHASING A CONTRACT
You may purchase a Contract with a premium payment of $500 or more. The
first premium payment is the only one we require you to make.
To purchase a Contract, you must complete an application and send it
with your premium to us through one of our authorized agents who is also a
registered representative. Contracts may be sold to or in connection with
retirement plans that qualify for special tax treatment.
If you are purchasing the Contract through a tax favored arrangement,
including IRAs, Roth IRAs, and SIMPLE IRAs, you should carefully consider the
costs and benefits of the Contract (including annuity income benefits) before
purchasing the Contract, since the tax favored arrangement itself provides for
tax sheltered growth.
We will not issue you a Contract if you are older than age 90 on the
issue date.
CANCELLATION -- THE 10 DAY RIGHT TO EXAMINE PERIOD
You have the right to cancel the Contract for any reason within 10 days
after you receive it. In some jurisdictions, this period may be longer than 10
days. To cancel the Contract, you must send it to our Home Office at Mercer
Island, Washington, before the end of the right to cancel period.
In most states, the amount of the refund will be the total premiums we
have received, plus (or minus) any gains (or losses) in the amounts you invested
in the subaccounts. If state law requires a return of premium, we will refund
the greater of your original premium(s) or the Contract Value on the date we
receive the Contract at our Home Office at the address shown on the front page
of this prospectus. If you purchase a qualified Contract, we will return the
premium(s) paid. If your state requires us to return your premium or if you have
purchased a qualified Contract, we will place your premium(s) in the fixed
account for the number of days in your state's right to examine period, plus 10
days. We will credit your premium(s) placed in the fixed account with interest
at the current fixed account interest rates. We will pay the refund within 7
calendar days after we receive the Contract. The Contract will then be deemed
void.
17
<PAGE> 22
DESIGNATING YOUR INVESTMENT OPTIONS
When you complete your application, you will give us instructions on
how to allocate your first premium payment among the 12 subaccounts and the
fixed account. The amount you direct to a particular subaccount and/or to the
fixed account must be in whole percentages from 1% to 100% of the premium
payment, and must equal at least $500.
If your application is complete and your premium payment has been
received at the Service Center, we will issue your Contract within two business
days of its receipt, and credit your initial premium payment to your Contract.
If your application is incomplete, we will contact you and seek to complete it
within five business days. If we cannot complete your application within five
business days after we receive it, we will return your premium payment, unless
you expressly permit us to keep it. We will credit the payment as soon as we
receive all necessary application information.
The date we credit your initial premium payment to your Contract is the
issue date. In most states, on the issue date we will allocate your initial
premium to the subaccounts and the fixed account as you specified on your
application.
If your state requires us to return your initial premium(s) in the
event you exercise your right to cancel the Contract, or if you purchase a
qualified Contract, we will allocate the initial premium(s) to the fixed account
on the issue date. While held in the fixed account, your premium(s) will be
credited with interest at current fixed account rates. The premium(s) will
remain in the fixed account for the number of days in your state's right to
examine period, plus 10 days. On the first valuation day on or after that
period, we will reallocate all Contract Value from the fixed account to the
subaccounts and fixed account as you selected on the application.
We may reject any application or premium payment for any reason
permitted by law.
ADDITIONAL PREMIUM PAYMENTS
There are no requirements on how many premium payments to make. You
determine the amount and timing of each additional premium payment, except that
premium payments must be at least $500 ($50 if you authorize us to draw on an
account by check or electronic debit). You may make premium payments at any time
until the earliest of: (a) the annuity start date; (b) the date you fully
withdraw all Contract Value; or (c) the date you reach age 70 1/2 for qualified
Contracts (other than Roth IRAs and rollovers and transfers).
We will not accept total premium payments in excess of the cumulative
premium limit that is specified on your Contract specification page. The Tax
Code may also limit the amount of premiums you may make.
We will credit any additional premium payments you make to your
Contract at the accumulation unit value next computed at the end of the
valuation day on which we receive them at the Service Center. Our valuation day
closes at 4:00 p.m. Eastern Time (1:00 p.m. Pacific Time). If we receive your
premium payments after the close of a valuation day, we will calculate and
credit them as of the end of the next valuation day.
We will direct your premium payment to the subaccounts and/or the fixed
account according to your written instructions in effect at the time we receive
it at the Service Center. However, you may direct individual premium payments to
a specific subaccount and/or to the fixed account without changing your
instructions. You may change your instructions at any time by sending us a
written request or by
18
<PAGE> 23
telephone authorization. Changing your allocation instructions will not change
the way existing Contract Value is apportioned among the subaccounts or the
fixed account.
THE VALUE OF YOUR CONTRACT INVESTED IN A SUBACCOUNT WILL VARY WITH THE
INVESTMENT PERFORMANCE OF THAT SUBACCOUNT. YOU BEAR THE ENTIRE INVESTMENT RISK
FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. YOU SHOULD PERIODICALLY REVIEW YOUR
PREMIUM PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET CONDITIONS AND YOUR
OVERALL FINANCIAL OBJECTIVES.
YOUR CONTRACT VALUE
================================================================================
VARIABLE ACCOUNT VALUE
Your variable account value will reflect the investment experience of
the selected subaccounts, any premium payments paid, any surrenders or partial
withdrawals, any transfers, and any charges assessed in connection with the
Contract. There is no guaranteed minimum variable account value.
CALCULATING VARIABLE ACCOUNT VALUE
Your variable account value is determined at the end of each valuation
day. The value will be the total of your Contract's value in each of the
subaccounts. We determine your Contract's value in each subaccount by
multiplying that subaccount's unit value for the relevant valuation period by
the number of accumulation units of that subaccount allocated to the Contract.
NUMBER OF ACCUMULATION UNITS
Any amounts you allocate or transfer to the subaccounts will be
converted into subaccount accumulation units. We determine the number of
accumulation units to be credited to your Contract by dividing the dollar amount
being allocated or transferred to a subaccount by the accumulation unit value
for that subaccount at the end of the valuation day during which the amount was
allocated or transferred. The number of accumulation units in any subaccount
will be increased at the end of the valuation day by:
- any premium payments allocated to the subaccount during the
current valuation day; and
- by any amounts transferred to the subaccount from another
subaccount or from the fixed account during the current
valuation day.
Any amounts transferred, surrendered or deducted from a subaccount will
be processed by canceling or liquidating accumulation units. The number of
accumulation units to be canceled is determined by dividing the dollar amount
being removed from a subaccount by the accumulation unit value for that
subaccount at the end of the valuation day during which the amount was removed.
The number of accumulation units in any subaccount will be decreased at the end
of the valuation day by:
- any amounts transferred (including any applicable transfer
fee) from that subaccount to another subaccount or to the
fixed account on that valuation day;
- any amounts withdrawn or surrendered (including any
applicable surrender charges and premium taxes) on that
valuation day; and
- the Records Maintenance Charge, if assessed on that
valuation day.
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<PAGE> 24
ACCUMULATION UNIT VALUE
The accumulation unit value for each subaccount's first valuation day
was set at $10. The accumulation unit value for each subaccount is recalculated
at the end of each valuation day by multiplying the accumulation unit value at
the end of the immediately preceding valuation day by the Net Investment Factor
for the valuation day for which the value is being determined. The new
accumulation unit value reflects the investment performance of the underlying
portfolio, and the daily deduction of: (i) the mortality and expense risk
charge, (ii) any charge for enhanced benefit riders, and (iii) the daily
administrative charge during each valuation period.
We determine a separate accumulation unit value for each subaccount. We
will also determine separate sets of accumulation unit value reflecting the
costs of the Guaranteed Minimum Death Benefit and the Guaranteed Retirement
Income Benefit.
The formula for computing the Net Investment Factor is in the SAI.
TRANSFERS BETWEEN INVESTMENT OPTIONS
================================================================================
After the right to examine period has expired and before the annuity
start date, you may transfer all or part of the amount in a subaccount or the
fixed account to another subaccount or the fixed account, subject to the
restrictions described below.
The minimum amount that you may transfer is $100 or your total value in
that subaccount, if less. If you request a transfer that would reduce the amount
in a subaccount or fixed account below $500, we will transfer the entire amount
in the subaccount.
You may make one transfer from the fixed account to the subaccounts
each Contract year during the 30 days following a Contract anniversary. We
measure a Contract year from the anniversary of the issue date. You may not make
a transfer into the fixed account during the six months following any transfer
you make out of the fixed account to any subaccount(s).
Transfers will be processed based on the accumulation unit values
determined at the end of the valuation day on which we receive your written
request or telephone authorization to transfer, provided we receive the request
at our Service Center before the close of our valuation day, usually 4:00 p.m.
Eastern Time (1:00 p.m. Pacific Time). If we receive your request after the
close of our valuation day, we will process the transfer request using the
accumulation unit value for the next valuation day. There currently is no limit
on the number of transfers that you can make among subaccounts or to the fixed
account
We may suspend or modify this transfer privilege at any time.
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<PAGE> 25
AUTOMATIC ASSET REBALANCING PROGRAM
The automatic asset rebalancing program permits you to maintain the
percentage of the Contract Value allocated to each subaccount at a pre-set
level. Under the program, automatic transfers are made among the subaccounts on
a quarterly basis so that your Contract Value is reallocated to match the
percentages you specify. Asset rebalancing is consistent with maintaining your
allocation of investments among market segments, although it is accomplished by
reducing your Contract Value allocated to the better performing segments.
Transfers under this program are not subject to the $100 minimum
transfer limitation. We will not charge a transfer fee for asset rebalancing.
You may not include the fixed account in the asset rebalancing program. We may
change, terminate, limit or suspend automatic asset rebalancing at any time.
You may elect automatic asset rebalancing on your application or you
may enroll in automatic asset rebalancing at any time by completing a form and
return it to the Service Center. You may cancel your participation in the
program at any time.
We may suspend or modify this automatic asset rebalancing program at
any time.
THIRD PARTY TRANSFERS
If you authorize a third party to transact transfers on your behalf, we
will honor their transfer instructions, so long as they comply with our
administrative systems, rules and procedures, which we may modify or rescind at
any time. We take no responsibility for any third party asset allocation
program. PLEASE NOTE that any fees and charges assessed for third party asset
allocation services are separate and distinct from the Contract fees and charges
set forth in this prospectus. We neither recommend nor discourage the use of
asset allocation services.
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers in any Contract year, or to
refuse any transfer request for a Contract owner if:
- we believe, in our sole discretion, that excessive trading by the
Contract owner, or a specific transfer request, or a group of
transfer requests, may have a detrimental effect on the
accumulation unit values of any subaccount or the share prices of
any portfolio or would be detrimental to other Contract owners; or
- we are informed by one or more portfolios that they intend to
restrict the purchase of portfolio shares because of excessive
trading or because they believe that a specific transfer or group
of transfers would have a detrimental effect on the price of
portfolio shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract owners.
DOLLAR COST AVERAGING PROGRAM
Under the dollar cost averaging program, you may authorize us to
transfer a fixed dollar amount at monthly intervals from the fixed account to
one or more subaccounts. You may designate up to eight
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<PAGE> 26
subaccounts to receive the transfers. The fixed dollar amount will purchase more
accumulation units of a subaccount when their value is lower and fewer units
when their value is higher. Over time, the cost per unit averages out to be less
than if all purchases of units had been made at the highest value and greater
than if all purchases had been made at the lowest value. The dollar cost
averaging method of investment reduces the risk of making purchases only when
the price of accumulation units is high. It does not assure a profit or protect
against a loss in declining markets.
Dollar cost averaging is only available during the pay-in period. You
may cancel your participation in the program at any time.
You may enroll in the dollar cost averaging program at any time by
completing our dollar cost averaging form and sending it to the Service Center.
We make transfers on the same day of every month as your issue date. We must
receive the form at least 5 valuation days before the transfer date, for your
transfers to begin on that date. When you enroll in the dollar cost averaging
program, your total Contract Value in an account must be at least equal to the
amount you designate to be transferred on each transfer date. Transfers from the
fixed account must be at least $100.
We may suspend or modify this dollar cost averaging program at any
time.
TELEPHONE TRANSFERS
Unless you notify us on your application or in writing that you do not
want the ability to make transfers by telephone, you will have the ability to
make a transfer by giving us instructions over the telephone. You may use your
telephone to authorize a transfer from one subaccount or the fixed account to
another subaccount or the fixed account, to change the allocation instructions
for future investments, and/or to change asset rebalancing and dollar cost
averaging programs.
We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If we follow such procedures we will not
be liable for any losses due to unauthorized or fraudulent instructions. We may
be liable for such losses if we do not follow those reasonable procedures.
The procedures that we may follow for telephone transfers include:
- providing you with a written confirmation of all transfers made
according to telephone instructions,
- requiring a form of personal identification prior to acting on
instructions received by telephone, and
- tape recording instructions received by telephone.
We reserve the right to modify, restrict, suspend or eliminate the
transfer privileges (including the telephone transfer facility) at any time, for
any class of Contracts, for any reason.
TRANSFER FEE
We will impose a transfer fee of $25 for the thirteenth and each
subsequent transfer request you make per Contract year. Transfers you make
pursuant to the asset rebalancing and dollar cost averaging programs do not
count toward your 12 free transfers. See "Fees and Charges."
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<PAGE> 27
ACCESS TO YOUR MONEY
================================================================================
SURRENDERS
At any time before the annuity start date, you may surrender your
Contract for its cash value.
The cash value is equal to :
- the Contract Value; minus
- any applicable surrender charges; minus
- any premium taxes not previously deducted; minus
- the Records Maintenance Charge unless waived.
The cash value will be determined at the accumulation unit value next
determined as of the close of business on the day we receive your written
request for surrender at the Service Center, unless you specify a later date in
your request. If we receive your written request after the close of our business
day, usually 4:00 p.m. Eastern Time, we will determine the surrender value as of
the next business day. The cash value will be paid in a lump sum unless you
request payment under an annuity option. A surrender may have adverse federal
income tax consequences, including a penalty tax. See "Federal Tax
Consequences."
PARTIAL WITHDRAWALS
Once each calendar quarter before the annuity start date, you may
request a withdrawal of part of your cash value. Partial withdrawals are subject
to the following conditions:
- the minimum amount you can withdraw is $100; and
- you may not make a partial withdrawal if the withdrawal
plus the surrender charge would cause the Contract Value to
fall below $500.
We will withdraw the amount you request from the Contract Value as of
the valuation day on which we receive your written request for the partial
withdrawal at our Service Center, provided we receive it before the close of our
business day, usually 4:00 p.m. Eastern Time. If we receive your request after
the close of our business day, we will make the withdrawal as of the next
business day. We will then reduce the amount remaining in the Contract by any
applicable surrender charge plus the dollar amount we sent to you.
You may specify how much you wish to withdraw from each subaccount
and/or the fixed account. If you do not specify, or if you do not have
sufficient assets in the subaccounts or fixed account you specified to comply
with your request, we will make the partial withdrawal on a pro rata basis from
the fixed account and those subaccounts in which you are invested. We will base
the pro rata reduction on the ratio that the value in each subaccount and the
fixed account has to the entire Contract Value before the partial withdrawal.
Remember, any partial withdrawal you take will reduce your Contract
Value, and will proportionally reduce the minimum death benefit by the amount of
the withdrawals plus any charges. See "Death Benefits."
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<PAGE> 28
If you elected the Guaranteed Minimum Death Benefit, a partial
withdrawal will proportionally reduce the Greatest Anniversary Value and the
amount of premiums (plus interest) being accumulated at 4% annually. Likewise,
if you elected the Guaranteed Retirement Income Benefit, a partial withdrawal
will proportionally reduce the Income Base. The impact of a proportional
reduction on these benefits depends, in part, upon the relative amount of your
Contract Value at the time of the withdrawal. Under proportional reductions, if
the amount of the death benefit or Income Base is greater than the Contract
Value at the time of the partial withdrawal, then the reduction in the death
benefit or Income Base will be greater than the dollar amount of the withdrawal
(including any charges). For this reason, if a death benefit is paid, or the
Income Base is calculated, after you have taken a partial withdrawal, the
possibility exists that the total amount of the death benefit or Income Base
will be less than the total premium payments you have paid. See "Death Benefits"
and "Guaranteed Retirement Income Benefit."
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
Your right to make surrenders and partial withdrawals is also subject
to any restrictions imposed by applicable law or employee benefit plan.
See "Surrender Charges" for an explanation of the surrender charges
that may apply.
SYSTEMATIC WITHDRAWAL PLAN
After your first Contract year, you can elect to receive regular
payments from your Contract Value during the pay-in period. You instruct us to
withdraw selected amounts from the fixed account or any of the subaccounts. We
will make these withdrawals on a monthly basis. You must complete an enrollment
form and send it to the Service Center. You may terminate the systematic
withdrawal plan at any time.
There are some limitations to the systematic withdrawal plan:
- Withdrawals must be at least $100.
- You must have a minimum balance at least equal to the amount
you want to withdraw.
- We will deduct a surrender charge from any amount you
withdraw in excess of your free withdrawal amount.
Income taxes and tax penalties may apply to the amount withdrawn. We
may suspend or modify the systematic withdrawal plan at any time.
DEATH BENEFITS
================================================================================
Only one death benefit will be payable under this Contract. Upon
payment of the death benefit proceeds, the Contract will terminate.
DEATH BENEFITS BEFORE THE ANNUITY START DATE
We will pay a death benefit to the beneficiary if any of the following
occurs during the pay-in period:
- the owner or any joint owner dies, or
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<PAGE> 29
- the last surviving annuitant dies.
If any owner is a non-natural person, then the death of any annuitant
will be treated as the death of an owner.
STANDARD DEATH BENEFIT
If you have not selected the Guaranteed Minimum Death Benefit on your
application, and if an annuitant (including an owner who is an annuitant) dies
before his or her 80th birthday, the death benefit equals the greater of:
- the Contract Value on the later of the date that we receive
due proof of death and the date when we receive the
beneficiary's instructions on payment method at the Service
Center; or
- the minimum death benefit. The minimum death benefit equals
the sum of all premiums, minus proportional reductions for
withdrawals.
In all other cases, the death benefit equals the Contract Value
determined on the later of the date that we receive due proof of death and the
date when we receive the beneficiary's instructions on payment method. Such
other cases include the death of an annuitant who has attained his or her 80th
birthday, or death of an owner who is not an annuitant.
The proportional reduction in the minimum death benefit equals:
- the minimum death benefit immediately prior to the
withdrawal; multiplied by
- the ratio of the amount you withdraw (including any
charges) to the Contract Value immediately before the
withdrawal.
GUARANTEED MINIMUM DEATH BENEFIT
On your Contract application, you may select the Guaranteed Minimum
Death Benefit. Under this benefit, the death benefit payable in the event of the
last surviving annuitant's death is enhanced as described below. This death
benefit is only payable during the pay-in period and is not available after the
annuity start date. No Guaranteed Minimum Death Benefit is ever payable if a
non-annuitant owner dies. If you select this option, we will deduct an
additional charge equal, on an annual basis, to 0.25% of the average net assets
you have invested in the subaccounts.
Under the Guaranteed Minimum Death Benefit, the death benefit we will
pay upon the death of the last surviving annuitant is the greatest of the
following:
1. the standard death benefit as described above;
2. premiums you paid accumulated daily with interest compounded
at a rate of 4% per year through the earlier of (i) the date
of death, or (ii) the Contract anniversary on or next
following the last surviving annuitant's 80th birthday, minus
proportional reductions for withdrawals; or
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3. the Greatest Anniversary Value on any contract anniversary
through the earlier of the date of death or the Contract
anniversary on or next following the last surviving
annuitant's 80th birthday, minus proportional reductions for
withdrawals.
The Greatest Anniversary Value is calculated as follows: an
anniversary value is defined for each eligible Contract
anniversary as the Contract Value on that anniversary,
increased by premiums accepted since that anniversary and
proportionately reduced for withdrawals since that
anniversary. The largest such anniversary value is the
Greatest Anniversary Value.
If the last surviving annuitant dies after the Contract anniversary
coincident with or next following that annuitant's 80th birthday and before the
annuity start date, the amounts calculated under 2. and 3. will be increased by
premiums received and proportionately reduced for withdrawals since that
anniversary.
If the last surviving annuitant was older than 80 on the issue date,
then no death benefit will be payable under 2. or 3. above.
The proportional reductions for withdrawals are determined
independently for 2. and 3. above. The proportional reduction for each
withdrawal is equal to the product of:
- the death benefit available under the item being considered
(either 2. or 3.) immediately prior to the withdrawal, and
- the ratio of the amount withdrawn (including any charges)
to the Contract Value immediately before the withdrawal.
The Guaranteed Minimum Death Benefit will end when the Contract ends or
you send a signed request to terminate it to the Service Center. If you
terminate the rider, we will no longer deduct the 0.25% additional rider charge
from the subaccounts.
In determining the death benefit, we will also subtract any applicable
premium and withholding taxes not previously deducted.
The Guaranteed Minimum Death Benefit may not be available in all
states, and it may vary by state.
DISTRIBUTION UPON DEATH
If a death benefit is payable before the Annuity Start Date, we will
pay the death benefit in a lump sum, unless we consent to another arrangement
within 90 days of receiving due proof of death.
In all events, death benefit distributions will be made from the
Contract in accordance with Section 72(s) of the Tax Code.
If any owner dies before the annuity start date, the death benefit must
be distributed to the beneficiaries within five years after the date of death or
distributed over the life (or period not exceeding the life expectancy) of the
beneficiary, provided that such distributions begin within one year of the
owner's death. A new settlement agreement will be drawn up and the original
Contract will terminate. The payments under this agreement will be fixed and
guaranteed. If you have named two or more beneficiaries, then the provisions of
this section shall apply independently to each beneficiary.
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<PAGE> 31
If the sole beneficiary is the surviving spouse of the deceased owner,
the Contract may be continued (in lieu of paying the death benefit) with the
surviving spouse as the sole owner.
If an owner is a non-natural person, then each annuitant will be
treated as an owner for purposes of distributing the death benefit, and any
death of an annuitant will be treated as the death of the owner for purposes of
these requirements. Moreover, if the annuitant is also an owner, then the death
of such annuitant will also be treated as the death of an owner.
DEATH BENEFITS ON OR AFTER THE ANNUITY START DATE
If an annuitant dies on or after the annuity start date, we will pay
any remaining guaranteed payments to the beneficiary as provided in the annuity
option selected. If you are not the annuitant and you die while an annuitant is
still living, we will continue to pay the income payments for the annuitant's
lifetime in the same manner as before your death.
FEES AND CHARGES
================================================================================
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we deduct a
daily mortality and expense risk charge from your net assets in the subaccounts.
The charge is equal, on an annual basis, to 0.95% of average daily net assets
you have invested in the subaccounts.
The mortality risk we assume is that annuitants may live for a longer
period of time than estimated when we established the guarantees in the
Contract. Because of these guarantees, each annuitant is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that we assume also includes a guarantee to pay a death benefit if the
annuitant dies before the annuity start date. The expense risk that we assume is
the risk that the administrative fees and transfer fees (if imposed) may be
insufficient to cover actual future expenses. We may use any profits from this
charge to pay the costs of distributing the Contracts.
If you choose either the Guaranteed Minimum Death Benefit or the
Guaranteed Retirement Income, we will deduct an additional daily fee from your
value in the subaccounts at an annual rate of 0.25% of average daily net assets
you have invested in the subaccounts. If you choose both benefits, the
additional daily fee will increase to an annual rate of 0.50%. See "Fee Table."
ASSET-BASED ADMINISTRATION CHARGE
We deduct a daily asset-based administration charge from each
subaccount to help reimburse us for our administrative costs, such as owner
inquiries, changes in allocations, owner reports, Contract maintenance costs and
data processing costs. This charge is equal, on an annual basis, to 0.20% of
your average daily net assets in the subaccounts. This charge is designed to
help compensate us for the cost of administering the Contracts and the variable
account.
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<PAGE> 32
TRANSFER FEE
A transfer fee of $25 will be imposed for the thirteenth and each
subsequent transfer during a Contract year. Any unused free transfers do not
carry over to the next Contract year. Each written or telephone request would be
considered to be one transfer, regardless of the number of subaccounts affected
by the transfer. Transfers you make through our asset rebalancing and dollar
cost averaging programs do not count toward your twelve free transfers. We
deduct the transfer fee from the amount transferred.
SURRENDER CHARGE
We do not deduct a charge for sales expenses from premium payments at
the time premium payments are paid to us. However, we will deduct a surrender
charge, if applicable, if you surrender your Contract or partially withdraw cash
value before the annuity start date, or if you annuitize your Contract. We do
not assess a surrender charge on withdrawals made if the Contract terminates due
to your death or the death of the last surviving annuitant.
As a general rule, the surrender charge equals a percentage of the
premium payments withdrawn that: (a) we have held for less than seven years; and
(b) are not eligible for a free withdrawal. The surrender charge applies during
the entire seven year period following each premium payment. The applicable
percentage depends on the number of years since you made the premium payment
being withdrawn, as shown on this chart:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED
YEARS FROM THE DATE OF SURRENDER CHARGE
PREMIUM PAYMENTS PERCENTAGE
----------------------------------------- ---------------------------------
<S> <C>
0.............................. 7%
1.............................. 6%
2.............................. 5%
3.............................. 5%
4.............................. 4%
5.............................. 3%
6.............................. 2%
7 and later.................... 0%
</TABLE>
In determining surrender charges, we will deem premiums to be
surrendered in the order in which they were received -- that is, on a first-in,
first-out basis.
Because surrender charges are based on the date each premium payment is
made, you may be subject to a surrender charge, even though the Contract may
have been issued many years earlier.
When you request a withdrawal, you will be sent a check in the amount
you requested, less applicable tax withholding. If a surrender charge applies,
your Contract Value will be reduced by the dollar amount we send you, plus the
surrender charge. The surrender charge is deducted pro-rata from all subaccounts
and the fixed account in which the Contract is invested based on the remaining
Contract Value in each subaccount and the fixed account, unless you request
otherwise.
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<PAGE> 33
FREE WITHDRAWAL AMOUNT
In any Contract year before the annuity start date, you may withdraw a
portion of your Contract Value once each calendar quarter without incurring a
surrender charge. This amount is called the free withdrawal amount. Each
Contract year, the free withdrawal amount is an amount up to the greater of:
- Contract Value minus total premiums and minus prior
withdrawals that were previously assessed a surrender
charge; or
- 10% of the Contract Value determined at the time the
withdrawal is requested.
In addition, you may withdraw, free of surrender charge, any premium that has
been held by us for more than seven years.
EXAMPLE OF SURRENDER CHARGE CALCULATION
This example is for a Contract issued on July 1, 2000 with a $10,000
premium paid on the issue date. No subsequent premiums are paid.
The owner wishes to withdraw $4,000 on September 15, 2003. Suppose the
Contract Value is $12,700 on that date, before the withdrawal.
The free withdrawal amount is the larger of (a) and (b):
(a) $12,700 - 10,000 = $2,700
(b) (10%)(12,700) = $1,270
The free withdrawal amount is $2,700. The remaining portion of the withdrawal is
subject to a surrender charge. Since this amount represents the withdrawal of
premium paid between 3 and 4 years ago, the surrender charge percentage is 5%.
The surrender charge is calculated as follows:
($4,000 - $2,700)(5%) = $65
Free withdrawals may be subject to the 10% federal penalty tax if made before
you reach age 59 1/2. They also may be subject to federal income tax.
WAIVER OF SURRENDER CHARGE RIDERS
If state law permits and subject to certain restrictions, we will
automatically issue two riders with your Contract. As described in these
riders, we will waive the surrender charge:
- after an annuitant (who is under age 75) has been confined in a
hospital or skilled heath care facility continuously for at least
90 days; or
- (after one year from the effective date of the rider) if an
annuitant is diagnosed with a terminal illness after we issue the
Contract and is expected to live for 12 months or less, up to an
aggregate maximum withdrawal of $250,000.
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<PAGE> 34
RECORDS MAINTENANCE CHARGE
At the end of each Contract year before the annuity start date, we will
deduct a records maintenance charge of $30 from your Contract Value as partial
reimbursement for our administrative expenses relating to the Contract. We will
deduct the fee from each subaccount and the fixed account based on the
proportion that the value in each subaccount and the fixed account bears to the
total Contract Value. We will also deduct this charge on the annuity start date,
or the date you surrender the Contract.
We will not deduct this fee after annuity payments have begun. We also
currently waive deduction of the charge for Contracts whose Contract Value is
$50,000 or more on the date of assessment.
PORTFOLIO MANAGEMENT FEES AND CHARGES
Each portfolio deducts portfolio management fees and charges from the
amounts you have invested in the portfolios. In addition, one portfolio deducts
12b-1 fees. For 1999, total portfolio fees and charges ranged from 0.43% to
1.81%. See the Fee Table in this Prospectus and the prospectuses for the
portfolios.
We receive compensation from certain investment advisers and/or
administrators (and/or an affiliate thereof) of the portfolios in connection
with administrative or other services and cost savings experienced by the
investment advisers, administrators or affiliate. Such compensation may range
from 0.15% to 0.25% and is based on a percentage of assets of the particular
portfolios attributable to the Contract, and in some cases, other contracts
issued by Farmers (or its affiliates). We also receive a portion of the 12b-1
fees deducted from portfolio assets as reimbursement for providing certain
services permitted under the fund's 12b-1 plan. Some advisers, administrators,
or portfolios may pay us more than others.
PREMIUM TAXES
Various states and other governmental entities charge a premium tax on
annuity contracts issued by insurance companies. Premium tax rates currently
range up to 3.5%, depending on the state. We are responsible for paying these
taxes. If applicable, we will deduct the cost of such taxes from the value of
your Contract either:
- from premium payments as we receive them,
- from Contract Value upon surrender or partial withdrawal,
- on the annuity start date, or
- upon payment of a death benefit.
OTHER TAXES
Currently, no charge is made against the variable account for any
federal, state or local taxes (other than premium taxes) that we incur or that
may be attributable to the variable account or the Contracts. We may, however,
deduct such a charge in the future, if necessary.
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<PAGE> 35
THE PAYOUT PERIOD
================================================================================
THE ANNUITY START DATE
The annuity start date is the day that the payout period begins under
the annuity option you have selected. If you own a Contract that is not a
qualified Contract, you must select the annuity start date on which you will
begin to receive annuity payments. The annuity start date can be no later than
the Final Annuity Date (the Contract anniversary when the oldest annuitant is
age 95).
In the case of an IRA that satisfies Tax Code section 408, the annuity
start date must be no later than April 1 of the calendar year following the year
in which you reach age 70 1/2 and the payment must be made in a specified form
or manner. Roth IRAs under section 408A of the Tax Code do not require
distributions at any time prior to your death; the annuity start date for Roth
IRAs can be no later than the final annuity date.
ANNUITY OPTIONS
You must chose an annuity option on or before the annuity start date.
The annuity option you select will affect the dollar amount of each annuity
payment you receive. You may select or change your annuity option on or before
the annuity start date while the annuitant is living by sending a written
request signed by you and/or your beneficiary, as appropriate, to our Home
Office. You may choose one of the annuity options described below or any other
annuity option being offered by us as of the annuity start date. The annuity
options we currently offer provide for fixed annuity payments.
You may elect to receive annuity payments on a monthly, quarterly,
semi-annual or annual basis. If you do not specify the frequency of payment, we
will pay you monthly. The first payment under any option will be made on the day
of the month you request (subject to our agreement) and will begin in the month
immediately following the annuity start date. We will make subsequent payments
on the same day of each subsequent period in accordance with the payment
interval and annuity option you select.
If you do not select an annuity option by the Final Annuity Date, we
will apply the Contract Value under the Second Option, Life Income with a 10
year guarantee period, as described below.
A beneficiary may have the death benefit paid as an annuity under one
of the annuity options.
DETERMINING THE AMOUNT OF YOUR ANNUITY PAYMENT
On the annuity start date, we will use the cash value to calculate your
annuity payments under the annuity option you select. Cash value is your
Contract Value minus any applicable surrender charges, records maintenance fee,
and premium tax.
For qualified Contracts, distributions must satisfy certain
requirements specified in the Tax Code.
FIXED ANNUITY PAYMENTS
Fixed annuity payments are periodic payments that we make to the
annuitant. The amount of the fixed annuity payment is fixed and guaranteed by
us.
The amount of each payment depends on:
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<PAGE> 36
- the form and duration of the annuity option you choose;
- the age of the annuitant;
- the sex of the annuitant (if applicable);
- the amount of your Contract Value on the annuity start date; and
- the applicable guaranteed annuity tables in the Contract.
The guaranteed annuity tables in the Contract are based on a minimum
guaranteed interest rate of 2.5%. We may, in our sole discretion, make annuity
payments in an amount based on a higher interest rate.
GUARANTEED ANNUITY TABLES
The guaranteed annuity tables in your Contract show the minimum dollar
amount of the first monthly payment for each $1,000 applied under the first,
second and third annuity options. Under the first or second options, the amount
of each payment will depend upon the adjusted age and sex of the annuitant at
the time we are due to pay the first payment. Under the third option, the amount
of each payment will depend upon the sex of both annuitants and their adjusted
ages at the time we are due to pay the first payment.
The adjusted age of the annuitant is determined by calculating the age
at the nearest birthday of the annuitant on the annuity start date and
subtracting a number that depends on the year in which the annuity start date
belongs:
<TABLE>
<CAPTION>
annuity start date Adjusted Age is Age Minus
------------------ -------------------------
<S> <C>
Before 2001 0 Years
2001 to 2010 1 Year
2011 to 2020 2 Years
2021 to 2030 3 Years
2031 to 2040 4 Years
After 2040 5 Years
</TABLE>
Once you have selected an annuity option, you may not change that
election with respect to any annuitant if annuity payments have begun.
After the annuity start date, the Contract no longer participates in
the variable account.
DESCRIPTION OF ANNUITY OPTIONS
FIRST OPTION -- LIFE INCOME.* We will make payments for the annuitant's
lifetime. We will stop making monthly payments with the last payment due prior
to the annuitant's death.
SECOND OPTION -- LIFE INCOME WITH A GUARANTEE PERIOD. We will make
payments for the annuitant's lifetime, with the guarantee that we will make
payments for at least 10 or 20 years. You select either the 10 or 20 year
guarantee period.
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THIRD OPTION -- JOINT AND SURVIVOR LIFE ANNUITY.* Under this option, we
will make annuity payments so long as two annuitants are alive. After the death
of one of the annuitants, we will continue to make payments for the lifetime of
the surviving annuitant, although the amount of the payment may change. We will
stop making monthly payments with the last payment due before the last surviving
annuitant's death.
- ---------------
* IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
ANNUITANT DIES (OR ANNUITANTS DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR
TO RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE ANNUITANT DIES (OR ANNUITANTS DIE)
BEFORE THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
The amount of each payment will be determined from the tables in the
Contract that apply to the particular option using the annuitant's age (and if
applicable, sex or adjusted age).
Other options may be available.
GUARANTEED RETIREMENT INCOME BENEFIT
================================================================================
We offer an optional Guaranteed Retirement Income Benefit under this
Contract. Here are some terms you will need to know before reading this section:
- THE GUARANTEED ANNUITY RATES are the rates contained in your Contract.
See "Guaranteed Annuity Tables."
- INCOME BASE equals the greater of:
(i) premiums you paid accumulated daily with interest compounded
at 5.00% per year through the earlier of the annuity start
date and the Contract anniversary on or next following the
oldest joint annuitant's 80th birthday, with a proportional
reduction for withdrawals; and
(ii) the Greatest Anniversary Value for the Contract anniversaries
through the earlier of the annuity start date and the Contract
anniversary on or next following the oldest joint annuitant's
80th birthday, with a proportional reduction for withdrawals.
In determining the income base when the oldest joint annuitant is over
80 on the annuity start date, the income base on the Contract anniversary
coincident with or next following the annuitant's 80th birthday is increased by
any premiums received and proportionately reduced by any withdrawals since that
anniversary.
- PROPORTIONAL REDUCTION (for purposes of the Guaranteed Retirement Income
Benefit) equals:
- the income base under either (i) or (ii) above immediately prior
to the withdrawal; MULTIPLIED BY
- the ratio of the amount withdrawn (including charges) to the
Contract Value immediately prior to the withdrawal.
* * *
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The Guaranteed Retirement Income Benefit provides a minimum fixed
annuity guaranteed lifetime income to the annuitant once the Contract has been
in force for ten Contract years. You must select the Guaranteed Retirement
Income Benefit on your initial Contract application. You may discontinue the
Guaranteed Retirement Income Benefit at any time by sending notice to the
Service Center. Once you discontinue the Guaranteed Retirement Income Benefit,
you may not select it again.
If you select the Guaranteed Retirement Income Benefit, we will deduct
an additional daily charge on each valuation day from the subaccounts at an
annual rate of 0.25% of the average daily net assets you have invested in the
subaccounts. See "Fees and Charges."
You may choose to receive the Guaranteed Retirement Income Benefit on
the annuity start date, if all of the following conditions are met:
- You choose an annuity option that provides payments for the
lifetime of one or more annuitants with payments guaranteed for a
period not to exceed 10 years;
- You select an annuity start date that is on or after the 10th
Contract anniversary;
- You select an annuity start date that occurs within 30 days
following a Contract anniversary;
- The annuity start date is before the annuitant's 91st birthday and
after the annuitant's 60th birthday. If the annuitant is younger
than 44 on the issue date, the annuity start date must be after
the 15th Contract anniversary.
The amount of minimum income payments we will pay under the Guaranteed
Retirement Income Benefit is determined by applying the income base (less
applicable taxes) to the guaranteed annuity table rates in your Contract for the
annuity option you select. On the annuity start date, the income payments we
will pay under the Contract will equal the greater of:
- the dollar amount determined by applying the income base (under
the Guaranteed Retirement Income Benefit) to the guaranteed
annuity tables in the Contract; and
- the dollar amount determined by applying the Contract's cash value
to the income benefits, annuity options and current annuity tables
as described in your Contract.
We will pay the Guaranteed Retirement Income Benefit for the life of a
single annuitant, or the lifetimes of two annuitants. If we pay the Guaranteed
Retirement Income Benefit for the life of two annuitants, then we will use the
age of the oldest joint annuitant to determine the income base.
