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SUPPLEMENT DATED MARCH 1, 1996
TO PROSPECTUS
DATED MAY 1, 1995
FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
FARM BUREAU LIFE INSURANCE COMPANY
DEFINITIONS
The definition of the term "Attained Age" is changed to: "The Insured's age
on his or her last birthday plus the number of Policy Years since the Policy
Date."
FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT: FARM BUREAU LIFE
INSURANCE COMPANY
In addition to the eight states listed on page 9 of the Prospectus, the
Company is also admitted to do business in, and may offer life insurance
policies (including the Policy) in Idaho, Montana and Wyoming.
THE POLICY: PURCHASING THE POLICY
The second sentence under this caption on page 13 of the Prospectus is
replaced with the following: "A Policy ordinarily will be issued only for
Insureds who are 0 to 80 years of age at their last birthday and who supply
satisfactory evidence of insurability to the Company."
THE POLICY: EXCHANGE PRIVILEGE
The first paragraph under this caption on page 16 of the Prospectus is
amended to reflect that the Company will permit the owner of a flexible premium
fixed-benefit life insurance policy issued by Western Farm Bureau Life Insurance
Company (an affiliate of the Company) to exchange such fixed-benefit policy for
a Policy on the same basis as is permitted for fixed-benefit policies of the
Company.
POLICY BENEFITS: SUICIDE EXCLUSION
With regard to both the Policy coming into force and the effectiveness of
any increase in Specified Amount, the suicide exclusion runs for one year rather
than two years. This information supplements the disclosure on page 32 of the
Prospectus.
GENERAL PROVISIONS: ADDITIONAL INSURANCE BENEFITS
The first sentence under this caption on page 33 of the Prospectus is
replaced with the following: "Subject to certain requirements, one or more of
the following additional insurance benefits may be added to a Policy by rider:
(i) Universal Cost of Living Increase, (ii) Universal Waiver of Charges, (iii)
Universal Adult Term Insurance, (iv) Universal Children's Term Insurance, and
(v) Universal Guaranteed Insurability Option."
APPENDIX A: ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The illustrations on pages A-2 through A-17 are amended to reflect the age
at last birthday.
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PROSPECTUS
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Farm Bureau Life Variable Account
Flexible Premium Variable Life Insurance Policy
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This Prospectus describes a flexible premium variable life insurance policy (the
"Policy") issued by Farm Bureau Life Insurance Company (the "Company"). This
type of life insurance is also commonly called variable universal life. The
Policy is designed to provide lifetime insurance protection to age 95. The
Policy permits the policyowner to vary premium payments and adjust the death
proceeds payable under the Policy. The Policy has been designed for maximum
flexibility in meeting changing insurance needs.
The minimum specified amount for which a Policy will be issued is normally
$25,000. The Policy provides for the payment of the death proceeds upon the
death of the insured and for a net cash value that can be obtained upon complete
or partial surrender of the Policy. Death proceeds may, and cash value will,
vary with the investment experience of Farm Bureau Life Variable Account (the
"Variable Account"). THE POLICYOWNER BEARS THE ENTIRE INVESTMENT RISK; THERE IS
NO GUARANTEED MINIMUM CASH VALUE. The Policy also provides for loans using the
Policy as collateral. The Policy will remain in force so long as net cash value
is sufficient to pay certain monthly charges imposed in connection with the
Policy.
A policyowner may allocate net premiums under a Policy to one or more of the
subaccounts of the Variable Account. Each Subaccount invests exclusively in a
corresponding Portfolio of FBL Variable Insurance Series Fund (the "Fund"). The
accompanying prospectus for the Fund describes the investment objectives and
attendant risks of each of the Portfolios of the Fund.
Net premiums may also be allocated to the Declared Interest Option. The Declared
Interest Option is supported by the Company's General Account. Cash value
allocated to the Declared Interest Option is credited with interest at a
declared rate guaranteed to be at least 4.5%.
This Prospectus generally describes only the portion of the Policy involving the
Variable Account. For a brief summary of the Declared Interest Option, see "THE
DECLARED INTEREST OPTION".
A policy may be treated as a modified endowment contract depending upon the
amount of premiums paid in relation to the death benefit provided under such
Policy. If a contract is a modified endowment contract any loan, partial
surrender, surrender and/or assignment of the policy could result in adverse tax
consequences and/or penalties.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR FBL
VARIABLE INSURANCE SERIES FUND.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
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Issued By
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS..................................................................... 3
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SUMMARY......................................................................... 5
The Policy......................................... 5
The Variable Account............................... 5
The Declared Interest Option....................... 5
Premiums........................................... 5
Policy Benefits.................................... 6
Charges............................................ 7
Distribution of the Policies....................... 8
Tax Treatment...................................... 8
Cancellation Privilege............................. 8
Illustrations...................................... 8
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FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT..................... 9
Farm Bureau Life Insurance Company................. 9
Iowa Farm Bureau Federation........................ 9
The Variable Account............................... 9
FBL Variable Insurance Series Fund................. 9
Addition, Deletion or Substitution of Investments.. 11
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THE POLICY...................................................................... 12
Purpose of the Policy.............................. 12
Purchasing the Policy.............................. 13
Premiums........................................... 13
Policy Lapse and Reinstatement..................... 14
Examination of Policy (Cancellation Privilege)..... 15
Special Transfer Privilege......................... 15
Exchange Privilege................................. 16
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POLICY BENEFITS................................................................. 16
Cash Value Benefits................................ 16
Transfers.......................................... 19
Loan Benefits...................................... 19
Death Proceeds..................................... 21
Accelerated Payments of Death Proceeds............. 23
Benefits at Maturity............................... 24
Payment Options.................................... 24
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CHARGES AND DEDUCTIONS.......................................................... 25
Premium Expense Charge............................. 26
Monthly Deduction.................................. 26
Transfer Charge.................................... 29
Surrender Charge................................... 29
Variable Account Charges........................... 29
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THE DECLARED INTEREST OPTION.................................................... 30
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GENERAL PROVISIONS.............................................................. 31
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DISTRIBUTION OF THE POLICIES.................................................... 34
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FEDERAL TAX MATTERS............................................................. 34
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ADDITIONAL INFORMATION.......................................................... 38
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FINANCIAL STATEMENTS............................................................ 46
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APPENDIX A...................................................................... A-1
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APPENDIX B...................................................................... B-1
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</TABLE>
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO AN INVESTMENT IN A MUTUAL FUND.
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DEFINITIONS
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<TABLE>
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ATTAINED AGE................. The Insured's age on his or her birthday nearest to the Policy Date plus
the number of Policy Years since the Policy Date.
BENEFICIARY.................. The person or entity named by the Policyowner in the application or by
later designation to receive the death proceeds upon the death of the
Insured.
BUSINESS DAY................. Each day that the New York Stock Exchange is open for trading, except the
day after Thanksgiving, the day after Christmas and any day on which the
Home Office is closed because of a weather-related or comparable type of
emergency and is unable to segregate orders and redemption requests
received on that day.
CASH VALUE................... The total amount invested under the Policy. It is the sum of the values of
the Policy in each subaccount of the Variable Account plus the value of the
Policy in the Declared Interest Option.
COMPANY...................... Farm Bureau Life Insurance Company.
DECLARED INTEREST OPTION..... Net Premiums may be allocated, and Cash Value may be transferred, to the
Declared Interest Option. Cash Value in the Declared Interest Option is
credited with interest at a declared rate guaranteed to be at least 4.5%.
DUE PROOF OF DEATH........... Proof of death that is satisfactory to the Company. Such proof may consist
of the following if acceptable to the Company:
(a) A certified copy of the death certificate;
(b) A certified copy of a court decree reciting a finding of death; or
(c) Any other proof satisfactory to the Company.
FUND......................... FBL Variable Insurance Series Fund, an open-end, diversified management
investment company in which the Variable Account invests. The Fund
currently has six Portfolios: the Growth Common Stock Portfolio, the High
Grade Bond Portfolio, the High Yield Bond Portfolio, the Managed Portfolio,
the Money Market Portfolio and the Blue Chip Portfolio.
GENERAL ACCOUNT.............. The assets of the Company other than those allocated to the Variable
Account or any other separate account.
GRACE PERIOD................. The 61-day period beginning on the date the Company sends notice to the
Policyowner that Net Cash Value is insufficient to cover the monthly
deduction.
HOME OFFICE.................. The principal offices of the Company at 5400 University Avenue, West Des
Moines, Iowa 50266.
INSURED...................... The person upon whose life the Policy is issued.
ISSUE DATE................... The date which the Policy is issued and mailed to the Policyowner.
MATURITY DATE................ The Policy Anniversary nearest the Insured's 95th birthday. It is the date
on which the Policy terminates and the Policy's Cash Value less Policy Debt
becomes payable to the Policyowner or the Policyowner's estate.
MONTHLY DEDUCTION DAY........ The same date in each month as the Policy Date. The monthly deduction is
made on the Business Day coinciding with or immediately following the
Monthly Deduction Day. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.")
NET ASSET VALUE.............. The total current value of each Subaccount's securities, cash, receivables
and other assets less liabilities.
NET CASH VALUE............... The Cash Value of the Policy reduced by any outstanding Policy Debt and
increased by any unearned loan interest.
NET PREMIUM.................. The amount of premium remaining after the premium expense charge (see
"CHARGES AND DEDUCTIONS--Premium Expense Charge") has been deducted. This
amount will be allocated, according to the Policyowner's instructions,
among the subaccounts of the Variable Account and the Declared Interest
Option.
</TABLE>
3
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<TABLE>
<S> <C>
POLICY....................... The flexible premium variable life insurance policy offered by the Company
and described in this Prospectus, which term includes the Policy described
in this Prospectus, the Policy application, any supplemental applications
and any endorsements.
POLICY ANNIVERSARY........... The same date in each year as the Policy Date.
POLICY DATE.................. The date set forth on the Policy data page which is used to determine
Policy Years, Policy Months and Policy Anniversaries. The Policy Date may,
but will not always, coincide with the effective date of insurance coverage
under the Policy. (See "THE POLICY--Purchasing the Policy.")
POLICY DEBT.................. The sum of all outstanding Policy Loans and any due and unpaid policy loan
interest.
POLICY LOAN.................. An amount borrowed by the Policyowner from the Company for which the Policy
serves as the sole security. Interest on Policy Loans is payable in advance
(for the remainder of the Policy Year) upon taking a Policy Loan and upon
each Policy Anniversary thereafter (for the following Policy Year) until
the Policy Loan is repaid.
POLICY MONTH................. A one-month period beginning on a Monthly Deduction Day and ending on the
day immediately preceding the next Monthly Deduction Day.
POLICYOWNER.................. The person who owns a Policy. The original Policyowner is named in the
application.
POLICY YEAR.................. A twelve-month period that starts on the Policy Date or on a Policy
Anniversary.
PORTFOLIO.................... A separate investment portfolio of the Fund.
SPECIFIED AMOUNT............. The minimum death benefit payable under a Policy so long as the Policy
remains in force. The Specified Amount as of the Policy Date is set forth
on the data page in each Policy.
SUBACCOUNT................... A subdivision of the Variable Account. Net premiums for a Policy are
allocated, in accordance with the instructions of the Policyowner, to the
Growth Common Stock, High Grade Bond, High Yield Bond, Managed, Money
Market and/or Blue Chip Subaccounts of the Variable Account, which invest
exclusively in shares of, respectively, the Growth Common Stock, High Grade
Bond, High Yield Bond, Managed, Money Market and Blue Chip Portfolios of
the Fund.
UNIT VALUE................... The value determined by dividing each Subaccount's Net Asset Value by the
number of units outstanding at the time of calculation.
SURRENDER CHARGE............. A charge that is assessed at the time of any partial or complete surrender
equal to the lesser of (i) $25 or (ii) 2.0% of the amount surrendered.
VALUATION PERIOD............. The period between the close of business (3:00 p.m. central time) on a
Business Day and the close of business on the next Business Day.
VARIABLE ACCOUNT............. Farm Bureau Life Variable Account, a separate investment account
established by the Company to receive and invest the Net Premiums paid
under the Policies.
</TABLE>
4
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SUMMARY
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THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE DESCRIPTION OF THE POLICY CONTAINED IN
THIS PROSPECTUS ASSUMES THAT THE POLICY IS IN FORCE AND
THAT THERE IS NO OUTSTANDING POLICY DEBT.
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THE POLICY Under the Policy, subject to certain limitations, the
Policyowner has flexibility in determining the frequency
and amount of premiums. (See "THE POLICY--Premiums.")
Thus, unlike conventional fixed-benefit life insurance,
the Policy does not require a Policyowner to adhere to a
fixed premium schedule. Also, unlike conventional
fixed-benefit life insurance, the amount and/or duration
of the life insurance coverage and the Cash Value of the
Policy is not guaranteed and may increase or decrease,
depending upon the investment experience of the assets
supporting the Policy. Accordingly, the Policyowner bears
the investment risk of any depreciation of, but reaps the
benefit of any appreciation in, the value of the
underlying assets. As long as the Policy remains in
force, the Policy will provide for death proceeds payable
to the Beneficiary upon the Insured's death, the
accumulation of Cash Value, surrender rights and policy
loan privileges. The Policy will remain in force so long
as Net Cash Value is sufficient to pay certain monthly
charges imposed in connection with the Policy. The
minimum Specified Amount for which a Policy will be
issued is normally $25,000, although the Company may in
its discretion issue Policies with Specified Amounts of
less than $25,000.
Life Insurance is not a short-term investment.
Prospective Policyowners should consider their need for
insurance coverage and the Policy's long-term investment
potential.
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THE VARIABLE ACCOUNT Net Premiums are allocated, in accordance with the
instructions of the Policyowner, to the Variable Account,
the Declared Interest Option, or both. The Variable
Account consists of six Subaccounts: the Growth Common
Stock Subaccount, the High Grade Bond Subaccount, the
High Yield Bond Subaccount, the Managed Subaccount, the
Money Market Subaccount and the Blue Chip Subaccount.
Each Subaccount invests exclusively in a corresponding
Portfolio of the Fund.
Cash Value will, and death proceeds may, vary with the
investment experience of the Subaccounts, as well as with
the frequency and amount of premium payments, any partial
surrenders and any charges imposed in connection with the
Policy. (See "POLICY BENEFITS--Cash Value Benefits.")
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THE DECLARED INTEREST As an alternative to the Variable Account, the
OPTION Policyowner may allocate or transfer all or a portion of
the Cash Value to the Declared Interest Option, which
guarantees a specified minimum rate of return. (See "THE
DECLARED INTEREST OPTION.")
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PREMIUMS The Company may require the Policyowner to pay an initial
premium equal to the greater of $100 or an amount that,
when reduced by the premium expense charge (see "CHARGES
AND DEDUCTIONS--Premium Expense Charge"), will be
sufficient to pay the monthly deductions for the first
three Policy Months. Each Policyowner will determine a
planned periodic premium schedule. The Policyowner is not
required to pay premiums in accordance with the planned
periodic premium schedule. (See "THE POLICY--Premiums--
PLANNED PERIODIC PREMIUMS.") The schedule will provide
for a premium payment of a level amount at a fixed
interval over a specified period of time. Failure to pay
premiums in accordance with the schedule will not itself
cause the Policy to lapse. (See "THE POLICY--Policy Lapse
and Reinstatement--LAPSE.") Subject to certain
restrictions, unscheduled premium payments also may be
made. (See "THE POLICY--Premiums--UNSCHEDULED PREMIUMS.")
A Policy will only lapse when Net Cash Value is
insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction") and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"). With respect to premiums,
5
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therefore, the Policy differs in two important ways from
a conventional life insurance policy. First, the failure
to pay a planned periodic premium will not in itself
automatically cause the Policy to lapse. Second, a Policy
can lapse even if planned periodic premiums or premiums
in other amounts have been paid.
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POLICY BENEFITS CASH VALUE BENEFITS. The Policy provides for a Cash
Value. The Cash Value will reflect the amount and
frequency of premium payments, the investment experience
of the chosen subaccounts of the Variable Account, the
interest earned on the Cash Value in the Declared
Interest Option, any Policy Loans, any partial surrenders
and the charges imposed in connection with the Policy.
The entire investment risk for amounts allocated to the
Variable Account is borne by the Policyowner; the Company
does not guarantee a minimum Cash Value. (See "POLICY
BENEFITS--Cash Value Benefits--CALCULATION OF CASH
VALUE.")
The Policyowner may, at any time, surrender a Policy and
receive the Net Cash Value. Subject to certain
limitations, the Policyowner may also partially surrender
the Policy and obtain a portion of the Net Cash Value at
any time prior to the Maturity Date. Partial surrenders
will reduce both the Cash Value and death proceeds
payable under the Policy. (See "POLICY BENEFITS--Cash
Value Benefits--SURRENDER PRIVILEGES.") A charge will be
assessed upon partial or complete surrender. (See
"CHARGES AND DEDUCTIONS--Surrender Charge.")
TRANSFERS. A Policyowner may transfer amounts among the
subaccounts of the Variable Account an unlimited number
of times in a Policy Year; however, only one transfer per
Policy Year may be made between the Declared Interest
Option and the Variable Account. The first transfer in a
Policy Year is free; subsequent transfers in that Policy
Year will be assessed a charge of $25. The transfer
charge, unless paid in cash, will be deducted from the
amount transferred. (See "POLICY BENEFITS--Transfers.") A
transfer from the Variable Account to the Declared
Interest Option requested in connection with the exercise
of the special transfer privilege under the Policy (see
"THE POLICY--Special Transfer Privilege") will not be
considered a transfer for purposes of the one-transfer
limit or the $25 charge.
POLICY LOANS. So long as a Policy is in force and has a
positive Net Cash Value, the Policyowner may borrow up
to 90% of the Policy's Cash Value as of the end of the
Valuation Period during which the request for the Policy
Loan is received at the Home Office, less any previously
outstanding Policy Debt. A loan taken from, or secured
by, a Policy may have federal income tax consequences.
(See "FEDERAL TAX MATTERS--Policy Proceeds.")
Interest on Policy Loans is payable in advance for each
Policy Year at an annual rate that will not exceed 7.4%
per year in advance (which is equal to an effective rate
of 8.0%). When a Policy Loan is made, an amount equal to
the Policy Loan will be transferred to, and segregated
within, the Declared Interest Option as security for the
Policy Loan and will earn interest daily at a fixed
annual rate. (See "POLICY BENEFITS--Loan Benefits--POLICY
LOANS.") Upon partial or full repayment of Policy Debt,
the portion of the Cash Value in the Declared Interest
Option securing the repaid portion of the Policy Debt
will no longer be segregated within the Declared Interest
Option as security for Policy Debt, but will remain in
the Declared Interest Option unless, and until, the
Policyowner transfers such amount to one or more of the
subaccounts of the Variable Account. (See "POLICY
BENEFITS--Loan Benefits--REPAYMENT OF POLICY DEBT.") Any
outstanding Policy Debt, reduced by any unearned loan
interest, will be deducted from the proceeds payable upon
death or surrender. Any outstanding Policy Debt will be
deducted from the proceeds payable upon maturity.
Depending upon investment performance of Net Cash Value
and on the amount of Policy Debt, loans may cause a
policy to lapse. If a Policy is not a modified endowment
contract, lapse of the Policy with loans outstanding may
have adverse tax consequences. (See "FEDERAL TAX
MATTERS--Policy Proceeds.")
DEATH PROCEEDS. The Policies provide for the payment of
death proceeds following receipt by the Company (at its
Home Office) of Due Proof of Death of the Insured. The
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Policy contains two death benefit options. Under Option
A, the death benefit is the greater of the sum of the
Specified Amount and the Policy's Cash Value, or the Cash
Value multiplied by the specified amount factor for the
Insured's Attained Age, as set forth in the Policy. Under
Option B, the death benefit is the greater of the
Specified Amount, or the Cash Value multiplied by the
specified amount factor for the Insured's Attained Age,
as set forth in the Policy. For this purpose, all
calculations are made as of the end of the Business Day
coinciding with or immediately following the date of
death.
Under either death benefit option, so long as the Policy
remains in force, the death benefit will not be less than
the Specified Amount of the Policy on the date of death.
The death benefit may, however, exceed the Specified
Amount. The amount by which the death benefit exceeds the
Specified Amount depends upon the death benefit option
chosen and the Cash Value of the Policy. (See "POLICY
BENEFITS--Death Proceeds.") To determine the death
proceeds, the death benefit will be reduced by any
outstanding Policy Debt and increased by any unearned
loan interest and any premiums paid after the date of
death. The proceeds may be paid in a lump sum or in
accordance with a payment option. (See "POLICY
BENEFITS--Payment Options.")
Anytime after the first Policy Year, the Policyowner may,
subject to certain restrictions, adjust the death benefit
payable under the Policy by increasing or decreasing the
Specified Amount. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN EXISTING COVERAGE.") In addition, the
Policyowner may, at any time, change the death benefit
option in effect. (See "POLICY BENEFITS--Death
Proceeds--CHANGE IN DEATH BENEFIT OPTION.")
BENEFITS AT MATURITY. If the Insured is alive and the
Policy is in force on the Maturity Date, the Policyowner
will be paid the Cash Value of the Policy as of the end
of the Business Day coinciding with or immediately
following the Maturity Date, reduced by any outstanding
Policy Debt.
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CHARGES PREMIUM EXPENSE CHARGE. The Net Premium equals the
premium paid less a premium expense charge. The premium
expense charge consists of a 5.0% sales charge (used to
compensate the Company for expenses incurred in
connection with the distribution of the Policies) and a
2.0% premium tax charge (used to compensate the Company
for premium taxes imposed by various states and
subdivisions thereof). (See "CHARGES AND DEDUCTIONS--
Premium Expense Charge.")
CASH VALUE CHARGES. Cash Value will be reduced each
Policy Month on the Monthly Deduction Day by a monthly
deduction equal to the sum of a cost of insurance charge,
the cost of any additional insurance benefits added by
rider and an administrative charge of $3.00. In addition,
during the first twelve Policy Months and during the
twelve Policy Months immediately following an increase in
Specified Amount, the monthly deduction will include a
first year monthly administrative charge. This charge
will range from $0.05 to $0.50 per $1,000 of Specified
Amount and will depend upon the Attained Age of the
Insured and the Policy's total Specified Amount. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction--FIRST YEAR
MONTHLY ADMINISTRATIVE CHARGE.") The monthly deduction
will vary in amount from month to month. (See "CHARGES
AND DEDUCTIONS--Monthly Deduction.")
Upon partial or complete surrender of a Policy, a charge
equal to the lesser of $25 or 2.0% of the amount
surrendered will be assessed. (See "CHARGES AND
DEDUCTIONS--Surrender Charge.") During a Policy Year, a
charge will be made for the second and subsequent
transfers of assets among the Subaccounts and between the
Variable Account and the Declared Interest Option. (See
"CHARGES AND DEDUCTIONS--Transfer Charge.")
CHARGES AGAINST THE VARIABLE ACCOUNT. A daily charge at
the rate of .0024548% of the average daily net assets of
each Subaccount will be imposed to compensate the Company
for certain mortality and expense risks incurred in
connection with the Policies. (See "CHARGES AND
DEDUCTIONS--Variable Account Charges.") This corresponds
to an effective annual rate of .90%.
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Currently, no charge is made to the Variable Account for
federal income taxes that may be attributable to the
Variable Account. The Company may, however, make such a
charge in the future.
FUND EXPENSES. In addition, because the Variable Account
purchases shares of the Fund, the value of the net
assets of the Variable Account will reflect the
investment advisory fee and other expenses incurred by
the Fund. (See "CHARGES AND DEDUCTIONS--Variable Account
Charges--FUND EXPENSES.")
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DISTRIBUTION OF THE The Policies will be distributed by registered
POLICIES representatives of FBL Marketing Services, Inc. FBL
Marketing Services, Inc., a wholly-owned indirect
subsidiary of the Company, is registered as a
broker-dealer with the Securities and Exchange Commission
and is a member of the National Association of Securities
Dealers, Inc.
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TAX TREATMENT If a Policy is issued on the basis of a standard premium
class, while there is some uncertainty, the Company
believes that the Policy should qualify as a life
insurance contract for federal income tax purposes. If a
Policy is issued on a substandard basis, it is not clear
whether or not the Policy would qualify as a life
insurance contract for federal income tax purposes.
Assuming that a Policy qualifies as a life insurance
contract for federal income tax purposes, the Cash Value
under a Policy should be subject to the same federal
income tax treatment as cash value under a conventional
fixed-benefit Policy. Under existing tax law, the
Policyowner is not deemed to be in constructive receipt
of Cash Values under a Policy until there is a
distribution from the Policy. Like death benefits payable
under conventional life insurance policies, death
proceeds payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a
result, the Beneficiary generally will not be taxed on
these proceeds.
A Policy entered into or "materially changed" after June
20, 1988 may be treated as a "modified endowment
contract" depending upon the amount of premiums paid in
relation to the death benefit. If the Policy is a
modified endowment contract, then all pre-death
distributions, including Policy Loans, will be treated
first as a distribution of taxable income and then as a
return of basis or investment in the contract. In
addition, prior to age 59 1/2, any such distributions
generally will be subject to a 10% additional tax. For
further discussion of modified endowment contracts,
including a discussion of premium limitation rules, see
"FEDERAL TAX MATTERS--Modified Endowment Contracts".
If the Policy is not a modified endowment contract,
distributions generally will be treated first as a return
of basis or investment in the contract and then as a
disbursement of taxable income. Moreover, loans will not
be treated as distributions. Finally, neither
distributions nor loans from a Policy that is not a
modified endowment contract are subject to the 10%
additional tax. (See "FEDERAL TAX MATTERS.")
- --------------------------------------------------------------------------------
CANCELLATION The Policyowner is granted a 20-day period following
PRIVILEGE receipt of the Policy in which to examine and return the
Policy. The Policyowner will receive the Policy's Cash
Value plus an amount approximately equal to any charges
which have been deducted from premiums, Cash Value and
the Variable Account. (See "THE POLICY--Examination of
Policy (Cancellation Privilege).")
- --------------------------------------------------------------------------------
ILLUSTRATIONS Sample projections of hypothetical Policy values are
included starting at page A-1 of this Prospectus. These
projections of hypothetical values may be helpful in
understanding the long-term effects of different levels
of investment performance, charges and deductions,
electing one or the other death benefit option and
generally in comparing this Policy to other life
insurance policies. NONETHELESS, THE ILLUSTRATIONS ARE
BASED ON HYPOTHETICAL INVESTMENT RATES OF RETURN AND ARE
NOT A REPRESENTATION OF PAST OR FUTURE PERFORMANCE.
Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual
values will be different from those illustrated.
8
<PAGE>
This Prospectus describes only those aspects of the
Policy that relate to the Variable Account, except where
Declared Interest Option matters are specifically
mentioned. For a brief summary of the aspects of the
Policy relating to the Declared Interest Option, see "THE
DECLARED INTEREST OPTION".
- --------------------------------------------------------------------------------
FARM BUREAU LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
FARM BUREAU LIFE The Company is a stock life insurance company which was
INSURANCE COMPANY incorporated in the State of Iowa on October 30, 1944.
100% of the outstanding voting shares of the Company are
owned by Farm Bureau Multi-State Services, Inc. 64.967%
of the outstanding voting shares of Farm Bureau
Multi-State Services, Inc. is owned by Iowa Farm Bureau
Federation. The Company is principally engaged in the
offering of life insurance policies, disability income
insurance policies and annuity contracts and is admitted
to do business in eight states--Iowa, Kansas, Minnesota,
Nebraska, North Dakota, South Dakota, Utah and Wisconsin.
The principal offices of the Company are at 5400
University Avenue, West Des Moines, Iowa 50266.
- --------------------------------------------------------------------------------
IOWA FARM BUREAU Iowa Farm Bureau Federation is an Iowa not-for-profit
FEDERATION corporation, the members of which are county Farm Bureau
organizations and their individual members. Iowa Farm
Bureau Federation is primarily engaged, through various
divisions and subsidiaries, in the formulation, analysis
and promotion of programs (at local, state, national and
international levels) that are designed to foster the
educational, social and economic advancement of its
members. The principal offices of Iowa Farm Bureau
Federation are at 5400 University Avenue, West Des
Moines, Iowa 50266.
- --------------------------------------------------------------------------------
THE VARIABLE ACCOUNT The Variable Account was established by the Company as a
separate account on March 3, 1987. The Variable Account
will receive and invest the Net Premiums paid under the
Policies. In addition, the Variable Account may receive
and invest net premiums for any other variable life
insurance policies issued in the future by the Company.
Although the assets in the Variable Account are the
property of the Company, the assets in the Variable
Account attributable to the Policies generally are not
chargeable with liabilities arising out of any other
business which the Company may conduct. The assets of the
Variable Account are available to cover the general
liabilities of the Company only to the extent that the
Variable Account's assets exceed its liabilities arising
under the Policies and any other policies supported by
the Variable Account. The Company has the right to
transfer to the General Account any assets of the
Variable Account which are in excess of such reserves and
other policy liabilities.
The Variable Account currently is divided into six
Subaccounts but may, in the future, include additional
subaccounts. Each Subaccount invests exclusively in
shares of a single corresponding Portfolio of the Fund.
Income and realized and unrealized gains or losses from
the assets of each Subaccount are credited to or charged
against, that Subaccount without regard to income, gains
or losses from any other Subaccount.
The Variable Account has been registered as a unit
investment trust under the Investment Company Act of 1940
and meets the definition of a separate account under the
federal securities laws. Registration with the Securities
and Exchange Commission does not involve supervision of
the management or investment practices or policies of the
Variable Account or the Company by the Commission. The
Variable Account is also subject to the laws of the State
of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
- --------------------------------------------------------------------------------
FBL VARIABLE The Variable Account invests in shares of the Fund, a
INSURANCE SERIES FUND mutual fund of the series type with six investment
Portfolios. The Fund currently has a Growth Common Stock
Portfolio, a High Grade Bond Portfolio, a High Yield Bond
Portfolio, a Managed Portfolio, a Money Market Portfolio
and a Blue Chip Portfolio. The Fund may, in the
9
<PAGE>
future, provide for additional portfolios. Each Portfolio
has its own investment objectives and the income and
losses for each Portfolio of the Fund will be determined
separately.
The investment objectives and policies of each Portfolio
are summarized below. There is no assurance that any
Portfolio will achieve its stated objectives. More
detailed information, including a description of risks,
may be found in the prospectus for the Fund, which must
accompany or precede this Prospectus and which should be
read carefully and retained for future reference.
GROWTH COMMON STOCK PORTFOLIO. This Portfolio seeks
long-term capital appreciation with current income as
a secondary objective. The Portfolio will pursue
these objectives by investing in common stocks which
appear to the Fund's investment adviser to possess
above-average potential for appreciation in market
value.
HIGH GRADE BOND PORTFOLIO. This Portfolio seeks as
high a level of current income as is consistent with
a high quality portfolio of debt securities. The
Portfolio will pursue this objective by investing
primarily in debt securities rated AAA, AA or A by
Standard & Poor's Corporation and/or Aaa, Aa or A by
Moody's Investors Service, Inc., and in securities
issued or guaranteed by the United States government
or its agencies or instrumentalities.
HIGH YIELD BOND PORTFOLIO. This Portfolio seeks, as a
primary objective, as high a level of current income
as is consistent with investment in a portfolio of
fixed-income securities rated in the lower categories
of established rating services. As a secondary
objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The
Portfolio pursues these objectives by investing
primarily in fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. and/or BBB
or lower by Standard & Poor's Corporation, or in
unrated securities of comparable quality. AN
INVESTMENT IN THIS PORTFOLIO MAY ENTAIL GREATER THAN
ORDINARY FINANCIAL RISK. (See the Fund Prospectus
"Principal Risk Factors--Special Considerations--High
Yield Bonds.")
MANAGED PORTFOLIO. This Portfolio seeks the highest
total investment return of income and capital
appreciation. The Portfolio will pursue this
objective through a fully managed investment policy
consisting of investments in the following three
market sectors: (i) common stocks and other equity
securities of the type in which the Growth Common
Stock Portfolio may invest; (ii) high quality debt
securities and preferred stocks of the type in which
the High Grade Bond Portfolio may invest; and (iii)
high quality short-term money market instruments of
the type in which the Money Market Portfolio may
invest.
