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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2000
REGISTRATION NO. 333-31444
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2 /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.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
TITLE OF SECURITIES BEING REGISTERED: FLEXIBLE PREMIUM LAST SURVIVOR
VARIABLE LIFE INSURANCE POLICIES
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FARM BUREAU LIFE VARIABLE ACCOUNT
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
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PROSPECTUS
May , 2000
Farm Bureau Life Insurance Company is offering a flexible premium last survivor
variable life insurance policy (the "Policy") described in this prospectus. Farm
Bureau ("we," "us" or "our") designed the Policy: (1) to provide lifetime
insurance protection to age 115; 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 last death of the Joint Insureds, and
- a net surrender value or net accumulated value upon complete surrender or
partial withdrawal 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 accumulated 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 T. Rowe Price Equity Series, Inc.:
Series Fund: Mid-Cap Growth Portfolio
Value Growth Portfolio New America Growth Portfolio
High Grade Bond Portfolio Personal Strategy Balanced Portfolio
High Yield Bond Portfolio T. Rowe Price International Series, Inc.:
Managed Portfolio International Stock Portfolio
Money Market Portfolio
Blue Chip 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% annual interest rate.
Please note that the Policies and Investment Options are not bank deposits, are
not federally insured, are not guaranteed to achieve their goals and are subject
to risks, including loss of the amount invested.
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 OF THE POLICY....................................... 6
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..... 15
THE POLICY.................................................. 15
Purchasing the Policy................................. 15
Premiums.............................................. 16
Examination of Policy (Cancellation Privilege)........ 17
Policy Lapse and Reinstatement........................ 18
Special Transfer Privilege............................ 18
Exchange Privilege.................................... 19
POLICY BENEFITS............................................. 20
Accumulated Value Benefits............................ 20
Transfers............................................. 23
Loan Benefits......................................... 23
Death Proceeds........................................ 25
Benefits at Maturity.................................. 28
Payment Options....................................... 28
CHARGES AND DEDUCTIONS...................................... 29
Premium Expense Charge................................ 30
Monthly Deduction..................................... 30
Transfer Charge....................................... 32
Surrender Charge...................................... 32
Variable Account Charges.............................. 32
THE DECLARED INTEREST OPTION................................ 33
General Description................................... 33
Declared Interest Option Accumulated Value............ 33
Transfers, Surrenders and Policy Loans................ 34
GENERAL PROVISIONS.......................................... 34
The Contract.......................................... 34
Incontestability...................................... 34
Change of Provisions.................................. 35
Misstatement of Age or Sex............................ 35
Suicide Exclusion..................................... 35
Annual Report......................................... 35
Non-Participation..................................... 35
Ownership of Assets................................... 35
Written Notice........................................ 35
Postponement of Payments.............................. 36
Continuance of Insurance.............................. 36
Ownership............................................. 36
The Beneficiary....................................... 37
Changing the Policyowner or Beneficiary............... 37
Additional Insurance Benefits......................... 37
Policy Split Option................................... 37
</TABLE>
1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
DISTRIBUTION OF THE POLICIES................................ 38
FEDERAL TAX MATTERS......................................... 38
Introduction.......................................... 38
Tax Status of the Policy.............................. 39
Tax Treatment of Policy Benefits...................... 39
Possible Tax Law Changes.............................. 41
Taxation of the Company............................... 41
Employment-Related Benefit Plans...................... 41
ADDITIONAL INFORMATION...................................... 42
FINANCIAL STATEMENTS........................................ 47
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUES...... Appendix A
DEATH BENEFIT OPTIONS....................................... Appendix B
MAXIMUM SURRENDER CHARGES................................... Appendix C
</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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ACCUMULATED 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.
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: (1) any period when the Securities and Exchange Commission determines
that an emergency exists which makes it impracticable for a Fund to dispose of
its securities or to fairly determine the value of its net assets; or (2) such
other periods as the Securities and Exchange Commission may permit for the
protection of security holders of a Fund.
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 Accumulated Value to the Declared
Interest Option. The Company credits Accumulated Value in the Declared Interest
Option with interest at an annual rate guaranteed to be at least 4%.
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:
(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 we send notice to the
Policyowner that Net Accumulated Value or Net Surrender Value is insufficient to
cover the monthly deduction.
HOME OFFICE: The Company's principal offices at 5400 University Avenue, West Des
Moines, Iowa 50266.
INVESTMENT OPTION: A separate investment portfolio of a Fund.
JOINT EQUAL AGE: The age on which premium and Accumulated Value are based. It is
an actuarial equivalent and is determined by the age and sex of the Joint
Insureds. The current Joint Equal Age on any Policy Anniversary will equal the
Joint Equal Age on the Policy Date plus the number of years since the Policy
Date.
JOINT EQUAL ATTAINED AGE: The Joint Equal Age at the Policy Date plus the number
of Policy Years since the Policy Date.
JOINT INSUREDS: The persons upon whose lives the Company issues a Policy.
MATURITY DATE: The Joint Equal Attained Age 115. It is the date when the Policy
terminates and the Policy's Accumulated Value less Policy Debt becomes payable
to the Policyowner or the Policyowner's estate.
3
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MINIMUM INITIAL PREMIUM: A premium amount specified by the Company. We use this
amount to calculate the premium expense charge during periods when we declare a
premium expense charges less than the 7% guaranteed premium expense charge. We
may declare a lower percentage of premium expense charge on premiums paid in
excess of the Minimum Initial Premium during a Policy Year. We also use Minimum
Initial Premium to calculate registered representative's compensation.
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 ACCUMULATED VALUE: The Accumulated Value of the Policy reduced by any
outstanding Policy Debt and increased by any unearned loan interest.
NET ASSET VALUE: The total current value of each Subaccount's securities, cash,
receivables and other assets less liabilities.
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.
NET SURRENDER VALUE: The Surrender Value minus any Policy Debt plus any unearned
loan interest.
PARTIAL WITHDRAWAL FEE: A fee we assess at the time of any partial withdrawal
equal to the lesser of $25 or 2% of the amount withdrawn.
POLICY: The flexible premium last survivor variable life insurance policy we
offer and describe in this prospectus, which term includes the Policy described
in this prospectus, the Policy application, any supplemental applications and
any endorsements or additional benefit riders or agreements.
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 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 surrender during the
first ten Policy Years and for ten years following an increase in Specified
Amount.
SURRENDER VALUE: The Accumulated Value minus the Surrender Charge.
4
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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.
5
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SUMMARY 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 last survivor variable life insurance
policy providing for:
- death proceeds payable to the Beneficiary upon the last death of
the Joint Insureds,
- the accumulation of Accumulated Value,
- withdrawal and surrender options, and
- loan privileges.
- We normally issue a Policy for a minimum Specified Amount of $100,000,
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.
- Accumulated 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 either Joint Insured is alive and the Policy is in force on the
Maturity Date, we will pay you the Accumulated 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 it to us before midnight of the 20th day after you receive it.
We will refund you the greater of:
- premiums paid, or
- Accumulated Value on the Business Day we receive the Policy plus
any charges we deducted. (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 Accumulated
Value to any of the Subaccounts.
6
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- We will allocate your initial premium to the Declared Interest Option.
- We will automatically allocate, without charge, your Accumulated 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 Accumulated Value
to the Declared Interest Option, which guarantees a specified minimum
rate of return (at least 4% annually). (See "THE DECLARED INTEREST
OPTION.")
PREMIUMS
- You choose when to pay and how much to pay.
- You must pay an initial premium that (when reduced by the premium
expense charge) is enough to pay the first monthly deduction.
- We deduct a premium expense charge from each payment. (See "CHARGES and
DEDUCTIONS--Premium Expense Charge.")
POLICY BENEFITS
ACCUMULATED VALUE BENEFITS (SEE "POLICY BENEFITS--ACCUMULATED VALUE BENEFITS.")
- Your Policy provides for an Accumulated Value. A Policy's Accumulated
Value varies to reflect:
- the amount and frequency of premium payments,
- the investment experience of the Subaccounts,
- interest earned on Accumulated Value in the Declared Interest
Option,
- Policy Loans,
- partial withdrawals and
- charges we assess under the Policy.
- You may fully surrender your Policy and receive the Net Surrender Value.
- You may obtain a partial withdrawal of your Net Accumulated Value
(minimum $500) at any time before the Maturity Date.
- A partial withdrawal or 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.
- 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.
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- We do not count certain transfers for purposes of the one free transfer
limit. (See "THE POLICY--Special Transfer Privilege"; and "THE
POLICY--Premiums--Allocating Net Premiums.")
LOANS (SEE POLICY BENEFITS--"LOAN BENEFITS.")
- You may borrow up to 90% of the Policy's Net Surrender Value as of the
date of the most recent loan.
- We charge you a maximum annual interest rate equal to the higher of the
"Published Monthly Average of the Composite Yield on Seasoned Corporate
Bonds" as published by Moody's Investors Services, Inc. (or any
successor thereto) for the calendar month ending two months before the
date on which the rate is determined; or 5.5%.
- 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 equal to at least 4%.
- 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 Accumulated Value, or the
Accumulated Value multiplied by the specified amount factor for the
Joint Equal Attained Age, as set forth in the Policy.
- Option B--the death benefit is the greater of the Specified Amount,
or the Accumulated Value multiplied by the specified amount factor
for the Joint Equal 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 last death of the Joint Insureds.
- 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 up to the
Minimum Initial Premium and 2% of each premium in excess of the Minimum
Initial Premium. The remaining amount is the Net Premium.
ACCUMULATED 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, plus
- the cost of any additional insurance benefits added by rider, plus
- a $10 policy expense charge, plus
- a monthly charge of $0.03 per $1,000 of Specified Amount.
- 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 of
$0.10 per $1,000 of Specified Amount.
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- We apply a $10 first year monthly expense charge during the first 12
Policy Months.
- Upon partial withdrawal of a Policy, we assess a charge equal to the
lesser of $25 or 2.0% of the amount surrendered.
- We apply a charge upon surrender of a Policy during the first ten Policy
Years, as well as during the first ten Policy Years following an
increase in Specified Amount (See "APPENDIX C--Maximum Surrender
Charges").
- 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 (after waivers or reimbursements) for the year ended
December 31, 1999.
<TABLE>
<CAPTION>
ADVISORY OTHER TOTAL
INVESTMENT OPTION FEE EXPENSES EXPENSES
<S> <C> <C> <C>
EquiTrust Variable Insurance Series Fund
Value Growth 0.45% 0.12% 0.57%
High Grade Bond 0.30% 0.18% 0.48%
High Yield Bond 0.45% 0.15% 0.60%
Managed 0.45% 0.11% 0.56%
Money Market 0.25% 0.30% 0.55%
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 0.58% 0.08% 0.66%(2)
VIP Overseas 0.73% 0.18% 0.91%(2)
VIP II Contrafund 0.58% 0.09% 0.67%(2)
VIP II Index 500 0.24% 0.04% 0.28%(3)
VIP III Growth & Income 0.48% 0.12% 0.60%(2)
</TABLE>
9
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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. The amounts shown in the table do not
include these reductions. Including these reductions, the total
Investment Option operating expenses presented in the preceding table
would have been: Growth 0.65%, Overseas 0.87%, Contrafund 0.65% and
Growth & Income 0.59%.
(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, 1999, as a percentage of the Index 500 Investment
Option's average net assets would have been 0.34%. The investment
adviser may terminate this reimbursement arrangement at any time.
OTHER POLICIES
- We offer other variable life insurance policies (through this Variable
Account and other variable accounts we establish) 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")
- We believe that it is reasonable to conclude that the Policy qualifies
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 Accumulated Value under a Policy should be subject to
the same federal income tax treatment as accumulated value under a
conventional fixed-benefit Policy--the Policyowner is generally not
deemed to be in constructive receipt of Accumulated Values under a
Policy until there is a distribution from the Policy.
- If a Policy qualifies as life insurance for federal income tax purposes,
death proceeds payable under the 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.
- Depending on the total amount of premiums you pay, the Policy may be
treated as a modified endowment contract ("MEC") under Federal tax laws.
If a Policy is treated as a MEC, then complete and partial surrenders,
and loans under the Policy will be taxable as ordinary income to the
extent there are earnings in the Policy. In addition, a 10% penalty tax
may be imposed on complete and partial surrenders, and loans taken
before you reach age 59-1/2. If the Policy is not a MEC, distributions
generally will be treated first as a return of basis or investment in
the Policy and then as taxable income. Moreover, loans will not be
treated as distributions. Finally, neither distributions nor loans from
a Policy that is not a MEC are subject to the 10% penalty tax.
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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,
1999, Iowa Farm Bureau Federation owned 56.47% 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 18 states--Arizona, Colorado, Idaho, Iowa, Kansas, Minnesota,
Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South
Dakota, Utah, Washington, 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 with the
Securities and Exchange Commission 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 SEC 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.
- --------------------------------------------------------------------------------
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. AN INVESTMENT
IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE F.D.I.C. OR ANY GOVERNMENT AGENCY.
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 to provide long-term capital
appreciation by investing primarily in mid-cap common
stocks with the potential for above-average earnings
growth. The investment adviser defines mid-cap companies
as those whose market capitalization falls within the
range of companies in the Standard & Poor's Mid-Cap 400
Index.
New America Growth Portfolio - This Portfolio seeks growth of capital by investing
primarily in the common stocks of companies operating in
sectors the investment adviser believes will be the
fastest growing in the U.S. Fast-growing companies can be
found across an array of industries in today's "new
America".
Personal Strategy Balanced Portfolio - This Portfolio seeks the highest total return over time
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.
13
<PAGE>
<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.
Fidelity VIP Overseas Portfolio - This Portfolio seeks long-term growth of capital by
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 Portfolio - This Portfolio seeks capital appreciation by investing in
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 Portfolio - This Portfolio seeks to provide investment results that
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 & Income - This Portfolio seeks high total return through a
Portfolio combination 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).
14
<PAGE>
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 Funds 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 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 Accumulated
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 Joint Insureds who have a Joint Equal Age of 18
to 85 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 $100,000, although we may, in
our discretion, issue Policies with Specified Amounts of less than $100,000.
15
<PAGE>
The effective date of insurance coverage under the Policy will be the later
of:
- the Policy Date,
- the date the Joint Insureds sign 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.
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, you have 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 a
Minimum Initial Premium that, when reduced by the premium expense charge,
will be sufficient to pay the monthly deduction for the first Policy Month.
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.
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
Accumulated Value. Thus, even if you do pay planned periodic premiums, the
Policy will nevertheless lapse if, during the first three Policy Years, the
Net Accumulated Value (Net Surrender Value if you have taken a policy loan)
or, after three Policy Years, the Net Surrender Value, is insufficient on a
Monthly Deduction Day to cover the monthly deduction (see "CHARGES AND
DEDUCTIONS--Monthly Deduction") and a Grace Period expires without a
sufficient payment (see "THE POLICY--Policy Lapse and Reinstatement--
LAPSE").
UNSCHEDULED PREMIUMS. Each unscheduled premium payment must be at least
$100; however, 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
16
<PAGE>
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 your 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
Accumulated 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
Accumulated 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. (Certain
states may provide for 30 days in which to cancel a Policy in a replacement
situation.) Notice given by mail and return of the Policy by mail are
effective on being postmarked, properly addressed and postage prepaid.
With respect to all Policies, 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 greater of premiums paid, or:
- the Accumulated 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.
17
<PAGE>
- --------------------------------------------------------------------------------
POLICY LAPSE AND REINSTATEMENT
LAPSE. Your Policy may lapse (terminate without value) during the first
three Policy Years if the Net Accumulated Value (Net Surrender Value if you
have taken a policy loan), or after three Policy Years if the Net Surrender
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
Accumulated 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 Accumulated 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 Joint Insureds;
- 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 Net Surrender 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, 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
You may, at any time prior to the Maturity Date while the Policy is in
force, operate the Policy as a flexible premium fixed-benefit last survivor
life insurance policy by requesting that we transfer all of the Accumulated
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
18
<PAGE>
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 last
survivor life insurance policy ("fixed-benefit policy") issued by the
Company to exchange his fixed-benefit last survivor policy (forms #434-158
and #834-158 only) for a Policy on the lives of the Joint Insureds. The
Policy Date will be the date you sign the application for the Policy. Riders
issued on the original fixed-benefit last survivor 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:
- the Policy will have a Specified Amount equal to the specified
amount of the fixed-benefit last survivor policy plus any increase
in Specified Amount at the time of exchange,
- no evidence of insurability will be required to exercise the
exchange privilege, but any increase in Specified Amount will
require underwriting,
- we will place the Insured in the premium class applicable to the
initial specified amount under the fixed-benefit last survivor
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,
- the incontestable and suicide provisions of the Policy will apply
only to the increased amount of coverage (if any), except for any
period remaining on the fixed-benefit last survivor policy, and
- registered representatives will receive commissions on the increase
in Specified Amount only.
The Company will initially allocate the net accumulated value of the
fixed-benefit last survivor policy to the Declared Interest Option. When we
receive, at our Home Office, a notice signed by you that the Policy has been
received, the Company will automatically allocate the Policy's Accumulated
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 accumulated
value of the fixed-benefit last survivor policy applied to the Policy
pursuant to an exchange. In addition, the Company will assess the First Year
Monthly Administrative Charge and First Year Monthly Expense Charge only to
the extent that the Company has not assessed 12 monthly per $1,000 charges
under the fixed-benefit last survivor policy. We will assess the First Year
Monthly Administrative Charge and First Year Monthly Expense Charge on an
increase in Specified Amount related to a fixed-benefit last survivor policy
as well. 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 last survivor 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 accumulated value of the
fixed-benefit last survivor policy. To the extent a fixed-benefit last
survivor 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 last survivor
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
19
<PAGE>
newly issued contract as of the effective date of the Policy. If you
surrender your fixed-benefit last survivor 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 Accumulated Value under this Policy may consist,
entirely or in part, of Subaccount value which fluctuates in response to the
net investment return of the Variable Account. In contrast, the accumulated
values under a fixed-benefit last survivor 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, accumulated
values under a fixed-benefit last survivor policy reflect changing current
interest rates and do not vary with the investment performance of the
Variable Account.
Owners of a fixed-benefit last survivor policy should carefully consider
whether it will be advantageous to replace a fixed-benefit last survivor
policy with a Policy (or to surrender in full or in part a fixed-benefit
last survivor policy and use the surrender or partial surrender proceeds to
purchase a Policy). Owners of a fixed-benefit last survivor policy should
consult their tax advisers before exchanging a fixed-benefit last survivor
policy for this Policy, or before surrendering in whole or in part their
fixed-benefit last survivor policy and using the proceeds to purchase a
Policy.
- --------------------------------------------------------------------------------
POLICY BENEFITS
- --------------------------------------------------------------------------------
While a Policy is in force, it provides for certain benefits prior to the
Maturity Date. Subject to certain limitations, you may at any time obtain
all or a portion of the Net Accumulated Value by surrendering or taking a
partial withdrawal from the Policy. (See "POLICY BENEFITS--Accumulated Value
Benefits--SURRENDER AND WITHDRAWAL PRIVILEGES.") In addition, you have
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 last death of the Joint Insureds under
one of two death benefit options selected by you (see "POLICY BENEFITS--
Death Proceeds--DEATH BENEFIT OPTIONS"), and benefits upon the maturity of a
Policy (see "POLICY BENEFITS--Benefits at Maturity").
- --------------------------------------------------------------------------------
ACCUMULATED VALUE BENEFITS
SURRENDER AND WITHDRAWAL PRIVILEGES. At any time prior to the Maturity Date
while the Policy is in force, you may surrender the Policy or make a partial
withdrawal by sending a written request to the Company at our Home Office. A
Surrender Charge will apply to any surrender during the first ten Policy
Years, as well as during the first ten years following an increase in
Specified Amount. A Partial Withdrawal Fee equal to the lesser of $25 or 2%
of the amount withdrawn will be payable upon each partial withdrawal. (See
"CHARGES AND DEDUCTIONS--Surrender Charge, and -- Partial Withdrawal Fee").
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.")
SURRENDERS. The amount payable upon surrender of the Policy is the Net
Surrender 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 Policy, all insurance in force will terminate. See "FEDERAL TAX MATTERS"
for a discussion of the tax consequences associated with complete
surrenders.
PARTIAL WITHDRAWALS. A Policyowner may obtain a portion of the Policy's Net
Accumulated Value upon partial withdrawal of the Policy.
- A partial withdrawal must be at least $500.
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- A partial withdrawal cannot exceed the lesser of (1) the Net
Surrender Value less $500 or (2) 90% of the Net Surrender Value.
We deduct the Partial Withdrawal Fee from the remaining Accumulated Value.
You may request that we pay the proceeds of a partial withdrawal 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 withdrawal (together with the Partial Withdrawal
Fee) 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 withdrawal, we will allocate the
partial withdrawal among the Subaccounts and the Declared Interest Option in
the same proportion that the Accumulated Value in each of the Subaccounts
and the Accumulated Value in the Declared Interest Option, reduced by any
outstanding Policy Debt, bears to the total Accumulated Value on the date we
receive the request at the Home Office.
Partial withdrawals will affect both the Policy's Accumulated Value and the
death proceeds payable under the Policy. (See "POLICY BENEFITS--Death
Proceeds.")
- The Policy's Accumulated Value will be reduced by the amount of the
partial withdrawal and the Partial Withdrawal Fee.
- If the death benefit payable under either death benefit option both
before and after the partial withdrawal is equal to the Accumulated
Value multiplied by the specified amount factor set forth in the
Policy, a partial withdrawal will result in a reduction in death
proceeds equal to the amount of the partial withdrawal, 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
withdrawal.
