As Filed with the Securities and Exchange Commission on October 6, 1999
Registration No. 333-81499
811-03915
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE -EFFECTIVE AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
CUNA Mutual Life Variable Account
(Exact name of trust)
CUNA Mutual Life Insurance Company
(Name of depositor)
2000 Heritage Way
Waverly, Iowa 50677
(Complete address of depositor's principal executive offices)
Kevin S. Thompson, Esq.
CUNA Mutual Life Insurance Company
5910 Mineral Point Road
Madison, WI 53705
(Name and complete address of agent for service)
Copy to:
David Goldstein, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004-2404
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Title of Securities Being Offered: Interest in the Separate Account issued
through Variable Life Insurance Policies.
The Registrant hereby amends this Registration Statement on such 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 Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
Item Number Caption in Prospectus
1 CUNA Mutual Life Insurance Company
2 CUNA Mutual Life Insurance Company
3 CUNA Mutual Life Insurance Company
4 Distribution of Policies
5 The Separate Account/The Funds
6(a) Not Applicable
(b) Not Applicable
7 CUNA Mutual Life Insurance Company
8 The Separate Account/The Funds
9 Legal Proceedings
10 The Policy
11 The Separate Account/The Funds
12 Not Applicable
13 Charges and Deductions
14 The Policy
15 The Policy
16 The Policy
17 Policy Values
18 The Policy
19 The Policy
20 Not Applicable
21 Not Applicable
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 CUNA Mutual Life Insurance Company
26 Charges and Deductions
27 CUNA Mutual Life Insurance Company
28 CUNA Mutual Life Insurance Company/Directors and Executive Officers
29 CUNA Mutual Life Insurance Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Distribution of Policies
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40 Distribution of Policies
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44 The Policy
45 Not Applicable
46 Policy Values
47 Not Applicable
48 CUNA Mutual Life Insurance Company
49 CUNA Mutual Life Insurance Company/Charges and Deductions
50 Not Applicable
51 CUNA Mutual Life Insurance Company, The Policy
52 Not Applicable
53 Federal Income Tax Considerations
54 Financial Statements
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
<PAGE>
PROSPECTUS October , 1999
===============================================================================
Flexible Premium Variable Life Insurance Policy
issued by
CUNA Mutual Life Insurance Company
Through
CUNA Mutual Life Variable Account
2000 Heritage Way
Waverly, Iowa 50677-9202
(800) 798-5500
===============================================================================
This prospectus describes the MEMBERS Variable Universal Life II flexible
premium variable life insurance policy ("Policy") issued by CUNA Mutual Life
Insurance Company through CUNA Mutual Life Variable Account ("Separate
Account"). The Policy is designed as a long-term investment that attempts to
provide significant life insurance benefits for the entire life of the insured.
This prospectus provides information that a prospective owner should know before
investing. You should keep this prospectus for future reference as you consider
the Policy in conjunction with other insurance you own.
With this Policy, you can allocate net premium and Policy Values to:
o Subaccounts of the Separate Account, each of which invests in one of
the mutual funds listed on this page; or
o a Fixed Account, which credits a specified rate of interest.
A prospectus for each of the mutual funds available through the Separate Account
must accompany this prospectus. Please read these documents before investing and
save them for future reference.
The mutual funds available include:
|_| Ultra Series Fund
Money Market Fund
Bond Fund
Balanced Fund
Growth and Income Stock Fund
Capital Appreciation Stock Fund
Mid-Cap Stock Fund
|_| T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio
|_| MFS(R) Variable Insurance TrustSM
MFS Global Governments Series
MFS Emerging Growth Series
|_| Templeton Variable Products Series Fund
Templeton Developing Markets Fund - Class 2
|_| Oppenheimer Variable Account Funds
Oppenheimer High Income Fund/VA
An investment in the Separate Account is not a bank or credit union deposit, and
the Policy is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Investment in the Separate Account
involves certain risks including loss of premium (principal).
Please refer to the "Risk Summary" section of this prospectus which describes
certain risks associated with investing in a Policy.
The Securities and Exchange Commission has not approved or disapproved this
Policy or determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Table of Contents
Glossary...................................................1
Policy Summary.............................................4
Risk Summary...............................................9
CUNA Mutual Life Insurance Company........................11
CUNA Mutual Life Insurance Company...................11
The Fixed Account....................................12
The Separate Account and the Funds........................12
Ultra Series Fund....................................12
T. Rowe Price International Series, Inc..............13
MFS Variable Insurance Trust.........................13
Oppenheimer Variable Account Funds...................13
Templeton Variable Products Series Fund..............14
More Information About the Funds.....................14
The Policy................................................15
Applying for a Policy................................15
Conditions for Policy Issue..........................15
Policy Issue Date....................................15
Temporary Insurance Agreement........................15
Right-to-Examine Period..............................15
Flexibility of Premiums..............................16
Allocation of Net Premiums...........................16
Lapse................................................17
Reinstatement........................................17
Premiums to Prevent Lapse............................17
Basic Guarantee......................................17
Extended Guarantee...................................17
Death Benefit Proceeds...............................18
Change of Death Benefit Option.......................19
Change of Specified Amount...........................19
Policy Values.............................................20
Policy Value.........................................20
Transfer of Values...................................20
Dollar Cost Averaging................................21
Automatic Personal Portfolio Rebalancing Service.....21
Other Types of Automatic Transfers...................22
Surrender and Partial Withdrawals....................22
Maturity.............................................23
Payment of Benefits/Settlement Options...............23
Policy Loans.........................................23
Charges and Deductions....................................24
Fund Charges.........................................24
Premium Expense Charge...............................24
Insurance Charges....................................25
Mortality and Expense Risk Charge....................25
Surrender Charges....................................26
Transfer Fee.........................................26
Federal and State Income Taxes.......................26
Duplicate Policy Charge..............................26
Change of Specified Amount Charge....................26
Other Policy Benefits and Provisions......................26
Owner, Beneficiary...................................26
Our Right to Contest the Policy......................27
Right to Convert.....................................27
Transfer of Ownership................................27
Collateral Assignments...............................27
Effect of Misstatement of Age or Gender..............28
Suicide Exclusion....................................28
Dividends............................................28
Suspension of Payments...............................28
Accelerated Benefit Option...........................29
Riders and Endorsements...................................30
Children's Insurance.................................30
Guaranteed Insurability..............................30
Accidental Death Benefit.............................30
Other Insured........................................30
Waiver of Premium Disability.........................31
Executive Benefits Plan Endorsement..................31
Federal Income Tax Considerations.........................31
CUNA Mutual Life Insurance Company Directors and
Executive Officers...................................34
Additional Information....................................36
Addition, Deletion Or Substitution Of Investments....36
State Regulation.....................................37
Legal Proceedings....................................37
Independent Auditors.................................37
Actuarial Matters....................................37
Registration Statement...............................37
Preparing For Year 2000..............................37
Distribution Of Policies.............................38
Financial Statements......................................38
Appendix A - Illustrations of Policy Values and
Death Benefits...............................94
Appendix B - First Year Surrender Charges per $1,000
of Specified Amount.........................104
Appendix C - Death Benefit Percentage Factor.............106
Glossary
Accumulation Unit
A unit of measurement used to calculate Subaccount Value.
Attained Age
The insured's age on the most recent Policy Anniversary.
Basic Guarantee
Our guarantee that the Policy will not Lapse prior to the later of (1) the tenth
Policy Anniversary, or (2) the Insured's Attained Age 65.
Basic Guarantee Premium
The amount of premium each Policy Year necessary to keep the Basic Guarantee in
effect.
Beneficiary
The person(s) you select to receive the Death Benefit Proceeds under this
Policy. You may designate primary, contingent and irrevocable Beneficiaries.
Cash Value
The Policy Value minus any applicable surrender charge.
Company (we, us, our)
CUNA Mutual Life Insurance Company.
Contingent Beneficiary
The person(s) you select to receive the Death Benefit Proceeds upon the death of
the Insured if the primary Beneficiary is not living.
Death Benefit
The amount we pay to the Beneficiary under a Death Benefit Option before
adjustments if the Insured dies while the Policy is In Force before the Maturity
Date.
Death Benefit Option
One of two options that you may select for computation of the Death Benefit.
Death Benefit Proceeds
The amount we pay to the Beneficiary when we receive proof of the insured's
death. It equals the Death Benefit on the date of the insured's death less the
following adjustments: (1) any premium received after the date of death, (2) the
amount of any Partial Withdrawals made after the date of death, (3) unpaid
Monthly Deduction if death occurred during the Grace Period, and (4) any Loan
Amount.
Extended Guarantee
Our guarantee that the Policy will not Lapse prior to the Insured's Attained Age
95.
Extended Guarantee Premium
The amount of premium each Policy Year necessary to keep the Extended Guarantee
in effect.
Fixed Account
Part of the Company's General Account to which Net Premium may be allocated or
Policy Value transferred.
Fixed Account Value
Policy Value in the Fixed Account.
Fund
Each investment portfolio of Ultra Series Fund or any other open-end management
investment company or unit investment trust in which a Subaccount invests.
General Account
The assets of the Company other than those
allocated to the Separate Account or another separate account of the Company.
Grace Period
The 61-day period during which you may pay Premiums to cover overdue (and other
specified) Monthly Deductions and thereby prevent the Policy from Lapsing.
Home Office
The Company's office at 2000 Heritage Way, Waverly, Iowa 50677-9202.
In Force
Status of the Policy after the Policy Issue Date and prior to its termination by
Lapse, Surrender or Maturity.
Initial Required Premium
The minimum premium that you must pay before insurance coverage begins under
this Policy. The Initial Required Premium is shown on your Policy's data page.
Insured
The person whose life is insured by this Policy.
Irrevocable Beneficiary
A Beneficiary who has certain rights that you can change only with his or her
consent.
Lapse
Termination of the Policy at the expiration of the Grace Period while the
Insured is still living before the Maturity Date.
Loan Account
A portion of the Company's General Account to which Variable Account Value or
Fixed Account Value is transferred to provide collateral for any loan taken
under the Policy.
Loan Account Value
Policy Value in the Loan Account.
Loan Amount
At any time other than a Policy Anniversary, the Loan Account Value plus any
interest charges accrued on the Loan Account Value up to that time. On a Policy
Anniversary, the Loan Amount equals the Loan Account.
Maturity Date
The Policy Anniversary when the insured reaches Attained Age 95 (unless
extended). This Policy terminates and life insurance coverage ends on the
Maturity Date.
Monthly Deduction
The amount we deduct from the Policy Value each month. It includes the cost of
insurance charge, the monthly administration charge, the monthly policy fee, and
the cost of any riders.
Monthly Processing Day
The day each month as of which we determine the Monthly Deduction and deduct it
from Policy Value. It is the same date each month as the Policy Issue Date. If
the Monthly Processing Day is not a Valuation Day, then it is the next Valuation
Day.
Net Amount At Risk
As of any Monthly Processing Day, the Death Benefit (discounted for the upcoming
month) less the Policy Value (after deduction of the Monthly Deduction).
Net Premium
Any Premium less the premium expense charge.
Owner (You, Your)
The person entitled to exercise all rights as Owner of the Policy.
Planned Premium
The Premium payment selected by the Owner as a level amount that he or she plans
to pay on a monthly, quarterly, semi-annual or annual basis over the life of the
Policy.
Policy Anniversary
The same date in each Policy Year as the Policy Issue Date.
Policy Issue Date
The date as of which the Policy is issued and coverage takes effect. We measure
Policy months, Policy years, and Policy anniversaries from the Policy Issue
Date.
Policy Value
The sum of the Variable Account Value, the Fixed Account Value and the Loan
Account Value.
Policy Year
A twelve month period beginning on the Policy Issue Date or on a Policy
Anniversary.
Premium
Any payment you make under the Policy other than a loan repayment.
Right to Examine Period
The period when you may return the Policy and receive a refund. The length of
the period varies by state. Your Policy's cover page shows the Right to Examine
period.
Separate Account
CUNA Mutual Life Variable Account. It is a separate investment account that is
divided into Subaccounts, each of which invests in a corresponding portfolio of
a designated mutual fund.
Specified Amount
The dollar amount selected by the Owner and shown on the Policy data page that
is used to determine the Death Benefit.
Subaccount
A subdivision of the Separate Account, the assets of which are invested in a
corresponding Fund.
Subaccount Value
The Policy Value in a Subaccount.
Surrender Value
The Cash Value less any Loan Amount.
Valuation Day
For each Subaccount, each day that the New York Stock Exchange is open for
business except for certain holidays listed in the prospectus and days that the
Subaccount's corresponding Fund does not value its shares.
Valuation Period
The period beginning at the close of regular trading on the New York Stock
Exchange on any Valuation Day and ending at the close of regular trading on the
next succeeding Valuation Day.
Variable Account Value
The sum of all Subaccount Values.
Written Request
A written notice or request in a form satisfactory to the Company that is signed
by the Owner and received at the Home Office.
You (Your)
The Owner.
<PAGE>
Policy Summary
This summary describes important features of the Policy and corresponds to
sections in this prospectus which discuss the topics in more detail. Please
refer to the Glossary for definitions of certain terms.
Premiums And Lapse
o The amount of your Policy's Specified Amount determines the amount of your
Initial Required Premium. After you make the Initial Required Premium, you
can pay subsequent premiums (minimum $50) at any time.
o You can elect to pay Planned Premiums but you are not required to pay
premiums according to the plan. You can vary the frequency and amount of
premiums, and can skip premiums. We do not accept any premiums after the
Insured reaches Attained Age 95.
o We deduct a premium expense charge from each premium and credit the
resulting amount to the Policy Value.
o Paying the Initial Required Premium will not necessarily keep your Policy
In Force. Unless the Basic Guarantee or the Extended Guarantee is in
effect, your Policy will enter a 61-day Grace Period if the Surrender
Value is zero on a Monthly Processing day. Your Policy will terminate
without value unless you pay a sufficient Net Premium during the Grace
Period. See Risk of Lapse; and Policy Lapse and Reinstatement.
o As long as your cumulative premiums less aggregate partial withdrawals and
any Loan Amount equal or exceed the Accumulated Extended Guarantee
Premiums, your Policy will not enter the Grace Period until the Insured's
Attained Age 95. As long as your cumulative premiums less aggregate
partial withdrawals and any Loan Amount equal or exceed the Accumulated
Basic Guarantee Premiums, your Policy will not enter the Grace Period
before the later of (1) the tenth Policy Anniversary, or (2) the Insured's
Attained Age 65.
o Once we issue your Policy, the Right-to-Examine begins. You may return the
Policy during this period and receive a refund. See Right-to-Examine
Period.
Investment Options
Fixed Account:
o You may place money in the Fixed Account where it earns interest at an
annual rate of at least 4%. We may declare higher rates of interest,
but are not obligated to do so. The Fixed Account may not be available
in all states.
Separate Account:
o You may allocate Net Premiums or transfer Policy Value to any of the 11
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
fund. You could lose some or all of your money.
o Each Subaccount invests exclusively in one investment portfolio of a
mutual fund (a "Fund"). The following Funds are available:
|_| Ultra Series Fund
Money Market Fund
Bond Fund
Balanced Fund
Growth and Income Stock Fund
Capital Appreciation Stock Fund
Mid-Cap Stock Fund
|_| T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio
|_| MFS Variable Insurance Trust
MFS Global Governments Series
MFS Emerging Growth Series
|_| Templeton Variable Products Series Fund
Templeton Developing Markets Fund (Class 2 Shares)
|_| Oppenheimer Variable Account Funds
Oppenheimer High Income Fund/VA
Policy Value
o Policy Value is the sum of your amounts in the Subaccounts and the Fixed
Account. Policy Value also includes amounts we hold in our General Account
to secure any outstanding loans.
o Policy Value varies from Valuation Day to Valuation Day, depending on the
investment experience of the Subaccounts you choose, the interest we
credit to the Fixed Account, the charges we deduct, and any other
transactions (such as transfers, Partial Withdrawals, and loans.)
o Policy Value is the starting point for calculating important values under
the Policy, such as the Cash Value, the Surrender Value and the Death
Benefit.
o We do not guarantee a minimum Policy Value. Your Policy may Lapse if you
do not have sufficient Policy Value (minus any loan and accrued loan
interest) to pay the Monthly Deduction on a Monthly Processing Day.
Death Benefit Options
o You must choose between two Death Benefit Options under the Policy. You
may change Death Benefit Options at any time:
|X|Option 1 is a level Death Benefit through attained age 95 that is the
greater of:
o the Specified Amount on the date of death; or
o the Policy Value on the date of death multiplied by the applicable
Death Benefit percentage.
|X|Option 2 is a variable Death Benefit that is the greater of:
o the Specified Amount plus the Policy Value on the date of death; or
o the Policy Value on the date of death multiplied by the applicable
Death Benefit percentage.
o You may select the Specified Amount which must be at least $50,000
($25,000 for Insureds age 65 or over on the Policy Issue Date). You also
may increase or decrease the Specified Amount, but you may not decrease it
below $40,000 ($20,000 for Insureds age 65 or over.)
Charges and Deductions
o Premium Expense Charge: We may deduct up to 3.5% of each premium payment
and credit the remaining net premium to your Policy Value.
o Monthly Deduction: Each month we deduct:
o a cost of insurance charge for the Policy (varies by age, gender and
other underwriting factors)
o charges for any riders
o a monthly Policy Fee of $6.00
o a monthly administration charge of $0.0375 per month per $1,000 of
Specified Amount during the first 10 Policy Years
o Surrender and Partial Withdrawal Charges:
o surrender: We deduct a surrender charge if the Policy is surrendered
during the first 9 Policy Years or during the 9 year period following
an increase in Specified Amount. This charge varies by age, gender,
rating class and number of years you held the Policy.
o partial withdrawal: We may deduct a processing fee equal to the lesser
of $25 or 2% of the amount withdrawn. We currently waive this fee.
o Mortality and Expense Risk Charge: We deduct a charge equal to 0.90% on an
annual basis of the average daily net assets of the Separate Account.
o Fund Expenses: The Funds deduct investment advisory fees and other
expenses from the amounts the Subaccounts invest in the Fund. These
charges vary by Fund and range from 0.46% to 1.91% per year.
o Other charges that the Company reserves the right to collect:
o A $30 fee for a duplicate copy of your Policy.
o A charge of $100 for each increase in Specified Amount after the first
increase in a Policy Year.
o Transfer charge: a $10 fee for the 13th and each additional transfer in
a Policy Year may be charged. We are currently waiving this fee.
Portfolio Expense Table
The following table shows the fees and expenses incurred by the Funds. The
purpose of the table is to assist you in understanding the various costs and
expenses that you will bear directly and indirectly. The table reflects charges
and expenses of the Funds for the fiscal year ended December 31, 1998. Future
expenses of the Funds may be higher or lower than those shown. For more
information on the fees and expenses described in this table, see the Funds'
prospectuses which accompany this prospectus.
Annual Fund Operating Expenses (as a percentage of average net assets before fee
waivers and expense reimbursements).
<TABLE>
<CAPTION>
Portfolio Management 12b-1 Other Expenses Total Annual
Fees Fees Expenses
<S> <C> <C> <C> <C>
Ultra Money Market Fund 0.45% None 0.01% 0.46%
Ultra Bond Fund 0.55% None 0.01% 0.56%
Ultra Balanced Fund 0.70% None 0.01% 0.71%
Ultra Growth and Income Stock Fund 0.60% None 0.01% 0.61%
Ultra Capital Appreciation Stock Fund 0.80% None 0.01% 0.81%
Ultra Mid-Cap Stock Fund 1.00% None 0.01% 1.01%
T. Rowe Price International Stock Portfolio(1) 1.05% None 0.00% 1.05%
MFS Global Governments Series 0.75% None 0.36%(2)(3) 1.11%
MFS Emerging Growth Series 0.75% None 0.10%(2) 0.85%
Oppenheimer High Income Fund/VA 0.74% None 0.04% 0.78%
Templeton Developing Markets Fund - Class 2(4) 1.25% 0.25% 0.41% 1.91%
<FN>
(1) Management fees include operating expenses.
(2) These Funds have an expense offset arrangement which reduces the
Funds' custodian fee based upon the amount of cash maintained by the
Funds with its custodian and dividend disbursing agent and may enter
into other such arrangements and directed brokerage arrangements
(which would also have the effect of reducing the Funds' expenses).
Expenses do not take into account these expense reductions, and are
therefore higher than the actual expenses of the Fund.
(3) The annual expenses listed for the MFS Global Governments Series are
gross of certain reimbursements by its investment adviser. The
investment adviser has agreed to bear, subject to reimbursement,
until December 31, 2004, expenses of the Global Governments Series
such that the Series' other expenses do not exceed 0.25%, on an
annualized basis, of its average daily net assets. See "Information
Concerning Shares of The Series - Expenses" in the prospectus of the
MFS Global Governments Series.
(4) Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan"
which is described in the Fund's prospectus.
</FN>
</TABLE>
Surrenders and Partial Withdrawals
o Full Surrender: At any time while the Insured is alive and the Policy is
In Force, you may make a Written Request to surrender your Policy for its
Surrender Value.
o Federal income taxes and a penalty tax apply to surrenders
o Partial Withdrawals: You may make Written Requests to withdraw part of the
Surrender Value, subject to the following rules.
o Federal income taxes and a penalty tax may apply to Partial
Withdrawals;
o A Partial Withdrawal reduces the Death Benefit by at least the amount
withdrawn;
o If Death Benefit Option 1 is in effect, Specified Amount is reduced by
the dollar amount of a Partial Withdrawal. Surrender charges apply to a
reduction in Specified Amount resulting from a Partial Withdrawal; and
o We may deduct a processing fee for each Partial Withdrawal. We
currently intend to waive this fee.
Transfers
o Each Policy Year, you may make:
o an unlimited number of transfers from the Subaccounts; and
o one transfer from the Fixed Account.
o A transfer from the Fixed Account may be limited to 25% of Fixed
Account Value. We currently waive this restriction.
o We may charge $10 for the 13th and each additional transfer during a
Policy Year. We currently waive this fee.
Loans
o You may borrow money from us using the Surrender Value of Your Policy as
collateral. Loans may have tax consequences.
o To secure the loan, we transfer an amount of your Policy Value equal to
the loan from the Separate Account and Fixed Account to the Loan Account.
o Policy Value in the Loan Account earns interest at the guaranteed minimum
rate of 4% per year.
o We charge you a maximum interest rate of 6% per year on amounts that you
borrow. Interest is accrued throughout the year and is payable at the end
of each Policy year. Unpaid interest is added to the Loan Amount (becomes
part of the outstanding loan) if it is not paid at the end of the Policy
Year.
o You may repay all or part of your outstanding loans at any time. Loan
repayments must be clearly marked as loan repayments or we will treat them
as premiums.
o Outstanding loans and accrued interest are deducted from the Death Benefit
to arrive at the Death Benefit Proceeds (the amount payable to the
Beneficiary upon the Insured's death).
Risk Summary
Investment Risk
If you instruct us to invest your Policy Value in one or more Subaccounts, you
will be subject to the risk that investment performance will be unfavorable and
that your Policy Value will decrease. If you allocate Net Premiums or transfer
Policy Value to the Fixed Account, we credit your Policy Value 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 4.0%.
Because we continue to deduct charges from Policy Value, if investment results
are not sufficiently favorable, or if interest rates are too low, or if you do
not make additional premium payments, then your Policy's Surrender Value may
fall to zero. In that case, the Policy may Lapse. However, if investment
experience is sufficiently favorable and you have kept the Policy In Force for a
substantial time, you may be able to draw upon Policy Value, through Partial
Withdrawals and loans.
Risk of Lapse
Certain circumstances will cause your Policy to enter a Grace Period during
which you must make a sufficient premium payment to keep your Policy In Force:
o If your Policy's Surrender Value on a Monthly Processing Day is too low
to cover the Monthly Deduction, and the Basic Guarantee and Extended
Guarantee are not in effect, then the Policy will enter a 61-day Grace
Period.
o Notwithstanding the foregoing, the Policy will not enter a Grace Period
if, prior to the later of (1) the 10th Policy Anniversary or, (2) the
Insured's Attained Age 65, premiums less Partial Withdrawals and loans
equal to the accumulated Basic Guarantee Premium for the period ending
on that Monthly Processing Day have been paid.
o Notwithstanding the foregoing, the Policy will not enter a Grace Period
if, prior to the Insured's Attained Age 95, premiums less Partial
Withdrawals and loans equal to the accumulated Extended Guarantee
Premium for the period ending on that Monthly Processing Day have been
paid.
Whenever your Policy enters a Grace Period if you do not make a sufficient
premium payment before the Grace Period ends, your Policy will Lapse (terminate
without value), and insurance coverage and other benefits under your Policy will
cease. The premium payment required to keep your Policy In Force beyond the
Grace Period is the amount sufficient to result in enough Net Premiums to cover
unpaid Monthly Deduction plus two months of additional Monthly Deductions.
If your Policy Lapses, however, you may reinstate the Policy within five years
from the date of Lapse, provided that you meet insurability requirements at that
time and pay any additional required premiums.
Tax Risks
We anticipate that the Policy will be considered a life insurance contract under
federal income tax law, so that the Death Benefit Proceeds paid to the
Beneficiary will not be subject to federal income tax. However, due to lack of
guidance from tax authorities, it is uncertain whether Policies issued on a
substandard basis would be considered life insurance contracts for this purpose.
Depending on the total amount of premiums that you pay, your Policy may be
treated as a modified endowment contract ("MEC") under federal tax laws. If a
Policy is treated as a MEC, then Partial Withdrawals, surrenders and loans under
it are taxable as ordinary income to the extent such amounts represent earnings
under the Policy. For this purpose, any Partial Withdrawals, surrenders and
loans are considered first a distribution of earnings under the Policy, and when
earnings are fully distributed, a distribution of the Owner's investment in the
Policy. In addition, a 10% penalty tax may be imposed on Partial Withdrawals,
surrenders and loans taken before you reach age 59 1/2. You should consult a
qualified tax adviser for assistance in all tax matters involving your Policy.
Partial Withdrawal Limits
The Policy permits you to take only two Partial Withdrawals in any Policy Year.
A Partial Withdrawal reduces the Policy Value and Surrender Value, so it will
increase the risk that the Policy will Lapse. It also increases the likelihood
that either the Basic Guarantee or the Extended Guarantee will not remain in
effect. A Partial Withdrawal also may have adverse tax consequences.
A Partial Withdrawal reduces the Death Benefit. If you selected the level Death
Benefit (Option 1), then when you make a Partial Withdrawal, the Specified
Amount is reduced by the amount of the Partial Withdrawal. If you selected the
variable Death Benefit (Option 2), then when you make a Partial Withdrawal, the
Death Benefit is reduced because the Policy Value is reduced.
Loan Risks
A Policy loan, whether or not repaid, will affect Policy Value over time because
we transfer an amount equal to the amount of the loan from the Subaccounts and
Fixed Account to the Loan Account as collateral. We then credit a fixed interest
rate of at least 4.0% to the loan collateral. As a result, the loan collateral
does not participate in the investment results of the Subaccounts nor does it
receive current interest rates in excess of 4.0% that we may, from time to time,
credit to the Fixed Account. The longer the loan is outstanding, the greater the
likely effect of not participating in the Subaccounts or the Fixed Account.
Depending on the investment results of the Subaccounts and the interest rate
credited to the Fixed Account, the effect could be favorable or unfavorable. We
also charge you interest on the amount that you borrow at a rate ranging from
4.0% to 6.0%.
A Policy loan reduces the Death Benefit Proceeds and Surrender Value by the Loan
Amount (the amount of the loan(s), plus any interest you owe on the loan(s)). As
with Partial Withdrawals, loans reduce the Surrender Value of your Policy and
therefore increase the likelihood that the Policy would Lapse or that the Basic
Guarantee or the Extended Guarantee would not remain in effect.
Effects of Surrender Charges
The surrender charges under this Policy are significant, especially in the early
Policy years. It is likely that you will receive no Surrender Value if you
surrender your Policy in the first few Policy Years. You should purchase this
Policy only if you have the financial ability to keep it In Force at the initial
Specified Amount for a substantial period of time.
Even if you do not surrender your Policy, surrender charges play a role in
determining whether your Policy will Lapse. Surrender Value (that is, Policy
Value minus any surrender charges and outstanding Loan Amount) is one measure we
use to determine whether your Policy will enter a Grace Period, and possibly
Lapse.
Comparison with Other Insurance Policies
Like fixed benefit life insurance, the Policy offers a minimum death benefit and
provides a Policy Value, loan privileges and a value on surrender. However, the
Policy differs from a fixed benefit policy because it allows you to allocate
your Net Premiums or transfer Policy Value to the Subaccounts. The amount and
duration of life insurance protection and of the Policy Value varies with the
investment performance of the amounts you place in the Subaccounts. In addition,
the Surrender Value always varies with the investment results of your selected
Subaccounts.
As you consider purchasing this Policy, keep in mind that it may not be to your
advantage to replace existing insurance with the Policy.
CUNA Mutual Life Insurance Company
CUNA Mutual Life Insurance Company
CUNA Mutual Life Insurance Company is a mutual life insurance company organized
under the laws of Iowa in 1879 and incorporated on June 21, 1882. The Home
Office is located at 2000 Heritage Way, Waverly, Iowa 50677-9202. The Company,
organized as a fraternal benefit society with the name "Mutual Aid Society of
the Evangelical Lutheran Synod of Iowa and Other States," changed its name to
"Lutheran Mutual Aid Society" in 1911, and reorganized as a mutual life
insurance company called "Lutheran Mutual Life Insurance Company" on January 1,
1938. On December 28, 1984, we changed our name to "Century Life of America." On
January 1, 1997, we changed our name to "CUNA Mutual Life Insurance Company."
On July 1, 1990, we entered into a permanent affiliation with CUNA Mutual
Insurance Society ("CUNA Mutual"), 5910 Mineral Point Road, Madison WI
53705-4456. The terms of an Agreement of Permanent Affiliation provide for
extensive financial sharing between the Company and CUNA Mutual of individual
life insurance business through reinsurance arrangements, the joint development
of business plans and distribution systems for individual insurance and other
financial service products within the credit union movement, and the sharing of
certain resources and facilities. At the current time, all of our directors are
also directors of CUNA Mutual and many of our senior executive officers hold
similar positions with CUNA Mutual. The affiliation, however, is not a merger or
consolidation. Both companies remain separate corporate entities and their
respective owners retain their voting rights. CUNA Mutual and its subsidiaries
and affiliates, including the Company are referred to herein as "CUNA Mutual
Group."
As of December 31, 1998, we had more than $4 billion in assets and $11 billion
of life insurance In Force. Effective June 1998 and through the date of this
Prospectus, A.M. Best rated us A (Excellent). Effective March 1998 and through
the date of this Prospectus, Duff & Phelps rated us AA. These are the most
recent ratings available as of the date of this Prospectus. Periodically, the
rating agencies review our ratings. To obtain our current ratings, contact us at
the address and telephone number shown on the first page of this Prospectus.
The objective of A.M. Best's rating system is to evaluate the factors affecting
overall performance of an insurance company. They provide an opinion of a
company's financial strength and ability to meet its contractual obligations
relative to other companies in the industry. The evaluation includes both
quantitative and qualitative analysis of a company's financial and operating
performance.
Duff & Phelps Credit Rating Co. rates insurance companies on their claims paying
abilities. It bases these ratings on its assessment of the economic fundamentals
of our principal lines of business, our competitive position, our management
capability, our relationship with our affiliates and our asset and liability
management practices.
The Company and CUNA Mutual are members of the Insurance Marketplace Standards
Association (IMSA). IMSA is a newly formed independent industry organization
dedicated to the practice of high ethical standards in the sale of
individually-sold life insurance and annuity products. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
CUNA Mutual owns CUNA Mutual Investment Corporation. CUNA Mutual Investment
Corporation also owns CUNA Brokerage Services, Inc. The Company and CUNA Mutual
Investment Corporation each own a one-half interest in CIMCO Inc. (the
investment adviser to the Ultra Series Fund).
The Fixed Account
The Fixed Account is part of the Company's General Account. We use General
Account assets to support our insurance and annuity obligations other than those
funded by various separate accounts. Subject to applicable law, we have sole
discretion over investment of the Fixed Account's assets. We bear the full
investment risk for all assets contributed to the Fixed Account. The Company
guarantees that all Policy Value allocated to the Fixed Account is credited
interest daily at a net effective interest rate of at least 4%. We will
determine any interest rate credited in excess of the guaranteed rate at our
sole discretion.
The Fixed Account is not registered with the Securities and Exchange Commission
and the staff of the Securities and Exchange Commission has not reviewed the
disclosure in this prospectus relating to the Fixed Account.
The Separate Account and the Funds
We established the Separate Account on August 16, 1983. Although the assets in
the Separate Account are our property, the assets attributable to the Policies
are not chargeable with liabilities arising out of any other business which we
may conduct. The assets of the Separate Account are available to cover our
general liabilities only to the extent that the Separate Account's assets exceed
its liabilities arising under the Policies and any other policies supported by
the Separate Account. We have the right to transfer to the General Account any
assets of the Separate Account which are in excess of reserves and other
contract liabilities. Periodically, the Separate Account makes payments to us
for Mortality and Expense Charges.
The Separate Account is divided into Subaccounts. The income, gains and losses,
realized or unrealized, from the assets allocated to each Subaccount are
credited to or charged against that Subaccount without regard to income, gains
or losses from any other Subaccount.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940 ("1940 Act") and meets the definition of a Separate Account under the
federal securities laws. Registration with the SEC does not involve supervision
of the management, investment practices, or policies of the Separate Account or
of the Company by the SEC. The Separate Account is also subject to the laws of
the State of Iowa which regulate the operations of insurance companies domiciled
in Iowa.
We do not guarantee the investment performance of the Separate Account or of any
Subaccount. Policy Value will vary daily with the value of the assets under the
Separate Account. The Death Benefit Proceeds may also vary with the value of the
assets in the Subaccounts selected by the Owner. To the extent that the Death
Benefit Proceeds payable upon the death of the Insured exceed the Policy Value,
such amounts are our general obligations and payable out of our general account.
Ultra Series Fund
The Ultra Series Fund is a fund with two classes of shares within each of seven
investment portfolios. Class C shares are offered to unaffiliated insurance
company separate accounts and unaffiliated qualified retirement plans. Class Z
shares are offered to CUNA Mutual Group affiliates separate accounts and
qualified retirement plans. CIMCO Inc. serves as investment adviser to the Ultra
Series Fund and manages assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
Currently, the Ultra Series Fund offers six Funds as investment options under
the Policies.
Money Market Fund. This Fund seeks high current income from money market
instruments consistent with preservation of capital and liquidity. An investment
in the Money Market Fund is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the Money Market Fund will be able to
maintain a stable Net Asset Value of $1.00 per share.
Bond Fund. This Fund seeks a high level of current income, consistent with the
prudent limitation of investment risk, through investment in a diversified
portfolio of fixed-income securities with maturities of up to 30 years.
It principally invests in securities of intermediate term maturities.
Balanced Fund. This Fund seeks a high total return through the combination of
income and capital growth. It pursues this objective by investing in the types
of common stocks owned by the Capital Appreciation Stock and Growth and Income
Stock Funds, the type of bonds owned by the Bond Fund, and the type of money
market instruments owned by the Money Market Fund.
Growth and Income Stock Fund. This Fund seeks long-term growth of capital with
income as a secondary consideration. It pursues this objective by investing in
common stocks of companies with financial and market strengths and long-term
records of performance.
Capital Appreciation Stock Fund. This Fund seeks long-term growth of capital. It
pursues this objective by investing in common stocks, including those of smaller
companies and of companies undergoing significant change.
Mid-Cap Stock Fund. This Fund seeks long-term capital appreciation by investing
in mid-size and small companies. It pursues this objective by purchasing the
common stock of generally smaller, less-developed issuers with valuations,
fundamentals and/or prospects that are attractive to the investment adviser.
T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio. This Fund seeks long-term growth of
capital through investments primarily in common stocks of established, non-U.S.
companies.
Rowe Price-Fleming International, Inc. ("RPFI") serves as the investment adviser
to the T. Rowe Price International Stock Portfolio and manages its assets in
accordance with general policies and guidelines established by the board of
directors of the T. Rowe Price International Series, Inc. RPFI was founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited.
MFS Variable Insurance Trust
MFS Global Governments Series. This Fund seeks to provide income and capital
appreciation.
MFS Emerging Growth Series. This Fund seeks long-term growth of capital through
investments primarily in common stocks of emerging growth companies.
MFS Investment Management(R) ("MFS") serves as the investment adviser to the MFS
Global Governments Series and MFS Emerging Growth Series and manages its assets
in accordance with general policies and guidelines established by the board of
trustees of the MFS Variable Insurance Trust. MFS is a subsidiary of Sun Life
Assurance Company of Canada (U.S.) Financial Services Holdings, Inc. which, in
turn, is a wholly owned subsidiary of Sun Life Assurance Company of Canada.
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund/VA. This Fund seeks a high level of current income
from investments in high yield fixed-income securities. High Income Fund's
investments include unrated securities or high risk securities in the lower
rating categories, commonly known as "junk bonds," which are subject to a
greater risk of loss of principal and nonpayment of interest than higher-rated
securities.
OppenheimerFunds, Inc. serves as the investment adviser to the Oppenheimer High
Income Fund/VA and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Oppenheimer Variable
Account Funds. The Manager is owned by Oppenheimer Acquisition Corp., a holding
company that is owned in part by senior officers of the Manager and controlled
by Massachusetts Mutual Life Insurance Company.
Templeton Variable Products Series Fund
The Templeton Variable Products Series Fund is only available as an underlying
investment of the Separate Account in which this Contract invests.
Templeton Developing Markets Fund. This Fund seeks long-term capital
appreciation by investing primarily in emerging markets equity securities.
Templeton Asset Management Ltd. serves as the investment adviser to the
Templeton Developing Markets Fund and manages its assets and makes its
investment decisions. Templeton Asset Management Ltd. is a Singapore corporation
wholly owned by Franklin Resources, Inc., a publicly owned U.S. company.
Franklin Resources' principal shareholders are Charles B. Johnson and Rupert H.
Johnson Jr.
More Information About the Funds
Availability of the Funds. The Separate Account purchases shares of the Funds in
accordance with separate participation agreements. The agreements contain
varying termination provisions. If a participation agreement terminates, the
Separate Account may not be able to purchase additional shares of the Fund(s)
covered by that agreement. Likewise, in certain circumstances, it is possible
that shares of a Fund may not be available to the Separate Account even if the
participation agreement relating to that Fund has not been terminated. In either
event, owners will no longer be able to allocate purchase payments or transfer
Policy Value to the Subaccount investing in that Fund.
Resolving Material Conflicts. Shares of the Funds, other than Ultra Series Fund,
are sold to separate accounts of insurance companies that are not affiliated
with the Company or each other, a practice known as "shared funding." They are
also sold to separate accounts to serve as the underlying investment for both
variable annuity contracts and variable life insurance contracts, a practice
known as "mixed funding." As a result, there is a possibility that a material
conflict may arise between the interests of Owners, whose Contract Values are
allocated to the Separate Account, and of owners of other contracts whose
contract values are allocated to one or more other separate accounts investing
in any one of the Funds. Shares of some of the Funds may also be sold directly
to certain qualified 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 or owners of other contracts (including
contracts issued by other companies), and such retirement plans or participants
in such retirement plans. In the event of any such material conflicts, the
Company will consider what action may be appropriate, including removing the
Fund from the Separate Account or replacing the Fund with another Fund. There
are certain risks associated with mixed and shared funding and with sale of
shares to qualified pension and retirement plans, as disclosed in the Fund's
prospectus.
As with other Funds, Ultra Series Fund sells shares in "mixed funding"
arrangements. In addition, it sells shares directly to qualified pension and
retirement plans sponsored by CUNA Mutual Group. In the future, it is possible
that Ultra Series Fund may sell shares in "shared funding" arrangements. As with
other funds, in the event of material conflicts, the Company will consider what
action may be appropriate, including removing an Ultra Series Fund Portfolio
from the Separate Account or replacing it with another Portfolio or Fund.
Certain risks associated with mixed funding and with the sale of shares to CUNA
Mutual Group plans are disclosed in the Ultra Series Fund Statement of
Additional Information.
Related Fund Performance. These mutual fund 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 may be very similar to the
investment objectives and policies of other portfolios that are managed by the
same investment adviser or manager. Nevertheless, the investment performance and
results of the portfolios available under the policy may be lower, or higher,
than the investment results of such other (publicly available) portfolios. There
can be no assurance, and no representation is made, that the investment results
of any of the portfolios available under the policy will be comparable to the
investment results of any other mutual fund portfolio, even if the other
portfolio has the same investment adviser or manager and the same investment
objectives and policies, and a very similar name.
The Policy
Applying for a Policy
To purchase a Policy, you must complete an application and submit it to an
authorized representative. You must also pay an Initial Required Premium as
further described below. You must pay the Initial Required Premium during the
lifetime of the Insured, on or before the Policy Issue Date. All premiums after
the Initial Required Premium must be paid to the Home Office.
Conditions for Policy Issue
The minimum Specified Amount for this Policy is $50,000 ($25,000 for Issue Ages
65 and over). The Policy may be issued on individuals up to 75 years of Age. We
require evidence of insurability satisfactory to us before issuing a Policy. In
some cases, this evidence will include a medical examination.
Policy Issue Date
Full Insurance coverage under the Policy begins as of the Policy Issue Date. The
Policy Issue Date is also used to determine Policy Anniversaries and Monthly
Processing Days. If the Initial Required Premium is paid with the application,
and, after underwriting is complete, the Policy is approved for issue at the
Specified Amount applied for, then the Policy Issue Date is the Valuation Day as
of which the Policy is approved. If the Initial Required Premium does not
accompany the application or if the Policy is approved for issue at a Specified
Amount other than that requested in the application, then the Policy Issue Date
is approximately ten days after the Valuation Day as of which the Policy is
approved.
Temporary Insurance Agreement
If the Initial Required Premium is paid with the application, the proposed
Insured will be covered prior to the Policy Issue Date under a Temporary
Insurance Agreement. For the period beginning on the Valuation Day that we
receive the Initial Required Premium until all information necessary to complete
underwriting is received, the coverage is 50% of the Specified Amount requested
in the application up to $150,000. After that period, and until the Policy Issue
Date, coverage under a Temporary Insurance Agreement is the Specified Amount
requested in the application up to $300,000. No temporary insurance is available
in connection with coverage that is normally available through riders to a
Policy. The details of the Temporary Insurance Agreement are found in the
Agreement which accompanies the Policy.
Right-to-Examine Period
You may cancel the Policy before the latest of the following three events:
o 45 days after the date of the application.
o 10 days after we have personally delivered or have sent the Policy and
a Notice of Right of Partial Withdrawal to you by first class mail. (20
days if the policy is a replacement for an existing policy, or longer
if required by state law.)
o 10 days after you receive the Policy. (20 days if the policy is a
replacement for an existing policy, or longer if required by state
law.)
To cancel the Policy, you must mail or deliver the Policy to the representative
who sold it or to us at our Home Office. If you return the Policy, we will treat
it as if it had not been issued. You will receive a refund equal to the premiums
paid, unless state law requires a different result.
