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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NO. 33-12789
811-05068
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 14 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 /X/
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FARM BUREAU LIFE VARIABLE ACCOUNT
(Exact Name of Registrant)
FARM BUREAU LIFE INSURANCE COMPANY
(Name of Depositor)
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5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Address of Principal Executive Office)
STEPHEN M. MORAIN, ESQUIRE
5400 UNIVERSITY AVENUE
WEST DES MOINES, IOWA 50266
(Name and Address of Agent for Service of Process)
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COPY TO:
STEPHEN E. ROTH, ESQUIRE
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
/X/ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (b) OF RULE 485;
/ / DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) OF RULE 485;
/ / ON (DATE) PURSUANT TO PARAGRAPH (a) OF RULE 485.
TITLE OF SECURITIES BEING REGISTERED: FLEXIBLE PREMIUM VARIABLE LIFE
INSURANCE POLICIES
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FARM BUREAU LIFE VARIABLE ACCOUNT
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
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PROSPECTUS
May 1, 1999
Farm Bureau Life Insurance Company is offering a flexible premium variable life
insurance policy described in this prospectus. Farm Bureau ("we," "us" or "our")
designed the policy: (1) to provide lifetime insurance protection to age 95; and
(2) to permit the purchaser of a policy ("you," or "your") to vary premium
payments and adjust the death proceeds payable under the policy.
Under the policy, we will pay:
- death proceeds upon the insured's death, and
- a net cash value upon complete or partial surrender of the policy.
You may allocate net premiums under a policy to one or more of the subaccounts
of Farm Bureau Life Variable Account (the "Variable Account"). Death proceeds
may, and cash value will, vary with the investment experience of the Variable
Account. Each subaccount invests exclusively in shares of the investment options
listed below. Current prospectuses that describe the investment objectives and
risks of each investment option must accompany or precede this prospectus.
<TABLE>
<S> <C>
EquiTrust Variable Insurance Series Fund: T. Rowe Price Equity Series, Inc.:
Value Growth Portfolio Mid-Cap Growth Portfolio
High Grade Bond Portfolio New America Growth Portfolio
High Yield Bond Portfolio Personal Strategy Balanced Portfolio
Managed Portfolio T. Rowe Price International Series,
Money Market Portfolio Inc.:
Blue Chip Portfolio International Stock Portfolio
Fidelity Variable Insurance Products Fidelity Variable Insurance Products Fund
Fund: II:
Growth Portfolio Contrafund Portfolio
Overseas Portfolio Index 500 Portfolio
Fidelity Variable Insurance Products Fund III:
Growth & Income Portfolio
</TABLE>
You may also allocate net premiums to the Declared Interest Option, which is
supported by our General Account. We credit amounts allocated to the Declared
Interest Option with at least a 4.5% annual interest rate.
Please carefully consider replacing any existing insurance with the policy. Farm
Bureau does not claim that investing in the policy is similar or comparable to
investing in a mutual fund.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully and retain it for future reference.
Issued By:
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
1-800-247-4170
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................................................................................... 3
SUMMARY AND DIAGRAM OF THE POLICY............................................................................. 5
FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT................................................... 11
Farm Bureau Life Insurance Company...................................................................... 11
Iowa Farm Bureau Federation............................................................................. 11
The Variable Account.................................................................................... 11
Investment Options...................................................................................... 11
Addition, Deletion or Substitution of Investments....................................................... 14
THE POLICY.................................................................................................... 15
Purchasing the Policy................................................................................... 15
Premiums................................................................................................ 16
Examination of Policy (Cancellation Privilege).......................................................... 17
Policy Lapse and Reinstatement.......................................................................... 18
Special Transfer Privilege.............................................................................. 19
Exchange Privilege...................................................................................... 19
POLICY BENEFITS............................................................................................... 21
Cash Value Benefits..................................................................................... 21
Transfers............................................................................................... 23
Loan Benefits........................................................................................... 24
Death Proceeds.......................................................................................... 26
Accelerated Payments of Death Proceeds.................................................................. 28
Benefits at Maturity.................................................................................... 29
Payment Options......................................................................................... 29
CHARGES AND DEDUCTIONS........................................................................................ 31
Premium Expense Charge.................................................................................. 31
Monthly Deduction....................................................................................... 32
Transfer Charge......................................................................................... 34
Surrender Charge........................................................................................ 35
Variable Account Charges................................................................................ 35
THE DECLARED INTEREST OPTION.................................................................................. 35
General Description..................................................................................... 35
Declared Interest Option Cash Value..................................................................... 36
Transfers, Surrenders and Policy Loans.................................................................. 36
GENERAL PROVISIONS............................................................................................ 36
The Contract............................................................................................ 36
Incontestability........................................................................................ 37
Change of Provisions.................................................................................... 37
Misstatement of Age or Sex.............................................................................. 37
Suicide Exclusion....................................................................................... 37
Annual Report........................................................................................... 37
Non-Participation....................................................................................... 38
Ownership of Assets..................................................................................... 38
Written Notice.......................................................................................... 38
Postponement of Payments................................................................................ 38
Continuance of Insurance................................................................................ 38
Ownership............................................................................................... 39
The Beneficiary......................................................................................... 39
Changing the Policyowner or Beneficiary................................................................. 39
Additional Insurance Benefits........................................................................... 39
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DISTRIBUTION OF THE POLICIES.................................................................................. 40
FEDERAL TAX MATTERS........................................................................................... 40
Introduction............................................................................................ 40
Tax Status of the Policy................................................................................ 40
Tax Treatment of Policy Benefits........................................................................ 41
Possible Tax Law Change................................................................................. 43
Taxation of the Company................................................................................. 43
Employment-Related Benefit Plans........................................................................ 43
ADDITIONAL INFORMATION........................................................................................ 43
FINANCIAL STATEMENTS.......................................................................................... 50
</TABLE>
The Policy is not available in all States.
This prospectus constitutes an offering only in those jurisdictions where such
offering may lawfully be made.
Farm Bureau has not authorized any dealer, salesman or other person to give any
information or make any representations in connection with this offering other
than those contained in this prospectus. Do not rely on any such other
information or representations.
2
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DEFINITIONS
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ATTAINED AGE: The Insured's age on his or her last birthday on the Policy Date
plus the number of Policy Years since the Policy Date.
BENEFICIARY: The person or entity the Policyowner named in the application, or
by later designation, to receive the death proceeds upon the Insured's death.
BUSINESS DAY: Each day that the New York Stock Exchange is open for trading,
except the day after Thanksgiving, the weekdays before and after Christmas (in
1999), the weekday after New Year's Day (in 2000) 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, the value of
the Policy in the Declared Interest Option and any outstanding Policy Debt.
COMPANY, WE, US, OUR: Farm Bureau Life Insurance Company.
DECLARED INTEREST OPTION: A part of the Company's General Account. Policyowners
may allocate Net Premiums and transfer Cash Value to the Declared Interest
Option. The Company credits Cash Value in the Declared Interest Option with
interest at an annual rate guaranteed to be at least 4.5%.
DELIVERY DATE: The date when the Company issues the Policy and mails it to the
Policyowner.
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: An open-end, diversified management investment company in which the
Variable Account invests.
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 Company's principal offices at 5400 University Avenue, West Des
Moines, Iowa 50266.
INSURED: The person upon whose life the Company issues a Policy.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
MATURITY DATE: The Policy Anniversary nearest the Insured's 95th birthday. It is
the date when 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
Company makes the monthly deduction 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.
3
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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 we deduct the premium expense
charge (see "CHARGES AND DEDUCTIONS--Premium Expense Charge"). The Company will
allocate this amount, according to the Policyowner's instructions, among the
Subaccounts of the Variable Account and the Declared Interest Option.
POLICY: The flexible premium variable life insurance policy we offer and
describe in this prospectus, which term includes the Policy described in this
prospectus, the Policy application, and 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 we use 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 the Policyowner borrows from the Company using the Policy
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, YOU, YOUR: 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.
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 which invests exclusively in
shares of a designated Investment Option of a Fund.
SURRENDER CHARGE: A charge we assess at the time of any partial or complete
surrender equal to the lesser of (1) $25 or (2) 2.0% of the amount surrendered.
UNIT VALUE: The value determined by dividing each Subaccount's Net Asset Value
by the number of units outstanding at the time of calculation.
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 the Company established to receive and invest the Net Premiums paid
under the Policies.
4
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SUMMARY AND DIAGRAM OF THE POLICY
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The following is a summary of the Policy's features. Please read the entire
Prospectus and the Policy for more detailed information. 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.
THE POLICY
- The Policy is a flexible premium variable life insurance policy
providing for:
- death proceeds payable to the Beneficiary upon the Insured's death,
- the accumulation of Cash Value,
- surrender rights, and
- loan privileges.
- We normally issue a Policy for a minimum Specified Amount of $25,000,
but we may issue Policies for lower Specified Amounts.
- You have flexibility in determining the frequency and amount of
premiums. (See "THE POLICY--Premiums.")
- We do not guarantee the amount and/or duration of the life insurance
coverage.
- Cash Value may increase or decrease, depending upon the investment
experience of the assets supporting the Policy. You bear the investment
risk of any depreciation of, and reap the benefit of any appreciation
in, the value of the underlying assets.
- If the Insured is alive and the Policy is in force on the Maturity Date,
we will pay you the Cash Value as of the end of the Business Day
coinciding with or immediately following the Maturity Date, reduced by
any outstanding Policy Debt.
- CANCELLATION PRIVILEGE. You may examine and cancel the Policy by
returning the Policy to us before midnight of the 20th day after you
received the Policy. We will refund you the Cash Value on the Business
Day we receive the Policy plus any charges we deducted. Certain states
may require us to refund a different amount. (See "THE
POLICY--Examination of Policy (Cancellation Privilege).")
THE VARIABLE ACCOUNT
- The Variable Account has 15 Subaccounts, each of which invests
exclusively in one of the following Investment Options offered by the
Funds:
<TABLE>
<S> <C>
- Value Growth Portfolio - International Stock Portfolio
- High Grade Bond Portfolio - Growth Portfolio
- High Yield Bond Portfolio - Overseas Portfolio
- Managed Portfolio - Contrafund Portfolio
- Money Market Portfolio - Index 500 Portfolio
- Blue Chip Portfolio - Growth & Income Portfolio
- Mid-Cap Growth Portfolio - New America Growth Portfolio
- Personal Strategy Balanced Portfolio
</TABLE>
- You may instruct us to allocate Net Premiums and transfer Cash Values to
any of the Subaccounts.
- We will allocate your initial premium to the Declared Interest Option.
5
<PAGE>
- We will automatically allocate, without charge, your Cash Value in the
Declared Interest Option according to your allocation instructions upon
the earlier of:
(1) the date we receive a signed notice that you have received the
Policy, or
(2) 25 days after the Delivery Date.
- If we receive Net Premiums before (1) or (2) above, we will allocate
those monies to the Declared Interest Option.
- We will allocate Net Premiums received after (1) or (2) above according
to your allocation instructions.
THE DECLARED INTEREST OPTION
- You 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 (at least 4.5% annually). (See "THE DECLARED INTEREST OPTION.")
PREMIUMS
- You choose when to pay and how much to pay.
- You must pay an initial premium equal to the greater of $100, or an
amount (when reduced by the premium expense charge) that is enough to
pay the first monthly deduction (for monthly premium payment mode
Policies), or the first two monthly deductions (for quarterly, semi-
annual or annual premium payment mode Policies).
- We deduct a premium expense charge (7% of each premium payment) and
credit the remaining premium (the Net Premium) according to your
instructions. (See "CHARGES and DEDUCTIONS--Premium Expense Charge.")
POLICY BENEFITS
CASH VALUE BENEFITS (SEE "POLICY BENEFITS--CASH VALUE BENEFITS.")
- Your Policy provides for a Cash Value. A Policy's Cash Value varies to
reflect
- the amount and frequency of premium payments,
- the investment experience of the Subaccounts,
- interest earned on Cash Value in the Declared Interest Option,
- Policy Loans,
- partial surrenders and
- charges we assess under the Policy.
- You may fully surrender your Policy and receive the Net Cash Value.
- You may obtain a partial surrender of your Net Cash Value (minimum $500)
at any time before the Maturity Date.
- A partial or full surrender may have federal income tax consequences.
(See "FEDERAL TAX MATTERS".)
TRANSFERS (SEE "POLICY BENEFITS--TRANSFERS.")
- You may transfer amounts (minimum $100) among the Subaccounts an
unlimited number of times in a Policy Year.
- You may make one transfer per Policy Year between the Subaccounts and
the Declared Interest Option.
6
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- The first transfer in a Policy Year is free. We may deduct a $25 charge
from the amount transferred on subsequent transfers in that Policy Year.
- We do not count certain transfers for purposes of the one free transfer
limit. (See "THE POLICY--Special Transfer Privilege"; and "THE
POLICY--Premiums--Allocation of Net Premiums.")
LOANS (SEE POLICY BENEFITS--"LOAN BENEFITS.")
- You may borrow up to 90% of the Policy's Cash Value, less any previously
outstanding Policy Debt.
- We charge you a maximum annual interest rate of 7.4%.
- We secure your loan by segregating in the Declared Interest Option an
amount equal to the Policy Loan. We credit this amount with an effective
annual rate of interest between 4.5% and 6.0%.
- Policy Loans may have federal income tax consequences. (See "FEDERAL TAX
MATTERS.")
DEATH PROCEEDS (SEE "POLICY BENEFITS--DEATH PROCEEDS.")
- The Policy contains two death benefit options:
- 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.
- 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.
- 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.
- To determine the death proceeds, we reduce the death benefit by any
outstanding Policy Debt and increase the death benefit by any unearned
loan interest and any premiums paid after the date of death. We may pay
the proceeds in a lump sum or in accordance with a payment option.
- You may change the Specified Amount or the death benefit option.
CHARGES (SEE "CHARGES AND DEDUCTIONS")
PREMIUM EXPENSE CHARGE
- We deduct a Premium Expense Charge equal to 7% of each premium. The
remaining amount is the Net Premium.
CASH VALUE CHARGES
- Each month, we make a monthly deduction (that varies from month to
month) equal to the sum of:
- a cost of insurance charge,
- the cost of any additional insurance benefits added by rider, and
- a $3 administrative charge.
- During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly
deduction will include a first year monthly administrative charge
ranging from $0.05 to $0.50 per $1,000 of Specified Amount. This charge
varies depending upon the Attained Age of the Insured and the Policy's
total Specified Amount.
7
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- Upon partial or complete surrender of a Policy, we assess a charge equal
to the lesser of $25 or 2.0% of the amount surrendered.
- We may deduct a $25 charge from the amount transferred on the second and
subsequent transfers in a Policy Year.
CHARGES AGAINST THE VARIABLE ACCOUNT
- We deduct a daily mortality and expense risk charge from the average
daily net assets of each Subaccount. The charge equals an effective
annual rate of .90%.
- We may assess a charge against the Variable Account for federal income
taxes that may be attributable to the Variable Account.
- Because the Variable Account purchases shares of the Investment Options,
the value of the average net assets of the Variable Account will reflect
the investment advisory fee and other expenses incurred by each
Investment Option. The following table indicates the Investment Options'
fees and expenses for 1998.
<TABLE>
<CAPTION>
OTHER TOTAL
EXPENSES EXPENSES
(AFTER WAIVER (AFTER WAIVER
ADVISORY OR OR
INVESTMENT OPTION FEE REIMBURSEMENT) REIMBURSEMENT)
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth 0.45% 0.11% 0.56%
High Grade Bond 0.30% 0.20% 0.50%
High Yield Bond 0.45% 0.16% 0.61%
Managed 0.45% 0.10% 0.55%
Money Market 0.25% 0.27% 0.52%
Blue Chip 0.20% 0.10% 0.30%
T. Rowe Price Equity Series, Inc.
Mid-Cap Growth 0.85% 0.00% 0.85%(1)
New America Growth 0.85% 0.00% 0.85%(1)
Personal Strategy Balanced 0.90% 0.00% 0.90%(1)
T. Rowe Price International Series, Inc.
International Stock 1.05% 0.00% 1.05%(1)
Fidelity Variable Insurance Products Fund
VIP Growth 0.59% 0.07% 0.66%(2)
VIP Overseas 0.74% 0.15% 0.89%(2)
VIP II Contrafund 0.59% 0.07% 0.66%(2)
VIP II Index 500 0.24% 0.04% 0.28%(3)
VIP III Growth & Income 0.49% 0.11% 0.60%(2)
</TABLE>
8
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(1) Total annual investment option expenses are an all-inclusive fee and
pay for investment management services and other operating costs.
(2) A portion of the brokerage commissions that certain Investment Options
pay is used to reduce Fund expenses. In addition, certain Investment
Options have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances are used to
reduce custodian expenses. Without these reductions, the total
Investment Option operating expenses presented in the preceding table
would have been: Growth 0.68%, Overseas 0.91%, Contrafund 0.70% and
Growth & Income 0.61%.
(3) The investment adviser has voluntarily agreed to reimburse the Index
500 Investment Option to the extent that total operating expenses (with
the exceptions noted in the prospectus for the Investment Option) as a
percentage of its average net assets exceed 0.28%. If this agreement
had not been in effect, total operating expenses for the fiscal year
ended December 31, 1998, as a percentage of the Index 500 Investment
Option's average net assets would have been 0.35%.
OTHER POLICIES
- We offer other variable life insurance policies that invest in the same
Investment Options of the Funds. These policies may have different
charges that could affect Subaccount performance, and may offer
different benefits more suitable to your needs. You may contact us to
obtain more information about these policies.
TAX TREATMENT (SEE "FEDERAL TAX MATTERS")
- If we issue a Policy on the basis of a standard premium class, we
believe that the Policy should qualify as a life insurance contract for
federal income tax purposes.
- If we issue a Policy 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.
- If 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--the Policyowner is not deemed to be in
constructive receipt of Cash Values under a Policy until there is a
distribution from the Policy.
- 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.
9
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DIAGRAM
The diagram below illustrates how premium payments are distributed in the
Policy.
PREMIUM
-LESS PREMIUM EXPENSE CHARGE
AND PREMIUM TAXES
\/ \/
SUBACCOUNTS DECLARED
- LESS FUND EXPENSES INTEREST OPTION
MINIMUM = 4.5%
\/ \/
GAIN/LOSS INTEREST EARNED
\/ \/
POLICY ACCUMULATED VALUE
-LESS ADMINISTRATIVE CHARGES,
COST OF INSURANCE AND MORTALITY
AND EXPENSE CHARGES
- We deduct a 7% premium expense charge from all premium payments.
- We charge a $3 policy fee each month (monthly administrative charge) to
cover Policy maintenance.
- Each month, we deduct mortality charges (cost of insurance charge) and
charges for riders. Charges for the mortality cost may increase or
decrease.
- A first-year monthly administrative charge is deducted to cover costs of
setting up the policy. Surrenders are subject to a $25 fee or 2% of the
amount surrendered, if less.
- We assess a daily mortality and expense risk charge at an annual rate of
.90%.
10
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FARM BUREAU LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT
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FARM BUREAU LIFE INSURANCE COMPANY
Farm Bureau Life Insurance Company is a stock life insurance company which
was incorporated in the State of Iowa on October 30, 1944. At December 31,
1998, Iowa Farm Bureau Federation owned 54.30% of the outstanding voting
shares of FBL Financial Group, Inc., which owns 100% of our outstanding
voting shares.
Our principal business is offering life insurance policies, disability
income insurance policies and annuity contracts. Our principal offices are
at 5400 University Avenue, West Des Moines, Iowa 50266. We are admitted to
do business in 15 states--Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota,
Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Utah,
Wisconsin and Wyoming.
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IOWA FARM BUREAU FEDERATION
Iowa Farm Bureau Federation is an Iowa not-for-profit corporation located at
5400 University Avenue, West Des Moines, Iowa 50266, the members of which
are county Farm Bureau organizations and their individual members. Through
various divisions and subsidiaries, Iowa Farm Bureau Federation engages in
the formulation, analysis and promotion of programs designed to foster the
educational, social and economic advancement of its members.
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THE VARIABLE ACCOUNT
We established the Variable Account as a separate account on March 3, 1987.
The Variable Account receives and invests the Net Premiums under the Policy,
and may receive and invest net premiums for any other variable life
insurance policies we issue.
The Variable Account's assets are our property, and they are available to
cover our general liabilities only to the extent that the Variable Account's
assets exceed its liabilities arising under the Policies and any other
policies it supports. The portion of the Variable Account's assets
attributable to the Policies generally are not chargeable with liabilities
arising out of any other business that we may conduct. We may transfer to
the General Account any Variable Account assets which are in excess of such
reserves and other Policy liabilities.
The Variable Account currently has 15 Subaccounts but may, in the future,
include additional subaccounts. Each Subaccount invests exclusively in
shares of a single corresponding Investment Option. 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.
We registered the Variable Account as a unit investment trust under the
Investment Company Act of 1940. The Variable Account meets the definition of
a separate account under the federal securities laws. Registration with the
Securities and Exchange Commission does not mean that the Commission
supervises the management or investment practices or policies of the
Variable Account or the Company. The Variable Account is also subject to the
laws of the State of Iowa which regulate the operations of insurance
companies domiciled in Iowa.
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INVESTMENT OPTIONS
The Variable Account invests in shares of the Investment Options described
below. Each of these Investment Options was formed as an investment vehicle
for insurance company separate accounts. Each Investment Option has its own
investment objectives and separately determines the income and losses for
that Investment Option. While you may be invested in all Subaccounts, we
only permit you to "actively participate" in a maximum of 10 Investment
Options at any one time.
11
<PAGE>
The investment objectives and policies of certain Investment Options are
similar to the investment objectives and policies of other portfolios that
the same investment adviser, investment sub-adviser or manager may manage.
The investment results of the Investment Options, however, may be higher or
lower than the results of such other portfolios. There can be no assurance,
and no representation is made, that the investment results of any of the
Investment Options will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser,
investment sub-adviser or manager.
The paragraphs below summarize each Investment Option's investment
objectives and policies. There is no assurance that any Investment Option
will achieve its stated objectives. Please refer to the prospectus for each
Investment Option for more detailed information, including a description of
risks, for each Investment Option. The Investment Option prospectuses must
accompany or precede this Prospectus and you should read them carefully and
retain them for future reference.
