As Filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-93567
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Post Effective Amendment No. 1 to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LIFE INVESTORS VARIABLE LIFE ACCOUNT A
(EXACT NAME OF TRUST)
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
(NAME OF DEPOSITOR)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
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(NAME AND COMPLETE ADDRESS
OF AGENT FOR SERVICE) COPY TO:
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John D. Cleavenger, Esq. Stephen E. Roth, Esq.
Life Investors Insurance Company of America Sutherland Asbill & Brennan LLP
4333 Edgewood Road NE 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, DC 20004-2415
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of
this registration statement.
SECURITIES BEING OFFERED: Flexible Premium Variable Life Insurance Policy
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485;
[X] on May 1, 2000 pursuant to paragraph (b) or Rule 485;
[ ] days after filing pursuant to paragraph (a) of Rule 485:
[ ] on (date) pursuant to paragraph (a) of Rule 485.
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PART I
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
POLICY
Issued by
LIFE INVESTORS VARIABLE LIFE ACCOUNT A
LIFE INVESTORS INSURANCE COMPANY
OF AMERICA
4333 EDGEWOOD ROAD NE
CEDAR RAPIDS, IOWA 52499
(319) 398-8511
PROSPECTUS
MAY 1, 2000
Life Investors Insurance Company of America (the "Company") is offering the
flexible premium variable life insurance policy ("Policy") described in this
prospectus. Certain Policy provisions may vary based on the state where the
Company issues the Policy. The Policy is designed as a long-term investment
that attempts to provide significant life insurance benefits for the Insured.
This prospectus provides information that a prospective owner should know
before investing in the Policy. You should consider the Policy in conjunction
with other insurance you own.
You can allocate your Policy's values to:
o Life Investors Variable Life Account A (the "Separate Account"),
which invests in the portfolios listed on this page; or
o a Fixed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Separate Account
must accompany this prospectus. Please read these documents before investing
and save them for future reference.
PLEASE NOTE THAT THE POLICIES AND THE PORTFOLIOS:
o ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
o ARE NOT FEDERALLY INSURED;
o ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
o ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
The following portfolios are available:
(diamond) JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Aggressive Growth Portfolio
(diamond) AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
(diamond) OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Main Street Growth & Income
Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
(diamond) FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity VIP II Index 500 Portfolio
Fidelity VIP Money Market Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Contrafund/registered trademark/ Portfolio
Fidelity VIP III Growth & Income Portfolio
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THIS POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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GLOSSARY ................................................. 1
POLICY SUMMARY ........................................... 3
RISK SUMMARY ............................................. 7
THE COMPANY AND THE FIXED ACCOUNT ........................ 9
LIFE INVESTORS INSURANCE COMPANY OF AMERICA ............. 9
THE FIXED ACCOUNT ....................................... 9
THE SEPARATE ACCOUNT AND THE PORTFOLIOS .................. 9
THE SEPARATE ACCOUNT .................................... 9
THE PORTFOLIOS .......................................... 10
VOTING PORTFOLIO SHARES ................................. 13
THE POLICY ............................................... 13
PURCHASING A POLICY ..................................... 13
WHEN INSURANCE COVERAGE TAKES EFFECT .................... 13
CANCELING A POLICY (FREE-LOOK RIGHT) .................... 14
OWNERSHIP RIGHTS ........................................ 15
SELECTING AND CHANGING THE BENEFICIARY ................. 15
CHANGING THE OWNER ..................................... 15
ASSIGNING THE POLICY ................................... 15
PREMIUMS ................................................. 16
PREMIUM FLEXIBILITY ..................................... 16
ALLOCATING PREMIUMS ..................................... 17
POLICY VALUES ............................................ 18
POLICY VALUE ............................................ 18
CASH SURRENDER VALUE .................................... 18
SUBACCOUNT VALUE ........................................ 18
UNIT VALUE .............................................. 18
FIXED ACCOUNT VALUE ..................................... 19
CHARGES AND DEDUCTIONS ................................... 19
EXPENSE CHARGE .......................................... 19
MONTHLY DEDUCTION ....................................... 20
COST OF INSURANCE ...................................... 20
MONTHLY ADMINISTRATIVE CHARGE .......................... 20
CHARGES FOR RIDERS ..................................... 20
CHARGES FOR A SUBSTANDARD PREMIUM CLASS RATING ......... 20
MORTALITY AND EXPENSE RISK CHARGE ....................... 21
SURRENDER AND WITHDRAWAL CHARGES ........................ 21
TRANSFER CHARGE ......................................... 22
PORTFOLIO EXPENSES ...................................... 22
DEATH BENEFIT ............................................ 22
DEATH BENEFIT PROCEEDS .................................. 22
DEATH BENEFIT OPTIONS ................................... 23
CHANGING DEATH BENEFIT OPTIONS .......................... 23
EFFECTS OF WITHDRAWALS ON THE DEATH BENEFIT ............. 24
CHANGING THE SPECIFIED AMOUNT ........................... 24
PAYMENT OPTIONS ......................................... 25
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SURRENDERS AND PARTIAL WITHDRAWALS ........................ 25
SURRENDERS ............................................... 25
WITHDRAWALS .............................................. 26
TRANSFERS ................................................. 26
EXCHANGE PRIVILEGE ....................................... 27
DOLLAR COST AVERAGING .................................... 27
ASSET REBALANCING PROGRAM ................................ 28
LOANS ..................................................... 28
LOAN CONDITIONS .......................................... 28
EFFECT OF POLICY LOANS ................................... 29
POLICY LAPSE AND REINSTATEMENT ............................ 30
LAPSE .................................................... 30
REINSTATEMENT ............................................ 30
FEDERAL TAX CONSIDERATIONS ................................ 31
OTHER POLICY INFORMATION .................................. 34
OUR RIGHT TO CONTEST THE POLICY .......................... 34
SUICIDE EXCLUSION ........................................ 34
MISSTATEMENT OF AGE OR SEX ............................... 34
MODIFYING THE POLICY ..................................... 34
PAYMENTS WE MAKE ......................................... 35
REPORTS TO OWNERS ........................................ 35
RECORDS .................................................. 35
POLICY TERMINATION ....................................... 35
SUPPLEMENTAL BENEFITS AND RIDERS ......................... 35
PERFORMANCE DATA .......................................... 36
ADDITIONAL INFORMATION .................................... 47
SALE OF THE POLICIES ..................................... 47
LEGAL MATTERS ............................................ 47
LEGAL PROCEEDINGS ........................................ 47
FINANCIAL STATEMENTS ..................................... 47
ADDITIONAL INFORMATION ABOUT THE COMPANY ................. 47
LIFE INVESTORS' EXECUTIVE OFFICERS AND DIRECTORS ......... 48
ILLUSTRATIONS ............................................. 49
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GLOSSARY
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AGE
The Insured's age on the Insured's last birthday.
BENEFICIARY
The person(s) you select to receive the death benefit from this Policy.
CASH SURRENDER VALUE
The amount we pay when you surrender your Policy. It is equal to: (1) the
Policy Value as of the date of surrender; minus (2) any surrender charge; minus
(3) any Indebtedness.
COMPANY (WE, US, OUR, LIFE INVESTORS, HOME OFFICE)
Life Investors Insurance Company of America, 4333 Edgewood Road NE, Cedar
Rapids, Iowa 52499, telephone: 319-398-8511.
CUMULATIVE MINIMUM MONTHLY PREMIUM
The sum of all Minimum Monthly Premiums beginning on the Policy Date.
DEATH BENEFIT PROCEEDS
The amount we pay to the beneficiary when we receive due proof of the Insured's
death. We deduct any Indebtedness or unpaid Monthly Deductions before making
any payment.
FIXED ACCOUNT
Part of our general account. Amounts allocated to the Fixed Account earn at
least 3% annual interest (4% for Policies issued in Florida).
FREE LOOK PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy and receive a refund. The length of the free look period
varies by state.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
INDEBTEDNESS
The total amount of all outstanding Policy loans, including both principal and
interest due.
INSURED
The person whose life is Insured by this Policy.
INVESTMENT START DATE
The later of the Policy Date or the date when we receive the first premium at
our Home Office.
LAPSE
A Policy that terminates without value after a grace period. You may reinstate
a lapsed Policy.
MATURITY DATE
The first Policy anniversary after the Insured's 100th birthday. You may elect
to continue the Policy beyond Insured's age 100 under the extended Maturity
Date option.
MINIMUM MONTHLY PREMIUM
This is the amount necessary to guarantee coverage for a No-Lapse Period. It is
shown on your Policy's specification page.
MONTHLY DATE
This is the same day as the Policy Date in each successive month. If there is
no day in a calendar month that coincides with the Policy Date, or if that day
falls on a day that is not a Valuation Date, then the Monthly Date is the next
Valuation Date. On each Monthly Date, we determine Policy charges and deduct
them from the Policy Value.
MONTHLY DEDUCTION
This is the monthly amount we deduct from the Policy Value. The Monthly
Deduction includes the cost of insurance charge, the administrative charge, a
charge for any riders, and any charges for a substandard premium class rating.
NO-LAPSE PERIOD
A period you choose on the Policy application (5 Policy Years, 20 Policy Years,
30 Policy Years, or to Insured's age 100) during which the Policy will not
enter a grace period if on a Monthly Date the sum of premiums paid, less any
withdrawals and Indebtedness, equals or exceeds the Cumulative Minimum Monthly
Premium.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as Owner under the Policy.
POLICY DATE
The Policy Date is the date when coverage becomes effective. The Policy date is
the latest of: (a) the
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date of the application; (b) the date all required medical examinations or
diagnostic tests are completed; (c) the date of issue requested in the
application unless underwriting is not yet completed; or (d) the date of
underwriting approval. The Policy Date is shown on the Policy's specifications
page, and we use it to measure Policy months, years, and anniversaries. We
begin to deduct the Monthly Deductions on the Policy Date.
POLICY VALUE
The sum of your Policy's value in the Subaccounts and the Fixed Account
(including amounts held in the Fixed Account to secure any loans).
PREMIUMS
All payments you make under the Policy other than repayments of Indebtedness.
PREMIUM SUSPENSE ACCOUNT
A temporary holding account where we place all premiums we receive prior to the
Investment Start Date. The Premium Suspense Account does not credit any
interest or investment return.
SEPARATE ACCOUNT
Life Investors Variable Life Account A. It is a separate investment account
that is divided into Subaccounts, each of which invests in a corresponding
portfolio.
SEPARATE ACCOUNT VALUE
The total value of your Policy allocated to the Subaccounts of the Separate
Account.
SPECIFIED AMOUNT
The dollar amount of insurance selected by the Owner. The Specified Amount may
be increased or decreased after issue. The Specified Amount is a factor in
determining the Policy's death benefit and surrender charge.
SUBACCOUNT
A subdivision of Life Investors Variable Life Account A. We invest each
Subaccount's assets exclusively in shares of one investment portfolio.
SURRENDER
To cancel the Policy by signed request from the Owner.
VALUATION DATE
Each day that both the New York Stock Exchange and the Company are open for
business, except for any days when a Subaccount's corresponding investment
portfolio does not value its shares. As of the date of this prospectus: the
Company is open whenever the New York Stock Exchange is open; and there is no
day when both the New York Stock Exchange and the Company are open for business
but an investment portfolio does not value its shares.
VALUATION PERIOD
The period beginning at the close of business of the New York Stock Exchange on
one Valuation Date and continuing to the close of business on the next
Valuation Date.
WRITTEN NOTICE
The Written Notice you must sign and send us to request or exercise your rights
as Owner under the Policy. To be complete, each Written Notice must: (1) be in
a form we accept, (2) contain the information and documentation that we
determine in our sole discretion is necessary for us to take the action you
request or for you to exercise the right specified, and (3) be received at our
Home Office.
YOU (YOUR, OWNER)
The person entitled to exercise all rights as Owner under the Policy.
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POLICY SUMMARY
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This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. The Glossary
defines certain words and phrases used in this prospectus.
PREMIUMS
o You can select a premium payment plan (monthly, quarterly,
semi-annually, or annually) but you are not required to pay premiums
according to the plan. The initial premium is due on or before the
Policy Date. Thereafter, you may make subsequent premium payments, in
any frequency or amount, at any time before the Maturity Date. We will
not accept any premiums after the Maturity Date.
o In your application, you must select one of the No-Lapse Periods we
offer: 5 Policy Years; 20 Policy Years; 30 Policy Years; or to
Insured's age 100. We will establish a Minimum Monthly Premium amount
for your Policy based on the Insured's age, sex, premium class,
Specified Amount, riders, death benefit option and the selected
No-Lapse Period. The Minimum Monthly Premium under your Policy is the
amount necessary to guarantee insurance coverage for the No-Lapse
Period you select. Longer No-Lapse Periods require higher Minimum
Monthly Premiums.
o We will notify you if your Policy enters a 61-day grace period. Your
Policy will lapse if you do not make a sufficient payment before the
end of the grace period.
If your Policy is in the No-Lapse Period you have selected, then the
Policy will enter a 61-day grace period only if on a Monthly Date the
Cash Surrender Value is not enough to pay the next Monthly Deduction
due, AND the sum of premiums paid minus withdrawals and Indebtedness is
less than the Cumulative Minimum Monthly Premium.
If your Policy is not in the No-Lapse Period you have selected, then
your Policy will enter a 61-day grace period only if the Cash Surrender
Value on any Monthly Date is not enough to pay the next Monthly
Deduction due.
o When you receive your Policy, the 10-day FREE LOOK PERIOD begins (the
free look period may be longer in some states). You may return the
Policy during the free look period and receive a refund of all payments
you made (less any withdrawals and Indebtedness).
o We multiply each premium you pay by the expense charge, deduct that
charge, and credit the resulting amount (the net premium) to the Policy
Value.
INVESTMENT OPTIONS
FIXED ACCOUNT:
o You may place money in the Fixed Account where it earns at least 3%
annual interest (4% for Policies issued in Florida). We may declare
higher rates of interest, but are not obligated to do so.
SEPARATE ACCOUNT:
o You may direct the money in your Policy to any of the Subaccounts of
the Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE
SUBACCOUNTS. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE,
DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO.
YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
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o Each Subaccount invests exclusively in one of the following investment
portfolios:
(diamond) JANUS ASPEN SERIES
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Janus Aspen Balanced Portfolio
Janus Aspen Capital Appreciation Portfolio
Janus Aspen Aggressive Growth Portfolio
(diamond) AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
(diamond) OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Main Street Growth & Income
Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
(diamond) FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity VIP II Index 500 Portfolio
Fidelity VIP Money Market Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Contrafund/registered trademark/ Portfolio
Fidelity VIP III Growth & Income Portfolio
See "The Company and the Fixed Account," and "The Separate Account and the
Portfolios."
POLICY VALUE
o Policy Value is the sum of your amounts in the Subaccounts and the
Fixed Account. Policy Value is the starting point for calculating
important values under the Policy, such as the Cash Surrender Value and
the death benefit.
o Policy Value varies from day to day, depending on the investment
experience of the Subaccounts you choose, interest we credit to the
Fixed Account, charges we deduct, and any other transactions (e.g.,
transfers, withdrawals, and loans). WE DO NOT GUARANTEE A MINIMUM
POLICY VALUE.
o Prior to the Investment Start Date, we allocate the net premiums to the
Premium Suspense Account. On the first Valuation Date on or following
the Investment Start Date, we will transfer the amounts in the Premium
Suspense Account to the Subaccounts and the Fixed Account according to
your allocation percentages.
CHARGES AND DEDUCTIONS
$ EXPENSE CHARGE: We multiply each premium by an expense charge, deduct that
charge, and credit the remaining amount (the net premium) to your Policy
Value according to your allocation instructions. The expense charge varies
by Policy Year as follows:
Premiums paid DURING the first 10 Policy Years: expense charge = 5%
Premiums paid AFTER the first 10 Policy Years: expense charge = currently
2.5% (maximum 5%).
$ MONTHLY DEDUCTION: On the Policy Date and on each Monthly Date thereafter, we
deduct:
(arrow) a cost of insurance charge for the Policy
(arrow) a $10 monthly administrative charge
(arrow) charges for any riders
(arrow) any charges for a substandard premium class rating
$ SURRENDER AND WITHDRAWAL CHARGES:
(arrow) Surrender: During the first 19 Policy Years, we deduct a surrender
charge that varies based on your age, sex, premium class, and initial
Specified Amount. A separate surrender charge applies for 19 years after
any Specified Amount increase. See "Charges and Deductions -- Surrender
and Withdrawal Charges" for a table showing surrender charges for sample
Insureds and premium classes.
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(arrow) Withdrawals: For each withdrawal, we deduct (from the remaining Policy
Value) a fee equal to the lesser of $25 or 2% of the amount withdrawn.
$ MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to 0.75%
(at an annual rate) of the average net assets of the Separate Account.
$ TRANSFER CHARGE: We assess a $25 fee for the 13th and each additional
transfer among the Subaccounts or the Fixed Account in a Policy Year.
$ PORTFOLIO EXPENSES: The portfolios deduct investment advisory fees and other
expenses from the amounts the Subaccounts invest in the portfolios. These
fees and expenses (shown in the following table) vary by portfolio and
currently range from 0.27% to 0.97% per year of the average portfolio
assets.
The following table shows the fees and expenses charged by the portfolios. The
purpose of the table is to assist you in understanding the various costs and
expenses that you will bear directly and indirectly. The table reflects charges
and expenses of the portfolios for the fiscal year ended December 31, 1999.
Expenses of the portfolios may be higher or lower in the future. Please refer
to the portfolios' prospectuses for more information on the management fees.
ANNUAL PORTFOLIO OPERATING EXPENSES (As a percentage of average portfolio
assets after fee waivers and expense reimbursements)
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TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
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Janus Aspen Growth Portfolio (1) 0.65% 0.02% 0.67%
Janus Aspen Worldwide Growth Portfolio (1) 0.65% 0.05% 0.70%
Janus Aspen Balanced Portfolio (1) 0.65% 0.02% 0.67%
Janus Aspen Capital Appreciation Portfolio (1) 0.65% 0.04% 0.69%
Janus Aspen Aggressive Growth Portfolio (1) 0.65% 0.02% 0.67%
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73%
AIM V.I. Government Securities Fund 0.50% 0.40% 0.90%
AIM V.I. Growth Fund 0.63% 0.10% 0.73%
AIM V.I. International Equity Fund 0.75% 0.22% 0.97%
AIM V.I. Value Fund 0.61% 0.15% 0.76%
Oppenheimer Main Street Growth & Income Fund/VA 0.73% 0.05% 0.78%
Oppenheimer Multiple Strategies Fund/VA 0.72% 0.01% 0.73%
Oppenheimer Bond Fund/VA 0.72% 0.01% 0.73%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.04% 0.78%
Oppenheimer High Income Fund/VA 0.74% 0.01% 0.75%
Fidelity VIP II Index 500 Portfolio (Initial Class) (2) 0.24% 0.04% 0.28%
Fidelity VIP Money Market Portfolio (Initial Class) 0.18% 0.09% 0.27%
Fidelity VIP Growth Portfolio (Service Class) (3) 0.58% 0.19% 0.77%
Fidelity VIP II Contrafund/registered trademark/ Portfolio (Service Class) (3) 0.58% 0.20% 0.78%
Fidelity VIP III Growth & Income Portfolio (Service Class) (3) 0.48% 0.22% 0.70%
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(1) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Growth,
Worldwide Growth, Balanced, Capital Appreciation, and Aggressive Growth
Portfolios. All expenses are shown without the effect of any expense
offset arrangements.
(2) The investment adviser has voluntarily agreed to reimburse the portfolio to
the extent that total operating expenses exceed 0.28% of its average net
assets during this period. Without this reimbursement, the total annual
expenses would have been 0.34%.
(3) The investment adviser or the portfolio has entered into varying
arrangements with third parties whereby credits realized as a result of
uninvested cash balances were used to reduce these expenses. The amounts
shown in the table do not include these reductions. Including these
reductions, total annual expenses would have been the following: 0.75% for
Growth; 0.75% for Contrafund/registered trademark/; and 0.69% for Growth &
Income.
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SURRENDERS AND WITHDRAWALS
o SURRENDER: At any time while the Policy is in force, you may make a written
request to surrender your Policy and receive the Cash Surrender Value
(i.e., the Policy Value minus any surrender charge, and minus any
Indebtedness).
o WITHDRAWALS: After the 1st Policy Year, you may make a written request to
withdraw part of the Policy Value, subject to the following rules.
Withdrawals may have tax consequences.
(check) You may make one withdrawal in a Policy Year.
(check) You must request at least $500;
(check) If you request a withdrawal that will leave a Cash Surrender Value of
less than $500, we will treat it as a surrender request; and
(check) For each withdrawal, we deduct a fee equal to the lesser of $25 or 2%
of the amount withdrawn.
DEATH BENEFITS
o You must choose between two death benefit options under the Policy. After
the first Policy Year, you may change death benefit options once each
12-month period. We calculate the amount under each death option as of the
Insured's date of death. See "Death Benefit Options."
(arrow) LEVEL DEATH BENEFIT is equal to the greater of:
(diamond) the Specified Amount (which is the amount of insurance the
owner selects); OR
(diamond) the Policy Value multiplied by the applicable Death Benefit
Ratio.
(arrow) INCREASING DEATH BENEFIT is equal to the greater of:
(diamond) the Specified Amount PLUS the Policy Value; or
(diamond) the Policy Value multiplied by the applicable Death Benefit Ratio.
