<PAGE>
As Filed with the Securities and Exchange Commission on August 31, 2000
Registration File No. 333-______
811-______
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------
FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------
AMERICAN FAMILY
VARIABLE ACCOUNT I
(EXACT NAME OF TRUST)
AMERICAN FAMILY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
6000 AMERICAN PARKWAY
MADISON, WISCONSIN 53783-0001
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES F. ELDRIDGE
AMERICAN FAMILY LIFE INSURANCE COMPANY
6000 AMERICAN PARKWAY
MADISON, WISCONSIN 53783-0001
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2415
It is proposed that this filing will become effective as soon as practicable
after the effective date of the registration statement.
TITLE OF SECURITIES BEING OFFERED: Flexible Premium Variable Universal Life
Insurance Policies.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
================================================================================
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
ISSUED BY
AMERICAN FAMILY VARIABLE ACCOUNT I AND AMERICAN FAMILY LIFE INSURANCE COMPANY
SERVICE CENTER MAIN ADMINISTRATIVE OFFICE
PO BOX [__] 6000 AMERICAN PARKWAY
ST. LOUIS, MO 63127-1690 MADISON, WISCONSIN 53783-0001
TELEPHONE: ____________
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PROSPECTUS
_______, 2000
This prospectus describes a variable universal life insurance policy ("Policy")
issued by American Family Life Insurance Company ("AFLIC" or the "Company"). The
Policy is a long-term investment designed 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. It may not be
advantageous to replace existing insurance with the Policy.
You can allocate your Policy's values to:
-American Family Variable Account I (the "Variable Account"), which invests
in the portfolios listed on this page; or
-the Fixed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Variable 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:
- are not guaranteed to achieve their goals;
- are not federally insured;
- are not endorsed by any bank or government agency; and
- are subject to risks, including loss of the amount invested.
================================================================================
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
The following portfolios are available:
- FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Growth Portfolio
Fidelity VIP Equity-Income Portfolio
- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP II Contrafund-Registered Trademark- Portfolio
- FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Fidelity VIP III Growth & Income Portfolio
- FEDERATED INSURANCE SERIES
Federated Quality Bond Fund II
Federated International Equity Fund II
- SEI INSURANCE PRODUCTS TRUST
SEI VP Prime Obligation Fund
- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
<PAGE>
TABLE OF CONTENTS
================================================================================
GLOSSARY .....................................................................6
POLICY SUMMARY................................................................9
PREMIUMS.............................................................9
INVESTMENT OPTIONS..................................................10
CASH VALUE..........................................................10
CHARGES AND DEDUCTIONS..............................................10
SURRENDERS AND PARTIAL SURRENDERS...................................12
DEATH BENEFIT.......................................................13
TRANSFERS...........................................................14
LOANS...............................................................14
ILLUSTRATIONS.......................................................14
RISK SUMMARY.................................................................15
INVESTMENT RISK.....................................................15
RISK OF LAPSE.......................................................15
TAX RISKS...........................................................15
SURRENDER RISKS.....................................................15
LOAN RISKS..........................................................16
THE COMPANY AND THE FIXED ACCOUNT............................................16
AMERICAN FAMILY LIFE INSURANCE COMPANY..............................16
THE FIXED ACCOUNT...................................................16
THE VARIABLE ACCOUNT AND THE PORTFOLIOS......................................17
THE VARIABLE ACCOUNT................................................17
THE PORTFOLIOS...............................................................18
THE POLICY...................................................................20
2
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PURCHASING A POLICY.................................................20
WHEN INSURANCE COVERAGE TAKES EFFECT................................20
CANCELING A POLICY (FREE LOOK RIGHT)................................21
OWNERSHIP RIGHTS....................................................21
PREMIUMS ....................................................................23
ALLOCATING PREMIUMS.................................................24
CASH VALUES..................................................................25
CASH VALUE..........................................................25
SURRENDER VALUE.....................................................25
SUBACCOUNT VALUE....................................................25
ACCUMULATION UNIT VALUE.............................................26
FIXED ACCOUNT CASH VALUE............................................26
CHARGES AND DEDUCTIONS.......................................................27
PREMIUM CHARGE......................................................27
MONTHLY DEDUCTION...................................................27
COST OF INSURANCE CHARGE............................................28
MORTALITY AND EXPENSE RISK CHARGE...................................29
SURRENDER CHARGE....................................................29
SPECIFIED AMOUNT INCREASE...........................................29
PARTIAL SURRENDER CHARGE............................................29
TRANSFER CHARGE.....................................................30
PORTFOLIO EXPENSES..................................................30
DEATH BENEFIT................................................................30
INSURANCE PROCEEDS..................................................30
DEATH BENEFIT OPTIONS...............................................31
CHANGING DEATH BENEFIT OPTIONS......................................32
CHANGING THE SPECIFIED AMOUNT.......................................32
SETTLEMENT OPTIONS..................................................33
3
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ACCELERATED DEATH BENEFIT...........................................33
SURRENDERS AND PARTIAL SURRENDERS............................................33
SURRENDERS..........................................................33
PARTIAL SURRENDER...................................................34
TRANSFERS....................................................................34
DOLLAR COST AVERAGING...............................................35
AUTOMATIC ASSET REALLOCATION........................................36
LOANS .......................................................................36
LOAN CONDITIONS.....................................................36
EFFECT OF POLICY LOANS..............................................37
POLICY LAPSE AND REINSTATEMENT...............................................38
LAPSE ..............................................................38
REINSTATEMENT.......................................................38
FEDERAL TAX CONSIDERATIONS...................................................39
TAX TREATMENT OF POLICY BENEFITS....................................39
OTHER POLICY INFORMATION.....................................................41
PAYMENT OF POLICY BENEFITS..........................................41
THE POLICY..........................................................42
TELEPHONE REQUESTS..................................................42
OUR RIGHT TO CONTEST THE POLICY.....................................43
SUICIDE EXCLUSION...................................................43
MISSTATEMENT OF AGE OR GENDER.......................................43
MODIFYING THE POLICY................................................43
PAYMENTS WE MAKE....................................................44
RECORDS ............................................................45
POLICY TERMINATION..................................................45
4
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SUPPLEMENTAL BENEFITS AND RIDERS....................................45
PERFORMANCE DATA.............................................................47
ADDITIONAL INFORMATION.......................................................47
SALE OF THE POLICIES................................................47
POTENTIAL CONFLICTS OF INTEREST.....................................48
CHANGES TO THE VARIABLE ACCOUNT.....................................48
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES................49
VOTING PORTFOLIO SHARES.............................................49
LEGAL MATTERS.......................................................50
LEGAL PROCEEDINGS...................................................50
EXPERTS ............................................................50
FINANCIAL STATEMENTS................................................50
ADDITIONAL INFORMATION ABOUT THE COMPANY............................50
AFLIC'S EXECUTIVE OFFICERS AND DIRECTORS............................50
5
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GLOSSARY
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ADDITIONAL PREMIUM PAYMENT
A premium payment you make under the policy other than a Planned Premium
Payment.
ADMINISTRATIVE SERVICE CENTER
An office that provides administrative services and to which the Owner may
direct inquiries as to beneficiary and ownership changes, requests for
surrenders, partial surrenders, and transfers. The address of the Administrative
Service Center is _________________.
APPLICATION
The form completed by the Proposed Insured and/or Proposed Owner when applying
for coverage under the Policy. This includes any:
1. amendments or endorsements;
2. Supplemental Applications;
3. Reinstatement Applications.
ATTAINED AGE
The Insured's age, at his/her nearest birthday.
BASE POLICY
The flexible premium variable life insurance policy, not including any Riders.
BENEFICIARY(IES)
The person(s) so named in the Application, unless later changed, to whom any
Death Benefit is payable upon the death of an Insured, subject to the conditions
and provisions of the Policy.
BUSINESS DAY
A day when the New York Stock Exchange is open for trading, except for the day
after Thanksgiving and any day that a Subaccount's corresponding investment
option does not value its shares. Assets are valued at the close of the Business
Day (4:00 p.m. Eastern Time).
CASH VALUE
The amount calculated as:
1. the Variable Account Cash Value; plus
2. the Fixed Account Cash Value.
CODE
The Internal Revenue Code of 1986, as amended.
DEATH BENEFIT
The amount payable to the Beneficiary upon the death of the Primary Insured,
according to the conditions and provisions of the Base Policy.
EXCESS INTEREST
Any interest credited in addition to the guaranteed interest in the Fixed
Account.
FIXED ACCOUNT
An account in which the Cash Value accrues interest at no less than a guaranteed
minimum rate. The Fixed Account is part of our General Account.
FREE LOOK PERIOD
The period during which you may examine and return the Policy to us at our
Administrative Service Center and receive a refund.
FUND
An open end diversified management investment company or unit investment trust
in which American Family Variable Account I invests.
GENERAL ACCOUNT
All Our assets other than those allocated to the Variable Account or any other
separate account. We have complete ownership and control of the assets of the
General Account.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
HOME OFFICE
Our office at 6000 American Pkwy, Madison, Wisconsin 53783-0001.
INCREASE IN COVERAGE
An increase in Specified Amount (except for an increase in Specified Amount due
to a change in Death Benefit from Option Two to Option One) and any addition of
or increase in an Additional Insured Rider or addition of a Children's Insurance
Rider.
INITIAL SPECIFIED AMOUNT
The Specified Amount on the policy Issue Date.
INSURANCE PROCEEDS
The amount we pay to the Beneficiary when we receive due proof of the Insured's
death.
6
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INSURED
The person named as the Primary Insured on the Application; or an Additional
Insured covered under an Additional Insured Rider; or a Child Insured covered
under a Children's Insurance Rider.
ISSUE AGE
The Insured's age on his/her birthday nearest the Policy Date. A different Issue
Age may apply to any Rider or Increase in Coverage subsequently added to the
Policy.
ISSUE DATE
The date shown on the Schedule that the Policy was issued. A Rider or Increase
in Coverage subsequently added to the Policy will have its own Issue Date.
LAPSE
When your Policy terminates without value after a grace period. You may
reinstate a lapsed Policy, subject to certain conditions.
LOAN BALANCE
The sum of all outstanding policy loans plus accrued loan interest.
MATURITY DATE
The date that the Policy ends if the Primary Insured is living. The Maturity
Date is the policy anniversary date nearest the Primary Insured's age 95 unless
extended under the Extension of Maturity Date provision.
MEC
A modified endowment contract, as defined under the Code.
MINIMUM PREMIUM
The amount necessary to guarantee the Policy will not lapse during the first 5
Policy Years. It is equal to the minimum monthly premium (as set forth in your
Policy) MULTIPLIED by the number of months since the Policy Date (including the
current month).
MONTHLY DEDUCTION
The amount equal to the sum of:
1. the cost of insurance for the Base Policy; and
2. the cost of any Rider; and
3. a separate monthly policy fee and policy issue fee; and
4. the monthly mortality and expense risk charge.
MONTHLY DEDUCTION DAY
The first Monthly Deduction Day is the Policy Date; thereafter, the Monthly
Deduction Day is the same day of each month as the Policy Date.
NET CASH VALUE The amount calculated as:
1. the Cash Value; less
2. the amount of any policy loan; less
3. any policy loan interest due.
NET PREMIUM(S)
The amount of premium remaining after the Premium Charge has been deducted.
OWNER (YOU, YOUR)
The person named in the Application as the Owner, unless later changed.
PLANNED PREMIUM PAYMENT
The amount you elect to pay under the Policy on a periodic basis as set forth in
a schedule. Planned Premium Payments serve as the basis for premium payment
reminder notices. Payment of Planned Premium Payments may not necessarily keep
the Policy in force.
POLICY ANNIVERSARY
The same day and month as the Policy Date in each year following the first
Policy Year.
POLICY DATE
The date shown on the Policy Schedule that determines each:
1. Policy Year;
2. Policy Anniversary;
3. policy month; and
4. the Attained Age of the Insured.
If the Policy Date would otherwise fall on the 29th, 30th or 31st of the month,
the Policy Date will be the 28th.
POLICY YEAR
A year that starts on the Policy Date or on a Policy Anniversary.
PORTFOLIO
A separate investment portfolio of a fund. Each Subaccount invests exclusively
in one portfolio of a fund.
PREMIUM PAYMENTS
All payments you make under the Policy other than repayments of indebtedness.
7
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PRIMARY INSURED
The person named in the Application as the Primary Insured and on whose life we
issue the Base Policy.
PROCEEDS
The amount we pay subject to the Policy's provisions, upon:
1. the Maturity Date of the Policy; or
2. the surrender or partial surrender of the Policy.
RIDER
Any benefit, other than the base Policy, made a part of this Policy.
SEC
The Securities and Exchange Commission, a United States government agency.
SPECIFIED AMOUNT
The amount we use in determining the insurance coverage on an Insured's life.
SUBACCOUNT
A subdivision of Variable Account. We invest each Subaccount's assets
exclusively in shares of one portfolio.
SURRENDER
To cancel the Policy by signed request from the Owner and return of the Policy
to us at our Administrative Service Center.
SURRENDER VALUE
An amount equal to:
1. the Cash Value; minus
2. the sum of the surrender charge and the Loan Balance.
The Surrender Value of the Policy is never less than zero.
TARGET PREMIUM
An amount of premium payments, based on the Specified Amount and the age of the
Insured, used to compute the premium charge and the maximum sales commission.
UNDERWRITING CLASS
The underwriting risk class of the Insured.
VALUATION PERIOD
The time between the close of business on a Business Day and the close of
business on the next Business Day.
VARIABLE ACCOUNT
American Family Variable Account I.
WE, US, OUR, AFLIC, THE COMPANY
American Family Life Insurance Company.
8
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POLICY SUMMARY
===============================================================================
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
- You must pay a minimum initial premium before coverage becomes effective
under the Policy.
- After you pay the initial premium, you can pay additional premiums at any
time (prior to the Maturity Date) and in any amount (but not less than
$100 for additional premium payments). You can select a premium payment
plan to pay planned premiums quarterly, semiannually, or annually. You
are not required to pay premiums according to the plan. However, you may
greatly increase your risk of lapse if you do not regularly pay premiums.
You may also choose to have premiums automatically deducted monthly from
your bank account or other source under our electronic payment plan.
- You can choose to pay a minimum premium to continue insurance coverage
during the first 5 Policy Years.
- We will not accept any premiums after the Maturity Date or during the
Extension of Maturity period.
- PAYING YOUR PLANNED PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN
FORCE. Even if you make premium payments according to your payment plan,
your Policy will lapse if the Surrender Value is not enough to pay the
Monthly Deduction and any loan interest due.
- There will be a 61-day grace period before your Policy lapses. Your
Policy will not lapse:
-> during the first 5 Policy Years, if you pay premiums (less any
loan balance and partial surrenders) at least equal to the minimum
premium (there is no such guarantee for any increase in Specified
Amount);
-> if you purchase a Guaranteed Minimum Death Benefit Rider and meet
certain conditions; or
-> if you make a payment equal to the outstanding Monthly Deductions
and any loan interest due before the end of the grace period.
- You may reinstate a lapsed Policy if you meet certain requirements.
- When you receive your Policy, the free look period begins. You may return
your Policy during this period and receive a refund. We will refund the
greater of premium payments made or the Cash Value on the date we receive
the Policy plus the amount of any premium charges and any Monthly
Deductions.
- We deduct a premium charge from each premium you pay. Generally, we
allocate the remaining amount (the net premium) to the Subaccounts and
the Fixed Account in accordance with your allocation instructions.