EQUITRUST VARIABLE INSURANCE SERIES FUND. Equitrust Investment Management
Services, Inc. is this Fund's investment adviser.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Value Growth Portfolio - This Portfolio seeks long-term capital appreciation.
Portfolio pursues its objective by investing primarily in
equity securities of companies that the investment adviser
believes have a potential to earn a high return on equity,
and/or in equity securities that the investment adviser
believes are undervalued by the market place. Such equity
securities may include common stock, preferred stock and
securities convertible or exchangeable into common stock.
High Grade Bond Portfolio - This Portfolio seeks as high a level of current income as is
consistent with a high grade portfolio of debt securities.
Portfolio pursues this objective by investing primarily in
debt securities rated AAA, AA or A by Standard & Poor's,
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 (commonly known as
"junk bonds"). 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, or in unrated securities of
comparable quality. An investment in this Portfolio may
entail greater than ordinary financial risk. (See the Fund
Prospectus "HIGHER RISK SECURITIES AND INVESTMENT
STRATEGIES--Lower Rated Debt Securities.")
Managed Portfolio - This Portfolio seeks the highest total investment return of
income and capital appreciation. Portfolio pursues this
objective through a fully managed investment policy
consisting of investments in the following three market
sectors: (1) growth common stocks and securities convertible
or exchangeable into growth common stocks, including
warrants and rights; (2) high grade debt securities and
preferred stocks of the type in which the High Grade Bond
Portfolio may invest; and (3) high quality short-term money
market instruments of the type in which the Money Market
Portfolio may invest.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Money Market Portfolio - This Portfolio seeks maximum current income consistent with
liquidity and stability of principal. Portfolio pursues this
objective by investing in high quality short-term money
market instruments. The United States Government and its
agencies do not insure or guarantee an investment in the
Money Market Portfolio. There is no assurance that the
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. 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.
</TABLE>
T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Associates, Inc. is the
investment adviser to the Fund. The following three portfolios are available
under the Policy:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Mid-Cap Growth Portfolio - This Portfolio seeks long-term capital appreciation by
investing primarily in common stocks of medium-sized
(mid-cap) growth companies which offer the potential for
above-average earnings growth.
New America Growth Portfolio - This Portfolio seeks long-term capital growth by investing
primarily in common stocks of U.S. growth companies
operating in service industries.
Personal Strategy Balanced - This Portfolio seeks the highest total return over time
Portfolio consistent with an emphasis on both capital appreciation and
income.
</TABLE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. Rowe Price-Fleming International, Inc.
is the investment adviser to the Fund.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
International Stock Portfolio - This Portfolio seeks to provide capital appreciation through
investments primarily in established companies based outside
the United States.
</TABLE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS. Fidelity Management & Research
Company serves as the investment adviser to these Funds. Bankers Trust Company
serves as sub-investment adviser to the Index 500 Portfolio. The following
portfolios are available under the Policy.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Fidelity VIP Growth Portfolio - This Portfolio seeks capital appreciation by investing
primarily in common stocks. The Portfolio, however, is not
restricted to any one type of security and may pursue
capital appreciation through the purchase of bonds and
preferred stocks. The Portfolio does not place any emphasis
on dividend income from its investments, except when the
adviser believes this income will have a favorable influence
on the market value of the security. Growth may be measured
by factors such as earnings or gross sales.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
Fidelity VIP Overseas - This Portfolio seeks long-term growth of capital by
Portfolio investing primarily in foreign securities. The Portfolio
defines foreign securities as securities of issuers whose
principal activities are located outside the United States.
Normally, at least 65% of the Portfolio's total assets will
be invested in foreign securities. The Portfolio may also
invest in U.S. issuers.
Fidelity VIP II Contrafund - This Portfolio seeks capital appreciation by investing in
Portfolio securities of companies whose value the adviser believes is
not fully recognized by the public. The Portfolio normally
invests primarily in common stocks and securities
convertible into common stock, but it has the flexibility to
invest in other types of securities.
Fidelity VIP II Index 500 - This Portfolio seeks to provide investment results that
Portfolio correspond to the total return of a broad range of common
stocks publicly traded in the United States. To achieve this
objective, the Portfolio attempts to duplicate the
composition and total return of the S&P 500.
Fidelity VIP III Growth & - This Portfolio seeks high total return through a combination
Income Portfolio of current income and capital appreciation by investing
mainly in equity securities. The Portfolio expects to invest
the majority of its assets in domestic and foreign equity
securities, with a focus on those that pay current dividends
and show potential earnings growth. However, the Portfolio
may buy debt securities as well as equity securities that
are not currently paying dividends, but offer prospects for
capital appreciation or future income.
</TABLE>
The Funds currently sell shares: (1) to the Variable Account as well as to
separate accounts of insurance companies that may or may not be affiliated
with the Company or each other; and (2) to separate accounts to serve as the
underlying investment for both variable life insurance policies and variable
annuity contracts. We currently do not foresee any disadvantage to
Policyowners arising from the sale of shares to support variable life
insurance policies and variable annuity contracts, or from shares being sold
to separate accounts of insurance companies that may or may not be
affiliated with the Company. However, we will monitor events in order to
identify any material irreconcilable conflicts that might possibly arise. In
that event, we would determine what action, if any, should be taken in
response to those events or conflicts. In addition, if we believe that a
Fund's response to any of those events or conflicts insufficiently protects
Policyowners, we will take appropriate action on our own, including
withdrawing the Variable Account's investment in that Fund. (See the Fund
prospectuses for more detail.)
We may receive compensation from an affiliate(s) of one or more of the Funds
based upon an annual percentage of the average assets we hold in the
Investment Options. These amounts are intended to compensate us for
administrative and other services we provide to the Funds and/or
affiliate(s).
Each 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 SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from or substitutions for the shares of the
Investment Options that the Variable Account holds or that the Variable
Account may purchase. If the shares of an Investment Option are no longer
available for investment or if, in our judgment, further investment in any
Investment Option should become
14
<PAGE>
inappropriate in view of the purposes of the Variable Account, we reserve
the right to dispose of the shares of any Investment Option and to
substitute shares of another Investment Option. We will not substitute any
shares attributable to a Policyowner's Cash Value in 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. In the event of any such substitution or change, we
may, by appropriate endorsement, make such changes in these and other
policies as may be necessary or appropriate to reflect such substitution or
change. 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.
We also reserve the right to establish additional subaccounts of the
Variable Account, each of which would invest in shares of a new Investment
Option, with a specified investment objective. We may establish new
subaccounts when, in our sole discretion, marketing, tax or investment
conditions warrant, and we may make any new subaccounts available to
existing Policyowners on a basis we determine. Subject to obtaining any
approvals or consents required by applicable law, we may transfer the assets
of one or more Subaccounts to any other Subaccount(s), or one or more
Subaccounts may be eliminated or combined with any other Subaccount(s) if,
in our sole discretion, marketing, tax or investment conditions warrant.
If we deem it to be in the best interests of persons having voting rights
under the Policies, we may
- operate the Variable Account as a management company under the
Investment Company Act of 1940,
- deregister the Variable Account under that Act in the event such
registration is no longer required, or,
- subject to obtaining any approvals or consents required by
applicable law, combine the Variable Account with other Company
separate accounts.
To the extent permitted by applicable law, we may also transfer the Variable
Account's assets associated with the Policies to another separate account.
In addition, we 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
- --------------------------------------------------------------------------------
PURCHASING THE POLICY
In order to issue a Policy, we must receive a completed application,
including payment of the initial premium, at our Home Office. We ordinarily
will issue a Policy 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. Acceptance is subject to our underwriting rules and we may, in our
sole discretion, reject any application or premium for any lawful reason.
The minimum Specified Amount for which we will issue a Policy is normally
$25,000, although we may, in our discretion, issue Policies with Specified
Amounts of less than $25,000.
The effective date of insurance coverage under the Policy will be the later
of:
- the Policy Date,
- the date the Insured signs the last of any amendments to the initial
application required by our underwriting rules, or
- the date when we receive the full initial premium at the Home
Office.
The Policy Date will be the later of (1) the date of the initial
application, or (2) the date we receive any additional information at the
Home Office if our underwriting rules require additional medical or other
information.
15
<PAGE>
The Policy Date may also be any other date mutually agreed to by you and the
Company. If the later of (1) or (2) above is the 29th, 30th or 31st of any
month, the Policy Date will be the 28th of such month. We use the Policy
Date 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.
- --------------------------------------------------------------------------------
PREMIUMS
Subject to certain limitations, a Policyowner has flexibility in determining
the frequency and amount of premiums.
PREMIUM FLEXIBILITY. We do not require you to pay premiums in accordance
with a rigid and inflexible premium schedule. We may require you to pay an
initial premium equal to the greater of $100, or an amount that, when
reduced by the premium expense charge, will be sufficient to pay the monthly
deduction for the first Policy Month (for Policies established through a
monthly premium payment mode), or an initial premium that, when reduced by
the premium expense charge, will be sufficient to pay the monthly deductions
for the first two Policy months (for Policies established through a
quarterly, semi-annual or annual premium payment mode). Thereafter, subject
to the minimum and maximum premium limitations described below, you may also
make unscheduled premium payments at any time prior to the Maturity Date.
The Company offers a conversion program for its term insurance or Executive
Term policies. Under this program, owners of one of our term policies can
elect to convert their term insurance policy to a permanent insurance
policy, including the Policy, provided the conversion is done prior to the
expiration of the conversion privilege stated in the term policy. Upon
conversion, we will credit to the initial premium for the Policy an amount
equal to the annual premium paid on the term policy, up to a limit of $5.00
per $1,000 of the term insurance face amount. Custom Term II contains a
Premium Credit Benefit that allows the policyowner credit towards the
purchase of a Policy at any time between the first and sixth policy
anniversaries on their term policy. Upon exercise of this benefit, we will
credit to the initial premium for the Policy an amount equal to the annual
premium paid on the term policy, up to a limit of $5.00 per $1,000 of the
term insurance face amount. The existing Custom Term II policy need not be
canceled to use this benefit. We will treat these credits as a premium for
purposes of Policy provisions applicable to premiums, such as deduction of
the premium expense charge. Please see your registered representative for
more information. Registered representatives receive a commission upon a
conversion.
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.
We may, at our discretion, permit you to make planned periodic premium
payments on a monthly basis. We ordinarily will send periodic reminder
notices 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.")
You are not required to pay premiums in accordance with the planned periodic
premium schedule. Furthermore, you have considerable flexibility to alter
the amount, frequency and the time period over which you pay planned
periodic premiums; however, we must consent to any planned periodic payment
less than $100. Changes in the planned premium schedule may have federal
income tax consequences. (See "FEDERAL TAX MATTERS.")
Paying 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 you do pay planned periodic premiums, the 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").
16
<PAGE>
UNSCHEDULED PREMIUMS. Each unscheduled premium payment must be at least
$100; however, we may, in our discretion, waive this minimum requirement. We
reserve 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
you pay a premium that would result in total premiums exceeding the
applicable maximum premium limitation, we will accept only that portion of
the premium which will make total premiums equal the maximum. We will return
any part of the premium in excess of that amount and we will not accept
further premiums until allowed by the applicable maximum premium limitation.
PAYMENT OF PREMIUMS. We will treat any payments you make first as payment of
any outstanding Policy Debt unless you indicate that the payment should be
treated otherwise. Where you make no indication, we will treat any portion
of a payment that exceeds the amount of any outstanding Policy Debt 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.")
ALLOCATING NET PREMIUMS. In the application for a Policy, you can allocate
Net Premiums or portions thereof to the Subaccounts, to the Declared
Interest Option, or both. We will allocate Net Premiums to the Declared
Interest Option if we receive them either
(1) before the date we obtain a signed notice from you that you
have received the Policy, or
(2) before the end of 25 days after the Delivery Date (the date we
issue and mail the Policy to you).
Upon the earlier of (1) or (2) above, we will automatically allocate the
Cash Value in the Declared Interest Option, without charge, among the
Subaccounts and Declared Interest Option in accordance with your allocation
instructions.
We allocate Net Premiums received on or after (1) or (2) above in accordance
with your instructions, to the Variable Account, the Declared Interest
Option, or both. You do not waive your cancellation privilege by sending us
the signed notice of receipt of the Policy (see "THE POLICY--Examination of
Policy (Cancellation Privilege)").
The following additional rules apply to Net Premium allocations:
- You must allocate at least 10% of each premium to any subaccount of
the Variable Account or to the Declared Interest Option.
- Your allocation percentages must be in whole numbers (we do not
permit fractional percentages).
- You may change the allocation percentages for future Net Premiums
without charge, at any time while the Policy is in force, by
providing us with a written notice signed by you on a form we
accept. The change will take effect on the date we receive the
written notice at the Home Office and will have no effect on prior
cash values.
- --------------------------------------------------------------------------------
EXAMINATION OF POLICY (CANCELLATION PRIVILEGE)
You may cancel the Policy by delivering or mailing written notice or sending
a telegram to us at the Home Office, and returning the Policy to us at the
Home Office before midnight of the 20th day you receive the Policy. Notice
given by mail and return of the Policy by mail are effective on being
postmarked, properly addressed and postage prepaid.
17
<PAGE>
With respect to all Policies, we will refund, within seven days after
receipt of satisfactory notice of cancellation and the returned Policy at
our Home Office, an amount equal to the sum of:
- the Cash Value on the Business Day on or next following the date we
receive the Policy at the Home Office,
- any premium expense charges we deducted,
- monthly deductions made on the Policy Date and any Monthly Deduction
Day, and
- amounts approximating the daily mortality and expense risk charges
against the Variable Account.
(Owners in the state of Utah will receive the greater of (1) the Policy's
Cash Value plus an amount approximately equal to any charges we deducted
from premiums, Cash Value and the Variable Account, or (2) premiums paid.)
- --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Your Policy may lapse (terminate without value) if the 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 we will deem the Policy to have no Cash Value
for purposes of 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.
A Grace Period of 61 days will commence on the date we send you a notice of
any insufficiency, at which time the Cash Value in each Subaccount will be
automatically transferred without charge to the Declared Interest Option.
To avoid lapse and termination of the Policy without value, we must receive
from you 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"). If your Policy enters a Grace
Period, the amount transferred to the Declared Interest Option will remain
there unless and until you provide us with allocation instructions.
REINSTATEMENT. Prior to the Maturity Date, you may reinstate a lapsed Policy
at any time within five years of the Monthly Deduction Day immediately
preceding the Grace Period which expired without payment of the required
premium. You must submit the following items to us:
- A written application for reinstatement signed by the Policyowner
and the Insured;
- Evidence of insurability we deem satisfactory;
- 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
- 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 we did not deduct the first
year monthly administrative charge for a total of twelve Policy Months prior
to lapse, we will continue to deduct such charge following reinstatement of
the Policy until we have assessed such charge, both before and after the
lapse, for a total of 12 Policy Months. (See "CHARGES AND
DEDUCTIONS--Monthly Deduction.") We 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 we approve the application
for reinstatement. Upon reinstatement of your Policy,
18
<PAGE>
the amount tranferred to the Declared Interest Option during the Grace
Period will remain there unless and until you provide us with allocation
instructions.
- --------------------------------------------------------------------------------
SPECIAL TRANSFER PRIVILEGE
A Policyowner may, at any time prior to the Maturity Date while the Policy
is in force, operate the Policy as a flexible premium fixed-benefit life
insurance policy by requesting that we transfer all of the Cash Value in the
Variable Account to the Declared Interest Option. You may exercise this
special transfer privilege once each Policy Year. Once you exercise the
special transfer privilege, we automatically will credit all future premium
payments to the Declared Interest Option, until you request a change in
allocation to convert the Policy back to a flexible premium variable life
insurance policy. The Company will not impose any charge for 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 ("fixed-benefit policy") issued by the Company or Western
Farm Bureau Life Insurance Company (an affiliate of the Company), within 12
months of the policy date shown in such policy, to exchange his
fixed-benefit policy (forms #434-112 and #834-112 only) for a Policy on the
life of the Insured. After the first 12 months following the policy date
shown in these fixed-benefit policies (as well as certain other
fixed-benefit policies issued by the Company or Western Farm Bureau Life
Insurance Company), the Company will permit the owner of such policy to
exchange his fixed-benefit policy for a Policy when the owner applies for an
increase of $25,000 or more in Specified Amount. The Policy Date will be the
date you sign the application for the Policy. Riders issued on the original
fixed-benefit policy which are not offered in the Policy will not be
available on the new Policy. Riders which are available may be exchanged to
the new Policy.
If an exchange occurs in the first 12 months from the fixed-benefit policy's
policy date:
- the Policy will have a Specified Amount equal to the specified
amount of the fixed-benefit policy,
- the Policy will require no evidence of insurability to exercise the
exchange privilege, and
- we will place the Insured 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 we will place the Insured in the premium class
applicable to such increase in specified amount with respect to the
entire Specified Amount under the Policy.
If an exchange occurs after the first 12 months from the fixed benefit
policy's policy date:
- the Policy will have a Specified Amount equal to the specified
amount of the fixed-benefit policy plus the increase to purchase a
Policy,
- the increase in Specified Amount will require underwriting to
exercise the exchange privilege,
- we will place the Insured 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 we will place the Insured in the premium class
applicable to such increase in specified amount with respect to the
entire amount exchanged,
- with regard to the increase in Specified Amount, we will place the
Insured in the premium class applicable to the increase,
- the incontestable and suicide provisions of the Policy will apply
only to the increased amount of coverage, except for any period
remaining on the fixed-benefit policy, and
19
<PAGE>
- Registered representatives will receive commissions on the increase
in Specified Amount only.
The Company will initially allocate the net cash value of the fixed-benefit
policy to the Declared Interest Option. When the Company receives, at its
Home Office, a notice signed by the Policyowner that the Policy has been
received, the Company will automatically allocate the Policy's Cash Value in
the Declared Interest Option, 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 premium expense charge on the net cash value of
the fixed-benefit policy applied to the Policy pursuant to an exchange. In
addition, the Company will assess the First Year Monthly Administrative
Charge only to the extent that the Company has not assessed 12 monthly per
$1,000 charges under the fixed-benefit policy. We will assess the First Year
Monthly Administrative Charge on an increase in Specified Amount related to
a fixed-benefit policy exchanged after the first 12 months. Otherwise, we
will make charges and deductions in the manner and amounts described
elsewhere in the Prospectus. (See "CHARGES AND DEDUCTIONS")
We will not permit an exchanging owner to carry over an outstanding loan
under his fixed-benefit policy. Any outstanding loan and loan interest must
be repaid prior to the date of exchange. If not repaid prior to the date of
exchange, the Company will reflect the amount of the outstanding loan and
interest thereon 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").
The Company believes that an exchange of a fixed-benefit policy for a Policy
generally should be treated as a nontaxable exchange within the meaning of
Section 1035 of the Internal Revenue Code of 1986, as amended. A Policy
purchased in exchange will generally be treated as a newly issued contract
as of the effective date of the Policy. If you surrender your fixed-benefit
policy in whole or in part, and after receipt of the proceeds you use the
surrender proceeds or partial surrender proceeds to purchase a Policy, it
will not be treated as a non-taxable exchange. The surrender proceeds will
generally be includible in income. (See "FEDERAL TAX MATTERS--Tax Treatment
of Policy Benefits.")
The Policy differs from a fixed-benefit policy in many significant respects.
Most importantly, the Cash Value under this Policy may consist, entirely on
in part, of Subaccount value which fluctuates in response to the net
investment return of the Variable Account. In contrast, the cash values
under a fixed-benefit policy always reflect interest credited by the
Company. While we guarantee a minimum rate of interest, we have previously
credited interest at higher rates. Accordingly, cash values under a
fixed-benefit policy reflect changing current interest rates and do not vary
with the investment performance of a Variable Account.
Owners of a fixed-benefit policy should carefully consider whether it will
be advantageous to replace a fixed-benefit policy with a Policy (or to
surrender in full or in part a fixed-benefit policy and use the surrender or
partial surrender proceeds to purchase a Policy). Owners of a fixed-benefit
policy should consult their tax advisers before exchanging a fixed-benefit
policy for this Policy, or before surrendering in whole or in part their
fixed-benefit policy and using the proceeds to purchase a Policy.
20
<PAGE>
- --------------------------------------------------------------------------------
POLICY BENEFITS
- --------------------------------------------------------------------------------
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").
- --------------------------------------------------------------------------------
CASH VALUE BENEFITS
SURRENDER PRIVILEGES. At any time prior to the Maturity Date while the
Policy is in force, you may surrender the Policy in whole or in part by
sending a written request to the Company at our Home Office. A Surrender
Charge to cover the 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"). We ordinarily mail surrender proceeds to the
Policyowner within seven days after we receive a signed request for a
surrender at our Home Office, although we may postpone payments 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 when we receive the
request, less the Surrender Charge. We may pay this amount 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 you surrender
the entire Net Cash Value, all insurance in force will terminate. See
"FEDERAL TAX MATTERS" for a discussion of the tax consequences associated
with complete surrenders.
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.
- A partial surrender cannot exceed the lesser of (1) the Net Cash
Value less $500 or (2) 90% of the Net Cash Value.
We deduct the Surrender Charge from the remaining Cash Value. The
Policyowner may request that we pay the proceeds of a partial surrender in a
lump sum or under one of the payment options specified in the Policy. (See
"POLICY BENEFITS--Payment Options").
We will allocate a partial surrender (together with the Surrender Charge)
among the Subaccounts and the Declared Interest Option in accordance with
the Policyowner's written instructions. If we do not receive any such
instructions with the request for partial surrender, we will allocate the
partial surrender 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 we receive the
request at the Home Office.
Partial surrenders will affect both the Policy's Cash Value and the death
proceeds payable under the Policy. (See "POLICY BENEFITS--Death Proceeds.")
- 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
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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.
If Option B is in effect at the time of surrender, partial surrenders will
reduce the Policy's Specified Amount by the amount of Cash Value
surrendered. 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.
CALCULATING CASH VALUE. The Policy provides for the accumulation of 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. We determine Cash Value on each Business Day, and
there is no guaranteed minimum Cash Value.