TRANSFERS
o You may make an unlimited number of transfers among the Subaccounts and the
Fixed Account.
o The minimum amount you may transfer from a Subaccount or the Fixed Account
is the lesser of $100, or the total value in the Subaccount or Fixed
Account.
o We charge $25 per transfer for the 13th and each additional transfer during
a Policy Year.
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LOANS
o You may take a loan (minimum $250) from your Policy at any time. The
maximum loan amount you may take is 90% (100% in certain states) of the
Cash Surrender Value, minus 6 months of Monthly Deductions. Loans may have
tax consequences.
o As collateral for the loan, we transfer an amount equal to the loan plus
interest in advance until the next Policy Anniversary from the Separate
Account and Fixed Account to the loan reserve (part of our Fixed Account).
We credit interest on amounts in the loan reserve and we guarantee that the
annual rate will not be lower than 3% (4% in Florida).
o We charge you a maximum annual interest rate of 5.66% in advance on your
loan. Interest is due and payable at the beginning of each Policy Year.
Unpaid interest becomes part of the outstanding loan and accrues interest
if it is not paid before the beginning of the next Policy Year.
o After the 10th Policy Year, we consider certain portions of the loan amount
to be preferred loans. The maximum preferred loan available in each Policy
Year is 25% of the Policy Value (subject to the maximum loan amount). We
charge an annual interest rate of 3.85% in advance on preferred loan
amounts.
o You may repay all or part of your Indebtedness at any time. Loan repayments
must be at least $25, and must be clearly marked as "loan repayments" or we
will credit them as premiums.
o We deduct any unpaid Indebtedness from the proceeds payable on the
Insured's death.
RISK SUMMARY
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The following are some of the risks associated with the Policy.
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INVESTMENT If you invest your Policy Value in one or more
RISK Subaccounts, then you will be subject to the
risk that investment performance will be
unfavorable and that the Policy Value will
decrease. You COULD lose everything you invest.
If you allocate net premiums to the Fixed Account,
then we credit your Policy Value (in the Fixed
Account) with a declared rate of interest, but
you assume the risk that the rate may
decrease, although it will never be lower than
a guaranteed minimum annual effective rate of 3%.
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RISK OF If your Policy fails to meet certain conditions,
LAPSE we will notify you that the Policy has entered
a 61-day grace period and will lapse unless
you make a sufficient payment during the grace
period. You may reinstate a lapsed Policy.
If your Policy is in the selected No-Lapse
Period, then the Policy will enter a grace
period only if on a Monthly Date the Cash Surrender
Value is not enough to pay the next Monthly
Deduction due, AND the sum of premiums paid
minus withdrawals and Indebtedness is less
than the Cumulative Minimum Monthly Premium.
If your Policy is not in the selected No-Lapse
Period, then your Policy will enter a grace
period only if the Cash Surrender Value on a
Monthly Date is not enough to pay the next
Monthly Deduction due.
Your Policy also may lapse (whether or not you
are in the selected No-lapse Period) if your
Indebtedness reduces the Cash Surrender Value
to zero.
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TAX RISKS We anticipate that the Policy will generally
be deemed a life insurance contract under
Federal tax law, so that the death benefit
paid to the beneficiary will not be subject to
Federal income tax. However, there is more
uncertainty with respect to Policies issued on
a substandard premium class basis and Policies
with a Level One-Year Term Insurance Rider
attached. Depending on the total amount of
premiums you pay, the Policy may be treated as
a modified endowment contract ("MEC") under
Federal tax laws. If a Policy is treated as a
MEC, then surrenders, partial withdrawals, and
loans under a Policy will be taxable as
ordinary income to the extent there are
earnings in the Policy. In addition, a 10%
penalty tax may be imposed on surrenders, partial
withdrawals, and loans taken before you reach
age 59 1/2. You should consult a qualified tax
advisor for assistance in all Policy-related
tax matters.
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SURRENDER The surrender charge under this Policy applies
RISK for 19 Policy Years after the Policy Date. An
additional surrender charge will be applicable
for 19 years from the date of any increase in
the Specified Amount. It is possible that you
will receive no Cash Surrender Value if you
surrender your Policy in the first few Policy
Years. You should purchase this Policy only if
you have the financial ability to keep it in
force for a substantial period of time.
Even if you do not ask to surrender your
Policy, surrender charges may play a role in
determining whether your Policy will lapse,
because surrender charges affect the Cash
Surrender Value which is a measure we use to
determine whether your Policy will enter a
grace period (and possibly lapse). See "Risk
of Lapse," above.
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LOAN RISKS A Policy loan, whether or not repaid, will
affect Policy Value over time because we
subtract the amount of the loan from the Subaccounts
and Fixed Account as collateral, and the loan
collateral does not participate in the
investment results of the Subaccounts or
receive any higher current interest rate credited to
the Fixed Account.
We reduce the amount we pay on the Insured's
death by the amount of any Indebtedness.
Your Policy may lapse if your Indebtedness
reduces the Cash Surrender Value to zero.
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</TABLE>
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THE COMPANY AND THE FIXED ACCOUNT
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LIFE INVESTORS INSURANCE COMPANY OF AMERICA
Life Investors Insurance Company of America is the insurance company issuing
the Policy. Life Investors was incorporated under Iowa law on September 26,
1930, and is a wholly owned indirect subsidiary of AEGON USA, Inc. Life
Investors established the Separate Account to support the investment options
under this Policy and under other variable life insurance policies we may
issue. Our general account supports the Fixed Account options under the Policy.
IMSA. Life Investors is a member of the Insurance Marketplace Standards
Association ("IMSA"). IMSA members subscribe to a set of ethical standards
involving the sales and service of individually sold life insurance and
annuities. As a member of IMSA, Life Investors may use the IMSA logo and
language in advertisements.
THE FIXED ACCOUNT
The Fixed Account is part of our general account. We own the assets in the
general account and we use these assets to support our insurance and annuity
obligations other than those funded by our separate investment accounts.
Subject to applicable law, the Company has sole discretion over investment of
the Fixed Account's assets. The Company bears the full investment risk for all
amounts allocated or transferred to the Fixed Account. We guarantee that the
amounts allocated to the Fixed Account will be credited interest daily at a net
effective annual interest rate of at least 3% (4% for Policies issued in
Florida). We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion.
WE HAVE NOT REGISTERED THE FIXED ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
We established Life Investors Variable Life Account A as a separate investment
account under Iowa law on July 1, 1999. We own the assets in the Separate
Account and we are obligated to pay all benefits under the Policies. We may use
the Separate Account to support other variable life insurance policies we
issue. The Separate Account is registered with the Securities and Exchange
Commission as an unit investment trust under the Investment Company Act of 1940
and qualifies as a "separate account" within the meaning of the Federal
securities laws.
We have divided the Separate Account into Subaccounts, each of which invests in
shares of one portfolio among the following mutual funds:
(diamond) Janus Aspen Series (managed by Janus Capital Corporation)
(diamond) AIM Variable Insurance Funds, Inc. (managed by A I M Advisors, Inc.)
(diamond) Oppenheimer Variable Account Funds (managed by OppenheimerFunds, Inc.)
(diamond) Fidelity Variable Insurance Products Funds (managed by Fidelity
Management & Research Company)
The Subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
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Income, gains, and losses credited to, or charged against, a Subaccount of the
Separate Account reflect the Subaccount's own investment experience and not the
investment experience of our other assets. We may not use the Separate
Account's assets to pay any of our liabilities other than those arising from
the Policies. If the Separate Account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
The Separate Account may include other Subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, we reserve the right to:
1. Create new separate accounts;
2. Combine the Separate Account with other separate accounts;
3. Remove, combine or add Subaccounts and make the new Subaccounts
available to you at our discretion;
4. Make new portfolios available under the Separate Account or remove
existing portfolios;
5. Substitute new portfolios for any existing portfolios if shares of a
portfolio are no longer available for investment or if we determine
that investment in a portfolio is no longer appropriate in light of
the Separate Account's purposes;
6. Deregister the Separate Account under the Investment Company Act of
1940 if such registration is no longer required;
7. Operate the Separate Account as a management investment company under
the Investment Company Act of 1940, or as any other form permitted by
law;
8. Manage the Separate Account under the direction of a committee at any
time;
9. Fund additional classes of variable life insurance contracts through
the Separate Account; and
10. Make any changes required by the Investment Company Act of 1940 or any
other law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
THE PORTFOLIOS
The Separate Account invests in shares of certain portfolios. Each portfolio is
part of a mutual fund that is registered with the Securities and Exchange
Commission as an open-end management investment company. Such registration does
not involve supervision of the management or investment practices or policies
of the portfolios by the Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio generally
have no effect on the investment performance of any other portfolio. Pending
any prior approval by a state insurance regulatory authority, certain
Subaccounts and corresponding portfolios may not be available to residents of
some states.
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The following table summarizes each portfolio's investment objective(s) and
policies. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS
STATED OBJECTIVE(S). You can find more detailed information about the
portfolios, including a description of risks, in the prospectuses for the
portfolios. You should read these prospectuses carefully.
<TABLE>
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PORTFOLIO INVESTMENT OBJECTIVE
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JANUS ASPEN GROWTH [ ] Seeks long-term growth of capital in a manner consistent with the preservation
of capital. Invests primarily in common stocks of issuers of any size.
JANUS ASPEN [ ] Seeks long-term growth of capital in a manner consistent with the preservation
WORLDWIDE GROWTH of capital. Invests primarily in common stocks of foreign and domestic issuers of
any size.
JANUS ASPEN BALANCED [ ] Seeks long-term capital growth, consistent with preservation of capital and
balanced by current income.
JANUS ASPEN CAPITAL [ ] Seeks long-term growth of capital. Invests in common stocks of issuers of any
APPRECIATION size.
JANUS ASPEN [ ] Seeks long-term growth of capital. Normally invests at least 50% of its equity
AGGRESSIVE GROWTH assets in securities issued by medium-sized companies.
AIM V.I. CAPITAL [ ] Seeks to provide growth of capital through investment in common stocks, with
APPRECIATION FUND emphasis on medium-and small-sized growth companies.
AIM V.I. GOVERNMENT [ ] Seeks to achieve a high level of current income consistent with reasonable
SECURITIES FUND concern for safety of principal by investing in debt securities issued, guaranteed
or otherwise backed by the United States Government.
AIM V.I. GROWTH [ ] Seeks to provide growth of capital primarily by investing in seasoned and better
FUND capitalized companies considered to have strong earnings momentum.
AIM V.I. INTERNATIONAL [ ] Seeks to provide long-term growth of capital by investing in a diversified
EQUITY FUND portfolio of international equity securities whose issuers are considered to have
strong earnings momentum.
AIM V.I. VALUE FUND [ ] Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment adviser to be undervalued relative to
the investment adviser's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values or assets
owned by the companies issuing the securities, or relative to the equity market
generally. Income is a secondary objective.
OPPENHEIMER MAIN [ ] Seeks a high total return (which includes growth in the value of its shares as
STREET GROWTH & well as current income) from equity and debt securities.
INCOME FUND/VA
OPPENHEIMER MULTIPLE [ ] Seeks a high total investment return, which includes current income and capital
STRATEGIES FUND/VA appreciation in the value of its shares.
OPPENHEIMER [ ] Seeks a high level of current income as its primary objective. As a secondary
BOND FUND/VA objective, seeks capital appreciation when consistent with its primary objective.
OPPENHEIMER STRATEGIC [ ] Seeks a high level of current income principally derived from interest on debt
BOND FUND/VA securities and seeks to enhance such income by writing covered call options on
debt securities.
</TABLE>
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OPPENHEIMER HIGH [ ] Seeks a high level of current income from investment in high-yield, fixed-
INCOME FUND/VA income securities. Investments include high yield, lower-grade fixed-income
securities commonly known as "junk bonds," which are subject to a greater risk
of loss of principal and nonpayment of interest than higher-rated securities.
FIDELITY INDEX [ ] Seeks to provide investment results that correspond to the total return of a broad
500 (INITIAL CLASS) range of common stocks publicly traded in the United States, as represented by
the Standard & Poor's/registered trademark/ Composite Index of 500 Stocks.
FIDELITY MONEY MARKET [ ] Seeks to earn a high level of current income while maintaining a stable $1.00
(INITIAL CLASS) share price by investing in high-quality, short-term securities.
FIDELITY GROWTH [ ] Seeks capital appreciation by investing primarily in common stocks.
(SERVICE CLASS)
FIDELITY CONTRAFUND/registered trademark/ [ ] Seeks capital appreciation by investing in securities of companies whose value
(SERVICE CLASS) the adviser believes is not fully recognized by the public.
FIDELITY GROWTH & [ ] Seeks high total return through a combination of current income and capital
INCOME (SERVICE CLASS) appreciation.
</TABLE>
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to
support variable annuity contracts and variable life insurance policies or
qualified retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither the Company nor the portfolios currently foresee any such
disadvantages, either to variable life insurance policy owners or to variable
annuity contract owners, each portfolio's Board of Directors (Trustees) will
monitor events in order to identify any material conflicts between the
interests of such variable life insurance policy owners and variable annuity
contract owners, and will determine what action, if any, it should take. Such
action could include the sale of portfolio shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2)
changes in Federal income tax laws, or (3) differences in voting instructions
between those given by variable life insurance policy owners and those given by
variable annuity contract owners.
If a portfolio's Board of Directors (Trustees) were to conclude that separate
portfolios should be established for variable life insurance and variable
annuity separate accounts, we will bear the attendant expenses, but variable
life insurance policy owners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined portfolio.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR
NEARLY IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the
investment objectives and policies of certain portfolios available under the
Policy are very similar to the investment objectives and policies of other
portfolios that are or may be managed by the same investment adviser or
manager. Nevertheless, the investment performance and results of the portfolios
available under the Policy may be lower or higher than the investment results
of such other (publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND
WE MAKE NO REPRESENTATION, THAT THE INVESTMENT RESULTS OF ANY OF THE PORTFOLIOS
AVAILABLE UNDER THE POLICY WILL BE COMPARABLE TO THE INVESTMENT RESULTS OF ANY
OTHER PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR
MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
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VOTING PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as Owners
instruct, so long as such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of Policy Value you
have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some Owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations and interpretations
change, we may elect to vote portfolio shares in our own right. If required by
state insurance officials, or if permitted under Federal regulation, we may
disregard certain Owner voting instructions. If we ever disregard voting
instructions, we will send you a summary in the next annual report to Owners
advising you of the action and the reasons we took such action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Home Office. You may also send the application and initial
premium to us through any licensed life insurance agent who is also a
registered representative of a broker-dealer having a selling agreement with
AFSG Securities Corporation, the principal underwriter for the Policy.
We determine the minimum Specified Amount benefit for a Policy based on the
Insured's age when we issue the Policy. The minimum Specified Amount is
$100,000 for issue ages 0-49, and $50,000 for issue ages 50-85.
Generally, the Policy is available for Insureds between issue ages 0-85 for
preferred risk classes, and between issue ages 18-85 for tobacco risk classes.
Starting at Specified Amounts of $250,000, we add a better risk class
(super-preferred) for non-tobacco users only. Super-preferred rates are
available for issue ages 18-75. We can provide you with details as to these
underwriting standards when you apply for a Policy. We reserve the right to
modify our underwriting requirements at any time. We must receive evidence of
insurability that satisfies our underwriting standards before we will issue a
Policy. We reserve the right to reject an application for any reason permitted
by law.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the proposed
Insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the initial premium is
paid.
CONDITIONAL INSURANCE COVERAGE. Before full insurance coverage takes effect,
you may receive conditional insurance converge subject to certain requirements.
This coverage shall not exceed (1) the amount of insurance applied for; or (2)
$500,000, whichever is smaller, less all other sums we pay upon the death of a
proposed Insured under any other pending application or policy. If a proposed
Insured is less than 15 days old or more than 60 years old, no insurance shall
take effect until the Policy is delivered. If we do not approve your
application, we will make a full refund of the initial premium paid with the
application.
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If all of the following conditions of coverage have been met, then conditional
insurance coverage will go into effect on the Policy Date subject to the
liability limits shown above and subject to the conditions of the Policy as
applied for. The conditions of such coverage are that:
1. the full first premium on the premium mode selected for the Policy
benefits applied for, including any additional premium required for
restrictions or benefits, is paid when the application is signed; and
2. each proposed Insured has completed any required medical examinations,
diagnostic tests, and interviews, or has supplied us with any additional
information we require; and
3. each proposed Insured is, on the Policy Date, insurable and acceptable
to us under our rules, limits and underwriting standards for the plan
and for the amount applied for without modification and at the rate of
premium paid.
If insurance does not take effect under these conditions, then no insurance
shall take effect unless a Policy is delivered to and accepted by the
applicant, and the full first premium is paid before any change in the
insurability of any proposed Insured since the date of application.
Conditional life insurance coverage is void if the application contains any
material misrepresentation. Benefits will also be denied if any proposed
Insured commits suicide.
Conditional life insurance coverage terminates automatically, and without
notice, on the earliest of:
[ ] the date we notify you that the application is declined and we return
the initial premium; or
[ ] the date we determine the Insured has satisfied our underwriting
requirements; or
[ ] 10 days following any counteroffer we make to offer insurance to any
proposed Insured under a different policy, or at an increased premium,
or under a different underwriting class; or
[ ] 60 days from the beginning of conditional insurance coverage.
FULL INSURANCE COVERAGE. Once we determine that the Insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly charges from your Policy Value. This date is the
Policy Date. Prior to the Investment Start Date (the later of the Policy Date
and the date we receive the first premium), we will place your premium (less
charges) in the Premium Suspense Account. On the first Valuation Date on or
following the Investment Start Date, we will transfer the amount in the Premium
Suspense Account to the Subaccounts and/or the Fixed Account as you directed on
your application. See "Allocating Premiums."
CANCELING A POLICY (FREE-LOOK RIGHT)
You may cancel a Policy during the free-look period by returning it to the
Company, or to the agent who sold it. The free-look period generally expires 10
days after you receive the Policy, but this period will be longer if required
by state law. If you decide to cancel the Policy during the free-look period,
we will treat the Policy as if we never issued it. Within seven calendar days
after we receive the returned Policy, we will refund all payments you made
under the Policy (less any withdrawals and Indebtedness).
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OWNERSHIP RIGHTS
The Policy belongs to the Owner named in the application. The Owner may
exercise all of the rights and options described in the Policy. The Owner is
the Insured unless the application specifies a different person as the Insured.
If the Owner dies before the Insured and no contingent Owner is named, then
Ownership of the Policy will pass to the Owner's estate. The Owner may exercise
certain rights described below.
<TABLE>
<S> <C>
SELECTING AND o You designate the beneficiary (the person to receive the death benefit when the
CHANGING THE Insured dies) in the application.
BENEFICIARY o If you designate more than one beneficiary, then each beneficiary shares equally in
any death benefit unless the beneficiary designation states otherwise.
o If the beneficiary dies before the Insured, then any contingent beneficiary becomes
the beneficiary.
o If both the beneficiary and contingent beneficiary die before the Insured, then we
will pay the death benefit to the Owner or the Owner's estate once the Insured dies.
o You can change the beneficiary by providing us with a written request while the
Insured is living.
o The change in beneficiary is effective as of the date you sign the written request.
o We are not liable for any actions we take before we received the written request.
CHANGING THE o You may change the Owner by providing a written request to us at any time while
OWNER the Insured is alive.
o The change takes effect on the date you sign the written request.
o We are not liable for any actions we take before we received the written request.
o Changing the Owner does not automatically change the beneficiary and does not
change the Insured.
o Changing the Owner may have tax consequences. You should consult a tax advisor
before changing the Owner.
ASSIGNING THE o You may assign Policy rights while the Insured is alive by submitting a written
POLICY request to our Home Office.
o The Owner retains any Ownership rights that are not assigned.
o Assignee may not change the Owner or the beneficiary, and may not elect or change
an optional method of payment. We will pay any amount payable to the assignee in
a lump sum.
o Claims under any assignment are subject to proof of interest and the extent of the
assignment.
o We are not:
(arrow) bound by any assignment unless we receive a Written Notice of the assignment;
(arrow) responsible for the validity of any assignment; or
(arrow) liable for any payment we make before we received Written Notice of the
assignment.
o Assigning the Policy may have tax consequences. See "Tax Treatment of Policy
Benefits."
_______________________________________________________________________________________
</TABLE>
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PREMIUMS
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PREMIUM FLEXIBILITY
When you apply for a Policy, you may indicate your intention to pay premiums on
a monthly, quarterly, semi-annual, or annual basis (planned premiums). However,
you do not have to pay premiums according to any schedule. You have flexibility
to determine the frequency and the amount of the premiums you pay. You must
send all premium payments to our Home Office. You may not pay any premiums
after the Policy's Maturity Date. You may not pay premiums less than $25.
We have the right to limit or refund any premium if (1) the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code; or (2) the amount you pay is less than $25; or (3) payment of a greater
amount would increase the death benefit by application of the death benefit
ratio (unless you provide us with satisfactory evidence of insurability).
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the Maturity Date, or the date when either (1) the Insured
dies, or (2) the grace period ends without a sufficient payment (see "Lapse,"
below), or (3) we receive your Written Notice requesting a surrender of the
Policy.