If there is an increase in Specified Amount and the increase is not the result
of a change in death benefit option, you will be granted a right-to-examine
period, with respect to the increase. You may request a cancellation of the
increase during the right-to-examine period. You will then receive a refund (if
actual payment was received) or a credit. A credit will be made to the Policy
Value allocated among the Subaccounts and Fixed Account as if it were Net
Premium, equal to all Insurance Charges attributable to the increase in
Specified Amount, including rider costs arising from the increase. The refund or
credit will be made within seven days after we receive the request for
cancellation on the appropriate form containing all necessary signatures. Net
Premiums paid upon application of an increase in Specified Amount will be
allocated to the Subaccounts and/or the Fixed Account and will not be refunded
following cancellation of the increase. Owners who request an increase in
Specified Amount should take this into consideration in deciding whether to make
any premium payments during the right-to-examine period for the increase.
Flexibility of Premiums
The Policy provides for a planned annual premium determined by you. You are not
required, however, to pay premiums in accordance with the planned schedule.
Premiums are generally flexible both as to timing and amount. Premiums must be
large enough to keep the Policy In Force. You may pay premiums after the Initial
Required Premium at any time while the Policy is In Force.
The Initial Required Premium is at least one-sixth (1/6) of the Basic Guarantee
Premium. This is the minimum premium that must be paid before we will issue a
Policy. The Basic Guarantee Premium is the sum of the expected first year
charges plus the first year Surrender Charge and provides certain protections
against Lapse.
A higher level of premium, the Extended Guarantee Premium, will fund the Policy
at the Extended Guarantee Level which provides protection against Lapse. The
Extended Guarantee Premium equals the current guideline level premium as
determined by the current Internal Revenue Code.
The Initial Required Premium, the Planned Premium, the Extended Guarantee
Premium, and the Basic Guarantee Premium are shown on the data page of the
Policy. We reserve the right to refuse any premium payment that is less than
$50.
The total of all premiums paid may never exceed the maximum premium limitation
determined by the Internal Revenue Code for treatment of the Policy as a life
insurance policy. If at any time a premium is paid which would result in total
premiums exceeding the maximum premium limitation, we will only accept that
portion of the premium which would make total premiums equal the maximum. We
will return any excess amount and will not accept further premiums until the
maximum premium limitation increases.
We reserve the right to refuse any premium or part of a premium which would
increase the Death Benefit of the Policy by more than the amount of the premium.
Allocation of Net Premiums
You determine what percentages of the Net Premiums are allocated to each
Subaccount and the Fixed Account. Any allocation to a Subaccount or the Fixed
Account must be at least 5% of amount applied and only whole percentages are
permitted.
Initial Required Premiums are allocated as follows:
If the Initial Required Premium is received before we issue the Policy, it is
held in the company's general account until the Policy Issue Date. On the Policy
Issue Date, the Net Premium is allocated to the Subaccounts and the Fixed
Account. Allocations are made by the Owner and recorded on the application for
the Policy. These allocations apply to future Net Premiums until the allocation
is changed by the Owner.
Lapse
If your Surrender Value on any Monthly Processing Day is insufficient to pay the
Monthly Deduction, then we will mail you a written notice informing you that a
Grace Period has begun under the Policy. If sufficient Net Premium is not paid
during the Grace Period, the Policy will Lapse without value. The Net Premium
required to terminate the Grace Period is that which is sufficient to pay
overdue Monthly Deductions plus the anticipated amount of the next two Monthly
Deductions. If the Insured dies during the Grace Period, unpaid Monthly
Deduction are deducted from the Death Benefit Proceeds.
Reinstatement
You may ask to have a Lapsed Policy reinstated. We will reinstate a Policy based
upon the original terms of the Policy if all of the following conditions are
met:
o You make a Written Request to reinstate the Policy within five years
after the Lapse.
o You provide satisfactory evidence of insurability (the Cost of
Insurance rates following reinstatement will be based upon the risk
classification of the reinstated Policy).
o You pay Net Premiums in an amount sufficient to cover unpaid Monthly
Deduction due prior to the end of the Grace Period plus the anticipated
amount of two Monthly Deductions.
o You pay the amount of or reinstate any loan outstanding as of the date
of Lapse.
The reinstatement will become effective immediately upon our approval of the
reinstatement.
Premiums to Prevent Lapse
If your Policy meets the premium requirements of one of the guarantees described
below, your Policy will continue In Force for the duration of the guarantee
provided you meet the requirements of that guarantee. The guarantees described
may vary by state.
a. Basic Guarantee: The Basic Guarantee is in effect if the total of your
premiums on each Monthly Processing Day following your Policy Issue
Date, less the total of any Partial Withdrawals and loans taken to
date, is at least equal to the Basic Guarantee Premium. The Basic
Guarantee Premium requirement is equal to the total of all Basic
Guarantee Premiums accumulated as of that Monthly Processing Day. This
Basic Guarantee will remain in effect as long as you meet the premium
requirements, and will continue until the later of: 1.) the Insured's
Attained Age 65; or 2.) 10 years after the Policy Issue Date. The Basic
Guarantee Premium as of the Policy Issue Date is shown on the data page
of the Policy. If you make a change to your Policy benefits or change
how you fund your Policy, this amount will change and will affect the
premium required for the Basic Guarantee.
b. Extended Guarantee: The Extended Guarantee is in effect if the total of
your premiums on each Monthly Processing Day following your Policy
Issue Date, less the total of any Partial Withdrawals and loans taken
to date, is at least equal to the Extended Guarantee Premium
requirement. The Extended Guarantee Premium requirement is equal to the
total amount of all Extended Guarantee Premiums accumulated as of that
Monthly Processing Day. This Extended Guarantee will remain in effect
as long as you meet the premium requirements, and will continue until
the Insured's Attained Age 95. The Extended Guarantee Premium as of the
Policy Issue Date is shown on the data page of the Policy. If you make
a change to your Policy benefits or change how you fund your Policy,
this amount will change and will affect the premium required for the
Extended Guarantee.
You will be notified if the total of your net premiums are no longer sufficient
to keep the Basic Guarantee or Extended Guarantee in effect. If the Basic or
Extended Guarantee were previously in effect, you will have 61 days to pay us
sufficient premium in order to keep the guarantee in effect.
During the guarantee period, Monthly Deduction will continue to be deducted and
may result in a Surrender Value of less than zero at the end of the period. If
your Surrender Value is equal to or less than zero at the end of the guarantee
period, we will mail a notice of impending termination to you at your last post
office address known to us and your Grace Period will begin.
Death Benefit Proceeds
Payment of Death Benefit Proceeds. When we receive satisfactory, written proof
of the Insured's death, we will pay the Death Benefit Proceeds to the
Beneficiary. If no Beneficiary survives the Insured, we will pay the Death
Benefits Proceeds to you, if living, or to your estate.
We will pay Death Benefit Proceeds payable to your estate in one sum. We will
pay Death Benefit Proceeds payable to you or to other beneficiaries in one sum
unless another settlement option is selected. If the Beneficiary is not a
natural person, Death Benefit Proceeds due may only be applied under settlement
options we consent to.
We will pay interest on single sum Death Benefit Proceeds from the date we
receive proof of death (or from the date of the insured's death, if required by
law), until the date of payment. Interest will be paid at an annual rate that we
determine.
During the Insured's lifetime, you may direct that the Death Benefit Proceeds be
paid under one of the settlement options. We must receive the written consent of
all Irrevocable Beneficiaries and assignees before the selection. After the
Insured's death, if you did not select a settlement option, any Beneficiary
entitled to receive the proceeds in one sum may select a settlement option.
Death Benefit Options 1 and 2. You may select one of two death benefit options.
Your selection will affect the Death Benefit, the Monthly Deduction, and the
Policy Value. Under either option, Death Benefit Proceeds are equal to:
o The Death Benefit on the date of death; plus
o Any premiums received after date of death; minus
o Any Partial Withdrawals taken after the date of death; minus
o Any insurance charges due if the insured dies during a Grace Period; minus
o Any Loan Amount.
The Death Benefit, however, differs under the two options.
Under Option 1, the Death Benefit is the greater of:
o The Specified Amount.
o The Policy Value on the insured's date of death multiplied by the Death
Benefit Percentage Factor.
Under Option 2, the Death Benefit is the greater of:
o The Specified Amount plus the Policy Value on the date of death.
o The Policy Value on the insured's date of death multiplied by the Death
Benefit Percentage Factor.
The Death Benefit Percentage Factor is the ratio of Death Benefit to Policy
Value required by the Internal Revenue Code for treatment of the Policy as a
life insurance Policy. The Death Benefit Percentage Factor varies by Attained
Age as shown in Appendix C. The Death Benefit Percentage Factor decreases from
year to year as the Age of the Insured increases.
The illustrations in Appendix A show how the death benefit option affects Policy
values. Illustrations 1, 2, 5 and 6 assume death benefit option 1 is in effect.
Illustrations 3, 4, 7, and 8 assume death benefit option 2 is in effect.
Change of Death Benefit Option
You may change the death benefit option. The change will become effective as of
the first Monthly Processing Day after a Written Request satisfactory to us is
received at the Home Office. We reserve the right to require evidence of
insurability.
If option 1 is changed to option 2, the Specified Amount is reduced by the
amount of the Policy Value on the effective date of the change. This change does
not alter the amount of the Policy's death benefit at the time of the change,
but does affect how the death benefit is determined from that point on. The
death benefit will vary with Policy Value from that point on, unless the death
benefit derived from application of the Death Benefit Percentage Factor applies.
No change from death benefit option 1 to death benefit option 2 is allowed if
the resulting Specified Amount would be less than $40,000 ($20,000 if Issue Age
is 65 and over).
If option 2 is changed to option 1, the Specified Amount is increased by the
amount of the Policy Value on the effective date of the change. This change does
not alter the amount of the Policy's Death Benefit at the time of the change,
but does affect the determination of the Death Benefit from that point on. The
Death Benefit as of the date of the change becomes the new Specified Amount and
will remain at that level, unless the Death Benefit derived from application of
the Death Benefit Percentage Factor applies.
Your insurance goals should determine the appropriate death benefit option. If
you prefer to have favorable investment results and additional premiums
reflected in the form of an increased death benefit, you should choose death
benefit option 2. If you are satisfied with the amount of insurance coverage and
wish to have favorable investment results and additional premiums reflected to
the maximum extent in increasing Cash Values, you should choose death benefit
option 1.
A change of death benefit option will also change the Cost of Insurance for the
duration of the Policy. The Cost of Insurance on any Monthly Processing Day is
equal to the Net Amount At Risk, multiplied by the Cost of Insurance rate. The
Cost of Insurance rate is the same under both options, but the difference
between Death Benefit and Policy Value varies inversely with Policy Value under
option 1, but is constant under option 2, unless the Death Benefit derived from
application of the Death Benefit Percentage Factor applies.
Change of Specified Amount
You may change the Specified Amount at any time after the first Policy year. If
more than one increase is requested per Policy year, we may charge $100 for each
increase after the first request. Changes must be requested in writing and are
subject to the following conditions.
Decreases. After the decrease, the Specified Amount must be at least $40,000
($20,000 for Issue Ages 65 and over). The decrease is effective as of the
Monthly Processing Day coincident with or the next following day the request is
received at the Home Office. For purposes of determining the Cost of Insurance,
any decrease is applied to the initial Specified Amount and to increases in the
Specified Amount in reverse order in which they become effective. A decrease
does not result in reduced Surrender Charges.
Increases. A supplemental application containing evidence of insurability
satisfactory to us is required. The effective date of the increase will be shown
on an endorsement to the Policy.
Because the Surrender Charge is a function of Specified Amount, an increase in
Specified Amount results in an increase in the applicable Surrender Charge.
However, no additional Surrender Charges will accrue for increases in Specified
Amount due to a change from death benefit option 2 to death benefit option 1.
Likewise, because the Administrative Charge is a function of Specified Amount,
an increase in Specified Amount results in an increase in the ongoing
Administrative Charge. As with the Surrender Charge, an increase resulting from
a change in Death Benefit Option 2 to Option 1, does not result in an increase
in the Administrative Charge.
We reserve the right to require the payment of additional premiums in an amount
equal to the Initial Required Premium which would be charged based on Attained
Age and rating class for a newly-issued Policy with a Specified Amount equal to
the amount of increase, as a condition of allowing an increase.
The rating class assigned to an increase in Specified Amount may result in the
use of a Cost of Insurance rate different than the Cost of Insurance rate
charged on the original Specified Amount.
Policy Values
Policy Value. The Policy Value is the sum of the Variable Account Value (itself
the sum of the Subaccount Values), the Fixed Account Value and the Loan Account
Value. Policy Value is determined as of the end of each Valuation Period. As a
result, Policy Value increases whenever:
o Investment gains occur in any Subaccount.
o Interest is credited to the Policy for amounts held in the Fixed Account.
o Interest is credited to the Policy for any Loan Amounts held in the Loan
Account.
o Additional premiums are paid.
o Policy dividends are paid into the Subaccounts or Fixed Account.
Policy Value decreases whenever:
o Investment losses occur in any Subaccount.
o Monthly Deduction or service fees are paid.
o A Partial Withdrawal occurs.
Policy Value remains constant when:
o A Policy loan is either disbursed or repaid.
o Amounts are transferred between any Subaccount or Fixed Account and the
Loan Account, or when amounts are transferred among the Subaccounts and
the Fixed Account (exclusive of any transfer charge).
The Subaccount Value attributable to a Subaccount is equal to the number of
Accumulation Units that the Policy has in each Subaccount, multiplied by the
Accumulation Unit Value of that Subaccount. The Accumulation Unit Value of each
Subaccount was set at $10 for the first Valuation Period. The Accumulation Unit
Value may increase or decrease from one Valuation Period to the next. The
Accumulation Unit Value will vary between Subaccounts.
Transfer of Values
You may make the following transfers of Policy Value: 1) between Subaccounts at
anytime 2) from a Subaccount to the Fixed Account at any time except for the six
month period after a transfer out of the Fixed Account and 3) from the Fixed
Account into the Subaccounts only during the 30 day period beginning on and
immediately following the Policy Anniversary. Only one transfer of up to 25% of
the Fixed Account Value is allowed each Policy year. However, we currently waive
these restrictions on transfers from the Fixed Account.
A transfer may be requested in writing or by an authorized telephone
transaction. A written transfer request must be made on a form satisfactory to
us and contain your original signature. The Written Request will take effect as
of the day it is received at the Home Office. You also may make transfers by
telephone if we have a signed telephone transfer authorization form from you. We
cannot, however, guarantee that telephone transfer privileges will be available
at all times. We will exercise reasonable care to prevent unauthorized telephone
transactions.
For example, we will:
o Record calls requesting transfers.
o Ask the caller questions in an attempt to determine if you are the
caller.
o Transfer funds only to other Subaccounts and to the Fixed Account.
o Send a written confirmation of each transfer.
If we use reasonable procedures and believe the instructions to be genuine, you
are at risk of loss if someone gives unauthorized or fraudulent information to
us.
The first twelve transfers in a Policy year are free. We may charge $10 for the
thirteenth and each additional transfer in a Policy year. We are currently
waiving this fee.
A request to transfer Subaccount Values to other Subaccounts and/or the Fixed
Account or from the Fixed Account to one or more Subaccounts which is received
before 3:00 p.m. Central Standard Time will take effect as of the day it is
received. Transfer requests received after that time are processed as of the
following Valuation Day. All transfers requested on the same Valuation Day are
considered one transfer for purposes of the transfer fee.
We also permit transfer requests by facsimile transmission of a Written Request
provided that we have an original signed fax authorization from you. We reserve
the right to discontinue allowing telephone and fax transfers at any time and
for any reason. In the event we discontinue this privilege, we will send written
notice to all owners who have currently valid telephone and fax authorizations
on file. Such discontinuance will become effective on the fifth Valuation Day
following mailing of the notice by us.
We further reserve the right to restrict the ability to transfer Policy Value
among Subaccounts and/or the Fixed Account if we believe such action is
necessary to maintain the tax status of the Policies.
Dollar Cost Averaging
If elected at the time of the application or at any other time by Written
Request, you may systematically or automatically transfer (on a monthly,
quarterly, semi-annual or annual basis) specified dollar amounts from the Money
Market Subaccount to other Subaccounts. The fixed dollar amount will purchase
more Accumulation Units of a Subaccount when their value is lower and fewer
units when their value is higher. Over time, the cost per Accumulation Unit
averages out to be less than if all purchases had been made at the highest value
and greater than if all purchases had been made at the lowest value. The
dollar-cost averaging method of investment reduces the risk of making purchases
only when the price of Accumulation Units is high. It does not assure a profit
or protect against a loss in declining markets.
The minimum transfer amount for dollar-cost averaging is the equivalent of $100
per month. If less than $100 remains in the Money Market, the entire amount will
be transferred. The amount transferred to a Subaccount must be at least 5% of
the amount transferred and must be stated in whole percentages.
Once elected, dollar-cost averaging remains in effect until the earliest of: (1)
the Policy Value in the Money Market Subaccount is depleted to zero; (2) you
cancel the election (by Written request or by telephone if we have your
telephone authorization form on file); or (3) for three successive months, the
Policy Value in the Money Market Subaccount has been insufficient to implement
the dollar-cost averaging instructions you have given to us. We will notify you
when dollar-cost averaging is no longer in effect. There is no additional charge
for using dollar-cost averaging. Dollar-cost averaging transfers do not count
against the twelve free transfers in a Policy Year. We reserve the right to
discontinue offering dollar-cost averaging at any time and for any reason.
Automatic Personal Portfolio Rebalancing Service
If elected at the time of the application or requested at any time in writing,
you may instruct us to automatically transfer (on a monthly, quarterly,
semi-annual or annual basis) Policy Value between and among specified
Subaccounts in order to achieve a particular percentage allocation of Policy
Value among the Subaccounts. The percentage allocations must be in whole
percentages and must be at least 5% per allocation. You may start and stop
automatic Policy Value rebalancing at any time and may specify any percentage
allocation of Policy Value between or among as many Subaccounts as are available
at the time the rebalancing is elected. (If you elect automatic Policy Value
rebalancing without specifying percentage allocation(s), we will allocate Policy
Value in accordance with your currently effective premium payment allocation
schedule.) There is no additional charge for using Policy Value rebalancing.
Other Types of Automatic Transfers
If elected at the time of the application or at any other time by Written
Request, you may systematically or automatically transfer (on a monthly,
quarterly, semi-annual or annual basis) Policy Value from one Subaccount to
another. Such automatic transfer amounts may be requested on the following
basis: (1) as a specified dollar amount; (2) as a specified number of
accumulation units; (3) as a specified percent of Policy Value in a particular
Subaccount, or (4) in an amount equal to the excess of a Specified Amount of
Policy Value in a particular Subaccount.
The minimum automatic transfer amount is the equivalent of $100 per month. If
less than $100 remains in the Subaccount from which transfers are being made,
the entire amount will be transferred. The amount transferred to a Subaccount
must be at least 5% of the amount transferred and must be stated in whole
percentages. Once elected, automatic transfers remain in effect until the
earliest of: (1) the Policy Value in the Subaccount from which the transfers are
being made is depleted to zero; (2) you cancel the election in writing or by
telephone or fax if we have a telephone / fax authorization on file; or (3) for
three successive months, the Policy Value in the Subaccount from which transfers
are being made has been insufficient to implement the automatic transfer
instructions you have given us. We will notify you when automatic transfer
instructions are no longer in effect. There is no additional charge for using
automatic transfers. We reserve the right to discontinue offering automatic
transfers at any time and for any reason.
Surrender and Partial Withdrawals
Policy Surrender. You may Surrender the Policy for its Surrender Value. You must
obtain the written consent of all assignees or Irrevocable Beneficiaries before
a surrender. We may require the return of the Policy.
Surrender of the Policy is effective as of the date we receive a Written Request
for surrender. The Policy and all insurance terminate upon surrender.
Partial Withdrawal. You may make Partial Withdrawals by Written Request. Written
consent of all assignees or irrevocable beneficiaries must be obtained prior to
any Partial Withdrawal. An amount up to the Policy Surrender Value, less two
months of insurance charges, may be taken as a Partial Withdrawal. Partial
Withdrawals will be effective as of the date we receive your Written Request. A
Partial Withdrawal request for the full Surrender Value will be considered a
full surrender of the Policy.
You may specify the accounts from which the Partial Withdrawal, including the
service fee, will be deducted. If any account value is insufficient, or if you
do not specify the accounts, the amount will be deducted pro rata from the
remaining accounts.
If death benefit Option 1 is in effect at the time of a Partial Withdrawal, the
Specified Amount will be reduced by the amount of the Partial Withdrawal,
including the amount of the service fee. If death benefit Option 2 is in effect
at the time of a Partial Withdrawal, Specified Amount will not change. We
reserve the right to decline a Partial Withdrawal request if the remaining
Specified Amount would be below the minimum Specified Amount necessary to issue
a new Policy. If the Death Benefit derived from application of the Death Benefit
Percentage Factor applies, the effect of a Partial Withdrawal on the monthly
Cost of Insurance and Death Benefit is somewhat different. The Death Benefit is
then decreased by more than the amount surrendered, and the monthly Cost of
Insurance is less than it would have been without the surrender.
Payment is generally made within seven days of the surrender or Partial
Withdrawal date.
Maturity
The Policy matures on the Policy Anniversary following the Insured's 95th
birthday. Coverage under the Policy ceases on that date, and you will receive
maturity proceeds equal to the Surrender Value as of that date, unless the
maturity date has been extended, as allowed by state law.
Payment of Benefits/Settlement Options
Settlement options other than lump sum payments are, in our discretion,
available for Death Benefit Proceeds, surrender proceeds, and maturity proceeds,
payable to natural persons, subject to certain restrictions on Death Benefit
Proceeds. Proceeds payable to a non-natural person are available only under
settlement options we agree to. The four available settlement options are as
follows:
1) Interest Option. The proceeds may be left with us to collect
interest during the lifetime of the payee. We determine the interest
rate each year. It is guaranteed to be not less than the settlement
option rate of interest shown on the data page of the Policy. The payee
may choose to receive interest payments either once a year or once a
month (may not be available in all states) unless the amount of
interest to be paid monthly is less than $25 per month, or the total
amount deposited is less than $2,500, then interest will be paid
annually. The payee may withdraw any remaining proceeds, if this right
was given at the time the option was selected.
2) Installment Option. The proceeds may be left with us to provide
equal monthly installments for a specified period not less than 5 or
more than 30 years. If the original payee dies before payments have
been made for the chosen number of years; a.) payments will be
continued for the remainder of the period to the successor payee; or
b.) the present value of the remaining payments, computed at the
interest rate used to create the Option 2 rates, will be paid to the
successor payee or to the last surviving payee's estate, if there is no
successor payee. The interest we guarantee to pay is set forth in the
Policy. Additional interest, if any, will be payable as determined by
us. (This option may not be available in all states.)
3) Life Income - Guaranteed Period Certain. The proceeds may be left
with us to provide monthly installments for as long as the original
payee lives. A guaranteed period of 10 or 20 years may be selected.
Payments will cease when the original payee dies or at the end of the
guaranteed period, whichever is later. If the original payee dies
during the guaranteed period, the remaining guaranteed payments will be
paid to the successor payee or the successor payee may receive the
present value of the remaining payments computed at the interest rate
for this option.
4) Joint and Survivor Life. The proceeds may be left with us to provide
monthly installments for two payees for a guaranteed period of 10
years. After the 10-year period is over, payments will continue as long
as either of the original payees is living.
The minimum amount that can be applied under settlement options 2, 3 and 4 is
$2,500 or that amount which will provide an initial monthly installment of at
least $25.
We may, at our option, provide for additional settlement options or cease
offering any of the settlement options described above.
Policy Loans
General. At any time prior to the Maturity Date while the Insured is still
living and the Policy is In Force, you may, by Written Notice, borrow money from
us using the Policy as the security for the loan. The maximum amount that you
may borrow is 90% of the Cash Value of the Policy as of the date of the loan.
Interest. We charge interest on amounts that you borrow. The interest rate
charged is 6% and is an effective annual rate compounded annually on the Policy
Anniversary. Interest is charged in arrears from the date of the loan and is due
from you on each Policy Anniversary for the prior Policy Year. If you do not pay
the interest when due, the amount of the interest is added to the outstanding
Loan Amount. Thus, unpaid interest is charged interest during the ensuing Policy
Year. For Policies in the 11th Policy Year or later, we charge a preferred
effective annual interest rate up to 4.5% on amounts borrowed. We may charge
interest at lower rates from time to time.
We credit Loan Account Value with interest at an effective annual rate of 4%. On
each Policy Anniversary, interest earned on Loan Account Value since the
preceding Anniversary is transferred to the Subaccounts and the Fixed Account.
Unless you specify otherwise, such transfers are allocated in the same manner as
transfers of collateral to the Loan Account.
Loan Collateral. When we make a loan to you, we transfer an amount of Policy
Value sufficient to secure the loan out of the Subaccounts and the Fixed Account
and into the Loan Account. You may specify how this transferred Policy Value is
allocated from among the Subaccount Values and the Fixed Account Value. If you
do not specify the allocation, we make the allocation based on the proportion
that each Subaccount Value and the Fixed Account Value bear to the Policy Value
as of the date that the transfer is made. If unpaid interest is due from you on
a Policy Anniversary it is added to the Loan Amount. Policy Value in the amount
of the interest also is transferred to the Loan Account as of that Anniversary.
The Policy Value transferred in connection with unpaid interest is allocated on
the same basis as other Policy Value transferred to the Loan Account.
Loan Account Value is recalculated when interest is added to the Loan Amount, a
loan repayment is made, or a new loan is made under Policy.
Non-Payment Of Policy Loans. If Loan Account Value exceeds Cash Value, then you
must make either a loan repayment or a Net Premium payment sufficient to raise
the Cash Value or lower the Loan Account Value so that Cash Value exceeds the
Loan Account Value. We will send you and any assignee of record a notice
indicating the amount that must be paid. If payment is not received at the Home
Office within 30 days of the notice being mailed, the Grace Period will begin.
(See "Lapse.") If the Grace Period expires without the payment being made, then
the Policy Lapses.
Loan Repayment. You may repay a loan or repay any part of a loan at any time
while the Insured is still living and the Policy is In Force prior to the
Maturity Date. Upon repayment of any part of a loan, Loan Account Value in an
amount equal to the payment is transferred to the Subaccounts and the Fixed
Account as of the date that the payment is received by us. Unless you specify
otherwise, the amount transferred is allocated among or between the Subaccounts
and the Fixed Account in accordance with your allocation instructions for Net
Premium Payments in effect at that time.
Effect of a Policy Loan. A loan, whether or not repaid, has a permanent effect
on the Death Benefit and Policy Values because the investment results of the
Subaccounts and current interest rates credited on Fixed Account Value do not
apply to Policy Value in the Loan Account. The larger the loan and longer the
loan is outstanding, the greater will be the effect of Policy Value being held
as collateral in the Loan Account. Depending on the investment results of the
Subaccounts or credited interest rates for the Fixed Account while the loan is
outstanding, the effect could be favorable or unfavorable. Policy loans also may
increase the potential for lapse if investment results of the Subaccounts to
which Surrender Value is allocated is unfavorable. If a Policy Lapses with loans
outstanding, certain amounts may be subject to income tax and a 10% penalty tax.
See "Federal Income Tax Considerations," for a discussion of the tax treatment
of Policy loans. In addition, if a Policy is a "modified endowment contract,"
loans may be currently taxable and subject to a 10% penalty tax.
Charges and Deductions
Fund Charges. Charges made by the Funds are discussed in the Funds' prospectuses
and in their statements of additional information available from the address
shown on the first page of this prospectus.
Premium Expense Charge. We make a deduction from premiums for Premium Expense
Charges charged by your state of residence. We determine your state of residence
by the mailing address as shown on our records. The initial percentage of
reduction for state charges is shown on the data page of the Policy.
Monthly Deduction. The Monthly Deduction due on each Monthly Processing Day will
be the sum of:
o The Cost of Insurance for that month; plus
o The Policy Fee; plus
o The Administrative Fee; plus
o The cost of any additional benefits provided by rider, if any.
The Monthly Deduction is collected by redeeming the number of Accumulation Units
(or fraction of Accumulation Units) in Subaccounts (and/or withdrawing values
from the Fixed Account) in an amount equal to the Monthly Deduction.
Cost of Insurance. The Cost of Insurance rate for the Policy will be determined
by the Insured's Attained Age, gender, tobacco status, and rating class. Cost of
Insurance rate charges will depend on our expectations as to future mortality
experience. Tobacco User rates are determined based on Age, gender, and
duration. Higher rates are charged if we determine that for some reason the
Insured is a higher mortality risk. The Tobacco User and Non-Tobacco User rates
are further classified as either preferred or standard based on underwriting
guidelines and principles. The monthly Cost of Insurance rate will not exceed
the rates shown in Table I - Guaranteed Maximum Insurance Rates contained in the
Policy. However, we may charge less than these rates. While not guaranteeing to
do so, we intend to charge less than the guaranteed maximum insurance rates
after the 10th Policy year. The guaranteed maximum insurance rates are based on
the 1980 CSO Mortality Tables age last birthday.
The Cost of Insurance is determined by multiplying the Cost of Insurance rate by
the Net Amount At Risk for a Policy. Under death benefit option 2, the Net
Amount At Risk is always the Specified Amount. Under death benefit option 1, the
Net Amount At Risk is the Specified Amount less the Policy Value. For a Policy
where there has been an increase in Specified Amount, the Cost of Insurance rate
applicable to the initial Specified Amount is usually different from that for
the increase. Likewise, there is a Net Amount At Risk associated with the
initial Specified Amount and the increase. The Net Amount At Risk for the
initial Specified Amount is multiplied by the Cost of Insurance rate for the
initial Specified Amount to determine the Cost of Insurance charge for the
initial Specified Amount and the Net Amount At Risk for the increase is
multiplied by the Cost of Insurance rate for the increase to determine the Cost
of Insurance for the increase. To compute the net amounts at risk after an
increase for a Policy with an option 1 death benefit, Policy Value is first used
to offset the initial Specified Amount, and any Policy Value in excess of the
initial Specified Amount is then used to offset the increase in Specified
Amount.
Policy Fee. The Policy Fee is $6 per month. It is a fee we charge to compensate
for some of the administrative expenses associated with the Policy. The fee
cannot be increased.
Administrative Charge. We assess an administrative charge of $.45 per thousand
dollars of Specified Amount per year on a monthly basis to reimburse us for some
of the administrative expenses associated with the Policy. The charge increases
if the Specified Amount increases, in proportion to the amount of increase. The
charge does not decrease in the event of a Specified Amount decrease. This
charge is only charged during the first 10 Policy years of the Policy or, on an
increase in Specified Amount, during the first 10 Policy years after the
increase.
The Administrative Charge, together with the Policy Fee, is designed to
equitably distribute the administrative costs among all Policies.
Cost of Additional Benefits. The cost of additional benefits will include
charges for any additional insurance benefits added to the Policy by rider.
These charges are for insurance protection, and the amounts will be specified in
the Policy.
Mortality and Expense Risk Charge. We daily deduct a mortality and expense risk
charge of .00002466% of the Policy's Variable Account Value, which is equal on
an annual basis to 0.9%. The mortality risk assumed is that the Insured may not
live as long as expected. The expense risk assumed by us is that the actual
expense will be greater than what we expected. We have primary responsibility
for all administration for the Policy, the Separate Account and the Fixed
Account. Such administration includes, among other things, Policy issuance,
underwriting, maintenance of Policy records, Policy service, and all accounting,
reserves calculations, regulatory and reporting requirements, and audit of the
Separate Account. If proceeds from this charge are not needed to cover mortality
and expense risks, we may use proceeds to finance distribution of the Policies
or for any other lawful purpose.
Surrender Charges. To reimburse us for sales expenses and Policy issue expenses,
including but not limited to representatives' commissions, advertising, sales
materials, training allowances, and preparation of prospectuses, we deduct
Surrender Charges from the proceeds in the event of a complete surrender of the
Policy during the first nine years. If the Policy is not surrendered in the
first nine years there is no charge. A chart showing the percentage of Surrender
Charges remaining at the beginning of Policy years 2 through 9 is shown below.
The Surrender Charges vary by the Age of Insured, gender, and rating class. For
a 35-year-old male Non-Tobacco User, the charges would be $7.71 per $1,000 of
the Specified Amount. For a 50-year-old male Non-Tobacco User, the charges would
be $15.91 per $1,000 of Specified Amount. For a chart showing how the charges
vary, see Appendix B.
The Surrender Charges decrease annually after the first year. The percentage of
the Surrender Charges remaining in each Policy year is:
Beginning Percentage of
Policy Year Surrender Charges Remaining
----------- ---------------------------
2 95%
3 90%
4 85%
5 75%
6 65%
7 50%
8 35%
9 20%
10+ 0%
Transfer Fee. Currently, we allow an unlimited number of transfers in each
Policy year without charge. After twelve transfers in any given Policy year, we
may deduct $10 per transfer from the amount transferred.
Federal and State Income Taxes. Other than Premium Expense no charges are
currently made against the Separate Account and/or Fixed Account for federal or
state income taxes. In the event we determine that any such taxes will be
imposed, we may make deductions from the Separate Account and/or Fixed Account
to pay such taxes.
Duplicate Policy Charge. You can obtain a certification of your Policy at no
charge. There will be a $30 charge for a duplicate Policy.
Increase of Specified Amount Charge. We may assess a $100 charge for each
increase in Specified Amount after the first in a Policy year.
We currently intend to waive certain fees as stated above. We, however, reserve
the right to reinstate the fees and charges in the future.
Other Policy Benefits and Provisions
Owner, Beneficiary
You are the person who purchases the Policy and is named in the application. You
may be other than the Insured.
You may name one or more Beneficiaries in the application. Beneficiaries may be
classified as primary or contingent. If no primary Beneficiary survives the
Insured, payment will be made to contingent Beneficiaries. Beneficiaries in the
same class will receive equal payments unless otherwise directed. A Beneficiary
must survive the Insured in order to receive his or her share of the Death
Benefit Proceeds. If a Beneficiary dies before the Insured dies, his or her
unpaid share is divided among the Beneficiaries who survive the Insured. The
unpaid share will be divided equally unless you direct otherwise. If no
Beneficiary survives the Insured, the Death Benefit Proceeds will be paid to
you, if living, or to your estate.
You may change the Beneficiary while the Insured is living. The written consent
of all Assignees and Irrevocable Beneficiaries must be obtained before a change.
To make a change, you must provide us with a Written Request satisfactory to us.
The request will not be effective until we record it. After the request is
recorded, it will take effect as of the date you signed the request. We will not
be responsible for any payment or other action taken before the request is
recorded. We may require the Policy be returned for endorsement of the
Beneficiary change.
Our Right to Contest the Policy
We have the right to contest the validity of the Policy or to resist a claim
under it on the basis of any material misrepresentation of a fact stated in the
application or any supplemental application. We also have the right to contest
the validity of any increase of Specified Amount or other change to the Policy
on the basis of any material misrepresentation of a fact stated in the
application (or supplemental application) for such increase in coverage or
change. In issuing this Policy, we rely on all statements made by or for the
Insured in the application or in a supplemental application. In the absence of
fraud, we consider statements made in the application(s) to be representations
and not warranties.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after it has been In Force during the lifetime of the
Insured for two years from the Policy Issue Date, or if reinstated, for two
years from the date of reinstatement. Likewise, we cannot contest any increase
in coverage effective after the Policy Issue Date, or any reinstatement thereof,
after such increase or reinstatement has been In Force during the lifetime of
the Insured for two years from its effective date.
Right to Convert
You may convert this Policy to a fixed policy during the first 24 months after
the Policy Issue Date. It may be converted to a fixed policy by transferring,
without charge, the value in the Subaccounts to the Fixed Account unless state
law requires otherwise. If you do so, future payments will be allocated to the
Fixed Account, unless you specify otherwise. The conversion will become
effective when we receive your Written Request.
Transfer of Ownership
You may transfer ownership of the Policy. The written consent of all assignees
and Irrevocable Beneficiaries must be obtained before the transfer. The request
to transfer must be in writing and filed at the Home Office. The transfer will
take effect as of the date the notice was signed. We may require that the Policy
be sent in for endorsement to show the transfer of ownership.
We are not responsible for the validity or effect of any transfer of ownership.
We will not be responsible for any payment or other action we have taken before
receiving Written Request for transfer.
Collateral Assignments
You may assign the Policy as collateral security. The written consent of all
Irrevocable Beneficiaries must be obtained before an assignment. The assignment
must be in writing and filed at the Home Office. The assignment will then take
effect as of the date the Written Request was signed.
We are not responsible for the validity or effect of any collateral assignment.
We will not be responsible for any payment or other action we have taken before
receiving the written collateral assignment.
A collateral assignment takes precedence over the interest of a Beneficiary. Any
Policy proceeds payable to an assignee will be paid in one sum. Any remaining
proceeds will be paid to the designated Beneficiary or Beneficiaries.
A collateral assignee is not an Owner. A collateral assignee is a person or
entity to whom you give some, but not all ownership rights under the Policy. A
collateral assignment is not a transfer of ownership.
Effect of Misstatement of Age or Gender
For a Policy based on male or female cost of insurance rates (see data page for
basis), if the insured's age or gender has been misstated, an adjustment will be
made to reflect the correct age and gender as follows (unless a different result
is required by state law):
a. If the misstatement is discovered at death, the death benefit
amount will be adjusted based on what the cost of insurance rate as
of the most recent Monthly Processing Day would have purchased at
the insured's correct age and gender.
b. If the misstatement is discovered prior to death, the cost of
insurance rate will be adjusted based on the insured's correct age
and gender beginning on the next Monthly Processing Day.
For a Policy based on blended cost of insurance rates (see data page for basis),
a misstatement of gender will not result in an adjustment. However, if the
insured's age has been misstated, an adjustment will be made to reflect the
correct age as follows (unless a different result is required by state law):
a. If the misstatement is discovered at death, the death benefit
amount will be adjusted based on what the cost of insurance rate as
of the most recent Monthly Processing Day would have purchased at
the insured's correct age.
b. If the misstatement is discovered prior to death, the cost of
insurance rate will be adjusted based on the insured's correct age
beginning on the next Monthly Processing Day.
Suicide Exclusion
If the Insured commits suicide, while sane or insane, within two years of the
Policy Issue Date, our liability is limited to an amount equal to the Policy
Value less any Loan Amount. We will pay this amount to the Beneficiary in one
sum.
If the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in Specified Amount, our liability with respect
to that increase is limited to an amount equal to the cost of insurance
attributable to the increase from the effective date of the increase to the date
of death.
Dividends
While the Policy is In Force, it will share in our divisible surplus. We
determine the Policy's share annually. It is payable annually on the Policy
Anniversary. You may select to have dividends paid into the Subaccounts and the
Fixed Account as Net Premiums or to have dividends paid in cash. If no option is
selected, the dividends will be paid into Subaccounts and/or Fixed Account as
Net Premiums. We currently do not expect to pay dividends during the first 10
Policy Years. For each of Policy years 11-20, we project annual dividends equal
to 0.70% of the Policy Value at the end of the Policy year. For each Policy year
21 and after we project annual dividends equal to 1.10% of the Policy Value at
the end of the Policy year. These dividends are not guaranteed. They are
reflected in Illustrations 1, 3, 5 and 7 of Appendix A.
Suspension of Payments
For amounts allocated to the Separate Account, we may suspend or postpone the
right to transfer among Subaccounts, make a surrender or Partial Withdrawal, or
take a Policy loan when:
1. The New York Stock Exchange is closed other than for customary weekend
and holiday closings.
2. During periods when trading on the Exchange is restricted as determined
by the SEC.
3. During any emergency as determined by the SEC which makes it
impractical for the Separate Account to dispose of its securities or
value its assets.
4. During any other period permitted or required by order of the SEC for
the protection of investors.
To the extent values are allocated to the Fixed Account, the payment of full or
Partial Withdrawal proceeds or loan proceeds may be deferred for up to six (6)
months from the date of the surrender or loan request, unless state law requires
exception to the period of deferment. Death Benefit Proceeds may be deferred for
up to 60 days from the date we receive proof of death.
Accelerated Benefit Option
We will advance up to 50% of a Policy's eligible death benefit, subject to a
$250,000 maximum per Insured, if we receive satisfactory proof that the Insured
is terminally ill and if you elect to receive an accelerated payment of the
death benefit. Terminal illness is a non-correctable medical condition in which
the Insured's life expectancy is no more than twelve months. Policy Value is
excluded from the calculation of the eligible death benefit. If you elect to
receive an accelerated benefit, we will assess an administrative charge (of no
more than $300) and will deduct interest on the amount being accelerated. As a
result, the amount payable to the Beneficiary at death is reduced by an amount
greater than the amount you receive as an accelerated benefit. The accelerated
benefit is available only in states which have approved the Endorsement and may
vary from state to state. The tax consequences of accelerated benefits is
uncertain and a tax advisor should be consulted.
Reports To Owners. We will confirm any of the following within seven days:
o The receipt of any Net Premium (except premiums received before
Policy Issue Date or by preauthorized check).
o The receipt of any instructions to change allocation of Net Premiums.
o Any transfer between Subaccounts; any loan, interest repayment, or
loan repayment; any Partial Withdrawal; any return of premium
necessary to comply with applicable maximum premium limitations.
o Any restoration to Policy Value following exercise of the
right-to-examine privilege for an increase in Specified Amount.
o Exercise of the right-to-examine privilege.
o An exchange of the Policy or increase in Specified Amount.
o Full surrender of the Policy.
o Payment of Death Benefit Proceeds.
We will also mail to you, at your last known address of record, a report
containing such information as may be required by any applicable law or
regulation, and a statement for the Policy year showing all transactions
previously confirmed and any credit to the Separate Account of interest on
amounts held in the Loan Account.
Voting Rights. We will vote Fund shares held in the Separate Account at regular
and special shareholder meetings of the underlying funds in accordance with
instructions received from persons having voting interests in the corresponding
Subaccounts. We will vote shares for which it has not received timely
instructions and shares attributable to Policies sold to employee benefit plans
not registered pursuant to an exemption from the registration provisions of the
Securities Act of 1933, in the same proportion as we vote shares for which it
has received instructions. If, however, the 1940 Act or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, or we otherwise determine that it is allowed to vote the shares in its
own right, it may elect to do so.
You have the voting interest under a Policy. The number of votes you have a
right to instruct will be calculated separately for each Subaccount. You have
the right to instruct one vote for each $1 of Policy Value in the Subaccount
with fractional votes allocated for amounts less than $1. The number of votes
you have available will coincide with the date established by the fund for
determining shareholders eligible to vote at the relevant meeting of the Fund's
shareholders. Voting instructions will be solicited by written communication
before such meeting in accordance with procedures established by the funds. Each
owner having a voting interest in a Subaccount will receive proxy materials and
reports relating to any meeting of shareholders of the fund in which that
Subaccount invests.