If Option B is in effect at the time of the partial withdrawal, the partial
withdrawal will reduce the Policy's Specified Amount by the amount of
Accumulated Value withdrawn. If Option A is in effect at the time of the
partial withdrawal, 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 withdrawal may not be less than
the minimum Specified Amount for the Policy in effect on the date of the
partial withdrawal, as published by the Company. As a result, we will not
process any partial withdrawal that would reduce the Specified Amount below
this minimum.
If increases in the Specified Amount previously have occurred, a partial
withdrawal 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 withdrawal 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 withdrawals, see "FEDERAL TAX
MATTERS."
NET ACCUMULATED VALUE. Net Accumulated Value equals the Policy's Accumulated
Value reduced by any outstanding Policy Debt and increased by any unearned
loan interest.
CALCULATING ACCUMULATED VALUE. The Policy provides for the accumulation of
Accumulated Value. The Accumulated Value of the Policy is equal to the sum
of the Accumulated Values in each Subaccount, plus the Accumulated Value in
the Declared Interest Option, including amounts transferred to the Declared
Interest Option to secure outstanding Policy Debt. We determine Accumulated
Value on each Business Day, and there is no guaranteed minimum Accumulated
Value.
- Accumulated Value will reflect a number of factors, including
- Net Premiums paid,
- partial withdrawals,
- Policy Loans,
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- charges assessed in connection with the Policy,
- interest earned on the Accumulated Value in the Declared
Interest Option, and
- investment performance of the Subaccounts to which the
Accumulated Value is allocated.
As of the Policy Date, the Accumulated 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
Accumulated 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 Accumulated Value in a Subaccount will equal:
- The total Subaccount units represented by the Accumulated 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 Accumulated Values transferred to the Subaccount from the
Declared Interest Option or from another Subaccount during the
current Valuation Period; MINUS
- All Accumulated 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 withdrawals (and any portion of the Partial Withdrawal
Fee) 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 Accumulated Value in the Variable Account equals the sum
of the Policy's Accumulated 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 Accumulated 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
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(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.
- 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.
- The amount of the transfer must be at least $100, or if less than
$100, the total Accumulated 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
Surrender 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 Net
Surrender Value as of the end of the Valuation Period during which we
receive the request for the Policy Loan at our 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
Accumulated Value in the Declared Interest Option less Policy Debt
outstanding is
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less than the amount of such Policy Loan, we will transfer the difference
from the subaccounts of the Variable Account, which have Accumulated Value,
in the same proportions that the Policy's Accumulated Value in each
Subaccount bears to the Policy's total Accumulated Value in the Variable
Account. We will determine Accumulated 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. The maximum annual loan interest rate we charge will be the higher of
the "Published Monthly Average of the Composite Yield on Seasoned Corporate
Bonds" as published by Moody's Investors Service, Inc. (or any successor
thereto) for the calendar month ending two months before the date on which
the rate is determined; or 5.5%. We may elect to change the interest rate at
any time, of which you will be notified. The new rate will take effect on
the Policy Anniversary coinciding with, or next following, the date the rate
is changed.
Interest is payable in advance at the time 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 last Joint Insureds' death
and to the Accumulated Value upon surrender, and we will credit it to the
Accumulated 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 equal to
the greater of 4% or the current effective loan interest rate minus no more
than 3%, 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.
From time to time, we may allow a loan spread of 0% on the gain in a Policy
in effect a minimum of ten years. When we do so, the federal income tax
treatment of the loan is unclear. You should consult a tax adviser before
taking a loan.
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 Accumulated 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 Accumulated
Value was transferred is less than or greater than the interest rates
actually credited to the Accumulated 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,
Accumulated 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
Accumulated Value, which is equal to Accumulated Value less Policy Debt. If,
during the first three Policy Years, the Net Accumulated Value (Net
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Surrender Value if you take a policy loan) or, after three Policy Years, the
Net Surrender Value is insufficient on a Monthly Deduction Day to cover the
monthly deduction (see "CHARGES AND DEDUCTIONS--Monthly Deduction"), we will
notify you. To avoid lapse and termination of the Policy without value (see
"THE POLICY--Policy Lapse and Reinstatement--Lapse"), you 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 Joint Insureds' lifetimes 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 last Joint Insureds' death, from
Accumulated 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 Accumulated Value securing
the repaid portion of the Policy 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 last death of the Joint Insureds.
- 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 Joint Insureds, we will pay the death
proceeds to you or your estate. We may pay death proceeds in a lump
sum or under a payment option. (See "POLICY BENEFITS--Payment
Options.")
- If the Joint Insureds die simultaneously, we will pay an equal
portion of the death proceeds to each beneficiary.
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 last Joint Insureds' death.
Under Option A, the death benefit will be equal to the greater of:
(1) the sum of the current Specified Amount and the Accumulated Value,
or
(2) the Accumulated Value multiplied by the specified amount factor.
We will determine Accumulated Value as of the end of the Business Day
coinciding with or immediately following the last death of the Joint
Insureds. The specified amount factor is 2.50 for a Joint Insureds' Joint
Equal Attained Age 40 or below on the date of death. For Joint Insureds with
a Joint Equal 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
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vary as the Accumulated Value varies (but will never be less than the
Specified Amount). If you prefer to have favorable investment performance
and additional premiums reflected in increased death benefits, Policyowners
generally should select Option A.
Under Option B, the death benefit will be equal to the greater of:
- the current Specified Amount, or
- the Accumulated Value (determined as of the end of the Business Day
coinciding with or immediately following the last death of the Joint
Insureds) 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 Accumulated 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 Accumulated Value varies. If you are satisfied with
the amount of your insurance coverage under the Policy and prefer to have
favorable investment performance and additional premiums reflected in higher
Accumulated Value, rather than increased death benefits, Policyowners
generally should select Option B.
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 us 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.") You should consult a tax adviser before
changing your death benefit option.
If you change the death benefit option from Option A to Option B, the death
benefit will not change and the current Specified Amount will be increased
by the Accumulated Value on the effective date of the 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 Accumulated 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 your 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.") You
should consult a tax adviser before changing your existing coverage.
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
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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 Accumulated 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. You may increase or decrease the pure
insurance protection provided by a Policy--the difference between the death
benefit and the Accumulated 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 withdrawing Accumulated 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 Accumulated Value.
- An increase in the Specified Amount may increase the amount of pure
insurance protection, depending on the amount of Accumulated 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 Accumulated Value and reduce the pure insurance
protection, until the Accumulated 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 Accumulated Value and will increase the
possibility that the Policy will lapse.
- A partial withdrawal will reduce the death benefit. (See "POLICY
BENEFITS--Accumulated 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 Accumulated Value withdrawn. The primary use of a partial
withdrawal is to withdraw cash and reduce Accumulated 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 Accumulated 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.") You should consult a tax adviser before changing your insurance
protection.
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BENEFITS AT MATURITY
If either Joint Insured is alive and the Policy is in force on the Maturity
Date, we will pay to you the Policy's Accumulated 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 Joint Equal
Attained Age 115. The tax consequences associated with continuing the Policy
beyond the 100th birthday of the younger insured are unclear and a tax
adviser should be consulted.
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PAYMENT OPTIONS
We may pay death proceeds and Accumulated Value due at maturity, or upon
surrender or partial withdrawal of a Policy in whole or in part under a
payment option. In any case, a supplemental agreement will be issued for the
payment option. Under a supplemental agreement, the Effective Date is the
date on which death proceeds and Accumulated Value are applied to a payment
option.
You may designate an option in your application or notify us in writing at
our Home Office. During the lives of the Joint Insureds, you may select a
payment option; in addition, during that time you may change a previously
selected option by sending written notice to us requesting the cancellation
of the prior option and the designation of a new option. If you have not
chosen an option prior to the last Joint Insureds' death, the Beneficiary
may choose an option. The Beneficiary may change a payment option by sending
a written request to us, provided that a prior option chosen by you is not
in effect.
If you have not elected a payment option, we 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;
(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 vary. Proceeds applied under a payment option earn interest at
a rate guaranteed to be no less than 3% compounded yearly. The Company may
be crediting higher interest rates on the Effective Date, but is not
obligated to declare that such additional interest 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. We reserve the right to defer a withdrawal for up to
six months and to refuse to allow partial withdrawals of less than $250.
We have provided a description of the available payment options below.
Payments under Options 2, 3, 4 or 5 will begin as of the date of the last
Joint Insureds' death, on partial withdrawal or 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% 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
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payable under the plan will earn interest at a rate determined by the
Company, in no event less than 3% 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% 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%
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%
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. The Company may make available alternative payment
options.
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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>
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<PAGE>
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. The
premium less the premium expense charge equals the Net Premium.
The premium expense charge is 7% of each premium up to the Minimum Initial
Premium (or 2% for each premium over Minimum Initial Premium) and is used to
compensate us for expenses incurred in distributing the Policy, including
registered representative sales commissions, the cost of printing
prospectuses and sales literature, advertising costs and charges we consider
necessary to pay all taxes imposed by states and subdivisions thereof (which
currently range from 1% to 3%).
- --------------------------------------------------------------------------------
MONTHLY DEDUCTION
We deduct certain charges monthly from the Accumulated 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 Accumulated
Value in the Declared Interest Option and the Policy's Accumulated Value in
each Subaccount bear to the total Net Accumulated Value of the Policy. For
purposes of making deductions from the Declared Interest Option and the
Subaccounts, we determine Accumulated 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 policy expense charges.
COST OF INSURANCE. This charge is designed to compensate us for the
anticipated cost of paying death proceeds to Beneficiaries when the Joint
Insureds 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 1.0032737(1); and
(c) is the Accumulated Value.
- ------------------------
(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%.
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<PAGE>
We determine the Specified Amount and the Accumulated 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 Accumulated Value a
part of the initial Specified Amount. If the Accumulated 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 Joint Insureds' sex, premium class and Joint Equal
Age. For any increase in Specified Amount, we base the cost of insurance
rate on the Joint Insureds' 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 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 Joint Insureds' Joint
Equal Attained Age increases. The premium class of the Joint Insureds also
will affect the cost of insurance rate. The Company currently places Joint
Insureds into a standard premium class or into premium classes involving a
higher mortality risk. In an otherwise identical Policy, Joint 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 Joint Insureds will generally
have a lower cost of insurance rate than similarly situated Joint 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 Accumulated 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 POLICY EXPENSE CHARGES. 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 withdrawals, 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 $10 monthly administrative charge against each Policy. We guarantee
this charge will not exceed $14 per Policy Month. We also apply a charge of
$0.03 per $1,000 of Specified Amount against each Policy. We guarantee this
charge will not exceed $0.05 per $1,000 of Specified Amount.
FIRST YEAR MONTHLY ADMINISTRATIVE CHARGE. We deduct monthly administrative
charges from Accumulated 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,
31
<PAGE>
conducting medical examinations, determining insurability and the Joint
Insureds' premium class, and establishing policy records. The first year
monthly administrative charge is $0.10 per $1,000 of Specified Amount or
increase in Specified Amount. We guarantee this charge will not exceed $0.14
per $1,000 of Specified Amount.
FIRST YEAR MONTHLY EXPENSE CHARGE. We will deduct a monthly expense charge
of $10 from Accumulated Value during the first twelve Policy Months. We
guarantee this charge will not exceed $14 per Policy Month.
- --------------------------------------------------------------------------------
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.
- 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 Accumulated 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.
- --------------------------------------------------------------------------------
PARTIAL WITHDRAWAL FEE
Upon partial withdrawal of a Policy, we assess a charge equal to the lesser
of $25 or 2% of the amount withdrawn to compensate us for costs incurred in
accomplishing the withdrawal. We deduct this fee from the Accumulated Value.
- --------------------------------------------------------------------------------
SURRENDER CHARGE
We apply a Surrender Charge during the first ten Policy Years, as well as
during the first ten years following an increase in Specified Amount. This
charge is an amount per $1,000 of Specified Amount which declines to $0 in
the eleventh year and varies by Joint Equal Age, underwriting category and
Policy Year. We have listed below the maximum Surrender Charge for select
ages in various underwriting categories in the first Policy Year.
<TABLE>
<CAPTION>
ISSUE AGE NON-TOBACCO TOBACCO COMBINED
<S> <C> <C> <C>
30 13.67 15.00 14.23
50 24.28 27.59 25.68
70 54.10 53.81 53.97
</TABLE>
The Surrender Charge is level within each Policy Year. (See "APPENDIX
C--Maximum Surrender Charges.")
Currently, we waive the Surrender Charge after the first Policy Year if
either Joint Insured is terminally ill or stays in a qualified nursing care
center for 90 days.
- --------------------------------------------------------------------------------
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
32
<PAGE>
charge and may use such profit for any lawful purpose, including payment of
our distribution expenses.
The mortality risk we assume is that Joint 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
- --------------------------------------------------------------------------------
You may allocate Net Premiums and transfer Accumulated 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.
You may elect to allocate Net Premiums to the Declared Interest Option, the
Variable Account, or both. You may also transfer Accumulated 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 you to share in the investment experience
of the General Account. Instead, we guarantee that Accumulated Value in the
Declared Interest Option will accrue interest at an effective annual rate of
at least 4%, independent of the actual investment experience of the General
Account.
- --------------------------------------------------------------------------------
DECLARED INTEREST OPTION ACCUMULATED VALUE
Net premiums allocated to the Declared Interest Option are credited to the
Policy. The Company bears the full investment risk for these amounts. We
guarantee that interest credited to each Policyowner's Accumulated Value in
the Declared Interest Option will not be less than an effective annual rate
of 4%. 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%
per year, and might not do so. Any interest credited on the Policy's
Accumulated Value in the Declared Interest Option in excess of the
guaranteed rate of 4% per year will be determined in the sole discretion of
the Company and may be changed at any time by us, in our sole discretion.
The Policyowner assumes the risk that the interest
33
<PAGE>
credited may not exceed the guaranteed minimum rate of 4% per year. The
interest credited to the Policy's Accumulated Value in the Declared Interest
Option that equals Policy Debt may be greater than 4%, but will in no event
be greater than the current effective loan interest rate minus no more than
3%. From time to time, we may allow a loan spread of 0% on the gain in a
Policy in effect a minimum of 10 years. The Accumulated 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
Accumulated Value in the Declared Interest Option will not be less than the
amount of the Net Premiums allocated or Accumulated Value transferred to the
Declared Interest Option, plus interest at the rate of 4% per year, plus any
excess interest which we credit, 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
Accumulated 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 Accumulated 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. Surrenders
and partial withdrawals will have tax consequences (see "FEDERAL TAX
MATTERS").
- --------------------------------------------------------------------------------
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, any
supplemental applications and endorsements or additional benefit riders or
agreements make up the entire contract. In the absence of fraud, we will
treat the statements made in an 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 lifetimes of the Joint Insureds 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 lifetimes of the
Joint Insureds for two years from the effective date of the increase.
Depending upon individual state replacement requirements, if we replace your
Policy with another life insurance policy issued by us or one of our
affiliates, we will credit the amount of time you held your Policy when
calculating incontestability provisions under the new policy.
34
<PAGE>
- --------------------------------------------------------------------------------
CHANGE OF PROVISIONS
We reserve 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 either Joint Insureds' 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 surviving Joint 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
surviving Joint 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.
Depending upon individual state replacement requirements, if we replace your
Policy with another life insurance policy issued by us or one of our
affiliates, we will credit the amount of time you held your Policy when
calculating suicide provisions under the new policy.
- --------------------------------------------------------------------------------
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 Accumulated Value in each Subaccount and in the Declared
Interest Option,
- outstanding Policy Debt, and
- premiums paid, partial withdrawals made and charges assessed since
the last report.
The report will also include any other information required by state law or
regulation. Further, the Company will send the Policyowner the reports
required by the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
NON-PARTICIPATION
The Policy does not participate in the Company's profits or surplus
earnings. No dividends are payable.
- --------------------------------------------------------------------------------
OWNERSHIP OF ASSETS
The Company shall have the exclusive and absolute ownership and control over
assets, including the assets of the Variable Account.
- --------------------------------------------------------------------------------
WRITTEN NOTICE
You should send any written notice to the Company at our Home Office. The
notice should include the policy number and the Joint Insureds' full names.
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.
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<PAGE>
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
The Company will usually mail the proceeds of complete surrenders, partial
withdrawals and Policy Loans within seven days after we receive your signed
request at our Home Office. We 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 a partial withdrawal from or surrender of a Policy, 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 Accumulated Value during the first three Policy Years,
or Net Surrender Value after three Policy Years, is less than the
monthly deduction for the following Policy Month;
- the date the Policyowner surrenders the Policy for its entire Net
Accumulated Value;
- the last death of the Joint Insureds; or
- the Maturity Date.
Any rider to a Policy will terminate on the date specified in the rider.
- --------------------------------------------------------------------------------
OWNERSHIP
The Policy belongs to the Policyowner. The original Policyowner is the
person named as owner in the application. If there is more than one owner,
the Policy will be owned jointly with right of survivorship. 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 Joint Insureds' lifetimes, 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 Joint Insureds are 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."]
36
<PAGE>
- --------------------------------------------------------------------------------
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 last Joint Insured, we will pay the proceeds to
the contingent Beneficiary. If no Beneficiary survives the last Joint
Insured, we will pay the proceeds to the Policyowner or the Policyowner's
estate.
- --------------------------------------------------------------------------------
CHANGING THE POLICYOWNER OR BENEFICIARY
During the Joint Insureds' lives, the Policyowner and the Beneficiary may be
changed. To make a change, you must send a written request to us at our 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 and will be subject to any
payment made before we recorded the change. We 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:
- Last Survivor Universal Cost of Living Increase;
- Universal Term Life Insurance; and
- Estate Protector 4-Year Non-Renewable Last Survivor Term.
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, and their
suitability for inclusion to your Policy, from the registered representative
selling the Policy.
- --------------------------------------------------------------------------------
POLICY SPLIT OPTION
You may split the Policy into two single-life policies, one on each of the
Joint Insureds, upon the occurrence of the following events:
- divorce or annulment with respect to the marriage of the Joint
Insureds, or
- certain changes in the Federal Estate Tax Law resulting in reductions
in the Unlimited Marital Deduction, the Federal Unified Credit or the
Federal Estate Tax.
You may elect this option subject to the following provisions:
- you must provide us with written notification within 90 days after
the effective date of one of the events listed above;
- each new policy will be issued for no more than one-half the
Specified Amount of this Policy;
- the Net Surrender Value will be divided and allocated in proportion
to the Specified Amount of each new policy;
- the Beneficiary of this Policy will be the beneficiary of each new
policy;
- if the Joint Insureds are the owners of this Policy, each will be the
owner of their new policy; if the Joint Insureds are not the owners
of this Policy, then the owners will be the owners of each new policy
(in this case, there will be a taxable event);
37
<PAGE>
- the new policies will be issued based on the age and premium class
for each Joint Insured on the effective date of the election of this
option;
- the new policies must fit our single-life issue limits in effect at
the time you elect the option. The new policies will be subject to
the same charges as those in effect for regularly underwritten
policies;
- this option will not be available after the date of first death of
the Joint Insureds;
- the two single-life policies may be any permanent single life
policies currently offered by the Company at the time this option is
elected; and
- any assignments of this Policy will apply to each new policy.
Please consult your registered representative for more information on this
option.
- --------------------------------------------------------------------------------
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. ("NASD"). 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 unplanned 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." Under the
Public Disclosure Program, NASD Regulation ("NASDR") provides certain
information regarding the disciplinary history of NASD member broker-dealers
and their associated persons in response to written, electronic or
telephonic inquiries. NASDR's toll-free Public Disclosure Program Hotline
telephone number is 1-800-289-9999 and their Web site address is
www.nasdr.com. An investor brochure that includes information describing the
Public Disclosure Program is available from NASDR.
- --------------------------------------------------------------------------------
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.
38
<PAGE>
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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
especially with regard to policies issued on joint lives. While we believe
that it is reasonable to conclude that a Policy should satisfy the
applicable requirements of the Code, certain features of the Policy are not
addressed in the relevant authorities. For example, the relevant authorities
do not address the Policy's use of Joint Equal Age calculations to test for
compliance with the requirements of the Code. If it is subsequently
determined that a Policy does not satisfy the applicable requirements to be
treated as a life insurance contract, 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. There is little guidance in this area, and some
features of the Policy, such as the flexibility to allocate premium payments
and Accumulated 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 Accumulated 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 (including a reduction in benefits anytime after issuance) 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 endowment
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
39
<PAGE>
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.
(4) If a Policy becomes a modified endowment contract, distributions
that occur during the Policy Year will be taxed as distributions
from a modified endowment contract. In addition, distributions from
a Policy within two years before it becomes a modified endowment
contract will be taxed in this manner. This means that a
distribution made from a Policy that is not a modified endowment
contract could later become taxable as a distribution from a
modified endowment contract.
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, including surrenders and partial
withdrawals, 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
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. However, the tax
treatment of loans available where there is no spread or a minimal spread
between the interest rate charged and the interest rate credited on the
loaned amount is unclear. You should consult a tax adviser as to the tax
consequences of such a loan.
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. If a loan from a Policy is outstanding when the Policy is
cancelled or lapses, then the amount of the outstanding indebtedness will be
added to the amount treated as a distribution from the Policy and will be
taxed accordingly.
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 joint
life 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.
40
<PAGE>
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.
CONTINUATION BEYOND AGE 100. If the Policy continues in force beyond the
100th birthday of the younger insured, the tax consequences are uncertain.
You should consult a tax adviser as to those consequences.