- Cash Value will reflect a number of factors, including
- Net Premiums paid,
- partial surrenders,
- Policy Loans,
- charges assessed in connection with the Policy,
- interest earned on the Cash Value in the Declared Interest
Option, and
- investment performance of the Subaccounts to which the Cash
Value is allocated.
As of the Policy Date, the 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 we
receive notice that the Policyowner has received the Policy, but no later
than 25 days after the Delivery Date, we will automatically transfer the
Cash Value (all of which is in the Declared Interest Option) among the
Subaccounts and the Declared Interest Option in accordance with your
percentage allocation instructions. At the end of each Valuation Period
thereafter, the Cash Value in a Subaccount will equal:
- 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
- Any Net Premiums received during the current Valuation Period which
are allocated to the Subaccount; PLUS
- All Cash Values transferred to the Subaccount from the Declared
Interest Option or from another Subaccount during the current
Valuation Period; MINUS
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- 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
- All partial surrenders (and any portion of the Surrender Charge)
from the Subaccount during the current Valuation Period; MINUS
- 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 you allocate Net Premiums
or transfer other amounts into a Subaccount, we purchase a number of units
based on the Unit Value of the Subaccount as of the end of the Valuation
Period during which the allocation or 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, we initially set the Unit Value set at $10 when the
Subaccount first purchased shares of the designated Investment Option. We
calculate the Unit Value for each subsequent valuation period 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 the Subaccount for taxes, or any
amount we set aside during the Valuation Period as a provision
for taxes attributable to the operation or maintenance of that
Subaccount, minus
(5) a charge no greater than 0.0024548% 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. We
value the assets in the Variable Account at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
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TRANSFERS
The following features apply to transfers under the Policy:
- You may transfer amounts among the Subaccounts an unlimited number
of times in a Policy Year; however, you may only make one transfer
per Policy Year between the Declared Interest Option and the
Variable Account.
- You may make transfers by written request to the Home Office or, if
you elected the "Telephone Transfer Authorization" on the
supplemental application, by calling the Home Office toll-free at
(800) 247-4170.
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- The amount of the transfer must be at least $100, or if less than
$100, 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). 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 we receive the request at the Home Office.
- The first transfer in each Policy Year is free. Each time you
subsequently transfer amounts in that Policy Year, we may assess a
transfer charge of $25. We will deduct the transfer charge from the
amount transferred unless you submit payment for the charge at the
time of your request. Once we issue a Policy, we will not increase
this charge. (See "CHARGES AND DEDUCTIONS--Transfer Charge.")
- For purposes of these limitations and charges, we consider all
transfers effected on the same day as 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, you 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 you may borrow at any time is 90% of the Cash Value
as of the end of the Valuation Period during which we receive the request
for the Policy Loan 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, we will treat
payments you make first as payment of outstanding Policy Debt, unless you
indicate that we should treat the payment otherwise. Where no indication is
made, we will treat as a premium payment any portion of a payment that
exceeds the amount of any outstanding Policy Debt.
ALLOCATION OF POLICY LOAN. When you take a Policy Loan, we segregate an
amount equal to the Policy Loan 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, we will transfer the difference
from the subaccounts of the Variable Account, which have Cash Value, in the
same proportions that the Policy's Cash Value in each Subaccount bears to
the Policy's total Cash Value in the Variable Account. We will determine
Cash Values as of the end of the Valuation Period during which we receive
the request for the Policy Loan at the Home Office.
We normally will mail loan proceeds to you 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:
(1) the rate may not exceed 7.4% per year in advance (which is equal to
an effective rate of 8.0%);
(2) any increase in the interest rate may not exceed 1.0% per calendar
year; and
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(3) changes in the interest rate may not occur more often than once in
any twelve-month period. The Company will send you notice of any
change in rate. The new rate will take effect on the Policy
Anniversary coinciding with or next following the date we change
the rate.
Interest is payable in advance at the time you make any Policy Loan (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. We will
subtract interest payable at the time you make a Policy Loan from the loan
proceeds. Thereafter, we will add interest not paid when due to the existing
Policy Debt and it will bear interest at the same rate charged for Policy
Loans. We will segregate the amount equal to unpaid interest 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 we charge interest in advance, we will add any interest that has not
been earned to the death benefit payable at the Insured's death and to the
Cash Value upon complete surrender, and we will credit it 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. We will credit all amounts
held in the Declared Interest Option as security for Policy Debt 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. We will
not credit additional interest 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 you may repay Policy Debt 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 higher 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, which is equal to Cash Value less Policy Debt. If Net Cash 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. You may repay Policy Debt 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. We subtract any Policy Debt not repaid 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 partial or full repayment
of Policy Debt, we will no longer segregate within the Declared Interest
Option the portion of the Cash Value securing the repaid portion of the
Policy
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Debt, but that amount will remain in the Declared Interest Option unless and
until transferred to the Variable Account by the Policyowner. We will notify
you when your Policy Debt is repaid in full.
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.
- You may name one or more primary Beneficiaries or contingent
Beneficiaries and we will pay proceeds to the primary Beneficiary or
a contingent Beneficiary.
- If no Beneficiary survives the Insured, we will pay the death
proceeds to the Policyowner or his estate. We may pay death proceeds
in a lump sum or under a payment option. (See "POLICY
BENEFITS--Payment Options.")
To determine the death proceeds, we will reduce the death benefit by any
outstanding Policy Debt and increase it by any unearned loan interest and
any premiums paid after the date of death. We will ordinarily mail proceeds
within seven days after receipt by the Company of Due Proof of Death. We may
postpone payment, however, under certain circumstances. (See "GENERAL
PROVISIONS-- Postponement of Payments.") We pay interest on those proceeds,
at an annual rate of no less than 3.0% or any rate required by law, 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
(1) the sum of the current Specified Amount and the Cash Value, or
(2) the Cash Value multiplied by the specified amount factor.
We will determine Cash Value 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. 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.
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<PAGE>
Appendix B shows examples illustrating Option A and Option B.
CHANGING THE DEATH BENEFIT OPTION. You may change the death benefit option
in effect at any time by sending a written request to the Company at our
Home Office. The effective date of such a change will be the Monthly
Deduction Day coinciding with or immediately following the date we approve
the change. A change in death benefit options may have federal income tax
consequences. (See "FEDERAL TAX MATTERS.")
If you change the death benefit option from Option A to Option B, the
current Specified Amount will not change. If you change the death benefit
option from Option B to Option A, we will reduce the current Specified
Amount by an amount equal to the Cash Value on the effective date of the
change. You may not make a change in the death benefit option 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.
We impose no charges 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, you may adjust the existing insurance coverage by increasing or
decreasing the Specified Amount. To make a change, you must send us a
written request at our 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.")
Any decrease in the Specified Amount will become effective on the Monthly
Deduction Day coinciding with or immediately following the date we approve
the request. 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. A Specified
Amount decrease will not reduce the Surrender Charge.
To apply for an increase, you must provide us with evidence of insurability
we deem satisfactory. Any approved increase will become effective on the
Monthly Deduction Day coinciding with or immediately following the date we
approve the request. 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 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 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.
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<PAGE>
- 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.
- If you elect Option B, 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.
- If you elect Option B, 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.
- 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. A change in insurance protection
may have federal income tax consequences. (See "FEDERAL TAX MATTERS.")
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ACCELERATED PAYMENTS OF DEATH PROCEEDS
In the event that the Insured becomes terminally ill (as 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
months 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 death benefit payable under a rider that covers
the life of someone other than the Insured.
In the event that there is a loan outstanding under the Policy on the date
that the Policyowner requests a payment under the Endorsement, we reduce the
accelerated death benefit 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 you request 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.
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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 of 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.
The Company believes that for federal income tax purposes, an accelerated
death benefit payment received under an accelerated death benefit
endorsement should be fully excludable from the gross income of the
beneficiary, as long as the beneficiary is the insured under the Policy.
However, the Policyowner should consult a qualified tax adviser about the
consequences of adding this Endorsement to a Policy or requesting an
accelerated death benefit payment under this Endorsement.
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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.") We may pay benefits at maturity in a
lump sum or under a payment option. The Maturity Date is Attained Age 95.
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PAYMENT OPTIONS
We may pay death proceeds and Cash Value due at maturity, or upon complete
or partial surrender of a Policy, in whole or in part under a payment
option. There are currently five payment options available. We also may make
payments under any new payment option available at the time proceeds become
payable. In addition, we may pay proceeds in any other manner acceptable to
us.
You may designate an option in the application or notify us in writing at
our 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,
(1) the proceeds are less than $2,000;
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<PAGE>
(2) periodic payments would be less than $20; or
(3) 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 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 or 5 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.
ALTERNATE PAYMENT OPTION. In lieu of one of the above options, we may settle
the cash value, cash surrender value or death benefit, as applicable, under
any other payment option we make available or under any other payment option
you request and we agree to.
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<PAGE>
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CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
We deduct certain charges in connection with the Policy to compensate us for
(1) the services and benefits we provide; (2) the costs and expenses we
incur; and (3) the risks we assume, some of which are described below.
<TABLE>
<S> <C> <C>
SERVICES AND BENEFITS WE PROVIDE: - the death benefit, cash and loan benefits
under the Policy
- investment options, including premium
allocations
- administration of elective options
- the distribution of reports to Policyowners
COSTS AND EXPENSES WE INCUR: - costs associated with processing and
underwriting applications, issuing and
administering the Policy (including any
Policy riders)
- overhead and other expenses for providing
services and benefits
- sales and marketing expenses
- other costs of doing business, such as
collecting premiums, maintaining records,
processing claims, effecting transactions,
and paying Federal, state and local premium
and other taxes and fees
RISKS WE ASSUME: - that the cost of insurance charges we may
deduct are insufficient to meet our actual
claims because Insureds die sooner than we
estimate
- that the costs of providing the services
and benefits under the Policies exceed the
charges we deduct
</TABLE>
The nature and amount of these charges are described more fully below.
- --------------------------------------------------------------------------------
PREMIUM EXPENSE CHARGE
Before allocating Net Premiums among the Subaccounts and the Declared
Interest Option, we reduce premiums paid 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. We deduct a sales charge equal to 5.0% of the premium from
each premium to compensate us for expenses incurred in distributing the
Policy. The sales charge in any Policy Year is not necessarily related to
actual distribution expenses incurred in that year. Instead, we expect 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 our general
assets, including amounts derived from the mortality and expense risk
charge.
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 we consider necessary to pay all premium taxes imposed by the states
and any subdivisions thereof. We reserve the right to change the amount of
this premium tax charge.
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<PAGE>
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MONTHLY DEDUCTION
We deduct certain charges monthly from the Cash Value of each Policy
("monthly deduction") to compensate us 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. We deduct the monthly deduction on the Policy Date and on each
Monthly Deduction Day. We deduct it 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, we
determine Cash Values 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.
During the first 12 Policy Months and during the 12 Policy Months
immediately following an increase in Specified Amount, the monthly deduction
will include a first year monthly administrative charge.
We make the monthly deduction on the Business Day coinciding with or
immediately following each Monthly Deduction Day and it will equal:
- the cost of insurance for the Policy; plus
- the cost of any optional insurance benefits added by rider; plus
- the monthly administrative charge.
COST OF INSURANCE. This charge is designed to compensate us for the
anticipated cost of paying death proceeds to Beneficiaries of those Insureds
who die prior to the Maturity Date. We determine the cost of insurance on a
monthly basis, and we determine it separately for the initial Specified
Amount and for any subsequent increases in Specified Amount. We 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.
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.
We determine the Specified Amount and the Cash Value as of the end of the
Business Day coinciding with or immediately following the Monthly Deduction
Day.
We determine the net amount at risk separately for the initial Specified
Amount and any increases in Specified Amount. In determining the net amount
at risk for each Specified Amount, we first consider the Cash Value a part
of the initial Specified Amount. If the Cash Value exceeds the initial
Specified Amount, we will consider it to be a part of any increase in the
Specified Amount in the same order as the increases occurred.
COST OF INSURANCE RATE. We base the cost of insurance rate for the initial
Specified Amount on the Insured's sex, premium class and Attained Age. For
any increase in Specified Amount, we base the cost of insurance rate on the
Insured's sex, premium class and age at last birthday on the effective date
of the increase. Actual cost of insurance rates may change and we will
determine the actual
- ------------------------
(1) Dividing by this number 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%.
32
<PAGE>
monthly cost of insurance rates 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.
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 two
categories: tobacco and non-tobacco. (The Company may offer preferred
classes in addition to the standard tobacco and non-tobacco classes.)
Non-tobacco-using Insureds will generally have a lower cost of insurance
rate than similarly situated Insureds who use tobacco.
We determine the cost of insurance rate separately for the initial Specified
Amount and for the amount of any increase in Specified Amount. In
calculating the cost of insurance charge, we apply the rate for the premium
class on the Policy Date to the net amount at risk for the initial Specified
Amount; for each increase in Specified Amount, we use the rate for the
premium class applicable to the increase. However, if we calculate the death
benefit as the Cash Value times the specified amount factor, we will use the
rate for the premium class for the most recent increase that required
evidence of insurability 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.")
MONTHLY ADMINISTRATIVE CHARGE. We have 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, we assess a $3 monthly
administrative charge against each Policy. Once we issue a Policy, we
guarantee the amount of this charge for the life of the Policy.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. We deduct monthly administrative
charges 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 us 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. We base the charges deducted during the first 12 Policy
Months on the Insured's Attained Age. We base the charges deducted during
the 12 Policy Months following any increase in Specified Amount on the
Insured's age at last birthday on the effective date of the increase.
33
<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>
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TRANSFER CHARGE
We may impose a transfer charge of $25 for the second and each subsequent
transfer during a Policy Year to compensate us for the costs in making the
transfer.
- Unless paid in cash, we will deduct the transfer charge from the
amount transferred.
- Once we issue a Policy, we will not increase this charge for the
life of the Policy.
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<PAGE>
- We will not impose a transfer charge 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, we assess a charge equal to
the lesser of $25 or 2.0% of the amount surrendered to compensate us for
costs incurred in accomplishing the surrender. We deduct the surrender
charge from the remaining Cash Value.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We deduct a 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. We guarantee not to increase
this charge for the duration of the Policy. We may realize a profit from
this charge and may use such profit for any lawful purpose, including
payment of our distribution expenses.
The mortality risk we assume is that Insureds may die sooner than
anticipated and therefore, we 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. We
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.")
INVESTMENT OPTION EXPENSES. The value of net assets of the Variable Account
will reflect the investment advisory fee and other expenses incurred by each
Investment Option. The investment advisory fee and other expenses applicable
to each Investment Option are listed in the "SUMMARY OF THE POLICY" and
described in the prospectus for each Fund's Investment Option.
- --------------------------------------------------------------------------------
THE DECLARED INTEREST OPTION
- --------------------------------------------------------------------------------
Policyowners may allocate Net Premiums and transfer Cash Value to the
Declared Interest Option. Because of exemptive and exclusionary provisions,
we have not registered interests in the Declared Interest Option under the
Securities Act of 1933 and we have not registered the Declared Interest
Option 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. Please
refer to the Policy for complete details regarding the Declared Interest
Option.
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION
Our General Account supports the Declared Interest Option. The General
Account consists of all assets we own other than those in the Variable
Account and other separate accounts. Subject to applicable law, we have sole
discretion over the investment of the General Account's assets.
35
<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. Allocating or transferring
funds to the Declared Interest Option does not entitle a Policyowner to
share in the investment experience of the General Account. Instead, we
guarantee 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.
- --------------------------------------------------------------------------------
DECLARED INTEREST OPTION CASH VALUE
Net premiums allocated to the Declared Interest Option are credited to the
Policy. The Company bears the full 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 AND POLICY LOANS
You may transfer amounts between the Subaccounts and the Declared Interest
Option. However, only one transfer between the Variable Account and the
Declared Interest Option is permitted in each Policy Year. We may impose a
transfer charge of $25 in connection with the transfer unless such transfer
is the first transfer requested by the Policyowner during such Policy Year.
Unless you submit the transfer charge in cash with your request, we will
deduct the charge from the amount transferred. 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, you
may transfer the full Net Cash Value in the Declared Interest Option. 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.
We may delay transfers and surrenders from, and payments of Policy Loans
allocated to, the Declared Interest Option for up to six months.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
THE CONTRACT
We issue the Policy 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, we will treat the statements made in an
36
<PAGE>
application or supplemental application as representations and not as
warranties. We will not use any statement to void the Policy or in defense
of a claim unless the statement is 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. 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, the
Secretary or an 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 OR SEX
If the Insured's age or sex was misstated in the application, we will adjust
each benefit and any amount to be paid under the Policy 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 one year from the Policy Date, we will limit life insurance
proceeds payable under the Policy 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 one year from the effective date of
any increase in Specified Amount, we will not pay any increase in the death
benefit resulting from the requested increase in Specified Amount. Instead,
we 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, we will send an annual report 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.
37
<PAGE>
- --------------------------------------------------------------------------------
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
You should send any written notice to the Company at our Home Office. The
notice should include the policy number and the Insured's full name. Any
notice we send to a Policyowner will be sent to the address shown in the
application unless you filed an appropriate address change form with the
Company.
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete surrenders, partial
surrenders and Policy Loans within seven days after we receive the
Policyowner's signed request 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, we
may postpone payment of any amount upon complete or partial surrender,
payment of any Policy Loan, and payment of death proceeds or benefits at
maturity whenever:
- 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;
- the Securities and Exchange Commission by order permits postponement
for the protection of Policyowners; or
- 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.
We also may postpone transfers 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 INSURANCE
The insurance under a Policy will continue until the earlier of:
- 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;
- the date the Policyowner surrenders the Policy for its entire Net
Cash Value;
- the death of the Insured; or
- the Maturity Date.
Any rider to a Policy will terminate on the date specified in the rider.
38
<PAGE>
- --------------------------------------------------------------------------------
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 us unless in writing and
until we receive notice of the assignment at the Home Office. The assignment
is subject to any payment or action we may have taken before we received
notice of the assignment at the Home Office. Assigning the Policy may have
federal income tax consequences. [See "FEDERAL TAX MATTERS."]
- --------------------------------------------------------------------------------
THE BENEFICIARY
The Policyowner designates the primary Beneficiaries and contingent
Beneficiaries 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, we will pay the proceeds payable at the
Insured's death in a lump sum to the primary Beneficiary. If the primary
Beneficiary dies before the Insured, we will pay the proceeds to the
contingent Beneficiary. If no Beneficiary survives the Insured, we will pay
the proceeds to the Policyowner or the Policyowner's estate.
- --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Insured's life, the Policyowner and the Beneficiary may be
changed. To make a change, you must send a written request to the Company at
its Home Office. The request and the change must be in a form satisfactory
to the Company and we must actually receive and record the request. The
change will take effect as of the date you sign the request. The change will
be subject to any payment made before the Company recorded the change. The
Company may require return of the Policy for endorsement.
- --------------------------------------------------------------------------------
ADDITIONAL INSURANCE BENEFITS
Subject to certain requirements, you may add one or more of the following
additional insurance benefits to a Policy by rider:
- Universal Cost of Living Increase;
- Universal Waiver of Charges;
- Universal Adult Term Insurance;
- Universal Children's Term Insurance; and
- Universal Guaranteed Insurability Option.
We will deduct the cost of any additional insurance benefits as part of the
monthly deduction. (See "CHARGES AND DEDUCTIONS--Monthly Deduction.") You
may obtain detailed information concerning available riders from the agent
selling the Policy.
39
<PAGE>
- --------------------------------------------------------------------------------
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, EquiTrust
Marketing Services, LLC ("EquiTrust Marketing"). EquiTrust 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. EquiTrust Marketing
currently receives annual compensation of $100 per registered representative
for acting as principal underwriter.
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 minimum initial 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.
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."
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FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as
tax advice. Counsel or other competent tax advisors should be consulted for
more complete information. This discussion is based upon our understanding
of the present Federal income tax laws. No representation is made as to the
likelihood of continuation of the present Federal income tax laws or as to
how they may be interpreted by the Internal Revenue Service.
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TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a life insurance policy must satisfy
certain requirements which are set forth in the Internal Revenue Code.
Guidance as to how these requirements are to be applied is limited.
Nevertheless, we believe that a Policy issued on the basis of a standard
rate class should satisfy the applicable requirements. There is less
guidance, however, with respect to a Policy issued on a substandard basis
(I.E., a premium class involving higher than standard mortality risk) and it
is not clear whether such a policy will in all cases satisfy the applicable
requirements, particularly if you pay the full amount of premiums permitted
under the Policy. If it is subsequently determined that a policy does not
satisfy the applicable requirements, we may take appropriate steps to bring
the policy into compliance with such requirements and we reserve the right
to modify the Policy as necessary in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for Federal income tax purposes to be the owners of the
assets of variable account supporting their contracts due to their ability
to exercise investment control over those assets. Where this is the case,
the policyowners have been currently taxed on income and gains attributable
to variable account assets.
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<PAGE>
There is little guidance in this area, and some features of the Policy, such
as the flexibility to allocate premium payments and Cash Values, have not
been explicitly addressed in published rulings. While we believe that the
Policy does not give the Policyowner investment control over Variable
Account assets, we reserve the right to modify the Policy as necessary to
prevent the Policyowner from being treated as the owner of the Variable
Account assets supporting the Policy.
In addition, the Code requires that the investments of the Subaccounts be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal income tax purposes. It is intended that the
Subaccounts, through the funds, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
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TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the death benefit under a Policy
should be excludible from the gross income of the beneficiary. Federal,
state and local estate, inheritance, transfer, and other tax consequences of
ownership or receipt of policy proceeds depend on the circumstances of each
Policyowner or beneficiary. A tax adviser should be consulted on these
consequences.
Generally, a Policyowner will not be deemed to be in constructive receipt of
the Cash Value until there is a distribution. When distributions from a
Policy occur, or when loans are taken out from or secured by a Policy, the
tax consequences depend on whether the Policy is classified as a "modified
endowment contract."