THE GUARANTEED RETIREMENT INCOME BENEFIT GUARANTEES A MINIMUM INCOME
THAT IS BASED ON CONSERVATIVE ACTUARIAL FACTORS. Therefore the income guaranteed
under the Guaranteed Retirement Income Benefit by applying the income base to
the Contract's guaranteed annuity tables may, under some circumstances, be less
than the income that would be provided by applying the Contract's cash value to
current annuity factors (i.e., the income you would receive if you did not
purchase the Guaranteed Retirement Income Benefit).
The Guaranteed Retirement Income Benefit may not be available in all
states, and it may vary by state.
<PAGE> 39
THE FIXED ACCOUNT
================================================================================
You may allocate some or all of your premium payments and transfer some
or all of your Contract Value to the fixed account. The fixed account offers a
guarantee of principal, after deductions for fees and expenses. We also
guarantee that you will earn interest at a rate of a least 3% per year on
amounts in the fixed account. The fixed account is part of our general account.
Our general account supports our insurance and annuity obligations. Because the
fixed account 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
our general liabilities from business operations. The fixed account may not be
available in all states.
The fixed account is not registered with the SEC under the Securities
Act of 1933 (the "1933 Act"). Neither the fixed account nor our general account
have been registered as an investment company under the 1940 Act. Therefore,
neither our general account, the fixed account, nor any interests therein are
generally subject to regulation under the 1933 Act or the 1940 Act. The
disclosures relating to the fixed account 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.
FIXED ACCOUNT VALUE
On each valuation period (before the annuity start date), the fixed
account value is equal to:
- the total of premiums allocated to the fixed account; MINUS
- any applicable premium taxes; PLUS
- amounts transferred from the subaccounts; INCREASED BY
- any credited interest; and DECREASED BY
- any transfers and withdrawals from the fixed account, and by any
charges deducted from the fixed account.
We intend to credit the fixed account with interest at current rates in
excess of the minimum guaranteed rate of 3%, but we are not obligated to do so.
We have no specific formula for determining current interest rates.
The fixed account value will not share in the investment performance of
our general account. Because we, in our sole discretion, anticipate changing the
current interest rate from time to time, different allocations you make to the
fixed account will be credited with different current interest rates. You assume
the risk that interest credited to amounts in the fixed account may not exceed
the minimum 3% guaranteed rate.
We reserve the right to change the method of crediting interest from
time to time, provided that such changes do not reduce the guaranteed rate of
interest below 3% per year or shorten the period for which the interest rate
applies to less than one year (except for the year in which such amount is
received or transferred).
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<PAGE> 40
We allocate amounts from the fixed account for partial withdrawals,
transfers to the subaccounts, or charges on a last in, first out basis ("LIFO")
for the purpose of crediting interest.
FIXED ACCOUNT TRANSFERS
GENERAL
A transfer charge of $25 will be imposed for the thirteenth and each
subsequent request you make to transfer Contract Value from one or more
subaccounts to the fixed account (or to one or more subaccounts) during a single
Contract year before the annuity start date.
Before the annuity start date, you may make one transfer each Contract
year during the 30 days following a Contract anniversary from the fixed account
to one or more of the subaccounts.
You may not make transfers from any subaccount to the fixed account
during the six months following any transfer you make from the fixed account to
any subaccount, or after you begin to receive annuity payments.
PAYMENT DEFERRAL
We have the right to defer payment of any surrender, partial
withdrawal, or transfer from the fixed account for up to six months from the
date we receive your written request at the Service Center. During such
deferral, we will continue to credit interest at the current guaranteed interest
rate for the fixed account.
INVESTMENT PERFORMANCE OF THE SUBACCOUNTS
================================================================================
The Company periodically advertises performance of the subaccounts and
portfolios. We may disclose at least four different kinds of performance.
First, we may disclose standard total return figures for the
subaccounts that reflect the deduction of all charges under the Contract,
including the mortality and expense charge, any charge for optional benefits,
the annual records maintenance charge and the surrender charge. These figures
are based on the actual historical performance of the subaccounts since their
inception.
Second, we may disclose total return figures on a non-standard basis.
This means that the data may be presented for different time periods and
different dollar amounts. The data will not be reduced by the surrender charge
or by charges for optional benefits currently assessed under the Contract. We
will only disclose non-standard performance data if it is accompanied by
standard total return data.
Third, we may present historic performance data for the portfolios
since their inception reduced by all fees and charges under the Contract,
although we may not deduct the surrender charge or the charges for optional
benefits in some cases. Such adjusted historic performance includes data that
precedes the inception dates of the subaccounts, but is designed to show the
performance that would have resulted if the Contract had been available during
that time.
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<PAGE> 41
Fourth, we may include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
In advertising and sales literature (including illustrations), the
performance of each subaccount may be compared with the performance of other
variable annuity issuers in general or to the performance of particular types of
variable annuities investing in mutual funds, or portfolios of mutual funds with
investment objectives similar to the subaccount. Lipper Analytical Services,
Inc. ("Lipper"), CDA Investment Technologies ("CDA"), Variable Annuity Research
Data Service ("VARDS") and Morningstar, Inc. ("Morningstar") are independent
services which monitor and rank the performance of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance
issuers as well as variable annuity issuers. VARDS rankings compare only
variable annuity issuers. The performance analyses prepared by Lipper, CDA,
VARDS and Morningstar rank or illustrate 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 variable 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 "deduction" for the expense of operating
or managing an investment portfolio. 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 systematic
withdrawals, systematic investments and tax-deferred compounding on a
subaccount's investment returns, or returns in general. We may illustrate this
information by using 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 subaccount investment
experience is positive.
VOTING RIGHTS
================================================================================
We are the legal owner of the portfolio shares held in the subaccounts.
However, when a portfolio is required to solicit the votes of its shareholders
through the use of proxies, we believe that current law requires us to solicit
you and other contract owners as to how we should vote the portfolio shares held
in the subaccounts. If we determine that we no longer are required to solicit
your votes, we may vote the shares in our own right.
When we solicit your vote, the number of votes you have will be
calculated separately for each subaccount in which you have an investment. The
number of your votes is based on the net asset value per share of the portfolio
in which the subaccount invests. It may include fractional shares. Before the
annuity start date, you hold a voting interest in each subaccount to which the
Contract Value is allocated. If you have a voting interest in a subaccount, you
will receive proxy materials and reports relating to any meeting of shareholders
of the portfolio in which that subaccount invests.
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<PAGE> 42
If we do not receive timely voting instructions for portfolio shares,
we will vote those shares in proportion to the voting instructions we receive.
Instructions we receive to abstain on any item will reduce the total number of
votes being cast on a matter. For further details as to how we determine the
number of your votes, see the SAI.
FEDERAL TAX MATTERS
================================================================================
The following discussion is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state tax or other tax laws.
We believe that our Contracts will qualify as annuity contracts for
federal income tax purposes and the following discussion assumes that they will
so qualify. Further information on the tax status of the Contract can be found
in the SAI under the heading "Tax Status of the Contracts."
When you invest in an annuity contract, you usually do not pay taxes on
your investment gains until you withdraw the money -- generally for retirement
purposes. In this way, annuity contracts have been recognized by the tax
authorities as a legitimate means of deferring tax on investment income.
If you invest in a variable annuity as part of an IRA, Roth IRA or
SIMPLE IRA program, your Contract is called a Qualified Contract. If your
annuity is independent of any formal retirement or pension plan, it is called a
Non-Qualified Contract.
We believe that if you are a natural person you will not be taxed on
increases in the Contract Value of your Contract until a distribution occurs or
until annuity payments begin. (The agreement to assign or pledge any portion of
a Contract's accumulation value generally will be treated as a distribution.)
When annuity payments begin, you will be taxed only on the investment gains you
have earned and not on the payments you made to purchase the Contract.
Generally, withdrawals from your annuity should only be made once the annuitant
reaches age 59 1/2, dies or is disabled, otherwise a tax penalty of ten percent
of the amount treated as income could be applied against any amounts included in
income, in addition to the tax otherwise imposed on such amount.
TAXATION OF NON-QUALIFIED CONTRACTS
NON-NATURAL PERSON
If a non-natural person (such as a corporation or a trust) owns a
non-qualified annuity contract, the owner generally must include in income any
increase in the excess of the accumulation value over the investment in the
contract (generally, the premiums or other consideration paid for the contract)
during the taxable year. There are some exceptions to this rule and a
prospective owner that is not a natural person should discuss these with a tax
adviser.
The following discussion generally applies to Contracts owned by
natural persons.
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<PAGE> 43
WITHDRAWALS
When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount equal
to the excess (if any) of the accumulation value immediately before the
distribution over the Owner's investment in the contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the contract.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution from a Contract, there may be imposed a
federal tax penalty equal to ten percent of the amount treated as income. In
general, however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments
for the life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special
rules may apply in connection with the exceptions enumerated above. Additional
exceptions apply to distributions from a Qualified Contract. You should consult
a tax adviser with regard to exceptions from the penalty tax.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity 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.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the
death of the annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (i) if distributed in a lump sum, they are taxed in
the same manner as a surrender of the Contract, or (ii) if distributed under an
annuity option, they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer or assignment of ownership of a Contract, the designation of
an annuitant, the selection of certain annuity start dates, or the exchange of a
Contract may result in certain tax consequences to you that are not discussed
herein. An Owner contemplating any such transfer, assignment or exchange, should
consult a tax advisor as to the tax consequences.
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<PAGE> 44
WITHHOLDING
Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All non-qualified defined annuity contracts that are issued by us (or
our affiliates) to the same Owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in such
Owner's income when a taxable distribution occurs.
FURTHER INFORMATION
We believe that the contracts will qualify as annuity contracts for
Federal income tax purposes and the above discussion is based on that
assumption. Further details can be found in the Statement of Additional
Information under the heading "Tax Status of the Contracts."
TAXATION OF QUALIFIED CONTRACTS
The tax rules that apply to Qualified Contracts vary according to the
type of retirement plan and the terms and conditions of the plan. Your rights
under a Qualified Contract may be subject to the terms of the retirement plan
itself, regardless of the terms of the Qualified Contract. Adverse tax
consequences may result if you do not ensure that contributions, distributions
and other transactions with respect to the Contract comply with the law.
INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of
the Tax Code, permit individuals to make annual contributions of up to the
lesser of $2,000 or 100% of the compensation included in your income for the
year. The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless certain exceptions apply. The Internal Revenue
Service has reviewed the Contract and its traditional IRA and SIMPLE IRA riders
and has issued an opinion letter approving the use of the Contract and the
riders as a traditional IRA and a SIMPLE IRA. The Internal Revenue Service has
not addressed in a ruling of general applicability whether a death benefit
provision such as the optional Guaranteed Minimum Death Benefit provision in the
Contract comports with IRA qualification requirements.
SIMPLE IRAS, permit certain small employers to establish SIMPLE plans
as provided by Section 408(p) of the Code, under which employees may elect to
defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased
for cost of living adjustments). The sponsoring employer is required to make
matching or non-elective contributions on behalf of the employees. Distributions
from SIMPLE IRAs 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, as described in Tax Code section 408A, permit certain
eligible individuals to make non-deductible contributions to a Roth IRA in cash
or as a rollover or transfer from another Roth IRA or other IRA. A rollover from
or conversion of an IRA to a Roth IRA is generally subject to tax and other
special rules apply. The Owner may wish to consult a tax adviser before
combining any converted
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<PAGE> 45
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 (1)
before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable
years starting with the year in which the first contribution is made to any Roth
IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an
IRA if they are distributed during the five taxable years beginning with the
year in which the conversion was made.
OTHER TAX ISSUES
Qualified Contracts have minimum distribution rules that govern the
timing and amount of distributions. You should consult a tax advisor for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to
withholding for the Owner's federal income tax liability. The withholding rate
varies according to the type of distribution and the Owner's tax status. The
Owner will be provided the opportunity to elect to not have tax withheld from
distributions.
OUR INCOME TAXES
At the present time, we make no charge for any federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment divisions (that is, the subaccounts)
of the variable account or to the Contracts. We do have the right in the future
to make additional charges for any such tax or other economic burden resulting
from the application of the tax laws that we determine is attributable to the
investment divisions of the variable account or the Contracts.
Under current laws in several states, we may incur state and local
taxes (in addition to premium taxes). These taxes are not now significant and we
are not currently charging for them. If they increase, we may deduct charges for
such taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative
changes that could otherwise diminish the favorable tax treatment that annuity
contract owners currently receive. We make no guarantee regarding the tax status
of any contract and do not intend the above discussion as tax advice.
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<PAGE> 46
OTHER INFORMATION
PAYMENTS
During the pay-in period, we will usually pay you any surrender,
partial withdrawal, or death benefit payment within seven calendar days after we
receive all the required information. The required information includes your
written request, any information or documentation we reasonably need to process
your request, and, in the case of a death benefit, receipt and filing of due
proof of death.
However, we may suspend or postpone payments during any period when:
- the New York Stock Exchange is closed, other than customary
weekend and holiday closings;
- trading on the New York Stock Exchange is restricted as determined
by the SEC;
- the SEC determines that an emergency exists that would make the
disposal of securities held in the variable account or the
determination of the value of the variable account's net assets
not reasonably practicable; or
- the SEC permits, by order, the suspension or postponement of
payments for your protection.
If a recent check or draft has been submitted, we have the right to
delay payment until we have assured ourselves that the check or draft has been
honored.
We have the right to defer payment for a surrender, partial withdrawal,
death benefit or transfer from the fixed account for up to six months from the
date we receive your written request.
MODIFICATION
Upon notice to you, we may modify the Contract to:
- permit the Contract or the variable account to comply with any
applicable law or regulation issued by a government agency;
- assure continued qualification of the Contract under the Tax Code
or other federal or state laws relating to retirement annuities or
variable annuity contracts;
- reflect a change in the operation of the variable account; or
- provide additional investment options.
In the event of most such modifications, we will make appropriate
endorsement to the Contract.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by licensed insurance agents in those states
where the Contract may be lawfully sold. The agents are also registered
representatives of registered broker-dealers that are members of the National
Association of Securities Dealers, Inc. ("NASD"). Sales commissions will be paid
to broker-dealers who sell the Contracts. Sales commissions may vary, but are
expected not to exceed 7.0% of premium payments. The broker-dealers are expected
to compensate sales representatives in varying amounts from these commissions.
In addition, we may pay additional promotional incentives, in the form of cash
or other compensation, such as production incentive bonuses, agent's insurance
and
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<PAGE> 47
pension benefits, and agency expense allowances. These distribution expenses do
not result in any additional charges against the Contracts other than those
described under "Fees and Charges."
Investors Brokerage Services, Inc. ("IBS"), 1 Kemper Drive, Long Grove,
Illinois 60049-0001, acts as the principal underwriter for the Contracts. IBS is
affiliated with Farmers. IBS is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the NASD.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. These
actions are in various stages of discovery and development, and some seek
punitive as well as compensatory damages. While it is not possible to predict
the outcome of such matters with absolute certainty, we believe that the
ultimate disposition of these proceedings should not have a material adverse
effect on the financial position of Farmers New World Life Insurance Company. In
addition, we are, from time to time, involved as a party to various governmental
and administrative proceedings. There are no pending or threatened lawsuits that
will materially impact the variable account.
REPORTS TO OWNERS
Before the annuity start date, we will mail a report to you at least
annually at your last known address of record. The report will state the
Contract Value (including the Contract Value in each subaccount and the fixed
account) of the Contract, and any further information required by any applicable
law or regulation.
INQUIRIES
Inquiries regarding your Contract may be made by calling or writing to
us at the Service Center.
YEAR 2000 MATTERS
In 1995, Farmers Group, Inc. ("FGI") initiated a Year 2000 project (the
"Year 2000 Project") in order to prepare for the information processing problems
presented by the approach of the new millennium. FGI expended significant
efforts to gain a complete understanding of Year 2000 implications and to
develop a strategy to make FGI's systems Year 2000 compliant. The costs
associated with the Year 2000 Project were expensed as incurred and, through
December 31, 1999, totaled $23.2 million. The costs related to the Year 2000
Project were consistent with management's expectations of the total costs that
would be incurred in connection with Year 2000 issue. No further costs related
to the Year 2000 Project are expected.
The Year 2000 issue has not presented any significant disruptions to
the operations of FGI. However, FGI will continue to monitor its systems
throughout the year to ensure that all systems are operating properly.
FINANCIAL STATEMENTS
Our audited balance sheets as of December 31, 1999 and 1998, and the
related statements of income, comprehensive income, stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1999,
as well as the Independent Auditors' Report, are contained in the SAI. Our
financial statements should be considered only as bearing on our ability to
meet our obligations under the
43
<PAGE> 48
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the variable account.
There are no financial statements for the variable account, because it
had not commenced operations as of December 31, 1999.
44
<PAGE> 49
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
The SAI contains additional information about the Contract and the variable
account. A SAI is available (at no cost) by writing to us at the address shown
on the front cover or by calling 1 (877) 376-8008. The following is the Table of
Contents for that SAI.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS.............................................................. 1
The Contract....................................................................... 1
Incontestability................................................................... 1
Incorrect Age or Sex............................................................... 1
Nonparticipation................................................................... 1
Waiver of Surrender Charge Riders.................................................. 2
Tax Status of the Contracts........................................................ 2
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA.................. 3
Money Market Subaccount Yields..................................................... 3
Other Subaccount Yields............................................................ 5
Average Annual Total Returns for the Subaccounts................................... 6
Non-Standard Subaccount Total Returns.............................................. 7
Adjusted Historic Portfolio Performance Data....................................... 7
Effect of the Records Maintenance Charge on Performance Data....................... 8
HISTORIC PERFORMANCE DATA................................................................... 8
General Limitations................................................................ 8
Time Periods Before the Date the Variable Account Commenced Operations............. 8
Tables of Adjusted Historic Total Return Quotations................................ 8
NET INVESTMENT FACTOR.......................................................................12
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS...........................................12
Resolving Material Conflicts.......................................................13
VOTING RIGHTS...............................................................................13
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS......................................................13
DISTRIBUTION OF THE CONTRACTS...............................................................14
LEGAL MATTERS...............................................................................14
EXPERTS.....................................................................................14
OTHER INFORMATION...........................................................................15
FINANCIAL STATEMENTS........................................................................15
</TABLE>
45
<PAGE> 50
STATEMENT OF ADDITIONAL INFORMATION
for the
FARMERS VARIABLE ANNUITY
Individual Flexible Premium Variable Annuity Contract
Issued Through
FARMERS ANNUITY SEPARATE ACCOUNT A
Offered by
FARMERS NEW WORLD LIFE INSURANCE COMPANY
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
(206) 232-8400
SERVICE CENTER:
P.O. Box 724208
Atlanta, Georgia 31139
1-877-376-8008 (toll free)
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Farmers Variable Annuity individual flexible
premium variable annuity contract offered by Farmers New World Life Insurance
Company. You may obtain a copy of the Prospectus for the Contract dated May 1,
2000 by calling 1-877-376-8008 or by writing to our SERVICE CENTER at P.O. Box
724208, Atlanta, Georgia 31139.
This Statement incorporates terms used in the current Prospectus for each
Contract.
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE PORTFOLIOS.
The date of this Statement of Additional Information is May 1, 2000.
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ADDITIONAL CONTRACT PROVISIONS............................................................1
The Contract.......................................................................1
Incontestability...................................................................1
Incorrect Age or Sex...............................................................1
Nonparticipation...................................................................2
Waiver of Surrender Charge Riders..................................................2
Tax Status of the Contracts........................................................2
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA................3
Money Market Subaccount Yields.....................................................3
Other Subaccount Yields............................................................5
Average Annual Total Returns for the Subaccounts...................................6
Non-Standard Subaccount Total Returns..............................................7
Adjusted Historic Portfolio Performance Data.......................................7
Effect of the Records Maintenance Charge on Performance Data.......................8
HISTORIC PERFORMANCE DATA.................................................................8
General Limitations................................................................8
Time Periods Before The Date The Variable Account Commenced Operations.............8
Tables Of Adjusted Historic Total Return Quotations................................8
NET INVESTMENT FACTOR....................................................................12
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........................................12
Resolving Material Conflicts......................................................13
VOTING RIGHTS............................................................................13
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS...................................................14
DISTRIBUTION OF THE CONTRACTS............................................................14
LEGAL MATTERS............................................................................14
EXPERTS..................................................................................15
OTHER INFORMATION........................................................................15
FINANCIAL STATEMENTS.....................................................................15
</TABLE>
i
<PAGE> 52
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract consists of the Contract, the signed application
attached at issue, any attached amendments and supplements to the application,
and any attached riders and endorsements. In the absence of fraud, we consider
allstatements in the application to be representations and not warranties. We
will not use any statement to contest a claim unless that statement is in an
attached application or in an amendment or supplement to the application
attached to the Contract.
Any change in the Contract or waiver of its provisions must be in writing
and signed by one of our officers. No other person -- no agent or registered
representative -- has authority to change or waive any provision of the
Contract.
Upon notice to you, we may modify the Contract if necessary to:
- permit the Contract or the variable account to comply with any
applicable law or regulation that a governmental agency issues; or
- assure continued qualification of the Contract under the Tax Code or
other federal or state laws relating to retirement annuities or
variable annuity contracts; or
- effect a change in the operation of the variable account or to provide
additional investment options.
In the event of such modifications, we will make the appropriate endorsement
to the Contract.
INCONTESTABILITY
We will not contest the Contract after the issue date.
INCORRECT AGE OR SEX
We may require proof of age, sex, and right to payments before making any
life annuity payments. If the age or sex (if applicable) of the annuitant has
been stated incorrectly, then we will determine the annuity start date and the
amount of the annuity payments by using the correct age and sex. After the
annuity start date, any adjustment for underpayment will be paid immediately.
Any adjustment for overpayment will be deducted from future payments. We will
make adjustments for overpayments or underpayments with interest at the rate
then in use to determine the rate of payments.
1
<PAGE> 53
NONPARTICIPATION
The Contract does not participate in our surplus earnings or profits. We
will not pay dividends on the Contract.
WAIVER OF SURRENDER CHARGE RIDERS
On issuance we will automatically issue riders that waive surrender charges
if:
- (if the owner is under age 75 at the time we issue the Contract)
the annuitant is confined in a hospital or skilled health care
facility continuously for at least 90 days and remains confined
at the time of the surrender request; or
- the annuitant is diagnosed with a terminal illness after the
Contract is issued and is expected to live for 12 months or
less, and the aggregate maximum withdrawal is $250,000, or less.
There is no additional charge for the issuance of the waiver of surrender
charge riders. These riders may not be available in all states.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must satisfy in
order to receive the tax treatment normally accorded to annuity contracts.
Diversification Requirements. The Tax Code requires that the investments of
each investment division of the variable account underlying the Contracts be
"adequately diversified" in order for the Contracts to be treated as annuity
contracts for Federal income tax purposes. It is intended that each investment
division, through the fund in which it invests, will satisfy these
diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the variable account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of our Contracts, such as the flexibility of an owner to allocate
premiums and transfer amounts among the investment divisions of the variable
account, have not been explicitly addressed in published rulings. While we
believe that the Contracts do not give Owners investment control over variable
account assets, we reserve the right to modify the Contracts as necessary to
prevent an Owner from being treated as the Owner of the variable account assets
supporting the Contract.
Required Distributions. In order to be treated as an annuity contract for
Federal income tax purposes, section 72(s) of the Tax Code requires any
Non-Qualified Contract to contain
2
<PAGE> 54
certain provisions specifying how your interest in the Contract will be
distributed in the event of the death of a holder of the Contract. Specifically,
section 72(s) requires that (a) if any Owner dies on or after the annuity
starting date, but prior to the time the entire interest in the Contract has
been distributed, the entire interest in the Contract will be distributed at
least as rapidly as under the method of distribution being used as of the date
of such Owner's death; and (b) if any owner dies prior to the annuity start
date, the entire interest in the Contract will be distributed within five years
after the date of such Owner's death. These requirements will be considered
satisfied as to any portion of an Owner's interest which is payable to or for
the benefit of a designated beneficiary and which is distributed over the life
of such designated beneficiary or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of the Owner's death. The designated beneficiary refers to a natural
person designated by the owner as a beneficiary and to whom ownership of the
Contract passes by reason of death. However, if the designated beneficiary is
the surviving spouse of the deceased Owner, the Contract may be continued with
the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions that are intended to comply
with these Tax Code requirements, although no regulations interpreting these
requirements have yet been issued. We intend to review such provisions and
modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
We may advertise and disclose historic performance data for the subaccounts,
including yields, standard annual total returns, and nonstandard measures of
performance of the subaccounts. Such performance data will be computed, or
accompanied by performance data computed, in accordance with the SEC defined
standards.
MONEY MARKET SUBACCOUNT YIELDS
Advertisements and sales literature may quote the current annualized yield
of the Money Market subaccount for a seven-day period in a manner that does not
take into consideration any realized or unrealized gains or losses, or income
other than investment income, on shares of the Money Market Portfolio.
We compute this current annualized yield by determining the net change (not
including any 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 subaccount under a
Contract having a balance of one unit of the Money Market subaccount at the
beginning of the period. We divide that net change in subaccount value by the
value of the hypothetical subaccount at the beginning of the period to determine
the base period return. Then we annualize this quotient on a 365-day basis. The
net change in account value reflects (i) net income from the Money Market
portfolio in which the hypothetical subaccount
3
<PAGE> 55
invests; and (ii) charges and deductions imposed under the Contract that are
attributable to the hypothetical subaccount.
These charges and deductions include the per unit charges for the records
maintenance charge, the mortality and expense risk charge for the standard death
benefit (and the mortality and expense risk charge for the Guaranteed Minimum
Death Benefit and the Guaranteed Retirement Income Benefit) and the asset-based
administration charge. For purposes of calculating current yields for a
Contract, we use an average per unit records maintenance charge based on the $30
records maintenance charge.
We calculate the current yield by the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market Portfolio (not
including any realized gains or losses on the sale of
securities, unrealized appreciation and depreciation, and
income other than investment income) for the seven-day period
attributable to a hypothetical subaccount having a balance of
one subaccount unit.
ES = per unit charges deducted from the hypothetical subaccount for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
We may also disclose the effective yield of the Money Market subaccount for
the same seven-day period, determined on a compounded basis. We calculate the
effective yield by compounding the unannualized base period return by adding one
to the base return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result.
365/7
Effective Yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market portfolio (not
including any realized gains or losses on the sale of
securities, unrealized appreciation and depreciation, and
income other than investment income) for the seven-day period
attributable to a hypothetical subaccount having a balance of
one subaccount unit.
ES = per unit charges deducted from the hypothetical subaccount for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
The Money Market subaccount yield is lower than the Money Market portfolio's
yield because of the charges and deductions that the Contract imposes.
4
<PAGE> 56
The current and effective yields on amounts held in the Money Market
subaccount normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD
FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Portfolio, the types and quality of
securities held by the Money Market Portfolio and that Portfolio's operating
expenses. We may also present yields on amounts held in the Money Market
subaccount for periods other than a seven-day period.
Yield calculations do not take into account the Surrender Charge that we
assess on certain withdrawals of Contract Value.
OTHER SUBACCOUNT YIELDS
Sales literature or advertisements may quote the current annualized yield
of one or more of the subaccounts (except the Money Market subaccount) under
the Contract for 30-day or one-month periods. The annualized yield of a
subaccount refers to income that the subaccount generates during a 30-day or
one-month period and is assumed to be generated during each period over a
12-month period.
We compute the annualized 30-day yield by:
1. dividing the net investment income of the portfolio attributable
to the subaccount units, less subaccount expenses attributable
to the Contract for the period, by the maximum offering price
per unit on the last day of the period;
2. multiplying the result by the daily average number of units
outstanding for the period;
3. compounding that yield for a 6-month period; and
4. multiplying the result by 2.
Expenses of the subaccount include the records maintenance charge, the
asset-based administration charge and the mortality and expense risk charge for
the standard death benefit (and the mortality and expense risk charge for the
Guaranteed Minimum Death Benefit and the Guaranteed Retirement Income Benefit).
The yield calculation assumes that we deduct the records maintenance charge at
the end of each Contract Year. For purposes of calculating the 30-day or
one-month yield, we divide an average records maintenance charge collected by
the average Contract Value in the subaccount to determine the amount of the
charge attributable to the subaccount for the 30-day or one-month period. We
calculate the 30-day or one-month yield by the following formula:
6
Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30-day or one-month period
attributable to the subaccount's units.
5
<PAGE> 57
ES = charges deducted from 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.
The yield for the subaccount is lower than the yield for the corresponding
portfolio because of the charges and deductions that the Contract imposes.
The yield on the amounts held in the subaccounts normally fluctuates over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The types and
quality of securities that a portfolio holds and its operating expenses affect
the corresponding subaccount's actual yield.
Yield calculations do not take into account the Surrender Charge that we
assess on certain withdrawals of Contract Value.
AVERAGE ANNUAL TOTAL RETURNS FOR THE SUBACCOUNTS
Sales literature or advertisements may quote average annual total returns
for one or more of the subaccounts for various periods of time. If we advertise
total return for the Money Market Subaccount, then those advertisements and
sales literature will include a statement that yield more closely reflects
current earnings than total return.
When a subaccount has been in operation for 1, 5, and 10 years,
respectively, we will provide the average annual total return for these periods.
We may also disclose average annual total returns for other periods of time.
Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods. Each period's ending date for which we provide total
return quotations will be for the most recent calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
We calculate the standard average annual total returns using subaccount unit
values that we calculate on each valuation day based on the performance of the
subaccount's underlying portfolio, the deductions for the mortality and expense
risk charge for the standard death benefit (and in some cases, the mortality and
expense risk charge for the Guaranteed Minimum Death Benefit and the Guaranteed
Retirement Income Benefit), the asset-based administration charge and the
records maintenance charge. The calculation reflects the deduction of the
records maintenance charge by assuming a uniform reduction in the yield or total
return which is determined by calculating the average impact of the records
maintenance charge on in-force contracts.
6
<PAGE> 58
We calculate the standard total return by the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return net of subaccount recurring
charges.
ERV = the ending redeemable value (minus any applicable Surrender Charge
and records maintenance charge) of the hypothetical subaccount at
the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
NON-STANDARD SUBACCOUNT TOTAL RETURNS
Sales literature or advertisements may quote average annual total returns
for the subaccounts that do not reflect any Surrender Charges. We calculate such
nonstandard total returns in exactly the same way as the average annual total
returns described above, except that we replace the ending redeemable value of
the hypothetical subaccount for the period with an ending value for the period
that does not take into account any Surrender Charges.
We may disclose cumulative total returns in conjunction with the standard
formats described above. We calculate the cumulative total returns using the
following formula:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of subaccount recurring charges for
the period.
ERV = the ending redeemable value of the hypothetical investment at the
end of the period.
P = a hypothetical single payment of $1,000.
ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
Sales literature or advertisements may quote adjusted yields and total
returns for the portfolios since their inception reduced by some or all of the
fees and charges under the Contract. Such adjusted historic portfolio
performance may include data that precedes the inception dates of the
subaccounts. This data is designed to show the performance that would have
resulted if the Contract had been in existence during that time.
We will disclose nonstandard performance data only if we disclose the
standard performance data for the required periods.
7
<PAGE> 59
EFFECT OF THE RECORDS MAINTENANCE CHARGE ON PERFORMANCE DATA
The Contract provides for the deduction of a $30.00 records maintenance
charge at the end of each Contract year from the fixed account and the
subaccounts. We will waive this charge if your Contract Value is $50,000 or more
on the date the charge is assessed. We deduct the charge from each account based
on the proportion that the value of each such account bears to the total
Contract Value. The calculation reflects the deduction of the records
maintenance charge by assuming a uniform reduction in the yield or total return
which is determined by calculating the average impact of the records maintenance
charge on in-force contracts.
HISTORIC PERFORMANCE DATA
GENERAL LIMITATIONS
The funds have provided the portfolios' performance data. We derive the
subaccount performance data from the data that the funds provide. In preparing
the tables below, we relied on the funds' data. While we have no reason to doubt
the accuracy of the figures provided by the funds, we have not verified those
figures.
TIME PERIODS BEFORE THE DATE THE VARIABLE ACCOUNT COMMENCED OPERATIONS
The variable account may also disclose non-standardized total return for time
periods before the variable account commenced operations. This performance data
is based on the actual performance of the portfolios since their inception,
adjusted to reflect the effect of the current level of charges that apply to the
subaccounts under the Contract.
TABLES OF ADJUSTED HISTORIC TOTAL RETURN QUOTATIONS
The tables below set out the adjusted historic total returns for the
portfolios for various periods as of December 31, 1999. This performance data is
based on the actual performance of the portfolios since their inception,
adjusted to reflect the effect of the current level of charges that apply to the
subaccounts under the Contract.
8
<PAGE> 60
TABLE 1
ADJUSTED HISTORIC PORTFOLIO TOTAL RETURN AS OF DECEMBER 31, 1999(2)
ASSUMING CONTRACT IS SURRENDERED OR ANNUITIZED
AVERAGE ANNUAL TOTAL RETURN(3)
WITH STANDARD DEATH BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.15%)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 5/1/97 57.95% N/A N/A 54.33%
- -----------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 4/6/82 -5.51% 7.15% 9.22% 10.68%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities 9/3/87 -6.87% 5.45% 5.74% 5.87%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 5/4/98 -17.84% N/A N/A -9.59%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 5/2/94 25.89% 26.99% N/A 24.19%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 2/16/99 N/A N/A N/A -5.69%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 2/16/99 N/A N/A N/A -9.22%
- -----------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
International 5/1/87 45.61% 18.63% 11.79% 12.08%
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income 5/2/94 -2.13% 17.02% N/A 15.78%
- -----------------------------------------------------------------------------------------------------------------------------
Bond 7/16/85 -8.38% 4.93% 6.00% 6.34%
- -----------------------------------------------------------------------------------------------------------------------------
Money Market(1) 7/16/85 -2.88% 3.21% 3.60% 4.21%
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 3/4/96 44.38% N/A N/A -7.18%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WITH EITHER GUARANTEED MINIMUM DEATH BENEFIT OR GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.40%)
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 5/1/97 57.54% N/A N/A 53.94%
- -----------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 4/6/82 -5.75% 6.88% 8.95% 10.40%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities 9/3/87 -7.10% 5.18% 5.48% 5.61%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 5/4/98 -18.04% N/A N/A -9.81%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 5/2/94 25.56% 26.67% N/A 23.88%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 2/16/99 N/A N/A N/A -5.93%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 2/16/99 N/A N/A N/A -9.44%
- -----------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
International 5/1/87 45.23% 18.34% 11.51% 11.80%
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income 5/2/94 -2.38% 16.73% N/A 15.49%
- -----------------------------------------------------------------------------------------------------------------------------
Bond 7/16/85 -8.61% 4.66% 5.74% 6.08%
- -----------------------------------------------------------------------------------------------------------------------------
Money Market(1) 7/16/85 -3.12% 2.95% 3.34% 3.95%
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 3/4/96 44.01% N/A N/A -8.03%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WITH BOTH GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.65%)
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 5/1/97 57.14% N/A N/A 53.56%
- -----------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- -----------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 4/6/82 -5.98% 6.61% 8.68% 10.13%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 61
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kemper Government Securities 9/3/87 -7.33% 4.91% 5.22% 5.35%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 5/4/98 -18.25% N/A N/A -10.03%
- -----------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 5/2/94 25.23% 26.36% N/A 23.58%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 2/16/99 N/A N/A N/A -6.16%
- -----------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 2/16/99 N/A N/A N/A -9.67%
- -----------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
International 5/1/87 44.86% 18.04% 11.23% 11.52%
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income 5/2/94 -2.62% 16.43% N/A 15.20%
- -----------------------------------------------------------------------------------------------------------------------------
Bond 7/16/85 -8.84% 4.40% 5.47% 5.81%
- -----------------------------------------------------------------------------------------------------------------------------
Money Market(1) 7/16/85 -3.36% 2.69% 3.09% 3.70%
- -----------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 3/4/96 43.64% N/A N/A -8.26%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Money
Market Portfolio will maintain a stable $1.00 share price. Yield more closely
reflects current earnings of the Money Market Portfolio than its total return.
(2) The variable account has not yet commenced operations. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $1,000 as required by the SEC for the standardized
returns; (3) reflects the deduction of either 1.15% (for the Standard Death
Benefit), 1.40% (for the election of either the Guaranteed Minimum Death Benefit
or the Guaranteed Retirement Income Benefit), or 1.65% (for the election of both
Guaranteed Minimum Death Benefit and the Guaranteed Retirement Income Benefit)
in annual variable account charges and a $30 records maintenance charge, and (4)
the applicable Surrender Charge. The impact of the records maintenance charge on
investment returns will vary depending on the size of the Contract and is
reflected as an annual charge of 0.15% of subaccount assets based on an assumed
average investment of $20,000 in the Contract. The investment return and value
of a Contract will fluctuate so that a Contract, when surrendered, may be worth
more or less than the amount of the purchase payments.
(4) Total returns reflect that certain investment advisers waived all or part of
the advisory fee or reimbursed the portfolio for a portion of its expenses.
Otherwise, total returns would have been lower.