POLICY SPLIT OPTION. The policy split option permits a Policy to be split
into two single life insurance policies. It is not clear whether exercising
the policy split option will be treated as a taxable transaction or whether
the individual policies that result would be modified endowment contracts.
Consult a tax adviser before exercising the policy split option.
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.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or designation of a
beneficiary may have federal, state and/or local transfer and inheritance
tax consequences, including the imposition of gift, estate and
generation-skipping transfer taxes. For example, the transfer of the Policy
to, the designation as a beneficiary of or the payment of proceeds to a
person who is assigned to a generation which is two or more generations
below the generation assignment of the owner may have generation-skipping
transfer tax consequences under federal tax law. The individual situation of
each owner or beneficiary will determine the extent, if any, to which
federal, state and local transfer and inheritance taxes may be imposed and
how ownership or receipt of Policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation-skipping and other
taxes.
- --------------------------------------------------------------------------------
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
41
<PAGE>
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
- --------------------------------------------------------------------------------
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.
We maintain 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.
- --------------------------------------------------------------------------------
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, we determine
that it is permitted to vote the Fund shares in its own right, we 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 Accumulated 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 you have 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 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
42
<PAGE>
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.
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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>
Eric K. Aasmundstad Farmer; President and Director, North Dakota Farm Bureau Federation;
Director Director, FBL Financial Group, Inc. and other affiliates of the
foregoing, NODAK Mutual Insurance Company and FB Bancorp
Kenneth R. Ashby Farmer; President, Utah Farm Bureau Federation and other affiliates
Director of the foregoing 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,
Director American Farm Bureau Federation, FBL Financial Group, Inc. and
other affiliates of the foregoing
Kenny J. Evans Farmer; President and Director, Arizona Farm Bureau Federation;
Director Director, FBL Financial Group, Inc. and other affiliates of the
foregoing.
Ernest A. Glienke Farmer; Director, Farm Bureau Mutual Insurance Company and other
Director affiliates of the foregoing.
Karen J. Henry Farmer; President and Director, Wyoming Farm Bureau Federation and
Director Mountain West Farm Bureau Mutual Insurance Company; Second Vice
Chair and Director, FBL Financial Group, Inc.; Director, Western
Agricultural Insurance Company and other affiliates of the
foregoing.
Craig D. Hill Farmer; President, CAPA Hill, Inc.; Director, Farm Bureau Mutual
Director Insurance Company and other affiliates of the foregoing.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Richard G. Kjerstad Farmer; President and Director, South Dakota Farm Bureau Federation
Director and other affiliates of the foregoing; Director, FBL Financial
Group, Inc. and other affiliates of the foregoing.
G. Steven Kouplen Farmer; President, Oklahoma Farm Bureau Federation; Director,
Director American Farm Bureau Federation and Oklahoma Rural Electric Coop.
Craig A. Lang Dairy Farmer; Director, Growmark, Inc. and Utah Farm Bureau
Director Insurance Company; Vice President and Director, Farm Bureau Mutual
Insurance Company and other affiliates of the foregoing; Vice
President, Universal Assurors Life Insurance Company
Lindsey D. Larsen Farmer; Director, Farm Bureau Mutual Insurance Company and other
Director affiliates of the foregoing.
David L. McClure Farmer; President, Montana Farm Bureau Federation; Vice President
Director and Director, Mountain West Farm Bureau Mutual Insurance Company;
Director, FBL Financial Group, Inc. and other affiliates of the
foregoing.
Bryce P. Neidig Farmer; President, Nebraska FarmBureau Federation and other
Director affiliates of the foregoing; Director, American Farm Bureau
Federation and other affiliates of the foregoing; Western
Agricultural Insurance Co. and other affiliates of the foregoing,
FBL Financial Group, Inc. and Blue Cross/Blue Shield of Nebraska
and other affiliates of the foregoing
Howard D. Poulson Farmer; President, Wisconsin Farm Bureau Federation and other
Director affiliates of the foregoing and Midwest Livestock Producers;
Director, American Farm Bureau Federation, FBL Financial
Group, Inc. and other affiliates of the foregoing
Frank S. Priestley Farmer; President and Director, Idaho Farm Bureau Federation and
Director other affiliates of the foregoing; Director, FBL Financial Group,
Inc. and other affilates of the foregoing and Farm Bureau Bank.
Beverly L. Schnepel Farmer; Director, Farm Bureau Mutual Insurance Company and other
Director affiliates of the foregoing
John J. VanSweden Farmer and Rancher; President and Director, New Mexico Farm and
Director Livestock Bureau and Western Farm Bureau Mutual Insurance Company;
Director, FBL Financial Group, Inc. and other affiliates of the
foregoing.
Edward M. Wiederstein Farmer; Chairman and Director, FBL Financial Group, Inc.; President
President and Director and Director, Iowa Farm Bureau Federation and other affiliates of
the foregoing and Farm Bureau Agricultural Business Corporation;
Director, Multi-Pig Corporation, Western Agricultural Insurance
Company and other affiliates of the foregoing
Roger Bill Mitchell Farmer; First Vice Chair and Director, FBL Financial Group, Inc.;
Vice President and Director Director, Western Agricultural Insurance Company and other
affilates of the foregoing.
William J. Oddy Chief Executive Officer and Management Director, FBL Financial
Chief Executive Officer Group, Inc.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Jerry C. Downin Senior Vice President and Secretary-Treasurer, Iowa Farm Bureau
Senior Vice President and Federation and other affiliates of the foregoing; Senior Vice
Secretary-Treasurer President, Assistant Secretary-Treasurer and Management Director,
FBL Financial Group, Inc.
Stephen M. Morain Senior Vice President, General Counsel and Management Director, FBL
Senior Vice President and Financial Group, Inc.
General Counsel
JoAnn W. Rumelhart Executive Vice President and General Manager--Life Cos., FBL
Executive Vice President and Financial Group, Inc.
General Manager
Timothy J. Hoffman Chief Administrative Officer, FBL Financial Group, Inc.
Chief Administrative Officer
James W. Noyce Chief Financial Officer, FBL Financial Group, Inc.
Chief Financial Officer
Barbara J. Moore Vice President-Property/Casualty Operations, FBL Financial
Vice President Group, Inc.
John M. Paule Chief Marketing Officer, FBL Financial Group, Inc.
Chief Marketing Officer
Lynn E. Wilson Vice President-Life Sales, FBL Financial Group, Inc.
Vice President-Life Sales
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
James P. Brannen Vice President-Controller, FBL Financial Group, Inc.
Vice President-Controller
Jan Sewright Insurance Accounting Vice President, FBL Financial Group, Inc.
Insurance Accounting Vice
President
Dennis M. Marker Vice President-Investment Administration, FBL Financial Group, Inc.
Vice President-Investment
Administration
Paul Grinvalds Vice President-Life Operations, Appointed Actuary, FBL Financial
Vice President-Life Operations Group, Inc.
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 Vice President-Human Resources, FBL Financial Group, Inc.
Vice President-Human Resources
Don Seibel Vice President-Accounting, FBL Financial Group, Inc.
Vice President-Accounting
Scott Shuck Vice President-Marketing Services, FBL Financial Group, Inc.
Vice President-Marketing
Services
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION
WITH THE COMPANY PRINCIPAL OCCUPATION LAST FIVE YEARS
<S> <C>
Jim Streck Vice President-Life Underwriting and Issue, FBL Financial
Vice President-Life Group, Inc.
Underwriting and Issue
Blake D. Weber Sales Services Vice President, FBL Financial Group, Inc.
Sales Services Vice President
Doug Gumm Vice President-Information Technology, FBL Financial Group, Inc.
Vice President-Information
Technology
James A. Pugh Assistant General Counsel, FBL Financial Group, Inc.
Assistant General Counsel
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
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 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 us 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, we believe 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.
46
<PAGE>
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EXPERTS
The financial statements of the Variable Account at December 31, 1999 and
for the periods disclosed in the financial statements, and the financial
statements and schedules of the Company at December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999, 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, MSAA, Life Product Development and Pricing Vice
President, as stated in the opinion filed as an exhibit to the registration
statement.
- --------------------------------------------------------------------------------
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to
the registration statement, to all of which reference is made for further
information concerning the Variable Account, the Company and the Policy
offered hereby. Statements contained in this Prospectus as to the contents
of the Policy and other legal instruments are summaries. For a complete
statement of the terms thereof, reference is made to such instruments as
filed.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Variable Account's statements of net assets as of December 31, 1999 and
the related statements of operations for the year then ended and changes in
net assets for the periods disclosed in the financial statements, and the
consolidated balance sheets of the Company at December 31, 1999 and 1998,
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, 1999, appearing herein, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their respective reports thereon
appearing elsewhere herein. The Policy was not offered through the Variable
Account prior to May 1, 2000.
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Participants
Farm Bureau Life Insurance Company
We have audited the accompanying individual and combined statements of net
assets of Farm Bureau Life Variable Account (comprised of the Value Growth, High
Grade Bond, High Yield Bond, Managed, Money Market, Blue Chip, VIP Growth, VIP
Overseas, VIP Contrafund, VIP Index 500, VIP Growth & Income, Mid-Cap Growth,
New America Growth, Personal Strategy Balanced and International Stock
Subaccounts) as of December 31, 1999, and the related statements of operations
and changes in net assets for the periods disclosed in the financial statements.
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 auditing standards generally accepted
in the United States. 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, 1999, by
correspondence with the mutual funds' 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 individual and combined financial position of the
respective subaccounts of Farm Bureau Life Variable Account at December 31,
1999, and the individual and combined results of their operations and changes in
their net assets for the periods described above, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Des Moines, Iowa
March 10, 2000
48
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in EquiTrust Variable Insurance Series Fund:
Value Growth Subaccount:
Value Growth Portfolio, 2,725,603.80 shares at net asset
value of $8.69 per share (cost: $31,844,401) $ 23,685,497
High Grade Bond Subaccount:
High Grade Bond Portfolio, 492,523.95 shares at net
asset value of $9.49 per share (cost: $4,909,502) 4,674,052
High Yield Bond Subaccount:
High Yield Bond Portfolio, 863,636.57 shares at net
asset value of $9.30 per share (cost: $8,638,535) 8,031,820
Managed Subaccount:
Managed Portfolio, 2,539,391.35 shares at net asset
value of $10.54 per share (cost: $30,666,675) 26,765,185
Money Market Subaccount:
Money Market Portfolio, 527,723.69 shares at net asset
value of $1.00 per share (cost: $527,724) 527,724
Blue Chip Subaccount:
Blue Chip Portfolio, 893,811.49 shares at net asset
value of $43.98 per share (cost: $26,255,356) 39,309,830
Investments in Fidelity Variable Insurance Products Fund:
VIP Growth Subaccount:
VIP Growth Portfolio, 46,122.82 shares at net asset
value of $54.65 per share (cost: $2,190,463) 2,520,612
VIP Overseas Subaccount:
VIP Overseas Portfolio, 9,581.25 shares at net asset
value of $27.34 per share (cost: $221,929) 261,951
VIP Contrafund Subaccount:
VIP Contrafund Portfolio, 58,056.00 shares at net asset
value of $28.97 per share (cost: $1,498,002) 1,681,882
VIP Index 500 Subaccount:
VIP Index 500 Portfolio, 13,215.49 shares at net asset
value of $166.87 per share (cost: $2,028,279) 2,205,269
VIP Growth & Income Subaccount:
VIP Growth & Income Portfolio, 68,647.08 shares at net
asset value of $17.29 per share (cost: $1,136,392) 1,186,908
Investments in T. Rowe Price Equity Series, Inc.:
Mid-Cap Growth Subaccount:
Mid-Cap Growth Portfolio, 59,490.53 shares at net asset
value of $17.24 per share (cost: $928,339) 1,025,617
New America Growth Subaccount:
New America Growth Portfolio, 27,393.09 shares at net
asset value of $26.03 per share (cost: $687,593) 713,042
Personal Strategy Balanced Subaccount:
Personal Strategy Balanced Portfolio, 48,576.16 shares
at net asset value of $15.94 per share
(cost: $781,426) 774,304
Investment in T. Rowe Price International Series, Inc.:
International Stock Subaccount:
International Stock Portfolio, 11,937.10 shares at net
asset value of $18.98 per share (cost: $191,675) 226,566
------------
Total investments (cost: $112,506,291) 113,590,259
LIABILITIES --
------------
COMBINED NET ASSETS $113,590,259
============
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXTENDED
UNITS UNIT VALUE VALUE
<S> <C> <C> <C>
--------------------------------------------
Net assets are represented by:
Value Growth Subaccount 1,438,113.214840 $16.469842 $ 23,685,497
High Grade Bond Subaccount 237,739.145795 19.660424 4,674,052
High Yield Bond Subaccount 334,006.004086 24.046933 8,031,820
Managed Subaccount 1,234,279.854427 21.684859 26,765,185
Money Market Subaccount 36,507.662014 14.455149 527,724
Blue Chip Subaccount 796,862.551102 49.330753 39,309,830
VIP Growth Subaccount 203,873.736602 12.363593 2,520,612
VIP Overseas Subaccount 19,993.817712 13.101623 261,951
VIP Contrafund Subaccount 148,406.507956 11.332943 1,681,882
VIP Index 500 Subaccount 203,798.934333 10.820805 2,205,269
VIP Growth & Income Subaccount 116,808.407150 10.161152 1,186,908
Mid-Cap Growth Subaccount 88,583.968009 11.577905 1,025,617
New America Growth Subaccount 66,940.721652 10.651845 713,042
Personal Strategy Balanced Subaccount 75,522.865665 10.252578 774,304
International Stock Subaccount 18,026.683399 12.568376 226,566
------------
Combined net assets $113,590,259
============
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
(This page has been left blank intentionally.)
51
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMBINED VALUE GROWTH SUBACCOUNT
----------------------------------- -------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net investment income
(operating loss):
Dividend income $3,283,721 $ 741,124 $4,694,698 $ 534,663 $ 20,067 $ 2,195,812
Mortality and expense
risk charges (936,050) (734,884) (481,341) (224,626) (212,703) (169,085)
--------------------------------------------------------------------------
Net investment income
(operating loss) 2,347,671 6,240 4,213,357 310,037 (192,636) 2,026,727
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions 208,237 16,999 107,131 (324,893) (36,454) 20,814
Change in unrealized
appreciation/
depreciation of
investments 1,317,709 (5,668,314) 1,153,688 (1,828,333) (6,650,686) (1,124,051)
--------------------------------------------------------------------------
Net gain (loss) on
investments 1,525,946 (5,651,315) 1,260,819 (2,153,226) (6,687,140) (1,103,237)
--------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $3,873,617 $(5,645,075) $5,474,176 $(1,843,189) $(6,879,776) $ 923,490
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT
------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net investment income
(operating loss):
Dividend income $ 286,475 $ 189,273 $ 134,181 $ 645,981 $ 399,282 $ 284,128
Mortality and expense
risk charges (38,630) (26,271) (17,176) (70,959) (50,840) (29,807)
--------------------------------------------------------------------------
Net investment income
(operating loss) 247,845 163,002 117,005 575,022 348,442 254,321
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions (4,401) 1,995 (207) (15,077) 2,267 2,527
Change in unrealized
appreciation/
depreciation of
investments (299,176) 19,999 59,144 (691,987) (30,149) 102,518
--------------------------------------------------------------------------
Net gain (loss) on
investments (303,577) 21,994 58,937 (707,064) (27,882) 105,045
--------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $ (55,732) $ 184,996 $ 175,942 $ (132,042) $ 320,560 $ 359,366
==========================================================================
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
MANAGED SUBACCOUNT MONEY MARKET SUBACCOUNT BLUE CHIP SUBACCOUNT
------------------------------------ -------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997 1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Net investment income
(operating loss):
Dividend income $ 1,306,781 $ 14,987 $1,831,509 $43,843 $114,987 $44,031 $ 380,707 $ 2,528 $ 205,037
Mortality and expense
risk charges (258,101) (229,740) (155,911) (8,932) (20,750) (7,758) (310,168) (194,580) (101,604)
----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(OPERATING LOSS) 1,048,680 (214,753) 1,675,598 34,911 94,237 36,273 70,539 (192,052) 103,433
Net realized and
unrealized gain (loss)
on investments:
Net realized gain
(loss) from
investment
transactions (114,321) (11,537) 18,600 -- -- -- 663,174 60,728 65,397
Change in unrealized
appreciation/
depreciation of
investments (2,139,966) (2,491,453) (107,837) -- -- -- 5,345,118 3,483,975 2,223,914
----------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON
INVESTMENTS (2,254,287) (2,502,990) (89,237) -- -- -- 6,008,292 3,544,703 2,289,311
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $(1,205,607) $(2,717,743) $1,586,361 $34,911 $ 94,237 $36,273 $6,078,831 $3,352,651 $2,392,744
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
VIP GROWTH SUBACCOUNT VIP OVERSEAS SUBACCOUNT VIP CONTRAFUND SUBACCOUNT VIP INDEX 500 SUBACCOUNT
--------------------- ----------------------- ------------------------- ------------------------
PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4,
1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS
COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
Net investment income
(operating loss):
Dividend income $ -- $ -- $ -- $ --
MORTALITY AND EXPENSE
RISK CHARGES (4,982) (441) (3,976) (5,255)
---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(OPERATING LOSS) (4,982) (441) (3,976) (5,255)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
NET REALIZED GAIN
(LOSS) FROM
INVESTMENT
TRANSACTIONS 957 146 422 929
CHANGE IN UNREALIZED
APPRECIATION/
DEPRECIATION OF
INVESTMENTS 330,149 40,022 183,880 176,990
---------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON
INVESTMENTS 331,106 40,168 184,302 177,919
---------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $326,124 $39,727 $180,326 $172,664
===================================================================================================
</TABLE>
53
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
VIP GROWTH & MID-CAP GROWTH NEW AMERICA GROWTH
INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------- --------------------- ---------------------
PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4,
1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS
COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
<S> <C> <C> <C>
-------------------------------------------------------------------
Net investment income (operating
loss):
Dividend income $ -- $ 9,851 $36,179
Mortality and expense risk
charges (3,346) (2,463) (1,552)
-------------------------------------------------------------------
Net investment income (operating
loss) (3,346) 7,388 34,627
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions 666 1,413 (102)
Change in unrealized
appreciation/depreciation of
investments 50,516 97,278 25,449
-------------------------------------------------------------------
Net gain on investments 51,182 98,691 25,347
-------------------------------------------------------------------
Net increase in net assets
resulting from operations $47,836 $106,079 $59,974
===================================================================
</TABLE>
<TABLE>
<CAPTION>
PERSONAL STRATEGY INTERNATIONAL STOCK
BALANCED SUBACCOUNT SUBACCOUNT
--------------------- ---------------------
PERIOD FROM MAY 4, PERIOD FROM MAY 4,
1999 (DATE OPERATIONS 1999 (DATE OPERATIONS
COMMENCED) THROUGH COMMENCED) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999
<S> <C> <C>
--------------------------------------------
Net investment income:
Dividend income $36,143 $ 3,098
Mortality and expense risk charges (2,130) (489)
--------------------------------------------
Net investment income 34,013 2,609
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions (866) 190
Change in unrealized
appreciation/depreciation of
investments (7,122) 34,891
--------------------------------------------
Net gain (loss) on investments (7,988) 35,081
--------------------------------------------
Net increase in net assets resulting
from operations $26,025 $37,690
============================================
</TABLE>
SEE ACCOMPANYING NOTES.
54
<PAGE>
(This page has been left blank intentionally.)