- For the first 40 days following the date we issue the Policy, we direct
your premium payments allocated to the Variable Account to the Money
Market Subaccount. At the end of the 41st day after issuance of the
Policy, we allocate the accumulated value to the Subaccounts you
selected. We direct your premium payments allocated to the Fixed Account
to that account.
9
<PAGE>
INVESTMENT OPTIONS
FIXED ACCOUNT:
- You may place money in the Fixed Account where it earns at least 3%
annual interest. We may declare higher rates of interest, but are not
obligated to do so.
VARIABLE ACCOUNT:
You may direct the money in your policy to any of the Subaccounts of the
Variable 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.
- Each Subaccount invests exclusively in one of the following
portfolios:
- FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Growth Portfolio
Fidelity VIP Equity-Income Portfolio
- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP II Contrafund-Registered Trademark- Portfolio
- FIDELITY VARIABLE INSURANCE PRODUCTS III
Fidelity VIP III Growth & Income Portfolio
- FEDERATED INSURANCE SERIES
Federated Quality Bond Fund II
Federated International Equity Fund II
- SEI INSURANCE PRODUCTS TRUST
SEI VP Prime Obligation Fund
- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
CASH VALUE
- Cash Value is the sum of your amounts in the Subaccounts and the Fixed
Account. Cash Value is the starting point for calculating important
values under the Policy, such as the Surrender Value and the death
benefit.
- Cash Value varies from day to day, depending on the investment
performance of the Subaccounts you choose, interest we credit to the
Fixed Account, charges we deduct, and any other transactions (e.g.,
transfers, partial surrenders, and loans). WE DO NOT GUARANTEE A
MINIMUM CASH VALUE.
CHARGES AND DEDUCTIONS
$ PREMIUM CHARGE: We deduct a premium charge from each premium payment
and credit the remaining amount (the net premium) according to your
allocation instructions. The Premium Charge is 7.5% of all premiums
paid, up to the Target Premium in Policy Years 1-10 and 5.5% of all
premiums paid, up to the Target Premium in all Policy Years
thereafter. For all Policy Years, there is a 3.5% Premium Charge on
all premium payments in excess of the Target Premium.
$ MONTHLY DEDUCTION: On the Policy Date and on the same day each month
thereafter (Monthly Deduction Day), we deduct from the Cash Value:
10
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- the cost of insurance charge (which depends on a number of
variables, such as the Primary Insured's issue age, the
Underwriting Class, and the duration of the Policy, that cause
this charge to vary from Policy to Policy and from Monthly
Deduction Day to Monthly Deduction Day)
- the monthly policy fee of $6.00 for Specified Amounts $100,000 or
greater, and $9.00 per month on Specified Amounts less than
$100,000; plus $10.00 per month during the first Policy Year for
the Policy issue fee
- charges for any Riders
- the mortality and expense risk charge equal to an annual rate of
0.90% of the average daily net assets of the Variable Account in
Policy Years 1-10, and 0.45% thereafter. We may increase this
charge to a maximum annual rate of 0.90%.
$ SURRENDER CHARGES: During the first 14 Policy Years, we deduct a
surrender charge if you surrender the Policy or it lapses. The amount
of the surrender charge depends on the Underwriting Class of the
Primary Insured, issue age, and Policy Year. Increases in Specified
Amount have their own surrender charge period. The maximum surrender
charge for any Policy is $42 per $1,000 of Specified Amount. A
decrease in specified amount does not reduce the original or any
additional surrender charge. See Appendix [__] to this prospectus for
the Table of Surrender Charges.
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU MAY HAVE NO SURRENDER VALUE IF YOU
SURRENDER YOUR POLICY DURING THE FIRST 14 POLICY YEARS.
$ PARTIAL SURRENDER CHARGES: For each partial surrender, we deduct a
partial surrender charge and a processing fee of 2% of the amount
surrendered up to $25 from the Cash Value that remains in the Policy.
The partial surrender charge will be in proportion to the charge that
would apply to a full surrender.
$ TRANSFER CHARGE: We assess a $25 fee (from the amount transferred) for
the 13th and each additional transfer among the Subaccounts or the
Fixed Account in a Policy Year. Only one transfer from the Fixed
Account to the Subaccounts may be made per year.
$ DUPLICATE POLICY FEE: We will deduct a fee of ___ for each
additional copy of the Policy you request.
$ PORTFOLIO EXPENSES: The portfolios deduct management fees and other
expenses from their assets. These fees and expenses vary by portfolio
and are shown in the following table.
The following table shows the fees and expenses charged by the portfolios for
the fiscal year ended December 31, 1999. The purpose of the table is to assist
you in understanding the various costs and expenses that you will bear directly
and indirectly. Expenses of the portfolios may be higher or lower in the future.
Please refer to the portfolios' prospectuses for more information.
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average portfolio
assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
PORTFOLIO FEES 12b-1 FEES EXPENSES ANNUAL EXPENSES
--------- ---------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Fidelity VIP Growth Portfolio(1/) 0.58% 0.25% 0.10% 0.93%
Fidelity VIP Equity-Income Portfolio(1/) 0.48 0.25 0.10 0.83
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP II
Contrafund-Registered Trademark-
Portfolio(1/) 0.58 0.25 0.12 0.95
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<CAPTION>
MANAGEMENT OTHER TOTAL
PORTFOLIO FEES 12b-1 FEES EXPENSES ANNUAL EXPENSES
--------- ---------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Fidelity VIP III Growth & Income
Portfolio(1/) 0.48 0.25 0.13 0.86
FEDERATED INSURANCE SERIES
Federated Quality Bond Fund II(2/) 0.60 3.40 4.00
Federated International Equity Fund II(2/) 0.75 0.71 1.46
SEI INSURANCE PRODUCTS TRUST
SEI VP Prime Obligation Fund(3/) 0.03 0.70 0.73
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II(4/) 1.00 0.17 1.17
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II(4/) 1.00 0.14 1.14
</TABLE>
(1/) The adviser has voluntarily agreed to reimburse the Fidelity VIP Growth,
Fidelity VIP Equity-Income, Fidelity VIP Growth & Income and Fidelity VIP
Equity-Income Portfolios to the extent Total Annual Expenses (excluding
interest, taxes, certain securities lending costs, brokerage commissions, and
extraordinary expenses) for the Fidelity VIP Growth and Fidelity VIP
Equity-Income Portfolio exceed 1.75% of average net assets and Total Annual
Expenses (excluding interest, taxes, certain securities lending costs, brokerage
commissions, and extraordinary expenses) for the Fidelity VIP Growth & Income
and Fidelity VIP Equity-Income Portfolios exceed 1.25% of average net assets.
(2/) The adviser has voluntarily agreed to reimburse the Federated Quality Bond
Fund II and Federated International Equity Fund II Portfolios to the extent
Total Annual Expenses for the Federated Quality Bond Fund II Portfolio exceeds
___% of average net assets and Total Annual Expenses for the Federated
International Equity Fund II Portfolio exceeds ___% of average net assets.
(3/) The adviser and administrator for the SEI VP Prime Obligation Fund have
each voluntarily agreed to waive a portion of its fee to ensure Total Annual
Expenses do not exceed 0.69% of average net assets.
(4)/ The adviser has voluntarily agreed to reimburse the Strong Mid Cap Growth
Fund II and Strong Opportunity Fund II Portfolios to the extent Total Annual
Expenses for the Strong Mid Cap Growth Fund II Portfolio exceeds ___% of average
net assets and Total Annual Expenses for the Strong Opportunity Fund II
Portfolio exceeds 1.10% of average net assets.
The fee and expense information regarding the portfolios was provided by those
portfolios. The Variable Insurance Products Fund, Variable Insurance Products
Fund II, Variable Insurance Products Fund III, Federated Insurance Series, SEI
Insurance Products Trust, Strong Variable Insurance Funds, Inc. and Strong
Opportunity Fund II, Inc. are not affiliated with AFLIC.
SURRENDERS AND PARTIAL SURRENDERS
- SURRENDER: At any time while the Policy is in force, you may make a
request to surrender your Policy and receive the Surrender Value. A
surrender may have tax consequences.
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<PAGE>
- PARTIAL SURRENDERS: After the first Policy Year, you may make a
written request to withdraw part of the Surrender Value, subject to
the following rules.
- You must request at least $250.
- For each partial surrender, we also deduct a partial surrender
charge from the Cash Value that remains in the Policy in
proportion to the charge that would apply to a full surrender.
- For each partial surrender, we also deduct a processing fee of 2%
of the amount surrendered, up to $25, from the remaining Cash
Value.
- Unless you specify otherwise, we will deduct the requested
partial surrender and partial surrender charge from the
Subaccounts and the Fixed Account in proportion to the value in
each account.
- We allow up to four partial surrenders in a Policy Year.
- Partial surrenders may have tax consequences.
- If the Primary Insured dies within 2 years after a partial
surrender, the amount of the partial surrender will be deducted
from the insurance proceeds payable to the beneficiary.
DEATH BENEFIT
- INSURANCE PROCEEDS: We pay insurance proceeds to the Beneficiary upon
due proof of death of the Insured. The insurance proceeds equal the
death benefit and any additional insurance provided by Rider less any
indebtedness, any unpaid Monthly Deductions, and any partial
surrenders within 2 years of the Primary Insured's.
- DEATH BENEFIT OPTION 1 AND OPTION 2: You may choose between two death
benefit options under the Policy. You may change death benefit options
while the Policy is in force. We calculate the amount available under
each death benefit option on the date of the Primary Insured's death
using the Primary Insured's attained age as of the start of the Policy
Year in which the Primary Insured dies.
- DEATH BENEFIT OPTION 1 is equal to the greater of:
- the Specified Amount (which is the amount of insurance you select
on the date of the Primary Insured's death); or
- the Cash Value multiplied by the applicable Cash Value Percentage
(see "Death Benefit - Death Benefit Options - Table of Cash Value
Percentages", below).
- DEATH BENEFIT OPTION 2 is equal to the greater of:
- the Specified Amount PLUS the Cash Value on the date of the
Primary Insured's death; or
- the Cash Value multiplied by the applicable Cash Value Percentage
(see "Death Benefit - Death Benefit Options - Table of Cash Value
Percentages", below).
- ACCELERATED DEATH BENEFIT: Under the Accelerated Death Benefit Rider,
you may receive accelerated payment of part of your death benefit if
the Primary Insured develops a terminal illness (See "Supplemental
Benefits and Riders--Accelerated Death Benefit Rider," below).
13
<PAGE>
TRANSFERS
- You may make transfers among the Subaccounts and the Fixed Account.
- We charge $25 for the 13th and each additional transfer during a
Policy Year.
- Only one transfer out of the Fixed Account may be made per year.
- The minimum amount you may transfer from a Subaccount or the Fixed
Account is the lesser of $250 or the total Cash Value in the
Subaccount or Fixed Account less any loan balance.
LOANS
- You may take a loan from your Policy. You may take a preferred loan,
up to the amount your Surrender Value exceeds premiums paid, at any
time. You may also take a non-preferred loan at any time.
- The maximum loan amount you may take is 90% of the Surrender Value.
You may increase your risk of lapse if you take a loan. Loans may have
tax consequences.
- We charge you a maximum annual interest rate of 8.00% ("charged
interest rate") on your loan. Charged interest is due and payable at
the end of each Policy Year. Unpaid interest becomes part of the
outstanding loan and accrues interest if it is not paid by the end of
the Policy Year.
- We credit interest on loan amounts in the Loan Account ("earned
interest rate") and we guarantee that the annual earned interest rate
will not be lower than 8% for preferred loans and 6% for non-preferred
loans.
- We will allocate an amount equal to the loan ("loan amount") from the
Variable Account and Fixed Account to the Loan Account. You may tell
us how to allocate the loan among the Subaccounts and the Fixed
Account. If you do not, we will allocate the loan among the
Subaccounts and the Fixed Account (minus the loan amount) on a
pro-rata basis based on the Cash Value in each account. The value in
the Loan Account must be at least as great as the loan amount.
- We add a $25 processing fee to the loan balance for each loan
processed.
- You may repay all or part of your indebtedness at any time while the
Primary Insured is alive and the Policy is in force.
- We deduct any loan balance from the Cash Value upon surrender, and
from the death benefit payable on the Primary Insured's death.
ILLUSTRATIONS
The illustrations provided in Appendix __ at the end of this prospectus
illustrate death benefits, Cash Values, and Surrender Values. These
illustrations are based on hypothetical rates of return that are not guaranteed.
The illustrations also assume costs of insurance for a hypothetical person. Your
rates of return and insurance charges may be higher or lower than these
illustrations. YOU SHOULD OBTAIN A PERSONALIZED ILLUSTRATION BEFORE PURCHASING A
POLICY.
14
<PAGE>
RISK SUMMARY
================================================================================
The following are some of the risks associated with the Policy.
--------------------------------------------------------------------------------
INVESTMENT RISK If you invest your Cash Value in one or more Subaccounts,
then you will be subject to the risk that investment
performance will be unfavorable and that the Cash Value will
decrease. You could lose everything you invest. If you
allocate net premiums to the Fixed Account, then we credit
your Cash 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%.
--------------------------------------------------------------------------------
RISK OF LAPSE If your Surrender Value is not enough to pay the Monthly
Deduction and other charges, your Policy may enter a 61-day
grace period. We will notify you that the Policy will lapse
unless you make a sufficient payment during the grace
period. Your Policy may also lapse if your indebtedness
reduces the Surrender Value to zero. Your Policy generally
will not lapse: (1) during the first 5 Policy Years, if you
pay premiums (less any indebtedness and partial surrenders)
equal to or in excess of the minimum premium (there is no
such guarantee for any increase in Specified Amount); (2) if
you purchase a Guaranteed Minimum Death Benefit Rider and
meet certain conditions; or (3) if you make a payment equal
to the outstanding Monthly Deductions and any loan interest
due before the end of the grace period. You may reinstate a
lapsed Policy, subject to certain conditions.
--------------------------------------------------------------------------------
TAX RISKS We anticipate that the Policy should generally be deemed a
life insurance contract under Federal tax law. However, due
to limited guidance under the Federal tax law, there is some
uncertainty about the application of the Federal tax law to
the Policy, particularly if you pay the full amount of
premiums permitted under the Policy. Assuming that a Policy
qualifies as a life insurance contract for Federal income
tax purposes, you should not be deemed to be in constructive
receipt of Cash Value under a Policy until there is a
distribution from the Policy. Moreover, death benefits
payable under a Policy should be completely excludable from
the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds.
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 surrenders, and loans under
the 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 surrenders, and
loans taken before you reach age 59 1/2. If the Policy is
not a MEC, distributions generally will be treated first as
a return of basis or investment in the contract and then as
taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from
a Policy that is not a MEC are subject to the 10% penalty
tax.
See "Federal Tax Considerations." You should consult a
qualified tax adviser for assistance in all Policy-related
tax matters.
--------------------------------------------------------------------------------
SURRENDER RISKS The surrender charge under the Policy applies for 14 Policy
Years after the Policy Date. An additional surrender charge
will be applicable for 14 years from the date of any
increase in the Specified Amount. It is possible that you
will receive no Surrender Value
15
<PAGE>
if you surrender your Policy in the first few Policy Years.
You should purchase the 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 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.
--------------------------------------------------------------------------------
LOAN RISKS A policy loan, whether or not repaid, will affect your
Policy's Cash Value over time because we subtract the amount
of the loan from the Subaccounts and/or Fixed Account as
collateral, and this loan collateral does not participate in
the investment performance of the Subaccounts.
We reduce the amount we pay on the Primary Insured's death
by the loan balance. Your Policy may lapse if your
indebtedness reduces the Surrender Value to zero.