We may, when required by state insurance regulatory authorities, vote shares of
a fund without regard to voting instructions from owners, if the instructions
would require that the shares be voted so as to cause a change in the
sub-classification of a fund, or investment objectives of a fund, or to approve
or disapprove an investment advisory contract for a fund. In addition, we may,
under certain circumstances, vote shares of a fund without regard to voting
instructions from owners in favor of changes initiated by owners in the
investment Policy, or the investment adviser or the principal underwriter of a
Fund. For example, we may vote against a change if we in good faith determine
that the proposed change is contrary to state or federal law or we determine
that the change would not be consistent with the investment objectives of a fund
and would result in the purchase of securities for the Separate Account which
vary from the general quality and nature of investments and investment
techniques used by our other Separate Accounts.
Riders and Endorsements
A rider attached to a Policy adds additional insurance and benefits. The rider
explains the coverage it offers. A rider is available only in states which have
approved the rider. A rider may vary from state to state. Some riders are not
available to Policies sold to employee benefit plans. The cost for riders is
deducted as a part of the Monthly Deduction. Riders are subject to normal
underwriting requirements. We reserve the right to stop offering the riders
mentioned below and to offer additional riders.
Children's Insurance. The rider provides level term insurance to Children of the
Insured up to the earlier of Age 23 of the child or Age 65 for the Insured. The
death benefit will be payable to the Beneficiary stated in the rider upon the
death of any Insured child. If the Insured parent dies before termination of
this rider, the coverage on each child becomes paid-up term insurance to Age 23.
This rider may be converted to a new Policy without evidence of insurability on
each Insured child's 23rd birthday or at Age 65 of the person insured under the
Policy to which the rider is attached, if sooner.
Guaranteed Insurability. The rider provides that additional insurance may be
purchased on the life of the Insured on specific future dates at standard rates
without evidence of insurability. It is issued only to standard or preferred
risks. It may be issued until the Policy Anniversary following the Insured's
37th birthday.
Accidental Death Benefit. The rider provides for the payment of an additional
death benefit on the life of the Insured should death occur due to accidental
bodily injury occurring before Age 70. The premium for the Accidental Death
Benefit is payable to Age 70.
Other Insured. This rider provides additional level term insurance. The "other
Insured" could be the Insured (except in states where it is not allowed by law)
or could be another person within the immediate family of the Insured. The death
benefit expires on the "other Insured's" 95th birthday or upon termination of
the Policy, whichever comes first. Evidence of insurability is required for
issuance of the rider or to increase the amount of the death benefit. The rider
may be issued until the Policy Anniversary following the Insured's 65th
birthday.
Waiver of Premium Disability. This rider provides that, during the Insured's
total disability, we will waive Monthly Deduction for administrative and life
insurance costs or Basic Guarantee Premium, if greater. The rider may be issued
until the Policy Anniversary following the Insured's 55th birthday. It may be
renewed until the Policy Anniversary following the Insured's 65th birthday.
Executive Benefits Plan Endorsement. This endorsement is available on policies
issued in conjunction with certain types of deferred compensation and/or
employee benefits plans. The executive benefits plan endorsement waives the
Surrender Charges on the Policy to which it is attached subject to the following
conditions:
1. The Policy is surrendered and the proceeds are used to fund a new
Policy provided through CUNA Mutual Life Insurance Company or an
affiliate.
2. The Policy is owned by a business or trust.
3. The new Policy is owned by the same entity.
4. The insured under the Policy is a selected manager or a highly
compensated employee (as those terms are defined by Title 1 of the
Employee Retirement Income Security Act, as amended).
5. The insured under the new contract is also a selected manager or highly
compensated employee.
6. We receive an application for the new contract (and have evidence of
insurability satisfactory to us).
There is no charge for this benefit. However, if you exercise this benefit
during the first two contract (Policy) years, we reserve the right to charge a
fee to offset expenses incurred. This fee will not exceed $150. The Executive
Benefits Plan Endorsement may not be available in all states.
Federal Income Tax Considerations
Introduction
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
Tax Status of the Policy
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
under federal tax law, a Policy must satisfy certain requirements which are set
forth in the Internal Revenue Code. Guidance as to how these requirements should
be applied is limited. Nevertheless, we believe that Policies issued on a
standard premium class basis should satisfy the applicable requirements. There
is less guidance, however, with respect to Policies issued on a substandard
basis, and it is not clear whether such Policies will in all cases satisfy the
applicable requirements, 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 such requirements and we reserve the right to
restrict Policy transactions in order to do so.
In certain circumstances, owners of variable universal life insurance contracts
have been considered for federal income tax purposes to be the owners of the
assets of the separate account supporting their contracts due to their ability
to exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an owner to allocate
premium payments and Policy Value and the narrow investment objective of certain
Funds, have not been explicitly addressed in published rulings. While we believe
that the Policies do not give you investment control over Separate Account
assets, we reserve the right to modify the Policies as necessary to prevent you
from being treated as the owner of the Separate Account assets supporting the
Policy.
In addition, the Code requires that the investments of the Separate Accounts be
"adequately diversified" in order for the Policies to be treated as life
insurance contracts for federal income tax purposes. It is intended that the
Separate Accounts, through the Funds, 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 gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax advisor should be consulted on
these consequences.
Generally, you will not be deemed to be in constructive receipt of the Policy
Value until there is a distribution. When distributions from a Policy occur, or
when loans are taken out from or secured by a Policy, the tax consequences
depend on whether the Policy is classified as a "Modified Endowment Contract."
Modified Endowment Contracts. Under the Internal Revenue Code, certain life
insurance contracts are classified as "Modified Endowment Contracts," with less
favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent advisor to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment Contracts.
Policies classified as Modified Endowment Contracts are subject to the following
tax rules:
All distributions other than death benefits from a Modified Endowment Contract,
including distributions upon surrender and Partial Withdrawals, are treated
first as distributions of gain taxable as ordinary income and as tax-free
recovery of your investment in the Policy only after all gain has been
distributed.
Loans taken from or secured by a Policy classified as a Modified Endowment
Contract are treated as distributions and taxed in same manner as surrenders and
Partial Withdrawals.
A 10 percent additional income tax is imposed on the amount subject to tax
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 the your and your beneficiary or designated
beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of your investment in the Policy and only after the recovery of
all investment in the Policy as taxable income. 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 Modified Endowment Contract are
generally not treated as distributions. However, the tax consequences associated
with Policy loans after the later of the 10th Policy Anniversary or Attained Age
65 is less clear and a tax advisor should be consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy that
is not a Modified Endowment Contract are subject to the 10 percent additional
income tax.
Investment in the Policy. Your investment in the Policy is generally the
aggregate premium payments. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that is
tax-free.
Policy Loans. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, you should consult a tax advisor as to the tax
consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same owner during any calendar year are treated as one
Modified Endowment Contract for purposes of determining the amount includible in
your income when a taxable distribution occurs.
Accelerated Death Benefit Rider. The federal income tax consequences associated
with the Accelerated Benefit Option Endorsement are uncertain. You should
consult a qualified tax advisor about the consequences of requesting payment
under this Endorsement. (See page 29 for more information regarding the
Endorsement.)
Special Rules for Pension and Profit-Sharing Plans
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the federal, state and estate tax
consequences could differ. A competent tax advisor should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a participant
in a pension or profit-sharing plan are limited. The current cost of insurance
for the Net Amount At Risk is treated as a "current fringe benefit" and must be
included annually in the plan participant's gross income. We report this cost
(generally referred to as the "P.S. 58" cost) to the participant annually. If
the plan participant dies while covered by the plan and the Policy proceeds are
paid to the participant's beneficiary, then the excess of the death benefit over
the Policy Value is not taxable. However, the cash value will generally be
taxable to the extent it exceeds the participant's cost basis in the Policy.
Policies owned under these types of plans may be subject to restrictions under
the Employee Retirement Income Security Act of 1974 ("ERISA"). You should
consult a qualified advisor regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified advisor before
requesting a loan under a Policy held in connection with a retirement plan.
Business Uses of the Policy
Businesses can use the Policy in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare benefit plans, retiree
medical benefit plans and others. The tax consequences of such plans may vary
depending on the particular facts and circumstances. If you are purchasing the
Policy for any arrangement the value of which depends in part on its tax
consequences, you should consult a qualified tax advisor. 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 advisor.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the Policy could change by legislation or
otherwise. Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
The Company's Taxes
Under current federal income tax law, we are not taxed on the Separate Account's
operations. Thus, currently we do not deduct charges from the Separate Account
for its federal income taxes. We reserve the right to charge the Separate
Account for any future federal income taxes that it may incur.
Under current laws in several states, we may incur state and local taxes (in
addition to Premium Expense Charges). These taxes are not now significant and we
are not currently charging for them. If they increase, we may deduct charges for
such taxes.
CUNA Mutual Life Insurance Company Directors and Executive Officers
<TABLE>
<CAPTION>
<S> <C> <C>
Name Occupation
Directors
James C. Barbre 1994-Present ACT Technologies, Inc.
President/Chief Operating Officer
1985-1993 Self-employed consultant in carpet
Manufacturing and distribution in Dalton, GA
Robert W. Bream 1991-Present United Airlines Employees Credit Union
President/Chief Executive Officer
Wilfred F. Broxterman 1997-Present Broxterman Group
President/Chief Executive Officer
1989-1997 Hughes Aircraft Employees Federal Credit Union
President/Chief Executive Officer
James L. Bryan 1974-Present Texans Credit Union
President/Chief Executive Officer
Loretta M. Burd 1987-Present Centra Credit Union
President/Chief Executive Officer
Ralph B. Canterbury 1965-Present US Airways Federal Credit Union
President
Joseph N. Cugini 1959-Present Westerly Community Credit Union
President/Chief Executive Officer
Rudolf J. Hanley 1982-Present Orange County Teachers Federal Credit Union
President/Chief Executive Officer
Jerald R. Hinrichs 1990-Present Hinrichs & Associates
Insurance Marketing Consultants
Owner/President
Michael B. Kitchen 1995-Present CUNA Mutual Life Insurance Company*
President and Chief Executive Officer
1992-1995 The CUMIS Group Limited
President/Chief Executive Officer
Robert T. Lynch 1996-Present Retired
1970-1996 Detroit Teachers Credit Union
Treasurer/General Manager
Brian L. McDonnell 1977-Present Navy Federal Credit Union
President/Chief Executive Officer
C. Alan Peppers 1992-Present Denver Public Schools Credit Union
President/Chief Executive Officer
Omer K. Reed 1997-Present Retired
1959-1997 Self-employed dentist
Richard C. Robertson 1959-Present Arizona State Savings & Credit Union
President/General Manager
Rosemarie M. Shultz 1997-Present Retired
1976-1997 North Coast Credit Union
President/Chief Executive Officer
Neil A. Springer 1994-Present Springer & Associates, L.L.C.
Managing Director
1992-1994 Slayton International, Inc.
Senior Vice President
Farouk D.G. Wang 1987-Present University of Hawaii at Manoa
Director of Buildings and Grounds Management
Larry T. Wilson 1974-Present Coastal Federal Credit Union
President/Chief Executive Officer
Executive Officers
Wayne A. Benson 1997 - Present CUNA Mutual Life Insurance Company*
Chief Officer - Sales
Michael S. Daubs 1973-Present CUNA Mutual Life Insurance Company*
Chief Officer - Investments
CIMCO Inc.
President
John A. Gibson 1988-Present CUNA Mutual Life Insurance Company*
Chief Officer - Marketing
James M. Greaney 1998-Present CUNA Mutual Life Insurance Company*
Chief Officer - Corporate Services
Michael B. Kitchen 1995-Present CUNA Mutual Life Insurance Company*
President and Chief Executive Officer
1992-1995 The CUMIS Group Limited
President and Chief Executive Officer
Reid A. Koenig 1999-Present CUNA Mutual Life Insurance Company
Chief Officer - Operating
1994-Present Vice President - Members Services
Daniel E. Meylink, Sr. 1983-Present CUNA Mutual Life Insurance Company*
Chief Officer - Member Services
Kevin G. Shea 1976-Present CUNA Mutual Life Insurance Company*
Chief Officer - Lending Services
<FN>
*We entered into a permanent affiliation with the CUNA Mutual on July
1, 1990. Those persons marked with an "*" hold identical titles with
CUNA Mutual. The most recent position has been given for those persons
who have held more than one position with the Company or CUNA Mutual
Insurance Society during the last five year period. Each person has
business addresses at both 2000 Heritage Way, Waverly, Iowa 50677-9202,
and 5910 Mineral Point Road, Madison, Wisconsin 53705-4456.
</FN>
</TABLE>
Additional Information
Addition, Deletion Or Substitution Of Investments
We reserve the right, to make additions to, deletions from, or substitutions for
the shares of a Fund that are held in the Separate Account or that the Separate
Account may purchase. If the shares of a Fund are no longer available for
investment or if, in our judgment, further investment in any Fund should become
inappropriate, we may redeem the shares, if any, of that Fund and substitute
shares of another Fund. To the extent required by the 1940 Act or other
applicable law, we will not substitute any shares attributable to a Policy's
interest in a Subaccount without notice and prior approval of the SEC and state
insurance authorities.
We also reserve the right to establish additional Subaccounts of the Separate
Account, each of which would invest in shares of a new corresponding Fund having
a specified investment objective. We may, in its sole discretion, establish new
Subaccounts or eliminate or combine one or more Subaccounts if marketing needs,
tax considerations or investment conditions warrant. Any new Subaccounts may be
made available to existing Owners on a basis to be determined by us. Subject to
obtaining any approvals or consents required by applicable law, the assets of
one or more Subaccounts may be transferred to any other Subaccount if, in our
sole discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, we (by appropriate endorsement,
if necessary) may change the Policy to reflect the substitution or change.
Affected Owners will be notified of such a material substitution or change. If
you object to the change, you may exchange the Policy for a fixed benefit whole
life insurance policy then issued by us. The new Policy will be subject to
normal underwriting rules and other conditions determined by us. No evidence of
insurability will be necessary. The option to exchange must be exercised within
sixty (60) days of notification to you of the investment Policy change. You may
also Surrender the Policy.
If we consider it to be in the best interest of Owners, and subject to any
approvals that may be required under applicable law, the Separate Account may be
operated as a management investment company under the 1940 Act, it may be
deregistered under the 1940 Act if registration is no longer required, it may be
combined with other Company separate accounts, or its assets may be transferred
to another separate account of ours. In addition, we may, when permitted by law,
restrict or eliminate any voting rights of Owners or other persons who have such
rights under the Policies.
State Regulation
We are subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Insurance Department. An annual statement in a prescribed
form is filed with the Insurance Department each year covering our operations
for the preceding year and our financial condition as of the end of such year.
Regulation by the Insurance Department includes periodic examination to
determine our liabilities and reserves so that the Insurance Department may
certify the items are correct. Our books and accounts are subject to review by
the Insurance Department at all times and a full examination of its operations
is conducted periodically by the National Association of Insurance
Commissioners. Such regulation does not, however, involve any supervision of
management or investment practices or policies. In addition, we are subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
Legal Proceedings
We, like other life insurance companies, are 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, we believe that at the present time there are not
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on the Separate Account or the Company.
Independent Auditors
The financial statements included herein and elsewhere in the Registration
Statement have been included in reliance upon the reports of KPMG Peat Marwick
LLP, Des Moines, Iowa, independent auditors, and upon the authority of said firm
as experts in accounting and auditing. The Company has recently changed
independent auditors. The Company has retained PricewaterhouseCoopers LLP,
Milwaukee, Wisconsin for the 1999 fiscal year.
Actuarial Matters
Actuarial matters included in this prospectus have been examined by Scott Allen,
FSA, MAAA Product Manager Variable Products, CUNA Mutual Life Insurance Company,
Waverly, Iowa, as stated in the opinion filed as an exhibit to the Registration
Statement.
Registration Statement
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the SEC. Certain portions of the Registration
Statement and amendments have been omitted from this prospectus pursuant to the
rules and regulations of the Securities and Exchange Commission. Statements
contained in this prospectus concerning the Policy and other legal documents are
summaries. The complete documents and omitted information may be obtained from
the SEC's principal office in Washington, D.C.
Preparing For Year 2000
Like all financial service providers, the Company and its affiliates utilize
systems that may be affected by Year 2000 transition issues, and they rely on
service providers, including administrators and investment managers, that also
may be affected. The Company and its affiliates have developed, and are in the
process of implementing, a Year 2000 readiness plan, and are confirming that its
service providers are also so engaged. The resources that are being devoted to
this effort are substantial. It is difficult to predict with precision whether
the amount of resources ultimately devoted, or the outcome of these efforts will
have a negative impact on us or our affiliates. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 readiness implementation. As of the date of this prospectus,
the Company and its affiliates believe that all of their critical systems are
Year 2000 ready, but there can be no assurance that we were successful, or that
interaction with other service providers will not impair the Company's or its
affiliates' services at that time. We will be testing the remainder of our
systems through out 1999, and will have continuity plans in place designed to
minimize the impact of any unforeseen failures.
Distribution Of Policies
Questions regarding the Policy should be directed to CUNA Brokerage Services,
Inc., Office of Supervisory Jurisdiction, 2000 Heritage Way, Waverly, Iowa,
50677-9202, (800) 798-5500, (319) 352-4090. Its IRS employer identification
number is 39-1438257. CUNA Brokerage Services, Inc. is wholly-owned by CUNA
Mutual Investment Corporation which in turn is wholly-owned by CUNA Mutual. CUNA
Brokerage Services, Inc., 5910 Mineral Point Road, Madison, Wisconsin,
53705-4456, the principal underwriter for the Policy is a broker/dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers. CUNA Mutual Life Insurance Company,
the issuer of the Policy, entered into a permanent affiliation with CUNA Mutual
on July 1, 1990. The Policies will be sold through registered representatives
who will be paid first-year and renewal commissions for their services.
We may pay sales commissions to broker-dealers up to an amount equal to 8.5% of
the total premiums paid under the Policy. These broker-dealers are expected to
compensate sales representatives in varying amounts from these commissions. We
may also pay other distribution expenses such as agents' insurance and pension
benefits, agency expense allowances, and overhead attributable to distribution.
In addition, we may from time to time pay or allow additional promotional
incentives in the form of cash or other compensation. These distribution
expenses do not result in any additional charges under the Contracts that are
not described under CHARGES AND DEDUCTIONS.
Financial Statements
Our financial statements are immediately following the financial statements of
the Separate Account. Our financial statements should be considered only as
bearing upon our ability to meet our obligations under the Policy and should not
be considered as bearing on the investment performance of the Separate Account.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Financial Statements
June 30, 1999
(Unaudited)
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Assets and Liabilities
June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Money Treasury Growth and
Market 2000 Bond Balanced Income Stock
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C> <C>
Money Market Fund,
3,136,335 shares at net asset value of
$1.00 per share (cost $3,136,335) $3,136,335 $ -- $ -- $ -- $ --
Treasury 2000 Fund,
184,870 shares at net asset value
of $10.03 per share (cost $1,615,171) -- 1,854,226 -- -- --
Bond Fund,
372,097 shares at net asset value
of $10.40 per share (cost $3,889,863) -- -- 3,869,724 -- --
Balanced Fund,
3,776,751 shares at net asset value
of $20.53 per share (cost $54,829,046) -- -- -- 77,539,044 --
Growth and Income Stock Fund,
2,850,946 shares at net asset value
of $36.59 per share (cost $56,685,015) -- -- -- -- 104,333,305
---------- ---------- ---------- ----------- ------------
Total assets $3,136,335 $1,854,226 $3,869,724 $77,539,044 $104,333,305
---------- ---------- ---------- ----------- ------------
Liabilities:
Accrued adverse mortality and
expense charges 2,657 9,587 3,133 62,040 82,765
---------- ---------- ---------- ----------- ------------
Total liabilities 2,657 9,587 3,133 62,040 82,765
---------- ---------- ---------- ----------- ------------
Net assets 3,133,678 1,844,639 3,866,591 77,477,004 104,250,540
========== ========== ========== =========== ============
Units outstanding (note 5) 159,983 201,769 139,957 1,623,167 1,237,595
========== ========== ========== =========== ============
Net asset value per unit $ 19.59 $ 9.14 $ 27.63 $ 47.73 $ 84.24
========== ========== ========== =========== ============
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Assets and Liabilities
June 30, 1999
(Unaudited)
Capital
Appreciation International Global Emerging
Stock Stock Governments Growth
Assets: Subaccount Subaccount Subaccount Subaccount
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C>
Capital Appreciation Stock Fund,
1,511,324 shares at net asset value of
$25.00 per share (cost $22,503,095) $37,784,116 $ -- $ -- $ --
Investments in T. Rowe Price
International Fund, Inc.:
International Stock Portfolio,
424,341 shares at net asset value of
$15.07 per share (cost $5,458,145) -- 6,394,821 -- --
Investments in MFS(R) Variable Insurance TrustSM:
Global Governments Series,
78,601 shares at net asset value of
$9.99 per share (cost $806,018) -- -- 785,229 --
Investments in MFS(R) Variable Insurance TrustSM:
Emerging Growth Series,
361,665 shares at net asset value of
$24.22 per share (cost $6,017,656) -- -- -- 8,759,516
---------- ---------- ---------- ----------
Total assets $37,784,116 $6,394,821 $785,229 $8,759,516
---------- ---------- ---------- ----------
Liabilities:
Accrued adverse mortality and
expense charges 30,164 5,166 637 6,785
---------- ---------- ---------- ----------
Total liabilities 30,164 5,166 637 6,785
---------- ---------- ---------- ----------
Net assets 37,753,952 6,389,655 784,592 8,752,731
========== ========== ========== ==========
Units outstanding (note 5) 1,318,804 436,700 65,948 479,712
========== ========== ========== ==========
Net asset value per unit $28.63 $14.63 $11.90 $18.25
========== ========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
For the six months ended June 30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
Investment income (loss): 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 76,896 $ 123,985 $ 85,594 $ -- $ 106,391 $ 106,851
Adverse mortality and expense charges
(note 3) (15,432) (22,312) (15,448) (8,201) (15,826) (14,583)
----------- ----------- ----------- -------- --------- ---------
Net investment income (loss) 61,464 101,673 70,146 (8,201) 90,465 92,268
----------- ----------- ----------- -------- --------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- -- --
Proceeds from sale of securities 1,968,342 2,979,908 4,634,860 -- -- --
Cost of securities sold (1,968,342) (2,979,908) (4,634,860) -- -- --
----------- ----------- ----------- -------- --------- ---------
Net realized gain (loss) on security
transactions -- -- -- -- -- --
Net change in unrealized appreciation
or depreciation on investments -- -- -- 18,322 21,682 1,846
----------- ----------- ----------- -------- --------- ---------
Net gain (loss) on investments -- -- -- 18,322 21,682 1,846
----------- ----------- ----------- -------- --------- ---------
Net increase (decrease) in net assets
resulting from operations $ 61,464 $ 101,673 $ 70,146 $ 10,121 $ 112,147 $ 94,114
=========== =========== =========== ======== ========= =========
BOND SUBACCOUNT BALANCED SUBACCOUNT
Investment income (loss): 1999 1998 1997 1999 1998 1997
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 52,054 $ 196,337 $ 136,739 $ 450,441 $ 1,934,712 $ 2,062,026
Adverse mortality and expense charges
(note 3) (17,109) (30,006) (23,285) (328,160) (577,128) (509,762)
--------- --------- --------- ----------- ----------- -----------
Net investment income (loss) 34,945 166,331 113,454 122,281 1,357,584 1,552,264
--------- --------- --------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 57 2,477 379 -- 3,744 758,320
Proceeds from sale of securities 386,578 441,318 402,615 2,372,537 4,012,722 4,525,247
Cost of securities sold (382,478) (426,398) (394,979) (1,727,342) (3,159,159) (3,785,014)
--------- --------- --------- ----------- ----------- -----------
Net realized gain (loss) on security
transactions 4,157 17,397 8,015 645,195 857,307 1,498,553
Net change in unrealized appreciation
or depreciation on investments (66,161) (14,556) 41,691 6,054,615 5,340,950 5,202,066
--------- --------- --------- ----------- ----------- -----------
Net gain (loss) on investments (62,004) 2,841 49,706 6,699,810 6,198,257 6,700,619
--------- --------- --------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ($ 27,059) $ 169,172 $ 163,160 $ 6,822,091 $ 7,555,841 $ 8,252,883
========= ========= ========= =========== =========== ===========
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
For the six months ended June 30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
GROWTH AND INCOME STOCK SUBACCOUNT CAPITAL APPRECIATION STOCK SUBACCOUNT
Investment income (loss): 1999 1998 1997 1999 1998 1997
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 265,776 $ 869,525 $ 778,858 $ 10,602 $ 88,433 $ 119,794
Adverse mortality and expense charges
(note 3) (420,525) (691,564) (527,025) (156,180) (259,874) (182,627)
------------ ------------ ------------ ----------- ----------- -----------
Net investment income (loss) (154,749) 177,961 251,833 (145,578) (171,441) (62,833)
------------ ------------ ------------ ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 377,739 3,106,051 1,145,587 19,297 769,968 317,275
Proceeds from sale of securities 1,951,606 3,497,748 3,033,581 1,391,036 1,770,807 1,795,596
Cost of securities sold (1,149,740) (2,160,207) (2,103,099) (886,566) (1,192,638) (1,354,057)
------------ ------------ ------------ ----------- ----------- -----------
Net realized gain (loss) on security
transactions 1,179,605 4,433,592 2,076,069 523,767 1,348,137 758,814
Net change in unrealized appreciation
or depreciation on investments 16,204,582 7,377,335 12,852,455 3,713,367 4,151,868 4,563,309
------------ ------------ ------------ ----------- ----------- -----------
Net gain (loss) on investments 17,834,187 11,820,927 14,928,524 4,237,134 5,500,005 5,322,123
------------ ------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 17,229,438 $ 11,998,888 $ 15,180,357 $ 4,091,556 $ 5,328,564 $ 5,259,290
============ ============ ============ =========== =========== ===========
INTERNATIONAL STOCK SUBACCOUNT GLOBAL GOVERNMENTS SUBACCOUNT
Investment income (loss): 1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ -- $ 90,596 $ 99,113 $ 35,810 $ 8,821 $ 7,143
Adverse mortality and expense
charges (note 3) (27,241) (47,908) (32,130) (3,253) (6,487) (3,401)
--------- --------- --------- --------- -------- --------
Net investment income (loss) (27,241) 42,688 66,983 32,557 2,334 3,742
--------- --------- --------- --------- -------- --------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- -- --
Proceeds from sale of securities 297,424 491,409 235,721 107,031 92,387 65,919
Cost of securities sold (257,664) (442,671) (211,895) (102,954) (90,661) (66,515)
--------- --------- --------- --------- -------- --------
Net realized gain (loss) on security
transactions 39,760 48,738 23,826 4,077 1,726 (596)
Net change in unrealized appreciation
or depreciation on investments 194,284 608,851 (62,452) (64,471) 44,633 (5,796)
--------- --------- --------- --------- -------- --------
Net gain (loss) on investments 234,044 657,589 (38,626) (60,394) 46,359 (6,392)
--------- --------- --------- --------- -------- --------
Net increase (decrease) in net assets
resulting from operations $ 206,803 $ 700,277 $ 28,357 ($ 27,837) $ 48,693 ($ 2,650)
========= ========= ========= ========= ======== ========
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
For the six months ended June 30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
EMERGING GROWTH SUBACCOUNT
Investment income (loss): 1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Dividend income $ -- $ 45,309 $ --
Adverse mortality and expense charges
(note 3) (35,336) (48,583) (21,660)
--------- ----------- ---------
Net investment income (loss) (35,336) (3,274) (21,660)
--------- ----------- ---------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- --
Proceeds from sale of securities 486,979 448,520 234,899
Cost of securities sold (353,109) (373,845) (222,640)
--------- ----------- ---------
Net realized gain (loss) on security
transactions 133,870 74,675 12,259
Net change in unrealized appreciation
or depreciation on investments 830,039 1,524,641 384,388
--------- ----------- ---------
Net gain (loss) on investments 963,909 1,599,316 396,647
--------- ----------- ---------
Net increase (decrease) in net assets
resulting from operations $ 928,573 $ 1,596,042 $ 374,987
========= =========== =========
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
For the six months ended June 30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
Operations: 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 61,464 $ 101,673 $ 70,146 ($ 8,201) $ 90,465 $ 92,268
Net realized gain (loss) on
security transactions -- -- -- -- -- --
Net change in unrealized appreciation
or depreciation on investments -- -- -- 18,322 21,682 1,846
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from
operations 61,464 101,673 70,146 10,121 112,147 94,114
----------- ----------- ----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sale of units 1,623,638 4,485,112 6,190,640 221,100 447,349 621,004
Cost of units repurchased (2,166,691) (3,592,636) (5,367,244) (221,100) (424,204) (599,303)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions (543,053) 892,476 823,396 -- 23,145 21,701
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets (481,589) 994,149 893,542 10,121 135,292 115,815
Net assets:
Beginning of period 3,615,267 2,621,118 1,727,576 1,834,518 1,699,226 1,583,411
----------- ----------- ----------- ----------- ----------- -----------
End of period $ 3,133,678 $ 3,615,267 $ 2,621,118 $ 1,844,639 $ 1,834,518 $ 1,699,226
=========== =========== =========== =========== =========== ===========
BOND SUBACCOUNT BALANCED SUBACCOUNT
Operations: 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 34,945 $ 166,331 $ 113,454 $ 122,281 $ 1,357,584 $ 1,552,264
Net realized gain (loss) on
security transactions 4,157 17,397 8,015 645,195 857,307 1,498,553
Net change in unrealized appreciation
or depreciation on investments (66,161) (14,556) 41,691 6,054,615 5,340,950 5,202,066
----------- ----------- ----------- ------------ ------------ ------------
Change in net assets from
operations (27,059) 169,172 163,160 6,822,091 7,555,841 8,252,883
----------- ----------- ----------- ------------ ------------ ------------
Capital unit transactions (note 5):
Proceeds from sale of units 830,057 1,182,649 1,162,322 8,256,338 10,811,007 10,763,242
Cost of units repurchased (553,422) (772,448) (705,363) (6,361,674) (10,309,524) (10,663,916)
----------- ----------- ----------- ------------ ------------ ------------
Change in net assets from capital
unit transactions 276,635 410,201 456,959 1,894,664 501,483 99,326
----------- ----------- ----------- ------------ ------------ ------------
Increase (decrease) in net assets 249,576 579,373 620,119 8,716,755 8,057,324 8,352,209
Net assets:
Beginning of period 3,617,015 3,037,642 2,417,523 68,760,249 60,702,925 52,350,716
----------- ----------- ----------- ------------ ------------ ------------
End of period $ 3,866,591 $ 3,617,015 $ 3,037,642 $ 77,477,004 $ 68,760,249 $ 60,702,925
=========== =========== =========== ============ ============ ============
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
For the six months ended June 30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
GROWTH AND INCOME STOCK SUBACCOUNT CAPITAL APPRECIATION SUBACCOUNT
Operations: 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ($ 154,749) $ 177,961 $ 251,833 ($ 145,578) ($ 171,441) ($ 62,833)
Net realized gain (loss) on
security transactions 1,179,605 4,443,592 2,076,069 523,767 1,348,137 758,814
Net change in unrealized appreciation
or depreciation on investments 16,204,582 7,377,335 12,852,455 3,713,367 4,151,868 4,563,309
------------- ------------ ------------ ------------ ------------ ------------
Change in net assets from
operations 17,229,438 11,998,888 15,180,357 4,091,556 5,328,564 5,259,290
------------- ------------ ------------ ------------ ------------ ------------
Capital unit transactions (note 5):
Proceeds from sale of units 9,063,876 15,135,142 16,677,681 4,146,549 7,807,048 9,240,958
Cost of units repurchased (6,734,453) (11,770,989) (10,282,732) (3,549,891) (5,420,620) (4,699,419)
------------- ------------ ------------ ------------ ------------ ------------
Change in net assets from capital
unit transactions 2,329,423 3,364,153 6,394,949 596,658 2,386,428 4,541,539
------------- ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 19,558,861 15,363,041 21,575,306 4,688,214 7,714,992 9,800,829
Net assets:
Beginning of period 84,691,679 69,328,638 47,753,332 33,065,738 25,350,746 15,549,917
------------- ------------ ------------ ------------ ------------ ------------
End of period $ 104,250,540 $ 84,691,679 $ 69,328,638 $ 37,753,952 $ 33,065,738 $ 25,350,746
============= ============ ============ ============ ============ ============
INTERNATIONAL STOCK SUBACCOUNT GLOBAL GOVERNMENTS SUBACCOUNT
Operations: 1999 1998 1997 1999 1998 1997
----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ($ 27,241) $ 42,688 $ 66,983 $ 32,557 $ 2,334 $ 3,742
Net realized gain (loss) on
security transactions 39,760 48,738 23,826 4,077 1,726 (596)
Net change in unrealized appreciation
or depreciation on investments 194,284 608,851 (62,452) (64,471) 44,633 (5,796)
----------- ----------- ----------- --------- --------- ---------
Change in net assets from
operations 206,803 700,277 28,357 (27,837) 48,693 (2,650)
----------- ----------- ----------- --------- --------- ---------
Capital unit transactions (note 5):
Proceeds from sale of units 1,024,449 1,897,345 2,721,533 194,808 85,855 530,877
Cost of units repurchased (664,658) (1,227,692) (904,022) (119,832) (118,224) (95,423)
----------- ----------- ----------- --------- --------- ---------
Change in net assets from capital
unit transactions 359,791 669,653 1,817,511 74,976 (32,369) 435,454
----------- ----------- ----------- --------- --------- ---------
Increase (decrease) in net assets 566,594 1,369,930 1,845,868 47,139 16,324 432,804
Net assets:
Beginning of period 5,823,061 4,453,131 2,607,263 737,453 721,129 288,325
----------- ----------- ----------- --------- --------- ---------
End of period $ 6,389,655 $ 5,823,061 $ 4,453,131 $ 784,592 $ 737,453 $ 721,129
=========== =========== =========== ========= ========= =========
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
For the six months ended June30, 1999 and the years ended December 31, 1998 and 1997
(Unaudited)
EMERGING GROWTH SUBACCOUNT
Operations: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net investment income (loss) ($35,336) ($3,274) ($21,660)
Net realized gain (loss) on
security transactions 133,870 74,675 12,259
Net change in unrealized appreciation
or depreciation on investments 830,039 1,524,641 384,388
--------- --------- ---------
Change in net assets from
operations 928,573 1,596,042 374,987
--------- --------- ---------
Capital unit transactions (note 5):
Proceeds from sale of units 1,905,566 2,707,434 3,238,087
Cost of units repurchased (1,117,657) (1,321,467) (749,413)
--------- --------- ---------
Change in net assets from capital
unit transactions 787,909 1,385,967 2,488,674
--------- --------- ---------
Increase (decrease) in net assets 1,716,482 2,982,009 2,863,661
Net assets:
Beginning of period 7,036,249 4,054,240 1,190,579
--------- -------- ---------
End of period $8,752,731 $7,036,249 $4,054,240
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Notes to Financial Statements
(1) Organization
The CUNA Mutual Life Variable Account (the Account) is a unit investment
trust registered under the Investment Company Act of 1940 with the
Securities and Exchange Commission (SEC). The Account was established as a
separate investment account within CUNA Mutual Life Insurance Company to
receive and invest net premiums paid under flexible premium variable life
insurance policies.
Although the assets of the Account are the property of CUNA Mutual Life
Insurance Company, those assets attributable to the policies are not
chargeable with liabilities arising out of any other business which CUNA
Mutual Life Insurance Company may conduct.
The net assets maintained in the Account attributable to the policies
provide the base for the periodic determination of the increased or
decreased benefits under the policies. The net assets may not be less than
the amount required under state insurance law to provide certain death
benefits and other policy benefits. Additional assets are held in CUNA
Mutual Life Insurance Company's general account to cover death benefits in
excess of the accumulated value.
(2) Significant Accounting Policies
Investments
The Account currently is divided into nine subaccounts but may, in the
future, include additional subaccounts. Each subaccount invests
exclusively in shares of a single underlying fund. (The term fund is used
to mean an investment portfolio sometimes called a series, i.e., Ultra
Series Fund, T. Rowe Price International Fund, Inc., MFS(R) Variable
Insurance TrustSM, or any other open-end management investment company or
unit investment trust in which a subaccount invests.) The income, gains
and losses, realized or unrealized, from the assets allocated to each
subaccount are credited to or charged against that subaccount without
regard to income, gains or losses from any other subaccount.
The Account invests in shares of Ultra Series Fund, T. Rowe Price
International Fund, Inc., and MFS(R) Variable Insurance TrustSM. Each is a
management investment company of the series type with one or more funds.
Each is registered with the SEC as an open-end management investment
company. Such registration does not involve supervision of the management
or investment practices or policies of the companies or their funds by the
SEC.
Ultra Series Fund currently has six funds available as investment options
under the policies while T. Rowe Price International Fund, Inc., has one
and MFS(R) Variable Insurance TrustSM has two funds available as an
investment option. MFS(R) Variable Insurance TrustSM also has other funds
that are not available under the policies. These fund companies may, in
the future, create additional funds that may or may not be available as
investment options under the policies. Each fund has its own investment
objectives and the income, gains, and losses for each fund are determined
separately for that fund.
CIMCO Inc. (CIMCO) serves as the investment advisor to the Ultra Series
Fund and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
CUNA Mutual Life Insurance Company owns one half of CIMCO's outstanding
stock and one half is owned indirectly by CUNA Mutual Insurance Society.
Rowe Price-Fleming International, Inc. (RPFI) serves as the Investment
Advisor to the International Stock Portfolio and manages its assets in
accordance with general policies and guidelines established by the board
of directors of T. Rowe Price International Fund, Inc. RPFI was founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings Limited.
Massachusetts Financial Services Company (MFS) serves as the Investment
Advisor to the MFS World Governments Series and Emerging Growth Series and
manages its assets in accordance with general policies and guidelines
established by the board of trustees of MFS(R) Variable Insurance TrustSM.
MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which,
in turn, is a subsidiary of Sun Life Assurance Company of Canada.
The assets of each fund are held separate from the assets of the other
funds, and each fund is offered at a price equal to its respective net
asset value per share, without sales charge. Dividends and capital gain
distributions from each fund are reinvested in that fund. Investments in
shares of the funds are stated at market value which is the net asset
value per share as determined by the funds. Realized gains and losses from
security transactions are reported on an average cost basis. Dividend
income is recorded on the ex-dividend date.
Federal Income Taxes
The operations of the Account form a part of the operations of CUNA Mutual
Life Insurance Company and are not taxed separately. CUNA Mutual Life
Insurance Company does not initially expect to incur any income tax upon
the earnings or the realized capital gains attributable to the Account.
Accordingly, no charge for income tax is currently being made to the
Account. If such taxes are incurred by CUNA Mutual Life Insurance Company
in the future, a charge to the Account may be assessed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
(3) Fees and Charges
Organization Costs
CUNA Mutual Life Insurance Company absorbed all organization expenses of
the Account.
Policy Charges
In addition to charges for state taxes, which reduce premiums prior to the
allocation of net premiums to the subaccounts of the Account, the
following charges may be deducted by CUNA Mutual Life Insurance Company by
redeeming an appropriate number of units for each policy.
Administrative Fee: CUNA Mutual Life Insurance Company will have primary
responsibility for the administration of the Account and the policies
issued. As reimbursement for these expenses, CUNA Mutual Life Insurance
Company may assess each policy a monthly administrative fee. For
additional detail, see schedule of expenses and charges in the prospectus.
Deferred Contingent Sales and Administrative Charges: The sales and
administrative expenses incurred when a policy is issued are deferred
(Deferred Charges) until the policy is surrendered. Such charges are not
collected at all if the policy is held for nine years, or if the insured
dies during that period. In no instance will the charge exceed 30 percent
of the lesser of premiums paid or the Guideline Annual Premium (as defined
under the Investment Company Act of 1940) of the policy. The Deferred
Charges are normally built up in twelve equal increments during the first
policy year. Beginning on the second policy anniversary, incremental
amounts are released by allocations back to the subaccounts on each
anniversary until the tenth policy anniversary when all remaining Deferred
Charges are released. All amounts in the Deferred Charges Account are held
and interest credited to the policy at a minimum rate of 4 percent with
CUNA Mutual Life Insurance Company crediting additional amounts at its
discretion.
Policy Fee: CUNA Mutual Life Insurance Company will incur first-year
expenses upon issue of a policy, and will assess each policy a monthly
policy fee to recover these expenses.
Cost of Insurance and Additional Benefits Provided: CUNA Mutual Life
Insurance Company will assume the responsibility for providing the
insurance benefits provided in the policy. The cost of insurance will be
determined each month based upon the applicable cost of insurance rates
and the net amount at risk. The cost of insurance can vary from month to
month since the determination of both the insurance rate and the net
amount at risk depends upon a number of variables as described in the
Account's prospectus.
Variable Account Charges
Mortality and Expense Risk Charge: CUNA Mutual Life Insurance Company will
deduct daily a mortality and expense risk charge from the Account at an
annual rate of .90 percent of the average daily net asset value of the
Account. These charges will be deducted by CUNA Mutual Life Insurance
Company in return for its assumption of risks associated with adverse
mortality experience or excess administrative expenses in connection with
policies issued.
(4) Investment Transactions
The cost of shares purchased, including reinvestment of dividend
distributions, during the six months ended June 30, 1999, was as follows:
Money Market Fund.................................. $1,488,575
Treasury 2000 Fund................................. 0
Bond Fund.......................................... 700,459
Balanced Fund...................................... 4,434,732
Growth and Income Stock Fund....................... 4,566,079
Capital Appreciation Stock Fund.................... 1,883,662
International Stock Portfolio...................... 633,714
Global Governments Series.......................... 215,021
Emerging Growth.................................... 1,244,629
----------
$15,166,871
==========
(5) Unit Activity from Contract Transactions
Transactions in units of each subaccount of the Account for the year ended
December 31, 1998, 1997, and 1996, and for the six-month period ended June
30, 1999, were as follows:
<TABLE>
<CAPTION>
Money Treasury Growth and
Market 2000 Bond Balanced Income Stock
Subaccount Subaccount Subaccount Subaccount Subaccount
Units outstanding at
<S> <C> <C> <C> <C> <C>
December 31, 1996 97,454 196,670 97,412 1,567,551 1,036,605
Units sold 342,456 77,604 45,022 297,548 313,426
Units repurchased (298,002) (75,054) (27,507) (296,125) (194,852)
-------- -------- -------- ---------- ----------
Units outstanding at
December 31, 1997 141,908 199,220 114,927 1,568,974 1,155,179
Units sold 236,364 52,984 43,507 266,148 233,645
Units (190,395) (50,435) (28,421) (254,086) (181,819)
-------- -------- -------- ---------- ----------
Units outstanding at
December 31, 1998 187,877 201,769 130,013 1,581,036 1,207,005
Units sold 83,698 24,286 29,858 181,650 118,705
Units repurchased (111,592) (24,286) (19,914) (139,519) (88,115)
-------- -------- -------- ---------- ----------
Units outstanding at
June 30, 1999 159,983 201,769 139,957 1,623,167 1,237,595
======== ======== ======== ========== ==========
</TABLE>
Capital
Appreciation International Global Emerging
Stock Stock Governments Growth
Subaccount Subaccount Subaccount Subaccount*
Units outstanding at
December 31, 1996 953,534 216,089 24,554 117,771
Units sold 490,480 216,687 46,412 280,804
Units repurchased (252,149) (71,570) (8,295) (66,642)
-------- -------- --------- -------
Units outstanding at
December 31, 1997 1,191,865 361,206 62,671 331,933
Units sold 340,862 141,913 7,299 197,716
Units repurchased (235,746) (91,869) (10,044) (96,508)
-------- -------- --------- -------
Units outstanding at
December 31, 1998 1,296,981 411,250 59,926 433,141
Units sold 155,832 71,932 15,922 112,436
Units repurchased (134,009) (46,482) (9,900) (65,865)
-------- -------- --------- -------
Units outstanding at
June 30, 1999 1,318,804 436,700 65,948 479,712
======== ======== ========= =======
*The data is for the period beginning May 1, 1996 (date of initial activity).