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
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 2,347,671 $ 6,240 $ 4,213,357 $ 310,037 $ (192,636) $ 2,026,727
Net realized gain
(loss) from
investment
transactions 208,237 16,999 107,131 (324,893) (36,454) 20,814
Change in unrealized
appreciation/
depreciation of
investments 1,317,709 (5,668,314) 1,153,688 (1,828,333) (6,650,686) (1,124,051)
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 3,873,617 (5,645,075) 5,474,176 (1,843,189) (6,879,776) 923,490
Capital share
transactions:
Transfers of net
premiums 32,496,774 39,784,341 27,046,928 6,543,037 7,160,411 6,216,376
Transfers of surrenders
and death benefits (2,752,270) (1,743,025) (977,522) (662,061) (486,854) (327,624)
Transfers of policy
loans (1,970,025) (1,828,958) (1,110,979) (417,587) (571,575) (385,548)
Transfers of cost of
insurance and
transfer charges (11,728,318) (10,147,284) (6,964,921) (2,806,598) (2,740,952) (2,190,816)
Transfers between
subaccounts,
including fixed
interest subaccount 1,268,316 3,976,174 1,500,575 (514,714) 4,677,943 2,316,346
--------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions 17,314,477 30,041,248 19,494,081 2,142,077 8,038,973 5,628,734
--------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 21,188,094 24,396,173 24,968,257 298,888 1,159,197 6,552,224
Net assets at beginning
of period 92,402,165 68,005,992 43,037,735 23,386,609 22,227,412 15,675,188
--------------------------------------------------------------------------------------
Net assets at end of
period $113,590,259 $92,402,165 $68,005,992 $23,685,497 $23,386,609 $22,227,412
======================================================================================
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
HIGH GRADE BOND SUBACCOUNT HIGH YIELD BOND SUBACCOUNT
---------------------------------------- ----------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 247,845 $ 163,002 $ 117,005 $ 575,022 $ 348,442 $ 254,321
Net realized gain
(loss) from
investment
transactions (4,401) 1,995 (207) (15,077) 2,267 2,527
Change in unrealized
appreciation/
depreciation of
investments (299,176) 19,999 59,144 (691,987) (30,149) 102,518
----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS (55,732) 184,996 175,942 (132,042) 320,560 359,366
Capital share
transactions:
Transfers of net
premiums 942,004 769,738 425,444 1,692,093 1,543,162 1,099,120
Transfers of surrenders
and death benefits (76,890) (45,616) (22,840) (152,098) (86,660) (88,016)
Transfers of policy
loans (73,531) (54,423) (28,370) (161,882) (111,558) (76,196)
Transfers of cost of
insurance and
transfer charges (454,523) (284,583) (196,916) (797,274) (571,771) (363,359)
Transfers between
subaccounts,
including fixed
interest subaccount 657,305 909,489 191,456 424,289 1,963,447 617,797
----------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS 994,365 1,294,605 368,774 1,005,128 2,736,620 1,189,346
----------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 938,633 1,479,601 544,716 873,086 3,057,180 1,548,712
Net assets at beginning
of period 3,735,419 2,255,818 1,711,102 7,158,734 4,101,554 2,552,842
----------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD $4,674,052 $3,735,419 $2,255,818 $8,031,820 $7,158,734 $4,101,554
==================================================================================
<CAPTION>
MANAGED SUBACCOUNT
------------------------------------------
YEAR ENDED
DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
------------------------------------------
Operations:
Net investment income
(operating loss) $ 1,048,680 $ (214,753) $ 1,675,598
Net realized gain
(loss) from
investment
transactions (114,321) (11,537) 18,600
Change in unrealized
appreciation/
depreciation of
investments (2,139,966) (2,491,453) (107,837)
------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS (1,205,607) (2,717,743) 1,586,361
Capital share
transactions:
Transfers of net
premiums 6,128,165 7,504,132 6,018,771
Transfers of surrenders
and death benefits (742,566) (700,821) (282,557)
Transfers of policy
loans (403,498) (581,646) (353,388)
Transfers of cost of
insurance and
transfer charges (3,010,804) (2,891,340) (2,041,923)
Transfers between
subaccounts,
including fixed
interest subaccount (1,945,177) 5,897,873 2,315,574
------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS 26,120 9,228,198 5,656,477
------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (1,179,487) 6,510,455 7,242,838
Net assets at beginning
of period 27,944,672 21,434,217 14,191,379
------------------------------------------
NET ASSETS AT END OF
PERIOD $26,765,185 $27,944,672 $21,434,217
==========================================
</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
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ 34,911 $ 94,237 $ 36,273 $ 70,539 $ (192,052) $ 103,433
Net realized gain from
investment
transactions -- -- -- 663,174 60,728 65,397
Change in unrealized
appreciation/
depreciation of
investments -- -- -- 5,345,118 3,483,975 2,223,914
-----------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 34,911 94,237 36,273 6,078,831 3,352,651 2,392,744
Capital share
transactions:
Transfers of net
premiums 7,269,452 15,811,356 8,680,125 7,857,875 6,995,542 4,607,092
Transfers of surrenders
and death benefits (40,547) (9,586) (1,770) (1,047,499) (413,488) (254,715)
Transfers of policy
loans (5,867) (5,560) (16,477) (764,466) (504,196) (251,000)
Transfers of cost of
insurance and
transfer charges (331,407) (885,590) (645,950) (3,831,788) (2,773,048) (1,525,957)
Transfers between
subaccounts,
including fixed
interest subaccount (8,260,744) (16,263,292) (5,898,862) 2,702,072 6,790,714 1,958,264
-----------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions (1,369,113) (1,352,672) 2,117,066 4,916,194 10,095,524 4,533,684
-----------------------------------------------------------------------------------
Total increase (decrease)
in net assets (1,334,202) (1,258,435) 2,153,339 10,995,025 13,448,175 6,926,428
Net assets at beginning
of period 1,861,926 3,120,361 967,022 28,314,805 14,866,630 7,940,202
-----------------------------------------------------------------------------------
Net assets at end of
period $ 527,724 $ 1,861,926 $ 3,120,361 $39,309,830 $28,314,805 $14,866,630
===================================================================================
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
VIP GROWTH VIP OVERSEAS VIP CONTRAFUND VIP INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------- --------------------- --------------------- ---------------------
PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4,
1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS
COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Operations:
Net investment income
(operating loss) $ (4,982) $ (441) $ (3,976) $ (5,255)
NET REALIZED GAIN FROM
INVESTMENT
TRANSACTIONS 957 146 422 929
CHANGE IN UNREALIZED
APPRECIATION/
DEPRECIATION OF
INVESTMENTS 330,149 40,022 183,880 176,990
------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS 326,124 39,727 180,326 172,664
CAPITAL SHARE
TRANSACTIONS:
TRANSFERS OF NET
PREMIUMS 401,492 41,466 361,546 454,944
TRANSFERS OF SURRENDERS
AND DEATH BENEFITS (8,287) (562) (5,150) (6,669)
TRANSFERS OF POLICY
LOANS (7,165) (1,602) (7,028) (37,543)
TRANSFERS OF COST OF
INSURANCE AND
TRANSFER CHARGES (103,025) (11,306) (80,931) (104,921)
TRANSFERS BETWEEN
SUBACCOUNTS,
INCLUDING FIXED
INTEREST SUBACCOUNT 1,911,473 194,228 1,233,119 1,726,794
------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS 2,194,488 222,224 1,501,556 2,032,605
------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,520,612 261,951 1,681,882 2,205,269
NET ASSETS AT BEGINNING
OF PERIOD -- -- -- --
------------------------------------------------------------------------------------------
NET ASSETS AT END OF
PERIOD $2,520,612 $261,951 $1,681,882 $2,205,269
==========================================================================================
<CAPTION>
VIP GROWTH & INCOME
SUBACCOUNT
----------------------
PERIOD FROM MAY 4,
1999 (DATE OPERATIONS
COMMENCED) THROUGH
DECEMBER 31, 1999
<S> <C>
----------------------
Operations:
Net investment income
(operating loss) $ (3,346)
NET REALIZED GAIN FROM
INVESTMENT
TRANSACTIONS 666
CHANGE IN UNREALIZED
APPRECIATION/
DEPRECIATION OF
INVESTMENTS 50,516
----------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS 47,836
CAPITAL SHARE
TRANSACTIONS:
TRANSFERS OF NET
PREMIUMS 235,063
TRANSFERS OF SURRENDERS
AND DEATH BENEFITS (797)
TRANSFERS OF POLICY
LOANS (32,211)
TRANSFERS OF COST OF
INSURANCE AND
TRANSFER CHARGES (61,680)
TRANSFERS BETWEEN
SUBACCOUNTS,
INCLUDING FIXED
INTEREST SUBACCOUNT 998,697
----------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS 1,139,072
----------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 1,186,908
NET ASSETS AT BEGINNING
OF PERIOD --
----------------------
NET ASSETS AT END OF
PERIOD $1,186,908
======================
</TABLE>
59
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MID-CAP GROWTH NEW AMERICA GROWTH PERSONAL STRATEGY INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT BALANCED SUBACCOUNT SUBACCOUNT
--------------------- --------------------- --------------------- ---------------------
PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4, PERIOD FROM MAY 4,
1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS 1999 (DATE OPERATIONS
COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH COMMENCED) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1999
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Operations:
Net investment income $ 7,388 $ 34,627 $ 34,013 $ 2,609
Net realized gain
(loss) from
investment
transactions 1,413 (102) (866) 190
Change in unrealized
appreciation/
depreciation of
investments 97,278 25,449 (7,122) 34,891
------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 106,079 59,974 26,025 37,690
Capital share
transactions:
Transfers of net
premiums 204,120 176,795 141,296 47,426
Transfers of surrenders
and death benefits (4,444) (4,114) (234) (352)
Transfers of policy
loans (27,523) (2,334) (27,073) (715)
Transfers of cost of
insurance and
transfer charges (49,034) (33,691) (40,549) (10,787)
Transfers between
subaccounts,
including fixed
interest subaccount 796,419 516,412 674,839 153,304
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions 919,538 653,068 748,279 188,876
------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 1,025,617 713,042 774,304 226,566
Net assets at beginning
of period -- -- -- --
------------------------------------------------------------------------------------------
Net assets at end of
period $1,025,617 $713,042 $774,304 $226,566
==========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
60
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 universal life insurance policies.
At December 31, 1999, the Account has available fifteen separate subaccounts,
each of which invests solely, as directed by contract owners, in a different
portfolio of EquiTrust Variable Insurance Series Fund, Fidelity Variable
Insurance Products Fund, T. Rowe Price Equity Series, Inc. and T. Rowe Price
International Series, Inc. (the Funds), which are open-end, diversified
management investment companies. Prior to May 4, 1999, only portfolios of
EquiTrust Variable Insurance Series Fund were available to contract owners.
Contract owners also may direct investments to a fixed interest subaccount held
in the general assets of the Company.
Investments in shares of the Funds are stated at market value, which is the
closing net asset value per share as determined by the Funds. The first-in,
first-out cost basis has been used in determining the net realized gain or loss
from investment transactions and unrealized appreciation or depreciation on
investments. On January 1, 1999, the Account adjusted its cost basis from the
average cost method to the first-in, first-out method. This change had the
effect of changing accumulated unrealized appreciation (depreciation) on
investments, with an offsetting amount recorded to accumulated undistributed net
realized gain (loss). This increased (decreased) the cost basis as follows for
the following subaccounts: Value Growth -- $137,476, High Grade -- $(695), High
Yield -- $4,262, Managed Portfolio -- $69,855, and Blue Chip -- $109,361. This
change had no effect on the statements of net assets at December 31, 1999 and
1998 or the statements of operations for the periods indicated herein.
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).
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.
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
61
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$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.
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
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
YEAR ENDED DECEMBER 31 ----------------------------------------------------
1999, EXCEPT AS NOTED 1998 1997
------------------------- ------------------------- ------------------------
PURCHASES SALES PURCHASES SALES PURCHASES SALES
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Value Growth Subaccount $ 3,887,659 $ 1,435,545 $ 8,118,646 $ 272,309 $ 7,979,469 $ 324,008
High Grade Bond Subaccount 1,495,044 252,834 1,563,605 105,998 605,583 119,804
High Yield Bond Subaccount 2,219,821 639,671 3,250,086 165,024 1,587,252 143,585
Managed Subaccount 3,600,883 2,526,083 9,450,479 437,034 7,610,376 278,301
Money Market Subaccount 3,241,700 4,575,902 10,129,699 11,388,134 6,441,811 4,288,472
Blue Chip Subaccount 6,049,674 1,062,941 10,140,344 236,872 4,852,347 215,230
VIP Growth Subaccount* 2,195,138 5,632 -- -- -- --
VIP Overseas Subaccount* 223,050 1,267 -- -- -- --
VIP Contrafund Subaccount* 1,503,625 6,045 -- -- -- --
VIP Index 500 Subaccount* 2,039,618 12,268 -- -- -- --
VIP Growth & Income Subaccount* 1,164,539 28,813 -- -- -- --
Mid-Cap Growth Subaccount* 942,723 15,797 -- -- -- --
New America Growth Subaccount* 692,381 4,686 -- -- -- --
Personal Strategy Balanced Subaccount* 823,742 41,450 -- -- -- --
International Stock Subaccount* 195,126 3,641 -- -- -- --
--------------------------------------------------------------------------------
Combined $30,274,723 $10,612,575 $42,652,859 $12,605,371 $29,076,838 $5,369,400
================================================================================
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
62
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999
Value Growth Subaccount 189,257 $ 3,353,277 68,995 $ 1,211,200 120,262 $ 2,142,077
High Grade Bond Subaccount 61,130 1,208,568 10,866 214,203 50,264 994,365
High Yield Bond Subaccount 64,702 1,573,988 23,532 568,860 41,170 1,005,128
Managed Subaccount 100,887 2,294,102 99,688 2,267,982 1,199 26,120
Money Market Subaccount 226,499 3,197,857 323,500 4,566,970 (97,001) (1,369,113)
Blue Chip Subaccount 125,509 5,668,967 16,234 752,773 109,275 4,916,194
VIP Growth Subaccount* 203,941 2,195,138 67 650 203,874 2,194,488
VIP Overseas Subaccount* 20,073 223,050 79 826 19,994 222,224
VIP Contrafund Subaccount* 148,621 1,503,626 214 2,070 148,407 1,501,556
VIP Index 500 Subaccount* 204,462 2,039,618 663 7,013 203,799 2,032,605
VIP Growth & Income Subaccount* 119,371 1,164,538 2,563 25,466 116,808 1,139,072
Mid-Cap Growth Subaccount* 89,767 932,872 1,183 13,334 88,584 919,538
New America Growth Subaccount* 67,262 656,202 321 3,134 66,941 653,068
Personal Strategy Balanced Subaccount* 79,456 787,599 3,933 39,320 75,523 748,279
International Stock Subaccount* 18,334 192,028 307 3,152 18,027 188,876
--------------------------------------------------------------------------
Combined 1,719,271 $26,991,430 552,145 $ 9,676,953 1,167,126 $17,314,477
==========================================================================
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
==========================================================================
</TABLE>
* Period from May 4, 1999 (date operations commenced) through December 31, 1999.
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, 1999 consisted of:
<TABLE>
<CAPTION>
HIGH
VALUE GRADE HIGH YIELD MONEY
GROWTH BOND BOND MANAGED MARKET
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Paid-in capital $ 99,443,866 $27,419,433 $4,113,887 $6,998,448 $25,775,623 $ 331,843
Accumulated undistributed net
investment income 12,854,188 4,749,861 800,016 1,655,164 5,005,373 195,881
Accumulated undistributed net realized
gain (loss) from investment
transactions 208,237 (324,893) (4,401) (15,077) (114,321) --
Net unrealized appreciation
(depreciation) of investments 1,083,968 (8,158,904) (235,450) (606,715) (3,901,490) --
----------------------------------------------------------------------------------
Net assets $113,590,259 $23,685,497 $4,674,052 $8,031,820 $26,765,185 $ 527,724
==================================================================================
</TABLE>
63
<PAGE>
FARM BUREAU LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6.NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VIP VIP VIP VIP INDEX
BLUE CHIP GROWTH OVERSEAS CONTRAFUND 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Paid-in capital $25,204,926 $2,194,488 $ 222,224 $1,501,556 $ 2,032,605
Accumulated undistributed net investment income
(loss) 387,256 (4,982) (441) (3,976) (5,255)
Accumulated undistributed net realized gain from
investment transactions 663,174 957 146 422 929
Net unrealized appreciation of investments 13,054,474 330,149 40,022 183,880 176,990
-------------------------------------------------------------------
Net assets $39,309,830 $2,520,612 $ 261,951 $1,681,882 $ 2,205,269
===================================================================
</TABLE>
<TABLE>
<CAPTION>
VIP NEW PERSONAL
GROWTH & MID-CAP AMERICA STRATEGY INTERNATIONAL
INCOME GROWTH GROWTH BALANCED STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
Paid-in capital $1,139,072 $ 919,538 $ 653,068 $ 748,279 $ 188,876
Accumulated undistributed net investment income
(loss) (3,346) 7,388 34,627 34,013 2,609
Accumulated undistributed net realized gain (loss)
from investment transactions 666 1,413 (102) (866) 190
Net unrealized appreciation (depreciation) of
investments 50,516 97,278 25,449 (7,122) 34,891
---------------------------------------------------------------------
Net assets $1,186,908 $1,025,617 $ 713,042 $ 774,304 $ 226,566
=====================================================================
</TABLE>
64
<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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 14, 2000
65
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
------------- ------------------
(RESTATED--NOTE 1)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held for investment, at amortized cost
(market: 1999--$337,794; 1998--$516,729) $ 339,362 $ 492,288
Available for sale, at market (amortized cost:
1999--$2,063,560; 1998--$1,874,170) 1,988,225 1,961,353
Equity securities, at market (cost:
1999--$38,147; 1998--$39,589) 35,345 35,287
Mortgage loans on real estate 314,523 299,372
Investment real estate, less allowances for
depreciation of $2,300 in 1999 and $4,223 in
1998 20,119 40,679
Policy loans 123,717 123,328
Other long-term investments 4,822 6,236
Short-term investments 78,101 78,445
------------ ------------
Total investments 2,904,214 3,036,988
Cash and cash equivalents 5,889 2,006
Securities and indebtedness of related parties 61,309 65,291
Accrued investment income 34,796 34,340
Accounts and notes receivable 155 331
Amounts receivable from affiliates 2,458 3,635
Reinsurance recoverable 4,812 4,711
Deferred policy acquisition costs 237,306 204,629
Value of insurance in force acquired 15,894 14,533
Property and equipment, less allowances for
depreciation of $3,682 in 1999 and $4,080 in
1998 12,004 9,991
Current income taxes recoverable -- 11,777
Deferred income taxes 7,128 --
Goodwill, less accumulated amortization of $4,181
in 1999 and $3,484 in 1998 9,251 9,948
Other assets 7,122 11,410
Assets held in separate accounts 256,028 190,111
------------ ------------
Total assets $ 3,558,366 $ 3,599,701
============ ============
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
------------- ------------------
(RESTATED--NOTE 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Interest sensitive products $ 1,626,042 $ 1,596,471
Traditional life insurance and accident and
health products 752,733 731,873
Unearned revenue reserve 27,650 25,373
Other policy claims and benefits 10,019 10,625
------------ ------------
2,416,444 2,364,342
Other policyholders' funds:
Supplementary contracts without life
contingencies 160,848 147,755
Advance premiums and other deposits 83,258 84,206
Accrued dividends 13,554 13,797
------------ ------------
257,660 245,758
Amounts payable to affiliates 668 3,326
Long-term debt 40,000 71
Current income taxes payable 2,304 --
Deferred income taxes -- 44,858
Other liabilities 66,237 76,751
Liabilities related to separate accounts 256,028 190,111
------------ ------------
Total liabilities 3,039,341 2,925,217
Commitments and contingencies
Redeemable preferred stock, par value $20.00 per
share, redemption value $200.00 per share--1999:
none authorized, issued or outstanding; 1998:
authorized 100,000 shares, issued 25,739 shares,
outstanding 22,517 shares -- 4,503
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 66,273 66,273
Accumulated other comprehensive income (loss) (49,882) 50,050
Retained earnings 500,134 551,158
------------ ------------
Total stockholder's equity 519,025 669,981
------------ ------------
Total liabilities and stockholder's equity $ 3,558,366 $ 3,599,701
============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
67
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
Revenues:
Interest sensitive product charges $ 55,363 $ 52,157 $ 47,979
Traditional life insurance and accident and
health premiums 95,930 93,473 92,528
Net investment income 225,040 228,494 220,332
Realized gains (losses) on investments (1,976) (4,878) 40,948
Realized gain on dividend of home office
properties -- 5,097 --
Other income 623 2,100 5,353
------------ ------------ ------------
Total revenues 374,980 376,443 407,140
Benefits and expenses:
Interest sensitive product benefits 123,231 122,527 122,729
Traditional life insurance and accident and
health benefits 57,941 55,880 56,369
Increase in traditional life and accident and
health future policy benefits 19,556 21,264 27,173
Distributions to participating policyholders 25,360 25,818 25,852
Underwriting, acquisition and insurance expenses 71,377 64,735 62,402
Interest expense 830 8 9
Other expenses 1,045 1,324 1,151
------------ ------------ ------------
Total benefits and expenses 299,340 291,556 295,685
------------ ------------ ------------
75,640 84,887 111,455
Income taxes (25,686) (27,235) (38,110)
Equity income, net of related income taxes 3,972 1,258 2,088
------------ ------------ ------------
Net income $ 53,926 $ 58,910 $ 75,433
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
68
<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 (LOSS) EARNINGS EQUITY
-------- ---------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997:
As previously reported $2,500 $55,285 $ 26,327 $406,892 $491,004
Impact of merger of Western Farm Bureau
Life Insurance Company -- 11,048 860 107,896 119,804
------ ------- -------- -------- --------
As restated 2,500 66,333 27,187 514,788 610,808
Comprehensive income:
Net income for 1997 -- -- -- 75,433 75,433
Change in net unrealized investment
gains/losses -- -- 19,935 -- 19,935
Total comprehensive income 95,368
Dividends paid to preferred stockholders -- -- -- (335) (335)
Cash dividends paid to parent -- -- -- (36,950) (36,950)
Other -- -- -- (1,259) (1,259)
------ ------- -------- -------- --------
Balance at December 31, 1997 2,500 66,333 47,122 551,677 667,632
Comprehensive income:
Net income for 1998 -- -- -- 58,910 58,910
Change in net unrealized investment
gains/losses -- -- 2,928 -- 2,928
Total comprehensive income 61,838
Adjustment resulting from capital
transactions of equity investee -- (60) -- -- (60)
Dividends paid to preferred stockholders -- -- -- (335) (335)
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 66,273 50,050 551,158 669,981
Comprehensive income (loss):
Net income for 1999 -- -- -- 53,926 53,926
Change in net unrealized investment
gains/losses -- -- (99,932) -- (99,932)
--------
Total comprehensive loss (46,006)
Dividend paid to preferred stockholders -- -- -- (155) (155)
Dividend of short-term and fixed
maturity securities to parent -- -- -- (75,000) (75,000)
Cash dividends paid to parent -- -- -- (29,795) (29,795)
------ ------- -------- -------- --------
Balance at December 31, 1999 $2,500 $66,273 $(49,882) $500,134 $519,025
====== ======= ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
69
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 53,926 $ 58,910 $ 75,433
Adjustments to reconcile net income to net cash provided by
operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 105,121 105,604 107,238
Charges for mortality and administration (54,229) (52,050) (48,468)
Deferral of unearned revenues 2,456 2,607 2,417
Amortization of unearned revenue reserve (1,318) (888) (775)
Provision for depreciation and amortization 5,687 1,111 8,065
Net gains related to investments held by investment
company subsidiary -- -- (1,223)
Realized losses (gains) on investments 1,976 4,878 (40,948)
Realized gain on dividend of home office properties -- (5,097) --
Increase in traditional life and accident and health
benefit accruals 20,552 22,305 26,921
Policy acquisition costs deferred (34,275) (31,196) (30,425)
Amortization of deferred policy acquisition costs 12,439 10,175 8,492
Provision for deferred income taxes 1,824 2,580 (7,184)
Other (1,865) 22,902 (11,423)
--------- --------- ---------
Net cash provided by operating activities 112,294 141,841 88,120
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities--held for investment 154,700 151,298 49,961
Fixed maturities--available for sale 224,530 301,770 293,250
Equity securities 10,391 24,843 115,742
Mortgage loans on real estate 53,922 75,887 48,059
Investment real estate 20,080 1,349 1,191
Policy loans 28,401 28,423 27,513
Other long-term investments 68 278 52
Short-term investments--net -- -- 41,061
--------- --------- ---------
492,092 583,848 576,829
Acquisition of investments:
Fixed maturities--available for sale (469,608) (541,978) (431,379)
Equity securities (6,663) (5,644) (50,368)
Mortgage loans on real estate (69,606) (51,883) (78,703)
Investment real estate (726) (3,096) (10,208)
Policy loans (28,790) (29,810) (30,458)
Other long-term investments -- -- (1,936)
Short-term investments--net (24,696) (48,012) (1,919)
--------- --------- ---------
(600,089) (680,423) (604,971)
Proceeds from disposal, repayments of advances and other
distributions from equity investees 11,395 6,254 16,519
Investments in and advances to equity investees (6,654) (5,505) (41,018)
Net cash paid for acquisitions -- -- (9,694)
Net purchases of property and equipment and other (2,403) (6,480) (121)
--------- --------- ---------
Net cash used in investing activities (105,659) (102,306) (62,456)
</TABLE>
70
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(RESTATED--NOTE 1)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipts from interest sensitive and variable products
credited to policyholder account balances $ 255,931 $ 260,949 $ 258,919
Return of policyholder account balances on interest
sensitive and variable products (264,159) (286,469) (247,823)
Proceeds from long-term debt 40,000 -- --
Repayments of long-term debt (71) (6) (4)
Redemption of redeemable preferred stock (4,503) -- --
Dividends paid (29,950) (13,779) (37,285)
--------- --------- ---------
Net cash used in financing activities (2,752) (39,305) (26,193)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 3,883 230 (529)
Cash and cash equivalents at beginning of year 2,006 1,776 2,305
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,889 $ 2,006 $ 1,776
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 725 $ 7 $ 8
Income taxes 11,919 24,484 55,491
</TABLE>
SEE ACCOMPANYING NOTES.