MONEY MARKET PORTFOLIO. This Portfolio seeks maximum
current income consistent with liquidity and
stability of principal. The Portfolio will pursue
this objective by investing in high quality
short-term money market instruments. AN INVESTMENT IN
THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
BLUE CHIP PORTFOLIO. This Portfolio seeks growth of
capital and income. The Portfolio pursues this
objective by investing primarily in common stocks of
well-capitalized, established companies. Because this
Portfolio may be invested heavily in particular
stocks or industries, an investment in this Portfolio
may entail relatively greater risk of loss.
The Fund currently sells shares only to the Variable
Account and a separate account of the Company supporting
variable annuity contracts. The Fund may in the future
sell shares to other separate accounts of the Company or
its life insurance company affiliates supporting other
variable insurance products, or to variable life
insurance and variable annuity separate accounts of
insurance companies not affiliated with the Company. The
Company currently does not foresee any disadvantages to
10
<PAGE>
Policyowners arising from the sale of shares to support
its variable annuity contracts or that would arise if the
Fund were to offer its shares to support products other
than the Policies or such variable annuity contracts.
However, the management of the Fund intends to monitor
events in order to identify any material irreconcilable
conflicts that might possibly arise if the Fund were to
offer the shares to support products other than the
Policies or such variable annuity contracts. In that
event, it would determine what action, if any, should be
taken in response to those events or conflicts. In
addition, if the Company believes that the Fund's
response to any of those events or conflicts
insufficiently protects Policyowners, it will take
appropriate action on its own, including withdrawing the
Variable Account's investment in the Fund. (See the Fund
Prospectus for more detail.)
FBL Investment Advisory Services, Inc. (the "Adviser")
serves as investment adviser to the Fund and manages its
assets in accordance with policies, programs and
guidelines established by the Trustees of the Fund. The
Adviser is a wholly-owned, indirect subsidiary of the
Company. As compensation for the advisory and management
services provided by the Adviser, the Fund has agreed to
pay the Adviser an annual management fee, accrued daily
and payable monthly, based on an annual percentage of the
average daily net assets of each Portfolio as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET
ASSETS
------------------------------------
FIRST SECOND OVER
$200 $200 $400
PORTFOLIO MILLION MILLION MILLION
--------- ----------- ---------- -----------
<S> <C> <C> <C>
Growth Common Stock..................... 0.50% 0.45 % 0.40%
High Grade Bond......................... 0.30% 0.275 % 0.25%
High Yield Bond......................... 0.50% 0.45 % 0.40%
Managed................................. 0.55% 0.50 % 0.45%
Money Market............................ 0.30% 0.275 % 0.25%
Blue Chip............................... 0.20% 0.20 % 0.20%
</TABLE>
The Adviser, at its expense, furnishes the Fund with
office space and facilities, simple business equipment,
advisory, research and statistical facilities, and
clerical services and personnel to administer the
business affairs of the Fund. The Fund pays its other
expenses. The Adviser has agreed to reimburse the Fund to
the extent that the annual operating expenses (including
the investment advisory fee but excluding brokerage,
interest, taxes and extraordinary expenses) of any
Portfolio of the Fund exceed 1.50% of average daily net
assets of that Portfolio for any fiscal year of the Fund.
This reimbursement agreement will remain in effect as
long as the Investment Advisory agreement remains in
effect and cannot be changed without shareholder
approval. Additionally, the Adviser has agreed to
reimburse any Portfolio for calendar year 1995 to the
extent that annual operating expenses, including the
investment advisory fee, exceed .55%. There can be no
assurance that the Adviser will continue to limit
expenses beyond December 31, 1995. (See "CHARGES AND
DEDUCTIONS--Variable Account Charges--FUND EXPENSES.")
The Fund is registered with the Securities and Exchange
Commission as an open-end, diversified management
investment company. Such registration does not involve
supervision of the management or investment practices or
policies of the Fund by the Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
ADDITION, DELETION OR The Company reserves the right, subject to compliance
SUBSTITUTION OF with applicable law, to make additions to, deletions from
INVESTMENTS or substitutions for the shares of the mutual fund
Portfolios that are held by the Variable Account or that
the Variable Account may purchase. If the shares of a
Portfolio are no longer available for investment or if,
in its judgment, further investment in any Portfolio
should become inappropriate in view of the purposes of
the Variable Account, the Company reserves the right to
dispose of the shares of any Portfolio of the Fund and to
substitute shares of another Portfolio of the Fund or of
another open-end, registered management investment
company. The Company will not substitute any shares
attributable to a Policyowner's Cash Value in
11
<PAGE>
the Variable Account without notice to and prior approval
of the Securities and Exchange Commission, to the extent
required by the Investment Company Act of 1940 or other
applicable law. Nothing contained in this Prospectus
shall prevent the Variable Account from purchasing other
securities for other series or classes of policies, or
from permitting a conversion between series or classes of
policies on the basis of requests made by Policyowners.
The Company also reserves the right to establish
additional subaccounts of the Variable Account, each of
which would invest in shares of a new portfolio of the
Fund, or in shares of another investment company, with a
specified investment objective. New subaccounts may be
established when, in the sole discretion of the Company,
marketing, tax or investment conditions warrant, and any
new subaccounts may be made available to existing
Policyowners on a basis to be determined by the Company.
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(s), or one or
more Subaccounts may be eliminated or combined with any
other Subaccount(s) if, in the sole discretion of the
Company, marketing, tax or investment conditions warrant.
In the event of any such substitution or change, the
Company may, by appropriate endorsement, make such
changes in these and other policies as may be necessary
or appropriate to reflect such substitution or change. If
deemed by the Company to be in the best interests of
persons having voting rights under the Policies, the
Variable Account may be operated as a management company
under the Investment Company Act of 1940, may be
deregistered under that Act in the event such
registration is no longer required, or, subject to
obtaining any approvals or consents required by
applicable law, may be combined with other Company
separate accounts. To the extent permitted by applicable
law, the Company may also transfer the assets of the
Variable Account associated with the Policies to another
separate account. In addition, the Company may, when
permitted by law, restrict or eliminate any voting rights
of Policyowners or other persons who have voting rights
as to the Variable Account. (See "ADDITIONAL
INFORMATION--Voting Rights.")
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
PURPOSE OF THE POLICY The Policy is designed to provide the Policyowner with
both lifetime insurance protection and significant
flexibility in connection with the amount and frequency
of premium payments and the level of death proceeds
payable under a Policy. Unlike conventional life
insurance, the Policyowner is not required to pay
scheduled premiums to keep a Policy in force, but may,
subject to certain limitations, vary the frequency and
amount of premium payments. Moreover, the Policy allows a
Policyowner to adjust the level of death proceeds payable
under a Policy, without having to purchase a new policy,
by increasing or decreasing the Specified Amount. Thus,
as insurance needs or financial conditions change, the
Policyowner has the flexibility to adjust death proceeds
and vary premium payments.
The Policy varies from conventional fixed-benefit life
insurance in a number of additional respects. Because the
death proceeds may, and the Cash Value will, vary with
the investment experience of the chosen Subaccounts, the
Policyowner bears the investment risk of any depreciation
of, but reaps the benefit of any appreciation in, the
value of the underlying assets. As a result, whether or
not a Policy continues in force may depend in part upon
the investment experience of the chosen Subaccounts. The
failure to pay a planned periodic premium will not
necessarily cause the Policy to lapse, but the Policy
could lapse even if planned periodic premiums have been
paid, depending upon the investment experience of the
Variable Account.
Life Insurance is not a short-term investment.
Prospective policyowners should consider their need for
insurance coverage and the Policy's long-term investment
potential. A prospective policyowner who already has life
insurance coverage should
12
<PAGE>
consider whether or not changing or adding to existing
coverage would be advantageous. Generally, it is not
advisable to purchase another policy to replace an
existing policy.
- --------------------------------------------------------------------------------
PURCHASING THE POLICY Before it will issue a Policy, the Company must receive a
completed application, including payment of the initial
premium, at its Home Office. A Policy ordinarily will be
issued only for Insureds who are 0 to 75 years of age at
their birthday nearest the Policy Date and who supply
satisfactory evidence of insurability to the Company.
Acceptance is subject to the Company's underwriting rules
and the Company may, in its sole discretion, reject any
application or premium for any reason. The minimum
Specified Amount for which a Policy will be issued is
normally $25,000, although the Company may, in its
discretion, issue Policies with Specified Amounts of less
than $25,000.
The Policy Date will be the later of (i) the date of the
initial application, or (ii) if additional medical or
other information is required pursuant to the Company's
underwriting rules, the date all such additional
information is received by the Company at its Home
Office. The Policy Date may also be any other date
mutually agreed to by the Company and the Policyowner. If
the later of (i) and (ii) above is the 29th, 30th or 31st
of any month, the Policy Date will be the 28th of such
month. The Policy Date is the date used to determine
Policy Years, Policy Months and Policy Anniversaries. The
Policy Date may, but will not always, coincide with the
effective date of insurance coverage under the Policy.
The effective date of insurance coverage under the Policy
will be the later of (i) the Policy Date, (ii) if an
amendment to the initial application is required pursuant
to the Company's underwriting rules, the date the Insured
signs the last such amendment, or (iii) the date on which
the full initial premium is received by the Company at
its Home Office.
- --------------------------------------------------------------------------------
PREMIUMS Subject to certain limitations, a Policyowner has
flexibility in determining the frequency and amount of
premiums.
PREMIUM FLEXIBILITY. Unlike conventional insurance
policies, the Policy frees the Policyowner from the
requirement that premiums be paid in accordance with a
rigid and inflexible premium schedule. The Company may
require the Policyowner to pay an initial premium equal
to the greater of $100 or an amount that, when reduced by
the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be sufficient
to pay the monthly deduction for the first three Policy
Months. Thereafter, subject to the minimum and maximum
premium limitations described below, a Policyowner may
also make unscheduled premium payments at any time prior
to the Maturity Date.
PLANNED PERIODIC PREMIUMS. Each Policyowner will
determine a planned periodic premium schedule that
provides for the payment of a level premium over a
specified period of time on a quarterly, semi-annual or
annual basis. The Company may, at its discretion, permit
planned periodic payments to be made on a monthly basis.
Periodic reminder notices ordinarily will be sent to the
Policyowner for each planned periodic premium. Depending
on the duration of the planned periodic premium schedule,
the timing of planned payments could affect the tax
status of the Policy. (See "FEDERAL TAX MATTERS.")
The Policyowner is not required to pay premiums in
accordance with the planned periodic premium schedule.
Furthermore, the Policyowner has considerable flexibility
to alter the amount, frequency and the time period over
which planned periodic premiums are paid; however, no
planned periodic payment may be less than $100 without
the Company's consent. Changes in the planned premium
schedule may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
The payment of a planned periodic premium will not
guarantee that the Policy remains in force. Instead, the
duration of the Policy depends upon the Policy's Cash
Value. Thus, even if planned periodic premiums are paid
by the Policyowner, the
13
<PAGE>
Policy will nevertheless lapse if Net Cash Value is
insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly
Deduction") and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment
must be at least $100; however, the Company may, in its
discretion, waive this minimum requirement. The Company
reserves the right to limit the number and amount of
unscheduled premium payments. An unscheduled premium
payment may have federal income tax consequences. (See
"FEDERAL TAX MATTERS.")
PREMIUM LIMITATIONS. In no event may the total of all
premiums paid, both planned periodic and unscheduled,
exceed the applicable maximum premium limitation imposed
by federal tax laws. Because the maximum premium
limitation is in part dependent upon the Specified Amount
for each Policy, changes in the Specified Amount may
affect this limitation. If at any time a premium is paid
which would result in total premiums exceeding the
applicable maximum premium limitation, the Company will
accept only that portion of the premium which will make
total premiums equal the maximum. Any part of the premium
in excess of that amount will be returned and no further
premiums will be accepted until allowed by the applicable
maximum premium limitation.
PAYMENT OF PREMIUMS. Payments made by the Policyowner
will be treated first as payment of any outstanding
Policy Debt unless the Policyowner indicates that the
payment should be treated otherwise. Where no indication
is made, any portion of a payment that exceeds the amount
of any outstanding Policy Debt will be treated as a
premium payment.
NET PREMIUMS. The Net Premium is the amount available
for investment. The Net Premium equals the premium paid
less the premium expense charge. (See "CHARGES AND
DEDUCTIONS--Premium Expense Charge.")
ALLOCATION OF NET PREMIUMS. In the application for a
Policy, the Policyowner can allocate Net Premiums or
portions thereof to the Subaccounts, to the Declared
Interest Option, or both. Notwithstanding the allocation
in the application, the Net Premiums will first be
allocated to the Money Market Subaccount as of the Issue
Date. When the Company receives, at its Home Office, a
notice signed by the Policyowner that the Policy has been
received and accepted, the Policy's Cash Value in the
Money Market Subaccount automatically will be allocated,
without charge, among the Subaccounts and the Declared
Interest Option in accordance with the Policyowner's
percentage allocation in the application. The Policyowner
does not waive his cancellation privilege by sending the
signed notice of receipt and acceptance of the Policy to
the Company (see "THE POLICY--Examination of Policy
(Cancellation Privilege)").
Net Premiums received after the date the Company receives
the signed notice will be allocated in accordance with
the Policyowner's percentage allocation in the
application or the most recent written instructions of
the Policyowner. The minimum percentage of each premium
that may be allocated to any subaccount of the Variable
Account or to the Declared Interest Option is 10%; no
fractional percentages will be permitted. The allocation
for future Net Premiums may be changed without charge, at
any time while the Policy is in force, by providing the
Company with written notice on a form acceptable to the
Company signed by the Policyowner. The change will take
effect on the date the written notice is received at the
Home Office and will have no effect on prior cash values.
- --------------------------------------------------------------------------------
POLICY LAPSE AND LAPSE. Unlike conventional life insurance policies, the
REINSTATEMENT failure to make a planned periodic premium payment will
not itself cause a Policy to lapse. Lapse will occur only
when Net Cash Value is insufficient on a Monthly
Deduction Day to cover the monthly deduction (see
"CHARGES AND DEDUCTIONS--Monthly Deduction") and a Grace
Period expires without a sufficient payment. Insurance
coverage will continue during the Grace Period, but the
Policy will be deemed to have no Cash Value for purposes
of
14
<PAGE>
Policy Loans and surrenders during such Grace Period. The
death proceeds payable during the Grace Period will equal
the amount of the death proceeds payable immediately
prior to the commencement of the Grace Period, reduced by
any due and unpaid monthly deductions.
To avoid lapse and termination of the Policy without
value, the Company must receive from the Policyowner
during the Grace Period a premium payment that, when
reduced by the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
A Grace Period of 61 days will commence on the date the
Company sends a notice of any insufficiency to the
Policyowner.
REINSTATEMENT. Prior to the Maturity Date, a lapsed
Policy may be reinstated at any time within five years
of the Monthly Deduction Day immediately preceding the
Grace Period which expired without payment of the
required premium. Reinstatement is effected by submitting
the following items to the Company:
1. A written application for reinstatement signed by
the Policyowner and the Insured;
2. Evidence of insurability satisfactory to the
Company;
3. A premium that, after the deduction of the
premium expense charge, is at least sufficient to
keep the Policy in force for three months; and
4. An amount equal to the monthly cost of insurance
for the two Policy Months prior to lapse.
(State law may limit the premium to be paid on
reinstatement to an amount less than that described.) To
the extent that the first year monthly administrative
charge was not deducted for a total of twelve Policy
Months prior to lapse, such charge will continue to be
deducted following reinstatement of the Policy until such
charge has been assessed, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") The Company will not
reinstate a Policy surrendered for its Cash Value. The
lapse of a Policy with loans outstanding may have adverse
tax consequences (see "FEDERAL TAX MATTERS--Policy
Proceeds").
The effective date of the reinstated Policy will be the
Monthly Deduction Day coinciding with or next following
the date the Company approves the application for
reinstatement.
- --------------------------------------------------------------------------------
EXAMINATION OF POLICY The Policyowner may cancel the Policy by delivering or
(CANCELLATION mailing written notice or sending a telegram to the
PRIVILEGE) Company at its Home Office, and returning the Policy to
the Company at its Home Office before midnight of the
twentieth day after the Policyowner receives the Policy.
Notice given by mail and return of the Policy by mail are
effective on being postmarked, properly addressed and
postage prepaid.
With respect to all Policies, the Company will refund,
within seven days after receipt of satisfactory notice of
cancellation and the returned Policy at its Home Office,
an amount equal to the sum of (a) the Cash Value of the
Policy on the Business Day on or next following the date
the Policy is received by the Company at its Home Office,
(b) any premium expense charges which were deducted from
premiums, (c) monthly deductions made on the Policy Date
and any Monthly Deduction Day, and (d) amounts
approximating the daily mortality and expense risk
charges against the Variable Account.
- --------------------------------------------------------------------------------
SPECIAL TRANSFER A Policyowner may, at any time prior to the Maturity Date
PRIVILEGE while the Policy is in force, convert the Policy to a
flexible premium fixed-benefit life insurance policy by
requesting that all of the Cash Value in the Variable
Account be transferred to the Declared Interest Option.
The Policyowner may exercise this special transfer
privilege once each Policy Year. Once a Policyowner
exercises the special transfer privilege, all
15
<PAGE>
future premium payments automatically will be credited to
the Declared Interest Option, until such time as the
Policyowner requests a change in allocation. No charge
will be imposed for any transfers resulting from the
exercise of the special transfer privilege.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE The Company will permit the owner of a flexible premium
fixed-benefit life insurance policy issued by the Company
("fixed-benefit policy"), within 12 months of the policy
date shown in such policy, to exchange his fixed-benefit
policy for a Policy on the life of the Insured.
The Policy Date will be the date the application for the
Policy is signed. The Policy will have a Specified Amount
equal to the specified amount of the fixed-benefit
policy. No evidence of insurability is required to
exercise this privilege. The Insured will be placed in
the premium class applicable to the initial specified
amount under the fixed-benefit policy, unless there has
been an underwritten increase in specified amount, in
which event the Insured will be placed, with respect to
the entire Specified Amount under the Policy, in the
premium class applicable to such increase in specified
amount.
The net cash value of the fixed-benefit policy will
initially be allocated to the Money Market Subaccount.
When the Company receives, at its Home Office, a notice
signed by the Policyowner that the Policy has been
received and accepted, the policy's cash value in the
Money Market Subaccount automatically will be allocated,
without charge, among the Subaccounts and the Declared
Interest Option pursuant to the allocation instructions
set forth in the application for the Policy.
The Company will waive the sales charge and premium taxes
(see "CHARGES AND DEDUCTIONS--Premium Expense Charge--
SALES CHARGE, and--PREMIUM TAXES") on the net cash value
of the fixed-benefit policy applied to the Policy
pursuant to the exchange. In addition, the Company will
assess the First Year Monthly Administrative Charge (see
"CHARGES AND DEDUCTIONS--Monthly Deduction--FIRST YEAR
MONTHLY ADMINISTRATIVE CHARGE") only to the extent that
12 monthly per $1,000 charges under the fixed-benefit
policy have not been assessed. Otherwise, charges and
deductions will be made in the manner and amounts
described elsewhere in this Prospectus.
An exchanging owner will not be permitted to carry over
an outstanding loan under his fixed-benefit policy. Any
outstanding loan and loan interest may be repaid prior to
the date of exchange. If not repaid prior to the date of
exchange, the amount of the outstanding loan and interest
thereon will be reflected in the net cash value of the
fixed-benefit policy. To the extent a fixed-benefit
policy with an outstanding loan is exchanged for an
unencumbered Policy, the exchanging owner could recognize
income at the time of the exchange up to the amount of
such loan (including any due and unpaid interest on such
loan). (See "FEDERAL TAX MATTERS--Tax Treatment of Policy
Benefits.")
- --------------------------------------------------------------------------------
POLICY BENEFITS
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While a Policy is in force, it provides for certain
benefits prior to the Maturity Date. Subject to certain
limitations, the Policyowner may at any time obtain all
or a portion of the Net Cash Value by completely or
partially surrendering the Policy. (See "POLICY
BENEFITS--Cash Value Benefits--SURRENDER PRIVILEGES.") In
addition, the Policyowner has certain policy loan
privileges under the Policies. (See "POLICY
BENEFITS--Loan Benefits--POLICY LOANS.") The Policy also
provides for the payment of death proceeds upon the death
of the Insured under one of two death benefit options
selected by the Policyowner (see "POLICY BENEFITS--Death
Proceeds--DEATH BENEFIT OPTIONS"), and benefits upon the
maturity of a Policy (see "POLICY BENEFITS--Benefits at
Maturity").
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CASH VALUE BENEFITS SURRENDER PRIVILEGES. At any time prior to the Maturity
Date while the Policy is in force, a Policyowner may
surrender the Policy in whole or in part by sending a
written request to the Company at its Home Office. A
nominal Surrender Charge to cover the
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<PAGE>
cost of processing the surrender will be payable upon
complete surrender and upon each partial surrender. The
charge is equal to the lesser of $25 or 2.0% of the
amount requested. (See "CHARGES AND DEDUCTIONS--Surrender
Charge.") Surrender proceeds ordinarily will be mailed to
the Policyowner within seven days after the Company
receives a signed request for a surrender at its Home
Office, although payments may be postponed under certain
circumstances. (See "GENERAL PROVISIONS--Postponement of
Payments.")
COMPLETE SURRENDERS. The amount payable on complete
surrender of the Policy is the Net Cash Value at the end
of the Valuation Period during which the request is
received less the Surrender Charge. This amount may be
paid in a lump sum or under one of the payment options
specified in the Policy, as requested by the Policyowner.
(See "POLICY BENEFITS--Payment Options.") If the entire
Net Cash Value is surrendered, all insurance in force
will terminate. For a discussion of the tax consequences
associated with Complete Surrenders, (see "FEDERAL TAX
MATTERS.")
PARTIAL SURRENDERS. A Policyowner may obtain a portion
of the Policy's Net Cash Value upon partial surrender of
the Policy. A partial surrender must be at least $500 and
cannot exceed the lesser of (1) the Net Cash Value less
$500 or (2) 90% of the Net Cash Value. The Surrender
Charge will be deducted from the amount surrendered. The
Policyowner may request that the proceeds of a partial
surrender be paid in a lump sum or under one of the
payment options specified in the Policy. (See "POLICY
BENEFITS--Payment Options.")
A partial surrender will be allocated among the
Subaccounts and the Declared Interest Option in
accordance with the written instructions of the
Policyowner. If no such instructions are received with
the request for partial surrender, the partial surrender
will be allocated among the Subaccounts and the Declared
Interest Option in the same proportion that the Cash
Value in each of the Subaccounts and the Cash Value in
the Declared Interest Option, reduced by any outstanding
Policy Debt, bears to the total Cash Value on the date
the request is received at the Home Office.
Partial surrenders will affect both the Policy's Cash
Value and the death proceeds payable under the Policy.
The Policy's Cash Value will be reduced by the amount of
the partial surrender. If the death benefit payable under
either death benefit option both before and after the
partial surrender is equal to the Cash Value multiplied
by the specified amount factor set forth in the Policy, a
partial surrender will result in a reduction in death
proceeds equal to the amount of the partial surrender,
multiplied by the specified amount factor then in effect.
If the death benefit is not so affected by the specified
amount factor, the reduction in death proceeds will be
equal to the partial surrender. (See "POLICY
BENEFITS--Death Proceeds.")
Partial surrenders will reduce the Policy's Specified
Amount by the amount of Cash Value surrendered if Option
B is in effect at the time of the surrender. If Option A
is in effect at the time of the surrender, there will be
no effect on Specified Amount. (See "POLICY
BENEFITS--Death Proceeds--DEATH BENEFIT OPTIONS.") The
Specified Amount remaining in force after a partial
surrender may not be less than the minimum Specified
Amount for the Policy in effect on the date of the
partial surrender, as published by the Company. As a
result, the Company will not process any partial
surrender that would reduce the Specified Amount below
this minimum. If increases in the Specified Amount
previously have occurred, a partial surrender will first
reduce the Specified Amount of the most recent increase,
then the next most recent increases successively, then
the coverage under the original application. Thus, a
partial surrender may either increase or decrease the
amount of the cost of insurance charge, depending upon
the particular circumstances. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction--COST OF INSURANCE.") For a
discussion of the tax consequences associated with
partial surrenders, see "FEDERAL TAX MATTERS".
NET CASH VALUE. Net Cash Value equals the Policy's Cash
Value reduced by any outstanding Policy Debt and
increased by any unearned loan interest.
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<PAGE>
CALCULATION OF CASH VALUE. The Policy provides for the
accumulation of Cash Value. Cash Value will be
determined on each Business Day. A Policy's Cash Value
will reflect a number of factors, including Net Premiums
paid, partial surrenders, Policy Loans, charges assessed
in connection with the Policy, the interest earned on the
Cash Value in the Declared Interest Option and the
investment performance of the Subaccounts to which the
Cash Value is allocated. There is no guaranteed minimum
Cash Value. The Cash Value of the Policy is equal to the
sum of the Cash Values in each Subaccount, plus the Cash
Value in the Declared Interest Option, including amounts
transferred to the Declared Interest Option to secure
outstanding Policy Debt.
As of the Issue Date, the Policy's Cash Value equals the
initial Net Premium less the monthly deduction made on
the Policy Date.
On the Business Day coinciding with or immediately
following the date the Company receives notice that the
Policy has been received and accepted by the Policyowner,
the Policy's Cash Value (all of which is in the Money
Market Subaccount) will be transferred automatically
among the Subaccounts and the Declared Interest Option in
accordance with such percentage allocation instructions.
At the end of each Valuation Period thereafter, the Cash
Value in a Subaccount will equal:
(1) The total Subaccount units represented by the
cash value at the end of the preceding
valuation period, multiplied by the
Subaccount's unit value for the current
valuation period; PLUS
(2) Any Net Premiums received during the current
Valuation Period which are allocated to the
Subaccount; PLUS
(3) All Cash Values transferred to the Subaccount
from the Declared Interest Option or from
another Subaccount during the current
Valuation Period; MINUS
(4) All Cash Values transferred from the
Subaccount to another Subaccount or to the
Declared Interest Option during the current
Valuation Period, including amounts
transferred to the Declared Interest Option
to secure Policy Debt; MINUS
(5) All partial surrenders from the Subaccount
during the current Valuation Period; MINUS
(6) The portion of any monthly deduction charged
to the Subaccount during the current
Valuation Period to cover the Policy Month
following the Monthly Deduction Day.
The Policy's total Cash Value in the Variable Account
equals the sum of the Policy's Cash Value in each
Subaccount.
UNIT VALUE. Each Subaccount has a Unit Value. When Net
Premiums are allocated to, or other amounts are
transferred into, a Subaccount, a number of Units are
purchased based on the Unit Value of the Subaccount as of
the end of the Valuation Period during which the transfer
is made. Likewise, when amounts are transferred out of a
Subaccount, Units are redeemed on the same basis. On any
day, a Policy's Cash Value in a Subaccount is equal to
the number of Units held in such Subaccount, multiplied
by the Unit Value of such Subaccount on that date.
For each Subaccount, the Unit Value was initially set at
$10 when the Subaccount first purchased shares of the
designated Portfolio. The unit value for each subsequent
valuation period is calculated by dividing (a) by (b)
where:
(a) is (1) the Net Asset Value of the net assets
of the Subaccount at the end of the preceding
Valuation Period, plus (2) the investment
income and capital gains, realized or
unrealized, credited to the net assets of
that Subaccount during the Valuation Period
for which the Unit Value is being determined,
minus (3) the capital losses, realized or
unrealized, charged against those assets
during the Valuation Period, minus (4) any
amount charged against
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<PAGE>
the Subaccount for taxes, or any amount set
aside during the Valuation Period by the
Company as a provision for taxes attributable
to the operation or maintenance of that
Subaccount; and minus (5) a charge no greater
than .0024548% of the average daily net
assets of the Subaccount for each day in the
Valuation Period. This corresponds to an
effective annual rate of .90% of the average
daily net assets of the Subaccount for
mortality and expense risks incurred in
connection with the Policies.
(b) is the number of units outstanding at the end
of the preceding Valuation Period.
The Unit Value for a Valuation Period applies for each
day in the period. The assets in the Variable Account
will be valued at their fair market value in accordance
with accepted accounting practices and applicable laws
and regulations.
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TRANSFERS Policyowners may transfer amounts among the Subaccounts
an unlimited number of times in a Policy Year; however,
only one transfer per Policy Year may be made between the
Declared Interest Option and the Variable Account.
Transfers are made by written request to the Home Office
or, if the Policyowner has elected the "Telephone
Transfer Authorization" on the supplemental application,
by calling the Home Office toll-free at (800) 247-4170.
The amount of the transfer must be at least $100 or the
total Cash Value in the Subaccount or in the Declared
Interest Option (reduced, in the case of the Declared
Interest Option, by any outstanding Policy Debt), if less
than $100. The Company may, at its discretion, waive the
$100 minimum requirement. The transfer will be effective
as of the end of the Valuation Period during which the
request is received at the Home Office.
The first transfer in each Policy Year will be made
without charge; each time amounts are subsequently
transferred in that Policy Year, a transfer charge of $25
will be assessed. The transfer charge, unless paid in
cash, will be deducted from the amount transferred. The
$25 charge is the Company's estimate of the average
actual cost of present and future typical transfers; the
Company does not expect to make a profit from the process
of executing transfers. Once a Policy is issued, the
amount of the transfer charge is guaranteed for the life
of the Policy. (See "CHARGES AND DEDUCTIONS--Transfer
Charge.")
For purposes of these limitations and charges, all
transfers effected on the same day will be considered a
single transfer.
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LOAN BENEFITS POLICY LOANS. So long as the Policy remains in force and
has a positive Net Cash Value, a Policyowner may borrow
money from the Company at any time using the Policy as
the sole security for the Policy Loan. A loan taken from,
or secured by, a Policy may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.")
The maximum amount that may be borrowed at any time is
90% of the Cash Value as of the end of the Valuation
Period during which the request for the Policy Loan is
received at the Home Office, less any previously
outstanding Policy Debt. The Company's claim for
repayment of Policy Debt has priority over the claims of
any assignee or other person.
During any time that there is outstanding Policy Debt,
payments made by the Policyowner will be treated first as
payment of outstanding Policy Debt, unless the
Policyowner indicates that the payment should be treated
otherwise. Where no indication is made, any portion of a
payment that exceeds the amount of any outstanding Policy
Debt will be treated as a premium payment.
ALLOCATION OF POLICY LOAN. When a Policy Loan is made,
an amount equal to the Policy Loan will be segregated
within the Declared Interest Option as security for the
Policy Loan. If, immediately prior to the Policy Loan,
the Cash Value in the Declared Interest Option less
Policy Debt outstanding is less than the amount of such
Policy Loan, the difference will be transferred from the
subaccounts of the Variable Account, which have Cash
Value, in the same proportions that the Policy's Cash
Value in each
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<PAGE>
Subaccount bears to the Policy's total Cash Value in the
Variable Account. Cash Values will be determined as of
the end of the Valuation Period during which the request
for the Policy Loan is received at the Home Office.
Loan proceeds will normally be mailed to the Policyowner
within seven days after receipt of a written request.
Postponement of a Policy Loan may take place under
certain circumstances. (See "GENERAL PROVISIONS--
Postponement of Payments.")
Amounts segregated within the Declared Interest Option as
security for Policy Debt will bear interest at an
effective annual rate set by the Company. (See "POLICY
BENEFITS--Loan Benefits--EFFECT ON INVESTMENT
PERFORMANCE.")
LOAN INTEREST CHARGED. The interest rate charged on
Policy Loans is not fixed. Initially, it will be the
rate shown in the Policy on the policy data page. The
Company may at any time elect to change the interest
rate, subject to the following conditions: (i) the rate
may not exceed 7.4% per year in advance (which is equal
to an effective rate of 8.0%); (ii) any increase in the
interest rate may not exceed 1.0% per calendar year; and
(iii) changes in the interest rate may not occur more
often than once in any twelve-month period. The Company
will send notice of any change in rate to the
Policyowner. The new rate will take effect on the Policy
Anniversary coinciding with or next following the date
the rate is changed.
Interest is payable in advance at the time any Policy
Loan is made (for the remainder of the Policy Year) and
on each Policy Anniversary thereafter (for the entire
Policy Year) so long as there is Policy Debt outstanding.