TABLE 2
ADJUSTED HISTORIC PORTFOLIO TOTAL RETURN AS OF DECEMBER 31, 1999(2)
ASSUMING CONTRACT IS NOT SURRENDERED OR ANNUITIZED
AVERAGE ANNUAL TOTAL RETURN(3)
WITH STANDARD DEATH BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.15%)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 05/01/97 64.95% N/A N/A 55.23%
- -----------------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- -----------------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 04/06/82 0.84% 7.75% 9.22% 10.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities 09/03/87 -0.61% 6.08% 5.74% 5.87%
- -----------------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 05/04/98 -12.32% N/A N/A -6.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 05/02/94 32.89% 27.30% N/A 24.38%
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 02/16/99 N/A N/A N/A 1.62%
- -----------------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 02/16/99 N/A N/A N/A -2.18%
- -----------------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
International 05/01/87 52.61% 19.03% 11.79% 12.08%
- -----------------------------------------------------------------------------------------------------------------------------------
Growth and Income 05/02/94 4.45% 17.44% N/A 16.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Bond 07/16/85 -2.22% 5.58% 6.00% 6.34%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 62
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market(1) 07/16/85 3.65% 3.91% 3.60% 4.21%
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 03/04/96 51.38% N/A N/A -6.69%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WITH EITHER GUARANTEED MINIMUM DEATH BENEFIT OR GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 05/01/97 64.54% N/A N/A 54.85%
- ------------------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 04/06/82 0.59% 7.48% 8.95% 10.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities 09/03/87 -0.86% 5.82% 5.48% 5.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 05/04/98 -12.53% N/A N/A -6.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 05/02/94 32.56% 26.98% N/A 24.08%
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 02/16/99 N/A N/A N/A 1.37%
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 02/16/99 N/A N/A N/A -2.42%
- ------------------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
International 05/01/87 52.23% 18.74% 11.51% 11.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income 05/02/94 4.19% 17.15% N/A 15.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Bond 07/16/85 -2.47% 5.32% 5.74% 6.08%
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market(1) 07/16/85 3.39% 3.65% 3.34% 3.95%
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 03/04/96 51.01% N/A N/A -6.92%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WITH BOTH GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO Inception Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation 05/01/97 64.14% N/A N/A 54.47%
- ------------------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper High Yield 04/06/82 0.34% 7.22% 8.68% 10.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities 09/03/87 -1.10% 5.56% 5.22% 5.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity 05/04/98 -12.75% N/A N/A -6.97%
- ------------------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth 05/02/94 32.23% 26.67% N/A 23.77%
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond 02/16/99 N/A N/A N/A 1.12%
- ------------------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond 02/16/99 N/A N/A N/A -2.66%
- ------------------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
International 05/01/87 51.86% 18.45% 11.23% 11.52%
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income 05/02/94 3.93% 16.87% N/A 15.47%
- ------------------------------------------------------------------------------------------------------------------------------------
Bond 07/16/85 -2.71% 5.06% 5.47% 5.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market(1) 07/16/96 3.14% 3.40% 3.09% 3.70%
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund
(Class 1 Performance until Class 2 Start
Date of 5/1/97) 03/04/96 50.64% N/A N/A -7.15%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)An investment in the Money Market Portfolio is neither insured nor guaranteed
by the U.S. Government and there can be no assurance that the Money Market
Portfolio will maintain a stable $1.00 share price. Yield more closely reflects
current earnings of the Money Market Portfolio than its total return.
(2)The variable account has not yet commenced operations. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3)Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $1,000 as required by the SEC for the standardized
returns; and (3) reflects the deduction of either 1.15% (for the
11
<PAGE> 63
Standard Death), 1.40% for the election of either the Guaranteed Minimum Death
Benefit or the Guaranteed Retirement Income Benefit, or 1.65% (for the election
of both the Guaranteed Minimum Death Benefit and the Guaranteed Retirement
Income Benefit) in annual variable account charges and a $30 records maintenance
charge. The applicable Surrender Charge is not deducted. The impact of the
records maintenance charge on investment returns will vary depending on the size
of the Contract and is reflected as an annual charge of 0.15% of subaccount
assets based on an assumed average investment of $20,000 in the Contract. The
investment return and value of a Contract will fluctuate so that a Contract,
when surrendered, may be worth more or less than the amount of the purchase
payments.
(4)Total returns reflect that certain investment advisers waived all or part of
the advisory fee or reimbursed the portfolio for a portion of itsexpenses.
Otherwise, total returns would have been lower.
NET INVESTMENT FACTOR
The net investment factor is an index that measures the investment
performance of a subaccount from one valuation day to the next. Each subaccount
has its own net investment factor, which may be greater or less than one. The
net investment factor for each subaccount equals the fraction obtained by
dividing (X) by (Y) minus (Z) where:
(X) is the net result of:
1. the net asset value per portfolio share held
in the subaccount at the end of the current
valuation day; plus
2. the per share amount of any dividend or
capital gain distribution on portfolio
shares held in the subaccount during the
current valuation day; less
3. the per share amount of any capital loss,
realized or unrealized, on portfolio shares
held in the subaccount during the current
valuation day.
(Y) equals the net asset value per portfolio share held in the
subaccount as of the end of the immediately preceding valuation day.
(Z) equals charges and fees deducted from the subaccount. These
consist of:
1. the amount charged for mortality and expense
risk on that valuation day;
2. the amount charged for administrative costs
on that valuation day; and
3. the amount charged for any other charges,
fees and expenses for riders, endorsements,
or supplemental benefits attached to your
Contract, including the Guaranteed Minimum
Death Benefit Rider and the Guaranteed
Retirement Income Benefit Rider.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
In the event of any substitution or change of the underlying
portfolios, we may (by appropriate endorsement, if necessary) change the
Contract to reflect the substitution or change. If we consider it to be in the
best interest of Owners and Annuitants, and subject to any approvals that may be
required under applicable law, the variable account may be operated as a
management investment company under the 1940 Act, it may be deregistered under
that Act if registration is no longer required, it may be combined with other of
our variable accounts, or the
12
<PAGE> 64
assets may be transferred to another variable account. In addition, we may, when
permitted by law, restrict or eliminate any voting rights you have under the
Contracts.
RESOLVING MATERIAL CONFLICTS
The funds currently sell shares to registered separate accounts of
insurance companies other than us to support other variable annuity contracts
and variable life insurance contracts. In addition, our other separate accounts
and separate accounts of other affiliated life insurance companies may purchase
some of the funds to support other variable annuity or variable life insurance
contracts. Moreover, qualified retirement plans may purchase shares of some of
the funds. As a result, there is a possibility that an irreconcilable material
conflict may arise between your interests as a Contract owner and the interests
of persons owning other contracts investing in the same funds. There is also the
possibility that a material conflict may arise between the interests of owners
generally, or certain classes of owners, and participating qualified retirement
plans or participants in such retirement plans.
We currently do not foresee any disadvantages to you that would
arise from the sale of fund shares to support variable life insurance contracts
or variable annuity contracts of other companies or to qualified retirement
plans. However, the management of each fund will monitor events related to its
fund in order to identify any material irreconcilable conflicts that might
possibly arise as a result of such fund offering its shares to support both
variable life insurance contracts and variable annuity contracts, or support the
variable life insurance contracts and/or variable annuity contracts issued
by various affiliated and unaffiliated insurance companies. In addition, the
management of the funds will monitor the funds in order to identify any material
irreconcilable conflicts that might possibly arise as a result of the sale of
its shares to qualified retirement plans, if applicable.
In the event of such a conflict, the management of the appropriate
fund would determine what action, if any, should be taken in response to the
conflict. In addition, if we believe that the response of the funds to any such
conflict does not sufficiently protect you, then we will take our own
appropriate action, including withdrawing the variable account's investment in
such funds, as appropriate.
VOTING RIGHTS
We determine the number of votes you may cast by dividing your
Contract Value in a subaccount by the net asset value per share of the portfolio
in which that subaccount invests. We determine the number of votes available to
you as of the same date that the fund establishes for determining shareholders
eligible to vote at the relevant meeting of the portfolio's shareholders. We
will solicit voting instructions by sending you written materials before the
fund's meeting in accordance with the fund's procedures.
13
<PAGE> 65
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
We hold the title to the assets of the variable account. The assets
are kept physically segregated and held separate and apart from our general
account assets and from the assets in any other separate account. We maintain
records of all purchases and redemptions of portfolio shares held by each of the
subaccounts. Additional protection for the assets of the variable account is
provided by a blanket fidelity bond issued by Federal Insurance Company to
Farmers Group, Inc., providing aggregate coverage of $30,000,000 (subject to a
$500,000 deductible) for all officers and employees of Farmers Group, Inc.
DISTRIBUTION OF THE CONTRACTS
Investors Brokerage Services, Inc. ("IBS"), 1 Kemper Drive, Long
Grove, Illinois 60049-0001, acts as principal underwriter for the Contracts. IBS
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.
We offer the Contracts to the public on a continuous basis. We
anticipate continuing to offer the Contracts, but we reserve the right to
discontinue the offering. Agents who sell the Contracts are licensed by
applicable state insurance authorities to sell the Contracts and are registered
representatives of IBS or broker-dealers having selling agreements with IBS or
broker-dealers having selling agreements with such broker-dealers.
We may pay sales commissions to broker-dealers up to an amount equal
to 7% of the Premiums paid under a Contract. We expect the broker-dealers to
compensate sales representatives in varying amounts from these commissions. We
may pay other distribution expenses such as production incentive bonuses, an
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts other than those described in the prospectus under "Fees and Charges."
LEGAL MATTERS
M. Douglas Close, Vice President and General Counsel, Farmers New
World Life Insurance Company, has passed upon all matters relating to Washington
law pertaining to the Contracts, including the validity of the Contracts and the
Company's authority to issue the Contracts. Sutherland Asbill & Brennan LLP of
Washington, D.C. has provided advice on certain matters relating to the federal
securities laws.
14
<PAGE> 66
EXPERTS
The financial statements included in the Statement of Additional
Information have been audited by Deloitte & Touche LLP, independent auditors,
700 Fifth Avenue, Suite 4500, Seattle, Washington, 98104-5044, as stated in
their report appearing in the Statement of Additional Information in the
registration statement, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
OTHER INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. The Statement of Additional
Information does not include all of the information set forth in the
registration statement, amendments and exhibits. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, you should refer to the instruments filed with
the SEC.
FINANCIAL STATEMENTS
15
<PAGE> 67
FARMERS NEW WORLD LIFE
INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997, AND
INDEPENDENT AUDITORS' REPORT
DELOITTE & TOUCHE LLP
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
Board of Directors
Farmers New World Life Insurance Company
Mercer Island, Washington
We have audited the accompanying balance sheets of Farmers New World Life
Insurance Company (a wholly owned subsidiary of Farmers Group, Inc.) (the
Company) as of December 31, 1999 and 1998, and the related statements of income,
comprehensive income, stockholder's equity, and cash flows for each of the three
years in the 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 auditing standards generally accepted
in the United States of America. 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Farmers New World Life Insurance Company at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States of America.
February 4, 2000
<PAGE> 69
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
BALANCE SHEETS (in thousands)
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
INVESTMENTS (Notes 2 and 3):
Fixed maturities available-for-sale:
Bonds, at fair value (cost: $3,791,785 and $3,510,846) $3,684,255 $3,674,223
Redeemable preferred stocks, at fair value
(cost: $64,176 and $82,090) 64,855 86,662
Equity securities available-for-sale:
Nonredeemable preferred stocks, at fair value
(cost: $1,153 and $1,153) 1,158 1,270
Common stocks, at fair value (cost: $123,567 and $41) 127,556 3
Mortgage loans on real estate, net of allowance for losses 35,834 52,879
Investment real estate, net of accumulated depreciation
and allowance for losses 66,672 59,047
Surplus note of the Exchanges (Note 4) 119,000 119,000
Policy loans 201,687 185,211
Joint ventures 6,662 8,456
S&P 500 call options, at fair value (cost: $19,521 and $11,305) 32,718 14,817
---------- ----------
Total investments 4,340,397 4,201,568
CASH AND CASH EQUIVALENTS 93,035 63,784
ACCRUED INVESTMENT INCOME 53,975 53,263
OTHER RECEIVABLES 18,608 17,558
DEFERRED POLICY ACQUISITION COSTS 550,908 467,248
VALUE OF BUSINESS ACQUIRED (Note 5) 328,718 334,442
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $8,842 and $7,411 14,351 14,379
OTHER ASSETS:
Securities lending collateral (Note 6) 262,425 461,801
Other assets 3,740 2,298
---------- ----------
Total other assets 266,165 464,099
---------- ----------
TOTAL $5,666,157 $5,616,341
========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 70
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ---- ----
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Future policy benefits $ 3,412,452 $3,184,248
Policy claims (Note 7) 28,396 26,177
----------- ----------
Total policy liabilities and accruals 3,440,848 3,210,425
OTHER POLICYHOLDER FUNDS AND DIVIDENDS 83,479 57,358
ACCRUED EXPENSES AND OTHER LIABILITIES:
Securities lending liability (Note 6) 262,425 461,801
Death benefit liability 45,423 37,024
Other liabilities 74,636 63,736
----------- ----------
Total accrued expenses and other liabilities 382,484 562,561
INCOME TAXES (Note 8):
Current 10,006 4,180
Deferred 93,970 161,184
----------- ----------
Total income taxes 103,976 165,364
----------- ----------
Total liabilities 4,010,787 3,995,708
CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value - Authorized, 25,000,000 shares;
issued and outstanding, 6,600,000 shares 6,600 6,600
Additional paid-in capital 994,246 994,246
Accumulated other comprehensive income (loss), net of deferred
tax provision (benefit) of $(24,965) and $41,518 (46,363) 77,105
Retained earnings (Note 10) 700,887 542,682
----------- ----------
Total stockholder's equity 1,655,370 1,620,633
----------- ----------
TOTAL $ 5,666,157 $5,616,341
=========== ==========
</TABLE>
----
2
<PAGE> 71
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF INCOME (in thousands)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net premiums earned (Note 11) $209,683 $ 173,229 $ 151,134
Universal life and annuity policy charges 210,639 206,393 200,857
Net investment income (Note 2) 307,674 293,770 275,760
Net realized investment gains (losses) (Note 2) 24,159 (13,473) 10,063
Other income 36 707 784
-------- --------- ---------
Total revenues 752,191 660,626 638,598
BENEFITS AND EXPENSES:
Death and other benefits (Note 7) 137,798 133,984 112,370
Future policy benefits 52,200 23,711 15,713
Interest credited to policyholders 157,831 150,618 146,376
Underwriting, acquisition, and insurance expenses:
Amortization of deferred policy acquisition costs 83,187 68,997 70,855
Amortization of value of business acquired 19,394 23,897 21,305
Commissions 13,520 18,972 17,344
General insurance expenses and taxes 44,077 38,659 42,986
-------- --------- ---------
Total benefits and expenses 508,007 458,838 426,949
-------- --------- ---------
Income before provision for income taxes 244,184 201,788 211,649
PROVISION (BENEFIT) FOR INCOME TAXES (Note 8):
Current 85,426 70,690 80,889
Deferred 553 496 (7,027)
-------- --------- ---------
Total provision for income taxes 85,979 71,186 73,862
-------- --------- ---------
NET INCOME $158,205 $ 130,602 $ 137,787
======== ========= =========
</TABLE>
----
See notes to financial statements. 3
<PAGE> 72
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 158,205 $ 130,602 $ 137,787
OTHER COMPREHENSIVE INCOME, net of tax:
Unrealized holding gains (losses) on securities:
Unrealized holding gains (losses) on securities, net
of tax provision (benefit) of $96,564 and $(7,921) (179,334) 14,711
Less: reclassification adjustment for losses (gains)
included in net income, net of tax of
$1,749 and $(357) 3,249 (662)
--------- ---------
Net unrealized holding gains (losses) on
securities, net of tax provision (benefit) of
$(94,815), $7,565, and $28,968 (176,085) 14,049 53,797
Change in effect of unrealized gains (losses) on other
insurance accounts, net of tax provision (benefit) of
$28,332, $(1,949), and $(7,387) 52,617 (3,619) (13,718)
--------- --------- ---------
COMPREHENSIVE INCOME $ 34,737 $ 141,032 $ 177,866
========= ========= =========
</TABLE>
----
See notes to financial statements. 4
<PAGE> 73
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated Total
Additional other stock-
Common paid-in comprehensive Retained holder's
stock capital income earnings equity
----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 $ 6,600 $ 994,246 $ 26,596 $274,293 $1,301,735
Net income 137,787 137,787
Change in other comprehensive income, net of tax of $21,581 40,079 40,079
--------- --------- -------- -------- ----------
BALANCE, December 31, 1997 6,600 994,246 66,675 412,080 1,479,601
Net income 130,602 130,602
Unrealized gains on available-for-sale investments arising
during the period, net of tax of $7,921 14,711 14,711
Reclassification adjustment for gains included in
net income, net of tax of $(357) (662) (662)
Change in effect of unrealized losses on other insurance
accounts, net of tax of $(1,949) (3,619) (3,619)
--------- --------- -------- -------- ----------
BALANCE, December 31, 1998 6,600 994,246 77,105 542,682 1,620,633
Net income 158,205 158,205
Unrealized losses on available-for-sale investments arising
during the period, net of tax of $(96,564) (179,334) (179,334)
Reclassification adjustment for losses included in
net income, net of tax of $1,749 3,249 3,249
Change in effect of unrealized gains on other insurance
accounts, net of tax of $28,332 52,617 52,617
--------- --------- -------- -------- ----------
BALANCE, December 31, 1999 $ 6,600 $ 994,246 $(46,363) $700,887 $1,655,370
========= ========= ======== ======== ==========
</TABLE>
----
See notes to financial statements. 5
<PAGE> 74
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 158,205 $ 130,602 $ 137,787
Adjustments to reconcile net income to
net cash provided by operating activities:
Universal life type contracts:
Deposits received 302,424 299,007 295,747
Withdrawals (253,228) (241,765) (232,728)
Interest credited 71,386 67,585 62,247
Realized investment losses (gains) (24,159) 13,473 (10,063)
Amortization of deferred policy acquisition costs and VOBA 102,581 92,894 92,160
Deferred income tax expense (benefit) 553 496 (7,027)
Depreciation 2,606 2,544 2,462
Cash provided (used) by changes in operating assets and liabilities:
Federal income taxes payable 5,826 4,180 (22,822)
Deferred policy acquisition costs (99,568) (93,047) (70,913)
Life insurance policy liabilities 55,478 27,802 14,588
Other policyholder funds 26,121 (2,714) (2,894)
Other 12,768 31,758 (37,212)
----------- --------- ---------
Net cash provided by operating activities 360,993 332,815 221,332
INVESTING ACTIVITIES:
Purchase of bonds and stocks available-for-sale (1,322,589) (660,918) (735,325)
Proceeds from sales or maturities of bonds and stocks
available-for-sale 953,106 458,364 450,760
Purchase of mortgage loans (32,623)
Mortgage loan collections 18,421 36,839 30,448
Purchase of investment real estate (20,640) (908) (23,568)
Proceeds from sale of investment real estate 10,565 8,557 2,327
Increase in policy loans (16,475) (19,317) (17,836)
Purchase of capital assets (2,508) (572) (1,685)
Purchase of surplus note of the Exchanges (119,000)
Purchase of options (8,216) (7,855) (3,450)
Other 1,891 320 (7,332)
----------- --------- ---------
Net cash used by investing activities (386,445) (304,490) (338,284)
FINANCING ACTIVITIES:
Annuity contracts:
Deposits received 157,468 144,793 131,651
Withdrawals (194,187) (202,244) (161,150)
Interest credited 91,422 82,930 80,280
----------- --------- ---------
Net cash provided by financing activities 54,703 25,479 50,781
----------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,251 53,804 (66,171)
CASH AND CASH EQUIVALENTS:
Beginning of year 63,784 9,980 76,151
----------- --------- ---------
End of year $ 93,035 $ 63,784 $ 9,980
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Income taxes $ 82,047 $ 41,250 $ 122,787
Interest 125 945
</TABLE>
----
See notes to financial statements. 6
<PAGE> 75
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY: The accompanying financial statements include the accounts of
Farmers New World Life Insurance Company (the Company), a wholly owned
subsidiary of Farmers Group, Inc. (FGI), whose ultimate parent is Zurich
Financial Services Group. FGI, a management services insurance holding
company, is attorney-in-fact for three interinsurance exchanges and their
subsidiaries (the Exchanges) and owns a reinsurance company, Farmers Re.
In December 1988, BATUS Inc. (BATUS), a subsidiary of B.A.T Industries
p.l.c. (B.A.T), acquired 100% ownership of FGI and its subsidiaries for
$5,212,619,000 in cash, including related expenses, through its wholly
owned subsidiary, BATUS Financial Services. Immediately thereafter, BATUS
Financial Services was merged into FGI. The acquisition was accounted for
as a purchase and, accordingly, the acquired assets and liabilities were
recorded in the Company's balance sheet based on their estimated fair
values at December 31, 1988.
At the time of purchase, a portion of the purchase price, $530,076,000, was
assigned to the Company's value of business acquired (VOBA), which
represented an actuarial determination of the expected profits from the
business in-force at the date of B.A.T's acquisition of FGI. The amount so
assigned is being amortized over its actuarially determined useful life
with the unamortized amount included in value of business acquired in the
accompanying balance sheets.
In September 1998, B.A.T's Financial Services Businesses, including FGI and
subsidiaries, were merged with Zurich Insurance Company (Zurich). The
businesses of Zurich and B.A.T's Financial Services Businesses were
transferred to Zurich Financial Services (ZFS), a new Swiss company with
headquarters in Zurich. This merger was accounted for by ZFS as a pooling
of interests and, therefore, no purchase accounting adjustments were made
to FGI's assets and liabilities.
NATURE OF OPERATIONS: The Company concentrates its activities in the
individual life insurance and annuity markets. Principal lines of business
include traditional and universal whole life products as well as term life
insurance. Additionally, the Company issues flexible and single premium
deferred annuities, single premium immediate annuities, and equity indexed
annuities. Beginning in 2000, the Company has added variable universal life
and variable annuity products to its product line. Securities and Exchange
Commission registration and filings were completed in December 1999, in
anticipation of product marketing in 2000.
The Company and the Exchanges operate using common trade names and logos,
including Farmers Insurance Group of Companies(R) , Farmers Insurance
Group(R), and Farmers(R). In addition, the Company and the Exchanges
distribute their respective insurance products through a common network of
direct writing agents and district managers. As of December 31, 1999, this
network consisted of 14,722 writing agents and 494 district managers, each
of whom is an independent contractor. The size, efficiency, and scope of
this agency force have made it a major factor in the Exchange's and the
Company's growth. Each agent is required to first submit business to the
insurers in the Farmers Insurance Group of
----
7
<PAGE> 76
Companies within the classes and lines of business written by such
insurers. To the extent that such insurers decline such business or do not
underwrite it, the agents may offer business to other insurers.
The Company is currently licensed in 39 states, primarily in the western,
midwestern, and southwestern regions of the United States.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION: Premiums for traditional life, structured settlement
contracts involving life contingencies (SSILC), and accident and health
insurance products are recognized as revenues when due from policyholders.
Policy withdrawal, maintenance, and other charges are recognized as income
when earned.
Revenues associated with universal life products consist of policy charges
for the cost of insurance, policy administration fees, surrender charges,
and investment income on assets allocated to support policyholder account
balances on deposit. Revenues for deferred annuity products and structured
settlement contracts not involving life contingencies (SSNILC) consist of
surrender charges, investment income on assets allocated to support
policyholder account balances on deposit, and administrative charges for
equity-indexed annuities. Consideration received for interest-sensitive
insurance, SSNILC, and annuity products is recorded as a liability when
received.
INVESTMENTS: The Company has classified all investments in fixed maturities
and equity securities as available-for-sale and reports them on the balance
sheet at fair value with unrealized gains and losses, net of tax, excluded
from earnings and reported as accumulated other comprehensive income, a
component of stockholder's equity. As of December 31, 1999 and 1998, there
were no securities designated as held-to-maturity or trading.
Realized gains (losses) on sales, redemptions, and write-downs of
investments are determined based on the net book value of individual
investments.
Investment real estate consists of properties purchased for investment and
properties acquired through foreclosure, and is carried at the lower of
cost less accumulated depreciation of $27,292,000 in 1999 and $28,366,000
in 1998, or market. Depreciation is provided on a straight-line basis over
45 years, the estimated life of the properties.
The Company follows the provisions of SFAS No. 118 (amending SFAS No. 114),
Accounting by Creditors for Impairment of a Loan, which requires that
impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent. No material
amounts were recognized in the periods presented.
DEFERRED POLICY ACQUISITION COSTS: The costs of acquiring new traditional
life business, principally first-year commissions and other expenses for
policy underwriting and issuance (which are primarily related to and vary
with the production of new business), are deferred and amortized
proportionately over the estimated period during which the related premiums
will be recognized as income, based on the same assumptions that are used
for computing the liabilities for future policy benefits.
----
8
<PAGE> 77
Policy acquisition costs for universal life and deferred annuity products
are deferred and amortized in relation to the present value of expected
gross profits on the policies. Deferred Policy Acquisition Costs (DAC)
include amounts associated with the unrealized gains and losses recorded as
other comprehensive income, a component of stockholder's equity.
Accordingly, DAC is increased or decreased for the impact of estimated
future gross profits as if net unrealized gains or losses on securities had
been realized at the balance sheet date. Net unrealized gains or losses on
securities within other comprehensive income also reflect this impact.
VALUE OF BUSINESS ACQUIRED: The present value of the business acquired in
the 1988 merger with B.A.T is being amortized as the life insurance
business in-force at the time of the merger declines.
PROPERTY AND EQUIPMENT: Depreciation of property and equipment has been
provided using the straight-line method with estimated useful lives of 10
to 45 years for buildings and improvements and five years for furniture and
equipment.
LONG-LIVED ASSETS: In accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, long-lived assets and certain identifiable intangibles to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No such impairments have occurred.
POLICY LIABILITIES AND ACCRUALS: Liabilities for future policy benefits for
traditional life policies are computed principally on a net level premium
method reflecting estimated future investment yields, mortality, morbidity,
and withdrawals. Interest rate assumptions range from 2.25% to 9.00%
depending upon the year of issue. Mortality is calculated principally on
select and ultimate tables in common usage in the industry, modified for
Company experience, and withdrawals are estimated based primarily on
experience.
Liabilities for future policy benefits on universal life and deferred
annuity products are determined under the retrospective deposit method and
consist principally of policy values before any surrender charges.
Liabilities for future policy benefits on SSNILC are recorded when the
payments are received.
Unpaid policy claims include claims in the course of settlement and a
provision for claims incurred but not reported, based on past experience.
LIFE SALES MANAGEMENT SERVICES: Fees charged to the Company by FGI for
sales and marketing services were $21,750,000, $21,187,000, and $20,862,000
in 1999, 1998, and 1997, respectively, and are accounted for as deferred
policy acquisition costs except for advertising expenses, which are
expensed as incurred, of $1,814,000, $1,336,000, and $1,590,000 in 1999,
1998, and 1997, respectively.
STATEMENTS OF CASH FLOWS: For purposes of reporting cash flows, the Company
considers short-term investments purchased with an initial maturity of
three months or less to be cash equivalents.
ACCOUNTING PRONOUNCEMENTS: In March 1998, the American Institute of
Certified Public Accountants (AICPA) issued Statement of Position (SOP) No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. This SOP, effective for financial statements issued for
periods beginning after December 15, 1998, applies to all nongovernmental
entities and establishes the rules for capitalizing or expensing software
costs developed or obtained for internal use. During 1999, the Company
capitalized $6,724,000 in accordance with this SOP.
In 1998, the Financial Accounting Standards Board (FASB) released SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement, effective for financial statements of
----
9
<PAGE> 78
public and nonpublic entities issued for fiscal years beginning after June
15, 1999, and deferred until June 15, 2000, by SFAS No. 137, Deferral of
Effective Date of FASB Statement No. 133, establishes accounting and
reporting standards for derivative instruments (including certain
derivative instruments embedded in other contracts) and for hedging
activities. SFAS No. 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at market value. The Company does not expect the
adoption of this statement to have a material impact on its financial
statements.
NOTE 2: INVESTMENTS
INVESTMENT INCOME: The sources of investment income for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Bonds $270,191 $257,422 $236,405
Common and preferred stocks 5,737 8,123 11,747
Other 43,883 41,883 40,370
-------- -------- --------
Gross investment income 319,811 307,428 288,522
Less investment expenses 12,137 13,658 12,762
-------- -------- --------
Net investment income $307,674 $293,770 $275,760
======== ======== ========
</TABLE>
The Company's investment expenses included approximately $737,000,
$1,143,000, and $2,063,000 in 1999, 1998, and 1997, respectively, that were
paid to its parent company, FGI.
In June 1998, the Company's investment management was transferred to
Scudder Kemper Investments, Inc. (SKI), an indirect subsidiary of Zurich
Financial Services. In 1999 and 1998, approximately $1,469,000 and $704,000
of the Company's investment expenses were paid to SKI.
REALIZED GAINS (LOSSES): Realized investment gains (losses) for the years
ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Bonds $17,558 $(15,126) $8,613
Redeemable preferred stocks 450 25 1,304
Nonredeemable preferred stocks 71
Common stocks 4,589 117 61
Investment real estate 1,562 1,393 3
Other 118 11
------- --------- -------
$24,159 $(13,473) $10,063
======= ========= =======
</TABLE>
Properties acquired through foreclosure were $18,805,000 and $25,677,000 at
December 31, 1999 and 1998. During 1999 and 1998, the Company recorded
$386,000 and $768,000 in realized gains and $1,114,000 and $587,000 in
realized losses on the sale of real estate acquired through foreclosure,
respectively. The Company maintained an allowance for losses of $3,263,000
for the years ended December 31, 1999 and 1998.
----
10
<PAGE> 79
UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIES: Gross unrealized gains
(losses) pertaining to nonredeemable preferred stocks and common stocks
stated at fair value as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Gains Losses Net
----- ------ ---
<S> <C> <C> <C>
1999:
Nonredeemable preferred stocks $ 97 $ (92) $ 5
Common stocks 11,350 (7,361) 3,989
-------- ------- -------
$ 11,447 $(7,453) 3,994
======== =======
Less deferred federal income taxes (1,398)
-------
$ 2,596
=======
1998:
Nonredeemable preferred stocks $ 165 $ (48) $ 117
Common stocks (38) (38)
------- ------- -------
$ 165 $ (86) 79
======== =======
Less deferred federal income taxes (28)
-------
$ 51
=======
</TABLE>
----
11
<PAGE> 80
UNREALIZED GAINS (LOSSES) ON FIXED MATURITIES: Amortized cost, gross
unrealized gains, gross unrealized losses, and estimated fair value of
fixed maturities as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1999:
Fixed maturities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 350,845 $ 553 $ (20,033) $ 331,365
Obligations of states and
political subdivisions 314,988 3,105 (5,420) 312,673
Debt securities issued by
foreign governments 62,214 5,336 (1,045) 66,505
Corporate securities 1,223,504 6,957 (47,222) 1,183,239
Mortgage-backed securities 1,840,234 8,758 (58,519) 1,790,473
---------- --------- ----------- ----------
3,791,785 24,709 (132,239) 3,684,255
Redeemable preferred stock 64,176 1,347 (668) 64,855
---------- --------- ----------- ----------
$3,855,961 $ 26,056 $ (132,907) $3,749,110
========== ========= =========== ==========
1998:
Fixed maturities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 408,742 $ 42,515 $ (124) $ 451,133
Obligations of states and
political subdivisions 334,242 25,784 (5) 360,021
Debt securities issued by
foreign governments 88,672 2,410 (15,032) 76,050
Corporate securities 914,465 58,161 (5,938) 966,688
Mortgage-backed securities 1,764,725 65,546 (9,940) 1,820,331
---------- --------- ----------- ----------
3,510,846 194,416 (31,039) 3,674,223
Redeemable preferred stock 82,090 4,747 (175) 86,662
---------- --------- ----------- ----------
$3,592,936 $ 199,163 $ (31,214) $3,760,885
========== ========= =========== ==========
</TABLE>
----
12
<PAGE> 81
MATURITIES OF FIXED MATURITIES: The amortized cost and estimated fair value
of fixed maturities classified as available-for-sale by contractual
maturity at December 31, 1999, are shown below (in thousands). Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
---- -----
<S> <C> <C>
Fixed maturities available-for-sale:
Due in one year or less $ 29,287 $ 29,183
Due after one year through five years 600,267 593,984
Due after five years through 10 years 665,258 647,032
Due after 10 years 656,739 623,583
---------- ----------
1,951,551 1,893,782
Mortgage-backed securities 1,840,234 1,790,473
Preferred stock with characteristics of debt securities 64,176 64,855
---------- ----------
$3,855,961 $3,749,110
========== ==========
</TABLE>
In determining estimated fair value, management obtains quotations from
independent sources who make markets in similar securities, generally
broker/dealers. Unless representative trades of securities actually
occurred at December 31, 1999, these quotes are generally estimates of
market value based on an evaluation of appropriate factors, such as trading
in similar securities, yields, credit quality, coupon rate, maturity, type
of issue, and other market data.
SALE AND IMPAIRMENT OF DEBT SECURITIES: The gross gains, gross losses,
proceeds from sales, and write-downs of debt securities for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Write-
gains losses Proceeds downs
----- ------ -------- -----
<S> <C> <C> <C> <C>
1999 $35,321 $(17,313) $910,601 $ -
1998 11,742 (468) 458,247 (26,356)
1997 12,111 (2,194) 446,202
</TABLE>
----
13
<PAGE> 82
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments disclosed have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented may not be indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a significant effect on the estimated fair
value amounts. The carrying value and estimated fair value of assets and
liabilities as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Carrying fair
value value
----- -----
<S> <C> <C>
1999:
Assets:
Cash and cash equivalents $ 93,035 $ 93,035
Fixed maturities available-for-sale 3,749,110 3,749,110
Nonredeemable preferred stock available-for-sale 1,158 1,158
Common stock available-for-sale 127,556 127,556
Mortgage loans 35,834 43,818
Surplus note of the Exchanges 119,000 119,000
Policy loans 201,687 199,166
Joint ventures 6,662 5,137
S&P call options 32,718 32,718
Liabilities:
Future policy benefits - Deferred annuities 1,531,412 1,481,098
1998:
Assets:
Cash and cash equivalents $ 63,784 $ 63,784
Fixed maturities available-for-sale 3,760,885 3,760,885
Nonredeemable preferred stock available-for-sale 1,270 1,270
Common stock available-for-sale 3 3
Mortgage loans 52,879 67,615
Surplus note of the Exchanges 119,000 119,000
Policy loans 185,211 192,620
Joint ventures 8,456 6,668
S&P call options 14,817 14,817
Liabilities:
Future policy benefits - Deferred annuities 1,492,032 1,433,494
</TABLE>
The following methods and assumptions were used to estimate the fair value of
financial instruments as of December 31, 1999 and 1998:
CASH AND CASH EQUIVALENTS: The carrying amounts of these items are a
reasonable estimate of their fair value.
FIXED MATURITIES, REDEEMABLE AND NONREDEEMABLE PREFERRED STOCK, AND COMMON
STOCK: The estimated fair values of bonds, redeemable and nonredeemable
preferred stock, and common stock are based upon quoted market prices,
dealer quotes, and prices obtained from independent pricing services.
----
14
<PAGE> 83
MORTGAGE LOANS: The estimated fair value of the mortgage loan portfolio is
determined by discounting the estimated future cash flows, using a year-end
market rate which is applicable to the yield, credit quality, and average
maturity of the composite portfolio.
POLICY LOANS: The estimated fair value of policy loans is determined by
discounting future cash flows using the current rates at which similar
loans would be made.
SURPLUS NOTE OF THE EXCHANGES: The carrying amount of this item is a
reasonable estimate of its fair market value.
JOINT VENTURES: The estimated fair value of the joint ventures is based on
quoted market prices, current appraisals, and independent pricing services.
S&P 500 CALL OPTIONS: S&P 500 call options are purchased as hedges against
the interest liabilities generated on the equity-indexed annuity products.
These call options are carried at an estimated fair value based on stock
price, strike price, time to expiration, interest rates, dividends, and
volatility using the methodology of the Black-Scholes option pricing
formula.
FUTURE POLICY BENEFITS - DEFERRED ANNUITIES: The estimated fair values are
based on the currently available cash surrender value, similar to the
demand deposit liabilities of depository institutions.
NOTE 4: SURPLUS NOTE
In September 1998, the Company purchased a $119,000,000 surplus note of the
Exchanges which bears interest at 6.10% annually and is payable in full no later
than October 2001. Conditions governing repayment of the amount are outlined in
the surplus note. Generally, repayment may be made only when the surplus balance
of the issuer reaches a specified level, and then only after approval is granted
by the issuer's governing Board and the appropriate department of insurance.
The Company recognized interest income of $7,259,000 and $2,279,000 on this note
during 1999 and 1998, respectively.
NOTE 5: VALUE OF BUSINESS ACQUIRED
The changes in the VOBA were as follows (in thousands) as of December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 334,442 $ 359,146 $ 383,951
Amortization related to operations (50,392) (53,598) (56,371)
Interest accrued 30,998 29,701 35,066
Amortization related to net unrealized gains (losses) 13,670 (807) (3,500)
--------- --------- ---------
Balance, end of year $ 328,718 $ 334,442 $ 359,146
========= ========= =========
</TABLE>
Based on current conditions and assumptions as to future events, the Company
expects to amortize the December 31, 1999, balance as follows: approximately
7.0% in 2000, 2001, and 2002, and 8.0% in 2003 and 2004. The discount rate used
to determine the amortization rate of the VOBA ranged from 12.5% to 7.5%.
----
15
<PAGE> 84
NOTE 6: SECURITY LENDING ARRANGEMENT
The Company has entered into a security lending agreement with a lending agent,
an affiliate company. The agreement authorizes the agent to lend securities held
in the Company's portfolio to a list of authorized borrowers. Concurrent with
delivery of the securities, the borrower provides the Company with cash
collateral equal to at least 102% of the market value of domestic securities and
105% of the market value of other securities subject to the loan.
The securities are marked-to-market on a daily basis and the collateral is
adjusted on the next business day. The collateral is invested in highly liquid,
fixed income assets with a maturity of less than one year. Income earned from
the security lending arrangement is shared 25% and 75% between the agent and the
Company, respectively. Income earned by the Company was $798,000, $899,000, and
$816,000 in 1999, 1998, and 1997, respectively. As of December 31, 1999 and
1998, the Company recorded $262,425,000 and $461,801,000, respectively, of
collateral in other assets and in accrued expenses and other liabilities.