(6) Condensed Financial Information
The table below gives per unit information about the financial history of
each subaccount for each period.
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $19.24 $18.47 $17.73 $17.05 $16.33 $9.09 $8.53 $8.05 $7.95 $6.63
End of period 19.59 19.24 18.47 17.73 17.05 9.14 9.09 8.53 8.05 7.95
Percentage increase
in unit value
during period* 1.8% 4.2% 4.2% 4.0% 4.4% 0.6% 6.6% 6.0% 1.3% 19.9%
Number of units
outstanding at
end of period 159,983 187,877 141,908 97,454 125,112 201,769 201,769 199,220 196,670 194,133
BOND SUBACCOUNT BALANCED SUBACCOUNT
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $27.82 $26.43 $24.82 $24.35 $21.11 $43.49 $38.69 $33.40 $30.41 $25.09
End of period 27.63 27.82 26.43 24.82 24.35 47.73 43.49 38.69 33.40 30.41
Percentage increase
in unit value
during period* (0.7%) 5.3% 6.5% 2.0% 15.3% 9.8% 12.4% 15.8% 9.8% 21.2%
Number of units
outstanding at
end of period 139,957 130,013 114,927 97,412 155,381 1,623,167 1,581,036 1,568,974 1,567,551 1,522,893
GROWTH AND INCOME STOCK SUBACCOUNT CAPITAL APPRECIATION STOCK SUBACCOUNT
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---- -- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $70.17 $60.02 $46.17 $38.09 $29.16 $25.49 $21.27 $16.31 $13.55 $10.45
End of period 84.24 70.17 60.02 46.17 38.09 28.63 25.49 21.27 16.31 13.55
Percentage increase
in unit value
during period* 20.0% 16.9% 30.0% 21.2% 30.6% 12.3% 19.8% 30.4% 20.4% 29.7%
Number of units
outstanding at
end of period 1,237,595 1,207,005 1,155,179 1,036,605 907,821 1,318,804 1,296,981 1,191,865 953,534 663,269
INTERNATIONAL STOCK SUBACCOUNT GLOBAL GOVERNMENTS SUBACCOUNT
1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period $14.16 $12.33 $12.07 $10.61 $10.00 $12.31 $11.51 $11.74 $11.39 $10.00
End of period 14.63 14.16 12.33 12.07 10.61 11.90 12.31 11.51 11.74 11.39
Percentage increase
in unit value
during period* 3.3% 14.8% 2.1% 13.8% 6.1% (3.4%) 7.0% (2.0%) 3.1% 13.9%
Number of units
outstanding at
end of period 436,700 411,250 361,206 216,089 70,876 65,948 59,926 62,671 24,554 19,219
</TABLE>
EMERGING GROWTH SUBACCOUNT**
1999 1998 1997 1996
Net asset value:
Beginning of period $16.24 $12.21 $10.11 $10.00
End of period 18.25 16.24 12.21 10.11
Percentage increase
in unit value
during period* 12.4% 33.0% 20.8% 1.1%
Number of units
outstanding at
end of period 479,712 433,141 331,933 117,711
Note: The information noted as 1999 is from June 30, 1999. All others are at
December 31 of the year indicated.
For the Money Market Subaccount, the "seven-day average yield" for the seven
days ended June 30, 1999, was 4.53% and the "effective yield" for that period
was 4.63%.
*The amount of premium invested in CUNA Mutual Life Variable Account is the
amount remaining after the policy charges described in footnote 3 have been
deducted. The policy charges have not been taken into account in this
calculation. Inclusion of the policy charges would reduce the percentage
increase in unit value during the period.
**The data is for the period beginning May 1, 1996 (date of initial
activity).
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Financial Statements
December 31, 1998
(With Independent Auditors' Report)
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Assets: Subaccount Subaccount Subaccount Subaccount Subaccount
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C> <C>
Capital Appreciation Stock Fund,
1,490,692 shares at net asset value of
$22.19 per share (cost $21,505,998) $33,073,653 $ -- $ -- $ -- $ --
Growth and Income Stock Fund,
2,772,087 shares at net asset value
of $30.56 per share (cost $53,268,677) -- 84,712,385 -- -- --
Balanced Fund,
3,671,024 shares at net asset value
of $18.74 per share (cost $52,121,655) -- -- 68,777,039 -- --
Bond Fund,
342,306 shares at net asset value
of $10.57 per share (cost $3,571,882) -- -- -- 3,617,904 --
Money Market Fund,
3,616,101 shares at net asset value
of $1.00 per share (cost $3,616,101) -- -- -- -- 3,616,101
----------- ----------- ----------- ----------- -----------
Total assets 33,073,653 84,712,385 68,777,039 3,617,904 3,616,101
----------- ----------- ----------- ----------- -----------
Liabilities:
Accrued adverse mortality and
expense charges 7,915 20,706 16,790 889 834
----------- ----------- ----------- ----------- -----------
Total liabilities 7,915 20,706 16,790 889 834
----------- ----------- ----------- ----------- -----------
Net assets $33,065,738 $84,691,679 $68,760,249 $ 3,617,015 $ 3,615,267
=========== =========== =========== =========== ===========
Units outstanding (note 5) 1,296,981 1,207,005 1,581,036 130,013 187,877
=========== =========== =========== =========== ===========
Net asset value per unit $ 25.49 $ 70.17 $ 43.49 $ 27.82 $ 19.24
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Treasury International World Emerging
2000 Stock Governments Growth
Assets: Subaccount Subaccount Subaccount Subaccount
Investments in Ultra Series Fund:
(note 2)
<S> <C> <C> <C> <C>
Treasury 2000 Fund, 184,870
shares at net asset value of $9.93
per share (cost $1,615,171) $1,835,904 $ -- $ -- $ --
Investments in T. Rowe Price
International Series, Inc.:
International Stock Portfolio,
401,135 shares at net asset value of
$14.52 per share (cost $5,082,095) -- 5,824,487 -- --
Investments in MFS(R) Variable
Insurance TrustSM:
World Governments Series,
67,797 shares at net asset value of
$10.88 per share (cost $693,951) -- -- 737,634 --
Investments in MFS(R) Variable
Insurance TrustSM:
Emerging Growth Series,
327,804 shares at net asset value of
$21.47 per share (cost $5,126,136) -- -- -- 7,037,957
---------- ---------- ---------- ----------
Total assets 1,835,904 5,824,487 737,634 7,037,957
---------- ---------- ---------- ----------
Liabilities:
Accrued adverse mortality and
expense charges 1,386 1,426 181 1,708
---------- ---------- ---------- ----------
Total liabilities 1,386 1,426 181 1,708
---------- ---------- ---------- ----------
Net assets $1,834,518 $5,823,061 $ 737,453 $7,036,249
========== ========== ========== ==========
Units outstanding (note 5) 201,769 411,250 59,926 433,141
========== ========== ========== ==========
Net asset value per unit $ 9.09 $ 14.16 $ 12.31 $ 16.24
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
CAPITAL APPRECIATION STOCK SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
Investment income (loss): 1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 88,433 $ 119,794 $ 595,603 $ 869,525 $ 778,858 $ 1,830,435
Adverse mortality and expense charges
(note 3) (259,874) (182,627) (111,426) (691,564) (527,025) (363,607)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) (171,441) (62,833) 484,177 177,961 251,833 1,466,828
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 769,968 317,275 -- 3,106,051 1,145,587 --
Proceeds from sale of securities 1,770,807 1,795,596 855,100 3,497,748 3,033,581 2,017,365
Cost of securities sold (1,192,638) (1,354,057) (708,846) (2,160,207) (2,103,099) (1,615,917)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss) on security
transactions 1,348,137 758,814 146,254 4,443,592 2,076,069 401,448
Net change in unrealized appreciation
or depreciation on investments 4,151,868 4,563,309 1,662,956 7,377,335 12,852,455 6,026,093
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments 5,500,005 5,322,123 1,809,210 11,820,927 14,928,524 6,427,541
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 5,328,564 $ 5,259,290 $ 2,293,387 $ 11,998,888 $ 15,180,357 $ 7,894,369
============ ============ ============ ============ ============ ============
BALANCED SUBACCOUNT BOND SUBACCOUNT
Investment income (loss): 1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 1,934,712 $ 2,062,026 $ 2,949,493 $ 196,337 $ 136,739 $ 137,535
Adverse mortality and expense charges
(note 3) (577,128) (509,762) (445,353) (30,006) (23,285) (23,607)
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) 1,357,584 1,552,264 2,504,140 166,331 113,454 113,928
------------ ------------ ------------ ------------ ------------ ------------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions 3,744 758,320 -- 2,477 379 --
Proceeds from sale of securities 4,012,722 4,525,247 3,759,491 441,318 402,615 1,799,790
Cost of securities sold (3,159,159) (3,785,014) (3,351,391) (426,398) (394,979) (1,748,647)
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss) on security
transactions 857,307 1,498,553 408,100 17,397 8,015 51,143
Net change in unrealized appreciation
or depreciation on investments 5,340,950 5,202,066 1,724,491 (14,556) 41,691 (127,295)
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) on investments 6,198,257 6,700,619 2,132,591 2,841 49,706 (76,152)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 7,555,841 $ 8,252,883 $ 4,636,731 $ 169,172 $ 163,160 $ 37,776
============ ============ ============ ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
Investment income (loss): 1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dividend income $ 123,985 $ 85,594 $ 86,370 $ 106,291 $ 106,851 $ 107,339
Adverse mortality and expense charges
(note 3) (22,312) (15,448) (16,510) (15,826) (14,583) (13,847)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 101,673 70,146 69,860 90,465 92,268 93,492
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- -- --
Proceeds from sale of securities 2,979,908 4,634,860 4,407,707 -- -- --
Cost of securities sold (2,979,908) (4,634,860) (4,407,707) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss) on security
transactions -- -- -- -- -- --
Net change in unrealized appreciation
or depreciation on investments -- -- -- 21,682 1,846 (74,946)
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments -- -- -- 21,682 1,846 (74,946)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 101,673 $ 70,146 $ 69,860 $ 112,147 $ 94,114 $ 18,546
=========== =========== =========== =========== =========== ===========
INTERNATIONAL STOCK SUBACCOUNT WORLD GOVERNMENTS SUBACCOUNT
Investment income (loss): 1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Dividend income $ 90,596 $ 99,113 $ 39,586 $ 8,821 $ 7,143 $ --
Adverse mortality and expense
charges (note 3) (47,908) (32,130) (14,665) (6,487) (3,401) (2,326)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 42,688 66,983 24,921 2,334 3,742 (2,326)
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- -- -- -- --
Proceeds from sale of securities 491,409 235,721 121,135 92,387 65,919 52,028
Cost of securities sold (442,671) (211,895) (113,341) (90,661) (66,515) (53,136)
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss) on security
transactions 48,738 23,826 7,794 1,726 (596) (1,108)
Net change in unrealized appreciation
or depreciation on investments 608,851 (62,452) 173,915 44,633 (5,796) 12,525
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on investments 657,589 (38,626) 181,709 46,359 (6,392) 11,417
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations $ 700,277 $ 28,357 $ 206,630 $ 48,693 ($ 2,650) $ 9,091
=========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Operations
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
EMERGING GROWTH SUBACCOUNT
Investment income (loss): 1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
Dividend income $45,309 $ -- $9,859
Adverse mortality and expense charges
(note 3) (48,583) (21,660) (4,378)
--------- -------- -------
Net investment income (loss) (3,274) (21,660) 5,481
--------- -------- -------
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) on security
transactions:
Capital gain distributions -- -- --
Proceeds from sale of securities 448,520 234,899 213,154
Cost of securities sold (373,845) (222,640) (201,866)
--------- -------- -------
Net realized gain (loss) on security
transactions 74,675 12,259 11,288
Net change in unrealized appreciation
or depreciation on investments 1,524,641 384,388 2,792
--------- -------- -------
Net gain (loss) on investments 1,599,316 396,647 14,080
--------- -------- -------
Net increase (decrease) in net assets
resulting from operations $1,596,042 $374,987 $19,561
========= ======== =======
See accompanying notes to financial statements.
<FN>
*The data is for the period beginning May 1, 1996 (date of initial activity).
</FN>
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
CAPITAL APPRECIATION STOCK SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
Operations: 1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ($ 171,441) ($ 62,833) $ 484,177 $ 177,961 $ 251,833 $ 1,466,828
Net realized gain (loss) on
security transactions 1,348,137 758,814 146,254 4,443,592 2,076,069 401,448
Net change in unrealized appreciation
or depreciation on investments 4,151,868 4,563,309 1,662,956 7,377,335 12,852,455 6,026,093
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets from
operations 5,328,564 5,259,290 2,293,387 11,998,888 15,180,357 7,894,369
------------ ------------ ------------ ------------ ------------ ------------
Capital unit transactions (note 5):
Proceeds from sale of units 7,807,048 9,240,958 7,622,148 15,135,142 16,677,681 13,835,588
Cost of units repurchased (5,420,620) (4,699,419) (3,351,383) (11,770,989) (10,282,732) (8,554,478)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets from capital
unit transactions 2,386,428 4,541,539 4,270,765 3,364,153 6,394,949 5,281,110
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 7,714,992 9,800,829 6,564,152 15,363,041 21,575,306 13,175,479
Net assets:
Beginning of period 25,350,746 15,549,917 8,985,765 69,328,638 47,753,332 34,577,853
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 33,065,738 $ 25,350,746 $ 15,549,917 $ 84,691,679 $ 69,328,638 $ 47,753,332
============ ============ ============ ============ ============ ============
BALANCED SUBACCOUNT BOND SUBACCOUNT
Operations: 1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) $ 1,357,584 $ 1,552,264 $ 2,504,140 $ 166,331 $ 113,454 $ 113,928
Net realized gain (loss) on
security transactions 857,307 1,498,553 408,100 17,397 8,015 51,143
Net change in unrealized appreciation
or depreciation on investments 5,340,950 5,202,066 1,724,491 (14,556) 41,691 (127,295)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets from
operations 7,555,841 8,252,883 4,636,731 169,172 163,160 37,776
------------ ------------ ------------ ------------ ------------ ------------
Capital unit transactions (note 5):
Proceeds from sale of units 10,811,007 10,763,242 11,796,373 1,182,649 1,162,322 700,575
Cost of units repurchased (10,309,524) (10,663,916) (10,399,963) (772,448) (705,363) (2,103,924)
------------ ------------ ------------ ------------ ------------ ------------
Change in net assets from capital
unit transactions 501,483 99,326 1,396,410 410,201 456,959 (1,403,349)
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 8,057,324 8,352,209 6,033,141 579,373 620,119 (1,365,573)
Net assets:
Beginning of period 60,702,925 52,350,716 46,317,575 3,037,642 2,417,523 3,783,096
------------ ------------ ------------ ------------ ------------ ------------
End of period $ 68,760,249 $ 60,702,925 $ 52,350,716 $ 3,617,015 $ 3,037,642 $ 2,417,523
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
Operations: 1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 101,673 $ 70,146 $ 69,860 $ 90,465 $ 92,268 $ 93,492
Net realized gain (loss) on
security transactions -- -- -- -- -- --
Net change in unrealized appreciation
or depreciation on investments -- -- -- 21,682 1,846 (74,946)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from
operations 101,673 70,146 69,860 112,147 94,114 18,546
----------- ----------- ----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sale of units 4,485,112 6,190,640 4,325,194 447,349 621,004 794,517
Cost of units repurchased (3,592,636) (5,367,244) (4,801,186) (424,204) (599,303) (773,892)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions 892,476 823,396 (475,992) 23,145 21,701 20,625
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 994,149 893,542 (406,132) 135,292 115,815 39,171
Net assets:
Beginning of period 2,621,118 1,727,576 2,133,708 1,699,226 1,583,411 1,544,240
----------- ----------- ----------- ----------- ----------- -----------
End of period $ 3,615,267 $ 2,621,118 $ 1,727,576 $ 1,834,518 $ 1,699,266 $ 1,583,411
=========== =========== =========== =========== =========== ===========
INTERNATIONAL STOCK SUBACCOUNT WORLD GOVERNMENTS SUBACCOUNT
Operations: 1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) $ 42,688 $ 66,983 $ 24,921 $ 2,334 $ 3,742 ($ 2,326)
Net realized gain (loss) on
security transactions 48,738 23,826 7,794 1,726 (596) (1,108)
Net change in unrealized appreciation
or depreciation on investments 608,851 (62,452) 173,915 44,633 (5,796) 12,525
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from
operations 700,277 28,357 206,630 48,693 (2,650) 9,091
----------- ----------- ----------- ----------- ----------- -----------
Capital unit transactions (note 5):
Proceeds from sale of units 1,897,345 2,721,533 2,207,995 85,855 530,877 144,986
Cost of units repurchased (1,227,692) (904,022) (559,568) (118,224) (95,423) (84,667)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from capital
unit transactions 669,653 1,817,511 1,648,427 (32,369) 435,454 60,319
----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets 1,369,930 1,845,868 1,855,057 16,234 432,804 69,410
Net assets:
Beginning of period 4,453,131 2,607,263 752,206 721,129 288,325 218,915
----------- ----------- ----------- ----------- ----------- -----------
End of period $ 5,823,061 $ 4,453,131 $ 2,607,263 $ 737,453 $ 721,129 $ 288,325
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Statements of Changes in Net Assets
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
EMERGING GROWTH SUBACCOUNT
Operations: 1998 1997 1996*
---- ---- -----
<S> <C> <C> <C>
Net investment income (loss) ($3,274) ($21,660) $5,481
Net realized gain (loss) on
security transactions 74,675 12,259 11,288
Net change in unrealized appreciation
or depreciation on investments 1,524,641 384,388 2,792
--------- --------- ---------
Change in net assets from
operations 1,596,042 374,987 19,561
--------- --------- ---------
Capital unit transactions (note 5):
Proceeds from sale of units 2,707,434 3,238,087 1,517,927
Cost of units repurchased (1,321,467) (749,413) (346,909)
--------- --------- ---------
Change in net assets from capital
unit transactions 1,385,967 2,488,674 1,171,018
--------- --------- ---------
Increase (decrease) in net assets 2,982,009 2,863,661 1,190,579
Net assets:
Beginning of period 4,054,240 1,190,579 --
--------- -------- ---------
End of period $7,036,249 $4,054,240 $1,190,579
========= ========= =========
See accompanying notes to financial statements.
<FN>
*The data is for the period beginning May 1, 1996 (date of initial activity).
</FN>
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Notes to Financial Statements
(1) Organization
The CUNA Mutual Life Variable Account (the Account) is a unit investment
trust registered under the Investment Company Act of 1940 with the
Securities and Exchange Commission (SEC). The Account was established as a
separate investment account within CUNA Mutual Life Insurance Company to
receive and invest net premiums paid under flexible premium variable life
insurance policies.
Although the assets of the Account are the property of CUNA Mutual Life
Insurance Company, those assets attributable to the policies are not
chargeable with liabilities arising out of any other business which CUNA
Mutual Life Insurance Company may conduct.
The net assets maintained in the Account attributable to the policies
provide the base for the periodic determination of the increased or
decreased benefits under the policies. The net assets may not be less than
the amount required under state insurance law to provide certain death
benefits and other policy benefits. Additional assets are held in CUNA
Mutual Life Insurance Company's general account to cover death benefits in
excess of the accumulated value.
(2) Significant Accounting Policies
Investments
The Account currently is divided into nine subaccounts but may, in the
future, include additional subaccounts. Each subaccount invests
exclusively in shares of a single underlying fund. (The term fund is used
to mean an investment portfolio sometimes called a series, i.e., Ultra
Series Fund, T. Rowe Price International Series, Inc., MFS(R) Variable
Insurance TrustSM, or any other open-end management investment company or
unit investment trust in which a subaccount invests.) The income, gains
and losses, realized or unrealized, from the assets allocated to each
subaccount are credited to or charged against that subaccount without
regard to income, gains or losses from any other subaccount.
The Account invests in shares of Ultra Series Fund, T. Rowe Price
International Series, Inc., and MFS(R) Variable Insurance TrustSM. Each is
a management investment company of the series type with one or more funds.
Each is registered with the SEC as an open-end, management investment
company. Such registration does not involve supervision of the management
or investment practices or policies of the companies or their funds by the
SEC.
Ultra Series Fund currently has six funds available as investment options
under the policies while T. Rowe Price International Fund, Inc., has one
and MFS(R) Variable Insurance TrustSM has two funds available as an
investment option. MFS(R) Variable Insurance TrustSM also has other funds
that are not available under the policies. These fund companies may, in
the future, create additional funds that may or may not be available as
investment options under the policies. Each fund has its own investment
objectives and the income, gains, and losses for each fund are determined
separately for that fund.
CIMCO Inc. (CIMCO) serves as the investment advisor to the Ultra Series
Fund and manages its assets in accordance with general policies and
guidelines established by the board of trustees of the Ultra Series Fund.
CUNA Mutual Life Insurance Company owns one half of CIMCO's outstanding
stock and one half is owned indirectly by CUNA Mutual Insurance Society.
Rowe Price-Fleming International, Inc. (RPFI) serves as the Investment
Adviser to the T. Rowe Price International Stock Portfolio and manages its
assets in accordance with general policies and guidelines established by
the board of directors of T. Rowe Price International Series, Inc. RPFI
was founded in 1979 as a joint venture between T. Rowe Price Associates,
Inc. and Robert Fleming Holdings Limited.
Massachusetts Financial Services Company (MFS) serves as the Investment
Advisor to the MFS World Governments Series and Emerging Growth Series and
manages its assets in accordance with general policies and guidelines
established by the board of trustees of MFS(R) Variable Insurance TrustSM.
MFS is a subsidiary of Sun Life Assurance Company of Canada (U.S.) which,
in turn, is a subsidiary of Sun Life Assurance Company of Canada.
The assets of each fund are held separate from the assets of the other
funds, and each fund is offered at a price equal to its respective net
asset value per share, without sales charge. Dividends and capital gain
distributions from each fund are reinvested in that fund. Investments in
shares of the funds are stated at market value which is the net asset
value per share as determined by the funds. Realized gains and losses from
security transactions are reported on an average cost basis. Dividend
income is recorded on the ex-dividend date.
Federal Income Taxes
The operations of the Account form a part of the operations of CUNA Mutual
Life Insurance Company and are not taxed separately. CUNA Mutual Life
Insurance Company does not initially expect to incur any income tax upon
the earnings or the realized capital gains attributable to the Account.
Accordingly, no charge for income tax is currently being made to the
Account. If such taxes are incurred by CUNA Mutual Life Insurance Company
in the future, a charge to the Account may be assessed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increase and decrease in
net assets from operations during the period. Actual results could differ
from those estimates.
(3) Fees and Charges
Organization Costs
CUNA Mutual Life Insurance Company absorbed all organization expenses of
the Account.
Policy Charges
In addition to charges for state taxes, which reduce premiums prior to the
allocation of net premiums to the subaccounts of the Account, the
following charges may be deducted by CUNA Mutual Life Insurance Company by
redeeming an appropriate number of units for each policy.
Administrative Fee: CUNA Mutual Life Insurance Company will have primary
responsibility for the administration of the Account and the policies
issued. As reimbursement for these expenses, CUNA Mutual Life Insurance
Company may assess each policy a monthly administrative fee. For
additional detail, see schedule of expenses and charges in the prospectus.
Deferred Contingent Sales and Administrative Charges: The sales and
administrative expenses incurred when a policy is issued are deferred
(Deferred Charges) until the policy is surrendered. Such charges are not
collected at all if the policy is held for nine years, or if the insured
dies during that period. In no instance will the charge exceed 30 percent
of the lesser of premiums paid or the Guideline Annual Premium (as defined
under the Investment Company Act of 1940) of the policy. The Deferred
Charges are normally built up in twelve equal increments during the first
policy year. Beginning on the second policy anniversary, incremental
amounts are released by allocations back to the subaccounts on each
anniversary until the tenth policy anniversary when all remaining Deferred
Charges are released. All amounts in the Deferred Charges Account are held
and interest credited to the policy at a minimum rate of 4 percent with
CUNA Mutual Life Insurance Company crediting additional amounts at its
discretion.
Policy Fee: CUNA Mutual Life Insurance Company will incur first-year
expenses upon issue of a policy, and will assess each policy a monthly
policy fee to recover these expenses.
Cost of Insurance and Additional Benefits Provided: CUNA Mutual Life
Insurance Company will assume the responsibility for providing the
insurance benefits provided in the policy. The cost of insurance will be
determined each month based upon the applicable cost of insurance rates
and the net amount at risk. The cost of insurance can vary from month to
month since the determination of both the insurance rate and the net
amount at risk depends upon a number of variables as described in the
Account's prospectus.
Variable Account Charges
Mortality and Expense Risk Charge: CUNA Mutual Life Insurance Company will
deduct daily a mortality and expense risk charge from the Account at an
annual rate of .90 percent of the average daily net asset value of the
Account. These charges will be deducted by CUNA Mutual Life Insurance
Company in return for its assumption of risks associated with adverse
mortality experience or excess administrative expenses in connection with
policies issued.
(4) Investment Transactions
The cost of shares purchased, including reinvestment of dividend
distributions, during the year ended December 31, 1998, was as follows:
Capital Appreciation Stock Fund........ $4,760,618
Growth and Income Stock Fund........... 10,158,204
Balanced Fund.......................... 5,884,896
Bond Fund.............................. 1,020,825
Money Market Fund...................... 3,974,568
Treasury 2000 Fund..................... 7,253
International Stock Portfolio.......... 1,204,629
World Governments Series............... 62,445
Emerging Growth........................ 1,823,433
----------
$28,905,871
==========
(5) Unit Activity from Contract Transactions
Transactions in units of each subaccount of the Account for the years
ended December 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
Capital
Appreciation Growth and Money
Stock Income Stock Balanced Bond Market
Subaccount Subaccount Subaccount Subaccount Subaccount
Units outstanding at
<S> <C> <C> <C> <C> <C>
December 31, 1995 663,269 907,821 1,522,893 155,381 125,112
Units sold 516,098 337,323 375,764 29,061 249,298
Units repurchased (225,833) (208,539) (331,106) (87,030) (276,956)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1996 953,534 1,036,605 1,567,551 97,412 97,454
Units sold 490,480 313,426 297,548 45,022 342,456
Units repurchased (252,149) (194,852) (296,125) (27,507) (298,002)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1997 1,191,865 1,155,179 1,568,974 114,927 141,908
Units sold 340,862 233,645 266,148 43,507 236,364
Units repurchased (235,746) (181,819) (254,086) (28,421) (190,395)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1998 1,296,981 1,207,005 1,581,036 130,013 187,877
========== ========== ========== ========== ==========
Treasury International World Emerging
2000 Stock Governments Growth
Subaccount Subaccount Subaccount Subaccount*
Units outstanding at
December 31, 1995 194,133 70,876 19,219 --
Units sold 102,713 194,181 12,790 151,261
Units repurchased (100,176) (48,968) (7,455) (33,490)
---------- ---------- ---------- ----------
Units outstanding at
December 31, 1996 196,670 216,089 24,554 117,771
Units sold 77,604 216,687 46,412 280,804
Units repurchased (75,054) (71,570) (8,295) (66,642)
---------- ---------- ---------- ----------
Units outstanding at
December 31, 1997 199,220 361,206 62,671 331,933
Units sold 52,984 141,913 7,299 197,716
Units repurchased (50,435) (91,869) (10,044) (96,508)
---------- ---------- ---------- ----------
Units outstanding at
December 31, 1998 201,769 411,250 59,926 433,141
========== ========== ========== ==========
<FN>
*The data is for the period beginning May 1, 1996 (date of initial activity).
</FN>
</TABLE>
(6) Condensed Financial Information
The table below gives per unit information about the financial history of
each subaccount for each period.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION STOCK SUBACCOUNT GROWTH AND INCOME STOCK SUBACCOUNT
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of period $21.27 $16.31 $13.55 $10.45 $10.00 $60.02 $46.07 $38.09 $29.16 $29.01
End of period 25.49 21.27 16.31 13.55 10.45 70.17 60.02 46.07 38.09 29.16
Percentage increase
in unit value
during period* 19.9% 30.4% 20.4% 29.7% 4.5% 16.9% 30.3% 21.0% 30.6% 0.5%
Number of units
outstanding at
end of period 1,296,981 1,191,865 953,534 663,269 588,501 1,207,005 1,155,179 1,036,605 907,821 767,867
BALANCED SUBACCOUNT BOND SUBACCOUNT
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $38.69 $33.40 $30.41 $25.09 $25.44 $26.43 $24.82 $24.35 $21.11 $21.96
End of period 43.49 38.69 33.40 30.41 25.09 27.82 26.43 24.82 24.35 21.11
Percentage increase
in unit value
during period* 12.4% 15.8% 9.8% 21.2% -1.4% 5.3% 6.5% 1.9% 15.4% -3.9%
Number of units
outstanding at
end of period 1,581,036 1,568,974 1,567,551 1,522,893 1,433,037 130,013 114,927 97,411 55,381 160,875
MONEY MARKET SUBACCOUNT TREASURY 2000 SUBACCOUNT
1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $18.47 $17.73 $17.05 $16.33 $15.91 $8.53 $8.05 $7.95 $6.63 $7.20
End of period 19.24 18.47 17.73 17.05 16.33 9.09 8.53 8.05 7.95 6.63
Percentage increase
in unit value
during period* 4.2% 4.1% 4.0% 4.4% 2.6% 6.6% 6.0% 1.3% 19.9% -7.9%
Number of units
outstanding at
end of period 187,877 141,908 97,454 125,112 179,387 201,769 199,220 196,670 194,133 191,747
INTERNATIONAL STOCK SUBACCOUNT WORLD GOVERNMENTS SUBACCOUNT
1998 1997 1996 1995 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Net asset value:
Beginning of period $12.33 $12.07 $10.61 $10.00 $11.51 $11.74 $11.39 $10.00
End of period 14.16 12.33 12.07 10.61 12.31 11.51 11.74 11.39
Percentage increase
in unit value
during period* 14.8% 2.2% 13.7% 6.1% 6.9% (2.0%) 3.1% 13.9%
Number of units
outstanding at
end of period 411,250 361,206 216,089 70,876 59,926 62,671 24,554 19,219
EMERGING GROWTH SUBACCOUNT**
1998 1997 1996
---- ---- ----
Net asset value:
Beginning of period $12.21 $10.11 $10.00
End of period 16.24 12.21 10.11
Percentage increase
in unit value
during period* 33.0% 20.8% 1.1%
Number of units
outstanding at
end of period 433,141 331,933 117,771
For the Money Market Subaccount, the "seven-day average yield" for the seven
days ended December 31, 1998, was 3.75% and the "effective yield" for that
period was 3.86%.
<FN>
*The amount of premium invested in CUNA Mutual Life Variable Account is the
amount remaining after the policy charges described in footnote 3 have
been deducted. The policy charges have not been taken into account in this
calculation. Inclusion of the policy charges would reduce the percentage
increase in unit value during the period.
**The data is for the period beginning May 1, 1996 (date of initial activity).
</FN>
</TABLE>
<PAGE>
CUNA MUTUAL LIFE VARIABLE ACCOUNT
Independent Auditors' Report
The Board of Directors
CUNA Mutual Life Insurance Company and Contract
Owners of CUNA Mutual Life Variable Account:
We have audited the statements of assets and liabilities of the Capital
Appreciation Stock Subaccount, Growth and Income Stock Subaccount, Balanced
Subaccount, Bond Subaccount, Money Market Subaccount, Treasury 2000 Subaccount,
International Stock Subaccount, World Governments Subaccount, and the Emerging
Growth Subaccount of the CUNA Mutual Life Variable Account as of December 31,
1998; the related statements of operations and changes in net assets for each of
the years in the three-year (two years and eight months for the Emerging Growth
Subaccount) period then ended; and the condensed financial information for each
of the years in the five-year (four years for International Stock Subaccount and
World Governments Subaccount, and two years and eight months for the Emerging
Growth Subaccount) period then ended. These financial statements and condensed
financial information are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements and
condensed financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Investments owned at December 31, 1998, were verified
by audit of the statements of assets and liabilities of the underlying funds of
Ultra Series Fund and confirmation with MFS Variable Insurance Trust and T. Rowe
Price. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Capital Appreciation Stock Subaccount, Growth and Income Stock
Subaccount, Balanced Subaccount, Bond Subaccount, Money Market Subaccount,
Treasury 2000 Subaccount, International Stock Subaccount, World Governments
Subaccount, and the Emerging Growth Subaccount of the CUNA Mutual Life Variable
Account as of December 31, 1998; the results of their operations and changes in
their net assets for each of the years in the three-year (two years and eight
months for the Emerging Growth Subaccount) period then ended; and the condensed
financial information for each of the years in the five-year (four years for
International Stock Subaccount and World Governments Subaccount, and two years
and eight months for the Emerging Growth Subaccount) period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Des Moines, Iowa
February 5, 1999
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Financial Statements
June 30, 1999
(Unaudited)
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities, and Surplus
June 30, 1999
(in thousands)(unaudited)
Admitted Assets
Investments:
Fixed maturities $ 1,527,064
Equity securities:
Preferred stock
41
Common stock
74,175
Mortgage loans on real estate
330,466
Investment real estate
60,804
Policy loans
100,920
Other invested assets
16,462
Receivable for securities
13,594
Cash and short-term investments
69,976
--------------------
Total investments 2,193,501
Premiums receivable
16,650
Accrued investment income
27,050
EDP equipment
1,882
Due from affiliates and related parties
12,047
FIT recoverable
0
Other assets
1,979
Separate accounts 2,273,835
--------------------
Total admitted assets $ 4,526,943
====================
Liabilities and Surplus
Liabilities:
Policy reserves:
Life insurance and annuity contracts $ 1,659,701
Accident and health insurance
12,821
Supplementary contracts without life contingencies
78,522
Policyholders' dividend accumulations
156,479
Policy and contract claims
10,147
Other policyholders' funds:
Dividends payable to policyholders
22,854
Premiums and other deposit funds
3,879
Interest maintenance reserve
5,286
Amounts held for others
19,592
Commissions, expenses, taxes, licenses and fees accrued
19,676
Asset valuation reserve
49,656
Loss contingency reserve for investments
5,800
FIT due and accrued
18,376
Note payable
1,300
Other liabilities
21,589
Separate accounts 2,222,354
--------------------
Total liabilities 4,308,032
--------------------
Surplus:
Unassigned surplus
218,911
Total surplus
218,911
--------------------
Total liabilities and surplus $ 4,526,943
====================
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Summary of Operations
Period ending June 30, 1999
(in thousands) (unaudited)
Income:
Premiums and other considerations:
Life and annuity contracts $ 262,520
Accident and health 10,376
Supplementary contracts and dividend accumulations 20,223
Other deposit funds 105,563
Net investment income 73,476
Reinsurance commissions 3,807
Separate accounts income and fees 10,486
Other income 3,208
--------------
Total income 489,659
--------------
Benefits and expenses:
Death benefits 22,717
Annuity benefits 64,422
Surrender benefits 102,546
Payments on supplementary contracts without life
contingencies and dividend accumulations 22,647
Other benefits to policyholders and beneficiaries 10,547
Decrease in policy reserves - life and annuity
contracts and accident and health insurance (12,361)
Increase in liabilities for supplementary contracts without life
contingencies and policyholder's dividend accumulations 2,719
Decrease in group annuity reserves (259)
Increase in benefit funds 430
Commissions 23,830
General insurance expenses, including cost of
collection in excess of loading on due and deferred
premiums and other expenses 30,028
Insurance taxes, licenses, and fees 3,876
Net transfers to separate accounts 193,762
--------------
Total benefits and expense 464,904
--------------
Income before dividends to policyholders, federal
income taxes, and net realized capital (losses) gains 24,755
Dividends to policyholders 11,027
--------------
Income before federal income taxes and net
realized capital (losses) gains 13,728
Federal income taxes 5,756
--------------
Income before net realized capital (losses) gains 7,972
Net realized capital (losses) gains, less federal income taxes
and transfers to the interest maintenance reserve 4,936
--------------
Net income $ 12,908
==============
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statement of Changes in Unassigned Surplus
Period ending June 30, 1999
(in thousands) (unaudited)
Balance at beginning of period $ 205,757
------------------
Increase (decrease) in unassigned surplus:
Net income
12,908
Change in net unrealized gains (losses)
1,282
Change in asset valuation reserve
(1,261)
Change in nonadmitted assets
233
Change in surplus of separate accounts
32
Change in separate account seed money
(40)
Change in loss contingency for investments
-
Other miscellaneous changes
-
------------------
Net increase in unassigned surplus
13,154
------------------
Balance at end of period $ 218,911
==================
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statement of Cash Flows
Period Ending June 30, 1999
(in thousands) (unaudited)
Cash from operations:
Premiums and other considerations:
Life and annuity contracts $ 261,098
Accident and health
10,516
Supplementary contracts and dividend accumulations
20,223
Other deposit funds
105,563
Investment income received
77,302
Reinsurance commissions
3,807
Separate accounts income and fees
10,486
Other income
2,548
-----------------
Total provided from operations
491,543
-----------------
Life and accident and health claims paid
26,023
Surrender benefits paid
102,546
Other benefits to policyholders paid
94,065
Commissions, other expenses and taxes paid,
excluding federal income taxes
53,151
Dividends to policyholders paid
12,628
Federal income taxes
(4,806)
Net transfers to separate accounts
199,777
Interest paid on defined benefit plans
437
Other
40
-----------------
Total used in operations
483,861
-----------------
Net cash (used in) from operations
7,682
-----------------
Cash from investments:
Proceeds from investments sold, matured or repaid:
Fixed maturities
258,950
Equity securities
24,945
Mortgage loans on real estate
12,288
Other invested assets
932
Investment real estate
3,865
-----------------
Total investment proceeds
300,980
-----------------
Cost of investments acquired:
Fixed maturities
268,467
Equity securities
14,652
Mortgage loans on real estate
36,793
Investment real estate
2,875
Other invested assets
-
Other cash used
774
-----------------
Total investments acquired
323,561
Increase (decrease) in policy loans and premium notes
(648)
-----------------
Net cash from investments
(21,933)
-----------------
Net Cash from financing and miscellaneous sources 9,487
-----------------
Reconciliation of cash and short-term investments:
Net change in cash and short-term investments
(4,764)
Cash and short-term investments at beginning of period
74,740
=================
Cash and short-term investments at end of period $ 69,976
=================
CUNA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS) (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited statutory basis financial statements have been
prepared in accordance with statutory accounting principles for interim
financial information and the instructions to Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the interim data includes all adjustments (consisting
of normal recurring accruals) considered necessary for a fair statement of the
results for the interim period. Operating results for the six month period ended
June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the accompanying statutory basis financial statements and notes thereto for the
years ended December 31, 1998 and 1987.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Financial Statements and Supplementary Information
December 31, 1998 and 1997
(With Independent Auditors' Report)
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Admitted Assets, Liabilities and Surplus
December 31, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Admitted Assets 1998 1997
--------------- ---- ----
Investments:
<S> <C> <C>
Fixed maturities $ 1,517,147 $ 1,570,735
Equity securities:
Preferred stock 71 102
Common stock 77,036 57,292
Mortgage loans on real estate 306,037 362,958
Investment real estate 62,345 64,771
Policy loans 101,569 101,061
Other invested assets 16,799 11,459
Receivable for securities 19,886 14,394
Cash and short-term investments 74,740 27,260
--------- ---------
Total investments 2,175,630 2,210,032
Premiums receivable 15,147 12,534
Accrued investment income 28,005 30,540
Electronic data processing equipment 2,230 2,822
Due from affiliates and related parties 8,121 12,093
Federal income tax recoverable -- 2,158
Other assets 2,295 2,936
Separate accounts 1,830,012 1,198,978
--------- ---------
Total admitted assets $ 4,061,440 $ 3,472,093
========= =========
Liabilities and Surplus
Liabilities:
Policy reserves:
Life insurance and annuity contracts $ 1,672,272 $ 1,749,927
Accident and health insurance 12,611 11,795
Supplementary contracts without life contingencies 76,131 72,664
Policyholders' dividend accumulations 156,151 153,931
Policy and contract claims 9,915 7,232
Other policyholders' funds:
Dividends payable to policyholders 24,450 23,780
Premiums and other deposit funds 4,194 4,693
Interest maintenance reserve 5,694 3,531
Amounts held for others 18,923 20,500
Commissions, expenses, taxes, licenses and fees accrued 14,594 13,133
Asset valuation reserve 48,395 41,756
Loss contingency reserve for investments 5,800 6,050
Federal income taxes due and accrued 5,025 --
Note payable 1,300 1,300
Other liabilities 15,639 6,823
Separate accounts 1,784,589 1,164,297
--------- ---------
Total liabilities 3,855,683 3,281,412
--------- ---------
Surplus:
Unassigned surplus 205,757 190,681
--------- ---------
Total surplus 205,757 190,681
--------- ---------
Total liabilities and surplus $ 4,061,440 $ 3,472,093
========= =========
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Income:
Premiums and other considerations:
<S> <C> <C> <C>
Life and annuity contracts $ 466,203 $ 414,724 $ 346,584
Accident and health 18,292 14,886 12,007
Supplementary contracts and dividend accumulations 43,547 44,194 46,303
Other deposit funds 159,786 114,825 51,322
Net investment income 148,998 168,192 174,573
Reinsurance commissions 7,871 9,601 9,962
Separate accounts income and fees 15,858 9,885 4,883
Other income 5,794 5,862 3,761
------- ------- -------
Total income 866,349 782,169 649,395
------- ------- -------
Benefits and expenses:
Death benefits 41,908 37,430 33,592
Annuity benefits 82,074 49,095 39,086
Surrender benefits 189,343 176,291 143,867
Payments on supplementary contracts without life
contingencies and dividend accumulations 47,431 44,747 48,896
Other benefits to policyholders and beneficiaries 18,244 17,509 12,703
Decrease in policy reserves - life and annuity
contracts and accident and health insurance (76,839) (78,148) (54,954)
Increase in liabilities for supplementary contracts without life
contingencies and policyholders' dividend accumulations 5,687 6,954 8,328
Decrease in group annuity reserves (225) (2) (233)
Increase in benefit funds 870 3,975 4,075
Commissions 43,396 37,017 37,529
General insurance expenses, including cost of
collection in excess of loading on due and deferred
premiums and other expenses 60,126 60,722 51,004
Insurance taxes, licenses, and fees 5,909 6,939 6,199
Net transfers to separate accounts 408,384 369,788 272,028
------- ------- -------
Total benefits and expenses 826,308 732,317 602,120
------- ------- -------
Income before dividends to policyholders, federal
income taxes, and net realized capital (losses) gains 40,041 49,852 47,275
Dividends to policyholders 24,441 23,670 23,286
------- ------- -------
Income before federal income taxes and net
realized capital (losses) gains 15,600 26,182 23,989
Federal income taxes 4,436 12,208 7,713
------- ------- -------
Income before net realized capital (losses) gains 11,164 13,974 16,276
Net realized capital (losses) gains, less federal income taxes
and transfers to the interest maintenance reserve (317) 3,885 171
------- ------- -------
Net income $ 10,847 $ 17,859 $ 16,447
======= ======= =======
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Changes in Unassigned Surplus
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 190,681 $ 163,304 $ 154,028
------- ------- -------
Increase (decrease) in unassigned surplus:
Net income 10,847 17,859 16,447
Change in net unrealized gains (losses) 10,070 6,752 (7,135)
Change in asset valuation reserve (6,639) 257 (9,811)
Change in nonadmitted assets 543 285 2,695
Change in surplus of separate accounts (64) 209 (2,071)
Change in separate account seed money 64 (189) 2,232
Subsidiary surplus distribution -- -- 13,858
Change in loss contingency for investments 250 2,200 (6,954)
Other miscellaneous changes 5 4 15
------- ------- -------
Net increase in unassigned surplus 15,076 27,377 9,276
------- ------- -------
Balance at end of year $ 205,757 $ 190,681 $ 163,304
======= ======= =======
</TABLE>
See accompanying notes to statutory financial statements.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Statutory Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash from operations Premiums and other considerations:
<S> <C> <C> <C>
Life and annuity contracts $ 463,537 $ 412,840 $345,095
Accident and health 17,903 14,754 11,911
Supplementary contracts and dividend accumulations 43,546 44,194 46,303
Other deposit funds 159,786 114,826 51,322
Investment income received 160,304 177,984 176,394
Reinsurance commissions 7,871 8,425 13,210
Separate accounts income and fees 15,858 9,885 1,129
Other income 4,786 4,931 57,268
------- ------- -------
Total provided from operations 873,591 787,839 702,632
------- ------- -------
Life and accident and health claims paid 46,128 42,004 38,809
Surrender benefits paid 189,343 176,291 143,867
Other benefits to policyholders paid 140,575 105,505 95,785
Commissions, other expenses and taxes paid,
excluding federal income taxes 107,589 105,834 89,017
Dividends to policyholders paid 23,756 23,161 22,542
Federal income taxes (181) 14,558 15,804
Net transfers to separate accounts 419,156 383,942 281,652
Interest paid on defined benefit plans 1,338 3,507 4,104
Other -- 189 684
------- ------- -------
Total used in operations 927,704 854,991 692,264
------- ------- -------
Net cash (used in) from operations (54,113) (67,152) 10,368
------- ------- -------
Cash from investments
Proceeds from investments sold, matured or repaid:
Fixed maturities 296,732 285,135 226,919
Equity securities 17,412 17,223 29,960
Mortgage loans on real estate 77,980 47,892 52,773
Other invested assets 562 969 831
Investment real estate 3,950 17,701 700
------- ------- -------
Total investment proceeds 396,636 368,920 311,183
------- ------- -------
Cost of investments acquired:
Fixed maturities 243,804 200,692 237,191
Equity securities 24,923 29,724 26,235
Mortgage loans on real estate 17,956 4,704 31,025
Investment real estate 5,222 10,929 10,060
Other invested assets 10,461 -- --
Other cash used 109 4,098 2,148
------- ------- -------
Total investments acquired 302,475 250,147 306,659
Increase (decrease) in policy loans and premium notes 500 (475) 664
------- ------- -------
Net cash from investments 93,661 119,248 3,860
------- ------- -------
Cash from financing and miscellaneous sources
Transfer of defined benefit pension plan assets -- (42,247) --
Other cash provided (applied), net 7,932 (15,879) 3,762
------- ------- -------
Net cash from (used in) financing and
miscellaneous sources 7,932 (58,126) 3,762
------- ------- -------
Reconciliation of cash and short-term investments:
Net change in cash and short-term investments 47,480 (6,030) 17,990
Cash and short-term investments at beginning of year 27,260 33,290 15,300
------- ------- -------
Cash and short-term investments at end of year $ 74,740 $ 27,260 $ 33,290
======= ======= =======
See accompanying notes to statutory financial statements.