MINIMUM MONTHLY PREMIUM. On your application, you must select one of the the
No-Lapse Periods we offer under the Policy: 5 Policy Years; 20 Policy Years; 30
Policy Years; or to Insured's age 100. The 5 Policy Year No-Lapse Period is
only for Insureds age 50 and over. Certain states may require No-Lapse Periods
that differ from those we offer. Your Policy's specification page will show a
Minimum Monthly Premium amount for your Policy, which is based on the Insured's
age, sex, premium class, Specified Amount, riders, death benefit option and the
selected No-Lapse Period. The Minimum Monthly Premium is the amount necessary
to guarantee insurance coverage for the No-lapse Period. (For two Policies
covering Insureds with the same age, sex, premium class, Specified Amount,
riders, and death benefit option, the Minimum Monthly Premium is higher for the
Policy with the longer No-Lapse Period.) Beginning on the Policy Date until the
end of the No-Lapse Period, your Policy will not enter a grace period if on
each Monthly Date during the No-Lapse Period, your Cash Surrender Value is
enough to pay the next Monthly Deduction due, AND the sum of premiums paid less
any withdrawals and Indebtedness, equals or exceeds the Cumulative Minimum
Monthly Premium. See "Policy Lapse and Reinstatement." During the No-Lapse
Period, we allow you to make premium payments necessary to cover any deficiency
in the Cumulative Minimum Monthly Premium.
The Minimum Monthly Premium will increase if you increase the Specified Amount
or add supplemental benefits to your Policy. The Minimum Monthly Premium will
decrease for any supplemental benefit you decrease or discontinue. The Minimum
Monthly Premium will not decrease if you decrease the Specified Amount. See
"Changing the Specified Amount."
LAPSE. Under certain conditions, your Policy will enter into a 61-day grace
period and possibly lapse:
o If your Policy is in the No-Lapse Period, then the Policy will enter a
grace period if on any Monthly Date the Cash Surrender Value is not
enough to pay the next Monthly Deduction due, AND the sum of premiums
paid minus withdrawals and Indebtedness is less than the Cumulative
Minimum Monthly Premium.
o If your Policy is not in the No-Lapse Period, then your Policy will
enter a 61-day grace period if the Cash Surrender Value on any Monthly
Date is not enough to pay the next Monthly Deduction due.
We will notify you when your Policy is in a grace period. If you do not make a
sufficient payment before the end of the grace period, then your Policy will
lapse. You may reinstate a lapsed Policy if you meet certain requirements. See
"Policy Lapse and Reinstatement."
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium, money from another life insurance contract that qualified for a
tax-free exchange under Section 1035 of the Internal Revenue Code,
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contingent upon receipt of the cash from that contract. If you contemplate such
an exchange, you should consult a tax advisor to discuss the potential tax
effects of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more Subaccounts of the Separate Account and to the Fixed Account
according to the following rules:
o You must allocate at least 5% of each net premium to any Subaccount or
the Fixed Account you select.
o Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100%.
o No more than 10 accounts (Subaccounts and Fixed Account) may be
concurrently active (have net premiums allocated to it).
o Up to 4 times each Policy Year, you can change the allocation
instructions for additional net premiums without charge by providing us
with written notification (or any other notification we deem
satisfactory). Any change in allocation instructions will be effective
on the date we record the change.
Investment returns from amounts allocated to the Subaccounts will vary with the
investment experience of these Subaccounts and will be reduced by Policy
charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS.
Prior to the Investment Start Date, we will place your premium (less charges)
in the Premium Suspense Account. We do not credit any interest or investment
returns to amounts in the Premium Suspense Account. On the first Valuation Date
on or following the Investment Start Date, we will transfer the amount in the
Premium Suspense Account to the Subaccounts and/or the Fixed Account in
accordance with the allocation percentages provided in your application.
Amounts allocated from the Premium Suspense Account will be invested at the
unit value next determined on the first Valuation Date on or following the
Investment Start Date. We invest all net premiums paid thereafter at the unit
value next determined after we receive the premium at our Home Office.
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POLICY VALUES
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POLICY VALUE /bullet/ serves as the starting point for calculating values under a Policy;
/bullet/ equals the sum of all values in the Fixed Account and in each Subaccount;
/bullet/ is determined on the Policy Date and on each Valuation Date; and
/bullet/ has no guaranteed minimum amount and may be more or less than
premiums paid.
</TABLE>
CASH SURRENDER VALUE
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation
Period when we receive your written surrender request.
<TABLE>
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CASH SURRENDER VALUE /bullet/ the Policy Value as of such date; MINUS
ON ANY VALUATION DATE /bullet/ any surrender charge as of such date; MINUS
EQUALS: /bullet/ any outstanding Indebtedness.
</TABLE>
SUBACCOUNT VALUE
Each Subaccount's value is the Policy Value in that Subaccount. At the end of
any Valuation Period, the Subaccount's value is equal to the number of units
that the Policy has in the Subaccount, multiplied by the unit value of that
Subaccount.
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THE NUMBER OF /bullet/ the initial units purchased at the unit value on the Investment Start Date;
UNITS IN ANY PLUS
SUBACCOUNT ON /bullet/ units purchased with additional net premiums; PLUS
ANY VALUATION /bullet/ units purchased via transfers from another Subaccount, the Fixed Account,
DATE EQUALS: or the loan reserve; MINUS
/bullet/ units redeemed to pay for Monthly Deductions; MINUS
/bullet/ units redeemed to pay for partial withdrawals; MINUS
/bullet/ units redeemed as part of a transfer to another Subaccount, the Fixed
Account, or the loan reserve.
</TABLE>
Every time you allocate or transfer money to or from a Subaccount, we convert
that dollar amount into units. We determine the number of units we credit to,
or subtract from, your Policy by dividing the dollar amount of the transaction
by the unit value for that Subaccount at the end of the Valuation Period.
UNIT VALUE
We determine a unit value for each Subaccount to reflect how investment results
affect the Policy values. Unit values will vary among Subaccounts. The unit
value of each Subaccount was originally established at $10 per unit. The unit
value may increase or decrease from one Valuation Period to the next.
<TABLE>
<S> <C>
THE UNIT VALUE OF ANY /bullet/ the total value of the assets held in the Subaccount, determined by
SUBACCOUNT AT THE END multiplying the number of shares of the designated portfolio the
OF A VALUATION PERIOD IS Subaccount owns by the portfolio's net asset value per share; MINUS
CALCULATED AS: /bullet/ a deduction for the mortality and expense risk charge; MINUS
/bullet/ the accrued amount of reserve for any taxes or other economic burden
resulting from applying tax laws that we determine to be properly
attributable to the Subaccount;
AND THE RESULT DIVIDED BY
/bullet/ the number of outstanding units in the Subaccount.
</TABLE>
18
<PAGE>
FIXED ACCOUNT VALUE
On the Investment Start Date, the Fixed Account value is equal to the net
premiums allocated to the Fixed Account, less the portion of the first Monthly
Deduction taken from the Fixed Account.
<TABLE>
<S> <C>
THE FIXED ACCOUNT /bullet/ the net premium(s) allocated to the Fixed Account; PLUS
VALUE AT THE END OF /bullet/ any amounts transferred to the Fixed Account (including amounts
ANY VALUATION transferred from the loan reserve); PLUS
PERIOD IS EQUAL TO: /bullet/ interest credited to the Fixed Account; MINUS
/bullet/ amounts charged to pay for Monthly Deductions; MINUS
/bullet/ amounts withdrawn from the Fixed Account; MINUS
/bullet/ amounts transferred from the Fixed Account to a Subaccount or to the
loan reserve.
</TABLE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
<TABLE>
<S> <C>
SERVICES AND /bullet/ the death benefit, cash and loan benefits under the Policy
BENEFITS WE /bullet/ investment options, including premium allocations
PROVIDE: /bullet/ administration of elective options
/bullet/ the distribution of reports to Owners
COSTS AND /bullet/ costs associated with processing and underwriting applications, issuing and
EXPENSES WE administering the Policy (including any riders)
INCUR: /bullet/ overhead and other expenses for providing services and benefits
/bullet/ sales and marketing expenses
/bullet/ other costs of doing business, such as collecting premiums, maintaining
records, processing claims, effecting transactions, and paying Federal, state
and local premium and other taxes and fees
RISKS WE ASSUME: /bullet/ that the cost of insurance charges we may deduct are insufficient to meet
our actual claims because Insureds die sooner than we estimate
/bullet/ that the costs of providing the services and benefits under the Policies
exceed the charges we deduct
</TABLE>
EXPENSE CHARGE
We deduct an expense charge from each premium payment to compensate us for
distribution expenses and state and local premium taxes. We credit the
remaining amount (the net premium) to your Policy Value according to your
allocation instructions. The expense charge currently varies by Policy Year and
is guaranteed not to exceed 5% of each premium in any Policy Year:
Premiums paid DURING first 10 Policy Years: expense charge = 5%
Premiums paid AFTER first 10 Policy Years: expense charge = 2.5%
While we may change the expense charge, we guarantee that the expense charge
will not exceed 5% of premiums paid in any Policy Year.
19
<PAGE>
MONTHLY DEDUCTION
We deduct a Monthly Deduction from the Policy Value on the Policy Date and on
each Monthly Date. We will make deductions from each Subaccount and the Fixed
Account on a pro rata basis (i.e., in the same proportion that the value in
each Subaccount and the Fixed Account bears to the total Policy Value on the
Monthly Date). Because portions of the Monthly Deduction (such as the cost of
insurance) can vary from month-to-month, the Monthly Deduction will also vary.
The Monthly Deduction has four components:
> a cost of insurance charge for the Policy;
> a $10 monthly administrative charge;
> charges for any riders; and
> any charges for a substandard premium class rating.
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit. The charge depends on a number of
variables (age, sex, premium class, and Specified Amount) that would cause it
to vary from Policy to Policy and from Monthly Date to Monthly Date.
We calculate the cost of insurance charge separately for the initial Specified
Amount and for any increase in Specified Amount. If we approve an increase in
your Policy's Specified Amount, then a different premium class (and a different
cost of insurance charge) may apply to the increase, based on the Insured's
circumstances at the time of the increase.
<TABLE>
<S> <C>
COST OF The COST OF INSURANCE CHARGE is equal to:
INSURANCE CHARGE
> the monthly cost of insurance rate; MULTIPLIED BY
> the net amount at risk for your Policy on the Monthly Date.
The net amount at risk is equal to:
> the death benefit at the beginning of the month; DIVIDED BY
> 1.0024663 (1.0032737 for Policies issued in Florida) which is a
"risk rate divisor" (a factor that reduces the net amount at risk,
for purposes of computing the cost of insurance, by taking into
account assumed monthly earnings at an annual rate of 3.0%
(4.0% for Policies issued in Florida)); MINUS
> the Policy Value at the beginning of the month.
</TABLE>
We base the cost of insurance rates on the Insured's age, sex, premium class
and Specified Amount. The actual monthly cost of insurance rates are based on
our expectations as to future mortality experience. The rates will never be
greater than the guaranteed amount stated in your Policy. These guaranteed
rates are based on the 1980 Commissioner's Standard Ordinary (C.S.O.) Mortality
Tables and the Insured's age and premium class. For standard premium classes,
these guaranteed rates will never be greater than the rates in the 1980 C.S.O.
tables.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $10 monthly
administrative charge to compensate us for expenses such as record keeping,
processing death benefit claims and Policy changes, and overhead costs. This
charge will not exceed $10 per month.
CHARGES FOR RIDERS. The Monthly Deduction includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Supplemental Benefits
and Riders."
CHARGES FOR A SUBSTANDARD PREMIUM CLASS RATING. The Monthly Deduction includes
a charge we apply if our underwriting places the Insured in a substandard
premium class rating.
20
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from each Subaccount (not the Fixed Account) to
compensate us for certain mortality and expense risks we assume. The mortality
risk is that an Insured will live for a shorter time than we project. The
expense risk is that the expenses that we incur will exceed the administrative
charge limits we set in the Policy. This charge is equal to:
/bullet/ the assets in each Subaccount, MULTIPLIED BY
/bullet/ 0.00002047, which is the daily portion of the annual mortality
and expense risk charge rate of 0.75% during all Policy Years.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our
surplus. We expect to profit from this charge and may use such profits for any
lawful purpose including covering distribution expenses.
SURRENDER AND WITHDRAWAL CHARGES
SURRENDER CHARGE. If you fully surrender your Policy during the first 19 Policy
Years, we deduct a surrender charge from your Policy Value and pay the
remaining amount (less any outstanding Indebtedness) to you. The payment you
receive is called the Cash Surrender Value. The surrender charge varies based
on your age, sex, premium class, and initial Specified Amount. The highest
surrender charge on any Policy occurs in the first Policy Year or the first
year following an increase in the Specified Amount. An increase in the
Specified Amount will increase the surrender charge, but a decrease in the
Specified Amount will not result in a decrease in the surrender charge. The
maximum surrender charge for any Insured is $58 per $1,000 of Specified Amount.
The table below provides the maximum applicable surrender charges for the
initial Specified Amount for selected sample Insureds. Your Policy's
specifications page indicates the surrender charges applicable to your Policy.
A separate surrender charge that lasts for 19 years applies to each Specified
Amount increase. No surrender charges apply to withdrawals or Specified Amount
decreases.
SURRENDER CHARGE PER $1,000 OF SPECIFIED AMOUNT; INSURED AGE 35
<TABLE>
<CAPTION>
MALE FEMALE
PREFERRED AND MALE PREFERRED AND FEMALE
POLICY YEAR SUPER-PREFERRED TOBACCO SUPER-PREFERRED TOBACCO
- ------------- ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
1 $ 24.00 $ 28.00 $ 22.00 $ 24.00
2 $ 22.80 $ 26.60 $ 20.90 $ 22.80
3 $ 21.60 $ 25.20 $ 19.80 $ 21.60
4 $ 20.40 $ 23.80 $ 18.70 $ 20.40
5 $ 19.20 $ 22.40 $ 17.60 $ 19.20
6 $ 18.00 $ 21.00 $ 16.50 $ 18.00
7 $ 16.80 $ 19.60 $ 15.40 $ 16.80
8 $ 15.60 $ 18.20 $ 14.30 $ 15.60
9 $ 14.40 $ 16.80 $ 13.20 $ 14.40
10 $ 13.20 $ 15.40 $ 12.10 $ 13.20
11 $ 12.00 $ 14.00 $ 11.00 $ 12.00
12 $ 10.80 $ 12.60 $ 9.90 $ 10.80
13 $ 9.60 $ 11.20 $ 8.80 $ 9.60
14 $ 8.40 $ 9.80 $ 7.70 $ 8.40
15 $ 7.20 $ 8.40 $ 6.60 $ 7.20
16 $ 6.00 $ 7.00 $ 5.50 $ 6.00
17 $ 4.80 $ 5.60 $ 4.40 $ 4.80
18 $ 3.60 $ 4.20 $ 3.30 $ 3.60
19 $ 2.40 $ 2.80 $ 2.20 $ 2.40
20 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
21
<PAGE>
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CAREFULLY CALCULATE THIS
CHARGE BEFORE YOU REQUEST A SURRENDER. Under some circumstances the level of
surrender charges might result in no Cash Surrender Value available.
WITHDRAWAL CHARGE. After the first Policy Year, you may request a partial
withdrawal from your Policy Value. For each withdrawal, we will deduct from
your Policy Value a fee equal to the lesser of $25 or 2% of the amount
withdrawn.
TRANSFER CHARGE
/bullet/ We currently allow you to make 12 transfers each Policy Year free
of charge.
/bullet/ We charge $25 for the 13th and each additional transfer among the
Subaccounts and Fixed Account during a Policy Year. We will not
increase this charge.
/bullet/ For purposes of assessing the transfer charge, each written or
telephone request is considered to be one transfer, regardless of
the number of Subaccounts (or Fixed Account) affected by the
transfer.
/bullet/ We deduct the transfer charge from the amount being transferred.
/bullet/ Transfers we effect to reallocate amounts on the Investment Start
Date, and transfers due to dollar cost averaging, asset
rebalancing, or loans, do not count as transfers for the purpose
of assessing this charge.
PORTFOLIO EXPENSES
The value of the net assets of each Subaccount reflects the investment advisory
(management) fees and other expenses incurred by the corresponding portfolio in
which the Subaccount invests. For further information on the management fees,
see the portfolios' prospectuses and Annual Portfolio Operating Expenses table
included in the summary of this prospectus.
DEATH BENEFIT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds to
the primary beneficiary or a contingent beneficiary once we receive
satisfactory proof of the Insured's death. We may require you to return the
Policy. If the beneficiary dies before the Insured and there is no contingent
beneficiary, we will pay the death benefit proceeds to the Owner or the Owner's
estate. We will pay the death benefit proceeds in a lump sum or under a payment
option. See "Payment Options."
<TABLE>
<S> <C>
[] the death benefit (described below); PLUS
DEATH BENEFIT
PROCEEDS EQUAL: [] any additional insurance provided by rider; MINUS
[] any past due Monthly Deductions; MINUS
[] any outstanding Indebtedness on the date of death.
</TABLE>
If all or part of the death benefit proceeds are paid in one sum, we will pay
interest on this sum as required by applicable state law from the date we
receive due proof of the Insured's death to the date we make payment.
An increase in the Specified Amount will increase the death benefit and a
decrease in the Specified Amount will decrease the death benefit.
We may further adjust the amount of the death benefit proceeds under certain
circumstances. See "Our Right to Contest the Policy," and "Misstatement of Age
or Sex."
22
<PAGE>
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Increasing Option (varying death
benefit), and Level Option (level death benefit). We calculate the amount
available under each death benefit option as of the date of the Insured's
death. After the first Policy Year, you may change death benefit options once
each 12-month period.
<TABLE>
<S> <C>
The death benefit under [] the Specified Amount PLUS the Policy Value on the Insured's date of
the INCREASING OPTION death; OR
is the greater of: [] the Policy Value on the Insured's date of death multiplied by the
applicable death benefit ratio.
</TABLE>
Under the Increasing Option, the death benefit always varies as the Policy
Value varies.
<TABLE>
<S> <C>
The death benefit under [] the Specified Amount on the Insured's date of death; OR
the LEVEL OPTION is the [] the Policy Value on the Insured's date of death multiplied by the
greater of: applicable death benefit ratio.
</TABLE>
Under the Level Option, your death benefit does not change unless the death
benefit ratio multiplied by the Policy Value is greater than the Specified
Amount. Then the death benefit will vary as the Policy Value varies. The death
benefit will also vary if you change the Specified Amount or Death Benefit
Option.
The DEATH BENEFIT RATIO is a ratio set forth in the Federal tax code based on
the Insured's age at the beginning of each Policy Year. The following table
indicates the applicable death benefit ratio for different ages:
<TABLE>
<CAPTION>
AGE DEATH BENEFIT RATIO
- ---------------- -------------------------------------------
<S> <C>
40 and under 2.50
41 to 45 2.50 minus 0.07 for each age over age 40
46 to 50 2.15 minus 0.06 for each age over age 45
51 to 55 1.85 minus 0.07 for each age over age 50
56 to 60 1.50 minus 0.04 for each age over age 55
61 to 65 1.30 minus 0.02 for each age over age 60
66 to 70 1.20 minus 0.01 for each age over age 65
71 to 74 1.15 minus 0.02 for each age over age 70
75 to 90 1.05
91 to 94 1.05 minus 0.01 for each age over age 90
95 and above 1.00
</TABLE>
If the Federal tax code requires us to determine the death benefit by reference
to these death benefit ratios, the Policy is described as "in the corridor." An
increase in the Policy Value will increase our risk, and we will increase the
cost of insurance we deduct from the Policy Value.
CHANGING DEATH BENEFIT OPTIONS
After the first Policy Year, you may change death benefit options once each
12-month period. Changing the death benefit option may have tax consequences.
You should consult a tax advisor before changing death benefit options. Please
note the following when changing death benefit options:
[] You must make your request in writing.
[] The effective date of the change will be the Monthly Date on or
following the date when we approve your request for a change.
[] We will send you a Policy endorsement with the change to attach to your
Policy.
23
<PAGE>
If you change FROM INCREASING OPTION TO LEVEL OPTION:
(check mark) We may require that you provide satisfactory evidence of
insurability.
(check mark) The Specified Amount will change. The new Level Option Specified
Amount will equal the Increasing Option Specified Amount plus the
Policy Value on the effective date of the change.
(check mark) Your Minimum Monthly Premium may change.
If you change FROM LEVEL OPTION TO INCREASING OPTION:
> We may require that you provide satisfactory evidence of
insurability.
> The Specified Amount will change. The new Increasing Option
Specified Amount will equal the Level Option Specified Amount less
the Policy Value immediately before the change, but the new
Specified Amount may not be less than the minimum Specified Amount
shown on your Policy's specifications page.
> Your Minimum Monthly Premium may change.
EFFECTS OF WITHDRAWALS ON THE DEATH BENEFIT
If the Level Option is in effect, a withdrawal will reduce the Specified Amount
by the amount of the withdrawal (not including the withdrawal fee), and will
reduce the Policy Value by the amount of the withdrawal (including the
withdrawal fee). The reduction in Specified Amount will be subject to the terms
of the Changing the Specified Amount section below.
If the Increasing Option is in effect, a withdrawal will not affect the
Specified Amount.
CHANGING THE SPECIFIED AMOUNT
You select the Specified Amount when you apply for the Policy. After the first
Policy Year, you may change the Specified Amount once each 12-month period
subject to the conditions described below. We will not permit any change that
would result in your Policy being disqualified as a life insurance contract
under Section 7702 of the Internal Revenue Code. However, changing the
Specified Amount may have tax consequences and you should consult a tax advisor
before doing so.