NOTE 7: LIABILITY FOR POLICY CLAIMS
Activity in the liability for policy claims is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, January 1 $ 26,177 $ 22,156
Less reinsurance recoverables 16 270
-------- --------
Net balance, January 1 26,161 21,886
Incurred related to:
Current year 123,329 121,016
Prior years 14,469 12,968
-------- --------
Total incurred 137,798 133,984
Paid related to:
Current year 105,055 105,252
Prior years 31,963 24,457
-------- --------
Total paid 137,018 129,709
-------- --------
Net balance, December 31 26,941 26,161
Plus reinsurance recoverables 1,455 16
-------- --------
Balance, December 31 $ 28,396 $ 26,177
======== ========
</TABLE>
The liability for policy claims at December 31, 1999 and 1998, was increased for
claims reported in prior years by $14,469,000 and $12,968,000, respectively. The
liability for policy claims is primarily comprised of pending claims known to
the Company at the end of the year as well as estimates for incurred claims not
yet reported to the Company. Because estimates are utilized in the statement
process, actual expenses incurred in the current year related to prior year
claims may differ from those estimates. The Company monitors these fluctuations
to ensure that current liabilities adequately reflect reasonable expense levels
for both current and prior periods.
----
16
<PAGE> 85
NOTE 8: INCOME TAXES
The Company files a consolidated federal income tax return with Farmers Group,
Inc. and its subsidiaries.
The Company uses the asset and liability method of accounting for income taxes
under SFAS No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years the differences are expected to be recovered or
settled.
The components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 83,823 $69,601 $ 79,185
State 1,603 1,089 1,704
-------- ------- --------
Total current 85,426 70,690 80,889
Deferred:
Federal 1,127 496 (7,027)
State (574)
--------- ------- --------
Total deferred 553 496 (7,027)
-------- ------- --------
Total $ 85,979 $71,186 $ 73,862
======== ======= ========
</TABLE>
The table below reconciles the provision for income taxes computed at the U.S.
statutory income tax rate of 35% to the Company's provision for income taxes (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected tax expense $ 85,464 $ 70,626 $ 73,938
Tax-exempt investment income (1,410) (1,705) (2,233)
State taxes 1,029 1,089 1,704
Other, net 896 1,176 453
-------- -------- --------
Reported income tax expense $ 85,979 $ 71,186 $ 73,862
======== ======== ========
</TABLE>
----
17
<PAGE> 86
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities as of December 31 are presented in the
following table (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred policy acquisition costs $ 245,850 $ 251,626
Future policy benefits (115,336) (135,215)
Investments (15,447) (10,842)
Valuation of investments in securities (24,965) 41,518
Depreciable assets 4,620 5,520
Other (752) 8,577
--------- ---------
Net deferred tax liabilities $ 93,970 $ 161,184
========= =========
</TABLE>
There was no valuation allowance recognized for deferred tax assets in 1999 or
1998.
NOTE 9: CONTINGENCIES
The Company is a party to lawsuits arising from its normal business activities.
These actions are in various stages of discovery and development, and some seek
punitive as well as compensatory damages. In the opinion of management, the
Company has not engaged in any conduct which should warrant the award of any
material punitive or compensatory damages. Acting on the advice of counsel, the
Company intends to defend vigorously its position in each case, and management
believes that, while it is not possible to predict the outcome of such matters
with absolute certainty, ultimate disposition of these proceedings should not
have a material adverse effect on the Company's financial position or results of
operations.
NOTE 10: REGULATORY MATTERS
The Company, domiciled in Washington State, prepares its statutory financial
statements in accordance with accounting practices prescribed by the State of
Washington Department of Insurance. 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.
Statutory stockholder's equity was $989,615,000 and $888,644,000 as of December
31, 1999 and 1998, respectively. Statutory net income for the years ended
December 31, 1999, 1998, and 1997, was $114,909,000, $98,796,000, and
$122,863,000, respectively.
Statutory unassigned surplus of $979,816,000 and $878,845,000 included in
retained earnings at December 31, 1999 and 1998, respectively, is the amount
held for the benefit of the stockholder. The entire amount in 1999 and 1998 is
designated as stockholder's surplus for tax purposes and would not subject the
Company to taxation if paid as a cash dividend.
The maximum amount of dividends that can be paid to stockholders by state of
Washington insurance companies without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus. The
maximum dividend payout which could be made without prior approval is
$112,941,000 in 2000.
Dividends are determined by the Board of Directors.
As of December 31, 1999 and 1998, the Company's statutory surplus exceeded the
NAIC risk-based capital requirements.
----
18
<PAGE> 87
NOTE 11: REINSURANCE
The Company has ceded business under both yearly renewable-term contracts and
coinsurance contracts. The policy benefit liabilities and unpaid claim amounts
attributable to such business are stated as other receivables on the balance
sheets. The carrying value of reinsurance receivables included in other
receivables totalled approximately $10,846,000 and $8,500,000 at December 31,
1999 and 1998, respectively. The Company utilizes several reinsurers to minimize
concentration of credit risk.
The Company has established retention limits for automatic reinsurance ceded.
The maximum retention on new issues is $2,000,000 per life for the Farmers
Flexible Universal Life policy and $1,500,000 per life for all traditional
policies except Farmers Yearly Renewable Term. The maximum retention on new
issues is $800,000 per life for Farmers Yearly Renewable Term. The excess risk
is reinsured with an outside reinsurer. Increases in policy benefit liabilities
and claims expense are stated net of increases in future policy benefit
liabilities and claims expenses applicable to reinsurance ceded. Death and other
benefits expense is reduced by $3,052,000, $4,074,000, and $2,047,000 in 1999,
1998, and 1997, respectively, of reinsurance recoveries. The Company is
contingently liable with respect to reinsurance ceded in the event that a
reinsurer is unable to meet its obligations under existing reinsurance
agreements.
Effective July 1, 1999, the Company entered into a new co-insurance agreement
with a reinsurer. The Company agrees to cede a significant portion of the risk
of the Farmers Premier 10 and Farmers Premier 20 policies.
The effect of reinsurance on premiums and amounts earned for the years ended
December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Direct premiums $ 214,557 $ 168,159 $ 145,073
Reinsurance assumed 9,065 8,798 10,297
Reinsurance ceded (13,939) (3,728) (4,236)
--------- --------- ---------
Net premiums earned $ 209,683 $ 173,229 $ 151,134
========= ========= =========
</TABLE>
Premiums assumed from unaffiliated companies approximated $9,065,000,
$8,798,000, and $10,297,000 in 1999, 1998, and 1997, respectively, which
represent 4.3%, 5.1%, and 6.8% of the net premiums earned in 1999, 1998, and
1997, respectively. Claims paid to unaffiliated companies on assumed reinsurance
were approximately $8,134,000, $7,998,000, and $8,240,000 in 1999, 1998, and
1997, respectively.
NOTE 12: EMPLOYEES' RETIREMENT PLANS
The Company participates in FGI's two noncontributory defined benefit pension
plans (the Regular Plan and the Restoration Plan). The Regular Plan covers
substantially all employees of FGI, its subsidiaries, and the Exchanges who have
reached age 21 and have rendered one year of service. Benefits are based on
years of service and the employee's compensation during the last five years of
employment. The Restoration Plan provides supplemental retirement benefits for
certain key employees of FGI, its subsidiaries, and the Exchanges.
FGI's policy is to fund the amount determined under the aggregate cost method,
provided it does not exceed funding limitations. There has been no change in
funding policy from prior years.
----
19
<PAGE> 88
Assets of the Regular Plan are held by an independent trustee. Assets held are
primarily in fixed maturity and equity investments. The principal liability is
for annuity benefit payments of current and future retirees. Assets of the
Restoration Plan are considered corporate assets of FGI and are held in a
grantor trust.
Information regarding the Regular Plan's and the Restoration Plan's funded
status is not developed separately for FGI, its subsidiaries, including the
Company, and the Exchanges. The funded status of both plans as of December 1,
1999 and 1998 (the latest date for which information is available) is as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of the year $ 853,174 $ 747,069
Service cost 29,395 26,423
Interest cost 58,469 54,998
Plan amendments 7,903
Actuarial losses (gains) (111,100) 54,218
Benefits paid (33,948) (29,534)
----------- ----------
$ 803,893 $ 853,174
=========== =========
Change in plan assets:
Fair value of plan assets at beginning of the year $ 924,301 $ 817,552
Actual return on plan assets 124,380 135,313
Benefits paid (32,753) (28,564)
----------- ----------
Fair value of plan assets at end of the year $ 1,015,928 $ 924,301
=========== =========
Funded status at end of the year $ 212,034 $ 71,127
Unrecognized net actuarial gain (287,586) (140,910)
Unrecognized prior service cost 35,859 31,255
Unrecognized net transition asset (21,510) (26,186)
----------- ----------
Net amount recognized at end of the year $ (61,203) $ (64,714)
=========== =========
</TABLE>
Upon B.A.T's purchase of FGI and its subsidiaries in 1988, FGI allocated part of
the purchase price to its portion of the Regular Plan assets in excess of the
projected benefit obligation at the date of acquisition. The asset is being
amortized for the difference between FGI's net pension cost and amounts
contributed to the plan. The unamortized balance as of December 31, 1999 and
1998, was $16,940,000 and $20,622,000, respectively.
----
20
<PAGE> 89
Components of net periodic pension expense for FGI and its subsidiaries are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service costs $ 15,126 $ 13,240 $ 14,238
Interest costs 34,525 27,810 28,362
Return on plan assets (49,000) (35,817) (35,116)
Amortization of:
Transition obligation 955 1,365 1,229
Prior service cost 2,207 1,986 2,298
Actuarial gain (2,445) (2,447) (1,248)
-------- -------- --------
Net periodic pension expense $ 1,368 $ 6,137 $ 9,763
======== ======== ========
</TABLE>
The Company's share of pension expense was $192,000, $452,000, and $510,000 in
1999, 1998, and 1997, respectively.
FGI uses the projected unit credit cost actuarial method for attribution of
expense for financial reporting purposes. The interest cost and the actuarial
present value of benefit obligations were computed using a weighted average
interest rate of 8.00%, 6.75%, and 7.25% in 1999, 1998, and 1997, respectively,
while the expected return on plan assets was computed using a weighted average
interest rate of 9.25%, 9.25%, and 9.00% in 1999, 1998, and 1997, respectively.
The weighted average rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation was
5.00%, 4.50%, and 5.00% in 1999, 1998, and 1997, respectively.
FGI and its subsidiaries' postretirement benefits plan is a contributory defined
benefit plan for employees who were retired or who were eligible for early
retirement on January 1, 1995, and is a contributory defined dollar plan for all
other employees retiring after January 1, 1995. Health benefits are provided for
all employees who participated in the Company's group medical benefits plan for
15 years prior to retirement at age 55 or later. A life insurance benefit of
$5,000 is provided at no cost to retirees who maintained group life insurance
coverage for 15 years prior to retirement at age 55 or later.
There are no assets separated and allocated to this plan.
----
21
<PAGE> 90
The funded status of the entire plan, which includes FGI, its subsidiaries, and
the Exchanges, at December 1, 1999 and 1998 (the latest date for which
information is available) was as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of the year $ 80,367 $ 70,758
Service cost 1,537 1,280
Interest cost 5,374 5,080
Plan participations' contributions 1,575 1,297
Actuarial loss (gain) (5,892) 6,936
Benefits paid (3,460) (4,984)
-------- --------
$ 79,501 $ 80,367
======== ========
Fair value of plan assets at end of the year $ - $ -
======== ========
Funded status at end of the year $(79,501) $(80,367)
Unrecognized net actuarial gain (14,070) (8,193)
Unrecognized net transition obligation 17,044 18,354
-------- --------
Accrued postretirement benefit cost $(76,527) $(70,206)
======== ========
</TABLE>
FGI and its subsidiaries' share of the accrued postretirement benefit cost was
approximately $55,578,000 and $53,206,000 in 1999 and 1998, respectively. The
unrecognized net transition obligation of $17,044,000 and $18,354,000 in 1999
and 1998, respectively, represents the remaining transition obligation of the
Exchanges.
Components of postretirement benefits expense for FGI and its subsidiaries are
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service costs $ 696 $ 636 $ 753
Interest costs 3,263 2,527 2,918
Amortization of actuarial gain (9) (435) (13)
------- --------- --------
Net periodic expense $ 3,950 $ 2,728 $ 3,658
======== ========= ========
</TABLE>
The Company's share of this amount was approximately $229,000, $205,000, and
$253,000 in 1999, 1998, and 1997, respectively.
The weighted average interest rate used in the above benefit computations was
8.00%, 6.75%, and 7.25% in 1999, 1998, and 1997, respectively. Beginning in
1997, the initial medical inflation rate was 7.00% to be graded over a
three-year period to 6.00% and level thereafter, and contribution levels from
retirees were the same as applicable medical cost increases where defined
benefits exist. The weighted average rate of increase in future compensation
levels used in determining the actuarial present value of the accumulated
benefit obligation was 5.00%, 4.50%, and 5.00% in 1999, 1998, and 1997,
respectively.
----
22
<PAGE> 91
A 1% increase or decrease in the medical inflation rate assumption would have
resulted in the following (in thousands):
<TABLE>
<CAPTION>
1% 1%
increase decrease
-------- --------
<S> <C> <C>
Effect on 1999 service and interest components of net periodic cost $116 $(106)
Effect on accumulated postretirement benefit obligation
at December 31, 1999 2,028 (1,849)
</TABLE>
NOTE 13: EMPLOYEES' PROFIT SHARING PLANS
FGI and its subsidiaries have two profit sharing plans providing for cash
payments to all eligible employees. The two plans, Cash Profit Sharing Plan
(consisting of Cash and Quest for Gold Program in 1999 and 1998) and Deferred
Profit Sharing Plan, provide for a maximum aggregate expense of 16.25% of FGI
and its subsidiaries' consolidated annual pretax earnings, as adjusted. The
Deferred Profit Sharing Plan, limited to 10% of pretax earnings, as adjusted, or
15% of the salary or wage paid or accrued to the eligible employee, provides for
an annual contribution by FGI and its subsidiaries to a trust for eventual
payment to employees as provided in the plan. The Cash Profit Sharing Plan and
Quest for Gold Program provide for annual cash distributions to eligible
employees. The Cash Profit Sharing Plan is limited to 5% of pretax earnings, as
adjusted, or 5% of eligible employees' salaries or wages paid or accrued. The
Quest for Gold Program is limited to 1.25% of pretax earnings, as adjusted, or
6% of eligible employees' salaries or wages paid or accrued.
The Company's share of expense under these plans was $4,120,000, $4,069,000, and
$3,850,000 in 1999, 1998, and 1997, respectively.
NOTE 14: EQUITY-INDEXED ANNUITIES
During 1997, the Company began selling an equity-indexed annuity product. At the
end of its seven-year term, this product credits interest to the annuity
participant at a rate based on a specified portion of the change in the value of
the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), subject
to a guaranteed annual minimum return. In order to hedge the interest liability
generated on the annuities as the index rises, the Company purchases call
options on the S&P 500 Index. The Company considers such call options to be held
as a hedge. As of December 31, 1999 and 1998, the Company had call options with
contract values of $65,229,000 and $40,229,000, respectively, and carrying
values of $32,718,000 and $14,817,000, respectively.
Hedge accounting is used to account for the call options as the Company believes
that the options reduce the risk associated with increases in the account value
of the annuities that result from increases in the S&P 500 Index. The call
options effectively hedge the annuity contracts since they are both purchased
and sold with identical parameters. Periodically, the value of the assets (S&P
500 call options) are matched to the potential liability (annuity contracts) to
ensure the hedge has remained effective. The annuities were written based on a
seven-year investment term, absent early termination by participants. Therefore,
the anticipated hedge transaction (i.e., payment of interest to the policyholder
at the end of the investment term and maturity of the call option) for each
annuity is generally expected to occur in seven years or less. For the years
ended December 31, 1999 and 1998, the amount of unrealized hedging gains was
$13,197,000 and $3,511,000, respectively.
The call options are carried at estimated fair value. Unrealized gains and
losses resulting from changes in the estimated fair value of the call options
are recorded as an adjustment to the interest liability credited to
----
23
<PAGE> 92
policyholders. In addition, realized gains and losses from maturity or
termination of the call options are offset against the interest credited to
policyholders during the period incurred. Premiums paid on call options are
amortized to net investment income over the term of the contracts. There were no
early terminations by annuity participants that led to maturities or sales of
the S&P 500 call options during 1999 or 1998.
The cash requirement of the call options consists of the initial premium paid to
purchase the call options. Should a liability exist to the annuity participant
at maturity of the annuity policy, the termination or maturity of the option
contracts will generate positive cash flow to the Company. The appropriate
amount of cash will then be remitted to the annuity participant based on the
respective participation rate. The call options are generally expected to be
held for a seven-year term, but can be terminated at any time.
There are certain risks associated with the call options, primarily with respect
to significant movements in the United States stock market and counterparty
nonperformance. The Company believes that the counterparties to its call option
agreements are financially responsible and that the counterparty risk associated
with these transactions is minimal.
NOTE 15: PARTICIPATING POLICIES
Participating business, which consists of group business, comprised
approximately 8.6% of total insurance in-force for both years ended December 31,
1999 and 1998. In addition, participating business represented 2.0%, 2.1%, and
2.2% of premium income for the years ended December 31, 1999, 1998, and 1997.
The amount of dividends paid on participating business is determined by the
Farmers Life Board of Directors and is paid annually on the policyholder's
anniversary date. Amounts allocable to participating policyholders are based on
published dividend projections or expected dividend scales.
NOTE 16: OPERATING SEGMENTS
The Company concentrates its activities in the individual life insurance and
annuity markets. These activities are managed separately as each offers a unique
set of product services. As a result, the Company is comprised of the following
two reportable operating segments as defined in SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information: the life insurance segment
and the annuity segment.
The life insurance segment provides individual life insurance products,
including universal life, term life, and whole life. The annuity segment
provides flexible and single premium deferred annuities, single premium
immediate annuities, and equity-indexed annuity products.
The basis of accounting used by the Company's management in evaluating segment
performance and determining how resources should be allocated is referred to as
the Company's GAAP historical basis, which excludes the effects of the purchase
accounting (PGAAP) adjustments related to the acquisition of FGI and the Company
by B.A.T in December 1988 (Note 1).
The Company accounts for intersegment transactions as if they were to third
parties and, as such, records the transactions at current market prices. There
were no intersegment revenues among the Company's two reportable operating
segments for the years 1999, 1998, and 1997.
The Company operates in 39 states and does not earn revenues or hold assets in
any foreign countries.
----
24
<PAGE> 93
Information regarding the Company's reportable operating segments follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------
GAAP historical basis PGAAP adjustments Total
--------------------- ----------------- PGAAP
Life Annuities Total Life Annuities Total basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 635,419 $ 118,044 $ 753,463 (a) $ (921) $ (351) $ (1,272) $ 752,191
Investment income 202,258 118,502 320,760 (598) (351) (949) 319,811
Investment expenses (7,653) (4,484) (12,137) (12,137)
Net realized gains 24,482 24,482 (323) (323) 24,159
Income before provision
for taxes 246,963 26,326 273,289 (26,301) (2,804) (29,105) 244,184
Provision for income taxes 87,421 9,319 96,740 (9,724) (1,037) (10,761) 85,979
Assets 3,646,654 1,870,221 5,516,875 98,675 50,607 149,282 (b) 5,666,157
Capital expenditures 2,508 2,508 2,508
Depreciation and
amortization 69,727 7,924 77,651 (c) 24,727 2,809 27,536 (d) 105,187
</TABLE>
(a) Revenues for the operating segments include net investment income and net
realized gains (losses).
(b) Amount includes PGAAP adjustments related to the DAC ($190,100,000 decrease)
and VOBA ($328,700,000 increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments totalling $21,300,000 related to the
amortization of the DAC and VOBA assets.
<TABLE>
<CAPTION>
Year ended December 31, 1998
----------------------------
GAAP historical basis PGAAP adjustments Total
--------------------- ----------------- PGAAP
Life Annuities Total Life Annuities Total basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 544,390 $ 116,029 $ 660,419 (a) $ 171 $ 36 $ 207 $ 660,626
Investment income 190,197 117,024 307,221 128 79 207 307,428
Investment expenses (8,457) (5,201) (13,658) (13,658)
Net realized losses (13,473) (13,473) (13,473)
Income before provision
for taxes 173,576 26,033 199,609 1,895 284 2,179 201,788
Provision for income taxes 61,803 9,269 71,072 99 15 114 71,186
Assets 3,593,311 1,844,266 5,437,577 118,310 60,454 178,764 (b) 5,616,341
Capital expenditures 572 572 572
Depreciation and
amortization 88,146 8,572 96,718 (c) (1,129) (151) (1,280) (d) 95,438
</TABLE>
(a) Revenues for the insurance operating segments include net investment income
and net realized gains (losses).
(b) Amount includes PGAAP adjustments related to the DAC ($168,300,000 decrease)
and VOBA ($334,400,000 increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments related to the amortization of the DAC
($26,200,000 decrease) and VOBA ($23,900,000 increase) assets.
<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------
GAAP historical basis PGAAP adjustments Total
--------------------- ----------------- PGAAP
Life Annuities Total Life Annuities Total basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 522,983 $ 114,899 $ 637,882 (a) $ 588 $ 128 $ 716 $ 638,598
Investment income 171,979 115,827 287,806 428 288 716 288,522
Investment expenses (7,626) (5,136) (12,762) (12,762)
Net realized gains 10,063 10,063 10,063
Income before provision
for taxes 190,418 24,677 215,095 (3,050) (396) (3,446) 211,649
Provision for income taxes 67,022 8,685 75,707 (1,633) (212) (1,845) 73,862
Assets 3,311,007 1,870,445 5,181,452 116,805 60,454 177,259 (b) 5,358,711
Capital expenditures 1,696 1,696 1,696
Depreciation and
amortization 82,849 7,210 90,059 (c) 4,025 538 4,563 (d) 94,622
</TABLE>
(a) Revenues for the insurance operating segments include net investment income
and net realized gains (losses).
(b) Amount includes PGAAP adjustments related to the DAC ($195,200,000 decrease)
and VOBA ($359,100,000 increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments related to the amortization of the DAC
($18,500,000 decrease) and VOBA ($21,300,000 increase) assets.
----
25
<PAGE> 94
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
All required financial statements are included in Part B of this
Registration Statement.
<TABLE>
<S> <C>
(b) EXHIBITS
(1) Certified resolution of the Board of Directors of Farmers New
World Life Insurance Company (the "Company") authorizing
establishment of Farmers Annuity Separate Account A (the
"Separate Account").(2/)
(2) Not applicable.
(3) (a) Distribution Agreement between Farmers New World Life Insurance
Company and Investors Brokerage Services, Inc.(3/)
(b) Investors Brokerage Services, Inc. Registered Representative
Agreement.(3/)
(4) (a) Revised Form of Contract for the Individual Flexible Premium
Variable Annuity.(3/)
(b) Revised Guaranteed Minimum Death Benefit Rider.(3/)
(c) Revised Guaranteed Retirement Income Benefit Rider.(3/)
(d) Waiver of Surrender Charge Rider - Terminal Illness.(3/)
(e) Waiver of Surrender Charge Rider - Nursing Care.(3/)
(f) Savings Incentive Match Plan for Employees (SIMPLE) Individual
Retirement Annuity Amendment Rider (20153).(3/)
(g) Individual Retirement Annuity Amendment Rider (20129).(3/)
(h) Roth Individual Retirement Annuity Endorsement (20181).(3/)
(5) (a) Form of Application for the Individual Flexible Premium Variable
Annuity.(3/)
(b) Form of Variable Policy Application Supplement.(4/)
(6) (a) Articles of Incorporation of Farmers New World Life Insurance
Company.(1/)
(b) By-Laws of Farmers New World Life Insurance Company.(1/)
(7) Not Applicable.
(8) (a) Participation Agreement between Kemper Variable Series and
Farmers New World Life Insurance Company.(4/)
(b) Participation Agreement between Scudder Variable Life Investment
Fund and Farmers New World Life Insurance Company.(4/)
(c) Indemnification Agreement between Scudder Kemper Investment, Inc.
and Farmers New World Life Insurance Company.(4/)
(d) Participation Agreement between Janus Aspen Series and Farmers
New World Life Insurance Company.(4/)
(e) Participation Agreement between PIMCO Variable Insurance Trust
and Farmers New World Life Insurance Company.(4/)
(f) Participation Agreement between Templeton Variable Products
Series Fund and Farmers New World Life Insurance Company.(3/)
(g) Consulting Services Agreement between McCamish Systems, L.L.C.
and Farmers New World Life Insurance Company.(3/)
</TABLE>
C-1
<PAGE> 95
<TABLE>
<S> <C>
(h) Master Administration Agreement between McCamish Systems, L.L.C.
and Farmers New World Life Insurance Company.(3/)
(9) Opinion and Consent of M. Douglas Close, Esq.(4/)
(10) (a) Consent of Sutherland Asbill & Brennan LLP.(4/)
(b) Consent of Deloitte & Touche LLP.(4/)
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule of Performance Computations.(4/)
(14) Not applicable.
(15) Powers of Attorney.(2/)
</TABLE>
- ----------
(1/) Incorporated herein by reference to the initial registration statement on
Form S-6 for Farmers Variable Life Separate Account A filed with the SEC via
EDGARLINK on July 29, 1999 (File No. 333-84023).
(2/) Incorporated herein by reference to the initial registration statement on
Form N-4 for Farmers Annuity Separate Account A filed with the SEC via EDGARLINK
on August 13, 1999 (File Nos. 333-85183 and 811-09547).
(3/) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
registration statement on Form N-4 for Farmers Annuity Separate Account A filed
with the SEC via EDGARLINK on November 15, 1999 (File Nos. 333-85183 and
811-09547).
(4/) Filed herewith.
ITEM 25. DIRECTORS AND OFFICERS OF FARMERS NEW WORLD LIFE INSURANCE
COMPANY
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Office with Depositor
- ----------------------------------- ----------------------------------
<S> <C>
C. Paul Patsis(1) President and Director
Richard E. Bangert(3) Director
Donald J. Covey(4) Director
Martin D. Feinstein(2) Director
Paul N. Hopkins(2) Director
Dennis I. Okamato(5) Director
Keitha T. Schofield(2) Director
Gary R. Severson(6) Director
John F. Sullivan, Jr.(7) Director
Gerald E. Faulwell(2) Vice President and Assistant Treasurer
Kathryn M. Callahan(1) Vice President and Actuary
M. Douglas Close(2) Vice President and General Counsel
James I. Randolph(1) Vice President and Assistant Secretary
Laszlo G. Heredy(2) Vice President
David A. Demmon(1) Assistant Vice President and Treasurer
Sharon D. Courlas, M.D.(1) Vice President and Medical Director
Sharylee Barns, M.D.(1) Medical Director
</TABLE>
C-2
<PAGE> 96
<TABLE>
<S> <C>
Gerald A. Dulek(2) Assistant Vice President
Doren Hohl(2) Assistant Secretary
Paul F. Hott(1) Assistant Vice President
Kathleen D. Katovich(2) Assistant Secretary
Hubert L. Mountz(2) Assistant Treasurer
Link R. Murphy, M.D.(8) Assistant Medical Director
John R. Patton(1) Assistant Vice President and Secretary
Christopher R. Pflug(2) Assistant Secretary
Maryann M. Seltzer(2) Assistant Secretary
</TABLE>
Principal business address is:
1. 3003 - 77th Avenue, S.E., Mercer Island, WA 98040
2. 4680 Wilshire Blvd., Los Angeles, CA 90010
3. 2615 - 42nd Avenue West, Seattle, WA 98199
4. 6300 Sand Point Way, N.E., #307, Seattle, WA 98115
5. 1600 Seventh Avenue, Room 1802, Seattle, WA 98191
6. 6131 - 128th Avenue, N.E., Kirkland, WA 98033
7. 1201 Third Avenue, Suite 3390, Seattle, WA 98101
8. 2500 Farmers Way, Columbus, OH 43235
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
ZURICH ALLIED AG (ZURICH, SWITZERLAND)
owns 57% of Zurich Financial Services [Sw]
owns 90% of Farmers Group, Inc. [US-NV]
owns 100% of Farmers New World Life Insurance Company [US-WA]
owns 95.2% of FIG Leasing Company, Inc. [US-CA]
owns 100% of Farmers Services Corporation [US-NV]
owns 100% of Farmers Value Added, Inc. [US-NV]
owns 100% of Farmers Investment Research & Management, Inc. [US-NV]
owns 100% of Farmers Reinsurance Company [US-CA]
owns 100% of F.I.G. Travel [US-CA]
owns 38% of Prematic Service Corporation [US-CA]
owns 100% of Prematic Service Corporation [US-NV]
owns 100% of Fire Underwriters Association [US-CA]
owns 70% of F.I.G. Holding Company [US-CA]
owns 1.7% of FIG Leasing Company, Inc. [US-CA]
owns 9% of Prematic Service Corporation [US-CA]
owns 100% of Truck Underwriters Association [US-CA]
owns 30% of F.I.G. Holding Company [US-CA]
owns 3.1% of FIG Leasing Corporation, Inc. [US-CA]
owns 53% of Prematic Service Corporation [US-CA]
owns 99+% of Zurich Insurance Company (see below)
owns 100% of Allied Zurich Holdings Limited [CHANNEL ISLANDS]
owns 10% of Farmers Group, Inc. [US-NV] (see above)
owns 100% of British American Financial Services
owns 100% of British American Financial Services Subsidiaries
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ZURICH INSURANCE COMPANY - UNITED STATES
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 100% Zurich Towers, Inc. [US - IL]
owns 33% of 20th Century Asset Management Corporation Limited [India]
owns 99+% of Zurich Life Insurance Company (Zurich, Switzerland)
owns 14% of Provident Companies, Inc. *4
owns 100% of Provident Life and Accident Insurance Co. [US-TN]
owns 100% of Provident Life and Casualty Insurance Co.
owns 100% of Provident National Assurance Company [US-TN]
owns 100% of The Paul Revere Corporation [US-MA]
owns 100% of The Paul Revere Life Insurance Company [US-MA]
owns 100% of The Paul Revere Protective Life Insurance Company
[US-DE]
owns 100% of The Paul Revere Variable Annuity Insurance Company
[US-MA]
owns 100% of - Zurich Holding Co. of America [US - DE]
owns 100% Zurich Finance (USA) Inc. [US-DE]
owns 100% Zurich American Brokerage Inc. [US-NY]
owns 99.5% of UUBVI, Limited [BVI]
owns 100% Zurich American Insurance Company [US - NY]
owns 100% of Empire Fire & Marine Insurance Company [US - NY]
owns 100% of Empire Indemnity Insurance Company [US - OK]
Zurich Holding Company of America
owns 99.9% Risk Enterprise Management Limited [US - DE]
owns 100% Zurich American REIT Corporation [US - DE]
owns 100% Zurich American Insurance Company [US - NY]
owns 100% Steadfast Insurance Company [US - DE]
owns 100% American Zurich Insurance Company [US - IL]
owns 100% Zurich American Insurance Company of
Illinois [US -IL]
owns 100% American Guarantee & Liability Insurance Company
[US - NY]
owns 100% Diversified Specialty Risk, Inc. [US - TX]
owns 100% Specialty Producer Group Inc. [US - DE]
owns 100% Daniels-Head Insurance Agency Inc.
[US - TX]
owns 100% Daniels-Head Insurance Agency Inc.
[US - KY]
owns 100% Daniels-Head Insurance Agency Inc.
[US - CA]
owns 100% Daniels-Head Insurance Agency Inc.
[US - NY]
owns 100% Daniels-Head Insurance Agency Inc.
[US - OH]
owns 100% O'Connor West Insurance Agency Inc.
Empire Fire & Marine Insurance Company
owns 100% of Douglas Street Premium Finance Company of
California [US - CA]
owns 100% of Douglas Street Premium Finance Company [US - NE]
owns 100% Minnesota Marketing Center, Inc. [US-MN]
owns 51% of Truckwriters, Inc. [US - NE]
owns Empire Fire & Marine Insurance Company
owns 100% of Empire Management Services, Inc. [US - NE]
owns 100% of Zurich Global Ltd. [Bda]
owns 100% of Universal Underwriters Acceptance Corp. [US - KS]
owns 100% of Universal Underwriters Service Corp. [US - MO]
owns .50% of UUBVI, Limited [BVI]
owns 100% of Universal Underwriters Service Corp. of Texas [US - TX]
owns 100% of The Zurich Services Corporation [US - IL]
owns 100% of Zurich American Brokerage, Inc. [US - NY]
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Zurich American Insurance Company [US-NY]
owns 85% of Maryland Casualty Co. [US - MD]
owns 100% Zurich Agency Services, Inc [US-TX]
owns 100% of Assurance Company of America [US - NY]
owns 100% of Maine Bonding & Casualty Company [US - ME]
owns 100% of Maryland Insurance Company [US - TX]
owns 100% of Zurich Insurance Agency [US - MD]
owns 100% of Maryland Management Corporation [US - TX]
Trust Agreements - Maryland Lloyds [US - TX]
owns 100% of National Standard Insurance Company [US - TX]
owns 100% of Northern Insurance Company of New York [US - NY]
owns 100% of Steadfast Reinsurance Company, Ltd. [Bda]
owns 100% of Valiant Insurance Company [US - IA]
owns 100% of Fidelity & Deposit Company of Maryland [US - MD]
Zurich American Insurance Company [US-NY]
owns 100% of Colonial American Casualty & Surety Company
[US - MD]
owns 100% Mountbatten Holding, Inc. [US-PA]
owns 100% The Mountbatten Surety Company, Inc [US-PA]
owns 100% HMS Droadnought, Inc. [US-DE]
Fidelity & Deposit Company of Maryland
owns 100% of 300 St. Paul Corporation [US - MD]
owns 51 % of Maryland Netherlands Credit Insurance Company
[US - MD]
Zurich American Insurance Company [US-NY]
owns 100% of Universal Underwriters Insurance Company
[US - MO]
owns 100% of Universal Underwriters of Texas Insurance Company
[US - TX]
owns 100% of Mountain Insurance Agency [US - MA]
owns 100% of Universal Underwriters Life Insurance Company
[US - MO]
owns 100% of Robert Hampson, Inc. [Canada]
Zurich Holding Company of America [US-DE]
owns 100% of ZKI Holding Corp. (*3)
owns 32.85% of Scudder Kemper Investments, Inc. [US - DE]
owns 100% Zurich Kemper Investments, Inc [US-DE]
owns 50% of Kemper Distributors, Inc. [US-DE]
owns 50% of Kemper Service Company [US-DE]
owns 100% of ZKI Agency, Inc. [US - DL]
owns 100% ZKI Agency of Alabama Inc. [US-AL]
owns 100% of Scudder Investments (U.K.) Ltd
owns 100% of Zurich Investment Management (C.I.) Limited
[Channel Islands]
owns 100% of Zurich Investment Management (Dublin) Limited
(Ireland)
owns 100% of Scudder Kemper Holdings (U.K.) Limited
owns 100% of Scudder, Stevens & Clark Limited
owns 100% Scudder Kemper Holdings [UK] Limited
owns 100% of Scudder, Stevens & Clark Japan, Inc.
owns 100% of Scudder, Stevens & Clark Asia Limited
owns 100% of Scudder Canada Investor Services Limited
owns 100% of Scudder, Stevens & Clark of Canada, Ltd.
owns 100% Zurich Investment Management, Inc. [US-DE]
owns 100% Scudder Investments AG
owns 100% of Scudder, Stevens & Clark (Luxembourg) S.A.
owns 100% of Scudder Trust (Cayman), Ltd.
owns 100% of Scudder Cayman, Ltd.
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owns 100% of Scudder, Stevens & Clark Australia Limited
owns 100% of Scudder, Stevens & Clark Corporation [US - DE]
owns 100% of SS&C Overseas Corporation
owns 49.75% of Scudder
Trust Company
owns 50% of Scudder Defined Contributions Services, Inc.
owns 50% of Scudder Capital Stock Corporation
owns 50% Kemper Distributors Inc. [US - DE]
owns 50% of Scudder Capital Planning Corporation
owns 50% of Scudder Investor Services, Inc.
owns 100% of Scudder Insurance Agency Inc. (CA) [US - CA]
owns 100% of Scudder Insurance Agency, Inc.
owns 100% of Scudder Insurance Agency of New York, Inc.
owns 100% of SIS Investment Corporation
owns 50% of Scudder Brokerage Services, Inc.
owns 50% of Scudder Service Corporation
owns 1% of Scudder Realty Holdings (II) L.L.C.
owns 100% of SRV Investment Corporation
owns 100% of Scudder Realty Holdings Corporation
owns 50% of Scudder Capital Planning Corporation
owns 50% Kemper Service Company [US - DE]
owns 50% of Scudder Capital Asset Corporation
owns 50% of Scudder Fund Accounting Corporation
owns 50% of SS&C Investment Corporation
owns 50% of Scudder Investor Services, Inc. [US - MA]
owns 50% of Scudder Brokerage Services, Inc. [US - DE]
owns 50% of Scudder Capital Asset Corporation
owns 49.75% of Scudder Trust Company
owns 50% of Scudder Defined Contributions Services, Inc.
owns 50% of Scudder Capital Stock Corporation
owns 50% of Scudder Service Corporation
owns 99% of Scudder Realty Holdings (II) L.L.C.
owns 50% of Scudder Fund Accounting Corporation
owns 50% of SS&C Investment Corporation
owns 50% of AARP/Scudder Financial Management Company
owns 100% of Korea Bond Fund Management Co., Limited
owns 100% of Scudder Cayman L.A. Power II-P Ltd.
owns 100% of Scudder Cayman L.A. Power II-C Ltd.
owns 100% of SFA, Inc.
Zurich Holding Company of America [US-DE]
owns 36.6% of Scudder Kemper Investments, Inc. [US - DE]
owns 71.67% of Kemper Corporation
owns 100% of Federal Kemper Life Assurance Company [US - IL]
owns 50% of KI/FKLA Rancho Realty, L.L.C.
owns 30% of KL-75, L.L.C.
owns 66.70% of KI/FKLA Ardenwood, L.L.C.
owns 100% of Kemper Investors Life Insurance Company [US - IL]
owns 100% of Investors Brokerage Services, Inc. [US - DE]
owns 100% of Investors Brokerage Services Insurance Agency, Inc.