--------------------------------------------------------------------------------
THE COMPANY AND THE FIXED ACCOUNT
================================================================================
AMERICAN FAMILY LIFE INSURANCE COMPANY
We are a stock life insurance company. We were incorporated under Wisconsin law
in 1957. We are subject to regulation by the Officer of the Commissioner of
Insurance of the state of Wisconsin, as well as by the insurance departments of
all other states in which we do business. We established the Variable Account to
support the investment options under the Policy and under other variable life
insurance policies we may issue. Our General Account supports the Fixed Account
option under the Policy.
We are a wholly owned subsidiary of Am Fam, Inc. Am Fam, Inc. is a downstream
holding company and a wholly owned subsidiary of American Family Mutual
Insurance Company ("American Family Mutual"). American Family Mutual is one of
the leading property/casualty insurance companies in the United States with
operations in fifteen states located primarily in the Midwest. American Family
Mutual offers a broad line of insurance coverage to individuals and businesses,
including automobile, accident and health, homeowners, farm owners, mobile
homeowners, inland marine, burglary, commercial, personal and fire coverage.
IMSA. We are 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, we 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 accounts. These assets are
subject to our general liabilities from business operations. Subject to
applicable law, we have sole discretion over investment of the Fixed Account's
assets. We bear 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%. The principal, after charges and deductions, is also
guaranteed. We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion. The Fixed Account will not share in the
investment performance of our general account.
16
<PAGE>
Each policy year, we, in our sole discretion, will establish a current interest
rate that will be credited to amounts held in the Fixed Account for the duration
of the policy year. For each amount allocated or transferred to the Fixed
Account, we will apply the then current interest rate to such amount to the end
of the policy year. At the end of the policy year, we reserve the right to
declare a new current interest rate on such amounts and accrued interest
thereon. You assume the risk that interest credited to amounts in the Fixed
Account may not exceed the minimum 3% guaranteed rate.
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 VARIABLE ACCOUNT AND THE PORTFOLIOS
===============================================================================
THE VARIABLE ACCOUNT
We established American Family Variable Account I as a separate investment
account under Wisconsin law. We own the assets in the Variable Account and we
are obligated to pay all benefits under the Policies. We may use the Variable
Account to support other variable life insurance policies we issue. The Variable
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940 and qualifies as a
"separate account" within the meaning of the Federal securities laws. This
registration does not involve supervision of the management or investment
practices or policies of the Variable Account by the Securities and Exchange
Commission. We have divided the Variable Account into Subaccounts, each of which
invests in shares of one portfolio of the following funds:
- Federated Insurance Series
- Fidelity Variable Insurance Products Fund
- Fidelity Variable Insurance Products Fund II
- Fidelity Variable Insurance Products Fund III
- SEI Insurance Products Trust
- Strong Opportunity Fund II, Inc.
- Strong Variable Insurance Funds, Inc.
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.
- Income, gains, and losses, whether or not realized, from assets
allocated to the Variable Account will be credited to or charged
against the Variable Account without regard to our other income,
gains, or losses. Income, gains, and losses credited to, or charged
against, a Subaccount reflect the Subaccount's own investment
performance and not the investment performance of our other assets.
The Variable Account assets are held separate from our other assets
and are not part of our general account. We may not use the Variable
Account's assets to pay any of our liabilities other than those
arising from the Policies. If the Variable Account's assets exceed the
required reserves and other liabilities, we may transfer the excess to
our general account. The Variable Account may include other
Subaccounts that are not available under the Policies and are not
discussed in this prospectus.
- If investment in the funds or a particular portfolio is no longer
possible or in our judgment becomes inappropriate for the purposes of
the Variable Account, we may substitute another fund or portfolio
without your consent. The substituted fund or portfolio may have
different fees and expenses. Substitution may be made with respect to
existing investments or the investment of future premiums, or both.
However, no such substitution will be made without any necessary
approval of the SEC. Furthermore, we may close Subaccounts to
allocations of premiums or Cash Value, or both, at any time in our
sole discretion. The funds, which sell their shares to the Subaccounts
pursuant to participation agreements, also may terminate these
agreements and discontinue offering their shares to the Subaccounts.
In addition, we reserve the right to make other structural and operational
changes affecting the Variable Account. See "Additional Information -- Changes
to the Variable Account."
17
<PAGE>
THE PORTFOLIOS
- The Variable 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. This registration does not involve supervision of
the management or investment practices or policies of the portfolios
or mutual funds 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.
- The following table summarizes each portfolio's investment
objective(s) and identifies its investment adviser (and subadviser, if
applicable). 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 and
expenses, in the prospectuses for the portfolios that accompany this
prospectus. You should read these prospectuses carefully.
<TABLE>
<CAPTION>
--------------------------------------- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
--------------------------------------- ----------------------------------------------------------------------------
<S> <C>
FEDERATED INTERNATIONAL - INVESTMENT OBJECTIVE: Seeks total
EQUITY FUND II return on assets through adiversified
portfolio consisting primarily of
non-U.S. stocks.
INVESTMENT ADVISER: Federated Investment
Management Company.
--------------------------------------- ----------------------------------------------------------------------------
FEDERATED QUALITY BOND - INVESTMENT OBJECTIVE: Seeks to
FUND II provide current income by investing
in a diversified portfolio of
investment grade securities, which
are rated in one of the four highest
categories by a nationally recognized
statistical rating organization.
INVESTMENT ADVISER: Federated Investment
Management Company.
--------------------------------------- ----------------------------------------------------------------------------
FIDELITY VIP EQUITY-INCOME - INVESTMENT OBJECTIVE: Seeks
reasonable income by investing
primarily in income-producing equity
securities. In choosing these
securities, the adviser will also
consider the potential for capital
appreciation.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
--------------------------------------- ----------------------------------------------------------------------------
18
<PAGE>
<CAPTION>
--------------------------------------- ---------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
--------------------------------------- ---------------------------------------------
<S> <C>
FIDELITY VIP GROWTH - INVESTMENT OBJECTIVE: Seeks to
achieve capital appreciation by
investing in the common stock of
companies that the adviser believes
have above-average growth potential.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
--------------------------------------- ---------------------------------------------
FIDELITY VIP II - INVESTMENT OBJECTIVE: Seeks long-term
CONTRAFUND-Registered Trademark- capital appreciation by investing in
the securities of companies whose
value the adviser believes is not
fully recognized by the public.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
--------------------------------------- ---------------------------------------------
FIDELITY VIP III GROWTH & INCOME - INVESTMENT OBJECTIVE: Seeks high
total return through a combination of
current income and capital
appreciation.
INVESTMENT ADVISER: Fidelity Management
& Research Company.
--------------------------------------- ---------------------------------------------
SEI VP PRIME OBLIGATION FUND - INVESTMENT OBJECTIVE: Seeks to
preserve principal and provide
liquidity, diversification and a
competitive yield by investing in
high quality, short-term money market
instruments.
INVESTMENT ADVISER: SEI Investments
Management Corporation.
--------------------------------------- ---------------------------------------------
STRONG OPPORTUNITY FUND II - INVESTMENT OBJECTIVE: Seeks capital
growth. It currently emphasizes
medium-sized companies that the
adviser believes are under-priced and
have attractive growth prospects.
INVESTMENT ADVISER: Strong Capital
Management, Inc.
--------------------------------------- ---------------------------------------------
STRONG MID CAP GROWTH - INVESTMENT OBJECTIVE: Seeks capital
growth. The Fund FUND II invests
primarily in securities that the
adviser believes have above-average
growth prospects.
INVESTMENT ADVISER: Strong Capital
Management, Inc.
--------------------------------------- ---------------------------------------------
</TABLE>
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 of the portfolios available under the Policy may be
19
<PAGE>
lower or higher than the investment performance of these other (publicly
available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION,
THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE
POLICY WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE 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.
PORTFOLIO MANAGEMENT FEES AND CHARGES
Each portfolio deducts portfolio management fees and charges from the amounts
you have invested in the portfolios. In addition, 4 portfolios deduct 12b-1
fees. See the Fee Table in this Prospectus and the prospectuses for the
portfolios.
We receive compensation from certain investment advisers and/or administrators
(and/or an affiliate thereof) of the portfolios in connection with
administrative or other services and cost savings experienced by the investment
advisers, administrators or affiliates. Such compensation may range from ___% to
___% and is based on a percentage of assets of the particular portfolios
attributable to the Contract. We also receive a portion of the 12b-1 fees
deducted from portfolio assets as reimbursement for providing certain services
permitted under the fund's 12b-1 plan. Some advisers, administrators, or
portfolios may pay us more than others.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
THE POLICY
===============================================================================
PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium payment to us at our Home Office. You may send the application and
initial premium payment to us through any licensed life insurance agent who is
appointed by AFLIC and who is also a registered representative of American
Family Securities, LLC, the principal underwriter for the Policy.
The minimum Specified Amount for issue ages 0-17, Nonsmoker underwriting class
only, is $100,000. The minimum Specified Amount for issue ages 18-80 in all the
underwriting classes is as follows: Select: $150,000; Preferred: $100,000;
Nonsmoker: $50,000; and Regular: $50,000.
Generally, the Policy is available for Insureds between issue ages 0-80. We
reserve the right to modify our minimum Specified Amount and 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
If we issue the Policy as applied for, full insurance coverage under the Policy
will take effect on the Issue Date, provided sufficient payment has been
received. If we issue a Policy other than as applied for, full insurance
coverage will take effect either upon the completion of all underwriting and
owner payment for and acceptance of the Policy, or on the Issue Date, whichever
is later. The Issue Date may be several days later than when the Policy is
delivered to you. Full insurance coverage will not begin before the Issue Date
set forth in the Policy.
Generally, we will issue the Policy if we determine that the Primary Insured
meets our underwriting requirements and we accept the original application. On
the Issue Date, we will begin to deduct monthly deductions from your net premium
and we will allocate your premium minus the Monthly Deduction to the Fixed
Account until the reallocation date.
20
<PAGE>
In any state other than Kansas, if you pay the minimum initial premium payment
with your application, we may give you a conditional receipt. This means that,
subject to our underwriting requirements and subject to a maximum limitation,
insurance coverage will become effective on the effective date we specified in
the conditional receipt. The effective date will be the latest of (i) the date
of completion of the application, (ii) the date of completion of all medical
exams and tests we require, (iii) the date requested in the application, and
(iv) the date any required amendments have been signed.
In the state of Kansas, temporary insurance coverage may be provided prior to
the Issue Date under the terms of a temporary insurance agreement for receipt of
the minimum initial premium payment and application. In accordance with our
underwriting rules, temporary insurance coverage may not exceed the lesser of
the Specified Amount applied for or $500,000 and will remain in effect until the
earlier of the date insurance coverage takes effect under the Policy or the date
we mail notice of termination and refund the premium payment.
As provided for under state insurance law, you, to preserve insurance age, may
be permitted to backdate the Policy. In no case may the Issue Date be more than
six months prior to the date the application was completed. We will make Monthly
Deductions for the backdated period on the Issue Date.
CANCELING A POLICY (FREE LOOK RIGHT)
INITIAL FREE LOOK. You may cancel a Policy during the free look period by
providing written notice of cancellation and returning the Policy to us or to
the agent who sold it. The free look period begins when you receive the Policy
and generally expires at the end of the 30th day after you receive the Policy.
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 7 days after we receive the returned Policy, we will refund an amount
equal to the greater of premium payments made or the sum of:
1. The Cash Value as of the date we receive the returned Policy, plus
2. Any premium charges deducted, plus
3. Any Monthly Deductions charged against Cash Value.
OWNERSHIP RIGHTS
The Policy belongs to the Owner named in the application. While the Primary
Insured is living, the Owner may exercise all of the rights and options
described in the Policy. The Owner is the Primary Insured unless the application
specifies a different person as the Primary Insured or the Owner is changed
thereafter. If the Owner is not the Primary Insured and dies before the Primary
Insured, ownership of the Policy will pass to the Owner's estate, unless a
contingent Owner has been designated or unless otherwise provided by policy
endorsement. To the extent permitted by law, Policy benefits are not subject to
any legal process for the payment of any claim against the payee, and no right
or benefit will be subject to claims of creditors (except as may be provided by
assignment).
The Owner may exercise certain rights described below.
SELECTING AND CHANGING THE - You designate the Beneficiary (the person
BENEFICIARY to receive the insurance proceeds when
the Insured dies) and the contingent
Beneficiary (the person to receive the
insurance proceeds if no primary
Beneficiary is alive when the Insured
dies) in the application.
- You may designate more than one
Beneficiary and/or contingent
Beneficiary. If you designate more than
one such Beneficiary, then
21
<PAGE>
each Beneficiary that survives the
Insured shares equally in any insurance
proceeds unless the Beneficiary
designation states otherwise.
- If there is not a designated Beneficiary
or contingent Beneficiary surviving at
the Insured's death, we will pay the
insurance proceeds to the Owner, if
living, or the Owner's estate.
----------------------------------
DEATH BENEFIT VS. INSURANCE - If any Beneficiary or the Owner is not
PROCEEDS eligible to receive the insurance
proceeds, we will pay the insurance
proceeds as if the ineligible Beneficiary
or Owner died before the Insured. If no
Beneficiary is eligible and the Owner is
not eligible, we will pay the insurance
proceeds to the Insured's estate.
- If the Primary Insured is living on the
Maturity Date, and this Policy is in
force, we will pay the Owner the proceeds
of this Policy, unless the Owner has
elected to extend the Maturity Date.
- Unless there is an irrevocable
Beneficiary, you can change the
Beneficiary while the Insured is living
by providing a written notice
satisfactory to us. If we approve, the
change is effective as of the date you
complete and sign the written notice,
regardless of whether the Insured is
living when we receive the notice. We are
not liable for any payment or other
actions we take before we receive your
written notice.
- A Beneficiary generally may not pledge,
commute, or otherwise encumber or
alienate payments under the Policy before
they are due.
----------------------------------
CHANGING THE OWNER - You may change the Owner at any time
while the Primary Insured is alive by
providing a written notice satisfactory
to us. If we approve, the change is
effective as of the date you complete and
sign the written notice, regardless of
whether the Primary Insured is living
when we receive the request.
- We are not liable for any payment or
other actions we take before we receive
your written notice.
- Changing the Owner does not automatically
change the Beneficiary.
- Changing the Owner may have tax
consequences. You should consult a tax
adviser before changing the Owner.
----------------------------------
ASSIGNING THE POLICY - You may assign Policy rights while the
Primary Insured is alive by submitting
written notice to us.
- Your interests and the interests of any
Beneficiary or other person will be
subject to any assignment unless the
Beneficiary was designated an irrevocable
Beneficiary before the assignment.
- You retain any Ownership rights that are
not assigned.
- We are not:
-> bound by any assignment unless we
receive a written notice of
22
<PAGE>
the assignment;
-> responsible for validity of any
assignment or determining the
extent of an assignee's interest;
or
-> liable for any payment we make
before we receive written notice
of the assignment.
- ASSIGNING THE POLICY MAY HAVE TAX
CONSEQUENCES. SEE "FEDERAL TAX
CONSIDERATIONS -- TAX TREATMENT OF POLICY
BENEFITS."
PREMIUMS
===============================================================================
MINIMUM INITIAL PREMIUM PAYMENT. The minimum initial premium payment is due on
or before the date the Policy is delivered. No insurance will take effect until
the minimum initial premium payment is made, and the health and other conditions
of the Primary Insured described in the application must not have changed.