71
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Farm Bureau Life Insurance Company (we or the Company), a wholly-owned
subsidiary of FBL Financial Group, Inc., operates predominantly in the life
insurance industry. We currently market 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 these and other states through alliances with other insurance
companies and a regional broker/dealer.
CONSOLIDATION
Our consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant intercompany transactions have
been eliminated.
MERGER AND RESTRUCTURING
On July 1, 1999, we merged with Western Farm Bureau Life Insurance Company
(Western Life), another wholly-owned subsidiary of FBL Financial Group, Inc. The
merger, which was completed through the contribution of Western Life to us by
FBL Financial Group, Inc., has been accounted for like a pooling of interests.
Accordingly, all prior period financial statements have been restated to include
the combined financial position, results of operations and cash flows of Western
Life as though it had always been a part of the Company.
The following information presents certain income statement data of the separate
companies for the periods preceding the merger:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------
1999 1998 1997
------------------------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Farm Bureau Life Insurance Company $145,405 $286,199 $317,847
Western Life 47,364 93,539 89,338
-------- -------- --------
192,769 379,738 407,185
Eliminations (35) (3,295) (45)
-------- -------- --------
Consolidated $192,734 $376,443 $407,140
======== ======== ========
Net income:
Farm Bureau Life Insurance Company $ 22,535 $ 47,324 $ 63,574
Western Life 6,400 14,717 11,904
-------- -------- --------
28,935 62,041 75,478
Eliminations 73 (3,131) (45)
-------- -------- --------
Consolidated $ 29,008 $ 58,910 $ 75,433
======== ======== ========
</TABLE>
Prior to the merger, the Company owned 3,013 shares of Western Life redeemable
preferred stock with a carrying value of $0.6 million. All of Western Life's
preferred stock was redeemed in conjunction with the merger. The elimination
amounts noted in the table above represent dividend income from the Western Life
preferred stock owned by the Company and differences in the realized gain and
amortization of the deferred gain resulting from the dividend of the home office
properties to our parent. See "Property and Equipment".
In addition to merging with Western Life, we also closed an administrative
processing center during 1999. As a result of the closing of the service center,
a leased property was vacated, 22 positions were
72
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
eliminated and moving costs were incurred. During 1999, we charged to expense
costs totaling $1.2 million, $0.4 million of which remains accrued at
December 31, 1999, for related severance benefits, lease costs and other costs
primarily associated with the closing of the service center. The restructuring
expenses are recorded in the underwriting, acquisition and insurance expense
line of the 1999 consolidated statement of income.
INVESTMENTS
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturity securities, comprised of bonds and redeemable preferred stocks
that we have a 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 our 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 or loss. The unrealized gains and losses included in
accumulated other comprehensive income or loss are reduced by a provision for
deferred income taxes and adjustments to deferred policy acquisition costs,
value of insurance in force aquired 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 or loss.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans on real estate are reported at cost adjusted for amortization of
premiums and accrual of discounts. If we determine that the value of any
mortgage loan is impaired (i.e., when it is probable we 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.
INVESTMENT REAL ESTATE
Investment real estate is reported at cost less allowances for depreciation.
Real estate acquired through foreclosure, which is included with investment real
estate in our consolidated balance sheets, is recorded at the lower of cost
(which includes the balance of the mortgage loan, any accrued interest and any
costs incurred to obtain title to the property) or fair value as determined at
or before the foreclosure date. The carrying value of these assets is subject to
regular review. If the fair value, less estimated sales costs, of real estate
owned decreases to an amount lower than its carrying value, a valuation
allowance is established for the difference. This valuation allowance can be
reduced or eliminated should the fair value of the property increase. Changes in
this valuation allowance are recognized as realized gains or losses on
investments. No allowance was recorded at December 31, 1999 or December 31,
1998.
73
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER INVESTMENTS
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.
Securities and indebtedness of related parties include investments in
partnerships and corporations over which we may exercise significant influence.
Such investments are accounted for using the equity method. Changes in the value
of our 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 our 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 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 we expect
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 stocks 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 our consolidated statements of cash flows, we consider all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
DEFERRED POLICY ACQUISITION COSTS AND VALUE OF INSURANCE IN FORCE ACQUIRED
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. The
value of insurance in force acquired represents the cost assigned to insurance
contracts when an insurance company is acquired. The initial value is determined
by an actuarial study using expected future gross profits as a measurement of
the net present value of the insurance acquired. Interest accrues on the
unamortized balance at a weighted average rate of 5.72%.
74
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For participating traditional life insurance and interest sensitive products
(principally 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 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 was $1.9 million in
1999, $1.8 million in 1998 and $2.4 million in 1997.
On March 30, 1998, we transferred our home office properties to our 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. We are leasing a portion of the properties back from our parent under a
sublease arrangement. Of the $21.0 million gain on the transaction, $5.1 million
was recognized in the 1998 statement of income and the remainder is being
amortized over the term of the operating lease. The unamortized balance was
$14.0 million at December 31, 1999 and $15.0 million at December 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The SOP, which was adopted prospectively as of January 1, 1999,
requires the capitalization of certain costs incurred in connection with
developing or obtaining internal use software. Prior to the adoption of SOP
98-1, we capitalized external software development costs and charged internal
costs, primarily payroll and related items, to expense as they were incurred.
Pursuant to the SOP, these internal costs are now capitalized. The effect of
adopting the SOP was to increase net income for the year ended December 31, 1999
by $0.2 million.
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, we assess the fair value of the underlying business and reduce
goodwill to an amount that results in the book value of the underlying business
approximating fair value. We have not recorded any such writedowns during 1999,
1998 or 1997.
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
7.83% in 1999, 8.03% in 1998 and 8.15% in 1997. 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
75
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the year ended
December 31, 1999 and represented 17% of life insurance inforce at December 31,
1999. Participating business accounted for 41% of receipts from policyholders
during the year ended December 31, 1998 and represented 18% of life insurance
inforce at December 31, 1998.
The liabilities for future policy benefits for accident and health insurance are
computed using a net level (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.
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 4.00% to
6.25% in 1999, 4.00% to 6.50% in 1998 and 4.00% to 7.00% in 1997.
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 us and our insurance subsidiaries
by guaranty associations in most states in which the companies are licensed.
These assessments, which are accrued for, 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.
We had undiscounted reserves of $1.3 million at December 31, 1999 and 1998 to
cover estimated future assessments on known insolvencies. We had assets totaling
$2.8 million at December 31, 1999 and $3.1 million at December 31, 1998
representing estimated premium tax offsets on paid and future assessments.
Expenses (credits) incurred for guaranty fund assessments, net of related
premium tax offsets, totaled ($0.1) million in 1999, ($1.2) million in 1998 and
$1.9 million (including $1.6 million related to the adoption of an accounting
standard requiring the accrual of assessments) in 1997. It is anticipated that
estimated future guaranty fund assessments on known insolvencies will be paid
during the two 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, 2005. We believe 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 income 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 our 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.
76
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
We use reinsurance to manage certain risks associated with our 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.
Our 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
Other income and other expenses include certain revenue and expenses generated
by us and our insurance and non-insurance subsidiaries. During 1999, 1998 and
1997 revenues of our insurance companies included as other income aggregated
$0.6 million in 1999, $1.4 million in 1998 and $4.0 million in 1997.
COMPREHENSIVE INCOME (LOSS)
Unrealized gains and losses on our available for-sale securities are included in
other comprehensive income (loss) in stockholder's equity. Other comprehensive
income (loss) excludes net investment gains (losses) included in net income
which merely represent transfers from unrealized to realized gains and losses.
These amounts totaled $0.3 million in 1999, ($0.9) million in 1998 and $26.5
million in 1997. These amounts, which have been measured through the date of
sale, are net of income taxes and adjustments to deferred policy acquisition
costs, value of insurance inforce acquired and unearned revenue reserve totaling
$0.2 million in 1999, $0.5 million in 1998 and ($15.3) million in 1997.
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, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. 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 June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (Statement) No. 133, "Accounting for Derivative
Instruments and Hedging Activities."
77
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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's effective date for the
Company has been extended to the fiscal year beginning January 1, 2001, with
earlier adoption encouraged. Because of our minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on our earnings or financial position.
2. INVESTMENT OPERATIONS
FIXED MATURITIES AND EQUITY SECURITIES
The following tables contain amortized cost and market value information on
fixed maturities and equity securities:
<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, 1999
Fixed
maturities--mortgaged-backed
securities $ 339,362 $ 3,695 $ (5,263) $ 337,794
===================================================
</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, 1999
Bonds:
United States Government and
agencies $ 71,490 $ 90 $ (1,831) $ 69,749
State, municipal and other
governments 46,395 51 (2,411) 44,035
Public utilities 118,099 1,545 (3,822) 115,822
Corporate securities 1,060,643 14,796 (60,710) 1,014,729
Mortgage and asset-backed
securities 722,779 3,110 (22,485) 703,404
Redeemable preferred stocks 44,154 365 (4,033) 40,486
---------------------------------------------------
Total fixed maturities $2,063,560 $ 19,957 $ (95,292) $1,988,225
===================================================
Equity securities $ 38,147 $ 3,572 $ (6,374) $ 35,345
===================================================
</TABLE>
78
<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, 1998
Bonds:
Corporate securities $ 5,008 $ 542 $ (8) $ 5,542
Mortgage-backed securities 487,280 24,690 (783) 511,187
---------------------------------------------------
Total fixed maturities $ 492,288 $ 25,232 $ (791) $ 516,729
===================================================
</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 $ 81,674 $ 5,375 $ (4) $ 87,045
State, municipal and other
governments 61,194 2,516 (101) 63,609
Public utilities 137,640 9,626 (536) 146,730
Corporate securities 970,998 64,729 (16,985) 1,018,742
Mortgage and asset-backed
securities 592,115 24,526 (1,129) 615,512
Redeemable preferred stocks 30,549 741 (1,575) 29,715
---------------------------------------------------
Total fixed maturities $1,874,170 $107,513 $ (20,330) $1,961,353
===================================================
Equity securities $ 39,589 $ 748 $ (5,050) $ 35,287
===================================================
</TABLE>
Short-term investments have been excluded from the above schedules as amortized
cost approximates market value for these securities.
The carrying value and estimated market value of our portfolio of fixed maturity
securities at December 31, 1999, by contractual maturity, are shown below.
Expected maturities will differ from
79
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
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 $ -- $ -- $ 17,936 $ 17,999
Due after one year through five
years -- -- 209,871 205,294
Due after five years through ten
years -- -- 407,018 388,336
Due after ten years -- -- 661,802 632,706
----------------------------------------------------
-- -- 1,296,627 1,244,335
Mortgage and asset-backed
securities 339,362 337,794 722,779 703,404
Redeemable preferred stocks -- -- 44,154 40,486
----------------------------------------------------
$339,362 $337,794 $2,063,560 $1,988,225
====================================================
</TABLE>
Net unrealized investment gains (losses) on equity securities and fixed maturity
securities classified as available for sale were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Unrealized appreciation (depreciation) on fixed maturity
and equity securities available for sale $(78,137) $ 82,881
Adjustments for assumed changes in amortization pattern of:
Deferred policy acquisition costs 5,577 (5,264)
Value of insurance in force acquired 1,040 (1,306)
Unearned revenue reserve (554) 585
Provision for deferred income taxes 25,226 (26,914)
-----------------------
(46,848) 49,982
Proportionate share of net unrealized investment gains
(losses) of equity investees (3,034) 68
-----------------------
Net unrealized investment gains (losses) $(49,882) $ 50,050
=======================
</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, value of insurance in
force acquired and unearned revenue reserve totaling ($64.2) million in 1999,
$1.2 million in 1998 and $16.6 million in 1997.
MORTGAGE LOANS ON REAL ESTATE
Our mortgage loan portfolio consists principally of commercial mortgage loans.
Our 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.
80
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
We have provided an allowance for possible losses against our mortgage loan
portfolio. An analysis of this allowance, which consists of specific and general
reserves, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $871 $812 $1,128
Realized losses -- 59 --
Uncollectible amounts written off, net of recoveries (65) -- (316)
------------------------------------
Balance at end of year $806 $871 $ 812
====================================
</TABLE>
We did not have any impaired loans (those loans in which we do not believe we
will collect all amounts due according to the contractual terms of the
respective loan agreements) at December 31, 1999. We had impaired loans with a
carrying value of $1.0 million and a corresponding valuation allowance of $0.4
million at December 31, 1998.
NET INVESTMENT INCOME
Components of net investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Held for investment $ 32,431 $ 49,176 $ 53,332
Available for sale 154,255 136,912 126,366
Equity securities 2,145 2,116 1,283
Mortgage loans on real estate 23,989 25,895 26,160
Investment real estate 5,098 5,822 4,902
Policy loans 7,644 7,642 7,587
Other long-term investments 2 63 2,920
Short-term investments 2,930 3,353 3,976
Other 6,696 8,196 4,522
------------------------------
235,190 239,175 231,048
Less investment expenses (10,150) (10,681) (10,716)
------------------------------
Net investment income $225,040 $228,494 $220,332
==============================
</TABLE>
81
<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 a subsidiary
engaged in the investment company industry, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
REALIZED
Fixed maturities--available for sale $ (2,163) $ 318 $ 4,295
Equity securities 2,307 (1,712) 37,468
Mortgage loans on real estate -- (59) --
Investment real estate (221) 381 (28)
Other long-term investments (1,345) -- (300)
Securities and indebtedness of related parties (582) (331) (487)
Notes receivable and other 28 (3,475) --
-------------------------------
Realized gains (losses) on investments $ (1,976) $(4,878) $ 40,948
===============================
UNREALIZED
Fixed maturities:
Held for investment $ (26,009) $ 724 $ 8,900
Available for sale (162,518) 5,555 51,460
Equity securities 1,500 (1,538) (14,957)
-------------------------------
Change in unrealized appreciation/depreciation of
investments $(187,027) $ 4,741 $ 45,403
===============================
</TABLE>
82
<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 our fixed
maturities portfolio 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, 1999
Scheduled principal repayments and calls:
Available for sale $150,696 $ -- $ -- $150,696
Held for investment 154,700 -- -- 154,700
Sales--available for sale 70,789 3,904 (859) 73,834
------------------------------------------
Total $376,185 $3,904 $ (859) $379,230
==========================================
YEAR ENDED DECEMBER 31, 1998
Scheduled principal repayments and calls:
Available for sale $213,082 $ 170 $ (291) $212,961
Held for investment 151,298 -- -- 151,298
Sales--available for sale 85,586 5,965 (2,742) 88,809
------------------------------------------
Total $449,966 $6,135 $(3,033) $453,068
==========================================
YEAR ENDED DECEMBER 31, 1997
Scheduled principal repayments and calls:
Available for sale $180,556 $ 42 $ -- $180,598
Held for investment 49,961 -- -- 49,961
Sales--available for sale 108,399 6,452 (2,199) 112,652
------------------------------------------
Total $338,916 $6,494 $(2,199) $343,211
==========================================
</TABLE>
Realized losses on fixed maturities totaling $5.2 million in 1999 and $2.8
million in 1998 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) include a provision of ($0.7) million in 1999, ($1.7)
million in 1998 and $14.3 million in 1997 for the tax effect of realized gains
and losses on investments.
OTHER
At December 31, 1999, affidavits of deposits covering investments with a
carrying value totaling $2,605.0 million were on deposit with state agencies to
meet regulatory requirements.
At December 31, 1999, the Company had committed to provide additional funding
for mortgage loans on real estate aggregating $15.8 million. These commitments
arose in the normal course of business at terms that are comparable to similar
investments.
The carrying value of investments which have been non-income producing for the
twelve months preceding December 31, 1999 include other long-term investments
totaling $5.1 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, 1999.
In December 1997, we acquired a 35% interest in an unaffiliated life insurance
company, American Equity Investment Life Holding Company (American Equity), 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
83
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT OPERATIONS (CONTINUED)
related parties on the consolidated balance sheets, over the amount of
underlying equity in net assets on the acquisition date is attributable to
goodwill. This goodwill is being amortized over a 20 year period. The investment
is being accounted for using the equity method. American Equity underwrites and
markets life insurance and annuity products throughout the United States. In
addition, during 1999 we invested an additional $2.3 million in preferred stock
issued by a subsidiary of American Equity. Summarized financial information for
American Equity is as follows:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total investments $1,477,590 $ 634,153 $ 212,285
Total assets 1,689,868 683,012 229,418
Long-term debt 20,600 10,000 10,000
Total liabilities 1,534,842 616,881 174,992
Minority interest 98,460 -- --
Total revenues 82,875 37,954 15,455
Income (loss) from continuing operations 3,221 244 (3,369)
Net income (loss) 3,221 244 (3,369)
Percentage ownership 33.2% 34.1% 35.3%
</TABLE>
Also in December 1997, we 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 42 states. Goodwill totaling $1.5 million was
recorded in connection with the acquisition and is being amortized over 20
years.
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 our underlying value.
We used the following methods and assumptions in estimating our 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.
84
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
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 sheets.
FUTURE POLICY BENEFITS AND OTHER POLICYHOLDERS' FUNDS: Fair values of our
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 we would
incur to extinguish the liability. We are not required to estimate the fair
value of our liabilities under other insurance contracts.
LONG-TERM DEBT: The fair values for long-term debt are estimated using
discounted cash flow analysis based on our current incremental borrowing rate
for similar types of borrowing arrangements.
REDEEMABLE PREFERRED STOCK: The carrying amount reported in the consolidated
balance sheet, which equals redemption value, approximates fair value.
85
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
our financial instruments subject to the provisions of Statement No. 107:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Held for investment $ 339,362 $ 337,794 $ 492,288 $ 516,729
Available for sale 1,988,225 1,988,225 1,961,353 1,961,353
Equity securities 35,345 35,345 35,287 35,287
Mortgage loans on real estate 314,523 301,309 299,372 311,012
Policy loans 123,717 135,888 123,328 144,264
Other long-term investments 4,822 5,111 6,236 6,636
Cash and short-term investments 83,990 83,990 80,451 80,451
Securities and indebtedness of related parties 4,179 4,278 4,812 5,288
Assets held in separate accounts 256,028 256,028 190,111 190,111
LIABILITIES
Future policy benefits $1,024,285 $1,006,155 $1,020,080 $ 996,428
Other policyholders' funds 243,076 243,076 230,945 230,945
Long-term debt 40,000 40,000 71 75
Liabilities related to separate accounts 256,028 256,028 190,111 190,111
Redeemable preferred stock -- -- 4,503 4,503
</TABLE>
4. REINSURANCE AND POLICY PROVISIONS
In the normal course of business, we seek to limit our exposure to loss on any
single insured and to recover a portion of benefits paid by ceding reinsurance
to other insurance enterprises or reinsurers. Our reinsurance coverage for life
insurance varies according to the age and risk classification of the insured
with retention limits ranging up to $1.1 million of coverage per individual
life. We do not use financial or surplus relief reinsurance. Life insurance in
force ceded on a consolidated basis totaled $1,826.3 million (8.7% of total life
insurance in force) at December 31, 1999 and $1,298.7 million (6.6% of total
life insurance in force) at December 31, 1998.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, we would be liable for these
obligations, and payment of these obligations could result in losses. To limit
the possibility of such losses, we evaluate the financial condition of our
reinsurers and monitor concentrations of credit risk. No allowance for
uncollectible amounts has been established against our asset for reinsurance
recoverable since none of our receivables are deemed to be uncollectible.