[US - DE]
owns 100% IBS Insurance Agency Inc of Ohio [US-OH]
owns 100% of Investors Brokerage Services Insurance Agency,
Inc. of Texas [US - TX]
(*1) owns 60.10% of KI/FLA San Leandro, L.L.C.
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owns 30% of KL-75, L.L.C.
owns 33.30% of KI/FKLA Ardenwood, L.L.C.
owns 50% of KI/FKLA Rancho Realty, L.L.C.
owns 100% of Kemper Portfolio Corp. [US - DE]
owns 100% of FKLA Realty Corporation [US - IL]
owns 50% of Kemper Real Estate Management Company [US - DE]
owns 75% of KLMLP, L.P. [US - DE] (*2)
owns 100% Butterfield Financial Corporation [US-CA]
owns 100% of Kemper/Lumbermens Properties, Inc. [US - DE]
KADC, Inc [US-CA]
owns 100% of Ardenwood Financial Corporation [US - CA]
owns 100% of Zurich Life Insurance Company of America [US - IL]
owns 100% of Zurich Direct, Inc. [US - IL]
owns 33% of 20th Century Asset Management Corporation Limited [India]
owns 100% of KFC Portfolio Corp. [US - DE]
owns 100% of Kemper Real Estate, Inc. [US - DE]
owns 100% of Kemper/Cymrot, Inc. [US - DE]
owns 100% of Kemper/Cymrot Management, Inc. [US - GA]
owns 100% of KILICO Realty Corporation [US - IL]
KFC Portfolio Corp. owns 100% of KR CBDV [US - DE]
owns 100% of Maunalua Associates, Inc. [US - HI]
owns 100% of Pacific Homes, Inc. [US - HI]
Kemper Corporation owns 66.67% of ZKS Real Estate Partners, L.L.C. [US - DE]
Individual Shareholders own 20.86% of Scudder Kemper Investments, Inc.
[US - DE]
SKI Executive Defined Contribution Plan owns 9.66% of Scudder Kemper
Investments, Inc. [US - DE]
Fidelity Life Association, A Mutual Legal Reserve Company [US - IL]
NOTES
*1 = 100% owned by a Texas resident under contract with Investors Brokerage
Services Insurance Agency, Inc. of Texas.
*2 = KLMLP, L.P. is a Delaware limited partnership. Kemper Corporation's
indirect ownership of KLMLP, L.P. is as follows:
29.7% KILICO Realty Corporation; 20.85% FKLA Realty Corporation;
1.5% Kemper Portfolio Corp; 22.5% KFC Portfolio Corp.; 0.3%
Kemper Investors Life Insurance Company; and 0.15% Federal Kemper
Life Assurance Company.
*3 = Lumbermens Mutual Casualty Company owns the remaining 3.03% of ZKI
Holding Corp.
*4 = Zurich Insurance Company, together with various U.S. affiliates, owns
6,349,207 shares, or 14%, of the common stock of Provident Companies,
Inc.
Percentages reflect direct common stock ownership, except as noted.
Except as noted, non-corporate (i.e., partnership) joint venture real estate
investments by subsidiaries of Kemper Corporation and Fidelity Life Association
are not shown.
ZURICH CENTRE INVESTMENTS
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 65% of Zurich Centre Group Holdings, Limited [Bda]
owns 43% of Zurich International (Bermuda) Ltd. [Bda.]
owns 35% of Zurich Centre Group Holdings Limited [Bda] (ZC Advisors
International [Bda] and ZC Advisors
[US - NY] have advisory contracts with Zurich Centre Investments Limited
[Bda]
owns 100% of Centre Reinsurance Services (Bermuda) II Limited [Bda]
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owns 43% IPC GenPar (Bermuda) L.P. [Bda]
owns 44% of Insurance GenPar (Bermuda), L.P. [Bda]
owns 1% and serves as GP of Insurance Partners Offshore
(Bermuda), L.P.
owns 100% of ZC Sterling Holdings Limited [US - CA]
owns 81% of ZC Sterling Insurance Agency [US - CA]
owns 100% of Centre Reinsurance Holdings Limited [Bda]
owns 100% of Centre Solutions (Bermuda) Limited [Bda]
owns 50% of Advance Travel Holdings (Bermuda) Limited [Bda]
owns 51% of Strategic Risk Management Holdings Limited [Bda]
owns 100% SRM Brokers Limited [Bda]
owns 100% of SRM Consultants Limited [Bda]
owns 100% of Strategic Risk Management Limited [UK]
owns 100% of Strategic Risk Management (Propriety)
Limited (South Africa)
owns 100% of SRM Managers Limited [Bda]
owns 39.6% of Florida Select Insurance Holdings, Inc.
[US - DE]
owns 100% of Florida Select Insurance Co. [US - FL]
owns 100% of Florida Select Insurance Agency [US - FL]
Centre Solutions (Bermuda) Limited (Bda)
owns non-voting common stock of Mendip Insurance & Reinsurance
Company Limited [Bda]
owns 100% of CP Holding Limited [BVI]
owns 100% of Centre Reinsurance Representatives Limited [UK]
owns 40% of Pacific Select Insurance Holding, Inc. [US - DE]
owns 100% Pacific Select Insurance Co. [US - CA]
owns 100% of Centre Investors I Limited [Bda]
owns 100% of Centre Investors II Limited [Bda]
owns 100% of Centre Investors III Limited [Bda]
owns 33% of Golden Gate Reinsurance Company Limited [Bda]
owns 100% of CRS III Limited [Bda]
owns 100% Centre Representatives (Asia) Limited (Hong Kong)
owns 16.1% of CAT Limited [Bda]
owns 100% of Superior National Capital, L.P. [Bda]
owns 100% of Centre Solutions (Australia) Limited [Aus]
owns 100% of Centre Reinsurance Services (Bermuda) IV Limited
[Bda]
owns 100% of Finwas Financing (Bermuda) Limited [Bda]
owns 100% of Centre Reinsurance Limited [Bda]
Zurich Centre Group Holdings Limited (Bda)
owns 100% of Centre Re Holdings Dublin [Ireland]
owns 100% of Centre Reinsurance Holdings (Delaware II)
Limited [US - DE]
owns 100% Centre Solutions (Asia) Limited (Bda)
CentreRe Holdings Dublin (Ireland)
owns 100% Centre Finance Dublin International (Ireland)
owns 100% Centre Investments Dublin (Ireland)
Centre Reinsurance Holdings (Delaware II) Limited
owns 100% of Centre Reinsurance Dublin [Ireland]
owns 100% of Centre Reinsurance Holdings (Delaware)
Limited [US - DE]
owns 100% of Zurich Centre Group LLC (US-DE)
owns 100% of Centre Reinsurance (US) Limited [Bda]
owns 100% of Zurich Reinsurance Centre Holdings,
Inc. [US - DE]
owns 100% of ZC Property Management [US - DE]
owns 100% of Zurich Reinsurance North America),
Inc. [US - CT]
owns 100% of ZC Insurance Company [US - NJ]
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owns 24% of Insurance Partners Advisors L.P.
[US - DE]
Centre Reinsurance Limited (Bda)
owns 100% of ZC Specialties Insurance Company
[US - TX]
owns 100% of Constellation Reinsurance Company
[US - NY]
owns 100% of BDA/US Services Limited [US - DE]
owns 100% of Centre Re Services, Inc. [US - NY]
owns 100% of ZC Resource L.L.C. [US-DE]
owns 100% of Zurich Centre Properties, Inc (US-CT)
ZC Resource LLC [US-DE]
owns 50% of Life Insurance Solutions LLC [US - DE]
owns 50% of Advance Travel Holdings [Delaware]
Limited [US - DE]
owns 100% of Advance Travel Limited [US - DE]
owns 49% of Claims Solutions Group [US-DE]
owns 100% of Claims management Group [UK]
Centre Reinsurance Limited [Bda]
owns 100% of Bridge Re [Lux]
owns 100% Centre Insurance International
Company [Ireland]
owns 100% of Centre Finance Dublin
International [Ire]
owns 100% of Centre Reinsurance
International Company [Ire]
owns 33% non-voting stock of International
Insurance Advisors, Inc. [US - DE]
owns 54% of Insurance Partners Offshore
(Bermuda), L.P. [Bda]
owns 100% of Anglo American Insurance Group
Limited [Bda]
owns 30% of International Insurance
Advisors, Inc
Zurich Centre Group Holdings Limited [Bda]
owns 100% Advisors, Inc.
owns 100% of Anglo American Insurance Holdings Limited
[UK]
owns 100% of Anglo American Underwriting Management
Limited [UK]
owns 100% of Anglo American Insurance Management
Services Limited [UK]
Centre Reinsurance Limited (Bda)
owns 100% Centre Solutions Holdings II [Delaware] Limited
(US-DE)
owns 100% Centre Risk Advisors, Inc. [US-DE]
owns 100% ZC Group LLC [US-DE]
owns 100% Centre Solutions [US] Limited [Bda]
owns 100% ZC Specialty Insurance Company [US-TX]
owns 100% Centre Solutions Holdings [Delaware] Limited
[US-DE]
owns 100% Centre Insurance Company [US-DE]
owns 100% of Anglo American Insurance Co. Limited [UK]
owns 100% of Mercantile Indemnity Limited [UK]
owns 100% of Anglo American Insurance Company (Bermuda)
Limited [Bda]
Centre Reinsurance Holdings Limited [Bda]
owns 100% of CentreLine Reinsurance Limited [Bda]
owns 100% of Mendip Insurance & Reinsurance Company Limited [Bda]
owns 100% of Strategic Services Centre Limited [Bda] - f/k/a Gear, Inc.
owns 100% of ZC Life Reinsurance Limited [Bda]
owns 100% of Centre Life Holdings (Delaware) Limited [US - DE]
owns 100% of Centre Life Reinsurance Limited [Bda]
Zurich Centre Group Holdings Limited [Bda]
owns 100% of Zurich Payroll Solutions Limited [US - DE]
owns 94% of Cedar Hill Holdings, Inc. [US - DE]
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owns 100% of Cedar Hill Assurance Company [US - TX]
owns 100% of ZCM Holdings (Bermuda) Limited [Bda]
owns 100% ZCM Matched Funding (Bermuda) Limited [Bda]
owns 100% of ZCM Asset Holding Company (Bermuda) Limited [Bda]
owns 100% of Zurich Capital Markets (UK) Limited [UK]
owns 100% of Zurich Capital Markets Inc. [US - DE]
owns 100% of Zurich Capital Markets Securities Inc. [US - DE]
owns 100% of ZCM Matched Funding Corp. [US - DE]
owns 100% of Zurich Capital Markets Company [Ireland]
owns 100% of Centre Financial Services Holdings Limited [Bda]
owns 100% of Zurich Structured Finance, Inc. [US - DE]
owns 100% Centre Kate Inc. 1 [US - DE]
owns 100% Centre Kate Inc. 2 [US - DE]
owns 47.125% of CentRe Mortgage Capital LLC [US - DE]
owns 100% of National Mortgage Capital LLC [US - MD]
owns 47.375% of CMC TEJV-1, LLC [US - DE]
owns 100% of CTH Affordable Housing Corporation [US - DE]
owns 100% of CTH Affordable Housing Investor, Inc. [US - DE]
owns 100% of CTH MHP, L.L.C. [US - DE]
owns 100% of CTH Special General Partner, Inc. [US - DE]
owns 100% of CTH MHP II, Inc. [US - IL]
owns 100% of CTH AHP Corporation [US - DE]
owns 100% of CTH WNC, Inc. [US - IL]
owns 100% of CTH Special General Partner II, Inc. [US - IL]
1% General Partner & 98% Limited Partner of JFS/ZSF 1997, L.P.
[US - VA]
owns 34.5% common stock & 100% preferred stock of Centre Trading
Partners, L.P. [US - DE]
owns 45% of Centre Trading Corporation [US - DE]
owns 1% of Centre Trading Partners L.P. [US - DE]
owns 49% of CMB Limited [Bda]
owns 100% of Zurich Home Investments Limited [Bda]
owns 100% of Centre Reinsurance Services (Delaware) Limited [US - DE]
owns 44% of Insurance GenPar LP [US - DE]
owns 100% and serves as GP of Insurance Partners LP [US - DE]
CTH Affordable Housing Corporation
owns 100% ZSF Appollo Corporation [US - IL]
owns 100% CTH/Landmark SLP, Inc. [US - DE]
owns 100% ZSF Landmark Corporation [US - IL]
Zurich Centre Group Holdings Limited (Bda)
owns 50% THIC Holdings Management Corporation
owns 100% Centre Reinsurance Services (Bermuda) Limited (Bda)
owns 100% Zurich S.F. Holdings Inc. (US-DE)
owns 100% Sterling Forest LLC (US)
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 100% of Zurich International Service [Ire]
owns 100% of Zurich International Services [Lxm]
owns 100% of Marofinac [Mar]
owns 13.23% of La Garantie Generale Marocaine (GGM) [Mar]
owns 5% of Arab International Insurance Co. [Egy]
owns 68.76% of La Garantie Generale Marocaine (GGM) [Mar]
owns 80% of Zurich Life Assurance Company Ltd. [UK]
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owns 50% of Previservice S.p.A. [Ity]
owns 67% of Genevoise Vie (Geneva Life Insurance Co.) [Sw]
owns 0.923% of Zurich International [Blg]
owns 10% of Zurich Eurolife S.A. [Lux]
owns 100% of Turegum Immobilion AG [Sw]
owns 100% of Assuricum Zurich [Sw]
owns 99.87% of Zurich Leben (Life) Insurance Company [Sw]
owns 15% of Alstadt Insurance Co. [Sw]
owns 20% of Telsecur [Spn]
owns 100% of Zurich-Leben PKB [Sw]
owns 10% of Gestora [Spn]
owns 5% of National Insurance Company (Runoff) [Lxm]
owns 10% of Societe Jacquet [Blg]
owns 90% of Zurich Life International Services, Ltd. [UK]
owns 10% of Zurich life Insurance Company of Canada [Can]
owns 20% of Zurich Life Assurance Company Ltd. [UK]
owns 50% of Previservice S.p.A. [Ity]
owns 32.6% of Genevoise Vie (Geneva Life Insurance Co.) [Sw]
owns 99.075% of Zurich International [Blg]
owns 10% of Consultores de Pensiones [Spn]
owns 1% of ASSURYS Compagnie d'Assurances [Fra]
owns 90% of Zurich Eurolife S.A. [Lux]
owns 10% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 100% of Rud, Blass & Cie AG [Sw]
owns 5% of National Insurance Company (Runoff) [Sau]
owns 100% of Genevoise Generale (Geneva General Insurance Co.) [Sw]
owns 10.32% of Zurich International (France) S.A. [Fra]
owns 99.99% of S.G.E.A. [Fra]
owns 2% of ASSURYS Compagnie d'Assurances [Fra]
owns 20% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 80.77% of Danubio Compagnia di Assicurazioni S.p.A.
owns 58.64% of Zurich International (France) S.A. [Fra]
owns 96.99% of ASSURYS Compagnie d'Assurances [Fra]
owns 69.99% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 99.87% of Alpina Insurance Co. [Sw]
owns 10% of Alstadt Insurance Co. [Sw]
owns 19.23% of Danubio Compagnia di Assicurazioni S.p.A. [Ity]
owns 31.01% of Zurich International (France) S.A. [Fra]
owns 74.95% of Alstadt Insurance Co. [Sw]
owns 90% of Zurich Insurance Services [Bah]
owns 99.46% of Zurich do Brazil [Brz]
owns 32% of CAARS [Brz]
owns 100% of Zurich-Anglo Seguradora S.A. [Brz]
owns 60% of Zurich Asia Holdings Ltd. [Bda]
owns 49% of Neango [Arg]
owns 38.7% of ISIS [Arg]
owns 100% of Turegum Insurance Co. [Sw]
owns 33.3% of Zurich Holdings (UK) Ltd. [UK]
owns 100% of Pilot Association [UK]
owns 100% of Zurich Municipal Marketing Services, Ltd. [UK]
owns 10% of Zurich Life International Services, Ltd. [UK]
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owns 100% of Zurich Re (UK) Ltd. [UK]
owns 100% of Zurich International (UK) Ltd. [UK]
owns 100% of General Surety Holding, Ltd. [UK]
owns 100% of General Surety & Guarantee Co. [UK]
owns 10% of Zurich Insurance Services [Bah]
owns 5% of Saudi National Insurance Co., E.C. (SNIC) [Sau]
owns 0.54% of Zurich do Brazil [Brz]
owns 7.5% of Zurich Asia Holdings Ltd. [Bda]
owns 62.5% of Zurich Insurance (Malaysia) Sdn Bhd. [Mal]
owns 100% of Zurich Insurance (Guam) Inc. [Gua]
owns 66.6% of Zurich Holdings (UK) Ltd. [UK]
owns 100% of Zurich Investment Management AG [Sw]
owns 100% of Zurich Versicherung - AG [Ger]
owns 100% of Central Lloyd Verwaltungsges mbH [Ger]
owns 42.7% of Iguazu Compania de Seguros [Arg]
owns 0.7% of Zurich Iguazu Compania de Seguros de Retiro S.A. [Arg]
owns 99.3% of Zurich Iguazu Compania de Seguros de Retiro S.A. [Arg]
owns 100% of Zurich International de Venezuela [Ven]
owns 30% of Zurich Chapultepec Compania de Seguros S.A. [Mex]
owns 50% of ZBV Beratungs-u. Verkaufs - AG [Sw]
owns 100% of HERA Vermogensverwaltung GmbH [Ger]
owns 100% of Zurich - Agrippina Beteiligungs - Aktiengesellschaft (Deutschland)
AG ZABAG [Ger]
owns 16.7% of BFI Betieigungsges fur Industriewerte [Ger]
owns 100% of Deutsche Allgemeine Leben Verischerung AG [Ger]
owns 100% of Deutsche Allgemeine Verischerung AG [Ger]
owns 100% of Zurich Rechtsschutz - Verischerungs - AG [Ger]
owns 100% of Zurich Kautions - und Kredit - AG [Ger]
owns 100% of Zurich International (Deutschland) [Ger]
owns 100% of Zurich Kredit Service GmbH [Ger]
owns 80% of Zurich Investmentges [Ger]
owns 100% of Zurich Gesellschaft fur Vermogensanlagen [Ger]
owns 98% of D. Kern Steuerberatung [Ger]
owns 100% of TDG Tele-Dienste GmbH [Ber]
owns 99.1% of Agrippina Versicherung [Ger]
owns 99.275% of Paria Versicherung - AG [Ger]
owns 100% of Anas Investment, Ltd. Dublin [Ire]
owns 92.3% of Agrippina Ruckversicherung - AG [Ger]
owns 98% of Agrippina Lebensversicherung - AG [Ger]
owns 100% of Agrippina Rechtsschultzversicherung - AG [Ger]
owns 100% of Banuud Kapital, mbH [Ger]
owns 100% of Zurich International (Netherland) N.V. [Nth]
owns 100% of Bastion B.V. [Nth]
owns 100% of Zurich International (Italia) S.p.A. [Ity]
owns 100% of Zurich Insurance Company, U.K. [UK]
owns 49% of Zurich Insurance Company (Russia) [Rus]
owns 100% of Fairfax House Securities Ltd. [UK]
owns 100% of Sanatorio Zurbaran [Spn]
owns 100% of Zurich Kosmos Versicherungen AG [Aus]
owns 100% of LASSAL Mobilien-und Immobilienvermitungs-und
Vetriebsservice GmbH [Aus]
owns 15% of Garant Eurasco [Aus]
owns 100% of Zurich Uberspieczenle Service Sp.z.o.o (Zurich Versicherung
Service GmbH) [Pol]
C-12
<PAGE> 106
owns 100% of Zurich Biztositasi Szolgaltato Kft. (Zurich Versicherung
Service GmbH) [Hun]
owns 99.99% of Inversiones Suizo Chilena [Chl]
owns 73.15% of Compania de Seguros Chilena Generales (Chilean General
Insurance) [Chl]
owns 98.65% of Compnia de Seguros Chilena de Vida (Life Insurance
Co.) [Chl]
owns 2.38% of Compania de Seguros Chilena Generales (Chilean
General Insurance) [Chl]
owns 100% of CRESTA Schadenhilfe GmbH [Aus]
owns 60% of Consultores de Pensiones [Spn]
owns 98.37% of Zurich International (Espana) Compania [Spn]
owns 20% of Consultores de Pensiones [Spn]
owns 40% of Telsecur [Spn]
owns 20% of Gestora [Spn]
owns 10% of Consultores de Pensiones [Spn]
owns 20% of Telsecur [Spn]
owns 60% of Gestora [Spn]
owns 100% of Caudal S.A. de Seguros y Reaseguros [Spn]
owns 10% of Gestora [Spn]
owns 20% of Telsecur [Spn]
owns 36.5% of Sicurta 1879 Assicurazioni S.p.A. [Ity]
owns 99.96% of SIAR (Societa Italiana Assicurazioni e Riassicurazionio)
S.p.A. [Ity]
owns 63.5% of Sicurta 1879 Assicurazioni S.p.A. [Ity]
owns 42.51% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 63.53% of Zeta Finanza S.p.A. [Ity]
owns 63% of Zeasim [Ity]
owns 100% of Zeta Fiduciaria [Ity]
owns 100% of Zeta Fondi [Ity]
owns 100% of Zetagest [Ity]
owns 0.08% of Zetasim [Ity]
owns 35% of ATAM [Ity]
owns 50.02% of Minerva Assicurazioni S.p.A. [Iy]
owns 24.95% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 1.13% of Zeta Finanza S.p.A. [Ity]
owns 35.71% of Edil-Spettacolo [Ity]
owns 50% of Toscana Uno [Ity]
owns 15.8% of Zeta Finanza S.p.A. [Ity]
owns 63.11% of ATAM [Ity]
owns 49.96% of Minerva Assicurazioni S.p.A. [Ity]
owns 29.01% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 19.54% of Zeta Finanza S.p.A. [Ity]
owns 100% of Erbasei S.p.A. [Ity]
owns 36.07% of Zetasim [Ity]
owns 100% of Zurich Australian Insurance Holdings, Ltd. [Ast]
owns 100% of Zurich Australian Staff Superannuation Pty. Ltd. [Ast]
owns 25% of Zurich Australian Insurance Properties Pty. Ltd. [Ast]
owns 100% of Zurich Australian Insurance Ltd. [Ast]
owns 25% of Zurich Australian Insurance Properties Pty. Ltd.
[Ast]
owns 100% of Zurich Australian Life Insurance Ltd.
owns 50% of Zurich Australian Insurance Properties Pty. Ltd.
[Ast]
owns 51% of National Accountancy Management Services Pty. Ltd.
(NAMS) [Ast]
owns 100% of Zurich Investment Management AG [Ast]
owns 100% of Zurich Australian Auperannuation Pty. Ltd. [Ast]
owns 100% of Zurich Properties Ltd. [Ast]
C-13
<PAGE> 107
owns 100% of Zurich Australian Workers Compensation Victoria Pty.
Ltd. [Ast]
owns 25% of Australian Insurance Systems Holdings Pty. Ltd. [Ast]
owns 33.3% of Machinery Insurance Services Pty. Ltd. [Ast]
owns 87.25% of Zurich Pacific Insurance Pty. Ltd. [Png]
owns 100% of Zurich Australian Workers Commpensation Ltd. [Ast]
owns 50% of Associated marine Insurers [Ast]
owns 100% of Zurich Canadian Holdings ltd. [Can]
owns 50% of Multi Services Canada, Inc. [Can]
owns 50% of World Travel Protection, Inc. [Can]
owns 100% of Zurich Indemnity Company of Canada [Can]
owns 50% of Zurich Canada Investment Management, Ltd. [Can]
owns 100% of Zurich Life of Canada Holdings, Ltd. [Can]
owns 100% of Zurich Life & Health Insurance Company [Can]
owns 48.7% [Class A] of ZURMEX Canadian Holdings, Ltd. [Can]
owns 90% of Zurich Life Insurance Company of Canada [Can]
owns 100% of MICOBA Holdings Ltd. [Bah]
owns 15.91% of MICO Equities Inc. [Phl]
owns 100% of Malayan Insurance Company, Inc. [MICO] [Phl]
owns 50% of Pan Malayan Insurance Company [Phl]
owns 15.96% of First Nationwide Assurance Corporation [Phl]
owns 11.51% of Eastern General Reinsurance Corp. [Phl]
owns 70% of Malayan Zurich Insurance Company [Phl]
owns 10.01% of Eastern General Reinsurance Corp. [Phl]
owns 18.23% of Eastern General Reinsurance Corp. [Phl]
owns 36.03% of First Nationwide Assurance Corporation [Phl]
owns 99.99% of Asia-Pacific Reinsurance Co., Ltd. [B.V.I.]
owns 51.37% of Eastern General Reinsurance Corp. [Phl]
owns 47.98% of First Nationwide Assurance Corporation [Phl]
owns 14.40% of MICO Equities Inc. [Phl]
owns 99.99% of Malayan International Insurance Corporation, Ltd. [Bah]
owns 100% of Malayan Insurance Co. (UK) Ltd. [UK]
owns 100% of Malayan Insurance Co. (Hong Kong) Ltd. [Hkg]
owns 80% of P.T. Zurich Insurance Indonesia [Ind]
owns 70% of P.T. PSP Life Insurance Indonesia [Ind]
owns 75% of Zurich Insurance Co. (Asia) Ltd. [Hkg]
owns 100% of Zurich Insurance Company (Singapore) Pte. Ltd. [Sing]
owns 30% of Malayan Zurich Insurance Company [Phl]
ALLIED ZURICH P.L.C. (UK)
owns 43% of Zurich Financial Services [SWITZERLAND](see above)
ITEM 27. NUMBER OF CONTRACTOWNERS
As of March 1, 2000, there were no contract owners.
ITEM 28. INDEMNIFICATION
Under its By-laws, Farmers, to the full extent permitted by the
Washington Business Corporation Act, will indemnify any person who was or is a
party to any proceeding by reason of the fact that he or she is or was a
director of Farmers, as provided below.
C-14
<PAGE> 108
By-laws of Farmers New World Life Insurance Company (as amended October 24,
1995)
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 47. (a) RIGHT OF INDEMNITY. Each person who acts as a Director, officer
or employee of the corporation shall be indemnified by the corporation for all
sums which he becomes obligated to pay, (including counsel fees, expenses and
court costs actually and necessarily incurred by him) in connection with any
action, suit or proceeding in which he is made a party by reason of his being,
or having been a Director, officer, or employee of the corporation, except in
relation to matters as to which he shall be adjudged in such action, suit or
proceeding to be liable for bad faith or misconduct in the performance of his
duties as such Director, officer or employee, and except any sum paid to the
corporation in settlement of an action, suit or proceeding based upon bad faith
or misconduct in the performance of his duties.
(b) SCOPE OF INDEMNITY. The right of indemnification in this article
provided shall inure to each Director, officer and employee of the corporation,
whether or not he is such Director, officer or employee at the time he shall
become obligated to pay such sums, and whether or not the claim asserted against
him is based on matters which antedate the adoption of this article; and in the
event of his death shall extend to his legal representatives. Each person who
shall act as a Director, officer or employee of the corporation shall be deemed
to be doing so in reliance upon such right of indemnification; and such right
shall not be deemed exclusive of any other right to which any such person may be
entitled, under any by-law, agreement, vote of stockholders, or otherwise.
(c) DETERMINATION OF CLAIMS FOR INDEMNITY. The Board of Directors of the
corporation, acting at a meeting at which a majority of the quorum is unaffected
by self-interest (notwithstanding that other members of the quorum present but
not voting may be so affected), shall determine the propriety and reasonableness
of any indemnity claimed under this article, and such determination shall be
final and conclusive. If, however, a majority of a quorum of the Board which is
unaffected by self-interest and willing to act is not obtainable, the Board in
its discretion may appoint from among the stockholders who are not Directors or
officers or employees of the corporation, a committee of two or more persons to
consider and determine any such question, and the determination of such
committee shall be final and conclusive.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") 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
C-15
<PAGE> 109
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.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Investors Brokerage Services, Inc. is the registrant's principal
underwriter. It is also the principal underwriter for Farmers
Variable Life Separate Account A, KILICO Variable Annuity
Separate Account, KILICO Variable Separate Account, Kemper
Investors Life Insurance Company Variable Annuity Account C and
FKLA Variable Separate Account.
(b) Officers and Directors of Investors Brokerage Services, Inc., and
their addresses, are as follows:
<TABLE>
<CAPTION>
Name and Principal Business Address* Positions and Offices with the Underwriter
----------------------------------- ------------------------------------------
<S> <C>
Michael E. Scherrman........................ President and Director
Michael A. Kelly............................ Vice President
David S. Jorgensen.......................... Vice President and Treasurer
Debra P. Rezabek............................ Secretary
Cheryl L. Johns............................. Assistant Vice President
Frank J. Julian............................. Assistant Secretary
Allen R. Reed............................... Assistant Secretary
Kenneth M. Sapp............................. Director
Eliane C. Frye.............................. Director
George Vlaisavljevich....................... Director
</TABLE>
* All of the persons listed above have as their principal business address: 1
Kemper Drive, Long Grove, Illinois 60049-0001.
<TABLE>
<CAPTION>
(c)(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
</TABLE>
As of December 31, 1999, no compensation was paid to the underwriter.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Farmers New World Life Insurance Company at 3003 -
77th Avenue, S.E., Mercer Island, WA 98040 and by McCamish Systems, L.L.C. at
6425 Powers Ferry Road, Atlanta, GA 30339.
C-16
<PAGE> 110
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS.
(a) The registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as is
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for as
long as purchase payments under the contracts offered herein are
being accepted.
(b) The registrant undertakes that it will include either (1) as part
of any application to purchase a contract offered by the
prospectus, a space that an applicant can check to request a
statement of additional information, or (2) a post card or
similar written communication affixed to or included in the
prospectus that the applicant can remove and send to Farmers New
World Life Insurance 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 hereby represents that the fees and charges deducted
under the Contracts, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred,
and the risks assumed by the Company.
C-17
<PAGE> 111
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, Farmers Annuity Separate Account A, certifies that it
meets the requirements of Securities Act Rule 485 (b) for effectiveness of this
registration statement and has caused this Post-Effective Amendment No. 1 to its
registration statement to be signed on its behalf, in the City of Mercer Island,
and the State of Washington, on this 20 day of April, 2000.
FARMERS ANNUITY
SEPARATE ACCOUNT A (Registrant)
Attest: /s/ John R. Patton By: /s/ C. Paul Patsis
------------------------ -------------------------
John R. Patton C. Paul Patsis
Assistant Vice President President
and Secretary Farmers New World Life
Farmers New World Life Insurance Company
Insurance Company
By: FARMERS NEW WORLD LIFE
INSURANCE COMPANY (Depositor)
Attest: /s/ John R. Patton By: /s/ C. Paul Patsis
------------------------ -------------------------
John R. Patton C. Paul Patsis
Assistant Vice President President
and Secretary Farmers New World Life
Farmers New World Life Insurance Company
Insurance Company
As required by the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ C. Paul Patsis President and Director (Principal April 20, 2000
- ----------------------------- Executive Officer)
C. Paul Patsis
/s/ David A. Demmon * Assistant Vice President and April 20, 2000
- ----------------------------- Treasurer (Principal Accounting
David A. Demmon Officer and Principal Financial
Officer)
/s/ Richard E. Bangert * Director April 20, 2000
- -----------------------------
Richard E. Bangert
/s/ Donald J. Covey * Director April 20, 2000
- -----------------------------
Donald J. Covey
</TABLE>
C-18
<PAGE> 112
<TABLE>
<S> <C> <C>
/s/ Martin D. Feinstein * Director April 20, 2000
- -----------------------------
Martin D. Feinstein
/s/ Paul N. Hopkins * Director April 20, 2000
- -----------------------------
Paul N. Hopkins
/s/ Dennis I. Okamoto * Director April 20, 2000
- -----------------------------
Dennis I. Okamoto
/s/ Keitha T. Schofield * Director April 20, 2000
- -----------------------------
Keitha T. Schofield
/s/ Gary R. Severson * Director April 20, 2000
- -----------------------------
Gary R. Severson
/s/ John F. Sullivan, Jr. * Director April 20, 2000
- -----------------------------
John F. Sullivan, Jr.
/s/ C. Paul Patsis On April 20, 2000, as Attorney-in-Fact pursuant to powers
- ----------------------------- of attorney filed herewith.
* By: C. Paul Patsis
</TABLE>
C-19
<PAGE> 113
EXHIBIT INDEX
Exhibit 5(b) Form of Variable Policy Application Supplement
Exhibit 8(a) Participation Agreement between Kemper Variable Series and
Farmers New World Life Insurance Company
Exhibit 8(b) Participation Agreement between Scudder Variable Life
Investment Fund and Farmers New World Life Insurance Company
Exhibit 8(c) Indemnification Agreement between Scudder Kemper Investment,
Inc. and Farmers New World Life Insurance Company
Exhibit 8(d) Participation Agreement between Janus Aspen Series and Farmers
New World Life Insurance Company
Exhibit 8(e) Participation Agreement between PIMCO Variable Insurance Trust
and Farmers New World Life Insurance Company
Exhibit 9 Opinion and Consent of M. Douglas Close, Esq.
Exhibit 10(a) Consent of Sutherland Asbill & Brennan LLP
Exhibit 10(b) Consent of Deloitte & Touche LLP
Exhibit 13 Schedule of Performance Computations
<PAGE> 1
EXHIBIT 5(b)
Member of Farmers Insurance Group of Companies [FARMERS LOGO]
3003 77th Avenue SE, Mercer Island, Washington 98040
VARIABLE POLICY APPLICATION SUPPLEMENT Farmers New World Life Insurance
Company (R)
Proposed Insured: Policy Number: Plan:
----------------- ---------------- ---------
Planned Premium:$ Mode Payable:$
----------------- ----------------
ELECTED FEATURES:
[ ] I elect the Guaranteed Minimum Death Benefit Rider. (Variable Annuity
only; where available).
[ ] I elect the Guarantee Retirement Income Benefit. (Variable Annuity only;
where available).
[ ] I elect Automatic Asset Rebalancing (AAR) among the chosen accounts
(excluding fixed account). I elect to have the assets in the subaccounts
moved to match the premium allocation elections.
[ ] I elect to Dollar Cost Average (DCA) in the amount of $____________ ($100
minimum) per month from the fixed account. The starting balance of the
fixed account must be at least equal to the requested transfer amount.
Transfers will continue until the policy owner instructs otherwise; or
until there is not enough money in the fixed account to make the
transfer; whichever is earlier. This amount is to go to the following
subaccounts ($100 minimum per subaccount, maximum of eight subaccounts):
<TABLE>
<S> <C>
_____% Janus Aspen Capital Appreciation _____% PIMCO Variable Insurance Trust Low Duration Bond
_____% Kemper Variable Government Securities _____% Scudder Variable Life Investment Fund Bonds
_____% Kemper Variable Kemper-Dreman High Return Equity _____% Scudder Variable Life Investment Fund Growth & Income
_____% Kemper Variable High Yield _____% Scudder Variable Life Investment Fund International
_____% Kemper Variable Small Cap Growth _____% Scudder Variable Life Investment Fund Money Market
_____% PIMCO Variable Insurance Trust Foreign Bond _____% Templeton Variable Products Series Developing Markets
</TABLE>
<TABLE>
<CAPTION>
PREMIUM ALLOCATION: (Choose One) Please see reverse for additional information
[ ] I have elected the following asset allocation model:
<S> <C> <C> <C> <C>
[ ] Income [ ] Income with Growth [ ] Balanced [ ] Growth with Income [ ] Growth
</TABLE>
[ ] My allocation of premiums is as follows: (All allocations must total
100%. $500 minimum per account.) _____% Fixed Account
<TABLE>
<S> <C>
_____% Janus Aspen Capital Appreciation _____% PIMCO Variable Insurance Trust Low Duration Bond
_____% Kemper Variable Government Securities _____% Scudder Variable Life Investment Fund Bonds
_____% Kemper Variable Kemper-Dreman High Return Equity _____% Scudder Variable Life Investment Fund Growth & Income
_____% Kemper Variable High Yield _____% Scudder Variable Life Investment Fund International
_____% Kemper Variable Small Cap Growth _____% Scudder Variable Life Investment Fund Money Market
_____% PIMCO Variable Insurance Trust Foreign Bond _____% Templeton Variable Products Series Developing Markets
</TABLE>
<TABLE>
<CAPTION>
SUITABILITY INFORMATION on Owner (print name of owner if other than Insured: -------------------------------------------)
- ------------------------------------------ ------------------ ------------------------------------- --------------------------------
Net Worth
Annual Earnings Income Tax Rate (including residence) Financial Objectives Risk Tolerance
- ------------------------------ ------------------ ----------------------------- ------------------------------------- --------------
<S> <C> <C> <C>
-$0 - $50,000 -15% -$0 - $150,000 -Growth of assets over long term -Conservative
-$50,001 - $100,000 -28% -$150,001 - $250,000 -Increase current income -Moderate
-$100,001 - $250,000 -31% -$250,001 - $500,000 -Combination of the above -Aggressive
-over $250,000 -36% -over $500,000 -Other _
-39% -------------------
- ------------------------------ -------------- ----------------------------- --------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TELEPHONE TRANSFER (see reverse) is authorized unless the following box is checked:
[ ] I prefer NOT to authorize telephone transfers.
</TABLE>
<TABLE>
<S> <C>
Was a hypothetical sales illustration used during the sales process? [ ] Yes
[ ] No (If yes, please submit a copy with the application.)
</TABLE>
I understand that THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER
THE SPECIFIED CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE
WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF
BENEFITS INCLUDING DEATH BENEFITS; POLICY VALUES; AND CASH SURRENDER VALUES; ARE
AVAILABLE UPON REQUEST. I acknowledge receipt of the current prospectus for the
policy and for the underlying funds representing the Premium Allocation options
elected above. All statements and answers to the above questions are, to the
best of my knowledge and belief, complete and true. I agree that they shall form
a part of my application and that they shall be subject to the terms of the
Acknowledgement & Authorization found in the application. All states except
Kansas; North Dakota; Oregon; Texas; and Virginia: Any person who with intent to
defraud or knowing that he/she is facilitating fraud against an insurer, submits
an application or files a claim containing a false or deceptive statement is
guilty of insurance fraud and/or may have violated state law.