Interest payable at the time a Policy Loan is made will
be subtracted from the loan proceeds. Thereafter,
interest not paid when due will be added to the existing
Policy Debt and bear interest at the same rate charged
for Policy Loans. The amount equal to unpaid interest
will be segregated within the Declared Interest Option in
the same manner that amounts for Policy Loans are
segregated within the Declared Interest Option. (See
"POLICY BENEFITS--Loan Benefits--ALLOCATION OF POLICY
LOAN.")
Because interest is charged in advance, any interest that
has not been earned will be added to the death benefit
payable at the Insured's death and to the Cash Value upon
complete surrender, and will be credited to the Cash
Value in the Declared Interest Option upon repayment of
Policy Debt.
EFFECT ON INVESTMENT PERFORMANCE. Amounts transferred
from the Variable Account as security for Policy Debt
will no longer participate in the investment performance
of the Variable Account. All amounts held in the Declared
Interest Option as security for Policy Debt will be
credited with interest on each Monthly Deduction Day at
an effective annual rate of between 4.5% and 6.0%, as
determined and declared by the Company. No additional
interest will be credited to these amounts. The interest
credited will remain in the Declared Interest Option
unless and until transferred by the Policyowner to the
Variable Account, but will not be segregated within the
Declared Interest Option as security for Policy Debt.
Even though Policy Debt may be repaid in whole or in part
at any time prior to the Maturity Date if the Policy is
still in force, Policy Loans will affect the Cash Value
of a Policy and may affect the death proceeds payable.
The effect could be favorable or unfavorable depending
upon whether the investment performance of the
Subaccount(s) from which the Cash Value was transferred
is less than or greater than the interest rates actually
credited to the Cash Value segregated within the Declared
Interest Option as security for Policy Debt while Policy
Debt is outstanding. In comparison to a Policy under
which no Policy Loan was made, Cash Value will be lower
where such interest rates credited were less than the
investment performance of the Subaccount(s), but will be
greater where such interest rates were greater than the
performance of the Subaccount(s). In addition, death
proceeds will reflect a reduction of the death benefit by
any outstanding Policy Debt.
POLICY DEBT. Policy Debt equals the sum of all unpaid
Policy Loans and any due and unpaid policy loan
interest. Policy Debt is not included in Net Cash Value
and therefore Net Cash Value is reduced by the amount of
any Policy Debt. If Net Cash
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<PAGE>
Value is insufficient on a Monthly Deduction Day to cover
the monthly deduction (see "Charges and Deductions--
Monthly Deduction"), the Company will notify the
Policyowner. To avoid lapse and termination of the
Policy without value (see "THE POLICY--Policy Lapse and
Reinstatement--LAPSE"), the Policyowner must, during the
Grace Period, make a premium payment that, when reduced
by the premium expense charge (see "CHARGES AND
DEDUCTIONS--Premium Expense Charge"), will be at least
equal to three times the monthly deduction due on the
Monthly Deduction Day immediately preceding the Grace
Period (see "CHARGES AND DEDUCTIONS--Monthly Deduction").
Therefore the greater the Policy Debt under a Policy, the
more likely it would be to lapse.
REPAYMENT OF POLICY DEBT. Policy Debt may be repaid in
whole or in part any time during the Insured's life and
before the Maturity Date so long as the Policy is in
force. Any Policy Debt not repaid is subtracted from the
death benefit payable at the Insured's death, from Cash
Value upon complete surrender or from the maturity
benefit. Any payments made by a Policyowner will be
treated first as the repayment of any outstanding Policy
Debt, unless the Policyowner indicates otherwise. Upon
repayment of Policy Debt, the portion of the Cash Value
in the Declared Interest Option securing the repaid
portion of the Policy Debt will no longer be segregated
within the Declared Interest Option as security for
Policy Debt, but will remain in the Declared Interest
Option unless and until transferred to the Variable
Account by the Policyowner.
For a discussion of the tax consequences associated with
Policy Loans and lapses, see "FEDERAL TAX MATTERS".
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DEATH PROCEEDS So long as the Policy remains in force, the Policy
provides for the payment of death proceeds upon the death
of the Insured. Proceeds will be paid to the primary
Beneficiary or a contingent Beneficiary. One or more
primary Beneficiaries or contingent Beneficiaries may be
named. If no Beneficiary survives the Insured, the death
proceeds will be paid to the Policyowner or his estate.
Death proceeds may be paid in a lump sum or under a
payment option. (See "POLICY BENEFITS--Payment Options.")
To determine the death proceeds, the death benefit will
be reduced by any outstanding Policy Debt and increased
by any unearned loan interest and any premiums paid after
the date of death. Proceeds will ordinarily be mailed to
the Policyowner within seven days after receipt by the
Company of Due Proof of Death. Payment may, however, be
postponed under certain circumstances. (See "GENERAL
PROVISIONS--Postponement of Payments.") The Company pays
interest on those proceeds, at a rate of no less than
3.0%, from the date of death to the date payment is made.
DEATH BENEFIT OPTIONS. Policyowners designate in the
initial application one of two death benefit options
offered under the Policy. The amount of the death benefit
payable under a Policy will depend upon the option in
effect at the time of the Insured's death. Under Option
A, the death benefit will be equal to the greater of (i)
the sum of the current Specified Amount and the Cash
Value, or (ii) the Cash Value multiplied by the specified
amount factor. Cash Value will be determined as of the
end of the Business Day coinciding with or immediately
following the date of death. The specified amount factor
is 2.50 for an Insured Attained Age 40 or below on the
date of death. For Insureds with an Attained Age over 40
on the date of death, the factor declines with age as
shown in the Specified Amount Factor Table in Appendix B.
Accordingly, under Option A, the death proceeds will
always vary as the Cash Value varies (but will never be
less than the Specified Amount). Policyowners who prefer
to have favorable investment performance and additional
premiums reflected in increased death benefits generally
should select Option A.
Under Option B, the death benefit will be equal to the
greater of the current Specified Amount or the Cash Value
(determined as of the end of the Business Day coinciding
with or immediately following the date of death)
multiplied by the specified amount factor. The specified
amount factor is the same as under Option A: 2.50 for an
Insured Attained Age 40 or below on the date of death,
and for Insureds with an Attained Age
21
<PAGE>
over 40 on the date of death, the factor declines with
age as shown in the Specified Amount Factor Table in
Appendix B. Accordingly, under Option B the death benefit
will remain level at the Specified Amount unless the Cash
Value multiplied by the specified amount factor exceeds
the current Specified Amount, in which case the amount of
the death benefit will vary as the Cash Value varies.
Policyowners who are satisfied with the amount of their
insurance coverage under the Policy and who prefer to
have favorable investment performance and additional
premiums reflected in higher Cash Value, rather than
increased death benefits, generally should select Option
B.
Examples illustrating Option A and Option B can be found
in Appendix B.
CHANGE IN DEATH BENEFIT OPTION. The death benefit option
in effect may be changed at any time by sending a
written request for the change to the Company at its Home
Office. The effective date of such a change will be the
Monthly Deduction Day coinciding with or immediately
following the date the change is approved by the Company.
A change in death benefit option may have federal income
tax consequences. (See "FEDERAL TAX MATTERS.")
If the death benefit option is changed from Option A to
Option B, the current Specified Amount will not change.
If the benefit option is changed from Option B to Option
A, the current Specified Amount will be reduced by an
amount equal to the Cash Value on the effective date of
the change. A change in the death benefit option may not
be made if it would result in a Specified Amount which is
less than the minimum Specified Amount in effect on the
effective date of the change or if after the change the
Policy would no longer qualify as life insurance under
federal tax law.
No charges will be imposed in connection with a change in
death benefit option; however, a change in death benefit
option will affect the cost of insurance charges. (See
"CHARGES AND DEDUCTIONS--Monthly Deduction--COST OF
INSURANCE.")
CHANGE IN EXISTING COVERAGE. After a Policy has been in
force for one Policy Year, a Policyowner may adjust the
existing insurance coverage by increasing or decreasing
the Specified Amount. To make a change, the Policyowner
must send a written request to the Company at its Home
Office. Any change in the Specified Amount may affect the
cost of insurance rate and the net amount at risk, both
of which will affect a Policyowner's cost of insurance
charge. (See "CHARGES AND DEDUCTIONS--Monthly
Deduction--COST OF INSURANCE RATE, and--NET AMOUNT AT
RISK.") If decreases in the Specified Amount cause the
premiums paid to exceed the maximum premium limitations
imposed by federal tax law (see "THE POLICY--Premiums--
PREMIUM LIMITATIONS"), the decrease will be limited to
the extent necessary to meet these requirements. A change
in existing coverage may have federal income tax
consequences. (See "FEDERAL TAX MATTERS--Tax Treatment of
Policy Benefits.")
Any decrease in the Specified Amount will become
effective on the Monthly Deduction Day coinciding with or
immediately following the date the request is approved by
the Company. The decrease will first reduce the Specified
Amount provided by the most recent increase, then the
next most recent increases successively, then the
Specified Amount under the original application. The
Specified Amount following a decrease can never be less
than the minimum Specified Amount for the Policy in
effect on the date of the decrease.
To apply for an increase, evidence of insurability
satisfactory to the Company must be provided. Any
approved increase will become effective on the Monthly
Deduction Day coinciding with or immediately following
the date the request is approved by the Company. An
increase will not become effective, however, if the
Policy's Cash Value on the effective date would not be
sufficient to cover the deduction for the increased cost
of the insurance for the next Policy Month.
CHANGES IN INSURANCE PROTECTION. A Policyowner may
increase or decrease the pure insurance protection
provided by a Policy--the difference between the death
benefit and the Cash Value--in one of several ways as
insurance needs change. These ways
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<PAGE>
include increasing or decreasing the Specified Amount of
insurance, changing the level of premium payments and, to
a lesser extent, partially surrendering Cash Value.
Although the consequences of each of these methods will
depend upon the individual circumstances, they may be
summarized as follows:
(a) A decrease in the Specified Amount will,
subject to the applicable specified amount
factor limitations (see "POLICY BENEFITS--
Death Proceeds--DEATH BENEFIT OPTIONS"),
decrease the pure insurance protection and
the cost of insurance charges under the
Policy without generally reducing the Cash
Value.
(b) An increase in the Specified Amount may
increase the amount of pure insurance
protection, depending on the amount of Cash
Value and the resultant applicable specified
amount factor. If the insurance protection
is increased, the cost of insurance charge
generally will increase as well.
(c) If Option B is elected, an increased level of
premium payments will increase the Cash Value
and reduce the pure insurance protection,
until the Cash Value multiplied by the
applicable specified amount factor exceeds
the Specified Amount. Increased premiums
should also increase the amount of funds
available to keep the Policy in force.
(d) If Option B is elected, a reduced level of
premium payments generally will increase the
amount of pure insurance protection,
depending on the applicable specified amount
factor. It also will result in a reduced
amount of Cash Value and will increase the
possibility that the Policy will lapse.
(e) A partial surrender will reduce the death
benefit. (See "POLICY BENEFITS--Cash Value
Benefits--SURRENDER PRIVILEGES.") However, it
only affects the amount of pure insurance
protection if the death benefit payable is
based on the specified amount factor, because
otherwise the decrease in the benefit is
offset by the amount of Cash Value
withdrawn. The primary use of a partial
surrender is to withdraw cash and reduce Cash
Value.
In comparison, an increase in the death benefit due to
the operation of the specified amount factor occurs
automatically and is intended to help assure that the
Policy remains qualified as life insurance under federal
tax law. The calculation of the death benefit based upon
the specified amount factor occurs only when the Cash
Value of a Policy reaches a certain proportion of the
Specified Amount (which may or may not occur). Additional
premium payments, favorable investment performance and
large initial premiums tend to increase the likelihood of
the specified amount factor becoming operational after
the first few Policy Years. Such increases will be
temporary, however, if the investment performance becomes
unfavorable and/or premium payments are stopped or
decreased.
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ACCELERATED PAYMENTS In the event that the Insured becomes terminally ill (as
OF DEATH PROCEEDS defined below), the Policyowner (if residing in a state
that has approved such an endorsement) may, by written
request and subject to the conditions stated below, have
the Company pay all or a portion of the accelerated death
benefit immediately to the Policyowner. If not attached
to the Policy beforehand, the Company will issue an
accelerated death benefit endorsement (the "Endorsement")
providing for this right.
For this purpose, an Insured is terminally ill when a
physician (as defined by the Endorsement) certifies that
he or she has a life expectancy of 12 month or less.
The accelerated death benefit is equal to the Policy's
death benefit as described on page 6, up to a maximum of
$250,000 (the $250,000 maximum applies in aggregate to
all policies issued by the Company on the Insured), less
an amount representing a discount for 12 months at the
interest rate charged for loans under the Policy. The
accelerated death benefit does not include the amount of
any accidental death benefit under a rider or any death
benefit payable under a rider that covers the life of
someone other than the Insured.
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<PAGE>
In the event that there is a loan outstanding under the
Policy on the date that the Policyowner requests a
payment under the Endorsement, the accelerated death
benefit is reduced by a portion of the outstanding loan
in the same proportion that the requested payment under
the Endorsement bears to the total death benefit under
the Policy. If the amount requested by the Policyowner to
be paid under the Endorsement is less than the total
death benefit under the Policy and the Specified Amount
of the Policy is equal to or greater than the minimum
Specified Amount, the Policy will remain in force with
all values and benefits under the Policy being reduced in
the same proportion that the new Policy benefit bears to
the Policy benefit before exercise of the Endorsement.
There are several other restrictions associated with the
Endorsement. These are: (1) the Endorsement is not valid
if the Policy is within five years of being matured, (2)
the consent of any irrevocable beneficiary or assignee is
required to exercise the Endorsement, (3) the Company
reserves the right, in its sole discretion, to require
the consent of the Insured or of any beneficiary,
assignee, spouse or other party in interest before
permitting the exercise of the Endorsement, (4) the
Company reserves the right to obtain the concurrence of a
second medical opinion as to whether any Insured is
terminally ill and (5) the Endorsement is not effective
where (a) the Insured or the Policyowner would be
otherwise required by law to use the Endorsement to meet
the claims of creditors, or (b) the Insured would be
otherwise required by any government agency to exercise
the Endorsement in order to apply for, obtain or keep a
government benefit or entitlement.
The Endorsement will terminate at the earlier of the end
of the grace period for which any premium is unpaid, upon
receipt in the Home Office of a written request from the
Policyowner to cancel the Endorsement or upon termination
of the Policy.
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BENEFITS AT MATURITY If the Insured is alive and the Policy is in force on the
Maturity Date, the Company will pay to the Policyowner
the Policy's Cash Value as of the end of the Business Day
coinciding with or immediately following the Maturity
Date, reduced by any outstanding Policy Debt. (See
"POLICY BENEFITS--Loan Benefits--REPAYMENT OF POLICY
DEBT.") Benefits at maturity may be paid in a lump sum or
under a payment option. The Maturity Date is the Policy
Anniversary nearest the Insured's 95th birthday.
- --------------------------------------------------------------------------------
PAYMENT OPTIONS Death proceeds and Cash Value paid at maturity or upon
complete or partial surrender of a Policy may be paid in
whole or in part under a payment option. There are
currently six payment options available. Payments may
also be made under any new payment option available at
the time proceeds become payable. In addition, proceeds
may be paid in any other manner acceptable to the
Company.
An option may be designated in the application or by
notifying the Company in writing at its Home Office.
During the life of the Insured, the Policyowner may
select a payment option; in addition, during that time
the Policyowner may change a previously selected option
by sending written notice to the Company requesting the
cancellation of the prior option and the designation of a
new option. If the Policyowner has not chosen an option
prior to the Insured's death, the Beneficiary may choose
an option. The Beneficiary may change a payment option by
sending a written request to the Company, provided that a
prior option chosen by the Policyowner is not in effect.
If no option is chosen, the Company will pay the proceeds
of the Policy in one sum. The Company will also pay the
proceeds in one sum if, (i) the proceeds are less than
$2,000; (ii) periodic payments would be less than $20; or
(iii) the payee is an assignee, estate, trustee,
partnership, corporation or association.
Amounts paid under a payment option are paid pursuant to
a payment contract and will not depend upon the
investment performance of the Variable Account. Proceeds
applied under a payment option earn interest at a rate
guaranteed to be no less than
24
<PAGE>
3.0% compounded yearly. The Company may be crediting
higher interest rates on the effective date of the
payment contract. The Company may, but is not obligated
to, declare additional interest to be applied to such
funds.
If a payee dies, any remaining payments will be paid to a
contingent payee. At the death of the last payee, the
commuted value of any remaining payments will be paid to
the last payee's estate. A payee may not withdraw funds
under a payment option unless the Company has agreed to
such withdrawal in the payment contract. The Company
reserves the right to defer a withdrawal for up to six
months and to refuse to allow partial withdrawals of less
than $250.
Payments under Options 2, 3, 4, 5 or 6 will begin as of
the date of the Insured's death, on surrender or on the
Maturity Date. Payments under Option 1 will begin at the
end of the first interest period after the date proceeds
are otherwise payable.
OPTION 1--INTEREST INCOME. Periodic payments of
interest earned from the proceeds will be paid.
Payments can be annual, semi-annual, quarterly or
monthly, as selected by the payee, and will begin at
the end of the first period chosen. Proceeds left
under this plan will earn interest at a rate
determined by the Company, in no event less than
3.0% compounded yearly. The payee may withdraw all
or part of the proceeds at any time.
OPTION 2--INCOME FOR A FIXED PERIOD. Periodic
payments will be made for a fixed period not longer
than 30 years. Payments can be annual, semi-annual,
quarterly or monthly. Guaranteed amounts payable
under the plan will earn interest at a rate
determined by the Company, in no event less than
3.0% compounded yearly.
OPTION 3--LIFE INCOME WITH TERM CERTAIN. Equal
periodic payments will be made for a guaranteed
minimum period elected. If the payee lives longer
than the minimum period, payments will continue for
his or her life. The minimum period can be 0, 5, 10,
15 or 20 years. Guaranteed amounts payable under
this plan will earn interest at a rate determined by
the Company, in no event less than 3.0% compounded
yearly.
OPTION 4--INCOME OF A FIXED AMOUNT. Equal periodic
payments of a definite amount will be paid. Payments
can be annual, semi-annual, quarterly or monthly.
The amount paid each period must be at least $20 for
each $1,000 of proceeds. Payments will continue
until the proceeds are exhausted. The last payment
will equal the amount of any unpaid proceeds. Unpaid
proceeds will earn interest at a rate determined by
the Company, in no event less than 3.0% compounded
yearly.
OPTION 5--JOINT AND TWO-THIRDS SURVIVOR MONTHLY LIFE
INCOME. Equal monthly payments will be made for as
long as two payees live. The guaranteed amount
payable under this plan will earn interest at a
minimum rate of 3.0% compounded yearly. When one
payee dies, payments of two-thirds of the original
monthly payment will be made to the surviving payee.
Payments will stop when the surviving payee dies.
OPTION 6--JOINT AND SURVIVOR MONTHLY LIFE
INCOME. Equal monthly payments will be made as long
as the principal payee lives. The guaranteed amount
payable will earn interest at a minimum rate of 3.0%
compounded yearly. When the principal payee dies,
payments of 50% of the original payments will be
paid to the surviving payee for the balance of the
surviving payee's life.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Charges will be deducted in connection with the Policy to
compensate the Company for providing the insurance
benefits set forth in the Policy and any additional
benefits added by rider, for distributing and
administering the Policy, for applicable taxes and for
assuming certain risks in connection with the Policy. The
nature and amount of these charges are described more
fully below.
25
<PAGE>
- --------------------------------------------------------------------------------
PREMIUM EXPENSE Prior to allocation of Net Premiums among the Subaccounts
CHARGE and the Declared Interest Option, premiums paid will be
reduced by a premium expense charge consisting of a sales
charge and a charge for premium taxes. The premium less
the premium expense charge equals the Net Premium.
SALES CHARGE. A sales charge of 5.0% of the premium will
be deducted from each premium to compensate the Company
for expenses incurred in distributing the Policy. These
expenses include agent sales commissions, the cost of
printing prospectuses and sales literature, and
advertising costs. The sales charge in any Policy Year is
not necessarily related to actual distribution expenses
incurred in that year. Instead, the Company expects to
incur the majority of distribution expenses in the early
Policy Years and to recover any deficiency over the life
of the Policy and from the Company's general assets,
including amounts derived from the mortality and expense
risk charge and from mortality gains.
PREMIUM TAXES. Various states and subdivisions thereof
impose a tax on premiums received by insurance
companies. Therefore, the premium expense charge
currently includes a deduction of 2.0% of every premium
for these taxes. Premium taxes vary from state to state.
The deduction represents an amount the Company considers
necessary to pay all premium taxes imposed by the states
and any subdivisions thereof. The Company reserves the
right to change the amount of this premium tax charge.
- --------------------------------------------------------------------------------
MONTHLY DEDUCTION Charges will be deducted monthly from the Cash Value of
each Policy ("monthly deduction") to compensate the
Company for the cost of insurance coverage and any
additional benefits added by rider (See "GENERAL
PROVISIONS--Additional Insurance Benefits"), for
underwriting and start-up expenses in connection with
issuing a Policy and for certain administrative costs.
The monthly deduction will be deducted on the Policy Date
and on each Monthly Deduction Day. It will be deducted
from the Declared Interest Option and each Subaccount in
the same proportion that the Policy's Net Cash Value in
the Declared Interest Option and the Policy's Cash Value
in each Subaccount bear to the total Net Cash Value of
the Policy. For purposes of making deductions from the
Declared Interest Option and the Subaccounts, Cash Values
will be determined as of the end of the Business Day
coinciding with or immediately following the Monthly
Deduction Day. Because portions of the monthly deduction,
such as the cost of insurance, can vary from month to
month, the monthly deduction itself will vary in amount
from month to month.
The monthly deduction will be made on the Business Day
coinciding with or immediately following each Monthly
Deduction Day and will equal:
(a) the cost of insurance for the Policy; plus
(b) the cost of any optional insurance benefits
added by rider; plus
(c) the monthly administrative charge.
During the first twelve Policy Months and during the
twelve Policy Months immediately following an increase in
Specified Amount, the monthly deduction will include a
first year monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate
the Company for the anticipated cost of paying death
proceeds to Beneficiaries of those Insureds who die prior
to the Maturity Date. The cost of insurance is determined
on a monthly basis, and is determined separately for the
initial Specified Amount and for any subsequent increases
in Specified Amount. The Company will determine the
monthly cost of insurance charge by dividing the
applicable cost of insurance rate, or rates, by 1,000 and
multiplying the result by the net amount at risk for each
Policy Month.
26
<PAGE>
NET AMOUNT AT RISK. Under Option A the net amount at
risk for a Policy Month is equal to (a) divided by (b),
and under Option B the net amount at risk for a Policy
Month is equal to (a) divided by (b), minus (c), where:
(a) is the Specified Amount;
(b) is 1.0036748;(1) and
(c) is the Cash Value.
The Specified Amount and the Cash Value will be
determined as of the end of the Business Day coinciding
with or immediately following the Monthly Deduction Day.
The net amount at risk is determined separately for the
initial Specified Amount and any increases in Specified
Amount. In determining the net amount at risk for each
Specified Amount, the Cash Value will be first considered
a part of the initial Specified Amount. If the Cash Value
exceeds the initial Specified Amount, it will be
considered to be a part of any increase in the Specified
Amount in the same order as the increases occurred.
COST OF INSURANCE RATE. The cost of insurance rate for
the initial Specified Amount will be based on the
Insured's sex, premium class and Attained Age. For any
increase in Specified Amount, the cost of insurance rate
will be based on the Insured's sex, premium class and age
nearest birthday on the effective date of the increase.
Actual cost of insurance rates may change and the actual
monthly cost of insurance rates will be determined by the
Company based on its expectations as to future mortality
experience. However, the actual cost of insurance rates
will never be greater than the guaranteed maximum cost of
insurance rates set forth in the Policy. These guaranteed
rates are based on the 1980 Commissioners' Standard
Ordinary Non-Smoker and Smoker Mortality Table, Age
Nearest Birthday. Current cost of insurance rates are
generally less than the guaranteed maximum rates. Any
change in the cost of insurance rates will apply to all
persons of the same age, sex and premium class whose
Policies have been in force the same length of time.
The cost of insurance rates generally increase as the
Insured's Attained Age increases. The premium class of an
Insured also will affect the cost of insurance rate. The
Company currently places Insureds into a standard premium
class or into premium classes involving a higher
mortality risk. In an otherwise identical Policy,
Insureds in the standard premium class will have a lower
cost of insurance rate than those in premium classes
involving higher mortality risk. The standard premium
class is also divided into three categories: smokers,
non-smokers and preferred plus. Non-smoking Insureds will
generally have a lower cost of insurance rate than
similarly situated Insureds who smoke, and preferred plus
Insureds will generally have a lower cost of insurance
rate than similarly situated non-smoking Insureds.
The cost of insurance rate is determined separately for
the initial Specified Amount and for the amount of any
increase in Specified Amount. In calculating the cost of
insurance charge, the rate for the premium class on the
Policy Date will be applied to the net amount at risk for
the initial Specified Amount; for each increase in
Specified Amount, the rate for the premium class
applicable to the increase will be used. However, if the
death benefit is calculated as the Cash Value times the
specified amount factor, the rate for the premium class
for the most recent increase that required evidence of
insurability will be used for the amount of death benefit
in excess of the total Specified Amount.
ADDITIONAL INSURANCE BENEFITS. The monthly deduction
will include charges for any additional benefits
provided by rider. (See "GENERAL PROVISIONS--Additional
Insurance Benefits.")
- ---------
(1)Dividing by 1.0036748 reduces the net amount at risk, solely for the purposes
of computing the cost of insurance, by taking into account assumed monthly
earnings at an annual rate of 4.5%.
27
<PAGE>
MONTHLY ADMINISTRATIVE CHARGE. The Company has primary
responsibility for the administration of the Policy and
the Variable Account. Administrative expenses include
premium billing and collection, recordkeeping, processing
death benefit claims, cash surrenders and Policy changes,
and reporting and overhead costs. As reimbursement for
administrative expenses related to the maintenance of
each Policy and the Variable Account, the Company
assesses a monthly administrative charge against each
Policy. This charge is $3 per Policy Month. Once a Policy
is issued, the amount of this charge is guaranteed for
the life of the Policy. The Company does not anticipate
that it will make any profit on this charge.
The Company may administer the Policy itself, or the
Company may purchase administrative services from such
sources (including affiliates) as may be available. Such
services will be acquired on a basis which, in the
Company's sole discretion, affords the best services at
the lowest cost. The Company reserves the right to select
a company to provide services which the Company deems, in
its sole discretion, is the best able to perform such
services in a satisfactory manner even though the costs
for such services may be higher than would prevail
elsewhere.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. A monthly
administrative charge will be deducted from Cash Value
as part of the monthly deduction during the first twelve
Policy Months and during the twelve Policy Months
immediately following an increase in Specified Amount.
The charge will compensate the Company for first year
underwriting, processing and start-up expenses incurred
in connection with the Policy and the Variable Account.
These expenses include the cost of processing
applications, conducting medical examinations,
determining insurability and the Insured's premium class,
and establishing policy records. The charges deducted
during the first 12 Policy Months will be based on the
Insured's Attained Age. The charges deducted during the
12 Policy Months following any increase in specified
amount will be based on the Insured's age nearest
birthday on the effective date of the increase. The
Company does not anticipate that it will make a profit on
this charge.
28
<PAGE>
The first year monthly administrative charge per $1,000
of Specified Amount depends on the Specified Amount of
the Policy and the age of the Insured, as shown in the
following table:
<TABLE>
<CAPTION>
$25,000 $50,000 $100,000
AGE TO 49,999 TO 99,999 TO 249,000 $250,000+
---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
0-25 $ 0.20 $ 0.15 $ 0.10 $ 0.05
26 0.21 0.16 0.11 0.06
27 0.22 0.17 0.12 0.06
28 0.23 0.18 0.13 0.07
29 0.24 0.19 0.14 0.07
30 0.25 0.20 0.15 0.08
31 0.26 0.21 0.16 0.08
32 0.27 0.22 0.17 0.09
33 0.28 0.23 0.18 0.09
34 0.29 0.24 0.19 0.10
35 0.30 0.25 0.20 0.10
36 0.31 0.26 0.21 0.11
37 0.32 0.27 0.22 0.11
38 0.33 0.28 0.23 0.12
39 0.34 0.29 0.24 0.12
40 0.35 0.30 0.25 0.13
41 0.36 0.31 0.26 0.13
42 0.37 0.32 0.27 0.14
43 0.38 0.33 0.28 0.14
44 0.39 0.34 0.29 0.15
45 0.40 0.35 0.30 0.15
46 0.41 0.36 0.31 0.16
47 0.42 0.37 0.32 0.16
48 0.43 0.38 0.33 0.17
49 0.44 0.39 0.34 0.17
50 0.45 0.40 0.35 0.18
51 0.46 0.41 0.36 0.18
52 0.47 0.42 0.37 0.19
53 0.48 0.43 0.38 0.19
54 0.49 0.44 0.39 0.20
55 & up 0.50 0.45 0.40 0.20
</TABLE>
- --------------------------------------------------------------------------------
TRANSFER CHARGE A transfer charge of $25 will be imposed for the second
and each subsequent transfer during a Policy Year to
compensate the Company for the costs in effectuating the
transfer. The transfer charge will be deducted from the
amount transferred. Once a Policy is issued, the amount
of this charge is guaranteed for the life of the Policy.
The Company does not expect to make a profit on the
transfer charge. The transfer charge will not be imposed
on transfers that occur as a result of Policy Loans, the
exercise of the special transfer privilege or the initial
allocation of Cash Value among the Subaccounts and the
Declared Interest Option following acceptance of the
Policy by the Policyowner.
Currently there is no charge for changing the net premium
allocation instructions.
- --------------------------------------------------------------------------------
SURRENDER CHARGE Upon partial or complete surrender of a Policy, a charge
equal to the lesser of $25 or 2.0% of the amount
surrendered will be assessed to compensate the Company
for costs incurred in accomplishing the surrender. The
surrender charge will be deducted from the amount
surrendered. The Company does not anticipate that it will
make any profit on this charge.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE. The Company deducts a
CHARGES daily mortality and expense risk charge from each
Subaccount at an effective annual rate of .90% of the
average daily net assets of the Subaccounts. This charge
is guaranteed not to increase for the duration of the
Policy. The Company may realize a profit from this
charge.
29
<PAGE>
The mortality risk assumed by the Company is that
Insureds may die sooner than anticipated and therefore,
the Company may pay an aggregate amount of life insurance
proceeds greater than anticipated. The expense risk
assumed is that expenses incurred in issuing and
administering the Policies will exceed the amounts
realized from the administrative charges assessed against
the Policies.
FEDERAL TAXES. Currently no charge is made to the
Variable Account for federal income taxes that may be
attributable to the Variable Account. The Company may,
however, make such a charge in the future. Charges for
other taxes, if any, attributable to the Account may also
be made. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
FUND EXPENSES. The value of net assets of the Variable
Account will reflect the investment advisory fee and
other expenses incurred by the Fund. The investment
advisory fee is accrued daily and payable monthly, and is
based on an annual percentage of the average daily net
assets of each Portfolio as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS
------------------------------------
FIRST SECOND OVER
$200 $200 $400
PORTFOLIO MILLION MILLION MILLION
------------------------------------------- ----------- ---------- -----------
<S> <C> <C> <C>
Growth Common Stock........................ 0.50% 0.45 % 0.40%
High Grade Bond............................ 0.30% 0.275% 0.25%
High Yield Bond............................ 0.50% 0.45 % 0.40%
Managed.................................... 0.55% 0.50 % 0.45%
Money Market............................... 0.30% 0.275% 0.25%
Blue Chip.................................. 0.20% 0.20 % 0.20%
</TABLE>
The Adviser, at its expense, furnishes the Fund with
office space and facilities, certain business equipment,
advisory, research and statistical facilities, and
clerical services and personnel to administer the
business affairs of the Fund. The Fund pays its other
expenses. The Adviser has agreed to reimburse the Fund to
the extent that the annual operating expenses (including
the investment advisory fee but excluding brokerage,
interest, taxes and extraordinary expenses) of any
Portfolio of the Fund exceed 1.50% of average daily net
assets of that Portfolio for any fiscal year of the Fund.
However, the amount reimbursed shall not exceed the
amount of the advisory fee paid by the Portfolio for such
period. More detailed information is contained in the
Fund Prospectus which is attached to this Prospectus.