In addition to the cession of risks in excess of specific retention limits, we
also have reinsurance agreements with five variable alliance partners to cede a
specified percentage of risks associated with variable universal life and
variable annuity contracts. Under these agreements, we pay the alliance partners
their reinsurance percentage of charges and deductions collected on the
reinsured polices. The alliance partners in return pay us their reinsurance
percentage of benefits in excess of related account balances. In addition, the
alliance partners pay us an expense allowance for certain new business,
development and maintenance costs on the reinsured contracts.
86
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
In total, including amounts applicable to traditional products, insurance
premiums and product charges have been reduced by $5.3 million in 1999, $5.9
million in 1998 and $6.0 million in 1997 and insurance benefits have been
reduced by $2.4 million in 1999, $2.2 million in 1998 and $6.6 million in 1997
as a result of cession agreements.
Prior to 1998, the amount of reinsurance assumed was not significant. In
December 1998, we assumed a block of ordinary annuity policies with reserves
totaling $22.0 million. In addition, beginning in 1998, we began assuming
variable annuity business from American Equity through a modified coinsurance
arrangement. Product charges from this business were not significant during 1999
or 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,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Unpaid claims liability, net of related reinsurance, at
beginning of year $20,706 $21,199 $14,801
Add:
Provision for claims occurring in the current year 6,630 5,520 8,289
Increase (decrease) in estimated expense for claims
occurring in the prior years (1,417) (519) 3,038
------------------------------
Incurred claim expense during the current year 5,213 5,001 11,327
Deduct expense payments for claims occurring during:
Current year 2,274 2,200 2,010
Prior years 3,212 3,294 2,919
------------------------------
5,486 5,494 4,929
------------------------------
Unpaid claims liability, net of related reinsurance, at end
of year 20,433 20,706 21,199
Active life reserve 19,705 17,632 16,924
------------------------------
Net accident and health reserves 40,138 38,338 38,123
Reinsurance ceded 853 612 2,940
------------------------------
Gross accident and health reserves $40,991 $38,950 $41,063
==============================
</TABLE>
We develop reserves for unpaid claims by using industry mortality and morbidity
data. One year development on prior year reserves represents our experience
being more or less favorable than that of the industry. Over time, we expect our
experience with respect to disability income business 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.
87
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REINSURANCE AND POLICY PROVISIONS (CONTINUED)
An analysis of the value of insurance in force acquired is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Excluding impact of net unrealized investment gains and
losses:
Balance at beginning of year $15,839 $17,105 $18,824
Accretion of interest during the year 877 973 1,062
Amortization of asset (1,862) (2,239) (2,781)
------------------------------
Balance prior to impact of net unrealized investment gains
and losses 14,854 15,839 17,105
Impact of net unrealized investment gains and losses 1,040 (1,306) (1,061)
------------------------------
Balance at end of year $15,894 $14,533 $16,044
==============================
</TABLE>
Net amortization of the value of insurance in force acquired, based on expected
future gross profits/ margins, for the next five years and thereafter is
expected to be as follows: 2000--$1.1 million; 2001--$1.1 million; 2002--$1.0
million; 2003--$1.0 million; 2004--$0.9 million; and thereafter,through
2023--$9.8 million.
5. INCOME TAXES
We file 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.
88
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Income tax expenses (credits) are included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Taxes provided in consolidated statements of income on:
Income before equity income:
Current $ 23,990 $24,734 $45,372
Deferred 1,696 2,501 (7,262)
------------------------------
25,686 27,235 38,110
Equity income:
Current 2,010 575 1,048
Deferred 128 79 78
------------------------------
2,138 654 1,126
Taxes provided in consolidated statement of changes in
stockholder's equity:
Change in net unrealized investment
gains/losses--deferred (53,810) 1,576 10,734
Adjustment resulting from capital transaction of equity
investee--deferred -- (33) --
------------------------------
(53,810) 1,543 10,734
------------------------------
$(25,986) $29,432 $49,970
==============================
</TABLE>
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,
------------------------------
1999 1998 1997
------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before income taxes and equity income $75,640 $84,887 $111,455
==============================
Income tax at federal statutory rate (35%) $26,474 $29,710 $ 39,009
Tax effect (decrease) of:
Gain on dividend of home office properties (369) (2,061) --
Tax-exempt interest income (226) (280) (335)
Tax-exempt dividend income (597) (228) (1,149)
Other items 404 94 585
------------------------------
Income tax expense $25,686 $27,235 $ 38,110
==============================
</TABLE>
89
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax effect of temporary differences giving rise to our deferred income tax
assets and liabilities is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Fixed maturity and equity securities $ -- $ 34,581
Deferred policy acquisition costs 67,275 57,114
Value of insurance in force acquired 5,563 5,087
Other 9,982 12,382
-----------------------
82,820 109,164
Deferred income tax assets:
Fixed maturity and equity securities (22,327) --
Future policy benefits (44,136) (44,684)
Accrued dividends (3,851) (4,045)
Accrued pension costs (9,469) (10,037)
Other (10,165) (5,540)
-----------------------
(89,948) (64,306)
-----------------------
Deferred income tax liability (asset) $ (7,128) $ 44,858
=======================
</TABLE>
Prior to 1984, a portion of our current income was not subject to current income
taxation, but was accumulated, for tax purposes, in a memorandum account
designated as "policyholders' surplus account." The aggregate accumulation in
this account at December 31, 1999 was $11.9 million. Should the policyholders'
surplus account exceed the limitation prescribed by federal income tax law, or
should distributions be made by us to our stockholder in excess of $519.7
million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes of $4.2 million have not been provided on
amounts included in this memorandum account.
6. CREDIT ARRANGEMENTS
We have a note payable to the Federal Home Loan Bank (FHLB) totaling $40.0
million at December 31, 1999. The note is due September 17, 2003, and interest
on the note is charged at a variable rate equal to the London Interbank Offered
Rate less 0.0475% (5.77% at December 31, 1999). Fixed maturity securities with a
carrying value of $41.7 million are on deposit with the FHLB as collateral for
the note. As an investor in the FHLB, we have the ability to borrow an
additional $15.8 million from the FHLB at December 31, 1999. No debt was
outstanding under this credit agreement as of December 31, 1998.
During 1999, FBL Financial Group, Inc. extended a line of credit to us in the
amount of $75.0 million. Interest on any borrowings under this arrangement is
charged at a rate equal to the prime rate of a national bank. No borrowings have
been made on this line of credit.
7. RETIREMENT AND COMPENSATION PLANS
We participate with several affiliates in various defined benefit plans covering
substantially all of our employees. The benefits of these plans are based
primarily on years of service and employees' compensation. Net periodic pension
cost of the plans is allocated between participants generally on a basis of time
incurred by the respective employees for each employer. Such allocations are
reviewed annually. Pension expense aggregated $3.7 million in 1999, $4.4 million
in 1998 and $5.3 million in 1997.
90
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
We participate with several affiliates in a 401(k) defined contribution plan
which covers substantially all employees. Beginning in 1998, we contribute FBL
Financial Group, Inc. stock in amounts equal to 50 percent of an employee's
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 $0.3
million in 1999 and $0.2 million in 1998.
We have established deferred compensation plans for certain key current and
former employees and have certain other benefit plans which provide for
retirement and other benefits. These plans have been accrued or funded as deemed
appropriate by management.
Certain of the assets related to these plans are on deposit with the Company and
amounts relating to these plans are included in our financial statements. 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, we 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. Postretirement benefit expense is allocated in a manner
consistent with pension expense discussed above. Postretirement benefit expense
aggregated $0.1 million for 1999 and 1998 and $0.2 million in 1997.
8. STOCKHOLDER'S EQUITY
STATUTORY LIMITATIONS ON SUBSIDIARY DIVIDENDS
Our ability to pay dividends to our parent company is restricted because prior
approval of the Iowa insurance commissioner is required for payment of dividends
to the stockholder which exceed an annual limitation. During 2000, we could pay
dividends to the parent company of approximately $40.6 million without prior
approval of insurance regulatory authorities.
STATUTORY ACCOUNTING POLICIES
Our financial statements and the financial statements of our 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 statements 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 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 surplus;
(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
91
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDER'S EQUITY (CONTINUED)
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; (l) redeemable
preferred stock is classified as mezzanine financing rather than as a component
of stockholder's equity; and (m) 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.
Our net income, as determined in accordance with statutory accounting practices,
was $39.8 million in 1999, $52.1 million in 1998 and $85.2 million in 1997. Our
statutory net gain from operations, which excludes realized gains and losses,
totaled $40.6 million in 1999, $55.5 million in 1998 and $46.8 million in 1997.
Our total statutory capital and surplus was $301.5 million at December 31, 1999
and $376.9 million at December 31, 1998.
Net income of our insurance subsidiaries, as determined in accordance with
statutory accounting practices, was $0.6 million in 1999, $0.4 million in 1998
and $0.1 million in 1997. Total statutory capital and surplus for our insurance
subsidiaries was $37.0 million at December 31, 1999 and $36.4 million at
December 31, 1998.
9. MANAGEMENT AND OTHER AGREEMENTS
We share certain office facilities and services with the Iowa Farm Bureau
Federation, the majority owner of FBL Financial Group, Inc., and its affiliated
companies. These expenses are allocated on the basis of cost and time studies
that are updated annually and consist primarily of salaries and related
expenses, travel and other operating costs.
We participate in a management agreement with FBL Financial Group, Inc., under
which FBL Financial Group, Inc. provides general business, administration and
management services. In addition, Farm Bureau Management Corporation, a
wholly-owned subsidiary of the Iowa Farm Bureau Federation, provides certain
management services to us under a separate arrangement. We incurred related
expenses totaling $1.0 million in 1999 and 1998 and $0.8 million in 1997.
We have equipment and auto lease agreements with FBL Leasing Services, Inc., an
indirect wholly-owned subsidiary of FBL Financial Group, Inc. We incurred
expenses totaling $2.3 million during 1999, $2.0 million during 1998 and $2.3
million during 1997 under these agreements.
EquiTrust Investment Management Services, Inc., an indirect wholly-owned
subsidiary of FBL Financial Group, Inc., provides investment advisory services
for us. The related fees are based on the level of assets under management plus
certain out-of-pocket expenses. We incurred expenses totaling $4.0 million
during 1999 and 1998 and $4.8 million during 1997 relating to these services.
We have marketing agreements with the Farm Bureau property-casualty companies
operating within our marketing territory, including Farm Bureau Mutual Insurance
Company and other affiliates. Under the marketing agreements, the
property-casualty companies are responsible for development and management of
our agency force for a fee equal to a percentage of commissions on first year
life insurance premiums and annuity deposits. We paid $5.0 million in 1999, $4.5
million in 1998 and $3.9 million in 1997 to the property-casualty companies
under these arrangements.
We are licensed by the Iowa Farm Bureau Federation to use the "Farm Bureau" and
"FB" designations in Iowa. In connection with this license, royalties of $0.9
million in 1999, $0.7 million in 1998 and $0.5 million in 1997 were paid to the
Iowa Farm Bureau Federation. We have 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 $1.0
million in 1999 and 1998, and $1.1 million in 1997.
92
<PAGE>
FARM BUREAU LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANAGEMENT AND OTHER AGREEMENTS (CONTINUED)
Beginning in 1998, we established administrative services agreements with
American Equity under which we provide underwriting, claim processing,
accounting, compliance and other administrative services relating to certain
variable insurance products underwritten by them. Fee income from performing
these services totaled $0.3 million during 1999 and $0.2 million in 1998.
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, we 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, 1999, management is not aware of any
claims for which a material loss is reasonably possible.
Our parent leases its home office properties under a 15-year operating lease.
Our expected share of future remaining minimum lease payments under this lease
as of December 31, 1999 are as follows: 2000--$1.5 million; 2001--$1.5 million;
2002--$1.5 million; 2003--$1.7 million; 2004--$1.7 million and thereafter,
through 2013--$15.1 million. Rent expense for the lease totaled $1.8 million
(net of $1.1 million in amortization of the deferred gain on the transfer of the
home office properties) and $1.0 million in 1998 (net of $0.8 million in
amortization of the deferred gain on the transfer of the home office properties)
(see Note 1).
We have 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 $0.3 million at
December 31, 1999 and $0.4 million at December 31, 1998 outstanding on the line
of credit.
We have also extended a line of credit in the amount of $40.0 million to FBL
Leasing Services, Inc. Interest on this agreement is charged at a variable rate
equal to the London Interbank Offered Rate plus 0.0025% (5.82% at December 31,
1999). There was $34.6 million outstanding on the line of credit at
December 31, 1999 and $11.3 million at December 31, 1998. Interest income on the
line of credit totaled $1.3 million during the year ended December 31, 1999.
In connection with an investment in a limited real estate partnership, we have
agreed to pay any cash flow deficiencies of a medium-sized shopping center owned
by the partnership through January 1, 2001. We recorded a reserve for expected
future cash flow deficiencies totaling $0.4 million at December 31, 1999 and
$0.3 million at December 31, 1998. At December 31, 1999, the limited partnership
had a $5.3 million mortgage loan, secured by the shopping center, with Farm
Bureau Mutual Insurance Company.
93
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS AND ACCUMULATED VALUE
The following tables illustrate how the death benefits, Accumulated Value
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 1999 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 expense charges, 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 Joint Insureds. 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 current 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. If any Investment
Option's expense reimbursement arrangement was discontinued, the average
Investment Option fees and expenses would be higher and the resulting net
annual rates of return would be lower.
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 Accumulated Value
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 withdrawals 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 Joint Insureds' age, sex and premium class, the Specified
Amount or premium requested, and the proposed frequency of premium payments.
A-1
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 0% HYPOTHETICAL GROSS RETURN, ASSUMING 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,071 $ 0 $251,071 $ 1,353 $ 0 $251,353
2 4,660 2,677 0 252,677 3,090 0 253,090
3 7,166 4,222 0 254,222 4,787 0 254,787
4 9,798 5,696 176 255,696 6,440 920 256,440
5 12,561 7,093 2,270 257,093 8,046 3,224 258,046
6 15,462 8,400 4,305 258,400 9,602 5,507 259,602
7 18,509 9,603 6,263 259,603 11,102 7,762 261,102
8 21,708 10,683 8,128 260,683 12,541 9,986 262,541
9 25,066 11,616 9,876 261,616 13,914 12,174 263,914
10 28,593 12,374 11,487 262,374 15,212 14,324 265,212
15 49,053 12,386 12,386 262,386 20,129 20,129 270,129
20 75,167 806 806 250,806 20,346 20,346 270,346
25 108,496 * * * 10,650 10,650 260,650
30 * * * * * * *
35 * * * * * * *
40 * * * * * * *
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 12,374 11,487 262,374 15,212 14,324 265,212
Age 70 49,053 12,386 12,386 262,386 20,129 20,129 270,129
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF -1.55%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-2
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 4% HYPOTHETICAL GROSS RETURN, ASSUMING 4% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,131 $ 0 $251,131 $ 1,420 $ 0 $251,420
2 4,660 2,855 0 252,855 3,288 0 253,288
3 7,166 4,583 0 254,583 5,189 0 255,189
4 9,798 6,306 786 256,306 7,118 1,598 257,118
5 12,561 8,015 3,192 258,015 9,073 4,251 259,073
6 15,462 9,696 5,601 259,696 11,050 6,955 261,050
7 18,509 11,334 7,994 261,334 13,043 9,703 263,043
8 21,708 12,904 10,349 262,904 15,046 12,491 265,046
9 25,066 14,380 12,640 264,380 17,053 15,313 267,053
10 28,593 15,728 14,841 265,728 19,055 18,167 269,055
15 49,053 19,115 19,115 269,115 28,457 28,457 278,457
20 75,167 10,287 10,287 260,287 34,341 34,341 284,341
25 108,496 * * * 30,154 30,154 280,154
30 151,032 * * * 4,624 4,624 254,624
35 * * * * * * *
40 * * * * * * *
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 15,728 14,841 265,728 19,055 18,167 269,055
Age 70 49,053 19,115 19,115 269,115 28,457 28,457 278,457
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 2.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 8% HYPOTHETICAL GROSS RETURN, ASSUMING 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,192 $ 0 $251,192 $ 1,487 $ 0 $251,487
2 4,660 3,038 0 253,038 3,492 0 253,492
3 7,166 4,964 0 254,964 5,613 0 255,613
4 9,798 6,966 1,446 256,966 7,852 2,332 257,852
5 12,561 9,039 4,217 259,039 10,214 5,391 260,214
6 15,462 11,176 7,081 261,176 12,701 8,606 262,701
7 18,509 13,363 10,023 263,363 15,316 11,976 265,316
8 21,708 15,582 13,027 265,582 18,060 15,505 268,060
9 25,066 17,808 16,068 267,808 20,934 19,194 270,934
10 28,593 20,011 19,123 270,011 23,939 23,051 273,939
15 49,053 29,202 29,202 279,202 40,669 40,669 290,669
20 75,167 27,964 27,964 277,964 58,377 58,377 308,377
25 108,496 * * * 70,743 70,743 320,743
30 151,032 * * * 64,831 64,831 314,831
35 205,321 * * * 20,304 20,304 270,304
40 * * * * * * *
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 20,011 19,123 270,011 23,939 23,051 273,939
Age 70 49,053 29,202 29,202 279,202 40,669 40,669 290,669
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 6.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-4
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION A
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 12% HYPOTHETICAL GROSS RETURN, ASSUMING 12% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,253 $ 0 $251,253 $1,554 $ 0 $251,554
2 4,660 3,226 0 253,226 3,702 0 253,702
3 7,166 5,365 0 255,365 6,059 0 256,059
4 9,798 7,679 2,159 257,679 8,644 3,124 258,644
5 12,561 10,175 5,353 260,175 11,478 6,656 261,478
6 15,462 12,860 8,765 262,860 14,580 10,485 264,580
7 18,509 15,737 12,397 265,737 17,972 14,632 267,972
8 21,708 18,804 16,249 268,804 21,680 19,125 271,680
9 25,066 22,051 20,311 272,051 25,726 23,986 275,726
10 28,593 25,468 24,581 275,468 30,140 29,252 280,140
15 49,053 44,273 44,273 294,273 58,602 58,602 308,602
20 75,167 60,129 60,129 310,129 99,758 99,758 349,758
25 108,496 51,946 51,946 301,946 154,467 154,467 404,467
30 151,032 * * * 219,390 219,390 469,390
35 205,321 * * * 286,048 286,048 536,048
40 274,608 * * * 344,907 344,907 594,907
45 363,038 * * * 382,299 382,299 632,299
50 475,900 * * * 378,226 378,226 628,226
55 619,944 * * * 335,113 335,113 585,113
60 803,784 * * * 241,894 241,894 491,894
Age 65 28,593 25,468 24,581 275,468 30,140 29,252 280,140
Age 70 49,053 44,273 44,273 294,273 58,602 58,602 308,602
Age 115 803,784 * * * 241,894 241,894 491,894
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 10.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-5
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 0% HYPOTHETICAL GROSS RETURN, ASSUMING 0% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,071 $ 0 $250,000 $ 1,353 $ 0 $250,000
2 4,660 2,678 0 250,000 3,090 0 250,000
3 7,166 4,224 0 250,000 4,787 0 250,000
4 9,798 5,702 182 250,000 6,442 922 250,000
5 12,561 7,103 2,281 250,000 8,050 3,228 250,000
6 15,462 8,419 4,324 250,000 9,610 5,515 250,000
7 18,509 9,635 6,295 250,000 11,115 7,775 250,000
8 21,708 10,735 8,180 250,000 12,563 10,008 250,000
9 25,066 11,695 9,955 250,000 13,946 12,206 250,000
10 28,593 12,490 11,603 250,000 15,260 14,373 250,000
15 49,053 12,906 12,906 250,000 20,374 20,374 250,000
20 75,167 1,973 1,973 250,000 21,190 21,190 250,000
25 108,496 * * * 12,677 12,677 250,000
30 * * * * * * *
35 * * * * * * *
40 * * * * * * *
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 12,490 11,603 250,000 15,260 14,373 250,000
Age 70 49,053 12,906 12,906 250,000 20,374 20,374 250,000
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 0% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF -1.55%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 0%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-6
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 4% HYPOTHETICAL GROSS RETURN, ASSUMING 4% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,132 $ 0 $250,000 $ 1,420 $ 0 $250,000
2 4,660 2,856 0 250,000 3,289 0 250,000
3 7,166 4,585 0 250,000 5,190 0 250,000
4 9,798 6,312 792 250,000 7,120 1,600 250,000
5 12,561 8,027 3,205 250,000 9,078 4,256 250,000
6 15,462 9,719 5,624 250,000 11,059 6,964 250,000
7 18,509 11,373 8,033 250,000 13,059 9,719 250,000
8 21,708 12,968 10,413 250,000 15,073 12,518 250,000
9 25,066 14,480 12,740 250,000 17,094 15,354 250,000
10 28,593 15,879 14,991 250,000 19,118 18,230 250,000
15 49,053 19,901 19,901 250,000 28,814 28,814 250,000
20 75,167 12,687 12,687 250,000 35,771 35,771 250,000
25 108,496 * * * 34,501 34,501 250,000
30 151,032 * * * 13,730 13,730 250,000
35 * * * * * * *
40 * * * * * * *
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 15,879 14,991 250,000 19,118 18,230 250,000
Age 70 49,053 19,901 19,901 250,000 28,814 28,814 250,000
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 4% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 2.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 4%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-7
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 8% HYPOTHETICAL GROSS RETURN, ASSUMING 8% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- -----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,192 $ 0 $250,000 $ 1,487 $ 0 $250,000
2 4,660 3,039 0 250,000 3,492 0 250,000
3 7,166 4,966 0 250,000 5,613 0 250,000
4 9,798 6,972 1,452 250,000 7,854 2,334 250,000
5 12,561 9,053 4,231 250,000 10,219 5,397 250,000
6 15,462 11,202 7,107 250,000 12,711 8,616 250,000
7 18,509 13,409 10,069 250,000 15,335 11,995 250,000
8 21,708 15,660 13,105 250,000 18,092 15,537 250,000
9 25,066 17,934 16,194 250,000 20,987 19,247 250,000
10 28,593 20,206 19,318 250,000 24,020 23,133 250,000
15 49,053 30,391 30,391 250,000 41,194 41,194 250,000
20 75,167 32,618 32,618 250,000 60,826 60,826 250,000
25 108,496 6,406 6,406 250,000 79,894 79,894 250,000
30 151,032 * * * 92,534 92,534 250,000
35 205,321 * * * 87,866 87,866 250,000
40 * * * * 41,622 41,622 250,000
45 * * * * * * *
50 * * * * * * *
55 * * * * * * *
60 * * * * * * *
Age 65 28,593 20,206 19,318 250,000 24,020 23,133 250,000
Age 70 49,053 30,391 30,391 250,000 41,194 41,194 250,000
Age 115 * * * * * * *
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 8% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 6.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 8%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED FOR ANY PERIOD OF TIME.