<TABLE>
<S> <C>
Dated at:
------------------------------------ -----------------------------------------------
City and State Signature of Proposed Insured
Dated on :
------------------------------------ ---------------------------------------------------
Month, Day, Year Signature of Owner (if other than Insured)
---------------------------------------------------
Signature of Agent as witness
</TABLE>
31-5004
<PAGE> 2
PREMIUM ALLOCATION:
In some states (for a variable annuity) and in all states (for a variable life
policy), the initial premium payment will be allocated to the fixed account for
the period described in the prospectus.
TELEPHONE TRANSFER AUTHORIZATION:
Telephone transfer among the subaccounts and the fixed account are subject to
the conditions of the Telephone Transfer Agreement. By requesting this
authorization, I, as owner, agree and understand that:
1. Neither the Company nor its agents or representatives who act on its behalf
shall be subject to any claim; loss; liability; cost; or expense; if it
acts in good faith in following instructions pursuant to this
authorization.
2. Transfer will be made subject to the conditions of the policy,
administrative regulations of the Company, and the prospectus.
3. Transfers from a subaccount shall be based on the accumulation unit value
next determined following receipt of a valid, complete, telephone transfer
instruction.
4. This authorization shall continue in force until the earlier of receipt of
written revocation from the owner, or the Company discontinuing this
privilege.
I understand that as a condition of allowing telephone instructions to be
made, the Company, at its sole option and without prior notice to the
owner, any person or representative, may record all or part of any
telephone conversation containing such instructions. All terms are
binding on my agents, heirs, and assignees.
Telephone transfer is authorized unless the preference box is marked on
the front of this form.
<PAGE> 1
EXHIBIT 8(a)
PARTICIPATION AGREEMENT
AMONG
KEMPER VARIABLE SERIES
SCUDDER KEMPER INVESTMENTS, INC.
KEMPER DISTRIBUTORS, INC.
AND
FARMERS NEW WORLD LIFE
INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 10th day of March, 2000 by and
among Farmers New World Life Insurance Company (hereinafter, the "Company"), a
Washington insurance company, on its own behalf and on behalf of each separate
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as an "Account"), Kemper
Variable Series, a business trust organized under the laws of the Commonwealth
of Massachusetts (hereinafter the "Fund"), Scudder Kemper Investments, Inc.
(hereinafter the "Adviser"), a Delaware corporation, and Kemper Distributors,
Inc. (hereinafter the "Underwriter"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance and variable annuity contracts
(hereinafter the "Variable Insurance Products") offered by insurance companies
that have entered into participation agreements with the Fund (hereinafter
"Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(SEC Release No. IC-17164; File No. 812-7345; hereinafter the "Shared Funding
Exemption Order");
<PAGE> 2
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws;
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement;
WHEREAS, each Account is duly established and maintained as a separate account,
established by resolution of the Board of Directors of the Company, on the date
shown for such Account on Schedule A hereto, to set aside and invest assets
attributable to the aforesaid Contracts;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement
("Designated Portfolios"), on behalf of the Accounts to fund the aforesaid
Contracts, and the Underwriter is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated Funds")
on behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the Designated
Portfolios that the Accounts order, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Designated Portfolios.
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<PAGE> 3
1.2 The Fund agrees to make shares of each Designated Portfolio available for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Fund calculates such Designated Portfolio's
net asset value pursuant to rules of the SEC, and the Fund shall use reasonable
efforts to calculate such net asset value on each day when the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Fund ("Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction, or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interest of the shareholders of
such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold only
to Participating Insurance Companies or their separate accounts. No shares of
any Designated Portfolios will be sold to the general public. The Fund and the
Underwriter will not sell shares of any Designated Portfolio to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and 3.6 and Article VII of this
Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or fractional
shares of the Designated Portfolios held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt by the Fund
or its designee of the request for redemption, except that the Fund reserves the
right to suspend the right of redemption or postpone the date of payment or
satisfaction upon redemption consistent with Section 22(e) of the 1940 Act and
any rules thereunder, and in accordance with the procedures and policies of the
Fund as described in the Fund's then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee of
the Fund for receipt of purchase and redemption orders from the Accounts, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order prior to the determination of net asset value as set
forth in the Fund's then current prospectus and the Fund receives notice of such
order by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the Fund's then current prospectus in accordance with the
provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by 4:00 p.m.
New York time. If payment in federal funds for any purchase is not received or
is received by the Fund after 4:00 p.m. New York time on such Business Day, the
Company shall promptly, upon the Fund's request, reimburse the Fund for any
charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing
3
<PAGE> 4
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the shares of a Designated Portfolio will be by
book entry only. Stock certificates will not be issued to the Company or any
Account. Shares of a Designated Portfolio ordered from the Fund will be recorded
in an appropriate title for each Account or the appropriate subaccount of each
Account.
1.9 The Fund shall furnish same-day notice (by wire or telephone, followed by
written confirmation) to the Company of any income, dividends or capital gain
distributions payable on shares of the Designated Portfolios. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on shares of a Designated Portfolio in additional shares of that
Designated Portfolio. The Company reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to furnish
advance notice of the day such dividends and distributions are expected to be
paid.
1.10 The Fund shall make the closing net asset value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the closing net asset value per share is calculated
(normally by 6:30 p.m. New York time) and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York time. In the
event the Fund is unable to make the 7:00 p.m. New York time deadline, it shall
provide additional time for the Company to place orders for the purchase and
redemption of shares. Such additional time shall be equal to the additional time
which the Fund takes to make the closing net asset value available to the
Company. A pricing error shall be corrected in accordance with the procedures
for correcting net asset value errors adopted by the Fund's Board of Trustees
and in effect at the time of the error. The Fund represents and warrants that
its procedures for correcting net asset value errors currently comply, and will
continue to comply, with the Investment Company Act of 1940 and generally
industry-wide accepted Securities and Exchange Commission staff interpretations
concerning pricing errors in effect at the time of an error.
1.11 The Parties hereto acknowledge that the arrangement contemplated by this
Agreement is not exclusive; the shares of the Designated Portfolios (and other
Portfolios of the Fund) may be sold to other insurance companies (subject to
Section 1.3 and Article VII hereof) and the cash value of the Contracts may be
invested in other investment companies.
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<PAGE> 5
ARTICLE II
Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be continually issued,
offered for sale and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
separate account under the Washington insurance laws and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a separate account for the Contracts.
2.2 The Fund represents and warrants that shares of the Designated Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares of the Designated Portfolios for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund after
taking into consideration any state insurance law requirements that the Company
advises the Fund may be applicable.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future subject to applicable law.
2.4 The Fund makes no representations as to whether any aspect of its
operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Washington and any other
state where the separate account operates to the extent required to perform this
Agreement. The Company will advise the Fund in writing as to any requirements of
Washington insurance law and all other appropriate state laws that affect the
Designated Portfolios, and the Fund will be deemed to be in compliance with this
Section 2.4 so long as the Fund complies with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly existing as a
business trust under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell
5
<PAGE> 6
and distribute the shares of the Designated Portfolios in accordance with
any applicable state and federal securities laws.
2.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Fund
in compliance in all material respects with any applicable state and federal
securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and warrant that all
their directors, officers, employees, investment advisers, and other individuals
or entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage required currently by Rule 17g-1 of the 1940 Act or such related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not less
than $5 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
2.10 The Company represents and warrants that all shares of the Designated
Portfolios purchased by the Company will be purchased on behalf of one or more
unmanaged separate accounts that offer interests therein that are registered
under the 1933 Act and upon which a registration fee has been or will be paid;
and the Company acknowledges that the Fund intends to rely upon this
representation and warranty for purposes of calculating SEC registration fees
payable with respect to such shares of the Designated Portfolios pursuant to
Instruction B.5 to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
ARTICLE III
Prospectuses, Statements of Additional
Information, and Proxy Statements; Voting
3.1 The Fund shall provide the Company with as many copies of the Fund's
current prospectus or profile (if any) for the Designated Portfolios as the
Company may reasonably request. If requested by the Company in lieu thereof, the
Fund shall provide such documentation (including a final copy of the new
prospectus) and other assistance as is reasonably necessary in order for the
6
<PAGE> 7
Company once each year (or more frequently if the prospectus for a Designated
Portfolio is amended) to have the prospectus for the Contracts and the
prospectus or profile (if any) for the Designated Portfolios printed together in
one document. Expenses with respect to the foregoing shall be borne as provided
under Article V.
3.2 The Fund's prospectus shall disclose that (a) the Fund is intended to be a
funding vehicle for all types of variable annuity and variable life insurance
contracts offered by Participating Insurance Companies, (b) material
irreconcilable conflicts of interest may arise, and (c) the Fund's Board will
monitor events in order to identify the existence of any material irreconcilable
conflicts and determine what action, if any, should be taken in response to such
conflicts. The Fund hereby notifies the Company that disclosure in the
prospectus for the Contracts regarding the potential risks of mixed and shared
funding may be appropriate. Further, the Fund's prospectus shall state that the
current Statement of Additional Information ("SAI") for the Fund is available
from the Company (or, in the Fund's discretion, from the Fund), and the Fund
shall provide a copy of such SAI to any owner of a Contract who requests such
SAI and to the Company in such quantities as the Company may reasonably request.
Expenses with respect to the foregoing shall be borne as provided under Article
V.
3.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
3.4 The Company shall:
(i) solicit voting instructions from Contract
owners;
(ii) vote the shares of each Designated Portfolio in
accordance with instructions received from Contract
owners; and
(iii) vote shares of each Designated Portfolio for
which no instructions have been received in
the same proportion as shares of such
Designated Portfolio for which instructions
have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote shares
of each Designated Portfolio held in any separate account in its own right, to
the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of its separate
accounts participating in a Designated Portfolio calculates voting privileges as
required by the Shared Funding Exemption Order and consistent with any
reasonable standards that the Fund has adopted or may adopt.
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<PAGE> 8
3.6 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular the Fund will either provide for annual
meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not
one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, Section 16(b). Further, the Fund
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors or trustees and
with whatever rules the SEC may promulgate from time to time with respect
thereto. The Fund reserves the right, upon prior written notice to the Company
(given at the earliest practicable time), to take all actions, including but not
limited to, the dissolution, termination, merger and sale of all assets of the
Fund or any Designated Portfolio upon the sole authorization of the Board, to
the extent permitted by the laws of the Commonwealth of Massachusetts and the
1940 Act.
3.7 It is understood and agreed that, except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser, none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus or statement of additional information for the Contracts.
ARTICLE IV
Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund or
the Underwriter, each piece of sales literature or other promotional material
("sales literature") that the Company develops or uses and in which the Fund (or
a Designated Portfolio thereof) or the Adviser or the Underwriter is named, at
least five business days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within five business days
after receipt of such material. The Fund or its designee reserves the right to
reasonably object to the continued use of such material, and no such material
shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any representation or
statement on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus, profile (if any) or SAI for the shares
of the Designated Portfolios, as such registration statement, prospectus,
profile (if any) or SAI may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be furnished,
to the Company, each piece of sales literature that the Fund or Underwriter
develops or uses in which the Company and/or its Account is named, at least
eight business days prior to its use. No such material shall be used if the
Company reasonably objects to such use within eight business days after receipt
of such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
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<PAGE> 9
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus, or statement of additional information for
the Contracts, as such registration statement, prospectus or statement of
additional information may be amended or supplemented from time to time, or in
published reports for the Accounts which are the public domain or approved by
the Company for distribution to Contract owners, or in sales literature approved
by the Company or its designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, profiles, SAIs, reports, proxy
statements, sales literature, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Designated Portfolios, contemporaneously with the filing of such document(s)
with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
shareholder reports, solicitations for voting instructions, sales literature,
applications for exemptions, request for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Accounts,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Agreement, the phrase "sales literature" includes, but
is not limited to, any of the following: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, electronic media, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other party will make
available to the requesting party's independent auditors all records, data and
access to operating procedures that may reasonably be requested in connection
with compliance and regulatory requirements related to this Agreement or any
party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
5.1 All expenses incident to performance by the Fund under this Agreement shall
be paid by the Fund, except and as further provided in Schedule B. The Fund
shall see to it that all shares of the Designated Portfolios are registered,
duly authorized for issuance and sold in compliance with
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<PAGE> 10
applicable federal securities laws and, if and to the extent deemed advisable by
the Fund, in accordance with applicable state securities laws prior to their
sale.
5.2 The parties hereto shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, SAI, proxy materials and reports as provided
in Schedule B.
5.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole shareholder
of shares of the Designated Portfolios issued under the Agreement.
5.4 The Fund shall not pay and neither the Adviser nor the Underwriter shall pay
any fee or other compensation to the Company under this Agreement, although the
parties will bear certain expenses in accordance with Schedule B and other
provisions of this Agreement.
ARTICLE VI
Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will, with respect to each Designated Portfolio, comply with Section 817(h) of
the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI, the Fund will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the affected Designated Portfolio so as to achieve compliance within the grace
period afforded by Treasury Regulation Section 1.817-5.
6.2 The Fund represents that each Designated Portfolio is currently qualified
(and for new Designated Portfolios, intends to qualify) as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that a Designated Portfolio has ceased to so
qualify or that a Designated Portfolio might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the time of
issuance shall be, treated as life insurance or annuity insurance contracts,
under applicable provisions of the Code, and that it will make every effort to
maintain such treatment, and that it will notify the Fund, the Adviser and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
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<PAGE> 11
ARTICLE VII
Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2 The Company and the Adviser will report any potential or existing conflicts
of which each is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemption Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded. At least annually, and more frequently if deemed appropriate by
the Board, the Company shall submit to the Adviser, and the Adviser shall at
least annually submit to the Board, such reports, materials and data as the
Board may reasonably request so that the Board may fully carry out the
obligations imposed upon it by the conditions contained in the Shared Funding
Exemption Order; and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board. The responsibility to report such
information and conflicts to the Board will be carried out with a view only to
the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Designated Portfolio and reinvesting such assets in a different
investment medium, which may include another Designated Portfolio of the Fund,
or submitting to a vote of all affected contract owners the question whether
such segregation should be implemented and, as appropriate, segregating the
assets of any appropriate group (i.e. annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (b),
establishing a new registered management investment company or managed separate
account.
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<PAGE> 12
7.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in any Designated Portfolio and terminate this Agreement with respect
to such Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. The
Company will bear the cost of any remedial action, including such withdrawal and
termination. No penalty will be imposed by the Fund upon the affected Account
for withdrawing assets from the Fund in the event of a material irreconcilable
conflict. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolio.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the affected Designated Portfolio and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict; but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw an Account's investment in any Designated Portfolio and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions
12
<PAGE> 13
substantially identical to such Sections are contained in the Shared Funding
Exemption Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemption Order) on terms and conditions materially different from those
contained in the Shared Funding Exemption Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
8.1 Indemnification by the Company.
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees and directors and
each person, if any, who controls the Fund, the Adviser or the Underwriter
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the shares of the Designated Portfolios or
the Contracts and;
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in the
Registration Statement, prospectus, or statement of additional
information for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company by
or on behalf of the Fund for use in the Registration Statement,
prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature for the Contracts (for any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus, SAI or
13
<PAGE> 14
sales literature of the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or persons
under its authorization or control, with respect to the sale or
distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, prospectus, profile, SAI or sales literature of the Fund
or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
information furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the
Company to provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in any
Registration Statement, prospectus, profile, statement of additional
information or sales literature for any Unaffiliated Fund, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or otherwise pertain
to or arise in connection with the availability of any Unaffiliated
Fund as an underlying funding vehicle in respect of the Contracts;
or
(vi) arise out of or result from any material breach of
any representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability that it may have to
the Indemnified Party against whom such action is brought otherwise than on
14
<PAGE> 15
account of this indemnification provision, except to the extent that the Company
has been prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Company to such
party of the Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the Contracts
or the operation of the Fund.
8.2 Indemnification by the Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of shares of the
Designated Portfolios or the Contracts; and
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement, profile, prospectus or SAI of the Fund or
sales literature of the Fund developed by the Underwriter (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the
Registration Statement, profile or prospectus for the Fund or its
sales literature (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the Contracts or
shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus or sales
15
<PAGE> 16
literature for the Contracts not supplied by the Underwriter or
persons under its control) or wrongful conduct of the Fund or
Underwriter or person under their control with respect to the sale
or distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a Registration
Statement, prospectus or sales literature for the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Accounts, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the extent that the
Underwriter has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Party, the Underwriter will be
entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at is own
expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Underwriter
to such party
16
<PAGE> 17
of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund); or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever
is applicable.
(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such
17
<PAGE> 18
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve the
Fund from any liability that it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company, the Adviser and the Underwriter agree to notify the
Fund promptly of the commencement of any litigation or proceeding against it or
any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of any Account, or the sale
or acquisition of shares of the Designated Portfolios.
ARTICLE IX
Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemption Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X
Termination
10.1 This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party, for any reason with respect to any
Designated Portfolio, by sixty (60) days' advance written notice delivered to
the other parties; or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio based upon
the Company's reasonable and good faith determination that shares of such
Designated Portfolio are not reasonably available to meet the requirements of
the Contracts; or
18
<PAGE> 19
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio if the
shares of such Designated Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal securities laws or such law
precludes the use of such shares to fund the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event
that formal administrative proceedings are instituted against the Company or any
affiliate by the NASD, the SEC, or the Insurance Commissioner or like official
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the shares of a Designated Portfolio or the shares
of any Unaffiliated Fund, provided, however, that the Fund, the Adviser or
Underwriter determines in its sole judgement exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund, the Adviser or
Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Fund or Underwriter to perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio in the
event that such Designated Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI hereof, or if the Company
reasonably believes that such Designated Portfolio may fail to so qualify or
comply; or
(g) termination by the Fund, the Adviser or Underwriter by written
notice to the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter
by written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgement exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, the Adviser or the Underwriter
has suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject of
material adverse publicity and that material adverse change or publicity will
have a material adverse
19
<PAGE> 20
effect on the Fund's or the Underwriter's ability to perform its obligations
under this Agreement; or
(j) at the option of Company, as one party, or the Fund, the Adviser
and the Underwriter, as one party, upon the other party's material breach of any
provision of this Agreement upon 30 days' notice and opportunity to cure.
10.2 Effect of Termination. Notwithstanding any termination of this Agreement,
the Fund and the Underwriter shall, at the option of the Company, continue to
make available additional shares of a Designated Portfolio pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may in such
event be permitted to reallocate investments in the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in the Designated
Portfolios upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's obligation
under Article VIII to indemnify the other parties shall survive.
ARTICLE XI
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Kemper Variable Series
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Company:
Farmers New World Life Insurance Company
3003 77th Avenue, S.E.
Mercer Island, Washington 98040
Attention: President
20
<PAGE> 21
with a copy to:
M. Douglas Close, Esq.
Farmers Insurance Group
4680 Wilshire Blvd.
Los Angeles, California 90010
If to the Adviser:
Scudder Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
If to the Underwriter:
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, Illinois 60606
Attention: Secretary
ARTICLE XII
Miscellaneous
12.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.4 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement that such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
21
<PAGE> 22
12.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.6 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
12.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which on file with the
Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund individually, but are binding
upon only the assets and property of such Designated Portfolio. All parties
dealing with the Fund with respect to a Designated Portfolio shall look solely
to the assets of such Designated Portfolio for the enforcement of any claims
against the Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in its name and on behalf by its duly authorized representative and its seal to
be hereunder affixed hereto as of the date specified below.
COMPANY: Farmers New World Life Insurance Company
By: /s/John Patton
---------------------
Title: AVP and Secretary
---------------------
Date: March 10, 2000
---------------------
FUND: Kemper Variable Series
By: /s/Philip J. Collora
---------------------
Title: Vice President
---------------------
Date: March 10, 2000
---------------------
22
<PAGE> 23
ADVISER Scudder Kemper Investments, Inc.
By: /s/C. Perry Moore
--------------------
Title: Managing Director
--------------------
Date: March 10, 2000
--------------------
UNDERWRITER Kemper Distributors, Inc.
By: /s/Michael E. Harrington
-------------------------
Title: Vice President
-------------------------
Date: March 10, 2000
-------------------------
23
<PAGE> 24
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
FARMERS ANNUITY SEPARATE ACCOUNT A (4/6/99)
FARMERS VARIABLE LIFE SEPARATE ACCOUNT A (4/6/99)
CONTRACTS FUNDED
BY SEPARATE ACCOUNT
FARMERS VA
FARMERS VUL
DESIGNATED PORTFOLIOS
KEMPER-DREMAN HIGH RETURN PORTFOLIO
KEMPER HIGH YIELD PORTFOLIO
KEMPER SMALL CAP GROWTH PORTFOLIO
KEMPER GOVERNMENT SECURITIES PORTFOLIO
A-1
<PAGE> 25
SCHEDULE B
EXPENSES
<TABLE>
<CAPTION>
===============================================================================================
RESPONSIBLE
ITEM FUNCTION PARTY
===============================================================================================
<S> <C> <C>
PROSPECTUS
- -----------------------------------------------------------------------------------------------
Update Typesetting Fund
- -----------------------------------------------------------------------------------------------
Printing Company
New Sales: Distribution Company
- -----------------------------------------------------------------------------------------------
Existing Printing Fund
Owners: Distribution Fund
===============================================================================================
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
===============================================================================================
PROXY MATERIALS OF THE Typesetting Fund
FUND Printing Fund
Distribution Fund
===============================================================================================
ANNUAL REPORTS &
OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
- -----------------------------------------------------------------------------------------------
All Typesetting Fund
- -----------------------------------------------------------------------------------------------
Printing Company
Marketing(1) Distribution Company
- -----------------------------------------------------------------------------------------------
Printing Fund
Existing Owners: Distribution Fund
- -----------------------------------------------------------------------------------------------
OPERATIONS OF FUND All operations and related Fund
expenses, including the
cost of registration and
qualification of the Fund's
shares, preparation and
filing of the Fund's
prospectus and registration
statement, proxy materials
and reports, the
preparation of all
statements and notices
required by any federal or
state law and all taxes on
the issuance of the Fund's
shares, and all costs of
management of the business
affairs of the Fund.
===============================================================================================
</TABLE>
- --------------------
(1) Solely as it relates to the contracts listed on Schedule A, as it
is attached to the same Agreement as this Schedule B.
B-1
<PAGE> 1
EXHIBIT 8(b)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE
LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under
a Declaration of Trust dated March 15, 1985, as amended, with a principal place
of business in Boston, Massachusetts and Farmers New World Life Insurance
Company, a Washington corporation (the "Company"), with a principal place of
business in 3003 - 77th Avenue, S.E., Mercer Island, Washington, on behalf of
one or more separate accounts of the Company, as set forth on Schedule A
hereto, as it may be amended from time to time, upon written notice to the Fund
in accordance with Paragraph 9 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively referred to herein as "Variable Insurance
Products") to be offered by insurance companies which have entered into
participation agreements substantially identical to this Agreement
("Participating Insurance Companies") and their affiliated insurance companies;
and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares of beneficial interest without par value ("Shares"),
and additional series of Shares may be established, each designated a
"Portfolio" and representing the interest in a particular managed portfolio of
securities; and
WHEREAS, each Portfolio of the Fund, except the Money Market
Portfolio, is divided into two classes of Shares, and additional classes of
Shares may be established; and
WHEREAS, the Parties desire to evidence their agreement as to
certain other matters,
NOW THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter contained, the parties hereto agree
as follows:
1. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies and
their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission (the "SEC"); provided, however, that the Trustees of the Fund may
refuse to sell Shares of any Portfolio to any person, or suspend or terminate
the offering of Shares of
<PAGE> 2
any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees, acting in
good faith and in light of their duties under federal and any applicable state
laws, necessary in the best interest of the shareholders of any Portfolio.
The Company's orders for such Shares of the Portfolios and one
or more classes thereof which are available for purchase under this Agreement,
as set forth on Schedule B hereto, as it may be amended from time to time,
shall be executed on a daily basis at the net asset value per Share next
computed after receipt by the Fund of the order for the Shares. The Company's
order may net the purchase orders and redemption requests for each Portfolio or
class thereof. For purposes of this Paragraph 1, the Company shall be the
designee of the Fund for receipt of such orders from the Account(s), and
receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 11:00 a.m., New York time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value per Share pursuant to the rules of the SEC.
The Company shall pay for Shares on the next Business Day
after an order to purchase Shares is made in accordance with the provisions
hereof. Payment shall be made by wiring federal funds to the Fund or to its
designated custodial account by 4:00 p.m., New York time. For purposes of
Paragraph 1, upon receipt by the Fund of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund. If payment in federal funds for any purchase is not
received by the Fund or its designated custodian or is received after 4:00
p.m., New York time, the Company shall promptly upon the Fund's written
request, reimburse the Fund for any charges, costs, fees, interest, or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund as a
result of transactions effected by the Fund based upon such purchase order.
The Fund agrees to redeem for cash, at the Company's request,
any full or fractional Shares held by the Company, executing such requests on a
daily basis at the net asset value per Share next computed after receipt by the
Fund of the request for redemption. The Company's
2
<PAGE> 3
request may net any purchase orders and redemption requests for each Portfolio
or class thereof. For purposes of this Paragraph 1, the Company shall be the
designee of the Fund for receipt of requests for redemption from the
Account(s), and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such request for redemption by 10:00
a.m., New York time on the next following Business Day.
Payment for Shares redeemed shall be made by wiring federal
funds to the Company by 2:00 p.m., New York time, on the next Business Day
after the Fund receives the request for redemption. If payment in federal funds
for any redemption request is received by the Company after 2:00 p.m., New York
time, the Fund shall promptly upon the Company's written request, reimburse the
Company for any charges, costs, fees, interest, or other expenses incurred by
the Company as a result of such failure to provide redemption proceeds within
the specified time. Notwithstanding the foregoing, the Trustees of the Fund may
suspend the right of redemption or postpone the date of payment or satisfaction
upon redemption: (a) for any period during which the New York Stock Exchange is
closed, other than customary week-end and holiday closings, and during which
trading on the New York Stock Exchange is restricted; (b) for any period during
which an emergency, as determined by the SEC, exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; and (c) for such other periods as the SEC may by order permit
for the protection of holders of the Shares. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be responsible for
such action.
Issuance and transfer of the Shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount thereof.
The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Shares. The Company hereby elects to
receive all such income dividends and capital gain distributions as are payable
on the Shares of the Portfolios and classes thereof in additional Shares of
that Portfolio or class thereof. The Company reserves the right to revoke this
election
3
<PAGE> 4
and to receive all such income dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of Shares so issued as
payment of such dividends and distributions. The Fund shall to the extent
practicable provide advance notice to Company of any date on which the Fund
reasonably expects to make a dividend distribution.
2. Fund Materials.
The Fund, at its expense, shall provide the Company or its
designee with camera-ready copy or, at the Company's request, computer diskette
versions of all prospectuses, profiles, statements of additional information,
annual and semi-annual reports and proxy materials (collectively, "Fund
Materials") to be printed and distributed by the Company or its broker/dealer
to the Company's existing or prospective contract owners, as appropriate. The
Company agrees to bear the cost of printing and distributing such Fund
Materials.
The Fund shall provide such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus, profile and/or statement of additional information ("SAI") for the
Fund is amended during the year) to have the prospectus and/or profile for the
Account(s), with respect to the Variable Insurance Products, and the Fund's
prospectus or profile printed together in one document, and to have the SAI for
the Fund and the SAI for the Account(s), with respect to the Variable Insurance
Products, printed together in one document. Alternatively, the Company may
print the Fund's prospectus, profile and/or its SAI in combination with other
investment companies' prospectuses, profiles and statements of additional
information. The Fund will cooperate with the Company in preparing and filing
with the SEC, pursuant to Rule 497 under the 1933 Act, appropriate versions of
the Fund's prospectus, profile, and/or SAI.
3. Requirement to Execute Participation Agreement;
Requests.
Each Participating Insurance Company shall, prior to
purchasing Shares in the Fund, execute and deliver a participation agreement in
a form substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 9, to each
Participating Insurance Company which has executed an Agreement and which
Agreement has not been terminated pursuant to Paragraph
4
<PAGE> 5
7 (i) a list of all other Participating Insurance Companies, and (ii) a copy of
the Agreement as executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each
Participating Insurance Company which has executed an Agreement and Agreement
has not been terminated pursuant to Paragraph 7, the net asset value of any
Portfolio of the Fund as of any date upon which the Fund calculates the net
asset value of its Portfolios for the purpose of purchase and redemption of
Shares.
The Fund shall make the net asset value per Share for each
Portfolio and class thereof available to the Company on a daily basis as soon
as reasonably practical after the net asset value per Share is calculated
(normally by 6:00 p.m., New York time) and shall use its best efforts to make
such net asset value per Share available by 7:00 p.m., New York time.
Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate
of any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make an account of a Variable Insurance Product owner whole
shall be borne by the party who provided the incorrect information or
confirmation. A pricing error shall be corrected in accordance with the
procedures for correcting net asset value errors adopted by the Fund's Board of
Trustees and in effect at the time of the error. The Fund represents and
warrants that its procedures for correcting net asset value errors currently
comply, and will continue to comply, with the Investment Company Act of 1940
and generally industry-wide accepted Securities and Exchange Commission staff
interpretations concerning pricing errors in effect at the time of an error.
4. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Fund and each of its Trustees and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the Securities Act of
1933 (the "Act") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), arising out of the acquisition
of any Shares by any person, to which the Fund or such Trustees, officers or
controlling person may
5
<PAGE> 6
become subject under the Act, under any other statute, at common law or
otherwise, which (i) may be based upon any wrongful act by the Company, any of
its employees or representatives, any affiliate of or any person acting on
behalf of the Company or a principal underwriter of its insurance products, or
(ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such a statement
or omission was made in reliance upon information furnished to the Fund by the
Company, or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or
prospectus covering insurance products sold by the Company or any insurance
company which is an affiliate thereof, or any amendments or supplement thereto,
or the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements therein
not misleading, unless such statement or omission was made in reliance upon
information furnished to the Company or such affiliate by or on behalf of the
Fund; provided, however, that in no case (i) is the Company's indemnity in
favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is
the Company to be liable under its indemnity agreement contained in this
Paragraph 4 with respect to any claim made against the Fund or any person
indemnified unless the Fund or such person, as the case may be, shall have
notified the Company in writing pursuant to Paragraph 9 within a reasonable
time after the summons or other first legal process giving information of the
nature of the claims shall have been served upon the Fund or upon such person
(or after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it has to the Fund or
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this Paragraph 4. The Company shall be
entitled to participate, at its own expense, in the defense, or,
6
<PAGE> 7
if it so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Fund, to its officers
and Trustees, or to any controlling person or persons, defendant or defendants
in the suit. In the event that the Company elects to assume the defense of any
such suit and retain such counsel, the Fund, such officers and Trustees or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Company does not elect to assume the defense of any such suit, the Company
will reimburse the Fund, such officers and Trustees or controlling person or
persons, defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by them. The Company agrees promptly to
notify the Fund pursuant to Paragraph 9 of the commencement of any litigation
or proceedings against it or its directors or officers in connection with the
issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act against any
and all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which it or such directors, officers or controlling person
may become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Fund, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Fund or
a principal underwriter of the Fund, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, profile or prospectus covering Shares or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading unless such statement or omission was made in
reliance upon information furnished to the Fund by the Company or (iii) may be
based on any untrue statement or alleged untrue statement of a material fact
contained in a registration statement, profile or prospectus covering insurance
products sold by the Company or any insurance company which is an affiliate
thereof, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
7
<PAGE> 8
necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Company or such affiliate by or on behalf of the Fund; provided, however, that
in no case (i) is the Fund's indemnity in favor of a director or officer or any
other person deemed to protect such director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
wilful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Fund to be liable under its indemnity agreement
contained in this Paragraph 4 with respect to any claims made against the
Company or any such director, officer or controlling person unless it or such
director, officer or controlling person, as the case may be, shall have
notified the Fund in writing pursuant to Paragraph 9 within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any claim shall not relieve it from
any liability which it may have to the Company or any person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph. The Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Company, its directors, officers or controlling person or
persons, defendant or defendants, in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the Company, its
directors, officers or controlling person or persons, defendant or defendants
in the suit, shall bear the fees and expenses of any additional counsel
retained by them, but, in case the Fund does not elect to assume the defense of
any such suit, it will reimburse the Company or such directors, officers or
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained b them. The Fund agrees
promptly to notify the Company pursuant to Paragraph 9 of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any Shares.
8
<PAGE> 9
The provisions of this Section 4 shall survive the termination
of the Agreement.
5. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their responsibilities
under this Paragraph 5(b) and Paragraph 5(a), by providing the Trustees with
all information reasonably necessary for the Trustees to consider the issues
raised. The Fund will also request its investment adviser to report to the
Trustees any such conflict which comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund,
or a majority of its disinterested Trustees, that a material irreconcilable
conflict exists involving the Company, the Company shall, at its expense, and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to eliminate the
irreconcilable material conflict, including withdrawing the assets allocable to
some or all of the separate accounts from the Fund or any Portfolio or class
thereof and reinvesting such assets in a different investment medium, including
another Portfolio of the Fund or class thereof, offering to the affected
Participants the option of making such a change or establishing a new funding
medium including a registered investment company.
9
<PAGE> 10
For purposes of this Paragraph 5(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the establishment of
one or more additional Portfolios or classes, as they in their sole discretion
determine to be in the interest of all shareholders and Participants in view of
all applicable factors, such as cost, feasibility, tax, regulatory and other
considerations. In no event will the Fund be required by this Paragraph 5(c)
to establish a new funding medium for any variable contract or policy.
The Company shall not be required by this Paragraph 5(c) to establish
a new funding medium for any variable contract or policy if an offer to do so
has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company will
recommend to its Participants that they decline an offer to establish a new
funding medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice thereof
delivered or mailed, first class postage prepaid.
6. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation method of
voting procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies or contracts will be voted
for, against, or withheld from voting on any proposition in the same proportion
as (i) the aggregate record date cash value held in such sub-account for
policies or contracts giving instructions, respectively, to vote for, against,
or withhold votes on such proposition, bears to (ii) the aggregate record date
cash value held in the sub-account for all policies or contracts for which
voting instructions are received. Owners of policies or contracts continued in
effect under lapse
10
<PAGE> 11
options will not be permitted to give voting instructions. Shares held in any
other insurance company general or separate account or sub-account thereof will
be voted in the proportion specified in the second preceding sentence for
shares attributable to policies or contracts.
The Company will provide pass-through voting privileges as required by
Paragraph 6 of this Agreement and to all owners of Variable Insurance Products
which are registered under the Act and/or the 1940 Act so long as the SEC
continues to interpret the 1940 Act as requiring pass-through voting
privileges. The owners of Variable Insurance Products to whom the Company will
provide pass-through voting privileges pursuant to this Agreement are
hereinafter referred to as "Pass-through Voters". Accordingly, the Company,
when applicable, will distribute to Pass-through Voters all proxy material
furnished and will vote Shares of the Portfolios held in its Account(s) in a
manner consistent with voting instructions timely received from Pass-through
Voters. The Company will vote Shares for which it has not received timely
voting instructions, as well as Shares it owns, in the same proportion as it
votes those Shares for which it has received voting instructions. The Company
reserves the right to disregard the voting instructions of Pass-through Voters
to the extent such action is permitted by Rules 6e-2 or 6e-3(T) under the 1940
Act and is permitted under applicable state insurance laws affecting Fund.
7. Duration and Termination.
This Agreement shall continue in force until terminated in accordance
with the provisions herein.
This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of the Company or the Fund at any time
upon 90 days' notice, unless a shorter time is agreed
to by the parties;
(b) At the option of the Company, if Shares are not
reasonably available to meet the requirements of the
Variable Insurance Products as determined by the
Company. Prompt notice of election to terminate shall
be furnished by the Company, said termination to be
effective ten (10) days after receipt of notice
unless the Fund makes available a sufficient number
of Shares to reasonably meet the requirements of the
Variable Insurance Products within said ten-day
period;
11
<PAGE> 12
(c) At the option of the Company, upon the institution of
formal proceedings against the Fund or the principal
underwriter for the Shares by the SEC, the National
Association of Securities Dealers, Inc. (the "NASD"),
or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in the Company's reasonable judgment,
materially impair Fund's ability to meet and perform
Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
the Company with said termination to be effective
upon receipt of notice;
(d) At the option of the Fund, upon the institution of
formal proceedings against the Company or the
principal underwriter for the Variable Insurance
Products by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in the Fund's
reasonable judgment, materially impair the Company's
ability to meet and perform its obligations and
duties hereunder. Prompt notice of election to
terminate shall be furnished by the Fund with said
termination to be effective upon receipt of notice;
(e) In the event Shares are not registered, issued or
sold in accordance with applicable federal and/or
state law and any applicable rules and regulations
thereunder, or such law precludes the use of such
Shares as the underlying investment media for
Variable Insurance Products issued or to be issued by
the Company. Termination shall be effective upon
such occurrence without notice;
(f) Upon the receipt of any necessary regulatory
approvals, or requisite vote of Pass- through Voters
having an interest in the Portfolios, to substitute
for Shares of the Portfolios the shares of another
investment company in accordance with the terms of
the applicable Variable Insurance Products. The
Company shall give sixty (60) days' written notice to
the Fund of any
12
<PAGE> 13
proposed request for regulatory approvals or vote to
replace the Portfolios' Shares;
(g) At the option of the Company, upon the Fund's breach
of any material provision of this Agreement, which
breach has not been cured to the Company's
satisfaction within thirty (30) days after written
notice of such breach is delivered to the Fund;
(h) At the option of the Fund, upon the Company's breach
of any material provision of this Agreement, which
breach has not been cured to the Fund's satisfaction
within thirty (30) days after written notice of such
breach is delivered to the Company;
(i) In the event this Agreement is assigned without the
prior written consent of the Company and the Fund.
Termination shall be effective immediately upon such
occurrence without notice.