INCREASING THE SPECIFIED AMOUNT
/bullet/ You may increase the Specified Amount by submitting a written
request and providing evidence of insurability satisfactory to
us. The increase will be effective on the next Monthly Date after
we approve the increase request.
/bullet/ The minimum increase is $10,000.
/bullet/ Increasing the Specified Amount will increase your Minimum
Monthly Premium and cause the No-Lapse Period to begin again.
/bullet/ Increasing the Specified Amount will result in an additional
surrender charge that lasts for 19 years.
/bullet/ A different cost of insurance charge may apply to the increase in
Specified Amount, based on the Insured's circumstances at the
time of the increase.
24
<PAGE>
DECREASING THE SPECIFIED AMOUNT
/bullet/ You must submit a written request to decrease the Specified
Amount, but you may not decrease the Specified Amount below the
minimum amount shown on your Policy specifications page.
/bullet/ Any decrease will be effective on the next Monthly Date after we
process your written request.
/bullet/ For purposes of determining the cost of insurance charge, any
decrease will first be used to reduce the most recent increase,
then the next most recent increases in succession, and then the
initial Specified Amount.
/bullet/ A decrease in Specified Amount may require that a portion of
Policy Value be distributed as a withdrawal in order to maintain
Federal tax compliance.
/bullet/ Decreasing the Specified Amount will not affect the Minimum
Monthly Premium or the surrender charges.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. None of these
options vary with the investment performance of a Separate Account. More
detailed information concerning these settlement options is available on
request to our Home Office.
SURRENDERS AND PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SURRENDERS
/bullet/ You may make a written request to surrender your Policy for its
Cash Surrender Value as calculated at the end of the Valuation
Date when we receive your request. A surrender may have tax
consequences. See "Tax Treatment of Policy Benefits."
/bullet/ The Insured must be alive and the Policy must be in force when
you make your written request. A surrender is effective as of the
date when we receive your written request. We may require that
you return the Policy.
/bullet/ If you surrender your Policy during the first 19 Policy Years (or
during the first 19 years after an increase in the Specified
Amount), you will incur a surrender charge that varies based on
the Insured's age, sex, premium class and Specified Amount. See
"Charges and Deductions -- Surrender and Withdrawal Charges."
/bullet/ Once you surrender your Policy, all coverage and other benefits
under it cease and cannot be reinstated.
/bullet/ We will pay you the Cash Surrender Value in a lump sum within
seven days unless you request other arrangements.
25
<PAGE>
WITHDRAWALS
After the 1st Policy Year, you may request to withdraw a portion of your Policy
Value subject to certain conditions.
> You may make only one withdrawal per Policy Year.
> You must: (1) make your request in writing, and (2) request at least
$500.
> If you request a withdrawal that would leave a Cash Surrender Value
of less than $500, then we will treat it as a request to surrender
your Policy.
> For each withdrawal, we deduct (from the remaining Policy Value) a
fee equal to the lesser of $25 or 2% of the amount withdrawn. See
"Charges and Deductions -- Surrender and Withdrawal Charges."
> You can specify the Subaccount(s) and Fixed Account from which to
make the withdrawal; otherwise we will deduct the amount (including
any fee) from the Subaccounts and the Fixed Account on a pro-rata
basis (that is, according to the percentage of Policy Value contained
in each Subaccount and the Fixed Account).
> We will process the withdrawal at the unit values next determined
after we receive your request.
> We generally will pay a withdrawal request within seven days after
the Valuation Date when we receive the request.
> Withdrawals may have tax consequences. See "Tax Treatment of Policy
Benefits."
TRANSFERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may make transfers from the Subaccounts or from the Fixed Account. We
determine the amount you have available for transfers at the end of the
Valuation Period when we receive your transfer request. The following features
apply to transfers under the Policy:
(diamond) You may make an unlimited number of transfers in a Policy Year.
(diamond) You may request transfers in writing (in a form we accept), or by
telephone.
(diamond) You must transfer at least $100, or, if less, the total value in the
Subaccount or Fixed Account.
(diamond) We deduct a $25 charge from the amount transferred for the 13th and
each additional transfer in a Policy Year. Transfers we effect from
the Premium Suspense Account, and transfers resulting from loans,
dollar cost averaging, asset rebalancing, and the exchange privilege
are NOT treated as transfers for purposes of the transfer charge.
(diamond) We consider each written or telephone request to be a single transfer,
regardless of the number of Subaccounts (or Fixed Account) involved.
We will treat all transfer requests received on the same day as a
single request.
(diamond) We process transfers based on unit values determined at the end of the
Valuation Date when we receive your transfer request.
Your Policy, as applied for and issued, will automatically receive telephone
transfer privileges unless you provide other instructions. The telephone
transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the Subaccounts and the
Fixed Account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-625-4213.
26
<PAGE>
Please note the following regarding telephone transfers:
> We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to be
authentic. You bear the risk of any such loss.
> We will employ reasonable procedures to confirm that telephone
instructions are genuine.
> Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions, providing
written confirmation of transactions to you, and/or tape recording
telephone instructions received from you.
> If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
The corresponding portfolio of any Subaccount determines its net asset value
per share once daily, as of the close of the regular business session of the
New York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern time), which
coincides with the end of each Valuation Period. Therefore, we will process any
transfer request we receive after the close of the regular business session of
the NYSE, using the net asset value for each share of the applicable portfolio
determined as of the close of the next regular business session of the NYSE.
EXCHANGE PRIVILEGE
At any one time, you may exercise the Exchange Privilege under your Policy
which results in the transfer of the entire amount in the Separate Account to
the Fixed Account, and the allocation of all future net premiums to the Fixed
Account. This serves as an exchange of the Policy for the equivalent of a
flexible premium fixed benefit life insurance policy. We will not assess any
transfer or other charges in connection with the Exchange Privilege.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program. Dollar cost
averaging is an investment strategy designed to reduce the investment risks
associated with market fluctuations. The strategy spreads the allocation of
your premium into the Subaccounts or Fixed Account over a period of time. This
allows you to potentially reduce the risk of investing most of your premium
into the Subaccounts at a time when prices are high. We do not assure the
success of this strategy and the success depends on market trends. You should
carefully consider your financial ability to continue the program over a long
enough period of time to purchase units when their value is low as well as when
it is high.
To participate in dollar cost averaging, you must place at least $5,000 in a
"source account" (either the Fixed Account, AIM V.I. Government Securities Fund
Subaccount, Oppenheimer Bond Fund/VA Subaccount, or the Fidelity VIP Money
Market Portfolio Subaccount). There can be only one source account. Each month,
we will automatically transfer equal amounts (minimum $100) from the source
account to your designated "target accounts." You may have multiple target
accounts.
There is no charge for dollar cost averaging. A transfer under this program is
not considered a transfer for purposes of assessing the transfer fee.
<TABLE>
<S> <C>
DOLLAR COST AVERAGING > we receive your written request to cancel your participation;
WILL END IF: > the value in the source account is exhausted;
> you elect to participate in the asset rebalancing program.
</TABLE>
We may modify, suspend, or discontinue the dollar cost averaging program at any
time.
27
<PAGE>
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which we will automatically
transfer amounts semi-annually to maintain a particular percentage allocation
among the Subaccounts. Policy Value allocated to each Subaccount will grow or
decline in value at different rates. The asset rebalancing program
automatically reallocates the Policy Value in the Subaccounts at the end of
each semi-annual period to match your Policy's currently effective premium
allocation schedule. The asset rebalancing program will transfer Policy Value
from those Subaccounts that have increased in value to those Subaccounts that
have declined in value (or not increased as much). Over time, this method of
investing may help you buy low and sell high. The asset rebalancing program
does not guarantee gains, nor does it assure that any Subaccount will not have
losses. Policy Value in the Fixed Account is not available for this program.
<TABLE>
<S> <C>
TO PARTICIPATE IN THE > you must complete an asset rebalancing request form and submit it
ASSET REBALANCING to us before the Maturity Date
PROGRAM: > you must have a minimum Policy Value of $5,000.
</TABLE>
If you elect asset rebalancing, it will occur on each semi-annual anniversary
of the Policy Date. You may modify your allocations up to 4 times in a Policy
Year. Once we receive the asset rebalancing request form, we will effect the
initial rebalancing semi-annually, in accordance with the Policy's current
premium allocation schedule. We will credit the amounts transferred at the unit
value next determined on the dates the transfers are made. If a day on which
rebalancing would ordinarily occur falls on a day on which the NYSE is closed,
rebalancing will occur on the next day the NYSE is open. There is no charge for
the asset rebalancing program. Any reallocation which occurs under the asset
rebalancing program will NOT be counted towards the 12 free transfers allowed
during each Policy Year. You can begin or end this program only once each
Policy Year.
<TABLE>
<S> <C>
ASSET REBALANCING > you elect to participate in the dollar cost averaging program;
WILL END IF: > we receive your request to discontinue participation; or
> you make a transfer to or from any Subaccount other than under a
scheduled rebalancing (not including transfers in connection with
loans).
</TABLE>
We may modify, suspend, or discontinue the asset rebalancing program at any
time.
LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While the Policy is in force, you may borrow money from us using the Policy as
the only collateral for the loan. A loan that is taken from, or secured by, a
Policy may have tax consequences.
LOAN CONDITIONS:
/bullet/ The MINIMUM LOAN you may take is $250.
/bullet/ The MAXIMUM LOAN you may take is 90% (100% in certain states) of
the Cash Surrender Value, minus 6 months of Monthly Deductions.
/bullet/ To secure the loan, we transfer an amount equal to the loan (plus
loan interest in advance) from the Separate Account and Fixed
Account to the loan reserve, which is a part of the Fixed
Account. Unless you specify otherwise, we will transfer the loan
from the Subaccounts and the Fixed Account on a pro-rata basis.
/bullet/ Amounts in the loan reserve earn interest at an annual rate
guaranteed not to be lower than 3.0% (4.0% for Policies issued in
Florida). We may credit the loan reserve with an interest rate
different than the rate credited to net premiums allocated to the
Fixed Account.
/bullet/ We normally pay the amount of the loan within seven days after we
receive a proper loan request. We may postpone payment of loans
under certain conditions. See "Payments We Make."
28
<PAGE>
/bullet/ We charge you a maximum interest rate of 5.66% per year on your
loan. Interest is due and payable at the beginning of each Policy
Year. Unpaid interest becomes part of the outstanding loan and
accrues interest if it is not paid before the beginning of the
next Policy Year.
/bullet/ After the 10th Policy Year, we consider certain portions of the
loan amount to be preferred loans. The maximum preferred loan
available in each Policy Year is 25% of the Policy Value (subject
to the maximum loan amount). We charge a maximum annual interest
rate of 3.85% in advance on preferred loan amounts.
/bullet/ We cannot change the interest rate on a loan once you take the
loan.
/bullet/ You may repay all or part of your Indebtedness at any time. Loan
repayments must be at least $25, and must be clearly marked as
"loan repayments" or they will be credited as premiums if they
meet minimum premium requirements.
/bullet/ Upon each loan repayment, we will transfer an amount equal to the
loan repayment from the loan reserve to the Fixed and/or Separate
Account according to your current premium allocation schedule.
/bullet/ We deduct any Indebtedness from the Policy Value upon surrender,
and from the death benefit proceeds payable on the Insured's
death.
/bullet/ If your Indebtedness equals or exceeds the Policy Value less any
applicable surrender charge (thereby reducing the Cash Surrender
Value to zero), then your Policy will enter a grace period. See
"Policy Lapse and Reinstatement."
EFFECT OF POLICY LOANS
A loan affects the Policy, because the death benefit proceeds and Cash
Surrender Value include reductions for the amount of any Indebtedness. Repaying
a loan causes the death benefit and Cash Surrender Value to increase by the
amount of the repayment. As long as a loan is outstanding, we hold an amount
equal to the loan in the loan reserve. This amount is not affected by the
Subaccounts' investment performance and may not be credited with the interest
rates accruing on the Fixed Account. Amounts transferred from the Separate
Account to the loan reserve will affect the Policy Value, even if the loan is
repaid, because we credit such amounts with an interest rate we declare rather
than a rate of return reflecting the investment results of the Separate
Account.
There are risks involved in taking a loan, including the potential for a Policy
to lapse if projected earnings, taking into account outstanding loans, are not
achieved. If the Policy is a "modified endowment contract" (see "Federal Tax
Considerations"), then a loan will be treated as a withdrawal for Federal
income tax purposes. A loan may also have possible adverse tax consequences
that could occur if a Policy lapses with loans outstanding.
We will notify you (and any assignee of record) if the sum of your Indebtedness
is more than the Policy Value less any applicable surrender charge. If you do
not submit a sufficient payment within 61 days from the date of the notice,
your Policy may lapse. See "Policy Lapse and Reinstatement."
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<PAGE>
POLICY LAPSE AND REINSTATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAPSE
Under certain conditions, your Policy may enter a 61-day grace period, and
possibly lapse (terminate without value):
/bullet/ If your Policy is in the No-Lapse Period you have selected, then
the Policy will enter a grace period only if on a Monthly Date
the Cash Surrender Value is not enough to pay the next Monthly
Deduction due, AND the sum of premiums paid minus withdrawals and
Indebtedness is less than the Cumulative Minimum Monthly Premium.
/bullet/ If your Policy is not in the No-Lapse Period you have selected,
then your Policy will enter a grace period if the Cash Surrender
Value on any Monthly Date is not enough to pay the next Monthly
Deduction due.
If you have taken a loan, then your Policy also will enter a grace period (and
possibly lapse) whenever your Indebtedness reduces the Cash Surrender Value to
zero.
If your Policy enters into a grace period, we will mail a notice to your last
known address and to any assignee of record. The 61-day grace period begins on
the date of the notice. The notice will specify the minimum payment required
and the final date by which we must receive the payment to keep the Policy from
lapsing. If we do not receive the specified minimum payment by the end of the
grace period, all coverage under the Policy will terminate and you will receive
no benefits.
REINSTATEMENT
Unless you have surrendered your Policy for its Cash Surrender Value, you may
reinstate a lapsed Policy at any time within 5 years after the end of the grace
period (and prior to the Maturity Date) by submitting all of the following
items to us at our Home Office:
1. a Written Notice requesting reinstatement;
2. the Insured's written consent to reinstatement;
3. evidence of insurability we deem satisfactory;
4. payment or reinstatement of any Indebtedness; and
5. payment of enough premium to keep the Policy in force for at least 3
months.
The effective date of reinstatement will be the first Monthly Date on or next
following the date we approve your application for reinstatement. We reserve
the right to decline a reinstatement request.
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<PAGE>
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please consult
counsel or other qualified tax advisors for more complete information. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
TAX STATUS OF THE POLICY. A Policy must satisfy certain requirements set forth
in the Internal Revenue Code ("Code") in order to qualify as a life insurance
contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts. The manner in which these
requirements are to be applied to certain innovative features of the Policy are
not directly addressed by the Code, and/or there is limited guidance as to how
these requirements are to be applied. Nevertheless, we believe that a Policy
should generally satisfy the applicable Code requirements. Because of the
absence of pertinent interpretations of the Code requirements, there is,
however, some uncertainty about the application of such requirements to the
Policy. There is more uncertainty with respect to Policies issued on a
substandard premium class basis and Policies with a Level One-Year Term
Insurance Rider attached. If it is subsequently determined that a Policy does
not satisfy the applicable requirements, we may take appropriate steps to bring
the Policy into compliance with such requirements and we reserve the right to
restrict Policy transactions in order to do so.
In certain circumstances, Owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the Owners of the assets of
the Separate Account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract Owners have been currently taxed on income and gains attributable to
the Separate Account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility to allocate premiums and
Policy Values, have not been explicitly addressed in published rulings. While
we believe that the Policy does not give you investment control over Separate
Account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the Owner of the Separate Account assets
supporting the Policy.
In addition, the Code requires that the investments of the Separate Account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the Separate Account,
through the Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of Ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. You should
consult a tax advisor on these consequences.
Generally, you will not be deemed to be in constructive receipt of the Policy
Value until there is a distribution. In addition, if you elect the Terminal
Illness Accelerated Death Benefit, the tax consequences associated with
continuing the Policy after a distribution is made are unclear. Please consult
a tax advisor on these consequences. When distributions from a Policy occur, or
when loans are taken out from or secured by a Policy (e.g., by assignment),
then the tax consequences depend on whether the Policy is classified as a
"Modified Endowment Contract." Moreover, if a loan from a Policy that is not a
MEC is outstanding when the Policy is canceled or lapses, the amount of the
outstanding indebtedness will be added to the amount distributed and will be
taxed accordingly.
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<PAGE>
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts
are classified as "Modified Endowment Contracts" ("MECs") and receive less
favorable tax treatment than other life insurance contracts. The rules are too
complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven contract years. Certain changes in a contract after
it is issued could also cause it to be classified as a MEC. Due to the Policy's
flexibility, each Policy's circumstances will determine whether the Policy is
classified as a MEC. If you do not want your Policy to be classified as a MEC,
you should consult a tax advisor to determine the circumstances, if any, under
which your Policy would or would not be classified as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs
are subject to the following tax rules:
/bullet/ All distributions other than death benefits from a MEC, including
distributions upon surrender and withdrawals, will be treated as
ordinary income subject to tax up to an amount equal to the
excess (if any) of the unloaned Policy Value immediately before
the distribution plus prior distributions over the Owner's total
investment in the Policy at that time. They will be treated as
tax-free recovery of the Owner's investment in the Policy only
after all such excess has been distributed. "Total investment in
the Policy" means the aggregate amount of any premiums or other
considerations paid for a Policy, plus any previously taxed
distributions.
/bullet/ Loans taken from such a Policy (or secured by such a Policy,
e.g., by assignment) are treated as distributions and taxed
accordingly.
/bullet/ A 10% additional income tax penalty is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 591/2 or are disabled, or where the
distribution is part of a series of substantially equal periodic
payments for your life (or life expectancy) or the joint lives
(or joint life expectancies) of you and the beneficiary.
/bullet/ If a contract becomes a MEC, distributions that occur during the
contract year will be taxed as distributions from a MEC. In
addition, distributions from a contract within two years before
it becomes a MEC will be taxed in this manner. This means that a
distribution from a contract that is not a MEC at the time when
the distribution is made could later become taxable as a
distribution from a MEC.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment in the Policy, and as taxable income after the
recovery of all investment in the Policy. However, certain distributions which
must be made in order to enable the Policy to continue to qualify as a life
insurance contract for Federal income tax purposes if Policy benefits are
reduced during the first 15 Policy Years may be treated in whole or in part as
ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not treated
as distributions. However, there is some uncertainty as to the tax treatment of
a Preferred Loan under a Policy that is not a MEC and you should consult a tax
advisor on this point.
Finally, neither distributions from nor loans from (or secured by) a Policy
that is not a MEC are subject to the 10% additional tax.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a loan
from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
MULTIPLE POLICIES. All MECs that we issue (or that our affiliates issue) to the
same Owner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the Owner's income when a taxable
distribution occurs.
32
<PAGE>
BUSINESS USES OF THE POLICY. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans
and others. The tax consequences of such plans and business uses of the Policy
may vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. Therefore, if you are
contemplating using the Policy in any arrangement the value of which depends in
part on its tax consequences, you should be sure to consult a tax advisor as to
tax attributes of the arrangement.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the
Policy could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
POSSIBLE CHARGES FOR OUR TAXES. At the present time, we make no charge for any
Federal, state or local taxes (other than the charge for state premium taxes)
that may be attributable to the subaccounts or to the Policy. We reserve the
right to impose charges for any future taxes or economic burden we may incur.
33
<PAGE>
OTHER POLICY INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for you and/or the
Insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
In the absence of fraud or non-payment of a Monthly Deduction, we cannot bring
any legal action to contest the validity of the Policy after the Policy has
been in force during the Insured's lifetime for two years after:
(a) the Policy Date;
(b) the effective date of any increase in the Specified Amount (and
then only for the increased amount); or
(c) the effective date of any reinstatement.
SUICIDE EXCLUSION
If the Insured commits suicide, while sane or insane, within two years of the
Policy Date, the Policy will terminate and our liability is limited to an
amount equal to the premiums paid, less any Indebtedness, and less any
withdrawals previously paid.
If the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in the Specified Amount, the Policy will
terminate and our liability for the amount of increase will be limited to the
cost of insurance for the increase.
Certain states may require suicide exclusion provisions that differ from those
stated here.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was stated incorrectly in the application, we will
adjust the death benefit proceeds to the amount that would have been payable at
the correct age and sex based on the most recent deduction for cost of
insurance.
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under this Policy must
be in writing and signed by our president, a vice president, our secretary, or
one of our officers. No agent may bind us by making any promise not contained
in this Policy.
Upon notice to you, we may modify the Policy:
> to conform the Policy, our operations, or the Separate Account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our Company or the Separate
Account is subject; or
> to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
> to reflect a change in the Separate Account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy.
If any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
such laws.
34
<PAGE>
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, withdrawal, death benefit, or
settlement options within seven business days after we receive all applicable
Written Notices and/or due proofs of death. However, we can postpone such
payments if:
[] the NYSE is closed, other than customary weekend and holiday closing, or
trading on the NYSE is restricted as determined by the Securities and
Exchange Commission (SEC); OR
[] the SEC permits, by an order or less formal interpretation (e.g.,
no-action letter), the postponement of any payment for the protection
of Owners; OR
[] the SEC determines that an emergency exists that would make the disposal
of securities held in the Separate Account or the determination of
their value is not reasonably practicable.