The Adviser has agreed to reimburse any Portfolio for
calendar year 1995 to the extent that annual operating
expenses, including the investment advisory fee, exceed
.55%. There can be no assurance that the Adviser will
continue to limit expenses beyond December 31, 1995.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
Policyowners may allocate Net Premiums and transfer Cash
Value to the Declared Interest Option. BECAUSE OF
EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE
DECLARED INTEREST OPTION HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND THE DECLARED INTEREST
OPTION HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY,
NEITHER THE DECLARED INTEREST OPTION NOR ANY INTERESTS
THEREIN ARE SUBJECT TO THE PROVISIONS OF THESE ACTS AND,
AS A RESULT, THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS
PROSPECTUS RELATING TO THE DECLARED INTEREST OPTION.
DISCLOSURES REGARDING THE DECLARED INTEREST OPTION MAY,
HOWEVER, BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE
ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN
PROSPECTUSES.
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION The Declared Interest Option is supported by the General
Account. The General Account consists of all assets owned
by the Company other than those in the Variable Account
and other separate accounts. Subject to applicable law,
the Company has sole discretion over the investment of
the assets of the General Account.
30
<PAGE>
A Policyowner may elect to allocate Net Premiums to the
Declared Interest Option, the Variable Account, or both.
The Policyowner may also transfer Cash Value from the
Subaccounts to the Declared Interest Option, or from the
Declared Interest Option to the Subaccounts. The
allocation or transfer of funds to the Declared Interest
Option does not entitle a Policyowner to share in the
investment experience of the General Account. Instead,
the Company guarantees that Cash Value in the Declared
Interest Option will accrue interest at an effective
annual rate of at least 4.5%, independent of the actual
investment experience of the General Account.
- --------------------------------------------------------------------------------
THE POLICY This Prospectus describes a flexible premium variable
life insurance policy. This Prospectus is generally
intended to serve as a disclosure document for the
aspects of the Policy involving the Variable Account. For
complete details regarding the Declared Interest Option,
see the Policy itself.
- --------------------------------------------------------------------------------
DECLARED INTEREST Net premiums allocated to the Declared Interest Option
OPTION are credited to the Policy. The Company bears the full
CASH VALUE investment risk for these amounts. The Company guarantees
that interest credited to each Policyowner's Cash Value
in the Declared Interest Option will not be less than
an effective annual rate of 4.5%. The Company may, in
its sole discretion, credit a higher rate of interest,
although it is not obligated to credit interest in excess
of 4.5% per year, and might not do so. Any interest
credited on the Policy's Cash Value in the Declared
Interest Option in excess of the guaranteed rate of
4.5% per year will be determined in the sole discretion
of the Company and may be changed at any time by the
Company, in its sole discretion. The Policyowner assumes
the risk that the interest credited may not exceed the
guaranteed minimum rate of 4.5% per year. The interest
credited to the Policy's Cash Value in the Declared
Interest Option that equals Policy Debt may be greater
than 4.5%, but will in no event be greater than 6.0%.
The Cash Value in the Declared Interest Option will be
calculated no less frequently than each Monthly Deduction
Day.
The Company guarantees that, at any time prior to the
Maturity Date, the Cash Value in the Declared Interest
Option will not be less than the amount of the Net
Premiums allocated or Cash Value transferred to the
Declared Interest Option, plus interest at the rate of
4.5% per year, plus any excess interest which the Company
credits, less the sum of all policy charges allocable to
the Declared Interest Option and any amounts deducted
from the Declared Interest Option in connection with
partial surrenders or transfers to the Variable Account.
- --------------------------------------------------------------------------------
TRANSFERS, SURRENDERS Amounts may be transferred between the Subaccounts and
AND POLICY LOANS the Declared Interest Option. A transfer charge of $25
will be imposed in connection with the transfer unless
such transfer is the first transfer requested by the
Policyowner during such Policy Year. Unless paid in cash,
the transfer charge will be deducted from the amount
transferred. A Policyowner may make only one transfer
between the Variable Account and the Declared Interest
Option in each Policy Year. No more than 50% of the Net
Cash Value in the Declared Interest Option may be
transferred from the Declared Interest Option unless the
balance in the Declared Interest Option immediately after
the transfer will be less than $1,000. If the balance in
the Declared Interest Option after a transfer would be
less than $1,000, the full Net Cash Value in the Declared
Interest Option may be transferred. A Policyowner may
also make surrenders and obtain Policy Loans from the
Declared Interest Option at any time prior to the
Policy's Maturity Date.
Transfers and surrenders from, and payments of Policy
Loans allocated to, the Declared Interest Option may be
delayed for up to six months.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT The Policy is issued in consideration of the statements
in the application and the payment of the initial
premium. The Policy, the application, and any
supplemental applications and endorsements make up the
entire contract. In the absence of fraud, the statements
made in an application or supplemental application will
be treated as
31
<PAGE>
representations and not as warranties. No statement will
void the Policy or be used in defense of a claim unless
contained in the application or any supplemental
application.
- --------------------------------------------------------------------------------
INCONTESTABILITY The Policy is incontestable, except for fraudulent
statements made in the application or supplemental
applications, after it has been in force during the
lifetime of the Insured for two years from the Policy
Date or date of reinstatement. This provision does not
apply to riders that provide disability or accidental
death benefits. Any increase in Specified Amount will be
incontestable only after it has been in force during the
lifetime of the Insured for two years from the effective
date of the increase.
- --------------------------------------------------------------------------------
CHANGE OF PROVISIONS The Company reserves the right to change the Policy, in
the event of future changes in the federal tax law, to
the extent required to maintain the Policy's
qualification as life insurance under federal tax law.
Except as provided in the foregoing paragraph, no one can
change any part of the Policy except the Policyowner and
the President, a Vice President, or the Secretary or
Assistant Secretary of the Company. Both must agree to
any change and such change must be in writing. No agent
may change the Policy or waive any of its provisions.
- --------------------------------------------------------------------------------
MISSTATEMENT OF AGE If the Insured's age or sex was misstated in the
OR SEX application, each benefit and any amount to be paid under
the Policy will be adjusted to reflect the correct age
and sex.
- --------------------------------------------------------------------------------
SUICIDE EXCLUSION If the Policy is in force and the Insured commits
suicide, while sane or insane, within two years from the
Policy Date, life insurance proceeds payable under the
Policy will be limited to all premiums paid, reduced by
any outstanding Policy Debt and any partial surrenders,
and increased by any unearned loan interest. If the
Policy is in force and the Insured commits suicide, while
sane or insane, within two years from the effective date
of any increase in Specified Amount, any increase in the
death benefit resulting from the requested increase in
specified amount will not be paid. Instead, the Company
will refund to the Policyowner an amount equal to the
total cost of insurance applied to the increase.
- --------------------------------------------------------------------------------
ANNUAL REPORT At least once each year, an annual report will be sent to
each Policyowner. The report will show the current death
benefit, the Cash Value in each Subaccount and in the
Declared Interest Option, outstanding Policy Debt and
premiums paid, partial surrenders made and charges
assessed, since the last report. The report will also
include any other information required by state law or
regulation. Further, the Company will send the
Policyowner the reports required by the Investment
Company Act of 1940.
- --------------------------------------------------------------------------------
NON-PARTICIPATION The Policy does not participate in the Company's profits
or surplus earnings. No dividends are payable.
- --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS The Company shall have the exclusive and absolute
ownership and control over assets, including the assets
of the Variable Account.
- --------------------------------------------------------------------------------
WRITTEN NOTICE Any written notice should be sent to the Company at its
Home Office. The notice should include the policy number
and the Insured's full name. Any notice sent by the
Company to a Policyowner will be sent to the address
shown in the application unless an appropriate address
change form has been filed with the Company.
- --------------------------------------------------------------------------------
POSTPONEMENT OF The Company will usually mail the proceeds of complete
PAYMENTS surrenders, partial surrenders and Policy Loans within
seven days after the Policyowner's signed request is
received at the Home Office. The Company will usually
mail death proceeds within seven days after receipt of
Due Proof of Death and maturity benefits within seven
days of the Maturity Date. However, payment of any amount
upon complete or partial surrender, payment of any Policy
Loan, and payment of death proceeds or benefits at
maturity may be postponed whenever:
a) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on
the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission;
32
<PAGE>
b) the Securities and Exchange Commission by order
permits postponement for the protection of
Policyowners; or
c) an emergency exists, as determined by the
Securities and Exchange Commission, as a result of
which disposal of the securities is not reasonably
practicable or it is not reasonably practicable to
determine the value of the net assets of the Variable
Account.
Transfers may also be postponed under these
circumstances.
Payments under the Policy which are derived from any
amount paid to the Company by check or draft may be
postponed until such time as the Company is satisfied
that the check or draft has cleared the bank upon which
it is drawn.
- --------------------------------------------------------------------------------
CONTINUANCE OF The insurance under a Policy will continue until the
INSURANCE earlier of:
a) the end of the Grace Period following the Monthly
Deduction Day on which the Net Cash Value is less
than the monthly deduction for the following Policy
Month;
b) the date the Policyowner surrenders the Policy for
its entire Net Cash Value;
c) the death of the Insured; or
d) the Maturity Date.
Any rider to a Policy will terminate on the date
specified in the rider.
- --------------------------------------------------------------------------------
OWNERSHIP The Policy belongs to the Policyowner. The original
Policyowner is the person named as owner in the
application. Ownership of the Policy may change according
to the ownership option selected as part of the original
application or by a subsequent endorsement to the Policy.
During the Insured's lifetime, all rights granted by the
Policy belong to the Policyowner, except as otherwise
provided for in the Policy.
Special ownership rules may apply if the Insured is under
legal age (as defined by state law in the state in which
the Policy is delivered) on the Policy Date.
The Policyowner may assign the Policy as collateral
security. The Company assumes no responsibility for the
validity or effect of any collateral assignment of the
Policy. No assignment will bind the Company unless in
writing and until received by the Company at its Home
Office. The assignment is subject to any payment or
action taken by the Company before it received the
assignment at the Home Office.
- --------------------------------------------------------------------------------
THE BENEFICIARY The primary Beneficiaries and contingent Beneficiaries
are designated by the Policyowner in the application. If
changed, the primary Beneficiary or contingent
Beneficiary is as shown in the latest change filed with
the Company. One or more primary or contingent
Beneficiaries may be named in the application. In such
case, the proceeds will be paid in equal shares to the
survivors in the appropriate beneficiary class, unless
requested otherwise by the Policyowner.
Unless a payment option is chosen, the proceeds payable
at the Insured's death will be paid in a lump sum to the
primary Beneficiary. If the primary Beneficiary dies
before the Insured, the proceeds will be paid to the
contingent Beneficiary. If no Beneficiary survives the
Insured, the proceeds will be paid to the Policyowner or
the Policyowner's estate.
- --------------------------------------------------------------------------------
CHANGING THE During the Insured's life, the Policyowner and the
POLICYOWNER Beneficiary may be changed. To make a change, written
OR BENEFICIARY request must be sent to the Company at its Home Office.
The request and the change must be in a form satisfactory
to the Company and must actually be received and recorded
by the Company. The change will take effect as of the
date the request is signed by the Policyowner. The change
will be subject to any payment made before the change is
recorded by the Company. The Company may require return
of the Policy for endorsement.
- --------------------------------------------------------------------------------
ADDITIONAL INSURANCE Subject to certain requirements, one or more of the
BENEFITS following additional insurance benefits may be added to
a Policy by rider: (i) Cost of Living Increase; (ii)
Accidental
33
<PAGE>
Death Benefit; (iii) Waiver of Premium; (iv) Spouse Term
Insurance; (v) Children's Term Insurance and (vi)
Guaranteed Insurability Option. The cost of any
additional insurance benefits will be deducted as part of
the monthly deduction. (See "CHARGES AND DEDUCTIONS--
Monthly Deduction.") Detailed information concerning
available riders may be obtained from the agent selling
the Policy.
- --------------------------------------------------------------------------------
DISTRIBUTION OF THE POLICIES
- --------------------------------------------------------------------------------
The Policies will be sold by individuals who in addition
to being licensed as life insurance agents for the
Company, are also registered representatives of the
principal underwriter of the Policies, FBL Marketing
Services, Inc. ("FBL Marketing"). FBL Marketing, a
corporation organized on May 7, 1970, under the laws of
the State of Delaware, is registered with the Securities
and Exchange Commission under the Securities Exchange Act
of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc. FBL
Marketing does not currently retain any compensation for
acting as principal underwriter.
For Policies sold in Iowa, Minnesota, Nebraska, South
Dakota, Utah and Wisconsin, writing agents will receive
commissions based on a commission schedule and rules. The
Company may pay agents first year commissions at a rate
not exceeding 50% of planned periodic premiums and 4% of
unscheduled premiums paid in the first Policy Year.
Agents will be paid renewal commissions at a rate equal
to 5% of planned periodic premiums and 4% of unscheduled
premiums paid after the first Policy Year. Additional
commissions at a rate not exceeding 50% of the increase
in planned periodic premiums may be paid during the first
year following an increase in Specified Amount.
For Policies sold in Kansas, writing agents will receive
commissions based on a commission schedule and rules. The
Company may pay agents first year commissions at a rate
not exceeding 60% of planned periodic premiums and 3% of
unscheduled premiums paid in the first Policy Year.
Agents will be paid renewal commissions at a rate equal
to 4% of planned periodic premiums and 3% of unscheduled
premiums paid after the first Policy Year. Additional
commissions at a rate not exceeding 60% of the increase
in planned periodic premiums may be paid during the first
year following an increase in Specified Amount.
These commissions (and other distribution expenses, such
as production incentive bonuses, agent's insurance and
pensions benefits, agency management compensation and
bonuses and expense allowances) are paid by the Company.
They do not result in any additional charges against the
Policy that are not described above under "CHARGES AND
DEDUCTIONS".
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION The following discussion is general and is not intended
as tax advice. Any person concerned about these tax
considerations should consult a competent tax adviser.
This discussion is based on the Company's understanding
of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of
continuation of these current laws and interpretations,
and various changes have been proposed that would alter
these laws in ways that would have significant adverse
impacts. It should be further understood that the
following discussion is not exhaustive and does not
purport to be complete or to cover all situations and
that special rules not described in this Prospectus may
be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other
tax laws.
- --------------------------------------------------------------------------------
TAX STATUS OF THE Section 7702 of the Internal Revenue Code of 1986, as
POLICY amended (the "Code") includes a definition of a life
insurance contract for federal tax purposes. The
Secretary of the Treasury (the "Treasury") is authorized
to prescribe regulations interpreting and implementing
section 7702 and has issued proposed regulations on
certain aspects of section 7702. Guidance as to how
section 7702 is to be applied is,
34
<PAGE>
however, limited. If a Policy were determined not to be
a life insurance contract for purposes of section 7702,
such Policy would not provide most of the tax advantages
normally provided by a life insurance policy.
With respect to a Policy issued exclusively on the basis
of a standard premium class, while there is some
uncertainty due to the limited guidance on section 7702,
the Company believes that in light of the proposed
regulations such a Policy should meet the section 7702
definition of a life insurance contract. However, with
respect to a Policy issued in whole or in part on a
substandard basis (i.e., a premium class involving higher
than standard mortality risk), it is not clear whether or
not such a Policy would satisfy section 7702,
particularly if the Policyowner pays the full amount of
premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy
section 7702, the Company will take whatever steps are
appropriate and necessary to attempt to cause such a
Policy to comply with section 7702, including possibly
refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or
other earnings on any such premiums refunded as required
by law). For these reasons, the Company reserves the
right to modify the Policy as necessary to attempt to
qualify it as a life insurance contract under section
7702.
Section 817(h) of the Code authorizes the Treasury to set
standards by regulation or otherwise for the investments
of the Account to be "adequately diversified" in order
for the Policy to be treated as a life insurance contract
for federal tax purposes. The Variable Account, through
the Fund, intends to comply with the diversification
requirements prescribed in Regulations section 1.817-5,
which affect how each Fund's assets may be invested.
Although the investment adviser is an affiliate of the
Company, the Company does not have control over the Fund
or its investments. Nonetheless, the Company believes
that each Portfolio of the Fund in which the Variable
Account owns shares will be operated in compliance with
the requirements prescribed by the Treasury.
In certain circumstances, owners of variable life
insurance contracts may be considered the owners, for
federal income tax purposes, of the assets of the
separate account used to support their contracts. In
those circumstances, income and gains from the separate
account assets would be includable in the variable
contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be
considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment
control over the assets. The Treasury Department also
announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do
not provide guidance concerning the circumstances in
which investor control of the investments of a segregated
asset account may cause the investor (I.E., the
Policyowner), rather than the insurance company, to be
treated as the owner of the assets in the account." This
announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular
subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but
different in certain respects from, those described by
the IRS in rulings in which it was determined that policy
owners were not owners of separate account assets. For
example, a Policyowner has additional flexibility in
allocating premium payments and policy values. These
differences could result in a Policyowner being treated
as the owner of a pro rata portion of the assets of the
Separate Account. In addition, the Company does not know
what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore
reserves the right to modify the Policy as necessary to
attempt to prevent a Policyowner from being considered
the owner of a pro rata share of the assets of the
Separate Account.
The following discussion assumes that the Policy will
qualify as a life insurance contract for federal income
tax purposes.
35
<PAGE>
- --------------------------------------------------------------------------------
TAX TREATMENT OF IN GENERAL. The Company believes that the proceeds and
POLICY BENEFITS cash value increases of a Policy should be treated in a
manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the death
benefit under the Policy should be excludable from the
gross income of the Beneficiary under section 101(a)(l)
of the Code.
A change in a Policy's Specified Amount, the payment of
an unscheduled premium, a Policy loan, a partial
withdrawal, a surrender, a lapse with outstanding
indebtedness, a change in death benefit options, the
exchange of a Policy for a fixed-benefit policy (see "THE
POLICY--Special Transfer Privilege"), the assignment of a
Policy or the exercise of the right to change
Policyowners (see "GENERAL PROVISIONS--Changing the
Policyowner or Beneficiary") may have tax consequences
depending upon the circumstances. In addition, federal
estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of Policy
proceeds depend upon the circumstances of each
Policyowner or Beneficiary. A competent tax adviser
should be consulted for further information.
The Company further believes that an exchange of a
fixed-benefit policy issued by the Company for a Policy
as provided under "THE POLICY--Exchange Privilege"
generally should be treated as a non-taxable exchange of
life insurance policies within the meaning of section
1035 of the Code. However, in certain circumstances, the
exchanging owner may receive a cash distribution that
might have to be recognized as income to the extent there
was gain in the fixed-benefit policy. Moreover, to the
extent a fixed-benefit policy with an outstanding loan is
exchanged for an unencumbered Policy, the exchanging
owner could recognize income at the time of the exchange
up to the amount of such loan (including any due and
unpaid interest on such loan). An exchanging owner should
consult a tax adviser as to whether an exchange of a
fixed-benefit policy for the Policy will have tax
consequences to such owner.
The Policy may be used in various arrangements, including
nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus
plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the
particular facts and circumstances of each individual
arrangement. Therefore, if you are contemplating the use
of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to
consult a qualified tax adviser regarding the tax
attributes of the particular arrangement.
The Policies may be used in various arrangements,
including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary
depending on the particular facts and circumstances of
each individual arrangement. Therefore, if it is
contemplated that a Policy may be used in any arrangement
the value of which depends in part on its tax
consequences, a qualified tax adviser should be consulted
regarding the tax attributes of the particular
arrangement.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the cash value, including
increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from,
and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "modified endowment
contract."
Whether a Policy is or is not a modified endowment
contract, upon a complete surrender or lapse of a Policy,
or when benefits are paid at such Policy's maturity date,
if the amount received plus the amount of indebtedness
exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to
tax.
MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as
a modified endowment contract depending upon the amount
of premiums paid in relation to the death benefit
provided under such Policy. The premium limitation rules
for determining
36
<PAGE>
whether a Policy is a modified endowment contract are
extremely complex. In general, however, a Policy will be
a modified endowment contract if the accumulated premiums
paid at any time during the first seven policy years
exceeds the sum of the net level premiums which would
have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of
seven level annual premiums. In addition, if a Policy is
"materially changed," it may cause such Policy to be
treated as a modified endowment contract. The material
change rules for determining whether a Policy is a
modified endowment contract are also extremely complex.
In general, however, the determination whether a Policy
will be a modified endowment contract after a material
change generally depends upon the relationship among the
death benefit at the time of such change, the cash value
at the time of such change and the additional premiums
paid in the seven policy years starting with the date on
which the material change occurs.
Due to the Policy's flexibility, classification of a
Policy as a modified endowment contract will depend upon
the circumstances of each Policy. Accordingly, a
prospective Policyowner should contact a competent tax
adviser before purchasing a Policy to determine the
circumstances under which the Policy would be a modified
endowment contract. In addition, a Policyowner should
contact a competent tax adviser before paying any
unscheduled premiums or changing the planned premium
schedule or making any other change to, including an
exchange of, a Policy to determine whether such premium
or change would cause the Policy (or the new Policy in
the case of an exchange) to be treated as a modified
endowment contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax
rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a
Policy are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the cash
value immediately before the distribution over the
investment in the Policy (described below) at such time.
Second, loans taken from, or secured by, such a Policy
are treated as distributions from such a Policy and taxed
accordingly. In this regard, the Internal Revenue Service
could take the position that capitalized interest on such
loans are to be treated as a taxable distribution. Third,
a 10 percent additional tax is imposed on the portion of
any distribution from, or loan taken from or secured by,
such a Policy that is included in income except where the
distribution or loan is made on or after the Policyowner
attains age 59 1/2, is attributable to the Policyowner's
becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or
life expectancy) of the Policyowner or the joint lives
(or joint life expectancies) of the Policyowner and the
Policyowner's Beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS. Distributions from a Policy that is
not classified as a modified endowment contract are
generally treated as first recovering the investment in
the policy (described below) and then, only after the
return of all such investment in the policy, as
distributing taxable income. An exception to this general
rule occurs in the case of a partial withdrawal, a
decrease in the Specified Amount, or any other change
that reduces benefits under the Policy in the first 15
years after the Policy is issued and that results in a
cash distribution to the Policyowner in order for the
Policy to continue complying with the section 7702
definitional limits. In that case, such distribution will
be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed
in section 7702.
Loans from, or secured by, a Policy that is not a
modified endowment contract are not treated as
distributions. Instead, such loans are treated as
indebtedness of the Policyowner.
Finally, neither distributions (including distributions
upon surrender or lapse) nor loans from, or secured by, a
Policy that is not a modified endowment contract are
subject to the 10 percent additional tax.
37
<PAGE>
POLICY LOAN INTEREST. Generally, personal interest paid
on any loan under a Policy which is owned by an
individual is not deductible. In addition, interest on
any loan under a Policy owned by a taxpayer and covering
the life of any individual who is an officer of, or is
financially interested in, the business carried on by
that taxpayer will not be tax deductible to the extent
the aggregate amount of such loans with respect to
contracts covering such individual exceeds $50,000. The
deductibility of Policy loan interest may be further
limited by section 264 of the Code. Therefore, a
Policyowner should consult a competent tax adviser as to
whether Policy loan interest will be deductible.
INVESTMENT IN THE POLICY. Investment in the policy means
(i) the aggregate amount of any premiums or other
consideration paid for a Policy, minus (ii) the aggregate
amount received under the Policy which is excluded from
the gross income of the Policyowner (except that the
amount of any loan from, or secured by, a Policy that is
a modified endowment contract, to the extent such amount
is excluded from gross income, will be disregarded), plus
(iii) the amount of any loan from, or secured by, a
Policy that is a modified endowment contract to the
extent that such amount is included in the gross income
of the Policyowner.
MULTIPLE POLICIES. All modified endowment contracts that
are issued by the Company (or its affiliates) to the
same Policyowner during any calendar year are treated as
one modified endowment contract for purposes of
determining the amount includable in gross income under
section 72(e).
- --------------------------------------------------------------------------------
TAXATION OF THE At the present time, the Company makes no charge to the
COMPANY Variable Account, or to the Policy for any Federal, state
or local taxes (other than state premium taxes) that it
incurs that may be attributable to such Account or to the
Policies. The Company, however, reserves the right in the
future to make a charge for any such tax or other
economic burden resulting from the application of the tax
laws that it determines to be properly attributable to
the Variable Account or to the Policies.
- --------------------------------------------------------------------------------
EMPLOYMENT-RELATED The Supreme Court held in ARIZONA GOVERNING COMMITTEE V.
BENEFIT PLANS NORRIS that optional annuity benefits provided under an
employer's deferred compensation plan could not, under
Title VII of the Civil Rights Act of 1964, vary between
men and women on the basis of sex. In addition,
legislative, regulatory or decisional authority of some
states may prohibit use of sex-distinct mortality tables
under certain circumstances. The Policy described in this
Prospectus contains guaranteed cost of insurance rates
and guaranteed purchase rates for certain payment options
that distinguish between men and women. Accordingly,
employers and employee organizations should consider, in
consultation with legal counsel, the impact of NORRIS,
and Title VII generally, on any employment-related
insurance or benefit program for which a Policy may be
purchased.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SAFEKEEPING OF THE The Company holds the assets of the Variable Account. The
VARIABLE ACCOUNT'S assets are kept physically segregated and held separate
ASSETS and apart from the General Account. The Company maintains
records of all purchases and redemptions of Fund shares
by each of the Subaccounts. Additional protection for the
assets of the Variable Account is afforded by a blanket
fidelity bond issued by National Union Fire Insurance
Company of Pittsburgh in the amount of $5,000,000
covering all the officers and employees of the Company.
- --------------------------------------------------------------------------------
VOTING RIGHTS To the extent required by law, the Company will vote the
Fund shares held in the Variable Account at regular and
special shareholder meetings of the Fund in accordance
with instructions received from persons having voting
interests in the corresponding Subaccounts. If, however,
the Investment Company Act of 1940 or any regulation
thereunder should be amended or if the present
interpretation thereof should change, and, as a result,
the Company determines that it is permitted to vote the
Fund shares in its own right, it may elect to do so.
38
<PAGE>
The number of votes which a Policyowner has the right to
instruct are calculated separately for each subaccount
and are determined by dividing a Policy's Cash Value in a
Subaccount by the net asset value per share of the
corresponding Portfolio in which the Subaccount invests.
Fractional shares will be counted. The number of votes of
the Portfolio which the Policyowner has the right to
instruct will be determined as of the date coincident
with the date established by that Portfolio for
determining shareholders eligible to vote at such meeting
of the Fund. Voting instructions will be solicited by
written communications prior to such meeting in
accordance with procedures established by the Fund. Each
person having a voting interest in a Subaccount will
receive proxy materials, reports and other materials
relating to the appropriate Portfolio.
The Company will vote Fund shares attributable to
Policies as to which no timely instructions are received
(as well as any Fund shares held in the Variable Account
which are not attributable to Policies) in proportion to
the voting instructions which are received with respect
to all Policies participating in each Portfolio. Voting
instructions to abstain on any item to be voted upon will
be applied on a PRO RATA basis to reduce the votes
eligible to be cast on a matter.
At some future date, Fund shares may also be held by
separate accounts of other affiliated and unaffiliated
insurance companies. The Company expects that those
shares will be voted in accordance with instructions of
the owners of insurance policies and contracts issued by
those other insurance companies. Voting instructions
given by owners of other insurance policies will dilute
the effect of voting instructions of Policyowners.
The Company provided initial capital for the Fund by
purchasing $15 million worth of shares. The Company
intends to vote all shares it owns directly in proportion
to the voting instructions received from Policyowners and
from other owners of variable insurance policies and
variable annuity contracts funded by the Fund that may be
issued by the Company in the future. From time to time
the company withdraws portions of this capital.
DISREGARD OF VOTING INSTRUCTIONS. The Company may, when
required by state insurance regulatory authorities,
disregard voting instructions if the instructions require
that the shares be voted so as to cause a change in the
sub-classification or investment objective of the Fund or
one or more of its Portfolios or to approve or disapprove
an investment advisory contract for a Portfolio of the
Fund. In addition, the Company itself may disregard
voting instructions in favor of changes initiated by a
Policyowner in the investment policy or the investment
adviser of a Portfolio of the Fund if the Company
reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to
state law or prohibited by state regulatory authorities,
or the Company determined that the change would have an
adverse effect on the General Account in that the
proposed investment policy for a Portfolio may result in
overly speculative or unsound investments. In the event
the Company does disregard voting instructions, a summary
of that action and the reasons for such action will be
included in the next annual report to Policyowners.
- --------------------------------------------------------------------------------
STATE REGULATION OF The Company, a stock life insurance company organized
THE COMPANY under the laws of Iowa, is subject to regulation by the
Iowa Insurance Department. An annual statement is filed
with the Iowa Insurance Department on or before March lst
of each year covering the operations and reporting on the
financial condition of the Company as of December 31st of
the preceding year. Periodically, the Iowa Insurance
Department examines the liabilities and reserves of the
Company and the Variable Account and certifies their
adequacy, and a full examination of operations is
conducted periodically by the National Association of
Insurance Commissioners.
In addition, the Company is subject to the insurance laws
and regulations of other states within which it is
licensed or may become licensed to operate. Generally,
the insurance department of any other state applies the
laws of the state of domicile in determining permissible
investments.
39
<PAGE>
- --------------------------------------------------------------------------------
OFFICERS AND
DIRECTORS OF FARM
BUREAU LIFE INSURANCE
COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
-------------------------------------------- --------------------------------------------
<S> <C>
Kenneth R. Ashby, Director Farmer; President, Utah Farm Bureau
Federation and affiliated companies and
Ashby's Valley View Farms; Vice President
and Director, Utah Farm Bureau Insurance
Co.; Director, Millard County Water
Conservancy District, American Farm Bureau
Federation and affiliated companies, Multi
States Farmers Service Co., Farm Bureau
Multi-State Services, Inc. and Universal
Assurors Life Insurance Company
Carrol C. Burling, Director Farmer; President, Burling Farms, Inc.
Al Christopherson, Director Farmer; President, Minnesota Farm Bureau
Federation; Director, Farm Bureau
Multi-State Services, Inc., Universal
Assurors Life Insurance Company, Farm Bureau
Mutual Insurance Company and FBL Insurance
Brokerage, Inc.
Richard E. Ekstrum, Director Farmer; Chairman and Director, A-B Rural
Water System; President and Director, South
Dakota Farm Bureau Federation and South
Dakota Farm Bureau Mutual Insurance Company;
Director, Farm Bureau Multi-State Services,
Inc. and Universal Assurors Life Insurance
Company
Ernest A. Glienke, Director Farmer; Director, Farm Bureau Mutual
Insurance Company, FBL Insurance Brokerage,
Inc., Utah Farm Bureau Insurance Company and
FBL Financial Services, Inc.
William C. Hanson, Director Farmer; Director, Rural Mutual Insurance
Company and Growmark, Inc.; Vice President,
Midwest Livestock Producers
Craig D. Hill, Director Farmer; President, CAPA Hill, Inc.;
Director, Farm Bureau Mutual
Insurance Company, FBL Insurance
Brokerage, Inc. and FBL Financial
Services, Inc.
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
40
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
----------------------------------- -----------------------------------
<S> <C>
Daniel L. Johnson, Director Farmer; Farm Bureau Mutual
Insurance Company, FBL Insurance
Brokerage, Inc. and FBL Financial
Services, Inc.
Craig A. Lang, Director Farmer; Director, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
Lindsey D. Larsen, Director Farmer; Director, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
Donald O. Narigon, Director Farmer; Director, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc., and FBL
Financial Services, Inc.