(j) At the option of the Company by written notice to the
Fund with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to
comply with diversification requirements of Section
817(h) of the Internal Revenue Code of 1986, as
amended (the "Code") specified in Article 8 hereof,
or if the Company reasonably believes that such
Portfolio may fail to so qualify or comply.
This Agreement may be terminated at any time, at the option of either
of the Company or the Fund, when neither the Company, any insurance company nor
the separate account or accounts of such insurance company which is an
affiliate thereof which is not a Participating Insurance Company own any Shares
of the Fund or may be terminated by either party to the Agreement upon a
determination by a majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, following certification thereof by a Participating
Insurance Company given in accordance with Paragraph 9 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
13
<PAGE> 14
Notwithstanding any termination of this Agreement and unless the
further sale of Shares of the Portfolios is proscribed by applicable law or the
SEC or other regulatory body, the Fund shall, at the Company's option, continue
to make available additional Shares, as provided below, pursuant to the terms
and conditions of this Agreement, for all Variable Insurance Products in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the payment of
additional premiums under the Existing Contracts.
8. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Code, relating to diversification requirements for variable
annuity, endowment and life insurance contracts. Specifically, each Portfolio
will comply with either (i) the requirement of Section 817(h)(1) of the Code
that its assets be adequately diversified, or (ii) the "Safe Harbor for
Diversification" specified in Section 817(h)(2) of the Code, or (iii) in the
case of variable life insurance contracts only, the diversification requirement
of Section 817(h)(1) of the Code by having all or part of its assets invested
in U.S. Treasury securities which qualify for the "Special Rule for Investments
in United States Obligations" specified in Section 817(h)(3) of the Code. The
Fund will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to comply with the requirements of
Section 817(h) of the Code or that the Portfolio might not so comply in the
future and will immediately take all steps necessary to adequately diversify
the Portfolio to achieve compliance.
The Fund represents that each Portfolio is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
use its best efforts to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing that a Portfolio has
ceased to so qualify in the future. The Fund acknowledges that compliance with
Subchapter M is an essential element of compliance with Section 817(h) of the
Code.
14
<PAGE> 15
The Company represents that the Variable Insurance Products are
currently, and at the time of issuance shall be, treated as annuity contracts
under applicable provisions of the Code, and that it will at all times maintain
such treatment, and that it will notify the Fund immediately upon having a
reasonable basis for believing the Variable Insurance Products have ceased to
be so treated or that they might not be so treated in the future.
The provisions of Paragraphs 6 and 8 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-45480
Attn: William M. Thomas
If to the Company:
Farmers New World Life Insurance Company
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Attn: C. Paul Patsis, President
with a copy to:
M. Douglas Close
Vice President and General Counsel
Farmers New World Life Insurance Company
4680 Wilshire Boulevard
Los Angeles, California 90010
15
<PAGE> 16
10. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
11. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
12. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings and
agreements between the parties hereto with respect to the subject matter
hereof.
16
<PAGE> 17
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the 14 day of April, 2000.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/William M. Thomas
-----------------------------------
William M. Thomas
President
SEAL FARMERS NEW WORLD LIFE INSURANCE COMPANY
By: /s/John Patton
-----------------------------------
John Patton
Its: Assistance Vice President and Secretarey
17
<PAGE> 18
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
A-1
<PAGE> 19
SCHEDULE B
PORTFOLIOS
Money Market Portfolio
Growth and Income Portfolio (Class A Shares)
International Portfolio (Class A Shares)
Bond Portfolio (Class A Shares)
B-1
<PAGE> 1
EXHIBIT 8(c)
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") made by and between
SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation ("Scudder Kemper"),
with a principal place of business in Boston, Massachusetts and Farmers New
World Life Insurance Company, a Washington corporation (the "Company"), with a
principal place of business in 3003 77th Avenue, S.E., Mercer Island,
Washington, on behalf of one or more separate accounts of the Company, as set
forth on Schedule A hereto, as it may be amended from time to time, upon
written notice to the Fund in accordance with Paragraph 9 herein (the
"Account").
WHEREAS, Scudder Kemper has caused to be organized Scudder Variable
Life Investment Fund (the "Fund"), a Massachusetts business trust created under
a Declaration of Trust dated March 15, 1985, as amended, the beneficial
interest in which is divided into several series, each designated a "Portfolio"
and representing the interest in a particular managed portfolio of securities,
each of which series (except Money Market Portfolio) is divided into two
classes of shares of beneficial interest; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle
for the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into indemnification agreements substantially identical to this
Agreement; and
WHEREAS, the parties desire to express their agreement as to certain
other matters;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For purposes of this Agreement, the following definitions shall apply:
(a) "Shares" means shares of beneficial interest, without par
value, of any class of any Portfolio, now or hereafter created, of the
Fund.
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2. Access to Other Products.
Scudder Kemper shall permit an Account to participate in any
registered investment company other than the Fund which is intended as the
funding vehicle for insurance products and for which Scudder Kemper or an
affiliate of Scudder Kemper acts as investment adviser, on the same basis as
other insurance companies are permitted to participate in such a registered
investment company. This provision shall not require Scudder Kemper to make
available to the Company shares of any investment company which is organized
solely as the funding vehicle for insurance products offered by a single
insurance company or a group of affiliated insurance companies.
3. Right to Review and Approve Sales Materials.
The Company shall furnish, or shall cause to be furnished, to Scudder
Kemper or its designee, at least 10 business days prior to its intended use,
each piece of promotional material in which Scudder Kemper or the Fund is
named. No such material shall be used unless Scudder Kemper or its designee
shall have approved such use in writing, or 10 business days shall have elapsed
without approval, rejection or objection since receipt by Scudder Kemper or its
designee of such material.
The Company will provide to Scudder Kemper at least one complete copy
of all registration statements, prospectuses, profiles, statements of
additional information, reports, solicitations for voting instructions, sales
literature, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Contracts or the
Accounts, promptly after the filing of such document(s) with the SEC or other
regulatory authorities.
The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representation contained
in the registration statement, profiles, prospectus or statement of additional
information for the Fund shares, as such registration statement, profile,
prospectus or statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional
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material approved by the Fund or its designee or by the Underwriter, except
with the permission of the Fund or the Underwriter or designee of either.
Scudder Kemper shall furnish, or shall cause to be furnished, to the
Company or its designee, at least 10 business days prior to its intended use,
each piece of promotional material in which the Company or its separate
account(s) is named. No such material shall be used unless the Company or its
designee shall have approved such use in writing, or 10 business days shall
have elapsed without approval, rejection or objection since receipt by the
Company or its designee of such material.
Scudder Kemper will provide to the Company at least one complete copy
of all registration statements, prospectuses, profiles, SAIs, reports, proxy
statements, sales literature, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Fund or its shares, promptly after the filing of such document(s) with the SEC
or other regulatory authorities.
Scudder Kemper shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Account, or the Contracts other than the information or
representation contained in a registration statement, profiles, prospectus or
statement of additional information may be amended or supplemented from time to
time, or in published reports for the Accounts which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature approved by the Company or its designee, except with the permission
of the Company.
4. Sales Organization Meetings.
Representatives of Scudder Kemper or its designee shall meet with the
sales organizations of the Company at such reasonable times and places as may
be agreed upon by the Company and Scudder Kemper or its designee for the
purpose of educating sales personnel about the Fund.
5. Administration of Separate Accounts
(a) Administrative services to owners of variable life insurance
policies and/or variable annuity contracts issued by the Company shall be the
responsibility of the Company and shall not be the responsibility of Scudder
Kemper. Scudder Kemper recognizes the Company as
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the sole shareholder of Fund Shares issued under the Participation Agreement,
dated as of the ___ day of March, 2000, by and between the Company on behalf of
its separate accounts and the Fund (the "Participation Agreement"). From time
to time, Scudder Kemper may pay amounts from its past profits to the Company
for providing certain administrative services for the Fund or its Portfolios,
or for providing owners of variable life insurance policies and/or variable
annuity contracts with other services that relate to the Fund. These services
may include, but are not limited to, the services listed in Schedule B. In
consideration of the savings resulting from such arrangement, and to compensate
the Company for its costs, Scudder Kemper agrees to pay the Company an amount
equal to 15 basis points (.15%) per annum of the average aggregate amount
invested by the Company in the Portfolios under the Participation Agreement.
Payment of such amounts by Scudder Kemper will not increase the fees paid by
the Fund, the Portfolios or their shareholders.
(b) The parties agree that Scudder Kemper's payments to the
Company are for administrative services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated hereby, the average aggregate amount invested by the
Company over a one-month period shall be computed by totaling the Company's
aggregate investment (Share net asset value multiplied by total number of
Shares held by the Company) on each business day during the month and dividing
by the total number of business days during each month.
(d) The Company will calculate the reimbursement of
administrative expenses at the end of each calendar quarter until the average
aggregate amount invested by the Company in the Portfolios under the
Participation Agreement reaches $10 million, and at the end of each calendar
month thereafter, and the Company shall send a detailed statement of each such
fee computation to Scudder Kemper. Scudder Kemper will make such reimbursement
to the Company within thirty days thereafter.
6. Duration.
This Agreement shall continue in force until terminated in accordance
with the following provisions:
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(a) At the option of the Company or Scudder Kemper at any time
upon 90 days' notice, unless a shorter time is agreed to by the parties;
(b) Contemporaneously with the termination of the Participation
Agreement;
(c) In the event this Agreement is assigned without the prior
written consent of the Company and Scudder Kemper. Termination shall be
effective immediately upon such occurrence without notice. Provided, however,
the obligation of each party hereto to indemnify the other party hereto shall
continue with respect to all losses, claims, damages, liabilities or litigation
based upon the acquisition of Shares purchased as the funding vehicle for any
variable life insurance policy or variable annuity contract issued by the
Company or any affiliated insurance company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless Scudder
Kemper and each of its directors and officers and each person, if any, who
controls Scudder Kemper within the meaning of Section 15 of the Securities Act
of 1933 (the "Act") or any person controlled by or under common control with
Scudder Kemper ("affiliate") against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which Scudder
Kemper or such directors, officers or affiliate may become subject under the
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to Scudder Kemper or the Fund by the Company, provided,
however, that in no case (i) is the Company's indemnity in favor of a director
or officer or any other person deemed to protect such director or officer or
other person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
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performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Company to be liable under its
indemnity agreement contained in this Paragraph 7 with respect to any claim
made against Scudder Kemper or any person indemnified unless Scudder Kemper or
such person, as the case may be, shall have notified the Company in writing
pursuant to Paragraph 9 within a reasonable time after the summons or other
first legal process giving information of the nature of the claims shall have
been served upon Scudder Kemper or upon such person (or after Scudder Kemper or
such person shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to Scudder Kemper or any
person against whom such action is brought otherwise than on account of the
indemnity agreement contained in this Paragraph 7. The Company shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to Scudder Kemper, its
officers and directors, or to any affiliates, defendant or defendants in the
suit. In the event that the Company elects to assume the defense of any such
suit and retain such counsel, Scudder Kemper, such officers and directors or
affiliates, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Company
does not elect to assume the defense of any such suit, the Company will
reimburse Scudder Kemper, such officers and directors or affiliates, defendant
or defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Company agrees promptly to notify Scudder Kemper pursuant
to Paragraph 9 of the commencement of any litigation or proceedings against it
or any of its directors or officers in connection with the issue and sale of
any Shares.
(b) Scudder Kemper agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or any person
controlled by or under common control with the Company ("affiliate") against
any and all losses, claims, damages, liabilities or litigation (including legal
and other expenses) to which it or such directors, officers or affiliate may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of
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any Shares by any person which (i) may be based upon any wrongful act by
Scudder Kemper, any of its employees or representatives, any affiliate of or
any person acting on behalf of Scudder Kemper or a principal underwriter of the
Fund, (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, profile or prospectus
covering Shares or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to the
Fund or the Company by Scudder Kemper, or (iii) may be based upon a materially
incorrect or untimely calculation or reporting of the daily net asset value per
share or dividend or capital gain distribution rate; provided, however, that in
no case (i) is Scudder Kemper's indemnity in favor of a director or officer or
any other person deemed to protect such director or officer or other person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is Scudder Kemper to be liable under
its indemnity agreement contained in this Paragraph 7 with respect to any
claims made against the Company or any person indemnified unless the Company or
such person as the case may be, shall have notified Scudder Kemper in writing
pursuant to Paragraph 9 within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon it or upon such director, officer or controlling person (or
after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
Scudder Kemper of any claim shall not relieve it from any liability which it
may have to the Company or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
Paragraph 7. Scudder Kemper will be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but if Scudder Kemper elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Company, its directors, officers or affiliates, defendant
or defendants, in the suit. In the event Scudder Kemper elects to assume the
defense of any such suit and retain such counsel, the
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Company, its directors, officers or affiliates, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case Scudder Kemper does not elect to assume the defense of any
such suit, it will reimburse the Company or such directors, officers or
affiliates, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. Scudder Kemper agrees promptly to
notify the Company pursuant to Paragraph 8 of the commencement of any
litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of any Shares.
(c) Scudder Kemper agrees to indemnify and hold harmless the
Company and each of its directors and officers against any and all losses,
claims, damages, liabilities or litigation arising from the imposition of
additional federal income taxes on the Company or any policyholder and/or
contract holder solely as a result of a Final Determination that any Portfolio
has failed (x) to comply with the diversification requirements of section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to the diversification requirements for variable annuity, endowment and life
insurance contracts, or (y) to qualify as a regulated investment company within
the meaning of section 851 of the Code; provided, however, that (i) Scudder
Kemper shall have no liability under this Paragraph 7(c) if such failure is
caused by a third party who is not an employee or agent of Scudder Kemper
(e.g., the Fund's custodian or another service provider), and (ii) in no case
is Scudder Kemper's indemnity under this Paragraph 7(c) deemed to protect any
person against any liability to which that person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of that person's duties or by reason of reckless disregard by that person of
obligations under this Agreement.
The Company agrees that if the Internal Revenue Service asserts in
writing in connection with any governmental audit or review of the Company or,
to the Company's knowledge, of any policyholder and/or contract holder, that
any Portfolio has failed to comply with the diversification requirements of
section 817(h) of the Code or the Company otherwise becomes aware of any facts
that could give rise to any claim against Scudder Kemper as a result of such a
failure or alleged failure, (i) the Company shall promptly notify Scudder
Kemper pursuant to Paragraph 9 of such assertion or potential claim; (ii) the
Company shall consult with Scudder
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Kemper as to how to minimize any liability that may arise as a result of such
failure or alleged failure; (iii) the Company shall use its best efforts to
minimize any liability of Scudder Kemper for indemnification resulting from
such failure, including, without limitation, demonstrating, pursuant to
Treasury Regulations Section 1.817-5(a) (2), to the Commissioner of the
Internal Revenue Service that such failure was inadvertent; provided, however,
this Paragraph 7(c) shall not be construed to require the Company to jeopardize
its or any policyholder's and/or contract holder's standing or position with
respect to any such failure or alleged failure; (iv) the Company shall permit
Scudder Kemper and its legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative or judicial
proceedings or contests (including judicial appeals thereof) with the Internal
Revenue Service, any policyholder and/or contract holder or any other claimant
regarding any claims that could give rise to indemnification by Scudder Kemper
as a result of such a failure or alleged failure; (v) any written materials to
be submitted by the Company to the Internal Revenue Service, any policyholder
and/or contract holder or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the Internal Revenue Service pursuant to Treasury
Regulations Section 1.817-5(a) (2)), shall be provided by the Company to
Scudder Kemper (together with any supporting information or analysis, but
excluding any privileged materials) at least 5 business days prior to the day
on which such proposed materials are to be submitted; (vi) the Company shall
provide Scudder Kemper and its advisors with such cooperation as Scudder Kemper
shall reasonably request (including, without limitation, by permitting Scudder
Kemper and its accounting and legal advisors to review the relevant books and
records of the Company) in order to facilitate Scudder Kemper's review of any
written submissions provided to it pursuant to the preceding clause or its
assessment of the validity or amount of any claim against it arising from such
a failure or alleged failure; (vii) the Company shall not with respect to any
claim of the IRS or any policyholder and/or contract holder that would give
rise to a claim for indemnification against Scudder Kemper (a) compromise or
settle any claim, (b) accept any adjustment on audit, or (c) forego any
allowable judicial appeals, without the express written consent of Scudder
Kemper, which shall not be unreasonably withheld, provided that the Company
shall not be required to appeal any adverse judicial
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decision unless Scudder Kemper shall have provided an opinion of independent
counsel to the effect that a reasonable basis (consistent with Formal Opinion
85-352 of the American Bar Association) exists for taking such appeal; and
(viii) Scudder Kemper shall have no liability as a result of such failure or
alleged failure if the Company fails to comply with any of the foregoing
clauses (i) through (vii). Should Scudder Kemper refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
the Company may, in its discretion, authorize Scudder Kemper to act in the name
of the Company in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or
judicial appeals thereof, and in that event Scudder Kemper shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control.
For purposes of this Paragraph 7(c), "Final Determination" shall mean,
with respect to any claim, a settlement of such claim (including the acceptance
of an adjustment proposed by the Internal Revenue Service) or a decision of a
court of competent jurisdiction with respect to such claim that has become
final after either the (i) exhaustion of allowable appeals or (2) expiration of
the time to take any such appeal with respect to the claim.
8. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to Scudder Kemper:
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110
(617) 295-4548
Attn: William M. Thomas
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If to the Company:
Farmers New World Life Insurance Company
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Attn: C. Paul Patsis, President
with a copy to:
M. Douglas Close
Vice President and General Counsel
Farmers New World Life Insurance Company
4680 Wilshire Boulevard
Los Angeles, California 90010
10. Miscellaneous.
The captions in the Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 14 day
of April, 2000.
SEAL SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ WILLIAM M. THOMAS
----------------------------------
Managing Director
SEAL FARMERS NEW WORLD LIFE INSURANCE COMPANY
By: /s/ JOHN R. PATTON
----------------------------------
Name: John R. Patton
Title: Assistant Vice President &
Secretary
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SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
A-1
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SCHEDULE B
ADMINISTRATION SERVICES PERFORMED BY
FARMERS NEW WORLD LIFE INSURANCE COMPANY FOR THE
SCUDDER VARIABLE LIFE INVESTMENT FUND
Maintenance of books and records
Maintain an inventory of shares purchased to assist transfer agent in recording
issuance of shares.
- - Perform miscellaneous accounting services to assist transfer agent in
recording transfers of shares (via net purchase orders).
- - Reconciliation and balancing of the separate account at the Fund level
in the general ledger and reconciliation of cash accounts at general
account.
Purchase orders
- - Determination of net amount of cash flow into the Fund.
- - Reconciliation and deposit of receipts at Fund (wire order) and
confirmation thereof.
Redemption orders
- - Determination of net amount required for redemptions by Fund.
- - Notification to Fund of cash required to meet payments.
- - Cost of share redemptions.
Reports
- - Periodic information reporting to the Fund.
- - Distribution of annual and semi-annual shareholder reports (to
existing contract owners)
Fund-related contract owner services
- - Mailing and printing costs associated with dissemination of the Fund
prospectus and SAI to existing contract owners.
- - Telephonic support for contract owners with respect to inquiries about
the Fund (not including information about performance or related to
sales).
Other administrative support
- - Sub-accounting services.
- - Providing other administration services to the Fund as mutually agreed
between the Company and the Fund.
B-1
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- - Relieving the Fund of other usual and incidental administration
services provided to individual shareholders.
- - Preparation of report to third party reporting services.
B-2
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EXHIBIT 8(d)
JANUS ASPEN SERIES
(INSTITUTIONAL SHARES)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of March, 2000, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION, a Colorado corporation
(the "Adviser"), and FARMERS NEW WORLD LIFE INSURANCE COMPANY, a life insurance
company organized under the laws of the State of Washington (the "Company"), on
its own behalf and on behalf of each segregated asset account of the Company
set forth on Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Trust has
registered its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the Trust issues shares of beneficial interest, divided into
several series of shares, each series representing an interest in a particular
managed portfolio of securities and other assets (the "Portfolios") and each
Portfolio offering a class of shares designated Institutional Shares (referred
to as shares in this agreement); and
WHEREAS, the Trust has received an order from the SEC granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies and certain qualified pension and retirement plans
(the "Exemptive Order"); and
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle for variable life insurance and/or variable
annuity contracts ("Contracts") funded by the Accounts; and
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WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Adviser serves as investment adviser to the Trust.
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.2. The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company on behalf of an Account at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust.
1.3. For the purposes of Sections 1.1 and 1.2, the Trust hereby
appoints the Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders resulting from investment in and
payments under the Contracts. Receipt by the Company shall constitute receipt
by the Trust provided that (i) such orders are received by the Company in good
order prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus and (ii) the Trust receives notice of such
orders by 11:00 a.m. New York time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the Rules of the SEC.
1.4. Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for by the Company no later than 12:00 noon New
York time on the same Business Day that the Trust receives notice of the order.
The Trust shall pay and transmit the proceeds of redemption orders that are
transmitted to the Trust in accordance with Section 1.3 no later than 12:00
noon New York time on the same Business Day that the Trust receives notice of
the redemption, except that the Trust reserves the right to postpone payment
upon redemption
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consistent with Section 22(e) of the 1940 Act and any rules thereunder.
Payments for such purchase orders will be made net of any redemptions received
on the same day as the purchase. Payments shall be made in federal funds
transmitted by wire.
1.5. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
1.6. The Trust shall furnish prompt notice to the Company of any
income dividends or capital gain distributions payable on the Trust's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.7. The Trust shall make the closing net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the closing net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6 p.m.
New York time. Any material error in the calculation or reporting of the
closing net asset value per share shall be reported immediately upon discovery
to the Company. In such event the Company shall be entitled to an adjustment to
the number of shares purchased or redeemed to reflect the correct closing net
asset value per share and the Trust or the Adviser shall bear the cost of
correcting such errors. Any error of a lesser amount shall be corrected in the
next Business Day's net asset value per share.
1.8. The Trust agrees that its shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that Trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time
to time.
1.9. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
SEC and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses, profiles (if any) and statements of
additional information of the Trust. The Trust shall bear the costs of
registration
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and qualification of its shares, preparation and filing of the documents listed
in this Section 2.1. and all taxes to which an issuer is subject on the
issuance and transfer of its shares.
2.2. At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the Trust's
current prospectus, profile (if any), annual report, semi-annual report and
other shareholder communications, including any amendments or supplements to
any of the foregoing, as the Company shall reasonably request; or (b) provide
the Company with a camera ready copy of such documents in a form suitable for
printing. The Trust shall provide the Company with a copy of its statement of
additional information in a form suitable for duplication by the Company. The
Trust shall also provide the Company with such other assistance as is
reasonably necessary in order for the Company once each year (or as often as is
required by the SEC) to have the prospectus for the Contracts and the
prospectus or profile (if any) for the Portfolios printed together in one
document. The prospectus, profile (if any) and statement of additional
information provided by the Trust shall relate either to all Portfolios of the
Trust or only selected Portfolios of the Trust, as the Company shall reasonably
request. The Trust (at its expense) shall provide the Company with copies of
any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners.
2.3. The Company shall bear the costs of printing and distributing the
Trust's prospectus, profile (if any), statement of additional information,
shareholder reports and other shareholder communications to owners of and
applicants for policies for which the Trust is serving or is to serve as an
investment vehicle. The Company shall bear the costs of distributing proxy
materials (or similar materials such as voting solicitation instructions) to
Contract owners. The Company assumes sole responsibility for ensuring that such
materials are delivered to Contract owners in accordance with applicable
federal and state securities laws.
2.4. The Company agrees and acknowledges that the Adviser is the sole
owner of the name and mark "Janus" and that all use of any designation
comprised in whole or part of Janus (a "Janus Mark") under this Agreement shall
inure to the benefit of the Adviser. Except as provided in Section 2.5, the
Company shall not use any Janus Mark on its own behalf or on behalf of the
Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of the Adviser. Upon termination of this Agreement for
any reason, the Company shall cease all use of any Janus Mark(s) as soon as
reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust
(or its designee), a copy of the initial Contract prospectus and statement of
additional information in which the Trust or the Adviser is first named prior
to the filing of such document with the SEC. The Company shall furnish, or
shall cause to be furnished, to the Trust (or its designee) a copy of each
subsequent Contract prospectus and statement of additional information in which
the Trust or the Adviser is named concurrently with the filing of such document
with the SEC provided that there are no material changes in disclosure related
to the Trust or the Adviser. The Trust may, in its
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reasonable discretion, request that the Company modify any references to the
Trust or the Adviser in subsequent filings. The Company shall furnish, or shall
cause to be furnished, to the Trust (or its designee), each piece of sales
literature or other promotional material in which the Trust or the Adviser is
named, at least five Business Days prior to its use or concurrently with the
filing of such document with the National Association of Securities Dealers,
Inc. ("NASD"), whichever is greater. No such material shall be used if the
Trust (or its designee) reasonably objects to such use within five Business
Days after receipt of such material.
2.6. The Trust shall furnish, or cause to be furnished, to the Company
(or its designee), a copy of any initial Trust prospectus and statement of
additional information in which the Company is first named prior to the filing
of such document with the SEC. The Trust shall furnish, or shall cause to be
furnished, to the Company (or its designee) a copy of each subsequent Trust
prospectus, profile (if any) and statement of additional information in which
the Company is named concurrently with the filing of such document with the SEC
provided that there are no material changes in disclosure related to the
Company. The Company may, in its reasonable discretion, request that the Trust
modify any references to the Company in subsequent filings. The Trust shall
furnish, or shall cause to be furnished to the Company (or its designee) each
piece of sales literature or other promotional material in which the Company is
named, at least five Business Days prior to its use or concurrently with the
filing of such document with the NASD, whichever is greater. No such material
shall be used if the Company (or its designee) reasonably objects to such use
within five Business Days after receipt of such material.
2.7. The Company shall not give any information or make any
representations or statements on behalf of the Trust or the Adviser or
concerning the Trust or the Adviser in connection with the sale of the
Contracts other than information or representations contained in and accurately
derived from the registration statement, prospectus or profile (if any) for the
Trust shares (as such registration statement, profile (if any) and prospectus
may be amended or supplemented from time to time), reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other promotional
material approved by the Trust or its designee or the Adviser, except as
required by legal process or regulatory authorities or with the written
permission of the Trust or its designee or the Adviser.
2.8. Neither the Trust nor the Adviser shall give any information or
make any representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.9. The Trust or the Adviser will provide the Company with as much
advance notice as is reasonably practicable of any material change affecting
the Portfolios (including, but not
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limited to, any material change in its registration statement or prospectus
affecting the Portfolios and any proxy solicitation sponsored by the Trust or
the Adviser affecting the Portfolios) and consult with the Company in order to
implement any such change in an orderly manner, recognizing the expenses of
changes and attempting to minimize such expenses by implementing them in
conjunction with regular annual updates of the prospectus for the Contracts.
2.10. The Trust and the Adviser agree to maintain a blanket fidelity
bond or similar coverage for the benefit of the Trust in an amount not less
than the minimal coverage required by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time under the 1940 Act.
2.11. So long as, and to the extent that the SEC interprets the 1940
Act to require passthrough voting privileges for variable policyowners, the
Company will provide pass-through voting privileges to owners of policies whose
cash values are invested, through the Accounts, in shares of the Trust. The
Trust shall require all Participating Insurance Companies to calculate voting
privileges in the same manner and the Company shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by the
Trust. With respect to each Account, the Company will vote shares of the Trust
held by the Account and for which no timely voting instructions from
policyowners are received as well as shares it owns that are held by that
Account, in the same proportion as those shares for which voting instructions
are received. The Company and its agents will in no way recommend or oppose or
interfere with the solicitation of proxies for Trust shares held by Contract
owners without the prior written consent of the Trust, which consent may be
withheld in the Trust's sole discretion, except in the event that the Company
determines, in reliance on an opinion of counsel, that a proxy proposal would
result in a violation of applicable insurance laws.
2.12. The Trust and Adviser shall use their best efforts to maintain
qualification of each Portfolio as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code") and
shall notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that it might not so
qualify in the future. The Trust and the Adviser acknowledge that compliance
with Subchapter M is an essential element of compliance with Section 817(h).
2.13. Each Portfolio of the Trust shall comply with the requirements
of Section 817(h) of the Code and the regulations issued thereunder relating to
the diversification requirements for variable life insurance policies and
variable annuity contracts, and the Trust and Adviser shall notify the Company
immediately upon having a reasonable basis for believing that any Portfolio has
ceased or might cease to comply. In addition, the Trust and Adviser will
immediately take all steps necessary to adequately diversify the Portfolio to
achieve compliance.
2.14. The Trust shall provide the Company or its designee with reports
certifying compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements on a quarterly basis.
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ARTICLE III.
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Washington and that it has legally and validly established each Account as a
segregated asset account under such law on the date set forth in Schedule A.
3.2. The Company represents and warrants that each of the Accounts (1)
has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
3.3. The Company represents and warrants that the Contracts or
interests in the Accounts (1) are or, prior to issuance, will be registered as
securities under the 1933 Act or, alternatively (2) are not registered because
they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered
and sold pursuant to this Agreement are registered under the 1933 Act and the
Trust is registered under the 1940 Act. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.6. The Trust and the Adviser represent and warrant that the
investments of each Portfolio will comply with the diversification requirements
set forth in Section 817(h) of the Code and the rules and regulations
thereunder.
3.7. The Adviser represents and warrants that it is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
any applicable state securities laws.
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ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or
(f) a decision by an insurer to disregard the voting instructions of contract
owners. The Trustees shall promptly inform the Company if they determine that
an irreconcilable material conflict exists and the implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3. If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract owners
are also affected, at its expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting
the question of whether or not such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
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limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Any such
withdrawal and termination must take place within six (6) months after the
Trust gives written notice that this provision is being implemented. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of
the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (o) months after the Trustees inform the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Until the end of such six (6) month period, the Trust shall continue
to accept and implement orders by the Company for the purchase and redemption
of shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Company be required to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contact owners materially adversely affected by the irreconcilable material
conflict. In the event that the Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate this
Agreement within six (o) months after the Trustees inform the Company in
writing of the foregoing determination; provided, however, that such withdrawal
and termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then the Trust and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable.
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ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Trust, the Adviser, and each of their Trustees or
Directors, officers, employees and agents and each person, if any, who controls
the Trust or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Article V)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a registration
statement, prospectus or profile (if any) for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company on
behalf of the Contracts or Accounts (or any amendment or supplement to any of
the foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to the Company by or
on behalf of the Trust or the Adviser for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or acquisition
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust or the
Adviser by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
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(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
5.2. Indemnification By the Trust and the Adviser. The Trust and
Adviser agree to indemnify and hold harmless the Company and each of its
directors, officers, employees and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this indemnity shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately derived from
written information furnished to the Trust by or on behalf of the Company for
use in Trust Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on behalf of the Trust;
or
(d) arise out of or result from any failure by the Trust or the
Adviser to provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Adviser in this Agreement
or arise out of or result from any other material breach of this Agreement by
the Trust or Adviser (including a failure whether
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unintentional, or in good faith, or otherwise, to comply with the
diversification and other qualification requirements specified in Article II of
this agreement); or
(f) arise out of or result from the materially incorrect
calculation or reporting of the daily net asset value per share or dividend or
capital gain distribution rate. The Adviser shall determine whether a material
error has occurred based on SEC guidelines and the Adviser shall control the
correction of such error.
5.3. None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4. None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other parties in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice
of service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim or
shall not relieve that party from any liability which it may have to the
Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
ARTICLE VI.
Termination
6.1. This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of any party, for any reason upon ninety (90)
days advance written notice to the other parties, unless a shorter time period
is agreed to in writing by the parties to this Agreement;
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(b) at the option of the Company, upon one week advance written
notice to the Trust, if the Trust shares are not reasonably available to meet
the requirements of the Contracts as determined by the Company;
(c) at the option of the Company, immediately upon institution of
formal proceedings against the Trust or Adviser by the NASD, SEC, or any other
regulatory body that are deemed by the Company to materially affect the
performance of the obligations under this Agreement;
(d) at the option of the Trust or the Adviser, immediately upon
institution of formal proceedings against the broker-dealer or broker-dealers
marketing the Contracts, the Account, or the Company by the NASD, SEC, or any
other regulatory body that are deemed by the Trust or Adviser to materially
affect the performance of the obligations under this Agreement;
(e) upon the requisite vote of Contract owners having an interest
in the Trust, or SEC approval of an application pursuant to Section 26(b) of
the 1940 Act, to substitute for the Trust's shares the shares of another
investment company in accordance with the terms of the applicable Contacts. The
Company will give forty-five (45) days written notice to the Trust of any
proposed application or vote to replace the Trust's shares. The Trust and
Adviser shall cooperate with the Company in connection with such application;
(f) upon assignment (as defined in Section 2(a)(4) of the 1940
Act) of the Agreement, unless made with the written consent of all other
parties hereto;
(g) if the Trust's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of the Trust's
shares as an underlying investment medium for Contracts issued or to be issued
by the Company. Prompt notice shall be given by each party should such
situation occur;
(h) by any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of its disinterested
Trustees, that an irreconcilable material conflict exists;
(i) at the option of the Trust or Adviser if the Contracts cease
to qualify as annuity contracts or life insurance contracts, as applicable,
under the Code or if the Contracts are not registered, issued or sold in
accordance with applicable state and/or federal law;
(j) if the need for substitution of the shares of another
investment company, pursuant to Section 26(b) of the 1940 Act, arises out of
the Trust's failure to be registered, issued or sold in conformance with
federal law, including applicable tax law, the expenses of obtaining such order
shall be reimbursed by the Trust or Adviser. The Trust and Adviser shall
cooperate with the Company in connection with such application; or
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(k) at the option of the Company by written notice to the Trust
and Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M or fails
to comply with the Section 817(h) diversification requirements specified in
Article II hereof, or if the Company reasonably believes that such Portfolio
may fail to so qualify or comply.
6.2 Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust (or any Portfolio) pursuant to the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement provided that the Company continues to pay the costs set
forth in Section 2.3.
6.3 The provisions of Articles III and V shall survive the termination
of this Agreement, and the provisions of Article IV and Section 2.11 shall
survive the termination of this Agreement as long as shares of the Trust are
held on behalf of Contract owners in accordance with Section 6.2. Specifically,
without limitation, the owners of any existing Contracts shall be permitted to
transfer or reallocate investment under the Contracts, redeem investments in
any Portfolio and/or invest in the Trust upon the making of additional premium
payments under the existing Contracts.
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Farmers New World Life Insurance Company
3007 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Attention: C. Paul Patsis, President
with a copy to:
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M. Douglas Close
Vice President and General Counsel
Farmers New World Life Insurance Company
4680 Wilshire Boulevard
Los Angeles, California 90010
If to the Adviser:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: General Counsel
ARTICLE VIII.
Unregistered Separate Accounts
Pursuant to Section 12(d)(1)(E) of the 1940 Act, the Company will
comply with the following conditions for it to hold shares of any Portfolio in
one or more unregistered separate accounts:
8.1. The Company represents that either the Company or the principal
underwriter of any unregistered separate account holding Portfolio shares is a
broker or dealer registered under the Securities Exchange Act of 1934 (the
"1934 Act") or is controlled (as defined in the 1940 Act) by a broker or dealer
registered under the 1934 Act.
8.2. The Company will not hold any other investment security (as
defined in Section 3 of the 1940 Act) in the corresponding subaccount of an
unregistered separate account that holds shares of a Portfolio.
8.3. The Company will seek instructions from holders of interests in
an unregistered separate account holding Portfolio shares with regard to the
voting of all proxies solicited in connection with a Portfolio and will vote
those proxies only in accordance with those instructions, or the Company will
vote Portfolio shares held in its unregistered separate accounts in the same
proportion as the vote of all of the Portfolio's other shareholders.
8.4. The Company will not substitute another security for shares of a
Portfolio held in an unregistered separate account unless the Securities and
Exchange Commission approves the substitution in the manner provided in Section
26 of the 1940 Act.
15
<PAGE> 16
ARTICLE IX.
Miscellaneous
9.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
9.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
9.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
9.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of California.
9.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
9.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
9.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
9.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
9.9. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written approval of the other
party.
9.10. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
By: /s/C. Paul Patsis
----------------------------
Name: C. Paul Patsis
Title: President
JANUS ASPEN SERIES
By: /s/Bonnie M. Howe
----------------------------
Name: Bonnie M. Howe
Title: Vice President
JANUS CAPITAL CORPORATION
By: /s/Bonnie M. Howe
----------------------------
Name: Bonnie M. Howe
Title: Vice President
17
<PAGE> 18
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
<S> <C>
Farmers Annuity Separate Account A (4/6/99) Farmers Variable Annuity
Farmers Variable Life Separate Account A (4/6/99) Farmers Flexible Premium Variable
Life Insurance Policy
</TABLE>
<PAGE> 1
EXHIBIT 8(e)
PARTICIPATION AGREEMENT
AMONG
FARMERS NEW WORLD LIFE INSURANCE COMPANY,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the _____ day of March, 2000, by and among
Farmers New World Life Insurance Company (the "Company"), a Washington life
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), PIMCO
Variable Insurance Trust (the "Fund"), a Delaware business trust, and PIMCO
Funds Distributors LLC (the "Underwriter"), a Delaware limited liability
company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided
into several series of shares, each designated a "Portfolio" and representing
the interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under
the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
<PAGE> 2
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by
the Account (the "Contracts"), and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a
segregated asset account, duly established by the Company, on the date shown
for such Account on Schedule A hereto, to set aside and invest assets
attributable to the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund has granted to the Underwriter exclusive authority
to distribute the Fund's shares, and has agreed to instruct, and has so
instructed, the Underwriter to make available to the Company for purchase on
behalf of the Account Fund shares of those Designated Portfolios selected by
the Underwriter. Pursuant to such authority and instructions, and subject to
Article X hereof, the Underwriter agrees to make available to the Company for
purchase on behalf of the Account, shares of those Designated Portfolios listed
on Schedule A to this Agreement, such purchases to be effected at net asset
value in accordance with Section 1.3 of this Agreement. Notwithstanding the
foregoing, (i) Fund series (other than those listed on Schedule A) in existence
now or that may be established in the future will be made available to the
Company only as the Underwriter may so provide, and (ii) the Board of Trustees
of the Fund (the "Board") may suspend or terminate the offering of Fund shares
of any Designated Portfolio or class thereof, if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, suspension or termination is necessary
in the best interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to
2
<PAGE> 3
be effected at net asset value in accordance with Section 1.3 of this
Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem Fund
shares attributable to Contract owners except in the circumstances permitted in
Section 10.3 of this Agreement, and (ii) the Fund may delay redemption of Fund
shares of any Designated Portfolio to the extent permitted by the 1940 Act, and
any rules, regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of
the Fund for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Fund shares that may be
held in the general account of the Company) for shares of those Designated
Portfolios made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt of any such request (or
relevant transactional information therefor) on any day the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC (a "Business Day") by the Company as
such limited agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the Fund
Prospectus (which as of the date of execution of this Agreement is 4:00 p.m.