</TABLE>
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Company Operations
CUNA Mutual Life Insurance Company (the Company) offers a full range of
ordinary life and health insurance products through face-to-face and direct
response distribution systems. The Company's operations are conducted in 49
states and the District of Columbia. The Company is subject to regulation by
the Insurance Departments of states in which it is licensed and undergoes
periodic examinations by those departments.
Basis of Presentation
The accompanying statutory financial statements have been prepared in
conformity with accounting practices prescribed or permitted by the Iowa
Department of Commerce, Insurance Division. Prescribed statutory accounting
practices are promulgated by the National Association of Insurance
Commissioners (NAIC), as well as through state laws, regulations, and
general administration rules. Permitted statutory accounting practices
encompass all accounting procedures other than those prescribed. The Company
is currently applying only prescribed accounting practices. Statutory
accounting practices vary in some respects from generally accepted
accounting principles. The more significant of these differences are as
follows:
o The costs related to acquiring business are charged to income in the
year incurred and, thus, are not amortized over the periods benefited,
whereas the premium income is recorded into earnings on a pro rata
basis over the premium-paying periods covered by the policies;
o Adjustments reflecting the revaluation of investments at statement date
and equity in earnings of subsidiary companies are carried to the
statements of changes in unassigned surplus as "net unrealized gains or
losses," without providing for income taxes, or income tax reductions,
with respect to net unrealized gains or losses;
o Majority owned subsidiaries are not consolidated and are carried at
their underlying book value using the equity method of accounting;
o Policy reserves are based on statutory mortality and interest
requirements, without consideration for withdrawals, which may differ
from reserves based on reasonably conservative estimates of mortality,
interest and withdrawals;
o Derivative investment contract hedging fixed income securities are
carried on the statutory financial statements at the amortized cost, if
any, versus at the estimated fair value of the contract;
o Deferred federal income taxes are not provided for unrealized gains or
losses and the temporary differences between the statutory and tax
basis of assets and liabilities;
o "Nonadmitted assets" (principally, the airplane, prepaid insurance and
expenses, furniture, equipment and certain receivables) are excluded
from the balance sheets through a direct charge to surplus;
o The asset valuation reserve is recorded as a liability by a direct
charge to surplus;
o The interest maintenance reserve defers recognition of interest-related
gains and losses from the disposal of investment securities and
amortizes them into income over the remaining lives of those
securities;
o Reserves established for potential bond and mortgage loan defaults or
real estate impairments are recorded as liabilities by direct charges
to surplus;
o Pension expense reflects the amount funded during the year and
disclosures related to the pension plan are in accordance with ERISA
requirements;
o Assets and liabilities are recorded net of ceded reinsurance balances;
and
o Deposits, surrenders and benefits on universal life and annuity
contracts are recorded in the statements of operations.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(1) Summary of Significant Accounting Policies, continued
Basis of Presentation, Continued
A reconciliation of net income and surplus between amounts presented herein
and amounts stated in conformity with GAAP as of December 31 are as follows
(in thousands):
Net Income 1997 1996
Statutory net income $17,859 $16,447
Adjustments:
Federal income taxes 1,555 (9,500)
Deferred policy acquisition costs 18,593 15,566
Insurance reserves (9,651) (2,181)
Investments (414) 8,590
Pension benefits 1,175 (1,457)
Other (1,877) (2,365)
------ ------
GAAP net income $27,240 $25,100
====== ======
Surplus 1997 1996
------- ---- ----
Statutory surplus $190,681 $163,304
Adjustments:
Federal income taxes 7,436 6,576
Deferred policy acquisition costs 142,710 130,655
Insurance reserves (71,352) (61,701)
Investments 37,409 33,231
Employee benefits (20,072) (21,744)
Dividends payable to policyholders 11,890 11,635
Other 5,211 2,955
------- -------
GAAP Surplus $303,913 $264,911
======= =======
The effects of these variances on net income and surplus at December 31,
1998, although not reasonably determinable as of this date, are presumed to
be material.
Valuation of Investments
Investments are valued as prescribed by the National Association of
Insurance Commissioners (NAIC). Fixed maturities and short-term investments
are generally carried at amortized cost, preferred equity securities at
cost, common equity securities of unaffiliated companies at fair value, and
mortgage loans at the amount of outstanding principal adjusted for
unamortized premiums and discounts. Fixed maturities that the NAIC has
determined are impaired in value are carried at the lower of amortized cost
or estimated fair value. Real estate acquired in satisfaction of debt is
valued at the lower of the carrying value of the outstanding mortgage loans
or fair value of the acquired real estate at time of foreclosure. The
adjusted basis is subsequently depreciated. Investments in limited
partnerships are included in other invested assets, and investments in
subsidiaries are carried at the Company's share of the underlying net equity
of the investment. Home office real estate is carried at depreciated cost.
Policy loans are stated at their aggregate unpaid balances.
Realized gains and losses on the sale of investments are reported in income
based upon the first-in, first-out method. The net unrealized gains and
losses attributable to the adjustment from book value to carrying value for
all investments are reflected in surplus.
Provision for Depreciation
The provision for depreciation of real estate is computed on a straight-line
basis using estimated useful lives of the assets ranging from five to fifty
years.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(1) Summary of Significant Accounting Policies, continued
Policy Reserves
During 1988, the Company began using the 1980 Commissioners' Standard
Ordinary (C.S.O.) Mortality Table. Prior to the adoption of the 1980 C.S.O.
table, reserves were recorded using the 1958 C.S.O. table. The 1958 C.S.O.
table is used with interest rate assumptions ranging from 2.5 percent to 5.0
percent. The 1980 C.S.O. table is used with interest rate assumptions
ranging from 3.5 percent to 5.5 percent. With respect to older policies, the
mortality table and interest assumptions vary from the American Experience
table with 2.5 to 4 percent interest to the 1941 C.S.O. table with 2.5
percent interest. Approximately 24 percent of the life reserves are
calculated on a net level reserve basis and 76 percent on a modified reserve
basis. The effect of the use of a modified reserve basis is to partially
offset the effect of immediately expensing acquisition costs by providing a
policy reserve increase in the first policy year which is less than the
reserve increase in renewal years. Fixed deferred annuity reserves are
calculated using continuous Commissioners' Annuity Reserve Valuation Method
(CARVM) with interest assumptions ranging from 2.5 percent to 7.5 percent.
Provision for Participating Policy Dividends
The provision for participating policy dividends is based on the board of
directors' determination and declaration of an equitable current dividend
plus a provision for such dividend expected to be paid in the following
year, rather than being provided for ratably over the premium-paying period
in accordance with dividend scales contemplated at the time the policies
were issued. Participating business comprised 99.9 percent of ordinary life
insurance in force and premiums received during 1998.
Statutory Valuation Reserves
The asset valuation reserve (AVR) provides a reserve for fluctuations in the
values of invested assets, primarily common stocks. Changes in the AVR are
charged or credited directly to surplus.
An interest maintenance reserve (IMR) is maintained as prescribed by the
NAIC for the purpose of stabilizing the surplus of the Company against gains
and losses on sales of fixed income investments that are primarily
attributable to changing interest rates. The interest-related gains and
losses are deferred and amortized into income over the remaining lives of
the securities.
Electronic Data Processing Equipment
Electronic data processing equipment is carried at cost less accumulated
depreciation of $6,744,419 and $6,023,003 at December 31, 1998 and 1997,
respectively. The equipment is being depreciated using the straight-line
method over a five-year period.
Pension Costs
Pension costs relating to the Company's pension plans are computed on the
basis of accepted actuarial methods. The annual contributions are computed
according to the aggregate funding method, which produces an annual normal
cost at each valuation date. Such annual normal cost provides for spreading
the excess of the present value of future benefits over the value of the
assets of the plan as a level percentage of payroll over the remaining
period of service of active employees on the valuation date based upon the
actuarial assumptions adopted. Gains and losses which arise on each
valuation date as the result of differences between the actual experience
and that expected by the actuarial assumptions are spread over the remaining
period of service of active employees. The Company's policy is to fund
pension costs accrued.
Risks and Uncertainties
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheets and revenues and expenses
for the period. Actual results could differ significantly from those
estimates. The following elements of the financial statements are most
affected by the use of estimates and assumptions:
o Investment valuations
o Insurance reserves
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(1) Summary of Significant Accounting Policies, continued
Risks and Uncertainties, continued
The Company is subject to the risk that interest rates will change and cause
a decrease in the value of its investments. To the extent that fluctuations
in interest rates cause the duration of assets and liabilities to differ,
the Company may have to sell assets prior to their maturity and realize
losses. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques that attempt to match the
duration of the assets with the estimated duration of the liabilities. The
Company had derivative financial instruments at December 31, 1998 and 1997,
which are discussed in note 2.
The Company is subject to the risk that issuers of securities or mortgage
loans owned by the Company will default or other parties, including
reinsurers who owe the Company money, will not pay. The Company minimizes
this risk by adhering to a conservative investment strategy and by
maintaining strong reinsurance and credit and collection policies.
The Company is subject to the risk that the legal or regulatory environment
in which the Company operates will change and create additional costs and
expenses not anticipated by the Company in pricing its products. In other
words, regulatory initiatives designed to reduce insurer profits or new
legal theories may create costs for the insurer beyond those recorded in the
financial statements. The Company mitigates this risk by operating in a
geographically diverse area, thus reducing its exposure to any single
jurisdiction; closely monitoring the regulatory environment to anticipate
changes; and by using underwriting practices that identify and minimize the
potential adverse impact of this risk.
Disclosures about Fair Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair
value information about existing on and off balance sheet financial
instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.
Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in the immediate settlement of the
instruments. Certain financial instruments and all non-financial instruments
are excluded from disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Company. In addition, the tax ramifications of the related unrealized gains
and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash, short-term investments, accrued investment income and policy loans:
The carrying amounts reported for these instruments approximate their
fair values because of the short-term nature of these instruments.
Fixed maturities and equity securities: Fair values for fixed maturities
are based on quoted market prices where available. For fixed maturities
not actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current
market rate applicable to the yield, credit quality and maturity of the
investments. The fair values for unaffiliated equity securities are based
on quoted market prices. The carrying values and fair value for these
instruments is disclosed in note 2.
Derivative financial instruments: The carrying values and fair value for
these instruments is disclosed in note 2.
Mortgage loans on real estate: The fair values for mortgage loans are
estimated using discounted cash flow analysis, at interest rates
currently being offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations. Fair values for mortgages in default are
reported at the estimated fair value of the underlying collateral. The
carrying and fair values for these instruments are disclosed in note 2.
Other invested assets: The fair value of joint ventures and partnership
interests in common stock approximate their carrying values or are
estimated using discounted cash flow analysis. The estimated fair value
for other invested assets for 1998 and 1997 was $16,596,994 and
$10,163,876, respectively.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(1) Summary of Significant Accounting Policies, continued
Disclosures about Fair Value of Financial Instruments, continued
Separate account assets and liabilities: The fair value of assets held in
separate accounts is based on quoted market prices. The fair value of
liabilities related to separate accounts is the amount payable on demand.
The carrying amounts reported in these accounts approximate their fair
values.
Investment contracts: The fair values of the Company's liabilities under
investment type insurance contracts are estimated using the cash
surrender value of the contracts. The carrying value and estimated fair
value of these liabilities were $1,100,993,513 and $1,096,826,483 for
1998 and $1,242,817,910 and $1,233,846,222 for 1997, respectively.
Derivative Financial Instruments
The Company enters into derivatives, primarily interest rate swaps and caps
and stock index futures to reduce interest rate exposure for long-term
assets, to exchange fixed rates for floating interest rates and to increase
or decrease exposure to selected segments of the bond and stock markets.
Hedges of fixed maturity securities are stated at amortized cost, if any,
and hedges of equity securities are stated at market value. See note 2 for
additional information related to these agreements.
Net interest receivable or payable on those contracts that hedge risks
associated with interest rate fluctuations are recognized in the period
incurred as an adjustment to investment income. Realized capital gains and
losses on equity swaps are recognized in the period incurred as an
adjustment to net realized capital gains and losses. Unrealized capital
gains and losses on equity swaps are charged or credited to surplus.
Interest rate cap agreements entitle the Company to receive from the
counter-parties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in the agreements. The amount paid to
purchase the interest rate caps is included in other invested assets and
amortized over the term of the agreements as an adjustment to investment
income.
Separate Accounts
Separate account assets are funds of separate account contractholders and
the Company, segregated into accounts with specific investment objectives.
The assets are generally carried at fair value. An offsetting liability is
maintained to the extent of contractholders' interests in the assets.
Appreciation or depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
policyholders' surplus. Contractholders' interests in net investment income
and realized and unrealized capital gains and losses on separate account
assets are not reflected in operations.
Statutory Accounting Practices
The NAIC has developed a codification of Statements of Statutory Accounting
Principles (SSAP's) which, pending approval of the Iowa Department of
Commerce, Insurance Division, will take effect January 1, 2001. The effect
of adopting the SSAP's will be reported as an adjustment to unassigned
surplus on the effective date. Although generally consistent with current
accounting practices, there are differences that could have a material
impact on the Company; the ultimate impact on unassigned surplus has not
been determined.
Reclassifications
Certain amounts previously reported in prior years' financial statements
have been reclassified to conform to the current year presentation.
(2) Investments
Fixed Maturities
The carrying value, gross unrealized gains and losses and the estimated fair
value of investments in fixed maturities as of December 31, 1998 and 1997
are as follows (in thousands):
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(2) Investments, continued
<TABLE>
<CAPTION>
Fixed Maturities, continued
Gross Gross
Carrying unrealized unrealized Estimated
Description value gains losses fair value
1998:
<S> <C> <C> <C> <C>
United States treasury
and government securities $ 56,037 $ 2,539 $ -- $ 58,576
States and political
subdivisions securities 38 -- -- 38
Foreign government securities 16,433 1,487 -- 17,920
Corporate securities 885,831 52,988 1,629 937,190
Mortgage-backed securities 524,821 9,794 3,703 530,912
Other debt securities 33,987 1,963 -- 35,950
-------- ------ ----- --------
$1,517,147 $68,771 $5,332 $1,580,586
======== ====== ===== ========
1997:
United States treasury
and government securities $ 62,478 $ 1,532 $ 38 $ 63,972
States and political
subdivisions securities 47 -- -- 47
Foreign government securities 16,428 1,154 -- 17,582
Corporate securities 989,245 49,050 2,648 1,035,647
Mortgage-backed securities 464,286 11,203 349 475,140
Other fixed maturities 38,251 1,640 -- 39,891
-------- ------ ----- --------
$1,570,735 $64,579 $3,035 $1,632,279
======== ====== ===== ========
</TABLE>
A provision of $408,937and $361,018 at December 31, 1998 and 1997,
respectively, has been provided for fixed maturities that have been
determined by the NAIC to have an impairment in value. In addition to the
asset valuation reserve provision, a loss contingency reserve of $1,700,000
has been established at December 31, 1998 and 1997, for projected fixed
maturity losses.
The carrying value and estimated fair value of investments in fixed
maturities as of December 31, 1998 are shown below by contractual maturity
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Carrying Estimated
value fair value
Due in 1 year or less $ 307,807 $ 326,471
Due after 1 year through 5 years 392,658 417,246
Due after 5 years through 10 years 270,020 282,911
Due after 10 years 21,841 23,045
-------- --------
992,326 1,049,673
Mortgage-backed securities 524,821 530,913
-------- --------
$1,517,147 $1,580,586
======== ========
The average duration until maturity for the above fixed maturities,
excluding mortgage-backed securities, is 3.51 years.
Proceeds from sales of fixed maturities were $66,334,584, $43,061,083 and
$86,235,854 during 1998, 1997 and 1996, respectively. Gross gains of
$1,734,636, $589,958 and $807,839 and gross losses of $1,885,632, $137,218
and $3,080,341 were realized on those sales in 1998, 1997 and 1996,
respectively. Net realized capital gains (losses), less applicable income
taxes of $3,207,823, $1,852,451 and $974,141 were transferred to the IMR in
1998, 1997 and 1996, respectively.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(2) Investments, continued
Equity Securities
The cost, gross unrealized gains and losses, and estimated fair value on
unaffiliated equity securities are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
unrealized unrealized fair
Cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1998
Common stock $55,551 20,297 (2,090) 73,758
Preferred stock 71 -- (4) 67
December 31, 1997
Common stock $44,298 14,010 (2,323) 55,985
Preferred stock 102 4 -- 106
</TABLE>
Mortgage Loans on Real Estate
The Company's mortgage portfolio consists mainly of commercial mortgage
loans. The Company limits its concentrations of credit risk by diversifying
its mortgage loan portfolio so that loans made in any one state are not
greater than 20 percent (14 percent in Illinois) of the aggregate mortgage
loan portfolio balance and loans of no more than 2 percent of the aggregate
mortgage loan portfolio balance are made to any one borrower. In addition to
the asset valuation reserve provision, a loss contingency reserve of
$2,000,000 has been provided for mortgage loans on real estate as of
December 31, 1998 and 1997.
The carrying value and estimated fair value of mortgage loans as of December
31, 1998 and 1997 are as follows (in thousands):
Carrying Estimated
value fair value
1998 $306,037 $328,591
1997 362,958 385,689
Assets Designated
The carrying values of assets designated for regulatory authorities as of
December 31 are as follows (in thousands):
1998 1997
---- ----
Fixed maturities and
short-term investments $1,527,512 $1,565,951
Mortgage loans on real estate 306,037 362,958
Policy loans 101,569 101,061
-------- --------
$1,935,118 $2,029,970
======== ========
Net Investment Income
Components of net investment income as of December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $114,421 $123,395 $124,778
Equity securities 1,198 458 1,744
Mortgage loans on real estate 29,057 34,372 37,968
Investment real estate 9,244 10,158 11,456
Policy loans 6,664 6,571 6,513
Other invested assets (2,244) 4,711 4,390
Short-term investments 2,175 2,689 2,222
Derivative financial instruments (1,835) (1,445) (360)
Other 2,911 11 79
------- ------- -------
Gross investment income 161,591 180,920 188,790
Less investment expenses 12,593 12,728 14,217
------- ------- -------
Net investment income $148,998 $168,192 $174,573
======= ======= =======
</TABLE>
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(2) Investments, continued
Realized Gains and Losses
Net realized investment gains and losses as of December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $(1,645) $1,843 $(3,194)
Equity securities 3,832 2,853 6,466
Mortgage loans on real estate 2,965 1,030 (433)
Investment real estate 413 3,056 428
Derivative financial instruments (108) -- (3,068)
Short-term investments and other
invested assets -- 12 --
---- ---- ----
5,457 8,794 199
Less:
Capital gains tax 2,566 3,057 (946)
Transfer to interest maintenance reserve 3,208 1,852 974
---- ---- ----
Net realized investment gains $ (317) $3,885 $ 171
==== ==== ====
</TABLE>
Investment Expenses
The Company incurs expense in managing its investment portfolio and
producing investment income. These expenses, which include salaries,
brokerage fees, securities custodial fees, real estate expenses and the
like, are deducted from investment income to determine the net investment
income reported in the financial statements.
Derivative Financial Instruments
As of December 31, 1998, the Company had an interest rate swap
agreement with a major financial institution, having a notional amount of
$100 million. Under the agreement, the Company receives interest payments at
a floating rate based on an interest rate index, which was 4.22 percent as
of December 31, 1998, and pays interest on the same notional amount at a
fixed rate, which was 6.96 percent. Amounts exchanged as a part of the
interest rate differential are accounted for as adjustments to investment
income. This interest rate swap agreement is scheduled to terminate in the
year 2000. As of December 31, 1998, the fair value of the interest swap
agreement was ($3,420,000). This negative fair value represents the
estimated amount the Company would have to pay at December 31, 1998, to
cancel the contract or transfer it to another party.
As of December 31, 1998, the Company had three interest rate cap agreements
with two major financial institutions, having a total notional amount of
$500 million. The Company paid $2,280,000 for these agreements which
terminate in 1999. The agreements entitle the Company to receive from the
counter-parties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in the agreements. The amount paid to
purchase the interest rate caps is included in other invested assets and
amortized over the term of the agreements. The fair value, which was -0- as
of December 31, 1998, represents the estimated amount the Company would
receive if it transferred the agreements to another party. As of December
31, 1998, the carrying value of the caps was $514,860.
In October 1998, the Company entered into a one-year total return swap
agreement. The purpose is to increase exposure to the high yield bond
market, consistent with the Company's strategic asset allocation. The
Company pays interest on a notional amount of $25 million based on the
one-month LIBOR interest rate and receives the total return of a high yield
bond index on the same notional amount. Net settlements are made quarterly.
The position is further hedged by ownership of a $25 million one-year bond
that pays a floating rate that is also based upon LIBOR. The net effect is
the equivalent of a $25 million investment in high yield fixed maturities
without incurring the specific credit risks and transaction costs of
purchasing individual securities. As of December 31, 1998, the Company has
recognized $510,808 of income relating to this derivative investment and its
fair value was $575,000.
During 1998, the Company sold S&P Stock Index futures with a face amount of
approximately $3.9 million. The purpose of the sales was to reduce exposure
to the domestic equity market, consistent with the Company's strategic asset
allocation. The futures positions were closed out prior to the end of the
year with a loss of $108,448 after certain equity investments were sold and
the futures were no longer necessary.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(2) Investments, continued
Derivative Financial Instruments, continued
The Company is exposed to credit losses in the event of nonperformance by
the counter-parties to its swap and cap agreements. The Company anticipates,
however, that the counter-parties will be able to fully satisfy their
obligations under the contracts. The Company monitors the credit standing of
the counter-parties. The futures contracts are traded in an exchange and
have no counter-party risk.
(3) Investment Real Estate
A summary of investment real estate held as of December 31 is as follows (in
thousands):
1998 1997
Cost:
Investment real estate $83,537 $84,297
Home office 16,064 15,615
------ ------
99,601 99,912
Less accumulated depreciation 37,256 35,141
------ ------
$62,345 $64,771
====== ======
Investment real estate and the home office buildings are being depreciated
using the straight-line basis over the useful lives of these assets. In
addition to the asset valuation reserve provision, a loss contingency
reserve of $2,100,000 and $2,350,000 at December 31, 1998 and 1997,
respectively, has been provided for investment real estate.
(4) Note Payable
As of December 31, 1998, the Company has an outstanding liability for
borrowed money in the original amount of $1,300,000 as a result of a
non-recourse interest-free loan and grant made by the Community
Redevelopment Agency of the City of Los Angeles, California. The loan is
secured by real estate property with an appraisal value that exceeds the
loan principal balance. The loan will be amortized on a straight-line basis
over 240 months beginning in September, 2001. The loan agreement includes a
grant provision forgiving 15 percent of the original balance in September,
2001 upon the fulfillment of conditions specified in the loan agreement. It
is the Company's opinion that these conditions have been fully satisfied.
(5) Affiliation and Transactions with Affiliates and Related Parties
The Company has entered into an agreement of permanent affiliation with CUNA
Mutual Insurance Society (CMIS), a mutual multi-line insurer domiciled in
Wisconsin. The agreement is not a merger or consolidation, in that both
companies remain separate corporate entities, and both continue to be
separately owned and ultimately controlled by their respective policyholder
groups, who retain their voting rights without change. The agreement terms
include a provision for reinsurance of each company's individual life and
health business, joint development of business plans and distribution
systems for the sale of individual insurance and financial service products
within the credit union market, and a provision for the sharing of certain
resources and facilities. Expenses relating to shared resources and
facilities are allocated between the companies and their subsidiaries under
a jointly developed cost-sharing agreement. Expenses are allocated based on
specific identification or, if indeterminable, generally on the basis of
usage or benefit derived. These transactions give rise to intercompany
account balances, which are settled at least annually. Subsequent to each
year-end, the expense allocation process is subject to review by each
company. Based on these reviews, allocated expenses to each company may be
adjusted, if determined necessary. The Company's allocated expenses were
increased by $154,672, $975,672 and $736,162, during 1998, 1997 and 1996,
respectively.
On July 1, 1998, the Company formed a non-insurance subsidiary, CMIA
Wisconsin, Inc.. This subsidiary employs representatives who sell property
and casualty insurance coverage on behalf of the CUNA Mutual Group. CMIA
Wisconsin, Inc., is reimbursed for the costs associated with providing these
employment services by CUNA Mutual Insurance Agency, Inc., a non-insurance
affiliate, under terms of a service agreement between the two entities.
Equity security investments on December 31, 1998, include the Company's
wholly owned subsidiaries, Red Fox Motor Hotel Corporation and CMIA
Wisconsin, Inc. and the 50 percent ownership of CIMCO Inc. (CIMCO), a
non-insurance affiliate. The carrying value of the subsidiary investments on
the Company's books amounted to $3,278,009 and $1,306,903 at December 31,
1998 and 1997, respectively. Included in net investment income for 1996 was
dividend income of $1,328,364 from Century Life Insurance Company (a former
wholly owned subsidiary).
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(5) Affiliation and Transactions with Affiliates and Related Parties, continued
The Company allocates expenses to its subsidiaries. These expenses, such as
salaries, rents, depreciation, and other operating expenses, represent the
subsidiaries' share of expenses and are allocated based on specific
identification or, if indeterminable, generally on the basis of usage or
benefit derived. These transactions give rise to intercompany account
balances, which are settled monthly.
The Company has a note receivable from CUNA Mutual Investment Corporation
(CMIC) with a stated maturity date of January 15, 2011. The effective yield
on the date of the agreement was 10.62 percent. The yield varies over the
life of the note, as both the yield and the payment stream are determined
based on the pay-down activity of an underlying notional pool of Federal
National Mortgage Association mortgages. The structure of this arrangement
provides a hedge against the Company's fixed maturity holdings, as the
return varies inversely with the return on the fixed maturity portfolio. The
carrying value of the note was $5.1 million and $7.2 million at 1998 and
1997, respectively, and is included in other invested assets.
The Company is party to an agreement with CIMCO for investment advisory
services. CIMCO, 50 percent of which is owned by the Company and 50 percent
owned by CMIC, provides an investment program, which complies with policies,
directives and guidelines established by the Company. For these services,
the Company paid fees to CIMCO totaling $2,172,000, $2,115,000 and
$2,581,800, for 1998, 1997 and 1996, respectively.
CUNA Mutual created its own proprietary mutual funds entitled MEMBERS Mutual
Funds, which became available to the public in 1998. The carrying value of
the Company's investments in the funds was $20,332,202 and $11,000,078 at
1998 and 1997, respectively.
(6) Separate Accounts
The Company has three separate account components. The first component is
used for the investment of premiums on flexible premium variable universal
life insurance policies and has nine subaccounts, which invest exclusively
in shares of a single corresponding fund. The funds consist of the
following: Capital Appreciation Stock, Growth and Income Stock, Balanced
(combination of common stock and bond), Bond, Money Market, Treasury 2000,
International Stock, World Governments, and Emerging Growth. The second
component is used for the investment of group annuity premium deposits and
has 10 subaccounts, which invest in all but the Treasury 2000 fund, plus
High Income and Developing Markets subaccounts. The third component is used
for the investment of premiums received on variable annuity contracts and
has 10 subaccounts, which invest in all but the Treasury 2000 fund, plus
High Income and Developing Markets subaccounts.
(7) Annuity Reserves and Deposit Liabilities
The withdrawal characteristics of the Company's annuity contracts and
deposit funds as of December 31 are as follows (in thousands):
1998 1997
---- ----
Subject to discretionary withdrawal:
With market value adjustments $ 724,535 $ 581,114
At book value, less surrender charge 298,044 431,984
At market value 1,181,132 749,944
At book value, no charge or adjustment 714,170 710,936
-------- --------
2,917,881 2,473,978
Not subject to discretionary withdrawal 41,091 39,800
-------- --------
2,958,972 2,513,778
Reinsurance ceded 395,706 437,765
-------- --------
$2,563,266 $2,076,013
======== ========
(8) Reinsurance
In the ordinary course of doing business, the Company enters into
reinsurance agreements for the purpose of limiting its exposure to loss on
any one single insured or to diversify its risk and limit its overall
financial exposure. The Company would be liable in the event that a
reinsurer is unable to meet the obligations assumed under the reinsurance
agreements.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(8) Reinsurance, continued
The effects of reinsurance on premium income and on benefit expenses
incurred are as follows (in thousands):
1998 1997 1996
---- ---- ----
Premium income:
Direct $458,408 $423,146 $371,031
Assumed 48,355 39,644 30,942
Ceded 22,268 33,180 43,382
------- ------- ------
Premium income, net of reinsurance $484,495 $429,610 $358,591
======= ======= ======
Benefit expenses:
Direct $136,727 $100,413 $84,171
Assumed 13,875 11,266 8,421
Ceded 13,667 12,501 11,328
------- ------ -----
Benefit expenses, net of reinsurance $136,935 $ 99,178 $81,264
======= ====== =====
All assumed business in the above table is assumed from affiliates and the
amounts ceded includes $18,369,127, $30,117,985 and $40,853,178 premiums as
of December 31, 1998, 1997 and 1996, respectively, and $12,278,628,
$11,140,828 and $10,214,240 benefits ceded as of December 31, 1998, 1997 and
1996, respectively, to affiliated companies. Policy reserves and claim
liabilities are net of reinsurance balances of $464,939,512, $501,275,170
and $534,173,135 at December 31, 1998, 1997 and 1996, respectively.
(9) Federal Income Taxes
The Company files a consolidated life/nonlife federal income tax return with
its subsidiaries, Red Fox Motor Hotel Corporation, PLAN AMERICA Program,
Inc., and CMIA of Wisconsin, Inc. The Company's policy is to collect from or
refund to its subsidiaries the amount of taxes applicable to its operations
had it filed a separate return. Net federal income taxes payable or
recoverable reflect balances payable to or due from subsidiaries and the
Internal Revenue Service (IRS) as follows (in thousands):
1998 1997
---- ----
Due from subsidiaries $ -- $ --
Due (to)/from IRS (5,025) 2,158
------ ------
$ (5,025) $ 2,158
------ -----
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(9) Federal Income Taxes, continued
The actual federal income tax expense differs from "expected" tax expense
computed by applying the statutory federal income tax rate of 35 percent to
the earnings before federal income taxes and net realized capital gains
(losses) for the following reasons (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $5,460 35.0% $ 9,164 35.0% $8,396 35.0%
Nontaxable investment income (2,587) (16.58) (1,419) (5.4) (4,159) (17.3)
Mutual life insurance company
differential earnings tax 3,450 22.12 4,200 16.0 2,599 10.8
Deferred acquisition costs 681 4.37 1,465 5.6 614 2.6
Book and tax reserve change (1,569) (10.06) (670) (2.6) 1,400 5.8
Prior year over/under accrual (72) (0.46) (200) (.8) (1,500) (6.3)
General & administrative expenses (543) (3.48)
Other, net (619) (3.97) 857 3.3 363 1.6
Accrued policyholder dividends 235 1.51 (1,189) (4.5) -- --
----- ---- ------ ---- ----- ----
Total federal income tax expense $4,436 28.45% $12,208 46.6% $7,713 32.2%
===== ==== ====== ==== ===== ====
</TABLE>
The Company's consolidated federal income tax return has been examined by
the IRS through the year ending December 31, 1994. The Company is currently
under examination for the years ending December 31, 1995 and December 31,
1996. The Company does not expect the examination to result in a material
adjustment.
Income tax expense (benefit) on net realized capital gains (losses) amounted
to $2,565,792, $3,056,961, and ($946,308) for 1998, 1997, and 1996,
respectively. Of these amounts $1,727,293, $997,476, and $524,540, were
transferred to the IMR in 1998, 1997, and 1996, respectively. Net income
taxes paid were $11,000,000, $12,500,000, and $16,000,000 in 1998, 1997, and
1996, respectively.
(10) Benefit Plans
Defined Benefit Pension Plans
The Company has two noncontributory defined benefit pension plans that cover
substantially all employees and agents who meet eligibility requirements.
Until December 12, 1997, the pension plans were funded through a Deposit
Administration contract issued by the Company. On December 12, 1997, the
Company transferred the plan assets from the Deposit Administration contract
to State Street Bank and Trust Company as trustee. The amount transferred
was $43,871,243 for the defined benefit pension plans. Plan assets are now
invested primarily in the Ultra Series Funds, a family of mutual funds,
which serves as the investment vehicle for the Company's variable insurance,
annuity and pension products. The total pension expense for 1998, 1997 and
1996 was $2,614,251, $2,673,924 and $673,542, respectively.
The actuarial present value of accumulated plan benefits and plan net assets
available for benefits for the Company's pension plans as of January 1, 1998
and 1997 are as follows (in thousands):
1998 1997
---- ----
Actuarial present value of accumulated plan benefits
Vested $35,556 $ 32,101
Nonvested 741 1,008
------ ------
$36,297 $ 33,109
====== ======
Net assets available for benefits $54,074 $ 46,944
====== ======
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(10) Defined Benefit Pension Plans, continued
The discount rate used in determining the actuarial present value of
accumulated plan benefits on the two plans was 7 percent for 1998 and 1997.
Defined Contribution Pension Plans
The Company has two defined contribution plans (401[k] and thrift) which
cover all regular full-time employees and agents who meet certain
eligibility requirements. Under the plans, the Company contributes an amount
equal to 50 percent of the employees' contributions, up to a maximum of 3
percent of the employees' salaries. The Company contributions were
approximately $1,212,000, $997,500 and $1,141,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Nonqualified Pension Plans
In addition to the defined benefit pension plans mentioned above, the
Company has also established three deferred compensation plans and two
supplemental benefit plans. The deferred compensation plans are the CUNA
Mutual Life Insurance Company Deferred Compensation Plan for Agents and
Managers, which had a liability of $759,110 and $651,858 as of December 31,
1998 and 1997, respectively; the CUNA Mutual Life Insurance Company Deferred
Compensation Plan for Home Office Employees, which had a liability of
$328,758 and $347,617 as of December 31, 1998 and 1997, respectively; and
the CUNA Mutual Life Insurance Company Special Deferred Compensation Plan
for Managers, which had a liability of $510,264 and $449,457 as of December
31, 1998 and 1997, respectively.
The supplemental retirement plans include the CUNA Mutual Life Insurance
Company Supplemental Retirement Plan for Agents and Managers, which replaces
the loss of benefits under the regular pension plan which occurs when
deferred compensation is removed from an agent's or manager's earnings base
in order to calculate pension benefits. The balance of the liability for
this plan is $309,590 and $367,199 as of December 31, 1998 and 1997,
respectively. The other plan is the CUNA Mutual Life Insurance Company
Supplemental Retirement Plan for Home Office Employees, which replaces the
loss of benefits under the regular pension plan which occurs when deferred
compensation is removed from a home office employee's earnings base in order
to calculate pension benefits. The balance of the liability for this plan is
$21,662 and $45,052 as of December 31, 1998 and 1997, respectively.
Post-retirement Benefit Plans
The Company provides certain medical and life insurance benefits for
retirees and their beneficiaries and covered dependents. The Company's
medical benefit plan provides subsidized coverage after retirement for
eligible full-time employees and agents, their spouses, and dependents, up
to age 65. Starting at age 65, retirees pay the full cost of their coverage.
Additionally, the Company provides group term life insurance for its
retirees, the face amount of which is based on the individual's salary at
retirement. The cost of post-retirement benefits other than pensions is
recognized by the Company during the employee's active working careers. The
Company adopted this accounting policy as of January 1, 1992, and is
amortizing the related initial impact over twenty years.
The following information is presented on a combined plan basis and sets
forth the accumulated post-retirement benefit obligation, the liability for
such obligations included in the accompanying Company financial statements,
and the post-retirement benefit expense at December 31, 1998 and 1997 (in
thousands):
1998 1997
---- ----
Accumulated post-retirement benefit obligation:
Active plan participants $ 2,746 $ 2,716
Inactive plan participants 5,870 5,224
----- -----
8,616 7,940
Transition obligation (1,599) (1,731)
Unrecognized loss (1,704) (2,061)
Unrecognized prior service cost (32) (44)
----- -----
Accrued post-retirement benefit cost $ 5,281 $ 4,104
===== =====
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Notes to Statutory Financial Statements
(9) Benefit Plans, continued
Post-retirement Benefit Plans, continued
Net periodic post-retirement benefit expense for 1998 and 1997, including
the following components (in thousands):
1998 1997
---- ----
Service cost $ 563 $ 889
Interest cost on projected benefit obligation 617 489
Amortization
Prior service cost 12 12
Transition obligation 133 133
Unrecognized loss 252 553
----- -----
Net periodic post-retirement benefit expense $ 1,577 $ 2,076
===== =====
The weighted average discount rate used in determining the post-retirement
benefit obligation at December 31, 1998 and 1997, was 7.5 percent; the
initial health care cost trend rate was 9.0 percent, trending down to an
ultimate rate of 5.0 percent; and the weighted average rate of compensation
increase was 5.0 percent. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the post-retirement benefit obligation as of December 31,
1998, by $2,322,112 and the estimated eligibility cost and interest cost
components of net periodic post-retirement benefit cost for 1998 by
$373,296.
(11) Commitments and Contingencies
The Company participates in a securities lending program. All securities
loaned are fully collateralized with cash, U.S. government securities, or
irrevocable bank letters of credit. At December 31, 1998, the par value of
securities loaned by the Company totaled $9,935,000.
The Company had no outstanding loan commitments at December 31, 1998.
The Company is a defendant in various legal actions arising out of the
conduct of its business. In the opinion of management and in-house legal
counsel, the ultimate liability, if any, resulting from all such pending
actions will not materially affect the financial position or results of
operations of the Company.