PREMIUM FLEXIBILITY. When you apply for a Policy, you will elect to pay Planned
Premium Payments on a quarterly, semiannual, or annual basis (Planned Premium
Payments). We will then send you a Planned Premium Payment reminder notice as
each planned payment becomes "due." However, you do not have to pay premium
payments according to any schedule. You have flexibility to determine the
frequency and the amount of the premium payments you make, and you can change
the Planned Premium Payment schedule at any time. If you are submitting a
premium payment with a premium payment reminder notice, the address for payment
will be enclosed with the notice. You may send premium payments without a
premium reminder notice to our Administrative Service Center. You may also
choose to have premium payments automatically deducted monthly, quarterly,
semiannually or annually from your bank account or other source under the
electronic payment plan. Payment of the planned premiums does not guarantee that
the Policy will remain in force. See "Policy Lapse and Reinstatement."
23
<PAGE>
You may not make any premium payments after the Policy's Maturity Date. You may
not make additional premium payments of less than $100. We have the right to:
1. Limit or refund a premium payment that would disqualify the Policy as
a life insurance contract under the Internal Revenue Code of 1986 as
amended (the "Code");
2. Limit any increase in Planned Premium Payments;
3. Limit the number and amount of additional premium payments and Planned
Premium Payments; or
4. Apply certain premium payments as repayment of policy loans.
You can stop making premium payments at any time and your Policy will continue
in force until the earlier of the Maturity Date, or the date when either: (1)
the Primary Insured dies; (2) the grace period ends without a sufficient payment
(see "Policy Lapse and Reinstatement"); or (3) we receive your written notice
requesting a surrender of the Policy.
MINIMUM PREMIUM PAYMENT. The minimum premium payment is the monthly premium
payment amount necessary to guarantee insurance coverage during the first 5
Policy Years. Your Policy's schedule page will show a minimum premium payment
amount for your Policy, which is based on the Primary Insured's issue age,
underwriting class, Specified Amount, and Riders. The minimum premium payment
may increase if you increase the Specified Amount or add supplemental benefits
to your Policy. The minimum premium payment may decrease for any supplemental
benefit you decrease or discontinue or if the Primary Insured's Underwriting
Class changes. The minimum premium payment will not decrease if you decrease the
Specified Amount. See "Death Benefit -- Changing the Specified amount."
PREMIUM LIMITATIONS. The Code provides for exclusion of the death benefit from a
Beneficiary's gross income if total premium payments do not exceed certain
stated limits. In no event can the total of all premium payments under a Policy
exceed these limits. We have established procedures to monitor whether aggregate
premium payments under a Policy exceed those limits. If a premium payment is
paid which would result in total premium payments exceeding these limits, we
will accept only that portion of the premium payment which would make total
premiums equal the maximum amount which may be paid under the Policy. We will
notify you of available options with regard to the excess premium payment. If a
satisfactory arrangement is not made, we will refund this excess to you. If
total premium payments do exceed the maximum premium limitations established by
the Code, however, the excess of a Policy's death benefit over the Policy's
Surrender Value should still be excludable from gross income.
The maximum premium payment limitations set forth in the Code depend in part
upon the amount of the death benefit at any time. As a result, any Policy
changes which affect the amount of the death benefit may affect whether
cumulative premium payments under the Policy exceed the maximum premium
limitations.
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium payment, money from another life insurance contract that qualified for a
tax-free exchange under Section 1035 of the Code, contingent upon receipt of the
cash from that contract. If you contemplate such an exchange, you should consult
a tax adviser to discuss the potential tax effects of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us in the application to allocate
your net premium payment to one or more Subaccounts of the Variable Account
and/or to the Fixed Account according to the following rules:
Allocation percentages must be in whole numbers no less than 10% and the sum of
the percentages must equal 100%.
24
<PAGE>
For the first 40 days following the date we issue the Policy, we direct your
premium payments allocated to the Variable Account to the Money Market
Subaccount. At the end of the 41st day after issuance of the Policy, we allocate
that value to the Subaccounts you selected. We direct your premium payments
allocated to the Fixed Account to that account on the issuance date.
We will allocate the net premium payment as of the date we receive it at our
Administrative Service Center or Home Office according to your current premium
allocation instructions.
You can change the allocation instructions for future premium payments at any
time, either in writing or over the phone if the appropriate authorization is in
effect. The change will be effective on the Business Day on or next following
the date we receive your written instructions at our Administrative Service
Center, or the date instructions are provided to us over the telephone.
Investment returns from amounts allocated to the Subaccounts will vary with the
investment performance of these Subaccounts and will be reduced by Policy
charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS. You should periodically review your allocation schedule in light of
market conditions and your overall financial objectives.
CASH VALUES
===============================================================================
CASH VALUE
The Cash Value serves as the starting point for calculating values under a
Policy.
CASH VALUE: - equals the sum of all values in the Fixed
Account, the Loan Account, and in each
Subaccount;
- is determined first on the Policy Date
and then on each Business Day; and
- has no guaranteed minimum amount and may
be more or less than premiums paid.
SURRENDER VALUE
The Surrender Value is the amount we pay to you when you surrender your Policy.
We determine the Surrender Value at the end of the valuation period when we
receive your written surrender request.
SURRENDER VALUE AT THE END OF ANY - the Cash Value as of such date; MINUS
BUSINESS DAY EQUALS: - any surrender charge as of such date;
MINUS
- any loan balance.
SUBACCOUNT VALUE
At the end of any valuation period, the Cash Value in a Subaccount is equal to
the number of accumulation units in the Subaccount multiplied by the
accumulation unit value of that Subaccount.
THE NUMBER OF ACCUMULATION UNITS - the initial accumulation units purchased
IN ANY SUBACCOUNT AT THE END OF at the accumulation unit value on the
ANY BUSINESS DAY EQUALS: Issue Date; PLUS
- accumulation units purchased with
additional premiums; PLUS
- accumulation units purchased via
transfers from another Subaccount, the
Fixed Account, or the Loan Account; MINUS
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<PAGE>
- accumulation units redeemed to pay for
Monthly Deductions; MINUS
- accumulation units redeemed to pay for
partial surrenders; MINUS
- accumulation units redeemed as part of a
transfer to another Subaccount, the Fixed
Account, or the Loan Account.
Every time you allocate or transfer money to or from a Subaccount, we convert
that dollar amount into accumulation units. We determine the number of
accumulation units we credit to, or subtract from, your Policy by dividing the
dollar amount of the transaction by the accumulation unit value for that
Subaccount at the end of the valuation period.
ACCUMULATION UNIT VALUE
The accumulation unit value for each Subaccount was arbitrarily set at $10 when
the Subaccount began operations. Thereafter, the accumulation unit value at the
end of every valuation period is the accumulation unit value at the end of the
previous valuation period times the net investment factor, as described below.
The net investment factor is an index applied to measure the investment
performance of a Subaccount from one valuation period to the next. Each
Subaccount has a net investment factor for each valuation period which may be
greater or less than one. Therefore, the value of an accumulation unit may
increase or decrease. The net investment factor for any Subaccount for any
valuation period is determined by adding to 1.000 the net investment rate. The
net investment rate equals
- the net assets of the portfolio held in the Subaccount, determined at
the end of the current valuation period; MINUS
- the net assets of the portfolio held in the Subaccount, determined at
the end of the last prior valuation period; PLUS OR MINUS
- the per share charge or credit for any taxes reserved for the
immediately preceding valuation period; DIVIDED BY
- the total value of the Subaccount accumulation units for the
immediately preceding valuation period.
FIXED ACCOUNT CASH VALUE
On the Issue Date, the Fixed Account Cash 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.
THE FIXED ACCOUNT CASH VALUE - the net premium(s) allocated to the Fixed
AT THE END OF ANY BUSINESS Account; PLUS
DAY IS EQUAL TO: - any amounts transferred to the Fixed
Account; PLUS
- interest credited to the Fixed Account;
MINUS
- amounts deducted to pay for Monthly
Deductions; MINUS
- amounts withdrawn from the Fixed Account;
MINUS
- amounts transferred from the Fixed
Account to a Subaccount or the Loan
Account.
Interest will be credited to the Fixed Account daily as follows:
-> for amounts in the Fixed Account for the entire policy month interest
will be credited from the beginning to the end of the policy month
-> for amounts allocated to the Fixed Account during the policy month
interest will be credited from the date the net premium or loan
repayment is allocated to the end of the policy month
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<PAGE>
-> for amounts transferred to the Fixed Account during the policy month
interest will be credited from the date of the transfer to the end of
the policy month
-> for amounts deducted or withdrawn from the Fixed Account during the
prior policy month interest will be credited from the beginning of the
prior policy month to the date of deduction or withdrawal
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.
SERVICES AND BENEFITS WE PROVIDE: - the death benefit, cash, and loan
benefits under the Policy
- investment options, including premium
payment allocations
- administration of elective options
- the distribution of reports to Owners
COSTS AND EXPENSES WE INCUR: - costs associated with processing and
underwriting applications, and with
issuing and administering the Policy
(including any Riders)
- overhead and other expenses for providing
services and benefits, sales and
marketing expenses
- other costs of doing business, such as
collecting premium payments, maintaining
records, processing claims, effecting
transactions, and paying Federal, state,
and local premium and other taxes and
fees
RISK WE ASSUME: - that the cost of insurance charges we may
deduct are insufficient to meet our
actual claims because Insureds die sooner
than we estimate
- that the costs of providing the services
and benefits under the Policies exceed
the charges we deduct
PREMIUM CHARGE
Prior to allocation of a premium payment, we deduct a charge from each premium
payment to compensate us for distribution expenses and certain taxes. We credit
the remaining amount (the net premium) to your Policy's Cash Value according to
your allocation instructions. The Premium Charge is 7.5% of premiums paid, up to
the Target Premium in Policy Years 1-10 and 5.5% of premiums paid, up to the
Target Premium, in all Policy Years thereafter. For all Policy Years, there is a
3.5% Premium Charge on all premium payments in excess of the Target Premium.
MONTHLY DEDUCTION
We deduct a Monthly Deduction from the Cash Value on the Monthly Deduction Day
to compensate us for administrative expenses and for the Policy's insurance
coverage. We will make deductions from the Cash Value in each Subaccount and the
Fixed Account on a pro rata basis (i.e., in the same proportion that the Cash
Value in each Subaccount and the Fixed Account bears to the unloaned Cash Value
on the Monthly Deduction Day). 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 4 components:
- the cost of insurance charge
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<PAGE>
- the policy fee
- costs of any Riders (as specified in the applicable Rider(s))
- the mortality and expense risk charge
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
(Primary Insured's issue age, Underwriting Class, Policy Year, and Specified
Amount) that would cause it to vary from Policy to Policy and from Monthly
Deduction Day to Monthly Deduction Day. Your Policy's schedule page indicates
the guaranteed cost of insurance charge applicable to your Policy.
COST OF INSURANCE CHARGE
For Death Benefit Option One the cost of insurance on any Monthly Deduction Day
is:
- the Death Benefit on the Monthly Deduction Day, divided by 1.00246627;
minus:
- the Policy's Adjusted Cash Value on the Monthly Deduction Day;
multiplied by:
- the applicable cost of insurance rates on the Monthly Deduction Day
divided by 1,000.
For Death Benefit Option Two the cost of insurance on any Monthly Deduction Day
is:
- the Death Benefit on the Monthly Deduction Day plus the Policy's
Adjusted Cash Value on the Monthly Deduction Day divided by 1.00246627
minus:
- this Policy's Adjusted Cash Value on the Monthly Deduction Day;
multiplied by:
- the applicable cost of insurance rates on the Monthly Deduction Day
divided by 1,000.
ADJUSTED CASH VALUE. The Adjusted Cash Value for the Base Policy is the Cash
Value reduced by the monthly cost of any Riders (except a Rider for total
disability) and the Monthly Deduction.
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 underwriting 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.
COST OF INSURANCE RATES. We base the cost of insurance rates on the Primary
Insured's issue age, underwriting class, number of full years the insurance has
been in force, and the Specified Amount. The actual monthly cost of insurance
rates are based on our expectations as to future mortality and expense
experience. The rates will never be greater than the guaranteed cost of
insurance rates stated in your Policy. These guaranteed rates are based on the
1980 Commissioner's Standard Ordinary Mortality Table and the Primary Insured's
issue age, and underwriting class. Any change in the cost of insurance rates
will apply to all persons of the same issue age, underwriting class, and number
of full years insurance has been in force.
UNDERWRITING CLASS. We currently have 4 underwriting classes: Select, Preferred,
Nonsmoker, and Regular. Insureds are placed in a class depending on their
mortality risks. The underwriting class of the Insured will affect the cost of
insurance rates.
- In an otherwise identical Policy, an Insured in the Select class will
have a lower cost of insurance than an Insured in the Regular class.
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<PAGE>
- Nonsmoking Insureds will generally incur lower cost of insurance rates
than Insureds who are classified as smokers in the same Underwriting
Class.
POLICY FEE. Each month we deduct a policy fee of $6.00 for Specified Amounts
$100,000 or greater and $9.00 for Specified Amounts less than $100,000. There is
an extra $10.00 per month charge in the first Policy Year.
DUPLICATE POLICY FEE. We will deduct a fee of ___ for each additional copy of
the Policy you request.
CHARGES FOR RIDERS. The Monthly Deduction includes charges for any supplemental
insurance benefits you add to your Policy by Rider. See "Other Policy
Information -- Supplemental Benefits and Riders."
MORTALITY AND EXPENSE RISK CHARGE
We deduct a monthly charge from each Subaccount and the Fixed Account to
compensate us for certain mortality and expense risks we assume. The mortality
risk is that the Primary 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 an annual rate of 0.90% of the average daily net assets
of the Variable Account in Policy Years 1-10, and 0.45% thereafter. We may
increase this charge to a maximum annual rate of 0.90%.
If this charge does not cover our actual costs, we may absorb any such 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 these profits for
any lawful purpose including covering distribution expenses.
SURRENDER CHARGE
Surrender charges are deducted to compensate us partially for the cost of
administering, issuing, and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records, and Policy issue.
We do not expect surrender charges to cover all of these costs. To the extent
that they do not, we will cover the short-fall from our general account assets,
which may include profits from the mortality and expense risk charge and cost of
insurance charge.
SURRENDER CHARGE. If your Policy lapses, or you fully surrender your Policy
during the first 14 Policy Years, we deduct a surrender charge from your Cash
Value and pay the remaining amount (less any Loan Balance) to you. The payment
you receive is called the Surrender Value.
The amount of the surrender charge depends on the Specified Amount, underwriting
class of the Primary Insured, issue age and Policy Year. Increases in Specified
Amount have their own surrender charge penalty period. The maximum surrender
charge for any Policy is $42 per $1,000 of Specified Amount. A decrease in
Specified Amount does not reduce the original surrender charge or any additional
surrender charge. See Appendix B to this prospectus for the Table of Surrender
Charges.
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CAREFULLY CALCULATE THESE
CHARGES BEFORE YOU REQUEST A SURRENDER OR INCREASE IN SPECIFIED AMOUNT. Under
some circumstances the level of surrender charges might result in no Surrender
Value being available.
SPECIFIED AMOUNT INCREASE
If you increase the Specified Amount of the Policy, the minimum premium will
increase as will the monthly cost of insurance. Each increase in Specified
Amount has its own effective date and results in additional surrender charges.
29
<PAGE>
PARTIAL SURRENDER CHARGE
After the first Policy Year, you may request a partial surrender from your Cash
Value. For each partial surrender, we will deduct a partial surrender charge
from the Cash Value that remains in the Policy. The charge will be in proportion
to the charge that would apply to a full surrender and is computed as the amount
of the Cash Value surrendered divided by the total amount of Surrender Value.
This charge reduces future surrender charges in the same proportion. These
charges are to compensate us for administrative costs in generating the
withdrawal payment and in making all calculations which may be required because
of the partial surrender. For each partial surrender, we also will deduct a
processing fee of 2% of the amount surrendered, up to $25, from the remaining
Cash Value.