Bryce P. Neidig, Director Farmer; President, Nebraska Farm
Bureau Federation, Nebraska Farm
Bureau Services, Inc., Farm Bureau
Insurance Company of Nebraska,
Nebraska Farm Bureau Insurance
Agency, Inc.; Director, American
Agriculture Insurance Company,
American Agriculture Insurance
Agency, Inc., American Farm Bureau
Service Company, American Farm
Bureau Federation, American
Agricultural Communications
Systems, Inc., Western Agricultural
Insurance Co., Western Agricultural
Management Corp., Farm Bureau
Multi-State Services, Inc., Blue
Cross/Blue Shield of Nebraska and
Universal Assurors Life Insurance
Company
Bennett M. Osmonson, Director Farmer
Howard D. Poulson, Director Farmer; President, Wisconsin Farm
Bureau Federation, Rural Mutual
Insurance Company and Midwest
Livestock Producers; Vice President
Rural Security Life Insurance
Company; Director, Farm Bureau
Multi-State Services, Inc. and
Universal Assurors Life Insurance
Company
Henry V. Rayhons, Director Farmer; Director, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc., FBL
Financial Services, Inc. and Utah
Farm Bureau Insurance Company
</TABLE>
- ------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
41
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
----------------------------------- -----------------------------------
<S> <C>
James E. Sage, Director Farmer; Director, Members Mutual
Oil Company, Interstate Producers
Livestock Association, Goose Creek
Truck Plaza, Farm Bureau Mutual
Insurance Company, FBL Insurance
Brokerage, Inc., FBL Financial
Services, Inc. and Utah Farm Bureau
Insurance Company
Beverly L. Schnepel, Director Farmer; Director, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
F. Gary Steiner, Director Farmer
Edward M. Wiederstein, Director Farmer; Director, Multi-Pig
Corporation, Farm Bureau Mutual
Insurance Company, FBL Insurance
Brokerage, Inc., FBL Financial
Services, Inc. and Utah Farm Bureau
Insurance Company
Merlin D. Plagge, President and Farmer; President and Director,
Director Iowa Farm Bureau Federation, FBL
Insurance Brokerage, Inc., Farm
Bureau Mutual Insurance Company,
Utah Farm Bureau Insurance Company,
FBL Financial Services, Inc.,
Universal Assurors Life Insurance
Company, Farm Bureau Agricultural
Business Corporation and Farm
Bureau Multi-State Services, Inc.;
Director, American Farm Bureau
Federation, Blue Cross of Iowa,
Western Farm Bureau Management
Corporation, McNerney-Heinz, Inc.,
Western Agricultural Insurance
Company, Western Farm Bureau Life
Insurance Company and American Ag
Insurance Company
Daryl J. Siebens, Vice President Farmer; Director, Growmark, Inc.,
and Director Western Farm Bureau Life Insurance
Company, Utah Farm Bureau Insurance
Company, Vice President and
Director, Farm Bureau Mutual
Insurance Company, FBL Insurance
Brokerage, Inc. and FBL Financial
Services, Inc., Vice President,
Universal Assurors Life Insurance
Company
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
42
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
----------------------------------- -----------------------------------
<S> <C>
Eugene R. Maahs, Senior Vice Senior Vice President and
President and Secretary-Treasurer Secretary-Treasurer, Farm Bureau
Mutual Insurance Company, FBL
Insurance Brokerage, Inc.,
Universal Assurors Life Insurance
Company, Utah Farm Bureau Insurance
Company, Western Farm Bureau Life
Insurance Company, FBL Financial
Services, Inc. and Farm Bureau
Multi-State Services, Inc.
Stephen M. Morain, Senior Vice Senior Vice President and General
President and General Counsel Counsel, Farm Bureau Life Insurance
Company and Farm Bureau Multi-State
Services, Inc.
Thomas R. Gibson, Executive Vice Executive Vice President and
President and General Manager General Manager, Farm Bureau Life
Insurance Company and Farm Bureau
Multi-State Services, Inc.
William J. Oddy, Vice President, Vice President, Chief Operating
Chief Operating Officer and Officer and Assistant General
Assistant General Manager Manager, Farm Bureau Life Insurance
Company and Farm Bureau Multi-State
Services, Inc.
Timothy J. Hoffman, Vice President, Vice President, Chief Marketing
Chief Marketing Officer Officer, Farm Bureau Life Insurance
Company and Farm Bureau Multi-State
Services, Inc.
Richard D. Warming, Vice President, Vice President, Chief Investment
Chief Investment Officer and Officer and Assistant Treasurer,
Assistant Treasurer Farm Bureau Life Insurance Company
and Farm Bureau Multi-State
Services, Inc.
Ronald C. Price, Vice Vice President-Agency, Farm Bureau
President-Agency Life Insurance Company
JoAnn W. Rumelhart, Vice President- Vice President-Life Operations,
Life Operations Farm Bureau Life Insurance Company
Monte R. Roumpf, Vice President- Vice President-Information
Information Technology Technology, Farm Bureau Life
Insurance Company
W. Kent Fairchild, Vice President- Vice President, Product Development
Product Development and Marketing and Marketing Services, Farm Bureau
Services Life Insurance Company
Lynn E. Wilson, Vice President- Vice President, Multi-State Sales,
Multi-State Sales Farm Bureau Life Insurance Company
James W. Noyce, Vice President- Vice President-Controller,
Controller Farm Bureau Life Insurance Company
F. Walter Tomenga, Vice President- Vice President-Corporate Affairs,
Corporate Affairs Farm Bureau Life Insurance Company
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
43
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
----------------------------------- -----------------------------------
<S> <C>
Robert L. Tatge, Vice President- Vice President-Property/Casualty
Property/Casualty Operations Operations, Farm Bureau Life
Insurance Company
Thomas E. Burlingame, Vice Vice President-Associate General
President-Associate General Counsel, Farm Bureau Life Insurance
Counsel Company
Donald L. Carter, Life Underwriting Life Underwriting Vice President,
Vice President Farm Bureau Life Insurance Company
T. Edgar Coffman, Technical Technical Services Vice President,
Services Vice President Farm Bureau Life Insurance Company
Joel H. Klisart, Investment Vice Investment Vice President, Real
President, Real Estate Estate, Farm Bureau Life Insurance
Company
Kathryn Coleson Horner, Accounting Accounting Vice President, Farm
Vice President Bureau Life Insurance Company
Arlen F. Pence, Benefits and Benefits and Payroll Vice
Payroll Vice President President, Farm Bureau Life
Insurance Company
Jeffrey L. Buehler, Information Information Systems Vice President,
Systems Vice President Farm Bureau Life Insurance Company
Douglas M. Childes, Internal Audit Internal Audit Vice President, Farm
Vice President Bureau Life Insurance Company
Kermit J. Larson, Minnesota Agency Minnesota Agency Vice President,
Vice President Farm Bureau Life Insurance Company
Dennis M. Marker, Investment Vice Investment Vice President,
President, Administration Administration, Farm Bureau Life
Insurance Company
Alan R. Schultz, Utah Agency Vice Utah Agency Vice President, Farm
President Bureau Life Insurance Company
John F. Mottet, Western Iowa Agency Western Iowa Agency Vice President,
Vice President Farm Bureau Life Insurance Company
Richard J. January, South Dakota South Dakota Agency Vice President,
Agency Vice President Farm Bureau Life Insurance Company
Cyrus S. Winters, Northeastern Iowa Northeastern Iowa Agency Vice
Agency Vice President President, Farm Bureau Life
Insurance Company
Michael J. Hoffman, Southeastern Southeastern Iowa Agency Vice
Iowa Agency Vice President President, Farm Bureau Life
Insurance Company
Dale L. Brooks, Property/Casualty Property/Casualty Product
Product Development and Pricing Development and Pricing Vice
Vice President President, Farm Bureau Life
Insurance Company
Paul Grinvalds, Financial Planning Financial Planning Vice President,
Vice President Farm Bureau Life Insurance Company
Roger F. Grefe, Investment Investment Management Vice
Management Vice President President, Farm Bureau Life
Insurance Company
</TABLE>
- --------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
44
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
WITH THE COMPANY* LAST FIVE YEARS**
----------------------------------- -----------------------------------
<S> <C>
Curtis J. Lankford, Farm and Farm and Commercial Vice President,
Commercial Vice President Farm Bureau Life Insurance Company
Thomas E. Eppenauer, Claims Vice Claims Vice President, Farm Bureau
President Life Insurance Company
Oscar J. Olsen, Crop Insurance Vice Crop Insurance Vice President, Farm
President Bureau Life Insurance Company
Richard W. Pope, Automobile and Automobile and Personal Lines Vice
Personal Lines Vice President President, Farm Bureau Life
Insurance Company
Clayton L. Porter, Operations Vice Operations Vice President, Farm
President Bureau Life Insurance Company
Robert J. Rummelhart, Fixed Income Fixed Income Vice President, Farm
Vice President Bureau Life Insurance Company
Lou Ann Sandburg, Investment Vice Investment Vice President,
President, Securities Securities, Farm Bureau Life
Insurance Company
Roger PJ Soener, Real Estate Vice Real Estate Vice President, Farm
President Bureau Life Insurance Company
Jeffrey R. Tollefson, Investment Investment Vice President,
Vice President, Alternative Alternative Investments, Farm
Investments Bureau Life Insurance Company
DeWayne E. Stroud, Claims Claims Litigation Vice President,
Litigation Vice President Farm Bureau Life Insurance Company
Terry B. Swim, Information Systems Information Systems Vice President,
Vice President Farm Bureau Life Insurance Company
Christopher L. Van Note, Education Education Services Vice President,
Services Vice President Farm Bureau Life Insurance Company
James P. Brannen, Tax Planning and Tax Planning and Compliance Vice
Compliance Vice President President, Farm Bureau Life
Insurance Company
Ronald J. Palmer, Agency Services Agency Services Vice President,
Vice President Farm Bureau Life Insurance Company
Christopher G. Daniels, Life Life Product Development and
Product Development and Pricing Pricing Vice President, Farm Bureau
Vice President Life Insurance Company
James M. Mincks, Human Resources Human Resources Vice President,
Vice President Farm Bureau Life Insurance Company
</TABLE>
- ----------------
* The principal business address of each person listed, unless otherwise
indicated, is 5400 University Avenue, West Des Moines, Iowa 50266.
** The principal occupation shown reflects the principal employment of each
individual during the past five years. Corporate positions may, in some
instances, have changed during the period.
45
<PAGE>
- --------------------------------------------------------------------------------
LEGAL MATTERS Sutherland, Asbill & Brennan of Washington, D.C., has
provided advice on certain legal matters relating to
federal securities laws applicable to the issuance of the
flexible premium variable life insurance policy described
in this Prospectus. All matters of Iowa law pertaining to
the Policy, including the validity of the Policy and the
Company's right to issue the Policy under Iowa Insurance
Law, have been passed upon by Stephen M. Morain, Senior
Vice President and General Counsel of the Company.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS There are no legal proceedings to which the Variable
Account is a party or to which the assets of the Variable
Account are subject. The Company is not involved in any
litigation that is of material importance in relation to
its total assets or that relates to the Variable Account.
- --------------------------------------------------------------------------------
EXPERTS The financial statements of the Variable Account at
December 31, 1994 and for each of the three years in the
period ended December 31, 1994, and of the Company at
December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994, appearing
herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their respective
reports thereon appearing elsewhere herein and are
included in reliance upon such reports given upon the
authority of such firms as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been
examined by JoAnn W. Rumelhart, FSA, MAAA, Vice
President-Life Operations, as stated in the opinion filed
as an exhibit to the registration statement.
- --------------------------------------------------------------------------------
OTHER INFORMATION A registration statement has been filed with the
Securities and Exchange Commission under the Securities
Act of 1933, as amended, with respect to the Policy
offered hereby. This Prospectus does not contain all the
information set forth in the registration statement and
the amendments and exhibits to the registration
statement, to all of which reference is made for further
information concerning the Variable Account, the Company
and the Policy offered hereby. Statements contained in
this Prospectus as to the contents of the Policy and
other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such
instruments as filed.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements of the Company included in this
Prospectus should be distinguished from the financial
statements of the Variable Account and should be
considered only as bearing on the ability of the Company
to meet its obligations under the Policies. They should
not be considered as bearing on the investment
performance of the assets held in the Variable Account.
46
<PAGE>
[THIS PAGE IS LEFT BLANK INTENTIONALLY]
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Participants
Farm Bureau Life Insurance Company
We have audited the accompanying statement of net assets of Farm Bureau Life
Variable Account (comprising, respectively, the Growth Common Stock, High Grade
Bond, High Yield Bond, Managed, Money Market, and Blue Chip Subaccounts) as of
December 31, 1994, and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, by correspondence with
the transfer agent. 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 referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Farm Bureau Life Variable Account at December 31,
1994, and the results of their operations and changes in their net assets for
each of the three years in the period then ended, in conformity with generally
accepted accounting principles.
[LOGO]
Des Moines, Iowa
February 28, 1995
48
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments in FBL Variable Insurance Series Fund:
Growth Common Stock Subaccount:
Growth Common Stock Portfolio, 627,416 shares at net asset value of $10.39 per share
(cost $7,055,261) $ 6,518,854
High Grade Bond Subaccount:
High Grade Bond Portfolio, 99,731 shares at net asset value of $9.44 per share (cost
$998,263) 941,462
High Yield Bond Subaccount:
High Yield Bond Portfolio, 124,707 shares at net asset value of $9.32 per share (cost
$1,243,062) 1,162,272
Managed Subaccount:
Managed Portfolio, 604,565 shares at net asset value of $9.93 per share (cost
$6,779,114) 6,003,331
Money Market Subaccount:
Money Market Portfolio, 35,931 shares at net asset value of $1.00 per share (cost
$35,931) 35,931
Blue Chip Subaccount:
Blue Chip Portfolio, 156,303 shares at net asset value of $15.82 per share (cost
$2,320,947) 2,472,708
-----------
Total investments (cost $18,432,578) 17,134,558
LIABILITIES --
-----------
NET ASSETS (NOTE 6) $17,134,558
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
UNITS UNIT VALUE EXTENDED VALUE
-------------------------------------------------
<S> <C> <C> <C>
Net assets are represented by:
Growth Common Stock Subaccount 421,816.587009 $ 15.454238 $ 6,518,854
High Grade Bond Subaccount 65,504.679819 14.372443 941,462
High Yield Bond Subaccount 71,351.034810 16.289483 1,162,272
Managed Subaccount 381,666.541270 15.729257 6,003,331
Money Market Subaccount 3,038.161756 11.826717 35,931
Blue Chip Subaccount 141,902.734939 17.425372 2,472,708
--------------
Total net assets $ 17,134,558
--------------
--------------
</TABLE>
SEE ACCOMPANYING NOTES.
49
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
GROWTH COMMON STOCK
COMBINED SUBACCOUNT
---------------------------------- --------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 1,037,561 $ 701,927 $ 105,934 $ 366,515 $ 328,196 $ 42,376
Administrative charges (NOTE 2) (124,327) (49,288) (13,240) (45,358) (16,950) (5,041)
--------------------------------------------------------------------
Net investment income 913,234 652,639 92,694 321,157 311,246 37,335
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions (15,607) 25,431 5,372 (7,916) 9,563 1,968
Change in unrealized appreciation/depreciation of
investments (1,409,360) 54,089 43,199 (565,067) 10,505 11,521
--------------------------------------------------------------------
Net gain (loss) on investments (1,424,967) 79,520 48,571 (572,983) 20,068 13,489
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ (511,733) $ 732,159 $ 141,265 $ (251,826) $ 331,314 $ 50,824
--------------------------------------------------------------------
--------------------------------------------------------------------
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT
---------------------------------- --------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 62,855 $ 35,199 $ 13,724 $ 97,005 $ 47,811 $ 15,698
Administrative charges (NOTE 2) (7,181) (4,190) (1,521) (8,145) (4,276) (1,445)
--------------------------------------------------------------------
Net investment income 55,674 31,009 12,203 88,860 43,535 14,253
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) from investment transactions (2,084) 348 298 (1,504) 1,119 459
Change in unrealized appreciation/depreciation of
investments (60,346) 476 1,552 (101,553) 17,842 1,522
--------------------------------------------------------------------
Net gain (loss) on investments (62,430) 824 1,850 (103,057) 18,961 1,981
--------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations $ (6,756) $ 31,833 $ 14,053 $ (14,197) $ 62,496 $ 16,234
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT MONEY MARKET SUBACCOUNT BLUE CHIP SUBACCOUNT
-------------------------------- ------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 469,045 $ 261,932 $ 18,276 $ 1,247 $ 587 $ 441 $ 40,894 $ 28,202 $ 15,419
Administrative charges
(NOTE 2) (44,750) (13,292) (1,138) (304) (200) (119) (18,589) (10,380) (3,976)
--------------------------------------------------------------------------------------------------
Net investment income 424,295 248,640 17,138 943 387 322 22,305 17,822 11,443
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss)
from investment
transactions (14,100) 2,505 335 -- -- -- 9,997 11,896 2,312
Change in unrealized
appreciation/depreciation
of investments (683,673) (92,155) 1,349 -- -- -- 1,279 117,421 27,255
--------------------------------------------------------------------------------------------------
Net gain (loss) on
investments (697,773) (89,650) 1,684 -- -- -- 11,276 129,317 29,567
--------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $ (273,478) $ 158,990 $ 18,822 $ 943 $ 387 $ 322 $ 33,581 $ 147,139 $ 41,010
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH
COMMON STOCK
COMBINED SUBACCOUNT
------------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Operations:
Net investment income $ 913,234 $ 652,639 $ 92,694 $ 321,157 $ 311,246 $ 37,335
Net realized gain (loss) from investment
transactions (15,607) 25,431 5,372 (7,916) 9,563 1,968
Change in unrealized appreciation/depreciation
of investments (1,409,360) 54,089 43,199 (565,067) 10,505 11,521
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (511,733) 732,159 141,265 (251,826) 331,314 50,824
Capital share transactions (NOTE 5):
Transfers of net premiums 12,057,583 7,719,468 2,376,133 4,884,501 2,618,609 764,674
Transfers of death benefits -- 233 -- -- 175 --
Transfers of surrenders (280,286) (73,390) (34,065) (113,833) (12,516) (7,694)
Transfers of policy loans (268,564) (152,052) (24,911) (129,057) (70,318) (13,201)
Transfers of cost of insurance and transfer
charges (2,988,193) (1,314,969) (458,651) (1,123,660) (406,386) (154,522)
Transfers between subaccounts (274,657) (63,345) (40,922) (84,996) (28,043) (14,293)
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from capital share transactions 8,245,883 6,115,945 1,817,584 3,432,955 2,101,521 574,964
--------------------------------------------------------------------------
Total increase (decrease) in net assets 7,734,150 6,848,104 1,958,849 3,181,129 2,432,835 625,788
Net assets at beginning of year 9,400,408 2,552,304 593,455 3,337,725 904,890 279,102
--------------------------------------------------------------------------
Net assets at end of year $ 17,134,558 $ 9,400,408 $2,552,304 $ 6,518,854 $3,337,725 $ 904,890
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT MANAGED SUBACCOUNT
--------------------------------- ---------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Operations:
Net investment income $ 55,674 $ 31,009 $ 12,203 $ 88,860 $ 43,535 $ 14,253 $ 424,295 $ 248,640 $ 17,138
Net realized gain
(loss) from
investment
transactions (2,084) 348 298 (1,504) 1,119 459 (14,100) 2,505 335
Change in unrealized
appreciation/
depreciation of
investments (60,346) 476 1,552 (101,553) 17,842 1,522 (683,673) (92,155) 1,349
---------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (6,756) 31,833 14,053 (14,197) 62,496 16,234 (273,478) 158,990 18,822
Capital share
transactions (NOTE 5):
Transfers of net
premiums 472,154 441,358 290,704 749,481 483,929 299,142 4,455,735 3,149,038 268,441
Transfers of death
benefits -- -- -- -- -- -- -- -- --
Transfers of
surrenders (7,186) (1,765) (4,951) (21,981) (12,694) (1,310) (68,697) (24,430) (8,899)
Transfers of policy
loans (12,693) (9,290) (579) (16,467) (7,195) (4,118) (77,932) (46,468) (2,243)
Transfers of cost
of insurance and
transfer charges (139,626) (98,580) (49,194) (191,048) (126,734) (57,581) (1,125,916) (410,183) (37,823)
Transfers between
subaccounts (15,124) (4,090) (1,076) (25,938) (6,264) (10,676) (92,453) 65,387 1,136
---------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions 297,525 327,633 234,904 494,047 331,042 225,457 3,090,737 2,733,344 220,612
---------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets 290,769 359,466 248,957 479,850 393,538 241,691 2,817,259 2,892,334 239,434
Net assets at beginning
of year 650,693 291,227 42,270 682,422 288,884 47,193 3,186,072 293,738 54,304
---------------------------------------------------------------------------------------------------------
Net assets at end of
year $ 941,462 $650,693 $291,227 $1,162,272 $ 682,422 $288,884 $ 6,003,331 $3,186,072 $293,738
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET SUBACCOUNT BLUE CHIP SUBACCOUNT
----------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Operations:
Net investment income $ 943 $ 387 $ 322 $ 22,305 $ 17,822 $ 11,443
Net realized gain (loss) from investment
transactions -- -- -- 9,997 11,896 2,312
Change in unrealized appreciation/depreciation of
investments -- -- -- 1,279 117,421 27,255
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 943 387 322 33,581 147,139 41,010
Capital share transactions (NOTE 5):
Transfers of net premiums 20,472 31,211 4,282 1,475,240 995,323 748,890
Transfers of death benefits -- -- -- -- 58 --
Transfers of surrenders (366) (30) (169) (68,223) (21,955) (11,042)
Transfers of policy loans (675) (992) (3) (31,740) (17,789) (4,767)
Transfers of cost of insurance and transfer
charges (7,693) (5,087) (4,278) (400,250) (267,999) (155,253)
Transfers between subaccounts (10,118) (5,911) (2,756) (46,028) (84,424) (13,257)
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from capital share transactions 1,620 19,191 (2,924) 928,999 603,214 564,571
--------------------------------------------------------------------------
Total increase (decrease) in net assets 2,563 19,578 (2,602) 962,580 750,353 605,581
Net assets at beginning of year 33,368 13,790 16,392 1,510,128 759,775 154,194
--------------------------------------------------------------------------
Net assets at end of year $ 35,931 $ 33,368 $ 13,790 $ 2,472,708 $ 1,510,128 $ 759,775
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
54
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Farm Bureau Life Variable Account (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within Farm Bureau Life Insurance Company (the
Company) to fund flexible premium variable life insurance policies.
The Account has six separate subaccounts, each of which invests solely, as
directed by contract owners, in a different portfolio of FBL Variable Insurance
Series Fund (the Fund), an open-end, diversified management investment company
sponsored by the Company. Contract owners also may direct investments to a
guaranteed interest subaccount held in the general assets of the Company.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The average cost
basis has been used in determining the net realized gain or loss from investment
transactions and unrealized appreciation or depreciation on investments.
Dividends paid to the Account are automatically reinvested in shares of the Fund
on the payable date.
2. EXPENSE CHARGES
The Account pays the Company certain amounts relating to the distribution and
administration of the policies funded by the Account and as reimbursement for
certain mortality and other risks assumed by the Company. The following
summarizes those amounts.
PREMIUM EXPENSE CHARGE: Premiums paid by the contractholders are reduced by a
5% sales charge (used to compensate the Company for expenses incurred in
connection with the distribution of the policies) and a 2% premium tax charge
(used to compensate the Company for premium taxes imposed by various states and
political subdivisions).
COST OF INSURANCE. The Company assumes the responsibility for providing
insurance benefits included in the policy. The cost of insurance is determined
each month based upon the applicable insurance rate and current death benefit.
Also, the cost of insurance includes a flat monthly administration charge of
$3.00 and a first year monthly charge based on age and amount of insurance
inforce. The aggregate cost of insurance can vary from month to month since the
determination of both the insurance rate and the current death benefit depends
on a number of variables as described in the Account's prospectus.
ADMINISTRATIVE CHARGE: The Company will deduct a daily mortality and expense
risk charge from the Account at an effective annual rate of .90% of the average
daily net assets value of the Account. These charges will be deducted by the
Company in return for its assumption of risks associated with adverse mortality
experience or excess administrative expenses in connection with policies issued.
OTHER CHARGES: A transfer charge of $25 will be imposed for the second and each
subsequent transfer between subaccounts in any one policy year. A surrender
charge equal to the lesser of $25 or 2.0% of the amount surrendered will be
imposed in the event of a partial or full contract surrender or lapse.
3. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, operations of
the Company, which is taxed as a "life insurance company" under the Internal
Revenue Code. Under current law, no federal income taxes are payable with
respect to the Account's net investment income and the net realized gain on
investments. Accordingly, no charge for income tax is currently being made to
the Account. If such taxes are incurred by the Company in the future, a charge
to the Account may be assessed.
55
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1994 1993 1992
---------------------- --------------------- ---------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Common Stock Subaccount $ 4,084,035 $ 329,923 $2,519,063 $ 106,296 $ 654,957 $ 42,658
High Grade Bond Subaccount 404,442 51,243 386,918 28,276 264,325 17,218
High Yield Bond Subaccount 657,604 74,697 409,428 34,851 265,091 25,381
Managed Subaccount 3,726,025 210,993 3,041,844 59,860 249,135 11,385
Money Market Subaccount 23,735 21,172 35,850 16,272 10,371 12,973
Blue Chip Subaccount 1,084,139 132,835 756,322 135,286 635,368 59,355
--------------------------------------------------------------------
Combined $ 9,979,980 $ 820,863 $7,149,425 $ 380,841 $2,079,247 $ 168,970
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount of the Account were as follows:
<TABLE>
<CAPTION>
NET INCREASE
UNITS SOLD UNITS REDEEMED (DECREASE)
---------------------- -------------------- ----------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Growth Common Stock Subaccount 235,366 $ 3,717,521 18,098 $ 284,566 217,268 $ 3,432,955
High Grade Bond Subaccount 23,824 341,587 3,077 44,062 20,747 297,525
High Yield Bond Subaccount 34,294 560,599 4,040 66,552 30,254 494,047
Managed Subaccount 201,404 3,256,980 10,453 166,243 190,951 3,090,737
Money Market Subaccount 1,936 22,488 1,798 20,868 138 1,620
Blue Chip Subaccount 60,441 1,043,245 6,682 114,246 53,759 928,999
--------------------------------------------------------------------
COMBINED 557,265 $ 8,942,420 44,148 $ 696,537 513,117 $ 8,245,883
--------------------------------------------------------------------
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
Growth Common Stock Subaccount 140,419 $ 2,190,868 5,817 $ 89,347 134,602 $ 2,101,521
High Grade Bond Subaccount 24,876 351,718 1,713 24,085 23,163 327,633
High Yield Bond Subaccount 23,053 361,616 1,963 30,574 21,090 331,042
Managed Subaccount 172,147 2,779,910 2,823 46,566 169,324 2,733,344
Money Market Subaccount 3,084 35,264 1,404 16,073 1,680 19,191
Blue Chip Subaccount 45,544 728,120 7,688 124,906 37,856 603,214
--------------------------------------------------------------------
Combined 409,123 $ 6,447,496 21,408 $ 331,551 387,715 $ 6,115,945
--------------------------------------------------------------------
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
Growth Common Stock Subaccount 49,125 $ 612,580 2,794 $ 37,616 46,331 $ 574,964
High Grade Bond Subaccount 19,422 250,601 1,195 15,697 18,227 234,904
High Yield Bond Subaccount 18,049 249,393 1,717 23,936 16,332 225,457
Managed Subaccount 17,658 230,859 805 10,247 16,853 220,612
Money Market Subaccount 890 9,977 1,155 12,901 (265) (2,924)
Blue Chip Subaccount 42,406 619,950 3,284 55,379 39,122 564,571
--------------------------------------------------------------------
Combined 147,550 $ 1,973,360 10,950 $ 155,776 136,600 $ 1,817,584
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
6. NET ASSETS
The Account has an unlimited number of units of beneficial interest authorized
with no par value. Net assets as of December 31, 1994 consisted of:
<TABLE>
<CAPTION>
GROWTH HIGH GRADE HIGH YIELD
COMMON STOCK BOND BOND MANAGED MONEY MARKET BLUE CHIP
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paid-in capital $16,726,431 $6,365,878 $ 899,079 $1,093,856 $6,094,815 $ 33,728 $2,239,075
Accumulated undistributed net
investment income 1,721,753 697,299 101,268 150,710 698,399 2,203 71,874
Accumulated undistributed net
realized gain from investment
transactions (15,606) (7,916) (2,084) (1,504) (14,100) -- 9,998
Net unrealized appreciation
(depreciation) of investments (1,298,020) (536,407) (56,801) (80,790) (775,783) -- 151,761
------------------------------------------------------------------------------------------------
Net assets $17,134,558 $6,518,854 $ 941,462 $1,162,272 $6,003,331 $ 35,931 $2,472,708
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Farm Bureau Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Farm Bureau
Life Insurance Company as of December 31, 1994 and 1993, and the related
statutory-basis statements of operations, changes in net worth, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our audits.
We conducted our audits of the accompanying statutory-basis financial statements
in accordance with generally accepted auditing standards; however, as discussed
in the following paragraph, we were not engaged to determine or audit the
effects of variances between statutory accounting practices and generally
accepted accounting principles. Generally accepted auditing standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying
statutory-basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Insurance Division, Department of
Commerce, of the State of Iowa. When statutory-basis financial statements are
presented for purposes other than for filing with a regulatory agency, generally
accepted auditing standards require that an auditors' report on such statements
indicate whether they are presented in conformity with generally accepted
accounting principles. The accounting practices used by the Company vary from
generally accepted accounting principles as explained in Note 1, and the Company
has not determined the effects of these variances. Accordingly, we were not
engaged to audit, and we did not audit the effects of these variances. Since the
accompanying financial statements do not purport to be a presentation in
conformity with generally accepted accounting principles, we are not in a
position to express, and we do not express, an opinion on the financial
statements referred to above as to fair presentation of financial position,
results of operations, or cash flows in conformity with generally accepted
accounting principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Farm Bureau
Life Insurance Company at December 31, 1994 and 1993 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa.