MODIFIED ENDOWMENT CONTRACTS. Under the Internal Revenue Code, certain life
insurance contracts are classified as "modified endowment contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policy as to premium payments and benefits, the
individual circumstances of each Policy will determine whether it is
classified as a modified endowment contract. The rules are too complex to be
summarized here, but generally depend on the amount of premium payments made
during the first seven Policy years. Certain changes in a Policy after it is
issued could also cause it to be classified as a modified endowment
contract. You should consult with a competent tax adviser to determine
whether a Policy transaction will cause the Policy to be classified as a
modified contract.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT
CONTRACTS. Policies classified as modified endowment contracts are subject
to the following tax rules:
(1) All distributions other than death benefits from a modified
endowment contract, including distributions upon surrender and
withdrawals, will be treated first as distributions of gain taxable
as ordinary income and as tax-free recovery of the Policyowner's
investment in the Policy only after all gain has been distributed.
(2) Loans taken from or secured by a Policy classified as a modified
endowment contract are treated as distributions and taxed
accordingly.
(3) A 10 percent additional income tax is imposed on the amount subject
to tax except where the distribution or loan is made when the
Policyowner has attained age 59 1/2 or is disabled, or where the
distribution 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 or designated beneficiary.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS. Distributions other than death benefits from a Policy
that is not classified as a modified endowment contract are generally
treated first as a recovery of the Policyowner's investment in the Policy,
and only after the recovery of all investment in the Policy, as taxable
income. However, certain distributions which must be made in order to enable
the Policy to continue to qualify as a life
41
<PAGE>
insurance contract for Federal income tax purposes if Policy benefits are
reduced during the first 15 Policy years may be treated in whole or in part
as ordinary income subject to tax.
Loans from or secured by a Policy that is not a modified endowment contract
will generally not be treated as taxable distributions.
Finally, neither distributions from, nor loans from or secured by, a Policy
that is not a modified endowment contract are subject to the 10 percent
additional income tax.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally your
aggregate premiums. When a distribution is taken from the Policy, your
investment in the Policy is reduced by the amount of the distribution that
is tax-free.
POLICY LOAN INTEREST. In general, interest on a Policy Loan will not be
deductible.
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 includible in the Policyowner's income when a taxable
distribution occurs.
ACCELERATED DEATH BENEFITS. The Company believes that for federal income tax
purposes, an accelerated death benefit payment received under an accelerated
death benefit endorsement should be fully excludable from the gross income
of the beneficiary, as long as the beneficiary is the insured under the
Policy. However, you should consult a qualified tax adviser about the
consequences of adding this Endorsement to a Policy or requesting an
accelerated death benefit payment under this Endorsement.
EXCHANGES. The Company 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 an amount of such loan (including any due and unpaid
interest on such loan). An exchanging Policyowner should consult a tax
adviser as to whether an exchange of a fixed-benefit policy for the Policy
will have adverse tax consequences.
OTHER POLICYOWNER TAX MATTERS. Businesses can use the Policy in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, tax
exempt and nonexempt welfare benefit plans, retiree medical benefit plans
and others. The tax consequences of such plans may vary depending on the
particular facts and circumstances. If you are purchasing the Policy for any
arrangement the value of which depends in part on its tax consequences, you
should consult a qualified tax adviser. In recent years, moreover, Congress
has adopted new rules relating to life insurance owned by businesses. Any
business contemplating the purchase of a new Policy or a change in an
existing Policy should consult a tax adviser.
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<PAGE>
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POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
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TAXATION OF THE COMPANY
At the present time, the Company makes no charge for any Federal, state or
local taxes (other than the charge for state premium taxes) that may be
attributable to the Variable Account or to the policies. The Company
reserves the right to charge the Subaccounts of the Variable Account for any
future taxes or economic burden the Company may incur.
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EMPLOYMENT-RELATED BENEFIT PLANS
The Supreme Court held in Arizona Governing Committee v. 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.
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ADDITIONAL INFORMATION
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SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from the General Account.
The Company maintains records of all purchases and redemptions of shares by
each Investment Option for each corresponding Subaccount. Additional
protection for the assets of the Variable Account is afforded by a blanket
fidelity bond issued by Chubb Insurance Group in the amount of $5,000,000
covering all the officers and employees of the Company.
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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
Funds 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.
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 Investment Option in which the Subaccount invests. Fractional
shares will be counted. The number of votes of the Investment Option which
the Policyowner has the right to instruct will be determined as of the date
coincident with the date established by that Investment Option 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
43
<PAGE>
procedures established by each Fund. Each person having a voting interest in
a Subaccount will receive proxy materials, reports and other materials
relating to the appropriate Investment Option.
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 Investment Option. 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.
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.
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 an Investment Option or to
approve or disapprove an investment advisory contract for an Investment
Option. 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 an Investment Option 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 an
Investment Option 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.
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STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized 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.
44
<PAGE>
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OFFICERS AND DIRECTORS OF FARM BUREAU LIFE INSURANCE COMPANY
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.
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Kenneth R. Ashby Farmer; President, Utah Farm Bureau Federation and affiliated
Director 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., FBL
Financial Group, Inc. and Universal Assurors Life Insurance
Company
Al Christopherson Farmer; President, Minnesota Farm Bureau Federation; Director, FBL
Director Financial Group, Inc., Universal Assurors Life Insurance Company,
Farm Bureau Mutual Insurance Company and FBL Insurance Brokerage,
Inc.
Ernest A. Glienke Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc., Utah Farm Bureau Insurance Company and
FBL Financial Services, Inc.
Philip A. Hemesath Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc. and FBL Financial Services, Inc.
Craig D. Hill Farmer; President, CAPA Hill, Inc.; Director, Farm Bureau Mutual
Director Insurance Company, FBL Insurance Brokerage, Inc., Utah Farm Bureau
Insurance Company and FBL Financial Services, Inc.
Daniel L. Johnson Farmer; Farm Bureau Mutual Insurance Company, FBL Insurance
Director Brokerage, Inc. and FBL Financial Services, Inc.
Richard G. Kjerstad Farmer; President and Director, South Dakota Farm Bureau Federation
Director and South Dakota Farm Bureau Mutual Insurance Company; Director,
FBL Financial Group, Inc. and Universal Assurors Life Insurance
Company
Lindsey D. Larsen Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc., Utah Farm Bureau Insurance Company and
FBL Financial Services, Inc.
David R. Machacek Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc., and FBL Financial Services, Inc.
Donald O. Narigon Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc., and FBL Financial Services, Inc.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Bryce P. Neidig Farmer; President, Nebraska Farm Bureau Federation, Nebraska Farm
Director 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., FBL Financial Group, Inc., Blue Cross/Blue
Shield of Nebraska and Universal Assurors Life Insurance Company
Charles E. Norris Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc. and FBL Financial Services, Inc.
Keith R. Olsen Farmer
Director
Bennett M. Osmonson Farmer
Director
Howard D. Poulson Farmer; President, Wisconsin Farm Bureau Federation, Rural Mutual
Director Insurance Company and Midwest Livestock Producers; Director, FBL
Financial Group, Inc. and Universal Assurors Life Insurance
Company
Sally A. Puttmann Farmer; Director, Farm Bureau Mutual Insurance Company, FBL
Director Insurance Brokerage, Inc. and FBL Financial Services, Inc.
Beverly L. Schnepel Farmer; Director, Farm Bureau Mutual Insurance Company, Utah Farm
Director Bureau Insurance Company, FBL Insurance Brokerage, Inc. and FBL
Financial Services, Inc.
F. Gary Steiner Farmer; Director, Wisconsin Farm Bureau Insurance Company and Bank
Director of Alma (Alma, WI)
Edward M. Wiederstein Farmer; Chairman and Director, FBL Financial Group, Inc.; President
President and Director and 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, EquiTrust Life Insurance Company
and Farm Bureau Agricultural Business Corporation; Director,
Multi-Pig Corporation, Western Agricultural Insurance Company,
Western Ag Insurance Agency, Inc., Western Farm Bureau Life
Insurance Company and American Ag Insurance Company
Craig A. Lang Farmer; Director, Growmark, Inc., Western Farm Bureau Life Insurance
Vice President and Director 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>
46
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Richard D. Harris Senior Vice President and Secretary-Treasurer, Farm Bureau Mutual
Senior Vice President and Insurance Company, FBL Insurance Brokerage, Inc., Universal
Secretary-Treasurer Assurors Life Insurance Company, Utah Farm Bureau Insurance
Company, Western Farm Bureau Life Insurance Company, FBL Financial
Services, Inc. and FBL Financial Group, Inc.; Senior Vice
President and Assistant Secretary-Treasurer, South Dakota Farm
Bureau Mutual Insurance Company
Stephen M. Morain Senior Vice President, General Counsel and Management Director, FBL
Senior Vice President and Financial Group, Inc.
General Counsel
Thomas R. Gibson Chief Executive Officer and Management Director, FBL Financial
Chief Executive Officer Group, Inc.
William J. Oddy Chief Operating Officer, FBL Financial Group, Inc.
Executive Vice President and
General Manager
Timothy J. Hoffman Vice President, Chief Property/Casualty Officer, FBL Financial
Vice President Group, Inc.
James W. Noyce Chief Financial Officer, FBL Financial Group, Inc.
Chief Financial Officer
Barbara J. Moore Vice President-Market Development, FBL Financial Group, Inc.
Vice President
JoAnn W. Rumelhart Vice President-Life Operations, FBL Financial Group, Inc.
Vice President-Life Operations
John M. Paule Vice President-Corporate Administration, FBL Financial Group, Inc.
Vice President-Corporate
Administration
Lynn E. Wilson Vice President-Life Sales, FBL Financial Group, Inc.
Vice President-Life Sales
F. Walter Tomenga Vice President-Corporate Affairs and Marketing Services, FBL
Vice President - Corporate Financial Group, Inc.
Affairs and Marketing Services
Robert L. Tatge Vice President-Property/Casualty Operations, FBL Financial Group,
Vice President Inc.
LouAnn Sandburg Vice President-Investments and Assistant Treasurer, FBL Financial
Vice President - Investments Group, Inc.
and Assistant Treasurer
Thomas E. Burlingame Vice President-Associate General Counsel, FBL Financial Group, Inc.
Vice President - Associate
General Counsel
Kathryn Coleson Horner Accounting Vice President, FBL Financial Group, Inc.
Accounting Vice President
Dennis M. Marker Investment Vice President, Administration, FBL Financial Group, Inc.
Investment Vice President,
Administration
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Paul Grinvalds Variable Operations Vice President, Appointed Actuary, FBL Financial
Variable Operations Vice Group, Inc.
President
James P. Brannen Controller and Vice President, FBL Financial Group, Inc.
Controller and Vice President
Ronald J. Palmer Agency Services Vice President, FBL Financial Group, Inc.
Agency Services Vice President
Christopher G. Daniels Life Product Development and Pricing Vice President, FBL Financial
Life Product Development and Group, Inc.
Pricing Vice President
James M. Mincks Human Resources Vice President, FBL Financial Group, Inc.
Human Resources Vice President
Don Seibel GAAP Accounting Vice President, FBL Financial Group, Inc.
GAAP Accounting Vice President
Scott Shuck Marketing Services Vice President, FBL Financial Group, Inc.
Marketing Services Vice
President
Jim Streck Traditional Operations Vice President, FBL Financial Group, Inc.
Traditional Operations Vice
President
Blake D. Weber Sales Services Vice President, FBL Financial Group, Inc.
Sales Services Vice President
Kermit J. Larson Agency Vice President, Farm Bureau Life Insurance Company
Agency Vice President
Larry W. Riley Agency Vice President, Farm Bureau Life Insurance Company
Agency Vice President
John F. Mottet Agency Vice President, Farm Bureau Life Insurance Company
Agency Vice President
Richard J. January Regional Vice President, Farm Bureau Life Insurance Company
Regional Vice President
Cyrus S. Winters Regional Vice President, Farm Bureau Life Insurance Company
Regional Vice President
Michael J. Tousley Regional Vice President, Farm Bureau Life Insurance Company
Regional Vice President
Ronnie G. Lee Agency Vice President, Farm Bureau Life Insurance Company
Agency Vice President
Art Sieler Agency Vice President, Farm Bureau Life Insurance Company
Agency Vice President
</TABLE>
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LEGAL MATTERS
Sutherland Asbill & Brennan LLP 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
48
<PAGE>
Law, have been passed upon by Stephen M. Morain, Senior Vice President and
General Counsel of the Company.
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LEGAL PROCEEDINGS
The Company, like other insurance companies, is involved in lawsuits.
Currently, there are no class action lawsuits naming the Company as a
defendant or involving the Variable Account. In some lawsuits involving
other insurers, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, the Company believes that at the present
time, there are no pending or threatened lawsuits that are reasonably likely
to have a material adverse impact on the Variable Account or the Company.
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EXPERTS
The financial statements of the Variable Account at December 31, 1998 and
for each of the three years in the period then ended, and the financial
statements and schedules of the Company at December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, 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 firm
as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by
Christopher G. Daniels, FSA, MAAA, Life Product Development and Pricing Vice
President, as stated in the opinion filed as an exhibit to the registration
statement.
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YEAR 2000
Like other investment funds, financial and business organizations and
individuals around the world, the Variable Account could be adversely
affected if the computer systems used by the Company and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company has completed a
comprehensive assessment of the Year 2000 issue and developed a plan to
address the issue in a timely manner. The Company has and will utilize both
internal and external resources to reprogram, or replace, and test the
software for Year 2000 modifications. The Company anticipates completing the
Year 2000 project prior to any anticipated impact on its operating systems.
The date on which the Company believes it will complete the Year 2000
modifications is based on management's best estimates, which were derived
utilizing numerous assumptions of future events. The Company also recognizes
there are outside influences and dependencies relative to its Year 2000
effort, over which it has little or no control. However, the Company is
putting effort into ensuring these considerations will have minimal impact.
These would include the continued availability of certain resources,
third-party modification plans and many other factors. However, there can be
no guarantee that these estimates will be achieved and actual results could
differ from those anticipated.
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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.
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<PAGE>
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FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Variable Account's statement of net assets as of December 31, 1998 and
the related statements of operations and changes in net assets for each of
the three years in the period then ended, and the consolidated balance
sheets of the Company at December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
appearing herein, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their respective reports thereon appearing
elsewhere herein.
50
<PAGE>
(This page has been left blank intentionally.)
51
<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 (comprised of the Value Growth, High Grade Bond, High Yield
Bond, Managed, Money Market, and Blue Chip Subaccounts) as of December 31, 1998,
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, 1998, by correspondence with
the mutual fund's 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 Farm Bureau Life Variable
Account at December 31, 1998, and the results of its operations and changes in
its net assets for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
March 15, 1999
52
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in EquiTrust Variable Insurance Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 2,461,748 shares at net asset value of $9.50 per share
(cost: $29,717,180) $23,386,609
High Grade Bond Subaccount:
High Grade Bond Portfolio, 366,577 shares at net asset value of $10.19 per
share (cost: $3,671,693) 3,735,419
High Yield Bond Subaccount:
High Yield Bond Portfolio, 703,907 shares at net asset value of $10.17 per
share (cost: $7,073,462) 7,158,734
Managed Subaccount:
Managed Portfolio, 2,440,583 shares at net asset value of $11.45 per share
(cost: $29,706,196) 27,944,672
Money Market Subaccount:
Money Market Portfolio, 1,861,926 shares at net asset value of $1.00 per share
(cost: $1,861,926) 1,861,926
Blue Chip Subaccount:
Blue Chip Portfolio, 767,963 shares at net asset value of $36.87 per share
(cost: $20,605,449) 28,314,805
----------
Total investments (cost: $92,635,906) 92,402,165
LIABILITIES --
----------
NET ASSETS $92,402,165
----------
----------
</TABLE>
<TABLE>
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
<S> <C> <C> <C>
------------------------------------------------
Net assets are represented by:
Value Growth Subaccount 1,317,850.799566 $ 17.746022 $ 23,386,609
High Grade Bond Subaccount 187,474.852759 19.924908 3,735,419
High Yield Bond Subaccount 292,835.633873 24.446254 7,158,734
Managed Subaccount 1,233,081.438749 22.662470 27,944,672
Money Market Subaccount 133,508.649392 13.946109 1,861,926
Blue Chip Subaccount 687,588.054971 41.179897 28,314,805
-------------
Total net assets $ 92,402,165
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES.
53
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED VALUE GROWTH SUBACCOUNT
-------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Net investment income (operating loss):
Dividend income $ 741,124 $4,694,698 $3,350,569 $ 20,067 $2,195,812 $1,468,287
Mortality and expense risk charges (734,884) (481,341) (307,070) (212,703) (169,085) (112,696)
-------------------------------------------------------------------
Net investment income (operating loss) 6,240 4,213,357 3,043,499 (192,636) 2,026,727 1,355,591
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from investment
transactions 16,999 107,131 101,081 (36,454) 20,814 38,673
Change in unrealized appreciation/
depreciation of investments (5,668,314) 1,153,688 2,136,480 (6,650,686) (1,124,051) 661,242
-------------------------------------------------------------------
Net gain (loss) on investments (5,651,315) 1,260,819 2,237,561 (6,687,140) (1,103,237) 699,915
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $(5,645,075) $5,474,176 $5,281,060 $(6,879,776) $ 923,490 $2,055,506
-------------------------------------------------------------------
-------------------------------------------------------------------
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT
-------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Net investment income:
Dividend income $ 189,273 $ 134,181 $ 109,132 $ 399,282 $ 284,128 $ 209,673
Mortality and expense risk charges (26,271) (17,176) (13,511) (50,840) (29,807) (19,103)
-------------------------------------------------------------------
Net investment income 163,002 117,005 95,621 348,442 254,321 190,570
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) from investment
transactions 1,995 (207) (988) 2,267 2,527 (445)
Change in unrealized appreciation/
depreciation of investments 19,999 59,144 (18,165) (30,149) 102,518 46,768
-------------------------------------------------------------------
Net gain (loss) on investments 21,994 58,937 (19,153) (27,882) 105,045 46,323
-------------------------------------------------------------------
Net increase in net assets resulting from
operations $ 184,996 $ 175,942 $ 76,468 $ 320,560 $ 359,366 $ 236,893
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
54
<PAGE>
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT MONEY MARKET SUBACCOUNT BLUE CHIP SUBACCOUNT
------------------------------------- ----------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Net investment
income
(operating
loss):
Dividend
income $ 14,987 $1,831,509 $ 1,393,489 $114,987 $ 44,031 $ 23,870 $ 2,528 $ 205,037 $ 146,118
Mortality and
expense risk
charges (229,740) (155,911) (102,690) (20,750) (7,758) (4,490) (194,580) (101,604) (54,580)
------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME (214,753) 1,675,598 1,290,799 94,237 36,273 19,380 (192,052) 103,433 91,538
Net realized and
unrealized
gain (loss) on
investments:
Net realized
gain (loss)
from
investment
transactions (11,537) 18,600 24,883 -- -- -- 60,728 65,397 38,958
Change in
unrealized
appreciation/depreciation
of
investments (2,491,453) (107,837) 458,029 -- -- -- 3,483,975 2,223,914 988,606
------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS)
ON INVESTMENTS (2,502,990) (89,237) 482,912 -- -- -- 3,544,703 2,289,311 1,027,564
------------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS $(2,717,743) $1,586,361 $ 1,773,711 $94,237 $ 36,273 $ 19,380 $3,352,651 $2,392,744 $1,119,102
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
COMBINED VALUE GROWTH SUBACCOUNT
----------------------------------------- -----------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 6,240 $4,213,357 $ 3,043,499 $ (192,636) $ 2,026,727 $ 1,355,591
Net realized gain
(loss) from
investment
transactions 16,999 107,131 101,081 (36,454) 20,814 38,673
Change in unrealized
appreciation/
depreciation of
investments (5,668,314) 1,153,688 2,136,480 (6,650,686) (1,124,051) 661,242
-------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (5,645,075) 5,474,176 5,281,060 (6,879,776) 923,490 2,055,506
Capital share
transactions:
Transfers of net
premiums 39,784,341 27,046,928 16,143,306 7,160,411 6,216,376 4,673,744
Transfers of surrenders
and death benefits (1,743,025) (977,522) (785,233) (486,854) (327,624) (253,040)
Transfers of policy
loans (1,828,958) (1,110,979) (701,757) (571,575) (385,548) (260,923)
Transfers of cost of
insurance and
transfer charges (10,147,284) (6,964,921) (4,854,913) (2,740,952) (2,190,816) (1,591,999)
Transfers between
subaccounts,
including fixed
interest subaccount 3,976,174 1,500,575 769,812 4,677,943 2,316,346 838,861
-------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions 30,041,248 19,494,081 10,571,215 8,038,973 5,628,734 3,406,643
-------------------------------------------------------------------------------------
Total increase in net
assets 24,396,173 24,968,257 15,852,275 1,159,197 6,552,224 5,462,149
Net assets at beginning
of year 68,005,992 43,037,735 27,185,460 22,227,412 15,675,188 10,213,039
-------------------------------------------------------------------------------------
Net assets at end of year $ 92,402,165 $68,005,992 $43,037,735 $ 23,386,609 $22,227,412 $15,675,188
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT
------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 163,002 $ 117,005 $ 95,621 $ 348,442 $ 254,321 $ 190,570
Net realized gain
(loss) from
investment
transactions 1,995 (207) (988) 2,267 2,527 (445)
Change in unrealized
appreciation/
depreciation of
investments 19,999 59,144 (18,165) (30,149) 102,518 46,768
-------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 184,996 175,942 76,468 320,560 359,366 236,893
Capital share
transactions:
Transfers of net
premiums 769,738 425,444 466,620 1,543,162 1,099,120 875,412
Transfers of surrenders
and death benefits (45,616) (22,840) (34,124) (86,660) (88,016) (75,125)
Transfers of policy
loans (54,423) (28,370) (29,714) (111,558) (76,196) (54,879)
Transfers of cost of
insurance and
transfer charges (284,583) (196,916) (177,675) (571,771) (363,359) (276,886)
Transfers between
subaccounts,
including fixed
interest subaccount 909,489 191,456 134,027 1,963,447 617,797 167,619
-------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions 1,294,605 368,774 359,134 2,736,620 1,189,346 636,141
-------------------------------------------------------------------------------
Total increase in net
assets 1,479,601 544,716 435,602 3,057,180 1,548,712 873,034
Net assets at beginning
of year 2,255,818 1,711,102 1,275,500 4,101,554 2,552,842 1,679,808
-------------------------------------------------------------------------------
Net assets at end of year $3,735,419 $2,255,818 $1,711,102 $ 7,158,734 $ 4,101,554 $2,552,842
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
MANAGED SUBACCOUNT
-----------------------------------------
YEAR ENDED
DECEMBER 31
1998 1997 1996
<S> <C> <C> <C>
Operations:
Net investment income
(operating loss) $ (214,753) $ 1,675,598 $ 1,290,799
Net realized gain
(loss) from
investment
transactions (11,537) 18,600 24,883
Change in unrealized
appreciation/
depreciation of
investments (2,491,453) (107,837) 458,029
-----------------------------------------
Net increase (decrease)
in net assets resulting
from operations (2,717,743) 1,586,361 1,773,711
Capital share
transactions:
Transfers of net
premiums 7,504,132 6,018,771 4,298,411
Transfers of surrenders
and death benefits (700,821) (282,557) (292,018)
Transfers of policy
loans (581,646) (353,388) (225,813)
Transfers of cost of
insurance and
transfer charges (2,891,340) (2,041,923) (1,418,517)
Transfers between
subaccounts,
including fixed
interest subaccount 5,897,873 2,315,574 1,055,783
-----------------------------------------
Net increase in net
assets resulting from
capital share
transactions 9,228,198 5,656,477 3,417,846
-----------------------------------------
Total increase in net
assets 6,510,455 7,242,838 5,191,557
Net assets at beginning
of year 21,434,217 14,191,379 8,999,822
-----------------------------------------
Net assets at end of year $ 27,944,672 $21,434,217 $14,191,379
-----------------------------------------
-----------------------------------------
</TABLE>
57
<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
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 94,237 $ 36,273 $ 19,380 $ (192,052) $ 103,433 $ 91,538
Net realized gain from
investment transactions -- -- -- 60,728 65,397 38,958
Change in unrealized
appreciation/depreciation
of investments -- -- -- 3,483,975 2,223,914 988,606
-----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 94,237 36,273 19,380 3,352,651 2,392,744 1,119,102
Capital share transactions:
Transfers of net premiums 15,811,356 8,680,125 2,945,406 6,995,542 4,607,092 2,883,713
Transfers of surrenders and
death benefits (9,586) (1,770) (6,116) (413,488) (254,715) (124,810)
Transfers of policy loans (5,560) (16,477) (1,728) (504,196) (251,000) (128,700)
Transfers of cost of
insurance and transfer
charges (885,590) (645,950) (469,674) (2,773,048) (1,525,957) (920,162)
Transfers between
subaccounts, including
fixed interest subaccount (16,263,292) (5,898,862) (2,037,433) 6,790,714 1,958,264 610,955
-----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from
capital share transactions (1,352,672) 2,117,066 430,455 10,095,524 4,533,684 2,320,996
-----------------------------------------------------------------------------------
Total increase (decrease) in
net assets (1,258,435) 2,153,339 449,835 13,448,175 6,926,428 3,440,098
Net assets at beginning of
year 3,120,361 967,022 517,187 14,866,630 7,940,202 4,500,104
-----------------------------------------------------------------------------------
Net assets at end of year $ 1,861,926 $ 3,120,361 $ 967,022 $ 28,314,805 $14,866,630 $ 7,940,202
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
58
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 EquiTrust 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 fixed 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of the Account's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
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 net amount at
risk. 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 net amount at risk
depends on a number of variables as described in the Account's prospectus.