TRANSFER CHARGE
We currently allow you to make 12 transfers among the Subaccounts or from the
Subaccounts to the Fixed Account each Policy Year free of charge. Included in
the 12 free transfers is one free transfer from the Fixed Account to the
Subaccounts.
- We deduct $25 for the 13th and each additional transfer made during a
Policy Year to compensate us for the costs of processing these
transfers.
- For purposes of assessing the transfer charge, we consider all
telephone and/or written requests processed on the same day to be one
transfer, regardless of the number of Subaccounts (or Fixed Account)
affected by the transfer(s).
- We deduct the transfer charge from the amount being transferred.
- Transfers due to dollar cost averaging, automatic asset reallocation,
loans, or the initial reallocation of Cash Value from the Money Market
Subaccount 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 management fees and
other expenses incurred by the corresponding portfolio in which the Subaccount
invests. For further information, consult the portfolios' prospectuses and the
Annual Portfolio Operating Expenses table included in the summary of this
prospectus.
DEATH BENEFIT
===============================================================================
INSURANCE PROCEEDS
As long as the Policy is in force, we will pay the insurance proceeds to the
Beneficiary once we receive satisfactory proof of the Insured's death. We may
require you to return the Policy. We will pay the insurance proceeds in a lump
sum (either by means of a check or a Flexible Settlement Account, which is
similar to a checking account except that it is not FDIC insured) or under a
settlement option. We will pay any insurance proceeds to the primary Beneficiary
if he or she survives the Insured. We will pay the insurance proceeds to the
contingent Beneficiary if he or she survives the Insured and there is no living
primary Beneficiary at the time of the Insured's death. If no Beneficiary or
contingent Beneficiary is alive when the Insured dies, we will pay the insurance
proceeds to the Owner, if living, or the Owner's estate. See "Death Benefit --
Settlement Options" and "Other Policy Information -- Payment of Policy
Benefits."
INSURANCE PROCEEDS EQUAL: - the death benefit (described below); PLUS
- any additional insurance provided by
Rider; MINUS
- any unpaid Monthly Deductions; MINUS
- any outstanding indebtedness; MINUS
- for Option 1 policies only, the amount of
any partial surrender within 2 years of
the Primary Insured's death.
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<PAGE>
If all or part of the insurance proceeds are paid in one sum (by either a check
or a Flexible Settlement Account) or through a settlement option, we will pay
interest on this sum as required by applicable state law from the date of the
Primary Insured's death to the date we make payment.
An increase in the Specified Amount may increase the death benefit, and a
decrease in the Specified Amount may decrease the death benefit.
We may further adjust the amount of the insurance proceeds under certain
circumstances. See "Other Policy Information -- Our Right to Contest the
Policy," and "Other Policy Information -- Misstatement of Age or Sex."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Option 1 and Option 2. We
calculate the amount available under each death benefit option as of the date of
the Primary Insured's death. Under either option, the length of the death
benefit coverage depends upon the Policy's Surrender Value. See "Policy Lapse
and Reinstatement."
The Death Benefit under - the Specified Amount; or
OPTION 1 is the greater of: - the Cash Value (determined on the date of
the Primary Insured's DEATH)MULTIPLIED by
the applicable percentage listed in the
table below.
The Death Benefit under - the Specified Amount plus the Cash Value
OPTION 2 is the greater of: (determined on the date of the Primary
Insured's death); or
- the Cash Value (determined on the date of
the Primary Insured's death) MULTIPLIED
by the applicable percentage listed in
the table below.
For Option 1 only, the Death Benefit will be reduced by the amount of any
partial surrenders including any partial surrender charge and processing fee
charged within two years of the date of death of the Primary Insured.
<TABLE>
<CAPTION>
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
ATTAINED CASH ATTAINED CASH ATTAINED CASH ATTAINED CASH
AGE VALUE% AGE VALUE% AGE VALUE % AGE VALUE%
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
up to 40 250 51 178 62 126 73 109
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
41 243 52 171 63 124 74 107
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
42 236 53 164 64 122 75-90 105
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
43 229 54 157 65 120 91 104
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
44 222 55 150 66 119 92 103
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
45 215 56 146 67 118 93 102
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
46 209 57 142 68 117 94 101
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
47 203 58 138 69 116 95 100
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
48 197 59 134 70 115
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
49 191 60 130 71 113
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
50 185 61 128 72 111
---------------- ------------- ------------- -------------- ------------- ------------- ------------- --------------
</TABLE>
WHICH DEATH BENEFIT OPTION TO CHOOSE. If you prefer to have premium payments and
favorable investment performance reflected partly in the form of an increasing
death benefit, you should choose Option 2. If you are satisfied with the amount
of the Primary Insured's existing insurance coverage and prefer to have premium
payments and favorable investment performance reflected to the maximum extent in
the Cash Value, you should choose Option 1.
The amount of the death benefit may vary with the Cash Value.
31
<PAGE>
- Under Option 1, the death benefit will vary with the Cash Value
whenever the Cash Value multiplied by the applicable percentage is
greater than the Specified Amount.
- Under Option 2, the death benefit will always vary with the Cash
Value.
CHANGING DEATH BENEFIT OPTIONS
You may change death benefit options at any time with no additional charge while
the Policy is in force. Changing the death benefit option may have tax
consequences and may affect the Adjusted Cash Value and Specified Amount (which
would affect the monthly cost of insurance charge). However, we will not permit
any change that would result in your Policy being disqualified as a life
insurance contract under Section 7702 of the Code. You should consult a tax
adviser before changing death benefit options.
- You must submit a written request for any change in death benefit
options.
- We will require evidence of insurability satisfactory to us for a
change from Option 1 to Option 2.
- The effective date of the change in death benefit option will be the
Monthly Deduction Day on or following the date when we receive your
request for a change.
If you change from OPTION 1 to OPTION 2:
- We will first decrease the Specified Amount (beginning with the most
recent increase, then the next most recent increases in succession,
and then the initial Specified Amount) and then any applicable Rider
coverage amounts by the Cash Value on the effective date of the
change.
- The death benefit will NOT change on the effective date of the change.
- The minimum premium may change.
- There will be a relative increase in the cost of insurance charges
over time because the net amount at risk will remain level rather than
decrease as the Cash Value increases (unless the death benefit is
based on the applicable percentage of Cash Value).
- If the Specified Amount or applicable Rider coverage amount would be
reduced to less than the minimum initial Specified Amount or minimum
amount in which the Policy or applicable Rider could be issued, then
we will not allow the change in death benefit option.
If you change from OPTION 2 to OPTION 1:
- The Specified Amount will be increased by the Cash Value on the
effective date of the change.
- The death benefit will NOT change on the effective date of the change.
- The minimum premium may change.
- Unless the death benefit is based on the applicable percentage of Cash
Value, if the Cash Value increases, the net amount at risk will
decrease over time.
CHANGING THE SPECIFIED AMOUNT
You select the Specified Amount when you apply for the Policy. You may change
the Specified Amount 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 Code. However, changing the
Specified Amount may have tax consequences and you should consult a tax adviser
before doing so.
INCREASING THE SPECIFIED AMOUNT
- After the first Policy Year, you may increase the Specified Amount by
submitting an application and providing evidence of insurability
satisfactory to us at our Administrative Service Center.
- On the effective date of an increase, and taking the increase into
account, the Surrender Value must be equal to the Monthly Deductions
then due. If not, the increase will not occur until you pay sufficient
additional premium to increase the Surrender Value.
- An increase will be effective on the Monthly Deduction Day on or next
following the date we approve your application, provided we have
received any premium necessary to make the change.
32
<PAGE>
- The minimum increase is $10,000.
- Increasing the Specified Amount will increase your minimum premium.
- Each increase in Specified Amount will begin a 14-year period during
which an additional surrender charge will apply if you surrender the
Policy.
- The total net amount at risk will be affected, which will increase the
monthly cost of insurance charges.
- A different cost of insurance charge may apply to the increase in
Specified Amount, based on the Primary Insured's circumstances at the
time of the increase.
DECREASING THE SPECIFIED AMOUNT
- You must submit a written request to decrease the Specified Amount or
decrease or cancel a Rider.
- You may not decrease the Specified Amount during the first 2 Policy
Years. You may decrease or cancel a Rider at any time.
- You may not decrease the Specified Amount below our published minimum
amount for the type of policy or Rider.
- Any decrease will be effective on the Monthly Deduction Day on or next
following the date we approve your request.
- A decrease in Specified Amount will first be used to reduce the most
recent increase, then the next most recent increases in succession,
and then the initial Specified Amount.
- We will not allow a decrease in Specified Amount if this decrease
would cause the Policy to no longer qualify as life insurance under
the Code.
- Decreasing the Specified Amount will not affect the minimum premium,
unless you have elected the Guaranteed Minimum Death Benefit Rider.
SETTLEMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. More detailed
information concerning these settlement options is available on request from our
Administrative Service Center. See "Other Policy Information -- Payment of
Policy Benefits."
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, you may receive an accelerated
payment of part of the Policy's death benefit when the Primary Insured develops
a non-correctable medical condition which is expected to result in his or her
death within 12 months. There is no additional charge for this Rider. See "Other
Policy Information -- Supplemental Benefits and Riders."
SURRENDERS AND PARTIAL SURRENDERS
===============================================================================
SURRENDERS
You may request to surrender your Policy for its Surrender Value as calculated
at the end of the Business Day when we receive your request, subject to the
following conditions:
- You must complete and sign our surrender form and send it to us at our
Administrative Service Center. You may obtain the surrender form by
calling us at ___________.
- The Primary Insured must be alive and the Policy must be in force when
you make your request, and the request must be made before the
Maturity Date. We may require that you return the Policy.
- If you surrender your Policy during the first 14 Policy Years (or
during the first 14 years after an increase in Specified Amount), you
will incur a surrender charge. See "Charges and Deductions --
Surrender Charges."
- Once you surrender your Policy, all coverage and other benefits under
it cease and cannot be reinstated.
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<PAGE>
- We will pay the Surrender Value to you in a lump sum within 7 days
after we receive your completed, signed surrender form absent other
arrangements, unless the payment is from the Fixed Account. We may
defer payment from the Fixed Account for the time allowed by law but
not more than 6 months.
- A surrender may have tax consequences. See "Federal Tax Considerations
-- Tax Treatment of Policy Benefits."
PARTIAL SURRENDER
After the first Policy Year, you may make a written request to withdraw up to
90% of the Surrender Value subject to the following conditions:
- The Policy has Surrender Value.
- You must request at least $250.
- For each partial surrender, we deduct a partial surrender charge from
Cash Value that remains in the Policy in proportion to the charge that
would apply to a full surrender. We also deduct a processing fee of 2%
of the amount surrendered, up to $25, from the remaining Cash Value.
See "Charges and Deductions -- Partial Surrender Charge."
- You may make up to 4 partial surrenders per year.
- The Primary Insured must be alive and the Policy must be in force when
you make your request, and this request must be made before the
Maturity Date.
- You can specify the Subaccount(s) and Fixed Account from which to make
the partial surrender. Otherwise, we will deduct the amount (including
any fee or charge) from the Subaccounts and the Fixed Account on a
pro-rata basis (that is, based on the proportion that the Cash Value
in each Subaccount and the Fixed Account value bears to the unloaned
Cash Value).
- We will process the partial surrender at the unit values next
determined after we receive your request.
- We generally will pay a partial surrender request within 7 days after
the Business Day when we receive the request.
- A partial surrender can affect the Adjusted Cash Value (which is used
to calculate the cost of insurance charge (see "Charges and Deductions
-- Monthly Deduction")).
- For Option 1 only, the Death Benefit will be reduced by the amount of
any partial surrenders including any partial surrender charge and
processing fee charged within two years of the date of death of the
Primary Insured.
- If a partial surrender would cause the Policy to fail to qualify as
life insurance under the Code, we will not allow the partial
surrender.
- Partial surrenders may have tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
TRANSFERS
================================================================================
You may make transfers between and among the Subaccounts and the Fixed Account.
We determine the amount you have available for transfers at the end of the
valuation period when we receive your written request. The following features
apply to transfers under the Policy:
- You may request a transfer of up to 100% of the Cash Value from one
Subaccount to another Subaccount or to or from the Fixed Account in
writing or by phone (as states permit).
- You must transfer at least $250 or the total Cash Value in the
Subaccount or Fixed Account less any policy loan, if less then $250.
- You may transfer amounts among the Subaccount, an unlimited number of
times in a Policy Year.
- We deduct a $25 charge from the amount transferred for the 13th and
each additional transfer in a Policy Year. Transfers due to dollar
cost averaging, automatic asset reallocation, loans, or the initial
reallocation of Cash Value from the Money Market Subaccount do NOT
count as transfers for the purpose of assessing the transfer charge.
See "Transfers -- Dollar Cost Averaging," "Transfers -- Automatic
Asset Reallocation," and "Other Policy Information -- Additional
Transfer Rights."
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- For purposes of assessing the transfer charge, we consider all
telephone and/or written requests processed on the same day to be a
single transfer, regardless of the number of Subaccounts (or Fixed
Account) affected by the transfer(s).
- We process transfers based on unit values determined at the end of the
Business Day when we receive your
transfer request.
- Transfers from the Fixed Account:
- You may make only one transfer per year from the Fixed Account to
the Subaccounts.
- The Fixed Account Cash Value after a transfer from the Fixed
Account must at least equal any loan balance.
- You may not transfer more than 25% of the Cash Value in the Fixed
Account as of the date of transfer. If such transfer causes the
Cash Value in the Fixed Account to fall below $1,000, we will
transfer the full Cash Value.
- We reserve the right to limit, revoke or modify the transfer privilege
at any time.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program in the
application or by completing an election form that we receive by the beginning
of the month. 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 over a period of time by
systematically and automatically transferring, on a monthly, quarterly,
semi-annual or annual basis, specified dollar amounts from the Money Market
Subaccount into any other Subaccount(s). This allows you to potentially reduce
the risk of investing most of your premium payment into the Subaccounts at a
time when prices are high. We do not assure the success of this strategy, and
success depends on market trends. We cannot guarantee that dollar cost averaging
will result in a profit or protect against loss. 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.
On each dollar cost averaging transfer day, we will automatically transfer equal
amounts (minimum $250) from the Money Market Subaccount to your designated
"destination accounts" in the percentages selected. You may have multiple
destination accounts. To participate in dollar cost averaging, you must elect a
period of time and place at least $1,000 in the Money Market Subaccount.
If you have elected dollar cost averaging, the program will start on the first
Business Day after the later of:
1. The Policy Date;
2. The end of the 40-day period when Cash Value has been allocated to the
Money Market Subaccount; or
3. When the Cash Value of the Money Market Subaccount equals or exceeds
the greater of: (a) the minimum amount stated above; or (b) the amount
of the first transfer.
DOLLAR COST AVERAGING WILL END IF: - we receive your written request to cancel
your participation;
- the Cash Value in the Money Market
Subaccount is depleted;
- the specified number of transfers has
been completed; or
- the Policy enters the grace period.
You will receive written notice confirming each transfer and when the program
has ended. You are responsible for reviewing the confirmation to verify that the
transfers are being made as requested. There is no additional charge
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for dollar cost averaging. A transfer under this program is NOT considered a
transfer for purposes of assessing the transfer fee. We may modify, suspend, or
discontinue the dollar cost averaging program at any time upon 30 days' written
notice to you. You cannot choose dollar cost averaging if you are participating
in the automatic asset reallocation program.