[LOGO]
Des Moines, Iowa
March 24, 1995
57
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
BALANCE SHEETS -- STATUTORY BASIS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1994 1993
------------------- ------------------
<S> <C> <C>
ADMITTED ASSETS (NOTES 2, 4 AND 11)
Bonds (NOTE 7):
United States Government and agencies $ 242,853,489 $ 146,253,012
State, municipal and other governments 22,325,325 3,546,326
Public utilities 84,239,869 45,108,653
Industrial and miscellaneous 908,841,302 482,341,967
Subsidiaries and affiliates 12,502,405 18,088,230
------------------- ------------------
1,270,762,390 695,338,188
Preferred stocks 42,467,544 56,245,992
Common stocks:
Unaffiliated companies (cost of $48,576,700 in 1994 and
$39,238,226 in 1993) 43,607,467 48,253,036
Affiliated companies (cost of $57,529,458 in 1994 and
$51,248,246 in 1993) 57,749,559 86,317,308
Mortgage loans on real estate 238,268,920 140,006,810
Real estate 30,580,222 31,898,943
Policy loans (NOTE 5) 87,952,253 75,501,476
Cash and short-term investments 109,951,383 20,907,251
Other invested assets 59,723,408 19,025,976
------------------- ------------------
Cash and invested assets 1,941,063,146 1,173,494,980
Due from non-affiliated reinsurers (NOTE 6) 759,066 340,192
Federal income taxes recoverable (NOTE 8) 5,981,571 3,137,195
Premiums deferred and uncollected (NOTE 5) 5,252,799 29,896,402
Investment income due and accrued 21,636,433 13,722,576
Receivable from affiliates and subsidiaries (NOTE 10) 1,029,965 6,070,976
Other assets 8,505,297 2,454,236
Assets of separate accounts 28,042,877 9,400,408
------------------- ------------------
Total admitted assets $ 2,012,271,154 $ 1,238,516,965
------------------- ------------------
------------------- ------------------
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1994 1993
------------------- ------------------
<S> <C> <C>
LIABILITIES AND NET WORTH
Liabilities:
Policy reserves (NOTES 2, 5, 6 AND 9):
Life and annuity $ 1,442,266,106 $ 769,853,468
Accident and health 25,006,822 23,508,214
Supplementary contracts without life contingencies 95,207,917 81,213,334
Policyholders' dividend accumulations 61,916,596 57,092,168
------------------- ------------------
1,624,397,441 931,667,184
Policy and contract claims (NOTES 5 AND 6):
Life 4,908,885 18,919,803
Accident and health 817,198 1,672,396
Other policyholders' funds:
Dividends payable to policyholders 34,982,519 22,142,998
Premium deposit funds and other 4,039,565 3,933,744
Interest maintenance reserve 11,051,956 6,598,604
Federal income taxes payable (NOTE 8) 149,837 --
Borrowed money (NOTES 2, 4 AND 7) 6,387,510 7,316,090
Reinsurance in unauthorized companies 527 193,815
Liability for deferred compensation and other employee benefit plans (NOTES 5 AND 9) 41,095,008 20,609,323
Other liabilities 23,279,796 17,378,248
Asset valuation reserve 26,841,639 21,554,446
Liabilities of separate accounts (NOTE 2) 27,460,540 9,400,408
------------------- ------------------
Total liabilities 1,805,412,421 1,061,387,059
Commitments and contingencies (NOTES 4, 8, 9 AND 11)
Net worth:
First preferred stock, 7 1/2% cumulative, par value $50 per share -- authorized 6,000
shares -- --
Common stock, par value $50 per share -- authorized 25,000 shares,
issued and outstanding 23,880.28 shares 1,194,014 1,194,014
Additional paid-in capital 25,616,038 13,002,806
Special funds:
Premium fluctuation reserve 410,080 1,516,542
Other special funds 1,000,000 2,000,000
Unassigned funds for the protection of policyholders 178,638,601 159,416,544
------------------- ------------------
Total net worth 206,858,733 177,129,906
------------------- ------------------
Total liabilities and net worth $ 2,012,271,154 $ 1,238,516,965
------------------- ------------------
------------------- ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
59
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1994 1993 1992
----------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations (NOTE 6):
Life, annuity, and accident and health $ 121,842,553 $ 119,901,879 $ 114,318,423
Supplementary contracts 7,590,503 38,346,707 31,335,928
Net investment income (NOTE 4) 89,789,988 86,054,646 85,339,692
Assets received pursuant to reinsurance assumption agreement (NOTE 3) 670,390,396 -- --
Other income 3,511,797 3,800,639 3,649,110
----------------- ---------------- ----------------
893,125,237 248,103,871 234,643,153
Benefits and expenses:
Benefits paid or provided for (NOTE 6):
Death benefits 20,156,283 19,702,229 16,972,600
Accident and health benefits 4,705,896 18,588,866 23,064,580
Annuity benefits 8,587,680 5,809,220 7,576,495
Surrender benefits 17,168,533 15,857,328 16,710,028
Payments on supplementary contracts 9,386,463 24,770,138 21,247,879
Other benefits 12,918,167 5,357,136 5,123,444
Increase in policy reserves, excluding amounts charged to surplus 691,674,490 67,548,722 64,309,592
----------------- ---------------- ----------------
764,597,512 157,633,639 155,004,618
Commissions 14,157,575 13,974,140 12,439,328
General expenses (NOTE 10) 29,996,103 24,727,597 23,436,188
Insurance taxes, licenses and fees 2,039,524 2,624,073 2,179,340
Net transfers to separate accounts 19,172,178 6,066,656 1,801,674
Other 473,079 402,532 366,487
----------------- ---------------- ----------------
830,435,971 205,428,637 195,227,635
----------------- ---------------- ----------------
Gain from operations before dividends to policyholders, federal income
taxes, and net realized capital gains (losses) 62,689,266 42,675,234 39,415,518
Dividends to policyholders 34,372,854 21,463,623 23,752,483
----------------- ---------------- ----------------
Net gain from operations before federal income taxes and net realized
capital gains (losses) 28,316,412 21,211,611 15,663,035
Federal income taxes (NOTE 8) 7,713,099 5,627,796 579,382
----------------- ---------------- ----------------
Net gain from operations before net realized capital gains (losses) 20,603,313 15,583,815 15,083,653
Net realized capital gains (losses), less realized federal income tax
expense (benefit) [1994 -- $(2,513,343); 1993 -- $4,024,976; 1992 --
$3,445,838] and amounts transferred to interest maintenance reserve
(1994 -- $1,204,898; 1993 -- $4,097,427; 1992 -- $3,360,546) (NOTE 4) (31,616,031) 2,276,743 2,663,649
----------------- ---------------- ----------------
Net income (loss) $ (11,012,718) $ 17,860,558 $ 17,747,302
----------------- ---------------- ----------------
----------------- ---------------- ----------------
</TABLE>
SEE ACCOMPANYING NOTES.
60
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET WORTH -- STATUTORY BASIS
<TABLE>
<CAPTION>
UNASSIGNED
ADDITIONAL FUNDS FOR
COMMON PAID-IN SPECIAL PROTECTION OF TOTAL
STOCK CAPITAL FUNDS POLICYHOLDERS NET WORTH
-------------- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $ 1,104,840 $ 17,820 $ 2,884,897 $ 150,067,672 $ 154,075,229
Net income for 1992 -- -- -- 17,747,302 17,747,302
Net unrealized capital losses (NOTE 11) -- -- -- (19,546,196) (19,546,196)
Increase in non-admitted assets -- -- -- (721,847) (721,847)
Increase in unauthorized reinsurance -- -- -- (351,851) (351,851)
Decrease in asset valuation reserve over
prior year mandatory securities
valuation reserve -- -- -- 13,403,550 13,403,550
Increase in reserve for contingent
retirement benefits -- -- -- (5,708) (5,708)
Change in premium fluctuation valuation
reserve -- -- 91,472 (91,472) --
-------------- --------------- -------------- ----------------- -----------------
Balance at December 31, 1992 1,104,840 17,820 2,976,369 160,501,450 164,600,479
Issuance of 1,783.48 shares of common
stock in exchange for 99.5% of Rural
Security Life Insurance Company 89,174 12,984,986 -- -- 13,074,160
Net income for 1993 -- -- -- 17,860,558 17,860,558
Net unrealized capital losses (NOTE 11) -- -- -- (1,727,880) (1,727,880)
Increase in non-admitted assets -- -- -- (382,681) (382,681)
Decrease in unauthorized reinsurance -- -- -- 1,030,129 1,030,129
Increase in asset valuation reserve -- -- -- (15,905,829) (15,905,829)
Increase in reserve for contingent
retirement benefits -- -- -- (3,662) (3,662)
Change in premium fluctuation valuation
reserve -- -- 540,173 (540,173) --
Prior period federal income tax
adjustments (NOTE 8) -- -- -- (128,375) (128,375)
Prior period accident and health policy
reserve adjustment (NOTE 5) -- -- -- (1,286,993) (1,286,993)
-------------- --------------- -------------- ----------------- -----------------
Balance at December 31, 1993 1,194,014 13,002,806 3,516,542 159,416,544 177,129,906
Contribution of minority interests of
subsidiaries from parent -- 12,613,232 -- -- 12,613,232
Net loss for 1994 -- -- -- (11,012,718) (11,012,718)
Net unrealized capital gains (NOTE 11) -- -- -- 31,996,857 31,996,857
Decrease in non-admitted assets -- -- -- 3,801,626 3,801,626
Decrease in unauthorized reinsurance -- -- -- 193,288 193,288
Increase in asset valuation reserve -- -- -- (5,287,193) (5,287,193)
Increase in net assets of separate
accounts -- -- -- 582,337 582,337
Increase in reserve for contingent
retirement benefits -- -- -- (1,795,812) (1,795,812)
Change in premium fluctuation valuation
reserve -- -- (1,106,462) 1,106,462 --
Change in other special funds -- -- (1,000,000) 1,000,000 --
Prior period accident and health policy
reserve adjustment (NOTE 5) -- -- -- (1,055,767) (1,055,767)
Other -- -- -- (307,023) (307,023)
-------------- --------------- -------------- ----------------- -----------------
Balance at December 31, 1994 $ 1,194,014 $ 25,616,038 $ 1,410,080 $ 178,638,601 $ 206,858,733
-------------- --------------- -------------- ----------------- -----------------
-------------- --------------- -------------- ----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES.
61
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS -- STATUTORY BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------
1994 1993 1992
--------------------------------------------------------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations $ 153,483,829 $ 153,614,742 $ 127,578,953
Allowances and reserve adjustments on reinsurance ceded 177,231 787,107 659,347
Net investment income received 82,769,897 88,367,973 85,270,015
Net assets received pursuant to reinsurance assumption agreement 670,390,396 -- --
Net decrease (increase) in policy loans (12,450,777) 745,900 38,563
Other income received 27,206,131 8,520,933 1,238,907
--------------------------------------------------------
921,576,707 252,036,655 214,785,785
Death and accident and health benefits paid (27,300,089) (39,441,124) (41,315,105)
Surrender benefits paid (17,168,533) (15,857,328) (16,710,028)
Other benefits to policyholders and beneficiaries paid (36,839,499) (28,544,683) (19,382,768)
Commissions, general insurance expenses, and taxes paid (53,700,805) (40,692,939) (35,460,637)
Net transfers to separate accounts (19,172,178) (6,066,656) (1,801,674)
Dividends to policyholders paid (21,533,333) (23,721,405) (25,593,015)
Federal income taxes paid (10,407,638) (5,049,405) (1,762,999)
--------------------------------------------------------
Net cash from operations 735,454,632 92,663,115 72,759,559
Proceeds from investments sold, matured, or repaid:
Bonds 213,507,507 241,191,624 211,852,764
Stocks 85,948,729 37,814,345 17,134,549
Mortgage loans on real estate 9,941,856 17,023,974 1,941,276
Real estate, net of encumbrance 637,479 189,627 9,956,077
Other invested assets 34,585,523 11,379,852 922,855
Net gains (losses) on short-term investments (5,878) 7,158 (1,323,031)
Miscellaneous proceeds 41,396,288 7,414,021 --
--------------------------------------------------------
Total investment proceeds 386,011,504 315,020,601 240,484,490
Tax benefit (expense) on capital gains and losses 2,513,343 (4,024,976) (3,445,838)
--------------------------------------------------------
Total cash from investments 388,524,847 310,995,625 237,038,652
Issuance of common stock -- 13,074,160 --
Contribution of minority interests of subsidiaries from parent 12,613,232 -- --
Proceeds (repayments) of borrowings, net (928,580) 607,668 6,708,422
Other cash provided 14,166,066 258,245 676,341
--------------------------------------------------------
Total sources of cash 1,149,830,197 417,598,813 317,182,974
APPLICATIONS OF CASH
Costs of investments acquired:
Bonds (781,191,406) (232,606,199) (227,155,504)
Stocks (82,514,940) (90,959,969) (26,013,545)
Mortgage loans on real estate (108,333,195) (55,506,073) (50,592,565)
Real estate (698,785) (482,587) (612,978)
Other invested assets (82,274,158) (12,554,066) (12,087,061)
Miscellaneous applications -- (9,893,371) (1,874,866)
--------------------------------------------------------
Total investments acquired (1,055,012,484) (402,002,265) (318,336,519)
Other cash applied (5,773,581) (2,423,116) (1,615,167)
--------------------------------------------------------
Total applications of cash (1,060,786,065) (404,425,381) (319,951,686)
--------------------------------------------------------
Net change in cash and short-term investments 89,044,132 13,173,432 (2,768,712)
Cash and short-term investments at beginning of year 20,907,251 7,733,819 10,502,531
--------------------------------------------------------
Cash and short-term investments at end of year $ 109,951,383 $ 20,907,251 $ 7,733,819
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
62
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
At December 31, 1994, Farm Bureau Life Insurance Company (the Company) was a
wholly-owned subsidiary of Farm Bureau Multi-State Services, Inc. Effective
January 1, 1994, Farm Bureau Multi-State Services, Inc. acquired 100% of the
outstanding common stock of the Company in exchange for equivalent shares of its
newly issued common stock. At December 31, 1993, the Company was owned by the
Iowa Farm Bureau Federation (83.28%), Farm Bureau Mutual Insurance Company
(9.25%), and Rural Mutual Insurance Company (7.47%) (see Note 3). The Company
operates solely as a life and accident and health insurance company.
FINANCIAL STATEMENTS
The financial statements presented herein are prepared on the basis of statutory
accounting principles for the Company only; as such, the accounts of the
Company's wholly-owned subsidiaries FBL Financial Services, Inc., FBL Insurance
Company (75% owned in 1993), FBL Ventures of South Dakota, Inc., RIK, Inc.
(acquired through reinsurance assumption agreement from Rural Security Life
Insurance Company in 1994, see Note 3), Rural Security Life Insurance Company
(99.5% owned in 1993), Universal Assurors Life Insurance Company and Vantage
Cable Associates, Inc. (which was sold during 1994 and was 85% directly owned by
the Company and 15% owned by FBL Ventures of South Dakota, Inc. at December 31,
1993), are not consolidated with those of the Company. The carrying values of
the Company's subsidiaries and The Anchor Group, Inc. (50% owned, and acquired
in 1993) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1994 1993
-------------------------------
<S> <C> <C>
The Anchor Group, Inc. $ 1,500,000 $ 3,392,002
FBL Financial Services, Inc. 23,779,764 20,993,904
FBL Insurance Company (NOTE 3) 5,721,140 31,870,174
FBL Ventures of South Dakota, Inc. 16,845,774 13,789,984
RIK, Inc. -- --
Rural Security Life Insurance Company (NOTE 3) 6,394,082 12,790,002
Universal Assurors Life Insurance Company 3,508,799 3,481,242
Vantage Cable Associates, Inc. -- --
-------------------------------
$ 57,749,559 $ 86,317,308
-------------------------------
-------------------------------
</TABLE>
The above carrying values include unamortized goodwill at December 31, 1994 of
$281,728 and $400,000 (1993 -- $1,036,334 and $450,000) attributable to the
excess of the purchase price over the underlying net asset value at the date of
acquisition for The Anchor Group, Inc. and Universal Assurors Life Insurance
Company, respectively. Goodwill is amortized over a period of ten years.
Subsequent to December 31, 1994, the Company purchased the remaining 50%
ownership in The Anchor Group, Inc. from Rural Mutual Insurance Company. The
purchase price of the remaining shares of The Anchor Group, Inc. indicated that
goodwill associated with The Anchor Group, Inc. may be impaired. As a result,
the Company wrote-off goodwill of approximately $646,000 during the year ended
December 31, 1994.
Total assets of these unconsolidated subsidiaries amounted to $57,493,912 at
December 31, 1994 and $789,005,911 at December 31, 1993, and total revenues were
$162,198,846 in 1994, $197,107,310 in 1993 and $112,585,000 in 1992. It is the
policy of the Company and its subsidiaries to designate distributions as either
returns of capital or dividends (returns of accumulated earnings), at the time
the distributions are made. During the years ended December 31, 1994 and 1993,
the Company received net return of capital distributions of $6,331,212
(excluding amounts attributed to the Company's life insurance subsidiaries, see
Note 3) and $7,414,021, respectively, which were used to reduce the Company's
basis in the subsidiaries. During the years ended December 31, 1994, 1993 and
1992, the Company received dividends of $2,035,393, $0 and $850,000,
respectively, from these subsidiaries which were included in net investment
income. The Company recognizes changes in the carrying value attributable to the
Company's equity in earnings or share of losses, less distributions received, as
direct charges to net worth through unrealized capital gains or losses.
63
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally carried at amortized
cost rather than segregating the portfolio into held-to-maturity (carried at
amortized cost), held-for-sale (carried at fair value), and trading (reported at
fair value) classifications; (b) acquisition costs of acquiring new business are
charged to current operations as incurred rather than deferred and amortized
over the life of the policies; (c) policy reserves on traditional life products
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
receivable or payable rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates in
the market are deferred and amortized over the remaining life of the bond or
mortgage loan, rather than recognized as gains or losses in the statement of
operations when the sale is completed; (h) declines in the estimated realizable
value of investments are provided for through the establishment of a
formula-determined statutory investment reserve (carried as a liability) changes
to which are charged directly to net worth, rather than through recognition in
the statement of operations for declines in value, when such declines are judged
to be other than temporary; (i) agents' balances and certain other assets
designated as "non-admitted assets" have been charged to net worth rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation fees
and surrender charges assessed; (k) pension income or expense is recognized in
accordance with rules and regulations permitted by the Employee Retirement
Income Security Act of 1974 rather than Statement of Financial Accounting
Standards (SFAS) No. 87, "Employers' Accounting for Pensions"; (l) expenses for
postretirement benefits are recognized on a pay-as-you-go (cash basis) method
rather than in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions"; (m) adjustments to federal income
taxes of prior years are charged or credited to net worth rather than reported
as a component of expense in the statement of operations; and (n) the financial
statements of subsidiaries are not consolidated with those of the Company. The
effects of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be complete in 1996,
will likely change, to some extent, statutory accounting practices. The
codification may result in changes to the permitted or prescribed accounting
practices that the Company uses to prepare its statutory-basis financial
statements.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates prospectively when such assumptions are
changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks of unaffiliated companies are carried at market. Subsidiaries (all
majority owned) and 50% owned affiliates are recorded at the equity in net
assets. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as required
or permitted by Iowa Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed
64
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by the NAIC and are reported as a liability. The formula for the AVR provides
for a corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve,
the portion of realized gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals over the remaining period
to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1994 and 1993, the Company
excluded investment income due and accrued of $3,635,497 and $2,366,802,
respectively, with respect to such practices.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of twelve months or less to be
cash equivalents.
POLICY RESERVES
The reserves for life, annuity and accident and health policies, all developed
by actuarial methods, are established and maintained on the basis of published
mortality and morbidity tables using assumed interest rates and valuation
methods that will provide, in the aggregate, reserves that are equal to or
greater than the minimum valuation required by law or guaranteed policy cash
values.
RECOGNITION OF PREMIUM REVENUES AND COSTS
Premiums are recognized as revenues over the premium-paying period, whereas
commissions and other costs applicable to the acquisition of new business are
charged to operations as incurred.
DIVIDENDS TO POLICYHOLDERS
Dividends payable to policyholders in the following year are charged to
operations and are established by the Company's Board of Directors. At December
31, 1994, participating business written approximates 23.3% of the insurance in
force.
SEPARATE ACCOUNTS
Assets and liabilities of separate accounts are disclosed in the aggregate in
the balance sheets. The statements of operations include the premiums, benefits
and other items arising from the operations of the separate accounts of the
Company. The change in the net assets of the separate accounts, primarily
related to statutory reserve adjustments on the Company's variable annuity
product, are charged directly to net worth.
NET WORTH -- SPECIAL FUNDS
The Company maintains a premium fluctuation reserve for group term, group health
and group long-term disability contracts. Allocations are calculated based on
current year premiums and related loss ratios.
Other special funds represent an allocation of net worth in anticipation of
adverse developments attributed to Acquired Immune Deficiency Syndrome (AIDS).
DIVIDEND RESTRICTIONS
Prior approval of insurance regulatory authorities is required for payment of
dividends to the Company's stockholders which exceed an annual limitation.
During 1995, the Company could pay dividends to its stockholders of
approximately $20,566,000 without prior approval of statutory authorities.
POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company recognized costs related to health, life insurance or similar
benefits to retired employees on a pay-as-you-go (cash basis) method.
EMERGING ACCOUNTING ISSUE
In March 1993, the NAIC approved a final standard whereby insurance companies
would be required to adopt a modified version of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
65
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Benefits Other Than Pensions", issued by the Financial Accounting Standards
Board in December 1990. This standard will require the Company to account for
these benefits on an accrual method rather than the present pay-as-you-go (cash
basis) method. As the Company's postretirement benefit plans include fewer than
500 plan participants in the aggregate, the Company has elected to delay
adoption of this new standard until January 1, 1995. At December 31, 1994 and
1993, the unfunded postretirement benefit obligation for the affiliated group
was approximately $745,000 and $673,000, respectively. The discount rate used to
determine the accumulated postretirement benefit obligation was 8.0% at December
31, 1994 and 1993.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement of
Financial Accounting Standards No. 107 also excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements
and allows companies to forego the disclosures when those estimates can only be
made at excessive cost. Accordingly, the aggregate fair value amounts presented
herein are limited by each of these factors and do not purport to represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
BONDS AND PREFERRED STOCKS: Fair values for bonds and preferred stocks are
determined utilizing values set forth by the Securities Valuation Office of the
NAIC, when available. When such values are not available from the NAIC, the
Company has attempted to obtain values from independent pricing services or, in
the case of private placements, from broker-dealers familiar with the markets of
the issuers. In certain situations where the Company has not been able to secure
market values, amortized cost has been utilized (see Note 4).
COMMON STOCKS OF UNAFFILIATED COMPANIES: Market values, as presented herein,
were determined using the procedures set forth by the Securities Valuation
Office of the NAIC. Such procedures generally recognize an established market
value for publicly traded securities and utilize a matrix pricing system and
independent broker quotes for non-publicly traded securities.
MORTGAGE LOANS ON REAL ESTATE: Fair values are estimated by discounting
expected cash flows, using interest rates currently being offered for similar
loans.
POLICY LOANS: The Company has not determined the fair values associated with
its policy loans. Policy loans with a carrying value of $23,534,487 and
$22,201,669 at December 31, 1994 and 1993, respectively, provide for variable
interest rates. Generally, policy loans with such provisions will not be
adjusted for fair value purposes. Management believes any differences between
the Company's carrying value and the fair values of its other policy loans are
immaterial to the Company's financial position and, accordingly, the cost to
provide such disclosure is not worth the benefit to be derived. Information with
respect to the characteristics of the portfolio is provided elsewhere.
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's
statutory-basis balance sheet.
POLICY RESERVES: Fair values of the Company's liabilities under contracts not
involving significant mortality or morbidity risks (principally deferred
annuities and supplementary contracts), are stated at the cost the Company would
incur to extinguish the liability, i.e., the cash surrender value. As the
Company's products do not assess surrender charges, this value is generally
equal to the corresponding policy reserve. The Company is not required to
estimate the fair value of its liabilities under other contracts.
66
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
BORROWED MONEY AND ENCUMBRANCES: The carrying amount of the Company's borrowed
money and encumbrances approximate their fair value.
DEPOSIT ADMINISTRATION FUNDS: The Company administers the funded portion of
certain employee benefit plans of its affiliates through deposit administration
funds. The fair value of the deposit administration funds attributed to the
Agent's Career Incentive Plan are stated at amounts which are estimated to be
currently vested, based on service and production criteria. Other funds are
stated at carrying value.
OFF-BALANCE SHEET INSTRUMENTS: The Company has entered into lines of credit,
both as a lender and borrower, and a letter of credit. The Company has not
attempted to place fair values on these obligations as management believes
losses have already been accrued to the extent that they eventually are expected
to be realized.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------------
1994 1993
---------------------------------------- ----------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds (NOTE 4) $ 1,270,762,390 $ 1,258,238,406 $ 695,338,188 $ 736,445,315
Preferred stocks (NOTE 4) 42,467,544 43,347,085 56,245,992 58,460,744
Common stocks of unaffiliated companies 43,607,467 43,607,467 48,253,036 48,253,036
Mortgage loans on real estate 238,268,920 238,531,016 140,006,810 144,781,000
Policy loans (NOTE 5) 87,952,253 87,952,253 75,501,476 75,501,476
Cash and short-term investments 109,951,383 109,923,200 20,907,251 20,907,251
Assets of separate accounts 28,042,877 28,042,877 9,400,408 9,400,408
LIABILITIES
Life and annuity policy reserves (NOTE 5) 783,579,428 777,303,407 263,125,752 263,125,752
Borrowed money (NOTE 7) 6,387,510 6,387,510 7,316,090 7,316,090
Deposit administration funds 28,278,158 25,466,304 12,372,964 9,858,641
Liabilities of separate accounts 27,460,540 27,460,540 9,400,408 9,400,408
</TABLE>
3. REORGANIZATION AND REINSURANCE ASSUMPTION AGREEMENT
On February 26, 1993, the Company entered into a stock exchange agreement with
Rural Mutual Insurance Company. Under the terms of the agreement, the Company
acquired 99.5% of the issued and outstanding common stock of Rural Security Life
Insurance Company in exchange for newly issued common stock of the Company
(approximately 7.47% of the total amount outstanding after the exchange). The
exchange rate used in the transaction was determined using statutory-basis book
values. In addition to the stock exchanged, Rural Mutual Insurance Company
issued for cash a $7,500,000 contribution note payable to the Company of which
$5,000,000 was repaid in 1993 and $2,500,000 was repaid during 1994.
In January, 1994, the Boards of Directors of the Company and Western Farm Bureau
Life Insurance Company approved a plan of merger between the Company and Western
Farm Bureau Life Insurance Company, the latter domiciled in the state of
Colorado. Pursuant to the plan of merger, effective January 1, 1994, the
ownership and operations of the Company and Western Farm Bureau Life Insurance
Company are facilitated through Farm Bureau Multi-State Services, Inc., a
holding company which was incorporated in the State of Iowa on October 13, 1993.
Under the merger, 100% of the common stock of the Company and Western Farm
Bureau Life Insurance Company were exchanged for stock in the holding company.
In addition, the minority interests of FBL Insurance Company and Rural Security
Life Insurance Company were exchanged for equivalent value in the holding
company.
On December 31, 1994, Farm Bureau Multi-State Services, Inc. contributed the
minority interest of Rural Security Life Insurance Company to the Company and
cancelled its minority interest of FBL Insurance Company making Rural Security
Life Insurance Company and FBL Insurance Company wholly-owned subsidiaries of
the Company.
67
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. REORGANIZATION AND REINSURANCE ASSUMPTION AGREEMENT (CONTINUED)
Effective December 31, 1994, substantially all of the liabilities of FBL
Insurance Company and Rural Security Life Insurance Company were transferred to
the Company pursuant to an assumption reinsurance agreement. Concurrently, the
remaining net assets of FBL Insurance Company and Rural Security Life Insurance
Company, exclusive of amounts needed to maintain sufficient capital and surplus
levels to meet regulatory requirements, were transferred to the Company as
return of capital distributions which were used to reduce the Company's basis in
these subsidiaries. The Company recorded the assets and liabilities received
pursuant to these arrangements at the statutory carrying values of FBL Insurance
Company and Rural Security Life Insurance Company. The transactions were done in
a tax-free manner. The Company recognized additional income aggregating
approximately $12,372,000 during the year ended December 31, 1994 as a result of
the reinsurance assumption agreement. The transactions had no impact on net
worth at December 31, 1994.
The financial statements presented herein include the assets and liabilities
received in accordance with the reinsurance assumption agreement and
distribution; however, the results of operations related to the business
acquired, for periods prior to December 31, 1994, are not included in the
statement of operations of the Company.
A reconciliation of financial information for the Company, FBL Insurance Company
and Rural Security Life Insurance Company prior to and after these transactions
is as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES NET WORTH
-----------------------------------------------------------
<S> <C> <C> <C>
Prior to transactions discussed above:
The Company $ 1,336,874,608 $ 1,148,852,942 $ 188,021,666
FBL Insurance Company 566,883,032 516,744,066 50,138,966
Rural Security Life Insurance Company 201,686,792 185,800,840 15,885,952
Capital contribution from parent of minority
interests in subsidiaries 12,613,232 -- 12,613,232
Amounts retained to meet statutory requirements:
FBL Insurance Company (5,721,140) -- (5,721,140)
Rural Security Life Insurance Company (6,394,082) -- (6,394,082)
Reflect adjustments to combined entity:
Return of capital distributions of subsidiaries (53,909,696) -- (53,909,696)
Asset valuation reserve -- (6,223,835) 6,223,835
Eliminate intercompany accounts (39,761,592) (39,761,592) --
-----------------------------------------------------------
As presented herein $ 2,012,271,154 $ 1,805,412,421 $ 206,858,733
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
Summarized combined revenues, net gain from operations before net realized
capital gains and losses, and net income (loss) of the Company, FBL Insurance
Company and Rural Security Life Insurance Company, excluding the impact of the
reinsurance agreements, for each of the three years in the period ended December
31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C>
Revenues $ 373,660,000 $ 433,394,000 $ 411,325,000
Net gain from operations before net realized
capital gains and losses 20,532,000 16,603,000 25,141,000
Net income (loss) (13,917,000) 27,305,000 27,303,000
</TABLE>
Effective January 1, 1994, the Company and Rural Security Life Insurance Company
transferred all of their group accident and health insurance to other carriers.
Although there was some run-off of the group accident and health line during
1994, the Company effectively removed itself from the group accident and health
insurance business as of December 31, 1993. The Company is not writing any new
individual medical policies. The Company continues to write individual
disability income policies which are classified as accident and health herein.
Combined accident and health premiums of the Company and Rural Security Life
Insurance Company approximated $2,444,000, $52,829,000 and $51,827,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
68
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT OPERATIONS
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
Bonds $ 64,108,269 $ 64,815,890 $ 65,947,443
Preferred stocks 3,768,664 2,347,924 195,278
Common stocks of unaffiliated companies 1,323,926 1,928,704 2,299,614
Common stocks of affiliated companies 2,035,393 -- 850,000
Mortgage loans on real estate 12,750,792 11,037,670 7,184,444
Real estate 5,642,012 5,643,021 5,454,352
Policy loans 4,675,488 4,827,165 4,891,277
Short-term investments 1,072,798 522,772 570,076
Other invested assets 823,758 1,000,473 4,135,663
Amortization of interest maintenance reserve 993,386 642,586 216,783
Other 425,914 713,500 694,532
-----------------------------------------------
97,620,400 93,479,705 92,439,462
Less investment expenses (7,830,412) (7,425,059) (7,099,770)
-----------------------------------------------
Net investment income $ 89,789,988 $ 86,054,646 $ 85,339,692
-----------------------------------------------
-----------------------------------------------
</TABLE>
At December 31, 1994 and 1993, the carrying value and estimated market value of
the Company's bonds, preferred stocks and short-term investments, which comprise
its portfolio of debt securities, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and agencies:
Mortgage-backed securities $ 220,531,193 $ 2,642,293 $ (2,697,529) $ 220,475,957
Other 22,322,296 196,597 (229,986) 22,288,907
State, municipal and other governments 22,325,325 284,830 (612,143) 21,998,012
Public utilities 84,239,869 1,219,714 (2,899,816) 82,559,767
Industrial and miscellaneous:
Mortgage-backed securities 323,180,565 30,000 (5,760,175) 317,450,390
Other 585,660,737 12,767,937 (17,465,706) 580,962,968
Subsidiaries and affiliates 12,502,405 -- -- 12,502,405
---------------------------------------------------------------------------
1,270,762,390 17,141,371 (29,665,355) 1,258,238,406
Preferred stocks:
In good standing 24,135,752 243,330 (1,620,532) 22,758,550
Not in good standing 18,331,792 2,257,058 (315) 20,588,535
---------------------------------------------------------------------------
42,467,544 2,500,388 (1,620,847) 43,347,085
Short-term investments 106,269,102 -- (28,183) 106,240,919
---------------------------------------------------------------------------
$ 1,419,499,036 $ 19,641,759 $ (31,314,385) $ 1,407,826,410
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
69
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Bonds:
United States Government and agencies:
Mortgage-backed securities $ 133,165,111 $ 6,582,910 $ -- $ 139,748,021
Other 13,087,901 1,041,111 -- 14,129,012
State, municipal and other governments 3,546,326 11,343 -- 3,557,669
Public utilities 45,108,653 3,287,607 -- 48,396,260
Industrial and miscellaneous:
Mortgage-backed securities 91,359,813 1,839,522 (63,705) 93,135,630
Other 390,982,154 29,132,465 (724,126) 419,390,493
Subsidiaries and affiliates 18,088,230 -- -- 18,088,230
-----------------------------------------------------------------------
695,338,188 41,894,958 (787,831) 736,445,315
Preferred stocks:
In good standing 42,552,506 2,728,633 (613,880) 44,667,259
Not in good standing 13,693,486 99,999 -- 13,793,485
-----------------------------------------------------------------------
56,245,992 2,828,632 (613,880) 58,460,744
Short-term investments 19,686,907 -- -- 19,686,907
-----------------------------------------------------------------------
$ 771,271,087 $ 44,723,590 $ (1,401,711) $ 814,592,966
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
Procedures utilized by the Company assign amortized cost as the market value
when values are not available from the NAIC or other outside sources. Amortized
cost was used as a basis for establishing market value for securities with an
aggregate value of $522,322,461 and $271,056,981 at December 31, 1994 and 1993,
respectively.
The carrying value and estimated market value of the Company's portfolio of debt
securities at December 31, 1994, by contractual maturity are shown below.
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.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE MARKET VALUE
----------------------------------------
<S> <C> <C>
Due in one year or less $ 108,364,611 $ 108,336,078
Due after one year through five years 104,572,654 104,284,585
Due after five years through ten years 237,008,815 232,857,399
Due after ten years 383,373,654 381,074,916
----------------------------------------
833,319,734 826,552,978
Mortgage-backed securities 543,711,758 537,926,347
Preferred stocks 42,467,544 43,347,085
----------------------------------------
$ 1,419,499,036 $ 1,407,826,410
----------------------------------------
----------------------------------------
</TABLE>
Proceeds from sales of investments (excluding maturity proceeds) in debt
securities were $137,967,497, $84,034,656 and $79,358,303 for the years ended
December 31, 1994, 1993 and 1992, respectively. Gross gains of $9,351,358,
$6,102,798 and $4,468,548 and gross losses of $12,121,316, $911,393 and $320,270
for 1994, 1993 and 1992, respectively, were realized on those sales.