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Schedule I - Summary of Investments -
Other than Investments in Related Parties
December 31, 1998
<TABLE>
<CAPTION>
Amount at which
shown in the
Statutory Statement
of Admitted Assets,
Cost Value Liabilities and Surplus
Fixed maturities:
Bonds:
<S> <C> <C> <C>
United States government and government
agencies and authorities $ 53,036,590 58,575,230 56,036,590
States, municipalities and political subdivisions 38,258 38,000 38,258
Foreign governments 16,432,837 17,920,005 16,432,837
Corporate securities 886,239,900 937,190,444 885,830,963
Foreign corporate securities 33,986,628 35,949,852 33,986,628
Mortgage-backed securities 524,821,267 230,912,759 524,821,267
------------ ------------ ------------
Total fixed maturities 1,517,555,480 1,580,586,290 1,517,146,543
============ ============ ============
Equity securities:
Common stocks:
Public utilities 2,066,808 2,001,150 2,001,150
Banks, trust and insurance companies 3,792,264 5,762,058 5,762,055
Industrial, miscellaneous and all other 49,691,636 65,995,304 65,995,304
Non-redeemable preferred stocks 71,222 71,222 71,222
------------ ------------ ------------
Total equity securities 55,621,930 73,829,734 73,829,731
------------ ============ ------------
Mortgage loans on real estate 306,036,561 306,036,561
Investment real estate 14,195,998 14,195,998
Real estate acquired in satisfaction of debt 48,149,533 48,149,533
Policy loans 101,568,838 101,568,838
Other long-term investments 16,799,356 16,799,356
Investment receivable 19,886,019 19,886,019
Short-term investments 74,481,372 74,481,372
------------ ------------
Total investments $2,154,295,087 2,172,093,951
============ ============
</TABLE>
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Schedule III - Supplementary Insurance Information
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Future
policy Other
benefits, policy
Deferred losses, claims
policy claims and
acquisition and loss Unearned benefits Premium
Segment costs expenses premiums payable revenue
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance $ -- 1,764,656,059 -- 9,850,063 687,827,795
========= ============ ======== ========= ===========
Year ended December 31, 1997:
Life insurance $ -- 1,838,556,204 -- 7,181,708 588,628,879
========= ============ ======== ========= ===========
Year ended December 31, 1996:
Life insurance $ -- 1,911,927,116 -- 5,816,767 456,216,468
========= ============ ======== ========= ===========
Benefits Amortization
claims of deferred
Net losses and policy Other
investment settlement acquisition operating Premium
income expenses costs expenses written
Year ended December 31, 1998:
Life insurance $148,998,386 307,608,912 -- 110,315,105 --
=========== =========== ======== ========== ========
Year ended December 31, 1997:
Life insurance $168,191,667 253,871,140 -- 108,657,518 --
=========== =========== ======== ========== ========
Year ended December 31, 1996:
Life insurance $174,573,265 268,333,774 -- 61,758,217 --
=========== =========== ======== ========== ========
</TABLE>
<PAGE>
CUNA MUTUAL LIFE INSURANCE COMPANY
Schedule IV - Reinsurance
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to other from other of amount
Gross amount companies companies Net amount assumed to net
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance in force $ 11,220,070,381 2,032,638,000 2,805,647,619 11,993,080,000 23.4%
============== ============ ============ ============= ======
Premiums
Life insurance $ 456,220,390 21,482,248 31,465,273 466,203,415
Accident and health insurance 2,187,481 785,275 16,889,420 18,291,626
-------------- ------------ ------------ -------------
Total premiums $ 458,407,871 22,267,523 48,354,693 484,495,041 10.0%
============== ============ ============ ============= ======
Year ended December 31, 1997:
Life insurance in force $ 11,011,821,402 1,730,140,000 2,358,526,598 11,640,208,000 20.3%
============== ============ ============ ============= ======
Premiums
Life insurance $ 421,255,332 32,540,795 26,009,624 414,724,161
Accident and health insurance 1,891,033 639,302 13,633,904 14,885,635
-------------- ------------ ------------ -------------
Total premiums $ 423,146,365 33,180,097 39,643,528 429,609,796 9.2%
============== ============ ============ ============= ======
Year ended December 31, 1996:
Life insurance in force $ 11,034,287,601 1,593,020,119 1,950,126,518 11,391,394,000 17.1%
============== ============ ============ ============= ======
Premiums
Life insurance $ 369,320,913 42,927,795 20,190,933 346,584,051
Accident and health insurance 1,709,891 454,396 10,751,785 12,007,280
-------------- ------------ ------------ -------------
Total premiums $ 371,030,804 43,382,191 30,942,718 358,591,331 8.6%
============== ============ ============ ============= ======
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CUNA Mutual Life Insurance Company:
We have audited the accompanying statutory statements of admitted assets,
liabilities, and surplus of CUNA Mutual Life Insurance Company as of December
31, 1998 and 1997, and the related statutory statements of operations, changes
in unassigned surplus, and cash flows for each of the years in the three-year
period ended December 31, 1998. In connection with our audits of the financial
statements, we also have audited the financial statement schedules I, III, and
IV. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Iowa Department of Commerce, Insurance Division, which
practices differ from generally accepted accounting principles. The effects of
the variances between the statutory basis of accounting and generally accepted
accounting principles on the 1997 and 1996 financial statements are also
described in note 1. The effects of such variances on the 1998 financial
statements, although not reasonably determinable as of this date, are presumed
to be material.
In our opinion, because of the effects of the matters discussed in the third
paragraph of this report, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles, the
financial position of CUNA Mutual Life Insurance Company as of December 31, 1998
and 1997, or the results of its operations or its cash flows for each of the
years in the three-year period ended December 31, 1998.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and surplus of CUNA
Mutual Life Insurance Company as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1998, on the basis of accounting described in note 1.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements, taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Des Moines, Iowa
March 19, 1999
<PAGE>
Appendix A - Illustrations of Policy Values and Death Benefits
The following tables have been prepared to help show how values under the Policy
can change with investment performance. At your request, we will provide an
illustration based upon your Age, planned premium payments and other factors.
The illustrations are based on the following five factors. (The upper right hand
corner of each illustration identifies those factors.)
1. Age at issue - Some show Age 35. Others show Age 50.
2. Planned annual premium - The premium illustrated is $1,200 or
$2,500.
3. Cost of Insurance - Some show the mortality rates currently being
charged. Others show the guaranteed rate (the maximum rate the
Policy allows us to charge).
4. Projected Dividends - Illustrations based on current mortality
rates include projected dividends. Illustrations based on
guaranteed mortality rates do not.
5. Choice of death benefit option - Some show option 1 and others
show option 2.
Factors That Do Not Vary
All the illustrations make the following assumptions:
o The Insured is a Standard Non Tobacco User.
o The Specified Amount of coverage is $100,000.
o Planned premiums are paid on the first day of the Policy year for 30 years.
o No loans are taken.
o No Partial Withdrawals are made.
o All Net Premium is allocated to the Separate Account and invested
equally in each Fund. o No changes are made to the Specified Amount.
o No transfer fees are incurred.
o The Policy has no riders.
o The charge for state Premium Expense Charge is 2%.
o No federal income tax is paid.
Effect of Hypothetical Investment Returns
To show how investment return affects Policy values, the tables illustrate three
different hypothetical rates of return. The tables show gross annual rates of
return of 0%, 6% and 12%, which produce approximate net annual rates of return
of -1.79%, 4.21% and 10.21%, respectively. Net returns are lower than gross
returns due to charges made by the Separate Account and by the underlying funds.
Charges are expressed as a percentage of average daily net assets.
The table below shows for each Subaccount the total of the mortality and expense
fee and the underlying series level fees.
Mortality & Expense Fund Fees* Total
Money Market 0.90 0.46 1.36
Bond 0.90 0.56 1.46
Balanced 0.90 0.71 1.61
Growth and Income Stock 0.90 0.61 1.51
Capital Appreciation Stock 0.90 0.81 1.71
Mid-Cap Stock 0.90 1.01 1.91
T. Rowe Price International Stock 0.90 1.05 1.95
MFS Global Governments 0.90 1.01 1.91
MFS Emerging Growth 0.90 0.85 1.75
Oppenheimer High Income/VA 0.90 0.81 1.71
Templeton Developing Markets Fund - Class 2 0.90 1.91 2.81
Average 0.90 0.89 1.79
* The illustrations on the following pages are computed using the average
1.79 total expense across the Subaccounts for last year. The Fund Fees are
the expenses incurred by each Fund during the most recent fiscal year. The
prospectus and statement of additional information for each Fund more fully
discusses its expenses. Certain expenses of the MFS Global Governments Fund
were reimbursed by the Fund's investment adviser during 1998. Pursuant to
an agreement between the Fund and its investment adviser, the reimbursement
will continue past the current fiscal year. Absent the expense
reimbursement, the MFS Global Governments Fund expenses (Fund Fees) would
have been 1.15%.
How Varying a Factor Affects Hypothetical Investment Returns
Changing any factor in the illustrations would change many numbers throughout
the table. For example, illustrated values would be different if the Insured
were a different Age, or a different risk classification. Policy values would
change if premiums were paid at different times or in different amounts or if
investment rates of return fluctuated up and down. Policy values based on
current mortality charges would be lower if we did not pay the dividends it has
projected but not guaranteed. (Dividends are expected to be paid beginning in
policy year 11 and are projected at 0.70% of policy value during policy years
11-20 and 1.10% of policy value during policy years 21+.) Policy values would be
lower if more expenses were paid. Expenses vary by each underlying fund
portfolio and each has the right to change its charge in the future. The
illustrations do not show any charges for federal income taxes. If in the future
taxes were due, gross annual rates of return would have to exceed 0%, 6% and 12%
by an amount sufficient to cover the charge for taxes in order to produce the
Policy values shown.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 1
Male Standard Non Tobacco User Age at Issue: 35
Specified Mount: $100,000 Annual Premium: $1,200
Planned Premium Payable Annually for: 30 years Based on: Current Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 1*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 100,000 870 99 100,000 931 160 100,000 993 222
2 2,583 100,000 1,718 985 100,000 1,895 1,162 100,000 2,080 1,347
3 3,972 100,000 2,539 1,846 100,000 2,888 2,195 100,000 3,267 2,574
4 5,431 100,000 3,336 2,681 100,000 3,913 3,258 100,000 4,566 3,911
5 6,962 100,000 4,106 3,528 100,000 4,970 4,392 100,000 5,986 5,408
6 8,570 100,000 4,849 4,348 100,000 6,057 5,556 100,000 7,538 7,037
7 10,259 100,000 5,564 5,178 100,000 7,177 6,791 100,000 9,236 8,850
8 12,032 100,000 6,249 5,980 100,000 8,326 8,057 100,000 11,093 10,824
9 13,893 100,000 6,905 6,751 100,000 9,511 9,357 100,000 13,127 12,973
10 15,848 100,000 7,531 7,531 100,000 10,727 10,727 100,000 15,354 15,354
15 27,189 100,000 11,342 11,342 100,000 18,800 18,800 100,000 32,121 32,121
20 41,663 100,000 14,551 14,551 100,000 28,749 28,749 100,000 60,262 60,262
25 60,136 100,000 17,055 17,055 100,000 41,577 41,577 146,568 109,379 109,379
30 83,713 100,000 18,019 18,019 100,000 57,616 57,616 234,608 192,302 192,302
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 1 the death benefit is the greater of (1) the Specified Amount or
(2) the Policy Value on the date of death multiplied by the Death Benefit
Percentage Factor described in the section of the prospectus titled The Policy -
Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 2
Male Standard Non Tobacco User Age at Issue: 35
Specified Mount: $100,000 Annual Premium: $1,200
Planned Premium Payable Annually for: 30 years Based on: Guaranteed Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Not Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 1*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 100,000 870 99 100,000 931 160 100,000 993 222
2 2,583 100,000 1,718 985 100,000 1,895 1,162 100,000 2,080 1,347
3 3,972 100,000 2,539 1,846 100,000 2,888 2,195 100,000 3,267 2,574
4 5,431 100,000 3,336 2,681 100,000 3,913 3,258 100,000 4,566 3,911
5 6,962 100,000 4,106 3,528 100,000 4,970 4,392 100,000 5,986 5,408
6 8,570 100,000 4,849 4,348 100,000 6,057 5,556 100,000 7,538 7,037
7 10,259 100,000 5,564 5,178 100,000 7,177 6,791 100,000 9,236 8,850
8 12,032 100,000 6,249 5,980 100,000 8,326 8,057 100,000 11,093 10,824
9 13,893 100,000 6,905 6,751 100,000 9,511 9,357 100,000 13,127 12,973
10 15,848 100,000 7,531 7,531 100,000 10,727 10,727 100,000 15,354 15,354
15 27,189 100,000 10,360 10,360 100,000 17,543 17,543 100,000 30,457 30,457
20 41,663 100,000 12,081 12,081 100,000 25,161 25,161 100,000 54,725 54,725
25 60,136 100,000 12,087 12,087 100,000 33,323 33,323 126,407 94,334 94,334
30 83,713 100,000 9,309 9,309 100,000 41,641 41,641 192,288 157,613 157,613
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 1 the death benefit is the greater of (1) the Specified Amount or
(2) the Policy Value on the date of death multiplied by the Death Benefit
Percentage Factor described in the section of the prospectus titled The Policy -
Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 3
Male Standard Non Tobacco User Age at Issue: 35
Specified Mount: $100,000 Annual Premium: $1,200
Planned Premium Payable Annually for: 30 years Based on: Current Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 2*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 100,868 868 97 100,930 930 159 100,991 991 220
2 2,583 101,712 1,712 980 101,889 1,889 1,157 102,073 2,073 1,341
3 3,972 102,529 2,529 1,835 102,877 2,877 2,183 103,254 3,254 2,560
4 5,431 103,318 3,318 2,663 103,892 3,892 3,237 104,541 4,541 3,886
5 6,962 104,080 4,080 3,502 104,937 4,937 4,359 105,945 5,945 5,367
6 8,570 104,811 4,811 4,310 106,008 6,008 5,507 107,475 7,475 6,974
7 10,259 105,511 5,511 5,126 107,106 7,106 6,721 109,142 9,142 8,757
8 12,032 106,181 6,181 5,911 108,231 8,231 7,961 110,959 10,959 10,689
9 13,893 106,817 6,817 6,663 109,382 9,382 9,228 112,940 12,940 12,786
10 15,848 107,419 7,419 7,419 110,558 10,558 10,558 115,099 15,099 15,099
15 27,189 111,108 11,108 11,108 118,364 18,364 18,364 131,302 31,302 31,302
20 41,663 114,086 14,086 14,086 127,698 27,698 27,698 157,827 57,827 57,827
25 60,136 116,127 16,127 16,127 139,030 39,030 39,030 202,725 102,725 102,725
30 83,713 116,253 16,253 16,253 151,589 51,589 51,589 277,022 177,022 177,022
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 2 the death benefit is the greater of (1) the Specified Amount
plus the Policy Value on date of death, or (2) the Policy Value on the date of
death multiplied by the Death Benefit Percentage Factor described in the section
of the prospectus titled The Policy - Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 4
Male Standard Non Tobacco User Age at Issue: 35
Specified Mount: $100,000 Annual Premium: $1,200
Planned Premium Payable Annually for: 30 years Based on: Guaranteed Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Not Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 2*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,260 100,868 868 97 100,930 930 159 100,991 991 220
2 2,583 101,712 1,712 980 101,889 1,889 1,157 102,073 2,073 1,341
3 3,972 102,529 2,529 1,835 102,877 2,877 2,183 103,254 3,254 2,560
4 5,431 103,318 3,318 2,663 103,892 3,892 3,237 104,541 4,541 3,886
5 6,962 104,080 4,080 3,502 104,937 4,937 4,359 105,945 5,945 5,367
6 8,570 104,811 4,811 4,310 106,008 6,008 5,507 107,475 7,475 6,974
7 10,259 105,511 5,511 5,126 107,106 7,106 6,721 109,142 9,142 8,757
8 12,032 106,181 6,181 5,911 108,231 8,231 7,961 110,959 10,959 10,689
9 13,893 106,817 6,817 6,663 109,382 9,382 9,228 112,940 12,940 12,786
10 15,848 107,419 7,419 7,419 110,558 10,558 10,558 115,099 15,099 15,099
15 27,189 110,069 10,069 10,069 117,006 17,006 17,006 129,456 29,456 29,456
20 41,663 111,459 11,459 11,459 123,748 23,748 23,748 151,446 51,446 51,446
25 60,136 110,900 10,900 10,900 129,931 29,931 29,931 184,790 84,790 84,790
30 83,713 107,318 7,318 7,318 134,007 34,007 34,007 234,980 134,980 134,980
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 2 the death benefit is the greater of (1) the Specified Amount
plus the Policy Value on date of death, or (2) the Policy Value on the date of
death multiplied by the Death Benefit Percentage Factor described in the section
of the prospectus titled The Policy - Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 5
Male Standard Non Tobacco User Age at Issue: 50
Specified Mount: $100,000 Annual Premium: $2,500
Planned Premium Payable Annually for: 30 years Based on: Current Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 1*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 100,000 1,795 204 100,000 1,922 331 100,000 2,050 459
2 5,381 100,000 3,532 2,021 100,000 3,900 2,389 100,000 4,284 2,773
3 8,275 100,000 5,211 3,779 100,000 5,935 4,503 100,000 6,721 5,289
4 11,314 100,000 6,831 5,478 100,000 8,028 6,675 100,000 9,383 8,030
5 14,505 100,000 8,394 7,201 100,000 10,185 8,992 100,000 12,296 11,103
6 17,855 100,000 9,904 8,870 100,000 12,412 11,378 100,000 15,492 14,458
7 21,373 100,000 11,339 10,544 100,000 14,691 13,896 100,000 18,983 18,188
8 25,066 100,000 12,702 12,146 100,000 17,028 16,472 100,000 22,805 22,249
9 28,945 100,000 13,990 13,672 100,000 19,424 19,106 100,000 26,995 26,677
10 33,017 100,000 15,200 15,200 100,000 21,880 21,880 100,000 31,598 31,598
15 56,644 100,000 22,165 22,165 100,000 37,864 37,864 100,000 66,253 66,253
20 86,798 100,000 26,666 26,666 100,000 57,268 57,268 145,644 125,555 125,555
25 125,284 100,000 27,577 27,577 100,000 83,599 83,599 243,889 227,934 227,934
30 174,402 100,000 20,861 20,861 126,502 120,478 120,478 421,694 401,613 401,613
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 1 the death benefit is the greater of (1) the Specified Amount or
(2) the Policy Value on the date of death multiplied by the Death Benefit
Percentage Factor described in the section of the prospectus titled The Policy -
Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 6
Male Standard Non Tobacco User Age at Issue: 50
Specified Mount: $100,000 Annual Premium: $2,500
Planned Premium Payable Annually for: 30 years Based on: Guaranteed Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Not Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 1*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 100,000 1,795 204 100,000 1,922 331 100,000 2,050 459
2 5,381 100,000 3,521 2,010 100,000 3,889 2,378 100,000 4,273 2,762
3 8,275 100,000 5,177 3,745 100,000 5,899 4,467 100,000 6,684 5,252
4 11,314 100,000 6,756 5,403 100,000 7,949 6,596 100,000 9,299 7,946
5 14,505 100,000 8,254 7,061 100,000 10,035 8,842 100,000 12,135 10,942
6 17,855 100,000 9,669 8,635 100,000 12,157 11,123 100,000 15,216 14,182
7 21,373 100,000 10,995 10,200 100,000 14,312 13,517 100,000 18,566 17,771
8 25,066 100,000 12,233 11,677 100,000 16,503 15,947 100,000 22,218 21,662
9 28,945 100,000 13,378 13,060 100,000 18,728 18,410 100,000 26,207 25,889
10 33,017 100,000 14,420 14,420 100,000 20,981 20,981 100,000 30,568 30,568
15 56,644 100,000 17,985 17,985 100,000 32,796 32,796 100,000 60,112 60,112
20 86,798 100,000 17,141 17,141 100,000 44,819 44,819 127,607 110,006 110,006
25 125,284 100,000 8,355 8,355 100,000 56,683 56,683 203,956 190,613 190,613
30 174,402 ** ** ** 100,000 68,279 68,279 336,459 320,437 320,437
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 1 the death benefit is the greater of (1) the Specified Amount or
(2) the Policy Value on the date of death multiplied by the Death Benefit
Percentage Factor described in the section of the prospectus titled The Policy -
Death Benefit Proceeds.
** Policy terminated before year 30.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 7
Male Standard Non Tobacco User Age at Issue: 50
Specified Mount: $100,000 Annual Premium: $2,500
Planned Premium Payable Annually for: 30 years Based on: Current Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 2*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 101,784 1,784 193 101,911 1,911 320 102,038 2,038 447
2 5,381 103,500 3,500 1,989 103,865 3,865 2,354 104,245 4,245 2,734
3 8,275 105,147 5,147 3,715 105,861 5,861 4,429 106,637 6,637 5,205
4 11,314 106,722 6,722 5,370 107,898 7,898 6,546 109,228 9,228 7,876
5 14,505 108,229 8,229 7,036 109,979 9,979 8,786 112,041 12,041 10,848
6 17,855 109,668 9,668 8,634 112,106 12,106 11,072 115,098 15,098 14,064
7 21,373 111,017 11,017 10,222 114,256 14,256 13,461 118,398 18,398 17,603
8 25,066 112,276 12,276 11,719 116,428 16,428 15,871 121,965 21,965 21,408
9 28,945 113,437 13,437 13,119 118,615 18,615 18,297 125,817 25,817 25,499
10 33,017 114,501 14,501 14,501 120,813 20,813 20,813 129,980 29,980 29,980
15 56,644 120,547 20,547 20,547 134,829 34,829 34,829 160,540 60,540 60,540
20 86,798 123,065 23,065 23,065 148,972 48,972 48,972 207,638 107,638 107,638
25 125,284 120,098 20,098 20,098 161,487 61,487 61,487 282,357 182,357 182,357
30 174,402 107,445 7,445 7,445 166,473 66,473 66,473 397,266 297,266 297,266
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 2 the death benefit is the greater of (1) the Specified Amount
plus the Policy Value on date of death, or (2) the Policy Value on the date of
death multiplied by the Death Benefit Percentage Factor described in the section
of the prospectus titled The Policy - Death Benefit Proceeds.
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATION OF POLICY VALUES
MEMBERS(R) Variable Universal Life II
ISSUED BY CUNA MUTUAL LIFE INSURANCE COMPANY
NUMBER 8
Male Standard Non Tobacco User Age at Issue: 50
Specified Mount: $100,000 Annual Premium: $2,500
Planned Premium Payable Annually for: 30 years Based on: Guaranteed Mortality Charges
Policy Loans and Withdrawal: None Projected Dividends: Not Included
Hypothetical Gross Rates of Return: 0%, 6%, and 12% Death Benefit: Option 2*
Premiums
End of Accum at 0.00% GROSS 6.00% GROSS 12.00% GROSS
Year 5% Interest per (-1.79% NET) (4.21% NET) (10.21% NET)
year
Death Accum Surrender Death Accum Surrender Death Accum Surrender
Benefit Value Value Benefit Value Value Benefit Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,625 101,784 1,784 193 101,911 1,911 320 102,038 2,038 447
2 5,381 103,489 3,489 1,978 103,853 3,853 2,342 104,233 4,233 2,722
3 8,275 105,112 5,112 3,680 105,824 5,824 4,392 106,598 6,598 5,166
4 11,314 106,643 6,643 5,291 107,813 7,813 6,461 109,138 9,138 7,786
5 14,505 108,079 8,079 6,886 109,817 9,817 8,624 111,865 11,865 10,672
6 17,855 109,414 9,414 8,380 111,826 11,826 10,792 114,789 14,789 13,755
7 21,373 110,641 10,641 9,846 113,834 13,834 13,039 117,924 17,924 17,129
8 25,066 111,760 11,760 11,203 115,837 15,837 15,280 121,287 21,287 20,730
9 28,945 112,760 12,760 12,442 117,822 17,822 17,504 124,887 24,887 24,569
10 33,017 113,633 13,633 13,633 119,779 19,779 19,779 128,740 28,740 28,740
15 56,644 115,853 15,853 15,853 128,749 28,749 28,749 152,431 52,431 52,431
20 86,798 112,669 12,669 12,669 133,773 33,773 33,773 184,063 84,063 84,063
25 125,284 101,079 1,079 1,079 129,997 29,997 29,997 224,130 124,130 124,130
30 174,402 ** ** ** 108,952 8,952 8,952 270,489 170,489 170,489
</TABLE>
IMPORTANT NOTICE: The hypothetical investment rates of return shown are
illustrative only and should not be deemed a representation of past or future
investment rates of return. Actual rates of return may be more or less than
those shown and will depend on a number of factors, including your choice of
investment allocations and the investment results of each series of each
underlying fund. The death benefits and Policy values would be different from
those shown if the actual rates of return averaged 0%, 6%, and 12% over a period
of years but also fluctuated above or below those averages for individual Policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
*Under Option 2 the death benefit is the greater of (1) the Specified Amount
plus the Policy Value on date of death, or (2) the Policy Value on the date of
death multiplied by the Death Benefit Percentage Factor described in the section
of the prospectus titled The Policy - Death Benefit Proceeds.
** Policy terminated before year 30.
<PAGE>
Appendix B - First Year Surrender Charges per $1,000 of Specified Amount
-----------------------------------------------------------------------------
ISSUE AGE MALE COMPOSITE FEMALE COMPOSITE
0 0.95 0.87
1 1.07 0.99
2 1.19 1.11
3 1.30 1.22
4 1.42 1.34
5 1.54 1.46
6 1.70 1.59
7 1.88 1.72
8 2.06 1.85
9 2.24 1.98
10 2.39 2.11
11 2.51 2.23
12 2.62 2.35
13 2.71 2.46
14 2.80 2.57
15 2.88 2.67
ISSUE AGE MALE FEMALE
NON TOBACCO TOBACCO NON TOBACCO TOBACCO
16 2.94 2.94 2.74 2.74
17 2.99 2.99 2.80 2.80
18 3.03 3.03 2.85 2.85
19 3.10 3.10 2.92 2.92
20 3.21 3.24 3.03 3.05
21 3.37 3.49 3.18 3.28
22 3.56 3.74 3.37 3.51
23 3.78 4.00 3.57 3.75
24 4.03 4.25 3.79 3.98
25 4.29 4.50 4.02 4.21
26 4.57 4.79 4.26 4.51
27 4.88 5.11 4.51 4.85
28 5.21 5.45 4.77 5.22
29 5.55 5.82 5.05 5.59
30 5.89 6.18 5.33 5.95
31 6.23 6.54 5.63 6.31
32 6.59 6.91 5.93 6.68
33 6.95 7.30 6.25 7.04
34 7.32 7.70 6.57 7.42
35 7.71 8.13 6.90 7.79
Note: Preferred and Standard Policies use the same Surrender Charge.
<PAGE>
ISSUE AGE MALE FEMALE
NON TOBACCO TOBACCO NON TOBACCO TOBACCO
36 8.11 8.58 7.22 8.17
37 8.53 9.05 7.55 8.55
38 8.95 9.54 7.88 8.94
39 9.40 10.07 8.22 9.32
40 9.87 10.62 8.58 9.70
41 10.36 11.21 8.96 10.06
42 10.86 11.82 9.35 10.41
43 11.39 12.46 9.76 10.76
44 11.94 13.14 10.18 11.12
45 12.53 13.86 10.64 11.52
46 13.14 14.61 11.10 11.92
47 13.76 15.39 11.56 12.30
48 14.41 16.21 12.06 12.73
49 15.12 17.08 12.62 13.25
50 15.91 18.00 13.28 13.91
51 16.79 19.00 14.07 14.77
52 17.74 20.07 14.98 15.79
53 18.74 21.18 15.94 16.89
54 19.78 22.31 16.92 18.00
55 20.83 23.43 17.86 19.04
56 21.85 24.48 18.70 19.96
57 22.84 25.47 19.49 20.80
58 23.88 26.50 20.30 21.65
59 25.04 27.68 21.20 22.59
60 26.39 29.11 22.30 23.71
61 27.01 29.87 23.08 24.53
62 27.42 30.48 23.84 25.32
63 27.73 31.00 24.55 26.06
64 28.04 31.50 25.20 26.71
65 28.45 32.05 25.75 27.25
66 28.96 32.58 26.18 27.60
67 29.50 33.05 26.49 27.78
68 30.07 33.55 26.74 27.91
69 30.70 34.19 27.00 28.07
70 31.39 35.07 27.31 28.39
71 32.25 36.52 27.72 29.01
72 33.12 37.97 28.12 29.64
73 33.98 39.41 28.53 30.26
74 34.85 40.86 28.93 30.89
75 35.71 42.31 29.34 31.51
Note: Preferred and Standard Policies use the same Surrender Charge.
<PAGE>
Appendix C - Death Benefit Percentage Factor
The Death Benefit Percentage Factor required by the Internal Revenue Code for
treatment of the Policy as a life insurance Policy.
Attained Age | Death Benefit Percentage Factor
------------------------------------------------------------
0-40 | 2.50
41 | 2.43
42 | 2.36
43 | 2.29
44 | 2.22
45 | 2.15
------------------------------------------------------------
46 | 2.09
47 | 2.03
48 | 1.97
49 | 1.91
50 | 1.85
------------------------------------------------------------
51 | 1.78
52 | 1.71
53 | 1.64
54 | 1.57
55 | 1.50
------------------------------------------------------------
56 | 1.46
57 | 1.42
58 | 1.38
59 | 1.34
60 | 1.30
------------------------------------------------------------
61 | 1.28
62 | 1.26
63 | 1.24
64 | 1.22
65 | 1.20
------------------------------------------------------------
66 | 1.19
67 | 1.18
68 | 1.17
69 | 1.16
70 | 1.15
------------------------------------------------------------
71 | 1.13
72 | 1.11
73 | 1.09
74 | 1.07
75-90 | 1.05
------------------------------------------------------------
91 | 1.04
92 | 1.03
93 | 1.02
94 | 1.01
95 | 1.00
------------------------------------------------------------
PART II
UNDERTAKINGS
1. Section 11 of the Bylaws of CUNA Mutual Life Insurance Company provides
for indemnification of officers and directors of the Company against
claims and liabilities the officers or directors become subject to by
reason of having served as officer or director of the Company or any
subsidiary or affiliate company. Such indemnification covers liability
for all actions alleged to have been taken, omitted, or neglected by
such person in the line of duty as director or officer, except
liability arising out of the officers' or directors' willful
misconduct.
2. Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
CUNA Mutual Life Insurance Company represents that the fees and charges deducted
under the Policies, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by CUNA
Mutual Life Insurance Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 106 pages.
Undertakings.
Representation.
The signatures.
Written consent or opinion of the following persons:
KPMG Peat Marwick LLP
PricewaterhouseCoopers LLP
Sutherland, Asbill & Brennan LLP
Scott Allen - Associate Actuary
The following exhibits:
1. Exhibits required by paragraph A of instructions for Exhibits in Form N-8B-2:
1. Resolution to Authorize Registration of and Investment in
Separate Accounts. Incorporated herein by reference to Form S-6
initial registration statement (File No. 333-81499) filed with
the Commission on June 24, 1999.
2. Not Applicable
3. a. Distribution Agreement between CUNA Mutual Life Insurance
Company and CUNA Brokerage Services, Inc. effective January 1,
1996.
b. Servicing Agreement related to the Distribution Agreement
between CUNA Mutual Life Insurance Company and CUNA Brokerage
Services, Inc. effective January 1, 1996.
4. Not Applicable
5. a. Standard VUL Contract Incorporated herein by reference to Form
S-6 initial registration statement (File No. 333-81499) filed
with the Commission on June 24, 1999.
i. Accelerated Benefit Option Endorsement. Form 1668
Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with
the Commission on June 24, 1999.
ii. Accidental Death Benefit Rider. 99-ADB-RV1 Incorporated
herein by reference to Form S-6 initial registration
statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
iii. Children's Insurance Rider. 99-CIR-RV1 Incorporated
herein by reference to Form S-6 initial registration
statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
iv. Executive Benefit Plan Endorsement. 98-EBP Incorporated
herein by reference to Form S-6 initial registration
statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
v. Guaranteed Insurability Rider. 99-GIR-RV1 Incorporated
herein by reference to Form S-6 initial registration
statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
vi. Term Insurance Rider for Other Insureds. 99-OIR-RV1
Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with
the Commission on June 24, 1999.
vii. Waiver of Premium Disability Rider. 99-WVR-RV1
Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with
the Commission on June 24, 1999.
6. a. Articles of Incorporation of the Company. Incorporated herein
by reference to Form S-6 initial registration statement (File No.
333-81499) filed with the Commission on June 24, 1999.
b. Bylaws. Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
7. Not Applicable
8. Servicing Agreement Between CUNA Mutual Life Insurance Company
and CIMCO Inc. dated May 1, 1997.
9. a. Participation Agreement between T. Rowe Price International
Series, Inc. and the Company dated April 22, 1994. Amendment to
Participation Agreement dated November 1994.
b. Participation Agreement between MFS Variable Insurance Trust
and the Company dated April 29, 1994. Amendment to Participation
Agreement dated November 1994. Amendment to Participation
Agreement effective May 1, 1996.
c. Participation Agreement between Oppenheimer Variable Account
Funds and the Company dated February 20, 1997.
d. Participation Agreement between Templeton Variable Products
Series Fund and the Company dated March 31, 1997.
10. Application. Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with the
Commission on June 24, 1999.
2. Opinion of Counsel
3. Not applicable
4. Not applicable
5. Not applicable
6. Not applicable
7. Issuance, Transfer and Redemption Procedures.
Powers of Attorney. Incorporated herein by reference to Form S-6 initial
registration statement (File No. 333-81499) filed with the Commission on June
24, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, CUNA Mutual Life Variable Account, has duly
caused this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Madison, and State of Wisconsin,
on the 5th day of October, 1999.
CUNA Mutual Life Variable Account (Registrant)
By: CUNA Mutual Life Insurance Company
By: /s/ Michael B. Kitchen
Michael B. Kitchen
President
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the depositor, CUNA Mutual Life Insurance Company, has duly
caused this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Madison, and State of Wisconsin,
on the 5th day of October, 1999.
CUNA Mutual Life Insurance Company (Depositor)
By: /s/ Michael B. Kitchen
Michael B. Kitchen
President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES AND TITLE DATE SIGNATURES AND TITLE DATE
<S> <C> <C> <C>
James C. Barbre * Omer K. Reed *
James C. Barbre, Director Omer K. Reed, Director
Robert W. Bream * Richard C. Robertson *
Robert W. Bream, Director Richard C. Robertson, Director
Wilfred F. Broxterman * Rosemarie M. Shultz *
Wilfred F. Broxterman, Director Rosemarie M. Shultz, Director
James L. Bryan * Neil A. Springer *
James L. Bryan, Director Neil A. Springer, Director
Loretta M. Burd * Farouk D. G. Wang *
Loretta M. Burd, Director Farouk D. G. Wang, Director
Ralph B. Canterbury * Larry T. Wilson *
Ralph B. Canterbury, Director Larry T. Wilson, Director
Joseph N. Cugini * /s/ Kevin S. Thompson 10/05/99
Joseph N. Cugini, Director Kevin S. Thompson, Attorney-In-Fact
Rudolf J. Hanley *
Rudolf J. Hanley, Director
Jerald R. Hinrichs *
Jerald R. Hinrichs, Director
/s/ Michael B. Kitchen 10/05/99
Michael B. Kitchen, Director
Robert T. Lynch *
Robert T. Lynch, Director
Brian L. McDonnell *
Brian L. McDonnell, Director
C. Alan Peppers *
C. Alan Peppers, Director
<FN>
*Pursuant to Powers of Attorney filed herewith
</FN>
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following person in the capacity indicated on
the date indicated.
SIGNATURE AND TITLE DATE
/s/ Michael G. Joneson 10/05/99
Michael G. Joneson
Vice President - Accounting & Financial Systems
/s/ David G. Topp 10/05/99
David G. Topp
Assistant Vice President - Finance
/s/ Michael B. Kitchen 10/05/99
Michael B. Kitchen
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
KPMG Peat Marwick Consent
PricewaterhouseCoopers LLP Consent
Sutherland, Asbill & Brennan LLP Consent
Associate Actuary Opinion
3a. Distribution Agreement between CUNA Mutual Life Insurance Company and CUNA
Brokerage Services, Inc.
3b. Servicing Agreement between CUNA Mutual Life Insurance Company and CUNA
Brokerage Services, Inc.
8. Servicing Agreement between CUNA Mutual Life Insurance Company and CIMCO
Inc.
9a. Participation Agreement between T. Rowe Price International Series, Inc.
and the Company
9b. Participation Agreement between MFS Variable Insurance Trust and the
Company
9c. Participation Agreement between Oppenheimer Variable Account Funds and the
Company
9d. Participation Agreement between Templeton Variable Products Series Fund and
the Company
Opinion of Counsel
Issuance, Transfer and Redemption Procedures
<PAGE>
KPMG Peat Marwick LLP
2500 Ruan Center
P.O. Box 772
Des Moines, IA 50303
The Board of Directors of CUNA Mutual Life Insurance Company
And Contract Owners of CUNA Mutual Life Variable Account:
We consent to the use of our reports included herein and to the reference to our
Firm under the heading "Independent Auditors" in the Prospectus of the CUNA
Mutual Life Variable Account.
Our report dated March 19, 1999, contains an explanatory paragraph that states
that the Company prepared the financial statement using accounting practices
prescribed or permitted by the Iowa Department of Commerce, Insurance Division,
which practices differ from generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Des Moines, Iowa
October 4, 1999
<PAGE>
[PricewaterhouseCoopers letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Auditors" in the Prospectus constituting part of this Pre-Effective Amendment
No. 1 to the registration statement on Form S-6A for the Flexible Premium
Variable Life Insurance Policy issued by CUNA Mutual Life Insurance Company
through CUNA Mutual Life Variable Account.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
October 5, 1999
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
October 5, 1999
Board of Directors
CUNA Mutual Life Insurance Company
2000 Heritage Way
Waverly, Iowa 10677
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus for certain flexible premium variable life insurance
policies filed as part of pre-effective amendment number 1 to the registration
statement on Form S-6 for CUNA Mutual Life Variable Account (File No.
333-81499). In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
David S. Goldstein
<PAGE>
[CUNA MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
September 24, 1999
Board of Directors
CUNA Mutual Life Insurance Company
2000 Heritage Way
Waverly, IA 50677
RE: CUNA MUTUAL LIFE INSURANCE COMPANY
CUNA MUTUAL LIFE VARIABLE ACCOUNT
FILE NOS. 333-81499/811-03915
Ladies and Gentlemen:
In my capacity as Associate Actuary to CUNA Mutual Life Insurance
Company (the "Company"), I have provided actuarial advice concerning and
participated in the design of the variable life insurance policies (the
"Policies"). I have also provided actuarial advice concerning the preparation of
pre-effective amendment number one to the Form S-6 registration statement for
the Policies (File No. 333-81499) and CUNA Mutual Life Variable Account (the
"Account") in connection with the registration of securities in the form of such
Policies with the Securities and Exchange Commission under the Securities Act of
1933, as amended.
It is my professional opinion that the illustrations of policy values,
cash values, death benefits and accumulated premiums in Appendix A of the
prospectus included in the registration statement for the Policies, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the Policies. Further, the rate structure of the Policies has not been designed
so as to make the relationship between premiums and benefits, as shown on the
illustrations, appear correspondingly more favorable to prospective purchasers
of the Policies ages 35 and 50 in the underwriting classes illustrated than to
prospective purchasers of the Policies at other ages and underwriting classes.
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement and to the reference to my name in the
prospectus under the caption "Actuarial Matters."
Sincerely,
/s/ Scott Allen
Scott Allen, FSA, MAAA
Associate Actuary
CUNA Mutual Life Insurance Company
<PAGE>
EXHIBIT 3a
DISTRIBUTION AGREEMENT
BETWEEN CENTURY LIFE OF AMERICA AND CUNA BROKERAGE SERVICES, INC.
FOR VARIABLE UNIVERSAL LIFE CONTRACTS
This Agreement is made effective the 1st day of January 1996 by and between
Century Life of America (Century Life), a mutual life insurance company
domiciled in the State of Iowa with its principal office located in Waverly,
Iowa, and CUNA Brokerage Services, Inc. (CUNA Brokerage), a registered
broker/dealer domiciled in the State of Wisconsin with its principal office
located in Madison, Wisconsin.
WHEREAS, Certain variable universal life contracts of Century Life require
distribution under the auspices of a registered broker/dealer; and
WHEREAS, CUNA Brokerage is a registered broker/dealer and desires to distribute
Century Life's variable universal life contracts;
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
ARTICLE 1
APPOINTMENT
1.1 Century Life appoints CUNA Brokerage to be the principal underwriter
and distributor for all of Century Life's variable universal life
contracts which require distribution under the auspices of a registered
broker/dealer.
ARTICLE 2
DUTIES OF CUNA BROKERAGE
2.1 REGISTRATION UNDER THE 1934 ACT
CUNA Brokerage is registered as a broker/dealer under the provisions of
the 1934 Act (1934 Act) and has secured and will maintain
authorizations, licenses, qualifications, and permits necessary to
perform its obligations under this agreement in those states requested
by Century Life.
2.2 MEMBERSHIP IN THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
CUNA Brokerage currently holds and shall maintain a membership in the
National Association of Securities Dealers, Inc. (NASD).
2.3 RESPONSIBILITY FOR SECURITIES ACTIVITIES
CUNA Brokerage shall assume full responsibility for the securities
activities of all persons engaged directly or indirectly in the Century
Life operations for Century Life variable universal life products,
including but not limited to training, supervision, and control as
contemplated under appropriate provisions of the 1934 Act and
regulations thereunder and by the rules of the NASD. All persons
directly or indirectly involved in such variable universal life
securities activities shall be registered representatives or registered
principals of CUNA Brokerage as appropriate to their activities.
Also, each registered representative selling the product and at least
one registered principal shall be properly licensed as an insurance
agent of Century Life.
2.4 APPOINTMENT OF REGISTERED PERSONS AND MAINTENANCE OF PERSONNEL RECORDS
CUNA Brokerage shall have the authority and responsibility for the
appointment and registration of those persons who will be registered
representatives and registered principals. CUNA Brokerage shall direct
the maintenance of all personnel records of such persons.
2.5 MAINTENANCE OF NET CAPITAL
CUNA Brokerage shall maintain required net capital at levels which will
comply with maximum aggregate indebtedness provisions under the
provisions of the 1934 Act, any regulation thereunder, and any NASD
rules.
2.6 REQUIRED REPORTS
CUNA Brokerage shall have the responsibility for preparation and
submission of any reports or other materials required by any regulatory
authority having proper jurisdiction.
2.7 LIMITATIONS ON AUTHORITY
CUNA Brokerage is not authorized to give any information or to make any
representations concerning the variable universal life contracts other
than the statements contained in the current registration statement
filed with the Securities and Exchange Commission or such sales
literature as may be authorized by Century Life.
ARTICLE 3
DUTIES OF CENTURY LIFE
3.1 MAINTENANCE OF ACCOUNTING RECORDS
Century Life shall maintain and hold, on behalf of and as agent for
CUNA Brokerage, those records pertaining to variable universal life
contracts required to be maintained and preserved by the 1934 Act, any
regulations thereunder, and any applicable NASD rules. All such books
and records are, and shall at all times remain, the property of CUNA
Brokerage and shall at all times be subject to inspection by duly
authorized officers, auditors, and representatives of CUNA Brokerage
and by the Securities and Exchange Commission, the NASD, and other
regulatory authorities having proper jurisdiction.
3.2 CONFIRMATION OF TRANSACTIONS
On behalf of CUNA Brokerage and acting as agent for CUNA Brokerage,
Century Life shall confirm all transactions required to be confirmed in
the form and manner required by the 1934 Act, any regulations
thereunder, and any NASD rules.
3.3 FURNISHING MATERIALS
Century Life shall furnish to CUNA Brokerage copies of prospectuses,
financial statements and other documents which CUNA Brokerage
reasonably requests for use in connection with the solicitation, sale
and distribution of Century Life's variable universal life contracts.
ARTICLE 4
COMPENSATION
4.1 As compensation for services to be performed pursuant to this
agreement, Century Life shall pay a dealer concession to and on behalf
of CUNA Brokerage. The amount of the dealer concession and the manner
in which it will be paid is specified in Schedule A to a related
contract titled "Servicing Agreement Related to the Distribution
Agreement between Century Life of America and CUNA Brokerage Services,
Inc. for Variable Universal Life Contracts."