AUTOMATIC ASSET REALLOCATION
We also offer an automatic asset reallocation program under which we will
automatically transfer amounts monthly, quarterly, semi-annually or annually to
maintain a particular percentage allocation among the Subaccounts. Cash Value
allocated to each Subaccount will grow or decline in value at different rates.
Over time, this method of investing may help you buy low. The automatic asset
reallocation program does not guarantee gains, nor does it assure that you will
not have losses. The Fixed Account does not participate in this program.
TO PARTICIPATE IN THE AUTOMATIC - you must elect this feature in the
ASSET REALLOCATION PROGRAM: application or after issue by submitting
an automatic asset reallocation request
form to our Administrative Service
Center.
There is no additional charge for the automatic asset reallocation program. Any
reallocation which occurs under the automatic asset reallocation program will
NOT be counted towards the 12 "free" transfers allowed during each Policy Year.
You can end this program at any time.
AUTOMATIC ASSET REALLOCATION WILL - we receive your written request to
END IF: terminate the program.
We may modify, suspend, or discontinue the automatic asset reallocation program
at any time. You cannot choose automatic asset reallocation if you are
participating in the dollar cost averaging program.
LOANS
================================================================================
While the Policy is in force, you may submit a written request to borrow money
from us using the Policy as the only collateral for the loan. You may increase
your risk of lapse if you take a loan. A loan that is taken from, or secured by,
a Policy may have tax consequences.
LOAN CONDITIONS:
- You may take a loan from your Policy. You may take a preferred loan,
up to the amount your Surrender Value exceeds premium payments, at any
time. You may take a non-preferred loan at any time.
- The maximum loan amount you may take is 90% of the Surrender Value.
You may increase your risk of lapse if you take a loan. Loans may have
tax consequences.
- We charge you a maximum annual interest rate of 8.00% ("charged
interest rate") on your loan. Charged interest is due and payable at
the end of each Policy Year. Unpaid interest becomes part of the
outstanding loan and accrues interest if it is not paid by the end of
the Policy Year.
- Amounts in the Loan Account earn interest ("earned interest rate") at
an annual rate guaranteed not to be lower than 8.0% for preferred
loans and 6% for non-preferred loans. We may credit the Loan Account
with an interest rate different than the rate credited to net premium
payments allocated to the Fixed Account.
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- We transfer earned loan interest to the Subaccounts and/or the Fixed
Account and recalculate collateral: (a) when loan interest is paid or
added to the loaned amount; (b) when a new loan is made; and (c) when
a loan repayment is made. A transfer to or from the Loan Account will
be made to reflect any recalculation of collateral. At any time, the
amount of the loan balance under a Policy equals the sum of all loans
(including due and unpaid charged interest added to the loan amount)
minus any loan repayments.
- We will allocate an amount equal to the loan ("loan amount") from the
Variable Account and Fixed Account to the Loan Account. You may tell
us how to allocate the loan amount among the Subaccounts and the Fixed
Account. If you do not, we will allocate the loan amount among the
Subaccounts and the Fixed Account on a pro-rata basis based on the
Cash Value of each account less any Loan Balance. The value in the
Loan Account must be at least as great as the loan balance.
- We add a $25 processing fee to the loan amount for each loan
processed.
- You may repay all or part of your indebtedness at any time while the
Primary Insured is alive and the Policy is in force. Upon each loan
repayment, we will allocate an amount equal to the loan repayment (but
not more than the amount of the loan balance) from the Loan Account
back to the Subaccounts and/or Fixed Account according to the current
premium allocation percentages, unless otherwise directed by the
Owner.
- We deduct any indebtedness from the Surrender Value upon surrender,
and from the insurance proceeds payable on the Primary Insured's
death.
- If your indebtedness causes the Surrender Value on a Monthly Deduction
Day to be less than the Monthly Deduction due, your Policy will enter
a grace period. See "Policy Lapse and Reinstatement."
- We normally pay the loan amount within 7 days after we receive a
proper loan request. We may postpone payment of loans under certain
conditions. See "Other Policy Information -- Payments We Make."
EFFECT OF POLICY LOANS
A loan, whether or not repaid, affects the Policy, the Cash Value, the Surrender
Value, and the death benefit. The insurance proceeds and Surrender Value include
reductions for the loan balance. Repaying a loan causes the death benefit and
Surrender Value to increase by the amount of the repayment. As long as a loan is
outstanding, we hold an amount as collateral for the loan in the Loan Account.
This amount is not affected by the investment performance of the Subaccounts and
may not be credited with the interest rates accruing on the Fixed Account.
Amounts transferred from the Variable Account to the Loan Account will affect
the Cash Value, even if the loan is repaid, because we credit these amounts with
an interest rate we declare rather than with a rate of return that reflects the
investment performance of the Variable Account.
Accordingly, the effect on the Cash Value and death benefit could be favorable
or unfavorable, depending on whether the investment performance of the
Subaccounts and the interest credited to the Fixed Account is less than or
greater than the interest being credited on the assets in the Loan Account while
the loan is outstanding. Compared to a Policy under which no loan is made,
values under a Policy with an outstanding loan will be lower when the earned
interest rate is less than the investment performance of assets held in the
Subaccounts and interest credited to the Fixed Account. The longer a loan is
outstanding, the greater the effect of a policy loan is likely to be.
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 MEC, then a loan will be treated as a partial
surrender for Federal income tax purposes. A loan may also have possible adverse
tax consequences that could occur if a Policy lapses with loans outstanding. See
"Policy Lapse and Reinstatement." In addition, if a loan is taken from a Policy
that is part of a plan subject to the Employee Retirement Income Security Act of
1974 ("ERISA"), the
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loan will be treated as a "prohibited transaction" subject
to certain penalties unless additional ERISA requirements are satisfied. The
Owner of such a Policy should seek competent advice before requesting a policy
loan.
TRANSFER AGENT
________, a ____ corporation, located at _______________, acts as transfer agent
for the Policies. ________ processes premium payments (other than initial
premium payments), transfers, partial surrenders, surrenders and loans. ________
also processes Owner, Beneficiary and death benefit changes as well as other
Policy transactions.
POLICY LAPSE AND REINSTATEMENT
================================================================================
LAPSE
Your Policy may enter a 61-day grace period and possibly lapse (terminate
without value) if the Surrender Value is not enough to pay the Monthly Deduction
and other charges. If you have taken a loan, then your Policy also will enter a
grace period (and possibly lapse) whenever your indebtedness reduces the
Surrender Value to zero.
Your Policy will NOT lapse:
1. During the first 5 Policy Years, if you pay premiums (less any loan
balance and partial surrenders) equal to or in excess of the minimum
premium (there is no such guarantee for any increase in Specified
Amount);
2. If you purchase a Guaranteed Minimum Death Benefit Rider and meet
certain conditions (see "Other Policy Information -- Supplemental
Benefits and Riders"); or
3. If you make a payment equal to the outstanding Monthly Deductions and
any loan interest due before the end of the grace period.
If your Policy enters 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 indicate that the payment amount of the
outstanding Monthly Deductions and any loan interest due is required and will
also indicate 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. You may reinstate a lapsed Policy if you meet certain
requirements. If any Insured dies during the grace period, we will pay the
insurance proceeds less any outstanding Monthly Deductions.
REINSTATEMENT
Unless you have surrendered your Policy, you may reinstate a lapsed Policy at
any time while the Primary Insured is alive and within 5 years after the end of
the grace period by submitting all of the following items to us at our
Administrative Service Center:
1. A written notice requesting reinstatement;
2. Evidence of insurability for each Insured we deem satisfactory; and
3. Sufficient premium payment to keep the Policy in force for at least 3
months, including any past due minimum premium payments and loan
interest due.
The effective date of reinstatement will be the date we approve your application
for reinstatement. The reinstated Policy will have the same Policy Date as it
had prior to the lapse. Upon reinstatement, the Cash Value will be based upon
the premium payment used to reinstate the Policy.
Once the Policy lapses, you can not reinstate the Guaranteed Minimum Death
Benefit Rider.
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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 ADVISERS 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 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
features of the Policy are not directly addressed by the Code, and there is
limited guidance as to how these requirements are to be applied. We believe that
a Policy should satisfy the applicable Code requirements. Because of the absence
of pertinent interpretations of the Code requirements, however, there is some
uncertainty about the application of these requirements to the Policy,
particularly if you pay the full amount of premiums permitted under the Policy.
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 these 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
Variable 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
Variable Account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility to allocate premiums and Cash
Values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over Variable
Account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the Owner of the Variable Account assets
supporting the Policy.
In addition, the Code requires that the investments of the Variable Account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the Variable 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 adviser on these consequences.
Generally, you will not be deemed to be in constructive receipt of the Cash
Value until there is a distribution. In addition, if you elect the accelerated
death benefit, the tax consequences associated with continuing the Policy after
a distribution is made are unclear. Please consult a tax adviser 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), the tax consequences
depend on whether the Policy is classified as a MEC. 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.
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts
are classified as 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 7 Policy Years.
Certain changes in a
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Policy 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. A reduction in the death benefit at any time
below the lowest level of death benefit payable during the first seven Policy
years could cause the Policy to become a MEC. If you do not want your Policy to
be classified as a MEC, you should consult a tax adviser 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:
- All distributions other than death benefits from a MEC, including
distributions upon surrender and partial surrenders, will be treated
as ordinary income subject to tax up to an amount equal to the excess
(if any) of the unloaned Cash 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.
- Loans taken from such a Policy (or secured by such a Policy, e.g., by
assignment) are treated as distributions and taxed accordingly.
- 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 59-1/2 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.
If a Policy becomes a MEC, distributions that occur during the Policy Year will
be taxed as distributions from a MEC. In addition, distributions from a Policy
within 2 years before it becomes a MEC will be taxed in this manner. This means
that a distribution from a Policy 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
amounts in the Loan Account after the later of the 10th policy anniversary or
attained age 60 under a Policy that is not a MEC. You should consult a tax
adviser 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.
POLICY LOANS. In general, interest you pay on a loan from a Policy will not be
deductible. If a Policy loan is outstanding when a Policy is canceled or lapses,
the amount of the outstanding indebtedness will be added to the amount
distributed and will be taxed accordingly. Before taking out a policy loan, you
should consult a tax adviser as to the tax consequences.
MULTIPLE POLICIES. All Policies that we issue to the same Owner that become MECs
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.
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 these plans and business uses of the Policy
may vary depending on the
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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 adviser as to tax attributes of the arrangement.
In recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
OTHER POLICY OWNER TAX MATTERS. The transfer of the Policy or designation of a
Beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as a Beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment of
the Owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each Owner or Beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how Ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
The tax consequences of continuing the Policy beyond the Insured's attained age
100 are unclear. You should consult a tax adviser if you intend to keep the
Policy in force beyond the Insured's attained age 100.
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). You should consult a tax adviser with respect to legislative
developments and their effect on the Policy.
OTHER POLICY INFORMATION
================================================================================
PAYMENT OF POLICY BENEFITS
BENEFIT PAYABLE ON MATURITY DATE. If the Primary Insured is living on the
Maturity Date (at Primary Insured's age 95), we will pay you the Cash Value less
any loan balance and any unpaid Monthly Deductions. Insurance coverage under the
Policy will then end. Payment will generally be made within 7 days of the
Maturity Date. You may elect to continue the Policy beyond Primary Insured's
attained age 95 under the extension of Maturity Date provision. Under this
provision, the Maturity Date is the date of the Primary Insured's death.
INSURANCE PROCEEDS. Insurance proceeds will ordinarily be paid to the
Beneficiary within 7 days after we receive proof of the Insured's death and all
other requirements are satisfied, including receipt by us at our Administrative
Service Center of all required documents. Generally, we determine the amount of
a payment from the Variable Account as of the date of death. We pay insurance
proceeds in a lump sum by either issuing a check or, at the beneficiary's
option, by establishing a Flexible Settlement Account in the beneficiary's name,
unless you have selected an alternative settlement option. We pay interest on
the insurance proceeds as required by state law.
SETTLEMENT OPTIONS. In lieu of a lump sum payment on death, surrender, or
maturity, you may elect one of the following fixed settlement options. Payment
under fixed settlement options will not be affected by the investment
performance of any Subaccounts after proceeds are applied. A guaranteed interest
rate of 3.5% per year applies to all fixed settlement options. We may pay
additional interest in our sole discretion.
AVAILABLE AS FIXED:
FIXED PERIOD. We will make equal periodic payments for a fixed period
not less than 5 years and not longer than 30 years. If the payee dies
before the period ends, the beneficiary may elect one of the following
options: payments for the remainder of the period, a lump sum payment
or another fixed settlement option with a lesser fixed period.
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FIXED PERIOD AND LIFE. We will make equal periodic payments for a
guaranteed minimum period for a period of not less than 10 years. If
the payee lives longer than the minimum period, payments will continue
for his or her life. The minimum period can be 10, 15, or 20 years. If
the payee dies before the end of the guarantee period, the balance of
the guaranteed payments will be paid to the beneficiary.
FIXED AMOUNT. We will make equal periodic payments of a definite
amount. The amount we pay each period must be at least $20 for a period
of not less than 5 years and not longer than 30 years. Payments will
continue until the Proceeds are exhausted. The last payment will equal
the amount of any unpaid Proceeds. If the payee dies before the
Proceeds are paid, the beneficiary may elect one of the following
options: payments for the remainder of the period, a lump sum payment
or another fixed settlement option with a lesser fixed period.
JOINT AND SURVIVOR LIFETIME INCOME. We will make equal periodic
payments for the lifetime of two payees. Payments will continue as long
as either payee is living. If both payees die before the end of the
guarantee period, the beneficiary may elect one of the following
options: payments for the remainder of the period, a single sum payment
or another fixed settlement option with a lesser fixed period. The
minimum guarantee period is 10 years.
INSTALLMENT REFUND. Equal periodic payments are guaranteed for the
lifetime of the payee. Payments are guaranteed to total no less than
the amount of Cash Value at the time that the payments start. If the
payee dies before the guaranteed payments have been made, the remaining
payment(s) will be paid to the beneficiary.
LIFETIME - NO REFUND. Equal periodic payments are made for the
lifetime of the payee. No minimum number of payments is guaranteed.
Payments end at the death of the payee.
INTEREST INCOME. The Proceeds are left with us to earn interest for a
fixed number of years or until the death of the payee or until the
payee elects a lump sum payment or fixed settlement option. We will pay
the interest to the payee annually or at such other interval as agreed
to by us. We determine the rate of interest. The payee may withdraw all
or part of the Proceeds at any time.
THE POLICY
The Policy, application(s), policy schedule pages, and any Riders are the entire
contract. Only statements made in the applications can be used to void the
Policy or to deny a claim. We assume that all statements in an application are
made to the best of the knowledge and belief of the person(s) who made them,
and, in the absence of fraud, those statements are considered representations
and not warranties. We rely on those statements when we issue or change a
Policy. As a result of differences in applicable state laws, certain provisions
of the Policy may vary from state to state.
TELEPHONE REQUESTS
- We may accept telephone instructions from you regarding transfers,
dollar cost averaging, automatic asset reallocation and loans,
subject to the following conditions:
o You must complete and sign our telephone request form and
send it to us. You also may authorize us in the application
or by written notice to act upon transfer instructions given
by telephone.
o We will employ reasonable procedures to confirm that
telephone instructions are genuine.
o If we follow these procedures, we are not liable for any
loss, damage, cost, or expense from complying with telephone
instructions we reasonably believe to be authentic. You bear
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the risk of any such loss. If we do not employ reasonable
confirmation procedures, we may be liable for losses due to
unauthorized or fraudulent instructions.
o These 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.
o We reserve the right to suspend telephone instructions at
any time for any class of policies for any reason.