A-8
<PAGE>
FLEXIBLE PREMIUM LAST SURVIVOR VARIABLE LIFE INSURANCE POLICY
JOINT EQUAL AGE 55 AT LAST BIRTHDAY
DEATH BENEFIT OPTION B
INITIAL SPECIFIED AMOUNT $250,000--ANNUAL PREMIUM OF $2,165
NON-TOBACCO PREMIUM CLASS
<TABLE>
<CAPTION>
ASSUMING 12% HYPOTHETICAL GROSS RETURN, ASSUMING 12% HYPOTHETICAL GROSS RETURN,
GUARANTEED MAXIMUM COST OF INSURANCE NON-GUARANTEED CURRENT COST OF INSURANCE
CHARGES, AND GUARANTEED MAXIMUM CHARGES, AND NON-GUARANTEED CURRENT
EXPENSE CHARGES EXPENSE CHARGES
PREMIUMS --------------------------------------- ----------------------------------------
END OF ACCUMULATED END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR END OF YEAR
POLICY AT 5% ACCUMULATED SURRENDER DEATH ACCUMULATED SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------ ----------- ------------ ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $2,273 $ 1,254 $ 0 $250,000 $ 1,554 $ 0 $ 250,000
2 4,660 3,227 0 250,000 3,702 0 250,000
3 7,166 5,368 0 250,000 6,060 0 250,000
4 9,798 7,686 2,166 250,000 8,647 3,127 250,000
5 12,561 10,191 5,368 250,000 11,484 6,662 250,000
6 15,462 12,891 8,796 250,000 14,592 10,497 250,000
7 18,509 15,793 12,453 250,000 17,995 14,655 250,000
8 21,708 18,899 16,344 250,000 21,719 19,164 250,000
9 25,066 22,209 20,469 250,000 25,792 24,052 250,000
10 28,593 25,720 24,832 250,000 30,244 29,357 250,000
15 49,053 46,065 46,065 250,000 59,377 59,377 250,000
20 75,167 68,840 68,840 250,000 103,974 103,974 250,000
25 108,496 84,886 84,886 250,000 173,515 173,515 250,000
30 151,032 68,801 68,801 250,000 291,579 291,579 306,158
35 205,321 * * * 484,993 484,993 509,242
40 274,608 * * * 799,741 799,741 807,738
45 363,038 * * * 1,318,777 1,318,777 1,331,965
50 475,900 * * * 2,162,424 2,162,424 2,184,049
55 619,944 * * * 3,534,038 3,534,038 3,569,378
60 803,784 * * * 5,764,001 5,764,001 5,821,641
Age 65 28,593 25,720 24,832 250,000 30,244 29,357 250,000
Age 70 49,053 46,065 46,065 250,000 59,377 59,377 250,000
Age 115 803,784 * * * 5,764,001 5,764,001 5,821,641
</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 partial withdrawals have been made. Excessive Policy Loans or
partial withdrawals may cause this Policy to lapse because of insufficient Net
Accumulated Value.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATE OF RETURN SHOWN ABOVE IS
ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST, OR A
PREDICTION OF FUTURE, INVESTMENT RATES OF RETURN. THE ACTUAL INVESTMENT RATE OF
RETURN MAY BE MORE OR LESS THAN THAT SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE ALLOCATIONS MADE BY A POLICYOWNER AND THE ACTUAL
INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THE GROSS HYPOTHETICAL ANNUAL
INVESTMENT RATE OF RETURN OF 12% SHOWN ABOVE CORRESPOND TO A NET ANNUAL RATE OF
RETURN OF 10.45%. THE DEATH BENEFIT AND ACCUMULATED VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATE OF RETURN AVERAGED 12%
OVER A PERIOD OF YEARS BUT FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY THE COMPANY OR THE FUND THAT
THIS HYPOTHETICAL INVESTMENT RATE 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 Joint
Insureds' Joint Equal 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 Accumulated
Value. Thus, for example, a Policy with a Accumulated Value of $5,000 will
have a death benefit of $55,000 ($50,000 + $5,000); a Accumulated 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 Accumulated
Value. As a result, if the Accumulated Value of the Policy exceeds $33,333,
the death benefit will be greater than the Specified Amount plus Accumulated
Value. Each additional dollar of Accumulated Value above $33,333 will
increase the death benefit by $2.50. A Policy with a Specified Amount of
$50,000 and a Accumulated Value of $40,000 will provide a death benefit of
$100,000 ($40,000 x 2.50); a Accumulated Value of $60,000 will provide a
death benefit of $150,000 ($60,000 x 2.50).
Similarly, any time Accumulated Value exceeds $33,333, each dollar taken out
of Accumulated Value will reduce the death benefit by $2.50. If, for
example, the Accumulated 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,
Accumulated Value multiplied by the specified amount factor is less than the
Specified Amount plus the Accumulated Value, then the death benefit will be
the current Specified Amount plus Accumulated Value of the Policy.
The specified amount factor becomes lower as the Joint Insureds' Joint Equal
Attained Age increases. If the Joint Equal Attained Age of the Joint
Insureds 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 Accumulated Value plus $50,000 unless the
Accumulated Value exceeded $58,824 (rather than $33,333), and each dollar
then added to or taken from the Accumulated Value would change the death
benefit by $1.85 (rather than $2.50).
OPTION B EXAMPLE. For purposes of this example, assume that the Joint
Insureds' Joint Equal 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
Accumulated Value, any time the Accumulated Value of the Policy exceeds
$20,000, the death benefit will exceed the $50,000 Specified Amount. Each
additional dollar added to Accumulated Value above $20,000 will increase the
death benefit by $2.50. A Policy with a $50,000 Specified Amount and a
Accumulated Value of $30,000 will provide death proceeds of $75,000 ($30,000
x 2.50); a Accumulated Value of $40,000 will provide a death benefit of
$100,000 ($40,000 x 2.50); a Accumulated Value of $50,000 will provide a
death benefit of $125,000 ($50,000 x 2.50).
Similarly, so long as Accumulated Value exceeds $20,000, each dollar taken
out of Accumulated Value will reduce the death benefit by $2.50. If, for
example, the Accumulated 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 Accumulated 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 Joint Insureds' Joint Equal
Attained Age increases. If the Joint Equal Attained Age of the Joint
Insureds 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 Accumulated Value
exceeded
B-1
<PAGE>
approximately $27,028 (rather than $20,000), and each dollar then added to
or taken from the Accumulated Value would change the life insurance proceeds
by $1.85 (rather than $2.50).
<TABLE>
<CAPTION>
JOINT EQUAL ATTAINED AGE SPECIFIED AMOUNT FACTOR
<S> <C>
40 or younger 2.50
41 2.43
42 2.36
43 2.29
44 2.22
45 2.15
46 2.09
47 2.03
48 1.97
49 1.91
50 1.85
51 1.78
52 1.71
53 1.64
54 1.57
55 1.50
56 1.46
57 1.42
58 1.38
59 1.34
60 1.30
61 1.28
62 1.26
63 1.24
64 1.22
65 1.20
66 1.19
67 1.18
68 1.17
69 1.16
70 1.15
71 1.13
72 1.11
73 1.09
74 1.07
75 to 90 1.05
91 1.04
92 1.03
93 1.02
94 to 114 1.01
115 or older 1.00
</TABLE>
B-2
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX C
- --------------------------------------------------------------------------------
MAXIMUM SURRENDER CHARGES
The chart below reflects the maximum surrender charge per $1,000 of
Specified Amount for selected issue ages as policy years increase.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-TOBACCO
ISSUE POLICY YEAR
AGE 1 2 3 4 5 6 7 8 9 10 11+
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
20 11.25 10.35 9.37 8.35 7.30 6.20 5.05 3.86 2.63 1.34 0.00
30 13.67 12.61 11.42 10.18 8.89 7.55 6.15 4.71 3.20 1.63 0.00
40 17.62 16.30 14.76 13.16 11.50 9.76 7.96 6.09 4.14 2.11 0.00
50 24.28 22.58 20.45 18.23 15.92 13.52 11.03 8.43 5.73 2.92 0.00
60 36.13 33.88 30.66 27.33 23.87 20.28 16.55 12.68 8.64 4.42 0.00
70 54.10 51.00 46.06 41.01 35.84 30.54 25.07 19.37 13.36 6.95 0.00
80 51.96 47.73 43.12 38.44 33.91 29.44 24.86 19.97 14.49 8.04 0.00
TOBACCO
ISSUE POLICY YEAR
AGE 1 2 3 4 5 6 7 8 9 10 11+
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
20 12.10 11.14 10.09 8.99 7.86 6.67 5.44 4.16 2.83 1.44 0.00
30 15.00 13.84 12.53 11.17 9.76 8.29 6.76 5.17 3.51 1.79 0.00
40 19.74 18.29 16.56 14.76 12.90 10.95 8.93 6.83 4.64 2.37 0.00
50 27.59 25.71 23.28 20.75 18.12 15.40 12.56 9.61 6.54 3.34 0.00
60 41.03 38.50 34.83 31.04 27.12 23.06 18.85 14.47 9.89 5.08 0.00
70 53.81 50.57 45.64 40.67 35.62 30.45 25.11 19.51 13.55 7.10 0.00
80 51.77 47.50 42.93 38.42 34.07 29.74 25.27 20.42 14.91 8.31 0.00
COMBINED
ISSUE POLICY YEAR
AGE 1 2 3 4 5 6 7 8 9 10 11+
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
20 11.61 10.69 9.68 8.63 7.53 6.40 5.22 3.99 2.71 1.38 0.00
30 14.23 13.13 11.89 10.60 9.26 7.86 6.41 4.90 3.33 1.70 0.00
40 18.52 17.14 15.52 13.84 12.09 10.26 8.37 6.40 4.35 2.22 0.00
50 25.68 23.91 21.65 19.30 16.85 14.32 11.68 8.93 6.07 3.10 0.00
60 38.26 35.88 32.47 28.94 25.28 21.49 17.55 13.45 9.17 4.70 0.00
70 53.97 50.81 45.87 40.85 35.74 30.49 25.08 19.42 13.44 7.01 0.00
80 51.87 47.62 43.02 38.42 33.98 29.58 25.05 20.18 14.69 8.16 0.00
</TABLE>
C-1
<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)
Farm Bureau Life Insurance Company represents that the aggregate charges under
the Policies 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 105 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.(1)
2. None.
3. (a) Underwriting Agreement.(3)
(b) Forms of Career Agent's Contract.(1)
(c) Commission schedules. (See Exhibit 3(b) above.)(1)
4. None.
5. (a) Policy Form.(2)
(b) Application Form.(1)
6. (a) Certificate of Incorporation of the Company.(1)
(b) By-Laws of the Company.(1)
7. None.
8. None.
9. (a) Participation Agreement relating to EquiTrust Variable
Insurance Series Fund.(1)
(b) Participation Agreement relating to Fidelity Variable
Insurance Products Fund.(2)
(c) Participation Agreement relating to Fidelity Variable
Insurance Products Fund II.(2)
(d) Participation Agreement relating to Fidelity Variable
Insurance Products Fund III.(2)
(e) Participation Agreement relating to T. Rowe Price Equity
Series, Inc. and T. Rowe Price International
Series, Inc.(2)
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.
10. Powers of Attorney.(1)
</TABLE>
*Attached as an exhibit.
(1) 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.
(2) Incorporated herein by reference to the Initial Filing of this Registration
Statement on Form S-6 (File No. 333-31444) filed with the Securities and
Exchange Commission on March 1, 2000.
(3) Incorporated herein by reference to Post-Effective Amendment No. 15 to the
Registration Statement on Form S-6 (File No. 33-12789) filed with the
Securities and Exchange Commission on April 28, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, Farm
Bureau Life Variable Account, 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 25th day of April, 2000.
FARM BUREAU LIFE INSURANCE COMPANY
FARM BUREAU LIFE VARIABLE ACCOUNT
By: /s/ EDWARD M. WIEDERSTEIN
-----------------------------------------
Edward M. Wiederstein
PRESIDENT
Farm Bureau Life Insurance Company
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 25, 2000
Edward M. Wiederstein Officer]
Senior Vice President and
/s/ JERRY C. DOWNIN Secretary-Treasurer
- ------------------------------ [Principal Financial April 25, 2000
Jerry C. Downin Officer]
/s/ JAMES W. NOYCE Chief Financial Officer
- ------------------------------ [Principal Accounting April 25, 2000
James W. Noyce Officer]
*
- ------------------------------ Vice President and April 25, 2000
Roger Bill Mitchell Director
*
- ------------------------------ Director April 25, 2000
Eric K. Aasmundstad
*
- ------------------------------ Director April 25, 2000
Kenneth R. Ashby
*
- ------------------------------ Director April 25, 2000
Al Christopherson
- ------------------------------ Director April 25, 2000
Kenny J. Evans
*
- ------------------------------ Director April 25, 2000
Ernest A. Glienke
- ------------------------------ Director April 25, 2000
Karen J. Henry
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
- ------------------------------ Director April 25, 2000
Craig D. Hill
*
- ------------------------------ Director April 25, 2000
Richard G. Kjerstad
*
- ------------------------------ Director April 25, 2000
G. Steven Kouplen
- ------------------------------ Director April 25, 2000
Craig A. Lang
*
- ------------------------------ Director April 25, 2000
Lindsey D. Larsen
- ------------------------------ Director April 25, 2000
David L. McClure
*
- ------------------------------ Director April 25, 2000
Bryce P. Neidig
*
- ------------------------------ Director April 25, 2000
Howard D. Poulson
- ------------------------------ Director April 25, 2000
Frank S. Priestley
*
- ------------------------------ Director April 25, 2000
Beverly L. Schnepel
- ------------------------------ Director April 25, 2000
John J. VanSweden
</TABLE>
*By /s/ STEPHEN M. MORAIN
-------------------------
Stephen M. Morain
ATTORNEY-IN-FACT,
PURSUANT TO POWER OF
ATTORNEY.
<PAGE>
[Farm Bureau letterhead]
April 26, 2000
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 last survivor
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 last survivor 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>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULES
The Board of Directors and Stockholder
Farm Bureau Life Insurance Company
We have audited the consolidated balance sheets of Farm Bureau Life Insurance
Company as of December 31, 1999 and 1998, 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, 1999, and have issued our
report thereon dated February 14, 2000 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed in
Item 3 of this Registration Statement. 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
February 14, 2000
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
FARM BUREAU LIFE INSURANCE COMPANY
DECEMBER 31, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ------------------------------------------------- --------------------- --------------------- ---------------------
AMOUNT AT WHICH
COST SHOWN IN THE
TYPE OF INVESTMENT (1) VALUE BALANCE SHEET
- ------------------------------------------------- --------------------- --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, held for investment-
mortgage-backed securities................. $ 339,362 $ 337,794 $ 339,362
-----------------
-----------------
Fixed maturity securities, available for sale:
Bonds:
United States Government and agencies........ 71,490 69,749 69,749
State, municipal and other governments....... 46,395 44,035 44,035
Public utilities............................. 118,099 115,822 115,822
Corporate securities......................... 1,009,067 963,069 963,069
Mortgage and asset-backed securities......... 722,779 703,404 703,404
Convertible bonds............................ 51,576 51,660 51,660
Redeemable preferred stock..................... 44,154 40,486 40,486
---------------- ----------------- -------------------
Total..................................... 2,063,560 $ 1,988,225 1,988,225
-----------------
-----------------
Equity securities, available-for-sale:
Common stocks:
Public utilities............................. 2,833 1,950 1,950
Banks, trusts, and insurance companies....... 7,671 7,683 7,683
Industrial, miscellaneous, and all other..... 19,953 18,622 18,622
Nonredeemable preferred stocks................. 7,690 7,090 7,090
---------------- ----------------- -------------------
Total..................................... 38,147 $ 35,345 35,345
-----------------
-----------------
Mortgage loans on real estate................... 315,329 314,523 (2)
Investment real estate:
Acquired for debt............................ 783 783
Investment................................... 19,336 19,336
Policy loans.................................... 123,717 123,717
Other long-term investments..................... 9,953 4,822 (2)
Short-term investments.......................... 78,101 78,101
---------------- -------------------
$ 2,988,288 $ 2,904,214
---------------- -------------------
---------------- -------------------
</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.
<PAGE>
SCHEDULE IV - REINSURANCE
FARM BUREAU LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------------- -------------- -------------- -------------- --------------
PERCENT OF
CEDED TO AMOUNT
OTHER ASSUMED FROM ASSUMED TO
GROSS AMOUNT COMPANIES OTHER COMPANY NET AMOUNT NET
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Life insurance in force, at end
of year......................... $ 21,024,991 $ 1,826,299 $ 56 $ 19,198,748 -
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 57,206 $ 1,846 $ 3 $ 55,363 -
Traditional life insurance and
accident and health premiums.. 99,420 3,490 - 95,930 -
------------ ------------ ------------ ------------ --------------
$ 156,626 $ 5,336 $ 3 $ 151,293 - %
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Year ended December 31, 1998:
Life insurance in force, at end
of year......................... $ 19,665,773 $ 1,298,695 $ - $ 18,367,078 -
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 53,976 $ 1,820 $ 1 $ 52,157 -
Traditional life insurance and
accident and health premiums.. 97,591 4,118 - 93,473 -
------------ ------------ ------------ ------------ --------------
$ 151,567 $ 5,938 $ 1 $ 145,630 - %
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Year ended December 31, 1997:
Life insurance in force, at end
of year......................... $ 18,380,799 $ 1,248,564 $ - $ 17,132,235 -
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
Insurance premiums and other
considerations:
Interest sensitive product
charges....................... $ 49,793 $ 1,814 $ - $ 47,979 -
Traditional life insurance and
accident and health premiums.. 96,708 4,180 - 92,528 -
------------ ------------ ------------ ------------ --------------
$ 146,501 $ 5,994 $ - $ 140,507 - %
------------ ------------ ------------ ------------ --------------
------------ ------------ ------------ ------------ --------------
</TABLE>
<PAGE>
[Farm Bureau letterhead]
April 26, 2000
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 last survivor variable life
insurance policy ("Policy") under the Securities Act of 1933, as amended. The
prospectus included in Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-6 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 accumulated 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 Pre-Effective
Amendment No. 1 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 Price Vice
President
Farm Bureau Life Insurance Company
<PAGE>
[Ernst & Young Letterhead}
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 10, 2000 with
respect to the financial statements of Farm Bureau Life Variable Account and
February 14, 2000 with respect to the financial statements and schedules of Farm
Bureau Life Insurance Company, in Pre-Effective Amendment No. 1 to the
Registration Statement (Form S-6 No. 333-31444) and related Prospectus of Farm
Bureau Life Variable Account dated May 1, 2000.
Des Moines, Iowa Ernst & Young LLP
April 24, 2000
<PAGE>
[SUTHERLAND ASBILL & BRENNAN LLP]
April 25, 2000
Equitrust 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 Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for Farm Bureau Life Variable Account (File
No. 333-31444). 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.
<PAGE>
MEMORANDUM DESCRIBING FARM BUREAU LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER AND REDEMPTION
PROCEDURES FOR ITS INDIVIDUAL FLEXIBLE PREMIUM
LAST SURVIVOR VARIABLE LIFE INSURANCE POLICIES
This memorandum sets forth the administrative procedures that will be
followed by Farm Bureau Life Insurance Company (the "Company") in connection
with the issuance of its individual flexible premium last survivor variable life
insurance policy (the "Policy") and acceptance of payments thereunder, the
transfer of assets held thereunder and the redemption by policyowners of their
interests in the Policies. Certain terms used herein have the same definition as
in the prospectus for the Policy that is included in the registration statement
on Form S-6 (File No. 333-31444) as filed with the Securities and Exchange
Commission ("Commission" or "SEC").