ARTICLE 5
TERMINATION
5.1 This Agreement may be terminated at any time by either party upon
written notice to the other stating the date when such termination
shall be effective, provided that this Agreement may not be terminated
or modified by either party if the effect would be to put CUNA
Brokerage out of compliance with the "net-capital" requirements of the
1934 Act. Default of any kind shall not have the effect of terminating
this Agreement.
IN WITNESS WHEREOF, the undersigned, as duly authorized officers, have
caused this instrument to be executed, in duplicate, on behalf of their
respective companies.
CENTURY LIFE OF AMERICA
BY: /s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA BROKERAGE SERVICES, INC.
BY: /s/ Joseph P. Tripalin
Joseph P. Tripalin
President
<PAGE>
EXHIBIT 3b
SERVICING AGREEMENT RELATED TO THE DISTRIBUTION AGREEMENT
BETWEEN CENTURY LIFE OF AMERICA AND CUNA BROKERAGE SERVICES, INC.
FOR VARIABLE UNIVERSAL LIFE CONTRACTS
This Agreement is made effective the 1st day of January 1996 by and between
Century Life of America (Century Life), a mutual life insurance company
domiciled in the State of Iowa with its principal office located in Waverly,
Iowa, and CUNA Brokerage Services, Inc. (CUNA Brokerage), a registered
broker/dealer domiciled in the State of Wisconsin with its principal office
located in Madison, Wisconsin.
WHEREAS, Certain variable universal life contracts of Century Life require
distribution under the auspices of a registered broker/dealer; and
WHEREAS, CUNA Brokerage is a registered broker/dealer and desires to distribute
Century Life's variable universal life contracts; and
WHEREAS, Century Life appointed CUNA Brokerage to be the principal underwriter
and distributor for all of Century Life's variable universal life contracts
which require distribution under the auspices of a registered broker/dealer,
under the terms of a Distribution Agreement between Century Life and CUNA
Brokerage for Variable Universal Life Contracts dated January 1, 1996; and
WHEREAS, That agreement provided that compensation for the services would be
specified in this agreement;
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. Payments on behalf of CUNA Brokerage shall be properly reflected on the
books and records maintained on behalf of CUNA Brokerage by Century
Life, so as to be in compliance with applicable law and regulation.
2. Century Life shall maintain payroll records (for the benefit of CUNA
Brokerage) which are consistent with its own payroll records kept in
the ordinary course of business. Century Life shall remit directly to
the proper taxing authorities all applicable payroll taxes and other
applicable sums to be deducted from compensation payable to registered
representatives of CUNA Brokerage. Century Life shall pay such
compensation and taxes out of the dealer concession described in
Schedule A.
3. Schedule A is incorporated by reference into this Agreement for all
purposes as though set out in its entirety herein. When and if the
Schedule is amended, the amendments will be incorporated by reference
into this Agreement for all purposes, provided, however, that in the
event of a conflict between the provisions contained in the Schedule
and the provisions of this Agreement, the provisions of this Agreement
shall control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed, in
duplicate, by their respective officers duly authorized to do so.
CENTURY LIFE OF AMERICA
BY: /s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA BROKERAGE SERVICES, INC.
BY: /s/ Joseph P. Tripalin
Joseph P. Tripalin
President
<PAGE>
SCHEDULE A
1. Century Life shall pay on behalf of CUNA Brokerage, from the gross
premium Century Life receives from MEMBERS(R) Variable Universal Life,
as a dealer concession:
(1) First Policy Year: One hundred five percent (105%) of the
premium received up to the Minimum Premium and seven and three
tenths percent (7.3%) of any premium in excess of the Minimum
Premium. The Minimum Premium is the minimum annual amount
that, if paid each year for the first three years, will keep
the No-Lapse Guarantee in effect for that time. The Minimum
Premium is recorded on the specifications page of each Policy.
The No-Lapse Guarantee is described in the Policy prospectus.
(2) Second Through Tenth Policy Years: Five percent (5%) of
premium received each year up to and including the tenth
policy year.
(3) Increase in Specified Amount: The amount of Minimum Premium
will be determined as though a new policy had been issued for
the amount of the increase, except that the monthly policy fee
will not be included in the Minimum Premium calculation. The
amount of the dealer concession is as described above under
"First Policy Year" and "Second Through Tenth Policy Years."
2. Century Life, on behalf of CUNA Brokerage, shall pay to registered
representatives of CUNA Brokerage the compensation specified in these
contracts:
(1) PLAN AMERICA(R) General Agents Agreement (for PLAN AMERICA I
representatives)
(2) PLAN AMERICA(R) Representative's Contract with Century Life of
America (for PLAN AMERICA II representatives)
(3) Century Life of America Career Representative's Full Time
Contract (for Century Career Representatives)
(4) Century Life Insurance Company Broker's Contract (for Century
Brokers)
3. Century Life will use any remaining dealer concession on behalf of CUNA
Brokerage by:
o maintaining payroll records as described in paragraph 1 of
this Servicing Agreement;
o performing the services described in Article 3 of the
Distribution Agreement between Century Life and CUNA Brokerage
for Variable Universal Life Contracts; and
o providing overhead support related to the distribution systems
specified in Section 3 of this schedule.
This Schedule A is approved, effective this 1st day of January 1996.
CENTURY LIFE OF AMERICA
BY: /s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA BROKERAGE SERVICES, INC.
BY: /s/ Joseph P. Tripalin
Joseph P. Tripalin
President
<PAGE>
SCHEDULE A
1. CUNA Mutual Life shall pay on behalf of CUNA Brokerage, from the gross
premium CUNA Mutual Life receives from MEMBERS(R) Variable Universal
Life, as a dealer concession:
(1) First Policy Year: One hundred five percent (105%) of the
premium received up to the Minimum Premium and seven and three
tenths percent (7.3%) of any premium in excess of the Minimum
Premium. The Minimum Premium is the minimum annual amount
that, if paid each year for the first three years, will keep
the No-Lapse Guarantee in effect for that time. The Minimum
Premium is recorded on the specifications page of each Policy.
The No-Lapse Guarantee is described in the Policy prospectus.
(2) Second Through Tenth Policy Years: Five percent (5%) of
premium received each year up to and including the tenth
policy year.
(3) Increase in Specified Amount: The amount of Minimum Premium
will be determined as though a new policy had been issued for
the amount of the increase, except that the monthly policy fee
will not be included in the Minimum Premium calculation. The
amount of the dealer concession is as described above under
"First Policy Year" and "Second Through Tenth Policy Years."
2. CUNA Mutual Life shall pay on behalf of CUNA Brokerage, from the gross
premium CUNA Mutual Life receives from MEMBERS(R) Variable Universal
Life II, as a dealer concession:
(1) First Policy Year: Eighty-one percent (81%) of the premium
received up to the Basic Guarantee Premium and five percent
(5%) of any premium in excess of the Basic Guarantee Premium.
The Basic Guarantee Premium is the minimum annual amount that,
if paid each year, will keep the Basic Policy Guarantee in
effect for the length of the guarantee. The Basic Guarantee
Premium is recorded on the specifications page of each Policy.
The Basic Policy Guarantee is described in the Policy
prospectus.
(2) Second Through Tenth Policy Years: Three percent (3%) of
premium received each year up to and including the tenth
policy year.
(3) Increase in Specified Amount: The amount of Basic Guarantee
Premium will be determined as though a new policy had been
issued for the amount of the increase, except that the monthly
policy fee will not be included in the Basic Guarantee Premium
calculation. The amount of the dealer concession is as
described above under "First Policy Year" and "Second Through
Tenth Policy Years."
3. CUNA Mutual Life, on behalf of CUNA Brokerage, shall pay to registered
representatives of CUNA Brokerage the compensation specified in these
contracts:
(1) MEMBERS Financial Services/PLAN AMERICA(R) General Agents
Agreement (for MEMBERS Financial Services/PLAN AMERICA I
representatives)
(2) MEMBERS Financial Services/PLAN AMERICA(R) Representative's
Contract with CUNA Mutual Life Insurance Company (for MEMBERS
Financial Services/PLAN AMERICA II representatives)
(3) CUNA Mutual Life Insurance Company Career Representative's
Full Time Contract (for CUNA Mutual Career Representatives and
Brokers)
4. CUNA Mutual Life will use any remaining dealer concession on behalf of
CUNA Brokerage by:
o maintaining payroll records as described in paragraph 1 of
this Servicing Agreement;
o performing the services described in Article 3 of the
Distribution Agreement between CUNA Mutual Life and CUNA
Brokerage for Variable Universal Life Contracts; and
o providing overhead support related to the distribution systems
specified in Section 3 of this schedule.
This Schedule A is amended, effective this 20th day of September 1999.
CUNA MUTUAL LIFE INSURANCE COMPANY
BY: /s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CUNA BROKERAGE SERVICES, INC.
BY: /s/ Wayne A. Benson
Wayne A. Benson
President
<PAGE>
EXHIBIT 8
SERVICING AGREEMENT BETWEEN
CUNA MUTUAL LIFE INSURANCE COMPANY
AND
CIMCO INC.
THIS AGREEMENT is made by and between CUNA Mutual Life Insurance Company (CUNA
Mutual Life ), a mutual life insurance company domiciled in the state of Iowa
with its principal office located in Waverly, Iowa, and CIMCO Inc. (CIMCO), a
duly licensed registered investment adviser domiciled in the state of Iowa with
its principal office located in Madison, Wisconsin.
WHEREAS, CIMCO is an independent registered investment adviser, engaged
primarily in the business of providing investment advice and investment
management services on a fee for service basis, and currently acts as investment
adviser to the Ultra Series Fund and other clients, and
WHEREAS, CIMCO alone will have control over its investment advisory business,
and
WHEREAS, CIMCO wishes to purchase from CUNA Mutual Life various services
required by CIMCO in the ordinary course of administering its business,
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. CIMCO shall purchase from CUNA Mutual Life certain accounting,
administrative, clerical, legal, tax and other services necessary to
fulfill CIMCO's obligation under the Investment Advisory Agreement
between CIMCO and the Ultra Series Fund.
2. As full compensation for the above-described services, CIMCO will pay
to CUNA Mutual Life a monthly fee equal to 1/12th of .15% of the entire
net assets of Ultra Series Fund determined as of the close of business
on the last business day of the preceding month.
3. This agreement shall be nonassignable and shall remain in effect until
terminated and may be terminated by any party as of the first day of
any month by giving the other party at least 30 days prior written
notice.
4. This agreement shall be applied, interpreted, construed and enforced in
accordance with the laws of the state of Iowa.
IN WITNESS WHEREOF, this agreement is executed by CUNA Mutual Life and CIMCO by
their respective duly authorized officers to become effective on the 1st day of
May, 1997.
CUNA MUTUAL LIFE INSURANCE COMPANY
By: /s/ Michael B. Kitchen
Michael B. Kitchen
President and Chief Executive Officer
CIMCO INC.
By: /s/ Michael S. Daubs
Michael S. Daubs
President
<PAGE>
EXHIBIT 9a
PARTICIPATION AGREEMENT
Among
CENTURY LIFE OF AMERICA,
T. ROWE PRICE INVESTMENT SERVICES, INC.
and
T. ROWE PRICE INTERNATIONAL SERIES, INC.
THIS AGREEMENT, made and entered into as of this 22nd day of April,
1994 by and among CENTURY LIFE OF AMERICA (hereinafter, the "Company"), an Iowa
mutual life insurance company, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each account hereinafter referred to as the
"Account"), and the T. Rowe Price International Series, Inc. (the "Fund"), a
corporation organized under the laws of Maryland, and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is or will be available to act as the investment vehicle
for Separate Accounts established for variable life insurance and variable
annuity contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund will obtain an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance Separate Accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
Separate Accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Rowe Price-Fleming International, Inc. (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has issued or will issue certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to Fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at Net Asset Value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the Net Asset Value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios
available for purchase at the applicable Net Asset Value per share by the
Company and the Account on those days on which the Fund calculates its Net Asset
Value pursuant to rules of the Securities and Exchange Commission, and the Fund
shall use reasonable efforts to calculate such Net Asset Value on each day which
the New York Stock Exchange is open for trading. Notwithstanding the foregoing,
the Board of Trustees or Directors of the Fund (hereinafter the "Board") may
refuse to sell shares of any Designated Portfolio to any person, or suspend or
terminate the offering of shares of any Designated Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their Separate Accounts. No
shares of any Designated Portfolios will be sold to the general public. The Fund
and the Underwriter will not sell Fund shares to any insurance company or
Separate Account unless an agreement containing provisions substantially the
same as Articles I, III and VII of this Agreement is in effect to govern such
sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, ordinarily
executing such requests on a daily basis at the Net Asset Value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act and any rules thereunder, and in accordance with the
procedures and policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its Net
Asset Value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in federal funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate Subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10 The Fund shall make the Net Asset Value per share for each
Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the Net Asset Value per share is calculated (normally
by 6:30 p.m. Baltimore time) and shall use its best efforts to make such Net
Asset Value per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the Cash
Value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Fund; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents to the use of such other investment company, such consent
not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are or,
prior to issuance, will be registered under the 1933 Act or, alternatively (b)
are not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly exempt
from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law,
that it has legally and validly established the Account prior to any issuance or
sale thereof as a segregated asset account under Iowa insurance laws, and that
it (a) has registered or, prior to any issuance or sale of the Contracts, will
register the Account as a unit investment trust in accordance with the
provisions of the 1940 Act to send as a segregated investment account for the
Contracts, or alternatively (b) has not registered the Account in proper
reliance upon an exclusion from registration under the 1940 Act.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Iowa and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board of Directors or Trustees of the Fund (the "Board"), a majority of whom
are not interested persons of the Fund, formulate and approve any plan pursuant
to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Iowa to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and
shall remain duly registered under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for the Fund in
compliance in all material respects with the laws of the State of Iowa and any
applicable state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other individuals
or entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Fund are covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund, in an amount not less than $5 million. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Fund and the Underwriter in the event that such coverage no
longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of
the Fund's current prospectus (describing only the Designated Portfolios listed
on Schedule A) as the Company may reasonably request. The Fund shall bear the
expense of printing copies of its current prospectus that will be distributed to
existing Contract Owners, and the Company shall bear the expense of printing
copies of the Fund's prospectus that are used in connection with offering the
contracts issued by the Company. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a final copy of the new
prospectus on diskette at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company, and
the Underwriter (or the Fund), at its expense, shall provide copies of such SAI
free of charge to the Company for itself and for any Owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract Owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract Owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract Owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their Separate Accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a
Designated Portfolio thereof) or the Adviser or the Underwriter is named, at
least fifteen Business Days prior to its use. No such material shall be used if
the Fund or its designee reasonably object to such use within fifteen Business
Days after receipt of such material. The Fund or its designee reserves the right
to reasonably object to the continued use of any such sales literature or other
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named, and no such material shall be used if
the Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company, each piece of sales literature or other
promotional material that it develops or uses and in which the Company, and/or
its Account, is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company reasonably objects to such use within
fifteen Business Days after receipt of such material. The Company reserves the
right to reasonably object to the continued use of any such sales literature or
other promotional material in which the Company and/or its Account is named, and
no such material shall be used if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract Owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract Owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus to Owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract Owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity or life insurance contracts, whichever
is appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation ss.1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
ARTICLE VII. Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract Owners of all
Separate Accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract Owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
Owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract Owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract Owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract Owners, life insurance contract
Owners, or variable contract Owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed Separate Account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract Owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract Owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Shared Funding Exemptive Order, and Sections
3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in the Shared Funding Exemptive Order or any
amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1., 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
the Underwriter and each of its directors and officers, and each person, if any,
who controls the Fund or Underwriter within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus (which shall include an
offering memorandum, if any), or SAI for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the Registration Statement, prospectus or SAI for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI, or sales literature
of the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under
its authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or SAI or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement, prospectus or SAI for the Fund
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI or sales literature
for the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, SAI or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Underwriter to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article
VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with
respect to some or all Designated Portfolios, by
six (6) months' advance written notice delivered to
the other parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or
federal law or such law precludes the use of such
shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are
instituted against the Company by the NASD, the
SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding
the Company's duties under this Agreement or
related to the sale of the Contracts, the operation
of any Account, or the purchase of the Fund shares,
provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good
faith, that any such administrative proceedings
will have a material adverse effect upon the
ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against
the Fund or Underwriter by the NASD, the SEC, or
any state securities or insurance department or any
other regulatory body, provided, however, that the
Company determines in its sole judgment exercised
in good faith, that any such administrative
proceedings will have a material adverse effect
upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such
Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if
the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the
Contracts fail to meet the qualifications specified
in Article VI hereof; or
(h) termination by either the Fund or the Underwriter
by written notice to the Company, if either one or
both of the Fund or the Underwriter respectively,
shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a
material adverse change in its business,
operations, financial condition, or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(j) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives
the Fund and the Underwriter the written notice
specified in Section 1.11(b) hereof and at the time
such notice was given there was no notice of
termination outstanding under any other provision
of this Agreement; provided, however, any
termination under this Section 10.1(j) shall be
effective forty-five days after the notice
specified in Section 1.11(b) was given.
10.2 Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
the Owners of the Existing Contracts may be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any termination's under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement. The parties further agree that this Section 10.2 shall
not apply to any terminations under Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Nancy M. Morris, Esq.
If to the Company:
Century Life of America
2000 Heritage Way
Waverly, Iowa 50677
Attention: Chief Legal Officer
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: John Cammack
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the Owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Iowa Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Iowa variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any) filed with any state or
federal regulatory body or otherwise made available
to the public, as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any) filed with any state of federal
regulatory body or otherwise made available to the
public, as soon as practical and in any event within
45 days after the end of each quarterly period;
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the
delivery thereof to stockholders and/or
policyholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulatory, as soon as practical after the
filing thereof;
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: CENTURY LIFE OF AMERICA
By its authorized officer
By: /s/ Kevin Lentz
Title: Chief Operating Officer
Date: April 22, 1994
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: April 22, 1994
UNDERWRITER: T. ROWE PRICE INTERNATIONAL SERVICES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Title: Vice President
Date: April 22, 1994
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C> <C>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
Century Variable Annuity Account Variable Annuity T. Rowe Price International Series, Inc.
File 33-73738 o T. Rowe Price International Stock
Established December 14, 1993 811-6260 Portfolio
</TABLE>
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement, made and entered into as of
the 22th day of April, 1994, by and among Century Life of America, T. Rowe Price
International Series, Inc. And T. Rowe Price Investment Services, Inc., the
parties hereby agree to an amended Schedule A as attached hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to the Participation Agreement to be executed in its name and on its
behalf by its duly authorized representative.
COMPANY: CENTURY LIFE OF AMERICA
By its authorized officer,
By: /s/ Daniel E. Meylink, Sr.
Title: President
Date: November 30, 1994
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer,
By: /s/ George A. Murnaghan
Title: Vice President
Date: December 21, 1994
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer,
By: /s/ Nancy Morris
Title: Vice President
Date: December 21, 1994
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
CUNA MUTUAL LIFE INSURANCE COMPANY
WHEREAS, CUNA Mutual Life Insurance Company (formerly known as Century Life of
America), T. Rowe Price International Series, Inc., and T. Rowe Price Investment
Services, Inc. entered into a Participation Agreement on April 22, 1994
("Participation Agreement"); and
WHEREAS, the parties desire to amend the Participation Agreement by mutual
written agreement;
NOW THEREFORE, the parties do hereby agree:
1. "Century Life of America" is hereby replaced with "CUNA Mutual Life
Insurance Company."
2. Schedule A and any amendments thereto are hereby replaced with the
attached Schedule A dated September 22, 1999.
All terms and conditions of the Participation Agreement and Schedules thereto
shall continue in full force and effect except as amended herein.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to the
Participation Agreement to be executed in its name and on its behalf by its duly
authorized representative.
COMPANY: CUNA MUTUAL LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ Michael B. Kitchen
Name: Michael B. Kitchen
Title: President and Chief Executive Officer
Date: September 22, 1999
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ Henry H. Hopkins
Name: Henry H. Hopkins
Title: Vice President
Date: September 22, 1999
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ Darrell N. Braman
Name: Darrell N. Braman
Title: Vice President
Date: September 22, 1999
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C> <C>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
CUNA Mutual Life Variable Annuity Account Variable Annuity T. Rowe Price International Series, Inc.
(formerly known as Century Variable Annuity 33-73738 o T. Rowe Price International Stock
Account) Advantage Portfolio
Established December 14, 1993
CUNA Mutual Life Variable Account (formerly known Variable Universal Life T. Rowe Price International Series, Inc.
as Century Variable Account) 33-19718 o T. Rowe Price International Stock
Established August 16, 1983 Portfolio
Variable Universal Life II
333-81499
Advantage
CUNA Mutual Life Group Variable Annuity Account Group Variable Annuity T. Rowe Price International Series, Inc.
(formerly known as Century Group Variable Offered Exclusively to o T. Rowe Price International Stock
Annuity Account) Qualified Plans Not Portfolio
Established August 16, 1983 Registered in Reliance on
Qualified Plan Exemption to
Registration Requirements
</TABLE>
<PAGE>
EHXIBIT 9b
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
CENTURY LIFE OF AMERICA,
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 29th day of April, 1994, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), CENTURY LIFE OF AMERICA, an Iowa corporation (the "Company) on its own
behalf and on behalf of the Century Variable Annuity Account (the "Account") and
other segregated asset accounts of the Company (the "Accounts"), and
MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or
variable life insurance contracts (individually, the "Policy" or, collectively,
the "Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Investor Services, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, CUNA Brokerage Services, Inc., the underwriter for the
individual variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to Fund the Policies, and the Trust intends to sell such Shares to
the Accounts at Net Asset Value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. Sale of Trust Shares
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business Day,
as defined below) and which are available for purchase by such Accounts,
executing such orders on a daily basis at the Net Asset Value next computed
after receipt by the Trust or its designee of the order for the Shares. For
purposes of this Section 1.1, the Company shall be the designee of the Trust for
receipt of such orders from Policy Owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
orders by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the "NYSE")
is open for trading and on which the Trust calculates its Net Asset Value
pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable Net Asset Value per share by the Company and the
Accounts on those days on which the Trust calculates its Net Asset Value
pursuant to rules of the SEC and the Trust shall calculate such Net Asset Value
on each day which the NYSE is open for trading. Notwithstanding the foregoing,
the Board of Trustees of the Trust (the "Board") may refuse to sell any Shares
to the Company and the Accounts, or suspend or terminate the offering of the
Shares if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the Shareholders of such Portfolio.
1.3 The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with the
Trust and MFS (the "Participating Insurance Companies")and their Separate
Accounts, qualified pension and retirement plans and MFS or its affiliates. The
Trust and MFS will not sell Trust shares to any insurance company or Separate
Account unless an agreement containing provisions substantially the same as
Articles III and VII of this Agreement is in effect to govern such sales. The
Company will not resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by Policy
holders on that Business Day), executing such requests on a daily basis at the
Net Asset Value next computed after receipt by the Trust or its designee of the
request for redemption. For purposes of this Section 1.4, the Company shall be
the designee of the Trust for receipt of requests for redemption from Policy
Owners and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such request for redemption by 9:30
a.m. New York time on the next following Business Day.
1.5. Purchase, redemption and exchange orders placed by the Company
shall be placed separately for each Portfolio and shall not be netted. However,
with respect to payment of the purchase price by the Company and of redemption
proceeds by the Trust, the Company and the Trust shall net purchase and
redemption orders with respect to each Portfolio and shall transmit one net
payment per Portfolio in accordance with Section 1.6.
1.6. In the event of net purchases, the Company shall pay for the
Shares by 2:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of Section 1.1
hereof. In the event of net redemptions, the Trust shall pay the redemption
proceeds by 2:00 p.m. New York time on the next Business Day after an order to
redeem the Shares is made in accordance with the provisions of Section 1.4
hereof. All such payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The Shares
ordered from the Trust will be recorded in an appropriate title for the Accounts
or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or capital
gain distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares in
additional Shares of that Portfolio. The Trust shall notify the Company of the
number of Shares so issued as payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the Net Asset Value per
share for each Portfolio available to the Company on each Business Day as soon
as reasonably practical after the Net Asset Value per share is calculated and
shall use its best efforts to make such Net Asset Value per share available by
6:30 p.m. New York time. In the event that the Trust is unable to meet the 6:30
p.m. time stated herein, it shall provide additional time for the Company to
place orders for the purchase and redemption of Shares. Such additional time
shall be equal to the additional time which the Trust takes to make the Net
Asset Value available to the Company. If the Trust provides materially incorrect
share Net Asset Value information, the Company shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the correct
Net Asset Value per share. Any material error in the calculation or reporting of
Net Asset Value per share, dividend or capital gains information shall be
reported promptly upon discovery to the Company.
ARTICLE II. Certain Representations, Warranties and Covenants
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable state and
federal laws, including without limitation the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established the Account as a segregated asset account under Iowa law and has
registered or, prior to any issuance or sale of the Policies, will register the
Accounts as unit investment trusts in accordance with the provisions of the 1940
Act (unless exempt therefrom) to serve as segregated investment accounts for the
Policies, and that it will maintain such registrations for so long as any
Policies are outstanding. The Company shall amend the registration statements
under the 1933 Act for the Policies and the registration statements under the
1940 Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for sale in
accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), that it will make every effort to
maintain such treatment and that it will notify the Trust or MFS immediately
upon having a reasonable basis for believing that the Policies have ceased to be
so treated or that they might not be so treated in the future.
2.3 The Company represents and warrants that CUNA Brokerage Services,
Inc., the underwriter for the individual variable annuity and the variable life
policies, is a member in good standing of the NASD and is a registered
broker-dealer with the SEC. The Company represents and warrants that the Company
and CUNA Brokerage Services, Inc. will sell and distribute such policies in
accordance in all material respects with all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The Commonwealth
of Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The Trust shall
amend the registration statement for its Shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its Shares. The Trust shall register and qualify the Shares for sale in
accordance with the laws of the various states only if and to the extent deemed
necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and any applicable
regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material respects
with any applicable federal securities laws and with the securities laws of The
Commonwealth of Massachusetts. MFS represents and warrants that it is not
subject to state securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so that
it may carry out fully the obligations imposed upon it by the conditions
contained in the exemptive application pursuant to which the SEC has granted
exemptive relief to permit mixed and shared funding (the "Mixed and Shared
Funding Exemptive Order").
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares as
the Company may reasonably request for distribution to existing Policy Owners
whose Policies are funded by such Shares. The Trust or its designee shall
provide the Company, at the Company's expense, with as many copies of the
current prospectus for the Shares as the Company may reasonably request for
distribution to prospective purchasers of Policies. If requested by the Company
in lieu thereof, the Trust or its designee shall provide such documentation
(including a "camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial printer)
and other assistance as is reasonably necessary in order for the parties hereto
once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Policies and the
prospectus for the Shares printed together in one document; the expenses of such
printing to be apportioned between (a) the Company and (b) the Trust or its
designee in proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; the Trust or its designee
to bear the cost of printing the Shares' prospectus portion of such document for
distribution to Owners of existing Policies funded by the Shares and the Company
to bear the expenses of printing the portion of such document relating to the
Accounts; provided, however, that the Company shall bear all printing expenses
of such combined documents where used for distribution to prospective purchasers
or to Owners of existing Policies not funded by the Shares. In the event that
the Company requests that the Trust or its designee provides the Trust's
prospectus in a "camera ready" or diskette format, the Trust shall be
responsible for providing the prospectus in the format in which it or MFS is
accustomed to formatting prospectuses and shall bear the expense of providing
the prospectus in such format (e.g., typesetting expenses), and the Company
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any Owner
of a Policy funded by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement or to an Owner of a Policy not
funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to Policy
Owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3
above, or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but are not
limited to, the printing of the Shares' prospectus or prospectuses for
distribution to prospective purchasers or to Owners of existing Policies not
funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate
to include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy Owners;
(b) vote the Shares in accordance with instructions received from
Policy Owners: and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy Owners;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contract Owners. The Company
will in no way recommend action in connection with or oppose or interfere with
the solicitation of proxies for the Shares held for such Policy Owners. The
Company reserves the right to vote shares held in any segregated asset account
in its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their Separate Accounts
holding Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the Company of
any changes of interpretations or amendments to the Mixed and Shared Funding
Exemptive Order.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the Trust, or
any affiliate of MFS are named, at least three (3) Business Days prior to its
use. No such material shall be used if the Trust, MFS, or their respective
designees reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS or concerning the Trust or any
other such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional information may
be amended or supplemented from time to time, or in reports or proxy statements
for the Trust, or in sales literature or other promotional material approved by
the Trust, MFS or their respective designees, except with the permission of the
Trust, MFS or their respective designees. The Trust, MFS or their respective
designees each agrees to respond to any request for approval on a prompt and
timely basis. The Company shall adopt and implement procedures reasonably
designed to ensure that information concerning the Trust, MFS or any of their
affiliates which is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to Policy
holders or prospective Policy holders) is so used, and neither the Trust, MFS
nor any of their affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or the Accounts is named, at
least three (3) Business Days prior to its use. No such material shall be used
if the company or its designee reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.4 The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of the
Company or concerning the Company, the Accounts, or the Policies in connection
with the sale of the Policies other than the information or representations
contained in a registration statement, prospectus, or statement of additional
information for the Policies, as such registration statement, prospectus and
statement of additional information may be amended or supplemented from time to
time, or in reports for the Accounts, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to respond to any
request for approval on a prompt and timely basis. The parties hereto agree that
this Section 4.4 is neither intended to designate nor otherwise imply that MFS
is an underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Policies, or
to the Trust or its Shares, prior to or contemporaneously with the filing of
such document with the SEC or other regulatory authorities. The Company and the
Trust shall also each promptly inform the other of the results of any
examination by the SEC (or other regulatory authorities) that relates to the
Policies, the Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant portions of
any "deficiency letter" or other correspondence or written report regarding any
such examination.
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS will
cooperate with the Company so as to enable the Company to solicit proxies from
Policy Owners or to make changes to its prospectus, statement of additional
information or registration statement, in an orderly manner. The Trust and MFS
will make reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates for such
prospectuses.
4.7. For purposes of this Article IV and Article VIII, the phrase
"sales literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
video tape display, signs or billboards, motion pictures, or other public
media), and sales literature (such as brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published articles), distributed or made
generally available to customers or the public, educational or training
materials or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V. Fees and Expenses
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution and
Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to the
Company or to the underwriter for the Policies if and in amounts agreed to by
the Trust in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof, reimburse other
parties for expenses initially paid by one party but allocated to another party.
In addition, nothing herein shall prevent the parties hereto from otherwise
agreeing to perform, and arranging for appropriate compensation for, other
services relating to the Trust and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal and
state laws, including preparation and filing of the Trust's registration
statement, and payment of filing fees and registration fees; preparation and
filing of the Trust's proxy materials and reports to Shareholders; setting in
type and printing its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to Shareholders (to
the extent provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by any
federal or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's prospectuses
and proxy materials to Owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses of
marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and of
distributing the Trust's Shareholder reports and proxy materials to Policy
Owners. The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal securities
and state insurance laws; the cost of preparing, printing and distributing the
Policy prospectus and statement of additional information; and the cost of
preparing, printing and distributing annual individual account statements for
Policy Owners as required by state insurance laws.
ARTICLE VI. Diversification and Related Limitations
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817(h)(l) of the
Code and Treas. Reg. 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices, and
other published announcements of the Internal Revenue Service interpreting these
sections), as if those requirements applied directly to each such Portfolio. In
the event that any Portfolio is not so diversified at the end of any applicable
quarter, the Trust and MFS will make every effort to (a) adequately diversify
the Portfolio so as to achieve compliance within the grace period afforded by
Treas. Reg. 1.817.5 and (b) notify the Company.
6.2. The Trust and MFS represent that each Portfolio of the Trust will
elect to be qualified as a Regulated Investment Company under Subchapter M of
the Code and that every effort will be made to maintain such qualification
(under Subchapter M or any successor or similar provision) and that the Trust or
its designee will notify the Company promptly upon having a reasonable basis for
believing that any Portfolio of the Trust has ceased to so qualify or that any
Portfolio might not so qualify in the future.
ARTICLE VII. Potential Material Conflicts
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of the
variable annuity contract Owners and the variable life insurance Policy Owners
of the Company and/or affiliated companies ("contract Owners") investing in the
Trust. The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of the Board,
or a majority of the disinterested trustees of the Board. The Board will give
prompt notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted exemptive
relief to permit mixed and shared funding by providing the Board, as it may
reasonably request, with all information necessary for the Board to consider any
issues raised and agrees that it will be responsible for promptly reporting any
potential or existing conflicts of which it is aware to the Board including, but
not limited to, an obligation by the Company to inform the Board whenever
contract Owner voting instructions are disregarded. The Company also agrees
that, if a material irreconcilable conflict arises, it will at its own cost
remedy such conflict up to and including (a) withdrawing the assets allocable to
some or all of the Accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Trust, or submitting to a vote of all affected contract Owners
whether to withdraw assets from the Trust or any Portfolio and reinvesting such
assets in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract Owners that votes in
favor of such segregation, or offering to any of the affected contract Owners
the option of segregating the assets attributable to their contracts or
policies, and (b) establishing a new registered management investment company
and segregating the assets underlying the Policies, unless a majority of Policy
Owners materially adversely affected by the conflict have voted to decline the
offer to establish a new registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies any
material irreconcilable conflict. In the event that the Board determines that
any proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of the
Accounts designated by the disinterested trustees and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the disinterested
trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shares
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which an Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Policies or contained in the Policies or sales
literature or other promotional material for the Policies (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information furnished
to the Company or its designee by or on behalf of the Trust or MFS for
use in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies or sales
literature or other promotional material (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations contained in
the registration statement, prospectus, statement of additional
information or sales literature or other promotional material of the
Trust not supplied by the Company or its designee, or persons under its
control and on which the Company has reasonably relied) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration statement,
prospectus, statement of additional information, or sales literature or
other promotional literature of the Trust, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of the
agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus, statement of additional information
or sales literature or other promotional material of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in
reasonable reliance upon and in conformity with information furnished
to the Trust, MFS, the Underwriter or their respective designees by or
on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the Trust or in
sales literature or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations contained in
the registration statement, prospectus, statement of additional
information or sales literature or other promotional material for the
Policies not supplied by the Trust, MFS, the Underwriter or any of
their respective designees or persons under their respective control
and on which any such entity has reasonably relied) or wrongful conduct
of the Trust or persons under its control, with respect to the sale or
distribution of the Policies or Shares; or
(c) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement) or arise out of
or result from any other material breach of this Agreement by the
Trust; or
(d) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily Net Asset Value per
share or dividend or capital gain distribution rate; or
(e) arise as a result of any failure by the Trust to provide
the services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3 In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including
without limitation, the Company, or any Participating Insurance Company or any
Policy holder, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by the Company hereunder or by any Participating
Insurance Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the Company or
any Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly established segregated
asset account under applicable state law and as a duly registered unit
investment trust under the provisions of the 1940 Act (unless exempt therefrom);
or (iii) the failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable provisions of the
Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, willful misconduct, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5 of commencement of action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this section,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any Indemnified Party otherwise than under this section. In case any
such action is brought against any Indemnified Party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying party shall not be liable to such
Indemnified Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control persons
in connection with the Agreement, the issuance or sale of the Policies, the
operation of the Accounts, or the sale or acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Notice of Formal Proceedings
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the purchase of the
Shares.
ARTICLE XI. Termination
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the requirements
of the Policies or are not "appropriate funding vehicles" for the
Policies, as reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares of a
Portfolio would not be "appropriate funding vehicles" if, for
example, such Shares did not meet the diversification or other
requirements referred to in Article VI hereof; or if the
Portfolio did not qualify under Subchapter M of the Code, as
referred to in Section 6.2 hereof (or the Company reasonably
believes the shares or the Portfolio may not so comply or
qualify); or if the Company would be permitted to disregard
Policy Owner voting instructions pursuant to Rule 6e-2 or 6e-3(T)
under the 1940 Act. Prompt notice of the election to terminate
for such cause and an explanation of such cause shall be
furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of
the Policies, the operation of the Accounts, or the purchase of
the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body
regarding the Trust's or MFS' duties under this Agreement or
related to the sale of the shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the Policy
Owners having an interest in the Accounts (or any subaccounts) to
substitute the shares of another investment company for the
corresponding Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had been selected
to serve as the underlying investment media. The Company will
give thirty (30) day's prior written notice to the Trust of the
date of any proposed vote or other action taken to replace the
Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS respectively,
shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Trust and
MFS, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or MFS has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section ll.l(a) may be exercised for cause
or for no cause.
11.4. Except as necessary to implement Policy Owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem the Shares attributable to the Policies (as opposed to the
Shares attributable to the Company's assets held in the Accounts), and the
Company shall not prevent Policy Owners from allocating payments to a Portfolio
that was otherwise available under the Policies, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (the "Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the Owners of the
Existing Policies shall be permitted to transfer or reallocate investments under
the Policies, redeem investments in any Portfolio and/or invest in the Trust
upon the making of additional purchase payments under the Existing Policies.
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
Century Life of America
2000 Heritage Way
Waverly, Iowa 50677
Attn: Chief Legal Officer
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. Miscellaneous
13.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the Owners of the Policies and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement or as otherwise required by applicable law or regulation, shall
not disclose, disseminate or utilize such names and addresses and other
confidential information without the express written consent of the affected
party until such time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities (including
without limitation the SEC, the NASD, and state insurance regulators) relating
to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and the Company agrees that this
Agreement is executed on behalf of the Trust by an officer of the Trust as an
officer and not individually, and that the obligations of or arising out of this
Agreement are not binding upon any of the trustees, officers, or Shareholders
individually but are binding only upon the assets and property of the Trust or
the Portfolios of the Trust to which such obligations relate.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
CENTURY LIFE OF AMERICA
By its authorized officer,
By: /s/ Kevin Lentz
Title: Chief Operating Officer
Date: April 27, 1994
MFS VARIABLE INSURANCE TRUST
By its authorized officer,
By: /s/ A. Keith Brodkin
Title: President
Date: April 29, 1994
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ Arnold D. Scott
Title: Senior Executive Vice President
Date: April 29, 1994
<PAGE>
As of September 23, 1999
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ----------------------------------- --------------------------------
<S> <C> <C>
Name of Separate Account and Policies Funded Portfolios
Date Established by Board of Directors by Separate Account Applicable to Policies
(Date Established)
- ---------------------------------------------------------- ----------------------------------- --------------------------------
Variable Annuity Global Governments Series
CUNA Mutual Life Variable Annuity Account 33-73738
f/k/a Century Variable Annuity Account Emerging Growth Series
December 14, 1993
- ---------------------------------------------------------- ----------------------------------- --------------------------------
CUNA Mutual Life Variable Account Variable Universal Life Global Governments Series
f/k/a/ Century Variable Account 33-19718
Emerging Growth Series
August 16, 1983 Variable Universal Life II
333-81499
- ---------------------------------------------------------- ----------------------------------- --------------------------------
CUNA Mutual Life Group Variable Annuity Account Group Variable Annuity Offered Global Governments Series
f/k/a Century Group Variable Annuity Account Exclusively to Qualified Plans Not
Registered in Reliance on Emerging Growth Series
August 16, 1983 Qualified Plan
Exemption to Registration
Requirements
- ---------------------------------------------------------- ----------------------------------- --------------------------------
</TABLE>
<PAGE>
THIRD AMENDMENT TO PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement, made and entered into as of
the 29th day of April, 1994, by and among MFS Variable Insurance Trust, CUNA
Mutual Life Insurance Company (formerly Century Life of America) and
Massachusetts Financial Services Company, the parties hereby agree to an amended
Schedule A as attached hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to the Participation Agreement to be executed in its name and on its
behalf by its duly authorized representative. The Amendment shall take effect on
September 23, 1999.
CUNA MUTUAL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Michael B. Kitchen
Michael B. Kitchen
Title: President and Chief Executive Officer
MFS VARIABLE INSURANCE TRUST,
on behalf of the Portfolios
By its authorized officer,
By: /s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 9c
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
CUNA MUTUAL LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of
the 20th day of February, 1997 by and among CUNA Mutual Life Insurance Company
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time by mutual consent (hereinafter collectively the "Accounts"),
Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") offered by insurance companies (hereinafter "Participating Insurance
Company");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated July 16, 1986 (File No. 812-6324) granting
Participating Insurance Company and variable annuity and variable life insurance
separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a),
and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the
"1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Mixed and Shared Funding
Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 2 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company have registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intend to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 3 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 2, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives written (or facsimile)
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next
Business Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire or by
a credit for any shares redeemed.
1.3. The Fund agrees to make Fund shares available for
purchase at the applicable net asset value per share by the Company for their
separate Accounts listed in Schedule 1 on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC; provided, however,
that the Board of Trustees of the Fund (hereinafter the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, in the best interests of the shareholders
of any Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.6, the Company shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund; provided that the Fund receives written (or facsimile) notice of such
request for redemption by 9:30 a.m. New York time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next
Business Day after an order to purchase shares is made in accordance with the
provisions of Section 1.4 hereof. Payment shall be in federal funds transmitted
by wire pursuant to the instructions of the Fund's treasurer or by a credit for
any shares redeemed.
1.6. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule A offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sale literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Fund shall provide a copy of its current prospectus
within a reasonable period of its filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the Fund's prospectus printed together in
one document (such printing to be at the Company's expense). The Adviser shall
be permitted to review and approve the typeset form of the Fund's Prospectus
prior to such printing.
2.5. The Fund or the Adviser shall provide the Company with
either: (i) a copy of the Fund's proxy material, reports to shareholders, other
information relating to the Fund necessary to prepare financial reports, and
other communications to shareholders for printing and distribution to Contract
owners at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material and shareholder reports prior to such
printing provided such materials have been provided within a reasonable period.
ARTICLE III. Fees and Expenses
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, proxy materials and reports to
owners of Contracts issued by the Company.
3.4. In the event the Fund adds one or more additional
Portfolios and the parties desire to make such Portfolios available to the
respective Contract owners as an underlying investment medium, a new Schedule A
or an amendment to this Agreement shall be executed by the parties authorizing
the issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Company desiring to invest in such
Portfolios and the provision of funds as the initial investment in the new
Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance company as set forth in the Mixed
and Shared Funding Exemptive Order, including without limitation the requirement
that the Company report any potential or existing conflicts of which it is aware
to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to an including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Company) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
5.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all
Portfolios:
(a) at the option of any party upon six month's advance
written notice to the other parties;
(b) at the option of the Company to the extent that shares
of Portfolios are not reasonably available to meet the
requirements of its Contracts or are not appropriate
funding vehicles for the Contracts, as determined by
the Company reasonably and in good faith. Prompt notice
of the election to terminate for such cause and an
explanation of such cause shall be furnished by the
Company; or
(c) as provided in Article IV
6.2. It is understood and agreed that the right of any
party hereto to terminate this Agreement pursuant to Section 6.1(a) may be
exercised for cause or for no cause.