OUR RIGHT TO CONTEST THE POLICY
In issuing the Policy, we rely on all statements made by or for you and/or the
Insured(s) in the application or in a supplemental application. Therefore, we
may contest the validity of the Policy based on material misstatements made in
the application (or any supplemental application).
However, we will not contest the Policy after the Policy has been in force
during the Primary Insured's lifetime for 2 years. Likewise, we will not contest
any increase in coverage, or any reinstatement of the Policy that requires
evidence of insurability, after such increase or reinstatement has been in
effect during the Primary Insured's lifetime for 2 years. However, different
states may prescribe different time periods in which we can contest the validity
of a Policy. Please consult your Policy.
We may contest the validity of any Rider that provides benefits for total
disability or accidental death at any time on the grounds of fraudulent
misrepresentation.
SUICIDE EXCLUSION
If the Primary Insured commits suicide, while sane or insane, within 2 years of
the Issue Date, the Policy will terminate and our liability will be limited to
an amount equal to the premiums paid, less any indebtedness, less any partial
surrenders and less any dividends previously paid.
If the Primary Insured commits suicide, while sane or insane, within 2 years
from the effective date of any increase in coverage, the Policy will terminate
and our liability with respect to the amount of increase will be limited to the
sum of the Monthly Deductions for the cost of the increase.
Certain states may require suicide exclusion provisions that differ from those
described herein.
MISSTATEMENT OF AGE OR GENDER
If the Insured's age or gender was stated incorrectly in the application, we
will adjust the death benefit and any benefits provided by Riders to the amount
that would have been payable at the correct age and gender.
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under the Policy must
be in writing and signed by our president, one of our vice presidents, our
secretary or our assistant secretary. No agent or other person may bind us by
waiving or changing any provision contained in the Policy.
Upon notice to you, we may modify the Policy:
- to conform the Policy, our operations, or the Variable Account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our Company, or the Variable
Account is subject;
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- to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
- to reflect a change in the Variable 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
these laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial surrender, insurance
proceeds, loan, or settlement options within 7 days after we receive all
applicable written notices, permitted telephone requests, and/or due proofs of
death. However, we can postpone these payments if:
- the New York Stock Exchange is closed, other than customary weekend
and holiday closing, or trading on the New York Stock Exchange is
restricted as determined by the SEC; OR
- the SEC permits, by an order, 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 Variable Account or the
determination of their value not reasonably practicable.
We have the right to defer payment of amounts from the Fixed Account for up to 6
months after receipt of the written notice. We will pay interest on any payment
deferred for 30 days or more at an annual rate of 3%.
If you have submitted a check or draft to our Administrative Service Center, we
have the right to defer payment of surrenders, partial surrenders, insurance
proceeds, or payments under a settlement option until the check or draft has
been honored.
REPORTS TO OWNERS
At least once each year, we will send you a report showing the following
information as of the end of the report period:
- the current Cash Value, Fixed Account Cash Value and Subaccount Cash
Values
- the current Surrender Value
- the current death benefit
- the current loan balance
- any activity since the last report (e.g., premium payments, partial
surrenders, charges, and any loan transactions)
- any other information required by law
In addition, we will send you a statement showing the status of the Policy
following the transfer of amounts from one Subaccount to another (excluding
automatic reallocation and dollar cost averaging), the taking of a loan, the
repayment of a loan, a partial surrender, and the payment of any premiums
(excluding those paid by bank draft or otherwise under the automatic payment
plan).
We can prepare a similar report for you at other times for a reasonable fee. We
may limit the scope and frequency of these requested reports.
We will send you a semi-annual report containing the financial statements of
each portfolio in which you are invested.
44
<PAGE>
RECORDS
We will maintain all records relating to the Variable Account and the Fixed
Account at our Home Office or our Administrative Service Center.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
- the Maturity Date;
- the end of the grace period without a sufficient payment;
- the date the Primary Insured dies; or
- the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
ACCELERATED DEATH BENEFIT RIDER
If we have received satisfactory additional evidence of insurability, you may
choose to add the Accelerated Death Benefit Rider (the "ACDB Rider") to your
Policy at any time. The terms of the ACDB Rider may vary from state-to-state.
Generally, the ACDB Rider allows you to receive an accelerated payment of part
of the Policy's death benefit when the Primary Insured develops a
non-correctable medical condition which is expected to result in his or her
death within 12 months.
TAX CONSEQUENCES OF THE ACDB RIDER. The federal income tax consequences
associated with adding the ACDB Rider or receiving the accelerated death benefit
are uncertain. You should consult a tax adviser before adding the ACDB Rider to
your Policy or requesting an accelerated death benefit.
AMOUNT OF THE ACCELERATED DEATH BENEFIT. The ACDB Rider provides for a maximum
accelerated death benefit payment equal to the lesser of 75% of the death
benefit under the policy or $250,000. The accelerated death benefit paid will be
reduced by any loan balance, and unpaid premiums due.
CONDITIONS FOR RECEIPT OF THE ACCELERATED DEATH BENEFIT. To receive an
accelerated death benefit payment, the Policy must be in force, the Policy must
have a Specified Amount of at least $25,000, and you must submit written request
(and such request must not be within 3 years of the Policy's termination date),
proof of eligibility, and a completed claim form to us. Proof of eligibility
means a written certification (described more fully in the ACDB Rider) in a form
acceptable to us from a treating physician stating that the Primary Insured has
a terminal illness. See the ACDB Rider for other conditions that apply.
We may request additional medical information from the Primary Insured's
physician and/or may require an independent physical examination (at our
expense) before approving the claim for payment of the accelerated death
benefit. We will not approve a claim for an accelerated death benefit payment
if:
1. If the terminal illness is the result of intentionally self-inflicted
injury; or
2. If you are required to elect the payment in order to meet the claims
of creditors or to obtain a government benefit.
OPERATION OF THE ACDB RIDER. The Accelerated Death Benefit is treated as a lien
against the Policy's values and the Policy's death benefit. The Surrender Value
of the Policy after the payment of the accelerated death benefit is the
Surrender Value provided under the Policy minus the accelerated death benefit
and accumulated interest. (Different states may require we calculate the
Surrender Value differently, so please consult your Policy). If any
45
<PAGE>
loan interest payments are required to keep the Policy in force, a notice of
termination will be mailed to the Owner's last known address or to that of any
assignee of record at the Administrative Service Center at least 31 days before
the Policy would terminate.
EFFECT ON EXISTING POLICY. The insurance proceeds otherwise payable at the time
of an Primary Insured's death will be reduced by the amount of the accelerated
death benefit lien and accrued interest thereon. The Surrender Value will also
be reduced by the amount of any outstanding accelerated death benefit plus
accrued interest. Therefore, depending upon the size of the accelerated death
benefit, this may result in the Surrender Value being reduced to zero.
If the Waiver of Monthly Deduction Benefit Rider or Waiver of Specified Premium
Rider is attached to the Policy and the Waiver of Monthly Deduction Benefit
Rider or Waiver of Specified Premium Rider is in force at the time of a claim
for the ACDB Rider, we will then waive the monthly deduction or the Specified
Premium, respectively, for the Policy.
TERMINATION OF THE ACDB RIDER. The ACDB Rider will terminate on the earliest of:
(1) our receipt of your written notice requesting termination of the Rider; or
(2) surrender or other termination of the Policy.
OTHER RIDERS
In addition to the Accelerated Death Benefit Rider, the following Riders
offering supplemental benefits are available under the Policy. Most of these
Riders are subject to age and underwriting requirements and, unless otherwise
indicated, must be purchased when the Policy is issued. We deduct any monthly
charges for these Riders from Cash Value as part of the Monthly Deduction. These
Riders (which are summarized below) provide fixed benefits that do not vary with
the investment performance of the Variable Account. Your agent can help you
determine whether certain of the Riders are suitable for you. These Riders may
not be available in all states. Please contact us for further details.
- ACCIDENTAL DEATH BENEFIT: This Rider provides additional insurance
coverage in the event of the accidental death (as defined in the
Rider) of the Primary Insured. You may elect to add this Rider at any
time before the Primary Insured's attained age 55. The accidental
death benefit must be at least $25,000 and no more than $100,000. The
Rider terminates on the earliest of: (1) the Primary Insured's
attained age 65; (2) the first Monthly Deduction Day after our receipt
of your written notice requesting termination of the Rider; (3)
surrender or other termination of the Policy. If you elect this Rider,
you will incur additional cost of insurance charges.
- ADDITIONAL INSURED RIDER: This Rider provides insurance coverage for
an additional Insured, including for purposes of this Rider, the
Primary Insured. You may elect this Rider at any time while the
additional Insured is between attained ages 18 and 60. The coverage
for the additional Insured must be at least $25,000 and no more than
10 times the insurance coverage under the Policy. If you elect this
Rider, you will incur additional premium payment costs and cost of
insurance charges.
- CHILDREN'S INSURANCE: This Rider provides level term insurance on each
of the Primary Insured's dependent children, until the earliest of:
(1) the first Monthly Deduction Day after our receipt of your written
notice requesting termination of the Rider; (2) surrender or other
termination of the Policy; (3) the insured child reaches attained age
25 or is otherwise no longer eligible for coverage; (4) the insured
child converts the insurance coverage; or (5) the Primary Insured's
attained age 75. Before expiration of the term insurance on the life
of a child and subject to certain conditions, the insured child may
elect that the coverage be converted without evidence of insurability
to certain other plans of insurance we offer. This Rider may be added
at any time. If you elect this Rider, you will incur an additional
monthly administrative charge. This charge will not vary based on the
number of dependent children.
- GUARANTEED PURCHASE OPTION BENEFIT: This Rider allows the coverage on
the Primary Insured under the Base Policy to be increased up to six
times without new evidence of insurability, without a change in the
Primary Insured's Underwriting Class, and at the premium payment rate
then in effect for the
46
<PAGE>
Primary Insured's attained age. The amount of the insurance purchased
must be at least $10,000 and no more than $50,000. The Rider
terminates on the earliest of: (1) the Primary Insured's attained age
40; (2) the first Monthly Deduction Day after our receipt of your
written notice requesting termination of the Rider; or (3) surrender
or other termination of the Policy. If you elect this Rider, there
will be an additional cost of insurance charge. This Rider is
available at Policy issue only.
- GUARANTEED MINIMUM DEATH BENEFIT: This Rider provides a guarantee
that, if the Surrender Value is not sufficient to cover the Monthly
Deductions, and the guaranteed minimum death benefit premium payment
has been paid prior to the Monthly Deduction Day, the Policy will not
lapse. If this Rider is added, the Monthly Deduction will be increased
by $0.01 per every $1,000 of Specified Amount in force under the
Policy. The Rider and the additional Monthly Deduction terminate on
the earliest of: (1) the first Monthly Deduction Day after our receipt
of your written notice requesting termination of the Rider; (2)
surrender or other termination of the Policy; or (3) the Primary
Insured reaches attained age 65 or ten years after the Issue Date,
whichever is later. This Rider is available at Policy issue only and
on Option 1 policies only.
- WAIVER OF MONTHLY DEDUCTIONS: This Rider provides that, in the event
of the Primary Insured's total disability (as defined in the Rider)
between attained ages 5 and 60 and continuing for at least 6 months,
we will waive the Monthly Deductions until the end of the disability
or age 95, whichever comes first. This Rider may be added at any time
up to the Primary Insured's attained age 55. The Rider terminates on
the earliest of: (1) the first Monthly Deduction Day after our receipt
of your written notice requesting termination of the Rider; (2)
surrender or other termination of the Policy; or (3) the Rider
anniversary nearest the Primary Insured's attained age 60. (You may
elect only one of the waiver options). If you elect this Rider, there
will be an additional cost of insurance charge.
- WAIVER OF SPECIFIED PREMIUM RIDER: This Rider provides that in the
event of the Primary Insured's total disability (as defined in the
Rider), between ages 5 and 60 and which continues for at least 6
months, we will credit the specified premium payment identified in the
Rider to the Policy on each Monthly Deduction Day while the Primary
Insured is totally disabled. This Rider may be added at any time up to
the Primary Insured's attained age 55. The Rider terminates on the
earliest of: (1) the first Monthly Deduction Day after our receipt of
your written notice requesting termination of the Rider; (2) surrender
or other termination of the Policy; or (3) the Rider anniversary
nearest the Primary Insured's attained age 60. (You may elect only one
of the waiver options). If you elect this Rider, there will be an
additional cost of insurance charge. Waiver of the specified premium
may not be sufficient to keep the Policy from lapsing.
PERFORMANCE DATA
================================================================================
In order to demonstrate how the actual investment performance of the portfolios
could have affected the death benefit, Cash Value, and Surrender Value of the
Policy, we may provide hypothetical illustrations using the actual investment
performance 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, Cash Value, and Surrender Value take
into account all applicable charges and deductions from the Policy (current and
guaranteed), the Variable Account and the portfolios. We have not deducted
charges for any Riders. These charges could lower the performance figures
significantly if reflected.
ADDITIONAL INFORMATION
================================================================================
SALE OF THE POLICIES
47
<PAGE>
The Policy will be sold by individuals who are licensed as our life insurance
agents and appointed by us and who are also registered representatives of
American Family Securities, LLC. American Family Securities, LLC is located at
6000 American Parkway, Madison, WI 53783-0001, is registered with the Securities
and Exchange Commission under the Securities Exchange Act of 1934 as a
broker-dealer, and is a member of the National Association of Securities
Dealers, Inc. American Family Securities, LLC was organized under the laws of
Wisconsin on July 13, 2000 as an indirect wholly owned subsidiary of American
Family Mutual Insurance Company. American Family Securities, LLC retains no
compensation as principal underwriter of the Policies. We decide the insurance
underwriting and whether to accept or reject an application. American Family
Securities, LLC also may reject an application if the Policy applied for is
unsuitable.
During the first Policy Year, the maximum sales commission payable to our agents
or other registered representatives will be approximately 80% of Target Premium,
and 3.75% of premium payments in excess of that amount. Additional compensation
may be paid in the form of non-cash compensation, subject to applicable
regulatory requirements. Agents may be required to return first year commission
if the Policy is not continued through the first Policy Year.
POTENTIAL CONFLICTS OF INTEREST
In addition to the Variable 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 we 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 these variable life
insurance policy owners and variable annuity contract owners, and will determine
what action, if any, it should take. This 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.
The portfolios may also sell shares directly to certain pension and retirement
plans qualifying under Section 401 of the Code. As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of this Policy or other policies or contracts (including policies issued by
other companies), and such retirement plans or participants in such retirement
plans. In the event of any such material conflicts, we will consider what action
may be appropriate, including removing the portfolio as an investment option
under the Policies or replacing the portfolio with another portfolio.
CHANGES TO THE VARIABLE ACCOUNT
Where permitted by applicable law, we reserve the right to make certain changes
to the structure and operation of the Variable Account, including, among others,
the right to:
1. Remove, combine, or add Subaccounts and make the new Subaccounts
available to you at our discretion;
2. Transfer assets supporting the Policies from one Subaccount to another
or from the Variable Account to another separate account;
3. Combine the Variable Account with other separate accounts, and/or
create new separate accounts;
48
<PAGE>
4. Deregister the Variable Account under the Investment Company Act of
1940, or operate the Variable Account as a management investment
company under the Investment Company Act of 1940, or as any other form
permitted by law;
5. Restrict or eliminate voting rights of Owners or other persons having
voting rights as to the Variable Account; and
6. Modify the provisions of the Policy to comply with applicable law.
We will not make any such changes without receiving any necessary approval of
the SEC and applicable state insurance departments. We will notify you of any
changes.