Eastern Time) shall constitute receipt by the Fund on that same Business Day,
provided that the Fund receives notice of such request by 9:30 a.m. Eastern
Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated
Portfolio on the same day that it notifies the Fund of a purchase request for
such shares. Payment for Designated Portfolio shares shall be made in federal
funds transmitted to the Fund by wire to be received by the Fund by 4:00 p.m.
Eastern Time on the day the Fund is notified of the purchase request for
Designated Portfolio shares (unless the Fund determines and so advises the
Company that sufficient proceeds are available from redemption of shares of
other Designated Portfolios effected pursuant to redemption requests tendered
by the Company on behalf of the Account). If federal funds are not received on
time, such funds will be invested, and Designated Portfolio shares purchased
thereby will be issued, as soon as practicable and the Company shall promptly,
upon the Fund's request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection with any advances
to, or borrowing or overdrafts by, the Fund, or any similar expenses incurred
by the Fund, as a result of portfolio transactions effected by the Fund based
upon such purchase request. Upon receipt of federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by
the Account or the Company shall be made in federal funds transmitted by wire
to the Company or any other designated person on the next Business Day after
the Fund is properly notified of the redemption order of such shares (unless
redemption proceeds are to be applied to the purchase of shares of other
Designated Portfolios in accordance with Section 1.3(b) of this Agreement),
except that the
3
<PAGE> 4
Fund reserves the right to redeem Designated Portfolio shares in assets other
than cash and to delay payment of redemption proceeds to the extent permitted
under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance
with the procedures and policies of the Fund as described in the then current
prospectus. The Fund shall not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Designated
Portfolio shares held or to be held in the Company's general account shall be
effected at the closing net asset value per share next determined after the
Fund's receipt of such request, provided that, in the case of a purchase
request, payment for Fund shares so requested is received by the Fund in
federal funds prior to close of business for determination of such value, as
defined from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the closing net
asset value per share for each Designated Portfolio available to the Company by
7:00 p.m. Eastern Time each Business Day, and in any event, as soon as
reasonably practicable after the closing net asset value per share for such
Designated Portfolio is calculated, and shall calculate such closing net asset
value in accordance with the Fund's Prospectus. In the event the Fund is unable
to make the 7:00 p.m. deadline stated herein, it shall provide additional time
for the Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Fund takes to
make the closing net asset value available to the Company. Neither the Fund,
any Designated Portfolio, the Underwriter, nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company or
any other Participating Insurance Company to the Fund or the Underwriter.
1.5. The Fund shall furnish notice (by wire or telephone followed
by written confirmation) to the Company as soon as reasonably practicable of
any income dividends or capital gain distributions payable on any Designated
Portfolio shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such
dividends and capital gain distributions in cash. The Fund shall notify the
Company promptly of the number of Designated Portfolio shares so issued as
payment of such dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the
Account.
4
<PAGE> 5
1.7. (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares may be sold
to other insurance companies (subject to Section 1.8 hereof) and the cash value
of the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts. Funding vehicles other than
those listed on Schedule A to this Agreement may be available for the
investment of the cash value of the Contracts, provided, however, (i) any such
vehicle or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Designated Portfolios available hereunder; (ii) the Company gives the Fund and
the Underwriter 45 days written notice of its intention to make such other
investment vehicle available as a funding vehicle for the Contracts; and (iii)
unless such other investment company was available as a Funding vehicle for the
Contracts prior to the date of this Agreement and the Company has so informed
the Fund and the Underwriter prior to their signing this Agreement, the Fund or
Underwriter consents in writing to the use of such other vehicle, such consent
not to be unreasonably withheld.
(b) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), induce Contract
owners to change or modify the Fund or change the Fund's distributor or
investment adviser.
(d) The Company shall not, without prior notice to the
Fund, induce Contract owners to vote on any matter submitted for consideration
by the shareholders of the Fund in a manner other than as recommended by the
Board of Trustees of the Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of the Account
for the purpose of satisfying the diversification requirements of Section
817(h). The Underwriter and the Fund shall not sell Fund shares to any
insurance company or separate account unless an agreement complying with
Article VI of this Agreement is in effect to govern such sales, to the extent
required. The Company hereby represents and warrants that it and the Account
are Qualified Persons. The Fund reserves the right to cease offering shares of
any Designated Portfolio in the discretion of the Fund.
1.9. The Fund will provide notice of any material error in
calculation of net asset value per share, dividend or capital gain information
of a Designated Portfolio as soon as reasonably
5
<PAGE> 6
practical after discovery thereof. Any such notice will state for each day for
which an error occurred, the incorrect price, the correct price, and the reason
for the price change. The Fund will make the Company and the Account whole for
any payments or adjustments to the number of shares in the Account that are
reasonably demonstrated to be required as a result of pricing errors. Such
payments from the Fund shall include any additional processing costs that are
reasonably incurred by the Company as a result of the Fund's pricing errors.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) are
not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly
exempt from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal securities and state securities
and insurance laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law, that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under Washington insurance laws, and that it (a) has registered
or, prior to any issuance or sale of the Contracts, will register the Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts, or alternatively
(b) has not registered the Account in proper reliance upon an exclusion from
registration under the 1940 Act. The Company shall register and qualify the
Contracts or interests therein as securities in accordance with the laws of the
various states only if and to the extent deemed advisable by the Company.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with applicable state and
federal securities laws and that the Fund is and shall remain registered under
the 1940 Act. The Fund shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution
expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of
whom are not interested persons of the Fund, formulate and approve a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund represents that it shall register and qualify its
shares for sale in accordance with the laws of the various states, as
necessary.
6
<PAGE> 7
2.5. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6. The Underwriter represents and warrants that it is a member
in good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with any applicable state and federal securities laws.
2.7. The Fund and the Underwriter represent and warrant that all
of their trustees/directors, officers, employees, investment advisers, and
other individuals or entities dealing with the money and/or securities of the
Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.8. The Company represents and warrants that all of its officers,
employees, and other individuals/entities employed or controlled by the Company
dealing with the money and/or securities of the Account are covered by a
blanket fidelity bond or similar coverage for the benefit of the Account, in an
amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to hold for the benefit of the Fund and to pay to the Fund any
amounts lost from larceny, embezzlement or other events covered by the
aforesaid bond to the extent such amounts properly belong to the Fund pursuant
to the terms of this Agreement. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the
event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus or
profile printed together in one document (such printing to be at the Company's
expense).
7
<PAGE> 8
3.2. The Fund's prospectus shall state that the current Statement
of Additional Information ("SAI") for the Fund is available, and the
Underwriter (or the Fund), at its expense, shall provide a reasonable number of
copies of such SAI free of charge to the Company for itself and for any owner
of a Contract who requests such SAI.
3.3. The Fund shall provide the Company with information regarding
the Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information in
the form provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will describe the
manner in which the Company proposes to modify the information, and agrees that
it may not modify the substance of such information without the prior consent
of the Fund.
3.4. The Fund, at its expense, shall provide the Company with
copies of its proxy material, reports to shareholders, and other communications
to shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable contract owners or to
the extent otherwise required by law. The Company will vote Fund shares held in
any segregated asset account in the same proportion as Fund shares of such
portfolio for which voting instructions have been received from Contract
owners, to the extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in a Designated
Portfolio calculates voting privileges as required by the Shared Funding
Exemptive Order and consistent with any reasonable standards that the Fund may
adopt and provide in writing.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material that the Company develops
8
<PAGE> 9
and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the
Underwriter is named. No such material shall be used if the Fund or its
designee objects to such sales literature or promotional material within five
Business Days after receipt of such material. The Fund or its designee reserves
the right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named, and no such
material shall be used if the Fund or its designee so object.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
the Adviser or the Underwriter in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or profiles or prospectus or SAI for the Fund shares, as such
registration statement and profiles and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or
its designee or by the Underwriter, except with the permission of the Fund or
the Underwriter or the designee of either.
4.3. The Fund and the Underwriter, or their designee, shall
furnish, or cause to be furnished, to the Company, each piece of sales
literature or other promotional material that it develops and in which the
Company, and/or its Account, is named. No such material shall be used if the
Company objects to such sales literature or promotional material within five
Business Days after receipt of such material. The Company reserves the right to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Company and/or its Account is named, and no
such material shall be used if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement and prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or
interests therein are not registered under the 1933 Act), or SAI for the
Contracts, as such registration statement, prospectus, or SAI may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, profiles, prospectuses, SAIs, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, promptly after the
filing of such document(s) with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses (which shall include an
offering memorandum, if any, if the
9
<PAGE> 10
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), SAIs, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or the Account, promptly after the filing of such
document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus
for any Account. The Fund will work with the Company so as to enable the
Company to solicit proxies from Contract owners, or to make changes to its
prospectus or registration statement, in an orderly manner. The Fund will make
reasonable efforts to attempt to have changes affecting Contract prospectuses
become effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature
and other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or
any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by
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<PAGE> 11
the Fund, in accordance with applicable state laws prior to their sale. The
Fund shall bear the expenses for the cost of registration and qualification of
the Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law and all taxes on the issuance or transfer of the Fund's
shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1. The Fund will invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations issued thereunder
(or any successor provisions). Without limiting the scope of the foregoing,
each Designated Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI by the Fund, it will (a) take all
reasonable steps to notify the Company of such breach and (b) promptly take all
necessary steps to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Regulation 1.817-5.
6.2. The Fund represents that it is qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future. The Fund acknowledges that compliance with
Subchapter M is an essential element of compliance with Section 817(h).
6.3. The Fund shall provide the Company or its designee with
reports certifying compliance with the aforesaid Section 817(h) diversification
and Subchapter M qualification requirements upon request.
6.4. The Company represents that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or annuity
insurance contracts, under applicable provisions of the Code, and that it will
make every effort to maintain such treatment, and that it will notify the Fund
and the Underwriter immediately upon having a reasonable basis for believing
the Contracts have ceased to be so treated or that they might not be so treated
in the future. The Company agrees that any prospectus offering a contract that
is a "modified
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<PAGE> 12
endowment contract" as that term is defined in Section 7702A of the Code (or
any successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed
and Shared Funding Order and the sale of shares of the Fund to variable life
insurance separate accounts, and then only to the extent required under the
1940 Act.
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the Contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference
in voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Contract owner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
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<PAGE> 13
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to each
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Any such withdrawal and termination must take place within six (6) months after
the Fund gives written notice that this provision is being implemented, and
until the end of that six month period the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by the Company
for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but
in no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption
Order or any amendment thereto contains terms and conditions different from
Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the
Fund and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with the Mixed and Shared Funding
Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in the Mixed and Shared
Funding Exemptive Order or any amendment
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<PAGE> 14
thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and
Shared Funding Exemptive Order, then (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted,
to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1., 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of its trustees/directors and officers, and
each person, if any, who controls the Fund or Underwriter within the meaning of
Section 15 of the 1933 Act or who is under common control with the Underwriter
(collectively, the "Indemnified Parties" for purposes of this Section 8.1 )
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statements of any material fact contained
in the registration statement, prospectus (which shall
include a written description of a Contract that is not
registered under the 1933 Act), or SAI for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the registration statement, prospectus or SAI
for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI, or
sales literature of the Fund not supplied by the Company or
persons under
14
<PAGE> 15
its control) or wrongful conduct of the Company or its agents
or persons under the Company's authorization or control, with
respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI, or sales literature of the Fund
or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the
Company to provide the services and furnish the materials
under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; or
(vi) as limited by and in accordance with the provisions
of Sections 8.1(b) and 8.1 (c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company
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<PAGE> 16
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in
the registration statement or profile or prospectus or SAI or
sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement, profile, prospectus or SAI for the
Fund or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the
16
<PAGE> 17
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund or the
Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement (including a failure of the
Fund, whether unintentional or in good faith or otherwise, to
comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Underwriter will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
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<PAGE> 18
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund; or
(iii) arise out of or result from the materially incorrect
or untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or the
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
18
<PAGE> 19
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceeding against it
or any of its respective officers or directors in connection with the
Agreement, the issuance or sale of the Contracts, the operation of the Account,
or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, any Mixed and Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive
Order should no longer be necessary under applicable law, then Article VII
shall no longer apply.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with
respect to some or all Designated Portfolios, by
three (3) months advance written notice delivered to
the other parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
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<PAGE> 20
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment media of
the Contracts issued or to be issued by the Company;
or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are
instituted against the Company by the NASD, the SEC,
the Insurance Commissioner or like official of any
state or any other regulatory body regarding the
Company's duties under this Agreement or related to
the sale of the Contracts, the operation of any
Account, or the purchase of the Fund's shares;
provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Company to perform its obligations under this
Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against
the Fund or Underwriter by the NASD, the SEC, or any
state securities or insurance department or any
other regulatory body; provided, however, that the
Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings
will have a material adverse effect upon the ability
of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such
Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if
the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the
Contracts fail to meet the qualifications specified
in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company has suffered a material
adverse change in its business, operations,
financial condition, or prospects since the date of
this Agreement or is the subject of material adverse
publicity; or
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<PAGE> 21
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter
has suffered a material adverse change in its
business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(j) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives
the Fund and the Underwriter the written notice
specified in Section 1.7(a)(ii) hereof and at the
time such notice was given there was no notice of
termination outstanding under any other provision of
this Agreement; provided, however, any termination
under this Section 10.l(j) shall be effective
forty-five days after the notice specified in
Section 1.7(a)(ii) was given; or
(k) termination by the Company upon any substitution of
the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the
Fund's Board of Trustees determines that a material
irreconcilable conflict exists as provided in
Article VII.
10.2. Notwithstanding any termination of this Agreement, the Fund
and the Underwriter shall, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"), unless the Underwriter requests that the Company seek an order
pursuant to Section 26(b) of the 1940 Act to permit the substitution of other
securities for the shares of the Designated Portfolios. The Underwriter agrees
to split the cost of seeking such an order, and the Company agrees that it
shall reasonably cooperate with the Underwriter and seek such an order upon
request. Specifically, the owners of the Existing Contracts may be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
existing Contracts (subject to any such election by the Underwriter). The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed
by Article VII of this Agreement. The parties further agree that this Section
10.2 shall not apply to any terminations under Section 10.1 (g) of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as
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<PAGE> 22
necessary to implement Contract owner initiated or approved transactions, (ii)
as required by state and/or federal laws or regulations or judicial or other
legal precedent of general application (hereinafter referred to as a "Legally
Required Redemption"), (iii) upon 45 days prior written notice to the Fund and
Underwriter, as permitted by an order of the SEC pursuant to Section 26(b) of
the 1940 Act, but only if a substitution of other securities for the shares of
the Designated Portfolios is consistent with the terms of the Contracts, or
(iv) as permitted under the terms of the Contract. Upon request, the Company
will promptly furnish to the Fund and the Underwriter reasonable assurance that
any redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contacts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 45 days notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement, each
party's obligation under Article VIII to indemnify the other parties shall
survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
If to the Company: Farmers New World Life Insurance Company
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Attention: C. Paul Patsis, President
with a copy to: M. Douglas Close
Vice President and General Counsel
Farmers New World Life Insurance Company
4680 Wilshire Boulevard
Los Angeles, California 90010
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, Connecticut 06902
22
<PAGE> 23
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders of the Fund
assume any personal liability or responsibility for obligations entered into by
or on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as such information has
come into the public domain.
12.3. The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Washington Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Washington variable annuity laws and regulations and any other applicable law
or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies,
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
23
<PAGE> 24
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles) filed with any
state or federal regulatory body or otherwise made available
to the public, as soon as practicable and in any event within
90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practicable after the filing thereof.
24
<PAGE> 25
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
FARMERS NEW WORLD LIFE INSURANCE COMPANY:
By its authorized officer
By: /s/C. Paul Patsis
-----------------------------
Name: C. Paul Patsis
Title: President
Date:
-----------------------------
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: /s/
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date:
-----------------------------
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: /s/
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date:
-----------------------------
25
<PAGE> 26
SCHEDULE A
Designated Portfolios
PIMCO Variable Insurance Trust Portfolios:
PIMCO Low Duration Portfolio
PIMCO Foreign Bond Portfolio
Separate Accounts and Associated Contracts
- ------------------------------------------
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
<S> <C>
Farmers Annuity Separate Account A (4/6/99) Farmers Variable Annuity
Farmers Variable Life Separate Account A (4/6/99) Farmers Flexible Premium Variable
Life Insurance Policy
</TABLE>
Dated: _____________, 2000
<PAGE> 1
EXHIBIT 9
FARMERS NEW WORLD LIFE
INSURANCE COMPANY
4680 Wilshire Blvd.
Los Angeles, California 90010
Direct Dial Number: 323-932-7165
Facsimile: 323-964-8093
April 19, 2000
Board of Directors
Farmers New World Life Insurance Company
Farmers Annuity Separate Account A
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Ladies and Gentlemen:
1. In my capacity as Vice President and General Counsel of Farmers New
World Life Insurance Company ("Farmers"), I have participated in the
preparation and review of this Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333-85183) filed with the
Securities and Exchange Commission under the Securities Act of 1933 for the
registration of individual flexible premium variable annuity contracts (the
"Contracts") to be issued with respect to Farmers Annuity Separate Account A
(the "Account"). The Account was established on April 6, 1999, by the Board of
Directors of Farmers as a separate account for assets applicable to the
Contracts, pursuant to the provisions of Section 48.18A.020 of the Washington
Insurance Laws.
2. The Separate Account is a separate account of Farmers validly existing
pursuant to Washington law and the regulations issued thereunder.
3. The Contracts, when issued as contemplated by the Registration
Statement, will be legal and binding obligations of Farmers in accordance with
their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the above
referenced Registration Statement and to the use of my name under the caption
"Legal Matters" in the Statement of Additional Information constituting a part
of the Registration Statement.
Very truly yours,
/s/ M. Douglas Close
M. Douglas Close
Vice President and General Counsel
Farmers New World Life Insurance Company
<PAGE> 1
EXHIBIT 10(a)
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
April 21, 2000
VIA EDGARLINK
Board of Directors
Farmers New World Life Insurance Company
3003 77th Avenue, S.E.
Mercer Island, WA 98040
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Farmers Variable Annuity Statement of Additional
Information filed as part of Post-Effective Amendment No. 1 to the registration
statement on Form N-4 for Farmers Annuity Separate Account A (File No.
333-85183). In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
Sutherland Asbill & Brennan LLP
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Farmers Annuity
Separate Account A Registration Statement Nos. 333-85183 and 811-09547 of
Farmers New World Life Insurance Company on Form N-4 of our report dated
February 4, 2000 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
April 21, 2000
Seattle, Washington
<PAGE> 1
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH STANDARD DEATH BENEFIT
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
---------------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 57.95% $1,579.511 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 -5.51% $944.871 $1,000.00 1
Kemper Government Securities 9/3/1987 -6.87% $931.283 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -17.84% $821.580 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 25.89% $1,258.852 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 45.61% $1,456.086 $1,000.00 1
Growth and Income 5/2/1994 -2.13% $978.651 $1,000.00 1
Bond 7/16/1985 -8.38% $916.164 $1,000.00 1
Money Market 7/16/1985 -2.88% $971.198 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 44.38% $1,443.813 $1,000.00 1
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
-------------------------------------------------
PORTFOLIO FIVE YEAR RETURNS
INCEPTION DATE T ERV P N
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 7.15% $1,412.476 $1,000.00 5
Kemper Government Securities 9/3/1987 5.45% $1,303.590 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 26.99% $3,302.425 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 18.63% $2,349.804 $1,000.00 5
Growth and Income 5/2/1994 17.02% $2,194.346 $1,000.00 5
Bond 7/16/1985 4.93% $1,272.034 $1,000.00 5
Money Market 7/16/1985 3.21% $1,171.271 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 2
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH STANDARD DEATH BENEFIT
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
---------------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES 5/1/1997 Not Applicable
Capital Appreciation
KEMPER VARIABLE SERIES 4/6/1982 9.22% $2,415.503 $1,000.00 10
Kemper High Yield 9/3/1987 5.74% $1,747.358 $1,000.00 10
Kemper Government Securities 5/4/1998 Not Applicable
Kemper-Dreman High Return Equity 5/2/1994 Not Applicable
Kemper Small Cap Growth
PIMCO VARIABLE INSURANCE TRUST 2/16/1999 Not Applicable
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond
SCUDDER VARIABLE LIFE INVESTMENT TRUST 5/1/1987 11.79% $3,046.820 $1,000.00 10
International 5/2/1994 Not Applicable
Growth and Income 7/16/1985 6.00% $1,790.345 $1,000.00 10
Bond 7/16/1985 3.60% $1,423.910 $1,000.00 10
Money Market
TEMPLETON VARIABLE PRODUCTS SERIES FUND 3/4/1996 Not Applicable
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
---------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES 5/1/1997 54.33% $3,183.287 $1,000.00 2.668
Capital Appreciation
KEMPER VARIABLE SERIES 4/6/1982 10.68% $6,051.453 $1,000.00 17.748
Kemper High Yield 9/3/1987 5.87% $2,020.346 $1,000.00 12.334
Kemper Government Securities 5/4/1998 -9.59% $845.913 $1,000.00 1.660
Kemper-Dreman High Return Equity 5/2/1994 24.19% $3,414.886 $1,000.00 5.668
Kemper Small Cap Growth
PIMCO VARIABLE INSURANCE TRUST 2/16/1999 -5.69% $950.221 $1,000.00 0.871
PIMCO Low Duration Bond 2/16/1999 -9.22% $919.187 $1,000.00 0.871
PIMCO Foreign Bond
SCUDDER VARIABLE LIFE INVESTMENT TRUST 5/1/1987 12.08% $4,242.935 $1,000.00 12.677
International 5/2/1994 15.78% $2,294.097 $1,000.00 5.668
Growth and Income 7/16/1985 6.34% $2,432.883 $1,000.00 14.468
Bond 7/16/1985 4.21% $1,815.608 $1,000.00 14.468
Money Market
TEMPLETON VARIABLE PRODUCTS SERIES FUND 3/4/1996 -7.81% $732.639 $1,000.00 3.827
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 3
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH EITHER GRIB OR GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
-----------------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 57.54% $1,575.449 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 -5.75% $942.535 $1,000.00 1
Kemper Government Securities 9/3/1987 -7.10% $928.983 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -18.04% $819.550 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 25.56% $1,255.576 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 45.23% $1,452.329 $1,000.00 1
Growth and Income 5/2/1994 -2.38% $976.235 $1,000.00 1
Bond 7/16/1985 -8.61% $913.901 $1,000.00 1
Money Market 7/16/1985 -3.12% $968.800 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 44.01% $1,440.083 $1,000.00 1
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
---------------------------------------------
FIVE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 6.88% $1,394.611 $1,000.00 5
Kemper Government Securities 9/3/1987 5.18% $1,287.068 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 26.67% $3,261.356 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 18.34% $2,320.442 $1,000.00 5
Growth and Income 5/2/1994 16.73% $2,166.890 $1,000.00 5
Bond 7/16/1985 4.66% $1,255.899 $1,000.00 5
Money Market 7/16/1985 2.95% $1,156.376 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 4
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH EITHER GRIB OR GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
-------------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
-------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 8.95% $2,356.455 $1,000.00 10
Kemper Government Securities 9/3/1987 5.48% $1,704.648 $1,000.00 10
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable
Kemper Small Cap Growth 5/2/1994 Not Applicable
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.51% $2,972.372 $1,000.00 10
Growth and Income 5/2/1994 Not Applicable
Bond 7/16/1985 5.74% $1,746.582 $1,000.00 10
Money Market 7/16/1985 3.34% $1,389.104 $1,000.00 10
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
--------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 53.94% $3,162.077 $1,000.00 2.668
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 10.40% $5,791.698 $1,000.00 17.748
Kemper Government Securities 9/3/1987 5.61% $1,959.677 $1,000.00 12.334
Kemper-Dreman High Return Equity 5/4/1998 -9.81% $842.446 $1,000.00 1.660
Kemper Small Cap Growth 5/2/1994 23.88% $3,366.989 $1,000.00 5.668
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 -5.93% $948.177 $1,000.00 0.871
PIMCO Foreign Bond 2/16/1999 -9.44% $917.210 $1,000.00 0.871
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.80% $4,112.087 $1,000.00 12.677
Growth and Income 5/2/1994 15.49% $2,261.781 $1,000.00 5.668
Bond 7/16/1985 6.08% $2,347.407 $1,000.00 14.468
Money Market 7/16/1985 3.95% $1,751.817 $1,000.00 14.468
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 -8.03% $725.736 $1,000.00 3.827
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 5
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH BOTH GRIB AND GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
--------------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 57.14% $1,571.408 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 -5.98% $940.209 $1,000.00 1
Kemper Government Securities 9/3/1987 -7.33% $926.694 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -18.25% $817.530 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 25.23% $1,252.316 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 44.86% $1,448.589 $1,000.00 1
Growth and Income 5/2/1994 -2.62% $973.831 $1,000.00 1
Bond 7/16/1985 -8.84% $911.649 $1,000.00 1
Money Market 7/16/1985 -3.36% $966.414 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 43.64% $1,436.371 $1,000.00 1
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
--------------------------------------------
FIVE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 6.61% $1,377.010 $1,000.00 5
Kemper Government Securities 9/3/1987 4.91% $1,270.789 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 26.36% $3,220.891 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 18.04% $2,291.510 $1,000.00 5
Growth and Income 5/2/1994 16.43% $2,139.837 $1,000.00 5
Bond 7/16/1985 4.40% $1,240.001 $1,000.00 5
Money Market 7/16/1985 2.69% $1,141.699 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 6
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS SURRENDERED OR ANNUITIZED
WITH BOTH GRIB AND GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of any applicable Surrender Charges and Record
Maintenance Charges) of the hypothetical Variable
Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
-------------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
-------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 8.68% $2,298.991 $1,000.00 10
Kemper Government Securities 9/3/1987 5.22% $1,663.081 $1,000.00 10
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable
Kemper Small Cap Growth 5/2/1994 Not Applicable
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.23% $2,899.919 $1,000.00 10
Growth and Income 5/2/1994 Not Applicable
Bond 7/16/1985 5.47% $1,703.992 $1,000.00 10
Money Market 7/16/1985 3.09% $1,355.230 $1,000.00 10
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
---------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 53.56% $3,141.057 $1,000.00 2.668
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 10.13% $5,543.689 $1,000.00 17.748
Kemper Government Securities 9/3/1987 5.35% $1,900.972 $1,000.00 12.334
Kemper-Dreman High Return Equity 5/4/1998 -10.03% $839.003 $1,000.00 1.660
Kemper Small Cap Growth 5/2/1994 23.58% $3,319.872 $1,000.00 5.668
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 -6.16% $946.142 $1,000.00 0.871
PIMCO Foreign Bond 2/16/1999 -9.67% $915.241 $1,000.00 0.871
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.52% $3,985.578 $1,000.00 12.677
Growth and Income 5/2/1994 15.20% $2,229.992 $1,000.00 5.668
Bond 7/16/1985 5.81% $2,265.132 $1,000.00 14.468
Money Market 7/16/1985 3.70% $1,690.417 $1,000.00 14.468
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 -8.26% $718.914 $1,000.00 3.827
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 7
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH STANDARD DEATH BENEFIT
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
--------------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 64.95% $1,649.511 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 0.84% $1,008.401 $1,000.00 1
Kemper Government Securities 9/3/1987 -0.61% $993.899 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -12.32% $876.820 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 32.89% $1,328.852 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 52.61% $1,526.086 $1,000.00 1
Growth and Income 5/2/1994 4.45% $1,044.451 $1,000.00 1
Bond 7/16/1985 -2.22% $977.763 $1,000.00 1
Money Market 7/16/1985 3.65% $1,036.497 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 51.38% $1,513.813 $1,000.00 1
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
--------------------------------------------
FIVE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 7.75% $1,452.476 $1,000.00 5
Kemper Government Securities 9/3/1987 6.08% $1,343.590 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 27.30% $3,342.425 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 19.03% $2,389.804 $1,000.00 5
Growth and Income 5/2/1994 17.44% $2,234.346 $1,000.00 5
Bond 7/16/1985 5.58% $1,312.034 $1,000.00 5
Money Market 7/16/1985 3.91% $1,211.271 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 8
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH STANDARD DEATH BENEFIT
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
----------------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
----------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 9.22% $2,415.503 $1,000.00 10
Kemper Government Securities 9/3/1987 5.74% $1,747.358 $1,000.00 10
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable
Kemper Small Cap Growth 5/2/1994 Not Applicable
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.79% $3,046.820 $1,000.00 10
Growth and Income 5/2/1994 Not Applicable
Bond 7/16/1985 6.00% $1,790.345 $1,000.00 10
Money Market 7/16/1985 3.60% $1,423.910 $1,000.00 10
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
-------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
-------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 55.23% $3,233.287 $1,000.00 2.668
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 10.68% $6,051.453 $1,000.00 17.748
Kemper Government Securities 9/3/1987 5.87% $2,020.346 $1,000.00 12.334
Kemper-Dreman High Return Equity 5/4/1998 -6.51% $894.200 $1,000.00 1.660
Kemper Small Cap Growth 5/2/1994 24.38% $3,444.886 $1,000.00 5.668
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 1.62% $1,014.110 $1,000.00 0.871
PIMCO Foreign Bond 2/16/1999 -2.18% $980.990 $1,000.00 0.871
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 12.08% $4,242.935 $1,000.00 12.677
Growth and Income 5/2/1994 16.04% $2,324.097 $1,000.00 5.668
Bond 7/16/1985 6.34% $2,432.883 $1,000.00 14.468
Money Market 7/16/1985 4.21% $1,815.608 $1,000.00 14.468
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 -6.69% $767.162 $1,000.00 3.827
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 9
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH EITHER GRIB OR GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
------------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 64.54% $1,645.449 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 0.59% $1,005.907 $1,000.00 1
Kemper Government Securities 9/3/1987 -0.86% $991.444 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -12.53% $874.653 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 32.56% $1,325.576 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 52.23% $1,522.329 $1,000.00 1
Growth and Income 5/2/1994 4.19% $1,041.873 $1,000.00 1
Bond 7/16/1985 -2.47% $975.348 $1,000.00 1
Money Market 7/16/1985 3.39% $1,033.938 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 51.01% $1,510.083 $1,000.00 1
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
---------------------------------------------
FIVE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
---------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 7.48% $1,434.611 $1,000.00 5
Kemper Government Securities 9/3/1987 5.82% $1,327.068 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 26.98% $3,301.356 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 18.74% $2,360.442 $1,000.00 5
Growth and Income 5/2/1994 17.15% $2,206.890 $1,000.00 5
Bond 7/16/1985 5.32% $1,295.899 $1,000.00 5
Money Market 7/16/1985 3.65% $1,196.376 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 10
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH EITHER GRIB OR GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
------------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 8.95% $2,356.455 $1,000.00 10
Kemper Government Securities 9/3/1987 5.48% $1,704.648 $1,000.00 10
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable
Kemper Small Cap Growth 5/2/1994 Not Applicable
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.51% $2,972.372 $1,000.00 10
Growth and Income 5/2/1994 Not Applicable
Bond 7/16/1985 5.74% $1,746.582 $1,000.00 10
Money Market 7/16/1985 3.34% $1,389.104 $1,000.00 10
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 Not Applicable
* Class 1 Performance until Class 2 Start Date of 5/1/97
<CAPTION>
------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 54.85% $3,212.077 $1,000.00 2.668
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 10.40% $5,791.698 $1,000.00 17.748
Kemper Government Securities 9/3/1987 5.61% $1,959.677 $1,000.00 12.334
Kemper-Dreman High Return Equity 5/4/1998 -6.74% $890.535 $1,000.00 1.660
Kemper Small Cap Growth 5/2/1994 24.08% $3,396.989 $1,000.00 5.668
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 1.37% $1,011.928 $1,000.00 0.871
PIMCO Foreign Bond 2/16/1999 -2.42% $978.879 $1,000.00 0.871
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.80% $4,112.087 $1,000.00 12.677
Growth and Income 5/2/1994 15.75% $2,291.781 $1,000.00 5.668
Bond 7/16/1985 6.08% $2,347.407 $1,000.00 14.468
Money Market 7/16/1985 3.95% $1,751.817 $1,000.00 14.468
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund* 3/4/1996 -6.92% $759.933 $1,000.00 3.827
* Class 1 Performance until Class 2 Start Date of 5/1/97
</TABLE>
<PAGE> 11
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH BOTH GRIB AND GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
----------------------------------------
ONE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
----------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 64.14% $1,641.408 $1,000.00 1
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 0.34% $1,003.425 $1,000.00 1
Kemper Government Securities 9/3/1987 -1.10% $989.001 $1,000.00 1
Kemper-Dreman High Return Equity 5/4/1998 -12.75% $872.497 $1,000.00 1
Kemper Small Cap Growth 5/2/1994 32.23% $1,322.316 $1,000.00 1
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 51.86% $1,518.589 $1,000.00 1
Growth and Income 5/2/1994 3.93% $1,039.308 $1,000.00 1
Bond 7/16/1985 -2.71% $972.945 $1,000.00 1
Money Market 7/16/1985 3.14% $1,031.391 $1,000.00 1
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2
Start Date of 5/1/97 3/4/1996 50.64% $1,506.371 $1,000.00 1
<CAPTION>
----------------------------------------
FIVE YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
----------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 Not Applicable
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 7.22% $1,417.010 $1,000.00 5
Kemper Government Securities 9/3/1987 5.56% $1,310.789 $1,000.00 5
Kemper-Dreman High Return Equity 5/4/1998 Not Applicable 5
Kemper Small Cap Growth 5/2/1994 26.67% $3,260.891 $1,000.00 5
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond 2/16/1999 Not Applicable
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 18.45% $2,331.510 $1,000.00 5
Growth and Income 5/2/1994 16.87% $2,179.837 $1,000.00 5
Bond 7/16/1985 5.06% $1,280.001 $1,000.00 5
Money Market 7/16/1985 3.40% $1,181.699 $1,000.00 5
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2
Start Date of 5/1/97 3/4/1996 Not Applicable
</TABLE>
<PAGE> 12
ADJ HISTORICAL TOTAL RETURNS FOR PERIOD ENDING 12/31/99
COMPUTATION OF AVERAGE ANNUAL TOTAL RETURNS ASSUMING
CONTRACT IS NOT SURRENDERED OR ANNUITIZED
WITH BOTH GRIB AND GMDB
T = ((ERV/P)/\(1/N))-1
where
T = Average Annual Total Return
ERV = Ending Redeemable value of the initial investment
(net of Records Maintenance Charge) of the hypothetical
Variable Account at the end of the period shown.
P = $1,000 of initial investment
N = Number of Years
<TABLE>
<CAPTION>
----------------------------------------
TEN YEAR RETURNS
PORTFOLIO INCEPTION DATE T ERV P N
----------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES 5/1/1997 Not Applicable
Capital Appreciation
KEMPER VARIABLE SERIES 4/6/1982 8.68% $2,298.991 $1,000.00 10
Kemper High Yield 9/3/1987 5.22% $1,663.081 $1,000.00 10
Kemper Government Securities 5/4/1998 Not Applicable
Kemper-Dreman High Return Equity 5/2/1994 Not Applicable
Kemper Small Cap Growth
PIMCO VARIABLE INSURANCE TRUST 2/16/1999 Not Applicable
PIMCO Low Duration Bond 2/16/1999 Not Applicable
PIMCO Foreign Bond
SCUDDER VARIABLE LIFE INVESTMENT TRUST 5/1/1987 11.23% $2,899.919 $1,000.00 10
International 5/2/1994 Not Applicable
Growth and Income 7/16/1985 5.47% $1,703.992 $1,000.00 10
Bond 7/16/1985 3.09% $1,355.230 $1,000.00 10
Money Market
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2
Start Date of 5/1/97 3/4/1996 Not Applicable
<CAPTION>
--------------------------------------------
RETURN SINCE INCEPTION
PORTFOLIO INCEPTION DATE T ERV P N
--------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN SERIES
Capital Appreciation 5/1/1997 54.47% $3,191.057 $1,000.00 2.668
KEMPER VARIABLE SERIES
Kemper High Yield 4/6/1982 10.13% $5,543.689 $1,000.00 17.748
Kemper Government Securities 9/3/1987 5.35% $1,900.972 $1,000.00 12.334
Kemper-Dreman High Return Equity 5/4/1998 -6.97% $886.895 $1,000.00 1.660
Kemper Small Cap Growth 5/2/1994 23.77% $3,349.872 $1,000.00 5.668
PIMCO VARIABLE INSURANCE TRUST
PIMCO Low Duration Bond 2/16/1999 1.12% $1,009.757 $1,000.00 0.871
PIMCO Foreign Bond 2/16/1999 -2.66% $976.778 $1,000.00 0.871
SCUDDER VARIABLE LIFE INVESTMENT TRUST
International 5/1/1987 11.52% $3,985.578 $1,000.00 12.677
Growth and Income 5/2/1994 15.47% $2,259.992 $1,000.00 5.668
Bond 7/16/1985 5.81% $2,265.132 $1,000.00 14.468
Money Market 7/16/1985 3.70% $1,690.417 $1,000.00 14.468
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Developing Markets Fund*
* Class 1 Performance until Class 2
Start Date of 5/1/97 3/4/1996 -7.15% $752.789 $1,000.00 3.827
</TABLE>
