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PROSPECTUS
MAY 1, 2000 (REVISED AS OF OCTOBER 17, 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
- KVS Dreman High Return Equity Portfolio (Formerly 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.....................................................................................4
Cancellation -- The Right To Examine Period.......................................................4
Investment Options................................................................................4
Transfers.........................................................................................5
Access to Your Money..............................................................................6
Standard Death Benefit............................................................................6
Guaranteed Minimum Death Benefit..................................................................7
Fees and Charges..................................................................................7
Annuity Provisions................................................................................8
Guaranteed Retirement Income Benefit..............................................................9
Federal Tax Status................................................................................9
Inquiries........................................................................................10
Fee Table..........................................................................................11
Condensed Financial Information..................................................................15
About Farmers New World Life Insurance Company and the Variable Account............................15
Farmers New World Life Insurance Company.........................................................15
Farmers Annuity Separate Account A...............................................................15
The Portfolios.....................................................................................16
Investment Objectives of the Portfolios..........................................................17
Availability of the Portfolios...................................................................18
The Pay-In Period..................................................................................18
Purchasing a Contract............................................................................18
Cancellation -- The 10 Day Right to Examine Period...............................................19
Designating Your Investment Options..............................................................19
Additional Premium Payments......................................................................20
Your Contract Value................................................................................20
Variable Account Value...........................................................................20
Transfers Between Investment Options...............................................................21
Automatic Asset Rebalancing Program..............................................................22
Third Party Transfers............................................................................22
Excessive Trading Limits.........................................................................23
Dollar Cost Averaging Program....................................................................23
Telephone Transfers..............................................................................23
Transfer Fee.....................................................................................24
Access to Your Money...............................................................................24
Surrenders.......................................................................................24
Partial Withdrawals..............................................................................25
Systematic Withdrawal Plan.......................................................................26
Death Benefits.....................................................................................26
Death Benefits Before the Annuity Start Date.....................................................26
Guaranteed Minimum Death Benefit.................................................................27
Distribution Upon Death..........................................................................28
Death Benefits on or After the Annuity Start Date................................................28
Fees and Charges...................................................................................29
Mortality and Expense Risk Charge................................................................29
Asset-Based Administration Charge................................................................29
Transfer Fee.....................................................................................29
Surrender Charge.................................................................................29
Records Maintenance Charge.......................................................................31
Portfolio Management Fees and Charges............................................................31
Premium Taxes....................................................................................32
Other Taxes......................................................................................32
</TABLE>
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<TABLE>
<S> <C>
The Payout Period..................................................................................32
The Annuity Start Date...........................................................................32
Annuity Options..................................................................................32
Determining the Amount of Your Annuity Payment...................................................33
Fixed Annuity Payments...........................................................................33
Guaranteed Annuity Tables........................................................................33
Description of Annuity Options...................................................................34
Guaranteed Retirement Income Benefit...............................................................35
The Fixed Account..................................................................................36
Fixed Account Value..............................................................................37
Fixed Account Transfers..........................................................................37
Investment Performance of the Subaccounts..........................................................38
Voting Rights......................................................................................39
Federal Tax Matters................................................................................39
Taxation of Non-Qualified Contracts..............................................................40
Taxation of Qualified Contracts..................................................................42
Other Tax Issues.................................................................................42
Our Income Taxes.................................................................................43
Possible Tax Law Changes.........................................................................43
Other Information..................................................................................43
Payments.........................................................................................43
Modification.....................................................................................44
Distribution of the Contracts....................................................................44
Legal Proceedings................................................................................44
Reports to Owners................................................................................45
Inquiries........................................................................................45
Year 2000 Matters................................................................................45
Financial Statements.............................................................................45
Statement of Additional Information Table of Contents..............................................46
</TABLE>
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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.
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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.
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/BUSINESS 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.
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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.
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:
JANUS ASPEN SERIES
- Capital Appreciation Portfolio (Institutional Shares)
KEMPER VARIABLE SERIES
- Kemper Government Securities Portfolio
- Kemper High Yield Portfolio
- Kemper Small Cap Growth Portfolio
- KVS Dreman High Return Equity Portfolio (Formerly 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)
EACH ALLOCATION TO A SUBACCOUNT OR THE FIXED ACCOUNT MUST BE AT LEAST
$500.
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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.
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 rebalancing 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.
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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.
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.
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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 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.
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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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF COMPLETE YEARS
FROM DATE OF PREMIUM
PAYMENT: 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;
- 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. One portfolio deducts 12b-1 fees. 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.