We have the right to defer payment of amounts from the Fixed Account for up to
6 months.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, withdrawals, death benefit proceeds, or payments under a
payment option until such check or draft has been honored.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
Owners at their last known address a report showing the following information
as of the end of the report period:
(check mark) the current Policy Value
(check mark) the current Cash Surrender Value
(check mark) the current death benefit
(check mark) any activity since the last report (e.g., premiums paid,
withdrawals, deductions, loans or loan repayments, and other
transactions)
(check mark) any other information required by law
RECORDS
We will maintain all records relating to the Separate Account and the Fixed
Account at our Home Office.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
(diamond) the Maturity Date;
(diamond) the end of the grace period without a sufficient payment;
(diamond) the date the Insured dies; or
(diamond) the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
The following supplemental benefits and riders are available under the Policy.
We deduct any monthly charges for these benefits and riders from Policy Value
as part of the Monthly Deduction. The benefits and riders available (which are
summarized below) provide fixed benefits that do not vary with the investment
experience of the Separate Account. For each Policy, we automatically provide
the supplemental benefits listed below. You may elect to add one or more of the
riders listed below at any time, subject to certain limitations. We may require
underwriting for certain riders. Your agent can help you determine whether
certain of the riders are suitable for you. Please contact us for further
details on these supplemental benefits and riders.
SUPPLEMENTAL BENEFITS
EXTENDED MATURITY DATE: Extends the Maturity Date past the original
Maturity Date. You must make a written request for this benefit (and we
must receive it) within 30 days prior to the original Maturity
35
<PAGE>
Date. The tax consequences of keeping the Policy in force beyond the
Insured's 100th birthday are uncertain and you should consult a tax
advisor before doing so.
TERMINAL ILLNESS ACCELERATED BENEFIT: You may elect to receive a portion
of the death benefit proceeds in a "single sum benefit" if the Insured has
incurred a terminal condition while the Policy is in force. Payment of any
amounts under this benefit will result in reductions in your Policy Value,
Specified Amount, and certain Policy benefits. The tax consequences of
electing to receive a terminal illness accelerated benefit are uncertain
and you should consult a tax advisor before making this election.
RIDERS
(diamond) WAIVER OF PREMIUM BENEFIT: Waives the initial planned premium if the
Insured becomes totally and permanently disabled for at least six
consecutive months prior to the Policy anniversary following the
Insured's 60th birthday.
(diamond) WAIVER OF MONTHLY DEDUCTION: Waives the Monthly Deduction if the
Insured becomes totally and permanently disabled for at least six
consecutive months prior to the Policy anniversary following the
Insured's 60th birthday.
(diamond) LEVEL ONE-YEAR TERM INSURANCE: Provides one-year renewable term
insurance on the Insured.
(diamond) ADDITIONAL INSURED'S LEVEL ONE-YEAR TERM INSURANCE: Provides one-year
renewable term insurance on an additional Insured.
(diamond) ACCIDENTAL DEATH BENEFIT: Provides for payment of an additional
benefit if the Insured dies due to and within 90 days of an accidental
injury that occurred on or before the Policy anniversary when the
Insured is age 65.
(diamond) GUARANTEED INSURABILITY BENEFIT: Provides options to purchase
additional insurance without evidence of insurability.
(diamond) INCOME REPLACEMENT BENEFIT: Provides a monthly benefit to the
beneficiary for a period of 20 years upon the Insured's death. In
addition, a lump sum benefit of 100 times the monthly benefit is paid
20 years after the Insured's death.
(diamond) CHILDREN'S BENEFIT: Provides level term insurance on each of the
Insured's dependent children, until their 25th birthday.
PERFORMANCE DATA
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- --------------------------------------------------------------------------------
In order to demonstrate how the actual investment experience of the portfolios
could have affected the death benefit, Policy Value and Cash Surrender Value of
the Policy, we may provide hypothetical illustrations using the actual
investment experience of each portfolio since its inception. THESE HYPOTHETICAL
ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF
THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND ARE NOT
INDICATIVE OF FUTURE PERFORMANCE.
The values we illustrate for death benefit, Policy Value and Cash Surrender
Value take into account all applicable charges and deductions from the Policy
(current and guaranteed), the Separate Account and the portfolios. We have not
deducted premium taxes or charges for any riders. These charges would lower the
performance figures significantly if reflected.
36
<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Growth Portfolio would have affected benefits for a Policy dated January 1,
1994. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
JANUS ASPEN GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 655 $ 653 $ 0 $ 0
1996* ............................ $ 1,706 $1,702 $ 0 $ 0
1997* ............................ $ 2,747 $2,739 $ 227 $ 219
1998* ............................ $ 4,095 $4,085 $1,715 $1,705
1999* ............................ $ 6,338 $6,322 $4,098 $4,082
2000* ............................ $10,090 $9,894 $7,990 $7,794
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Janus Aspen
Worldwide Growth Portfolio would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 645 $ 643 $ 0 $ 0
1996* ............................ $ 1,653 $ 1,648 $ 0 $ 0
1997* ............................ $ 2,943 $ 2,935 $ 423 $ 415
1998* ............................ $ 4,312 $ 4,302 $1,932 $1,922
1999* ............................ $ 6,289 $ 6,274 $4,049 $4,034
2000* ............................ $11,474 $11,261 $9,374 $9,161
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
37
<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Balanced Portfolio would have affected benefits for a Policy dated January 1,
1994. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
JANUS ASPEN BALANCED PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 640 $ 638 $ 0 $ 0
1996* ............................ $1,608 $1,603 $ 0 $ 0
1997* ............................ $2,577 $2,569 $ 57 $ 49
1998* ............................ $3,865 $3,856 $1,485 $1,476
1999* ............................ $5,963 $5,948 $3,723 $3,708
2000* ............................ $8,387 $8,205 $6,287 $6,105
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Janus Aspen
Capital Appreciation Portfolio would have affected benefits for a Policy dated
January 1, 1998. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1999 ............................. $1,113 $1,110 $ 0 $ 0
2000* ............................ $3,011 $3,004 $351 $344
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
38
<PAGE>
The following example shows how the hypothetical net return of the Janus Aspen
Aggressive Growth Portfolio would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 .............................. $ 766 $ 764 $ 0 $ 0
1996* ............................. $ 1,808 $ 1,803 $ 0 $ 0
1997* ............................. $ 2,594 $ 2,587 $ 74 $ 67
1998* ............................. $ 3,568 $ 3,560 $ 1,188 $ 1,180
1999* ............................. $ 5,565 $ 5,551 $ 3,325 $ 3,311
2000* ............................. $14,184 $13,927 $12,084 $11,827
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the AIM V.I.
Value Fund would have affected benefits for a Policy dated January 1, 1994.
This example assumes that the Net Premiums and related Policy Values were in
the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
AIM V.I. VALUE FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 666 $ 664 $ 0 $ 0
1996* ............................ $1,810 $1,805 $ 0 $ 0
1997* ............................ $2,780 $2,772 $ 260 $ 252
1998* ............................ $4,169 $4,159 $1,789 $1,779
1999* ............................ $6,277 $6,262 $4,037 $4,022
2000* ............................ $9,006 $8,821 $6,906 $6,721
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
39
<PAGE>
The following example shows how the hypothetical net return of the AIM V.I.
Capital Appreciation Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. CAPITAL APPRECIATION FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 653 $ 651 $ 0 $ 0
1996* ............................ $1,785 $1,780 $ 0 $ 0
1997* ............................ $2,817 $2,809 $ 297 $ 289
1998* ............................ $3,849 $3,840 $1,469 $1,460
1999* ............................ $5,251 $5,238 $3,011 $2,998
2000* ............................ $8,572 $8,375 $6,472 $6,275
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the AIM V.I.
Growth Fund would have affected benefits for a Policy dated January 1, 1994.
This example assumes that the Net Premiums and related Policy Values were in
the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
AIM V.I. GROWTH FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 613 $ 611 $ 0 $ 0
1996* ............................ $1,717 $1,712 $ 0 $ 0
1997* ............................ $2,751 $2,743 $ 231 $ 223
1998* ............................ $4,245 $4,235 $1,865 $1,855
1999* ............................ $6,463 $6,447 $4,223 $4,207
2000* ............................ $9,634 $9,444 $7,534 $7,344
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
40
<PAGE>
The following example shows how the hypothetical net return of the AIM V.I.
International Equity Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. INTERNATIONAL EQUITY FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 620 $ 618 $ 0 $ 0
1996* ............................ $1,476 $1,471 $ 0 $ 0
1997* ............................ $2,511 $2,504 $ 0 $ 0
1998* ............................ $3,287 $3,279 $ 907 $ 899
1999* ............................ $4,430 $4,418 $2,190 $2,178
2000* ............................ $7,937 $7,733 $5,837 $5,633
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the AIM V.I.
Government Securities Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. GOVERNMENT SECURITIES FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 603 $ 601 $ 0 $ 0
1996* ............................ $1,432 $1,427 $ 0 $ 0
1997* ............................ $2,065 $2,058 $ 0 $ 0
1998* ............................ $2,846 $2,839 $ 466 $ 459
1999* ............................ $3,643 $3,633 $1,403 $1,393
2000* ............................ $4,212 $4,054 $2,112 $1,954
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
41
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
Main Street Growth & Income Fund/VA would have affected benefits for a Policy
dated January 1, 1996. This example assumes that the Net Premiums and related
Policy Values were in the Sub-account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1997 ............................. $ 899 $ 897 $ 0 $ 0
1998* ............................ $2,062 $2,057 $ 0 $ 0
1999* ............................ $2,776 $2,768 $ 256 $ 248
2000* ............................ $4,093 $4,083 $1,713 $1,703
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Oppenheimer
Multiple Strategies Fund/VA would have affected benefits for a Policy dated
January 1, 1990. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER MULTIPLE STRATEGIES FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1991 .............................. $ 617 $ 615 $ 0 $ 0
1992* ............................. $ 1,476 $ 1,472 $ 0 $ 0
1993* ............................. $ 2,261 $ 2,254 $ 0 $ 0
1994* ............................. $ 3,294 $ 3,286 $ 914 $ 906
1995* ............................. $ 3,733 $ 3,723 $ 1,493 $1,483
1996* ............................. $ 5,329 $ 5,153 $ 3,229 $3,053
1997* ............................. $ 6,869 $ 6,497 $ 4,909 $4,537
1998* ............................. $ 8,739 $ 8,125 $ 6,919 $6,305
1999* ............................. $ 9,881 $ 9,053 $ 8,201 $7,373
2000* ............................. $11,605 $10,490 $10,065 $8,950
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
42
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
Bond Fund/VA would have affected benefits for a Policy dated January 1, 1990.
This example assumes that the Net Premiums and related Policy Values were in
the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1991 ............................. $ 697 $ 695 $ 0 $ 0
1992* ............................ $1,572 $1,567 $ 0 $ 0
1993* ............................ $2,307 $2,300 $ 0 $ 0
1994* ............................ $3,257 $3,249 $ 877 $ 869
1995* ............................ $3,696 $3,687 $1,456 $1,447
1996* ............................ $5,089 $4,916 $2,989 $2,816
1997* ............................ $5,965 $5,623 $4,005 $3,663
1998* ............................ $7,147 $6,600 $5,327 $4,780
1999* ............................ $8,201 $7,441 $6,521 $5,761
2000* ............................ $8,545 $7,615 $7,005 $6,075
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Oppenheimer
Strategic Bond Fund/VA would have affected benefits for a Policy dated January
1, 1994. This example assumes that the Net Premiums and related Policy Values
were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER STRATEGIC BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1995 ............................. $ 602 $ 600 $ 0 $ 0
1996* ............................ $1,428 $1,424 $ 0 $ 0
1997* ............................ $2,278 $2,271 $ 0 $ 0
1998* ............................ $3,092 $3,085 $ 712 $ 705
1999* ............................ $3,721 $3,712 $1,481 $1,472
2000* ............................ $4,476 $4,315 $2,376 $2,215
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
43
<PAGE>
The following example shows how the hypothetical net return of the Oppenheimer
High Income Fund/VA would have affected benefits for a Policy dated January 1,
1990. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER HIGH INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1991 ............................. $ 671 $ 669 $ 0 $ 0
1992* ............................ $ 1,782 $ 1,777 $ 0 $ 0
1993* ............................ $ 2,823 $ 2,815 $ 303 $ 295
1994* ............................ $ 4,316 $ 4,306 $1,936 $1,926
1995* ............................ $ 4,669 $ 4,657 $2,429 $2,417
1996* ............................ $ 6,405 $ 6,229 $4,305 $4,129
1997* ............................ $ 8,089 $ 7,719 $6,129 $5,759
1998* ............................ $ 9,720 $ 9,134 $7,900 $7,314
1999* ............................ $10,260 $ 9,506 $8,580 $7,826
2000* ............................ $11,203 $10,234 $9,663 $8,694
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Fidelity VIP
II Index 500 Portfolio would have affected benefits for a Policy dated January
1, 1993. This example assumes that the Net Premiums and related Policy Values
were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
FIDELITY VIP II INDEX 500 PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1994 ............................. $ 712 $ 710 $ 0 $ 0
1995* ............................ $ 1,338 $ 1,334 $ 0 $ 0
1996* ............................ $ 2,713 $ 2,705 $ 193 $ 185
1997* ............................ $ 4,051 $ 4,042 $1,671 $1,662
1998* ............................ $ 6,143 $ 6,127 $3,903 $3,887
1999* ............................ $ 8,722 $ 8,538 $6,622 $6,438
2000* ............................ $11,247 $10,859 $9,287 $8,899
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
44
<PAGE>
The following example shows how the hypothetical net return of the Fidelity VIP
Money Market Portfolio would have affected benefits for a Policy dated January
1, 1990. This example assumes that the Net Premiums and related Policy Values
were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
FIDELITY VIP MONEY MARKET PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1991 ............................. $ 698 $ 696 $ 0 $ 0
1992* ............................ $1,399 $1,395 $ 0 $ 0
1993* ............................ $2,067 $2,061 $ 0 $ 0
1994* ............................ $2,709 $2,702 $ 329 $ 322
1995* ............................ $3,375 $3,366 $1,135 $1,126
1996* ............................ $4,249 $4,086 $2,149 $1,986
1997* ............................ $5,119 $4,784 $3,159 $2,824
1998* ............................ $6,006 $5,481 $4,186 $3,661
1999* ............................ $6,897 $6,166 $5,217 $4,486
2000* ............................ $7,775 $6,816 $6,235 $5,276
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Fidelity VIP
Growth Portfolio would have affected benefits for a Policy dated January 1,
1998. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
FIDELITY VIP GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1999 ............................. $ 956 $ 954 $0 $0
2000* ............................ $2,223 $2,217 $0 $0
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
45
<PAGE>
The following example shows how the hypothetical net return of the Fidelity VIP
II Contrafund Portfolio would have affected benefits for a Policy dated January
1, 1998. This example assumes that the Net Premiums and related Policy Values
were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
FIDELITY VIP II CONTRAFUND PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1999 ............................. $ 878 $ 876 $0 $0
2000* ............................ $1,894 $1,889 $0 $0
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Fidelity VIP
III Growth & Income Portfolio would have affected benefits for a Policy dated
January 1, 1998. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
FIDELITY VIP III GROWTH & INCOME PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
<TABLE>
<CAPTION>
POLICY VALUE CASH SURRENDER VALUE
------------------------ ----------------------
POLICY ANNIVERSARY ON JANUARY 1 OF CURRENT GUARANTEED CURRENT GURANTEED
- ------------------------------------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C>
1999 ............................. $ 873 $ 870 $0 $0
2000* ............................ $1,633 $1,629 $0 $0
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
46
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life insurance
agents and who are also registered representatives of broker-dealers having
written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4425
North River Blvd., NE, Cedar Rapids, IA 52402, is registered with the SEC under
the Securities Exchange Act of 1934 as a broker-dealer, and is a member of the
National Association of Securities Dealers, Inc. The maximum sales commission
payable to our agents or other registered representatives may vary with the
sales agreement, but it is not expected to be greater than: 90% of all premiums
paid during the first Policy Year, and 2.50% of all premiums paid during Policy
Years 2 through 10. We will pay an additional sales commission of up to 0.25%
of the unloaned Policy Value on the sixth Policy anniversary and each
anniversary thereafter where the Policy Value (minus amounts attributable to
loans) equals at least $5,000. In addition, certain production, persistency and
managerial bonuses may be paid.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
John D. Cleavenger, Esq., Vice President and General Counsel (Individual
Division) of the Company, has passed upon all matters of Iowa law pertaining to
the Policy.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. In some class
action and other lawsuits involving other insurers, substantial damages have
been sought and/or material settlement payments have been made. We believe that
there are no pending or threatened lawsuits that will adversely impact us or
the Separate Account.
FINANCIAL STATEMENTS
This prospectus does not include financial statements of the Separate Account
because, as of the date of this prospectus, the Separate Account had not yet
commenced operations, had no assets, and had incurred no liabilities. The
Company's financial statements appear at the end of this prospectus. The
statutory-basis balance sheets of Life Investors Insurance Company of America
as of December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999, and the financial statement
schedules as of December 31, 1999 for each of the three years in the period
then ended have been audited by Ernst & Young LLP, independent accountants,
whose reports thereon is set forth elsewhere herein. Such financial statements
and schedules are included in this prospectus in reliance upon such report
given upon the authority of Ernst & Young LLP as experts in accounting and
auditing. You should distinguish the Company's financial statements from the
Separate Account's financial statements and you should consider our financial
statements only as bearing upon our ability to meet our obligations under the
Policies.
ADDITIONAL INFORMATION ABOUT THE COMPANY
Life Investors is a stock life insurance company that is a wholly owned
indirect subsidiary of AEGON USA, Inc. AEGON USA, Inc. is a wholly owned
indirect subsidiary of AEGON NV, a Netherlands corporation that is a publicly
traded international insurance group. Life Investors' Home Office is located at
4333 Edgewood Road NE, Cedar Rapids, Iowa 52499.
Life Investors was incorporated in 1930 under Iowa law and is subject to
regulation by the Iowa Commissioner of Insurance. Life Investors is engaged in
the business of issuing life insurance policies and annuity contracts,
47
<PAGE>
and is licensed to do business in the District of Columbia, Guam and all states
except New York. Life Investors submits annual statements on its operations and
finances to insurance officials in all states and jurisdictions in which it
does business. Life Investors has filed the Policy described in this prospectus
with insurance officials in those jurisdictions in which the Policy is sold.
Life Investors intends to reinsure a portion of the risks assumed under the
Policies.
LIFE INVESTORS' EXECUTIVE OFFICERS AND DIRECTORS
Life Investors is governed by a board of directors. The following tables set
forth the name, address and principal occupation during the past five years of
each of Life Investors' executive officers and directors. Each person is
located at Life Investors Insurance Company of America, 4333 Edgewood Road, NE,
Cedar Rapids, IA 52499.
BOARD OF DIRECTORS AND SENIOR OFFICERS
<TABLE>
<CAPTION>
POSITION WITH LIFE
NAME INVESTORS PRINCIPAL OCCUPATION DURING PAST 5 YEARS
<S> <C> <C>
Rex B. Eno Director, Chairman of the Director, Chairman of the Board, and
Board, and President President
Patrick S. Baird Director, Senior Vice Executive Vice President (1995-present),
President, and Chief Chief Operating Officer (1996-present),
Operating Officer Chief Financial Officer (1992-1995), Vice
President and Chief Tax Officer (1984-
1995) of AEGON USA.
Douglas C. Kolsrud Director, Senior Vice Director, Senior Vice President, Chief
President, Chief Investment Investment Officer and Corporate Actuary
Officer and Corporate
Actuary
Craig D. Vermie Director, Vice President, Secretary (1997-present), General Counsel
Secretary and General (1996-present), Vice President (1995-
Counsel present), Assistant General Counsel,
Associate General Counsel, Corporate
Counsel (respectively) (1986-1995)
Robert J. Kontz Vice President and Vice President and Corporate Controller
Corporate Controller
Brenda K. Clancy Director, Vice President, Vice President, Treasurer and Chief
Treasurer and Chief Financial Officer
Financial Officer
Jack R. Dykhouse Director, Executive Vice Executive Vice President (1990-present)
President
William L. Busler Director, Executive Vice President, Annuity Division, AEGON,
President USA, Inc. (1980-present)
</TABLE>
Life Investors holds the Separate Account's assets physically segregated and
apart from the general account. Life Investors maintains records of all
purchases and sale of portfolio shares by each of the Subaccounts. A blanket
bond in the amount of $10 million (subject to a $1 million deductible),
covering directors, officers and all employees of AEGON USA, Inc. and its
affiliates has been issued to Life Investors and its affiliates.
48
<PAGE>
ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, Policy Value, and Cash Surrender Value under a Policy covering a male
or female Insured of age 35 on the Policy Date in a tobacco or preferred class,
would change over time if the planned premiums were paid and the return on the
assets in the Subaccounts were a uniform gross annual rate (before any
expenses) of 0%, 6% or 12%. The tables also show how the Policy would operate
if premiums accumulated at 5% interest. The tables illustrate Policy values
that would result based on assumptions that you pay the premiums indicated, you
do not increase your Specified Amount, and you do not make any withdrawals or
Policy loans. The values under the Policy will be different from those shown
even if the returns averaged 0%, 6% or 12%, but fluctuated over and under those
averages throughout the years shown.
THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY TO ILLUSTRATE THE
MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR FUTURE
INVESTMENT RATES OF RETURN. Actual rates of return for a particular Policy may
be more or less than the hypothetical investment rates of return. The actual
return on your Policy Value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's
monthly charges, the portfolios' expense ratios, and your Policy loan and
withdrawal history.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.70% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. For information on the portfolios' management fees,
see the Annual Portfolio Operating Expenses table in the "Policy Summary --
Charges and Deductions" section of this prospectus, and see the portfolios'
prospectuses.
Separate illustrations on each of the following pages reflect our current
expense charge and cost of insurance charge and the higher guaranteed maximum
expense charge and cost of insurance charge that we have the contractual right
to charge. The illustrations assume no charges for Federal or state taxes or
charges for supplemental benefits.
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6% and 12% would
correspond to approximate net annual rates for the Separate Account of -1.44%,
4.52% and 10.47%, respectively.
The illustrations are based on our sex distinct rates for tobacco and preferred
premium class. Upon request, we will furnish a comparable illustration based
upon the proposed Insured's individual circumstances. Such illustrations may
assume different hypothetical rates of return than those shown in the following
illustrations.
49
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
DEATH BENEFIT
ASSUMING HYPOTHETICAL GROSS AND
END OF PREMIUMS NET ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
YEAR AT 5% -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000* $ 100,000*
4 $ 4,888 $ 100,000* $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 147,512
40 (AGE 75) $136,987 $ 100,000* $ 100,000 $ 355,318
50 (AGE 85) $237,401 $ 100,000* $ 100,000 $ 933,757
60 (AGE 95) $400,964 $ 100,000* $ 100,000* $2,330,663
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 627 $ 676 $ 725 $ 0* $ 0* $ 0*
2 $ 1,228 $ 1,364 $ 1,507 $ 0* $ 0* $ 0*
3 $ 1,797 $ 2,061 $ 2,348 $ 0* $ 0* $ 0*
4 $ 2,330 $ 2,761 $ 3,249 $ 0* $ 381 $ 869
5 $ 2,830 $ 3,466 $ 4,218 $ 590 $ 1,226 $ 1,978
6 $ 3,435 $ 4,320 $ 5,410 $1,335 $ 2,220 $ 3,310
7 $ 4,008 $ 5,189 $ 6,702 $2,048 $ 3,229 $ 4,742
8 $ 4,542 $ 6,067 $ 8,102 $2,722 $ 4,247 $ 6,282
9 $ 5,032 $ 6,949 $ 9,614 $3,352 $ 5,269 $ 7,934
10 $ 5,483 $ 7,840 $ 11,256 $3,943 $ 6,300 $ 9,716
15 $ 7,637 $ 13,008 $ 22,644 $6,797 $12,168 $ 21,804
20 $ 8,727 $ 18,570 $ 40,807 $8,727 $18,570 $ 40,807
30 (AGE 65) $ 6,365 $ 30,530 $ 120,911 $6,365 $30,530 $ 120,911
40 (AGE 75) $ 0* $ 37,912 $ 332,073 $ 0* $37,912 $ 332,073
50 (AGE 85) $ 0* $ 20,765 $ 889,292 $ 0* $20,765 $ 889,292
60 (AGE 95) $ 0* $ 0* $2,307,587 $ 0* $ 0* $2,307,587
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
50
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
ASSUMING HYPOTHETICAL GROSS AND
END OF PREMIUMS NET ANNUAL INVESTMENT RETURN OF
POLICY ACCUMULATED 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
YEAR AT 5% -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000* $ 100,000*
4 $ 4,888 $ 100,000* $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000* $ 100,000 $ 100,439
40 (AGE 75) $136,987 $ 100,000* $ 100,000* $ 238,092
50 (AGE 85) $237,401 $ 100,000* $ 100,000* $ 612,900
60 (AGE 95) $400,964 $ 100,000* $ 100,000* $1,483,854
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 625 $ 674 $ 723 $ 0* $ 0* $ 0*
2 $1,224 $ 1,360 $ 1,503 $ 0* $ 0* $ 0*
3 $1,791 $ 2,054 $ 2,341 $ 0* $ 0* $ 0*
4 $2,325 $ 2,754 $ 3,242 $ 0* $ 374 $ 862
5 $2,822 $ 3,457 $ 4,208 $ 582 $ 1,217 $ 1,968
6 $3,278 $ 4,158 $ 5,242 $1,178 $ 2,058 $ 3,142
7 $3,692 $ 4,855 $ 6,350 $1,732 $ 2,895 $ 4,390
8 $4,060 $ 5,544 $ 7,536 $2,240 $ 3,724 $ 5,716
9 $4,379 $ 6,221 $ 8,807 $2,699 $ 4,541 $ 7,127
10 $4,645 $ 6,883 $ 10,168 $3,105 $ 5,343 $ 8,628
15 $5,100 $ 9,835 $ 18,676 $4,260 $ 8,995 $ 17,836
20 $3,533 $11,514 $ 31,143 $3,533 $11,514 $ 31,143
30 (AGE 65) $ 0 $ 3,099 $ 82,327 $ 0* $ 3,099 $ 82,327
40 (AGE 75) $ 0 $ 0 $ 222,516 $ 0* $ 0* $ 222,516
50 (AGE 85) $ 0 $ 0 $ 583,715 $ 0* $ 0* $ 583,715
60 (AGE 95) $ 0 $ 0 $1,469,162 $ 0* $ 0* $1,469,162
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
51
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 182,904
40 (AGE 75) $136,987 $ 100,000 $ 100,000 $ 443,380
50 (AGE 85) $237,401 $ 100,000* $ 127,193 $1,175,343
60 (AGE 95) $400,964 $ 100,000* $ 197,434 $2,999,602
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 723 $ 774 $ 826 $ 0* $ 0* $ 0*
2 $ 1,427 $ 1,576 $ 1,731 $ 0* $ 0* $ 0*
3 $ 2,111 $ 2,403 $ 2,721 $ 0* $ 243 $ 561
4 $ 2,774 $ 3,257 $ 3,803 $ 734 $ 1,217 $ 1,763
5 $ 3,416 $ 4,137 $ 4,986 $ 1,496 $ 2,217 $ 3,066
6 $ 4,152 $ 5,165 $ 6,404 $ 2,352 $ 3,365 $ 4,604
7 $ 4,868 $ 6,229 $ 7,961 $ 3,188 $ 4,549 $ 6,281
8 $ 5,561 $ 7,328 $ 9,669 $ 4,001 $ 5,768 $ 8,109
9 $ 6,228 $ 8,462 $ 11,542 $ 4,788 $ 7,022 $ 10,102
10 $ 6,871 $ 9,633 $ 13,598 $ 5,551 $ 8,313 $ 12,278
15 $ 9,844 $ 16,262 $ 27,601 $ 9,124 $ 15,542 $ 26,881
20 $12,150 $ 24,112 $ 50,442 $12,150 $ 24,112 $ 50,442
30 (AGE 65) $13,780 $ 44,185 $ 149,921 $13,780 $ 44,185 $ 149,921
40 (AGE 75) $ 7,577 $ 73,134 $ 414,374 $ 7,577 $ 73,134 $ 414,374
50 (AGE 85) $ 0 $121,136 $1,119,375 $ 0* $121,136 $1,119,375
60 (AGE 95) $ 0 $195,479 $2,969,903 $ 0* $195,479 $2,969,903
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
52
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 160,236
40 (AGE 75) $136,987 $ 100,000* $ 100,000 $ 379,858
50 (AGE 85) $237,401 $ 100,000* $ 100,000* $ 980,366
60 (AGE 95) $400,964 $ 100,000* $ 100,000* $2,377,619
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 722 $ 774 $ 826 $ 0* $ 0* $ 0*
2 $1,427 $ 1,576 $ 1,731 $ 0* $ 0* $ 0*
3 $2,111 $ 2,403 $ 2,720 $ 0* $ 243 $ 560
4 $2,774 $ 3,257 $ 3,802 $ 734 $ 1,217 $ 1,762
5 $3,415 $ 4,137 $ 4,986 $1,495 $ 2,217 $ 3,066
6 $4,033 $ 5,042 $ 6,279 $2,233 $ 3,242 $ 4,479
7 $4,626 $ 5,974 $ 7,694 $2,946 $ 4,294 $ 6,014
8 $5,194 $ 6,932 $ 9,243 $3,634 $ 5,372 $ 7,683
9 $5,736 $ 7,916 $ 10,939 $4,296 $ 6,476 $ 9,499
10 $6,251 $ 8,926 $ 12,797 $4,931 $ 7,606 $ 11,477
15 $8,349 $14,349 $ 25,156 $7,629 $13,629 $ 24,436
20 $9,390 $20,263 $ 45,008 $9,390 $20,263 $ 45,008
30 (AGE 65) $5,089 $31,493 $ 131,341 $5,089 $31,493 $ 131,341
40 (AGE 75) $ 0 $31,593 $ 355,008 $ 0* $31,593 $ 355,008
50 (AGE 85) $ 0 $ 0 $ 933,682 $ 0* $ 0* $ 933,682
60 (AGE 95) $ 0 $ 0 $2,354,079 $ 0* $ 0* $2,354,079
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid , less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
53
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 170,852
40 (AGE 75) $136,987 $ 100,000 $ 100,000 $ 414,656
50 (AGE 85) $237,401 $ 100,000* $ 108,715 $1,098,191
60 (AGE 95) $400,964 $ 100,000* $ 168,926 $2,777,320
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 696 $ 747 $ 798 $ 0* $ 0* $ 0*
2 $ 1,366 $ 1,511 $ 1,663 $ 0* $ 0* $ 0*
3 $ 2,008 $ 2,292 $ 2,600 $ 0* $ 132 $ 440
4 $ 2,621 $ 3,088 $ 3,615 $ 581 $ 1,048 $ 1,575
5 $ 3,203 $ 3,896 $ 4,713 $ 1,283 $ 1,976 $ 2,793
6 $ 3,891 $ 4,860 $ 6,049 $ 2,091 $ 3,060 $ 4,249
7 $ 4,547 $ 5,846 $ 7,503 $ 2,867 $ 4,166 $ 5,823
8 $ 5,174 $ 6,855 $ 9,090 $ 3,614 $ 5,295 $ 7,530
9 $ 5,772 $ 7,892 $ 10,826 $ 4,332 $ 6,452 $ 9,386
10 $ 6,342 $ 8,958 $ 12,727 $ 5,022 $ 7,638 $ 11,407
15 $ 9,019 $ 15,046 $ 25,761 $ 8,299 $ 14,326 $ 25,041
20 $11,164 $ 22,351 $ 47,157 $11,164 $ 22,351 $ 47,157
30 (AGE 65) $11,274 $ 39,656 $ 140,043 $11,274 $ 39,656 $ 140,043
40 (AGE 75) $ 4,322 $ 64,063 $ 387,529 $ 4,322 $ 64,063 $ 387,529
50 (AGE 85) $ 0 $103,538 $1,045,896 $ 0* $103,538 $1,045,896
60 (AGE 95) $ 0 $167,253 $2,749,822 $ 0* $167,253 $2,749,822
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid , less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
54
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Tobacco Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000* $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 142,190
40 (AGE 75) $136,987 $ 100,000* $ 100,000 $ 341,780
50 (AGE 85) $237,401 $ 100,000* $ 100,000* $ 891,030
60 (AGE 95) $400,964 $ 100,000* $ 100,000* $2,180,504
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 695 $ 746 $ 797 $ 0* $ 0* $ 0*
2 $1,365 $ 1,510 $ 1,662 $ 0* $ 0* $ 0*
3 $2,007 $ 2,290 $ 2,598 $ 0* $ 130 $ 438
4 $2,619 $ 3,085 $ 3,612 $ 579 $ 1,045 $ 1,572
5 $3,200 $ 3,893 $ 4,710 $1,280 $ 1,973 $ 2,790
6 $3,746 $ 4,711 $ 5,897 $1,946 $ 2,911 $ 4,097
7 $4,256 $ 5,538 $ 7,180 $2,576 $ 3,858 $ 5,500
8 $4,730 $ 6,375 $ 8,572 $3,170 $ 4,815 $ 7,012
9 $5,168 $ 7,222 $ 10,085 $3,728 $ 5,782 $ 8,645
10 $5,573 $ 8,081 $ 11,734 $4,253 $ 6,761 $ 10,414
15 $7,045 $12,541 $ 22,582 $6,325 $11,821 $ 21,862
20 $7,393 $17,139 $ 39,877 $7,393 $17,139 $ 39,877
30 (AGE 65) $3,244 $25,833 $ 116,549 $3,244 $25,833 $ 116,549
40 (AGE 75) $ 0 $25,786 $ 319,421 $ 0* $25,786 $ 319,421
50 (AGE 85) $ 0 $ 0 $ 848,600 $ 0* $ 0* $ 848,600
60 (AGE 95) $ 0 $ 0 $2,158,915 $ 0* $ 0* $2,158,915
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid , less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
55
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Current Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000 $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 192,014
40 (AGE 75) $136,987 $ 100,000 $ 100,000 $ 468,177
50 (AGE 85) $237,401 $ 100,000 $ 145,666 $1,247,554
60 (AGE 95) $400,964 $ 100,000* $ 225,568 $3,200,317
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 757 $ 810 $ 863 $ 0* $ 0* $ 0*
2 $ 1,494 $ 1,647 $ 1,807 $ 0* $ 0* $ 0*
3 $ 2,212 $ 2,514 $ 2,841 $ 232 $ 534 $ 861
4 $ 2,911 $ 3,411 $ 3,975 $ 1,041 $ 1,541 $ 2,105
5 $ 3,592 $ 4,341 $ 5,221 $ 1,832 $ 2,581 $ 3,461
6 $ 4,352 $ 5,404 $ 6,690 $ 2,702 $ 3,754 $ 5,040
7 $ 5,090 $ 6,504 $ 8,303 $ 3,550 $ 4,964 $ 6,763
8 $ 5,807 $ 7,643 $ 10,074 $ 4,377 $ 6,213 $ 8,644
9 $ 6,503 $ 8,825 $ 12,023 $ 5,183 $ 7,505 $ 10,703
10 $ 7,180 $ 10,051 $ 14,168 $ 5,970 $ 8,841 $ 12,958
15 $10,390 $ 17,063 $ 28,834 $ 9,730 $ 16,403 $ 28,174
20 $13,057 $ 25,529 $ 52,856 $13,057 $ 25,529 $ 52,856
30 (AGE 65) $16,087 $ 47,970 $ 157,388 $16,087 $ 47,970 $ 157,388
40 (AGE 75) $15,287 $ 82,657 $ 437,549 $15,287 $ 82,657 $ 437,549
50 (AGE 85) $ 1,948 $138,729 $1,188,147 $ 1,948 $138,729 $1,188,147
60 (AGE 95) $ 0 $223,335 $3,168,631 $ 0* $223,335 $3,168,631
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid , less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
56
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
<TABLE>
<S> <C>
Specified Amount $100,000 Preferred Class
Annual Premium $1,080 Level Death Benefit
Using Guaranteed Cost Assumptions
</TABLE>
<TABLE>
<CAPTION>
END OF PREMIUMS
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND
YEAR AT 5% NETANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C>
1 $ 1,134 $ 100,000* $ 100,000* $ 100,000*
2 $ 2,325 $ 100,000* $ 100,000* $ 100,000*
3 $ 3,575 $ 100,000 $ 100,000 $ 100,000
4 $ 4,888 $ 100,000 $ 100,000 $ 100,000
5 $ 6,266 $ 100,000 $ 100,000 $ 100,000
6 $ 7,713 $ 100,000 $ 100,000 $ 100,000
7 $ 9,233 $ 100,000 $ 100,000 $ 100,000
8 $ 10,829 $ 100,000 $ 100,000 $ 100,000
9 $ 12,504 $ 100,000 $ 100,000 $ 100,000
10 $ 14,263 $ 100,000 $ 100,000 $ 100,000
15 $ 24,470 $ 100,000 $ 100,000 $ 100,000
20 $ 37,497 $ 100,000 $ 100,000 $ 100,000
30 (AGE 65) $ 75,342 $ 100,000 $ 100,000 $ 169,237
40 (AGE 75) $136,987 $ 100,000* $ 100,000 $ 407,360
50 (AGE 85) $237,401 $ 100,000* $ 100,000 $1,064,196
60 (AGE 95) $400,964 $ 100,000* $ 100,000 $2,608,474
</TABLE>
<TABLE>
<CAPTION>
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.44% (Net) 4.52% (Net) 10.47% (Net) -1.44% (Net) 4.52% (Net) 10.47% (Net)
<S> <C> <C> <C> <C> <C> <C>
1 $ 744 $ 797 $ 849 $ 0 $ 0 $ 0
2 $ 1,469 $ 1,620 $ 1,778 $ 0 $ 0 $ 0
3 $ 2,173 $ 2,471 $ 2,794 $ 193 $ 491 $ 814
4 $ 2,855 $ 3,348 $ 3,905 $ 985 $ 1,478 $ 2,035
5 $ 3,515 $ 4,253 $ 5,121 $ 1,755 $ 2,493 $ 3,361
6 $ 4,152 $ 5,185 $ 6,450 $ 2,502 $ 3,535 $ 4,800
7 $ 4,763 $ 6,143 $ 7,903 $ 3,223 $ 4,603 $ 6,363
8 $ 5,350 $ 7,130 $ 9,496 $ 3,920 $ 5,700 $ 8,066
9 $ 5,914 $ 8,147 $ 11,242 $ 4,594 $ 6,827 $ 9,922
10 $ 6,454 $ 9,196 $ 13,161 $ 5,244 $ 7,986 $ 11,951
15 $ 8,771 $14,942 $ 26,028 $ 8,111 $14,282 $ 25,368
20 $10,291 $21,537 $ 46,944 $ 10,291 $21,537 $ 46,944
30 (AGE 65) $ 9,790 $37,519 $ 138,718 $ 9,790 $37,519 $ 138,718
40 (AGE 75) $ 0 $55,741 $ 380,710 $ 0* $55,741 $ 380,710
50 (AGE 85) $ 0 $69,055 $1,013,520 $ 0* $69,055 $1,013,520
60 (AGE 95) $ 0 $21,142 $2,582,648 $ 0* $21,142 $2,582,648
</TABLE>
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid , less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a number of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value, and Death Benefit for a Policy would be different from those
shown if the actual rates of return averaged 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
individual Policy Years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period
of time.
57
<PAGE>
FINANCIAL STATEMENTS -- STATUTORY BASIS
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORTS OF INDEPENDENT AUDITORS
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- STATUTORY BASIS
AND OTHER FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors ........................................... 1
Audited Financial Statements
Balance Sheets -- Statutory Basis ........................................ 2
Statements of Operations -- Statutory Basis .............................. 4
Statements of Changes in Capital and Surplus -- Statutory Basis .......... 5
Statements of Cash Flows -- Statutory Basis .............................. 6
Notes to Financial Statements -- Statutory Basis ......................... 8
Statutory-Basis Financial Statement Schedules
Summary of Investments -- Other Than Investments in Related Parties ...... 28
Supplementary Insurance Information ...................................... 29
Reinsurance .............................................................. 31
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Life Investors Insurance Company of America
We have audited the accompanying statutory-basis balance sheets of Life
Investors Insurance Company of America, an indirect wholly-owned subsidiary of
AEGON N.V., as of December 31, 1999 and 1998, and the related statutory-basis
statements of operations, changes in capital and surplus and cash flow for each
of the three years in the period ended December 31, 1999. Our audits also
included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with the accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles. The
variances between such practices and generally accepted accounting principles
also are described in Note 1. The effects on the financial statements of these
variances are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial
position of Life Investors Insurance Company of America at December 31, 1999
and 1998, or the results of its operations or its cash flow for each of the
three years in the period ended December 31, 1999.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Life Investors
Insurance Company of America at December 31, 1999 and 1998, and the results of
its operations and its cash flow for each of the three years in the period
ended December 31, 1999, in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa. Also, in our opinion, the related statutory-basis financial statement
schedules, when considered in relation to the basic statutory-basis financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/S/ ERNST & YOUNG LLP
Des Moines, Iowa
February 18, 2000
1
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds .................................................. $5,156,784 $5,295,324
Stocks: ................................................