MORTALITY AND EXPENSE RISK CHARGES: The Company deducts a daily mortality and
expense risk charge from the Account at an effective annual rate of .90% of the
average daily net asset value of the Account. These charges are assessed in
return for the Company's 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 or net realized gain on
59
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
--------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ---------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
Value Growth Subaccount $8,118,646 $ 272,309 $7,979,469 $ 324,008 $5,113,277 $ 351,043
High Grade Bond Subaccount 1,563,605 105,998 605,583 119,804 540,232 85,477
High Yield Bond Subaccount 3,250,086 165,024 1,587,252 143,585 925,422 98,711
Managed Subaccount 9,450,479 437,034 7,610,376 278,301 5,015,366 306,721
Money Market Subaccount 10,129,699 11,388,134 6,441,811 4,288,472 2,681,085 2,231,250
Blue Chip Subaccount 10,140,344 236,872 4,852,347 215,230 2,563,886 151,352
--------------------------------------------------------------------
Combined $42,652,859 $12,605,371 $29,076,838 $5,369,400 $16,839,268 $3,224,554
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
5.SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount 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, 1998
Value Growth Subaccount 385,510 $8,156,703 5,573 $ 117,730 379,937 $8,038,973
High Grade Bond Subaccount 70,937 1,374,331 4,123 79,726 66,814 1,294,605
High Yield Bond Subaccount 119,895 2,850,803 4,778 114,183 115,117 2,736,620
Managed Subaccount 386,282 9,435,482 8,788 207,284 377,494 9,228,198
Money Market Subaccount 732,292 10,014,722 831,668 11,367,394 (99,376) (1,352,672)
Blue Chip Subaccount 263,175 10,137,815 1,127 42,291 262,048 10,095,524
-------------------------------------------------------------------
Combined 1,958,091 $41,969,856 856,057 $11,928,608 1,102,034 $30,041,248
-------------------------------------------------------------------
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Value Growth Subaccount 247,934 $5,783,657 6,581 $ 154,923 241,353 $5,628,734
High Grade Bond Subaccount 26,411 471,444 5,817 102,670 20,594 368,774
High Yield Bond Subaccount 60,047 1,303,107 5,241 113,761 54,806 1,189,346
Managed Subaccount 239,036 5,778,867 5,041 122,390 233,995 5,656,477
Money Market Subaccount 484,513 6,412,846 326,799 4,295,780 157,714 2,117,066
Blue Chip Subaccount 141,757 4,647,311 3,391 113,627 138,366 4,533,684
-------------------------------------------------------------------
Combined 1,199,698 $24,397,232 352,870 $4,903,151 846,828 $19,494,081
-------------------------------------------------------------------
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Value Growth Subaccount 179,005 $3,644,990 11,662 $ 238,347 167,343 $3,406,643
High Grade Bond Subaccount 26,068 431,101 4,336 71,967 21,732 359,134
High Yield Bond Subaccount 36,666 715,749 4,082 79,608 32,584 636,141
Managed Subaccount 172,450 3,621,877 9,748 204,031 162,702 3,417,846
Money Market Subaccount 209,942 2,657,215 176,569 2,226,760 33,373 430,455
Blue Chip Subaccount 94,956 2,417,768 3,772 96,772 91,184 2,320,996
-------------------------------------------------------------------
Combined 719,087 $13,488,700 210,169 $2,917,485 508,918 $10,571,215
-------------------------------------------------------------------
-------------------------------------------------------------------
</TABLE>
60
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1998 consisted of:
<TABLE>
<CAPTION>
VALUE HIGH GRADE HIGH YIELD MONEY
GROWTH BOND BOND MANAGED MARKET BLUE CHIP
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
Paid-in capital $82,129,389 2$5,277,356 $3,119,522 $5,993,320 2$5,749,503 $1,700,956 2$0,288,732
Accumulated undistributed
net investment income 10,489,518 4,476,278 550,176 1,077,875 3,968,230 160,970 255,989
Accumulated undistributed
net realized gain (loss)
from investment
transactions 16,999 (36,454) 1,995 2,267 (11,537) -- 60,728
Net unrealized
appreciation
(depreciation) of
investments (233,741) (6,330,571) 63,726 85,272 (1,761,524) -- 7,709,356
----------------------------------------------------------------------------------------
Net assets $92,402,165 2$3,386,609 $3,735,419 $7,158,734 2$7,944,672 $1,861,926 2$8,314,805
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
[This Page Intentionally Left Blank]
62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the accompanying consolidated balance sheets of Farm Bureau Life
Insurance Company as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholder's equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company'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. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Farm
Bureau Life Insurance Company at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 15, 1999
63
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1998--$422,617; 1997-- $541,332) $ 403,306 $ 522,411
Available for sale, at market (amortized cost:
1998--$1,404,145; 1997-- $1,218,469) 1,471,172 1,286,169
Equity securities, at market (cost:
1998--$36,183; 1997--$54,861) 31,980 51,268
Mortgage loans on real estate 227,335 253,093
Investment real estate, less allowances for
depreciation of $4,064 in 1998 and $2,507 in
1997 39,812 38,774
Policy loans 89,325 90,052
Other long-term investments 6,236 9,989
Short-term investments 70,090 23,853
------------- -------------
Total investments 2,339,256 2,275,609
Cash and cash equivalents 1,609 1,678
Securities and indebtedness of related parties 64,570 63,394
Accrued investment income 25,666 25,340
Accounts and notes receivable 331 703
Amounts receivable from affiliates 3,635 6,686
Reinsurance recoverable 2,178 3,934
Deferred policy acquisition costs 172,610 157,096
Property and equipment, less allowances for
depreciation of $2,871 in 1998 and $18,330 in
1997 9,953 32,518
Current income taxes recoverable 9,660 10,349
Goodwill, less accumulated amortization of $3,484
in 1998 and $2,792 in 1997 9,948 10,640
Other assets 4,529 7,443
Assets held in separate accounts 190,111 138,409
------------- -------------
Total assets $ 2,834,056 $ 2,733,799
------------- -------------
------------- -------------
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products $ 1,183,052 $ 1,172,881
Traditional life insurance and accident and
health products 582,447 576,405
Unearned revenue reserve 25,053 23,341
Other policy claims and benefits 6,923 7,091
------------- -------------
1,797,475 1,779,718
Other policyholders' funds:
Supplementary contracts without life
contingencies 138,969 129,389
Advance premiums and other deposits 66,296 66,626
Accrued dividends 11,802 12,107
------------- -------------
217,067 208,122
Long-term debt 71 77
Amounts payable to affiliates 106 --
Deferred income taxes 47,593 45,123
Other liabilities 60,923 29,639
Liabilities related to separate accounts 190,111 138,409
------------- -------------
Total liabilities 2,313,346 2,201,088
Commitments and contingencies
Stockholder's equity:
Preferred stock, 7 1/2% cumulative, par value
$50.00 per share--authorized 6,000 shares -- --
Common stock, par value $50.00 per
share--authorized 994,000 shares, issued and
outstanding 50,000 shares 2,500 2,500
Additional paid-in capital 55,225 55,285
Accumulated other comprehensive income 38,548 38,719
Retained earnings 424,437 436,207
------------- -------------
Total stockholder's equity 520,710 532,711
------------- -------------
Total liabilities and stockholder's equity $ 2,834,056 $ 2,733,799
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
65
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 41,520 $ 37,802 $ 33,755
Traditional life insurance and accident and
health premiums 60,725 61,675 61,611
Net investment income 179,499 174,763 166,422
Realized gains (losses) on investments (5,646) 38,639 54,454
Realized gain on dividend of home office
properties 8,346 -- --
Other income 1,755 4,968 9,588
------------- ------------- -------------
Total revenues 286,199 317,847 325,830
Benefits and expenses:
Interest sensitive product benefits 94,456 95,052 90,720
Traditional life insurance and accident and
health benefits 44,987 42,121 42,370
Increase in traditional life and accident and
health future policy benefits 7,314 15,107 13,679
Distributions to participating policyholders 22,020 22,784 23,725
Underwriting, acquisition and insurance expenses 49,567 48,380 45,714
Interest expense 8 9 425
Other expenses 1,325 1,149 5,515
------------- ------------- -------------
Total benefits and expenses 219,677 224,602 222,148
------------- ------------- -------------
66,522 93,245 103,682
Income taxes (20,291) (31,579) (34,156)
Equity income, net of related income taxes 1,093 1,908 4,138
------------- ------------- -------------
Net income $ 47,324 $ 63,574 $ 73,664
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
66
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2,500 $ 50,426 $ 34,146 $ 353,324 $ 440,396
Comprehensive income:
Net income for 1996 -- -- -- 73,664 73,664
Change in net unrealized investment gains/
losses -- -- (7,819) -- (7,819)
Total comprehensive income 65,845
Adjustment resulting from capital transaction of
equity investee -- 4,859 -- -- 4,859
Dividend of FBL Financial Services, Inc. to
parent -- -- -- (15,096) (15,096)
Cash dividend paid to parent -- -- -- (5,000) (5,000)
------ ------------- ------------- ------------- -------------
Balance at December 31, 1996 $ 2,500 $ 55,285 $ 26,327 $ 406,892 $ 491,004
Comprehensive income:
Net income for 1997 -- -- -- 63,574 63,574
Change in net unrealized investment gains/
losses -- -- 12,392 -- 12,392
Total comprehensive income 75,966
Cash dividends paid to parent -- -- -- (33,000) (33,000)
Other -- -- -- (1,259) (1,259)
------ ------------- ------------- ------------- -------------
Balance at December 31, 1997 $ 2,500 $ 55,285 $ 38,719 $ 436,207 $ 532,711
Comprehensive income:
Net income for 1998 -- -- -- 47,324 47,324
Change in net unrealized investment gains/
losses -- -- (171) -- (171)
-------------
Total comprehensive income 47,153
Adjustment resulting from capital transactions
of equity investee -- (60) -- -- (60)
Dividend of home office properties to parent -- -- -- (45,650) (45,650)
Cash dividends paid to parent -- -- -- (13,444) (13,444)
------ ------------- ------------- ------------- -------------
Balance at December 31, 1998 $ 2,500 $ 55,225 $ 38,548 $ 424,437 $ 520,710
------ ------------- ------------- ------------- -------------
------ ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
67
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 47,324 $ 63,574 $ 73,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Adjustments related to interest sensitive
products:
Interest credited to account balances 80,885 82,821 80,867
Charges for mortality and administration (41,282) (38,134) (35,050)
Deferral of unearned revenues 2,464 2,266 1,825
Amortization of unearned revenue reserve (875) (779) (530)
Provision for depreciation and amortization (1,833) 3,088 5,906
Net gains related to investments held by
broker-dealer and investment company
subsidiaries -- (1,223) (3,125)
Realized losses (gains) on investments 5,646 (38,639) (54,454)
Realized gain on dividend of home office
properties (8,346) -- --
Increase in traditional life and accident and
health benefit accruals 7,241 15,198 13,646
Policy acquisition costs deferred (23,208) (22,334) (18,561)
Amortization of deferred policy acquisition
costs 8,747 7,760 7,271
Provision for deferred income taxes 2,596 (5,172) 6,310
Other 24,175 (12,545) 8,635
------------- ------------- -------------
Net cash provided by operating activities 103,534 55,881 86,404
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 122,549 40,460 33,212
Fixed maturities--available for sale 227,394 250,842 222,093
Equity securities 21,340 109,641 101,937
Mortgage loans on real estate 61,343 38,725 21,977
Investment real estate 1,088 6 4,829
Policy loans 22,118 21,002 20,092
Other long-term investments 278 52 10,404
Short-term investments--net -- 41,061 --
------------- ------------- -------------
456,110 501,789 414,544
Acquisition of investments:
Fixed maturities--held for investment -- -- (38,472)
Fixed maturities--available for sale (412,148) (363,560) (374,808)
Equity securities (4,998) (45,520) (28,824)
Mortgage loans on real estate (35,512) (56,571) (40,601)
Investment real estate (3,096) (10,142) (4,988)
Policy loans (21,391) (22,114) (20,506)
Other long-term investments -- (1,936) (535)
Short-term investments--net (46,237) -- (30,249)
------------- ------------- -------------
(523,382) (499,843) (538,983)
Proceeds from disposal, repayments of advances and
other distributions from equity investees 5,656 16,084 36,265
Investments in and advances to equity investees (5,505) (41,018) (10,396)
Net cash paid for acquisitions -- (9,694) --
Net purchases of property and equipment and other (3,180) (28) (7,062)
------------- ------------- -------------
Net cash used in investing activities (70,301) (32,710) (105,632)
</TABLE>
68
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
FINANCING ACTIVITIES
<S> <C> <C> <C>
Receipts from interest sensitive and variable
products credited to policyholder account
balances $ 223,989 $ 220,437 $ 181,148
Return of policyholder account balances on
interest sensitive and variable products (243,841) (210,728) (153,784)
Repayments of long-term debt (6) (4) (1,199)
Dividends paid (13,444) (33,000) (5,135)
------------- ------------- -------------
Net cash provided by (used in) financing
activities (33,302) (23,295) 21,030
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (69) (124) 1,802
Cash and cash equivalents at beginning of year 1,678 1,802 --
------------- ------------- -------------
Cash and cash equivalents at end of year $ 1,609 $ 1,678 $ 1,802
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 7 $ 8 $ 415
Income taxes 17,571 48,876 17,694
</TABLE>
SEE ACCOMPANYING NOTES.
69
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Farm Bureau Life Insurance Company (the Company), a wholly-owned subsidiary of
FBL Financial Group, Inc., operates predominantly in the life insurance
industry. The Company currently markets individual life insurance policies and
annuity contracts to Farm Bureau members and other individuals and businesses in
14 midwestern and western states. Variable insurance and annuity contracts are
also marketed in other states through alliances with other insurance companies
and a regional broker/dealer.
Prior to May 31, 1996, the Company owned 100% of the outstanding common stock of
FBL Financial Services, Inc., a holding company which, through its subsidiaries,
provided investment advisory, marketing and distribution, and leasing services.
On May 31, 1996, the common stock of FBL Financial Services, Inc. was
transferred to FBL Financial Group, Inc. in the form of a dividend. FBL
Financial Services, Inc. had investments of $6.1 million, property and equipment
of $26.1 million, other assets of $3.3 million, long-term debt of $11.3 million
and other liabilities of $8.8 million on the date of the dividend.
CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its direct and indirect subsidiaries. All significant intercompany
transactions have been eliminated.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks,
that the Company has the positive intent and ability to hold to maturity are
designated as "held for investment." Held for investment securities are reported
at cost adjusted for amortization of premiums and discounts. Changes in the
market value of these securities, except for declines that are other than
temporary, are not reflected in the Company's financial statements. Fixed
maturity securities which may be sold are designated as "available for sale."
Available for sale securities are reported at market value and unrealized gains
and losses on these securities are included directly in stockholder's equity as
a component of accumulated other comprehensive income. The unrealized gains and
losses included in accumulated other comprehensive income are reduced by a
provision for deferred income taxes and adjustments to deferred policy
acquisition costs and unearned revenue reserve that would have been required as
a charge or credit to income had such amounts been realized. Premiums and
discounts are amortized/accrued using methods which result in a constant yield
over the securities' expected lives. Amortization/accrual of premiums and
discounts on mortgage and asset-backed securities incorporates prepayment
assumptions to estimate the securities' expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. The change in unrealized appreciation and depreciation
of equity securities is included directly in stockholder's equity, net of any
related deferred income taxes, as a component of accumulated other comprehensive
income.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If the value of any mortgage loan is
determined to be impaired (i.e., when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement), the carrying value of the mortgage loan is reduced to its fair
value, which may be based upon the present value of expected future cash flows
from the loan (discounted at the loan's effective interest rate), or the fair
value of the underlying collateral. The carrying value of impaired loans is
reduced by the establishment of a valuation allowance, changes to which are
recognized as realized gains or losses on investments. Interest income on
impaired loans is recorded on a cash basis.
70
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INVESTMENTS
Investment real estate is reported at cost less allowances for depreciation.
Policy loans are reported at unpaid principal balance. Short-term investments
are reported at cost adjusted for amortization of premiums and accrual of
discounts.
Other long-term investments include certain nontraditional investments and
securities held by a subsidiary engaged in the venture capital investment
company industry. Nontraditional investments include a debt-related instrument
and investment deposits which are reported at cost. In accordance with
accounting practices for the investment company industry, marketable securities
held by a subsidiary in this industry are valued at market value if readily
marketable or at fair value, as determined by the Board of Directors of the
subsidiary, if not readily marketable. The resulting difference between cost and
market is included in the statements of income as net investment income.
Realized gains and losses are also reported as a component of net investment
income. The Company recorded transfers from its venture capital subsidiary,
which was dissolved during 1997, at fair value on the date of transfer,
establishing a new cost basis for the security.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which the Company may exercise significant
influence. Such investments are accounted for using the equity method. Changes
in the value of the Company's investment in equity investees attributable to
capital transactions of the investee, such as an additional offering of stock,
are recorded directly to stockholder's equity. Securities and indebtedness of
related parties also includes advances and loans to the partnerships and
corporations which are principally reported at cost.
REALIZED GAINS AND LOSSES ON INVESTMENTS
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration, and if this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value (the sum of the
estimated nondiscounted cash flows for securities or fair value for mortgage
loans on real estate) and a specific writedown is taken. Such reductions in
carrying value are recognized as realized losses on investments. Realized gains
and losses on sales are determined on the basis of specific identification of
investments. If the Company expects that an issuer of a security will modify its
payment pattern from contractual terms but no writedown is required, future
investment income is recognized at the rate implicit in the calculation of net
realizable value under the expected payment pattern.
MARKET VALUES
Market values of fixed maturity securities are reported based on quoted market
prices, where available. Market values of fixed maturity securities not actively
traded in a liquid market are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U.S.
Treasury bonds. Market values of redeemable preferred stock and equity
securities are based on the latest quoted market prices, or for those not
readily marketable, generally at values which are representative of the market
values of comparable issues.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits, certain
costs of acquiring new insurance business, principally commissions and other
expenses related to the production of new business, have been deferred. For
participating traditional life insurance and interest sensitive products
(principally
71
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
universal life insurance policies and annuity contracts), these costs are being
amortized generally in proportion to expected gross profits (after dividends to
policyholders, if applicable) from surrender charges and investment, mortality,
and expense margins. That amortization is adjusted retrospectively when
estimates of current or future gross profits/margins (including the impact of
investment gains and losses) to be realized from a group of products are
revised. For nonparticipating traditional life and accident and health insurance
products, these costs are amortized over the premium paying period of the
related policies, in proportion to the ratio of annual premium revenues to total
anticipated premium revenues. Such anticipated premium revenues are estimated
using the same assumptions used for computing liabilities for future policy
benefits.
PROPERTY AND EQUIPMENT
Property and equipment, comprised primarily of home office properties (prior to
March 30, 1998, see below), furniture, equipment and capitalized software costs,
are reported at cost less allowances for depreciation and amortization.