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. In that case, the Supreme Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate
that, in other factual circumstances, the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit the use of sex-distinct
mortality tables under certain circumstances. The Policies offered by this
prospectus are based upon actuarial tables which distinguish between men and
women and, thus, the Policy provides different benefits to men and women of the
same age. Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of these authorities on any
employment-related insurance or benefits program before purchasing the Policy
and in determining whether an EBS Policy is appropriate.
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 Cash 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, or 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, under certain
circumstances 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 this action.
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.
James F. Eldridge has provided advice on certain matters relating to the laws of
Wisconsin regarding the Policies and our issuance of the Policies.
LEGAL PROCEEDINGS
AFLIC, like other life insurance companies, is involved in lawsuits, including
class action lawsuits. In some class action and other lawsuits involving
insurers, substantial damages have been sought and/or material settlement
payments have been made. Although the outcome of any litigation cannot be
predicted with certainty, AFLIC
49
<PAGE>
believes that, as of the date of this prospectus, there are no pending or
threatened lawsuits that will have a materially adverse impact on them or the
Variable Account.
EXPERTS
The Financial Statements have been included in this prospectus in reliance on
the reports of PricewaterhouseCoopers, 203 N. LaSalle, Chicago, IL 60601,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. Actuarial matters included in the prospectus have been
examined by [NAME AND TITLES], as stated in his opinion filed as an exhibit to
the Registration Statement.
FINANCIAL STATEMENTS
Our financial statements appear at the end of this prospectus. You should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies. As of the date of this prospectus, the Variable
Account has not commenced operations. Therefore, financial statements for the
Variable Account are not available.
ADDITIONAL INFORMATION ABOUT THE COMPANY
We are a stock life insurance company incorporated under Wisconsin law in 1957.
We are subject to regulation by the Officer of the Commissioner of Insurance of
the state of Wisconsin, as well as by the insurance departments of all other
states in which we do business. We are engaged in the business of issuing life
insurance policies and annuity contracts, and we are currently licensed to do
business in Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota,
Missouri, Nebraska, Nevada, North Dakota, Ohio, Oregon, South Dakota and
Wisconsin. Our Administrative Service Center is located at P.O. Box [__], St.
Louis, MO 63127-1690.
We submit annual statements on our operations and finances to insurance
officials in all states in which we do business. We have filed the Policy
described in this prospectus with insurance officials in those states in which
the Policy is sold.
We intend to reinsure a portion of the risks assumed under the Policies.
AFLIC'S EXECUTIVE OFFICERS AND DIRECTORS
We are governed by a board of directors. The following table sets forth the
name, address, and principal occupation during the past 5 years of each of our
executive officers and directors. Each person's address is American Family Life
Insurance Company, 6000 American Parkway, Madison, Wisconsin 53783-0001.
Board of Directors and Executive Officers
<TABLE>
<CAPTION>
Name Position with AFLIC Principal occupation during the last 5
years
<S> <C> <C>
Harvey Randall Pierce Chairman of the Board, and C.E.O. President since 1/90; Director &
C.O.O. since 2/99.
David Ralph Anderson Director, President and C.O.O. Vice President, Information Systems,
1996-2/99; Director, Accounting for
AFMIC prior to 1996.
James Francis Eldridge Director, Executive Vice President, Legal; Director, Executive Vice President,
Secretary Legal; Secretary since 1991.
John Brent Johnson Director, Executive Vice President, Director, Executive Vice President,
Finance; Treas. Finance; Treasurer since 2/99; Vice
President, Controller prior to 2/99.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Name Position with AFLIC Principal occupation during the last 5
years
<S> <C> <C>
Joseph William Tisserand Director, Vice President, Operations Director, Vice President, Operations
since 8/96; Regional Vice President of
AFMIC prior to 8/96.
Daniel Raymond DeSalvo Director Director of AFLIC.
Daniel Robert Schultz Vice President, Controller Vice President, Controller since 2/99;
Corporate Tax Director of AFMIC prior to
2/99.
Thomas Syme King Vice President, Investments Vice President, Investments for AFLIC.
William Joseph Smith Assistant Treasurer Assistant Treasurer for AFLIC.
James Walter Behrens Assistant Secretary Assistant Secretary for AFLIC.
</TABLE>
We hold the Variable Account's assets physically segregated and apart from the
general account. We maintain records of all purchases and sale of portfolio
shares by each of the Subaccounts. A fidelity bond in the amount of $10 million
per occurrence and $20 million in the aggregate covering our officers and
employees will be issued by
51
<PAGE>
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, CASH VALUES,
AND SURRENDER VALUES
The following illustrations have been prepared to help show how certain values
under the Policy change with different rates of investment performance over an
extended period of time. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY
TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST
OR FUTURE PERFORMANCE. 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 Cash Value will depend on factors such as the amounts you allocate to
particular portfolios, the Monthly Deduction, the portfolios' expense ratios,
and your policy loan and partial surrender history.
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,
Cash Value, and Surrender Value under a Policy covering a male insured of Age 55
on the Policy Date in the preferred underwriting class with a Specified Amount
of $100,000, would change over time if the planned premium payments were paid
and the return on the assets in the Subaccounts were a uniform gross annual rate
(before any expenses) of 0%, 6% or __%. 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, and you do not make any partial surrenders or take any policy loans.
The death benefits, Cash Values, and Surrender Values would be lower if the
Insured was in a nonsmoker or smoker class since the cost of insurance charges
would increase. The values under the Policy will be different from those shown
even if the returns averaged 0%, 6% or __%, but fluctuated over and under those
averages throughout the years shown.
The columns shown under the heading "Guaranteed" assume that throughout the life
of the Policy, the monthly charge for cost of insurance is based on the maximum
level permitted under the Policy, a Premium Charge of up to 7.5% (7.5% in Years
1-10 up to the Target Premium; 5.5% in Year 11+; 3.5% on excess Premium),
maximum policy fee of $6, and a daily charge for mortality and expense risks
equivalent to an annual rate of 0.90%. The columns under the heading "Current"
assume that throughout the life of the Policy, the monthly charge for cost of
insurance is based on the current cost of insurance rate, a premium charge of
__%, and a daily charge for mortality and expense risks equivalent to an annual
rate of 0.90%, in Policy Years 1-10, and 0.45% thereafter. The illustrations
assume no charges for Federal or state taxes or charges for any Riders.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premium payments are allocated. The total of the asset charges reflected in
the Current and Guaranteed illustrations, including the mortality and expense
risk charge listed above, is __% and __%, respectively. This total charge is
based on an assumption that an owner allocates the Policy values equally among
each Subaccount of the Variable Account.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of ___% 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 portfolio expenses, consult the
Annual Portfolio Operating Expenses table in the Summary of this prospectus, and
the respective expense and fee tables set forth in the portfolios' prospectuses.
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6%, and __% would
correspond to approximate net annual rates of (__)%, (__)%, and (__)%,
respectively, assuming guaranteed charges, and net annual rates of (__)%, (__)%,
and (__)%, respectively, assuming current charges.
Upon request, we will provide illustrations of future benefits under the Policy
based upon the proposed Insured's age and underwriting class, the death benefit
option, Specified Amount, planned premium payments, and Riders requested. We
reserve the right to charge a reasonable fee for this service to persons who
request more than one Policy illustration during a Policy Year.
A-1
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 1 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
------------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-2
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 2 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
-----------------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-3
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 1 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
-------------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-4
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 2 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
--------------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-5
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 1 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN __%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
---------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-6
<PAGE>
AMERICAN FAMILY LIFE INSURANCE COMPANY VARIABLE
UNIVERSAL LIFE INSURANCE POLICY
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION 2 ANNUAL PREMIUM $ ________________
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN __%
Guaranteed*(Net Rate of__%) Current**(Net Rate of__%)
-------------------------- -------------------------
<TABLE>
<CAPTION>
Premiums
End Accumulated
Policy at 5% Int. Cash Surrender Death Cash Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
---- --------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
25
30
</TABLE>
-----------------
* These values reflect investment results using guaranteed cost of
insurance rates, mortality and expense risk, and Premium Charge.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, and Premium Charge.
THE DEATH BENEFIT MAY, AND THE CASH VALUES AND SURRENDER VALUES WILL DIFFER IF
PREMIUM PAYMENTS ARE MADE IN DIFFERENT AMOUNTS OR FREQUENCIES.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, CASH VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR __% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, CASH VALUE
AND SURRENDER VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN,
DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS AND THE
DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT
RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR __%, BUT VARIED ABOVE OR
BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. 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.
A-7
<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.
RULE 484 UNDERTAKING
Article VII of American Family Life Insurance Company's By-Laws provides, in
part:
INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by law, the Corporation shall indemnify each Director
and Officer of the Corporation, and his heirs, executors and administrators
against all expenses and liability reasonably incurred by him in connection with
or arising out of any action, suite or proceeding in which he may be involved by
reason of his being or having been a Director or Officer of the Corporation,
whether or not he continues to be a Director or Officer at the time of incurring
such expenses and liabilities; such expenses and liabilities to include, but not
limited to judgments, court costs, and attorneys' fees and the cost of
settlements. The Corporation shall not, however, indemnify such Director or
Officer with respect to matters as to which he shall be finally adjudged in any
such action, suit, or proceeding to have been liable for willful misconduct in
the performance of his duties as such Director of Officer. In the event a
settlement or compromise is effected, indemnification may be had only if the
Board of Directors shall have been furnished with an opinion of counsel for the
Corporation to the effect that such settlement or compromise is in the best
interests of the Corporation and that such Director or Officer is not liable for
willful misconduct in the performance of his duties with respect to such
matters, and, if the Board shall have adopted a resolution approving such
settlement or compromise. The foregoing right of indemnification shall not be
exclusive of other rights to which any Director or Officer may be entitled as a
matter of law.
Insofar as indemnification or liability arising under the Securities Act of 1933
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, 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 any 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 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.
REASONABLENESS REPRESENTATION
American Family Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by American Family Life Insurance Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of _____ pages.
The undertaking to file reports.
Rule 484 undertaking.
Reasonableness Representation.
The signatures.
The following exhibits:
1.A.1.a. Resolution of the Board of Directors of American Family Life
Insurance Company authorizing establishment of the American
Family Variable Account I
1.A.2. None
1.A.3.a.i. Underwriting Agreement among American Family Life Insurance
Company, American Family Variable Account I, and American Family
Securities, LLC*
1.A.3.b. Form of Selling Agreement*
1.A.3.c. Sales Representatives Agent Agreement (Including Compensation
Schedule)*
1.A.4. None
1.A.5. Variable Universal Life Insurance Policy
1.A.5.a. Accelerated Death Benefit Rider (L-ACDB (VUL))
1.A.5.b. Accidental Death Benefit Rider (L-ADB (VUL))
1.A.5.c. Additional Insured Rider (L-AI-1 (VUL))
1.A.5.d. Children's Insurance Rider (L-CI-1 (VUL))
1.A.5.e. Guaranteed Minimum Death Benefit Rider (LGMDB (VUL))
1.A.5.f. Guaranteed Insurability Benefit Rider (L-GPO (VUL))
1.A.5.g. Waiver of Monthly Deductions Benefit for Primary Insured (L-WMD
(VUL))
1.A.5.h. Waiver of Specified Premium Rider for the Primary Insured (L-WSP
(VUL))
1.A.6.a. Articles of Amendment to the Articles of Incorporation of
American Family Life Insurance Company
1.A.6.b. By-Laws of American Family Life Insurance Company
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. None
1.A.10. Form of Application
2. Opinion and consent of counsel*
3. Inapplicable
4. Inapplicable
5. Inapplicable
6. Opinion and consent of accountant*
7.A. Consent of Sutherland Asbill & Brennan LLP*
II-2
<PAGE>
7.B. Consent of independent auditors*
8. Description of American Family Life Insurance Company's Issuance,
Transfer and Redemption Procedures for Policies*
9. Powers of Attorney
10.A. Participation Agreement among Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II,
Fidelity Variable Insurance Products Fund III, Fidelity
Distributors Corporation and American Family Life Insurance
Company*
10.B. Participation Agreement among Federated Insurance Series and
American Family Life Insurance Company*
10.C. Participation Agreement among Strong Variable Insurance Funds,
Inc. and American Family Life Insurance Company*
10.D. Participation Agreement among Strong Opportunity Fund II, Inc.
and American Family Life Insurance Company*
10.E. Participation Agreement among American Family Life Insurance
Company, SEI Insurance Products Trust and SEI Investments
Distribution Company*
----------------------
* To be provided by pre-effective amendment
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
American Family Variable Account I 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 County of Dane and State of
Wisconsin, on the 31st day of August, 2000.
AMERICAN FAMILY VARIABLE ACCOUNT I
(Registrant)
By: AMERICAN FAMILY LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ Rosalie Beck Detmer By: /s/ Harvey Randell Pierce*
-------------------------
Rosalie Beck Detmer Harvey Randell Pierce
Assistant General Counsel Chairman of the Board and C.E.O.
American Family Life American Family Life Insurance
Insurance Company Company
AMERICAN FAMILY LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ Rosalie Beck Detmer By: /s/ Harvey Randell Pierce*
-------------------------
Rosalie Beck Detmer Harvey Randell Pierce
Assistant General Counsel Chairman of the Board and C.E.O.
American Family Life American Family Life Insurance
Insurance Company Company
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on August 31, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ HARVEY RANDELL PIERCE* Chairman of the Board, and C.E.O. 8/31/2000
-------------------------------------
Harvey Randell Pierce
/s/ DAVID RALPH ANDERSON* Director, President and C.O.O. 8/31/2000
------------------------------------
David Ralph Anderson
/s/ JOHN BRENT JOHNSON* Director, Executive Vice President, 8/31/2000
--------------------------------------- Treasurer
John Brent Johnson
/s/ DANIEL ROBERT SCHULTZ* Vice President, Controller 8/31/2000
--------------------------------------
Daniel Robert Schultz
/s/ JAMES FRANCIS ELDRIDGE* Director, Executive Vice President, 8/31/2000
------------------------------------- Secretary
James Francis Eldridge
/s/ JOSEPH WILLIAM TISSERAND* Director, Vice President 8/31/2000
------------------------------------
Joseph William Tisserand
/s/ DANIEL RAYMOND DESALVO* Director 8/31/2000
------------------------------------
Daniel Raymond DeSalvo
</TABLE>
* /s/ James W. Behrens On August 31, 2000, as Attorney-in-Fact
------------------------------ pursuant to powers of attorney
James W. Behrens filed herewith.
<PAGE>
EXHIBIT INDEX
1.A.1.a. Resolution of the Board of Directors of American Family Life
Insurance Company authorizing establishment of the American
Family Variable Account I
1.A.5. Flexible Premium Variable Life Insurance Policy
1.A.5.a. Accelerated Death Benefit Rider (L-ACDB (VUL))
1.A.5.b. Accidental Death Benefit Rider (L-ADB (VUL))
1.A.5.c. Additional Insured Rider (L-AI-1 (VUL))
1.A.5.d. Children's Insurance Rider (L-CI-1 (VUL))
1.A.5.e. Guaranteed Minimum Death Benefit Rider (LGMDB (VUL))
1.A.5.f. Guaranteed Insurability Benefit Rider (L-GPO (VUL))
1.A.5.g. Waiver of Monthly Deductions Benefit for Primary Insured (L-WMD
(VUL))
1.A.5.h. Waiver of Specified Premium Rider for the Primary Insured (L-WSP
(VUL))
1.A.6.a. Charter of American Family Life Insurance Company
1.A.6.b. By-Laws of American Family Life Insurance Company
1.A.10. Form of Application
9. Powers of Attorney