ARTICLE VII. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
CUNA Mutual Group
5910 Mineral Point Road
Madison, Wisconsin 53701
Attn: Legal Department
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
8.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
8.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the NASD and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
8.6. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.7. It is understood by the parties that this Agreement
is not an exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree
that the obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
8.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between
the parties and supercedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
CUNA MUTUAL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Michael B. Kitchen
Michael B. Kitchen
Title: President and Chief Executive Officer
Date: February 26, 1997
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By: /s/ Andrew J. Donohue
Andrew J. Donohue
Title: Secretary
Date: March 3, 1997
OPPENHEIMERFUNDS, INC.
By: /s/ Andrew J. Donohue
Andrew J. Donohue
Title: Vice President
Date: March 3, 1997
<PAGE>
SCHEDULE 1
CUNA Mutual Life Insurance Company Separate Accounts
CUNA Mutual Life Variable Annuity Account
CUNA Mutual Life Variable Account
CUNA Mutual Life Group Variable Annuity Account
As of September 21, 1999
SCHEDULE 2
CUNA Mutual Life Insurance Company Contracts
Covered by Separate Accounts Listed in Schedule 1
CUNA Mutual Life Variable Annuity Account
MEMBERS Variable Annuity Product
CUNA Mutual Life Variable Account
MEMBERS Variable Universal Life Product
MEMBERS Variable Universal Life II Product
CUNA Mutual Life Group Variable Annuity Account
UltraSaver Group Annuity Product
CU Pension Saver Group Annuity Product
CU UltraSaver Group Annuity Product
As of September 21, 1999
SCHEDULE 3
Oppenheimer Variable Account Funds Portfolios
Oppenheimer High Income Fund/VA
<PAGE>
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
CUNA MUTUAL LIFE INSURANCE COMPANY
Pursuant to the Participation Agreement, made and entered into as of
the 20th day of February, 1997, by and among Oppenheimer Variable Account Funds,
CUNA Mutual Life Insurance Company, and OppenheimerFunds, Inc., the parties
hereby agree to an amended Schedule 2 and 3 as attached hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to the Participation Agreement to be executed in its name and on its
behalf by its duly authorized representative. This Amendment shall take effect
on September 21, 1999.
CUNA MUTUAL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ Micahel B. Kitchen
Michael B. Kitchen
Title: President and Chief Executive Officer
Date: September 22, 1999
OPPENHEIMER VARIABLE ACCOUNT FUNDS
By its authorized officer,
By: /s/ Andrew J. Donohue
Andrew J. Donohue
Title: Vice President and Secretary
Date: September 22, 1999
OPPENHEIMERFUNDS, INC.
By its authorized officer,
By: /s/ Andrew J. Donohue
Andrew J. Donohue
Title: Executive Vice President
Date: September 22, 1999
<PAGE>
EXHIBIT 9d
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
CUNA MUTUAL LIFE INSURANCE COMPANY
THIS AGREEMENT made as of March 31, 1997, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and CUNA Mutual Life Insurance Company, a life insurance
company organized as a corporation under Iowa law (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company set forth
in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act" ) ;
WHEREAS, the Trust and the Underwriter desire that Trust shares be
used as an investment vehicle for separate accounts established for variable
life insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the Commission, dated
November 16, 1993 (File No. 812-8546), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3
(T) (b) (15) thereunder, to the extent necessary to permit shares of the Trust
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Shared Funding Exemptive
Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable annuity contracts and variable life insurance policies with the
form number(s) which are listed on Schedule C attached hereto and incorporated
herein by this reference, as such Schedule C may be amended from time to time
hereafter by mutual written agreement of all parties hereto, under which the
Portfolios are to be made available as investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended ("Advisers Act") and any applicable state
securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's
agent for receipt of purchase orders and requests for redemption relating to
each Portfolio from each Account, provided that the Company notifies the Trust
of such purchase orders and requests for redemption by 10:00 a.m. Eastern time
on the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the Commission, and the
Trust shall use its best efforts to calculate such net asset value on each day
on which the New York Stock Exchange ("NYSE") is open for trading. The Company
will transmit orders from time to time to the Trust for the purchase of shares
of the Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of the Federal Reserve
Bank, which is 6:00 p.m. Eastern time, on the next Business Day after the Trust
receives the purchase order. If payment in federal funds for any purchase is not
received by the Trust or its designated custodian or is received after such
time, the Company shall promptly upon the Trust's written request, reimburse the
Trust for any charges, costs, fees, interest, or other expenses incurred by the
Trust in connection with any advances to, or borrowings or overdrafts by, the
Trust, or any similar expenses incurred by the Trust as a result of transactions
effected by the Trust based upon such purchase order. Payment shall be made in
federal funds transmitted by wire to the Trust. Upon receipt by the Trust of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Trust calculates its net asset value pursuant to
the rules of the Commission.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of the Federal Reserve Bank, which is 6:00 p.m. Eastern
time on the next Business Day after the receipt of the request for redemption.
If payment in federal funds for any redemption request is received by the
Company after such time, the Trust shall promptly upon the Company's written
request, reimburse the Company for any charges, costs, fees, interest, or other
expenses incurred by the Company as a result of such failure to provide
redemption proceeds within the specified time. Notwithstanding the foregoing,
such payment may be delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice
to the Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the
Contracts shall be invested in the Trust, in such other Funds advised by an
Adviser or its affiliates as may be mutually agreed to in writing by the parties
hereto, or in the Company's general account, provided that such amounts may also
be invested in an investment company other than the Trust if: (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.10 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
2.1 The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of its shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of
any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners. The Company shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions), prospectuses and statements of additional
information to Contract owners. The Company assumes sole responsibility for
ensuring that such materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i)
solicit voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Trust shares held in any segregated asset
account in its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" without prior written consent, and upon termination of this
Agreement for any reason, the Company shall cease all use of any such name or
mark as soon as reasonably practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust
or its designee, at least one complete copy of each registration statement,
prospectus, statement of additional information, report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that refer to the Trust or affiliates of the Trust: advertisements
(such as material published or designed for use in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures or electronic communication or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts or any other advertisement, sales literature or
published article or electronic communication), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
statements of additional information, reports and proxy materials.
2.7 The Company and its agents shall not give any information or make
any representations or statements on behalf of the Trust or concerning the
Trust, the Underwriter or an Adviser in connection with the sale of the
Contracts other than information or representations contained in and accurately
derived from the registration statement or prospectus for the Trust shares (as
such registration statement and prospectus may be amended or supplemented from
time to time), annual and semi-annual reports of the Trust, Trust-sponsored
proxy statements, or in sales literature or other promotional material approved
by the Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of registration
statements, prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.9 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.10 So long as, and to the extent that, the Commission interprets the
1940 Act to require pass-through voting privileges for Contract owners, the
Company will provide pass-through voting privileges to Contract owners whose
Contract values are invested, through the registered Accounts, in shares of one
or more Portfolios of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each
registered Account, the Company will vote shares of each Portfolio of the Trust
held by a registered Account and for which no timely voting instructions from
Contract owners are received in the same proportion as those shares held by that
registered Account for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the solicitation
of proxies for Portfolio shares held to fund the Contracts without the prior
written consent of the Trust, which consent may be withheld in the Trust's sole
discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation
to the Company under this Agreement except as provided on Schedule E, if
attached. Nevertheless, the Trust or the Underwriter or an affiliate may make
payments (other than pursuant to a Rule 12b-1 Plan) to the Company or its
affiliates or to the Contracts' underwriter in amounts agreed to by the
Underwriter in writing and such payments may be made out of fees otherwise
payable to the Underwriter or its affiliates, profits of the Underwriter or its
affiliates, or other resources available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Iowa and that
it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated asset account for the Contracts, unless an exemption from
registration is available.
3.3 The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as
a "regulated investment company" under Subchapter M of the Code, that it will
make every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to
make any payments to finance distribution expenses pursuant to Rule 12b-1 under
the 1940 Act, the Trustees, including a majority who are not "interested
persons" of the Trust under the 1940 Act ( "disinterested Trustees" ), will
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage which covers losses
to the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make
payments to finance its distribution expenses, including service fees, pursuant
to a Plan adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although
it may determine to discontinue such practice in the future. To the extent that
any Class of the Trust finances its distribution expenses pursuant to a Plan
adopted under Rule 12b-1, the Trust undertakes to comply with any then current
SEC and SEC staff interpretations concerning Rule 12b-1 or any successor
provisions.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e. , annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, or offering to the affected Contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Trust be required to establish a new funding medium for the Contracts.
In the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless
the Trust and each of its Trustees, officers, employees and
agents and each person, if any, who controls the Trust within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually the "Indemnified Party"
for purposes of this Article V) against any and all losses,
claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company, which
consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending
any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or
at common law or otherwise, insofar as such Losses are related
to the sale or acquisition of Trust Shares or the Contracts
and
(i) arise out of or are based upon any
untrue statements or alleged untrue statements of any
material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts
themselves or in sales literature generated or
approved by the Company on behalf of the Contracts or
Accounts (or any amendment or supplement to any of
the foregoing) (collectively, "Company Documents" for
the purposes of this Article V), or arise out of or
are based upon the omission or the alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the
Company by or on behalf of the Trust for use in
Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(ii) arise out of or result from statements
or representations (other than statements or
representations contained in and accurately derived
from Trust Documents as defined in Section 5.2
(a)(i)) or wrongful conduct of the Company or persons
under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue
statement or alleged untrue statement of a material
fact contained in Trust Documents as defined in
Section 5.2(a)(i) or the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading if such statement or omission
was made in reliance upon and accurately derived from
written information furnished to the Trust by or on
behalf of the Company; or
(iv) arise out of or result from any failure
by the Company to provide the services or furnish the
materials required under the terms of this Agreement;
or
(v) arise out of or result from any material
breach of any representation and/or warranty made by
the Company in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Company.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses to which
an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is
applicable. The Company shall also not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the
Trust shares or the Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the
Company, the underwriter of the Contracts and each of its directors and
officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually an "Indemnified Party" for purposes of this
Section 5.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending
any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively,
"Losses") to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such Losses are related
to the sale or acquisition of the Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the Registration Statement, prospectus or sales
literature of the Trust (or any amendment or supplement to any
of the foregoing) (collectively, the "Trust Documents") or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Underwriter or Trust by or on behalf of the Company for
use in the Registration Statement or prospectus for the Trust
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter
or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or
Trust shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus or sales literature
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Trust; or
(iv) arise as a result of any failure by the Trust to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification representation specified in Section 3.7 of this
Agreement and the diversification requirements specified in
Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is
applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Underwriter in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Underwriter of any such
claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issuance or sale of
the Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 5.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust, which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and arise out of
or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by the Trust; as
limited by and in accordance with the provisions of Section 5.3(b) and
5.3(c) hereof. It is understood and expressly stipulated that neither
the holders of shares of the Trust nor any Trustee, officer, agent or
employee of the Trust shall be personally liable hereunder, nor shall
any resort to be had to other private property for the satisfaction of
any claim or obligation hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against any Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Company, the
Trust, the Underwriter or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claims shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure
to notify the Trust of any such claim shall not relieve the Trust from
any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, the Trust will be entitled to participate, at
its own expense, in the defense thereof. The Trust also shall be
entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Trust to such
party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Trust will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify
the Trust of the commencement of any litigation or proceedings against
it or any of its respective officers or directors in connection with
this Agreement, the issuance or sale of the Contracts, with respect to
the operation of either the Account, or the sale or acquisition of
share of the Trust.
ARTICLE VI.
Termination
6.1 This Agreement may be terminated by any party in its entirety or
with respect to one, some or all Portfolios or any reason by sixty (60) days
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment, as that term is used in the 1940
Act.
6.2 This Agreement may be terminated immediately by either the Trust or
the Underwriter following consultation with the Trustees upon written notice to
the Company if :
(a) either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity; or
(b) if the Company gives the Trust and the Underwriter the
written notice specified in Section 1.10 hereof and at the same time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however, that
any termination under this Section 6.4(b) shall be effective forty-five
(45) days after the notice specified in Section 1.10 was given.
6.3 This Agreement may be terminated immediately by the Company upon
written notice to the Trust and the Underwriter, if the Company shall determine,
in its sole judgment exercised in good faith, that either the Trust or the
Underwriter has suffered a material adverse change in its business, operations,
financial conditions or prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.4 If this Agreement is terminated for any reason, except under to
Article IV (Potential Conflicts) above, the Trust shall, at the option of the
Company, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
6.5 The provisions of Articles II (Representations and Warranties) and
V (Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.4, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.6 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the Commission pursuant to Section 26(b) of the 1940
Act. Upon request, the Company will promptly furnish to the Trust and the
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Trust and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Trust or the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L.Skidmore,
Senior Corporate Counsel
If to the Company:
CUNA Mutual Life Insurance Company
5910 Mineral Point Road
Madison, WI 53701-0391
Attention: Linda Lilledahl,
Associate General Counsel
ARTICLE VIII.
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
It shall also be subject to the provisions of the federal securities laws and
the rules and regulations thereunder and to any orders of the Commission
granting exemptive relief therefrom and the conditions of such orders. Copies of
any such orders shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in Section
1.10.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly
authorized officers to execute this Participation Agreement as of the date and
year first above written.
The Company:
CUNA Mutual Life Insurance Company
By its authorized officer
By: /s/ Michael B. Kitchen
Name: Michael B. Kitchen
Title: President and Chief Executive Officer
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By: /s/ Karen L. Skidmore
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By: /s/ Deborah R. Gatzek
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
Compensation Schedule
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
TEMPLETON DEVELOPING MARKETS FUND 0.25%
Agreement Provisions
If the Company, of behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under
the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") provide administrative and other services which assist in
the promotion and distribution of Eligible Shares or Variable Contracts offering
Eligible Shares, the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other services" may
include, but are not limited to, furnishing personal services to owners of
Contracts which may invest in Eligible Shares ("Contact Owners"), answering
routine inquiries regarding a Portfolio, coordinating responses to Contract
Owner inquiries regarding the Portfolios, maintaining such accounts or providing
such other enhanced services as a Trust Portfolio or Contract may require,
maintaining customer accounts and records, or providing other services eligible
for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the amounts
expended under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must
be approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested Trustees,
or by a vote of a majority of the outstanding shares as provided in the Plan, on
sixty (60) days' written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting Agreement between
the Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
The CUNA Mutual Life Insurance Company, Templeton Variable Products
Series Fund, and Franklin Templeton Distributors, Inc. hereby amend their
Participation Agreement dated as of March 31, 1997 ("Agreement"), by: 1.
Replacing Schedules A, B and C of the Agreement with Amended Schedule A-C,
attached; 2. Replacing Schedule D of the Agreement with Amended Schedule D,
attached.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Amendment to the Participation Agreement, to be
effective as of September 22, 1999.
CUNA Mutual Life Insurance Company Templeton Variable Products Series Fund
By its authorized officer By its authorized officer
By: /s/ Michael B. Kitchen By: /a/ Karen L. Skidmore
Name: Michael B. Kitchen Name: Karen L. Skidmore
Title: President and Chief
Executive Officer Title: Assistant Vice President and
Assistant Secretary
Franklin Templeton Distributors, Inc.
By its authorized officer
By: /s/ Deborah Gatzek
Name: Deborah Gatzek
Title: Senior Vice President
<PAGE>
SCHEDULE A-C
Contracts Issued by CUNA Mutual Life Insurance Company
<TABLE>
<CAPTION>
Contract 1 Contract 2 Contract 3 Contract 4
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
CU Pension Saver Group
Annuity
Contract/Product Members Variable Annuity MEMBERS Variable MEMBERS Variable Universal
Name and Type UltraSaver Group Annuity Universal Life Life II
CU UltraSaver Group Annuity
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
Registered (Y/N) Y N Y Y
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
SEC Registration 033-73738 N/A 033-19718 333-81499
Number - 1933 Act
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
Representative Form 1676 01-GA-2-0390 190D 99-VUL
Numbers
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
CUNA Mutual Life Variable CUNA Mutual Life Group CUNA Mutual Life Variable CUNA Mutual Life Variable
Separate Account Annuity Account Variable Annuity Account Account Account
Name (December 14, 1993) (August 16, 1983) (August 16, 1983) (August 16, 1983)
(Date Established)
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
SEC Registration 811-08260 N/A 811-03915 811-03915
Number - 1940 Act
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
TVP - Templeton
Templeton Variable TVP - Templeton Developing TVP - Templeton Developing Developing Markets Fund - TVP - Templeton Developing
Products Series Fund Markets Fund - Class 2 Markets Fund - Class 2 Class 2 Markets Fund - Class 2
("TVP") -Portfolios Templeton Asset Templeton Asset Management, Templeton Asset Templeton Asset
Classes -Adviser Management, Ltd. Ltd. Management, Ltd. Management, Ltd.
- -------------------- --------------------------- --------------------------- ------------------------- ----------------------------
</TABLE>
<PAGE>
SCHEDULE D
Other Portfolios Available in CUNA Contracts
1. Investment Company: CIMCO Ultra Series Fund
Portfolios: Money Market Fund
Bond Fund
Balanced Fund
Growth & Income Stock Fund
Capital Appreciation Stock Fund
2. Investment Company: MFS(R) Variable Insurance TrustSM
Portfolios: MFS(R) Global Governments SeriesSM
MFS(R) Emerging Growth SeriesSM
3. Investment Company: T. Rowe Price International Series, Inc.
Portfolio: International Stock Portfolio
4. Investment Company: Oppenheimer Variable Account Funds
Portfolio: Oppenheimer High Income Fund
<PAGE>
[CUNA MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
October 5, 1999
Board of Directors
CUNA Mutual Life Insurance Company
2000 Heritage Way
Waverly, Iowa 50677-9202
Re: CUNA Mutual Life Insurance Company
CUNA Mutual Life Variable Account
File Nos. 333-81499/811-03915
Directors:
I have acted as counsel to CUNA Mutual Life Insurance Company (the
"Company") and CUNA Mutual Life Variable Account (the "Account") in connection
with the registration of an indefinite amount of securities in the form of
variable life insurance policies (the "Policies") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. I have
examined such corporate records and other documents, including pre-effective
amendment number one to the Form S-6 registration statement for the Policies
(File No. 333-81499) and reviewed such questions of law as I considered
necessary and appropriate, and on the basis of such examination and review, it
is my opinion that:
1. The Company is a corporation duly organized and validly
existing as a mutual life insurance company under the laws of
the State of Iowa and is duly authorized by the Commissioner
of Insurance of the State of Iowa to issue the Policies.
2. The Account is a segregated asset account duly established and
maintained by the Company pursuant to the provisions of
Section 508 of the Iowa Insurance Law.
3. The assets of the Account are and will be owned by the
Company. To the extent so provided under the Policies, that
portion of the assets of the Account equal to the reserves and
other contract liabilities with respect to the Account will
not be chargeable with liabilities arising out of any other
business that the Company may conduct.
4. The Policies have been duly authorized by the Company and,
when issued as contemplated by the registration statement for
the Policies in jurisdictions authorizing such sales, will
constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement for the Policies and the Account.
Sincerely,
/s/ Kevin S. Thompson, Esq.
Kevin S. Thompson, Esq.
Assistant Counsel
<PAGE>
Description Of Issuance, Transfer And Redemption Procedures
For Flexible Premium Variable Life Insurance Policies (99-VUL)
Issued By CUNA Mutual Life Insurance Company
September 1999
This document sets forth the administrative procedures, as
required by Rule 6e-3(T)(b)(12)(iii), that will be followed by CUNA Mutual Life
Insurance Company (the "Company" or "we") in connection with the issuance of
MEMBERS Variable Universal Life II, a flexible premium variable life insurance
policy ("Policy" or "Policies") and acceptance of payments thereunder, the
transfer of assets held thereunder, and the redemption by owners of the Policy
("owners") of their interests in those Policies. Terms used herein have the same
definition as in the prospectus for the Policy that is included in the current
registration statement on Form S-6 for the Policy (File No. 333-81499) as filed
with the Securities and Exchange Commission ("Commission" or "SEC").
I. Procedures Relating to Purchase and Issuance of the Policies and Acceptance
of Premiums
A. Offer of the Policies, Application, Initial Premium, and Issuance
Offer of the Policies. The Policies are offered and issued pursuant to
underwriting standards in accordance with state insurance laws. The
initial required premium for the Policies is not the same for all
owners with the same specified amount. Insurance is based on the
principle of pooling and distribution of mortality risks, which
assumes that each owner pays an initial premium commensurate with the
insured's mortality risk as actuarially determined utilizing factors
such as age, gender, and rate class of the insured. Uniform premiums
for all insureds would discriminate unfairly in favor of those
insureds representing greater risk. Although there is no uniform
premium for all insureds, there is a uniform premium for all insureds
of the same rate class, age, and gender and same specified amount.
Application. Persons wishing to purchase a policy must complete an
application and submit it to the Company or through any licensed life
insurance agent who is also a registered representative of a
broker-dealer having a selling agreement with the principal
underwriter for the policy. The application must specify the name of
the insured(s) and provide certain required information about the
insured(s). The application must designate the requested specified
amount, death benefit option, planned premium, premium allocation
percentages, and name the beneficiary. The minimum specified amount is
$50,000 ($25,000 for issue ages 65+). The Company determines the
initial required premium for a Policy based on the specified amount
and other characteristics of the proposed insured, such as age, gender
and rate class.
Receipt of Application and Underwriting. Upon receipt of a completed
application in good order from an applicant, the Company will use
underwriting procedures for life insurance designed to determine
whether the proposed insured is insurable. This process may involve
such verification procedures as medical examinations and may require
that further information be provided about the proposed insured before
a determination can be made.
The underwriting process determines the rate class to which the
insured is assigned if the application is accepted. The Company
currently places insureds in the following rate classes, based on the
Company's underwriting: a male or female rate class, a tobacco use or
a non-tobacco use rate class, and a preferred or standard health
class. Substandard rate classes are also offered. This original rate
class applies to the initial specified amount.
The Company reserves the right to reject an application for any reason
permitted by law. If an application is rejected, any premium received
will be returned, without interest.
Issuance of Policy. When the underwriting procedure has been
completed, the application has been approved, and an initial premium
of sufficient amount has been received, the Policy is issued. This is
the policy issue date.
The Policy issue date is the date when our underwriting is complete,
full life insurance coverage goes into effect, the Company issues the
Policy, and the Company begins to make monthly deductions. The Policy
issue date is shown on the schedule page of the Policy. It is also the
date when the Company will allocate the initial premium to the
subaccounts and fixed account selected on the application. We measure
Policy months, years, and anniversaries from the Policy issue date.
Initial Premium and Temporary Insurance Coverage . Upon receipt of a
completed application and full initial required premium, the Temporary
Insurance Agreement provides a limited amount of life insurance on the
proposed insured(s) for a limited time while we consider the
application for life insurance. The amount of temporary coverage in
effect for any proposed insured is based upon the completion date of
all supplemental applications and medical exams required by our
published underwriting rules.
The amounts are as follows:
1. 50% of the specified amount applied for up to a maximum benefit
of $150,000 per proposed insured until such time the requirements
as stated above have been met; or
2. 100% of the specified amount applied for up to a maximum benefit
of $300,000 per proposed insured upon completion of such
requirements.
No coverage will take effect under this Agreement if:
1. the proposed insured commits suicide;
2. the application contains material misrepresentations or is
fraudulently completed;
3. any proposed insured has received or sought treatment for cancer,
stroke, any disease or disorder of heart, liver, or immune system
within the 12 months prior to the application;
4. any proposed insured has been advised to be hospitalized or is a
patient in a hospital or medical facility;
5. a check or draft received in payment is not honored for payment
when first presented.
Coverage does not apply to riders involving waiver of premium or
accidental death benefits, and coverage under the Temporary Insurance
Agreement ends on the earliest of the following: (1) the issue date,
(2) when we make an offer of coverage other than as applied for, (3)
when we mail notice to the owners of our decision to decline coverage;
(4) when the owner request cancellation, or (5) 60 days after the date
of the application, if allowed by state law. Tax-Free Exchanges (1035
Exchanges). The Company will accept as part of the initial premium
money from one or more contracts that qualified for a tax-free
exchange under Section 1035 of the Internal Revenue Code.
B. Additional Premiums
Additional Premiums Permitted. The owner has flexibility to add
additional premiums to the Policy, up to the maximum amount specified
by Section 7702 of the Internal Revenue Code. The Company reserves the
right to limit or refund any premium if: the amount is below our
current minimum additional premium requirement; or the premium would
increase the death benefit by more than the amount of the premium; or
accepting the premium would disqualify the Policy as a life insurance
contract as defined in federal tax laws and regulations.
An owner may pay premiums by any method the Company deems acceptable.
The Company will treat any payment made as a premium payment unless it
is clearly marked as a loan repayment.
C. Crediting Premiums
Initial Premium. The initial premium will be credited to the Policy on
the Policy issue date. Once the Company determines that the insured(s)
meets its underwriting requirements, full insurance coverage begins,
the Company issues the Policy, and begins to make monthly deductions
from the policy value. On the Policy issue date, the Company will
allocate the initial premium to the subaccounts and fixed account the
owner elected on the application.
On any day that the Company credits premiums or transfers policy value
to a subaccount, the Company will convert the dollar amount of the
premium (or transfer) into subaccount units at the unit value for that
subaccount, determined at the end of that valuation day. We will
credit amounts to the subaccounts only on a valuation day, that is, on
a date the New York Stock Exchange is open for trading.
D. Premiums During a Grace Period and Premiums Upon Reinstatement
If the surrender value is less than the amount of the monthly
deduction due on any Monthly processing day, and the Basic or Extended
Guarantee is not in effect, the Policy will be in default and a grace
period will begin. If the Basic or Extended Guarantee is in effect,
the Policy will remain in force, regardless of the sufficiency of the
surrender value.
The grace period will end 61 days after the date on which the Company
sends a grace period notice stating the amount required to be paid and
the final date by which the Company must receive the payment. The
notice will be sent to the owner's last known address and to any
assignee of record. The Policy does not lapse, and the insurance
coverage continues, until the expiration of this grace period.
If the grace period ends and the Basic or Extended Guarantee is not in
effect, all coverage under the Policy will terminate without value.
The owner may reinstate the Policy only if :
1. the owner makes a written request to reinstate within five years
after termination;
2. the insured meets the Company's insurability requirements;
3. the owner pays an amount large enough to bring the surrender
value to zero and cover unpaid monthly deductions due prior to
the end of the grace period plus the anticipated amount of two
monthly deductions; and 4. any loan amount outstanding at
termination is reinstated or paid off.
E. Allocations of Initial Premium Among the Subaccounts and the Fixed
account
The Separate Account. An owner may allocate premiums to one or more of
the subaccounts of the CUNA Mutual Life Variable Account (the
"separate account"). The separate account currently consists of 11
subaccounts, the assets of which are used to purchase shares of a
designated corresponding investment portfolio of a fund. Each fund is
registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. Additional subaccounts may be
added from time to time to invest in other portfolios of the funds or
any other investment company.
When an owner allocates an amount to a subaccount (either by premium
allocation, transfer of policy value or repayment of a Policy loan),
the Policy is credited with units in that subaccount. The number of
units is determined by dividing the amount allocated, transferred or
repaid to the subaccount by the subaccount's unit value for the
valuation day when the allocation, transfer or repayment is effected.
A subaccount's unit value is determined for each valuation period by
dividing the net assets of the subaccount by the number of units
outstanding in the subaccount. The unit value for each subaccount was
arbitrarily set as $10 at the time the subaccount commenced
operations.
The Fixed Account . Owners also may allocate premiums to the fixed
account. Money allocated or transferred to the fixed account will earn
interest at a current interest rate in effect at that time. The
interest rate will equal at least 4%.
Allocations of Premium Among the Separate Account and the Fixed
account. Premiums are allocated to the subaccounts and the fixed
account in accordance with the following procedures:
General. In the application for the Policy, the owner will specify the
percentage of premium to be allocated to each subaccount of the
separate account and/or the fixed account. The percentage of each
premium that may be allocated to any subaccount or the fixed account
must be a whole number and at least 5%. The sum of the allocation
percentages must be 100%.
Allocation percentages may be changed at any time by the owner
submitting a written request to the Company's Home office. We will
also accept a faxed or telephone request if we have an original signed
telephone/fax authorization on file.
F. Loan Repayments and Interest Payments
Repaying Loan Amount. The owner may repay all or part of the loan
amount at any time while the Policy is in force and the insured is
living. The loan amount is equal to the sum of all outstanding Policy
loans including both principal and accrued interest. Loan repayments
must be sent to the Company's Home office and will be credited as of
the date received. If the death benefit becomes payable while a Policy
loan is outstanding, the loan amount will be deducted in calculating
the death benefit proceeds.
Allocation for Repayment of Policy Loans. On the date the Company
receives a repayment of all or part of a loan, loan account value
equal to the repayment will be transferred from the loan account to
the subaccounts and the fixed account and allocated in the same manner
as current premiums are allocated, or as directed by the owner.
Interest on Loan Account. The amount in the loan account will be
credited with interest at a minimum guaranteed annual effective rate
of 4%.
II. Transfers
A. Transfers Among the Subaccounts and the Fixed Account
The owner may transfer policy value between and among the subaccounts
of the separate account and, subject to certain special rules, to and
from the fixed account.
In any Policy year, the owner may make an unlimited number of
transfers; however, the Company reserves the right to impose a
transfer charge of $10 for each transfer in excess of 12 during any
Policy year. For purposes of the transfer charge, all transfer
requests made in one day are considered one transfer, regardless of
the number of subaccounts affected by the transfer. Any unused "free"
transfers do not carry over to the next year. Transfers made as part
of an automatic program, such as dollar cost averaging or portfolio
rebalancing do not count toward the 12 free transfers.
There is no minimum amount that may be transferred from each
subaccount or the fixed account and there is no minimum amount that
must remain in a subaccount or the fixed account following a transfer.
Requests to transfer from the fixed account must be received by the
Company during the 30-day period following the end of each Policy
year. Only one transfer of up to 25% of the fixed is allowed each
policy year. We are currently waiving these restrictions.
The Policy, as applied for and issued, will automatically receive
telephone/fax authorization unless the owner provides other
instructions (if allowed by state law). The telephone/fax
authorization allows the owner give authority to the registered
representative or agent of record for the Policy to make telephone
transfers, change automatic payment and transfer programs, and to
change the allocation of future payments among the subaccounts and the
fixed account on the owner's behalf according to the owner's
instructions.
The Company reserves the right to modify, restrict, suspend, or
eliminate the transfer privileges (including telephone/fax
transactions) at any time and for any reason.
B. Dollar Cost Averaging and Automatic Transfers
The dollar cost averaging program permits owners to systematically
transfer on a monthly, quarterly, semi-annual or annual basis a set
dollar amount from the money market subaccount to any combination of
subaccounts. Similarly the Automatic Transfer Program permits owners
to systematically transfer on a monthly, quarterly, semi-annual or
annual basis a set dollar amount, percentage, set number of units, or
leave a target remainder in any subaccount source fund to any of the
other subaccounts. Owners may elect to participate in either program
at any time by sending the Company a written request. We will also
accept faxed or telephone requests if we have an original signed
telephone/fax authorization on file. There is no additional charge for
these programs. The minimum transfer amount is $100 per month. A
transfer under these programs is not considered a transfer for
purposes of assessing a transfer charge. The Company reserves the
right to discontinue offering these programs at any time and for any
reason.
C. Automatic Personal Portfolio Rebalancing
An owner may instruct the Company to automatically rebalance (on a
monthly, quarterly, semi-annual or annual basis) the Policy value to
return to the percentages specified in the owner's currently effective
allocation instructions. An owner may elect to participate in the
automatic rebalancing program at any time by sending the Company a
written request to the Company's Home office. We will also accept a
faxed or telephone request if we have an original signed telephone/fax
authorization on file. The percentage allocations must be in whole
percentages. Subsequent changes to the percentage allocations may be
made at any time by written or telephone instructions to the Company's
Home office.
Once elected, automatic rebalancing remains in effect until the owner
instructs the Company to discontinue automatic rebalancing. There is
no additional charge for using automatic rebalancing, and an automatic
rebalancing transfer is not considered a transfer for purposes of
assessing a transfer charge. The Company reserves the right to
discontinue offering the automatic rebalancing program at any time and
for any reason.
D. Transfer Errors
In accordance with industry practice, the Company will establish
procedures to address and to correct errors in amounts transferred
among the subaccounts and the fixed account, except for de minimis
amounts. The Company will correct non-de minimis errors it makes and
will assume any risk associated with the error. Owners will not be
penalized in any way for errors made by the Company. The Company may
take any gain resulting from the error.
III. "Redemption" Procedures
A. Right to Examine
The Policy provides for an initial right to examine during which an
owner may cancel the Policy by returning it within 10 days to the
Company or to an agent of the Company. The right to examine period may
be longer in some states and for replacements. Upon returning the
Policy to the Company, we will treat it as if it had never been
issued. Within seven days after receipt of the cancellation request
and Policy, the Company will pay a refund. In most states, the refund
will be the total of all premiums paid for the Policy. Where this is
prohibited by state law, the company will pay the sum of
o any monthly deductions or other charges we deducted from amounts
allocated to the subaccounts and the fixed account; plus
o the policy value in the subaccounts and the fixed account on the
date the Company (or its agent) receives the returned Policy
B. Surrenders
Requests for Surrender Value. The owner may surrender the Policy at
any time for its surrender value. The surrender value on any valuation
day is the policy value, minus any applicable surrender charge, and
minus any applicable loan amount. The surrender value will be
determined by the Company on the valuation day we receive all required
documents, including a satisfactory written request signed by the
owner. The Company will cancel the Policy as of the date the written
request is received at the our Home office and we will ordinarily pay
the surrender value within seven days following receipt of the written
request and all other required documents. The Policy cannot be
reinstated after it is surrendered.
Surrender of Policy -- Surrender Charge. If the Policy is surrendered
during the first 9 Policy years, the Company will deduct a surrender
charge from the policy value and pay the remaining policy value (less
any outstanding loan amounts) to the owner. The surrender charge
gradually decreases to zero after the ninth Policy year.
C. Partial Withdrawals
When Partial Withdrawals are Permitted. The owner may withdraw a
portion of the policy value, subject to the following conditions:
o The owner must make partial withdrawal requests in writing or for
withdrawals up to $7500, by fax or telephone if the company has
an original signed telephone/fax authorization on file.
o The owner can specify the subaccount(s) and the fixed account
from which the withdrawal will be taken. Otherwise, the Company
will deduct the amount from the separate account and the fixed
account on a pro-rata basis.
o The Company generally will pay a partial withdrawal request
within seven days following the valuation day on which the
withdrawal request is received.
o There is currently no charge for a partial withdrawal. The
company reserves the right to charge the lessor of 2% of the
partial withdrawal or $25.
o The maximum partial withdrawal is the surrender value less the
next two anticipated monthly deductions.
o There is a contractual limit of 2 partial withdrawals per year.
This limit is currently being waived.
o The company reserves the right to decline a partial withdrawal
request if the remaining specified amount would be below the
minimum specified amount necessary to issue a new policy.
The Company may delay making a payment if: (1) the disposal or
valuation of the separate account's assets is not reasonably
practicable because the New York Stock Exchange is closed for other
than a regular holiday or weekend, trading is restricted by the SEC,
or the SEC declares that an emergency exists; or (2) the SEC by order
permits postponement of payment to protect the Policy owners. The
Company also may defer making payments attributable to a check that
has not cleared, and may defer payment of proceeds from the fixed
account for a withdrawal, surrender or Policy loan request for up to
six months from the date the request is received. The Company will not
defer payment of a withdrawal or Policy loan requested to pay a
premium due on a policy issued by the Company.
Effect of Withdrawal on Death Benefit. A partial withdrawal will
reduce the policy value by the amount of the partial withdrawal. A
partial withdrawal will reduce the specified amount by an equal amount
if death benefit option 1 is in effect. A partial withdrawal will also
reduce the Basic and/or Extended Guarantee premiums paid by the amount
the partial withdrawal. (This effectively increases the premium
requirement for these guaranteeds by the amount of the withdrawal.)
D. Lapses
If a sufficient premium has not been received by the 61st day after a
grace period notice is sent, the Policy will lapse without value and
no amount will be payable to the owner.
E. Monthly Deduction and Daily Charge
On each Monthly processing day, redemptions in the form of deductions
will be made from policy value for the monthly deduction. The monthly
deduction consists of these components: (a) the cost of insurance
charge; (b) a monthly Policy fee; (c) a monthly administrative charge
(first 10 policy years and first 10 years after a specified amount
increase) and (d) charges for additional benefits added by riders to
the Policy, if any.
The Monthly Deduction. A monthly deduction will be deducted from each
subaccount and the fixed account on the Policy issue date and on each
Monthly processing day on a pro-rata basis (i.e., in the same
proportion that the value in each subaccount and the fixed account
bears to the total policy value on the Monthly processing day).
The monthly deduction is equal to:
o the monthly Policy fee of $6; plus
o the monthly administrative charge ($0.0375 per $1000 of specified
amount for years 1-10); plus
o the monthly cost of insurance charge for the Policy; plus
o the monthly charge for benefits provided by riders attached to
the Policy, if any.
Cost of Insurance Charge. The cost of insurance charges are calculated
monthly, and depend on a number of variables, including the age,
gender and rate class of the insured. The charge varies from Policy to
Policy and from Monthly processing day to Monthly processing day. The
charge is calculated each month based on the specified amount for
option 2 contracts and the net amount at risk for option 1 contracts.
Daily Charge. Each valuation day, the Company deducts a daily charge
at the annual rate of 0.90% from assets in the subaccounts as part of
the calculation of the unit value for each subaccount.
F. Death Benefit Proceeds
Payment of Death Benefit Proceeds. As long as the Policy remains in
force, the Company will pay the death benefit proceeds to the
beneficiary upon receipt at the Company's Home office of due proof of
the insured's death.
The death benefit proceeds will be paid to the beneficiary in a lump
sum generally within seven days after the valuation day by which the
Company has received at it's Home office all materials necessary to
constitute due proof of death. If a payment option is elected, the
death benefit will be applied to the option within seven days after
the valuation day by which the Company received due proof of death and
payments will begin as provided under that option.
The Death Benefit Proceeds. The death benefit proceeds will equal:
o the death benefit (described below) on the date of death; plus
o any premiums received after the date of death; minus
o any past due monthly deductions if the insured dies during the
grace period; minus
o any outstanding loan amount on the date of death; minus
o any partial withdrawals taken after the date of death.
If all or part of the death benefit proceeds are paid in one sum, we
will pay interest on this sum as required by applicable state law from
the date we receive due proof of the insured's death to the date the
Company makes payment.
The Death Benefit Option. The owner selects the death benefit option
at issue. Death benefit option 1 proceeds a level death benefit. The
cost of insurance is based on the net amount at risk, which decreases
as the policy value increases and increases as the policy value
decreases for death benefit option 1. Death benefit option 2 provides
a level net amount at risk, equal to the specified amount and the
death benefit is equal to the specified amount plus the policy value.
The Death Benefit. The death benefit is determined at the end of the
valuation period in which the insured dies. The death benefit is equal
to:
o the current specified amount for death benefit option 1 policies;
or
o the current specified amount plus the policy value for death
benefit option 2 policies;
o but in no case less than a specified percentage, called the death
benefit percentage, multiplied by the policy value on the
insured's date of death.
G. Policy Loans
Policy Loans. The owner may obtain a Policy loan from the Company at
any time by submitting a written, faxed, or telephone request to the
Company's Home office. The maximum loan amount is 90% (100% in some
states) of the policy value at the time of the loan. Policy loans will
be processed as of the valuation day the request is received and loan
proceeds generally will be sent to the owner within seven days
thereafter. Premiums paid for purposes of the Basic and Extended
Guarantee Requirements will be reduced by the amount of any policy
loans taken.
Collateral for Policy Loans. When a Policy loan is made, an amount
equal to the loan proceeds is transferred from the policy value in the
subaccounts or fixed account to the loan account.
Interest on Loan Amount. The Company charges interest daily on any
outstanding loan amount at an effective annual interest rate of 6%
(and a maximum of 4.5% after policy year 10). Interest is due and
payable at the end of each Policy year. On each Policy anniversary,
any unpaid loan interest accrued since the last Policy anniversary
becomes part of the outstanding loan amount. This unpaid interest will
also reduce premiums paid for purposes of the Basic and Extended
Guarantee premium requirements. An amount equal to the unpaid interest
is transferred to the loan account from each subaccount and the fixed
account on a pro-rata basis.
Effect on Death Benefit Proceeds. If the death benefit becomes payable
while a Policy loan is outstanding, the loan amount will be deducted
in calculating the death benefit proceeds.
H. Lump Sum Payments by the Company
Lump sum payments of partial withdrawals, surrenders or loans from the
subaccounts will be ordinarily made within seven days of the valuation
day on which the Company receives the request and all required
documentation at the Company's Home office. The Company may postpone
the processing of any such transactions for any of the following
reasons:
1. If the disposal or valuation of the separate account's assets is
not reasonably practicable because the New York Stock Exchange
("NYSE") is closed for trading other than for customary holiday
or the weekend closings, or trading on the NYSE is otherwise
restricted, or an emergency exists, as determined by the
Securities and Exchange Commission ("SEC").
2. When the SEC by order permits a delay for the protection of
owners.
3. If the payment is attributable to a check that has not cleared.
The Company may defer for up to six months after the date the Company
receives the request, the payment of any proceeds from the fixed
account for a partial withdrawal, or surrender, or loan request
request.
I. Conversion Right
The owner has the right to transfer all of the subaccount value to the
fixed account. During the first 24 Policy months, such a transfer is
not counted for purposes of determining whether a transfer charge
applies.
J. Redemption Errors
In accordance with industry practice, the Company will establish
procedures to address and to correct errors in amounts redeemed from
the subaccounts and the fixed account, except for de minimus amounts.
The Company will assume the risk of any non de minimus errors caused
by the Company.
K. Misstatement of Age or Sex
For a Policy based on male or female cost of insurance rates, if the
insured's age or gender has been misstated, an adjustment will be made
to reflect the correct age and gender as follows (unless a different
result is required by state law):
a. If the misstatement is discovered at death, the death benefit
amount will be adjusted based on what the cost of insurance rate
as of the most recent monthly processing day would have purchased
at the insured's correct age and gender.
b. If the misstatement is discovered prior to death, the cost of
insurance rate will be adjusted based on the insured's correct
age and gender beginning on the next monthly processing day.
For a Policy based on blended cost of insurance rates (see data page
for basis), a misstatement of gender will not result in an adjustment.
However, if the insured's age has been misstated, an adjustment will
be made to reflect the correct age as follows (unless a different
result is required by state law):
a. If the misstatement is discovered at death, the death benefit
amount will be adjusted based on what the cost of insurance rate
as of the most recent monthly processing day would have purchased
at the insured's correct age.
b. If the misstatement is discovered prior to death, the cost of
insurance rate will be adjusted based on the insured's correct
age beginning on the next monthly processing day.
L. Incontestability
The Policy limits the Company's right to contest the Policy as issued
or as increased, for reasons of material misstatements contained in
the application or supplemental application, after it has been in
force during the insured's lifetime for two years from the Policy
issue date, increase date, or reinstatement date.
M. Limited Death Benefit
The Policy limits the death benefit if the insured dies by suicide
generally within two years after the Policy issue date of the Policy
(or reinstatement date, if allowed by state law).