Preferred ............................................. 12,167 11,359
Common (cost: 1999 - $45,918; 1998 - $96,301) ......... 53,165 130,938
Affiliated entities (cost: 1999 - $155,130; 1998 -
$155,130) .......................................... 163,357 142,579
Mortgage loans on real estate .......................... 1,507,548 1,214,797
Real estate, at cost less accumulated depreciation
(1999 - $26,553; 1998 - $25,113):
Home office properties ................................ 19,038 17,987
Properties acquired in satisfaction of debt ........... 7,500 6,819
Investment properties ................................. 49,536 53,813
Policy loans ........................................... 38,790 38,737
Cash and short-term investments ........................ 50,506 212,369
Other invested assets .................................. 79,310 58,391
---------- ----------
Total cash and invested assets .......................... 7,137,701 7,183,113
Premiums deferred and uncollected ....................... 10,122 11,762
Accrued investment income ............................... 72,534 72,327
Cash surrender value of life insurance policies ......... 95,143 90,893
Receivable from affiliates .............................. 44,091 --
Federal income tax recoverable .......................... 33 13,892
Other assets ............................................ 15,366 20,883
---------- ----------
Total admitted assets ................................... $7,374,990 $7,392,870
========== ==========
</TABLE>
2
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
BALANCE SHEETS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life .................................................. $1,741,003 $1,520,961
Annuity ............................................... 4,281,990 4,367,435
Accident and health ................................... 301,989 273,465
Policy and contract claim reserves:
Life .................................................. 21,250 21,651
Accident and health ................................... 67,951 76,259
Other policyholders' funds ............................. 98,515 95,931
Remittances and items not allocated .................... 13,933 65,227
Asset valuation reserve ................................ 108,175 116,628
Interest maintenance reserve ........................... 21,860 39,101
Short-term notes payable to affiliates ................. 5,100 1,700
Payable for securities ................................. 6,900 168,927
Payable to affiliates .................................. -- 31,358
Other liabilities ...................................... 109,101 89,119
---------- ----------
Total liabilities ....................................... 6,777,767 6,867,762
Commitments and contingencies (NOTE 11)
Capital and surplus:
Common stock, $2.48 par value, 1,164,000 shares
authorized, 1,008,000 issued and outstanding ......... 2,500 2,500
Paid-in surplus ........................................ 331,236 266,236
Unassigned surplus ..................................... 263,487 256,372
---------- ----------
Total capital and surplus ............................... 597,223 525,108
---------- ----------
Total liabilities and capital and surplus ............... $7,374,990 $7,392,870
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life .......................................................... $ 342,590 $ 455,526 $ 334,461
Annuity ....................................................... 250,767 322,560 586,846
Accident and health ........................................... 285,944 271,620 240,264
Net investment income .......................................... 493,951 551,506 457,441
Amortization of interest maintenance reserve ................... 5,653 5,679 2,562
Commissions and expense allowances on reinsurance
ceded ........................................................ 45,639 36,474 45,064
Other .......................................................... 8,245 4,561 753
---------- ---------- ----------
1,432,789 1,647,926 1,667,391
Benefits and expenses
Benefits paid or provided for:
Life benefits ................................................. 88,493 84,739 80,082
Surrender benefits ............................................ 503,304 492,363 450,499
Accident and health benefits .................................. 180,617 176,278 154,201
Other benefits ................................................ 118,796 103,705 84,221
Increase (decrease) in aggregate reserves for policies
and contracts:
Life ......................................................... 220,233 327,648 211,185
Annuity ...................................................... (85,445) 5,896 307,079
Accident and health .......................................... 31,235 28,433 13,845
Other ........................................................ 3,163 3,236 6,032
---------- ---------- ----------
1,060,396 1,222,298 1,307,144
Insurance expenses:
Commissions ................................................... 132,744 122,520 119,163
General insurance expenses .................................... 108,831 104,290 81,687
Taxes, licenses and fees ...................................... 21,069 25,081 18,535
Other ......................................................... (4,871) (462) 3,287
---------- ---------- ----------
257,773 251,429 222,672
---------- ---------- ----------
Total benefits and expenses ..................................... 1,318,169 1,473,727 1,529,816
---------- ---------- ----------
Gain from operations before federal income tax expense
and net realized capital gains (losses) on investments ......... 114,620 174,199 137,575
Federal income tax expense ...................................... 31,500 33,563 50,598
---------- ---------- ----------
Gain from operations before net realized capital gains
(losses) on investments ........................................ 83,120 140,636 86,977
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred
to/from interest maintenance reserve) .......................... 19,320 141 (1,041)
---------- ---------- ----------
Net income ...................................................... $ 102,440 $ 140,777 $ 85,936
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 ............................. $2,500 $266,236 $ 240,831 $ 509,567
Net income ............................................ -- -- 85,936 85,936
Change in net unrealized capital gains/losses ......... -- -- 61,904 61,904
Change in non-admitted assets ......................... -- -- (471) (471)
Change in asset valuation reserve ..................... -- -- (8,641) (8,641)
Change in liability for reinsurance in
unauthorized companies .............................. -- -- 428 428
Dividends to stockholder .............................. -- -- (31,400) (31,400)
Surplus effect of ceding commissions associated
with the sale of a division ......................... -- -- 62 62
Surplus effect of reinsurance ......................... -- -- 5 5
Surplus effect of transfer of business ................ -- -- (451) (451)
------ -------- ---------- ----------
Balance at December 31, 1997 ........................... 2,500 266,236 348,203 616,939
Net income ............................................ -- -- 140,777 140,777
Change in net unrealized capital gains/losses ......... -- -- (51,933) (51,933)
Change in non-admitted assets ......................... -- -- (547) (547)
Change in asset valuation reserve ..................... -- -- (30,377) (30,377)
Change in liability for reinsurance in
unauthorized companies .............................. -- -- (3,718) (3,718)
Dividends to stockholder .............................. -- -- (175,000) (175,000)
Tax benefit on stock options exercised ................ -- -- 28,967 28,967
------ -------- ---------- ----------
Balance at December 31, 1998 ........................... 2,500 266,236 256,372 525,108
Net income ............................................ -- -- 102,440 102,440
Change in net unrealized capital gains/losses ......... -- -- (8,836) (8,836)
Change in non-admitted assets ......................... -- -- 1,113 1,113
Change in asset valuation reserve ..................... -- -- 8,453 8,453
Change in liability for reinsurance in
unauthorized companies .............................. -- -- (3,431) (3,431)
Dividends to stockholder .............................. -- -- (100,000) (100,000)
Tax benefit on stock options exercised ................ -- -- 5,627 5,627
Settlement of prior period tax returns and other
tax-related adjustments ............................. -- -- 1,749 1,749
Capital contribution .................................. -- 65,000 -- 65,000
------ -------- ---------- ----------
Balance at December 31, 1999 ........................... $2,500 $331,236 $ 263,487 $ 597,223
====== ======== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance ............. $ 938,887 $ 1,090,253 $ 1,209,734
Net investment income ............................................. 498,612 568,796 459,740
Life and accident and health claims ............................... (277,167) (257,428) (231,686)
Surrender benefits and other fund withdrawals ..................... (503,304) (492,363) (450,499)
Other benefits to policyholders ................................... (118,729) (103,229) (83,740)
Commissions, other expenses and other taxes ....................... (271,593) (249,268) (221,439)
Federal income taxes .............................................. (12,014) (25,364) (44,267)
Cash received in connection with transfer of business ............. -- -- 26,398
Cash received in connection with reinsurance transactions ......... -- -- 15
Other, net ........................................................ (264,787) 69,783 52,141
------------ ------------ ------------
Net cash provided by (used in) operating activities ............... (10,095) 601,180 716,397
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks ....................................... 3,735,448 2,616,194 2,066,835
Common stocks .................................................... 169,670 101,936 115,220
Mortgage loans on real estate .................................... 149,942 162,955 132,415
Real estate ...................................................... 3,837 1,311 1,087
Cash received as the result of ceding commissions
associated with the sale of a division ......................... -- -- 95
Other ............................................................ 3,131 8,536 6,351
------------ ------------ ------------
4,062,028 2,890,932 2,322,003
Cost of investments acquired:
Bonds and preferred stocks ....................................... (3,621,370) (2,697,323) (2,516,471)
Common stocks .................................................... (89,062) (113,781) (126,393)
Mortgage loans on real estate .................................... (440,657) (281,867) (293,848)
Real estate ...................................................... (3,211) (391) (431)
Policy loans ..................................................... (53) (2,347) (1,493)
Other ............................................................ (27,843) (43,569) (31,685)
------------ ------------ ------------
(4,182,196) (3,139,278) (2,970,321)
------------ ------------ ------------
Net cash used in investing activities ............................. (120,168) (248,346) (648,318)
FINANCING ACTIVITIES
Capital contribution .............................................. 65,000 -- --
Short-term notes payable to affiliate ............................. 3,400 (6,800) (50,800)
Dividends to stockholder .......................................... (100,000) (175,000) (31,400)
------------ ------------ ------------
Net cash used in financing activities ............................. (31,600) (181,800) (82,200)
------------ ------------ ------------
Increase (decrease) in cash and short-term investments ............ (161,863) 171,034 (14,121)
Cash and short-term investments at beginning of year .............. 212,369 41,335 55,456
------------ ------------ ------------
Cash and short-term investments at end of year .................... $ 50,506 $ 212,369 $ 41,335
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Life Investors Insurance Company of America (the "Company") is a stock life
insurance company and is a wholly-owned subsidiary of First AUSA Life Insurance
Company ("First AUSA"), which in turn, is an indirect wholly-owned subsidiary
of AEGON USA, Inc. ("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V.,
a holding company organized under the laws of The Netherlands.
In connection with the sale of certain affiliates, the Company has assumed
various blocks of business from these former affiliates. In addition, the
Company has canceled or entered into coinsurance agreements with affiliates and
non-affiliates. The following is a description of those transactions:
o During 1993, the Company sold the Oakbrook Division (primarily
group health business). The initial transfer of risk occurred through
an indemnity reinsurance agreement. The policies have been assumed by
the reinsurer by novation as state regulatory and policyholder
approvals were received. Pursuant to the sales agreement, the Company
will be liable for any deficiency that results from payment of claims
incurred prior to January 1, 1994 exceeding the reserve transferred at
the date of sale. During 1997, the Company received $95 for ceding
commissions related to this sale; the commissions net of the related
tax effect of $33 were credited directly to unassigned surplus.
o During 1997, the Company entered into reinsurance agreements with
non-affiliates. As a result of the agreements, the Company received $15
of assets, substantially all of which were cash and short-term
investments, and $7 of liabilities. The difference between assets and
liabilities, net of a tax effect of $3, was credited directly to
unassigned surplus.
o During 1997, the Company assumed a block of business from a
non-affiliate. As a result of this transaction, the Company received
$26,398 of assets, the majority of which were cash and short-term
investments, and assumed $26,398 of liabilities. This transaction
created a tax liability of $451, which was charged to unassigned
surplus, as the basis of the assets transferred differed for tax
purposes.
FINANCIAL STATEMENTS
The financial statements presented herein are prepared on a statutory basis for
the Company only and, as such, the accounts of the Company's wholly-owned
subsidiaries, Bankers United Life Assurance Company and Life Investors Agency
Group, are not consolidated with those of the Company; rather, the subsidiaries
are carried at the Company[\]'s equity in their statutory-basis net assets.
NATURE OF BUSINESS
The Company sells a full line of insurance products, including individual,
credit and group coverages under life, annuity and accident and health
policies. The Company is licensed in 49 states, the District of Columbia, and
Canada. Sales of the Company[\]'s products are primarily through the general
agency system.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such
7
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimates and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and disclosed herein.
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Division"), which
practices differ from generally accepted accounting principles. The more
significant of these differences are as follows: (a) bonds are generally
reported at amortized cost rather than segregating the portfolio into
held-to-maturity (reported at amortized cost), available-for-sale (reported at
fair value), and trading (reported at fair value) classifications; (b)
acquisition costs of acquiring new business are expensed as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies based on statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding asset or liability rather than shown as gross
amounts on the balance sheet; (f) deferred income taxes are not provided for
the difference between the financial statement and income tax bases of assets
and liabilities; (g) net realized gains or losses attributed to change in the
level of interest rates in the market are deferred and amortized over the
remaining life of the bond or mortgage loan, rather than recognized as gains or
losses in the statement of operations when the sale is completed; (h) potential
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(reported as a liability), changes to which are charged directly to surplus,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (i) certain
assets designated as "non-admitted assets" have been charged to surplus rather
than being reported as assets; (j) revenues for universal life and investment
products consist of the entire premiums received rather than policy charges for
the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed; (k) pension expense is recorded
as amounts are paid rather than accrued and expensed during the periods in
which the employees provide service; (l) stock options settled in cash are
recorded as expense of the Company's indirect parent rather than charged to
current operations; (m) gains or losses on dispositions of business are charged
or credited directly to unassigned surplus rather than being reported in the
statement of operations; (n) adjustments to federal income tax of prior years
are charged or credited directly to unassigned surplus rather than being
reported in the statement of operations; and (o) the financial statements of
subsidiaries are not consolidated with those of the Company. The effects of
these variances have not been determined by the Company, but are believed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification"), effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices that
the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for the
Company, the State of Iowa must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis results
to the Insurance Division. At this time, it is anticipated that the State of
Iowa will adopt Codification. However, based on current guidance, management
believes that the impact of Codification will not be material to the Company's
statutory-basis financial statements.
8
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND SHORT-TERM INVESTMENTS
For purposes of the statements of cash flow, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be short-term investments.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Common stocks of
unaffiliated companies, which may include shares of mutual funds, are reported
at market. Common stocks of the Company's subsidiaries are recorded at the
equity in net assets. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid principal. Other invested assets consist
principally of investments in various joint ventures and are recorded at equity
in underlying net assets. Other "admitted assets" are valued, principally at
cost, as required or permitted by Iowa Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $1,313, $31 and $1,630,
respectively, with respect to such practices.
The Company uses interest rate swaps as part of its overall interest rate risk
management strategy for certain life insurance and annuity products. The
Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
AGGREGATE RESERVES FOR POLICIES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
9
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency, and are continually
reviewed and adjusted as necessary as experience develops or new information
becomes available.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting practices, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires additional disclosures about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. SFAS No. 107 and No. 119 exclude certain financial instruments
and all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows
10
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
using a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values for equity securities are
based on quoted market prices and are recognized in the statutory-basis
balance sheet.
MORTGAGE LOANS AND POLICY LOANS: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses using interest rates
reflective of current market conditions and the risk characteristics of
the loans. The fair value of policy loans is assumed to equal their
carrying amount.
SHORT-TERM NOTES PAYABLE TO AFFILIATES: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying value.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING
AMOUNT VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments ................ $ 50,506 $ 50,506 $ 212,369 $ 212,369
Bonds .......................................... 5,156,784 4,982,312 5,295,324 5,395,548
Preferred stocks ............................... 12,167 10,438 11,359 9,810
Common stocks .................................. 53,165 53,165 130,938 130,938
Mortgage loans on real estate .................. 1,507,548 1,472,724 1,214,797 1,316,723
Policy loans ................................... 38,790 38,790 38,737 38,737
LIABILITIES
Investment contract liabilities ................ 4,350,288 4,081,130 4,428,562 4,418,285
Short-term notes payable to affiliates ......... 5,100 5,100 1,700 1,700
</TABLE>
11
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
At December 31, 1999 and 1998, investments in affiliated entities were as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
CARRYING CARRYING
AFFILIATE COST AMOUNT COST AMOUNT
- --------------------------------------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Preferred:
Cadet Holding Corp. ........................... $ 5,068 $ 1,159 $ 5,068 $ --
Common:
Bankers United Life Assurance Company ......... 150,061 163,357 150,061 142,579
Cedar Income Fund, LTD ........................ -- -- -- --
Life Investors Agency Group ................... 1 -- 1 --
-------- -------- -------- --------
$155,130 $164,516 $155,130 $142,579
======== ======== ======== ========
</TABLE>
Statutory-basis financial information of the Company's wholly-owned insurance
subsidiary, Bankers United Life Assurance Company, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------- -------------
<S> <C> <C>
SUMMARY STATUTORY-BASIS BALANCE SHEETS
Cash and invested assets .......................... $2,845,308 $2,965,125
Other assets ...................................... 52,392 53,459
---------- ----------
Total admitted assets ............................. $2,897,700 $3,018,584
========== ==========
Insurance reserves ................................ $2,642,133 $2,755,518
Other liabilities ................................. 92,210 120,487
Capital and surplus ............................... 163,357 142,579
---------- ----------
Total liabilities and capital and surplus ......... $2,897,700 $3,018,584
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
SUMMARY STATUTORY-BASIS STATEMENTS OF INCOME
Revenues ................................... $414,454 $442,278 $484,355
Expenses and taxes ......................... 380,242 428,202 447,188
-------- -------- --------
Net income ................................. $ 34,212 $ 14,076 $ 37,167
======== ======== ========
</TABLE>
12
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
The carrying amounts and estimated fair values of investments in debt
securities and preferred stock were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and agencies .............. $ 104,385 $ 129 $ 3,744 $ 100,770
State, municipal and other government .............. 88,343 2,456 850 89,949
Public utilities ................................... 268,806 1,241 12,333 257,714
Industrial and miscellaneous ....................... 2,350,841 19,687 108,329 2,262,199
Mortgage and other asset-backed securities ......... 2,344,409 6,287 79,016 2,271,680
---------- ------- -------- ----------
5,156,784 29,800 204,272 4,982,312
Preferred stocks .................................... 12,167 -- 1,729 10,438
---------- ------- -------- ----------
$5,168,951 $29,800 $206,001 $4,992,750
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies .............. $ 195,386 $ 5,343 $ 528 $ 200,201
State, municipal and other government .............. 69,119 1,699 2,078 68,740
Public utilities ................................... 229,757 6,362 7,160 228,959
Industrial and miscellaneous ....................... 2,359,858 110,479 61,915 2,408,422
Mortgage and other asset-backed securities ......... 2,441,204 59,272 11,250 2,489,226
---------- -------- ------- ----------
5,295,324 183,155 82,931 5,395,548
Preferred stocks .................................... 11,359 -- 1,549 9,810
---------- -------- ------- ----------
$5,306,683 $183,155 $84,480 $5,405,358
========== ======== ======= ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without penalties.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ -------------
<S> <C> <C>
Due in one year or less ............................ $ 102,458 $ 100,440
Due one through five years ......................... 1,179,711 1,138,866
Due five through ten years ......................... 1,071,218 1,028,658
Due after ten years ................................ 458,988 442,668
---------- ----------
2,812,375 2,710,632
Mortgage and other asset-backed securities ......... 2,344,409 2,271,680
---------- ----------
$5,156,784 $4,982,312
========== ==========
</TABLE>
13
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest on bonds ....................... $383,501 $387,038 $383,251
Dividends from subsidiaries ............. -- 80,000 --
Dividends on equity investments ......... 11,044 1,283 821
Interest on mortgage loans .............. 103,226 89,494 85,817
Rental income on real estate ............ 13,273 13,756 13,062
Interest on policy loans ................ 2,815 2,521 2,392
Other investment income (loss) .......... 7,832 3,793 (653)
-------- -------- --------
Gross investment income ................. 521,691 577,885 484,690
Less investment expenses ................ 27,740 26,379 27,249
-------- -------- --------
Net investment income ................... $493,951 $551,506 $457,441
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Proceeds ............................ $3,735,448 $2,616,194 $2,066,835
========== ========== ==========
Gross realized gains ................ $ 26,066 $ 36,443 $ 30,120
Gross realized losses ............... (43,020) (10,361) (24,814)
---------- ---------- ----------
Net realized gains (losses) ......... $ (16,954) $ 26,082 $ 5,306
========== ========== ==========
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities,
including the stock of affiliated entities, included unrealized gains of
$29,223 and $43,606, and unrealized losses of $(13,749) and $(21,520) at
December 31, 1999 and 1998, respectively. The change in unrealized gains and
losses on investments were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Bonds ......................... $ -- $ -- $ 9,267
Preferred stocks .............. 846 (63) 1
Common stocks ................. (6,612) (57,642) 49,003
Mortgage loans ................ (49) (41) 50
Real estate ................... (322) 60 --
Other invested assets ......... (2,699) 5,753 3,583
-------- --------- -------
Change in unrealized .......... $ (8,836) $ (51,933) $61,904
======== ========= =======
</TABLE>
At December 31, 1999, investments with an aggregate carrying amount of
$6,701,197 were on deposit with certain state regulatory authorities or were
restrictively held in bank custodial accounts for the benefit of such state
regulatory authorities, as required by statute.
14
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) for investments are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Debt securities ......................................... $ (16,954) $ 26,082 $ 5,306
Short-term investments .................................. (437) 410 (484)
Equity securities ....................................... 33,879 225 15,064
Mortgage loans on real estate ........................... 2,256 11,366 1,334
Real estate ............................................. 431 901 199
Other invested assets ................................... (1,592) (3,247) (3,212)
--------- --------- ---------
17,583 35,737 18,207
Federal income tax effect ............................... (9,850) (14,255) (8,149)
Transfer (to) from interest maintenance reserve ......... 11,587 (21,341) (11,099)
--------- --------- ---------
Net realized gains (losses) ............................. $ 19,320 $ 141 $ (1,041)
========= ========= =========
</TABLE>
The maximum and minimum lending rates for mortgages during 1999 were 9.09%and
6.75%, respectively. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans with
a carrying amount of $7 were non-income producing for the previous twelve
months. Interest of $1 related to these mortgage loans was not accrued. The
Company requires all mortgage loans to carry fire insurance equal to the value
of the underlying property.
During 1999, mortgage loans of $7,500 were foreclosed or acquired by deed and
transferred to real estate. No loans were foreclosed or acquired by deed and
transferred to real estate during 1998. At December 31, 1999 and 1998, the
Company held a mortgage loan loss reserve in the asset valuation reserve of
$16,598 and $14,237, respectively. At December 31, 1999 and 1998, the mortgage
loan portfolio is diversified by geographic region and specific collateral
property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
- --------------------------------------- ------------------------------
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
South Atlantic 26% 23% Office 37% 35%
E. North Central 18 20 Retail 25 31%
Pacific 18 17 Industrial 21 22
Mountain 12 13 Apartment 8 10
Middle Atlantic 5 9 Other 6 2
W. South Central 9 7 Agriculture 3 --
E. South Central 6 5
W. North Central 3 3
New England 3 3
</TABLE>
The Company utilizes interest rate swap agreements as part of its efforts to
hedge and manage fluctuations in the market value of its investment portfolio
attributable to changes in general interest rate levels and to manage duration
mismatch of assets and liabilities. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of financial
instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
15
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date).