At December 31, 1994, unrealized depreciation of common stock of unaffiliated
companies of $4,969,233 is comprised of gross unrealized appreciation of
$1,594,535 and gross unrealized depreciation of $6,563,768 on the individual
securities.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1994, include bonds -- $1,040,000, and
mortgage loans on real estate -- $1,250,000.
70
<PAGE>
Farm Bureau Life Insurance Company
Notes to Financial Statements (continued)
4. INVESTMENT OPERATIONS (CONTINUED)
At December 31, 1994, affidavits of deposits covering bonds with a carrying
value of $1,215,099,123 (1993 -- $562,489,811), common stocks with a market
value of $18,463,433 (1993 -- $2,929,590), mortgage loans with an unpaid balance
of $254,483,016 (1993 -- $139,775,322), real estate with a book value of
$26,930,583 (1993 -- $27,886,566) and policy loans with an unpaid balance of
$83,245,976 (1993 -- $75,501,476) were on deposit with state agencies to meet
regulatory requirements. In addition, the Company has pledged bonds with a
carrying value of $12,292,142 (1993 -- $11,283,294) as collateral against its
line of credit with the Federal Home Loan Bank (see Note 7) and in connection
with a financing obligation of one of its affiliates. Further, the Company has
pledged bonds with a carrying value of $6,313,048 as collateral against the
guarantee of a loan agreement with a bank arising from the sale of a real estate
property by Rural Security Life Insurance Company to an unrelated party (see
Note 11).
A summary of real estate held is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1994 1993
---------------------------------
<S> <C> <C>
Home office and claims center $ 38,009,951 $ 37,893,572
Investment real estate 4,217,154 4,206,896
---------------------------------
42,227,105 42,100,468
Less allowances for depreciation (11,646,883) (10,201,525)
---------------------------------
$ 30,580,222 $ 31,898,943
---------------------------------
---------------------------------
</TABLE>
Investment policies set forth by regulatory authorities related to the Company's
investments require diversification by company and industry and set limits on
the amount which can be invested in an individual issuer. Investments in bonds
included investments in United States Government and agencies (19% in 1994, 21%
in 1993) and industrial and miscellaneous (72% in 1994, 69% in 1993). Mortgage
loans on real estate have been analyzed by geographic locations. States in which
at least 20% of the Company's mortgage loan portfolio is invested during the
years presented include California (22% in 1994, 25% in 1993). Mortgage loans on
real estate have also been analyzed during the years presented by collateral
types with retail facilities (32% in 1994 and 1993), office buildings (38% in
1994, 32% in 1993) and apartment buildings (12% in 1994, 25% in 1993)
representing the largest holdings. Preferred stocks, common stocks, real estate
and investments accounted for by the equity method are not individually
significant to the Company's overall investment portfolio.
Other than investments in certain subsidiaries (see Note 1), no investment in
any person or its affiliates (other than bonds issued by agencies of the United
States Government) exceeded ten percent of net worth at December 31, 1994.
During the year ended December 31, 1994, the Company purchased common stock from
FBL Financial Services, Inc. for $2,897,258. In addition, during the year ended
December 31, 1994, the Company purchased Title I home improvement loans from
Rural Mutual Insurance Company for $13,956,152.
At December 31, 1994, Remodeler's Acceptance Corporation (30% owned by The
Anchor Group, Inc.) had an unsecured $1,350,000 short-term 13% promissory note
to the Company that was scheduled to mature on April 15, 1995. During March
1995, this obligation was converted to a senior subordinated note due March 31,
2000, bearing interest at a rate of 12%. The Company also received certain
warrants to purchase common stock of Remodeler's Acceptance Corporation in
conjunction with the conversion.
RIK, Inc. and certain investments accounted for by the equity method currently
have mortgage loans outstanding with the Company. Generally, these loans were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
parties. At December 31, 1994 and 1993, amounts aggregating $30,897,047 and
$21,936,736, respectively, were outstanding under these arrangements and,
generally, have been reported herein as mortgage loans on real estate.
At December 31, 1994, the Company had committed to provide additional funding
for mortgage loans aggregating $9,080,000. These commitments arose in the normal
course of business at terms which are comparable to similar investments.
71
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The carrying value and related cash surrender value (which the
Company has established as fair value) on these products by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1994 1993
------------------------------------ ----------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annuity reserves and deposit fund
liabilities:
Subject to discretionary withdrawal at book
value less surrender charge of 5% or more $ 134,637,144 $ 128,361,123 $ -- $ --
Subject to discretionary withdrawal at book
value without adjustment (no charge or
adjustment) 564,807,647 564,807,647 190,479,132 190,479,132
Not subject to discretionary withdrawal
provision 84,134,637 84,134,637 72,646,620 72,646,620
------------------------------------------------------------------------
Total annuity reserves and deposit fund
liabilities $ 783,579,428 $ 777,303,407 $ 263,125,752 $ 263,125,752
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. Additionally, the Company established a receivable for amounts due under
supplementary contracts (for reinsurance agreements) and accident and health
policies which are unpaid at the end of the period. At December 31, 1994 and
1993, these assets (which are reported as premiums deferred and uncollected) and
the amounts of the related gross premiums and loading, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
----------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1994
Life and annuity:
Ordinary direct first-year $ 566,774 $ 203,407 $ 363,367
Ordinary direct renewal 5,766,525 589,878 5,176,647
Reinsurance ceded (86,622) -- (86,622)
----------------------------------------------
Total life and annuity 6,246,677 793,285 5,453,392
Accident and health:
Direct 206,640 -- 206,640
Reinsurance ceded (407,233) -- (407,233)
----------------------------------------------
Total accident and health (200,593) -- (200,593)
----------------------------------------------
$ 6,046,084 $ 793,285 $ 5,252,799
----------------------------------------------
----------------------------------------------
</TABLE>
72
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
-----------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1993
Life and annuity:
Ordinary direct first-year $ 354,301 $ 117,170 $ 237,131
Ordinary direct renewal 4,527,183 519,728 4,007,455
Reinsurance ceded (27,393) -- (27,393)
Reinsurance assumed from FBL Insurance Company
(see Note 6) 26,272,329 -- 26,272,329
-----------------------------------
Total life and annuity 31,126,420 636,898 30,489,522
Accident and health:
Direct 343,738 -- 343,738
Reinsurance ceded (936,858) -- (936,858)
-----------------------------------
Total accident and health (593,120) -- (593,120)
-----------------------------------
$30,533,300 $ 636,898 $29,896,402
-----------------------------------
-----------------------------------
</TABLE>
The Company has insurance in force for which the gross premiums are less than
the net premiums according to the standard valuation law of the State of Iowa.
In-force amounts were $450,220,000 and $509,303,000 at December 31, 1994 and
1993, respectively. Deficiency reserves included in policy reserves to cover the
above insurance totaled $5,169,373 and $5,064,000 at December 31, 1994 and 1993,
respectively.
During their regular examination of the financial statements at December 31,
1992, the Insurance Division, Department of Commerce, of the State of Iowa
recommended certain changes to the way in which the Company computes its
accident and health policy reserves. The impact of those changes at December 31,
1992 of $1,286,993 has been charged directly to net worth during the year ended
December 31, 1993. During the year ended December 31, 1994 the company charged
$1,055,767 net worth to reflect additional refinements in the determination of
disability income reserves.
Unpaid claims include amounts for losses and related adjustment expense and are
estimates of the ultimate net costs of all losses, reported and unreported.
These estimates are subject to the impact of future changes in claim severity,
frequency and other factors. The activity in the liability for unpaid claims and
related adjustment expense, net of reinsurance, is summarized as follows:
<TABLE>
<CAPTION>
UNPAID CLAIMS
LIABILITY SURPLUS UNPAID CLAIMS
BEGINNING OF ADJUSTMENT TO LIABILITY
YEAR CLAIMS INCURRED CLAIMS PAID CLAIMS RESERVE END OF YEAR
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
1994 $ -- $ 2,841,214 $ 1,702,916 $ -- $ 1,138,298
1993 and prior 10,140,121 2,018,422 3,858,178 1,055,767 9,356,132
----------------------------------------------------------------------------------
10,140,121 $ 4,859,636 $ 5,561,094 $ 1,055,767 10,494,430
------------------------------------------------
------------------------------------------------
Active life reserve 15,040,489 15,329,590
--------------- ---------------
Total accident and health
reserves $ 25,180,610 $ 25,824,020
--------------- ---------------
--------------- ---------------
</TABLE>
73
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
UNPAID CLAIMS
LIABILITY SURPLUS UNPAID CLAIMS
BEGINNING OF ADJUSTMENT TO LIABILITY
YEAR CLAIMS INCURRED CLAIMS PAID CLAIMS RESERVE END OF YEAR
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
1993 $ -- $ 18,514,539 $ 14,214,290 $ -- $ 4,300,249
1992 and prior 8,487,919 195,070 4,130,110 1,286,993 5,839,872
----------------------------------------------------------------------------------
8,487,919 $ 18,709,609 $ 18,344,400 $ 1,286,993 10,140,121
------------------------------------------------
------------------------------------------------
Active life reserve 14,607,822 15,040,489
--------------- ---------------
Total accident and health
reserves $ 23,095,741 $ 25,180,610
--------------- ---------------
--------------- ---------------
YEAR ENDED DECEMBER 31, 1992
1992 $ -- $ 21,685,038 $ 18,710,999 $ -- $ 2,974,039
1991 and prior 7,971,919 2,461,766 4,919,805 -- 5,513,880
----------------------------------------------------------------------------------
7,971,919 $ 24,146,804 $ 23,630,804 $ -- 8,487,919
------------------------------------------------
------------------------------------------------
Active life reserve 14,052,578 14,607,822
--------------- ---------------
Total accident and health
reserves $ 22,024,497 $ 23,095,741
--------------- ---------------
--------------- ---------------
</TABLE>
The Company's unpaid claims reserve was increased by $2,018,422, $195,070, and
$2,461,766 for the years ended December 31, 1994, 1993 and 1992, respectively,
for claims that occurred prior to those balance sheet dates. A substantial
portion of these claims are related to the disability income block of business.
The establishment of disability income reserves is dependent upon factors that
attempt to project future payments based upon experience to date. These factors
tend to increase as the length of disability increases. Accordingly,
deficiencies noted above resulted primarily from continuance experience less
favorable than assumed in the reserve basis.
Many of the Company's insurance contracts contain provisions which allow the
policyholders to borrow amounts from the Company as policy loans. These amounts
are collateralized by all or a portion of the cash surrender value inherent in
the contract. At times, the interest rates provided under the borrowings may be
favorable in comparison with loans obtained through other sources; however,
these loan balances may also serve to decrease the interest credited to the
corresponding policyholder account value, as is the case with many of the
Company's universal life and annuity products. In general, policy loans are not
required to be repaid until the insurance contract terminates (by death,
maturity, expiration, surrender, or because the loan exceeds the policy value)
at which point the amount of the outstanding loan is deducted from the policy
proceeds which would otherwise be payable. At December 31, 1994 and 1993,
amounts outstanding related to policy loans, summarized by interest rates, are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
RATE 1994 1993
- ---------------- -------------------------------
<S> <C> <C>
3.50% - 4.99% $ 733,563 $ 727,776
5.00% - 5.99% 30,911,826 28,214,238
6.00% - 6.99% 11,457,608 10,920,771
7.00% - 7.99% 39,567,890 35,619,501
8.00% - 8.99% 5,281,366 19,190
-------------------------------
$ 87,952,253 $ 75,501,476
-------------------------------
-------------------------------
</TABLE>
74
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
The Company monitors the level of its contract liabilities, the level of
interest rates credited to its interest sensitive products and the assumed rate
of return provided within the pricing structure of its other products. These
amounts are taken into consideration in the Company's overall management of
interest rate risk, which minimizes exposure to changing interest rates.
6. REINSURANCE
Policy reserves, premiums and expenses are stated net of amounts related to
reinsurance agreements. Life and annuity policy reserves have been reduced by
$992,000 at December 31, 1994 and $562,000 at December 31, 1993, for reinsurance
ceded to other companies. To the extent that reinsuring companies are later
unable to meet their obligations under reinsurance agreements, the Company would
be liable. Life and annuity premiums have likewise been reduced (1994 --
$1,853,000; 1993 -- $1,534,000; 1992 -- $1,241,000) for amounts paid under the
cession agreements. In addition, during the years ended December 31, 1994, 1993
and 1992, benefits paid or provided have been reduced by $1,043,966, $503,665
and $673,049, respectively, for amounts received under the cession agreements.
Reinsurance coverages for life insurance vary according to the age of the
insured and risk classification with retention limits ranging up to $500,000 of
coverage per individual life. At December 31, 1994, life insurance in force
ceded amounted to $477,256,000 or approximately 4.5% of total life insurance in
force.
During 1994, the Company cancelled its agreement to assume 100 percent of FBL
Insurance Company's supplemental contracts. As more fully described in Note 3,
during 1994 the Company also assumed all of the business inforce of FBL
Insurance Company, including these supplementary contracts. As a result, during
the year ended December 31, 1994, the Company recognized no premium income
directly from such supplementary contracts. Policy reserves and claims and
premium income included in the financial statements relating to the coinsurance
agreement as of and for the year ended December 31, 1993 are as follows:
<TABLE>
<S> <C>
Policy reserves - life $59,769,822
Policy reserves - other 65,838,896
Policy and contract claims 15,509,140
Premium income 29,813,086
</TABLE>
The Company recognized premium income of $21,145,667 during the year ended
December 31, 1992 related to this assumption agreement.
The transactions discussed above give rise during the normal course of business
to intercompany account balances which are settled monthly, with the exception
of balances generated as a result of the coinsurance agreements, which are
determined, and generally settled, annually (see Note 5).
7. CREDIT ARRANGEMENTS
The Company maintains a line of credit agreement with the Federal Home Loan Bank
of Des Moines to provide a similar line of credit to FBL Partners, an affiliated
joint venture. Under the agreement, which expires on August 31, 1995, the
Company can borrow up to $10 million. Interest (6.16% at December 31, 1994,
3.24% in 1993) on any outstanding borrowing is payable at an annual rate equal
to the federal funds unsecured rate for federal reserve member banks. At
December 31, 1994, there was an outstanding balance of $6,387,510. The line of
credit is secured by United States Government agency securities with a carrying
value of $12,292,142. All amounts outstanding under the line of credit agreement
with the Federal Home Loan Bank of Des Moines have been advanced to FBL Partners
and these amounts are included in bonds. Under the terms of the agreement with
FBL Partners, interest (7.21% at December 31, 1994, 4.29% at December 31, 1993)
is payable at a rate equal to 1.05% above amounts charged by the Federal Home
Loan Bank of Des Moines. The Company does not intend to lend additional funds
under this agreement in the future.
The Company also had a note payable to a finance company that was paid off
during 1994; the outstanding balance at December 31, 1993 was $748,973. The note
was secured by an airplane.
75
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. FEDERAL INCOME TAXES
It is expected that the Company will file a consolidated federal income tax
return with Farm Bureau Multi-State Services, Inc. and all of the Company's
majority-owned subsidiaries except FBL Insurance Company and Rural Security Life
Insurance Company. FBL Insurance Company and Rural Security Life Insurance
Company will file separate federal income tax returns for the year ended
December 31, 1994 (for operations prior to their transfer on December 31, 1994).
Farm Bureau Multi-State Services, Inc., the Company and its subsidiaries
included in the consolidated return each report current income tax expense as
allocated under a consolidated tax allocation agreement. Generally, this
allocation results in profitable companies recognizing a tax provision as if the
individual company filed a separate return and loss companies recognizing
benefits to the extent their losses contribute to reduce consolidated taxes.
The effective tax rate on net gain from operations before federal income taxes
and net realized capital gains is different from the prevailing federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
Income tax at federal statutory rate (35% in 1994 and 1993, 34% in
1992) $ 9,910,744 $ 7,424,064 $ 5,325,432
Tax effect (decrease) of:
Impact of reinsurance assumption agreement (NOTE 3) (4,779,128) -- --
Reserve revaluation 65,618 208,552 (201,104)
Depreciation (278,543) (522,389) (601,837)
Policyholder dividends 386,867 (787,608) (635,091)
Tax-exempt interest (527,073) (561,083) (573,030)
Deferred policy acquisition costs 897,559 1,051,150 1,174,647
Dividends received deduction (1,196,292) (297,746) (363,407)
Timing differences in reporting of partnership income -- (2,360,400) (2,510,462)
Non-qualified pension plan expenses 1,514,425 651,048 472,683
Bond discount accretion (113,005) (425,853) (286,454)
Other, net 1,831,927 1,248,061 (1,221,995)
-----------------------------------------------
Federal income taxes $ 7,713,099 $ 5,627,796 $ 579,382
-----------------------------------------------
-----------------------------------------------
</TABLE>
Prior to 1984, a portion of the Company's current income was not subject to
current income taxation, but was accumulated, for tax purposes, in a memorandum
account designated as "policyholders' surplus account". The aggregate
accumulation in this account at December 31, 1994 was $11,148,000. Should the
policyholders' surplus account of the Company exceed the limitation prescribed
by federal income tax law, or should distributions be made by the Company to its
stockholders in excess of $226,989,000, such excess would be subject to federal
income taxes at rates then effective.
In 1994, the Company reached a final settlement with the IRS for 1987 resulting
in additional taxes of $283,669 and interest of $226,144. All tax years 1987 and
prior are now settled. In 1993, the Company reached a partial settlement with
the IRS regarding adjustments to income taxes for 1988 through 1990. This
settlement resulted in additional taxes of $128,375 and interest of $18,365.
Management believes that the remaining unresolved issues for these years will
not have a material effect on the financial position of the Company.
Additionally, the IRS is currently conducting an examination of the 1991 and
1992 income tax returns.
9. RETIREMENT AND COMPENSATION PLANS
The Company participates in the Iowa Farm Bureau Federation and Affiliated
Companies Retirement Plan. The Plan is a noncontributory defined benefit
retirement plan covering substantially all employees. Retirement plan expense
for the Company for the years ended December 31, 1994, 1993 and 1992 was
$759,923, $867,454 and $843,423, respectively. The Company is also a participant
in a non-qualified defined benefit plan used to fund benefits provided for under
the Supplemental Plan in excess of those allowed by the Employee Retirement
Income Security Act of 1974. Expense related to this plan was $325,868 for the
year ended December 31, 1994. At December 31, 1994, the costs of both plans are
computed on the basis of accepted actuarial methods and include normal costs
plus amortization of past service costs. The Company's policy is to fund
retirement plan costs as they accrue. The accumulated vested and nonvested
76
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
plan benefits for both plans amounted to $48,003,230 and $45,225,165 at December
31, 1994 and 1993, respectively, which were equal to the net assets available
for plan benefits. The group annuity contracts which fund the Plan are
discounted using a rate of 6 percent. The Company acts as the insurer of the
Plan's group annuity contracts.
The Company is also a participant in the Iowa Farm Bureau Federation and
Affiliated Companies Supplemental Retirement Plan and Trust (the Supplemental
Plan) which commenced on January 1, 1994. The Supplemental Plan is a
noncontributory defined benefit plan which works in conjunction with the Iowa
Farm Bureau Federation and Affiliated Companies Retirement Plan to enhance early
retirement benefits for those employees who have fulfilled specified service
requirements and attained age 55. The Company expensed $1,904,694 related to the
Supplemental Plan during the year ended December 31, 1994. The total accumulated
vested and nonvested plan benefits amounted to approximately $33,266,000,
assumed full funding and an interest rate of 7%. The fair value of plan assets
at December 31, 1994 was $5,955,665.
The Company provides benefits to agents of the Company and its insurance
affiliates through the Agents' Career Incentive Plan. Company contributions to
the plan are based upon the individual agent's earned commissions and vary based
upon the overall production level and the number of years of service. Company
contributions charged to expense with respect to this plan during the years
ended December 31, 1994, 1993 and 1992 were $1,432,803, $1,158,543 and $981,613,
respectively.
Under the Special Supplemental Early Retirement Plan, the Company provides
benefits to eligible employees who have elected early retirement. Since the
Board of Directors has the right to discontinue the Plan at any time, the
Company has not established a liability for the future benefits to be paid. As a
result, the Company is contingently liable for these early retirement benefits.
At December 31, 1994, the present value of amounts to be paid under the Plan was
$2,675,760. The Company incurred expenses of $254,435, $268,647 and $254,292
during the years ended December 31, 1994, 1993 and 1992, respectively, related
to this plan.
The Company has established deferred compensation plans for certain key current
and former employees and has certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management of the Company. In addition, the Company is
contingently liable for retirement benefits of $236,829 at December 31, 1994
which are provided for in other retirement plans and for which no accruals or
funding have been provided.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in the financial statements herein.
In addition, certain amounts included in the liability for deferred compensation
and other employee benefits related to deposit administration funds maintained
by the Company on behalf of affiliates offering substantially the same benefit
programs as the Company. At December 31, 1994 and 1993, these amounts had a
carrying value of $28,278,158 and $12,372,964, respectively.
In addition to benefits offered under the aforementioned benefit plans, the
Company sponsors plans that provide postretirement medical and group term life
insurance benefits to full-time employees who have worked ten years and attained
age 55 while in service with the Company. The Company currently recognizes costs
on a pay-as-you-go (cash basis) method. For the year ended December 31, 1994,
1993 and 1992, costs recognized by the Company related to the group term life
insurance benefits were $37,909, $66,643 and $82,200, respectively. Costs
related to postretirement medical benefits are not determinable for all years
presented.
10. MANAGEMENT AND SERVICES AGREEMENTS
The Company shares certain office facilities and services with the Iowa Farm
Bureau Federation and its affiliated companies. These expenses are allocated by
the Company on the basis of cost and time studies that are updated annually and
consist primarily of salaries and related expenses, travel, and occupancy costs.
The Company is charged on an annual basis for expenses relating to usage of
certain automobiles and furniture and equipment owned by FBL Leasing Services,
Inc., a wholly-owned subsidiary of FBL Financial Services, Inc. During the years
ended December 31, 1994, 1993 and 1992, the Company incurred expenses of
$1,303,330, $1,342,020 and $1,561,799 related to this agreement. During 1993,
FBL Leasing Services, Inc. entered into a three-year loan agreement with a bank
whereby cash flows for the next five years under this agreement, and similar
agreements with affiliates,
77
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. MANAGEMENT AND SERVICES AGREEMENTS (CONTINUED)
were securitized and will be used to fund principal and interest payments due
thereunder. In connection with the loan agreement, the Company entered into a
support agreement whereby the Company agrees to fund any deficiencies in
principal and interest payments caused by insufficient cash flow of the
underlying lease agreements. Due to the fact that the FBL Leasing Services, Inc.
leasing arrangements are backed by tangible assets which have value in excess of
the outstanding balance under the loan agreement, management of the Company
believes that no losses will be recognized under the support agreement.
In addition, the Company participates in a management agreement with Farm Bureau
Management Corporation (wholly owned by the Iowa Farm Bureau Federation). Under
this agreement, Farm Bureau Management Corporation provides general business,
administrative analysis, and management services to the Company. During the
years ended December 31, 1994, 1993 and 1992, the Company incurred expenses
under this contract of $1,295,940, $1,457,303 and $1,721,025, respectively.
Effective January 1, 1993, an affiliate, FBL Investment Advisory Services, Inc.,
began providing investment advisory services to the Company. The related fees
are based in increments upon the level of assets under management, plus certain
out-of-pocket expenses such as bank and custodian charges and extraordinary
items. During the year ended December 31, 1994 and 1993, these fees aggregated
$1,302,062 and $1,105,576, respectively.
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company owned directly and indirectly 100% of Vantage
Cable Associates, Inc. (Vantage), a developer of cable television systems and
the general partner of Vantage Cable Associates, L.P. (Vantage L.P.). In
December, 1994, substantially all of the assets and liabilities of Vantage and
Vantage L.P. were sold to an unrelated third party.
The Company had guaranteed the debt of Vantage which consisted of a bank loan
and notes to the Company's affiliates. In addition, the Company had a note
outstanding to Vantage, and significant equity contributions in Vantage L.P. The
proceeds from the sale were not sufficient to extinguish Vantage's indebtedness;
therefore the Company was required to make additional equity contributions to
facilitate the repayment of the loans the Company had guaranteed to its
affiliates. As a result, during the year ended December 31, 1994, the Company
realized a loss of $41,031,583 for the amount of its outstanding note and equity
contributions. The impact of this loss on net worth was mitigated, however, by
unrealized losses of $39,058,563 recognized through December 31, 1993 and the
impact of such losses on the AVR.
In addition to the line of credit agreement with FBL Partners discussed in Note
7, the Company has extended a line of credit in the amount of $10,000,000 to
Remodeler's Acceptance Corporation (30% owned by The Anchor Group, Inc.). At
December 31, 1994, $775,000 was outstanding under the agreement. Interest is
based on 3.00% less than the weighted-average coupon rate of Title 1 loans which
secure the loan, but shall not be less than 10% per annum. Subsequent to
December 31, 1994, the amounts outstanding were repaid in full.
ICG Partners, an affiliated joint venture, maintains a line of credit with the
Company and its affiliates, FBL Insurance Company and Farm Bureau Mutual
Insurance Company in the amounts of $18,000,000, $7,500,000 and $4,500,000,
respectively. The portion previously attributed to FBL Insurance Company was
assumed by the Company as a result of the transactions discussed in Note 3. At
December 31, 1994 and 1993, ICG Partners had borrowed $5,024,306 and $4,791,141,
respectively, from the Company against the line of credit. Interest (11.5% at
December 31, 1994) is payable at an annual rate equal to the prime rate of The
Chase Manhattan Bank, N.A., plus 3.00%. The line of credit is collateralized by
lease receivables and substantially all other assets of ICG Partners, subject to
senior positions.
The Company has extended a line of credit in the amount of $11,500,000 to FBL
Leasing Services, Inc. Interest on both agreements is based on the prime rate of
a national bank and payable monthly. No amounts were outstanding at December 31,
1994 or 1993.
In connection with the sale of certain real estate property, Rural Security Life
Insurance Company agreed to act as guarantor of a mortgage loan between the
purchaser and a bank. The Company has now taken the position of Rural Security
Life Insurance Company with respect to the guarantee. Pursuant to the agreement,
the Company is required to deposit securities in a trust in an amount at least
equal to the outstanding balance of the mortgage loan. Should the purchaser
default on the mortgage, the bank has the ability to withdraw the securities at
which time the Company
78
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
would secure a first interest in the underlying property. At December 31, 1994,
the outstanding balance of the mortgage loan is $5,608,595. The mortgage loan,
which is current at December 31, 1994, requires monthly payments at the lenders'
prime commercial rate through December 31, 1996 at which time a balloon payment
of $4,562,888 is due.
The Company is involved in litigation where amounts are alleged that are
substantially in excess of contractual policy benefits. Management and its legal
counsel do not believe any of these claims will result in a material loss to the
Company.
Assessments are, from time to time, levied on the Company by life and health
guaranty associations in most states in which the Company is licensed to cover
losses of policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Assessments have not been material to the Company's financial
statements prior to 1991. However, the economy and other factors have recently
caused a number of failures of substantially larger companies. The Company's
policy is to accrue for such assessments only when notice of such assessment is
received from a state guaranty fund; accordingly, no amounts have been provided
for in the accompanying financial statements for estimated future assessments.
Assessments paid by the Company amounted to $507,681, $432,355 and $355,391 in
1994, 1993 and 1992, respectively. Potential future assessments, if any, are not
determinable by the Company.
79
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF The following tables illustrate how the death benefits
DEATH BENEFITS AND and Cash Values of a Policy may vary over an extended
CASH VALUES period of time for both males and females at certain
ages, assuming hypothetical rates of investment return
for the Variable Account equivalent to constant gross
annual rates of 0%, 4%, 8% and 12%.
The amounts shown are as of the end of each Policy Year.
The tables assume that the guaranteed (maximum) cost of
insurance rates will be charged for the entire period
illustrated. The amounts shown for the death benefits and
Cash Values reflect the deduction of the premium expense
charge and the monthly and first year monthly
administrative charges. The amounts shown for the death
benefits and Cash Values also reflect the fact that the
net investment return of the Variable Account is lower
than the gross, after-tax return on the assets held in
the Fund as a result of expenses paid by the Fund and
charges levied against the Variable Account. The values
shown take into account expenses paid by the Fund which
are assumed to be equivalent to 0.55% of the aggregate
average daily net assets of the Fund. Actual fees and
expenses of the portfolios associated with a policy may
be more or less than 0.55%, will vary from year to year,
and will vary with the subaccount selected. Nonetheless
the Company expects the actual expenses to average 0.55%
over the six portfolios. This is because the Adviser has
agreed to reimburse any Portfolio for calendar year 1994
to the extent that annual operating expenses, including
the investment advisory fee, exceed .55%. There can be no
assurance that the Adviser will continue to limit
expenses beyond December 31, 1995. Absent the agreement
to limit expenses, actual fees and expenses of the Fund
would be more than 0.55%. The .55% limit was also in
effect in 1994. Absent the agreement to limit expense,
actual expenses for 1994 would have averaged .81%. The
amounts shown also take into account the daily charge by
the Company to the Variable Account for assuming
mortality and expense risks, which is equivalent to a
charge at an effective annual rate of .90% of the net
assets of the Variable Account. After deduction of these
amounts, the illustrated gross annual investment rates of
return of 0%, 4%, 8% and 12% correspond to approximate
net annual investment rates of -1.45%, 2.55%, 6.55% and
10.55%, respectively.
The hypothetical values shown in the tables do not
reflect any charges for federal income taxes against the
Variable Account since the Company is not currently
making such charges. However, such charges may be made in
the future and, in that event, the gross annual
investment rate of return would have to exceed 0%, 4%, 8%
or 12% by an amount sufficient to cover tax charges in
order to produce the death benefits and Cash Values
illustrated. (See "FEDERAL TAX MATTERS--Taxation of the
Company.")
The tables illustrate the Policy values that would result
based upon the hypothetical investment rates of return if
premiums are paid as indicated, if all Net Premiums are
allocated to the Variable Account and if no Policy Loans
have been made. The tables are also based on the
assumptions that the Policyowner has not requested an
increase or decrease in Specified Amount, and that no
partial surrenders or transfers have been made.
For comparative purposes, the second column of each table
shows the amount to which the premiums would accumulate
if an amount equal to those premiums were invested to
earn interest at 5% compounded annually.
* * *
Upon request, the Company will provide a comparable
illustration based upon the proposed insured's age, sex
and premium class, the Specified Amount or premium
requested, and the proposed frequency of premium
payments.