Depreciation and amortization expense are computed primarily using the
straight-line method over the estimated useful lives of the assets. Depreciation
and amortization expense for 1998, 1997 and 1996 were $1.8 million, $2.3 million
and $5.1 million, respectively.
On March 30, 1998, the Company transferred its home office properties to its
parent in the form of a dividend. The fair value of the properties, which served
as the basis for the transaction, was $45.7 million and the book value was $24.7
million. The Company is leasing a portion of the properties back from its parent
under a sublease arrangement. Of the $21.0 million gain on the transaction, $8.3
million was recognized in the 1998 statement of income and $12.7 million was
deferred and is being amortized over the term of the operating lease.
GOODWILL
Goodwill represents the excess of the fair value of assets exchanged over the
net assets acquired. Goodwill is generally being amortized on a straight-line
basis over a period of 20 years. The carrying value of goodwill is regularly
reviewed for indicators of impairment in value, which in the view of management
are other than temporary. If facts and circumstances suggest that goodwill is
impaired, the Company assesses the fair value of the underlying business and
reduces goodwill to an amount that results in the book value of the underlying
business approximating fair value. The Company has not recorded any such
writedowns during 1998, 1997 or 1996.
FUTURE POLICY BENEFITS
The liability for future policy benefits for participating traditional life
insurance is based on net level premium reserves, including assumptions as to
interest, mortality, and other assumptions underlying the guaranteed policy cash
values. Reserve interest assumptions are level and range from 2.5% to 6.0%. The
average rate of assumed investment yields used in estimating gross margins was
8.03% in 1998, 8.15% in 1997 and 8.34% in 1996. Accrued dividends for
participating business are established for anticipated amounts earned to date
for the period through the policy's next anniversary and are provided for as a
separate liability. The declaration of future dividends for participating
business is at the discretion of the Board of Directors. Participating business
accounted for 40% of receipts from policyholders during 1998 and represented 17%
of life insurance inforce at December 31, 1998. Participating business accounted
for 42% of receipts from policyholders during 1997 and represented 19% of life
insurance inforce at December 31, 1997.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level premium (or an equivalent) method, including
assumptions as to morbidity, mortality and interest and to include provisions
for possible unfavorable deviations. Policy benefit claims are charged to
expense in the period that the claims are incurred.
72
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future policy benefit reserves for interest sensitive products are computed
under a retrospective deposit method and represent policy account balances
before applicable surrender charges. Policy benefits and claims that are charged
to expense include benefit claims incurred in the period in excess of related
policy account balances.
Interest crediting rates for interest sensitive products ranged from 5.00% to
6.50% in 1998, 5.25% to 6.90% in 1997 and 5.75% to 7.50% in 1996.
The unearned revenue reserve reflects the unamortized balance of the excess of
first year administration charges over renewal period administration charges
(policy initiation fees) on interest sensitive products. These excess charges
have been deferred and are being recognized in income over the period benefited
using the same assumptions and factors used to amortize deferred policy
acquisition costs.
GUARANTY FUND ASSESSMENTS
From time to time assessments are levied on the Company and its insurance
subsidiaries by guaranty associations in most states in which the companies are
licensed. These assessments are 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. During 1997, the Company
adopted Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments", which requires the accrual of
such assessments. Prior to 1997, the Company recognized its obligation for
guaranty fund assessments when such assessments were received and an asset was
recorded for future premium tax offsets on assessments paid. The impact of
adopting SOP 97-3 was not separately reported as a change in accounting
principles because the impact of adoption was not material to the Company.
At December 31, 1998 and 1997, the Company had undiscounted reserves of $0.8
million and $1.8 million, respectively, to cover estimated future assessments on
known insolvencies. The Company had assets totaling $1.7 million and $2.3
million at December 31, 1998 and 1997, respectively, representing estimated
premium tax offsets on paid and future assessments. Expenses (credits) incurred
for guaranty fund assessments, net of related premium tax offsets, totaled
($0.8) million, $1.1 million (including $0.9 million related to the adoption of
SOP 97-3) and $0.1 million during 1998, 1997 and 1996, respectively. It is
estimated future guaranty fund assessments on known insolvencies will be paid
during the three year period ended December 31, 2001 and substantially all the
related future premium tax offsets will be realized during the six year period
ended December 31, 2004. The Company believes the reserve for guaranty fund
assessments is sufficient to provide for future assessments based upon known
insolvencies and projected premium levels.
DEFERRED INCOME TAXES
Deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. Deferred income tax expenses or credits are based on
the changes in the asset or liability from period to period.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying
consolidated balance sheets represent funds that are separately administered,
principally for the benefit of certain policyholders who bear the underlying
investment risk. The separate account assets and liabilities are carried at fair
value. Revenues and expenses related to the separate account assets and
liabilities, to the extent of benefits paid or provided to the separate account
policyholders, are excluded from the amounts reported in the accompanying
consolidated statements of income.
73
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND COSTS
Revenues for interest sensitive and variable products consist of policy charges
for the cost of insurance, administration charges, amortization of policy
initiation fees and surrender charges assessed against policyholder account
balances. Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
Traditional life insurance premiums are recognized as revenues over the
premium-paying period. Future policy benefits and policy acquisition costs are
recognized as expenses over the life of the policy by means of the provision for
future policy benefits and amortization of deferred policy acquisition costs.
All insurance-related revenues, benefits and expenses are reported net of
reinsurance ceded.
REINSURANCE
The Company uses reinsurance to manage certain risks associated with its
insurance operations. These reinsurance arrangements provide for greater
diversification of business, allow management to control exposure to potential
risks arising from large losses and provide additional capacity for growth.
The Company's life insurance operations cede reinsurance to various reinsurers.
The cost of reinsurance is generally amortized over the contract periods of the
reinsurance agreements.
OTHER INCOME AND OTHER EXPENSES
Prior to May 31, 1996 (the date FBL Financial Services, Inc. was transferred to
FBL Financial Group, Inc.), other income and other expenses included revenue and
expenses generated by various non-insurance subsidiaries for investment
advisory, marketing and distribution, and leasing services. A portion of these
activities were performed on behalf of affiliates of the Company. In addition,
certain revenue generated by the Company and its insurance subsidiaries have
been classified as other income. During 1998, 1997 and 1996, revenues of the
insurance companies included as other income aggregated $1.1 million, $3.7
million and $2.7 million, respectively.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standard (Statement) No. 130, "Reporting Comprehensive Income." Statement No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net income or stockholder's equity. Statement No. 130 requires
unrealized gains and losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in stockholder's equity, to be
included in other comprehensive income.
Other comprehensive income excludes net investment gains (losses) included in
net income which merely represent transfers from unrealized to realized gains
and losses. These amounts totaled ($1.4) million in 1998, $25.4 million in 1997
and $38.3 million in 1996. Such amounts, which have been measured through the
date of sale, are net of income taxes and adjustments to deferred policy
acquisition costs and unearned revenue reserve totaling $0.8 million in 1998,
($14.0) million in 1997 and ($20.4) million in 1996.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the
74
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported amounts of revenues and expenses during the reporting periods. For
example, significant estimates and assumptions are utilized in the calculation
of deferred policy acquisition costs, policyholder liabilities and accruals and
valuation allowances on investments. It is reasonably possible that actual
experience could differ from the estimates and assumptions utilized which could
have a material impact on the consolidated financial statements.
PENDING ACCOUNTING CHANGE
In March 1998, SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", was issued. The Company plans to adopt
the SOP effective on January 1, 1999. The SOP requires the capitalization of
certain costs incurred after the date of adoption in connection with developing
or obtaining software for internal use. The Company currently capitalizes
external software development costs and charges internal costs, primarily
payroll and related items, to expense as they are incurred. Under the SOP, these
internal costs will be capitalized. The Company has not yet determined the
impact of adopting this SOP.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement No.
133 requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Accounting for gains or losses resulting
from changes in the values of those derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. Statement No. 133 also
allows companies to transfer securities classified as held for investment to
either the available-for-sale or trading categories in connection with the
adoption of the new standard. The Statement is effective for the Company in the
year 2000, with earlier adoption encouraged. Because of the Company's minimal
use of derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
75
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
Corporate securities $ 5,008 $ 542 $ (8) $ 5,542
Mortgage-backed securities 398,298 19,554 (777) 417,075
-----------------------------------------------------
Total fixed maturities $ 403,306 $ 20,096 $ (785) $ 422,617
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies $ 13,229 $ 144 $ -- $ 13,373
State, municipal and other governments 46,879 1,915 (101) 48,693
Public utilities 83,934 5,908 (527) 89,315
Corporate securities 770,341 56,152 (14,145) 812,348
Mortgage and asset-backed securities 463,309 19,335 (1,100) 481,544
Redeemable preferred stock 26,453 726 (1,280) 25,899
-----------------------------------------------------
Total fixed maturities $ 1,404,145 $ 84,180 $ (17,153) $1,471,172
-----------------------------------------------------
-----------------------------------------------------
Equity securities $ 36,183 $ 479 $ (4,682) $ 31,980
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
76
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
HELD FOR INVESTMENT
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
Corporate securities $ 5,008 $ 814 $ (8) $ 5,814
Mortgage-backed securities 517,403 19,575 (1,460) 535,518
-----------------------------------------------------
Total fixed maturities $ 522,411 $ 20,389 $ (1,468) $ 541,332
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
-----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 14,406 $ 18 $ (19) $ 14,405
State, municipal and other governments 37,986 1,012 (126) 38,872
Public utilities 80,071 4,637 (390) 84,318
Corporate securities 688,362 55,095 (6,089) 737,368
Mortgage and asset-backed securities 372,482 13,418 (1,283) 384,617
Redeemable preferred stock 25,162 1,533 (106) 26,589
-----------------------------------------------------
Total fixed maturities $ 1,218,469 $ 75,713 $ (8,013) $1,286,169
-----------------------------------------------------
-----------------------------------------------------
Equity securities $ 54,861 $ 3,635 $ (7,228) $ 51,268
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
Short-term investments have been excluded from the above schedules as amortized
cost approximates market value for these securities.
77
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
The carrying value and estimated market value of the Company's portfolio of
fixed maturity securities at December 31, 1998, 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>
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------ --------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 12,714 $ 12,787
Due after one year through five years -- -- 159,029 161,991
Due after five years through ten years 5,008 5,542 280,064 295,390
Due after ten years -- -- 462,576 493,561
----------------------------------------------------
5,008 5,542 914,383 963,729
Mortgage and asset-backed securities 398,298 417,075 463,309 481,544
Redeemable preferred stocks -- -- 26,453 25,899
----------------------------------------------------
$ 403,306 $ 422,617 $ 1,404,145 $1,471,172
----------------------------------------------------
----------------------------------------------------
</TABLE>
Net unrealized investment gains on equity securities and fixed maturity
securities classified as available for sale were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation on fixed maturity and equity securities available
for sale $ 62,824 $ 64,107
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs (4,198) (5,251)
Unearned revenue reserve 588 711
Provision for deferred income taxes (20,725) (20,848)
----------------------
38,489 38,719
Proportionate share of net unrealized investment gains of equity
investees 59 --
----------------------
Net unrealized investment gains $ 38,548 $ 38,719
----------------------
----------------------
</TABLE>
The change in net unrealized investment gains/losses are recorded net of
deferred income taxes and other adjustments for assumed changes in the
amortization pattern of deferred policy acquisition costs and unearned revenue
reserve totaling ($1.1) million in 1998, $9.4 million in 1997 and ($13.4)
million in 1996.
MORTGAGE LOANS ON REAL ESTATE
The Company's mortgage loan portfolio consists principally of commercial
mortgage loans. The Company's lending policies require that the loans be
collateralized by the value of the related property, establish limits on the
amount that can be loaned to one borrower and require diversification by
geographic location and collateral type.
78
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
The Company has provided an allowance for possible losses against its mortgage
loan portfolio. An analysis of this allowance, which consists of specific and
general reserves, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 523 $ 600 $ 600
Realized losses -- -- 2,527
Uncollectible amounts written off, net of recoveries -- (77) (2,527)
-------------------------------
Balance at end of year $ 523 $ 523 $ 600
-------------------------------
-------------------------------
</TABLE>
Impaired loans (those loans in which the Company does not believe it will
collect all amounts due according to the contractual terms of the respective
loan agreements) totaled $0.4 million at December 31, 1998. There were no
impaired loans at December 31, 1997.
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 40,495 $ 43,648 $ 45,744
Available for sale 105,017 97,044 85,722
Equity securities 1,820 1,259 1,345
Mortgage loans on real estate 20,256 21,027 20,297
Investment real estate 5,536 4,457 4,495
Policy loans 5,650 5,692 5,653
Other long-term investments 63 2,921 3,698
Short-term investments 2,678 3,691 3,166
Other 7,123 4,105 3,485
----------------------------------
188,638 183,844 173,605
Less investment expenses (9,139) (9,081) (7,183)
----------------------------------
Net investment income $ 179,499 $ 174,763 $ 166,422
----------------------------------
----------------------------------
</TABLE>
During 1997, 13 securities with a total fair value of $15.0 million were
transferred to the Company from its venture capital subsidiary, upon its
dissolution. Realized gains (recognized in net investment income) of $6.3
million were recognized on the transfers, although the transfers had no impact
on net income (as unrealized appreciation had been reported prior to the
transfer).
79
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized gains (losses) and the change in unrealized appreciation/depreciation
on investments, excluding amounts attributed to investments held by subsidiaries
engaged in the broker-dealer and investment company industries are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities--available for sale $ 111 $ 4,300 $ 2,199
Equity securities (2,336) 35,120 56,522
Mortgage loans on real estate -- -- (2,527)
Investment real estate 385 6 619
Other long-term investments -- (300) (154)
Securities and indebtedness of related parties (331) (487) (1,438)
Notes receivable and other (3,475) -- (767)
---------------------------------
Realized gains on investments $ (5,646) $ 38,639 $ 54,454
---------------------------------
---------------------------------
UNREALIZED
Fixed maturities:
Held for investment $ 390 $ 6,866 $ (12,225)
Available for sale (673) 35,292 (25,675)
Equity securities (610) (13,464) 4,429
---------------------------------
Change in unrealized appreciation/depreciation of investments $ (893) $ 28,694 $ (33,471)
---------------------------------
---------------------------------
</TABLE>
80
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
An analysis of sales, maturities and principal repayments of the Company's fixed
maturities portfolio for 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED REALIZED REALIZED
COST GAINS LOSSES PROCEEDS
----------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Scheduled principal repayments and calls:
Available for sale $ 163,853 $ 137 $ (208) $ 163,782
Held for investment 122,549 -- -- 122,549
Sales--available for sale 61,418 4,694 (2,500) 63,612
----------------------------------------------
Total $ 347,820 $ 4,831 $ (2,708) $ 349,943
----------------------------------------------
----------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale $ 154,939 $ -- $ -- $ 154,939
Held for investment 40,460 -- -- 40,460
Sales--available for sale 91,603 6,313 (2,013) 95,903
----------------------------------------------
Total $ 287,002 $ 6,313 $ (2,013) $ 291,302
----------------------------------------------
----------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Scheduled principal repayments and calls:
Available for sale $ 148,299 $ -- $ -- $ 148,299
Held for investment 33,212 -- -- 33,212
Sales--available for sale 71,095 5,197 (2,498) 73,794
----------------------------------------------
Total $ 252,606 $ 5,197 $ (2,498) $ 255,305
----------------------------------------------
----------------------------------------------
</TABLE>
Realized losses totaling $2.0 million in 1998 and $0.5 million in 1996 were
incurred as a result of writedowns for other than temporary impairment of fixed
maturity securities. No such writedowns were recorded during 1997.
Income taxes (credits) during 1998, 1997 and 1996 include a provision of ($2.0)
million, $13.5 million and $19.1 million, respectively, for the tax effect of
realized gains and losses on investments.
OTHER
In December 1997, the Company acquired a 35% interest in an unaffiliated life
insurance company for $25.0 million. The excess (approximately $5.9 million) of
the carrying amount of the investment, which is classified as securities and
indebtedness of related parties on the consolidated balance sheets, over the
amount of underlying equity in net assets on the acquisition date is
attributable to goodwill and is being amortized over a 20-year period. The
investment is being accounted for using the equity method. The insurance company
underwrites and markets life insurance and annuity products throughout the
United States.
Also in December 1997, the Company acquired all of the common stock of EquiTrust
Life Insurance Company for $9.7 million. EquiTrust Life Insurance Company is a
life insurance company licensed in 38 states. Goodwill totaling $1.5 million was
recorded in connection with the acquisition and is being amortized over 20
years.
81
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
In February 1996, an equity investee of the Company completed an initial public
offering which resulted in an increase of $4.9 million, net of $2.6 million in
taxes, in the Company's share of the investee's stockholders' equity. This
increase was credited directly to additional paid-in capital. Subsequent to the
public offering, the Company reclassified the investment to equity securities.
The Company has sold its holdings in this investment and realized gains of $2.4
million, $24.3 million and $50.4 million during 1998, 1997 and 1996,
respectively.
At December 31, 1998, affidavits of deposits covering investments with a
carrying value totaling $2,137.8 million were on deposit with state agencies to
meet regulatory requirements.
At December 31, 1998, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $8.3 million. These commitments
arose in the normal course of business at terms which are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1998, include: fixed maturities--$3.7
million; mortgage loans on real estate-- $0.4 million; and other long-term
investments--$1.6 million.
No investment in any person or its affiliates (other than bonds issued by
agencies of the United States Government) exceeded ten percent of stockholder's
equity at December 31, 1998.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the consolidated balance sheets, for which it is
practicable to estimate 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 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.
FIXED MATURITY SECURITIES: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using a matrix calculation assuming a
spread (based on interest rates and a risk assessment of the bonds) over U. S.
Treasury bonds.
EQUITY SECURITIES: The fair values for equity securities are based on quoted
market prices, where available. For equity securities that are not actively
traded, estimated fair values are based on values of comparable issues.
MORTGAGE LOANS ON REAL ESTATE AND POLICY LOANS: Fair values are estimated by
discounting expected cash flows using interest rates currently being offered for
similar loans.
OTHER LONG-TERM INVESTMENTS: The fair values for nontraditional debt
instruments and investment deposits are estimated by discounting expected cash
flows using interest rates currently being offered for similar investments.
82
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
consolidated balance sheets for these instruments approximate their fair values.
SECURITIES AND INDEBTEDNESS OF RELATED PARTIES: Fair values for loans and
advances are estimated by discounting expected cash flows using interest rates
currently being offered for similar investments. As allowed by Statement No.
107, fair values are not assigned to investments accounted for using the equity
method.
ASSETS AND LIABILITIES OF SEPARATE ACCOUNTS: Separate account assets and
liabilities are reported at estimated fair value in the Company's consolidated
balance sheet.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of the
Company's liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities, deposit administration funds
and supplementary contracts) are stated at cash surrender value, the cost the
Company would incur to extinguish the liability. The Company is not required to
estimate the fair value of its liabilities under other contracts.
LONG-TERM DEBT: The fair values for long-term debt are estimated using
discounted cash flow analysis based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
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 No.
107:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1998 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment $ 403,306 $ 422,617 $ 522,411 $ 541,332
Available for sale 1,471,172 1,471,172 1,286,169 1,286,169
Equity securities 31,980 31,980 51,268 51,268
Mortgage loans on real estate 227,335 236,697 253,093 265,059
Policy loans 89,325 105,980 90,052 97,712
Other long-term investments 6,236 6,636 9,989 9,587
Cash and short-term investments 71,699 71,699 25,531 25,531
Securities and indebtedness of related parties 4,812 5,288 5,451 5,829
Assets held in separate accounts 190,111 190,111 138,409 138,409
LIABILITIES
Future policy benefits $ 793,028 $ 778,022 $ 782,933 $ 767,030
Other policyholders' funds 204,581 204,581 195,330 195,330
Long-term debt 71 75 77 83
Liabilities related to separate accounts 190,111 190,111 138,409 138,409
</TABLE>
4. REINSURANCE AND POLICY PROVISIONS
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured with retention limits ranging up to $0.5 million of coverage per
individual life. The Company does not use financial or surplus relief
reinsurance. Life insurance in force ceded totaled $694.0 million
83
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
(5.0% of total life insurance in force) at December 31, 1998 and $663.4 million
(5.1% of total life insurance in force) at December 31, 1997.
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations, and payment of these obligations could result in losses to the
Company. To limit the possibility of such losses, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit
risk.
No allowance for uncollectible amounts has been established against the
Company's asset for reinsurance recoverable since none of the receivables are
deemed to be uncollectible. Insurance premiums and product charges have been
reduced by $3.7 million, $3.7 million and $3.4 million and insurance benefits
have been reduced by $0.9 million, $2.9 million and $4.0 million during 1998,
1997 and 1996, respectively, as a result of cession agreements.
Prior to 1998, the amount of reinsurance assumed was not significant. In
December 1998, the Company assumed a block of ordinary annuity policies with
reserves totaling $22.0 million. In addition, beginning in 1998, the Company
began assuming variable annuity business from an equity investee through a
modified coinsurance arrangement. Product charges from this business were not
significant during 1998.
Unpaid claims on accident and health policies (entirely disability income
products) 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>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related reinsurance, at beginning of year $ 17,621 $ 13,812 $ 13,899
Add:
Provision for claims occurring in the current year 4,593 5,829 4,737
Increase (decrease) in estimated expense for claims occurring in the
prior years 140 2,236 (371)
-------------------------------
Incurred claim expense during the current year 4,733 8,065 4,366
Deduct expense payments for claims occurring during:
Current year 1,950 1,692 1,681
Prior years 2,943 2,564 2,772
-------------------------------
4,893 4,256 4,453
-------------------------------
Unpaid claims liability, net of related reinsurance, at end of year 17,461 17,621 13,812
Active life reserve 16,311 15,832 15,376
-------------------------------
Net accident and health reserves 33,772 33,453 29,188
Reinsurance ceded 538 1,721 1,483
-------------------------------
Gross accident and health reserves $ 34,310 $ 35,174 $ 30,671
-------------------------------
-------------------------------
</TABLE>
Reserves for unpaid claims are developed using industry mortality and morbidity
data. One year development on prior year reserves represents Company experience
being more or less favorable than that of the industry. Over time, the Company
expects its experience with respect to disability income business
84
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
to be comparable to that of the industry. A certain level of volatility in
development is inherent in these reserves since the underlying block of business
is relatively small.