At December 31, 1999, the Company's outstanding financial instruments with on
and off-balance sheet risks, shown in notional amounts, are summarized as
follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
-----------
<S> <C>
Derivative securities:
Interest rate swaps:
Receive fixed -- pay floating ......... $ 15,000
Receive floating -- pay fixed ......... 110,488
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and ceded
amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------- ------------- -------------
<S> <C> <C> <C>
Direct premiums ............. $ 950,283 $1,102,695 $1,212,443
Reinsurance assumed ......... 22,234 22,319 29,042
Reinsurance ceded ........... (93,216) (75,308) (79,914)
--------- ---------- ----------
Net premiums earned ......... $ 879,301 $1,049,706 $1,161,571
========= ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $42,849, $28,929
and $27,557 during 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, estimated amounts recoverable from reinsurers that have been deducted
from policy and contract claim reserves totaled $14,359 and $9,505,
respectively. The aggregate reserves for policies and contracts were reduced
for reserve credits for reinsurance ceded at December 31, 1999 and 1998 of
$109,819 and $95,070, respectively.
5. ACCIDENT AND HEALTH CLAIM LIABILITY
Unpaid claims include amounts for losses and related adjustment expenses and
are estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors.
16
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. ACCIDENT AND HEALTH CLAIM LIABILITY (CONTINUED)
Activity in the liability for unpaid claims and related processing costs net of
reinsurance is summarized as follows:
<TABLE>
<CAPTION>
UNPAID CLAIMS UNPAID CLAIMS
LIABILITY BEGINNING CLAIMS CLAIMS LIABILITY END
OF YEAR INCURRED PAID OF YEAR
--------------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
1999 ....................................... $ -- $ 199,780 $105,790 $ 93,990
1998 and prior ............................. 147,902 (20,699) 81,971 45,232
-------- --------- -------- --------
147,902 $ 179,081 $187,761 139,222
========= ========
Active life reserve ........................ 201,822 230,718
-------- --------
Total accident and health reserves ......... $349,724 $369,940
======== ========
YEAR ENDED DECEMBER 31, 1998
1998 ....................................... $ -- $ 183,474 $ 82,851 $100,623
1997 and prior ............................. 137,018 (2,988) 86,751 47,279
-------- --------- -------- --------
137,018 $ 180,486 $169,602 147,902
========= ========
Active life reserve ........................ 177,598 201,822
-------- --------
Total accident and health reserves ......... $314,616 $349,724
======== ========
</TABLE>
The Company's unpaid claims reserve was decreased by $20,699 and $2,988 for the
years ended December 31, 1999 and 1998, respectively, for health claims that
occurred prior to those balance sheet dates. The redundancies in 1999 and 1998
resulted primarily from variances in the frequency of claims or claim severity.
6. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated income tax
return filing with its parent and other affiliated companies. Under the terms
of a tax sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
17
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. INCOME TAXES (CONTINUED)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments for the
following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%) ......... $ 40,117 $ 60,970 $ 48,151
Tax reserve adjustment ............................... 3,374 2,116 1,937
Excess tax depreciation .............................. (891) (703) (325)
Deferred acquisition costs -- tax basis .............. 3,608 8,011 6,625
Prior year overaccrual ............................... (4,626) (6,301) (2,755)
Dividend received deduction .......................... (10,290) (28,073) (102)
Charitable contribution .............................. -- (1,183) (1,577)
Other items -- net ................................... 208 (1,274) (1,356)
--------- --------- --------
Federal income tax expense ........................... $ 31,500 $ 33,563 $ 50,598
========= ========= ========
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to differences
in book and tax asset bases at the time certain investments are sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($3,733 at December 31, 1999). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $1,307.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991 resulting in a tax refund of $452 and interest
received of $272. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997
tax-sharing agreement between the Company and these affiliates. This resulted
in a credit to unassigned surplus of $1,025.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
7. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies were issued by the Company which entitle
policyholders to a share in the earnings of the participating policies,
provided that a dividend distribution, which is determined annually based on
mortality and persistency experience of the participating policies, is
authorized by the Company. Participating insurance constituted less than 1% of
ordinary life insurance in force at December 31, 1999 and 1998.
18
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A portion of the Company's policy reserves and other policyholders' funds
relates to liabilities established on a variety of the Company's annuity and
deposit fund products. There may be certain restrictions placed upon the amount
of funds that can be withdrawn without penalty. The amount of reserves on these
products, by withdrawal characteristics, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------- -------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ---------- ------------- ---------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
at book value less surrender charge ......... $ 683,332 15% $1,251,829 28%
Subject to discretionary withdrawal
at book value (minimal or no charges
or adjustments) ............................. 3,636,609 81 3,156,306 69
Not subject to discretionary withdrawal
provision ................................... 155,581 4 150,725 3
---------- -- ---------- --
4,475,522 100% 4,558,860 100%
Less reinsurance ceded ........................ 35,644 42,300
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities .................... $4,439,878 $4,516,560
========== ==========
</TABLE>
19
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
----------- --------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1999
Life and annuity:
Ordinary direct first year business ......... $ 1,052 $ 54 $ 998
Ordinary direct renewal business ............ 10,685 993 9,692
Group life direct business .................. 1,953 8 1,945
Credit life direct business ................. 1,109 -- 1,109
Reinsurance ceded ........................... (4,301) -- (4,301)
-------- ------ --------
Total life and annuity ....................... 10,498 1,055 9,443
Accident and health:
Direct ...................................... 2,894 -- 2,894
Reinsurance ceded ........................... (2,215) -- (2,215)
-------- ------ --------
Total accident and health .................... 679 -- 679
-------- ------ --------
$ 11,177 $1,055 $ 10,122
======== ====== ========
DECEMBER 31, 1998
Life and annuity:
Ordinary direct first year business ......... $ 921 $ 500 $ 421
Ordinary direct renewal business ............ 10,939 869 10,070
Group life direct business .................. 2,264 5 2,259
Credit life direct business ................. 1,262 -- 1,262
Reinsurance ceded ........................... (3,563) -- (3,563)
-------- ------ --------
Total life and annuity ....................... 11,823 1,374 10,449
Accident and health:
Direct ...................................... 5,017 -- 5,017
Reinsurance ceded ........................... (3,704) -- (3,704)
-------- ------ --------
Total accident and health .................... 1,313 -- 1,313
-------- ------ --------
$ 13,136 $1,374 $ 11,762
======== ====== ========
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$989,772 and $1,144,513, respectively, in which the gross premiums are less
than the net premiums required by the valuation standards established by the
Insurance Division, Department of Commerce, of the State of Iowa. The Company
established policy reserves of $5,108 and $5,898 to cover these deficiencies at
December 31, 1999 and 1998, respectively.
20
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains on investments for the preceding year. Subject to the
availability of unassigned surplus at the time of such dividend, the maximum
payment which may be made in 2000, without the prior approval of insurance
regulatory authorities, is $83,120.
The Company paid $100,000, $175,000 and $31,400 in 1999, 1998 and 1997,
respectively, in cash dividends to First AUSA.
9. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit plan sponsored by
AEGON. The Company has no legal obligation for the plan. The Company recognizes
pension expense equal to its allocation from AEGON. The pension expense is
allocated among the participating companies based on the SFAS No. 87 expense as
a percent of salaries. The benefits are based on years of service and the
employee's compensation during the highest five consecutive years of
employment. Pension expense aggregated $1,839, $1,605 and $1,121 for the years
ended December 31, 1999, 1998 and 1997, respectively. The plan is subject to
the reporting and disclosure requirements of the Employee Retirement Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974. Expense
related to this plan was $1,408, $1,226 and $626 for the years ended December
31, 1999, 1998 and 1997, respectively.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits
to employees meeting certain eligibility requirements. Portions of the medical
and dental plans are contributory. The expenses of the postretirement plans are
charged to affiliates in accordance with an intercompany cost sharing
arrangement. The Company expensed $131, $329 and $155 for the years ended
December 31, 1999, 1998 and 1997, respectively.
10. RELATED PARTY TRANSACTIONS
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $61,423, $54,566 and $37,076, respectively, for
such services, which approximates their costs to the affiliates.
The Company provides office space, marketing and administrative services to
certain affiliates. During 1999, 1998 and 1997, the Company received $130,700,
$113,205 and $7,355, respectively, for these services, which approximates their
costs to the Company.
21
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Payables and receivables to and from affiliates bear interest at the thirty-day
commercial paper rate, 5.63% at December 31, 1999. During 1999, 1998 and 1997,
the Company paid net interest of $2,408, $1,552 and $969, respectively, to
affiliates. Short-term notes payable to affiliates bear interest at rates
ranging from 4.95% to 5.9%.
During 1999, the Company purchased life insurance policies covering the lives
of certain employees of the Company. Premiums of $87,000 were paid to an
affiliate for these policies. At December 31, 1999 and 1998, the cash surrender
value of these policies was $95,143 and $90,893, respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
The Company has guaranteed that AUSA Life Insurance Company, Inc., an
affiliate, will maintain capital and surplus amounts in excess of the statutory
minimum requirements of $3,000 through 1998. At December 31, 1999, AUSA Life
Insurance Company had capital and surplus of $393,494.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company, except where right of offset against other taxes paid is
allowed by law; amounts available for future offsets are recorded as an asset
on the Company's balance sheet. The future obligation has been based on the
most recent information available from the National Organization of Life and
Health Insurance Guaranty Associations (NOLHGA). Potential future obligations
for unknown insolvencies are not determinable by the Company. The Company has
established a reserve of $7,202 and $6,793 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense was
$532, $2,053 and $326 for December 31, 1999, 1998 and 1997, respectively.
22
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF ANERICA
SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- ------------------------------------------------------------ ------------ ------------ ----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and government agencies
and authorities ......................................... $ 136,071 $ 131,993 $ 136,071
States, municipalities and political subdivisions ......... 702,146 690,426 702,146
Foreign governments ....................................... 85,519 87,181 85,519
Public utilities .......................................... 268,806 257,714 268,806
All other corporate bonds ................................. 3,964,242 3,814,998 3,964,242
Redeemable preferred stock ................................. 12,167 10,438 12,167
---------- --------- ----------
Total fixed maturities ..................................... 5,168,951 4,992,750 5,168,951
EQUITY SECURITIES
Common stocks:
Public utilities .......................................... 378 616 616
Banks, trust and insurance ................................ 5,306 5,570 5,570
Industrial, miscellaneous and all other ................... 40,234 46,979 46,979
---------- --------- ----------
Total equity securities .................................... 45,918 53,165 53,165
Mortgage loans on real estate .............................. 1,507,548 1,507,548
Real estate ................................................ 68,574 68,574
Real estate acquired in satisfaction of debt ............... 7,500 7,500
Policy loans ............................................... 38,790 38,790
Other long-term investments ................................ 79,310 79,310
Cash and short-term investments ............................ 50,506 50,506
---------- ----------
Total investments .......................................... $6,967,097 $6,974,344
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
23
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
--------------- ---------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Individual life .................................. $1,674,722 $ -- $10,395
Individual health ................................ 180,232 90,610 35,877
Group life and health ............................ 86,524 10,904 42,929
Annuity .......................................... 4,281,990 -- --
---------- -------- -------
$6,223,468 $101,514 $89,201
========== ======== =======
YEAR ENDED DECEMBER 31, 1998
Individual life .................................. $1,455,483 $ -- $10,103
Individual health ................................ 160,471 84,968 37,369
Group life and health ............................ 84,527 8,977 50,438
Annuity .......................................... 4,367,435 -- --
Aggregate of all other lines of business ......... -- -- --
---------- -------- -------
$6,067,916 $ 93,945 $97,910
========== ======== =======
YEAR ENDED DECEMBER 31, 1997
Individual life .................................. $1,131,903 $ -- $10,972
Individual health ................................ 132,971 83,333 37,601
Group life and health ............................ 81,059 9,079 44,766
Annuity .......................................... 4,361,539 -- --
---------- -------- -------
$5,707,472 $ 92,412 $93,339
========== ======== =======
</TABLE>
24
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
SUPPLEMENTARY INSURANCE INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
SCHEDULE III -- (CONTINUED)
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME* SETTLEMENT EXPENSES EXPENSES* WRITTEN
- ------------ ------------ --------------------- ----------- ----------
<S> <C> <C> <C> <C>
$ 270,918 $118,649 $ 301,367 $ 78,601 $ --
146,383 22,773 110,707 70,564 97,606
211,232 10,791 149,128 54,008 186,428
250,768 341,738 499,194 54,600 --
- ---------- -------- ---------- -------- --------
$ 879,301 $493,951 $1,060,396 $257,773
========== ======== ========== ========
$ 379,600 $ 92,298 $ 403,328 $ 72,538 $ --
144,965 20,675 108,552 71,347 96,709
202,580 10,526 143,347 47,991 172,599
322,561 348,007 567,071 59,553 --
-- 80,000 -- -- --
- ---------- -------- ---------- --------
$1,049,706 $551,506 $1,222,298 $251,429
========== ======== ========== ========
$ 250,767 $ 80,751 $ 275,055 $ 55,770 $ --
130,533 19,485 94,338 72,277 92,183
193,426 10,267 120,782 51,414 147,998
586,845 346,938 816,969 43,211 --
- ---------- -------- ---------- --------
$1,161,571 $457,441 $1,307,144 $222,672
========== ======== ========== ========
</TABLE>
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
25
<PAGE>
LIFE INVESTORS INSURANCE COMPANY OF AMERICA
REINSURANCE
(DOLLARS IN THOUSANDS)
SCHEDULE IV
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
-------------- ------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force ......... $33,530,215 $6,030,865 $579,911 $28,079,261 2.1%
=========== ========== ======== =========== ====
Premiums:
Individual life ................ $ 297,597 $ 40,993 $ 14,314 $ 270,918 5.3%
Individual health .............. 171,067 28,889 4,205 146,383 2.9
Group life and health .......... 231,502 23,173 2,903 211,232 1.4
Annuity ........................ 250,117 161 812 250,768 0.3
----------- ---------- -------- ----------- ----
$ 950,283 $ 93,216 $ 22,234 $ 879,301 2.5%
=========== ========== ======== =========== ====
YEAR ENDED DECEMBER 31, 1998
Life insurance in force ......... $32,242,062 $4,533,369 $599,989 $28,308,682 2.1%
=========== ========== ======== =========== ====
Premiums:
Individual life ................ $ 400,787 $ 34,351 $ 12,314 $ 378,750 3.3%
Individual health .............. 164,274 24,482 5,172 144,964 3.6
Group life and health .......... 215,205 15,973 3,348 202,580 1.7
Annuity ........................ 322,429 502 1,485 323,412 0.5
----------- ---------- -------- ----------- ----
$ 1,102,695 $ 75,308 $ 22,319 $ 1,049,706 2.1%
=========== ========== ======== =========== ====
YEAR ENDED DECEMBER 31, 1997
Life insurance in force ......... $32,049,197 $3,123,804 $646,128 $29,571,521 2.2%
=========== ========== ======== =========== ====
Premiums: .......................
Individual life ................ $ 283,431 $ 36,023 $ 2,474 $ 249,882 1.0%
Individual health .............. 163,062 34,577 2,048 130,533 1.6
Group life and health .......... 180,093 8,246 21,579 193,426 11.2
Annuity ........................ 585,857 1,068 2,941 587,730 0.5
----------- ---------- -------- ----------- ----
$ 1,212,443 $ 79,914 $ 29,042 $ 1,161,571 2.2%
=========== ========== ======== =========== ====
</TABLE>
26
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
----------------------------------------------
Life Investors Insurance Company of America ("Life Investors") hereby
represents that the fees and charges deducted under the Policies, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Life Investors.
RULE 484 UNDERTAKING
--------------------
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 67 pages
The undertaking to file reports
Representation pursuant to Section 26(e)(2)(A)
The Rule 484 undertaking The
signatures
Written consent of the following persons:
(a) Roger Hallquist, Actuary
(b) John D. Cleavenger, Esq.
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP
<PAGE>
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Life Investors
establishing Life Investors Variable Life Account A (the
"Separate Account") @
(2) Not Applicable (Custody Agreement) @
(3) Distribution of Policies
(a) Form of Principal Underwriting Agreement @
(b) Form of Broker-Dealer Supervision and Sales
Agreement @
(4) Not Applicable (Agreements between Life Investors, the
principal underwriter, or custodian other than those set
forth above in A. (1), (2), and (3))
(5) Specimen Flexible Premium Variable Life Insurance Policy @
(a) Waiver of Premium Benefit @
(b) Waiver of Monthly Deduction @
(c) Level One-Year Term Insurance @
(d) Additional Insured's Level One-Year Term Insurance @
(e) Accidental Death Benefit @
(f) Guaranteed Insurability Benefit @
(g) Income Replacement Benefit @
(h) Children's Benefit @
(6) (a) Certificate of Incorporation of Life Investors @
(b) By-Laws of Life Investors @
(7) Not Applicable (Any insurance policy under a contract
between the Separate Account and Life Investors)
(8) (a) Form of Participation Agreement regarding Janus
Aspen Series @
(b) Form of Participation Agreement regarding AIM
Variable Insurance Funds, Inc. @
(c) Form of Participation Agreement regarding Oppenheimer
Variable Account Funds @
(d) Form of Participation Agreement regarding Fidelity
Variable Insurance Products Funds @
(9) Not Applicable (All other material contracts concerning the
Separate Account)
(10) Application for Flexible Premium Variable Life Insurance
Policy @
(11) Memorandum describing issuance, transfer and redemption
procedures @
<PAGE>
2. Opinion of Counsel as to the legality of the securities being
registered @
3. Not Applicable (Financial statements omitted from the prospectus
pursuant to Instruction 1(b) or (c) of Part I
4. Not Applicable
5. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered *
6. Consent of Sutherland Asbill & Brennan LLP *
7. Consent of Ernst & Young LLP *
8. Powers of Attorney @
- ---------------------------------
@ Incorporated herein by reference to the Initial Registration Statement on Form
S-6 (File No. 333-93567) filed with the Securities and Exchange Commission on
December 23, 1999.
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, Life
Investors Variable Life Account A certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Cedar Rapids and State of Iowa on this 20th day of April, 2000.
(Seal) LIFE INVESTORS VARIABLE LIFE ACCOUNT A
(Registrant)
LIFE INVESTORS INSURANCE COMPANY
OF AMERICA
(Depositor)
* *
- ----------------------- -----------------------
Craig D. Vermie Rex B. Eno
Vice President, Secretary President and Chairman of the Board
General Counsel and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature and Title Date
*
- ---------------------------- --------
Rex B. Eno
President and Chairman of the Board
*
- ---------------------------- -------
Patrick S. Baird
Senior Vice President, Chief Operating Officer and Director
*
- ---------------------------- -------
Douglas C. Kolsrud
Senior Vice President, Chief Investment Officer, Corporate
Actuary and Director
*
- ---------------------------- -------
Craig D. Vermie
Vice President, Secretary, General Counsel and Director
*
- ---------------------------- -------
Robert J. Kontz
Vice President and Corporate Controller
*
- ---------------------------- -------
Brenda K. Clancy
Vice President, Treasurer and Chief Financial Officer and
Director
*
- ----------------------------
Jack R. Dykhouse -------
Executive Vice President and Director
*
- ---------------------------- -------
William L. Busler
Executive Vice President and Director
*By: /s/ John D. Cleavenger April 20, 2000
------------------------
John D. Cleavenger
<PAGE>
EXHIBITS LIST
5. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered
6. Consent of Sutherland Asbill & Brennan LLP
7. Consent of Ernst & Young LLP
Exhibit 5
Roger Hallquist, F.S.A., M.A.A.A.
Actuary
Phone (319) 398-7962
Fax: (319) 369-2378
March 27, 2000
Gentlemen:
This opinion is furnished in connection with the registration by Life Investors
Insurance Company of America of its Variable Universal Life Insurance Policy
("the Policy"), under the Securities Act of 1933 (the "Registration Statement").
The prospectus included in the Registration Statement on Form S-6 describes the
Policy. I have reviewed the Policy form and I have participated in the
preparation and review of the Registration Statement and Exhibits thereto. In my
opinion:
(1) The illustrations of policy account values, cash surrender
values, and death benefits included in the section of the
prospectus entitled, "ILLUSTRATIONS", based on the assumptions
stated in this section, are consistent with the provisions of the
Policy. The rate structure of the Policy has not been designed so
as to make the relationship between premiums and benefits, as
shown in the illustrations, appear more favorable to a
prospective purchaser of a Policy for males age 35 than to
prospective purchasers of Policies on males of other ages or on
females.
(2) The Example of Surrender Charges is consistent with the
provisions of the Policy.
I hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to my name in the prospectus.
Sincerely,
s/ Roger Hallquist
Roger Hallquist, F.S.A., M.A.A.A.
Actuary
Exhibit 6
[SUTHERLAND ASBILL & BRENNAN]
April 25, 2000
Life Investors Insurance Company of America
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
We hereby consent ot the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of Post-Effective Amendment No. 1 to
the registration statement on Form S-6 for Life Investors Variable Life Account
A (File No. 333-93567). In giving this consent, we do not admit that we are in
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
----------------------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Statements"
in the Prospectus and to the use of our report dated February 18, 2000 with
respect to the statutory-basis financial statements and schedules of Life
Investors Insurance Company of America, including in Post-Effective Amendment
No. 1 to the Registration Statement (Form S-6 No. 333-93567) and related
Prospectus of Life Investors Variable Life Account A.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 24, 2000