1. PURCHASE AND RELATED TRANSACTIONS.
Set forth below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
annuity plans.
(a) PREMIUM PAYMENTS. Premiums for the Policies will not be the same
for all policyowners selecting the same specified amount. An initial premium,
together with a completed application, must be received by the Company before a
Policy will be issued. The minimum amount of an initial premium is equal to the
greater of (1) $100, or (2) an amount that, when
1
<PAGE>
reduced by the premium expense charge, will be sufficient to pay the monthly
deduction for the first policy month. Other than the initial premium, the
Company does not require the payment of an additional premium, and failure to
pay an additional premium will not of itself cause a Policy to lapse. The
Company expects that most policyowners will choose to pay planned periodic
premiums -- that is, level premiums at regular intervals. The Policy provides,
however, that a policyowner may pay premiums in addition to planned periodic
premiums (i.e., unscheduled premiums) if (i) either Joint Insured is then
living; (ii) the additional premium is at least $100; and (iii) the premium does
not cause total premiums paid to exceed the maximum premium limitation for the
Policy established by federal tax law. The Company reserves the right to limit
the number and amount of unscheduled premium payments. In the event that a
tendered premium causes total premiums paid to exceed the maximum premium
limitation for the Policies established by federal tax law, the Company will
return the portion of such premium which causes total premiums to exceed such
limitation.
The Policy will remain in force so long as the net accumulated value
(the accumulated value reduced by any policy debt and increased by any unearned
loan interest) is sufficient to pay the monthly deduction which consists of
charges for the cost of insurance, additional insurance benefits and
administrative expenses. Thus, the amount of the premium, if any, that must be
paid to keep the Policy in force depends upon the amount of the monthly
deduction and the net accumulated value of the Policy, which in turn depends
upon the investment experience of the Subaccounts of the Variable Account (see
"Allocating Net Premiums" in the prospectus).
The cost of insurance rate utilized in computing the cost of insurance
charge will not be the
2
<PAGE>
same for each policyowner. The chief reason is that the
principle of pooling and distribution of mortality risks is based upon the
assumption that the cost of insuring each insured is commensurate with his or
her mortality risk, which is actuarially determined based upon factors such as
the Joint Insured's Joint Equal Attained Age, sex and premium class.
Accordingly, while not all Joint Insureds will be subject to the same cost of
insurance rate, there will be a single rate for all Joint Insureds in a given
actuarial category.
The Policies will be offered and sold pursuant to established
underwriting standards in accordance with state insurance laws. State insurance
laws prohibit unfair discrimination, but recognize that premiums and charges
must be based upon factors such as age, sex, health and occupation.
(b) INITIAL PREMIUM PROCESSING. Upon receipt of a completed
application for a Policy, the Company will follow certain insurance
underwriting (i.e., evaluation of risk) procedures designed to determine
whether the proposed Joint Insureds are insurable. This process may involve
medical examinations or other verification procedures and may require that
certain further information be provided by the applicants before a
determination can be made. A Policy will not be issued until this
underwriting procedure has been completed. The effective date of insurance
coverage under the Policy will be the latest of (i) the policy date, (ii) if
an amendment to the initial application is required pursuant to the Company's
underwriting rules, the date the Joint Insureds sign the last such amendment,
or (iii) the date on which the full initial premium is received by the
Company at its Home Office. The policy date will be the later of (i) the date
of the initial application, or (ii) if additional medical or other
information is required pursuant to the Company's underwriting rules,
3
<PAGE>
the date such information is received by the Company at its Home Office. The
policy date may also be any other date mutually agreed to by the Company and
the policyowner. If the policy date would fall on the 29th, 30th or 31st of
any month, the policy date will instead be the 28th of such month. Applicants
who pay the initial premium at the time of submission of the application will
be issued a conditional receipt which provides that if the applicant dies
during the underwriting period, he or she will receive the death benefit
provided for in such conditional receipt if he or she would have been found
to be insurable under the Company's normal underwriting procedures. The
initial net premium (the initial premium reduced by a premium expense charge
of 7%) will be allocated automatically to the Declared Interest Option as of
the policy date. Net premium will be allocated to the Declared Interest
Option if the premium is received either (1) before the date the Company
receives a signed notice from the Joint Insureds that the Policy has been
received or (2) before the end of 25 days after the Delivery Date (the date
the policy is issued and mailed to the Joint Insureds). Upon the earlier of
(1) or (2) above, the accumulated value in the Declared Interest Option will
be automatically allocated, without charge, among the Subaccounts and the
Declared Interest Option in accordance with the Joint Insureds' allocation
instructions. Any premiums received after (1) or (2) above will be allocated
in accordance with the Joint Insureds' instructions.
(c) PREMIUM ALLOCATION. The policyowner may allocate net premiums among
the Subaccounts or the Declared Interest Option. The Variable Account currently
has 15 Subaccounts, each of which invests exclusively in one of the following
Investment Options offered by the Funds:
4
<PAGE>
- 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 Strategies Balanced Portfolio.
The Funds are series-type mutual funds and are registered with the Securities
and Exchange Commission as open-end diversified management investment companies.
The policyowner must indicate the initial allocation of premiums in the
application for the Policy. Net premiums will continue to be allocated in
accordance with the policyowner's allocation instructions in the application
unless contrary written instructions are received by the Company. The change
will take effect on the date the written notice is received at the Home Office.
Once a change in allocation is made, all future net premiums will be allocated
in accordance with the new allocation instructions, unless contrary written
instructions are provided by the policyowner. The minimum percentage of each
premium that may be allocated to any Subaccount or the Declared Interest Option
is 10%; fractional percentages are not permitted. No charge is imposed for any
change in net premium allocation.
(d) EXCHANGE PRIVILEGE. The Company will permit the owner of a flexible
premium fixed-benefit last survivor life insurance policy issued by the Company
("fixed-benefit policy"), to exchange his or her fixed-benefit last survivor
policy for a Policy on the life of the insured.
The policy date will be the date the application for the Policy is
signed. The Policy will have a specified amount equal to the specified amount of
the fixed-benefit last survivor policy plus
5
<PAGE>
any increase in the specified amount at the time of the exchange. No evidence of
insurability is required to exercise this privilege but any increase in
Specified Amount will require underwriting. The Joint Insureds will be placed in
the premium class applicable to the initial specified amount under the
fixed-benefit last survivor policy, unless there has been an underwritten
increase in specified amount, in which event the Joint Insureds will be placed,
with respect to the entire specified amount under the Policy, in the premium
class applicable to such increase in specified amount. The incontestable and
suicide provisions of the Policy will apply only to the increased amount of
coverage (if any), except for any period remaining on the fixed-benefit last
survivor policy. Registered representatives will receive commissions on the
increase in Specified Amount only.
The net accumulated value of the fixed-benefit last survivor policy
will initially be allocated 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 amount initially allocated to the Declared Interest
Option automatically will be transferred 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
accumulated value of the fixed-benefit last survivor policy applied to the
Policy pursuant to the exchange. In addition, the Company will assess the First
Year Monthly Administrative Charge and the First Year Monthly Expense Charge
only to the extent that 12 monthly per $1,000 charges under the fixed benefit
last survivor policy have not been assessed. The Company will assess the First
Year Monthly Administrative Charge and First Year Monthly Expense Charge on an
increase in Specified
6
<PAGE>
Amount related to a fixed-benefit last survivor policy as well. Otherwise,
charges and deductions will be made in the usual manner.
An exchanging owner will not be permitted to carry over any outstanding
loans under his fixed-benefit last survivor 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 amount of the outstanding loan and interest thereon
will be reflected in the net accumulated value of the fixed-benefit last
survivor policy.
(e) REINSTATEMENT. Prior to the maturity date, a terminated policy
(other than a surrendered Policy) may be reinstated at any time within five
years of the monthly deduction day immediately preceding the grace period which
expired without payment of the required premium (see "Policy Lapse and
Reinstatement" in the prospectus). In order to reinstate a Policy, a policyowner
must submit: (i) a written application for reinstatement signed by the Joint
Insureds and the policyowner; (ii) evidence of insurability satisfactory to the
Company; (iii) payment of a premium that, after deduction of the premium expense
charge, is at least sufficient to keep the Policy in force for three months; and
(iv) an amount equal to the monthly cost of insurance charge for the two policy
months prior to lapse. To the extent that the Company did not deduct the First
Year Monthly Administrative Charge for a total of 12 Policy Months prior to
lapse, this administrative charge will continue to be deducted following
reinstatement of the Policy until such charges have been assessed, both before
and after the lapse, for a total of 12 Policy Months. The effective date of
reinstatement will be the monthly deduction day coinciding with or next
following the date of approval by the Company of the application for
reinstatement.
7
<PAGE>
(f) REPAYMENT OF POLICY DEBT. A loan made under the Policy will be
subject to interest charges at the loan interest rate stated in the Policy from
the date that the loan is made. The loan interest rate is not fixed. The maximum
annual loan interest rate charged will be the higher of the "Published Monthly
Average of the Composite Yield on Seasoned Corporate Bonds" as published by
Moody's Investors Service, Inc., (or any successor thereto) for the calendar
month ending two months before the date on which the rate is determined; or
5.5%. Outstanding policy debt may be repaid in whole or in part prior to the
maturity date at any time during the Joint Insureds' lifetimes so long as the
Policy is in force. Any payments made by the policyowner while there is
outstanding policy debt are treated first as repayment of policy debt, unless
the owner indicates otherwise. When a repayment of the debt is made, the portion
of the accumulated value in the Declared Interest Option securing the repaid
portion of the policy debt will no longer be segregated within the Declared
Interest Option as security for policy debt, but will remain in the Declared
Interest Option unless and until transferred to the Variable Account by the
policyowner.
(g) CORRECTION OF MISSTATEMENT OF AGE OR SEX. If either Joint Insureds'
age or sex was misstated in an application, the Company will recalculate the
accumulated value to be the amount it would have been had the cost of insurance
been based on the correct age and sex of that Joint Insured.
2. TRANSFERS AMONG SUBACCOUNTS.
Amounts may be transferred among the Subaccounts an unlimited number of
times per year. Only one transfer per policy year may be made between the
Declared Interest Option and the Variable Account. The amount of this transfer
must be at least $100 or, if less the $100, the total
8
<PAGE>
accumulated value in the Subaccount, or the total accumulated value in the
Declared Interest Option reduced 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 the request is
received at the Home Office. The first transfer in each policy year will be made
without charge; each time amounts are subsequently transferred in that policy
year, a transfer charge of $25 will be assessed. Transfers resulting from the
making of policy loans will not be considered transfers for the purposes of
these limitations and charges. All transfers effected on the same day will be
considered a single transfer for purposes of these limitations and charges.
Transfers are made by written request to the Home Office.
3. REDEMPTION PROCEDURES - SURRENDER AND RELATED TRANSACTIONS
This section outlines those procedures which might be deemed to
constitute redemptions under the Policy. These procedures differ in certain
significant respects from the redemption procedures for mutual funds and annuity
plans.
(a) SURRENDER FOR ACCUMULATED VALUE. At any time prior to the maturity
date while the Policy is in force, a policyowner may surrender the Policy in
whole or make a partial withdrawal from the policy by sending a written request
to the Company at its Home Office. A partial withdrawal fee equal to the lesser
of $25 or 2.0% of the amount requested will be payable upon each partial
withdrawal. A partial withdrawal must be at least $500 and cannot exceed the
lesser of (1) the net surrender value less $500, or (2) 90% of the net surrender
value. If not paid in cash, the partial withdrawal fee will be deducted from the
accumulated value.
The amount payable on complete surrender of the Policy is the net
accumulated value at the
9
<PAGE>
end of the valuation period during which the surrender request is received,
less the surrender charge, if not paid in cash. The Company will assess the
surrender charge during the first ten Policy Years as well as during the
first ten years following an increase in Specified Amount. This charge is an
amount per $1,000 of Specified Amount which declines to $0 in the eleventh
year and varies by Joint Equal Age, underwriting category, and Policy Year.
If the entire net accumulated value is surrendered, all insurance in force
will terminate.
The Policyowner may request that the proceeds of a complete surrender
or partial withdrawal be paid in a lump sum or under one of the payment options
specified in the Policy.
A partial withdrawal will be allocated among the Subaccounts and
Declared Interest Option in accordance with the written instructions of the
policyowner. If no such instructions are received with the request for partial
withdrawal, the partial withdrawal will be allocated among the Subaccounts and
Declared Interest Option in the same proportion that the accumulated value in
each of the Subaccounts and the accumulated value in the Declared Interest
Option, reduced by any outstanding Policy Debt, bears to the total accumulated
value, reduced by any outstanding Policy Debt, on the date the request is
received at the Home Office.
Surrender proceeds ordinarily will be mailed to the policyowner within
seven days after the Company receives a signed request for a surrender at its
Home Office, although payments may be postponed whenever: (i) the New York Stock
Exchange is closed other than customary weekend and holiday closing, or trading
on the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission ("Commission"); (ii) the Commission by order permits
postponement for the protection of policyowners; or (iii) an emergency exists,
as determined by the
10
<PAGE>
Commission, as a result of which disposal of securities is
not reasonably practicable, or it is not reasonably practicable to determine the
value of the net assets of the Variable Account. 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.
(b) PAYMENT OF DEATH PROCEEDS. So long as the Policy remains in force,
the Company will, upon due proof of the last death of the Joint Insureds, pay
the death proceeds to the primary or a contingent beneficiary (or if no
beneficiary survives the last Joint Insured, to the policyowner or his estate).
If the Joint Insureds die simultaneously, the Company will pay one-half of the
death proceeds to each Joint Insured's beneficiary. In determining the amount of
the death proceeds, the death benefit will be reduced by any outstanding policy
debt and increased by any unearned loan interest and any premiums paid after the
date of death. The amount of the death benefit payable under a Policy will
depend upon the death benefit option in effect at the time of the last Joint
Insured's death. Under Option A, the death benefit will be equal to the greater
of (i) the sum of the current specified amount and the accumulated value, or
(ii) the accumulated value multiplied by the specified amount factor. Under
Option B, the death benefit will be equal to the greater of (i) the current
specified amount, or (ii) the accumulated value multiplied by the specified
amount factor. Accumulated value will be determined as of the end of the
Business Day coinciding with or immediately following the date of death. The
specified amount factors referred to above are determined by the "cash value
corridor" mandated by Section 7702 of the Internal Revenue Code. The specified
amount factor is 2.50 for a Joint Insureds' Joint Equal Attained Age 40 or below
on
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the date of death. For Joint Insureds with a Joint Equal Attained Age over 40
on the date of death, the factor declines with age as shown in the Specified
Amount Factor Table in the Policy.
The death proceeds will be paid to the beneficiary in one lump sum or
under any of the payment options described in the prospectus. The Company may
also provide other payment options in the future.
If either Joint Insured is still alive and the Policy is in force on
the maturity date (i.e., the Joint Insureds' Joint Equal Attained Age 115), the
Company will pay the policyowner the accumulated value of the Policy reduced by
any outstanding policy debt.
All payments of death benefits and maturity proceeds are ordinarily
mailed within seven days after the Company receives due proof of the last death
of the Joint Insureds or within seven days of the maturity date, unless a
payment option is chosen. However, payment may be delayed for more than seven
days under the same circumstances described above with respect to surrender
payments.
(c) POLICY LOANS. So long as the Policy remains in force and has a
positive net accumulated value, a policyowner may borrow money from the Company
at any time using the Policy as the sole security for the policy loan. The
maximum amount that may be borrowed at any time is 90% of the accumulated value
as of the end of the valuation period during which the request for the policy
loan is received at the Home Office, less any previously outstanding policy
debt. Policy debt equals the sum of all unpaid policy loans and any due and
unpaid policy loan interest. Policy debt may be repaid in whole or in part any
time during the Joint Insureds' lifetimes and before the maturity date so long
as the Policy is in force.
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When a policy loan is made, an amount equal to the policy loan will be
segregated within the Declared Interest Option as security for the policy loan.
If, immediately prior to the policy loan, the accumulated value in the Declared
Interest Option less policy debt outstanding immediately prior to such policy
loan is less than the amount of such policy loan, the difference will be
transferred from the Subaccounts which have accumulated value in the same
proportions that the Policy's accumulated value in each Subaccount bears to the
Policy's total accumulated value in the Variable Account. No charge will be made
for those transfers. Accumulated values will be determined as of the end of the
valuation period during which the request for the policy loan is received at the
home office.
Policy loan proceeds normally will be mailed to the policyowner within
seven days after receipt of a written request. Postponement of a policy loan may
take place under the same circumstances described above with respect to
surrender payments.
Amounts segregated within the Declared Interest Option as security for
policy debt will bear interest at an effective annual rate equal to the greater
of 4% or the current effective loan interest rate minus no more than 3% as
determined and declared by the Company. 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.
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 maximum annual
loan interest rate will be no greater than the "Published Monthly Average
Composite Yield on Seasoned Corporate Bonds" as published by
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Moody's Investors Service, Inc., or any successor thereto for the calendar month
ending two months before the date on which the rate is determined; or 5.5%. The
Company may at any time elect to change the interest rate. The Company will send
notice of any change in rate to the policyowner. The new rate will take effect
on the Policy Anniversary coinciding with or next following the date the rate is
changed.
Interest is payable in advance at the time any policy loan is made (for
the remainder of the policy year) and on each policy anniversary thereafter (for
the entire policy year) so long as there is policy debt outstanding. Interest
payable at the time a policy loan is made will be subtracted from the loan
proceeds. Thereafter, interest not paid when due will be added to the existing
policy debt and bear interest at the same rate charged for policy loans. An
amount equal to unpaid interest will be segregated within the Declared Interest
Option in the same manner that amounts for policy loans are segregated within
the Declared Interest Option.
Because interest is charged in advance, any interest that has not been
earned will be added to the death benefit payable at the last death of the Joint
Insureds and to the accumulated value upon complete surrender, and will be
credited to the accumulated value in the Declared Interest Option upon repayment
of policy debt.
(d) POLICY TERMINATION. The Policy will terminate and lapse only when
net accumulated value is insufficient on a monthly deduction day to cover the
monthly deduction and a grace period expires without payment of a sufficient
premium. A grace period of 61 days begins on the date on which the Company sends
written notice of any insufficiency to the policyowner. The notice will be sent
to the policyowner's last known address on file with the Company. The notice
will specify
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the premium payment that, if received during the grace period, will
be sufficient to keep the Policy in force. If the Company does not receive the
premium payment on or before the last day of the grace period, the Policy will
terminate and insurance coverage and all rights thereunder will cease. Insurance
coverage will continue during the grace period. The amount of the premium
sufficient to keep the Policy in force beyond the grace period, when reduced by
the premium expense charge, is an amount equal to three times the monthly
deduction due on the monthly deduction day immediately preceding the grace
period. A terminated Policy (other than a surrendered Policy) may be reinstated
prior to the maturity date at any time within five years of the monthly
deduction day immediately preceding the grace period which expired without
payment of the required premium (see "Reinstatement" in the prospectus).
(e) CANCELLATION PRIVILEGE. The policyowner may cancel the Policy by
delivering or mailing written notice or sending a telegram to the Company at its
Home Office, and returning the Policy to the Company at its Home Office before
midnight of the 20th day after receipt of the Policy. (Certain states may
provide for 30 days in which to cancel a policy in a replacement situation). The
Company will refund, within seven days after receipt of the notice of
cancellation and the returned Policy at its Home Office, an amount equal to the
greater of the premiums paid or (a) the accumulated value of the Policy on the
business day on or next following the date the Policy is received by the Company
at its Home Office plus (b) any premium expense charges which were deducted from
premiums plus (c) monthly deductions made on the policy date and any monthly
deduction day plus (d) amounts approximating daily charges against the Variable
Account.
(f) SPECIAL TRANSFER PRIVILEGE. A policyowner may, at any time prior to
the maturity date
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while the Policy is in force, convert the Policy to a flexible premium
fixed-benefit last survivor life insurance policy by requesting that all of the
accumulated value in the Variable Account be transferred to the Declared
Interest Option. The policyowner may exercise this special transfer privilege
once each policy year. Once a policyowner exercises the special transfer
privilege, all future premium payments will automatically be credited to the
Declared Interest Option, until such time as the policyowner requests a change
in allocation. No charge will be imposed for any transfers resulting from the
exercise of this special transfer privilege.
(g) POLICY SPLIT OPTIONS. The Joint Insureds may split the Policy into
two single-life policies, one on each of the Joint Insureds, upon (1) a divorce
or annulment with respect to the marriage of the Joint Insureds, or (2) certain
changes in the Federal Estate Tax Law resulting in reductions in the Unlimited
Marital Deduction, the Federal Unified Credit, or the Federal Estate Tax.
However, the Policy cannot be split after the first death of the Joint Insureds.
In order to elect this option, the Joint Insureds must provide the
Company with written notice within 90 days after the effective date of one of
the events listed above. If elected, each new policy will be issued for no more
than one-half of the Specified Amount of the Policy. The Net Surrender Value
will be divided and allocated in proportion to the Specified Amount of each new
policy.
If the Joint Insureds are the owners of this Policy, each will be the
owner of their new policy however, if the Joint Insureds are not the owners of
the Policy, then the owners of the Policy will be the owners of each new policy
(upon which election there will be a taxable event). The new policies will be
issued based on the age and premium class for each Joint Insured on
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the effective date of the election. These new policies must fit the Company's
single-life issue limits in effect at the time of the election and will be
subject to the same charges as those in effect for regularly underwritten
policies.
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