5. INCOME TAXES
The Company files a consolidated federal income tax return with FBL Financial
Group, Inc. and a majority of its subsidiaries. FBL Financial Group, Inc. and
its direct and indirect subsidiaries included in the consolidated federal income
tax 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.
Deferred income taxes have been established based upon the temporary differences
between the financial statement and income tax bases of assets and liabilities.
The reversal of the temporary differences will result in taxable or deductible
amounts in future years when the related asset or liability is recovered or
settled.
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of income on:
Income before equity income:
Current $ 17,774 $ 36,828 $ 28,400
Deferred 2,517 (5,249) 5,756
-------------------------------
20,291 31,579 34,156
Equity income:
Current 486 951 1,674
Deferred 79 77 554
-------------------------------
565 1,028 2,228
Taxes provided in consolidated statement of changes in stockholder's
equity:
Change in net unrealized investment gains/losses--deferred (93) 6,672 (4,211)
Adjustment resulting from capital transaction of equity
investee--deferred (33) -- 2,617
-------------------------------
(126) 6,672 (1,594)
-------------------------------
$ 20,730 $ 39,279 $ 34,790
-------------------------------
-------------------------------
</TABLE>
85
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The effective tax rate on income before income taxes and equity income is
different from the prevailing federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes and equity income $ 66,522 $ 93,245 $ 103,682
--------------------------------
--------------------------------
Income tax at federal statutory rate (35%) $ 23,283 $ 32,636 $ 36,289
Tax effect (decrease) of:
Gain on dividend of home office properties (2,921) -- --
Tax-exempt interest income (267) (323) (383)
Tax-exempt dividend income (211) (1,148) (1,246)
State income taxes 5 39 242
Other items 402 375 (746)
--------------------------------
Income tax expense $ 20,291 $ 31,579 $ 34,156
--------------------------------
--------------------------------
</TABLE>
The tax effect of temporary differences giving rise to the Company's deferred
income tax assets and liabilities at December 31, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities $ 22,764 $ 25,247
Deferred policy acquisition costs 50,387 46,944
Other 11,962 14,236
----------------------
85,113 86,427
Deferred income tax assets:
Future policy benefits (20,977) (21,320)
Accrued dividends (3,072) (3,273)
Accrued pension costs (8,607) (9,092)
Other (4,864) (7,619)
----------------------
(37,520) (41,304)
----------------------
Deferred income tax liability $ 47,593 $ 45,123
----------------------
----------------------
</TABLE>
Prior to 1984, a portion of current income of the Company 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, 1998 was $11.1 million. 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
stockholder in excess of $479.1 million, such excess would be subject to federal
income taxes at rates then effective. Deferred income taxes of $3.9 million have
not been provided on amounts included in this memorandum account.
6. CREDIT ARRANGEMENT
As an investor in the Federal Home Loan Bank (FHLB), the Company has the right
to borrow up to $54.0 million from the FHLB as of December 31, 1998. As of
December 31, 1998 and 1997, the Company had no outstanding debt under this
credit arrangement.
86
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS
The Company participates with several affiliates in various defined benefit
plans covering substantially all employees. The benefits of these plans are
based primarily on years of service and employees' compensation. The Company and
affiliates have adopted a policy of allocating the net periodic pension cost of
the plans between themselves generally on a basis of time incurred by the
respective employees for each employer. Such allocations are reviewed annually.
Pension expense aggregated $3.4 million, $4.2 million and $5.9 million for 1998,
1997 and 1996, respectively.
The Company participates with several affiliates in a 401(k) defined
contribution plan which covers substantially all employees. Beginning in 1998,
the Company contributes FBL Financial Group, Inc. stock in amounts equal to 50
percent of employee contributions up to four percent of the annual salary
contributed by the employees. Costs are allocated among the affiliates on a
basis of time incurred by the respective employees for each employer. Related
expense totaled $0.2 million for 1998.
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.
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 policy liabilities for
interest-sensitive products relate to deposit administration funds maintained by
the Company on behalf of affiliates offering substantially the same benefit
programs as the Company.
In addition to benefits offered under the aforementioned benefit plans, the
Company and several other affiliates sponsor a plan that provides group term
life insurance benefits to retired full-time employees who have worked ten years
and attained age 55 while in service with the Company. Postretirement benefit
expense is allocated in a manner consistent with pension expense discussed
above. Such allocations are reviewed annually. Postretirement benefit expense
aggregated $0.1 million for 1998, 1997 and 1996.
8. STATUTORY INFORMATION
STATUTORY LIMITATIONS ON DIVIDENDS
The ability of the Company to pay dividends to the parent company is restricted
because prior approval of insurance regulatory authorities is required for
payment of dividends to the stockholder which exceed an annual limitation.
During 1999, the Company could pay dividends to the parent company of
approximately $41.0 million without prior approval of insurance regulatory
authorities.
STATUTORY ACCOUNTING POLICIES
The financial statements of the Company and its insurance subsidiaries included
herein differ from related statutory-basis financial statements principally as
follows: (a) the bond portfolio is segregated into held-for-investment (carried
at amortized cost) and available-for-sale (carried at fair value)
classifications rather than generally being carried at amortized cost; (b)
acquisition costs of acquiring new business are deferred and amortized over the
life of the policies rather than charged to operations as incurred; (c) future
policy benefit reserves for participating traditional life insurance products
are based on net level premium methods and guaranteed cash value assumptions
which may differ from statutory reserves; (d) future policy benefit reserves on
certain interest-sensitive products are based on full account values, rather
than discounting methodologies utilizing statutory interest rates; (e) deferred
income taxes are provided for the difference between the financial statement and
income tax bases of assets and liabilities; (f) net realized gains or losses
attributed to changes in the level of market interest rates are recognized as
gains or losses in the statement of income when the sale is completed rather
than deferred and amortized over the remaining life of the fixed maturity
security or mortgage loan; (g) declines in the estimated realizable value of
investments are charged to the statements of income when such declines are
judged to be other
87
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STATUTORY INFORMATION (CONTINUED)
than temporary rather than through the establishment of a formula-determined
statutory investment reserve (carried as a liability), changes in which are
charged directly to surplus; (h) agents' balances and certain other assets
designated as "non-admitted assets" for statutory purposes are reported as
assets rather than being charged to stockholder's equity; (i) revenues for
interest-sensitive and variable products consist of policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed rather than premiums received; (j) pension
income or expense is recognized in accordance with Statement No. 87, "Employers'
Accounting for Pensions" rather than in accordance with rules and regulations
permitted by the Employee Retirement Income Security Act of 1974; (k) the
financial statements of subsidiaries are consolidated with those of the Company;
and (l) assets and liabilities are restated to fair values when a change in
ownership occurs that is accounted for as a purchase, with provisions for
goodwill and other intangible assets, rather than continuing to be presented at
historical cost.
Net income for the Company determined in accordance with statutory accounting
practices was $38.2 million, $73.5 million and $75.0 million for 1998, 1997 and
1996, respectively. Statutory net gain from operations for the Company, which
excludes realized gains and losses, totaled $41.0 million, $37.8 million and
$34.9 million for 1998, 1997 and 1996, respectively. Total statutory capital and
surplus of the Company was $294.8 million at December 31, 1998 and $291.3
million at December 31, 1997.
Net income for the Company's insurance subsidiaries determined in accordance
with statutory accounting practices was $0.4 million, $0.1 million and $0.2
million for 1998, 1997 and 1996, respectively. Total statutory capital and
surplus for the Company's insurance subsidiaries was $36.4 million at December
31, 1998 and $13.1 million at December 31, 1997.
9. MANAGEMENT AND OTHER 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 participates in a management agreement with FBL Financial Group,
Inc., under which FBL Financial Group, Inc. provides general business,
administration and management services to the Company. In addition, Farm Bureau
Management Corporation, a wholly-owned subsidiary of the Iowa Farm Bureau
Federation, provides certain management services to the Company under a separate
arrangement. During 1998, 1997 and 1996, the Company incurred related expenses
totaling $0.7 million, $0.8 million and $2.4 million, respectively.
The Company has equipment and auto lease agreements with FBL Leasing Services,
Inc., a wholly-owned subsidiary of FBL Financial Services, Inc. The Company
incurred expenses totaling $2.0 million during 1998, $1.7 million during 1997
and $0.7 million during the seven month period ended December 31, 1996 (period
in 1996 subsequent to the dividend of FBL Financial Services, Inc. to FBL
Financial Group, Inc.) under these agreements.
EquiTrust Investment Management Services, Inc., a wholly-owned subsidiary of FBL
Financial Services, Inc., provides investment advisory services to the Company.
The related fees are based on the level of assets under management plus certain
out-of-pocket expenses. The Company incurred expenses totaling $3.4 million
during 1998, $4.1 million during 1997 and $1.6 million during the seven month
period ended December 31, 1996 relating to these services.
The Company has marketing agreements with the property-casualty companies
operating within its marketing territory, including Farm Bureau Mutual Insurance
Company and other affiliates. Under the marketing agreements, the
property-casualty companies are responsibile for development and management
88
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANAGEMENT AND OTHER AGREEMENTS (CONTINUED)
of the Company's agency force for a fee equal to a percentage of commissions on
first year life insurance premiums and annuity deposits. During 1998, 1997 and
1996, the Company paid $3.5 million, $3.3 million and $2.8 million,
respectively, to the property-casualty companies under these arrangements.
The Company is licensed by the Iowa Farm Bureau Federation to use the "Farm
Bureau" and "FB" designations in Iowa. In connection with this license,
royalties of $0.7 million, $0.5 million and $0.4 million were paid to the Iowa
Farm Bureau Federation for 1998, 1997 and 1996, respectively. The Company has
similar arrangements with Farm Bureau organizations in other states in its
market territory. Total royalties paid to Farm Bureau organizations other than
the Iowa Farm Bureau Federation were $0.4 million in 1998 and 1997 and $0.3
million in 1996.
Beginning in 1998, the Company has administrative services agreements with an
equity investee under which the Company provides underwriting, claim processing,
accounting, compliance and other administrative services relating to certain
variable insurance products underwritten by the affiliate. Fee income from
performing these services totaled $0.2 million during 1998.
10. COMMITMENTS AND CONTINGENCIES
IMPACT OF YEAR 2000 (UNAUDITED)
Many of the Company's computer programs were originally written using two digits
rather than four to define a particular year. As a result, these computer
programs have time-sensitive software that may recognize a date using "00" as
the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions to operations, including, but not limited
to, a temporary inability to process transactions, send premium notices and
calculate policy reserves and accruals. To a lesser extent, the Company is
dependent on various non-information technology systems, such as telephone
switches. The Year 2000 could also cause these systems to fail or malfunction.
During 1997, the Company completed a comprehensive assessment of the Year 2000
issue and developed a plan to address the issue in a timely manner. The plan
consists of the following four phases: (1) identification of all information
technology and non-information technology systems that have time-sensitive
software, (2) modification or replacement of the software/systems, (3) testing
the modified or new software/systems and (4) development of a contingency plan
to address any critical system that may malfunction. In addition, the Company
has ongoing formal communications with all of its significant vendors to keep
abreast of the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues.
The Company has and will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. With
only a few exceptions, the Year 2000 modifications and testing have been
completed. The exceptions are limited to a few third-party software packages for
which the Year 2000 compliant version will become available in the first quarter
of 1999. It is anticipated that the Company will complete its system
modifications and testing prior to any material impact on its operating systems.
Non-information technology systems that are not Year 2000 compliant have been
replaced or have been identified and will be replaced by December 31, 1999.
The total incremental cost of the Year 2000 project (those costs which would not
have been incurred had the Year 2000 issue not existed) is estimated to be $2.8
million and is being funded through operating cash flows. Year 2000 modification
costs incurred and charged to expense totaled $1.7 million for 1998 and $0.6
million for 1997. It is anticipated the project costs to be charged to expense
during 1999 will total approximately $0.5 million. The Company has also incurred
internal costs associated with the Year 2000 project. These costs, which are
principally payroll-related expenses for information systems personnel, have not
been separately accounted for and, therefore, are not available.
89
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Despite the Company's extensive efforts to modify or replace computer programs
and information systems that are time-sensitive, the Company could experience a
disruption to its operations as a result of the Year 2000. The Company has a
detailed contingency plan to address any critical system that may malfunction
despite the testing being performed. The contingency plan provides for the
availability of staff, defines and prioritizes tasks and outlines procedures to
fix any systems that are malfunctioning.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantees that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
OTHER
In the normal course of business, the Company may be involved in litigation
where amounts are alleged that are substantially in excess of contractual policy
benefits or certain other agreements. At December 31, 1998, management is not
aware of any claims for which a material loss is reasonably possible.
The Company's parent leases its home office properties under a 15-year operating
lease. The Company's expected share of future remaining minimum lease payments
under this lease as of December 31, 1998 are as follows: 1999--$1.0 million;
2000--$1.2 million; 2001--$1.2 million; 2002--$1.2 million; 2003-- $1.3 million
and thereafter, through 2013--$13.4 million. Rent expense for the lease during
1998 totaled $0.7 million, net of $0.6 million in amortization of the deferred
gain on the transfer of the home office properties (see Note 1).
The Company has extended a line of credit in the amount of $15.0 million to FBL
Leasing Services, Inc., a wholly-owned subsidiary of FBL Financial Group, Inc.
Interest on this agreement is equal to the prime rate of a national bank and
payable monthly. There was $11.3 million and $4.8 million outstanding on the
line of credit at December 31, 1998 and 1997, respectively.
The Company has extended a line of credit in the amount of $0.5 million to
Western Computer Services, Inc., an affiliate. Interest on this agreement is
equal to the prime rate of a national bank and payable monthly. There was $0.4
million and $0.1 million outstanding on the line of credit at December 31, 1998
and 1997, respectively.
The Company has guaranteed the payment of principal and interest on notes
totaling $24.5 million payable by FBL Leasing Services, Inc. to a bank. The
notes are due August 1999 and are collateralized by lease agreements primarily
with affiliates. The Company believes no losses will be recognized in connection
with this guarantee due to the creditworthiness of the lessees and the value of
the underlying collateral.
In connection with an investment in a limited real estate partnership, the
Company has agreed to pay any cash flow deficiencies of a medium-sized shopping
center owned by the partnership through January 1, 2001. At December 31, 1998,
the Company recorded a $0.3 million reserve for expected future cash flow
deficiencies. No reserves were recorded at December 31, 1997. At December 31,
1998, the limited partnership had a $5.3 million mortgage loan, secured by the
shopping center, with Farm Bureau Mutual Insurance Company.
90
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND CASH VALUES
The following tables illustrate how the death benefits, Cash Values and
Surrender Values of a Policy may vary over an extended period of time at
certain ages, assuming hypothetical gross rates of investment return for the
Investment Options equivalent to constant gross annual rates of 0%, 4%, 8%
and 12%. The hypothetical rates of investment return are for purposes of
illustration only and should not be deemed a representation of past or
future rates of investment return. Actual rates of return for a particular
Policy may be more or less than the hypothetical investment rates of return
and will depend on a number of factors including the investment allocations
made by a Policyowner. Also, values would be different from those shown if
the gross annual investment returns averaged 0%, 4%, 8% and 12% over a
period of years but fluctuated above and below those averages for individual
Policy Years.
The amounts shown are as of the end of each Policy Year. The tables assume
that the assets in the Investment Options are subject to an annual expense
ratio of 0.65% of the average daily net assets. This annual expense ratio is
based on the average of the expense ratios of each of the Investment Options
available under the Policy for the last fiscal year and takes into account
current expense reimbursement arrangements. The fees and expenses of each
Investment Option vary, and in 1998 the total fees and expenses ranged from
an annual rate of 0.28% to an annual rate of 1.05% of average daily net
assets. For information on Investment Option expenses, see "SUMMARY AND
DIAGRAM OF THE POLICY" and the prospectuses for the Investment Options.
The tables reflect deduction of the premium expense charge, the monthly
Policy expenses charge, the first-year monthly administrative charge, the
first-year monthly expense charge, the daily charge for the Company's
assumption of mortality and expense risks, and cost of insurance charges for
the hypothetical Insured. The surrender values illustrated in the tables
also reflect deduction of applicable surrender charges. The charges the
Company may assess are reflected in separate tables on each of the following
pages.