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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:
(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_ 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."
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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)
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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>
<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>
<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)
</TABLE>
11
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Kemper Variable Series
Kemper Government Securities Portfolio .55% --% .08% .63%
Kemper High Yield Portfolio .60% --% .07% .67%
Kemper Small Cap Growth Portfolio .65% --% .06% .71%
KVS 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
KVS 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, the
12
<PAGE> 16
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.
EXAMPLES
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.
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 EXAMPLE 1 EXAMPLE 2
CONTRACT
------------------------------------------ ------------------------- ------------------------
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
KVS 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
</TABLE>
13
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
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
Bond $88.67 $122.59 $83.96 $108.14
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST
Templeton Developing Markets $100.23 $157.48 $95.58 $143.57
Securities Fund
</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 EXAMPLE 3 EXAMPLE 4
ANNUITIZE THE CONTRACT
------------------------------------------ ------------------------- ------------------------
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
KVS 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 $36.35 $110.58 $31.39 $95.97
Securities Fund
</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.
14
<PAGE> 18
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.
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.
15
<PAGE> 19
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.
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.
16
<PAGE> 20
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.
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES. YOU SHOULD CAREFULLY READ
THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE YOU INVEST.
<TABLE>
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
--------------------------- --------------------------------------------------------------
<S> <C>
JANUS ASPEN CAPITAL seeks long-term growth of capital. It is a non-diversified
APPRECIATION PORTFOLIO fund. Investment adviser is Janus Capital Corporation.
(INSTITUTIONAL SHARES)
KEMPER GOVERNMENT seeks high current return consistent with preservation of
SECURITIES PORTFOLIO capital. Investment adviser is Scudder Kemper Investments,
Inc.
KEMPER HIGH YIELD seeks to provide a high level of current income. Investment
PORTFOLIO adviser is Scudder Kemper Investments, Inc.
KEMPER SMALL CAP GROWTH seeks maximum appreciation of investors' capital. Investment
PORTFOLIO adviser is Scudder Kemper Investments, Inc.
KVS DREMAN HIGH RETURN seeks to achieve a high rate of total return. Investment
EQUITY PORTFOLIO adviser is 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
PORTFOLIO of capital and prudent investment management. Investment
adviser is Pacific Investment Management Company.
PIMCO FOREIGN BOND seeks to maximize total return, consistent with preservation
PORTFOLIO 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 seeks long-term growth of capital, current income and growth
PORTFOLIO (CLASS A SHARES) of income. Investment adviser is Scudder Kemper Investments,
Inc.
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through
(CLASS A SHARES) diversified holdings 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
SHARES) portfolio of debt securities. Investment adviser is Scudder
Kemper Investments, Inc.
TEMPLETON DEVELOPING seeks long-term capital appreciation. The Fund invests
MARKETS SECURITIES FUND primarily in emerging market equity securities. Investment
(CLASS 2 SHARES) adviser is Templeton Asset Management Ltd.
</TABLE>
17
<PAGE> 21
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.
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.
18
<PAGE> 22
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.
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.
19
<PAGE> 23
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_ 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 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.
20
<PAGE> 24
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.
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.
21
<PAGE> 25
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.
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.
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<PAGE> 26
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 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.
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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."
ACCESS TO YOUR MONEY
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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."
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<PAGE> 28
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."
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.
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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; and
- 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
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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
- 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.
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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
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.
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<PAGE> 31
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.
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.
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FEES AND CHARGES
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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.
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.
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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.
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.
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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.
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
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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.
THE PAYOUT PERIOD
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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.
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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:
- 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.
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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.
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.
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.
---------------
* 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.
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GUARANTEED RETIREMENT INCOME BENEFIT
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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
under "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.
* * *
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;
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- 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 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 rates
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.
THE FIXED ACCOUNT
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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.
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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).
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.
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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
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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.
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
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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
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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.
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
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The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any applicable state 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."
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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.
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.
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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.
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."
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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 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.
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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.
OTHER INFORMATION
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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.
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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 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."
Farmers Financial Solutions, LLC ("FFS"), 2423 Galena Avenue, Simi
Valley, California 93065, acts as the principal underwriter for the Contracts.
FFS is affiliated with Farmers through Farmers' parent which provides
management-related services to the parent companies of FFS. FFS is registered
with the Securities and Exchange Commission 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.
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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 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.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
The SAI contains additional information about the Contract and the variable
account. You can obtain the SAI (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 the 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>
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