A-1
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 25 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $318
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 333.90 $ 29 $ 100,029 $ 35 $ 100,035 $ 41 $ 100,041
2......................... 684.50 174 100,174 190 100,190 206 100,206
3......................... 1,052.62 314 100,314 346 100,346 380 100,380
4......................... 1,439.15 450 100,450 503 100,503 562 100,562
5......................... 1,845.01 580 100,580 662 100,662 753 100,753
6......................... 2,271.16 705 100,705 820 100,820 952 100,952
7......................... 2,718.62 825 100,825 980 100,980 1,161 101,161
8......................... 3,188.45 939 100,939 1,139 101,139 1,380 101,380
9......................... 3,681.77 1,048 101,048 1,299 101,299 1,609 101,609
10......................... 4,199.76 1,148 101,148 1,455 101,455 1,846 101,846
15......................... 7,205.08 1,499 101,499 2,162 102,162 3,137 103,137
20......................... 11,040.72 1,461 101,461 2,564 102,564 4,471 104,471
25......................... 15,936.08 951 100,951 2,495 102,495 5,725 105,725
30......................... 22,183.93 * * 1,640 101,640 6,594 106,594
35......................... 30,157.95 * * * * 6,530 106,530
Age 65......................... 42,685.70 * * * * 3,815 103,815
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 47 $ 100,047
2......................... 223 100,223
3......................... 416 100,416
4......................... 626 100,626
5......................... 854 100,854
6......................... 1,103 101,103
7......................... 1,374 101,374
8......................... 1,670 101,670
9......................... 1,993 101,993
10......................... 2,343 102,343
15......................... 4,573 104,573
20......................... 7,772 107,772
25......................... 12,419 112,419
30......................... 19,156 119,156
35......................... 28,895 128,895
Age 65......................... 46,394 146,394
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 541.80 $ 54 $ 100,054 $ 64 $ 100,064 $ 74 $ 100,074
2......................... 1,110.69 336 100,336 363 100,363 392 100,392
3......................... 1,708.02 603 100,603 660 100,660 719 100,719
4......................... 2,335.23 855 100,855 951 100,951 1,056 101,056
5......................... 2,993.79 1,089 101,089 1,236 101,236 1,400 101,400
6......................... 3,685.28 1,304 101,304 1,513 101,513 1,751 101,751
7......................... 4,411.34 1,499 101,499 1,779 101,779 2,107 102,107
8......................... 5,173.71 1,674 101,674 2,034 102,034 2,467 102,467
9......................... 5,974.19 1,827 101,827 2,276 102,276 2,833 102,833
10......................... 6,814.70 1,961 101,961 2,507 102,507 3,203 103,203
15......................... 11,691.27 2,297 102,297 3,425 103,425 5,102 105,102
20......................... 17,915.13 1,902 101,902 3,688 103,688 6,858 106,858
25......................... 25,858.54 501 100,501 2,847 102,847 8,010 108,010
30......................... 35,996.57 * * 237 100,237 7,784 107,784
35......................... 48,935.54 * * * * 3,823 103,823
Age 65......................... 38,338.20 * * * * 7,369 107,369
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 84 $ 100,084
2......................... 421 100,421
3......................... 783 100,783
4......................... 1,169 101,169
5......................... 1,582 101,582
6......................... 2,022 102,022
7......................... 2,490 102,490
8......................... 2,989 102,989
9......................... 3,521 103,521
10......................... 4,090 104,090
15......................... 7,595 107,595
20......................... 12,447 112,447
25......................... 19,073 119,073
30......................... 28,035 128,035
35......................... 38,827 138,827
Age 65......................... 30,058 130,058
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 45 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $922
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 968.10 $ 157 $ 100,157 $ 176 $ 100,176 $ 195 $ 100,195
2......................... 1,984.61 648 100,648 701 100,701 755 100,755
3......................... 3,051.94 1,111 101,111 1,217 101,217 1,329 101,329
4......................... 4,172.63 1,543 101,543 1,722 101,722 1,916 101,916
5......................... 5,349.36 1,944 101,944 2,215 102,215 2,516 102,516
6......................... 6,584.93 2,311 102,311 2,691 102,691 3,125 103,125
7......................... 7,882.28 2,642 102,642 3,147 103,147 3,741 103,741
8......................... 9,244.49 2,933 102,933 3,580 103,580 4,362 104,362
9......................... 10,674.82 3,180 103,180 3,983 103,983 4,982 104,982
10......................... 12,176.66 3,381 103,381 4,354 104,354 5,598 105,598
15......................... 20,890.21 3,684 103,684 5,639 105,639 8,574 108,574
20......................... 32,011.15 2,451 102,451 5,441 105,441 10,850 110,850
25......................... 46,204.60 * * 1,896 101,896 10,328 110,328
30......................... 64,319.45 * * * * 3,754 103,754
35......................... 87,439.09 * * * * * *
Age 65......................... 34,579.81 1,884 101,884 5,052 105,052 11,038 111,038
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 215 $ 100,215
2......................... 812 100,812
3......................... 1,448 101,448
4......................... 2,127 102,127
5......................... 2,850 102,850
6......................... 3,620 103,620
7......................... 4,438 104,438
8......................... 5,305 105,305
9......................... 6,221 106,221
10......................... 7,189 107,189
15......................... 12,968 112,968
20......................... 20,531 120,531
25......................... 29,013 129,013
30......................... 36,615 136,615
35......................... 35,710 135,710
Age 65......................... 22,179 122,179
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 1,644.30 $ 317 $ 100,317 $ 351 $ 100,351 $ 385 $ 100,385
2......................... 3,370.82 1,060 101,060 1,151 101,151 1,245 101,245
3......................... 5,183.66 1,747 101,747 1,925 101,925 2,113 102,113
4......................... 7,087.14 2,380 102,380 2,674 102,674 2,993 102,993
5......................... 9,085.80 2,958 102,958 3,395 103,395 3,882 103,882
6......................... 11,184.39 3,473 103,473 4,078 104,078 4,773 104,773
7......................... 13,387.90 3,916 103,916 4,713 104,713 5,655 105,655
8......................... 15,701.60 4,271 104,271 5,281 105,281 6,509 106,509
9......................... 18,130.98 4,520 104,520 5,760 105,760 7,314 107,314
10......................... 20,681.83 4,644 104,644 6,127 106,127 8,045 108,045
15......................... 35,481.63 3,190 103,190 5,906 105,906 10,111 110,111
20......................... 54,370.35 * * 300 100,300 7,094 107,094
25......................... 78,477.67 * * * * * *
30......................... 109,245.40 * * * * * *
35......................... 148,513.68 * * * * * *
Age 65......................... 23,360.22 4,635 104,635 6,371 106,371 8,687 108,687
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 420 $ 100,420
2......................... 1,342 101,342
3......................... 2,313 102,313
4......................... 3,340 103,340
5......................... 4,427 104,427
6......................... 5,569 105,569
7......................... 6,764 106,764
8......................... 7,999 107,999
9......................... 9,255 109,255
10......................... 10,515 110,515
15......................... 16,560 116,560
20......................... 20,141 120,141
25......................... 12,594 112,594
30......................... * *
35......................... * *
Age 65......................... 11,768 111,768
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 25 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $318
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1....................... $ 333.90 $ 29 $ 100,000 $ 35 $ 100,000 $ 41 $ 100,000
2....................... 684.50 174 100,000 190 100,000 207 100,000
3....................... 1,052.62 315 100,000 347 100,000 381 100,000
4....................... 1,439.15 451 100,000 505 100,000 564 100,000
5....................... 1,845.01 582 100,000 665 100,000 756 100,000
6....................... 2,271.16 708 100,000 824 100,000 957 100,000
7....................... 2,718.62 829 100,000 985 100,000 1,168 100,000
8....................... 3,188.45 945 100,000 1,146 100,000 1,389 100,000
9....................... 3,681.77 1,055 100,000 1,308 100,000 1,621 100,000
10....................... 4,199.76 1,157 100,000 1,467 100,000 1,861 100,000
15....................... 7,205.08 1,520 100,000 2,193 100,000 3,184 100,000
20....................... 11,040.72 1,501 100,000 2,633 100,000 4,593 100,000
25....................... 15,936.08 1,011 100,000 2,625 100,000 6,002 100,000
30....................... 22,183.93 * * 1,852 100,000 7,169 100,000
35....................... 30,157.95 * * * * 7,635 100,000
Age 65....................... 42,685.70 * * * * 5,996 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ---------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------ -------------
<S> <C> <C>
1....................... $ 48 $ 100,000
2....................... 224 100,000
3....................... 417 100,000
4....................... 628 100,000
5....................... 858 100,000
6....................... 1,108 100,000
7....................... 1,382 100,000
8....................... 1,681 100,000
9....................... 2,008 100,000
10....................... 2,363 100,000
15....................... 4,645 100,000
20....................... 7,989 100,000
25....................... 13,006 100,000
30....................... 20,647 100,000
35....................... 32,535 100,000
Age 65....................... 56,788 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 35 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 541.80 $ 54 $ 100,000 $ 64 $ 100,000 $ 74 $ 100,000
2......................... 1,110.69 337 100,000 365 100,000 393 100,000
3......................... 1,708.02 605 100,000 662 100,000 722 100,000
4......................... 2,335.23 859 100,000 956 100,000 1,061 100,000
5......................... 2,993.79 1,095 100,000 1,243 100,000 1,408 100,000
6......................... 3,685.28 1,314 100,000 1,524 100,000 1,764 100,000
7......................... 4,411.34 1,512 100,000 1,795 100,000 2,126 100,000
8......................... 5,173.71 1,691 100,000 2,055 100,000 2,494 100,000
9......................... 5,974.19 1,850 100,000 2,305 100,000 2,869 100,000
10......................... 6,814.70 1,989 100,000 2,544 100,000 3,251 100,000
15......................... 11,691.27 2,364 100,000 3,527 100,000 5,258 100,000
20......................... 17,915.13 2,024 100,000 3,910 100,000 7,259 100,000
25......................... 25,858.54 671 100,000 3,246 100,000 8,907 100,000
30......................... 35,996.57 * * 823 100,000 9,588 100,000
35......................... 48,935.54 * * * * 7,165 100,000
Age 65......................... 38,338.20 * * * * 9,429 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 85 $ 100,000
2......................... 423 100,000
3......................... 786 100,000
4......................... 1,175 100,000
5......................... 1,591 100,000
6......................... 2,037 100,000
7......................... 2,513 100,000
8......................... 3,021 100,000
9......................... 3,567 100,000
10......................... 4,153 100,000
15......................... 7,833 100,000
20......................... 13,170 100,000
25......................... 21,033 100,000
30......................... 33,014 100,000
35......................... 51,423 100,000
Age 65......................... 36,057 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 45 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $922
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 968.10 $ 158 $ 100,000 $ 177 $ 100,000 $ 197 $ 100,000
2......................... 1,984.61 652 100,000 705 100,000 760 100,000
3......................... 3,051.94 1,120 100,000 1,227 100,000 1,340 100,000
4......................... 4,172.63 1,558 100,000 1,739 100,000 1,935 100,000
5......................... 5,349.36 1,968 100,000 2,242 100,000 2,547 100,000
6......................... 6,584.93 2,345 100,000 2,731 100,000 3,172 100,000
7......................... 7,882.28 2,689 100,000 3,204 100,000 3,810 100,000
8......................... 9,244.49 2,995 100,000 3,658 100,000 4,459 100,000
9......................... 10,674.82 3,260 100,000 4,085 100,000 5,113 100,000
10......................... 12,176.66 3,481 100,000 4,486 100,000 5,773 100,000
15......................... 20,890.21 3,922 100,000 6,006 100,000 9,139 100,000
20......................... 32,011.15 2,869 100,000 6,223 100,000 12,295 100,000
25......................... 46,204.60 * * 3,262 100,000 13,622 100,000
30......................... 64,319.45 * * * * 10,296 100,000
35......................... 87,439.09 * * * * * *
Age 65......................... 34,579.81 2,338 100,000 5,944 100,000 12,760 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 217 $ 100,000
2......................... 817 100,000
3......................... 1,460 100,000
4......................... 2,148 100,000
5......................... 2,886 100,000
6......................... 3,676 100,000
7......................... 4,521 100,000
8......................... 5,425 100,000
9......................... 6,389 100,000
10......................... 7,419 100,000
15......................... 13,834 100,000
20......................... 23,173 100,000
25......................... 36,504 100,000
30......................... 56,839 100,000
35......................... 91,185 100,000
Age 65......................... 25,453 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE AGE 55 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 1,644.30 $ 323 $ 100,000 $ 357 $ 100,000 $ 391 $ 100,000
2......................... 3,370.82 1,075 100,000 1,167 100,000 1,262 100,000
3......................... 5,183.66 1,777 100,000 1,958 100,000 2,150 100,000
4......................... 7,087.14 2,432 100,000 2,732 100,000 3,058 100,000
5......................... 9,085.80 3,036 100,000 3,485 100,000 3,987 100,000
6......................... 11,184.39 3,584 100,000 4,211 100,000 4,930 100,000
7......................... 13,387.90 4,067 100,000 4,898 100,000 5,881 100,000
8......................... 15,701.60 4,471 100,000 5,532 100,000 6,824 100,000
9......................... 18,130.98 4,775 100,000 6,091 100,000 7,740 100,000
10......................... 20,681.83 4,964 100,000 6,554 100,000 8,613 100,000
15......................... 35,481.63 3,922 100,000 7,079 100,000 11,972 100,000
20......................... 54,370.35 * * 2,495 100,000 11,685 100,000
25......................... 78,477.67 * * * * * *
30......................... 109,245.40 * * * * * *
35......................... 148,513.68 * * * * * *
Age 65......................... 23,360.22 5,028 100,000 6,912 100,000 9,429 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 426 $ 100,000
2......................... 1,361 100,000
3......................... 2,353 100,000
4......................... 3,413 100,000
5......................... 4,547 100,000
6......................... 5,756 100,000
7......................... 7,039 100,000
8......................... 8,392 100,000
9......................... 9,804 100,000
10......................... 11,267 100,000
15......................... 19,482 100,000
20......................... 29,213 100,000
25......................... 38,103 100,000
30......................... 41,749 100,000
35......................... 19,243 100,000
Age 65......................... 12,783 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-9
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 25 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $425
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 446.25 $ 84 $ 100,084 $ 94 $ 100,094 $ 103 $ 100,103
2......................... 914.81 291 100,291 315 100,315 341 100,341
3......................... 1,406.80 496 100,496 545 100,545 596 100,596
4......................... 1,923.39 700 100,700 782 100,782 871 100,871
5......................... 2,465.81 902 100,902 1,025 101,025 1,163 101,163
6......................... 3,035.35 1,100 101,100 1,275 101,275 1,475 101,475
7......................... 3,633.37 1,292 101,292 1,528 101,528 1,804 101,804
8......................... 4,261.29 1,479 101,479 1,784 101,784 2,151 102,151
9......................... 4,920.60 1,658 101,658 2,042 102,042 2,516 102,516
10......................... 5,612.88 1,829 101,829 2,300 102,300 2,898 102,898
15......................... 9,629.43 2,507 102,507 3,544 103,544 5,062 105,062
20......................... 14,755.68 2,770 102,770 4,554 104,554 7,592 107,592
25......................... 21,298.22 2,414 102,414 5,038 105,038 10,341 110,341
30......................... 29,648.34 1,108 101,108 4,517 104,517 12,943 112,943
35......................... 40,305.44 * * 2,001 102,001 14,403 114,403
Age 65......................... 57,048.49 * * * * 11,916 111,916
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 112 $ 100,112
2......................... 367 100,367
3......................... 651 100,651
4......................... 967 100,967
5......................... 1,317 101,317
6......................... 1,703 101,703
7......................... 2,127 102,127
8......................... 2,592 102,592
9......................... 3,101 103,101
10......................... 3,658 103,658
15......................... 7,285 107,285
20......................... 12,790 112,790
25......................... 21,084 121,084
30......................... 33,493 133,493
35......................... 51,664 151,664
Age 65......................... 84,173 184,173
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-10
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 700.35 $ 170 $ 100,170 $ 186 $ 100,186 $ 201 $ 100,201
2......................... 1,435.72 569 100,569 611 100,611 655 100,655
3......................... 2,207.85 950 100,950 1,036 101,036 1,128 101,128
4......................... 3,018.60 1,314 101,314 1,461 101,461 1,619 101,619
5......................... 3,869.88 1,659 101,659 1,881 101,881 2,128 102,128
6......................... 4,763.72 1,984 101,984 2,297 102,297 2,655 102,655
7......................... 5,702.26 2,287 102,287 2,706 102,706 3,198 103,198
8......................... 6,687.72 2,567 102,567 3,107 103,107 3,757 103,757
9......................... 7,722.45 2,829 102,829 3,503 103,503 4,338 104,338
10......................... 8,808.93 3,060 103,060 3,882 103,882 4,930 104,930
15......................... 15,112.55 3,761 103,761 5,490 105,490 8,051 108,051
20......................... 23,157.74 3,436 103,436 6,245 106,245 11,166 111,166
25......................... 33,425.67 1,381 101,381 5,174 105,174 13,329 113,329
30......................... 46,530.45 * * 750 100,750 12,780 112,780
35......................... 63,255.83 * * * * 5,925 105,925
Age 65......................... 49,557.32 * * * * 12,039 112,039
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 216 $ 100,216
2......................... 701 100,701
3......................... 1,224 101,224
4......................... 1,791 101,791
5......................... 2,402 102,402
6......................... 3,062 103,062
7......................... 3,773 103,773
8......................... 4,540 104,540
9......................... 5,372 105,372
10......................... 6,263 106,263
15......................... 11,842 111,842
20......................... 19,769 119,769
25......................... 30,539 130,539
30......................... 44,466 144,466
35......................... 60,761 160,761
Age 65......................... 47,558 147,558
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-11
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 45 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,151
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 1,208.55 $ 334 $ 100,334 $ 361 $ 100,361 $ 388 $ 100,388
2......................... 2,477.53 993 100,993 1,069 101,069 1,146 101,146
3......................... 3,809.95 1,614 101,614 1,765 101,765 1,925 101,925
4......................... 5,209.00 2,196 102,196 2,448 102,448 2,722 102,722
5......................... 6,678.00 2,734 102,734 3,113 103,113 3,535 103,535
6......................... 8,220.45 3,228 103,228 3,757 103,757 4,363 104,363
7......................... 9,840.02 3,671 103,671 4,374 104,374 5,200 105,200
8......................... 11,540.58 4,058 104,058 4,954 104,954 6,039 106,039
9......................... 13,326.15 4,382 104,382 5,492 105,492 6,875 106,875
10......................... 15,201.01 4,637 104,637 5,977 105,977 7,696 107,696
15......................... 26,078.77 4,651 104,651 7,299 107,299 11,298 111,298
20......................... 39,961.86 1,739 101,739 5,589 105,589 12,725 112,725
25......................... 57,680.59 * * * * 8,581 108,581
30......................... 80,294.67 * * * * * *
35......................... 109,156.61 * * * * * *
Age 65......................... 43,168.50 623 100,623 4,637 104,637 12,460 112,460
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 416 $ 100,416
2......................... 1,227 101,227
3......................... 2,093 102,093
4......................... 3,018 103,018
5......................... 4,004 104,004
6......................... 5,055 105,055
7......................... 6,170 106,170
8......................... 7,349 107,349
9......................... 8,593 108,593
10......................... 9,898 109,898
15......................... 17,312 117,312
20......................... 25,697 125,697
25......................... 32,843 132,843
30......................... 33,660 133,660
35......................... 16,511 116,511
Age 65......................... 27,307 127,307
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-12
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 2,292.15 $ 715 $ 100,715 $ 768 $ 100,768 $ 822 $ 100,822
2......................... 4,698.91 1,816 101,816 1,961 101,961 2,111 102,111
3......................... 7,226.00 2,816 102,816 3,097 103,097 3,396 103,396
4......................... 9,879.45 3,709 103,709 4,169 104,169 4,668 104,668
5......................... 12,665.58 4,486 104,486 5,161 105,161 5,916 105,916
6......................... 15,591.00 5,135 105,135 6,060 106,060 7,124 107,124
7......................... 18,662.70 5,646 105,646 6,850 106,850 8,278 108,278
8......................... 21,887.99 6,003 106,003 7,511 107,511 9,353 109,353
9......................... 25,274.54 6,187 106,187 8,017 108,017 10,325 110,325
10......................... 28,830.42 6,179 106,179 8,343 108,343 11,162 111,162
15......................... 49,461.30 2,699 102,699 6,396 106,396 12,264 112,264
20......................... 75,792.13 * * * * 3,755 103,755
25......................... 109,397.67 * * * * * *
30......................... 152,287.80 * * * * * *
35......................... 207,027.69 * * * * * *
Age 65......................... 32,564.09 5,945 105,945 8,445 108,445 11,817 111,817
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 876 $ 100,876
2......................... 2,266 102,266
3......................... 3,712 103,712
4......................... 5,212 105,212
5......................... 6,760 106,760
6......................... 8,348 108,348
7......................... 9,966 109,966
8......................... 11,599 111,599
9......................... 13,226 113,226
10......................... 14,823 114,823
15......................... 21,436 121,436
20......................... 21,374 121,374
25......................... 2,773 102,773
30......................... * *
35......................... * *
Age 65......................... 16,346 116,346
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-13
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 25 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $425
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1...................... $ 446.25 $ 85 $ 100,000 $ 94 $ 100,000 $ 103 $ 100,000
2...................... 914.81 292 100,000 316 100,000 342 100,000
3...................... 1,406.80 498 100,000 547 100,000 599 100,000
4...................... 1,923.39 703 100,000 785 100,000 875 100,000
5...................... 2,465.81 906 100,000 1,030 100,000 1,169 100,000
6...................... 3,035.35 1,106 100,000 1,282 100,000 1,483 100,000
7...................... 3,633.37 1,300 100,000 1,537 100,000 1,815 100,000
8...................... 4,261.29 1,489 100,000 1,797 100,000 2,167 100,000
9...................... 4,920.60 1,671 100,000 2,058 100,000 2,537 100,000
10...................... 5,612.88 1,845 100,000 2,321 100,000 2,926 100,000
15...................... 9,629.43 2,544 100,000 3,600 100,000 5,146 100,000
20...................... 14,755.68 2,843 100,000 4,679 100,000 7,811 100,000
25...................... 21,298.22 2,537 100,000 5,289 100,000 10,858 100,000
30...................... 29,648.34 1,284 100,000 4,974 100,000 14,093 100,000
35...................... 40,305.44 * * 2,733 100,000 16,863 100,000
Age 65...................... 57,048.49 * * * * 17,643 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ----------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------- -------------
<S> <C> <C>
1...................... $ 113 $ 100,000
2...................... 368 100,000
3...................... 654 100,000
4...................... 971 100,000
5...................... 1,323 100,000
6...................... 1,713 100,000
7...................... 2,141 100,000
8...................... 2,612 100,000
9...................... 3,128 100,000
10...................... 3,694 100,000
15...................... 7,412 100,000
20...................... 13,174 100,000
25...................... 22,153 100,000
30...................... 36,350 100,000
35...................... 59,247 100,000
Age 65...................... 107,878 129,454
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-14
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 35 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1......................... $ 700.35 $ 171 $ 100,000 $ 186 $ 100,000 $ 202 $ 100,000
2......................... 1,435.72 570 100,000 613 100,000 657 100,000
3......................... 2,207.85 954 100,000 1,041 100,000 1,133 100,000
4......................... 3,018.60 1,321 100,000 1,468 100,000 1,628 100,000
5......................... 3,869.88 1,670 100,000 1,893 100,000 2,142 100,000
6......................... 4,763.72 1,999 100,000 2,315 100,000 2,676 100,000
7......................... 5,702.26 2,308 100,000 2,732 100,000 3,229 100,000
8......................... 6,687.72 2,595 100,000 3,142 100,000 3,801 100,000
9......................... 7,722.45 2,865 100,000 3,549 100,000 4,398 100,000
10......................... 8,808.93 3,106 100,000 3,942 100,000 5,009 100,000
15......................... 15,112.55 3,877 100,000 5,666 100,000 8,319 100,000
20......................... 23,157.74 3,665 100,000 6,652 100,000 11,894 100,000
25......................... 33,425.67 1,738 100,000 5,983 100,000 15,106 100,000
30......................... 46,530.45 * * 2,054 100,000 16,722 100,000
35......................... 63,255.83 * * * * 13,794 100,000
Age 65......................... 49,557.32 * * 587 100,000 16,615 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF -------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ---------- -------------
<S> <C> <C>
1......................... $ 217 $ 100,000
2......................... 703 100,000
3......................... 1,229 100,000
4......................... 1,800 100,000
5......................... 2,418 100,000
6......................... 3,087 100,000
7......................... 3,811 100,000
8......................... 4,594 100,000
9......................... 5,447 100,000
10......................... 6,367 100,000
15......................... 12,247 100,000
20......................... 21,068 100,000
25......................... 34,363 100,000
30......................... 55,188 100,000
35......................... 90,305 100,000
Age 65......................... 60,719 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-15
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 45 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,151
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1...................... $ 1,208.55 $ 336 $ 100,000 $ 363 $ 100,000 $ 391 $ 100,000
2...................... 2,477.53 1,000 100,000 1,076 100,000 1,154 100,000
3...................... 3,809.95 1,628 100,000 1,780 100,000 1,941 100,000
4...................... 5,209.00 2,220 100,000 2,475 100,000 2,752 100,000
5...................... 6,678.00 2,771 100,000 3,156 100,000 3,584 100,000
6...................... 8,220.45 3,282 100,000 3,822 100,000 4,439 100,000
7...................... 9,840.02 3,747 100,000 4,465 100,000 5,311 100,000
8...................... 11,540.58 4,158 100,000 5,080 100,000 6,196 100,000
9...................... 13,326.15 4,512 100,000 5,659 100,000 7,089 100,000
10...................... 15,201.01 4,802 100,000 6,195 100,000 7,985 100,000
15...................... 26,078.77 5,068 100,000 7,944 100,000 12,295 100,000
20...................... 39,961.86 2,471 100,000 7,015 100,000 15,428 100,000
25...................... 57,680.59 * * 374 100,000 14,752 100,000
30...................... 80,294.67 * * * * 4,193 100,000
35...................... 109,156.61 * * * * * *
Age 65...................... 43,168.50 1,398 100,000 6,256 100,000 15,697 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ----------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------- -------------
<S> <C> <C>
1...................... $ 418 $ 100,000
2...................... 1,235 100,000
3...................... 2,111 100,000
4...................... 3,052 100,000
5...................... 4,061 100,000
6...................... 5,145 100,000
7...................... 6,305 100,000
8...................... 7,544 100,000
9...................... 8,868 100,000
10...................... 10,278 100,000
15...................... 18,847 100,000
20...................... 30,724 100,000
25...................... 47,666 100,000
30...................... 74,889 100,000
35...................... 126,102 132,407
Age 65...................... 33,598 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loan or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-16
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE AGE 55 AT BIRTHDAY NEAREST POLICY DATE
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NONSMOKER PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 4% ASSUMED HYPOTHETICAL 8% ASSUMED HYPOTHETICAL
GROSS RETURN GROSS RETURN GROSS RETURN
GUARANTEED COST GUARANTEED COST GUARANTEED COST
PREMIUMS OF INSURANCE OF INSURANCE OF INSURANCE
END OF ACCUMULATED ------------------------- ------------------------- -------------------------
POLICY AT 5% CASH DEATH CASH DEATH CASH DEATH
YEAR PER YEAR VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----------- ---------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1...................... $ 2,292.15 $ 726 $ 100,000 $ 780 $ 100,000 $ 834 $ 100,000
2...................... 4,698.91 1,847 100,000 1,995 100,000 2,147 100,000
3...................... 7,226.00 2,879 100,000 3,167 100,000 3,472 100,000
4...................... 9,879.45 3,817 100,000 4,290 100,000 4,805 100,000
5...................... 12,665.58 4,652 100,000 5,354 100,000 6,139 100,000
6...................... 15,591.00 5,375 100,000 6,346 100,000 7,465 100,000
7...................... 18,662.70 5,976 100,000 7,255 100,000 8,773 100,000
8...................... 21,887.99 6,440 100,000 8,063 100,000 10,049 100,000
9...................... 25,274.54 6,748 100,000 8,748 100,000 11,274 100,000
10...................... 28,830.42 6,882 100,000 9,288 100,000 12,428 100,000
15...................... 49,461.30 4,243 100,000 8,951 100,000 16,416 100,000
20...................... 75,792.13 * * * * 13,775 100,000
25...................... 109,397.67 * * * * * *
30...................... 152,287.80 * * * * * *
35...................... 207,027.69 * * * * * *
Age 65...................... 32,564.09 6,805 100,000 9,642 100,000 13,476 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ----------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------- -------------
<S> <C> <C>
1...................... $ 888 $ 100,000
2...................... 2,304 100,000
3...................... 3,795 100,000
4...................... 5,366 100,000
5...................... 7,018 100,000
6...................... 8,752 100,000
7...................... 10,570 100,000
8...................... 12,472 100,000
9...................... 14,453 100,000
10...................... 16,511 100,000
15...................... 28,083 100,000
20...................... 42,323 100,000
25...................... 61,487 100,000
30...................... 99,300 104,265
35...................... 169,998 178,498
Age 65...................... 18,631 100,000
</TABLE>
- --------------------------
* In the absence of an additional premium, the Policy would lapse.
The values illustrated assume the premium is paid at the beginning of the Policy
Year. Values would be different if premiums are paid with a different frequency
or in different amounts.
The values and benefits are as of the Policy Year shown. They assume that no
Policy Loans or surrenders have been made. Excessive Policy Loans or surrenders
may cause this Policy to lapse because of insufficient Cash Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF INFLATION, AND THE
ALLOCATIONS MADE BY A POLICYOWNER AMONG THE SUBACCOUNTS. THE GROSS HYPOTHETICAL
ANNUAL INVESTMENT RATES OF RETURN OF 0%, 4%, 8% AND 12% SHOWN ABOVE CORRESPOND
TO NET ANNUAL RATES OF RETURN OF -1.45%, 2.55%, 6.55% AND 10.55%, RESPECTIVELY.
THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGED 0%, 4%, 8% AND 12% OVER
A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED FOR ANY PERIOD OF TIME.
A-17
<PAGE>
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<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
DEATH BENEFIT OPTIONS OPTION A EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option A,
a Policy with a Specified Amount of $50,000 will
generally provide a death benefit of $50,000 plus Cash
Value. Thus, for example, a Policy with a Cash Value of
$5,000 will have a death benefit of $55,000 ($50,000 +
$5,000); a Cash Value of $10,000 will provide a death
benefit of $60,000 ($50,000 + $10,000). The death
benefit, however, must be at least 2.50 multiplied by the
Cash Value. As a result, if the Cash Value of the Policy
exceeds $33,333, the death benefit will be greater than
the Specified Amount plus Cash Value. Each additional
dollar of Cash Value above $33,333 will increase the
death benefit by $2.50. A Policy with a Specified Amount
of $50,000 and a Cash Value of $40,000 will provide a
death benefit of $100,000 ($40,000 x 2.50); a Cash Value
of $60,000 will provide a death benefit of $150,000
($60,000 x 2.50).
Similarly, any time Cash Value exceeds $33,333, each
dollar taken out of Cash Value will reduce the death
benefit by $2.50. If, for example, the Cash Value is
reduced from $40,000 to $35,000 because of partial
surrenders, charges, or negative investment performance,
the death benefit will be reduced from $100,000 to
$87,500. If at any time, however, Cash Value multiplied
by the specified amount factor is less than the Specified
Amount plus the Cash Value, then the death benefit will
be the current Specified Amount plus Cash Value of the
Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than under 40), the specified amount factor would
be 1.85. The amount of the death benefit would be the sum
of the Cash Value plus $50,000 unless the Cash Value
exceeded $58,824 (rather than $33,333), and each dollar
then added to or taken from the Cash Value would change
the death benefit by $1.85 (rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume
that the Insured's Attained Age is between 0 and 40 and
that there is no outstanding Policy Debt. Under Option B,
a Policy with a $50,000 Specified Amount will generally
pay $50,000 in death benefits. However, because the death
benefit must be equal to or be greater than 2.50
multiplied by the Cash Value, any time the Cash Value of
the Policy exceeds $20,000, the death benefit will exceed
the $50,000 Specified Amount. Each additional dollar
added to Cash Value above $20,000 will increase the death
benefit by $2.50. A Policy with a $50,000 Specified
Amount and a Cash Value of $30,000 will provide death
proceeds of $75,000 ($30,000 x 2.50); a Cash Value of
$40,000 will provide a death benefit of $100,000 ($40,000
x 2.50); a Cash Value of $50,000 will provide a death
benefit of $125,000 ($50,000 x 2.50).
Similarly, so long as Cash Value exceeds $20,000, each
dollar taken out of Cash Value will reduce the death
benefit by $2.50. If, for example, the Cash Value is
reduced from $25,000 to $20,000 because of partial
surrenders, charges, or negative investment performance,
the death benefit will be reduced from $62,500 to
$50,000. If at any time, however, the Cash Value
multiplied by the specified amount factor is less than
the Specified Amount, the death benefit will equal the
current Specified Amount of the Policy.
The specified amount factor becomes lower as the
Insured's Attained Age increases. If the Attained Age of
the Insured in the example above were, for example, 50
(rather than between 0 and 40), the specified amount
factor would be 1.85. The death proceeds would not exceed
the $50,000 Specified Amount unless the Cash Value
exceeded approximately $27,028 (rather than $20,000), and
each dollar then added to or taken from the Cash Value
would change the life insurance proceeds by $1.85 (rather
than $2.50).
B-1
<PAGE>
<TABLE>
<CAPTION>
SPECIFIED AMOUNT FACTOR TABLE
- ----------------------------------------------
ATTAINED AGE SPECIFIED AMOUNT FACTOR
- ----------------- ---------------------------
<S> <C>
40 or younger 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 to 90 1.05
91 1.04
92 1.03
93 1.02
94 1.01
95 or older 1.00
</TABLE>
B-2