Applying the charges and the average Investment Option fees and expenses of
0.65% of average net assets, the gross annual rates of investment return of
0%, 4%, 8% and 12% would produce net annual rates of return of -1.55%,
2.45%, 6.45% and 10.45%, 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 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NON-TOBACCO 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....................... 1,110.69 355 100,355 363 100,363 391 100,391
3....................... 1,708.02 602 100,602 658 100,658 718 100,718
4....................... 2,335.23 852 100,852 949 100,949 1,053 101,053
5....................... 2,993.79 1,085 101,085 1,232 101,232 1,396 101,396
6....................... 3,685.28 1,300 101,300 1,508 101,508 1,745 101,745
7....................... 4,411.34 1,493 101,493 1,772 101,772 2,098 102,098
8....................... 5,173.71 1,665 101,665 2,024 102,024 2,455 102,455
9....................... 5,974.19 1,817 101,817 2,264 102,264 2,817 102,817
10....................... 6,814.70 1,949 101,949 2,492 102,492 3,184 103,184
15....................... 11,691.27 2,274 102,274 3,391 103,391 5,052 105,052
20....................... 17,915.13 1,869 101,869 3,630 103,630 6,754 106,754
25....................... 25,858.54 464 100,464 2,763 102,763 7,827 107,827
30....................... 35,996.57 * * 132 100,132 7,487 107,487
35....................... 48,935.54 * * * * 3,383 103,383
Age 65....................... 35,996.57 * * * * 7,046 107,046
<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....................... 781 100,781
4....................... 1,166 101,166
5....................... 1,577 101,577
6....................... 2,015 102,015
7....................... 2,480 102,480
8....................... 2,974 102,974
9....................... 3,502 103,502
10....................... 4,065 104,065
15....................... 7,520 107,520
20....................... 12,266 112,266
25....................... 18,684 118,684
30....................... 27,259 127,259
35....................... 37,358 137,358
Age 65....................... 29,173 129,173
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NON-TOBACCO 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 $ 316 $ 100,316 $ 350 $ 100,350 $ 384 $ 100,384
2...................... 3,370.82 1,058 101,058 1,149 101,149 1,242 101,242
3...................... 5,183.66 1,743 101,743 1,920 101,920 2,108 102,108
4...................... 7,087.14 2,373 102,373 2,666 102,666 2,985 102,985
5...................... 9,085.80 2,948 102,948 3,383 103,383 3,870 103,870
6...................... 11,184.39 3,459 103,459 4,062 104,062 4,754 104,754
7...................... 13,387.90 3,898 103,898 4,692 104,692 5,629 105,629
8...................... 15,701.60 4,249 104,249 5,254 105,254 6,476 106,476
9...................... 18,130.98 4,492 104,492 5,726 105,726 7,270 107,270
10...................... 20,681.83 4,611 104,611 6,085 106,085 7,990 107,990
15...................... 35,481.63 3,136 103,136 5,822 105,822 9,983 109,983
20...................... 54,370.35 * * 182 100,182 6,863 106,863
25...................... 78,477.67 * * * * * *
30...................... 109,245.40 * * * * * *
35...................... 148,513.68 * * * * * *
Age 65...................... 20,681.83 4,598 104,598 6,321 106,321 8,621 108,621
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ---------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------ -------------
<S> <C> <C>
1...................... $ 419 $ 100,419
2...................... 1,339 101,339
3...................... 2,308 102,308
4...................... 3,331 103,331
5...................... 4,412 104,412
6...................... 5,548 105,548
7...................... 6,734 106,734
8...................... 7,958 107,958
9...................... 9,201 109,201
10...................... 10,445 110,445
15...................... 16,364 116,364
20...................... 19,705 119,705
25...................... 11,769 111,769
30...................... * *
35...................... * *
Age 65...................... 11,680 111,680
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $516
NON-TOBACCO 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....................... 1,110.69 336 100,000 364 100,000 393 100,000
3....................... 1,708.02 604 100,000 661 100,000 721 100,000
4....................... 2,335.23 856 100,000 953 100,000 1,058 100,000
5....................... 2,993.79 1,091 100,000 1,240 100,000 1,404 100,000
6....................... 3,685.28 1,309 100,000 1,518 100,000 1,758 100,000
7....................... 4,411.34 1,506 100,000 1,787 100,000 2,117 100,000
8....................... 5,173.71 1,682 100,000 2,045 100,000 2,482 100,000
9....................... 5,974.19 1,839 100,000 2,292 100,000 2,853 100,000
10....................... 6,814.70 1,977 100,000 2,528 100,000 3,232 100,000
15....................... 11,691.27 2,341 100,000 3,492 100,000 5,206 100,000
20....................... 17,915.13 1,989 100,000 3,848 100,000 7,150 100,000
25....................... 25,858.54 630 100,000 3,153 100,000 8,706 100,000
30....................... 35,996.57 * * 700 100,000 9,245 100,000
35....................... 48,935.54 * * * * 6,603 100,000
Age 65....................... 35,996.57 * * * * 9,049 100,000
<CAPTION>
12% ASSUMED HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ---------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------ -------------
<S> <C> <C>
1....................... $ 84 $ 100,000
2....................... 422 100,000
3....................... 784 100,000
4....................... 1,172 100,000
5....................... 1,587 100,000
6....................... 2,030 100,000
7....................... 2,503 100,000
8....................... 3,007 100,000
9....................... 3,547 100,000
10....................... 4,128 100,000
15....................... 7,755 100,000
20....................... 12,978 100,000
25....................... 20,606 100,000
30....................... 32,117 100,000
35....................... 49,572 100,000
Age 65....................... 35,020 100,000
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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 LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $1,566
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED
HYPOTHETICAL HYPOTHETICAL 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 $ 322 $ 100,000 $ 356 $ 100,000 $ 390 $ 100,000
2.................... 3,370.82 1,073 100,000 1,165 100,000 1,260 100,000
3.................... 5,183.66 1,773 100,000 1,953 100,000 2,145 100,000
4.................... 7,087.14 2,424 100,000 2,724 100,000 3,050 100,000
5.................... 9,085.80 3,026 100,000 3,473 100,000 3,974 100,000
6.................... 11,184.39 3,570 100,000 4,194 100,000 4,911 100,000
7.................... 13,387.90 4,048 100,000 4,876 100,000 5,854 100,000
8.................... 15,701.60 4,447 100,000 5,503 100,000 6,788 100,000
9.................... 18,130.98 4,746 100,000 6,054 100,000 7,694 100,000
10.................... 20,681.83 4,929 100,000 6,509 100,000 8,554 100,000
15.................... 35,481.63 3,860 100,000 6,982 100,000 11,822 100,000
20.................... 54,370.35 * * 2,335 100,000 11,374 100,000
25.................... 78,477.67 * * * * * *
30.................... 109,245.40 * * * * * *
35.................... 148,513.68 * * * * * *
Age 65.................... 20,681.83 4,988 100,000 6,858 100,000 9,357 100,000
<CAPTION>
12% ASSUMED
HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ---------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------ -------------
<S> <C> <C>
1.................... $ 425 $ 100,000
2.................... 1,358 100,000
3.................... 2,348 100,000
4.................... 3,404 100,000
5.................... 4,532 100,000
6.................... 5,734 100,000
7.................... 7,008 100,000
8.................... 8,349 100,000
9.................... 9,746 100,000
10.................... 11,193 100,000
15.................... 19,253 100,000
20.................... 28,628 100,000
25.................... 36,655 100,000
30.................... 37,834 100,000
35.................... 5,656 100,000
Age 65.................... 12,687 100,000
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED
HYPOTHETICAL HYPOTHETICAL 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 $ 185 $ 100,185 $ 201 $ 100,201
2...................... 1,435.72 568 100,568 610 100,610 654 100,654
3...................... 2,207.85 948 100,948 1,034 101,034 1,126 101,126
4...................... 3,018.60 1,311 101,311 1,457 101,457 1,615 101,615
5...................... 3,869.88 1,654 101,654 1,875 101,875 2,122 102,122
6...................... 4,763.72 1,977 101,977 2,289 102,289 2,645 102,645
7...................... 5,702.26 2,277 102,277 2,695 102,695 3,184 103,184
8...................... 6,687.72 2,555 102,555 3,092 103,092 3,740 103,740
9...................... 7,722.45 2,814 102,814 3,484 103,484 4,315 104,315
10...................... 8,808.93 3,042 103,042 3,859 103,859 4,900 104,900
15...................... 15,112.55 3,726 103,726 5,438 105,438 7,974 107,974
20...................... 23,157.74 3,384 103,384 6,153 106,153 11,006 111,006
25...................... 33,425.67 1,319 101,319 5,039 105,039 13,041 113,041
30...................... 46,530.45 * * 579 100,579 12,312 112,312
35...................... 63,255.83 * * * * 5,227 105,227
Age 65...................... 46,530.45 * * * * 11,529 111,529
<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...................... 699 100,699
3...................... 1,222 101,222
4...................... 1,786 101,786
5...................... 2,395 102,395
6...................... 3,051 103,051
7...................... 3,758 103,758
8...................... 4,519 104,519
9...................... 5,343 105,343
10...................... 6,226 106,226
15...................... 11,728 111,728
20...................... 19,490 119,490
25...................... 29,936 129,936
30...................... 43,259 143,259
35...................... 58,473 158,473
Age 65...................... 46,181 146,181
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED
HYPOTHETICAL HYPOTHETICAL 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 $ 714 $ 100,714 $ 767 $ 100,767 $ 821 $ 100,821
2.................... 4,698.91 1,813 101,813 1,958 101,958 2,107 102,107
3.................... 7,226.00 2,809 102,809 3,090 103,090 3,388 103,388
4.................... 9,879.45 3,698 103,698 4,157 104,157 4,655 104,655
5.................... 12,665.58 4,470 104,470 5,143 105,143 5,896 105,896
6.................... 15,591.00 5,114 105,114 6,035 106,035 7,096 107,096
7.................... 18,662.70 5,619 105,619 6,817 106,817 8,239 108,239
8.................... 21,887.99 5,969 105,969 7,469 107,469 9,303 109,303
9.................... 25,274.54 6,147 106,147 7,966 107,966 10,260 110,260
10.................... 28,830.42 6,132 106,132 8,281 108,281 11,082 111,082
15.................... 49,461.30 2,627 102,627 6,281 106,281 12,083 112,083
20.................... 75,792.13 * * * * 3,451 103,451
25.................... 109,397.67 * * * * * *
30.................... 152,287.80 * * * * * *
35.................... 207,027.69 * * * * * *
Age 65.................... 28,830.42 5,891 105,891 8,373 108,373 11,720 111,720
<CAPTION>
12% ASSUMED
HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ---------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------ -------------
<S> <C> <C>
1.................... $ 874 $ 100,874
2.................... 2,262 102,262
3.................... 3,703 103,703
4.................... 5,198 105,198
5.................... 6,738 106,738
6.................... 8,315 108,315
7.................... 9,920 109,920
8.................... 11,537 111,537
9.................... 13,145 113,145
10.................... 14,719 114,719
15.................... 21,154 121,154
20.................... 20,775 120,775
25.................... 1,697 101,697
30.................... * *
35.................... * *
Age 65.................... 16,216 116,216
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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
MALE AGE 35 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $667
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED
HYPOTHETICAL HYPOTHETICAL 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 $ 201 $ 100,000
2...................... 1,435.72 569 100,000 612 100,000 656 100,000
3...................... 2,207.85 952 100,000 1,039 100,000 1,130 100,000
4...................... 3,018.60 1,317 100,000 1,464 100,000 1,623 100,000
5...................... 3,869.88 1,664 100,000 1,887 100,000 2,135 100,000
6...................... 4,763.72 1,992 100,000 2,307 100,000 2,667 100,000
7...................... 5,702.26 2,298 100,000 2,720 100,000 3,215 100,000
8...................... 6,687.72 2,583 100,000 3,127 100,000 3,783 100,000
9...................... 7,722.45 2,850 100,000 3,530 100,000 4,374 100,000
10...................... 8,808.93 3,087 100,000 3,918 100,000 4,979 100,000
15...................... 15,112.55 3,841 100,000 5,613 100,000 8,239 100,000
20...................... 23,157.74 3,610 100,000 6,555 100,000 11,724 100,000
25...................... 33,425.67 1,669 100,000 5,832 100,000 14,784 100,000
30...................... 46,530.45 * * 1,844 100,000 16,153 100,000
35...................... 63,255.83 * * * * 12,812 100,000
Age 65...................... 46,530.45 * * 366 100,000 15,980 100,000
<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...................... 702 100,000
3...................... 1,227 100,000
4...................... 1,796 100,000
5...................... 2,411 100,000
6...................... 3,076 100,000
7...................... 3,795 100,000
8...................... 4,572 100,000
9...................... 5,418 100,000
10...................... 6,329 100,000
15...................... 12,129 100,000
20...................... 20,771 100,000
25...................... 33,689 100,000
30...................... 53,724 100,000
35...................... 87,157 101,102
Age 65...................... 59,011 100,000
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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
MALE AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $100,000--ANNUAL PREMIUM $2,183
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
0% ASSUMED 4% ASSUMED 8% ASSUMED
HYPOTHETICAL HYPOTHETICAL 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 $ 725 $ 100,000 $ 779 $ 100,000 $ 833 $ 100,000
2.................. 4,698.91 1,844 100,000 1,991 100,000 2,143 100,000
3.................. 7,226.00 2,782 100,000 3,159 100,000 3,464 100,000
4.................. 9,879.45 3,806 100,000 4,278 100,000 4,792 100,000
5.................. 12,665.58 4,635 100,000 5,335 100,000 6,119 100,000
6.................. 15,591.00 5,353 100,000 6,320 100,000 7,435 100,000
7.................. 18,662.70 5,947 100,000 7,221 100,000 8,732 100,000
8.................. 21,887.99 6,403 100,000 8,018 100,000 9,994 100,000
9.................. 25,274.54 6,704 100,000 8,692 100,000 11,203 100,000
10.................. 28,830.42 6,830 100,000 9,219 100,000 12,339 100,000
15.................. 49,461.30 4,151 100,000 8,804 100,000 16,185 100,000
20.................. 75,792.13 * * * * 13,278 100,000
25.................. 109,397.67 * * * * * *
30.................. 152,287.80 * * * * * *
35.................. 207,027.69 * * * * * *
Age 65.................. 28,830.42 6,745 100,000 9,560 100,000 13,366 100,000
<CAPTION>
12% ASSUMED
HYPOTHETICAL
GROSS RETURN
GUARANTEED COST
OF INSURANCE
END OF ----------------------------
POLICY CASH DEATH
YEAR VALUE BENEFIT
----------- ------------- -------------
<S> <C> <C>
1.................. $ 887 $ 100,000
2.................. 2,300 100,000
3.................. 3,786 100,000
4.................. 5,351 100,000
5.................. 6,995 100,000
6.................. 8,718 100,000
7.................. 10,522 100,000
8.................. 12,405 100,000
9.................. 14,364 100,000
10.................. 16,395 100,000
15.................. 27,724 100,000
20.................. 41,359 100,000
25.................. 58,845 100,000
30.................. 91,107 100,000
35.................. 156,309 164,124
Age 65.................. 18,483 100,000
</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 -1.55%, 2.45%, 6.45% AND 10.45%, 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>
- --------------------------------------------------------------------------------
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
B-1
<PAGE>
dollar then added to or taken from the Cash Value would change the life
insurance proceeds by $1.85 (rather than $2.50).
<TABLE>
<CAPTION>
SPECIFIED AMOUNT
ATTAINED AGE 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
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore, or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Article XII of the Company's By-Laws provides for the indemnification by the
Company of any person who is a party or who is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
XII also provides for the indemnification by the Company of any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its factor by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
offer, employee or agent of another corporation, partnership, joint venture,
trust or another enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification will be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
The Company represents that the aggregate charges under the Contracts are
reasonable in relation to the services rendered, the expenses to be incurred and
the risks assumed by the Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of information shown in the Prospectus with the
items of Form N-8B-2.
The Prospectus consisting of 101 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons:
Stephen M. Morain, Esquire
Messrs. Sutherland Asbill & Brennan LLP
Ernst & Young LLP, Independent Auditors
Christopher G. Daniels, FSA, MSAA, Life Product Development and Pricing
Vice President
The following exhibits:
<TABLE>
<S> <C> <C> <C>
1.A. 1. Certified Resolution of the Board of Directors of the Company
establishing the Variable Account.(5)
2. None.
3. (a) Form of Principal Underwriting Agreement.(5)
(b) Forms of Career Agent's Contract.(5)
(c) Commission schedules. (See Exhibit 3(b)(I) above.)(5)
4. None.
5. (a) Form of Policy.(1)
(b) State variation of Form of Policy.(1)
(c) Form of Application.(1)
(d) Revised Policy Form.(2)
(e) 1995 Revised Policy Form.(3)
(f) Accelerated Death Benefit Rider.(3)
(g) 1996 Revised Policy Form(4)
(h) 1996 Revised Application Form(4)
6. (a) Certificate of Incorporation of the Company.(5)
(b) By-Laws of the Company.(5)
7. None.
8. None.
9. Form of Participation Agreement.(5)
10. Form of Application (see Exhibit 1.A.(5)(b) above.)
2. *Opinion and Consent of Stephen M. Morain, Esquire.
3. *Financial Statement Schedules.
4. None.
5. Not applicable.
6. *Opinion and Consent of Christopher G. Daniels, FSA, MSAA, Life Product
Development and Pricing Vice President.
7. (a) *Consent of Ernst & Young LLP
(b) *Consent of Messrs. Sutherland Asbill & Brennan LLP
8. Memorandum describing the Company's conversion procedure (included in
Exhibit 9 hereto).
9. Memorandum describing the Company's issuance, transfer and redemption
procedures for the Policy.(5)
10. Powers of Attorney.(5)
</TABLE>
*Attached as an exhibit.
<PAGE>
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on September 4, 1987.
(2) Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on April 6, 1993.
(3) Incorporated herein by reference to Post-Effective Amendment No. 9 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1995.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on May 1, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, Farm
Bureau Life Variable Account, certifies that it meets all of the requirements
for effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized in the City of
West Des Moines, State of Iowa, on the 22nd day of April, 1999.
<TABLE>
<S> <C> <C>
FARM BUREAU LIFE INSURANCE COMPANY
FARM BUREAU LIFE VARIABLE ACCOUNT
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the dates set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ EDWARD M. WIEDERSTEIN President and Director
- ------------------------------ [Principal Executive April 22, 1999
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ RICHARD D. HARRIS Secretary-Treasurer
- ------------------------------ [Principal Financial April 22, 1999
Richard D. Harris Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting April 22, 1999
James W. Noyce Officer]
*
- ------------------------------ Vice President and April 22, 1999
Craig A. Lang Director
*
- ------------------------------ Director April 22, 1999
Kenneth R. Ashby
*
- ------------------------------ Director April 22, 1999
Al Christopherson
*
- ------------------------------ Director April 22, 1999
Ernest A. Glienke
*
- ------------------------------ Director April 22, 1999
Philip A. Hemesath
*
- ------------------------------ Director April 22, 1999
Craig D. Hill
*
- ------------------------------ Director April 22, 1999
Daniel L. Johnson
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director April 22, 1999
Richard G. Kjerstad
*
- ------------------------------ Director April 22, 1999
Lindsey D. Larsen
*
- ------------------------------ Director April 22, 1999
David R. Machacek
*
- ------------------------------ Director April 22, 1999
Donald O. Narigon
*
- ------------------------------ Director April 22, 1999
Bryce P. Neidig
*
- ------------------------------ Director April 22, 1999
Charles E. Norris
*
- ------------------------------ Director April 22, 1999
Keith R. Olsen
*
- ------------------------------ Director April 22, 1999
Bennett M. Osmonson
*
- ------------------------------ Director April 22, 1999
Howard D. Poulson
*
- ------------------------------ Director April 22, 1999
Sally A. Puttmann
*
- ------------------------------ Director April 22, 1999
Beverly L. Schnepel
*
- ------------------------------ Director April 22, 1999
F. Gary Steiner
</TABLE>
*By /s/ STEPHEN M. MORAIN
-------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
PURSUANT TO POWER OF
ATTORNEY.
<PAGE>
April 28, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen,
With reference to the Registration Statement on Form S-6 filed by Farm Bureau
Life Insurance Company ("Company") and its Farm Bureau Life Variable Account
with the Securities and Exchange Commission covering certain variable
universal life insurance policies, I have examined such documents and such
law as I considered necessary and appropriate, and on the basis of such
examinations, it is my opinion that:
(1) Company is duly organized and validly existing under the laws of the
State of Iowa.
(2) The variable universal life policies, when issued as contemplated by
the said Form S-6 Registration Statement will constitute legal,
validly issued and binding obligations of Farm Bureau Life Insurance
Company.
I hereby consent to the filing of this opinion as an exhibit to the said Form
S-6 Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus contained in the said Registration
Statement. In giving this consent, I am not admitting that I am in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
/s/ Stephen M. Morain
Stephen M. Morain
Senior Vice President
& General Counsel
<PAGE>
Exhibit 3
The following consolidated financial statement schedules are included as part
of this Form S-6:
Schedule I - Summary of Investments - Other than Investment in Related Parties
Schedule IV - Reinsurance
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are omitted because they are not applicable or
because the information is included elsewhere in the financial statements or
notes thereto.
<PAGE>
SCHEDULE I--SUMMARY OF INVESTMENTS--OTHER
THAN INVESTMENTS IN RELATED PARTIES
FARM BUREAU LIFE INSURANCE COMPANY
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- --------------------------------------------------------- --------- --------- -------------
AMOUNT AT
WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST(1) VALUE BALANCE SHEET
- --------------------------------------------------------- --------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, held for investment:
Bonds:
Corporate securities $ 5,008 $ 5,542 $ 5,008
Mortgage-backed securities 398,298 417,075 398,298
--------- --------- -------------
Total 403,306 $ 422,617 403,306
---------
---------
Fixed maturity securities, available for sale:
Bonds:
United States Government and agencies 13,229 13,373 13,373
State, municipal and other governments 46,879 48,693 48,693
Public utilities 83,934 89,315 89,315
Corporate securities 756,347 799,027 799,027
Mortgage and asset-backed securities 463,309 481,544 481,544
Convertible bonds 13,994 13,321 13,321
Redeemable preferred stock 26,453 25,899 25,899
--------- --------- -------------
Total 1,404,145 $1,471,172 1,471,172
---------
---------
Equity securities, available-for-sale:
Common stocks:
Public utilities 2,834 2,775 2,775
Banks, trusts, and insurance companies 8,972 9,036 9,036
Industrial, miscellaneous, and all other 17,572 13,768 13,768
Nonredeemable preferred stocks 6,805 6,401 6,401
--------- --------- -------------
Total 36,183 $ 31,980 31,980
---------
---------
Mortgage loans on real estate 227,858 227,335(2)
Investment real estate 39,812 39,812
Policy loans 89,325 89,325
Other long-term investments 10,022 6,236(2)
Short-term investments 70,090 70,090
--------- -------------
$2,280,741 $ 2,339,256
--------- -------------
--------- -------------
</TABLE>
(1) On the basis of cost adjusted for repayments and amortization of premiums
and accrual of discounts for fixed maturities, other long-term investments
and short-term investments; original cost for equity securities; unpaid
principal balance for mortgage loans on real estate and policy loans, and
original cost less accumulated depreciation for investment real estate.
(2) Amount not equal to cost (Column B) because of allowance for possible losses
deducted from cost to determine reported amount.
S-1
<PAGE>
SCHEDULE IV--REINSURANCE
FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------------ ------------ ------------- ----------- ---------- -----------------
CEDED TO ASSUMED PERCENT OF
OTHER FROM OTHER AMOUNT
GROSS AMOUNT COMPANIES COMPANY NET AMOUNT ASSUMED TO NET
------------ ------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Life insurance in force, at end of year $13,863,614 $ 694,027 $ -- $13,169,587 --
------------ ------------- ----------- ---------- ---
------------ ------------- ----------- ---------- ---
Insurance premiums and other
considerations:
Interest sensitive product charges $ 43,081 $ 1,562 $ 1 $ 41,520 --
Traditional life insurance and
accident and health premiums 62,850 2,125 -- 60,725 --
------------ ------------- ----------- ---------- ---
$ 105,931 $ 3,687 $ 1 $ 102,245 --%
------------ ------------- ----------- ---------- ---
------------ ------------- ----------- ---------- ---
Year ended December 31, 1997:
Life insurance in force, at end of year $12,951,268 $ 663,399 $ -- $12,287,869 --
------------ ------------- ----------- ---------- ---
------------ ------------- ----------- ---------- ---
Insurance premiums and other
considerations:
Interest sensitive product charges $ 39,373 $ 1,571 $ -- $ 37,802 --
Traditional life insurance and
accident and health premiums 63,852 2,177 -- 61,675 --
------------ ------------- ----------- ---------- ---
$ 103,225 $ 3,748 $ -- $ 99,477 --%
------------ ------------- ----------- ---------- ---
------------ ------------- ----------- ---------- ---
Year ended December 31, 1996:
Life insurance in force, at end of year $12,051,585 $ 594,942 $ -- $11,456,643 --
Insurance premiums and other
considerations:
Interest sensitive product charges $ 35,388 $ 1,633 $ -- $ 33,755 --
Traditional life insurance and
accident and health premiums 63,333 1,722 -- 61,611 --
------------ ------------- ----------- ---------- ---
$ 98,721 $ 3,355 $ -- $ 95,366 --%
------------ ------------- ----------- ---------- ---
------------ ------------- ----------- ---------- ---
</TABLE>
S-2
<PAGE>
[LETTERHEAD]
April 28, 1999
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
This opinion is furnished in connection with the registration by Farm Bureau
Life Insurance Company of a flexible premium variable life insurance policy
("Policy") under the Securities Act of 1933, as amended. The prospectus
included in Post-Effective Amendment No. 14 to the Registration Statement on
Form S-6 (File No. 33-12789) describes the Policy. I have provided actuarial
advice concerning the preparation of the policy form described in the
Registration Statement, and I am familiar with the Registration Statement and
exhibits thereto.
It is my professional opinion that:
(1) The illustrations of death benefits and cash values included in Appendix A
of the Prospectus, based on the assumptions stated in the illustrations,
are consistent with the provisions of the Policy. The rate structure of the
Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear more favorable
for policyowners at the ages illustrated than for policyowners at other
ages.
(2) The information contained in the examples set forth in Appendix B of the
Prospectus, based on the assumptions stated in the examples, is consistent
with the provisions of the Policy.
(3) The fees and charges deducted under the Policy, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred and the risks assumed by the insurance company.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 14 to the Registration Statement and to the reference to my name
under the heading "Experts" in the Prospectus.
Sincerely,
/s/ Christopher G. Daniels
Christopher G. Daniels, FSA, MSAA
Life Product Development and Pricing
Vice President
Farm Bureau Life Insurance Company
5400 UNIVERSITY AVENUE - WEST DES MOINES, IOWA 50266-5997 - PH (515)225-5400
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated March 15, 1999
with respect to Farm Bureau Life Variable Account and February 15, 1999 with
respect to the financial statements of Farm Bureau Life Insurance Company, in
Post-Effective Amendment No. 14 to the Registration Statement (Form S-6 No.
33-12789) and related Prospectus of Farm Bureau Life Variable Account dated
May 1, 1999.
Our audits also included the financial statement schedules of Farm Bureau
Life Insurance Company included in Exhibit 3. These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 26, 1999
<PAGE>
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2415
Tel: (202) 383-0100
Fax: (202) 637-3593
April 26, 1999
Farm Bureau Life Insurance Company
5400 University Avenue
West Des Moines, Iowa 50266
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of the registration statement on
Form S-6 for Farm Bureau Life Variable Account (File No. 333-12789). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
--------------------------
Stephen E. Roth, Esq.
